Business Accounting Principles

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EXECUTIVE SUMMARY

Business Accounting Principles is a subject which relates to mathematical or arithmetical accuracy. As a summary of the ledger, it is a list of accounts and their balances. When the totals of all the debit and credit balances in the trial balance, we usually assumed that the posting and balancing of accounts in correct.

With the accrual method, income and expenses are recorded as they occur, regardless of whether or not cash has actually changed hands. An excellent example is a sale on credit. The sale is entered into the books when the invoice is generated rather than when the cash is collected. Likewise, an expense occurs when materials are ordered or when a workday has been logged in by an employee, not when the check is actually written.

The business transactions are "an economic event that initiates the accounting process of recording it in a company's accounting system." This is the official definition. However, selling an item at a garage sale where no accounting system is in place also can be a business transaction. Some transactions are simple exchanges. Paying a RM2.00 for a cup of coffee is a business transaction. Eating at a restaurant, having a haircut, buying a washing machine is a simple transaction. Most simple transactions are singular events which may or may not be repeated and take place between a vendor and a customer.

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Index

Title

Page No.

1.0

EXECUTIVE SUMMARY

1

2.0

INTRODUCTION

3

3.0

CONTENT

4

3.1

Task 1 - Transactions of ABC Enterprise for the month of November 2014

4

3.1.1

Double Entry

4-6

3.1.2

Ledgers

7-10

3.2

Task 2 - 2 parts

11

3.2.1

Suspense Account

11

3.2.2

Types of Accounting Error

12-13

""4.0

CONCLUSIONS

14

5.0

REFERENCES

15

2.0INTRODUCTION

This module or subject introduces foundational concepts used and it also serves to prepare us the students to understand and undertake more advanced accounting. Upon completion of this module, students will have learnt on how to process documents which involves in the accounting process such as applying principles and concepts used in the preparation of accounts statements.

Apart from this, it also helps us to understand the basic accounting terms and documentation such as invoices, statements, credit notes, debit notes, payment vouchers, delivery orders, purchase order, balance sheets, double entry, t-accounts and others.

In addition, most importantly for me it teaches on how to record double entry, simple transactions concerning the purchase of assets, purchase and sale of goods, closing balance.

3.0CONTENT

This assignment is divided into two (2) tasks which are; the first task is on the transactions of ABC Enterprise for the month of November 2014. In order to do this task, I need to prepare the double entry as well as preparing the ledgers for all the eleven (11) transactions given.

As for the second task, it is sub-divided into two (2) parts; the first part is on the definition of Suspense Account and explanation on why Suspense Account arise in the Trial Balance. The second part is on the Types of Accounting Errors which includes the explanation thus providing example for each type of errors.

3.1Transactions of ABC Enterprise for the month of November 2014 as per the question given.

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3.1.1Double Entry

i.DrBankRM25,000.00

CrCapitalRM25,000.00

DrCashRM20,000.00

CrCapitalRM20,000.00

ii.DrVehicleRM15,000.00

CrBankRM15,000.00

iii.DrEquipmentRM5,000.00

CrEE Sdn BhdRM5,000.00

iv.DrGoodsRM6,000.00

CrCashRM6,000.00

v.DrGoodsRM10,000.00

CrGG Sdn BhdRM10,000.00

vi.DrDEF EntRM8,000.00

CrGoodsRM8,000.00

vii.DrCashRM7,500.00

CrGoodsRM7,500.00

viii.DrBankRM5,000.00

CrDEF EntRM5,000.00

ix.DrEE Sdn BhdRM5,000.00

CrBankRM5,000.00

x.DrGG Sdn BhdRM4,500.00

CrCashRM4,500.00

DrCashRM500.00

CrDiscountRM500.00

xi.DrWithdrewRM2,000.00

CrCashRM2,000.00

3.1.2Ledger

Bank Acc

1/11/14Capital25,000.002/11/14Bank15,000.00

15/11/14DEF Ent 5,000.0018/11/14EE Sdn Bhd 5,000.00

30/11/14Bal. b/f10,000.00

30,000.0030,000.00

Equipment Acc

4/11/14EE Sdn Bhd5,000.0030/11/14Bal. b/f5,000.00

5,000.005,000.00

EE Sdn Bhd

18/11/14Bank5,000.004/11/14Equipment5,000.00

5,000.005,000.00

Cash Acc

1/11/14Capital20,000.004/11/14Goods 6,000.00

13/11/14Goods 7,500.0023/11/14GG Sdn Bhd 4,500.00

23/11/14Discount 500.0026/11/14Withdrew 2,000.00

Bal. b/f15,500.00

28,000.0028,000.00

Goods Acc

4/11/14Cash 6,000.009/11/14DEF Ent 8,000.00

6/11/14GG Sdn Bhd10,000.0013/11/14Cash 7,500.00

30/11/14Bal. b/f 500.00

16,000.0016,000.00

Capital Acc

30/11/14Bal. b/f45,000.001/11/14Bank25,000.00

20,000.00

45,000.0045,000.00

GG Sdn Bhd

23/11/14Cash 4,500.006/11/14Goods10,000.00

30/11/14Bal. b/f 5,500.00

10,000.0010,000.00

DEF Ent

9/11/14Goods8,000.0015/11/14Bank5,000.00

30/11/14Bal. b/f3,000.00

8,000.008,000.00

Vehicle Acc

2/11/14Bank15,000.0030/11/14Bal. b/f15,000.00

15,000.0015,000.00

Discount Acc

30/11/14Bal. b/f500.0023/11/14Cash500.00

500.00500.00

Withdrew Acc

26/11/14Cash2,000.0030/11/14Bal. b/f2,000.00

2,000.002,000.00

3.2i.Define suspense account and explain the reasons of why suspense account arise in the trial balance.

ii.List down the types of accounting error. Explain and provide example for each type of error. Your answer shall also include whether the said error will affect the Trial Balance.

3.2.1Suspense Account

A suspense account is a temporary resting place for which an entry that will end up elsewhere once its final destination is determined. Once the accounting staff investigates and clarifies the purpose of this type of transaction, it shifts the transaction out of the suspense account and into the correct account(s). An entry into a suspense account may be a debit or a credit.

The reasons why suspense account is being opened is to ensure that the bookkeeper post an item and enters it to a suspense account while pending for instruction. Another reason is due to the fact that there is a difference in a trial balance and thus a suspense account is being opened with the amount of difference so that the trial balance agrees.

3.2.2Types of Accounting Error

The types of accounting errors are; error of complete omission, error of commission, error of principle, error of transposition, and others.

Explanation and examples for the above errors are as follows:-

i.Error of omission - a transaction which we did not record at all (forgotten). Therefore this will not affect the Trial Balance.

ii.Error of commission - an item which we entered to the correct side of the wrong account. Thus this will affect the Trial Balance.

Example:-

Dr T. ReceivableBUTDrT. Payables

CrSalesINSTEADCrSales

iii.Error of principle - an item which is posted to the correct side of the wrong type of account (wrongly entered from Debit to Credit). As such, this will affect the Trial Balance.

Example:-

CrT. Receivable

DrSales

iv.Error of transposition - goods return/invoice to Ipoh Lads Club RM600 but posted or wrongly transferred to the Ipoh Lads Club account as RM60. This will definitely affect the Trial Balance.

Example:-

Ipoh Lads AccDrRM530.00

To Suspense AccRM530.00

4.0CONCLUSIONS

As per Task 1 of ABC Enterprise for the month of November 2014; it was concluded that everyone especially the accounts staff need to record in the journal and after that we need to post or posting into ledgers before closing the balance at the end of the month which in this scenario until 30th November 2014.

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Task 2 indicated that if an accounts staff wrongly entered the figures or amount, it will definitely affect the account. Therefore in this scenario, both Suspense Account and Trial Balance are being performed to verify the accuracy of posting into the ledger accounts and to help in locating errors. The trial balance is an important statement in the accounting process as it proves and shows the final amount of all accounts and will help in preparing the final statements.

5.0REFERENCES

  1. Larry M. Walther; Christopher J. Skousen. Basics of Accounting and Information Processing, The Accounting Cycle. ISBN: 978-87-7681-583-7, 1st Edition.
  2. Originally by Hermanson, Edwards, and Maher. Accounting Principles: A Business Perspective, Financial Accounting (Chapters 1-8). ISBN-13: 978-1461088189

ISBN-10: 1461088186

3.Steven Bragg. A Practitioner’s Guide in Bookkeeping Guidebook; Share Article Posted on Thursday, May 16, 2013 at 10:28AM

4.My ACCA. The Global Body For Professional Accountants

5.Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

6.Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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