BHT1333 Hospitality Accounting

Lecture 3
Basic Accounting Procedures and
Systems

1
 Learning Outcome
• At the end of this lecture, the students are
able to understand:
– Basic Accounting Procedures and systems
• Assets, Liabilities and Accounting Equation
• Ledger accounting and Principle of double entry book-
keeping

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Ledger Accounting and Principle of
Double Entry System

Title of Account

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 Ledger Accounting and Principle of
Double Entry System
• In Terms of Assets, Liabilities and Capital:
– To increase an asset – Debit Entry
– To decrease an asset – Credit Entry
– To increase a liability/capital account – Credit
Entry
– To decrease a liability/capital account – Debit
Entry

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 Ledger Accounting and Principle of
Double Entry System

Accounts To Record Entry

Assets Debit

Credit
Liabilities Credit

Debit
Capital Credit

Debit

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Ledger Accounting and Principle of
Double Entry System

Capital Account Asset Account

Liability Account

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 Ledger Accounting and Principle of
Double Entry System
• Example1:
– The owner starts the business with RM 10,000 in
cash on 1st of Oct 2011.

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 Ledger Accounting and Principle of
Double Entry System
• Example 1(cont’):

Cash Account Capital Account

10,000
10,000

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 Ledger Accounting and Principle of
Double Entry System
• Example 2:
– A van is bought for RM 4,500 on 2nd Oct 2011.

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 Ledger Accounting and Principle of
Double Entry System
• Example 2(cont’):

Cash Account Van Account

4,500
4,500

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 Ledger Accounting and Principle of
Double Entry System
• Example 3:
– Fixtures are bought on credit from shop Fitters for
RM 1,250 on 3rd Oct 2011.

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 Ledger Accounting and Principle of
Double Entry System
• Example 3(cont’):

Fixture Account Shop Fitters Account

1,230
1,250

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 Ledger Accounting and Principle of
Double Entry System
• Exercise:
Transactions Effect Action
2008
May 1
Started a
household machines
business putting
RM25,000 into a
business bank
account.
3
Bought equipment on
credit from House
Supplies RM12,000. 13
 Ledger Accounting and Principle of
Double Entry System
Transactions Effect Action
4
Withdrew RM150
cash from the bank
and placed it in the
cash box
7
Bought a van paying
by cheque, RM6,800

10
Sold some
equipment that was
no needed at cost of 14
RM1,100 on credit to
J Rose.
 Ledger Accounting and Principle of
Double Entry System
Transactions Effect Action
21
Returned some of
equipment costing
RM 2,300 to House
Supplies.

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J Rose Pays the
amount owing, RM
1,100 by cheque.

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Bought Another van
by cheque RM 4,300. 15
 Ledger Accounting and Principle of
Double Entry System
• Double Entry Rule:
– Every Transaction affects at least two accounts.
– There must be at least one debit and one credit
entry.
– The total debits must be equal to the total credits.
– The particulars in the account refer to the name of
the account where the other entry is recorded.

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 Ledger Accounting and Principle of
Double Entry System
Revenue Gross increase in owner’s equity
resulting from business activities entered
into for the purpose of earning profit.
Example: Sales, service fee, delivery fee,
commission, rent and interest, etc.
Expenses Cost of assets consumed or services used
in the course of earning revenue.
Example: salaries, rent expenses, interest
expenses, lighting and heating, etc.

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 Revenue
• Revenue is the income earned by the business from
undertaking business activities, which results in an increase
of assets, such as cash.
• Types of revenue are:
– Sales – income earned from selling goods and services. Goods
refer to inventories that the business purchased for the purpose
of selling at a higher price to customers, e.g. selling spare parts
to customers. Services refer to the value of work done by the
business that customers will pay a price, e.g. repairing vehicles.
– Other income – other sources of income earned that are not
directly related to the main business activities, e.g. rent
received, discount received, interest received, commission
received, etc.
Ledger Accounting and Principle of
Double Entry System

Any income generated from sales of goods and services.

Example for goods : sells daily needs to students.
Example for services : Serving/selling food to customers.

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Ledger Accounting and Principle of
Double Entry System

Any income generated from any activities in the business

besides sales of goods and services.

For example: commission revenue, interest revenue, rental

revenue.

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 Expenses
• Expenses are all the resources that have been
used up to enable the sale of goods and services
to customers. Types of expenses are:
• Cost of goods sold – cost of inventories sold to
customers. These inventories had earlier been
purchased from suppliers.
• Expenses – other forms of resources that had to
be spent in order to run the business, e.g. salaries
to workers, rental, electricity, telephone, water,
insurance, etc.
Ledger Accounting and Principle of
Double Entry System

Purchases: Transaction in getting the goods/materials.

Example: Bought goods on credit/cash from supplier.

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Ledger Accounting and Principle of
Double Entry System

Expenses: Any cost incurred or services used in the

course of earning revenue.

Example: wage, rental, delivery, lighting and heating,

Interest expenses, etc.

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 Ledger Accounting and Principle of
Double Entry System
• Revenue

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 Ledger Accounting and Principle of
Double Entry System
• Expenses

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Ledger Accounting and Principle of
Double Entry System

Creates Incurs

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Ledger Accounting and Principle of
Double Entry System

Creates Incurs

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Ledger Accounting and Principle of
Double Entry System

Creates Incurs

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Ledger Accounting and Principle of
Double Entry System
Revenue Account

Expenses Account

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 Ledger Accounting and Principle of
Double Entry System
• Example 1:
– Sold goods for cash RM 100.
Sales Account

RM
Cash 100

Cash Account

RM
Sales 100

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 Ledger Accounting and Principle of
Double Entry System
• Example 2:
– Sold goods on credit RM 100.
Sales Account

RM
Trade receivables 100

Trade Receivables Account

RM
Sales 100

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 Ledger Accounting and Principle of
Double Entry System
• Example 3:
– Purchase goods for cash RM 200.
Cash Account

RM
Purchase 200

Purchase Account

RM
Cash 200

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 Ledger Accounting and Principle of
Double Entry System
• Example 4:
– Purchase goods on credit RM 200.
Trade Payable Account

RM
Purchase 200

Purchase Account

RM
Trade Payables 200

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 Inventory Movement
• Increase in Inventory
– Purchases of goods. - purchases
– Return into the business of goods previously sold – Sales
Return/ Return Inwards

• Decrease in Inventory
• Sales of goods.
• Goods previously bought by the business being
returned to the business – Purchases Return/ Return
Outwards
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 Ledger Accounting and Principle of
Double Entry System
Return Inward Customer returned goods back to the
company due to damages, faulty, or
unsatisfactory.
Return Outward The company returned goods back to
suppliers due to damages, faulty, or
unsatisfactory, similar reasons.

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Ledger Accounting and Principle of
Double Entry System
Return Inwards Account

Return Outwards Account

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 Ledger Accounting and Principle of
Double Entry System
• Example 2 (cont’):
– Sold goods on credit RM 100.
– On the following days, customer returned goods
RM 50.

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Ledger Accounting and Principle of
Double Entry System
Sales Account

RM
Trade Receivables 100

Trade Receivables Account

RM RM
Sales 100 Return Inward 50

Return Inwards Account

RM
Trade receivables 50

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 Ledger Accounting and Principle of
Double Entry System
• Example 4(cont’):
– Purchase goods on credit RM 200.
– On the following day, we returned the goods
RM100.

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Ledger Accounting and Principle of
Double Entry System
Purchase Account

RM
Creditor 200

Trade Payables Account

RM RM
Return Outwards 100 Purchases 200

Return Outwards Account

RM
Trade Payables 100

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 Ledger Accounting and Principle of
Double Entry System
Drawings An owner may wish to take goods, cash,
or any other assets out for his private
use.

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 Ledger Accounting and Principle of
Double Entry System
• Example 5:
– Owner withdrew cash RM 300.
Cash Account

RM
Drawings 300

Drawings Account

RM
Cash 300

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 Ledger Accounting and Principle of
Double Entry System
• Example 5 (cont’):
– Owner withdrew cash RM 300 and Goods worth
RM400.

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Ledger Accounting and Principle of
Double Entry System
Cash Account

RM
Drawings 300

Drawings Account

RM
Cash 300
Purchases 400

Purchases Account

RM
Drawings 400

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 Ledger Accounting and Principle of
Double Entry System
• Example 6:
– Paid advertising by cash RM 500.
Cash Account

RM
Advertising 500

Advertising Account

RM
Cash 500

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 Ledger Accounting and Principle of
Double Entry System
• Example 7:
– Paid Maintenance by cheque RM600.
Bank Account

RM
Maintenance 600

Maintenance Account

RM
Bank 600

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 Ledger Accounting and Principle of
Double Entry System
• Example 8:
– Purchase a new motor vehicle from Moon
Enterprise costing RM 100,000, paying cheque RM
40,000 for first installment, and the rest will be
paid in next six month.

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Ledger Accounting and Principle of
Double Entry System
Bank Account

RM
Motor vehicle 40,000

Motor Vehicle Account

RM
Bank 40,000
Moon Enterprise 60,000

Moon Enterprise

RM
Motor Vehicle 60,000

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 Ledger Accounting and Principle of
Double Entry System
Excises:

Particulars Account to be Account to be

Debited Credited
1. Sold goods on credit to Ali
2. Sold goods for cash
3. Goods returned by Ali
4. Purchase goods on credit form
Joyce
5. Returned goods to Joyce
6. Take goods for own use
7. Paid wage by cash
8. Received rent by cheque

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 Revision
Increase Action Decrease Action
Paid Postage by cash
Paid electricity by
cheque
Purchased goods on
credit from supplier. A
Sold goods to
costumers and
received cheque
Sales goods to Ah
Meng and received
cash
Received rental by cash
Paid delivery of goods
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 Revision
Increase Action Decrease Action
Sold car for cash
Bought building by
cheque
Owner brought in
additional van into
business
Received cheque for
goods sold to John
Purchased goods on
credit from A trading
Received interest from
customer
Withdrew computer 51
for own use
 Revision
Increase Action Decrease Action
Returned damaged
goods to supplier,
Eagle Sdn Bhd
Sales of meals to Jack
on credit
Banked in cash sales
Paid cash for
advertising product
Customer returned
inspected goods
Repaid half of bank
loan
Bought table by
cheque for emergency 52
use
 Basic accounting Procedures and
systems
• 1st step – Identify two main items involved in a
transaction.
• 2nd step – Identify increase/decrease of those
items in a transaction.
• 3rd step – Identify a debit/credit of those items in
a transaction.
• 4th step – Put selected items in debit/credit side
of both accounts.
• 5th step – Balancing off the account.
• 6th step – Prepare trial balance.

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 Basic accounting Procedures and
systems
• Example 9:
– Started business with RM 740 cash on 1st May
20x1.
Capital Account
20X1 RM 20X1 RM
May.31 Balance c/d 740 May.1 Cash 740

June. 1 Balance b/d 740

Cash Account

20X1 RM 20X1 RM

May.1 Capital 740 May.31 Balance c/d 740

June. 1 Balance b/d 740 54
 Basic accounting Procedures and
systems
• Example 10:
– Bought goods for cash RM 120 on 2nd May 20x1.

Cash Account
20X1 RM 20X1 RM
May.31 Balance c/d 120 May.2 Purchases 120

June. 1 Balance b/d 120

Purchases Account

20X1 RM 20X1 RM

May.2 Cash 120 May.31 Balance c/d 120

June. 1 Balance b/d 120 55
 Ledger Accounting and Principle of
Double Entry System
• Trial balance
– A list of debit and credit balances extracted from
the accounts in the ledger at a particular date
– Purpose: Checking the arithmetical accuracy of
the entries made in the ledger.
– Total debit must equal to total credit

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 Ledger Accounting and Principle of
Double Entry System
Trial balance as at ……………………..
Debit (RM) Credit (RM)
Cash
Premises
Yang (debtor)
Ying (creditor)
Van
Return Inwards
Return Outwards
Sales
Purchases
Fixtures and fitting
Capital
Drawings
Insurance paid
Rental received 57
 Conclusion
• In Terms of Assets, Liabilities and Capital:
– To increase an asset – Debit Entry
– To decrease an asset – Credit Entry
– To increase a liability/capital account – Credit Entry
– To decrease a liability/capital account – Debit Entry
– Revenue – Credit Entry
– Expenses – Debit Entry
– Purchases – Debit Entry
– Sales – Credit Entry
– Return Inwards – Debit Entry
– Return Outwards – Credit Entry
– Drawings – Debit Entry 58
• 2009 Excercise
May 1 Started business with RM 18,000 in the bank.
2 Bought Goods on credit from B Hind RM 1,455.
3 Bought goods on credit from G Smart RM 473.
5 Sod goods for cash RM 210.
6 We returned goods to B Hind RM 82.
8 Bought goods on credit from G Smart RM 370.
10 Sold goods on credit to Billy RM 483.
12 Sold goods for cash RM 305.
18 Took RM 250 of cash and paid it into the bank.
21 Bought a printer by cheque RM 620.
22 Sold goods on credit to H Buchan RM 294.
26 Billy returned goods to us RM 160.
28 We returned goods to G Smart RM 47.
29 We paid Hind by cheque RM 1,373
31 Bought machinery on credit from Snake Mac
ltd RM 450.

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