BBFA1103

INTRODUCTORY ACCOUNTING

TOPIC 4 RECORDING TRANSACTION

 LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe accounts and their formats;
2. Apply the rules of debit and credit;
3. Describe journals and their formats;
4. Record transactions in the journal;
5. Post transactions from the journal to the ledger;
6. Prepare trial balance and financial statements.
 4.1 Account
a. Account is used to record the increase and
decrease of the specific items in the
accounting equation.

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 4.1 Account

b. Chart of accounts is a listing of all accounts.

c. Format of Accounts
A T-account represents a ledger account and is a
tool used to understand the effects of one or
more transactions.
-Basic T
-Detailed T
-Three-column format account

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 Examples of T Account
Account Title
(Left side) (Right side)
Debit Credit Basic T Account

Detailed T Account
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Examples of T Account

Three-column Format Account

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 Rules of Debit and Credit
• Double-entry bookkeeping system records every
transaction into at least two separate accounts.
• In other words, every transaction will involve a debit
and a credit entry, and the debit amount must be
equal to the credit amount.
 4.2 Journalising and Posting
Transactions
Assets = Liabilities + Equity
T- Account
(Left side) (Right side)
Debit Credit

Step 1: Analyze transactions Step 2: Apply double-entry

and source documents. accounting

GENERAL JOURNAL G123

ACCOUNT NAME: ACCOUNT No. Post.
Date Description Ref. Debit Credit
Date Description PR Debit Credit Balance

Step 4: Post entry to ledger Step 3: Record journal entry

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 Steps in Recording Process

Trial
Journal Ledger
Balance

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 Journal

General Journal Special Journal

• Owned by all entity • Avoid confusion if too

• Record all types of many transactions in
transactions General Journal.
• Group the similar
transactions.

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Example:Journalising Transactions

Transaction Date Titles of Affected Accounts

GENERAL JOURNAL G1
Date Description REF Debit Credit
2019
Dec. 1 Cash 30,000
Sara, Capital 30,000
Investment by owner

Dec. 2 Supplies RM amount

2,500of debits
Transaction explanation and credits
Cash 2,500
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Purchased store supplies
 Ledger
T-accounts are useful illustrations, but Three-
column format account (from other sources it
is also known as balance column ledger
accounts) are used in practice.

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 Example: Posting Journal Entries
GENERAL JOURNAL G1
Date Description REF Debit Credit
2022
Dec. 1 Cash 30,000
Sara, Capital 30,000
Investment by owner

Identify the account.

Dec.1 2 Supplies 2,500
Cash 2,500
CASH Purchased store supplies ACCOUNT No. 10
for cash
Date Description REF Debit Credit Balance
2022

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 Analysing Transactions – An Illustration
Transaction: Sara invested RM30,000 in FastForward on 1 Dec.

Analysis:

Assets = Liabilities + Equity

Cash Capital
30,000 30,000

Double entry:

(1) Cash 101 30,000

Sara, Capital 301 30,000
Posting:
Cash 101 Sara, Capital 301
(1) 30,000 (1) 30,000

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 Analysing Transactions – An Illustration
FastForward purchases supplies by paying RM2,500
Transaction: cash.
Analysis:

Assets = Liabilities + Equity

Cash Supplies Capital
(2,500) 2,500

Double entry:

(2) Supplies 126 2,500

Cash 101 2,500
Posting:
Supplies 126 Cash 101
(2) 2,500 (1) 30,000 (2) 2,500

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 Analysing Transactions – An Illustration
FastForward purchases equipment by paying
Transaction: RM26,000 cash.
Analysis:

Assets = Liabilities + Equity

Cash Equipment Capital
(26,000) 26,000

Double entry:

(3) Equipment 167 26,000

Cash 101 26,000
Posting:
Equipment 167 Cash 101
(3) 26,000 (1) 30,000 (2) 2,500
(3) 26,000
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 Analysing Transactions – An Illustration
FastForward purchases RM7,100 of supplies on
Transaction: credit.
Analysis:

Assets = Liabilities + Equity

Supplies Accounts Payable Capital
7,100 7,100

Double entry:

(4) Supplies 126 7,100

Accounts payable 201 7,100
Posting:
Supplies 126 Accounts Payable 201
(2) 2,500 (4) 7,100
(4) 7,100
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Analysing Transactions – An Illustration
FastForward provides consulting services and
Transaction: immediately collects RM4,200 cash.
Analysis:

Assets = Liabilities + Equity

Cash Revenue
4,200 4,200

Double entry:

(5) Cash 101 4,200

Consulting Revenue 403 4,200

Posting:
Consulting Revenue 403 Cash 101
(5) 4,200 (1) 30,000 (2) 2,500
(5) 4,200 (3) 26,000
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 4.3 Trial Balance
FastForward
Trial Balance
31 December 2022
Debits Credits The trial balance lists all
Cash RM 3,950 account balances in the
Accounts receivable - general ledger. If the books
Supplies 9,720 are in balance, the total
Prepaid Insurance 2,400 debits will equal the total
Equipment 26,000 credits.
Accounts payable RM 6,200
Unearned consulting revenue 3,000
Sara, Capital 30,000
Sara, Withdrawals 600
Consulting revenue 5,800
Rental revenue 300
Salaries expense 1,400
Rent expense 1,000
Utilities expense 230
*Refer Topic 5 for the
Total RM45,300 RM45,300 Adjusted Trial Balance and
Financial Statements 20
 4.4 Preparation of Trial Balance
. Steps in preparing financial statements
 4.4 Preparation of Trial Balance
. The steps to prepare the trial balance are as follows:
4.4 Preparation of Trial Balance
Errors in Trial Balance
i. Transactions are not recorded in the journal at all.
ii. Journal Entries are not posted to the ledger.
iii. Double posting of journal entries to the ledger.
iv. Using wrong accounts in journalising and posting to the ledger.
Balancing of Accounts
i. Draw a parallel line .
ii. Add up total debit.
iii. Write the higher amount
iv. Determine the closing balance, which is the difference between debit and
credit total

Normal Balance
i. If debit is more than credit side, then normal balance is debit;
ii. If credit is more than debit side, then normal balance is credit; and
iii. Remember your credit and debit rules!
4.5 Preparation of Financial Statements
Income Statement

Statement of Changes in Owner’s Equity

4.5 Preparation of Financial Statements
Balance Sheet
NEXT IN TOPIC 5

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