Program Agribusiness and Value Chain Management
Class Year Year 2 Semester I
Course Name Fundamental of Accounting I
Course Code Acct 231
Credit hours/ECTS 3/5
Lecture class/Room
No
Lecture days /Hours
Instructor Leta G e-mail:
[email protected] Contact Hours Sugge Tot
Conta Practi Sub sted al
Topic ct cal/ - hours (Hr
s Hour Tutori Tota of s)
Topic One: Accounting: 6 3 9 indepe 27
18
Overview
1.1. Definition of Accounting
1.2. Accounting as a language of
business
1.3. The accounting Profession
1.4. Users of Accounting information
1.5. Basic Accounting principles
1.6. Business transaction
Topic Two: The Accounting Cycle 6 3 9 18 27
2.1 Nature of the account
2.2 Classification of the account
2.3 Charts of the account
2.4 Rules of Debit and credit
2.5 The process of journalizing
and posting transactions
2.6 Preparation of the trial balance
Topic Three: Completion of the 6 3 9 18 27
Accounting
Cycle
3.1 Accrual Vs Cash bases of
Accounting
3.2 The adjusting Process
3.3 Preparation of Work sheet
3.4 Closing
Topic Four: process
Accounting for 6 3 9 18 27
merchandizing business
4.1 Merchandizing business: Definit4.2
Inventory management Approaches
4.3 Accounting for purchase and sales of
Merchandise
Topic Five: Accounting for cash 6 3 9 18 27
5.1 Nature of cash
5.2 Special characteristics of cash
68
5.3 Methods of cash management
5.4 Analyzing Business Performance
Topic Six: Accruals and Deferrals 6 3 9 18 27
7.1 Accounting for Accruals
7.2 Accounting for Deferrals
Topic Seven: Receivables 6 3 9 18 27
7.1 Classification of Receivables
7.2 Maturity date and interest
computation
7.3 Accounting for Account Receivable
7.4 Accounting for Note receivable
Topic Eight: Plant Asset 6 3 9 18 27
7.1 Meaning of plant asset
7.2 Acquisition and Disposal of Plant
Asset
Total Course Load 48 24 144 216
Assessment
Continuous
assessments….50%
Assignment …
10
Refe
res
Fess and Warren, Accounting
Principles 16th Edition
Warren, Reeve, and Fess,
Accounting 20th Edition
Kimmel, Weygandt, and Kieso, Accounting Tools for Business Decision
th
Making, 4 edition, John Wiley & Sons, Inc, 2011
..
2.1.1.3 Classification Of Accounts
Accounts in a ledger are classified based on common characteristics as a
balance sheet accounts
or income statement accounts
Balance Sheet Accounts
Balance Sheet Accounts further classified into three and are listed in the
ledger in the order of
Assets, Liability and Owners Equity
A) Assets-assets are classified in the two groups as current assets and plant
assets
1. Current Assets-are any assets that may reasonably be realized in cash or
sold or consumed
within year or less period. For example: Cash, Accounts Receivable, supplies,
commodities
2. Plant Assets-these are used in the business operations and are of
permanent nature. For
example Equipments, machinery, building, furniture, land, etc
B) Liability- the two categories occurring most frequently are:
1. Current liabilities- are liabilities that will be due within short period of time
usually a year or less that have to be paid out current asset. For example:
salary payable, interest payable, tax payable, and accounts payable
2. Long term liabilities- are liabilities that will not be paid or due or matured
comparatively for long period of time usually more than one year. For
example mortgage payable, notes payable
C) Owner’s Equity-is a residual claim against the asset of the business after
liability is fully deducted. For a corporation owners’ equity is called
stock holder’s equity. Drawing represents the amount of cash or other
assets taken out of the business for personal use and it is one of the capital
accounts.
Income Statement Accounts
Income Statement Accounts are classified into three and are listed in the
order of revenue first
and expense second.
Revenue is increase in capital by gross amount as a result of:
➢ Sale of goods and service
➢ Renting real-estate and other properties
➢ Providing professional service
➢ Sale of assets
Expenses – represent decreasing in capital by gross amount as a result of
business operation.
That is as a result of consuming assets or using up of services.
3.1) Chart of Accounts
Accounts are sequentially arranged and given number for use as references.
The list of accounts
along with their numbers showing the sequence of account in the ledger is
called Chart of
ccounts. According to their order in the financial statements asset
comes first and then
followed by liabilities, capital, revenues and expenses. The chart of account
of Ethio Mobile
Maintenance which is owned by Ato Samuel and managed by his wife W/o
Ethiopia is follows:
1. Assets
Cash .......................................................................................... 11
Accounts
Receivables .......................................................................................... 12
Supplies.......................................................................................... 13
Prepaid Insurance ..........................................................................................
14
Office Equipment ..........................................................................................
17
Land .......................................................................................... 19
2. Liabilities
Accounts Payable ..........................................................................................
21
Unearned Revenue ..........................................................................................
23
3. Capital
Samuel, Capital.......................................................................................... 31
Samuel, Drawing ..........................................................................................
32
Income Summary ..........................................................................................
33
4. Revenues
Fees Revenue .......................................................................................... 41
Rent Income .......................................................................................... 42
5. Expenses
Salary Expenses ..........................................................................................
51
Rent Expense .......................................................................................... 52
Supplies Expense..........................................................................................
53
Utilities Expense..........................................................................................
54
Miscellaneous
Expense .......................................................................................... 59
Note: A flexible system of numbering is desired. Such system has the
advantage of permitting
of the later insertion new accounts without disturbing other account number.
In the above chart
3.2) Flow of Accounting Data
The flow of accounting data from the time a transaction occurs to its
recording in the ledger is
diagrammed as follows:
1. Transaction Occurs – there must be business transaction, be it
internal or external, to
initiate the flow of Accounting Data.
2. Document Prepared – If it is external transaction it must be supported by
the necessary
source documents.
3. Analyzing Transaction
Analysis of a transaction is a three steps procedure:
Determining the accounts affected by the transaction
Determining the effect of a transaction as increases and decreases
Analyzing the increases and decreases as Debit and Credit
Example: The owner of JJ Arts Club invested Br 20,000 on January 1, 2005
➢ The accounts affected are Cash (Asset) and Capital (Owner’s Equity)
➢ Cash increases and Capital also increases by Br 20000
➢ Cash increases is Debit and Capital increases is Credit
JJ Arts Club purchased electric guitar for Br 8,200 in Cash on January 10,
2005
➢ The accounts affected are Cash and Equipment
➢ Cash decreases and Equipment increases by Br 8200
➢ Cash decreases is debit and Equipment increases is Credit
4. Recording Transaction in a Journal
After analyzing transactions, they are recorded in a book called journal in an
orderly manner.
Journal provides for transactions:
➢ Permanency-it is permanent record of transactions for reference
➢ Orderliness or chronology-transactions are recorded sequentially
➢ Accuracy or Approval- before transactions are recorded in their account
approval will be made
There are two types of journals:
General Journal- is a journal on which any type of transaction is recorded
upon.
Special journal- this is a journal on which one type of transaction with
recurrent nature is
recorded upon.
The process of recording transaction in a journal is called journalizing
and the steps in
journalizing are as follows:
Step-1: Recording the Date
➢ Inserting the year
➢ Inserting the month
➢ Inserting the date
Step-2: Recording the account title to be debited at the extreme left of the
description column
of the General Journal and enter the amount of debit
Step-3: Recording the account title to be credited just below the debit entry
moderately indented
and enter the credit amount
Step-4: Writing an explanation
Write an explanation for each transaction or replace it with its source
document number if it is
self explanatory transaction. The above two analyzed transactions are
recorded in the General
Journal as follows:
5. Posting a Transaction
The processing of transferring a transaction to ledger accounts is
called posting. There are
different types of accounts:
➢ T-accounts which resembles a capital letter “T”
➢ Two column account which consists of two date, post referencing, debit
and credit columns
➢ Four column account which consists of one date, one post referencing, one
debit, one credit
and one debit and credit under balance column
➢ Three column account which consists of one date, one post referencing,
one debit, one credit
and one balance column. The abnormal balance is shown in bracket.
The steps in posting are:
Step-1: Record the date and Post the debit or the credit
Step-2: Insert journal page numbers in the post reference column of ledger
accounts
Step 3: Insert Account numbers in the post reference column of General
Journal
llustration on Journalizing and Posting
The following transactions are related to Ethio Mobile Maintenance (EMM)
which is owned by Ato
Samuel, for the first month operation ended December 31, 2004
December 1: The following assets were invested to the business:
Cash ............................................................................... Br 5,900.00
Supplies .......................................................................... 550.00
Land ............................................................................... 10,000.00
The liabilities transferred to the business was ............... 400.00
December 1: EMM paid a premium of Br 2,400 for a comprehensive
insurance policy which
will cover a 2 years period
December 1: EMM received Br 720 for renting the land for 3 months
December 2: EMM paid Br 800 for the rent of the month December.
December 5: EMM Purchased Office Equipment on account Br 7,000
December 7: EMM paid Br 180 for a daily news paper
December 11: EMM paid Br 400 to creditors
December 13: EMM paid receptionist and part-time assistant Br 1,250 for two
weeks salary
December 16: EMM received Br 5,000 from revenues earned for the 1st half
of the month
December 16: fees revenue on account totaled Br 1,750 for 1st half of the
month
December 20: EMM paid Br 3,500 to creditors on the Br 7000 debt owed from
the December
4 transaction
December 23: EMM Received Br 1,150 from customers in payment of their
accounts
December 25: EMM purchased supplies for Br 1,450 in cash
December 27: EMM paid receptionist and part-time assistant Br 1,250 for two
weeks salary
December 31: EMM paid Br 310 and Br 240 telephone and electric bill
for the month,
respectively
December 31: EMM received Br 2,750 from revenue earned for the second
half of the month
December 31: fees revenue earned on account totaled Br 1,200 for the
second half of the month
December 31: the owner withdrew Br 1,000 for his personal use
Instructions: Analyze and Journalize the transaction for the month
December 2005 in two
column journal assuming that the policy of the company is to record money
paid for telephone,
electric and water as utilities expense and for advertising, postage and
stamp and news paper as
miscellaneous expense. Post entries from journal to ledger accounts
using a four or three
column ledger account
