Accounting Clerk Unit2 Principles Practices in Financial Context

Accounting Clerk Training
Welcome to the art of Accounting Apply principles of professional practices

to work in the financial services industry
Developed by: Ephraim Pryce © October 2021
Definition and Purpose of Accounting
● Accounting is a system of collecting,
organizing, reporting and interpreting
information about those activities of
businesses that can be described in
money terms.
● These activities are called transactions.
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● The main purpose of accounting, therefore,
is the provision of financial information
for decision-making by users.
● For financial information to be useful for
decision-making, it must have certain
qualities.
● Accounting information must be relevant to
the user’s needs and the user must find it
reliable and consistent.
● When the user receives relevant and
reliable information, genuine comparisons
can be made between periods of operation
and among similar firms, and decisions can
be made in planning and controlling
business activities.
.
Concepts and Purpose of Accounting
It is important for those individuals responsible for
the success of businesses to know:
● Whether a profit is being made, because this is the main reason
for having a business—is the business profitable?
● Whether there are sufficient funds to meet all the commitment of
the business on time—is the business liquid?.
● That they are making the best use of the funds that have been
invested in the business—is the decision-making sound?
Traditional vs Emerging Careers in Accounting
The provision of accounting information relies

on the work of two different groups of
individuals—bookkeepers and accountants—
whose responsibilities are summarized in the
following tables on the next two slides
Job Main responsibility Examples
Book-keeping The recording of financial • Preparing accounts by entering and

information, particularly posting transactions
transactions, in a systematic • Preparing trial balances
way • Checking the records for accuracy
• Preparing payroll and inventory
records
• Assisting the work of the accountant(s)
Accounting The selecting, classifying, • Preparing financial statements

and summarizing of • Preparing budgets
financial data in ways that • Supervising the work of bookkeepers
provide owners of business • Analyzing financial statements
and others with useful • Making recommendations and
information to help them providing advice on how to improve
assess performance and performance
make informed decisions • Preparing tax assessments
The following table gives examples of both traditional and
emerging careers in bookkeeping and accounting
Job Traditional careers Emerging careers
Book-keeping • Accounts recievable clerk • Bookkeeping software specialist

• Payroll clerk • Payroll software operative
• General ledger clerk
Accounting • Accounts manager • Accounting software developer

• Tax accountant • Environment accountant
• Internal auditor • E-commerce specialist
• Management accountant
Ethical Principles and Accounting
● Ethics is about moral principles and standards of
behavior .
● In accounting it is vital that clients can have complete
trust in their accountant, since the accountant has
access to so much information that is both confidential
and sensitive.
● Accountantants are required to abide by certain ethical
principles to demonstrate honesty and fairness and to
ensure trust is maintained
● The ethical principles of accounting are summarized in
the next slide.
● Integrity— straightforward and honest in all
relationships
● Objectivity— avoid bias, conflicts of interest or undue
influence when making professional judgements
● Professional competence and due care— updating
knowledge and skills in order to deliver deligent
services to clients
● Confidentiality— avoiding the disclosure or use of
information to others without expressed permission
● Professional Behavior— adopting the highest standards of
the proffesion by complying with legal requirements and
regulations
Maintaining ethical Principles requires strength of
character and courage. Where there is a failure to apply
ethical principles the following consequences could
arise:
● Law suits
● Loss of Job
● Loss of integrity/reputation
● Fines
● Imprisonment
Key Accounting Principles, Concepts,
Conventions
● The accounting system we use to record the activities of
business was basically invented in the fifteenth (15th) century by
Luca Pacioli, an Italian mathematician.
● It involves the collection and recording of financial information.
Pacioli recognized that for a business to gain something, some
other thing must be given up.
● This became the major rule or principle underlying the system
accounting.
● It is called the dual aspect principle.
● It states that: in every transaction, giving of value and
receiving of value occurs.
Key Accounting Principles, Concepts,
Conventions
● For example, a firm might pay cash to acquire a
delivery van. In effect, “cash” gave value and
“delivery van” received value of the same amount.
● Pacioli showed that at least two records or
accounts must be opened to show the matching
change.
● In accounting practice this is called the double
entry rule. Presently accounts are drawn in a T-
shape as shown on the next slide.
Account Format
● In line with the double entry rule, an entry on the DEBIT or left
hand side of one account is matched by an entry on the right
hand or CREDIT side of another account.
Key Points
1. The major underlying principle of accounting is the dual aspect
principle. In practice the double entry rule is applied.
2. In every transaction, one party receives value and another party
gives value.
3. (a) An ACCOUNT is a record or history of a business’
transactions as it affects one aspect of the business.
(b) DEBIT means LEFT HAND SIDE OF AN ACCOUNT.
(c) CREDIT means RIGHT HAND SIDE OF AN ACCOUNT.
(d) TRANSACTIONS are business activities where there are
exchanges of value between a firm and another “person” or
entity.
Key Accounting Principles (Prudence)
● When provided with accounting information, users can make
comparisons, can plan and manage their businesses.
● However, there is always some uncertainty in arriving at some
monetary values.
● Accountants need to estimate certain figures in preparing
accounting statements.
● However, they cannot be overconfident or unrealistic about the
future prospects of the business.
● For example, can the accountant be certain that all persons will
pay their debts? Therefore, accountants apply the prudence
concept. Conservatism, another name for prudence, is
expressed very simply.
Example
● Sarah Cattrick, the managing partner of Sweety Biscuits
Enterprises, has decided to offer credit facilities to her
customers who were required to pay in cash before. She
expects that would increase current sales of $20 000 by 10%.
However, she realized that she would have to run the risk that a
few customers may not pay their debts of $1 200.
1. Should Sarah report Sales of $22 000 in anticipation of the 10%
increase?
2. Should Sarah report a figure for debtors that is decreased by $1
200.
The answer is “No” to Q 1. as she is anticipating a gain or
profit and “Yes” to Q 2. as she prudently anticipates a loss.
Key Accounting Principles
(Consitency)
• It is especially important that when accountants make choices
about methods of estimating and accounting procedures, that
they stay with those methods.
• These methods should only be changed for very good reasons.
• Users will find it easy to compare the performance of the firm
from year to year if the principles of accounts applied in
reporting remain unchanged.
• This is called the consistency concept. It can be expressed as
follows:
(Consistency)
Example
● The new owner of Gregory’s Welding Supplies wants the firm to
re-value inventory by finding a new average cost every time new
items were bought and applying it to the items on the shelves.
The accountant disagrees and wants to continue using the
current method that values inventory based on actual cost of the
items in stock.
● QUESTION: Which accounting concept will influence the final
decision on method to be used to value inventory?
● The principle that supports the accountant is the principle
that a firm is expected to be consistent in the use of
methods such as the method to be used to value inventory.
Key Accounting Principles (Accrual)
● One significant task of the accountant is the calculation of profit. Profit

is the difference between the earnings (revenue) of the business
through activities such as sales and the costs incurred to create those
earnings (expenses). Today few businesses receive all their revenue in
cash immediately and fewer still pay all their expenses in cash right
away. Those businesses which operate in cash use the cash basis of
accounting. Other businesses accrue their revenues and expenses.
● The accounts will show when the revenue was earned, that is,
recognized even if it is collected in a period before or a period after.
Similarly, expenses may have been incurred in one period but paid in
another. This is called the accrual basis of accounting. To take it a
step further, in any one period, accountants must match revenue with
the expenses incurred in earning it. This is called the matching
concept. Let us look at a simple example.
Key Accounting Principles (Accrual)
Example
● Chris Adams, a small building contractor has just one
employee, a mason. The mason is paid $20 per hour. Last
month a client paid $2000 for the labour on a small job. By the
end of the month, only three-quarters of the work was
completed. The mason worked 60 hours on the job but Adams
has paid him for only 50 hours by the end of the month. He will
need ten more hours to complete the job.
(Accrual vs Cash)
CASH BASIS
Month 1: Revenue collected $2000 Expense paid $1000 ($20 x 50hrs)
Cash difference $1000
Month 2: Revenue collected $0 Expense paid $400 ($20 x 20hrs)
Cash difference $400
ACCRUAL BASIS
Month 1: Revenue earned $1500 Expense incurred $1200 ($20 x 60hrs)
Profit $ 300
Month 2: Revenue earned $500 Expense incurred $ 200 ($20 x 10hrs)
Profit $ 300
Chris Adams accounts for the revenue when it is earned, $1 500 in month 1;
$500 in Month 2 and matches the appropriate amount of expenses, $1 200
in Month 1 and $200 in Month 2.
(Separate Entity)
● The last principle to be discussed is the separate entity
principle. An accountant must treat a business as if it was a
legal person in its own right.
● The transactions of the business are the only ones to be
recorded in the business accounting books. In the eyes of the
accountant, the owner is simply one more interested party
whose needs can be met by good accounting records.
● In other words, the separate entity principle says:
What belongs to the business belongs to the
business and what belongs to the owner belongs
to the owner and the two should not be confused in
the accounts.
(Separate Entity)
Example
● John Barclay, a teacher and plumber, cannot understand why
his accountant warns him about treating his business’ affairs as
an extension of his personal activities. John cannot understand
why he should not use the business bank account to pay his
doctor’s bill or put his income from his teaching job into the
business bank account.
The accountant points out that the accounting records
must separate his activities from the business’
activities if a true picture of the business profitability
and financial condition is to be seen.
Types of business organizations
Businesses are organizations that provides goods and/or
services in order to make a profit. There are a number of ways
of classifying businesses. All businesses can be classified by
what they do, for example:
● Provide raw materials through farming, mining, fishing etc.
● Manufacturing goods, turning raw material into finish products
● Sell goods to the general public (retailers) or to others
businesses (wholesalers)
● Provide services for businesses and the general public
You may also think about businesses in
terms of who owns them. You are
expected to be familiar with the general
features of five types of business
organizations based on their owners and
be able to compare each with the other.
Let us look carefully at the table below:
Types Ownership Source of Reason for business venture-advantages,
startup disadvantages
capital
Sole One owner Private • started up to make a profit (profit motive)

trader or savings or
• profit belongs to the one owner
proprietor sources
• easy to start with small amounts of capital
• quick decision-making and hands-on

supervision
• capital and management expertise restricted to

owner’s efforts
• owner has unlimited liability for business debts
• business often dies when owner retires or dies
Partnership Two – Private • access more capital and usually more profit
Twenty savings or • losses shared among partners
owners sources • easy to start but should have legally
from each binding agreement
partner in • may have specialized expertise for
varying decision-making
amounts • business may or may not die with partner
or change of ownership
• profits must be shared as per agreement or
Partnership Act 1890
• partners may bind each other to bad
contracts
• partners generally have unlimited liability
for business debts
Limited liability Limited or Regular • shareholders provides funds
Companies unlimited purchasing of needed to establish and run the
(Corporations) shareholders shares by company
shareholders • owners are rewarded with
and investors some of the profits made by the
company if successful
• owners carry a responsibility
for the debts of the company
that is limited to the amount
they have invested
• Owners are not at risk of losing
their private funds if things go
wrong, unlike sole traders and
partners
Co-operative Limited or Regular ● service or help to members
unlimited purchasing through low interest loans
membership of shares and other services, for
by each example, education and
member training
● sharing of any profits
(dividends) as set out in bye-
laws and statutes
● may have inexperienced
management
● needs to attract new
members all the time
● great risks for shareholders
since loans may be
unsecured
Non-profit Limited Regular ● service or help to self and
organizatio members payment of others
n (club or or subscription ● occasional profits
society) subscriber s ploughed back into
s with organisation
common ● may have inexperienced
aim management
● needs to have members
pay subscriptions
regularly or carry out
profit making activities

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Accounting Clerk Training

Welcome to the art of Accounting Apply principles of professional practices

The provision of accounting information relies

Book-keeping The recording of financial • Preparing accounts by entering and

Accounting The selecting, classifying, • Preparing financial statements

Book-keeping • Accounts recievable clerk • Bookkeeping software specialist

• General ledger clerk

Accounting • Accounts manager • Accounting software developer

• Internal auditor • E-commerce specialist

● One significant task of the accountant is the calculation of profit. Profit

Sole One owner Private • started up to make a profit (profit motive)

• quick decision-making and hands-on

• capital and management expertise restricted to

• owner has unlimited liability for business debts

• business often dies when owner retires or dies

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