Chapter 1

Sole proprietorship

Ownership: Its owned by one person who contributes capital to set up the business
Access to funds: The fund to set up a business is usually the personal fund from owner
- This is because banks and other lenders are less likely to lend money to the SP due
to lack of personal assets and cash which can be served as collaterals
Risk: When the SP incurs debts or losses the sole owner is obliged to pay using his or her
personal assets.
Level of control: The sole owner has the absolute say of controlling and running the
business.
- Only the owner may hire professionals to help them run the business.
Lifespan:The SP exists as long as the owner is alive and desires to continue their operation
Transferability of ownership: The owner can update the particulars of the new owner by
notifying the corporate regulatory authority of the transfer of ownership.
Formalities and procedures: The sole owner has minimal administrative duties to follow.

Role of accounting
- Provide accounting information for stakeholders to make informed decisions
regarding the management of resources and performance of a business
Role of accountants
- Accountants become stewards of a business
- Accountants have to adapt, solve problems and think critically.
- Accountants also need to provide timely ,relevant and credible information.
Professional Ethics
- Integrity and objectivity
- Integrity- an accountant must be straightforward and honest in all professional
relationships
- Objectivity- An accountant will provide unbiased data based on facts without being
influenced by personal feelings.

Actions an ethical accountant will NOT do Example of unethical action

- Prepare accounting records that - Record sales revenue when there

contain false information. are no sales

- Accept a gift or preferential - Agree to report a lower loss figure

treatment with the promise of a higher bonus

- Prepare false information due to the - Report a higher profit figure by

threat of dismissal. succumbing to pressure from his or
her boss
Internal :
The owner - where to continue to invest in the business or sell the business depending on
the risks and returns related to the business

Managers - whether to consider ways to improve the performance of the business

External :
Lenders - whether to grant loans to the business , depending on the business ability to
repay the loan principal and pay interest

Suppliers - whether to sell to the business on credit , depending on its ability to pay

Customers - wherever to buy from the business depending on the business ability to
provide the goods or services that they need and after sales service

Government - whether the business compiles with the tax regulations and decides the
amount of tax to collect from the business

Competitors - whether they are comparable to the business and how to improve their own
performance

Accounting information system

- A system the business uses to collect, store and process accounting data.
- Financial reports can then be prepared from the accounting information system so
that stakeholders can use the information for decision making.

One difference between trade receivables and payables

- The amount owing by the business to the credit supplier while trade receivables is
the amount owing by the credit customer to the business
Accounting entity The activities of a business are separate
from the actions of the owner.All
transactions are recorded from the POV of
the business.

Consistency Once an accounting method is chosen, this

should be applied to all future accounting
periods to enable meaningful comparison.

Accounting period The life of a business is divided into regular

time intervals

Historical cost All transactions should be recorded at their

original cost.

Monetary Only transactions that can be measured in

monetary terms are recorded.

prudence (allowance) Inventory should be valued at the lower of

cost or realisable value to prevent inventory
from being overstated.

Materiality Relevant information Should be recorded in

financial statements if it is likely to make a
difference to the decision making process.

Accrual Basis of accounting Business activities that have occurred

regardless of whether cash is paid or
received,should be recorded in the relevant
accounting period

Revenue recognition Revenue is earned when goods have been

delivered or services have been provided.

Matching Expense incurred should be matched

against income earned in the same period
to determine the profit for that period

Going concern A business is assumed to have an indefinite

economic life unless there is credible
evidence that it may close down.

Objectivity Accounting information must be supported

by reliable and verifiable evidence so that
financial statements will be free from
opinions and biases.
Chapter 2
Source documents
- These source documents provide reliable and verifiable information that can be used
as evidence that a transaction takes place.
- Original cost is the amount stated in a source document.

Invoice
- When a supplier sells goods on credit, she issues an invoice to her customers
- States the amount the customer owes
Debit notes
- States amount to be added to the invoice issued earlier
- Customers will owe a higher amount.
- If a supplier finds an undercharge after the credit sales, the supplier will issue a debit
note to the customer.
- Works like an extra invoice
Credit note
- Reduce the amount credit customer owes
- Takes place when the supplier overcharged the credit customer
- Or when the credit customer returns goods to the supplier.
Receipt
- A document to acknowledge money received from customers, That goods have
been sold or services have been provided.
Payment voucher
- When the customer pays for credit purchases the business will prepare a cheque as
well as a payment voucher
- It is a INTERNAL SOURCE DOCUMENT kept with the business
Bank statement
- Prepared by the bank, giving information the transactions of the customers bank
account
- Serves a check against the business records of its cash at bank account.
Chapter 3
Assets
- Assets are resources a business owns that are expected to provide future benefits.
1. Office equipment
2. Motor vehicles
3. Inventory
4. Trade receivables
5. Cash at bank
6. Cash in hand
7. Income receivables
8. Prepaid expense
Liabilities
- Debts owed by a business to others that are expected to be settled in the future.
1. Loan from other banks
2. Mortgage loan
3. Trade payables
4. Bank overdraft
5. Income received in advance
6. Expense payable
Equity
- Capital + profit - drawings
- Capital is the resources contributed by the owner to the business.
Income
- Refers to the amount earned by the business through the activities of a business
1. Sales revenue
2. Other income
-Rent income
- Discount received
Expenses
- Money going out of the business
1. Cost of sales (og price of sold goods)
2. Interest expense
3. Discount allowed Assets = Liabilities + Equity
Chapter 4
Sales returns : item sold to customers but now being returned to the business
Reasons
- unsatisfactory inventory that is damaged
- inventory of wrong specifications such as colour or size
- Quality not as good
Discounts
1. Trade discounts
2. Cash discounts

Trade discount Cash discount

Definition A reduction to the list price of the A reduction to the invoiced price
inventory

Purpose Encourage customer to buy in bulks To encourage credit customer to

pay within a specific time

Calculation List price - trade discount Invoiced price - cash discount

Recording Not recorded in the ledger account as Recorded in the ledger account
only the invoiced prices recorded as either discount allowed or
received

Chapter 5
Trial balance
Definition: It is a list of all the ledger accounts and their balances extracted from the general
ledger on a given date, usually prepared at the end of the financial period before the
preparation of the financial statements

Purpose of trial balance:

- helps to check for arithmetic errors that may have happened when transactions were
recorded.
- It is a part of the internal record keeping process which serves as a basis for the
preparation of the final accounts.
Limitations of a trial balance:
- may not be an absolute proof of accuracy
- may be errors not revealed by a trial balance
Chapter 8
Dishonoured cheques
- Cash discounts that were previously given will be withdrawn.
Reasons for a dishonoured cheque
1. The cheque has expired.
- It was dated 6 months ago and is now no longer valid
2. The cheque is post dated
- It was written for a future date and the bank only pay on or after the date
3. The information on the cheque is not consistent
- Amount written in numbers does not match the amount written in words
- Signature is different from the authorised version in the bank record
4. Information on the cheque is not complete
- No date
- Amount to be paid
- Signature
5. Payer’s bank account
- Does not have enough money
- Is closed
- Is frozen ( if the bank suspects illegal activities e.g money laundering)

Internal controls
- To safeguard assets of the business
- Ensue business transactions are recorded accurately
- Comply with laws and regulations
Segregation of duties
- Prevent employees from using the asset s of the business illegally for
personal use or unauthorised purposes

Examples of internal control

1. Segregation of duties
- Separate cash handling and cash recording duties among different
employees so that no single person has control over the entire cash process
- E.g Business can ensure different employees receive and deposit cash
2. Custody of cash
- Secure cash and cheques in a locked storage
- Limit access of cash to authorised personnel
- Provide combinations, passwords to authorised personnel only
3. Authorisation
- Obtain proper approvals for all payments from authorised personnel
- Require at least 2 ppl to review and approve all payments
 - Purpose of bank reconciliation
- To identify error in the bank statement or CAB account
- To safeguard against fraud

BANK STATEMENT
Cash at bank account

Date Particulars Debit Credit Balance

2018

June 1 Bal b/d 2170 Dr

June 8 Salaries (cheque no 100) 350 1820 Dr

June 5 Sales revenue 220 2040 Dr

(cheque no 101)

June 11 TR-Pent Co 180 2220 Dr

June 12 Drawings (cheque no 102) 100 2120 Dr

June 15 cash in hand 250 2370 Dr

June 18 TP-K Fu (cheque no 103) 150 2220 Dr

June 24 Rent (cheque no 104) 300 1920 Dr

June 26 TR-Mary 160 2080 Dr

June 30 TP-John zhen (cheque no 200 1880 Dr

105)

- Starting balance must be the same, strike out any unequal balance
- Use the latest balance as the balance b/d in updated CAB.

Bank statement
 2018 Dr Cr Balance

June 1 bal b/d 2170 Cr

June 5 cheque no 101 220 2390 Cr

June 8 cheque no 100 350 2040 Cr

June 12 cheque no 102 100 1940 Cr

June 15 Cash 250 2190 Cr

June 16 TP-Pent co 180 2370 Cr

June 20 cheque no 103 150 2220 Cr

June 24 cheque no 104 300 1920 Cr

June 28 Investment Co Ltd 400 2330 Cr

June 30 Bank charges 10 2310 Cr

SUGGESTED SOLUTION;

Cash at bank account

Date Particulars Debit ($) Credit ($) Balance ($)

Jul 1 bal b/d 1880 Dr

investment Co Ltd 400 2280 Dr

bank charges 10 2270 Dr

Jul 1 balance b/d 2270 Dr

Bank reconciliation statement as at 1 July 2018

Balance as per statement 2310

Add: Deposit in transit TR-Mary 160
2470
Less:cheque not yet presented TP-John zhen (200)
Balance as per updated CAB account 2270
Dr in bank statement means bank overdraft
Cr in CAB means bank overdraft
TRIAL BALANCE FORMAT

Debit Credit

$ $

Assets XX

Liabilities XX

Income XX

Capital XX

Expense XX

Drawings XX

Total XXXX XXXX

Total debit must equal to credit

DOUBLE ENTRY RECORDING

Trade Receivable / payable

(year) Dr Cr Bal
Date Balance b/d

Date Balance b/d at the end

TR
-sales revenue, sales returns,discount allowed
TP
-CAB,
 Name
Statement of Financial performance for the year as at 2x10

$ $

Sales Revenue

Less:Sales return

Net Sales Revenue

Less:Cost of sales

Gross profit/Loss

Add:other income

Less expense:

Impairment loss on trade

receivables

Depreciation of motor
vehicles

Profit/loss of the year

- 1-5 replace to service fee revenue

 Name of company
Statement of Financial position as at (date)

Assets $ $

- xx

Total non-current assets xx

Current Assets

- xx

Total current assets xx

Total Assets YY

Equites and Liabilities

Owner’s equity xx
(balance+capital
+profit-drawings)

Non current liabilities xx

current liabilities xx

Total current liabilities xx

Total equity and liabilities YY

 Name of Business
Statement of Financial Position as at …

Assets $ $ $

cost Accumulated Net book value

depreciation

Non current Assets

Current Assets

Equity and liabilities

Owner’s equity

Current liability

Non current
liabilities
Interpreting accounts

Service fee revenue received in advance

- It refers to $ of service free revenue that was collected last year but the services are
only being provided in the current year. Hence the amount of $ services that was
adjusted on (date) is reversed and added to this year’s service free revenue on (date).

Commission income receivables (for dr)

- It refers to $ of commission income earned that was received last yr / from selling
___ last year, for the year ended on (date).But payment will only be received this year
for the year ended on (date) Hence the amount of $ that was adjusted on (date) is
reversed and deducted from this year's commission income on (date).

Commission income receivables (for cr)

- It refers to $ of commission income that was received in the previous year, for the
year ended (date) but the services would only be provided in the current financial
year ended (date) .Hence, the amount of $ commission income received in advance
that was adjusted on (date) is reversed and added to the current year's commission
income on (date), at the start of the current financial year.

Rental income receivable

- The amount of $ was rental income to be received for the previous financial year
which is now reversed and subtracted from this year's rental income as it was
earned last year and not this year

Rental income received in advance

- It refers to $ of rental income that was collected last year, for the year ended
(date).But the rental services are only provided this year.Hence the amount of $ rental
income received in advance that was adjusted on (date) is reversed and added to this
year’s rental income on (date)

Consulting service receivable

 - It refers to $ of consulting service fee income earned from providing consultancy
services in the previous year for the year on (date), but payment would only be
collected this year on (date).Hence the amount $ of consulting service fee income
receivable that was adjusted on (date), is reversed and deducted from this years
consultancy fee income on (date)

Salaries payable
- The salaries payable of $ at the start of the year reflects the amount which was from
last year. Given that it was payable at the end of the year. This expense was incurred
last year and therefore it’s deducted from this year's salary expense. This entry (date)
recorded to reverse the salaries payable of $ at (date)

Others:
Income summary shit ass reasoning
- On (date), the total commission income of $ earned for the year ended on (date) was
transferred to the income summary account.

Trade receivables
- On ( date ),the business had provided services worth $ but had not collected the
amount from its credit customers yet.
Inventory
- Inventory: cost of sales , not trade receivable

Dr Impairment loss on inventory

Cr inventory

Dr insurance claim receivable

Cr impairment loss of inventory

Dr CAB
Cr insurance claim receivable

Trade receivables

Increase in allowance : Dr impairment loss on TR

Cr allowance for impairment loss of TR

Decrease in allowance: Dr allowance for impairment loss of TR

Cr impairment loss on TR

Bankrupt: Dr Allowance for impairment of TR

Cr Trade receivables

Non current assets:

Dr Depreciation of non current asset
Cr accumulated depreciation of NCA

Straight line method

-og cost - depreciation value

Reducing balance method

- First year 20% x 1000 = 200
- Second year 20% x(1000-200)

prepare journal entries for motor vehicles…

1. balance b/d
2. CAB /TP
Equity

Assets Liabilities Income Equity/capital Expense

Current Assets Current Liabilities - - -Impairment loss

-Inventory -Bank overdraft on inventory
（CAB cr)
-Cash at bank (DR) -Impairment loss
-Cash in Hand -current portion of on Trade
LTB receivable
-Trade receivables
Less: Allowance for -Prepaid income -depreciation
impairment of trade (Rental received in
receivables adv)

-Prepaid expense -Expense payable

Trade receivable
- sales revenue
- cash at bank
- discount allowed
- sales returns
Trade payable
- inventory
- CAB
- discount received
Inventory
- cost of sales (sell)
- CAB (buy, decreases)