Accounting Gr:9 Notes & Worksheet

Introduction to accounting:
Meaning:

Accounting is a systematic process of identifying, recording, classifying,

summarizing, interpreting and communicating financial information.

If we analyze this definition, we get the following components:

It is about recording transactions

Transactions should be only of financial nature

The recorded transactions are then classified according to set rules

Results are then interpreted for people who are interested in this information

Transaction:  A transaction is a business event that has a monetary impact on

an entity's financial statements and is recorded as an entry in its accounting
records. In simpler words, it is a dealing between the business and the outsider.

(a) Cash transactions: A transaction which involves or consist of receipt or

payment of cash.

Eg: (i) Purchased goods for cash

(ii) Salaries paid in cash

(iii) Rent received

(iv) Interest received etc.

(b)Credit transactions: For any transaction if there is postponement of

receipt or payment of cash it is called a credit transaction.

Eg: Bought goods from Chris for $ 100 on credit.( payment to be

made after one month)

(c) Non-cash transaction: Any transaction which does not involve receipt
or payment of cash as soon as it takes place or in future is a non-cash
transaction. Eg: Depreciation.(this will be clear in later chapters)

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Accounting Gr:9 Notes & Worksheet

Major objectives of Accounting/Purpose of Accounting:

The main purpose of accounting is

. To keep a systematic record of business transactions

. To calculate Profit and Loss

. To ascertain the financial position of the business

. To provide financial information to different users of this information.

Who are the users of accounting information?

These users might include

 Owner/Shareholders: How much profit?

 Managers: How business performed and how they can improve the
performance in future
 Employees: To know the profits so that they could demand better
wages?
 Investors: Is it safe and profitable to invest in the business?
 Suppliers: Will the business be able to pay for their supplies?
 Government: How much tax should be collected?
 Lenders: Is it safe to lend money to the business?

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Accounting Gr:9 Notes & Worksheet

Role of accounting in providing information for monitoring business and

decision making:

 Many numbers of monetary transactions occur in a business organization.

Accounting keeps a systematic record of such transactions.
 The result of the business with previous years can be compared to analyze
the growth, with the help of accounting records.

 It helps in analyzing the true and correct financial position of the

organization for a given period of time.

 Accounting records helps in assessing the tax liability.

 Accounting records also help management in planning, controlling and
decision-making.

 Accounting records are helpful to calculate owner’s equity(capital) which is

essential for buying and selling of business.

 Accounting records helps in ascertaining the net profit or loss for any period
and it also helps to know the exact reasons which have contributed for the
profit or loss.

Meaning of book-keeping:
Bookkeeping is the recording of financial transactions, and is part of the
process of accounting in business.
Therefore, keeping the books of accounts is always the theme in bookkeeping.
The finer aspect of interpreting all these data into information for management
to act upon is excluded.

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Accounting Gr:9 Notes & Worksheet

Difference between Book-keeping and Accounting:

1. Object: The objective of the book-keeping is to record, classify,

summarize by maintaining journal and ledgers whereas the objective of
accounting is to record, classify, analyze and interpret the results by
preparing financial statements.

2. Scope: The scope of book-keeping is limited to recording. The scope of

accounting is wider.

3. Results: Book-keeping does not yield results, whereas accounting

provides net results from the business operations.

4. Decisions: Book-keeping does not provide information for decision-

making but accounting information is useful for planning and decision
making.

TERMINOLOGY/ ACCOUNTING TERMS:

1. ASSETS: Anything owned by an individual or a business, which has

commercial or exchange value. They can be either tangible or intangible.

(a) TANGIBLE ASSETS: Tangible assets are those that maintain a physical
existence or form. They can be seen and touched and occupy space.

(i)Non-current assets/Fixed assets: Non-current assets are tangible items

usually requiring significant cash outlay and lasting for an extended period
of time. These are long-term assets which are obtained for use rather than
for resale. These assets help the business earn revenue.

Examples include: Property(Land and buildings), Machinery, Plant and

Equipment, Fixtures and fittings, Motor vehicles etc.

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Accounting Gr:9 Notes & Worksheet

(ii)CURRENT ASSETS: These are short-term assets. These are assets

which are either in the form of cash or which can be turned into cash
relatively within a short period of time (within a year).

Examples include: Cash and cash equivalents(cash and bank), Trade

Receivables(debtors), other receivables(prepayments), short-term
investments, inventory(stock).

 Trade receivables/Debtors : A person who owes money or other

performance to a business is called a trade receivable. Trade receivables
arises in case of credit sales. Trade receivables are credit customers.

 Other receivables/Prepayments: Amounts paid in advance (at the end

of the accounting year) of goods and services received but relates to the
following year.

(b)Intangible Assets: An intangible asset is an asset that cannot be physically

seen or felt, but its presence benefits the company, e.g goodwill.

(2) LIABILITIES: These denote the amounts which the business owes to
others.

(i)Current liabilities: Current liabilities are debts that are paid in 12

months or less. These are short-term liabilities.
Examples include: Trade payables(creditors), bank overdraft, other
payables(accruals).

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Accounting Gr:9 Notes & Worksheet

 Trade payables/Creditors: Any person to whom a business owe.

Trade payables arises in case of credit purchases. Trade payables are
credit suppliers.

 Other payables(accruals), is the expenses of the period (the current

year) which had not yet been paid. e.g: wages owing, insurance accrued,
interest unpaid

 Bank Overdraft(loan repayable within 12 months), is the amount due to

the bank when one withdraws more than the balance available in their
bank account.

(ii)Non-current liabilities  Liabilities are considered non-current if they

are not currently payable, i.e. they are not due within the next 12 months
after the end of the accounting period

(3) Capital/Owner’s Equity: Capital is often called the owner’s equity. Any
resources provided by the owner of the business is known as capital.
(These resources is often in the form of cash or assets(building, motors,
goods etc).

(4) Proprietor: Proprietor is the owner of business who invest capital into the
business either in cash or in the form of non-current assets.

(5) Drawings: Any amount withdrawn by the proprietor for personal use is
called drawings. They can be in cash or any other asset.

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Accounting Gr:9 Notes & Worksheet

(6) Inventory: Inventory means goods meant for resale. It is divided into
four categories.

(a)Ordinary goods purchased(purchases):When the goods are purchased

for cash they are called cash purchases but if they are purchased for which
payment will have to be made at some future date it is known as credit
purchases.

(b)Purchases Returns/Returns Outwards: If goods purchased are found

defective or unsatisfactory, they are sometimes returned to the persons
from whom they were purchased or to suppliers. This is called as purchases
returns or returns outwards.

(c)Revenue(sales): It is the revenue/income received by selling the goods.

When goods are sold for cash they are called cash sales, but when they are
sold without having received payment, they are credit sales.

(d)Returns Inwards/Sales Returns: Goods returned by the customers is

sales returns or returns inwards.

(7) Other operating income/ Sundry income: Amount received by the

business for giving benefit. Example: Sale of goods or any income
received( rent received, discount received).

(8) Other operating expenses/Sundry expenses: The cost of use of things or

services for getting revenue. In other words amounts spent by the
business for the benefit received.
Example: Payment of salaries, rent, purchase of goods.

(9) Account: It is a place where transactions of similar one are posted. It is

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Accounting Gr:9 Notes & Worksheet

usually in ‘T’ shape.

Accounting equation:

Assets = Owner’s Equity(Capital) + Liabilities

[uses of resources = sources of finance]

(Or)

Owner’s Equity(Capital) = Assets- Liabilities

This equation illustrates that the assets of a business (the resources used by the
business) are always equal to the liabilities and capital of a business (the
resources provided for the business for others). The assets represent how the
resources are used by the business and the liabilities and capital represents
where these resources come from.

Owner’s equity increases by Owner’s equity decreases by

Profits Losses

Additional investment into the business Drawings

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Accounting Gr:9 Notes & Worksheet

Accounting Transactions- Effect on the Fundamental Accounting

Equation
Every Business Transaction which is to be considered for accounting i.e every
Accounting Transaction, has its effect on the fundamental accounting equation.

Each transaction alters the expressions forming the equation in such a way that
the accounting equation is satisfied after every such transaction taking place in
the business.

The values forming the various terms of the expressions within the equation are
altered in such a way that the basic fact, rule or equation,
Assets = Capital+ Liabilities is always satisfied.

(1) Introduction of capital:

Richard started a business on 1st April 2008 with a capital of $5 000 in bank
Account. The effect on accounting equation would be:

Assets = Capital(Equity) + liabilities

Since there are no liabilities

Assets = Capital(Equity)

Asset here is cash and cash equivalents(cash at bank) since it is deposited in

bank.
Assets = cash and cash equivalents(bank)= $5 000
&
Capital(Equity) = $5 000

Hence the accounting equation will be

Assets = Capital

i.e.$5 000=$5 000

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Accounting Gr:9 Notes & Worksheet

(2)Purchase of an asset by cheque:

On 4th April , Richard purchased a Motor van for $3 000 by cheque.

The effect on accounting equation would be:

Assets = Capital(Equity) + liabilities

Since there are no liabilities

Assets = Capital(Equity)

Here
Assets = Motor van + Cash and cash equivalents(bank)
= $3 000 +$ 2 000
Asset = $ 5 000
Capital(Equity) = $ 5 000
Assets =Capital(Equity)

(3)Purchase of an asset and thereby incurring a liability:

On 10th April, 2008, Richard purchased machinery for $500 from D on
credit. The effect is creation of a new asset i.e; Machinery and a liability
i.e; Trade payables.

The effect on accounting equation would be:

Assets = Capital(Equity) + liabilities
Where
Assets = Motor van +Machinery+ Cash and cash equivalents
= $3 000 +$ 500 +$ 2 000
Assets = $5 500

Where, Capital(Equity) = $5 000 and

Liabilities = Trade payables =$ 500

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Accounting Gr:9 Notes & Worksheet

Assets = Capital(Equity) + liabilities

$ 5 500 = $5 000 + $500
$5 500 = $ 5 500
(Or)
Capital (Equity)=Assets-Liabilities
= $5 500-$500
= $5 000
(4)Sale of an asset on credit:

On 12th April, 2008 motor van worth $100 were sold to J Brown on credit.

The effect is a reduction in the asset of motor van and creation of a new
asset i.e; J Brown – a trade receivable (customer).

The effect on the accounting equation would be

Assets = Motor van + Machinery+ Trade receivables + Cash and cash

Equivalents(bank)
= $2900 + $500+$100+$2000
= $5500
Capital(Equity) = $5000
Liabilities = Trade payables = $500
Therefore Assets = Capital(Equity) + Liabilities

$5500 = $5000 + $500

$5500= $5500
Or
Capital(Equity)= Assets – Liabilities
= $5500 - $500
= $5000

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Accounting Gr:9 Notes & Worksheet

(5) Sale of an asset for immediate payment:

On 20 April 2008, motor van which cost $50 were sold to D Daley, the
amount received by cheque.

The effect on accounting equation would be:

Assets = Capital + Liabilities

Where Assets= Motor van + Machinery + Trade receivables + Cash and

cash equivalents (cash at bank)
= $2 850 + $500+ $ 100 + $ 2 050
= $ 5 500
Capital= $5 000
Liabilities= Trade payables= $ 500

Therefore Assets = Capital + Liabilities

$ 5 500= $ 5 000 + $ 500
$ 5 500= $ 5 500
(Or)
Capital = Assets – Liabilities
= $ 5 500 - $ 500
= $ 5 000

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Accounting Gr:9 Notes & Worksheet

WORKSHEET

1. Find the following using the Accounting Equation:-

ASSETS LIABILITIES CAPITAL

$ $ $
(a) 15 000 1 600 ?
(b) 26 000 5 600 ?
(c) 32 800 ? 13 500
(d) 34 600 ? 17 300
(e) ? 16 300 119 200
(f) ? 31 650 139 750

2. Find the following using the Accounting Equation:-

ASSETS LIABILITIES CAPITAL

$ $ $
(a) 155 000 26 900 ?
(b) ? 37 300 134 400
(c) 136 100 ? 78 500
(d) 119 500 25 800 ?
(e) 88 000 ? 62 000
(f) ? 49 800 109 600

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Accounting Gr:9 Notes & Worksheet

3. State which of the items in the following list are Liabilities and which of
them are Assets?

(a) Motor Vehicles (b) Supplier for goods

(c) Trade receivables (d) Loan from D Jones
(e) Fixtures and fittings (f) Owing to bank/overdraft

4. States which of the following are wrongly classified.

Assets Liabilities
Cash and cash equivalents( bank) Machinery
Premises Trade receivables
Inventories Expenses owing
Equity(capital)
Loan from Foster

5. Redraft the following to correct any mistakes into an accounting equation

Assets $ Liabilities $
Loan from bank 20 000 Capital 65 000
Cash and cash equivalents(cash) 2 600 Fixtures & fittings 22 000
Machinery 34 000 Trade receivables 13 400
Trade Payables 15 400
Inventories 28 400
100 400 100 400

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Accounting Gr:9 Notes & Worksheet

6. Rachel had the following items as on 30 September 2009:

Equity(capital) $20 000;

Equipment $12 900;

Trade payables $ 2 900;

Cash and cash equivalents(bank) $ 2 200;

Inventory $ 4 700

Trade receivables $ 3 100

During the first week of October Rachel had the following transactions:-

(a) Received $2 500 by cheque from the customers.

(b) Paid $1 000 by cheque to the suppliers.
(c) Bought goods worth $900 on credit.
(d) Bought equipment and paid $500 by cheque

Required:

Write up an accounting equation as on 7 October 2009 after the above

transactions have been completed.

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Accounting Gr:9 Notes & Worksheet

7. Josh Magir has the following assets and liabilities as on 31 October 2009:

Equipment $ 13 600;

Motor vehicle $7 250;

Trade payables $ 4 800;

Inventories $5 480;

Trade receivables $ 7 860;

Cash and cash equivalents (bank) $ 10 440;

Cash and cash equivalents (cash) $ 160.

The capital at that date is to be found out. During the first week of
November 2009:

(a) Josh bought extra inventories by cheque $ 680

(b) Josh paid the suppliers by cheque $940
(c) Josh bought extra equipment on credit for $2 240
(d) Received $1 000 by cheque and $ 100 by cash from the customers.
(e) Josh put in extra $400 cash as capital.

Required:

Write up an accounting equation as on 31 October 2009 after the above

transactions have been completed.

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Accounting Gr:9 Notes & Worksheet

8.Show the effects of the following transactions on assets, liabilities and

capital.

(a) Bought goods on credit $375

(b) Bought fixtures $3 000 paying by cheque

(c) Received $ 600 by cheque from the customer

(d) Bought additional shop premises paying $4 000 by cheque

(e) The proprietor introduces $ 1 700 cash in to the firm.

(f) Paid the supplier $150 in cash

(g) Returned goods costing $60 to the supplier

(h) T James lends the firm $350 in cash

9.Show the effects of the following transactions on assets, liabilities and

capital.

(a) Paid the supplier $70 in cash.

(b) Bought fixtures $200 paying by cheque.

(c) Bought goods on credit $275.

(d) The proprietor introduces another $500 cash into the firm.

(e) K Watson lends the firm $200 in cash.

(f) A customer paid $50 by cheque.

(g) Returned goods costing $60 to a supplier.

(h) Bought additional shop premises paying $5 000 by cheque.

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 Accounting Gr:9 Notes & Worksheet

Multiple choice questions:

(a) Which is an intangible asset?

A goodwill
B inventory
C office fixtures
D trade receivables

(b) Which statement describes a purpose of accounting?

A to check the arithmetical accuracy of the double entry
B to ensure that all transactions are recorded
C to know the balances on individual customers’ and suppliers’ accounts
D to provide a calculation of profit

(c) What is the role of a book-keeper?

A to advise on business plans
B to analyse the profit or loss for the period
C to maintain records of financial transactions
D to prepare financial statements

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