Accounting reference lists…

I just wandering around, browsing for some songs and some accounting information while finishing on something that I really need to do. Sigh! BUT I came across some good sites for students to do some researching or knowledge seeking. Websites, videos, slides etc…So I will post some first and maybe if I have time, I will continue to contribute here…

http://www.futureaccountant.com

http://www.accountingdetails.com

later…

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

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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

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.