1 / 7

Topic 11

Topic 11. ACCOUNTING FOR LIABILITY AND OWNER’S EQUITY. Current Liability An obligation that needs to be settled within one year. Creditors An amount owed to the supplier, for stock purchased. Unearned Revenue

amara
Download Presentation

Topic 11

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Topic 11 ACCOUNTING FOR LIABILITY AND OWNER’S EQUITY

  2. Current Liability An obligation that needs to be settled within one year. • Creditors An amount owed to the supplier, for stock purchased. • Unearned Revenue Cash received and recorded before the services being performed or stock delivered. • Accrued Expense An expense charged but still unpaid or recorded at the period in which the financial statement is prepared.

  3. 2. Long Term Liability An obligation which can be settled in a period of more than one year. Example: Long term loan, Bond and Mortgage. Issuing Procedure: • number of bond to be authorised • total face value: amount of principal the issuer must pay at the maturity date. • contractual interest rate: the interest paid by the borrower and the investor receives.

  4. How do we account or record the Long term Loan? Example: In 1 Jan 2002, Truth Company issued a 1,000 unit of bond for 10 years at RM1,000 (9% interest) at 100% face value. i. To record the principal 1 Jan 2002: Dr. Cash 1,000,000 Cr. Bond Payable 1,000,000 (To record sale of bond at face value)

  5. To record the interest payable. Assume the interest paid semi annually i.e. 1 January and 1 July 2002. 1,000,000 x 9% x 6/12 = RM45,000. 1 July 2002 Dr. Interest expense 45,000 Cr. Cash 45,000 (To record payment of bond interest)

  6. Adjusting Entry: 31 December 2002 Dr. Interest expense 45,000 Cr. Interest payable 45,000 (To record interest payable) When the interest paid in 1 Jan 2003 Dr. Interest payable 45,000 Cr. Cash 45,000 At the Year 10:(maturity date) Dr. Bond payable 1,000,000 Cr. Cash 1,000,000

  7. Owner’s Equity Definition: The ownership claim towards the asset owned by the business. Factors affecting the owner’s equity: • Additional capital: increased the amount of owner’s equity. • Drawing: reduced the amount of owner’s equity • Profit and Loss: Profit increase the owner’s equity Loss decrease the owner’s equity

More Related