ACC2231 - Single entry and incomplete records

Hi again,

Looking at the topic, we might be asking why it is a single entry? Well, some business owner does not really know how to do accounts...I mean, they don't know how to record all the transactions properly. It is normal and the answers we get from them is almost the same, that they knew but they don't have the time to do it.

Normal accounting records should gave both debit as well as credit. Here, what we can say is, when when the records in only filled one sided, either debit or credit. Disaster! And it is a fail system where it should be double entry instead. They may only know to record the entry in the cashbook only because, there where the money goes in and out. For them CASH IS KING!. As long as they can control the cash, then, that's it.

This single entry somehow potentially causing the financial statement to be incorrect, simple...not balance!.

There are two approaches to settle this matter.

• Comparison method
• Analysis method

Comparison Method

A quick method to determine 'estimated' profit without preparing financial statement. Hmm..how can it be? What choice do we have when we are force to do the accounts with limited information or no records available.

In determining the profit for the year, we shall go back to basic. We have to play with the capital account. Logically, when we started a business, we had capital, and this capital is being invested into the business and there...the business is built.

The business activities ie the buying, the selling of goods will eventually created profits or losses. Thus, those profits or losses will effect the capital which the owner invested. If the business had a good profit, the capital account will grow and vice versa.

In this method, the profit or losses can be determined from the difference between the owner's capital at the end and the owner's capital at the beginning. If it is increased, then it is profit, if the capital amount is lesser than the previous period, then it is said that the company is having a loss. Therefore we need to open up the Statement of Affairs. This statement shows an estimate assets and liabilities of the business at a particular date, the beginning and also at the end of a period. The the difference between the two is the profit for the period.

Analysis Method

The analysis method came into the picture to overcome the weakness of comparison method. This method involves the analysis of all transactions that related to sales, purchases, expenses, revenues and cashbooks.

Using this method, we will again use our knowledge of control accounts and other topics that we have already covered. Further we will use as many information available to find our answers. For example, to find total sales, we need to look at the cashbook, the opening balance of our receivables as well as our closing. Open up our control account and start put in the figures, the missing figures then will be your answers. Same goes to purchases and other expenses...

Try this....Exercise 1 - Single entry and incomplete records - Fitri and Hafiz - Analysis Method

Another one....just calculate for a), b) and c). Fitness Club - Receipts and Payments Account

ACC2232 - Inventory Control and Valuation - Answers

As promised, attached are the answers to the questions posted on August 2, 2017 recently.

Stock evaluation - answers to posting

Happy reviewing....

BUACC3701 - The Percentage of Sales Approach (Long term Financial Planning)

Hi,

Click the link below for the Youtube course on the above topic. The presenter is quite fast but you can play it again and again, or pause for a little while to make yourself understand.

BUS1233 & ACC1231 SELF LEARNING ACTIVITIES – WEEK 4 (7 Aug – 10 Aug)

Click the link below to retrieve the document.

SELF LEARNING ACTIVITIES – WEEK 4 (7 Aug – 10 Aug)

Required:

1. Download the required document.
2. Print it.
3. Attempt all the questions.
4. Bring them to class for discussion.

Potential marks ♥♥

ACC2231 - Errors Which do not Affect the Trial Balance

Accounting errors that do not affect the trial balance fall into one of six categories as follows:

1. Error of Principle
2. Errors of Omission
3. Error of Commission
4. Compensating Error
5. Error of Original Entry
6. Complete Reversal of Entries

 

Error of Principle

An error of principle in accounting occurs when the bookkeeping entry is made to the wrong type of account. For example, if a 1,000 spent on motor vehicle maintenance is debited to the motor vehicle account instead of the asset account;

The error was,
	Dr	Cr
Motor vehicle	1,000
Cash/Bank		1,000
Should be,
	Dr	Cr
Motor vehicle maintenance	1,000
Cash/Bank		1,000
Correcting entries
	Dr	Cr
Motor vehicle maintenance	1,000
Motor vehicle		1,000

Error of Omission

Errors of omission occur when a bookkeeping entry has been completely omitted from the accounting records.

Example, the payment 4,000 from a debtor has been omitted in both books.

The error was,
	Dr	Cr
- no transaction at all	nil
- no transaction at all		nil
Should be,
	Dr	Cr
Cash/Bank	4,000
Debtor		4,000
Correcting entries
	Dr	Cr
Cash/Bank	4,000
Debtor		4,000

 

Error of Commission

Error of commission occurs when an item is entered to the correct type of account but the wrong account. For example is cash received of 2,000 from Nur is credited to the account of Nor.

The error was,
	Dr	Cr
Cash/Bank	2,000
Nor		2,000
Should be,
	Dr	Cr
Cash/Bank	2,000
Nur		2,000
Correcting entries
	Dr	Cr
Nor	2,000
Nur		2,000

Compensating Error

A compensating error occurs when two or more errors cancel each other out. For example, if the fixed assets account is incorrectly totalled and understated by 600, and the wages account is also incorrectly totalled and overstated by 600, then the posting to correct the error would be as follows:

Correcting entries
	Dr	Cr
Fixed Assets	600
Wages		600

 

Error of Original Entry

An error of original entry occurs when an incorrect amount is posted to the correct accounts.

A particular example of an error of original entry is a transposition error where the numbers are not entered in the correct order. For example, if cash paid to a supplier of 2,140 was posted as 2,410 then the correcting entry of 270 would be.

A good indicator for a transposition error is that the difference (in this case 270) is divisible by 9.

The error was,
	Dr	Cr
Accounts payable	2,410
Cash/Bank		2,410
Should be,
	Dr	Cr
Accounts payable	2,140
Cash/Bank		2,140
Correcting entries
	Dr	Cr
Cash/Bank	270
Accounts payable		270

Complete Reversal of Entries

Complete reversal of entries errors occur when the correct amount is posted to the correct accounts but the debits and credits have been reversed. For example if a cash sale is made for 400 and posted incorrectly as follows:

Accounting Errors - Incorrect Posting

Account       Debit        Credit
Sales             400
Cash                                400

As you can see, by right, the nature for sales account should always be at the credit side. Same goes to the cash account. When we made a cash sale, the cash receive will increase the the cash account (asset account). Then the rule is debit the cash account.

Then to correct the accounting error the original entry must be reversed and the correct entry made, this can be achieved by doubling the original amounts as follows:

Accounting Errors - Complete Reversal of Entries

Account	Debit	Credit
Sales		800
Cash	800

Why it is 800? Actually there are two transaction of 400 we have to make. The first transaction is to 'zerorize' both account. Taking out 400 from the sales by debiting the sales account and another 400 from the cash account by debiting the amount to cancel the originally entered figure.

The second transaction, is to record the normal transaction because all the said accounts are now at 'zero' state. You can see that when the second transaction is done, there were 2 same transaction just to correct the errors. The amount now is double!

The type of accounting errors that do not affect the trial balance are summarized in the table below.

Summary of Accounting Error Types

Accounting Errors	Description
Error of Principle in Accounting	Correct amount, wrong type of account
Errors of Omission in Accounting	Entry missed from accounting records
Error of Commission	Correct amount and type of account but wrong account
Compensating Error	Two or more errors balance each other out
Error of Original Entry	Correct accounts, wrong amounts
Complete Reversal of Entries	Correct amount and account, entries reversed

Where possible all accounting errors should be identified and corrected, if the accounting errors are immaterial to the accounts then, as a last resort, the balance could be carried in the balance sheet on a suspense account or written off to the income statement as a sundry expense.

ACC2232 - Inventory Control and Valuation

In order for the organization to stay competitive, the inventory control and valuation is important. An inventory valuation allows a company to provide a monetary value for items that make up their inventory. Inventories are usually the largest current asset of a business, and proper measurement of them is necessary to assure accurate financial statements. If inventory is not properly measured, expenses and revenues cannot be properly matched and a company could make poor business decisions.

For your benefits, let's watch some short videos regarding the valuation of inventory.

The two most widely used inventory accounting systems are the periodic and the perpetual.

• Perpetual: The perpetual inventory system requires accounting records to show the amount of inventory on hand at all times. It maintains a separate account in the subsidiary ledger for each good in stock, and the account is updated each time a quantity is added or taken out.
• Periodic: In the periodic inventory system, sales are recorded as they occur but the inventory is not updated. A physical inventory must be taken at the end of the year to determine the cost of goods

Regardless of what inventory accounting system is used, it is good practice to perform a physical inventory at least once a year.


JUST IN TIME (JIT)

• No material are purchased and no product are manufactured until they are needed
• To reduce or eliminate inventories at every stage of production
• Minimize storage cost

FIFO (First In First Out)

• First material in will be the first material issued
• Most logical method and accepted by IRB
• Lower cost, higher profit

LIFO (Last In First Out)

• Most recent material received, will be the first to be issued
• Not really logical and not accepted by IRB
• Higher cost, lower profit

WEIGHTED AVERAGE

• Material issued is valued at average cost price
• Accepted by IRB

Weighted Average	=	Total Cost of Inventory
Unit Cost		Total Units in Inventory

Like FIFO and LIFO methods, AVCO is also applied differently in periodic inventory system and perpetual inventory system. In periodic inventory system, weighted average cost per unit is calculated for the entire class of inventory. It is then multiplied with number of units sold and number of units in ending inventory to arrive at cost of goods sold and value of ending inventory respectively. In perpetual inventory system, we have to calculate the weighted average cost per unit before each sale transaction.

There are so many videos you can find in the YouTube. Varies in minutes duration but why not? Just spend a couple of minutes to understand various presentations. Who knows, you might get addicted! Hahaha

I also uploaded the a calculation sheet to calculate the FIFO, LIFO and WACO. If possible try to download this, make 3 copies and we will use them in class.

Download this... Store Ledger Card

 

Example - FIFO

Use the following information to calculate the value of inventory on hand on Mar 31 and cost of goods sold during March in FIFO periodic inventory system and under FIFO perpetual inventory system.

Mar 1	Beginning Inventory	68 units @ $15.00 per unit
5	Purchase	140 units @ $15.50 per unit
9	Sale	94 units @ $19.00 per unit
11	Purchase	40 units @ $16.00 per unit
16	Purchase	78 units @ $16.50 per unit
20	Sale	116 units @ $19.50 per unit
29	Sale	62 units @ $21.00 per unit

 

Example - LIFO

Use LIFO on the following information to calculate the value of ending inventory and the cost of goods sold of March.

Mar 1	Beginning Inventory	60 units @ $15.00
5	Purchase	140 units @ $15.50
14	Sale	190 units @ $19.00
27	Purchase	70 units @ $16.00
29	Sale	30 units @ $19.50

Example - AVCo

Apply AVCO method of inventory valuation on the following information, first in periodic inventory system and then in perpetual inventory system to determine the value of inventory on hand on Mar 31 and cost of goods sold during March.

Mar 1	Beginning Inventory	60 units @ $15.00 per unit
5	Purchase	140 units @ $15.50 per unit
14	Sale	190 units @ $19.00 per unit
27	Purchase	70 units @ $16.00 per unit
29	Sale	30 units @ $19.50 per unit

ACC2232 - Economic Order Quantity (EOQ)

What is EOQ?

 

EOQ is the acronym for economic order quantity. The economic order quantity is the optimum quantity of goods to be purchased at one time in order to minimize the annual total costs of ordering and carrying or holding items in inventory.EOQ is also referred to as the optimum lot size.

 

The formula to calculate the economic order quantity is the square root of [(2 times the annual demand in units times the incremental cost to process an order) divided by (the incremental annual cost per unit to carry an item in inventory)].

 

HOLDING COST

•  Interest on fund borrowed
•  Storage charges (rent)
•  Insurance and security
•  Cost of obsolescence of stocks

ORDERING COST

•  Clerical costs preparing purchase order and transportation

ORDERING COST

•  Cost without having stock
•  Loss of contribution
•  Loss of customer future sale/goodwill
•  Production stoppage

 

Let's try this!

 

Annual demand quantity : 1500 units

Ordering cost: RM30 per order

Cost per unit of item: RM5

Holding cost: 20% of inventory cost

 

Calculate the EOQ.

 

Another one...

 

Nadzmi runs a mail-order business for gym equipment. Annual demand for the AbsFlexer is 16,000. The annual holding cost per unit is $2.50 and the cost to place an order is $50. What is the economic order quantity?

 

However, the EOQ implementation has to be based on the following assumptions....

 

Assumptions:

• Demand is constant
• Holding and ordering cost are constant
• Unit price is constant
• Quick delivery
• Replenishment is made instantaneously (the whole batch is delivered at once)