BUSINESS ORGANIZATION AND

ACCOUNTING
LESSON 1
 POLICY MANUAL
A policy manual is a document which contains
all procedures and best practices which all
employees in an organization should follow. All
employees are supposed to follow certain
procedures at work and should behave and
conduct their affairs in a manner acceptable by
the organization. All the rules and regulations
are found in this document called the policy
manual.
 MAIN TYPES OF TRANSACTIONS
The main types of transactions that most
business enter into are sales, purchases, paying
expenses, paying employees and purchasing
non-current assets. For each of these functions
we will consider the key personnel involved in
initiating, processing and completing the
transaction.
 MAKING SALES
• In a retail organisation sales are made on the shop
floor. However, in a manufacturing organisation
there will normally be a sales and marketing
function whose responsibility is to market the
organization’s products and take orders from
customers. Often the day to day responsibility for
taking orders will be with the salesmen and women.
This may be done over the telephone or may be via
personal visits to customers or potential customers.
 MAKING SALES
• If a sale is being mad to an existing customer, provided that has
not exceeded their credit limit then the procedure will be for the
sales person to take details of the order and pass those details
to the stores department for dispatch and to the accounts
department for invoicing of the customer.
• However, if the sale is to a new customer then a more senior
level of management will have to be involved because if the sale
is to be on credit, the credit status of the new customer must be
determined and a decision made as to whether sales on credit
should be made to this customer.
• Once the goods have been dispatched to the customer,
responsibility then passes to the accounting function to invoice
the customer for the goods and to ensure that payment is
received.
 MAKING A PURCHASES
• The making of a purchases will initially be started by
either the purchasing department or the stores
department. The need for the purchase of more goods
will be recognized by, for example, the stores manager
when he realises that an item of inventory is running low.
He will then complete a purchase requisition which must
be authorised and then the purchasing function will
determine the most appropriate supplier on the basis of
price, delivery and quality. An order will be placed by the
purchasing function and the goods will normally be
received by the stores department.
 MAKING A PURCHASES
• After this, responsibility then goes to the
accounting department which will await the
arrival of the invoice for the goods from the
suppliers, will check that the invoice is
accurate and for goods that have actually
been received and then in due course pay the
amount due to the supplier.
 PAYING FOR EXPENSES
• Organizations will incur a variety of expenses such as rates
and rent, insurance, telephone bills, energy bills,
advertising bills etc. in some cases these will be incurred
by a specific department of the business such as marketing
department entering investment in an advertising
campaign or alternatively the receipt of a telephone bill
will be part of the general administration of the business.
• When bills for expenses are received they will be passed to
the accounting function which will check which will check
that the expense has been incurred or is reasonable and
then will process the expense for payment.
 PAYING EMPLOYEES
• Every month the employees of the business has to be paid. For
this process to take place there are a lot of calculations to be
made and a lot of paperwork to be filled out. In larger
organisations there will be the payroll department which will
deal with this otherwise it will be the responsibility of the
payroll clerk in the accounting function.
• The payroll function will determine the gross pay for each
employee, based upon a variety of different remuneration
schemes, and then will calculate the statutory and other
deductions that must be made and will then calculate the net
pay due to the employee. Finally the payroll function must then
organise the method of payment to the employees.
 PURCHASING NON-CURRENT ASSET
• From time to time an organisation will need to buy non
current assets. These are assets that are to be used in the
business for the medium to long term rather than being
purchased for resale. This will include items such as
machinery, cars, computers, office furnisher etc.
• In order for the purchase of a non current assets to be put
in motion the manager of the department which requires
the asset must first fill out the purchase requisition. As
most non-current assets are relatively expensive, this will
have to be authorised by a more senior manager.
 CONTROL OVER TRANSACTIONS
• In order for management to control the transactions
of the business must be a system of authorization of
transactions in place.
• The management of a big company cannot have time
to personally be involved in every small transaction
of the business. However, in order to keep control of
the sources of income of the business and the
expenditure that the business incurs it is important
that transactions are authorised by a responsible
member of the management team.
 CONTROL OVER TRANSACTIONS
• In particular this means that management must
have control over the following areas:
(a) Sales on credit to new customers. If a sale is made
on credit, the goods are sent out with a promise from
the customer to pay in future. Therefore the
management of the business must be as certain as
they can be that this new customer can, and will, pay
for the goods. This means that the credit controller
must be happy that the new customer has a good
credit rating and is fairly certain to pay for the goods.
 CONTROL OVER TRANSACTIONS
(b) Purchases of goods or non-current assets and payments
for expenses. This is money going out of the business
therefore it is essential that these are necessary and valid
expenditures so a responsible official must authorise.
(c ) one of the largest payments made by most
organizations is that of wages bill for their employees. It is
essential that only bonafide employees are paid for the
actual hours that they have worked therefore authorisation
of the payroll is a very important part of any business.
 DOUBLE ENTRY BOOK KEEPING-BASIC
PRINCIPLES
• The basic principle of double entry book
keeping is that for every debit entry there must
be a corresponding credit entry.
• Debit entries in the ledger accounts are
increases in assets or expenses and decreases in
liabilities and income.
• Credit entries in ledger accounts are increases
in liabilities and income and decreases in assets
and expenses.
 DOUBLE ENTRY BOOK KEPING
• The owner of the business is treated as a separate
entity to the business. The amount of money that
the owner puts into the business is a special payable
of the business known as capital. The money lent to
the business by other people who are not owners is
called liabilities. The properties that the business
owns including cash is called assets.
• The simple accounting equation is: Assets = capital +
liabilities + profit – drawings.
 DOUBLE ENTRY BOOK KEEPING
• For cost accounting purposes we will be concerned with the sales of goods,
purchases of materials, the payment of wages and expenses. So here is a
brief reminder of the basic double-entry that you are likely to come across.
• Sale of goods
DEBIT: bank/receivable
CREDIT: sales
• Receipts from receivables
DEBIT: Bank
CREDIT: receivables
• Purchases of materials
DEBIT: Materials control
CREDIT: Bank/Payables
 DOUBLE ENTRY BOOK KEEPING
• Payment to payaybles
DEBIT: Payables
CREDIT: Bank
• Payment of wages
DEBIT: wages expenses
CREDIT: Bank
• Payment of expenses or overheads
DEBIT: Expenses/overheads
CREDIT: Bank/ Payables
If in doubt with double entry remember the following rules:
DEBIT ENTRY: increase in asset, increase in expense, decrease in liability, decrease in
income
CREDIT ENTRY: increase in liability, increase in income, decrease in asset, decrease in
expense.
 DOUBLE ENTRY BOOK KEEPING
QUESTION
Which of the following is the correct double entry for a sale on
credit?
A DEBIT: payables
CREDIT: Sales
B DEBIT: sales
CREDIT: payables
C DEBIT: Receivables
CREDIT: Sales
D DEBIT: Sales
CREDIT: Receivables
 COST LEDGER ACCOUNTING
• Transactions are initially recorded in books of prime entry,
which are totalled and the totals posted to the ledger accounts.
• Cost accounting is the accumulation of costs for inventory
valuation in order to meet the requirements of external
reporting and also for profit measurement. In other words it
produces information for both financial accounting and
management accounting.
• in practice, the business will not enter every transaction in the
ledger accounts. They will initially enter them in books of prime
entry. The daily totals of these transactions are the ones that
are posted to the ledger accounts
 COST LEDGER ACCOUNTING
• You should remember that one of the books of
prime entry is the journal. The journal keeps a
record of un usual movement between
accounts. It is used to record any double
entries which do not arise from other books of
prime entry.
• As a reminder the main type of transactions
and their related books of prime entry are
given below:
 COST LEDGER ACCOUNTING
Sales invoices sent out – sales day book
Credit notes sent out – sales returns day book
Purchases invoices received- purchases day book
Credit notes received – purchases returns day book
Cash/ cheque receipts – cash received book
Cash/cheque payments – cash payments book
Petty cash receipts/payments – petty cash book
Other entries- journal
 COST LEDGER ACCOUNTING
QUESTION
Which of the following is not a book of prime
entry?
A petty cash
B journal
C Non-current asset register
D purchase returns day book.
 COST LEDGER ACCOUNTING
• An integrated accounting system is one which
combines the cost accounting and financial
accounting functions in one system of the
ledger accounts.
• An interlocking system has a separate cost
ledger for the cost accounting function and a
separate financial ledger for the financial
accounting function.
COMPUTERISED ACCOUNTING SYSTEMS
• A computerised accounting system will allow much quicker
and more accurate entries to the accounting system.
• In a full ledger computerised system the computer system
will normally maintain the following ledgers:
 General or main ledger(for all asset, liability, income and
expense accounts)
 Receivables ledger- accounts for each customer
 Payables ledger- accounts for each supplier
 Cash books- including the main cash book and the petty
cash book.