Accounting principles:

 Business entity: The financial affairs of a business should be kept separate from the personal
affairs of its owner(s).
 Going concern: The assumption that the business will continue to operate for the
foreseeable future.
 Money measurement: Only transactions that can be expressed in monetary terms are
recorded in the financial statements.
 Cost: Assets are recorded at their original cost price.
 Dual aspect: Every transaction has two aspects - a debit and a credit - that must balance.
 Realization: Revenue is recognized when it is earned, not when payment is received.
 Periodicity: Financial statements should be prepared at regular intervals, usually annually.
 Accruals: Expenses are recognized in the period in which they are incurred, not necessarily
when payment is made.
 Consistency: Accounting methods and practices should be consistent from one period to the
next.
 Materiality: Only information that is significant or material to the decision-making process
of stakeholders should be disclosed.

Errors the trial balance do not show:

1. Errors of omission: These occur when a transaction is completely left out of the accounting
records. This means that there is no corresponding entry on either the debit or credit side of
the trial balance.
2. Errors of commission: These occur when an entry is made in the wrong account or with the
wrong amount. This can cause the debit and credit totals to still balance, but the individual
account balances will be incorrect.
3. Errors of principle: These occur when an accounting entry is made using the wrong
accounting principle. For example, capital expenditures may be recorded as revenue
expenditures, which can affect the accuracy of the trial balance.
4. Reversal of entries: These occur when the debit and credit entries are reversed. This will
cause the debit and credit totals to balance, but the individual account balances will be
incorrect.
5. Compensating errors: These occur when two or more errors are made that cancel each
other out. For example, an error in over-estimating an expense may be offset by an error in
under-estimating a revenue.

Business documents:
Invoice (sales invoice and purchase invoice)

 Contents: The name & address of the supplier & customer, the date. Full details, quantities
& the prices of goods sold
 Issued when: Goods on credit are sold by the supplier. Can also be issued when goods are
sold in for cheque/cash
 Notes: Trade discount is shown as being deducted whereas it is mentioned that cash
discount is only allowed if the invoice is paid within a time limit.
 Uses: Customer records Cr purchase & Supplier records Cr sales.
Dr note

 Contents: Name & address of supplier & customer, date, full details & quantities (sometimes
prices) of goods returned or overcharged
 Issued when: Goods not satisfactory, Wrong goods etc. Issued by the supplier or customer
 Notes: Customer checks goods & invoice for overcharge/ Wrong goods, etc. When the price
is included, it is always less trade discount.
 Uses: Communication medium | No entries made, however, sometimes they are issued in-
place of a rectified invoice

Cr Note (CR note issued or CR note received)

 Contents: Name & address of the supplier & customer, date, full details, quantities & prices
of goods returned or overcharged
 Issued when: Faulty goods/ overcharged goods. Issued by the supplier
 Notes: Sometimes printed in red/any other color to distinguish between an invoice
 Uses: Customer records returns outwards & supplier record returns inwards.

Statement of A/C

 Contents: Name & address of supplier & customer, date, balance owing at the start of the
period, invoices & Cr notes issued, payments received, any cash discounts allowed, balance
owing at the end of the period.
 Issued when: At the end of each month, by a supplier. Given to each customer.
 Notes: Contains summary of all transactions.
 Uses: No one makes any entries. Reminder to the customer of Amount Outstanding & can
also be used to check for errors for both.

Cheque (counterfoil)

 Contents: Pre-printed details. Date, amount & payee have to be filled.

 Issued when: Payment through bank.
 Notes: Used to pay pre-stated sum to payee. Comes in a book of pre-printed cheques
(Issued by the bank)
 Uses: Supplier: Counterfoil of paying-in slip used to make entry in cash book & for discount
allowed. Customer: Makes uses of the cheque counterfoil to make cash book entry &
discount received.

Receipt

 Issued when: Goods sold by cash, and not when by cheque (the cheque acts as one)
 Uses: Proof of payment

Inventory evaluation notes:

 NRV = Estimated selling price – estimated costs of completion (if product is not yet in
saleable condition (not completed)) – estimated costs to sell
 Cost = purchase price of goods + carriage (inwards or outwards)
Keywords and things to look out for:
 Subject to: have to show calculation of discount
 Incurred: Has not yet been deducted or paid yet and has to be deducted or added
 Cash in credit side of trial balance: Cash comes in both current assets and current liabilities