Accounting:

Accounting is a system of recording transactions (events), which have some monetary effect on the
business.

Moreover, it is a system of identifying, measuring and communicating economic information. It also

involves processing of financial data, generating reports, which makes this data useful for the users of
financial information.

Book keeping:

Book keeping is a part of accounting which is only concerned with the recording of financial
transactions.

The objectives of accounting:

Accounting has many objectives; including letting people and organizations know:
if they are making a profit or a loss;
what their business is worth;
what a transaction was worth to them;
how much cash they have;
how much they are owed;
how much they owe to someone else;
Enough information so that they can keep a financial check on the things they do.

Accounting is concerned with:

Recording financial data

Classifying and summarizing
Communicating information

Users of accounting information:

Managers: These are the day-to-day decision-makers. They need to know how well things are
progressing financially and about the financial status of the business.
Owner(s) of the business: They want to be able to see whether or not the business is profitable.
In addition they want to know what the financial resources of the business are.
A prospective buyer: When the owner wants to sell a business the buyer will want to see such
information.
The bank: If the owner wants to borrow money for use in the business, then the bank will need
such information.
Tax inspectors: They need it to be able to calculate the taxes payable.
 A prospective partner: If the owner wants to share ownership with someone else, then the
would-be partner will want such information.
Investors, either existing ones or potential ones: They want to know whether or not to invest
their money in the business.

Classifications of Accounts
1. Assets:
It is a resource owned and controlled by the entity.

Non-current Assets:
These are those assets which have a useful life of more than one year. For example, Land
and Buildings, Plant and Equipment, Machinery, Motor Vehicles, Fixtures and Fittings
etc.
Current Assets:
These are those assets which have a useful life of less than one year. For example,
Inventory (stock in trade), Trade Receivables, Cash in hand, Cash at bank, Other
Receivables.

2. Liabilities:
These are the obligations of the business.

Current Liabilities: These are those liabilities which are due to be paid within one year.
For example, Trade payables, Bank overdraft, Other payables
Non-Current Liabilities: These are the liabilities which are due to be paid after one
year. For example, long-term loan, Debentures.

3. Capital:
This is the amount invested by the owner into the business. It increases when owner injects more
capital into the business or when the business makes a profit. It decreases when owner withdraws
capital from the business or when the business makes a loss.

4. Revenue/ Income:
It is amount earned from sale of goods and services. For example, Sales revenue, Commission
received, Discount Received, Interest Received.

5. Expenses:

Cost of Sales:
It is the amount spent on the goods which have been purchased for resale. For example,
purchase of goods, repackaging, carriage inwards, and custom duties.
 Other operating expenses:
These are the day to day running expenses of the business. For example, Rent expense,
Wages and salaries, Insurance, Commission paid, Discount Allowed, Interest paid, and
Carriage outwards etc..

Basicc Accounting Equation (Balance S

Sheet Equation):

Assets = Liabilities + Capital

Assets- liabilities = Capital

Assets Capital = Liabilities

Income Statement Equation:

Revenue cost of sales = Gross Profit

Gross Profit Operating Expenses = Net Profit

Activity:
Commissions Account Subscriptions Account Rent Account
Bank Interest Account Motor Expenses Account Postages
Account
Royalties Receivable Account Telephone Account Stationery
Account
Rent Receivable Account General Expenses Account Wages
Account
Overdraft Interest Account Audit Fees Account Insurance
Account

Identify
dentify which of the accounts listed above are expense accounts and which ones are revenue accounts.
Dual Aspect Concept: Every transaction in accounting has a debit effect and a credit effect.

Rules for double entry:

Debit Credit

Assets Increase Decrease

Expenses Increase Decrease

Liabilities Decrease Increase

Capital Decrease Increase

Revenue Decrease Increase

2.3 Prepare double entries
ries (Accounts to be debited, Accounts to be credited) for each of the
following transactions and post the entries into relevant T
T-Accounts,, also extract a trial
balance at the end of the month.

2.4 Prepare double entries

ries (Accounts to be debited, Accounts to be credited) for each of the
following transactions and post the entries into relevant T
T-Accounts,, also extract a trial
balance at the end of the month.

2.5 Prepare double entries

ries (Accounts to be debited, Accounts to be credited) for each of the
following transactions and post the entries into relevant T
T-Accounts,, also extract a trial
balance at the end of the month.
2.6 Prepare double entries (Accounts to be debited, Accounts to be credited) for each of the
following transactions and post the entries into relevant T-Accounts, also extract a trial
balance at the end of the month.
3.3 Prepare double entries (Accounts to be debited, Accounts to be credited) for each of the
following transactions and post the entries into relevant T-Accounts, also extract a trial
balance at the end of the month.
3.4 Prepare double entries (Accounts to be debited, Accounts to be credited) for each of the
following transactions and post the entries into relevant T-Accounts, also extract a trial
balance at the end of the month.
3.6 Prepare double entries (Accounts to be debited, Accounts to be credited) for each of the
following transactions and post the entries into relevant T-Accounts, also extract a trial
balance at the end of the month.
4.1 Prepare double entries
ries (Accounts to be debited, Accounts to be credited) for each of the
following transactions and post the entries into relevant T
T-Accounts,, also extract a trial
balance at the end of the month.

4.2 Prepare double entries

ries (Accounts to be debited, Accounts to be credited) for each of the
following transactions and post the entries into relevant T
T-Accounts,, also extract a trial
balance at the end of the month.

4.3 Prepare journal entries for each of the following transactions and post the entries into
relevant T-Accounts,, also extract a trial balance at the end of the month.
4.3 Prepare double entries
ries (Accounts to be debited, Accounts to be credited) for each of the
following transactions and post the entries into relevant T
T-Accounts,, also extract a trial
balance at the end of the month.
4.4 Prepare double entries
ries (Accounts to be debited, Accounts to be credited) for each of the
following transactions and post the entries into relevant T
T-Accounts,, also extract a trial
balance at the end of the month.
 Flow of transactions in Accounting:

Trial Income Balance

Journal Ledger
Balance Statement Sheet

Books of Account

Books of Prime Entries / Ledgers

Books of Original Entries

(Journals / daybooks):

1) Sales Journal 1) Sales Ledger (Debtor / Trade Receivables Ledger)

2) Sales Returns Journal 2) Purchases Ledger (Creditor / Trade Payables Ledger)
3) Purchases Journal 3) Cashbook
4) Purchases Returns Journal 4) General Ledger
5) Cashbook
6) General Journal

Journals and ledgers:

Journals/daybooks are books of prime entries (also known as books of original entries), whereas;
ledgers contain the individual accounts (T-Accounts). This means that all the transaction are
primarily recorded in journals and then posted to the ledgers.

Journals

Sales Journal:

It includes all the transactions of goods sold on credit.

Sales Returns Journal:

It includes all the transactions of goods returned to us by customers, which were sold on credit.

Purchases Journal:

It includes all the transactions of goods purchased on credit

Purchases Returns Journal:

It includes all the transactions of goods retuned by us to suppliers, which were purchased on credit.
Cashbook:

It includes all the transactions which include cash and bank (all receipts and payments through cash
or cheque).

General Journal:

It includes all other transactions which cannot be recorded in the above mentioned journals.
journals For
example non- current assets purchased/ sold on credit, expenses before payment of cash and
correction of errors.

Ledgers

Sales Ledger: It includes individual ledger accounts of all customers to whom we have sold goods
on credit.

Purchases Ledger: It includes individual ledger accounts of all the suppliers from whom we have
purchased goods on credit

Cash Book: A cashbook is a journal as well as a ledger. It includes ledger accounts of cash and
bank.

General Ledger: It includes all other ledger accounts which are not included in above mentioned
ledgers. For example, Sales, Sales returns, Purchases, Purchases Returns, Non
Non- current Assets,
expenses, Capital, Loan etc.
 Formats of Journals

Sales Journal

Date Name of Customer Folio Ref Amount

($)

Sales Returns Journal

Date Name of Customer Folio Ref Amount

($)

Purchases Journal

Date Name of Supplier Folio Ref Amount

($)

Purchases Returns Journal

Date Name of Supplier Folio Ref Amount

($)

General Journal

Date Particulars Debit($) Credit($)

5.1 Prepare relevant journals and post the entries into appropriate T-Accounts

5.2 Prepare relevant journals and post the entries into appropriate T-Accounts.

5.5 Prepare relevant journals and post the entries into appropriate T-Accounts.
5.6 Prepare relevant journals and post the entries into appropriate T-Accounts.
 Trial Balance
It is a list of all balances of ledger accounts on a certain date.

Trial Balance as at 31 Dec 2012

Debit (Dr) Credit (Cr)

Assets xxx

Expenses xxx

Liabilities xxx

Capital xxx

Revenues xxx

Total xxx xxx

6.1 Record the following transactions into relevant Journals (Day books) , post the entries into
relevant Ledgers (T-Accounts) and extract a Trial balance at the end of the month.

6.2 Record the following transactions into relevant Journals (Day books) , post the entries into
relevant Ledgers (T-Accounts) and extract a Trial balance at the end of the month.
6.3 Record the following transactions into relevant Journals (Day books) , post the entries into
relevant Ledgers (T-Accounts) and extract a Trial balance at the end of the month.

6.4 Record the following transactions into relevant Journals (Day books) , post the entries into
relevant Ledgers (T-Accounts) and extract a Trial balance at the end of the month.