Asset = Liabilities + Equity

Equity = Share Capital (investment by shareholders) + Retained Earnings + Current

Year Profit - Dividends - Drawings
Retained Earnings (profit in business) = +revenue -expenses

Liabilities
If tax invoice is received from suppliers before closing (annual/month),
Dr Expense (+ -)
Cr Accounts Payable (- +)
If tax invoice is not yet received from suppliers at balance day (year end/month end) and
expenses were incurred
Dr Expense (+ -)
Cr Expense Payable/Accrued expense (- +)
Example:
(original)
Dr Utility expenses 660
Cr Utility payable/Accrued utility 660

(adjustment)
After year end- receive tax invoice of $700
Dr Utility expenses (+ -) 40
Dr Utility payable/accrued utility (- +) 660
Cr Accounts payable (- +) 700

After year end- receive tax invoice of $600

Dr Utility payable/accrued utility (- +) 660
Cr Accounts payable (- +) 600
Cr Utility expenses (+ -) 60

Summary
 Accrual-based accounting Cash-based accounting

Revenue recognized when goods and recognized when the cash is

services are provided (earned) received

Expenses recognized when assets are recognized when the cash is

consumed paid
or liabilities incurred (发生)

Adjusting entries
Prepayments Accruals

Prepaid Amount paid in cash Accrued Amounts not yet received

expenses and recorded revenues and recorded for which
(asset) As assets until used (asset) goods or services already
Account provided (Earned) 已经给顾
receivable 客服务但还没收到钱

Revenue Amounts received from Accrued Amount not yet paid or

received in customers and expenses recorded for goods or
advance recorded as a liability (liability) services already received
(liability) until services Expense (Incurred) 已经从商家得到
payable 服务但我（公司）还没付钱
 performed or goods
delivered.
Week 4: Perpetual & Periodic System
Alternative (Periodic)
Dr Cost of Goods Sold
Cr Inventory (opening)
Cr Purchase
Dr Purchase return
Dr Inventory (closing)
(Being closing entries to COGS)

Week 5: GST, Closing Entries

- Purchasing inventory (GST paid-asset)
Dr Inventory 4000
Dr GST paid 400
Cr Accounts Payable 4400

- Selling inventory (GST collected -liability)

Dr Accounts Receivable 2750
Cr GST collected 250
Cr Sales 2500

(perpetual) Dr COGS 2000

Cr Inventory 2000

GST collected (from customer) > GST paid (to suppliers) -the difference to be
remitted to ATO [差额要汇给ATO]
Dr GST collected 200
Cr GST paid 160
Cr Cash at Bank 40
 GST collected (from customer) < GST paid (to suppliers) -the difference to be
refunded by ATO
Dr GST collected 200
Dr Cash at Bank 40
Cr GST paid 240

Closing Entries
Dr Profit or loss summary xx
Cr Retained Earnings xx
(to close profit to Retained Earnings

Dr Retained Earnings xx
Cr Dividends xx
(to close dividends to Retained earnings)

Dr Capital xx
Cr Drawings xx
(To close drawings to Capital )**for sole proprietors

*Week 6: Internal Control

Week 7: Bank Reconciliation

1. Unpresented cheque
Cheque not yet paid by bank
Bank (-)

2. Outstanding deposit
Receipt not yet cleared by bank
Bank (+)

3. Dishonoured cheque (Accounts receivable)

Cheque receipt received is bounced!
Bank (+)

Bank Reconciliation Statement as at ….

Balance as per bank statement

Add: Outstanding deposit
Bank error

Less: Unpresented cheque

Balance as per cash at bank account/ bank ledger

Week 8: FIFO, LIFO, Average cost (Perpetual & Periodic System)

FIFO (COGS, ending inventory value)

FIFO LIFO Average Cost

Perpetual system - The latest units purchased before each sales are allocated to COGS -
Trace one by one
Periodic system – The latest units purchased during the entire period are allocated to
COGS.- do not trace in detail.

IN Statement of P&L Effect

In periods of increasing prices:

- FIFO reports the highest profit (cost is lowest) - COGS use the older value
- LIFO the lowest profit (Cost is highest )-COGS use the latest value
- Average cost falls in the middle.

In periods of decreasing prices:

- FIFO will report the lowest profit (cost is highest)-COGS use the older value
- LIFO the highest profit.
- Average cost falls in the middle.

Week 9: Cost Model, Fair Value Model, Sale on PPE, Depreciation

Depreciation Methods

Cost $13,000
Expected residual value $1,000
Estimated useful life (in years) 5 years
Estimated useful life (in kilometres) 100,000

1. Straight-line
(Cost of asset - residual value)/ useful life of asset
= (13,000 -1,000)/ 5
=$2,400 annual depreciation expense
2. Diminishing-balance
Depreciation rate=40%
Cost x depreciation rate

$13,000 x 40% = $ 5,200 annual depreciation expense

3. Units-of production
Depreciation cost per unit (cost of asset/ useful life) x yearly units of
production

Depreciation cost per unit = $12,000/100 000 km

=$0.12 per km
Depreciation expense based on actual mileage, assuming 15,000 km is recorded
= $0.12 x 15 000 km
= $1 800
Example (Revised residual amount & useful life):
Jan 1 2013 cost= $60,000; residual value= $2,000; useful life= 10 years
Jan 1 2017 revised residual value =$4,000; useful life = 8 years

Depreciation expense (2013-2016) = ($60,000-2,000)/10 years x 4 years

= $5,800 x 4
= $23,200
Carrying amount = $60,000 -23,200 =$36,800

Revised annual depreciation charge

(Carrying amount todate - new residual value)/ remaining years
= ($36,800 - 4,000)/ (8-4)
=$8,200

Cost Model: Impairment Loss

Compare CA and RA (CA > RA)

Recoverable amount = Fair value - Cost to sells VS Value in use (CHOOSE HIGHER)
Carrying amount = Cost - Accumulated depreciation

CA - RA = impairment loss
Dr Impairment loss
Cr Accumulated depreciation & impairment — Name of Asset

*no journal entry is required when RA > CA

Fair Value Model: Revaluation

Compare CA and FV
CA > FV -revaluation decrease
Dr Revaluation expense
Cr Non-current Asset
CA < FV -revaluation increase
Dr Non-current Asset
Cr Asset Revaluation Reserve

Disposals of PPE assets

Compare CA and Sales Amount

CA > Sales Amount (Loss on disposal)

Dr Cash at Bank
Dr Accumulated depreciation — Type of Asset
Dr Loss on disposal
Cr Asset

CA < Sales Amount (Gain on disposal)

Dr Cash at Bank
Dr Accumulated depreciation — Type of Asset
Cr Asset
Cr Gain on disposal

Week 10: Warranty & Provision, Note Payable

Current Liabilities -debentures 债券, unsecured notes 无担保票据

Advantage of Leasing 租赁
A lease is an agreement between a lessee and lessor where the lessor (owner of the asset)
grants the lessee the right to use the asset for an agreed period of time.
Operating lease – treated as rental payment when instalment payments are made.
Finance lease – both asset and liability recorded on the statement of financial position.

Mortgage -抵押 a loan secured by a charge over property.

Differences between provision, accruals and contingent liabilities

Notes Payable
1. Note issued
Dr Cash at Bank 100,000
Cr Notes Payable 100,000
(To record issue of 12%, 4 month note to West State Bank)

2. Record interest
Dr Interest expense 4,000
Cr Interest Payable 4,000
 (To accrue interest for 4 months on West State Bank note)

3. Settle liabilities
Dr Notes Payable 100,000
Dr Interest Payable 4,000
Cr Cash at Bank 104,000
(To record payment of West State Bank interest-bearing note and accrued interest at
maturity)

Payroll
1. Entry for payroll accrual and payment to employees
Dr Salaries and wages expense 100,000
Cr Pay-as-you-go withheld tax payable 32,036
Cr Salaries and wages payable 67,964
(To record payroll and withheld taxes for the week ending 7 March)

2. Journal entry when payments are made to relevant parties

Dr Salaries and wages payable 67,964
Cr Cash at Bank 67,964
(To record payment of the withheld taxes for March)

3. Another Example –Malaysia scenario

Dr Salaries
Dr Transport Allowance
Dr Bonus
Dr EPF (Employer’s portion)
Dr EPF-Bonus
Dr Socso (Employer’s portion)
Cr EPF Payable (Employer+employee portion-To EPF)
Cr Socso Payable (Employer+employee portion-To Socso)
Cr PCB Tax payable (To Inland Revenue Board)
Cr PTPTN payable (To PTPTN)
Cr Salaries payable (Net payment to employee)

Revenue Received in Advance

Dr Cash at Bank
Cr Revenue received in advance
Dr Revenue received in advance
Cr Sales revenue

AASB118 Revenue (14 marks)

Week 11: Bad Debts

Week 12: Dividends, Share Capital, Equity