Bài giảng anh văn chuyên ngành 1 ac10 Đại học mở hà nội

LESSON 1: THE ACCOUNTING EQUATION AND TRANSACTIONS THROUGH ‘DOUBLE ENTRY’ After carefully studying this lesson, you should be able to: 1. understand the nature of ‘the accounting equation’ 2. appreciate the basic contents of a balance sheet 3. recognise the need for recording transactions through double-entry form 4. record some basic transactions in double-entry form

LESSON 1: THE ACCOUNTING EQUATION AND TRANSACTIONS THROUGH ‘DOUBLE ENTRY’

After carefully studying this lesson, you should be able to:

1 understand the nature of ‘the accounting equation’

2 appreciate the basic contents of a balance sheet

3 recognise the need for recording transactions through double-entry form

4 record some basic transactions in double-entry form

I.1 The resources of a business

To run your business you will need to have resources You may start with cash only and use that to purchase other resources Alternatively, you may put into the business various assets which privately you already own Thus you may put into the business not only cash but also a motor vehicle and some office furniture The resources of the business are termed ‘assets’

At the start it can be said that

Assets of the business = Assets provided by the owner

Remember that here the concern is with book-keeping for your (or any other) business, as distinct from your personal, domestic matters ‘Assets provided

by the owner’ is given the term ‘capital’

So for the business

Assets = Capital

I.2 The accounting equation

If, initially, you put into your business the three suggested ‘assets’ you might then show the following:

This is what is termed the “accounting equation” The two sides will always

be equal to one another Assets cannot exist in a business unless some person(s) has committed to it money (or other resources) amounting to the same total sum In a sense, the business is responsible to the owner(s) for the amount of the capital

In practice, people other than the owner may lend money to the business The money lent from other people is called “Loan” The ‘equation’ could now appear like this:

Office furniture 600 Capital 6,000

Motor vehicle 4,800 Loan from T Wells 1,000

Cash at bank 1,600

Any amounts owing to persons other than the owner are given the term

‘liabilities’

The equation now reads:

Assets £7,000 = Capital £6,000 + Liability £1,000 Remember to keep clearly in mind the equation:

Assets = Capital + Liabilities

I.3 The Balance sheet

The equations shown above are a form of ‘financial statement’ termed the

balance sheet The previous statement might appear as follows:

L Wang Balance sheet at 1 September Year 5

Office furniture 600 Capital 6,000

Motor vehicle 4,800 Loan from T Wells 1,000

Cash at bank 1,600

Note the important word ‘at’ in the heading The balance sheet is likened to a

snapshot photograph of the business, at a given moment in time

The activities of the business will involve ‘transactions’, e.g the selling of goods,

and it is helpful if you trace the effect which these might have upon the balance sheet

II TRANSACTIONS THROUGH ‘DOUBLE ENTRY’

II.1 Format of T-account

The practice you are going to adopt has long been in use It divides each page of the ‘ledger’ into two sides, T-type Ledger accounts use the following format:

Account name

Debit (Dr)

Date Details £

Credit (Cr) Date Details £

II.2 Double-entry rules

You will soon become aware that the terms debit and credit have a special meaning in book-keeping The rules for double-entry are:

Transaction effect Double-entry rule

Alternatively, it may be viewed like this:

Asset account

Increases +

Capital

Decreases

-

Increases +

Each of these represents a “T” account This two-sided account layout has long been used to apply and show double-entry book-keeping

(i) Suppose that James Meredith sets up a business on 1 May Year 3 by

placing £5,000 into a new business bank account

Transaction effect Book-keeping action

The initial transaction will then be shown as follows:

May 1 Bank 5,000

Note: the ‘details’ (capital, bank) cross refers to the other account You should

always follow this rule

(ii) On 3 May Year 3, James Meredith bought office furniture, paying by

cheque £ 350

Transaction effect Book-keeping action

Increase of asset office furniture debit office furniture account

(iii) On 9 May Year 3, James Meredith bought goods on credit £180 from

Rendell Supplies

Transaction effect Book-keeping action

Increase in liability – creditor:Rendell Supplies credit Rendell Supplies

(iv) On 23 May Year 3, James Meredith paid by cheque £80 for the amount

owing to Rendell Supplies

(v) On 16 May Year 3, sold £270 goods for cash

May 1 Capital 5,000 May 3 Office furniture 350

May 23 Rendell Supplies 80

GLOSSARY

account (n): Tài kho ả n

asset (n) Tài s ả n

balance sheet (n) B ả ng cân đố i

business (n) Doanh nghi ệ p, công vi ệ c kinh doanh capital (n) Ngu ồ n v ố n

cash at bank Ti ề n g ử i ngân hàng

loan (n) Kho ả n ti ề n vay

motor vehicle (n) Ph ươ ng ti ệ n v ậ n t ả i

office furniture (n) N ộ i th ấ t v ă n phòng

resource (n) Ngu ồ n l ự c

transaction (n) Giao d ị ch

LESSON 2: PURCHASES, SALES AND EXPENSES

After carefully studying this lesson, you should be able to:

1 recognise the various meanings attributed to the term ‘purchases’

2 record in double-entry form (i) the purchase, and (ii) the sale of goods for cash and on credit; & (iii) the return of goods

3 appreciate the nature of and types of ‘expenses’

4 record the withdrawal of profit by ‘drawings’

In the balance sheet of Lesson 1 so far the item ‘goods’ has been included This refers to goods in which the firm trades and not to items such as the motor vehicle or office furniture which are shown separately and will be kept for use in the business

If every purchase or sale of goods were entered under the one heading

‘goods’, you would have a confused picture of what was happening You need

to know for a given period (e.g week, year) the total amount of purchases (of goods for re-sale) as distinct from the total amount of sales Therefore, we

have Purchases account and Sales account

Let it be absolutely clear about what is meant by the term ‘purchases’ It means goods

(i) bought with the intention of reselling them as part of the firm’s trading

activities: goods in which the firm ‘deals’

or

(ii) bought in order to use them in the manufacture of other goods (e.g raw

materials or in some way to change their form, e.g the re-packaging of goods carried out by some wholesalers The intention is the same as in (i) but it is less direct

Methods of payment can be made either

(i) purchases for cash (purchases of goods with immediate payment in

cash or by cheque)

or

(ii) purchases on credit (purchases of goods with payment to be made at

later date)

You will now see the book entries for purchases

I.1 Purchases of goods on credit

Refer to example (iii) in Lesson 1:

On 9 May Year 3, James Meredith bought goods on credit £180 from Rendell Supplies

Goods

Year 3 £

Purchases

Year 3 £

Rendell Supplies

Year 3 £ May 9 Purchases

180

The goods account used in Lesson 1 is now replaced with a purchases account

However, the same rules will apply: where you debited goods account for an increase in asset amount, likewise you will debit purchases account

I.2 Purchases of goods for cash

E.g On 15 May Year 3, bought goods for £210, payment being made immediately by cheque

In this transaction, there is an increase in asset account: Purchases As there is

an increase in asset value, this will be debited

The payment was made by cheque, so the money in bank account (asset account) decreased According to the rules for double-entry, if asset account decreases, it will be credited

• Credit Purchase

- debit purchases account

- credit supplier’s (creditor’s) account

• Cash Purchase

- debit purchases account

- credit Cash/ Bank account

In due course, payment will be made to the creditor, so

• Payment to creditor

- debit creditor’s account

- credit bank account or cash account

II SALES

The sale of goods means the decrease of an asset Up to the present this has been recorded to the credit of a goods account Now, however, in order to provide more information and to facilitate control, it is necessary to record all sales of goods in a sales account, to include:

(i) sales ‘for cash’( goods sold with immediate payment, in cash or by

cheque)

(ii) sales on credit (goods sold with payment to be received by an agreed

future date)

II.1 Sales for cash

Refer to example (v) in Lesson 1:

16 May Year 3, sold goods for cash £270

II.2 Sales on credit

E.g 23 May Year 3, sold goods on credit for £65 to N Tibbs

Sales account similarly will be credited, representing the asset decrease N Tibbs

is a debtor (debtors belong to asset accounts) and now owes the business £65 Hence N Tibbs’ account must be debited to show the increase in asset value

- debit Cash/ Bank account

- credit Sales account

• Credit sale

- debit customer’s (debtor’s) account

- credit sales account

• When payment is received from the debtor

- debit bank account or cash account

- credit debtor’s account

III RETURNS

III.1 Returns Outwards

Sometimes goods already purchased will be returned to the supplier, who will

agree to make an allowance This will be recorded in a returns outwards account (or purchases returns account) A corresponding entry will be made

in the relevant creditor’s account

E.g 24 May Year 3, Goods are returned to Rendell Supplies (a creditor) and an

May 24 Returns Outwards 50

The £50 credit on Returns Outwards account effectively decreases the debit amount on the purchases account

If we bring together the two transactions relating to Rendell Supplies, his account now appears:

Rendell Supplies

£

May 24 Returns Outwards 50

The difference between the two sides is a credit excess of £50 The business owes Rendell Supplies that amount

III.2 Returns Inwards

Sometimes, Goods previously sold may be returned to the seller, for which there

will be an agreed allowance This will be recorded in a returns inwards account (alternatively, sales returns account) as well as in the account of the customer

E.g 26 May Year 3, N Tibbs returns the goods which he purchased on 23 May

N Tibbs

Year 3 £ Year 3 £

This shows that N Tibbs now owes nothing

To summarise the book-keeping entries overall relating to Returns:

• Returns outwards (or Purchases Returns)

- debit creditor’s account

- credit Returns Outwards account

• Returns Inwards (or Sales Returns)

- debit Returns Inwards account

- credit debtor’s account

IV EXPENSES

You now need to see how expenses are dealt with in the accounts

If money is spent on buying an asset, such as office equipment, it is debited to the asset account Money has been spent on owing a resource If expenditure is

on rent of premises, wages, telephone, etc it is to obtain the use of a resource, but paying for it ‘as you go’ rather than long in advance It is therefore consistent

to debit the expenditure account, as one would the straightforward asset account Moreover, any expenditure will reduce profit and thus reduce capital Any reduction in capital needs to be debited: this further justifies the debit entry for expenses

The owner of a business needs to know how much is being spent on each area

of expenditure So, instead of having one ‘expense account’, it is usual to have several, each one covering a category of expenditure These may include items such as: wages, salaries, rent, insurance and motor expenses, etc

Examples

(i) 14 May Year 3, wages of £40 are paid in cash

Cash is reduced; therefore cash account should be credited Expenditure on wages (= for labour services) increases, so wages account should be debited with £80

From time to time the owner will take money out of the business in the form of cash (or withdrawal by cheque from the firm’s bank account) for his personal use, not the business use Occasionally the withdrawal may be in the form of goods or services taken for the owner’s personal use Therefore, the account related to the

withdrawals here is named “Drawings”

The prudent owner will ensure that the amount he takes out on a weekly/ monthly basis does not exceed the profit made by the business at that stage Failure to

do so will result in a reduction in the capital account as might be expected

Applying the double-entry rules, Drawings will make capital decrease, so

‘Drawings’ account must be debited Money taken out of the business will reduce money (reduce asset), hence Cash/ Bank account will be credited

E.g May 28 Year 3, James Meredith, the owner, withdrew for private use £130

Care must be taken not to confuse ‘drawings’ with expenses To do so can give a false picture of how the business is performing: total expenses might appear much greater than they really are

SUMMARY

1 The purchases account is used to record the purchases of stock while the returns inwards account is used to record goods returned by the business’s customers

2. The sales account is used to record the sales of stock, while the returns outwards account is used to record goods returned to supplers by the business

3. Only goods bought with the intention of reselling them as a part of trading activities are considered as purchases The purchases of other assets is not considered as purchases

4. Sales refered to the sale of those goods in which the business trades; the sale of goods that were bought with the intention to resell

5. The purchase or sale of goods for cash may involve payment or receipt being made by cash or by cheque (bank)

6. Entries in an expense account will be on the debit side

7. Drawings are money or goods taken out of the business by the owner, drawings are not an expense of the business

I hope you will be successful!

raw material (n) Nguyên li ệ u thô

rent payable (n) Chi phí thuê tr ụ s ở

rent receivable (n) Ti ề n cho thuê tr ụ s ở

returns inwards (n) Hàng bán b ị tr ả l ạ i

returns outwards Hàng mua tr ả l ạ i cho nhà cung c ấ p sale (n) Vi ệ c bán hàng

withdraw (v) Rút ra

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appreciate the key features of commonly used methods of paymen

The objectives: After carefully studying this lesson, you should be able to:

LESSON 3: BALANCING ACCOUNTS; THE DIVISION

OF THE LEDGER & BANK FACILITIES

INTRODUCTION

You will learn how to close or balance accounts at the end of a period as well

as interpret balances on accounts

You will learn why is it necessary to divide the ledger, the functions of the ledger, and the different ledgers and what they record You will also learn about the different types of bank accounts and the various ways of making payments

I BALANCING ACCOUNTS

I.1 Method for checking the balance

The procedure of balancing is as follows:

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The „balance‟ is then placed on the left-hand side of the account – on the next available line – ready to start the next month/ period The £4,305 debit balance represents the reality of the debits exceeding the credit to that date by that amount The date shown is the first day of the new month/ period „Balance b/d‟

is an abbreviation of „balance brought down‟

In conclusion, at the end of May, bank account has debit balance of £4,305

Creditor‟s account will be balanced according to the same principles:

Rendell Supplies

 24 Returns Outwards 50

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 31 Balance c/d 50

June 1 Balance b/d 50

At the end of May, this account has credit balance of £50

Another example of debtor‟s account is as follows:

N Tibbs

May 23 Sales 65 May 26 Returns Inwards 65

At the end of May, this account has „Nil‟ balance The two sides of the account are in agreement with each other You therefore total the two sides and enter a double line under each With this example, only one transaction on each side so the only requirement is to double underline the amount on both sides

You may come across the following:

c/f = carried forward

b/f = brought forward

Where balances are carried forward from one page to the next, „balance c/f‟ would appear at the bottom of one page and „balance b/f‟ at the top of the next page

I.2 Running balance accounts

The accounts we have so far had the traditional layout (T-account)

Account name

A balance is calculated only at the end of the relevant period (month, year, etc) Much business practice, especially with computerised records, now uses the

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three-money column layout (running balance format/layout) Normally, bank uses this layout in the bank statement which bank issues to their customers The third money column states the balance resulting from the transaction recorded on the same line

The bank account with „traditional format‟ above will now appear in „running

balance‟ layout like this:

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With running balance accounts, it is necessary to state after each transaction

whether the balance is debit (Dr) or Credit (Cr)

Running balance presentation is based on the same „double - entry‟ (debit and credit) principles as the traditionally laid out accounts The only difference is in the format

II DIVISIONS OF THE LEDGER

II.1 Sub-divisions of the ledger

It is usual to sub-divide the ledge: each part contains a distinct type of account This has advantages of:

 Smaller units are managed more easily than one very larger

 Useful information is available easily from the specialised parts of the ledger that otherwise would be hidden

 Overall it helps in the control of the various accounts

(a) customers‟ personal accounts (debtor accounts) Sales Ledger

(b) suppliers‟ personal accounts (creditor accounts) Purchases Ledger (c) concerning with the receiving and paying money, Cash book

whether by cash, cheque or other method

II.2 Types of accounts

(a) Personal accounts – the individual accounts of debtors and creditors

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(b) Impersonal accounts – the accounts of things rather than people

Impersonal accounts are sub-divided into:

* Real accounts – covering assets, e.g premises, motor vehicles, stock, cash, bank

* Nominal accounts – the various income and expense accounts, e.g sales, wages, insurance

III BANK FACILITIES

III.1 Current account

This type of account is used for regular banking and withdrawal of money The bank provided facilities for transferring money to other people, still mainly by cheque, though increasingly by other means also

It is possible for a current account to be „overdrawn‟, i.e more has been taken out of the account than has been put in Normally banks expect to be asked in advance to give their agreement to an „overdraft‟

III.2 Deposit account

With this account it is normally expected that money paid into the account will remain there for some time and that withdrawals will be infrequent Interest will

be paid by the bank on the account balance, whereas it is less likely that a current account holder will receive interest

III.3 Cheques

A cheque is a written instruction from the customer of the bank (i.e the account holder) to the bank to pay a certain amount of money

(i) to another person; or

(ii) to the account holder (eg if drawing money out of the firm‟s bank account for use as office cash)

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III.4 Other payment methods

III.4.1 Credit Transfer

It is a direct means of transferring money through the bank systems, which is

initiated by the paying party It has a number of variations

 The payer gives to his or her bank a slip setting out the payment to

be made together with cash or a cheque to cover the payment The bank then transfers money to the relevant account

 The payer can fill in slips to settle many bills, covering these with a single payment (cash or cheque) for the total amount (multiple credit transfer) It is commonly used by employers for the payment of wages and salaries

 The method is much used for the paying of accounts such as for gas, electricity, or telephone services Often businesses include a bank credit slip when sending out statements of account to debtors,

to encourage payment by this method

III.4.2 Standing order

It is a direct transfer between bank accounts, involving regular payments

 of fixed amounts

 at stated dates

 to certain persons or firms

When this kind of payment happens, the payer then gives the bank written instructions to make the payments The bank will then automatically charge the payer‟s account and send a credit to the payee‟s bank Once the instruction has been given by the payer to his bank, no further action is necessary and payments would continue to be made until cancelled or amended Standing order payments can only be altered by the payer

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Standing orders are much used for the payment of regular subscriptions or for the payment of hire purchase installments or insurance premiums

III.4.3 Direct debit

This method is rather like credit transfer in reverse, that is, a direct transfer initiated by the payee

First the would-be payee obtains the written agreement of the payer to the use of this method Then the payee prepares a voucher that is charged against the payer‟s bank balance and is passed through the bank clearing system

Unlike the standing order, it can be used

 for either fixed or variable amounts

and/or

 where the time intervals between payments vary

The method is open to abuse and so the bank has introduced a number of safeguards, such as restricting its use to approved organisations only The payer can withdraw the consent if dissatisfied with the working of the system

3 An account has a credit balance when the opening balance is on the credit side This will occur where the total of the credit side is greater than the total of the debit side

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4 The running balance format of account is based upon the same double entry principle as “T” accounts and shows the balance of the account after each transaction

5 The ledger is divided into separate ledgers, each of which records a certain type of transaction

6 Accounts are classified to identify the nature of the entries they contain, e.g personal accounts

7 The two main types of accounts are current accounts and deposit accounts Current accounts do not normally earn interest while deposit accounts do

8 Credit transfer, standing order and direct debit are methods of making payment directly through the banking system

I hope you will be successful!

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credit balance (n) Dư có

credit transfer (n) Ủy nhiệm chi

current account (n) Tài khoản vãng lai

deposit account (n) Tài khoản tiền gửi có kỳ hạn

direct debit (n) Ủy nhiệm thu

fixed amount (n) Khoản tiền cố định

general ledger (n) Sổ cái chung

nominal account (n) Tài khoản danh nghĩa

personal account (n) Tài khoản cá nhân

purchases ledger (n) Sổ cái mua hàng

real account (n) Tài khoản tài sản

running balance account

sales ledger (n) Sổ cái bán hàng

standing order (n) Lệnh chi trả định kỳ

LESSON 4: THE TRIAL BALANCE; TRADING AND PROFIT/LOSS ACCOUNTS AND THE BALANCE

SHEET: MORE FEATURES

The objectives: After carefully studying this lesson, you should be able to:

1 recognise different forms of carriage

2 recognise the structure of income, cost and profit

3 prepare a Trial Balance, a Trading and profit and loss account & the

Balance sheet

4 distinguish between fixed and current assets, as well as between

longer-term and current liabilities

INTRODUCTION

You will also learn about the purpose of the trial balance and how to prepare one Then, you will be introduced the different typeds of profits and how they are calculated in the Trading and Profit & Loss accounts You will learn how to transfer net profit and drawings to the Capital assount at the end of the period Finally, you will learn how to present the assets, liabilities and capital on the balance sheet in a more meaningful and informative format

Double-entry book-keeping is based on the matching principle: for every amount

on the debit side there is an equivalent amount on the credit side If over a period

of time – say, a month – all transactions have been entered correctly, then it follows that

The sum of the debits = the sum of the credits

Refer now to the example relating to James Meredith in Lesson 1 and 2 A Trial Balance at the end of May Year 3 would appear like this:

Trial Balance of James Meredith at 31 May Year 3

The heading should always include the name of the firm concerned and the date

at which the Trial Balance is drawn up

Knowing the side of the Trial Balance on which you would expect an account to appear will be of great help in drawing one subsequently in any check you might have to do:

The trial balance is important as a means of checking It is also a preliminary to the preparation of the ‘final accounts’ of a business – to which you shall be turning your attention in the next parts

II.1 Methods of calculating different types of profit

Gross profit The account by which sales income exceeds cost of goods sold

(Sales Revenue – Cost of Goods sold)

Net profit The remaining profit – after allowing for other costs

(Gross profit + Other income – Running expenses)

• In Trading account, you will calculate Gross Profit

• In Profit and Loss account, you will calculate Net profit

Cost of goods sold

(a) income from sales

= Sales Revenue

(b) Other income, e.g rent receivable

Gross profit

Running expenses

Net profit

Income = (a) Income from Sales + (b) Other income

II.2 Final accounts: More features

II.2.1 Returns