Statement of Financial Position format and its elements Basic accounting equation Effects of transactions on the basic accounting equation Expanded accounting equation. Effects of transactions on the expanded accounting equation Nik Nurul Aswani binti Nik Kamarudin (UiTM Perak Branch) 1
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Statement of Financial Position format and its elements
Basic accounting equation
Effects of transactions on the basic accounting equation
Expanded accounting equation.
Effects of transactions on the expanded accounting equation
Nik Nurul Aswani binti Nik Kamarudin (UiTM Perak Branch)
1
After completing this chapter, students should be able to:
Identify the elements in the Statement of Financial Position and relate them with the accounting equation.
Identify the effects of business transactions on accounting equation.
2
Nik Nurul Aswani binti Nik Kamarudin (UiTM Perak Branch) 2
INCOME is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an entity and is referred to by
a variety of different names including sales, fees, interest, dividends, royalties and rent. Gains represent other items that meet the definition of income and may, or may not,
arise in the course of the ordinary activities of an entity. E.g., gain on disposal of non-current assets.
Nik Nurul Aswani binti Nik Kamarudin (UiTM Perak Branch) 16
EXPENSES are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Expenses encompasses losses as well as those expenses that arise in the course of the
ordinary activities of the entity. Expenses that arise in the course of the ordinary activities of the entity include, for example, cost of
sales, wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, property, plant and equipment.
Losses represent other items that meet the definition of expenses and may, or may not, arise in the course of the ordinary activities of the entity. E.g., loss on disposal of non-current assets.
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Nik Nurul Aswani binti Nik Kamarudin (UiTM Perak Branch) 18
Date Jan.
Transactions A + EXP. + D = C + INC. + L Effects
Increase Decrease
5 The owner took RM2,000 cash from the business for personal use
- Cash 2,000
+ Drawings 2,000
AssetEquity
6 Paid water bills RM1,000 by cash
- Cash 1,000
+ Water Bills 1,000
= Expense Asset
7 Bought goods oncredit worthRM3,500
+ Purchase 3,500
= + Payables 3,500
ExpenseLiabilities
8 Sold products tocustomer on credit worth RM2,400
+ Receivables2,400
= + Sales2,400
AssetIncome
9 Received RM1,000cash fromreceivables
- Receivables 1,000+ Cash 1,000
= Asset Asset
Fatimah Abd Rauf, Amla Abu, Radziah Mahmud, FINANCIAL ACCOUNTING FOR NON-ACCOUNTING STUDENTS, 6th Edition, Mc Graw Hill, 2020, ISBN:978-967-0761-38-1.
Malaysia Accounting Standard Board (MASB), CONCEPTUAL FRAMEWORKS (2018)
UiTM Lecturer’s Notes
Nik Nurul Aswani binti Nik Kamarudin (UiTM Perak Branch) 19