MIDLANDS STATE UNIVERSITY

P. BAG 9055 Tel:

227411
Gweru
Fax: 260442
Zimbabwe

FACULTY OF BUSINESS SCIENCES

DEPARTMENT OF ACCOUNTING AND BANKING SCIENCES

MODULE TITLE & CODE: ACCOUNTING CONCEPTS, PRINCIPLES &

PROCEDURES: ACC 140
1. Preamble
This is the first module of a series of six financial accounting modules presented by
the Department of Accounting at Midlands State University. The module is intended
for students whole ultimate goal is to become accountants.
2. Module assessment
Continuous assessment (coursework) will contribute 30% to the overall assessment
while the sessional examination will contribute 70% to the overall assessment.
Continuous assessment will be by way of in-class tests.
3. Purpose of the module
This module aims at providing a thorough knowledge which should enable the
student to:
 apply the basic principles of accounting

 gather, process and record relevant information and prepare basic financial
statements

 record assets properly and be accountable for assets

 record liabilities properly and be accountable for liabilities

 keep proper records to ascertain the financial performance and financial

position of sole proprietors and non-profit entities

 prepare proper books from incomplete records

4. Module objectives
 By the end of the module the students should be able to:
 know and understand the nature and function of accounting

 explain what is meant by the nature of accounting theory, principles,

accounting policy, practice and procedures

 calculate the financial position of an entity and the elements of the basic
accounting equation

 apply the concepts of income and expenditure to determine the financial

result of an entity

 prepare all journals, post to the ledger and prepare a trial balance

 do year-end adjustments and closing–off procedures and prepare more

advanced financial statements

 prepare bank reconciliations, debtors and creditors control accounts.

 understand the importance of inventory and related book entries

 record transactions related to property, plant and equipment.

 Record transactions relating to non-current liabilities and make relevant

disclosures in the statement of financial position

 record transactions related to a sole proprietor and prepare relevant financial

statements

 record all transactions related to organisations and societies not for gain

 Convert to a double entry system from incomplete records.

5. MODULE CONTENT

5.1 Basic principles & spheres of accounting

 the nature and function of accounting

 the nature of accounting theory

 the financial position, financial result and the basic accounting equation

 the double-entry system

 the accounting process

5.2 Collecting and processing accounting data

 processing accounting data

  preparing financial statements of a sole proprietorship

5.3 Accounting for assets and liabilities

 cash and cash equivalents

 trade receivables

 inventory

 property, plant and equipment

 current liabilities

 non-current liabilities

5.4 Non-profit organizations

5.5 Incomplete records

6. Recommended Reading

 About Financial Accounting Vol 1: Berry, PR; etal (latest edition)

 A Concepts Based Introduction To Financial Accounting: Kolitz, DL; Quinn,

AB; and McAllister, G.(latest edition)

 Questions, Exercises and Problems in Financial Accounting: Kolitz, DL;

Quinn, AB; and McAllister, GA. (latest edition)

 Financial Accounting 1 (FAC 1502); UNISA (latest module)

Accounting concepts, principles and procedures Notes

Conceptual framework for Accounting reporting (2010) A coherent system of interrelated

objectives and fundamental principles which prescribes the nature, functions and limits of
financial accounting and financial statistics. This is the document issued by IASB to serve as
a source of general Accounting concepts that provide a benchmark of Accounting practices
and principles.

Purpose of the Framework

- It sets out the concepts that underlie the preparations and presentation of financial
statements for external users.
(i) It assists the board in the development of future IFRS (International Financial Reporting
Standards) and in the review of existing IFRS.

(ii)The framework assists the board in promoting harmonisation of regulators, Accounting

standards and procedures, relating to the presentations of financial statements by providing a
basis for reducing the number of alternative accounting treatments.

(iii)To assist national standard setting boards in developing national standards

(iv) To assist preparers of financial statements in applying IFRS and dealing with topics that
have yet to form the subject of IFRS.

(v) To assist Auditors in forming an opinion on whether financial statements comply with
IFRS.

(vi) To assist users of financial statements in interpreting the information contained in

financial statements prepared in compliance with IFRS.

(vii) To provide those who are interested in the works of IASB with information about its
approach to the formulation of IFRS.

NB The framework is not an IFRS hence does not define standards for any particular
measurement or disclosure issues i.e. nothing in the framework overrides IFRS

Scope of the framework (Contents within)

(1) Objectives of financial reporting
(2) Qualitative characteristics of useful information
(3) Definition, recognition and measurement of elements from which financial statements are
constructed.
(4) Concepts of capital and capital maintenance
Objectives of Financial Reporting (Aim of producing financial positions)
 T o provide financial information about the reporting entity to users (investors,
lenders, and creditors that is used in making decisions about providing resources to
the entity.
 Financial reporting provides information about the financial position of the entity and
the effects of transactions that change the entity‘s resources and claims.
 It also provides users of financial statements with a better basis for accessing the
entity ‘s past and future performance.
Qualitative characteristics of useful information

 These are qualities or attributes that financial information should embody in order to
be useful to the existing and potential investors, lenders and creditors.
 If financial information is to be useful, it must be relevant and faithfully representing
what it purports to represent.

1) Fundamental - broad Faithful representation

Relevance
2) Enhancing- timeliness, comparability, understandability and verifiability

Qualitative characteristics
Fundamental Enhancing
Relevance, faithful representation Timely, understandable,
Comparable, verifiable

o Financial statements are not accurate in all respects due to depreciation and inventory
valuations which are accounting estimates.
o The usefulness of financial information is enhanced if it is comparable,
verifiable ,timely and understandable

FUNDAMENTAL QUALITATIVE CHARACTERISTICS OF USEFUL INFORMATION

There are two fundamental qualitative characteristics of useful information namely:
(i)Relevance
(ii)Faithful representation
Relevance
 Relevant information is capable of making a difference in the decisions made by
users.
 Information may be capable of making a difference if it has a confirmatory or
predictive value or both.
 Also information is relevant if it is material.

Predictive value/forecast

 If it can be used as an input used by users to predict future outcomes

Confirmatory value

 If it provides feedback about past estimates or previous evaluations

Faithfull Representation

Information must not only represent a relevant phenomena but it should faithfully represent
the phenomena that it purports to represent.

 To faithfully represent phenomena, information should have three elements .i.e. it

should be complete, neutral and free from error.
 Faithfull representation does not mean accurate in all respects, free from error means
there are no errors or omissions in the description of the phenomena and the process
used to produce the reported information has been selected and applied no errors in
the process.

Enhancing Qualitative characteristics

There are four enhancing qualitative characteristics of useful information namely:

(1)Timeliness

(2)Comparability

(3)Verifiability

(4)Understandability

(1)Comparability

Information about the entity is more useful, if it can be compared .Similar information about
other entities in the same line or industry and similar information about the same entity for
another period or reporting date.

 This gives users the chance to access and identify differences among items .
 For information to be comparable, the same methods for recording and reporting
should be used for the same items from period to period in the reporting entity and
across entities.
 The same accounting policies and methods should be applied consistently.

(2)Verifiability
  This helps ensure users that information faithfully represents the economic
phenomena it purports to represent.
 Verifiability means that different knowledge and independent observers could reach a
consensus although not necessarily a complete agreement that a particular depiction is
a faithful representation.
 Information can be verified directly or indirectly .Direct verification is when
observing the bookkeeper, counting cash or a stock account by cost accountancy.

Direct verification is verifying an amount or other presentation through direct observation.

Indirect verification involves checking the inputs to a model or formula or other technique
and recalculating the output using the same methodology.

Timeliness

Information should be made available to decision makers in time to be capable of

influencing their decision.
If information is provided as soon as requested, but its full of errors then it is relevant
but not faithfully represented.
Also the correct information can be provided later than when needed.
It is faithfully represented but no longer relevant.

Understandability

Classifying, characterising and presenting information clearly and concisely make it

understandable.
Financial reports are prepared for users who has a reasonable knowledge of business
and economic activities and who review and analyse information diligently.

Underlying assumptions

 The financial statements are normally prepared on the assumption that the entity is a
going concern and will continue in operation for the foreseeable future.
 It is assumed that the entity has neither the intention to close nor to liquidate or
curtail material or liquidate materially the scale of its operations.
 If the entity has an intention to do so then the financial statements are prepared on a
different basis which should be disclosed.
Elements and recognition of an element

ELEMENTS OF FINANCIAL STATEMENTS

STATEMENT OF FINANCIAL POSITION

ELEMENTS
ASSETS Position net worth of the business
SFP EQUITY
LIABILITIES

Statement of Income (Y /I)

Comprehensive income financial performance
(SCI) Expenses

Recognition- Is the process of in cooperating in the statement of comprehensive income and

statement of financial position an item which needs the definition of an element and satisfies
the criteria for recognition. There are basically 5 elements namely:

(a)Assets

(b)Equity

(c)Liabilities

(d)Income

(e)Expenses

ASSET

Current definition: An asset is a resource controlled by the entity as a result of past events
from which future economic benefits are expected to flow to the entity.

Components of the definition are : resource

: Controlled by

: Past events
 : Future economic benefits expected to flow to the
entity.

Components of definition explained:

Controlled by:

Control is the ability to obtain the economic benefits and to restrict the access of others ( e.g
by a company being the sole user of its plant and machinery or by selling surplus plant and
machinery.)

Past events:

The event must be ‘past’ before an asset can arise, e.g. equipment will only become an asset
when there is the right to demand delivery or access to the asset’s potential. It depends
however on the terms of the contract, this maybe on acceptance of the order or on delivery.

Future economic benefits:

These are evidenced by the prospective receipt of cash. This could be cash itself, a debt
receivable or any item which may be sold, although, for e.g. a factory may not be sold (on a
going concern basis) it houses the manufacture of goods for sale. When goods are sold the
economic benefit resulting from the use of the factory is realised as cash.

Tentative definition of an asset: An asset is a present economic resource to which the entity
has a right or other access that others do not have.

Components of the definition

1. Present

On the date of financial statements, both the economic resource exists and the entity has a
right or other access that others do not have.

2. Economic Resource (e.g. a house)

-An economic resource is something that is scarce and capable of producing cash inflows or
reducing cash outflows directly or indirectly, alone or together with other economic
resources .e.g. MSU building new blocks.

3. A right or other access

-This enables the entity to use the economic resource and its use by others is prohibited
unless permission is granted by the entity.

-A right or other access that others do not have maybe enforced by legal or equivalent needs.

Liabilities

Current Definition: A liability is a present obligation of an entity arising from past events.
The settlement of which is expected to result in an outflow from the entity of resources
embodying economic benefits.

Components of definition:

 Obligation:

These may be legal or not, e.g. the year end tax liability relates the year’s (i.e. past) events
but in law this liability does not arise until it is assessed some time later.

 Past transaction

The event must be ‘past’ before a liability can arise.

 Transfer /outflow of economic benefits:

This could be a transfer of cash or other property, the provision of a service, or the
refraining from activities which could otherwise be profitable

Tentative Definition: A liability of an entity is a present economic obligation for which the
entity is the obligor

 Present

-Present means that on the date of the financial statements both the economic obligation
exists and the entity is the obligor.

 Economic obligation

-This is the unconditional promise or other requirement to provide or forego economic

resources including through risk protection.

 Obligor
-This means the entity acknowledges the liability and can also be sued for it in case of default
in payment e.g. mortgages

RECOGNITION CRITERIA

An asset will only be recognised if it:

-Meets the definition of an asset.

-it gives rights or other access to the future economic benefits controlled by an entity as a
result of past events.

-it can be measured with sufficient reliability.

A liability will only be recognised if it:

-meets the definition of a liability

-there is an obligation to transfer economic benefits as a result of past events.

-it can be measured reliably

Questions

Below are listed four situations.

1. M has paid $3 million towards the cost of a new hospital in the nearby town, on condition

that the hospital agrees to give priority treatment to its employees if they are injured at work.

2. N is the freehold legal owner of a waste disposal tip. It has charged customers for the right

to dispose of their waste for many years. The tip is now full and heavily polluted with

chemicals. If cleaned up, which would cost $8 million, the site of the tip could be sold for

housing purposes for $6 million.

3 P has signed a contract to pay its finance director $300,000 per year for the next five years.

He has agreed to work full time for the firm over that period.

4 Q has paid $25,000 to buy a patent right, giving it the right to sole use, for 8 years, of a

manufacturing method which saves costs.

For each situation, state whether an asset or a liability is created.

Solutions

1 The Framework defines an asset as resources controlled by the enterprise as a result of past

events and from which future economic benefits are expected to flow to the enterprise. M

cannot control the actions of the hospital, nor is it certain that there is access to future

economic benefits. Therefore M does not have an asset.

2 N controls the tip as the result of a past transaction, but there does not appear to be any

access to future economic benefits, as the tip cannot be sold in its present state and no further

income can be obtained from it. Therefore the site of the tip is not an asset.

It is possible that N has a liability for the cost of cleaning up the tip. A liability is an

obligation to transfer economic benefits as a result of past transactions or events. In practice,

N may be legally obliged to clean up the tip so that it is no longer in a dangerous condition. If

this were the case, there would be a liability of $8 million and a corresponding asset for $6

million.

3 At first, the contract between P and its finance Director may appear to give P a liability.

However salary is paid a result of the director’s work during the next 5 years. There is no past

event and therefore P cannot have a liability.

4 It is clear that Q has acquired rights to future economic benefits (through cost savings)

through a past transaction (the purchase) and that it controls the benefits (it has sole use of the

method for 8 years). The patent rights are an asset of Q.

Further practice questions

a) A river cuts through MSU commerce campus and is very useful to the Faculty of

Commerce where an Orchard and Market gardening are being practiced. The

University sells produce from the garden and orchard at a substantial profit. The
 university bought the faculty premises in 2007 and are the owners thereon. Does MSU

recognise the river in its financial statements

Equity-Ownership interest in a firm

-It is the residual or remaining interest in the assets of the entity after deducting all its
liabilities.

Equity =Assets – liabilities

Owners’ equity includes

1) Funds contributed by the owner

2) Reserves

3) Profit

4) Deduction of the drawings

Equity is different from liabilities in that liabilities are obligations which must be settled out
of the assets of the entity while equity is not an obligation but what is left over.

-After all the liabilities are deducted hence the equation Equity=Assets –Liabilities.

Income

Income is increases in economic benefits during the accounting period in the form of inflows
or enhancements of assets or decreases of liabilities that results in increases in equity other
than those relating to contributions from equity participants

Income

Revenue Gains

Revenue is earned from the entity‘s ordinary activities e.g. fees

earned ,sales ,interests ,income, dividend ,income, rental income, settlement discount
received, commission income and credit losses recovered.
Gains-these are increases in economic benefits which do not arise from the normal activities
of the entity but could be from profit on disposal of noncurrent assets.

Expenses

These are decreases in economic benefits during the accounting period in the form of
outflows or depreciation of assets or incurrence of liabilities that results in decreases in equity
other than those relating to distributions to equity participants.

Expenses

Normal expenses Losses

These include:

 Cost of sales
 Credit losses
 Rent expense
 Settlement discount granted
 Carriage on sales
 Insurance
 Salaries and wages
 Depreciation
 Water and electricity
 Advertising
 Interest expenses
 Insurance

Losses

Decreases in economic benefits which do not arise from the normal activities of the entity
e.g. loss of sale of PPE

Measurement bases
There are basically 4 measurement bases in the framework namely:
 Historical cost
 Current cost
  Realisable value/settlement value
 Present value
Historical costs- This is the actual amount paid for the particular asset at the time it was
acquired.

Current costs -The amount of cash which an entity would have to pay at present to acquire
the same time of asset bought previously.

Realisable value- The amount of cash that will be received if the asset is sold in an ordinary
disposal

Present value-The discounted value of the future expected net cash flows which the asset
should generate in the future

NATURE AND FUNCTION OF ACCOUNTING

FUNCTION OF ACCOUNTING

 It is to provide financial information to all interested parties (stakeholders or users on

the results of the economic activities of a particular individual or institution.
 To provide users of the financial information which the net worth or position of an
entity on economical performance of the entity.

Nature of Accounting;

Accounting is the systematic recording of financial transactions and presentation of the

related information of appropriate persons. Basic features of accounting are

1. Accounting is a process
2. Accounting is an art
3. Accounting deals withfinancial information of management.
4. Accounting is an information system.

Nature of Accounting

 Is the identification , measurement of communication of financial information

about the economic entity to interested persons.
 The nature of the accounting information refers to the type of accounting
information i.e. the classification of info into the various attributes of accounting
i.e.financial accounting , management accounting and cost accounting.
 Recording of Accounting Transactions

Accounting cycle

Recording on Recording in Posting to the Trial balance Preparation of

source books of ledger/ the financial
documents original entry main book of statement
accounts

Example

S Skype started REM Removal Services on 1 July 2014. The following is a list of
transactions entered into by the business during July 2014.

NumDate Details

1 2014/07/01 S Skype deposited $50 000 into the bank account of the business

2 2014/07/03 He bought a second hand removal van from M Meals for $80 000 on
credit

3 2014/07/03 Filled the removal van with petrol and paid cash $700

4 2014/07/04 Placed the advertisement in the eye News for $25 on credit

5 2014/07/04 Paid his personal telephone account of $460 for June with a business
cheque

6 2014/07/07 Obtained a loan from CBZ bank of $25 000

7 2014/07/10 Transported furniture for B Berry on Credit $2000

 8 2014/07/14 He transferred personal equipment to the value of $10 000to the
business

9 2014/07/17 Paid $15 000 to MMeals as first payment on the removal van

10 2014/07/18 Bought a computer for $6 000 from MVT Ltd and paid by cheque

11 2014/07/22 Received $800 from B Book for the transport of equipment

12 201/07/25 Received a print from debtor B Berry $1 000

Required: Record the above transactions in the BAE and prepare the financial statements for
S. Skype

BAE Analysis sheet

Transactio Dat Vehicle Equip Debtor Bank Capita Incom Expense Loan Creditor
n e s s l e s s
1 201 +5000 +5000
4 0 0
July
1
2 3 +80000 +80000
3 -700 -700
4 -250 +250
5 -460 -460
6 +2500 +2500
0 0
7 +2000 +2000
8 +1000 +1000
0 0
9 - -15000
15000
10 +6000 -6000
11 +800 +800
12 -1000 +1000
80000 16000 1000 54560 49540 2800 -950 25000 65250
 151 640 151 640

Assets - Dr Balance
Expenses - Dr Balance
Income - Cr Balance
Liabilities - Cr balance
Equity - Cr Balance

22 Bank GL1 800

Services Rendered 800
Payment for transport of Equipment
25 Bank GL1 1000
Debtors GL9 1000
Payment Received from Berry

S. Skype
General Ledger
Date Details Folio Amount Date Details Folio Amount
Bank Account GL 1
2014 2014
July 1 Capital GJ1 50000 July 3 Motor Running GJ1 700
Exp
7 Loan GJ1 25000 4 Drawings GJ1 460
22 Services GJ1 800 17 Creditors GJ1 15000
Rendered
25 Debtors GJ1 1000 18 Equipment GJ1 6000
31 Balance c/d 54640
2014 76800 76800
Aug 1 Balance b/d 54640
Capital Account GL 2
2014 2014
July 4 Drawings 460 July 1 Bank GJ1 50000
31 Balance c/d 59540 4 Equipment GJ1 10000
60000 60000
Aug 1 Balance b/d 59540
Motor Vehicle Account GL 3
2014 2014
July 3 Creditors GJ1 80000 July 31 Balance c/d 80000
Aug 1 Balance b/d 80000
Creditors Account GL 4
2014 2014
July 17 Bank GJ1 15000 July 3 Motor Vehicle GJ1 80000
31 Balance c/d 65250 4 Advertising GJ1 250
80250 80250
Aug 1 Balance b/d 65250
Motor Running Exp Account GL 5
2014 2014
July 3 Bank GJ1 700 July 31 Profit or loss A/c 700

2014 2014
Advertising Account GL 6
July 4 Creditors GJ1 250 July 31 Profit or Loss A/c 250

2014 Drawings2014
Account GL 7
July 4 Bank GJ1 460 July 31 Capital 460

2014 2014 GL 8
Loan Account
July 31 Balance c/d 25000 July 7 Bank 25000
Aug 1 Balance b/d 25000

2014 2014
July 10 Services GJ1 Debtors Account
2000 July 25 GL 9
Bank GJ1 1000
rendered
31 Balance c/d 1000
2000 2000
1 Aug Balance b/d 1000
Services Rendered Account
2014
Profit or loss 2000 July 10 Debtors GJ1 2000

2014 GL 9
Debtors Account
Profit or loss 800 July 22 Bank 800

Skype Ltd
Trial Balance as at 31 July 2014
2014
 July 31 Bank 54640
Capital 60000
Motor Vehicle 80000
Creditors 65250
Motor Running Exp 700
Advertising 250
Drawings 460
Loan 25000
Debtors 1000
Services Rendered 2800
Equipment 16000
153050 153050

S. Skype
Statement of Comprehensive Income for the year ended 31/7/14

Revenue 2800
Admin, Distribution and Other expenses (980)
Motor Running Expenses (700)
Advertising (250)
Finance Costs
Interest on Loan (-)
Profit for the Period 1850
Other Comprehensive Income
Items that may not be reclassified through profit or loss
Cash flow Hedges
Gains from employee benefits / losses -
Total of items not classified through profit/ loss -X
Items that may be reclassified through P/L
Gains/ Losses
Total for items that may be reclassified -Y
Comprehensive Income X+Y
Total Comprehensive Income 1850 + (X+Y)

S Skype
Statement of changes in equity for the year ended 31/07/14
Capital (Opening) 60000
Profit for the period 1850
Drawings (460)
Capital (Closing) 61390

PPE Schedule
Details Equipment Motor Vehicles Total
 Carrying amount b/d
Cost (-) (-) (-)
Accumulated dpm (-) (-) (-)

Dep - - -
Additions 16000 80000 96000
Disposal - - -
Carrying amount c/d 16000 80000 96000
Cost (16000) (80000) (96000_
Accumulated - - -
Depreciation

S Skype
Statement of Financial position as at 31/07/14
Assets
Non Current Assets 96000
PPE (96000)
Goodwill ( )
Listed Investments
Current assets 55640
Cah and cash equivalents (54640)
Trade and other Receivables (1000)
Total Assets 151 640

Equity and liabilities

Equity
Total Equity 61390
Capital 61390
Liabilities
Total Liabilities 90250
Non Current Liabilities 25000
Loan 25000
Current Liabilities 65250
Trade and other payables 65250

Total Equity and Liabilities 151640

Processing accounting data

 In the normal course of business entities enter into a large number of transactions
hence at all transactions recorded directly into the general ledger.
 The ledger would become bulky and unmanageable if every transaction as posted
to it.
  To overcome this problem , subsidiary journals also referred to as books of
original entry were developed.

Purpose of subsidiary journals

 To group the transactions of the same kind together and to record and analyse them in
date or document sequence.
 The purpose of developing the accounting system is to process transactions into
refined information needed for the financial reporting.

Design and use of subsidiary journals

 Different journals were developed to grouptransactions of the same kind together .

 Journals also provide more information about a transaction and ledger accounts
which only provides limited information.
 A subsidiary journal has a separate amounts column for each ledger which is
repeatedly affected by a series of transactions.
 The following journals are most frequently used :
 Sales Journal
 Sales returns journals
 Purchase Journal
 Purchases returns Journal
 Cash purchases Journal
 Cash receipts journal
 General journal

Cash Receipts Journal (CRJ)

 All cash receipts which include cash, cheques, credit cards and electronic transfers
are recorded from the appropriate source documents into the CRJ.
 In a manual system the CRJ is normally designed in columnar format where
each column represents a ledger account and the amounts are analysed according
to the reason for the cash receipt.
  A cash receipts journal should provide for recording of the following:
i. The serial number ofthe service document.
ii. The date of the cash receipt
iii. The name of the person from whom thecash was received.
iv. The amount
v. The date and amount of all deposits into the bank account.
vi. The account(s) to be credited.

Column Headings

 A column represents a specific account in the ledger therefore headings can differ
from entity to entity depending on the nature of the entity.
 Where money is received that cannot be analysed in the column representing a
specific ledger account such as a receipt must be analysed in the sundries column
and the account affected must be specified in the details column of the sundry
account.

Column fornon-cash transactions

 Columns can also be opened in the CRJ for non cash transactions to assist in
reducing posting to the ledge e.g. the settlements discount granted column.

Folio Column

 These are for reference sake

 Subsidiary Journals are books of first entry transaction which are posted to the
ledger .
 When the subsidiary journals are posted to the ledger the number of the page
where the entry was made is entered in the folio column of the general to save as
proof that the entry was posted and too save as a reference in case of queries.
 Each general ledger account also has a folio column indicating the page of
journal from which account has been posted.
Example

D. Moja started a vision camera centre on 1 August 2014 and entered into the following
transactions during Aug 2014

Aug 2 : DMoja opened a bank account in the name of the business and deposited
$100000 into the account.

He entered into a lease agreement with Northern Shopping Centre and paid
$21400, being deposit of $10000 and the first month’s rent of $11400

Aug 3 ; paid water and electricity Deposit to NorthernMunicipality $1000

Aug 4 : Purchased equipment to the value of $79 800 on credit from Kojak enterprises
(Invoice Number 0769) and paid a deposit of $8000

Aug 5 : Purchased stationery from pen and paper $1140 and paid by cheque

Aug 6 : Purchased merchandise on credit from Photo Corporation (Invoice Number 1325)
$72732

: Returned a camera invoiced @ 456 that was damaged in transit from Photo
Corporation and received their credit note number CO172

Aug 7 : Cashed a cheque and paid the weeks wages $6384

: Banked the cash sales for the week $6384

Aug 9 : Sold merchandise on credit to Rhion Photo Centre $13680 (Invoice 001)

Aug11 : Purchased merchandise on credit from Photo Corporation Invoice Number 1473)
$14478

Aug 12: Issued a cheque for $855 to Express Printers for advertising

Aug 13: Purchased merchandise from May Suppliers and paid by cheque $5700

Aug 14: Cashed a cheque and paid the weeks wages $1200

: Cash sales for the week amounted to $13224 and they were banked

Aug 15: D Moja allowed a discount of 5% on the account of Rhion Photo Centre when
they issued a cheque to settle their account (refer Aug 9)
Aug17: Sold Goods to Leak Studios on Credit on Credit for $9804 per invoice 002

Aug18 : Received $456 for photos taken for the Northern Rugby Club

Aug 19: Received a cheque for $57 from Express printers for a note that indicated that a
calculation errors had been made on their invoice (refer Aug 12).

Aug21 : the weeks cash sales to the value of $14706 where banked.

: Cashed a cheque and paid the weeks wages $1200

Aug22 : Sold goods on credit to Jay’s Photo services $4446 per invoice number 3

Aug23 : Issued a cheque for goods purchased from fig Enterprises $16530

Aug25: Jay’s Photo Services returned a defective camera to the value of $1026 (refer Aug
22)

: Issued credit note Number SCN001.

Returned the defective camera purchased for $513 to photo Corporation and received credit
note Number C0183

Aug26: Paid the telephone account of $969 received from Telone Installation fees
included in the $969 amount to $342

Aug27 : Paid the water and electricity account $1596 for the month to Northern Municipality.

Aug28 : Cash sales for the week to the value of $15048 were banked.

The owner cashed a cheque for $6200 for the week’s wages of $1200. The balance
was for his own use.

Aug30 : Sold goods to the value of $1710 on credit to Rhion Photo Centre per invoice 004

: Leak Studio paid $9690 in full settlement of their account (refer awg 171)

Aug31 : Issued a cheque for $6000 to Kojak suppliers as a payment on their account.

Issued a cheque for $20000 to photo Corporation. Received a discount $171 (refer
Aug 6)

Required:
  Prepare a cash receipts journal of Vision Camera Centre for Aug 2011 and post the
individual items to applicable accounts in the general ledger of Vision Camera centre.

Cash Receipts Journal 1 (CRJ 1)

Docum Date Details Fol Bank Sales Debtor Settleme Sundry
ent io s nt Amoun Fol Deta
Numbe Contro Disgrant t io ils
r l ed
2014
Rec1 Aug D. Moja 10000 100000 Capi
2 0 tal
CRR1 7 Cash Sales 6384 6384
CRR2 14 Cash Sales 13224 13224
Rec2 15 Rhion Photo 12996 13680 (684)
Centre
CRR3 18 Northern Rugby 456 456
Club
Rec3 19 Express Printers 57 57 GL Adv
2 erti-
sing
CRR4 21 Cash Sales 14706 14706
CRR5 28 Cash Sales 15048 15048
Rec4 30 Leak Studio 9690 9804 (114)
17256 49818 23484 (798) 100057
1
GL3 GL4 GL6 GL5

Vision Camera Account General Ledger

Capital Account (1)

2014
Aug 2 Bank CRJ1 100000

Advertising Account (2)

2014 2014
Aug 12 Bank CRJ1 855 Aug 19 Bank CRJ1 57

Bank Account (3)

2014 2014
Aug 31 Receipt CRJ1 172561 Aug 31 Payments CRJ1 92990

Sales Account (4)

2014
Aug 31 Bank CRJ 49818
1
Debtors 29640

Settlement Discount Granted Account (5)

2014
Aug 31 Debtors Control CRJ1 798

Debtors Control Account

2014
Sales (Cr) 29640 Aug Bank + Settlement 23484
31 Discounts
Sales returns 1026

Rent Deposit Account

2014
Aug Bank CPJ1 10000
02

Rent Expense Account

2014
Aug Bank CPJ1 11400
02

Cash Payments Journals

 The cash Payments Journal should provide for the recording of the following : -

i. Serial number of the cheque or other payment voucher.

ii. Date of payment
iii. The name of the beneficiary
iv. The amount of the transaction.
v. The account or accounts to be debited and accounts to credited.
  All cash payments are recorded in the cash payments journal.
 Where payments affecting the same ledger account occur were frequently a column
is utilised to record such.
 Non recurring expense are recorded in the sundry column.

Using the same example prepare : -

(a) Cash payment journal
(b) Post the individual accounts on a daily basis and the appropriate accounts at the end
of the month to the applicable in the general ledger.

Cash Payments Journal CPJ1

Docum Dat Details foli Bank Wag Purchas Credit Settle Sundry
ents e o es es ors Discou Amou Foli Details
nt nt o
Receiv
ed
001 Aug Northern 21400 10000 GL7 Rent
2 Shopping Deposit
Centre
11400 GL8 Rental
Expense
002 3 1000 1000 Water &
electricit
y deposit
003 4 8000 8000
004 5 1140 1140 Stationer
y
005 7 1200 1200
006 12 855 855 GL2 Advertisi
ng
007 13 5700 5700
008 14 1200 1200
009 21 1200 1200
010 23 16530 16550
011 26 969 969 Telephon
e Express
012 27 1596 1596 Water &
electricit
y
013 28 6200 1200 5000 Drawings
014 31 6000 6000
015 31 20000 20171 (171)
 92990 4800 22230 34171 (171) 31960
GL3 GL1 GL15 GL16 GL17
4

Water and Electricity Deposit

2014
Aug 3 Bank CPJ1 1000

Stationery account (10)

Aug 5 Bank CPJ1 1140
Telephone Account (`11)
Bank 969
Water and Electricity (12)
Bank 1596

Drawings (13)

Aug Bank 4800

31
Wages (14)
Aug Bank 4800
31
Purchases (15)

Aug3 Bank 22230

1
Aug3 Creditors 87210
1

Aug3 Bank CPJ1 34171 Aug31 Purchases (cr) 87210

1
Purchases Returns 969
Settlement Discount Received (17)
Aug Creditors CPJ1 171
31

Purchases Journal
Inv # Date / Day Details Purchases Creditors
P001 6 Photo Corporation 72732 72732
P002 11 Photo Corporation 14478 14478
87210 87210
 GL15 GL16

Purchases Returns Journal

Inv # Date / Day Details Purchases Creditors
Returns Control
PCN001 6 Photo Corporation 456 456
PCN002 25 Photo Corporation 513 513
969 969
Purchases Returns (18)
GL18 GL19
2014
Aug 31 Creditors 969

Sales Journal
Inv # Day Details Sales Debtors
001 9 Rhion Photo Centre 13680 13680
002 17 Leak Studios 9804 9804
003 22 Jay’s Photo Services 4446 4446
004 30 Rhion 1710 1710
29640 29640
GL4 GL6

Sales Returns Journal

Inv # Day Details Sales Debtors
SCN00 25 Jay’s Photo Service 1026 1026
1
GL19 6

Sales Returns (19)

Debtors Control 1026

Adjustments

- Adjusting entries form an integral part of the accounting cycle and are
recorded only at the end of the financial period . When accounts are
examined and adjusted to make sure that the information is applicable to
the particular period under review.
- These are internal transactions usually recorded in the general journal as
the book of 1st entry .
 - The source documents used to give effect to the recording of these
transactions are usually internal vouchers , specifically designed / developed
for this purpose.
- The source documents should be properly signed by the authorised personnel.
- Adjustments are not corrections of mistakes by adjusting entries and they
influence to books normally - a nominal account
- Statement of financial position

The following are examples ofadjusting entries

1. Depreciation of assets
2. Recording consumables inventory on hand
3. Writing off credit losses
4. Accrued and prepaid income and expenses

Recording Adjustments

 The double entry system is still applicable for adjustments

 Adjustment usually involve thefollowing steps.
i. Identify the accounts that must be adjusted
ii. Determinehow the accounts will be affected and what thebalances ofthese
accounts should be,.
iii. Calculate the amount of the adjustment
iv. Record thenecessary adjustment in the general journal and post to the ledger.

Depreciation

 It is the accounting process by means of which the costs of an asset is fairly

and systematically allocated to expenses over the economic life of the asset.
 Writing off depreciation would ensure that the income generated by the asset in
that period is suitably associated with the expenses of that period.
  The accumulated depreciation account is a contra asset account that is not
reflected on the face of the statement of financial position it is used to
determine the depreciated value of the assets in the PPE.

E.g. Boulder Enterprise purchased equipment to the value of $30000

1 May 2012

On 30 April 2013 the end of the financial year it was estimated that the value of
equipment was $24000

Required

 Record the depreciation in the books of boulder enterprises.

Adjustment Account Affected Type of Account Financial statement

Depreciation Dr Depreciation Expense Statement of
comprehensive income
Cr Accumulated Contra asset account Statement of financial
Depreciation position

JOURNAL
Depreciation 6000
Accumulated Depreciation 6000
Provision for depreciation for the period

LEDGER

Depreciation Accumulated Depreciation

Accumulated 6000 Depreciation 6000
Depreciation

Consumable Inventory on hand

 During the year Boulder enterprises purchased stationery to the value of $13700
 On April 2013 the end of the financial year stationery to the value of $2500 was
still on hand
 Required

 Record the stationery on hand in the books of Boulder Ent

Adjustment Account Affected Type of Account Financial Statement

Consumable Inventory Dr - Stationery Asset SFP
inventory
Cr - Stationery Expense SCI

Stationery Inventory 2500

Stationery Inventory 2500
Stationery on hand at end of the period

Stationery Inventory Stationery Account

Stationery 2500 Balance b/d 13700 Stationery inventory 2500
Profit or loss 11200
13700 13700

Credit losses

e.g.

The balance on the debtors control account of Boulder enterprises was $12385 on 30 April
2013

- An Investigation revealed that S. Stone who owed Boulder enterprises

$235 was insolvent and it was decided to write off this amount as
irrecoverable on 30 April 2013.

Adjustments Accounts affected Types of accounts Financial statement

Credit Losses Dr - Credit losses Expenses SCI
Cr - Debtors Asset SFP

Credit Losses 235

 Debtors 235
Bad Debts for at the end of the year

Credit Losses Debtors

Debtors 235 Balance b/d 12385 Credit Losses 235

Profit or loss 12150
12385 12385

Prepayments toaccruals of income

Accrued Income

e.g. On 1 Sept 2012 Boulder Ent invested $15000 at CBZ for 12 months at an interested
rate4 of $10% payable on expiry.

Required

 Calculate and record accrued interest

1 Sept 2012 20 April 2013

15000 x 10 x 8 = $1000
1 100 12

Adjustment Accounts affected Types of accounts Financial statement

Accrued Y Dr - Accrued Y Asset SFP
Cr – Interest Y Income SCY

Accrued Income 1000

Interest Y 1000
Accrued Interest calculated on 10% per
annum on $15000 for 8 months

Accrued Income Interest Income

Interest Income 100 Accrued Income 1000
0
 Income received in Advance

e.g.

 On 28 April 2013 Boulder Ent received a deposit of $5000 from Rock Breakers
to remove Boulders from a site during May 2013 .
 The balance would be paid once the book has been completed.
 The deposit received wasincluded in the balance ofthe services rendered account of
$895000 at 30 April. 2013

Adjustment Account Affected Type of account Financial Statement

Prepaid Y Dr - Services Rendered Y SCY
Cr – Prepaid Y Liability SFP

Services rendered 5000

Prepaid Y 5000

Services Rendered Prepaid Income Account

Prepayment 5000 Balance b/d 895000 Services Rendered 5000
SCY 890000

Expenses Accrued and Prepared

Accrued Expenses

e.g. On 14 May 2013 Boulder received the water and electricity accounts $1130 forApril
2013.

The balance onthe water andelectricity account onApril 2013 was $11490.

Required

- Adjust the water and electricity account

 Adjustment Account affected Type of Account Financial Statement
Accrued Expense Dr - Water and electricity Expenses SCY
Cr – Accrued Expenses Liability SFP

Water and electricity 1130

Accrued expense 1130

Water and Electricity Account Accrued Income Account

Balance b/d 11490 Water and 1130
Accrued Expenses 1130 electricity
12620 12620

Prepaid Expenses

- On 28 April 2013 Boulder Entered into an agreement with sports cleaners

to render cleaning services for a fee of $1500 for the next 12 months.
- On the same day Boulder made a payment of 4500 for cleaning services
for the next 3 months . This amount was debited to the cleaning expenses
account and included the balance of $18100 at 20 April 2013

Adjustment Account affected Type of account Financial Statement

Prepaid expenses Dr - Prepaid expenses Assets SFP
Cr - Cleaning expenses Expense SCY

Prepaid Expenses 4500

Cleaning Expenses 4500

Prepaid Expenses Cleaning Expenses

2013
Cleaning 450 April30 Balance 4500 Balance b/d 18100 Prepaid Expenses 4500
Exp 0 c/d SCY 13600
May1 Balance 18100 18100
b/d
Depreciation

1. Straight line method

Cost – residual value
- Suppose MSU bought a machine on 1 June 2013 for $500000. MSU earned
adiscount of $6000 on the purchase of the machinery.
- Transport costs where $15000 and installation costs where $50000
- The estimated life spanof the machine is 5 years.
- Calculate depreciation for the 5 years using thestraight line method.

Total costs = $460000

Depreciation = 460000 = $92000

5

31/12/2011 Yr 1 92000 x 9 = $53667

12

Year 1 - 2011 Depreciation 53667

Dec 31 Accumulated Depreciation 53667
Year 2 - 2012 Depreciation 92000
31 Dec Accumulated depreciation 92000

Depreciation
2011 Accumulated 53667 Profit or loss 53667
2012 Accumulated 92000 Profit or loss 92000
2013 Accumulated 92000 Profit or loss 92000
2014 Accumulated 92000 Profit or loss 92000
2015 Accumulated 92000 Profit or loss 92000
May Accumulated 38333

Accumulated depreciation
 Balance c/d 53667 Depreciation 53667
Balance b/d 54667
Balance c/d 145667 Depreciation 92000
145667 145667
Balance b/d 145667
Depreciation 92000
237667 237667

Yr 3 2013 Depreciation 92000

Dec 31 Accumulated Depreciation 92000
Yr 4 2014 Depreciation 92000
Dec31 Accumulated Depreciation 92000
Yr 5 2015 Depreciation 92000
Dec 31 Accumulated Depreciation 92000
2015 Depreciation 38333
May 30
38333

Accumulated depreciation
Balance b/d 237667
Balance c/d 329667 Depreciation 92000
329667 329667
Depreciation 92000
Balance c/d 421667 421667
421667 Balance b/d 421667
Scrap 421667 Depreciation 38333
460000 460000

January to May 2015 92000X 5

1 12

= 38333
Diminishing balance method

Cost - Accumulated depreciation = Carrying amount - (Depreciation is

calculated on the carrying amount)

Depreciation = Carrying amount X Depreciation %

On 1March 2010. Tina Traders started doing business and on the same date equipcosting
$120000 was purchased.

 On Sept 2011 new equipment costing $30000 was purchased for cash
 On June 2012 the traders sold equipment to B. Bill on credit for $1575; this
equipment was purchased on 1 March 2010 at the cost of $24000.
 On July 2012 Tina Traders purchased a new equipment on credit from OB
Distributors for $54000
 Tina Traders issued a cheque number 9123 for $3000 to equip installations for
installing the equipment.
 Provisions for depreciation is made at 20% per annum using the diminishing
balance method.
 The accounting of Tina Traders ends annually on the last day of February

Required

- Use the above information to prepare the following accounts in the

general ledger of Tina Traders for the period 1 March 2012 to 28 February
2013
a. Equipment Account
b. Accumulated Depreciation account
c. Asset realisation account
Equipment account

2012 Balance b/d 150000 2012 Disposal 24000

March June 1
1
July 1 OB Distributors 54000
July 1 Equipment installers 3000 2013 Balance c/d 183000
Feb 28
207000 207000
2013 Balance b/d 183000
March
1

Accumulated Depreciation

2013 Disposal 9408 2012 Balance b/d 46200

Feb 28 March
1
Balance c/d 62848 2013 Depreciation 26056
Feb 28
72256 72256

Disposal Account / Asset Realisation

Closing transfers

Question

The following balance appeared in the books of Tina Traders at 31 July 2014, the end of
the financial year before any adjustments were made.

Trial balance as at 31/07/14

 Capital - A Tina 120000
Drawings - A Tina 24000
Equipment 80000
Accumulated Depreciation, equip 8000
(01/08/13)
Inventory (01/08/13) 13300
Debtors control 54200
Creditors control 47600
Bank 35120
Sales 568350
Sales returns 8350
Purchases 321290
Purchases returns 3290
Discount received 6400
Freight inwards 8650
Rental expense 19500
Salaries 148000
Communication expenses 13450
Municipal expenses 12640
Stationery 4690
General expenses 10450

753640 753640

Required:

P/L 29450
Capital 29450
Transfer of profit for the period to
capital
Capital 24000
 Drawings 24000
Closing transfer

Tina Traders statement of differences in equity for the year ended 31/07/14

Capital (01/08/13) 120000

Total Comprehensive income 29450
Drawings (24000)
Balance (31/07/14) 125450

Statement of financial position as at 31/07/14

Assets
Non Current assets 64000
PPE 64000
Current Assets 110330
Inventory (18700 +810) 19510
Trade and other receivables (54200 + 1500) 55700
Cash and Cash equivalents 35120

174330
Equity and Liabilities
Equity 125450
Total equity 125450
Liabilities
Non-Current Liabilities
Current Liabilities 48880
Trade and other payables 48880

Total Equity and liabilities 174330

General Journal

Inventory 18700
 Trading Account 18700
Recording Closing Inventory
Discount Received 6400
Purchases 6400
Closing settlement discount received
to purchase
Trading account 395190
Purchases 314890
Opening Inventory 13300
Sales returns 8350
Freight Inwards 8650
Closing off and transfer of accounts
to the trading account
Sales 568350
Purchases returns 3290
Trading Account 571640
Closing off and transfer of accounts
to the trading account
Trading account (Gross profit ) 245150
Profit or loss account 245150
Trading account Cr - 590340
Dr - 345190
245150
Transfer of Gross Profit to Profit or
loss account
Profit or loss 215700
Rental Expense 18000
Salaries 148000
Communication expenses 14730
Municipal 12640
General expenses 10450
Stationery 3880
Depreciation 8000
Closing off of expenses to profit or
loss account

PPE Schedule

Equipment Total
Carrying amount (01/08/13) 72000 72000
Cost 80000 80000
Accumulated depreciation (8000) (8000)

Additional - -
Disposals - -

Carrying amount (31/07/14) 64000 64000

Cost 80000 80000
Accumulated Depreciation (16000) (16000)

QUESTION NEEDED

Debtors Control Account

Date Details F Amount Date Detail F Amount

Balance b/d 19190 2011 Bank + discount CRJ1 16860
Jun
30
Sales GJ1 18500 30 Sales returns GJ1 4615
Creditors Control GJ1 46 30 Credit losses GJ1 751
Interest GJ1 160 30 Sales HJ1 75
Balance c/d 15595
37896 37896
July 1 Balance b/d 15595
Reconciling Debtors Control Balance to debtors ledger balance

Total List of debtors 16230

Error : A Abel (500)
Error of original entry : B Brown (60)
P. Pet (Correcting ) (75) (635)
15595

Incomplete Records

- These are financial statement of the entity which does not keep proper
accounting records.
- This is when not all transactions are recorded and the min9imal accounting
records kept e.g. only debtors accounts and creditors accounts i.e.
personal accounts.

Disadvantages ofusing incomplete records

i. Incompleteness
- Where only personal accounts are kept double entry is not fulfilled hence
single entry accounting system is applied which is inco0mplete for
decision-making purposes
ii. No record of NCA and NCL
- NCA and NCL are impersonal accounts hence where single entry to kept
there will be no reliable records of these assets and liabilities.
iii. No details of profits or losses
 - This is because minimal or profit or loss accounts are not kept which
makes it impossible to determine the origin of a profit or loss in the
Accounting records .
iv. The final results are unreliable
- A trail balance cannot be complete from single entry account.
- The debtors and creditors balances may also be incorrect since there are
no control accounts to reconcile them.
- Assets and liabilities are also not recorded

Calculation of profits from incomplete records

- The profits for a certain period can be determined by means of a

comparison of the capital at the beginning of the period with the capital at
the end of the period.
- An increase in capital may be regarded as profit and a decrease as a loss
after providing for any additional capital or withdrawals by the owner .

Format

Capital at the end of the period

- Depreciation
- + Drawings
Generated profit for the period

e.g.

D Donovan keeps his books onthe single entry basis

On 30 April 2013 his assets andliabilities are as follows: -

F and F $16500

Inventory $8700

Sundry Debtors $10900

Bank (Favourable) $2200

Petty Cash $300

Sundry Creditors $9400
Loan CBZ Bank $5500

Balances at 30/04./14 areas follows: -

F&F $16500

Inventory $9600

Sundry Debtors $11200

Bank (Favourable) $3000

Petty Cash $400

Sundry Creditors $8600

Loan $5000

Adjustment: it was also ascertained that Donovan withdrew$2500 from the business during
the year

- F& F must be depreciated at 10% per annum

Calculate the P/L for the year 2014

Statement of Assets and liabilities 30/01/13

Assets 38600
Furniture and fittings 16500
Inventory 8700
Sundry debtors 10900
Bank 2200
Cash 300
Creditors 14900
Sundry Creditors 9400
Loan 5000
Capital 23700

Statement of assets and liabilities 30/07/14

 Assets 40700
Furniture and fittings 16500
Inventory 9600
Sundry Debtors 11200
Bank 3000
Cash 400
Current liabilities 13600
Sundry Creditors 8600
Loan 5000

Equity 27100

Capital at theend of the period $27100

- Capital at the beginning of the period (1650)

- Drawings 2500
- Profit 4250

Conversion from a single entry into a double entry system

Were Subsidiary journals arekept

i. Prepare the statement of assets and liabilities at the beginning of the period
ii. Prepare the various subsidiary jopurnals
iii. Post the journals to the ledger accounts
iv. Prepare a trial balance
v. Compile the financial statements.

Where minimal records are kept

- The lack of practical records or a proper set of books makes double entry
impossible hence using the available information it might be wiser to start
with the profit or loss.
- The following procedure can be applied
 i. Make a list of all assets and liabilities at the beginning of the financial period
ii. Calculate the capital as at begini9ing of the period
iii. Prepare a summary of the bank account for the year by using cheques
counterfoils deposit slips and bank statements as reference.
iv. Ascertain the balance of the assets and liabilities at the end of the period.
v. Calculate the figures and purchases and sales using the debtors and creditors
control accounts.
vi. Where accruals and prepayments exists it income and expenditure items , the
amounts which must be disclosed in the statement of comprehensive income
must be calculated .
vii. Prepare Financial Statements.

Question

C Kailtlin runs a small business. She has neverkept proper accounting records andasks you to
be her accountant . After through investigations you ascertain the following : -
Particulars with regard to her boss : -

Balances as at 1/05/13

Vehicle $15300

F&F $12600

Inventory; Trading $9680

Debtors $7930

Creditors $5645

Accrued Wages $450

The analysis of the receipts and payments in her bank account for the year ended
30/904/14 was as follows : -0

(all receipts where banked : and all payments were made by cheque)
 Bank
Balance b/d 7260 Payments of creditors 66500
Receipts for debtors 124538 Water and electricity 3300
Cash Sales 21762 Wages 11925
Rent expense 14400
Telephone expense 3420
Advertising 2100
Insurance 3250
Sundry expenses 7650
Bank charges 190
Drawings 35500
Balance c/d 5325
153560 153560
Balance b/d 5325

You establish the following which must be taken into account

a. Depreciation is to be written off on the carrying amounts at 20% per annum on

vehicles and 10% per annum on furniture and fittings
b. Balances as at 30 April 2014 : -

Accrued wages $225

Prepaid Insurance $250
Inventory: Merchandise $12190
Debtors $11230
Bills receivable $800
Creditors $7145

Required

i. Prepare the annual financial statements for C Kaitlin for the year ended
30/04/14
NB : - Bills receivable must be entered on the credit side of the debtors control account
and bills payable on the debit side of the creditors control account.

C .Kaittlin

Assets and liabilities

Assets 52770
Vehicles 15300
Furniture and fittings 12600
Inventory 9680
Debtors 7930
Bank 7260
Liabilities (6095)
Creditors 5645
Accrued wages 450

Capital 46675

Debtor’s control
Balance b/d 7930 Bank 124538
Bills receivables 800
Balance c/d 11230
136568 136568
Total Sales =
$128638+21762
= $150400

Creditors control

Bank 66500 Balance b/d 5645

Balance c/d 7145 Purchases 68000
73645 73645
 Wages Account

Bank 11925 Balance b/d 450

Accrued wages 225 Statement of 11700
comprehensive income
12150 12150

Insurance Account

Bank 3250 Prepayment 250

SCL 3000
3250 3250

C Kaitlin

Statement of comprehensive incomefor theYear ended 30/04/14

Revenue 150400
Cost of sales (65490)
Opening Inventory 9680
Purchases 68000
77680
Closing Inventory (12190)

Gross Profit 84910

Administration , distribution and other (50080)
expenses
Wages 11700
Water and electricity 3300
Rent 14400
Telephone 3420
 Advertising 2100
Insurance 3000
Sundry expenses 7650
Bank Charges 190
Depreciation : Vehicles 3060
Furniture and fittings 1260
Profit 34830
Other comprehensive income -
Total comprehensive income 34830

Statement of changes in equity

Capital 46675
Total Comprehensive Income 34830
Drawings (35500)
Capital 46005

Statement of Financial Position as at 30/04/14

Assets
Non Current assets 23580
PPE 23580
Current assets
Inventory
PPE Schedule

Furniture Motor Total

Fittings Vehicle
Carrying amount 11340 12240 23580
Cost 12600 15300 27900
Depreciation 12600 3060 4320

Non-Profit making Organisations

 These are economic entities whose legitimate goal is that of furthering certain
interests of the community.
 The objective to not to distribute profits to the members but to use the profits in
order to achieve the stated goal .
 Examples of NPOs range from informal social clubs to formal societies (formal
– schools , churches)
 Revenue to acquired from a variety of sources such as membership fees, ,
donations , fundraising projects , bequests and government subsidies.

Financial statements of an NPO

The following are the components of the financial statements of NPO

i. Receipts and payments

ii. Income and expenditure
iii. Statement of Financial Position
iv. Notes
Receipts andPayments statement

 It is an analysed and classified summary of the cash transactions of the origin.

 Smaller entities which have no other assets than cash will often prepare the
receipts and payments statements as their financial statements.
 All the cash received and paid whether it was operational revenue or expenses or
expenses or revenue of a capital nature are recorded in this statement.

Income and expenditure statement

 This is a statement prepared to determine the surplus or deficit for an accounting

period.
 This statement isvery similar to a statement of comprehensive income prepared by
trading entities.
 However the Layout differs in that all incomes are grouped together
structuring them between trading and other income at the expenses are also
grouped as expenses whether financing , administrative , selling and distribution
they are all lumped together .

Ancillary activities

 Bigger clubs engage in revenue generating activities to supplement their income.

 Examples of ancillary activities are :
- Bar
- Refreshments facilities
- Fund raising activities
 If the sale on which trading takes places justifies it , a separate trading
statement is prepared for each activity .
 The sales , administrative , to general expenses in respect of each ancillary are
deducted from the applicable gross profits in the income and expenditure
statement.
Accumulated fund

 This includes money donated to begin the organisation , entrance fees and
surplus or deficit for each accounting period,.
 Special funds donated for general expenses form part of the accumulated fund.

Special Fund

 Thisis usually money donated for specific purposes

 Separate investment accounts must be opened for special funds .
 Special funds can be of money set aside or donated for a specific purpose e.g.
to purchase equipment .
 Such funds are accumulated until the sufficient funds have been received .
 Special funds can also be for an infinite purpose , for such funds only the
income and from the investment of the capital amount may be used such funds
are non-expendable.

e.g. on Special Funds

 On 1 July 2010 Super Tennis Club Received a Donation to the amount of $3000
from S Star on the express condition that the income received from the donation
may only be used for the painting of the tennis courts.
 On the same date the amount was invested as a fixed deposit at CBZ Bank at
an interest rate of 10% per annum .
 The interest to received annually on 30 June
 No Tennis courts were painted during theyear ended 30 June 2011.
 It was decided as a general policy to invest all surplus. Interest at CBZ as fixed
deposited for a year.
 During the year ended #0 / 06 /12 , the tennis courts where painted at a cost of
$750
 The surplus interest was invested according to the general policy at an interest
rate of 10% per annum .
 Required

Show how these transactions will be recorded in the special funds account of the club.

Star Fund

Expendible Non – Expendible Non –

Income expendibl Income expendible
e income income
2010
June Balance c/d 800 8000 Jun 1 Bank: 8000
30 Capital
Donation
2011 Interest 800
June30
800 8000 800 8000
July Tennis 750 Balance 1 b/d 800 8000
30 Court
Painting
930 8000 Interest 880 8000
1680 8000 1680 8000
2012 Balance 1 b/d 930 8000
July 1

Solution 17:10.2

Membership Fees account

2012 Balance (Accrued) b/d 192 2012 Balance b/d 168

Jan 1 Jan 1
Dec Income and expenditure 2016 Dec Bank : 2011 120
31 0 31
2012 19920
 2013 48
Credit Losses 72
Balance c/d 48 Balance in arrears 72
2040 20400
0
2013 Balance b/d 72 2013 Balance b/d 48
Jan 1 Jan 1

Income and expenditure for the year ended 31/12/14

Income 29856
Visitors fees 4860
Membership fees 20160
Interest (savings) 156
Donations 4680
Expenses (30364)
Rates and taxes 3304
Rental 5760
Stationery 1632
Wages (3360 + 360- 72) 3648
Tennis balls (984 – 5280 – 420) 5844
Affiliation fees 120
Honorarium 2880
Maintenance 2232
Championship shortage 88
Loss on scaping (1200-960) 240
Depreciation 2616
Refreshments 1728
Credit Losses 72

Deficit 508
 Championship fund
Balance b/d 25600

Statement of financial position

Assets 53504
NCA 37860
PPE 12264
Financial Assets 25600
Current Assets 15540
Inventory (420 + 72) 492
Trade receivables (72 + 3072 + 1024 + 512) 72)
Cash and Cash equivalents 14464

Accumulated Fund (26440+864-508) 26796

PPE

Equip Total
Carrying Amount 12720
Cost (21600)
Acc. Depreciation (8880)
Additions 2400
Scrap (carrying amount) (240)
Cost 1200
Acc. Depreciation 960
Depreciation 2616
Carrying amount 12264
Cost 22800
Account depreciation 10536