additional notes chapter 3 - All Rights Reserved...

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All Rights Reserved Fundamentals of Financial Accounting © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 1 Chapter 4 The Recording Process and Double Entry System
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All Rights Reserved Fundamentals of Financial Accounting © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 2 Overview
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All Rights Reserved Fundamentals of Financial Accounting © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 3 Learning Outcomes
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All Rights Reserved Fundamentals of Financial Accounting © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 4 4 Basic Steps in the Recording Process
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All Rights Reserved Fundamentals of Financial Accounting © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 5 T-account An Account is an individual accounting record of increases and decreases in specific asset, liability and owner’s equity items. Accounts are grouped in a record called the ledger The simplest account format is called the T- account. The T-account is ideal for illustration and analysis purposes. 5
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All Rights Reserved Fundamentals of Financial Accounting © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 6 T-account – cont. The three parts of a T-account are as follows: 6
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All Rights Reserved Fundamentals of Financial Accounting © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 7 Rules of Debits and Credits Increases in assets, expenses, and drawings, are recorded in the left (debit) side of the account Decreases in assets, expenses and drawings, are recorded in the right (credit) side Increases in liabilities, capital and revenues, are recorded by credits Decreases in liabilities, capital and revenues are recorded by debits 7
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All Rights Reserved Fundamentals of Financial Accounting © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 8 Rules of Debits and Credits – cont. 8
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All Rights Reserved Fundamentals of Financial Accounting © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 9 Three-column Account The three-column account is the form that is widely used in practice. It has three money columns – debit, credit and balance. The balance in the account is determined after each transaction is recorded. The explanation and reference columns are used to provide for special information about a transaction. 9
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All Rights Reserved Fundamentals of Financial Accounting © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 10 Three-column Account– cont. An example of the three-column account is as below: 10
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All Rights Reserved Fundamentals of Financial Accounting © Oxford Fajar Sdn. Bhd. (008974-T), 2013 1– 11 Chart of Accounts The number and type of accounts used differ depending on the size, complexity, and type of business involved. Most companies have a Chart of Accounts that lists the accounts and the account numbers which identify their location in the ledger. The numbering system used to identify the accounts usually starts with assets, followed by liabilities, owner’s equity, revenues and expenses items.
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