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1 Acknowledgments Copyright/Trademark Information: MYOB is the registered trademark of MYOB Technology Pty Ltd. Screen captures from MYOB Accounting v16 and v17 reproduced with permission. Copyright 2006 MYOB Technology Pty Ltd. Microsoft MS-DOS, Word and Excel are registered trademarks and Windows is a trademark of the Microsoft Corporation. Copyright Notice: Copyright Marian Brown All rights reserved. No part of this material may be reproduced or copied in any form or by any means (graphic, electronic or mechanical, including photocopying or by information retrieval systems) without permission in writing from Marian Brown. Written by: Marian Brown Dip T [Commerce] Cert IV Workplace Training and Assessment Business Administration Teacher to 1996 Brisbane North Institute of TAFE Business Administration Teacher [part-time] Southern Queensland Institute of TAFE Guest MYOB lecturer University of Queensland Business Owner for 13 years MYOB Certified Consultant 12 years, MYOB Publishing Partner, Accredited Trainer and Author Publishers: Software Publication Pty Ltd [ABN ] Head Office Sydney Unit 10, 171 Gibbes Street Chatswood NSW ISBN Limitations of Liability: This material is designed to provide basic information on how to use MYOB Accounting/Accounting Plus v16 and v17 and Premier v10 and v11. Because business circumstances can vary greatly, the material is not designed to provide specific GST or business advice for particular circumstances. Also, because aspects of the GST are complex and detailed, the material is not designed to comprehensively cover all aspects of the GST. Further, the laws implementing GST and ruling and decisions under those laws may change. Before you rely on this material for any important matter for your business, you should make your own enquiries about whether the material is relevant and still current, and whether it deals accurately and completely with that particular matter; and as appropriate, seek your own professional advice relevant to that particular matter. This information is for the general information of MYOB clients and is not to be taken as a substitute for specific advice. Consequently Marian will accept no responsibility to any person who acts on information herein without consultation with Marian Brown. This workbook is dedicated to my two children, Lindy and Tony who spent hours collating and binding my first MYOB book a number of years ago. Proofreader: Peta Whatmore Copyright Marian Brown 2007 STEP BY STEP APPROACH TO MAINTAINING FINANCIAL RECORDS using v16 & v17 Table of Contents

2 Unit 9: Double-Entry Bookkeeping and Financial Reports Learning Outcome After completion of this unit, students will be able to implement double-entry bookkeeping principles. Revision of Double-Entry Bookkeeping Principles Before changing Brocks Tyreworld to an ACCRUAL Accounting system, we will revise the doubleentry bookkeeping principles which MYOB Accounting uses. Double-Entry means that all details of business transactions are recorded into some book of record. The recording of these business transactions is governed by account group rules. Some accounts will be debit and some will be credit. Debit and credit are simply terms used in bookkeeping to determine whether to increase or decrease an account value. The rule for double-entry principles states that for every debit entry there must be a corresponding credit entry of equal value. Therefore, one transaction will affect at least two different accounts. The Double-Entry System provides sufficient information to enable the business to accurately calculate profit or loss. Using this information, management is able to make informed business decisions about the future, and taxation can be calculated. Copyright Marian Brown 2007 A STEP BY STEP APPROACH TO MAINTAINING FINANCIAL RECORDS using v16 & v17 Unit 9 113

3 Transactions Transactions are merely the events that occur within a business. If you were to examine the events that occur in your own daily dealings, you would find that you could: Sell items or services Purchase items or services Pay for items or services Receive payment for items or services The transactions that occur in a business are exactly the same. The Bookkeeping Entity principle states that the records of the business are always kept from the business point of view. So in a business we can say that transactions can be grouped into four types: Sales Purchases Payments Receipts The business records the transactions relating to a particular person or item into an account. Remember, an account is simply the name of a particular person or item eg Sales A/c and Telephone A/c, A/c being an abbreviated form of Account. The accounts used by a business are classified into five groups. An account group classifies common types of accounts. There are five account groups used in a business. Let s examine the first three groups. First Three Account Groups The first three Account Groups are: Asset Accounts Liability Accounts Equity [or Proprietorship]Accounts 1. Asset Accounts Assets are items of value owned by the business. An example of an asset account is the Bank Account. Another example of an asset is the Debtors Account. This is a less obvious example, but it is expected that the debt owed by customers will be honoured, and is therefore an asset to the business. Another example of an asset is Motor Vehicles Account 114 Unit 9 A STEP BY STEP APPROACH TO MAINTAINING FINANCIAL RECORDS using MYOB v16 & v17 Copyright Marian Brown 2007

4 Account Groups [cont] 2. Liability Accounts Liabilities are items of value owed by the business. An example of a liability account is a Loan from the bank. Another example of a liability account is the Creditors Account. As with debtors, it is expected that the business will honour the debt owed to suppliers, and is therefore a liability to the business. 3. Equity (or Proprietorship) Accounts As the name implies, this account group deals with the owner/s of the business. It shows all the money or items of value invested into the business (called Capital), all withdrawals of cash or goods from the business (called Drawings) [sole trader and partnerships only], and any profits made or losses incurred in the accounting period. Proprietorship is the Equity that the owners have in the business. Equity is similar to a liability but is regarded as a "Special Liability" as the business owes the owner for all money or items of value he/she has invested. Classify the following as an asset, liability or equity account: Computer: PAYG owing to the ATO: Amount invested by the owner: Credit Card debt: Toyota Landcruiser: $25,000 still owing on the Toyota Landcruiser:.. Petty Cash on hand: Tyres [stock for resale] on hand: Drawings: Suppliers to whom the business owes money:..... [Solution can be found in the Appendix.] Copyright Marian Brown 2007 A STEP BY STEP APPROACH TO MAINTAINING FINANCIAL RECORDS using v16 & v17 Unit 9 115

5 The Relationship between Asset, Liability & Equity Account Groups Asset, Liability and Equity Account Groups are related to each other. They represent what the business owns and what the business owes. In bookkeeping, a business report that lists what is owned (assets), and what is owed (liabilities +equity), is called a Balance Sheet. A Balance Sheet is also known as a Statement of Financial Position. The bookkeeping entity states that the business and the owner must always be regarded as separate. Even though Equity is considered a special liability, the account group Equity is listed separately to the account group Liability. This supports the bookkeeping entity rule which states that the business and the owner are regarded as separate bodies. BALANCE SHEET OF JOHN BROWN AS AT 31 JULY xxxx ASSETS LIABILITIES Cash 1,500 Bank Loan 20,000 Computer Equipment 10,000 Creditors 1,500 Office Furniture 10,000 Delivery Vehicle 25,000 EQUITY Capital 25,000 $46,500 $46,500 This form of Balance Sheet is known as "T" form. In a T form Balance Sheet you will notice that Assets = Liabilities +Equity. This formula can be shortened to A = L + E and is known as the Accounting Equation. Accounting Equation: A = L + E The Accounting Equation is an important mathematical concept. The whole bookkeeping process is based on this equation. It will always show you the relationship between Asset, Liability and Equity account groups. 116 Unit 9 A STEP BY STEP APPROACH TO MAINTAINING FINANCIAL RECORDS using MYOB v16 & v17 Copyright Marian Brown 2007

6 The Relationship between Asset, Liability & Equity Account Groups A Balance Sheet in MYOB Accounting looks like this: [Refer to Printout 10.] BALANCE SHEET OF JOHN BROWN AS AT 31 JULY xxxx ASSETS Cash 1,500 Computer Equipment Office Furniture 10,000 Delivery Vehicle 25,000 Total Assets 46,500 Less LIABILITIES Loan from Bank 20,000 Creditors 1,500 Total Liabilities 21,500 Net Assets $25,000 EQUITY Capital $25,000 This form of Balance Sheet is known as the "Narrative" form. Note that the Accounting Equation is now: Assets Liabilities = Equity or A L = E. There is no difference between the T form and the Narrative form of Balance Sheet. It is simply another way of presenting the same information. The above Balance Sheet and Balance Sheet on the previous page tells the following story about the business owned by John Brown. On the 31 st July, the business owned by John Brown had $1,500 in the bank, owned Computer Equipment valued at $10,000, Office Furniture valued at $10,000 and a Delivery Vehicle valued at $25,000. The business had a Bank Loan of $20,000 (used to buy the Delivery Vehicle), and owed $1,500 to creditors (for the Computer). This business is worth $25,000 to the owners. Copyright Marian Brown 2007 A STEP BY STEP APPROACH TO MAINTAINING FINANCIAL RECORDS using v16 & v17 Unit 9 117

7 Balance Sheet Exercise: The following is a list of assets, liabilities and equity items of B Mercer, Plumber at the end of the current month. Prepare a Balance Sheet from the following list as at the end of the current month. Cash at Bank $20,000 Motor Vehicle $35,000 Plant and Equipment $15,000 Stock of Taps $4,500 Bank Loan $22,000 Visa Credit Card $2,100 Shed $8,500 Debtors $14,000 Creditors $3,600 Capital $69,300 ASSETS BALANCE SHEET in Narrative FORM of B Mercer As at Less LIABILITIES EQUITY Capital Note: If you make an error, you MUST NOT use liquid paper or correction tape or write over the top of figures to correct. You MUST cross out, and write the correct amount above and initial. [Answer can be found in the Appendix.] 118 Unit 9 A STEP BY STEP APPROACH TO MAINTAINING FINANCIAL RECORDS using MYOB v16 & v17 Copyright Marian Brown 2007

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