Accounting

Accounting means preparing of financial statements at regular intervals

Accounting uses book keeping records to prepare financial statements and assists in decision
making.

types of financial statement

- Income statement (calculating profit or loss)
- Statement of Financial position (assets, liabilities & capital)

Incurring a financial transaction (paid wages for $10000)

Record the transaction (Bookkeeping) - BOOKKEEPER
Recorded in the books of prime entry
Record in the ledger accounts
Prepare the trial balance (all the balances in the ledger accounts)
Which is then used to prepare Financial statements (Accounting) – ACCOUNTANT

Accounting mainly deals with

01.
02.
03.
Main objectives of accounting are
1. Monitor the progress of the business
2. Provide information for making of decisions
3. To control the resources of the business
4. To minimize the errors and frauds of a business
5. To develop the business
Book keeping
Book keeping means the detailed recording of all the financial transactions of a business
Book keeping mainly deals with
01.
 02.
03.
Assets, Liabilities and Capital
Assets
Assets represents anything owned the business
These are the resources or properties that belong to the business
assets that have a life time
of more than 12 months
non current eg :
assets
01. machinery
02. office fixtures & equipment
03. land & buildings
assets
assets that have a short life time
and value gets changed in short
period
eg :
current assets 01. credit customer (trade
receivables)
02. cash / bank
03. Inventory (stock)
Liabilities
03.
Liabilities represent anything owed by the business, therefore are expected to be paid in the
future

Bank overdraft
$10 000 balance in the bank
$15000 cheque to be paid

$5000 – request the bank for $5000, will be paid within 12 months with interest

Buying goods on credit $5000

Buy from suppliers – credit (pay later) – 30 days
 the obligations are to
be settled after a 12
month period
non current
liabilties eg :
01. bank loan
02. debenture
liabilties
the obligations that should be
settled within a 12 month period
current
liabilities eg :
01. bank overdraft
02. credit suppliers (trade
payables)
Capital
They are the total resources which are provided by the owner and it represents what the
business owes the owner.
Capital is the money and any other resources provided by the owner to the business

It can be built in 3 different forms

01. Assets=
…………………………………………………………………………………………………………………………
02. Liabilities=
………………………………………………………………………………………………………………………...
03. Capital=
…………………………………………………………………………………………………………………………
 Computerised accounting
A computerised accounting system is an accounting information system to record and
process financial transactions and event to produce financial statements and reports

Advantages Disadvantages
 Cost effective  Potential fraud
 Improved accuracy  Technical issues
 Flexibility  Initial start-up cost
 Lesser storage space  High labour training cost
 Ability to elaborate
 Error detection

Q02. Classify the below into non-current assets (NCA), current assets (CA), noncurrent
liabilities (NCL), capital/equity (c) , expenses (E) and income (I)

Machinery ……………. Equipment ………….. Electricity………….. Rent…………….

Sales……………. Inventory…………….. Bank………. Bank loan……… Land………..
Loan payable in 6 months……………….. Lorry………… Salaries……………
Trade payables………….
Drawings……… Bank overdraft……………….. Cash in hand………….
Trade Receivables…………… Trade Payables…………. Purchases…………….. Loan
payable after 2 years……………. Building…………. Insurance…………..
Loan interest…………….

10 000 – pay back after 3 years

10 000 * 5% = 500 each year (interest)
Q03.Businesses make use of both book keeping and accounting procedures
What is the purpose of book keeping?
a. To interpret the double entry records
b. To prepare financial statements at regular intervals
c. To record all the financial transactions of the business
 d. To summarise the financial position of the business

Q04. Which statement describes a non – current asset?

a. It can be turned into cash relatively easily
b. It is acquired for use rather than resale
c. It is a short-term asset
d. Its value is frequently changing

Q5. Which task would not be carried out by an accountant

a. Comparing one year’s results with those of previous years
b. Interpreting the accounting records
c. Preparing financial statements
d. Recording the financial transactions

Q6. Jane made a payment to a supplier for goods bought on credit. Jane does not have a
bank overdraft. What is the effect on the accounting equation ?
a. Decrease capital and decrease assets
b. Decrease liabilities and decrease assets
c. Increase assets and decrease liabilities
d. Increase liabilities and decrease capital

Q7. What is the accounting equation ?

a. Assets – current liabilities = capital
b. Assets – liabilities = capital
c. Current assets – current liabilities = capital
d. non-current assets – liabilities = capital
Q8. What is true of a computerised accounting system ?
a. Anyone with a computer can gain access to the accounting records
b. Data input can only be used for one specific purpose
c. Data output can only be understood by computer programmers
d. Operator error might result in accurate information
Q9. Which statement is true ?
a. Accounting is a part of book-keeping
b. Accounting requires skills of an expert accountant
c. Bookkeeping includes activities such as analysing and interpreting Financial Data
d. Book keeping requires the skills of an expert accountant

Q10. A trader provided the following information

$
Premises 180 000
Inventory 23 420
Trade Payable (supplier) 26 180
Trade Receivable (customer) 21 710
Office furniture 32 600
Loan from bank 80 000
Cash in hand 2 550
Motor vehicle 15 900
Calculate Capital

Q11. A trader provided the following information

ASSETS LIABILITIES
Land and building ($220 000)
Inventory ($33 360)
Trade Payable ($41 500)
 Trade receivable ($31 560)
Plant & Machinery ($22 200)
Loan to a worker ($20 000)
Bank overdraft ($5000)
Plant and machinery ($25 000)
TOTALS

CAPITAL - ………………………………………………………………………………………………………………………

Q12. Complete the following table by using the following information

Effect on assets $ Effect on liabilities $
Bought a computer and
paid by cheque
Bought goods on credit
from a supplier
Received a cheque from a
credit customer
Sold goods on credit

Paid off a loan in cash

Took out a bank loan
Bought office fixtures on
credit

Q13. Complete the following table by using the following information

20-7 January
 1 Leena set up a business to trade under the name of the DRESS SHOP. She opened a
business bank account and paid in $20 000 as capital
Dr – Bank
Cr – Capital
2 The business purchased premises, $15 000 and paid by cheque
Dr – Premises
Cr – Bank
3 The business purchased goods $3 000, on credit
Dr – Purchases
Cr – Liabilities
4 The business sold goods, at the price of $1 000, on credit.
Dr – Trade receivables
Cr – Sales

Debit (increasing) Credit (increasing)

Assets Liabilities
Expenses Capital / Equity
Purchases Income
Sales returns Purchase returns
Drawings Sales

Date ASSETS = CAPITAL + LIABILITIES

Jan 01 + $20,000 + $20 000

Bank Capital
Jan 02 - $15 000
Bank
 + $15 000
Premises
Jan 03 + $3000 + $3000
Inventory Trade payables
Jan 04 + $1000
Trade receivables
- $1000
Inventory

Q13. Find non-current liability

Machinery 100 000
Bank Loan 200 000
Trade Payables 50 000
Lorry 40 000
Building 100 000
Bank overdraft 50 000
Other payables 12 000
Trade receivables 15 000
Equipment 75 000

Q14. Find current liability

Buildings 50 000
Land 150 000
Trade payables 50 000
Trade receivables 40 000
Capital 150 000
Bank overdraft 50 000
Motor vehicle 100 000

Q15. Find current asset

 Premises 120 000
Motor vehicle 50 000
Trade payables 30 000
Bank loan 150 000
Bank overdraft 20 000
Capital 50 000

Q16. Find motor vehicles

Bank loan 150 000
Machinery 120 000
Inventory 75 000
Trade receivables 50 000
Cash in hand 25 000
Bank loan 250 000
Capital 120 000
Trade payables 45 000

Q17. Show the effects for the following transactions

1. Obtained a bank loan of $100 000
2. Sold goods worth $50 000 on credit
3. Sold goods costing $5 000 on credit to Mary
4. Bought goods worth $40 000 for cash
5. Mary returned goods worth $2 000
6. Paid electricity $5 000 for cheque
7. Customer returned goods worth $10 000
8. We returned goods worth $5 000 to the supplier
9. Sold a motor vehicle for cash $7 500
Q18. Show the effects for the following transactions
1. Owner invested $50 000 cash into the business
2. Obtained a bank loan worth $30 000
3. Sold goods on credit worth $5 000
4. Bought goods on credit worth $7 500
5. Paid the supplier $5 000 by cheque
6. Customer settled the amount due by cash which is $5 000
7. Paid insurance $2 000 by cash
8. Bought premises worth $100 000 by cheque
9. Settled the bank loan by cash $30 000
10. Took $500 from cash till and deposited in the book
11. Owner took $500 for personal use

Q19. Copy and complete the following sentences, choosing from the words below.
(Fixed, Equation, Accounting, Drawings, Current Liability, Capital)
a. Owner’s equity is also known as ___________
b. The statement of financial position reflects the _______________
c. When the owner withdraws cash from the business bank account for personal use, it
is called ________________
d. Non-current assets are also known as ___________ assets
e. Trade Payables is an example of a _____________