Basic Equation Asset = Liabilities + Equity

Expanded

Equation

Asset = Liabilities + Share

Capital

+ Retained

Earning

- Devidend + Revenues - Expenses

Debit/ Credit

Effect

Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr

+ - - + - + - + + - - + + -

Notes: Each adjusting entry will affect one or more income statement accounts

and one or more statement of financial position accounts.

Interest Computation

Interest = Face Value of Note X Annual Interest Rate X Time in Terms of One Year

Types Adjusting Entries

Deferals Dr Prepaid Expenses Dr Expenses Cr Assets

Cr Unearned Revenues Dr Liabilities Cr Revenues

Accruals Dr Accrued Revenues Dr Assets Cr Revenues

Cr Accrued Expenses Dr Expenses Cr Liabilities

Purpose

1. Update Retained Earning account in the ledger by transferring net income

(loss) and devidends to RE.

2. Prepare the temporary accounts (revenues, expenses, and dividends) for

the next period’s postings by reducing their balances to zero.

Process

1. Debit each revenue account and Credit Income Summary.

2. Credit each expenses account and Debit Income Summary.

3. Debit (Credit) Income Summary and Credit (Debit) Retained Earning for the

amount of net income (loss).

4. Credit RE for the balance of Dividend account and Debit Dividend for the

same amount.

Stop and Check: use worksheet of trial balance.

Ownership and Point of Sale

Freight Terms Point of Sales

(i.e. when the risk

is transferred)

Ownership of Goods

on Public Carrier

Resides with:

Who Pay

Freight Costs

b/w Point

Freight Expense

Treated as

FOB Shipping

Point

Depart from Seller

Warehouse

Buyer Buyer Inventory cost

for Buyer

FOB

Destinantion

Arrive to Buyer

Warehouse

Seller Seller Delivery expense

for seller

Perpetual vs Periodic Journal Entries

(*) Costing Method

(1) Specific identification, (2) FIFO, and (3) Weighter average

Event Perpetual Periodic (*)

Purchase of goods (Dr) Inventory,

(Cr) Cash/ AP

(Dr) Purchases

(Cr) Cash / AP

Freight (shipping

point)

(Dr) Inventory,

(Cr) Cash

(Dr) Freight in

(Cr) Cash

Retuns of goods (Dr) Cash/ AP,

(Cr) Inventory

(Dr) Purchases

(Cr) Purchase Returns and Allowances

Sales of goods (Dr) Cash/ AR,

(Cr) Sales

(Dr) COGS,

(Cr) Inventory

(Dr) Cash / AR

(Cr) Sales

No Entry

End of period No Entry (if no absolence or

loss)

Closing or Adjusting entries required, to record

the ending inventory balance .

The Fraud Triagle

Principles of Internal Control Activities

1. Establishment of responsibility.

2. Segregation of duties/ functions.

3. Documentation procedures.

4. Physical controls.

5. Independent internal verification.

6. Human resouce controls.

Bank Reconciliation

Bank

Balance per Bank Statement

Add: deposit in transit

Deduct: outstanding checks

Adjusted cash balance

Books

Balance per Books

Add: unrecorded credit memo from

bank statement

Deduct: unrecorded debit memo from

bank statement

Adjusted cash balance

Notes:

1. Errors should be offset (added or deducted) on the side that made the error.

2. Adjusting journal entries should only be made on the Books.

Method to Account for Uncollectible Accounts

Direct write off method No adjustment entry

Record bad debt expense when the company

determines a particular account to be uncollectible

Allowance method:

% of sales

Make adjustment entry

At the end of each period, estimate the amount of

credit sales uncollectible (e.g.: xxx).

Dr: Bad Debt Expense xxx

Cr: Allowance for Doubtful Account xxx

As spesific account become uncollectible

Dr: Allowance for Doubtful Account

Cr: Account Receivables

Allowance method:

% of receivables

Make adjustment entry

At the end of each period, estimate the amount of

uncollectible receivables (e.g.: xxx) :

Dr: Bad Debt Expense (xxx- beginning balance)

Cr: Allowance for Doubtful Account (xxx- BB)

As spesific account become uncollectible

Dr: Allowance for Doubtful Account

Cr: Account Receivables

PPE (IAS 16)Properti Investasi

(IAS 40)

Aset Tidak Lancar -

Held for Sale

(IFRS 5)

Aset Tetap Berwujud

Tanah/Bangunan/

Mesin

Digunakan dalam

operasional.

Disewakan dalam

bentuk sewa

pembiayaan.

Digunakan untuk

administrasi.

Tanah / Bangunan

Untuk peroleh

pendapatan sewa

Untuk dapat capital

gain

Aktiva Tetap

Dijual dalam

waktu dekat.

Presentation

Tangible Assets Intangible Assets

Property, Plant, and Equipment (IAS 16) Intangible Assests (patents, copyrights,

trademarks, franchises, goodwill) (IAS 38)

Natural Resources

Computation of Annual Depreciation Expense

Straight-line method Cost – Residual Value

Useful Life (in years)

Units-of-activity Depreciable Cost X units of activity during year

Useful Life (in units)

Declining balance Book value at beginning X Declining balance rate

* Declining balance rate = 1 : useful life in years

Aset tetap berupa tanah, bangunan atau tanah dan bangunan yang dimiliki

entitas, dengan tujuan untuk mendapatkan pendapatan sewa atau untuk

mengapresiasi kenaikan nilai atau keduanya, dan tidak untuk:

1. digunakan dalam produksi atau penyediaan barang atau jasa atau

untuk tujuan administratif; atau

2. dijual dalam kegiatan sehari-hari.

Tidak termasuk Properti Investasi:

1. Dimaksudkan untuk dijual dalam operasi normal entitas

2. Dibangun atau dikembangkan sebagian oleh pihak ketiga, bukan untuk

tujuan property investasi.

3. Digunakan dalam operasi normal entitas

4. Disewakan ke pihak lain dengan sewa pembiayaan.

Comparison of Long-term Bond Investment and Liability Journal Entries

Comparison of Cost and Equity Methods of Accounting LT Share Investment

Event Investor Investee

Purchase / Issue of Bonds Dr: Debt Investment

Cr: Cash

Dr: Cash

Cr: Bond Payable

Interest receipt/ payment Dr: Cash

Cr: Interest Revenue

Dr: Interest Expense

Cr: Cash

Event Cost Equity

Acquisition Dr: Share Investment

Cr: Cash

Dr: Share Investment

Cr: Cash

Investee Reports Earnings No Entry Dr: Share Investment

Cr: Investment Revenue

Investee Pays Devidends Dr: Cash

Cr: Dividend Revenue

Dr: Cash

Cr: Share Investment

Trading (Share) and Available for Sale / Hold for Collection (Bond) Securities

Classification Valuation Approach and Reporting Income Effects

Debt Investment

1. Meets business model

(HFC) n contractual CFM

Amortized cost / Current or Non

current asset

Interest is recognized as revenue. No holding

gain / loss recognized.

2. Not meet the business

model test (not HFC).

Fair value / Current asset Interest is recognized as revenue. Unrealized

holding gain /loss is included in income

3. Fair value option. Fair value / Current asset or Non

current asset

Interest is recognized as revenue. Unrealized

holding gain /loss is included in income

Equity Investment

1. Not meet contractual

cash flow test; holding <

20% (trading).

Fair value / Current asset Dividend is recognized as revenue.

Unrealized holding gain /loss is included in

income

2. Not meet contractual

cash flow test; holding <

20% (non trading)

Fair value / Non current asset Dividend is recognized as revenue.

Unrealized holding gain /loss is included in

other comprehensive income.

3. Holding > 20%

(significant influence or

control)

Originally recorded at cost with

periodic adjust for the share of the

investee’s income /loss, and

decreased by dividends received /

Non current asset

Revenue is recognized to the extent of the

investee’s income /loss reported subsequent

to the date of the investment.

Sumber: KPMG, 2008

Computation of annual bond interest expenses

Interest expense = interest paid (payable) + amortization of discount

(or) – amortization of premium

Premiun Market interest rate < Contractual interest rate

Face Value Market interest rate = Contractual interest rate

Discount Market interest rate > Contractual interest rate

Effective interest

amortization

(preferred method)

Bond interest expense Bond interest expense

Carrying value of bonds at

beginning of period x

effective interest rate

Face value of bonds x

contractual interest rate

No Par Value vs Par Value Share Journal Entries

No Par Value Par Value

Cash

Share capital - ordinary

Cash

Share capital – ordinary

Share premium – ordinary

Comparison of Dividends Effects

Cash Share capital - ordinary Retained earning

Cash dividend No effect

Share dividend No effect No effect

Share split No effect No effect No effect

Debits and Credits to Retained Earnings

Debits (Decreases) Credits (Increases)

1. Net losses.

2. Prior period adjust for overstate of income

3. Cash dividends and share dividends

4. Some disposal of treasury shares

1. Net income

2. Prior period adjustment for

understatement of income

Cashflow from Operating Activities (Indirect Method)

Net Income

Add: Loss on disposal of assets $ xxx

Amortization and depreciation xxx

Decrease in non-cash current assets xxx

Increase in current liabilities xxx

Deduct: Gains on disposal of assets $ (xxx)

Increase in non-cash current assets (xxx)

Decrease in current liabilites (xxx)

Net cash provided (used) by Operating Activities $ xxx

Cashflow from Investing Activites (only use Gross Method)

Add: Sale of Fixed / Noncurrent Assets $ xxx

Deduct: Purchase of Fixed / Noncurrent Assets (xxx)

Net cash provided (used) by Investing Activities $ xxx

Cashflow from Financing Activites (only use Gross Method)

Add: Proceed from Long-term Financing $ xxx

Deduct: Payment / Settlement for Long-term Financing (xxx)

Net cash provided (used) by Financing Activities $ xxx

Cashflow from Operating Activities (Direct Method)

Cash Receipts

From: Sales of goods and services to customer $ xxx

Interest and dividend receipt xxx

Others operating receipts xxx

Cash Payments

For: Purchase of goods and service from supplier $ (xxx)

Interest payment (xxx)

Tax payment (xxx)

Net cash provided (used) by Operating Activities $ xxx

Cashflow from Investing Activites (only use Gross Method, can not be offset)

Add: Sale of Fixed / Noncurrent Assets $ xxx

Deduct: Purchase of Fixed / Noncurrent Assets (xxx)

Net cash provided (used) by Investing Activities $ xxx

Cashflow from Financing Activites (only use Gross Method, can not be offset)

Add: Proceed from Long-term Financing $ xxx

Deduct: Payment / Settlement for Long-term Financing (xxx)

Net cash provided (used) by Financing Activities $ xxx

Period Prior Adjustments Books still open:

Directly reverse the related accounts.

Books closed:

Statement of Retained Earnings (adjustment of

beginning RE )

Discontinued Operations Income Statement (presented separately after “Income

from Continuing Operations”)

Change in Accounting

Principle

In most intances, use the new method in current

period and restate previous years result using new

method.

For changes in depreciation and amortization

methods, use the new method in the current period,

but do not restate previous periods.