♣ Statement of financial position format and the

classification of items in it
♣ Basic Accounting Equation
♣ Effects of transactions on the basic accounting
equation
♣ Expanded accounting equation
♣ Effects of transaction on the expended accounting
equation
 Financial statements
• There are three (3) major financial statements :
1. Statement of Comprehensive Income (SOCI)/ Income
Statement
– Measures the financial performance or profitability over a
specific period of time
2. Statement of Financial Position (SOFP)/
Balance Sheet
– Summarizes the business’s assets, liabilities and equity at
a specific point of time
3. Cash Flow Statement
– Shows the flow of cash in and cash out of the business.
 Assets

Expenses Liabilities
ACCOUNTING
CLASSIFICATION

Owner’s
Revenues Equity /
Capital
 ACCOUNTING CLASSIFICATION
ASSETS
-Resources owned by the business

NON-CURRENT ASSETS / FIXED ASSETS CURRENT ASSETS

Characteristics: Characteristics:
i) useful life > 1 year i) Useful life < 1 year
ii) not for resale ii) Easily converted into cash
iii) used in running the daily business operation iii) Easily changing form

Inventory/ Stock

Bank/ Cash Account receivable/

Intangible Non-Current Assets Investment Debtors

Amount of money put in long term project or acquire ordinary shares

It exist but cannot be seen
in another company to get a long term return.
and cannot be touched.
e.g: Franchise, Brand, Trademark, e,.g: Fixed deposit in Maybank,Unit trust (ASB, ASN)
Copyright, Goodwill, Patent Shares acquired from Telekom Bhd to get dividend.

Tangible Non-Current Assets

Its physical existence can be seen and can be touched.

e.g: Motor vehicles, Building, Furniture, Office equipment, Computer,

Land, Premise, Machinery.
 ABC Trading
Statement of Financial Position as at 31 December 2009
Non-Current Assets RM RM RM
Cost Accumulated Depreciation Net Book Value
Land and Building 5,000,000 5,000,000
Motor Vehicle 200,000 200,000
Machinery 120,000 120,000
Fixtures and fittings 50,000 50,000
Office Equipment 10,000 10,000
5,380,000

Goodwill 500,000
Patent 20,000
Trademark 100,000

Investment
Shares in TNB Berhad 150,000
Quoted shares in PJS Bhd 250,000
Total Non-Current assets 6,400,000

Current Assets
Closing Inventory 20,000
Account Receivable 11,000
Less: Allowance D.debt (1,000) 10,000
Bank 500,000
Cash in hand 5,000
Prepaid expenses 2,000
Accrued Revenues 5,000 542,000

6,942,000
 LIABILITIES
Resources borrowed by the business from other party.
(Debts/ obligation of a business)

NON-CURRENT LIABILITIES / LONG CURRENT LIABILITIES

TERM LIABILITIES
Amount borrowed which is expected
Amount borrowed which is not expected to be paid within 1 year ( Short term
to be paid more than 1 year (long term liabilities).
liabilities).
e.g: Accounts payable (Creditors),
e.g: Mortgage on premises, Bank overdraft, Short term loan
Debenture, Long term loan
 ACCOUNTING CLASSIFICATION

OWNER’S EQUITY / CAPITAL

Resources/ Fund supplied by the owner to the business for the acquisition of assets.

e.g: Owner brought in motor vehicle worth RM150,000 into the business.
Owner transferred RM5,000 from his saving account into the business bank account.

Profit will increase the capital of the business ( owner’s equity)

Whereas Losses and Drawings will reduce the capital of the business ( ↓ owner’s equity)

Owner’s Equity = Capital + Profit ( - Losses) - Drawings

DRAWING

Cash or goods taken by the owner from the business for his personal used.
e.g: Owner took cash RM200 from the business to buy a birthday gift for his daughter.
 ABC Trading
Statement of Financial Position as at 31 December 2009

Financed by: RM
Owner’s Equity
Opening Capital ( as at 1/1/2009) 7, 230
Add: Net Profit / ( Less: Net Loss) 51, 970
Less: Drawing (800)
Ending Capital ( as at 31/12/2009) 58, 400

Non-Current Liabilities
Long term loan 6,000,000
Mortgage on Premises 868,000 6,868,000

Current Liabilities
Account Payable 5,000
Short term loan 2,000
Bank overdraft 2,600
Accrued expenses 1,000
Revenue received in advanced 5,000 15,600
6,942,000
 Exercise
• Classify the following items into assets,
liabilities and capital.
Furniture Office equipment Term loan from
Maybank

Account receivable Cash in hand Land and buildings

Premises Bank overdraft Account payables

Inventory Motor vehicles Capital by owner

Cash at bank Short term loan Mortgage on land and

building
Business Transaction
Exercise: Determine the missing
figure
ASSETS LIABILITIES OWNER’S EQUITY

1. RM 130,000 RM 70,000

2. RM 890,000 RM 500,000

3. RM 50,000 RM 550,000

4. RM 111,000 RM 50,000

5. RM 330,000 RM 110,000
 1/1/2017
Ali started a business
with RM25,000 cash
in hand.

Assets Equity’s Equity Liabilities

Cash : RM25,000 Capital : RM25,000

 2/1/2017
The business
deposited RM18,000
of the cash into a
bank account.

Assets Equity’s Equity Liabilities

Cash : RM7,000 Capital : RM25,000

Bank : RM 18,000
 3/1/2017
Received RM13,000
loan from Maybank
Berhad by cheque.

Assets Equity’s Equity Liabilities

Cash : RM7,000 Capital : RM25,000 Loan : RM13,000

Bank : RM 31,000
 4/1/2017
Purchased equipment
worth RM 2,000 by
cheque.

Assets Equity’s Equity Liabilities

Cash : RM7,000 Capital : RM25,000 Loan : RM13,000

Bank : RM 29,000
Equipment : RM2,000
 5/1/2017
Ali later withdraw RM
700 from the bank
for his personal use.

Assets Equity’s Equity Liabilities

Cash : RM7,000 Capital : RM24,300 Loan : RM13,000

Bank : RM 28,300
Equipment: RM 2,000
ACCOUNTING CLASSIFICATION
REVENUES

Cash inflow from the sales of goods or services

e.g: Sales of goods or services, Commission received, Interest received,

Rental received, Discount received, Dividend received.

EXPENSES

Cash outflow or cost of assets consumed /services used in the process

of earning revenues.

e.g: Purchases of goods, Salary, Interest expenses, Rental expense

 ABC Trading
Statement of Comprehensive Income for the year ended 31 December 2009

Sales xx
Less: Return Inward (xx)
Net Sales xx

Less: Cost of goods sold

Opening Inventory xx
Purchases xx
Less: Return Outward (xx) xx
Carriage Inward xx
Less: Closing Inventory (xx)
Cost of goods sold ( xx)
Gross Profit / (Gross Loss) xx

Add: Revenues
Rent received xx
Commission received xx xx
Total Revenues xxx

Less: Expenses
Salaries xx
Stationary xx
Repairs xx
Total Expenses ( xx)

Net Profit / (Net Loss) xxx

Expended accounting equation

A = C + P + L
Profit (P) Revenues (R) Expenses (E)

A = C + R - E + L

Thus, A + E = C + R + L
 Relationship of profit to the
accounting equation
• Profit is the difference between revenues
and expenses.
Profit (P) Revenues (R) Expenses (E)
 ACCOUNTING EQUATION
• To start the business :
Assets = Capital

 When the capital is not enough:

Assets = Capital + Liabilities ( Basic Accounting Equation)

• When the business starts expanding:

Assets = Capital + Liabilities + Revenues – Drawings – Expenses ( Expanded Accounting Equation)

• Rearrange the “ Expanded Accounting Equation”

Assets + Drawings + Expenses = Capital + Liabilities + Revenues

• Double Entry Rules

Assets + Drawings + Expenses = Capital + Liabilities + Revenues

DEBIT (DR) CREDIT (CR)

CREDIT (CR) DEBIT (DR)

DEBIT ‘ T account ’ CREDIT

A,D,E A,D,E

C,L,R C,L,R
 1/12/2017
Ali paid for December
office rental RM200
by cash.

Equity’s
Assets Expenses Revenues Liabilities
Equity
Cash : RM6,800 Rent : RM200 Capital : Loan :
Bank : RM 28,300 RM24,300 RM13,000
Equipment:
RM2,000
 7/12/2017
Ali receive dividend
by cheque amounting
to RM 700.

Equity’s
Assets Expenses Revenues Liabilities
Equity
Cash : RM6,800 Rent : RM200 Capital : Dividend Loan :
Bank : RM29,000 RM24,300 received: RM13,000
Equipment: RM700
RM2,000
 23/12/2017
RM 186 telephone bill
was paid by cash.

Equity’s
Assets Expenses Revenues Liabilities
Equity
Cash : RM6,614 Rent : RM200 Capital : Dividend Loan :
Bank : RM 29,000 Tel Bill : RM RM24,300 received: RM13,000
Equipment: 186 RM700
RM2,000
 26/12/2017
Ali received
commission from
selling products
RM1,500 by cash.
Equity’s
Assets Expenses Revenues Liabilities
Equity
Cash : RM8,114 Rent : RM200 Capital : Dividend Loan :
Bank : RM 29,000 Tel Bill : RM RM24,300 received: RM13,000
Equipment: 186 RM700
RM2,000 Commission
Received :
 Tutorial
• Draw up a balance sheet of Mega Ent as at 31
December 2017
Capital 23,750
Debtors 4,950
Motor vehicles 5,700
Creditors 2,450
Furniture 5,500
Long term loan 8,800
Cash at bank 1,250
Land and Building 17600