Lecture 3 Part 1

9/03/2020
What’s happening today?

Assessment Two: progress test
• Requirements for week 4 progress test (10%)
Posting to ledgers revenue & expenses, preparing the
income statement & changes in equity
• Identifying revenue & expenses
• Rules for posting cash & credit revenue to the
general ledger
• Rules for posting cash & credit expenses to the
general ledger
BUS120 Introductory Accounting • Preparing an ‘Income Statement’
Week 3: income/expenses & the income statement
• Preparing a ‘Statement of changes in Equity’
1 2
Have you completed last weeks tasks: Have you completed last weeks tasks:
 Completed WORKSHEET 2 - Homework Exercises
o Answers available on Moodle Week 2
 Review WORKSHEET 2 - Homework Exercises
o Answers available on Moodle Week 2
3 4
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9/03/2020
ASSESSMENT 2: ACTIVITY:
progress test (10%) test your knowledge
In-class during Week 4
WEEK 2 REVISION
• One-hour (90 min) written assessment COMPLETE ON YOUR OWN
• Covers content addressed in Weeks 1 to 3 • Open KAHOOT phone application
• Types of questions that will be included: OR website http://kahoot.it
• Preparing a Balance Sheet (30 marks)
• Select PLAY NOW
• Posting transactions to ledgers (50 marks)
• Enter the GAME PIN
• Closing-off ledger accounts & preparing a trial balance • Enter your NAME
(20 marks) • Start
test your knowledge by competing
• Final mark will be rescaled to 10 against others in the class
5 6
Learning outcomes Revenue & expense transactions

This week’s content will address:
LO2. Identify, analyse, synthesise and explain elements of the
accounting equation and prepare summary financial
statements. Income Statement, Balance Sheet and
Statement of Owner’s Equity.
LO3. Analyse and communicate an understanding of the
relationship between accounting equation and ledger
accounts, the nature of various ledger accounts, how they
are increased/decreased, and use technical skills to
process and record economic transactions in ledger
accounts and prepare a trial balance.
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Revenue & expenses effect on the

Revenue & expenses accounting equation
Revenue (income) Expenses
• money or other forms of payment • costs associated with the main activities
• Both transactions change Owner’s Equity, where…
received by a business directly related of a business • Revenue increases profit and the value of a business
to their primary activity • must only report the actual cost based • Income increases Owner’s Equity [ A = L + (OE + I) ]
• revenue earned must be reported at on a previous transaction
the time the goods/services have been • expenses are paid in cash or credit • Expenses reduce income earned
earned • Operating expenses • Expenses decrease Owner’s Equity [ A = L + (OE + I - E) ]
• revenue is received in cash or credit • Relates to the business’s main activities
• Operating revenue • E.g. cost of goods sold; rent; wages/salaries;
• Therefore, when Income > Expenses = PROFIT
• Relates to the business’s main activities
stationery; office supplies; advertising; Income < Expenses = LOSS
utilities (phone, electricity, water, gas, …);
• E.g. sales; fees; sale or merchandise;
depreciation; materials for goods/services;
provider of a service; cash/credit sales;
MV fuel & maintenance; land tax; insurance
commission
• Non-operating revenue
• Non-operating revenue New accounting equation
A + E = L + OE + I
• Peripheral or secondary expenses that are
• Peripheral or secondary earnings that are
not a primary activity of the business
not a primary activity of the business
• E.g. bank interest; loss from the sale of an
• E.g. interest; return on investments; gains
asset; Assets Expenses Liabilities Owner’s Equity Income
from a sale of an asset;
9 10
DEBIT = CREDIT RULES: debits & credits

+ increase + increase
Accounts: Income Statement
A + E = L + OE + I Income (incl. revenues)
Debit to Credit to
Expenses
Debit to Credit to
Assets Expenses Liabilities Owner’s Equity Income
decrease increase increase decrease
+ - + - Normal Normal
DR CR = CR DR
balance balance
posting on left side of
the equal sign posting on right side of the equal sign
Account Title
+ DR = + CR Date Explanation Amt Date Explanation Amt
posting across the equal sign
- CR = - DR
Debit (Dr) side Credit (Cr) side
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9/03/2020
RULES: debits & credits Account Balances: normal entries

All assets accounts = All liability accounts + All equity accounts ACCOUNT
INCREASES
recorded on
NORMAL BALANCE
recorded on
Dr Cr Dr Cr Dr Cr
Increase + Decrease − Decrease − Increase + Decrease − Increase + Assets Debit side Debit
↑ ↓ ↓ ↑ ↓ ↑
Normal Normal Normal Liabilities Credit side Credit

balance balance balance
Equity Credit side Credit
Contributions Credit side Credit
Expense accounts Income accounts Drawings Debit side Debit
Record DR Dr Cr Dr Cr
& CR rules Increase + Decrease − Decrease − Increase + Income (revenue) Credit side Credit
↓ ↓
on your ↑ ↑
Expenses Debit side Debit
worksheet Normal Normal
balance balance
13 14
Posting income & expense items

WORKSHEET ACTIVITY:
Complete PRACTICE EXERCISE 1

- classifying transaction items
Complete PRACTICE EXERCISE 2

- prepare a classified narrative Balance
Sheet
15 16
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9/03/2020
Posting cash/credit items Transaction 1:

1 July A. Edwards (owner) deposited $3000 into the business
Revenue / Income (West Wing Surveyor’s)
Type Account Example Posting
Assets + Expenses = Liabilities + Equity + Income
Cash at bank - Dr Debit (+) Credit (-) Debit (-) Credit (+) Debit (-) Credit (+)
CASH
Specific Fees or Income Account Cash sales; Rent Cr to increase to decrease to decrease to increase to decrease to increase
Accounts Receivable
Accounts Receivable / Debtor Account Dr Account A-L-OE (I-E)  DR/CR Amount
OR J. Jones
CREDIT Transaction Cash at bank A  Dr $3000
Specific Fee/Income Account Sales; Interest Received Cr
analysis Capital A/C (A. Edwards) OE  Cr $3000
• subsequent payments increase Cash at Bank & decrease Debtors
Expenses Cash at bank (A)

Type Account Example Posting 1/7 Capital 3000
Cash at bank - Cr
CASH Accounts Payable OR
Specific Expense Account Dr Capital A/C (A. Edwards) (OE)
Stationery; Wages
1/7 Cash at bank 3000
Purchases;
Accounts Payable / Creditor Account Cr
Officeworks Pty Ltd
CREDIT
Specific Expense Account Stock; Goods Dr
• subsequent payments decrease Cash at Bank & decrease Creditors
17 18
Transaction 2: Transaction 3:
1 July A. Edwards contributed $2500 worth of instruments & equipment 2 July Paid in cash $200 for Office Rent (one month)
Assets + Expenses = Liabilities + Equity + Income Assets + Expenses = Liabilities + Equity + Income
Debit (+) Credit (-) Debit (-) Credit (+) Debit (-) Credit (+) Debit (+) Credit (-) Debit (-) Credit (+) Debit (-) Credit (+)
to increase to decrease to decrease to increase to decrease to increase to increase to decrease to decrease to increase to decrease to increase
Account A-L-OE (I-E)  DR/CR Amount Account A-L-OE (I-E)  DR/CR Amount
Transaction Instruments & equipment A  Dr $2500 Transaction Cash at bank A  Cr $200
analysis Capital A/C (A. Edwards) OE  Cr $2500 analysis Rent E  Dr $200
Instruments & Equipment (A)

1/7 Capital 2500 Cash at bank (A)
1/7 Capital 3000 2/7 Rent 200
Capital A/C (A. Edwards) (OE)

1/7 Instruments & equipment 2500 Rent (E)
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9/03/2020
2 July Purchased stationery $120 3 July Purchased office furniture on credit from Odin Furniture Co. $600
Transaction Cash at bank A  Cr $120 Transaction Office furniture A  Dr $600
analysis Stationery E  Dr $120 analysis Odin Furniture Co. L  Cr $600
Cash at bank (A)

Office Furniture (A)
1/7 Capital 3000 2/7 Rent 200
3/7 Odin Furniture Co 600
2/7 Stationery 120
Stationery (E)
Odin Furniture Co. (L)
3/7 Office furniture 600
21 22
3 July Received fees for services completed $260 4 July Paid advertising $150 in cash
Transaction Cash at bank A  Dr $260 Transaction Cash at bank A  Cr $150
analysis Fees I  Cr $260 analysis Advertising E  Dr $150
Cash at bank (A)

Cash at bank (A)
1/7 Capital 3000 2/7 Rent 200
1/7 Capital 3000 2/7 Rent 200
3/7 Fees 260 2/7 Stationery 120
4/7 Advertising 150
Advertising (E)
Fees (R/I) 4/7 Cash at bank 150
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5 July Received fees for services completed $175 5 July Paid (in cash) wages for office assistant $800
Transaction Cash at bank A  Dr $175 Transaction Cash at bank A  Cr $800
analysis Fees I  Cr $175 analysis Wages E  Dr $800
Cash at bank (A)

Cash at bank (A)
1/7 Capital 3000 2/7 Rent 200
1/7 Capital 3000 2/7 Rent 200
5/7 Fees 175 4/7 Advertising 150
5/7 Wages 800
Fees (R/I) Wages (E)

3/7 Cash at bank 260 5/7 Cash at bank 800
25 26

8 July Invoiced J. Sanders $1200 for work completed 12 July Purchased stationery on credit from Officeworks Pty Ltd $350
Transaction J. Sanders A  Dr $1200 Transaction Stationery E  Dr $350
analysis Fees I  Cr $1200 analysis Officeworks Pty Ltd L  Cr $350
J. Sanders (A) Stationery (E)

8/7 Fees 1200 2/7 Cash at bank 120
12/7 Officeworks Pty Ltd 350
Fees (R/I) Officeworks Pty Ltd (L)

3/7 Cash at bank 260 12/7 Stationery 350
8/7 J. Sanders 1,200
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9/03/2020
Transaction 13:
Transaction 12:
14 July Work completed for C. Flinders $1750. Invoiced full amount, and on the
13 July Owner withdrew $200 from the business same day received $750 in cash.
Account A-L-OE (I-E)  DR/CR Amount
Assets + Expenses = Liabilities + Equity + Income
Fees I  Cr $1750
Debit (+) Credit (-) Debit (-) Credit (+) Debit (-) Credit (+)
to increase to decrease to decrease to increase to decrease to increase Transaction C. Flinders A  Dr $1750
analysis Cash at bank A  Dr $750
Account A-L-OE (I-E)  DR/CR Amount
C. Flinders A  Cr $750
Transaction Cash at bank A  Cr $200
Fees (R/I)
analysis Drawings A/C (A. Edwards) -OE  Dr $200
Cash at bank (A)
8/7 J. Sanders 1200
1/7 Capital 3,000 2/7 Rent 200 14/7 C. Flinders 1750
C. Flinders (A)
14/7 Fees 1750 14/7 Cash at bank 750
5/7 Wages 800
13/7 Drawings 200
Cash at bank (A)
1/7 Capital 3000 2/7 Rent 200
Drawings A/C (A. Edwards) (-OE) 3/7 Fees 260 2/7 Stationery 120
13/7 Cash at bank 200 5/7 Fees 175 4/7 Advertising 150
14/7 C. Flinders 750 5/7 Wages 800
13/7 Drawings 200
29 30
Finalise accounts:
 Balance all accounts and create a Trial Balance as at 16 July 20xx.
Trial Balance as at 16 July 2016

WORKSHEET ACTIVITY:
Account title Account number Debits Credits
Cash at bank 2715

J. Sanders 1200 Complete PRACTICE EXERCISE 3
C. Finders 1000
Instruments & equipment 2500
- post balance sheet items to the ledger
Office furniture 600 - post transactions to the ledger
Odin Furniture Co. 600
Officeworks Pty Ltd 350 - balance-off all ledger accounts
Drawings A/C – A. Edwards 200
Capital A/C – A. Edwards 5500 - prepare a Trial Balance
Fees 3385
Rent 200
Advertising 150
Wages 800
Stationery 470
$9835 $9835
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9/03/2020
Expanded Accounting Cycle Complete for next week …
1. Recognise & record transactions Source documents  Complete WORKSHEET 3 -

Homework Exercises
2. Journalise transaction General journal  Prepare for PROGRESS TEST,
in-class next week (10%)
3. Post to ledger accounts General ledger
4. Prepare trial balance of GL Trial balance
5. Prepare financial statements Financial statements
33 34

Lecture 3 Part 1

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9/03/2020

What’s happening today?

Learning outcomes Revenue & expense transactions

Revenue & expenses effect on the

DEBIT = CREDIT RULES: debits & credits

+ DR = + CR Date Explanation Amt Date Explanation Amt

posting across the equal sign

RULES: debits & credits Account Balances: normal entries

Normal Normal Normal Liabilities Credit side Credit

Posting income & expense items

Complete PRACTICE EXERCISE 1

Complete PRACTICE EXERCISE 2

Posting cash/credit items Transaction 1:

Expenses Cash at bank (A)

Instruments & Equipment (A)

Capital A/C (A. Edwards) (OE)

Cash at bank (A)

Cash at bank (A)

Cash at bank (A)

Fees (R/I) Wages (E)

Transaction 10: Transaction 11:

J. Sanders (A) Stationery (E)

Fees (R/I) Officeworks Pty Ltd (L)

Trial Balance as at 16 July 2016

Cash at bank 2715

Expanded Accounting Cycle Complete for next week …

1. Recognise & record transactions Source documents  Complete WORKSHEET 3 -

3. Post to ledger accounts General ledger

4. Prepare trial balance of GL Trial balance

5. Prepare financial statements Financial statements

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