Accounting Notes Acc 101 M

1 ACCOUNTING Notes ACN-101-M CHAPTER 1
Contents
SPECIAL PROBLEMS / ODD / ILLOGICAL METHODS + SOLUTIONS IN ACCOUNTING. 13

LIST OF ACCOUNTS 13
1. INCOMPLETE RECORDS:CHAPTER 18...............................................................................13
Notes to especially remember/work through: 20
Short Notes on each subject : 20
Chapter 15:Mortgage............................................................................................................20
Ch 15: Debentures................................................................................................................20
ALL FINANCIAL STATEMENTS:shortened notes.21
1- INCOME STATEMENT 21
-2- BALANCE SHEET22
-3- STATEMENT OF CHANGES IN EQUITY 24
-4- NOTES TO THE STATEMENTS: 26
-5- TRIAL BALANCE 27
-6- JOURNALS: 28
-6.1-Cash Receipts Journal.......................................................................................................28
-6.2-Cash Payments Journal......................................................................................................29
-6.3-Sales Journal....................................................................................................................29
-6.4-Purchases Journal.............................................................................................................30
-6.5-Sales Returns Journal........................................................................................................30
-6.6-Purchases Returns Journal.................................................................................................31
-6.7-General Journal................................................................................................................31
-6.7-Petty Cash Journal............................................................................................................32
-7-Ledger :The 5 different types of balancing: 33
-7-Bank Reconcilliation Statement. 34
-8-Reconcilliation of Debtors /OR/ Creditors Control with the Debtors/Creditors Ledger Accounts.
34
-9-Reconcilliation of Inventory/Purchases/Cost of sales/Income Statement. 35
-10- Asset & depreciation Register: 37
11-Asset & depreciation Schedule: 37
12- NON-PROFIT ORGANISATIONS Receipts & Payments Statement: 38
1- NON-PROFIT ORGANISATIONS:Income & Expenditure Statement 38
13- NON-PROFIT ORGANISATIONS: Trading Statement 38
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14- NON-PROFIT ORGANISATIONS:Statement of Changes in Equity 38

15- NON-PROFIT ORGANISATIONS:Membership Fees Account:(+mem.fees paid in advance +
m.f.accrued accounts as well ) 38
16- NON-PROFIT ORGANISATIONS:Special : Non-Expendable :XYZ Funds Account 38
17 NON-PROFIT ORGANISATIONS: Special : Expendable : ABC Funds Account 38
18 NON-PROFIT ORGANISATIONS :Accumulated Funds Account 38
19-NON-PROFIT ORGANISATIONS :Property Plant & Equipment Note: 38
Chapter :1 HEADING : 41
CHAPTER 1: The Basic Principles and Spheres of Accounting 41
Study Unit 1.1.t,s: The Basic Principles and Spheres of Accounting: 41
Study Unit 1.2.t,s DEFINITION OF ACCOUNTING&BOOKKEEPING: 41
Study Unit 1.3t,1.2.t Knowledge of Acc. needed by/ & Obtaining Acc.Qual. 42
Study Unit 1.2t,1.2.1St HISTORY OF ACCOUNTING: 42
Study Unit 1.2.2s; 1.8+1.9tThe Nature of Accounting is: 42
Study Unit 1.5t GENERALLY ACCEPTED ACCOUNTING PRACTICE(G.A.A.P) 42
Iasb/Apb/Saica........................................................................................................................42
Purpose of Framework..............................................................................................................43
AC100: Preface to Statements of GAAP....................................................................................43
LAW:.......................................................................................................................................43
Study Unit 1.5.1t, 1.6.2s APPROACH to setting Accounting Standards....................................43
Study Unit 1.5.2 t,1.6.2 s AC100.07 Fair Presentation..............................................................43
Study Unit 1.53T,1.62S The Application of statements of GAAP................................................43
Compliance with Legal Requirements........................................................................................44
The FUNCTION of accounting is:1.6t pg8 44
Study Unit 1-4s,1-7t. THE ENTITY CONCEPT 44
TYPES OF DIFFERENT ENTITIES.:............................................................................................44
Study Unit 1.22S,1.8t The PURPOSE STATUS and SCOPE of the accounting "FRAMEWORK" 45
IAS 1.1(AC.101.1)-The PURPOSE OF FRAMEWORK is to assist....................................................45
IAS ??(AC101).5??The SCOPE OF FRAMEWORK is :................................................................45
THE NATURE OF AND NEED FOR FIN INFORMATION. 45
NATURE of FIN. INFORMATION. 45
NEED for ie:function of Fin.Info is :...........................................................................................45
PLANNING DECISIONS:............................................................................................................45
CONTROL DECISIONS..............................................................................................................45
eg:satisfied or need corrective steps.........................................................................................45
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THE NATURE OF ACCOUNTING: 46

Study Unit 1.5, t1.10 USERS 46
Study Unit 1.5.sPg6,1.11tPg13 :The OBJECTIVES of FINANCIAL STATEMENTS: 46
IAS 1(AC101).12:.....................................................................................................................46
IAS1(AC101).13.......................................................................................................................46
IAS(AC101).14.........................................................................................................................46
STUDY UNIT 1.5 pg 6 ,1.12t pg 13 FINANCIAL STATEMENTS: 46
FINANCIAL PERFORMANCE,FINANCIAL POSITION,CHANGES IN EQUITY,AND CASH FLOW
STATEMENTS. 46
FINANCIAL PERFORMANCE:......................................................................................................47
CHANGES IN EQUITY(p15 t) 47
3 FINANCIAL POSITION pg15t 47
Two main types of SOURCES of FINANCE are distinguished :Equity and Liabilities.......................48
CASH FLOW STATEMENTS 1.12.4t pg 17, 48
THE ACCOUNTING PROCESS:1.S,1.13T 49
The DOMAINS of Accounting: 49
FINANCIAL AND MANAGEMENT ACCOUNTING:S1.6.2,T1.14: 49
INTERNAL USERS : MANAGEMENT ACCOUNTING :....................................................................49
EXTERNAL USERS : FINANCIAL ACCOUNTING :.........................................................................49
UNIVERSAL ACCOUNTING DENOMINATOR:1.3S 49
GOLDEN RULE # 3 49
SUMMARY: 49
CHAPTER 2: The Nature of Accounting Theory. 51
CHAPTER 3: The Financial Position. 52
3.1S INTRODUCTION 52
3.2S ACCOUNTING ENTITY 52
3.2T THE FINANCIAL PERIOD. 52
3.3S.3.3T THE FINANCIAL POSITION. 52
ASSETS...................................................................................................................................52
NON-CURRENT ASSETS:.......................................................................................................52
CURRENT ASSETS.................................................................................................................53
LIABILITIES:............................................................................................................................53
CURRENT LIABILITIES..........................................................................................................53
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NON-CURRENT LIABILITIES..................................................................................................53
3.3.3. EQUITY.pg40t................................................................................................................53
3.4t MEASUREMENT OF ELEMENTS OF FINANCIAL STATEMENTSpg41 53
3.4s NET ASSET VALUE or(Net Worth)pg15 53
3.6t,3.5s BAE pg41t,pg15s 54
3.6s DOUBLE ENTRY PRINCIPLE:pg17 54
3.7t THE BALANCE SHEET OR FINANCIAL POSITION. 55
Chapter :4 62
HEADING : 62
CHAPTER 4: THE FINANCIAL PERFORMANCE. 62
OR INCOME STATEMENT 62
AND STATEMENT OF CHANGES IN EQUITY. 62
Study Unit 4.1 Introduction. 62
4.2t Elements of the Income Statement pg49t 62
INCOME .................................................................................................................................62
REVENUE.................................................................................................................................62
GAINS.....................................................................................................................................62
EXPENSES...............................................................................................................................62
NORMAL EXPENSES..............................................................................................................63
LOSSES................................................................................................................................63
INFLUENCE OF PROFIT/LOSS ON EQUITY.pg51t....................................................................63
INCOME STATEMENT:or FINANCIAL RESULT 63
OR FINANCIAL PERFORMANCE. 63
REASONS FOR INCOME STATEMENTS. .17 of framework...........................................................66
STATEMENT OF CHANGES IN EQUITY.pg 53 t 67
IAS1(AC101)............................................................................................................................67
4.6ACCOUNTING POLICIES AND EXPLANATORY NOTES. 69
CHAPTER 5: THE RECORDING OF FINANCIAL TRANSACTIONS. 71
STUDY UNIT 5.1: INTRODUCTION: 71
THE DOUBLE ENTRY SYSTEM. 71
ASSETS = INTERESTS 71
5.3 s The effect of transactions on the BAE. 71
5.4 Transactions which affect only: Assets or Equities or Liabilities. 72
equities -.................................................................................................................................72
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creditor +................................................................................................................................72
5.5s Transactions affecting Income +Expenditure accounts.pg30,s.............................................72
5.7s BASIC form of a Balance Sheet. 73
5.9s;5.3t pg65 THE GENERAL LEDGER ACCOUNT. 73
Account types:A or E or L +i and e............................................................................................75
5.4t p72,5.10s p38 Balancing an Account 76
5.5 p75t;5.14 p45sTHE Trial balance. 77
5.5.1t Errors not revealed by a trial balance...............................................................................79
Errors which will be revealed by a trial balance..........................................................................79
5.5.1t p77 Tracing errors in a trial balance................................................................................79
5.6t pg78Preparing financial statements. 80
5.5.4 p80t;5.6p49s NOTES TO THE FIN.STATEMENTS................................................................82
CheckSpecial notes for the following: 82
Chapter :6 HEADING :PROCESSING ACCOUNTING DATA 83
6.2s p62 THE ACCOUNTING CYCLE 83
6.1-6.2p83t 6.1-6.5s p62/63 JOURNALS 83
6.3 p84 t 6.5.1s p63 THE DIFFERENT JOURNALS.......................................................................84
CASH JOURNALS..................................................................................................................84
CREDIT JOURNALS AND THE GENERAL JOURNAL...................................................................84
CASH RECEIPTS JOURNALS :.................................................................................................84
6.3.2.P89 t P 64 s CASH PAYMENTS JOURNAL........................................................................86
6.3.3 p95t Credit Journals and the General Journal....................................................................88
6.3.3.1 p96 6.3.3 p70s PURCHASES JOURNAL........................................................................89
p97t PURCHASES RETURNS JOURNAL....................................................................................90
p98/99t 6.3.3.3 p72 6.6.4s SALES AND SALES RETURNS JOURNAL.........................................91
p99 SALES RETURNS JOURNALS............................................................................................92
Debtors & Creditors ledger....................................................................................................93
6.3.3.5 General Journal p74 s................................................................................................94
VALUE ADDED TAX t p102 6.9s p83 95
SARS rules:..........................................................................................................................95
Theory of VAT..........................................................................................................................96
Payment basis/Accounting basis:...............................................................................................97
Accounts to be used:................................................................................................................97
Example of Vat accounts..........................................................................................................99
Chapter :7 HEADING :ADJUSTMENTS 102
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ADJUSTMENTS P99s,p115t 102

Introduction:..........................................................................................................................102
Source Documents of Adjustments:.........................................................................................102
Journal:.................................................................................................................................102
Characteristics of Adjustments:...............................................................................................102
----5----Steps to take when doing Adjustments:.......................................................................103
-1- Special Notes: Adjustments : ACCRUED EXPENSES(accrued means arrears) 105
SHORT TERM ADJUSTMENTS:.................................................................................................105
1 -ACCRUED EXPENSES.=(liability)..........................................................................................105
a 105
-2- Special Notes: Adjustments : PREPAID EXPENSES 106
2 -PREPAID EXPENSES.=(Asset - normally Current OR -Non-Current- )....................................106
a 106
-3- Special Notes:Adjustments :Accrued Income(accrued means arrears) 107
3 -ACCRUED INCOME=(Asset -Current)(accrued means arrears :owed but not yet recorded)......107
Special Notes: Adjustments :Income Received in Advance(PrePaid 107
4 -INCOME RECEIVED IN ADVANCE( PREPAID INCOME)=(Liability - normally Current)..............107
Special Notes: Adjustments :Bad Debts: 108
5 –BAD DEBTS = (is an Expense Account)...............................................................................108
Special Notes: Adjustments:CONSUMABLE INVENTORY ADJUSTMT. 109
6 - CONSUMABLE INVENTORY ADJUSTMENTS =(Assets-Current).............................................109
Special Notes: Adjustments: DEPRECIATION ADJUSTMENTS. 110
LONG TERM ADJUSTMENTS:...................................................................................................110
7 – Depreciation adjustments =(Assets-Non-Current & Expense)..............................................110
9 –term Pre-Adjustment Trial Balance......................................................................................111
10-term Post Adjustment Trial Balance....................................................................................111
11-term Post Closing Trial Balance..........................................................................................111
Chapter :8 HEADING :The Closing –off Procedure ,determining Profits and Preparing Financial
Statements. 113
Introduction:The Accounting Cycle: 113
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The Closing Off Procedure: 113

The Closing Off Procedure: of a Service Entity:135t,119S 116
STEP:(1)-Closing off NOMINAL ACCOUNTS to the PROFIT & LOSS ACCOUNT:...........................117
STEP:(2)Closing off the DRAWINGS ACCOUNT and the PROFIT & LOSS ACCOUNT to the CAPITAL
ACCOUNT..............................................................................................................................118
Income Statement:.................................................................................................................118
Statement of Changes in equity...............................................................................................119
Balance Sheet........................................................................................................................119
Notes to the Statements:........................................................................................................119
The Closing off Procedure of a Trading Entity:p139t 119
Closing off Procedure for a TRADING ENTITY..........................................................................119
Cost of Sales : p140...............................................................................................................119
The Perpetual and Periodic Inventory System. 120
DRAWINGS and DONATIONS of inventory............................................................................120
The Perpetual Inventory System:............................................................................................121
The Periodic Inventory System:...............................................................................................124
The Financial Statements of a Trading Entity. 127
Chapter :9 HEADING :Cash &Cash Equivalents. 128
9.1- The Nature of Cash and Cash Equivalents. 128
9.2- Internal Controls over Cash: 128
9-The use of a BANK Account.: 129
Depositing of money:.............................................................................................................129
Issuing of Cheques:................................................................................................................129
The Bank Statement:..............................................................................................................129
Debit & Credit Memos.............................................................................................................129
9.3- Bank Reconcilliation Statement: 129
Following are most common causes of differences:...............................................................129
Reconcilliation Procedure.....................................................................................................130
SHORT SUMMARY before Full Main Explanation of: METHOD of the BANK RECONCILLIATION
PROCEDURE:.........................................................................................................................130
FULL METHOD FOR BANK RECON & ALL OTHER STEPS INVOLVED IN PROCESS.:.....................130
Petty Cash Journal: 133
Chapter :10 HEADING :Trade & Other Receivables. 136
Introduction: 136
Discount Allowed: 136
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Discount terms:......................................................................................................................136
Discount & Vat Reversing........................................................................................................136
Interest Charged: 137
BAD DEBTS and PROVISION FOR BAD BEBTS. 137
Bad Debts writing off of:.........................................................................................................137
PROVIDING for DOUBTFUL DEBTS:.........................................................................................138
Estimating doubtful debts:...................................................................................................138
Provision for Doubtful Debts:...............................................................................................138
Financial Statements:..........................................................................................................139
Increasing/Decreasing the Provision for Doubtful Debts:.......................................................139
Recovery of Bad Debts written off:..........................................................................................139
VAT,Bad Debts & Bad Debts Recovered. 10.4.7S......................................................................140
VAT And Bad Debts.............................................................................................................140
VAT and Bad Debts Recovered.............................................................................................140
Debtors With Credit balances ie: Cr: 140
Credit Cards Sales & Charges: 140
Debtors Control Account: 140
Disclosure of Debtors& Bills receivable in the Financial Statements: 141
-1-Disclosure..........................................................................................................................141
-a-Balance Sheet.................................................................................................................141
-c-Notes to Financial Statements:.........................................................................................142
-2-Debtors With Credit balances ie: Cr:....................................................................................142
Bills Receivable: 142
Recording of Bills Rec..........................................................................................................142
Payment of a Bill on Due Date:............................................................................................142
Dishonouring a Bill..............................................................................................................142
Discounting a Bill................................................................................................................143
Dishonouring a Discounted Bill.............................................................................................143
Chapter :11 HEADING :Inventory. 145
Introduction: 145
The Importance of Correct Inventory Evaluation:CORRECTING MISTAKES And RESULTS of Incorrect
Evaluation: 145
Correcting Inventory Mistakes in the Income Statement etc.:....................................................145
Valuation of Inventory at Historical Cost:146
NOTES TO The FINANCIAL STATEMENTS:...............................................................................146
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Methods of Estimating Inventory: 147

11.5 The Consistensy in the Application of Procedures. 147
11.6 Disclosure of Inventory in the Financial Statements: 148
Chapter :12 HEADING :.Property Plant & Equipment. 149
Introduction: 150
The Classification of Non-Current Assets.150
Determining the Historic Cost Price of Non–Current Assets: 150
LAND:................................................................................................................................150
All Manufactured & Self erected Assets.................................................................................150
Natural resources:...............................................................................................................150
Intangible Assets:...............................................................................................................151
Safeguarding & Control of Property Plant & Equipment. 151
Recording the Purchase At Initial Aquisition. 151
ASSET/Machinary/Equipment/Vehicles ACCOUNT:....................................................................151
Re-Evaluation: 151
Depreciation: 151
General:................................................................................................................................151
'Depreciation :Expense' Account..............................................................................................152
"Accumulated Depreciation Account:.......................................................................................152
Methods for Depreciation calculation:......................................................................................152
Straight Line Method: (or Fixed Installment Method).............................................................152
Diminishing balance method (or Accellerated Method)...........................................................153
Production Method:.............................................................................................................153
Reviewing depreciation rates:.................................................................................................153
The Treatment of Land & Buildings:........................................................................................153
Property plant & equipment Aquired/Disposed During the financial year....................................154
Disposal of Property Plant & Equipment 154
Summary (copied from study guide)........................................................................................156
Presentation In the Financial Statements: 157
Chapter :13 HEADING :Other Non-Current Assets. 159
Introduction: 159
Intangible Assets: 159
AMORTISATION: of Intangible assets......................................................................................159
Other Financial Assets: 159
Cost Price of other Financial Assets: 160
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Classification of Other Assets: 160

Recording & disclosure of other financial assets. 160
Cash Investments:..............................................................................................................160
Loans Granted:...................................................................................................................161
Investments in Shares:........................................................................................................161
Disclosure in Fin.Stat. of shares and all Other Financial investments.......................................162
Chapter :14 HEADING :Current Liabilities. 164
-14.1 Introduction: 164
-14.2 Trade Creditors: 164
-14.3Bills Payable 164
Sundry current Liabilities: 165
Internal Control measures regarding creditors: 165
Balance Sheet disclosure: 165
Creditors Control and Creditors Ledger Reconcilliation. 166
Chapter :15 HEADING :Non-Current Liabilities. 171
-15.1 Introduction: 172
-15.2 Recording a Non-Current liability in the Books and Financial Statments. 172
-i-Long term loans & Mortgage Bonds:...................................................................................172
-a-Mortgage bond:..............................................................................................................172
Debentures: 173
Method:.............................................................................................................................173
Chapter :16 HEADING : Financial statements of a Sole Proprietor: 175
Introduction: 176
Overall Considerations 176
Establishment of a Sole Proprietorship: 176
Drawings : 177
Owners Equity: 178
Balance sheet: 178
Notes to the statements: 178
CHAPTER 17 STUDY GUIDEp 328 | Chapter 17 Textbook p 333 179
Chapter :17 HEADING : Non-Profit Organisations: 179
Introduction: 180
Organisational & Control Characteristics.: 180
Sources of finance for : 180
Accounting records: 180
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Entrance fees:....................................................................................................................181
Membership fees:...............................................................................................................181
Income from Bar,Tuck Shop,Restaurant:..............................................................................181
Donations and Bequests:.....................................................................................................181
Receipts & Payments Statement: 181
Income and Expenditure Statement: 182
Trading Statement: 183
Accumulated Fund Account183
Special Funds 184
EXAMPLE OF: A NON-EXPENDABLE SPECIAL FUND ACCOUNT:..............................................185
EXAMPLE OF: An EXPENDABLE SPECIAL FUND ACCOUNT:....................................................185
FINANCIAL STATEMENTS -for SPECIALFUNDS.........................................................................185
Statement of changes in Equity:..........................................................................................185
Balance Sheet.....................................................................................................................186
Notes to the statements;.....................................................................................................186
IF INTEREST FROM A NON-EXPENDABLE FUND – MAY BE USED FOR GENERAL EXPENSES:show
like this:.............................................................................................................................186
TO REMEMBER:IN GENERAL:..................................................................................................187
CHAPTER 18 STUDY GUIDEp 356 | Chapter 18 Textbook p 361 188
Chapter :18 HEADING : INCOMPLETE RECORDS: 188
18.1 Introduction: 189
18.2 Disadvantages of using incomplete records: 189
18.3 Calculation of Profits / Loss from incomplete records. 189
18.4 Conversion from a Single Entry into a Double Entry System 191
18.4.1 Where subsidiary journals are kept...............................................................................191
18.4.2 Where minimal records are kept...................................................................................192
TO REMEMBER:......................................................................................................................193
SHORTENED Notes:ch 18 194
18.3 Calculation of Profits / Loss from incomplete records. 194
18.4 Conversion from a Single Entry into a Double Entry System 195
18.4.1 Where subsidiary journals are kept...............................................................................195
18.4.2 Where minimal records are kept...................................................................................195
CHECK at end written notes chapter 1 for all terms/notes/PLANS etc.
Special notes :make a 'dont forget to " list of eg:go back and put folio number in journal of corresponding ledger account after
transferring to ledger from journals.
1.1. All discount received in CPJ or CRJ whether in sundries or own column must be in (BRACKETS) for (minusing from)
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1.2. The (discount )and (vat output)corrections in brackets (all the figures for these)must be in brackets,must be added to
bank account Total to balance cpj/crj,-ie:they were a discount !
1.3. introduction to accounting
1- ANSWERs to questions asked:

1) transfer still-Vat –control does get wroked out every month-not just on alternate months-but it
can also be left out as a shortcut on alternate mnths-but not very good.
2) transfer still-vat control does allways get worked out before financial statements-YOU NEVER use
the vat input/output individually in the fin statements( balance sheet) ever-ONLY the vat control
amount.
3) transfer still-Accumulated depreciation gets one separate account per class of assets: eg vehicles
one , machines one, etc.NOT one accumulated depreciation for all –nor 1 for each machine –only
or all machines together.
4) transfer still: Asset realisation should have 1 separate account for each separate transaction taken
place, eg: "Asset Realisation: Gucci Machine" Account -in exams to keep everything clear and
easy- BUT in real life all transfers can go through just 1 realisation account,but separately each
profit/loss transfer just after corrresponding entry-to be able to match up and trace it later.,and
balance account at end of each month only-should allways be = 0.
5) transfer still : "Profit/loss on sales of assets" account –can have just 1 for whole year-at end of
year just use the balancing total for income statement.
6)
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SPECIAL CHAPTER ADDED:

SPECIAL PROBLEMS / ODD / ILLOGICAL METHODS + SOLUTIONS IN ACCOUNTING.
LIST OF ACCOUNTS
1. INCOMPLETE RECORDS:CHAPTER 18
1. Creditors control:SPECIAL PROBLEM (basicly problem is about:-to increase "Sales" total : on Cr side(opposite) –to decrease
"Sales" total :on Dr side(same side)
a. Discount Received (SPECIAL PROBLEM)(ONLY funny -odd side = TO DR side - NOT cr)
i. goes to Debit Side to end up showing up in Cr side "purchases" worked out total later when it is
calculated : ( to get "total purchases amount" –ie :IT WAS deducted-Now add it to total ON Dr SIDE
TO GET the increase in the "original" PURCHASES total on the CR side you are looking for ,since
discount was only received when the payment was made to creditors weeks later,not at date of
PURCHASES when you work it out later- YOU ADD IT TO DR TO GET CR PURCHASES TOTAL-NOT TO
CR immediately ! ALTHOUGH IT LOOKS LIKE IT SHOULD –IT WILL APPEAR NOW ON CR SIDE BY
ITSELF )-Although it also still goes to income statement as a "Other Income"
b. Bills Payable :
i. Include all "paid" bills payable as Dr (like any payment of creditors)
ii. Include all normal bills (still) payable as creditors-no separation yet!
c. Refunds from creditors in respect of overpayments -already received: SPECIAL PROBLEM :
i. Goes to Cr side to reduce "purchases worked out afterwards balancing figure" before it is/gets
calculated.
d. 'Interest income' paid on creditors accounts- SPECIAL PROBLEM :
1. Put on Cr side to reflect as a part of total creditors-ie it also reduces "purchases" by this
amount which is calculated on same side later!, underneath this,since this amount is now
included in {either Total creditors and total payment payed or one of the two} since it was
recorded earlier. (included as paid out! –now we must reduce "purchases" balance )
2. If interest income is still to be added to "creditors "-ie completely left out till now somehow-see
no.(f) below-last no. this part.
e. If ANYTHING is still to be added to "creditors "-ie completely left out till now somehow- then add it to the
BALANCING FIGURE THEY GIVE YOU ( to GO AT BOTTOM as b/d) and ALSO ON THE CR SIDE BEFORE
BALANCING –IT GOES IN BOTH parts ,top(as entry to add to 'creditors') and below(as balance :b/d total) to
achieve correct "Total Purchases Amount " etc.
2. Debtors Control: SPECIAL PROBLEM (Some points below)(basicly:problem is about-to increase "Sales" total : on Cr
side(opposite) –to decrease "Sales" total :on Dr side(same side)
i. Dishonoured Bills receivable + Noting charges:
1. To Dr side as a normal re-addition to debtors control after a 'dishonouring'
ii. R/D cheques
1. To Dr side as a re-addition to the debtors control( again added due to r/d)
iii. 'Interest income' collected on debtors accounts- SPECIAL PROBLEM :
1. Put on Dr side to reflect as a part of total debtors-ie it also reduces "sales" by this amount
which is calculated on same side later!, underneath this,since this amount is now included in
{either Total debtors and totall payment received or one of the two} since it was recorded
earlier.charged out!
2. If interest income is still to be added to "debtors "-ie completely left out till now somehow-
then add it to the BALANCING FIGURE THEY GIVE YOU ( to GO AT BOTTOM as b/d) and
ALSO ON THE DR SIDE BEFORE BALANCING –IT GOES IN BOTH parts to achieve correct
"Total Sales Amount " etc.
iv. Bill receivable discounted:
1. To Cr side as a "payment already received "
v. Discount ALLOWED (ONLY funny -odd side=TO Opposite side=CR side - NOT dr)
vi. goes to Credit Side to end up showing up in Dr side "sales" worked out total later when it is
calculated : ( to get "total sales amount" –ie :IT WAS deducted-Now add it to total ON Cr SIDE TO
GET the increase in the "original" SALES total on the DR side you are looking for ,since discount was
only allowed when the payment was received from debtors weeks later,not at date of SALES when you
work it out later- YOU ADD IT TO CR TO GET DR SALES TOTAL-NOT TO DR immediately ! ALTHOUGH
IT LOOKS LIKE IT SHOULD have–IT WILL APPEAR NOW ON CR SIDE BY ITSELF by 'mathematical
cancellation' Special trick to get itto work out like this –could also have been added straight to dr side
and ALSO to worked out at end balancing figure then to then all = "Sales" ,this is easier way!!! )-
Although it also still goes to Income statement as a "Distribution and Other Expenses"
vii. If ANYTHING :
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1. is still to be added to "debtors "-ie completely left out till now somehow- then add it to the
BALANCING FIGURE THEY GIVE YOU ( to GO AT BOTTOM as b/d) and ALSO ON THE DR
SIDE BEFORE BALANCING –IT GOES IN BOTH parts ,top(as entry to add to 'debtors') and
below(as balance :b/d total) to achieve correct "Total Sales Amount " etc.
viii. Bad Debts:SPECIAL PROBLEM
1. Bad debts go to CR side to "mathematicly increase" Dr side "Sales total" when one calculates it
later.
Theory of VAT.
to be noted specially:
 Note contra account for discount reversal in CPJ /crj is Debtors/Creditors not bank(all others as per logical exept this one)
 also note 2 diifferent methods of reversing vat –see vat chapter.
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+ check all adjustments for current/non-current +headings/names/bal.sheet/inc.stat.-see notes-

example of bal/inc stat for each type of adjustment +up to Ch 7 for
ACCOUNT NAMES Fin stat --- Account bal.sheet/income

Sales Electricity deposit account= Current assets-balance Electricity deposit current assets balance
sheet account sheet
Sales Returns adjustment Pre-paid Balance sheet-under
expenses Current assets-called
"PREPAYMENTS'as
heading
Inventory:trading ADJustment-accrued Balance sheet-Current
expenses liabilities-Trade &other
Payables-Accrued
Expenses
Purchases adjustment accrued assets-current assets-
income trade and other
receivables
Purchases Returns adjustment income bal. sheet-liabilities-
received in advance current liabilities-trade
and other payables.
VAT Input
VAT Output ADJustment- bal sheet-non current
depreciation assets-property plant
&equipment-
VAT Control adjustment bad does not go in bal
debts sheet-goes in income
stat.only
Bank adjustment bal.sheet-Current
consumable assets-inventories-
inventory on hand then stationary as last
sub heading below
this.
Debtors Control
bank&discount-(contra
account heading for a
ledger pg 94 stud
Bad Debts Recovered
Petty Cash Account
Provision for Bad debts
account
For:Income Statement:
Finance costs: separate to dist,admin&other expense-see page 138
ACN-101-M Page 18
Quetions to PHONE lecturer:
1. do you put column headings at beginning of each account for ledger.-HOW do this?
2. How use paper given in exam-do you use centre page line(between 2 pages double line there) as centre of a
ledger account or not-+ how else supposed to use it-only journals?(as with assignment paper)
3.
ACN-101-M Page 19
Notes to especially remember/work through:

1. Expenses= Dr -Debit side/Left side
2. Income =Cr –Credit side/Right side
3. Equity =Cr +Plus Credit Side ,and, Dr –Minus Debit Side
4. Asset =Dr+
5. Liability =Cr+
1) c/d comes first top means going to new balance line.

2) b/d comes second bottom means coming from the last balance to a final balance.
3) c/d is on OPPOSITE side to b/d-dont put them below each other again.
4) 'gross profit' allways ONLY means it comes from the 'Trading account ' final total for transfer.!
5) bank-is contra for petty cash account in ledger-not cheque or something
6) all cheques older than 6 months get reversed-allways immediately.
7) get the bank account total from the old recon-if not available elsewhere
8) only bank total goes in recon on OWN-FIRMS BOOK's –side-all rest ONLY go on 'banks books side'
9) wrong amounts/errors etc. as well can show on bnk statement but not on journal along with -1- bank charges etc,so check here
too for recon. enties-ie:as well as what is not ticked in cash books to go to recon.
10) ????FOR A DISCOUNT REVERSAL in a Sales /Purchases Returns Journal-
a) it has 4 legs:
b) &you must have 3 columns in the journal(or a sundries for some)
c) SalesReturns –CONTRA- -1-Discount -2-Vat Output -3- Debtors Control ??????
11) see other discount reversals too!!!!!!!!!!!!!!!!!!..........................................
a) 'debtors& cr ledger' accounts posted daily-not monthly ever in theory-exams ???.
12) Perpetual:has got a sales returns account,but hasnt got a purchases returns account.Sales returns JOURNAL has 4+ 1 + sundries
columns:inventory,cost of sales,Sales returns& Debtors +VatInput + Sudries for discount allowed reversal.Purchase returns journal
has 2+1 + sundries:Inventory,+ Creditors +Vat Output+sundries for discount received.
13) Put in CRJ/CPJ WITH DISCOUNT AND 1 OF THE 2 VATS : HAVE TOTALS IN BRACKETS!!!!!!
14) debtors& cr ledger' accounts posted daily-not monthly ever in theory-exams ???.thus the folio cloumn in journals
15)for the debtors/creditors ledger reconcilliation-remember a wrong side cr =less 2 times the value-1 * FOR CR +1* FOR THE Dr.
1-Income Statement
2-Balance Sheet
3-Statement of changes in Equity
4-Notes to the Financial Statements
5-Trial Balance
6-Journals
-Put a 'many journal entries in one ' for a 'profit & loss account ' transfer.
6.1-cash receipts
6.2-cash payments journal.
7-Ledger
8-Bank Reconcilliation
9-Debtors & Creditors Reconcilliation
10-Inventory Reconcilliation.
11-Asset register
12-
Short Notes on each subject :

Chapter 15:Mortgage
1. Cr"Bank"(for all self cash paid) & Cr "Mortgage :XY Bank " (for mortgage portion paid) –CONTRA- Dr :'Land' (for Asset
Account)with both totals separately-one after the next ONLY- not 1 amount!
2. Each payment of capital back(not interest-interest separate) is bank Cr. & mortgage dr(less in this creditors acc.)
3. Interest separate completely- Dr "interest:mortgage :expense" Cr 'bank' or 'creditors cntrl' or accrued expenses
Ch 15: Debentures
Debentures gl55
200 mar 31details GL5551234567891 11 11
0 2
ACN-101-M Page 20
NOTES TO STILL GET RIGHT/CHECK UP/ETC:

15) ????FOR A DISCOUNT REVERSAL in a Sales /Purchases Returns Journal-
a) it has 4 legs:
b) &you must have 3 columns in the journal(or a sundries for some)
c) SalesReturns –CONTRA- -1-Discount -2-Vat Output -3- Debtors Control ??????
16) Get a debtors ledger in BOTH formats for notes next
17) Itemise all internal controls-1 cash & cash equivaloents-2-debtors 3-Non current assets.-4-Non-current assets.
' ALL JOURNALS & LEDGER &Other BOOKS :shortened notes
ALL FINANCIAL STATEMENTS:shortened notes.
1- INCOME STATEMENT
:redo:inventory recon&asset register +debtors list//////Exercise 8.9.8 pg 164 s
NAME OF BUSINESS : XYZ Traders
INCOME STATEMENT for The YEAR ended 28 Feb 2007 (over a specific period)
SEE PAGE 140 S NOTES R
REVENUE 2 TOTAL
Cost of Sales (xxxxxx)
opening inventory xxxxxx
purchases xxxxxx
freight in Costs xxxxxx
sub-total
closing inventory 9 (xxxxxxx)
Gross Profit TOTAL
Other Income TOTAL
Profit/Loss on Sales of Assets 3 xxxxx
Investments: 8 xxxxx
Interest Income 8 xxxxx
Fixed deposits:income 8 xxxxx
Loans :Income 8 xxxxx
Dividend Income: 8 xxxxx
Bad Debts Recovered xxxxx
Discount received xxxxx
Rent or(next line)Comisssion/etc. income xxxxx
TOT. ALL Income
Distribution Administration and other Expenses. (BRACKETS)
Discount Allowed xxxxxx
Depreciation 1.2+3
Carriage on "Sales" (not purchases ! ) xxxxxx
Packaging (also not in purchases ! ) xxxxxx
Advertisements xxxxxx
Wages and salaries xxxxxxx
Water and lights xxxxxxx
Finance Costs (BRACKETS)
Interest on Long term Loan: MUST apart 8 xxxxxxx
Interest on Bank Overdraft: Must apart 8 xxxxxxx
Interest on Debentures 8 xxxxxxx
Profit (for the year) TOTAL
ACN-101-M Page 21
-2- BALANCE SHEET

 Cash & cash equival. can also be called:deposits on demand,bank balances and cash,deposits on short notice.-to ch 4/5
transfer.
 In cases where an entity has a +balance in 1bank account & a overdraft in another bank account –both balance should be
shown separately.as -1-ASSets & -2-Liabilities
 Must show on balance sheet for this module:
o Property plant & equipment
o intangible assets
o investments
ACN-101-M Page 22
o trade & other receivables

o cash & cash equivalents
o trade & other payables
o provisions
NAME OF BUSINESS
BALANCE SHEET AS AT (specific point in time) 31 March 2007
ASSETS PAGE 44tsee-own notebook1-end ch3-format-dissertation. NOTES R

Non-Current Assets ?????+ Provisions+????bad debts /guarantee + TOTAL
warrantee's.
Property Plant and Equipment 3 xxxxxxxx
Investments (at cost)( shares-unlisted + listed + fixed deposits+ loans-put as sub- 8 xxxxxxxx
headings below)
Intangible assets
Current Assets TOTAL
Trade and other Receivables xxxxxxxx
Cash and Cash Equivalents xxxxxxxx
Inventories xxxxxxxx
Prepaid Expenses ( should go in Trade & other Receivables) xxxxxxxx
Total Assets TOTAL
EQUITY AND LIABILITIES

Total Equity TOTAL
Capital xxxxxxxxx
Total Liabilities TOTAL
Non-Current Liabilities-remember to put in increasing order of liquidity:check TOTAL
chapter 15-payable last first ,those payable first go last!!!
Interest bearing Borrowings: total
Long Term Loans.(over 20 years at 12% pa ) 8 xxxxxxx
Mortgage Bonds (over 20 years at 10% pa ) 8 xxxxxxx
Debentures: 8
Current Liabilites(in incresing order of liquidity remember:payable last first) TOTAL
see page 291 t :chapter 14 : "current liabilities"
Trade and other Payables xxxxx
Bank Overdraft 7 xxxxxx
Current portion of Interest bearing borrowings 8 xxxxx
Vat Payable to SARS.
(Creditors:Interest or accrued interest on debentures) trade& other payables actually 8 xxxxx
(Creditors:Interest/ or accrued interest on interest Bearing borrowings)trade& other 8 xxxxxx
payables actually
Total Equity and Liabilities TOTAL
Note as to Revenue-if from sales OR service fees.
Note as to (1)Trade other receivables & (2)Trade and other payables :what composes it :bills-rec+ Debtors moved to
creditors because of a cr balance etc :Goes very last in the notes.
ACN-101-M Page 23
-3- STATEMENT OF CHANGES IN EQUITY

NAME OF BUSINESS: xyz Traders
Statement of Changes in Equity for the (year/month/etc)
ended 31 Dec. 2005 (over a period)
Capital: Notes Rands

Balance at beginning of year/mnth etc. xxxxxx
Net Profit/Loss for the year/mnth (etc) profit/(loss)
Contributions xxxxxx
ACN-101-M Page 24
Capital: Notes Rands

Drawings (brackets)
Balance at end of year/mnth etc. TOTAL
ACN-101-M Page 25
-4- NOTES TO THE STATEMENTS:

PETER PUMPKIN Traders
NOTES FOR THE YEAR ENDED 28 FEBRUARY 20.1
(1):Accounting Policy
(1.1):Financial Statements have been prepared on the Historical cost basis in accordance with Generally Accepted Accounting
Practice.
(1.2) Property plant & Equipment:
Property plant & Equipment are shown at valuation on receipt of goods where cost price is not available.
Depreciation(OR/AND amortisation) has been calc. at 10 % of cost price of Assets using the straight line method.(or . ..
.... written off over 20 years for intangible assets –straight line method-)
Land and buildings have been classified as investment properties and have not been depreciated
(1.3)provision for bad debts has been provided for at 5% of debtors.
(1.4)Inventories are valued at historical cost.
+ research & development costs
+ provisions
+ employee benefit cost
+ definition of cash & cash equivalents
(1.5) Changes in accounting policy disclosure.
(2): Revenue is Recognised as Net Sales to customers/OR Fees charged for services rendered.
(3)
(3.1) Land & buildings consist of erf 1,miemville,with buildings ,purchased at R 150 000. :subject to a MORTGAGE BOND in
favour of xxx Bank .
(4) Trade and other Receivables consist of :

1:Debtors:starting balance
less provision for bad debt
less debtors with cedit balance
total:XXXXXXXX
2:Bills receivable
3:Vat control account
(5) Trade and other Payables consist of :

1:Creditors:starting balance
less creditors with debit balance
total:XXXXXXXX
3:Vat control account
(6) Inventories/y consists of:

(1)stationary
(2)unfinished goods
(3)merchandise for sale
TOTAL:XXXXXXX
(7)Investments consist of:

(7.1)Unlisted Shares at cost:
ACN-101-M Page 26
(7.1.1) 150 shares in XYZ Company bought for R3,00 per share(market value R3000) ( put current value here, if different to cost
price it only goes here ,the cost price is what shows on the balance sheeteg:MARKET VALUE: R5000)
(7,1,2) 100 shares in abc Enterprise at cost price R5,00 per share(market value 1000)
(7.2)Listed Shares at cost:

(7.2.1) 1500 shares in TS Stores bought for R4,00 per share(DIRECTORS VALUATION R7000)
(3)Loans granted:
(3.1) loan granted to xyz Company (pty)ltd at 10% pa repayable in 4 years on 31 Jan 2005 secured by fixed property:erf 15
tekkiesville,valued at R100000.
(7.4)Fixed deposits:
(7.4.1) fixed deposit of R5000 over 5 years at xyz bank @ 5% interest p/a payable at end of term.
(8)Interest Bearing borrowings:

(8.1)Mortgage bonds consist of:
The long term loan secured by first mortgage :(Refer to note 3 .for details:)
The mortgage bond is for 500 000 repayable over a period of 4 years in installments of R128 000 per annum.,
Interest at 4 % per annum is levied on Outstanding capital and is also payable annually in addition to installment.
Outstanding liability = 500 000.
Less: Transferred to Current Liabilities: =128 000
384 000
(8.2) Debentures:
1500 Debentures at R100 are redeemable on 2 JAN 2008 to creditors.
Interest @ 10% p/a is payable each year .
The debentures are secured by a mortgage bond over land & buildings(refer to note xxx) in favour of the trustees.
Property Plant & Equipment: Land&Buildings Vehicles Machinary TOTAL

Carrying amount:
Beginning of the year: ( cost – acc.depreciation)
Cost
Accumulated depreciation ------------------- (Brackets) (Brackets) (Brackets)
Depreciation (One Year's including Pro rata for Disposals +Additions) --------------- (Brackets) (Brackets) (Brackets)
Additions (include all costs of : installation etc as COST price!)
Re-Evaluations. --------------- (Brackets) ------------ -----------
Disposals (Cost price – Accumulated depreciation ONLY ) (Brackets) (Brackets) (Brackets) (Brackets)
Cost --------------- (Brackets) (Brackets) (Brackets)
Accumulated Depreciation(remember to add all up extra mnths to date -------------------
sold
Carrying Amount:
End of year: ( cost – acc.depreciation)
Cost
Accumulated Depreciation ( top : Accumulated. Depreciation at ------------------- (Brackets) (Brackets) (Brackets)
beginning of Year + PLUS +-middle : Depreciation –MINUS- Disposals :
their Accumulated Depreciation =EQUALS= THIS AMOUNT.)
a. Accounting policy
i. Appears in Gaap-& ALSO based on entities own policies
1. Must At least:Measurement basis used to compile the Fin .Statments.
2. And :Whether prepared according to GAAP or not.(both 1& 2 in same sentence!!!!!!)
3. Recognition of income(revenue is recognised as net sales/service fees etc)
4. Recognition of depreciation/amortisation of tangible & intangible assets.
5. research & development costs
6. provisions
7. employee benefit cost
8. definition of cash & cash equivalents
-5- TRIAL BALANCE
 pre-adjustment,post- adjustment,post-closing
 errors not revealed by trial balance where :
o errors of omission, errors of principle, post to wrong account , compensating errors.
 /2- ,can be Dr on Cr side
ACN-101-M Page 27
 100,100,10,1,0.1 0.01 etc difference –can be casting error

 /9-(only 9 –not 99 etc) eg 63 is written 36 – quotient is difference (6-3)
 /9 or /99 or /999 (9 or 99 –all) can all be shift in comma:if 9-one column shift-if 99 2 column etc.
-6- JOURNALS:
-6.1-Cash Receipts Journal
 For Perpetual Inventory System:ADD 2 columns
o Cost of Sales Journal
o minus(Inventory Column)minus
o
ACN-101-M Page 28
-6.2-Cash Payments Journal

 Perpetual System :add 1 columns:
o Cost of Sales?????????
o Inventory
-6.3-Sales Journal
o minus(Inventory Column)minus.
ACN-101-M Page 29
-6.4-Purchases Journal
o minus(Inventory Column)minus
-6.5-Sales Returns Journal

18) Perpetual:has got a sales returns account,but hasnt got a purchases returns account.Sales returns JOURNAL has 4+ 1 + sundries
columns:inventory,cost of sales,Sales returns& Debtors +VatInput + Sudries for discount allowed reversal.Purchase returns journal
has 2+1 + sundries:Inventory,+ Creditors +Vat Output+sundries for discount received.
ACN-101-M Page 30
-6.6-Purchases Returns Journal

19) Perpetual:has got a sales returns account,but hasnt got a purchases returns account(but does have a Purch. Returns Journal.Sales
returns JOURNAL has 4+ 1 + sundries columns:inventory,cost of sales,????Sales returns?????& Debtors +VatInput + Sudries for
discount allowed reversal.Purchase returns journal has 2+1 + sundries:Inventory,+ Creditors +???Vat Output????+?????sundries
for discount received.???????
-6.7-General Journal
ACN-101-M Page 31
-6.7-Petty Cash Journal
ACN-101-M Page 32
-7-Ledger :The 5 different types of balancing:

-7.1-single entry.
-7.2-many -7.2-
entries on one only side. (no line drawn underneath the 90000 at all!!!!-only 1 of above it )
-7.3-entries both side –Both EQUAL- (Double Underline to show it ha been balanced)
-7.4-entries both side unequal
7.5:Only one figure on both sides:

(same figure both sides)put one line under each side-no totals or anything else(I think)But rather
double underline both sides and bd/cd the zero balance
ACN-101-M Page 33
-7-Bank Reconcilliation Statement.
The Bank Statement from the Bank:
-8-Reconcilliation of Debtors /OR/ Creditors Control with the Debtors/Creditors Ledger

Accounts.
FIRST MAKE a Debtors/Creditors list:
Creditors List at 30 April 2005
ACN-101-M Page 34
Folio No Debtor Amount : R

DL 5 xxxxx xxxx
DL 8 xxxxxxx xxxxx
TOTAL
-9-Reconcilliation of Inventory/Purchases/Cost of sales/Income Statement.

i. Rem: cost of sales * (100 + % : 'GrPr. on cost') =Sales
ii. so cost of sales =SALES * 100/(100+%)

ACN-101-M Page 35
-10- Asset & depreciation Register:
ACN-101-M Page 36
Asset Register and Depreciation Report FOLIO 5

Item: General Ledger Account:eg:GL7
Identification number: Purchased from:
Estimated Lifespan: Estimated Scrap value:
Depreciation per annum:
Date Details Folio Asset record Depreciation record

Dr Cr Balance Dr Cr Balance
11-Asset & depreciation Schedule:
12- NON-PROFIT ORGANISATIONS Receipts & Payments Statement:

1- NON-PROFIT ORGANISATIONS:Income & Expenditure Statement
13- NON-PROFIT ORGANISATIONS: Trading Statement
14- NON-PROFIT ORGANISATIONS:Statement of Changes in Equity
15- NON-PROFIT ORGANISATIONS:Membership Fees Account:(+mem.fees paid in
advance + m.f.accrued accounts as well )
16- NON-PROFIT ORGANISATIONS:Special : Non-Expendable :XYZ Funds Account
17 NON-PROFIT ORGANISATIONS: Special : Expendable : ABC Funds Account
18 NON-PROFIT ORGANISATIONS :Accumulated Funds Account
19-NON-PROFIT ORGANISATIONS :Property Plant & Equipment Note:
Incomplete records:Statement of Assets & Liabilities:
Incomplete records: Plain list of assets & liabilities
ACN-101-M Page 37
Incomplete records :Plain list of Bank amounts.
NON-PROFIT ORGANISATIONS
NON-PROFIT ORGANISATIONS
ACN-101-M Page 38
ACN-101-M Page 39
ACCOUNTING NOTES
ACN-101-M
CHAPTER 1 STUDY GUIDE | Chapter 1 Textbook
Chapter :1 HEADING :
CHAPTER 1: The Basic Principles and Spheres of Accounting

KEY CONCEPTS
. Financial information
. Decision making
. The nature of accounting
. Unit of measurement
. Forms of ownership
. Generally accepted accounting practice
. The fields of accounting
Study Unit 1.1.t,s: The Basic Principles and Spheres of Accounting:
Why is it necessary to Study accounting? :

Answer :ALSO To ACCOUNT for Income and Expenditure and Liabilities.
 Accounting is a means of communication.

 Conceptual framework: means—Eg in maths you learn conceptual: counting-- before subtract/divide.
 Conceptual framework is:
Laid down by S.A.I.C.A ---South African Institute of Chartered Accountants
After the rules approved by
A.P.B ---Accounting Practices Board
And having adopted the
FPPFS---Framework for the Preparation and Presentation of Financial Statements.
Issued by the
I.A.S.B.---International accounting Standards Board.
 GOLDEN RULE #1
Accounting cannot just READ/MEMORY but PRACTICE
Study Unit 1.2.t,s DEFINITION OF ACCOUNTING&BOOKKEEPING:

DEFINITION OF ACCOUNTING:
ACCOUNTANCY can be defined as :
The Orderly and Systematic

IDENTIFICATION AND RECORDING of the
MONETARY VALUES of
FINANCIAL TRANSACTIONS of an (or economic transactions)
INDIVIDUAL OR INSTITUTION and the
REPORTING on the
RESULTS of these TRANSACTIONS and the
PROVISION of the INFORMATION in FINANCIAL STATEMENTS
which INFORMATION is used in DECISION MAKING .
DEFINITION OF BOOKKEEPING:
BOOKKEEPING can be defined as :
The Orderly and Systematic

IDENTIFICATION AND RECORDING of the ( or here just “ECONOMIC EVENTS”. Finished)
ACN-101-M Page 40
MONETARY VALUES of
FINANCIAL TRANSACTIONS of an (or economic transactions)
INDIVIDUAL OR INSTITUTION.
Identity is important also orderly and systematic AND recording implies Chronological diary of measured events Also Classified and
Summarized
Study Unit 1.3t,1.2.t Knowledge of Acc. needed by/ & Obtaining Acc.Qual.
Knowledge of Accounting needed by:
1)Users : More insight-greater Personal/ Business difficulty level ability.
2)Preparers :responsibility design,processing+prepare,interpret report/profound knowledge needed.
Obtaining Acc.Qualification :
1)insight for entry into business world
2)Public practice:
a)management consult
b)auditing consult.
c)tax consult.
d)account. services
3)or Fin.Manager or general manager
e)trade and industry :fin acc,mngt acc.,int. audit.
f)Public sector :govmt.,Auditor,mgnt fin,int. audit
g)academic spheres:research ,education
Study Unit 1.2t,1.2.1St HISTORY OF ACCOUNTING:

 Accounting developed over centuries-The need to account for assets-Entrusted
 Early days by hand, last century type /print replaced hand written
 Computers lately ,few decades,Must Understand accounting method/not computers job/to understand business process
 6000 years ago business transactions recorded.
 Benedetto Cortugli 1458 Chapter Bookkeeping in commercial function book-first acc.textbook.
 FIRST Double Entry –Luca Pacioli’s “Summa” 1494 published Venice section on double entry.
 300yrs Pacioli’s Summa to more scientific 19 th century Accounting was refining of bookkeeping time
 Development of Bookkeeping 3 phases;
1)110 yrs 1450 to 1560 –bookkeeping practice more sophisticated than textbooks.
2)1560 to 1800 major improvements and research on theory incl. emergence of Fin.Statements +entity separate to owner.
3)after 1800 :Manufacture,operations,Income tax,and emerging profession stimulants to development of accounting
 Professional Accounting Societies –Middle 19th century start ,purpose to recommend acc.uniformity.
 ZAR -1894-Inst. Of Acc. Today various per Province/Nationals ,most important SAICA
 1951 Public Accountants and Auditors act promulgated : controls practicing section of accounting profession.
 This 1951 legislation created the Public Accountants and Auditors Board ,functions include Public Practice Registration Acc’s
and Audt’s and Discipline, and Training.
1.2 GOLDEN RULE
Accounting records transactions to provide useful information for decision making.
Study Unit 1.2.2s; 1.8+1.9tThe Nature of Accounting is:

1. Accounting is a Specialized Language (and Specialized means of Communication using words andfigures )used to covey specialized
Financial information. –which users should understand.(of Entity.)
2. (The Meaning of accounting is –Also concepts principles and procedures)
Study Unit 1.5t GENERALLY ACCEPTED ACCOUNTING PRACTICE(G.A.A.P)

1. GAAP is for Financial Accounting-internal use-NOT Management Accounting-external use.
2. –Financial statements different countries differ because of 1-social 2-legal 3-economic 4-needs.
Iasb/Apb/Saica
3. I.A.S.B. :International Accounting Standards Board.
ACN-101-M Page 41
4. A.P.B. :Accounting Practices Board.

-Standard setting body R.S.A.-1-Establish 2-Recognise 3-Accept GAAP.
-Consists of representatives of several Institutes and Organizations
-See company law –gazetted body into being.
5. S.A.I.C.A. :South African Institute of Chartered Accountants.
-Issues GAAP and several Statements Of GAAP
Purpose of Framework
6. 6.Purpose of “THE FRAMEWORK” :Assist
1-National standard setting bodies
2-Auditors
3-Users
4-Preparers of financial statements
In Prepering and Presenting Fin. Statements.
7. I.A.S.B.- prefix- :IAS 1.1
S.A.I.C.A- prefix- :A.C.101.1
:IAS1(AC101).55 is Paragraph 55 of Either one.
AC100: Preface to Statements of GAAP.

Purpose To:Explain Scope and Authoritity of Statements of GAAP
And Objectives of Standard setting Process.
-All statements of GAAP should be red and applied in Context of Preface
1. Paragraph .02 of AC100 :all statements of GAAP are approved by APB after process of drafting and exposure by SAICA.
2. AC100.03:APB consists of representatives of several INSTITUTES AND ORGANIZATIONS
AC101(IAS 1) deals with Presentation of Statements
LAW:
 RSA.:Companies Act 61 of 1973 section 286(3):

(also AC100.04): “annual financial statements of a company shall ,in conformity with GAAP
FAIRLY PRESENT the state of affairs …and the profit or loss”
 This act prescribes that the APB must prescribe in ‘Statements of GAAP’ the Info to be disclosed in financial statements–for the
act-
GOLDEN RULE
Financial statements must reveal a fair presentation of the financial position, financial
performance and cash flow of an entity.
Study Unit 1.5.1t, 1.6.2s APPROACH to setting Accounting Standards.
 AC100.07 -- GAAP not inflexible for all circumstances BUT Standards for as general application as possible and eliminate
undesirable alternatives.
Study Unit 1.5.2 t,1.6.2 s AC100.07 Fair Presentation
 Most important part of Companies Act is FAIR PRESENTATION.

 Compliance with Gaap does not auto. guarantee fair Presentation in Fin.Stat.
 Standards achieve:1-Comparability 2-help fair presentation
 Departures must be disclosed in Explanatory Notes.
 AC100.08 –Compliance with Gaap may be misleading
 AC100.09 –not necessarily cater for Specialized Activities (more a general standard)
 Ac100.09 –1-Specialized +2_unusual transactions add in Notes to Clarify if any deviation in standards.
 Implies only in exceptional cases are deviations permitted
Study Unit 1.53T,1.62S The Application of statements of GAAP

Spirit not Letter if problems.
AC100.10 :The application of statements of gaap:APB says
1. Spirit not letter of Fin. Statements if problems with application
2. To remember fair presentation
Substance-form/&Materiality.
ACN-101-M Page 42
AC100.11 :Two considerations affect Application

1. Substance over form –facts over GAAP form
2. Materiality-all matters in financial transactions which can affect the understanding and decisions of users must be recorded.
Compliance with Legal Requirements.
AC100.12
Companies act schedule 4
This act and schedule 4 is adhered to in preparation of Gaap
Non incorporated or non-companies and business entities who fall under other legislation than Companies Act +Schedule 4 of it must
still work in accordance to statements of GAAP -even though this act and not another was taken into account in the statements
preparation.
The FUNCTION of accounting is:1.6t pg8

:Is to provide Info. on the results of Economic Activities of a person or institution.
1. Most fin.info. in monetary terms.

2. Economic Activity include that use or consume resources to create new value.
3. Fin. Results :of economic activities have 2 aspects:
i)Value Added To Net Worth over particular period.
ii)Accumulated Net Worth.
4. IAS 1(AC101).8 –says a set of financial statements must consist of
i)balance sheet
ii)income statement
iii)A statement of changes in equity
iv)a cash flow statement
v)Notes :a)summary of significant accounting policies
b)Other explanatory Notes
5. IAS19AC101).20 _says i)before fin.statments can be completed whole acc.process must be completed.
ii)Interrelated and each adds info. where any one would not be enough.
6. IAS1(AC101).21
Notes and Schedules :
Include:1)Risks and uncertianities
2)Insurance claims by or against company not disclosed in balance sheet as resources
or obligations.
-as well as other notes eg depreciation etc.
Study Unit 1-4s,1-7t. THE ENTITY CONCEPT
1. an Entity is an economic unit whose Financial results are Determined on it's own
2. Accounting reports on the financial results and position of an entity.
3. Accounting entity unit INDEPENDANT from OWNERS and treated that way.ie:own fin. statements.
4. Most entities defined legally by statute eg:companies-companies act
Close corporations-close corporations act
By common law certain others
5. In terms of the Companies act an incorporated registered company is a legal person and therefore an independant entity
6. Companies act requires separate fin. statments for every company.,also C.C's as per CC act.
7. Accounting entity not necessarily a separate legal entity.Can be any.
TYPES OF DIFFERENT ENTITIES.:
A:PRIVATE SECTOR :Individual entities WITH PROFIT.

1. Sole proprietor
2. company
3. Close Corporation
4. Partnerships
B:PRIVATE SECTOR :Individual entities WITHOUT PROFIT.

1. Clubs
2. Education Institutions
3. Assosiations
4. Trusts
ACN-101-M Page 43
5. Churches
6. Charities
C:PUBLIC SECTOR:
1. THE STATE or INDIV.GOV.ESTABLISHMENTS.
2. PROVINCES
3. STATE DEPTS.
4. MUNCIPALITIES
5. BOARDS
6. COMMISSIONS.
8-The form of a business is determined by

a)Way business owned and managed
b)how original funds started business up
c)How profits,losses and risks divided.
Study Unit 1.22S,1.8t The PURPOSE STATUS and SCOPE of the accounting
"FRAMEWORK"
The Framework sets out the DIRECTIVES and CONCEPTS that underlie the preparation and presentation of Financial Statements .
IAS 1.1(AC.101.1)-The PURPOSE OF FRAMEWORK is to assist

1. development of future and review existing acc.standards.
2. harmonising of regulations,acc.standards and procedures relating to the presentation of financial
statements by reducing No. of alternative treatments.
3. National standard setting bodies in develop national acc. standards.
4. Preparers of fin. statments in applying fin standards
5. Auditors to form opinion of fin.stat in line with acc.stds.
6. users of fin stats.in interpreting +evaluating the information in them.
IAS ??(AC101).5??The SCOPE OF FRAMEWORK is :
(Answer-Basicly theObjective/Usefulness)
1. The objective of Fin. Stats.
2. The qualitative characteristics that determine the usefulness of info. in fin.Stats.
3. The definition,recognition and measurement of elements from which fin.stats.are constructed.
4. Concepts of capital and capital maintenance.
IAS (AC 101).6

 -Generalizing info contained to suit all users ie.is concerned only with general purpose fin.statem.,not specialised extras
needed.
IAS(AC101).7
 Fin.Statements do include Notes to etc.,but not:Annual/financial report or stuff like directors reports,chairmans
report,management discussions etc.
IAS(AC101).08
 The Framework applies to all fin.statments of non-profit ,business,commercial,private or public
sector.
 A reporting entity is entity with users who rely on fin.states. as thei major source of info on entity.
THE NATURE OF AND NEED FOR FIN INFORMATION.
NATURE of FIN. INFORMATION.
1. Accounting is a SPECIALISED Language used to convey Fin.Info.
NEED for ie:function of Fin.Info is :

TO Support decision making with 1-PLANNING or 2-CONTROL .
PLANNING DECISIONS:
 determine future action ,historical info.used some simple routine,some complex like following year fin. strategy.
CONTROL DECISIONS
eg:satisfied or need corrective steps
 The most important control functions of financial information is the provision of accountability and stewardship.
 Financial accountabilityy is the responsibility of someone to whom assets have been entrusted.
 ie:control through the enforcement of accountability
ACN-101-M Page 44
DECISIONS ARE MADE BY ALL USERS OF Fin STATEMENTS according to IASB:

1) sell/buy investment- Decide hold/buy sell equity investment
2) stewardship-Assess Stewardship and Accountability management
3) salaries-Assess ability entity pay + provide benefits to it's employees
4) collateral-Assess security of amounts lent to entity.
5) tax-Determine taxation policies.
6) profits-Determine distributable profits and dividends.
7) national statistics-Preparation and use of the national income statistics.
8) control-Regulate activities of entities.
THE NATURE OF ACCOUNTING:
 ACCOUNTING is a SPECIALIZED LANGUAGED used to convey SPECIALIZED INFO. to users.
 Uses words and figures.
 Used for making decisions:a)Control.
b)Planning.
Study Unit 1.5, t1.10 USERS
1. Most common Users of FIN. Info.:
1.1. Investors -used for :buy/sell/risk
1.2. Creditors -get paid
1.3. Employees –get paid +employment opportunities
1.4. Government –allocate resources and tax,regulations and statistics
1.5. Management –Control
THEY ANALYSE INFO. FOR VARIOUS DECISION MAKING PROCESSES
2. IAS(AC101).9:The above users + public +customers;
2.6)Public -employ people,support local suppliers.
2.7)Customers -can entity continue,dependant involved long.
2.8)Lenders -loans and interest will be paid
3. IAS(AC101).11
 :Primarily responsibility of maagement to prepare +present statements(financial).
 Management can make up and format extra Fin.Info. and has access to other Info.
Study Unit 1.5.sPg6,1.11tPg13 :The OBJECTIVES of FINANCIAL STATEMENTS:

IAS 1(AC101).12:
The OBJECTIVES of fin.Stat. is to Provide information on Financial Performance,Financial Position,Changes in Equity and Cash Flow
Statements for users to make Decisions with.
IAS1(AC101).13
-Fin.Stat will not meet needs of most users
-Do—not-- provide all the info users need to make decisions
-They provide Fin.Info NOT non Fin.Info.
IAS(AC101).14
-Fin Stat. show results of STEWARDSHIP of management.
-Users can decide to----1-Replace Management
2-Hold or sell investments in equity.
STUDY UNIT 1.5 pg 6 ,1.12t pg 13 FINANCIAL STATEMENTS:
FINANCIAL PERFORMANCE,FINANCIAL POSITION,CHANGES IN EQUITY,AND CASH FLOW
STATEMENTS.
-Discussed in .15 to paragraph -21 of Framework -IAS(AC)101).15 TO .21
ACN-101-M Page 45
FINANCIAL PERFORMANCE:
1. Financial outcome measured in two ways:

1)Financial Performance- Over a period -Income Statement
2)Financial Position - At a point in time-Balance Sheet
2. Financial performance reflects the profit or loss of an Entity over a period of time.
3. Financial performance reported in an Income Statement.
4. Income Statement reports the TWO ELEMENTS of Fin.Performance:ie:
a. Revenue and
b. Expenses
5. Paragraph 17 of framework reflects /explains Necessity of Fin. Performance info
a. Asses potential changes in the economic resources that the entity may control in the future.
b. Useful in predicting the capacity of the entity to generate cash flows from it's existing resourses.
c. help asses effectiveness whith which new resources will be managed.
CHANGES IN EQUITY(p15 t)
Statement of changes in equity:

1. Forms a LINK between income statement and balance sheet.
2. In simplest form starts with balance of capital at beginning of financial period and ends with balance of capital at end financial
period.
3. Paragraph .8(3) states that information regarding any changes in the equity of an entity must be reported in a statement
particularly formatted to show the changes in equity of an entity.
3 FINANCIAL POSITION pg15t
ACN-101-M Page 46
1. Usually determined after financial performance at the end of period.

2. Reflects NET-WORTH of entity at a point in time.
3. The POSITION is DETERMINED in terms of ASSETS and against that the interests of the various parties that FUNDED the
ASSETS.
Two main types of SOURCES of FINANCE are distinguished :Equity and Liabilities.
4. Equity:Interests of owners in Assets of Entity
5. Liabilities:Are the amounts owing to creditors ,reflect the claims of the creditors against the Assets of Entity.
6. ASSETS =EQUITY +LIABILITIES
BALANCE SHEET is
7. Paragraph .16 of the framework states that the Economic Position of an Entity is affected by
a. The Economic Resources it controls.
b. it's financial structure
c. it's liquidity
d. it's solvency
it's capacity to adapt to changes in the environment in which it operates.
CASH FLOW STATEMENTS 1.12.4t pg 17,

(NEXT SEMESTER-)
1. Economic decisions taken by Users of financial info. require:
a. Evaluation of ability to generate cash and cash equivalents and the timing of their generation.
b. Needs of entity to use these cash flows.
c. Assesing of 1)Investing
2)Financing
3)Operating activities.
over the financial period.
2. The cash flow statement reflects inflows and outflows of cash during the financial period.
3. In order to prepare the financial statements at the end of the period,the accounting Process must be exercised throughout the
period
1. Cash equivalents are short term investments which can be easily withdrawn without meaningful change in value.
2. Framework .15:
Need for Cash Flow + Financial Position and Performance statements.
3. Framework .18
deals with the Info.on cash flow of an entity ,(see page 17t)
(NEXT SEMESTER)
ACN-101-M Page 47
THE ACCOUNTING PROCESS:1.S,1.13T

1. The accounting process comprises the : Methods
and procedures for the identification and recognition, measurement and recording of
finanancial transactions and events.
-Identification :Which events have an impact on financial transactions.
-Recognition :Valid and should be included in accounts.
-Measurement :What monetary amounts
-Recorded :Design of,collecting ,sorting,summarizing.
2. This includes the processing ,presentstion,interpretation and use of the information supplied.
The DOMAINS of Accounting:
FINANCIAL AND MANAGEMENT ACCOUNTING:S1.6.2,T1.14:
(called The DOMAINS of Accounting)
INTERNAL USERS : MANAGEMENT ACCOUNTING :
2.1. USERS = eg:
2.1.1. Management
2.1.2. Employees
2.2. Need wide variety of fin. info. to run entity on a day to day basis.
2.3. Specific aspects according to Users needs – Reports on only Specific Aspects as an aid to Management , not for statutory
needs , not on Entity as a whole.
2.4. Not necessarily according to GAAP-private accounts of management-.
EXTERNAL USERS : FINANCIAL ACCOUNTING :
2.5. Fin. Acc. deals Primarily with External users(users outside entity not involved day to day activities of entity).
2.6. USERS = eg:
2.6.1. owners
2.6.2. employees
2.6.3. investors
2.6.4. creditors
2.6.5. government
2.6.6. lenders
2.6.7. customers
2.6.8. public
2.7. Financial Accounting according to GAAP-only-.
2.8. COMPARABILITY:According to External standards:GAAP,ensure comparability of.
2.9. Fin.Acc .produces the formal financial statements(4+notes to).-Fin. Info. entity as a "whole"-
UNIVERSAL ACCOUNTING DENOMINATOR:1.3S

1. The common unit of measurement in Acc. is money.
2. In RSA is the Rand and Cents.
3. All transactions are converted to monetary values before being processed.
4. LIMITATIONS:
4.1. Not all events can be converted to monetary terms.
4.2. Value of money unstable-influenced by many economic factors:eg-inflation.
GOLDEN RULE # 3
Financial Statements must reveal a Fair Presentation of the financial position ,financial performance and cash flow of an entity,(and
statement of equity-not in study guide but should be)
SUMMARY:
1. Function
2. Nature of-specialized language-specialized message-must be understandable-uses words and figures.
3. Different Users
4. Common unit/denominator in Acc.
5. 4 main forms of ownership(+other types)
6. Objective of Fin. Stat.
7. framework for the Preparation and Presentation of Fin.Stat.=(own abr.=FPPFS)
8. GAAP-
9. IAS 1=AC 101 {eg: IAC1(AC 101).08}
10. IAS=int.acc.stds.Board
11. AC=SAICA
12.
ACN-101-M Page 48
13.
14.
ACN-101-M Page 49
ACCOUNTING NOTES
ACN-101-M
CHAPTER 2: The Nature of Accounting Theory.

KEY CONCEPTS
. Accounting principles
. Accounting statements
. Accounting policy
. Going concern
. Qualitative characteristics
. Elements of financial statements
SEE first blank page in text book in beginning of chapter 2-pencil notes scribbled in show the only headings (each5-10 lines worth only)
in other technicon accounting book.
read to check before typing out.
ACN-101-M Page 50
ACCOUNTING NOTES
ACN-101-M
CHAPTER 3: The Financial Position.

KEY CONCEPTS
. Accounting principles
. Accounting statements
. Accounting policy
. Going concern
. Qualitative characteristics
. Elements of financial statements
3.1S INTRODUCTION
 PRIMARY PURPOSE OR GOAL OF ACC. IS TO GIVE INFO ON FIN.POSITION. AND FIN.RESULT/PERFORMANCE for wide range
of users.
 FPPFS gives guidelines for the preparation of the FIN.STAT.
3.2S ACCOUNTING ENTITY
 Extremely important deal with business as separare accounting entity because must be dealt with from point of view of –
ENTITY- not equity holders.
 DEFINITION:Any Enterprise or individual for whom Separate Financial Records are kept.
3.2T THE FINANCIAL PERIOD.
1. Fin period is time between last/next dates of fin.stat.
2. Annually compiled-
2.1. same date each year.
2.2. usually 31 Dec/ 30Jun /28,29Feb to coincide with tax year of most individuals.
2.3. Annual must by law be compiled for Companies and Close Corporations.
3. 6mnth,quaterly or even monthly –only internal use by management etc for control/planning.
3.3S.3.3T THE FINANCIAL POSITION.
 THE ELEMENTS OF FIN. POSITION ARE :
 A=E+L
 Balance Sheet
 measured at a point in time
 A=(EQUITY or NET ASSET VALUE )+L
ASSETS
3.3.1.1. DEFINITION:
A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the
entity
3.3.1.2. Assets do not have to be OWNED only CONTROLLED.
3.3.1.3. Definition:Future Economic benefits:Directly or Indirectly provide inflow of cash or cash equivalents.
3.3.1.4. TANGIBLE: eg Buildings,land &buildings ,plant &machinary,furniture&fittings,office equipment,motor vehicles,
3.3.1.5. INTANGIBLE: eg Patents,goodwill,development costs,trademarks
3.3.1.6. Inventories:raw materials,cosumables,work in progress,finished goods,
3.3.1.7. receivables:trade customers,related parties,prepayments
NON-CURRENT ASSETS:
1. Must be listed first in balance sheet

2. Were NOT aquired for the main purpose of resale
3. Are to be used in the business
4. Lifespan of LONGER THAN 12 MONTHS.
5. eg:Land &buildings,furniture&equipment,investments,vehicles.
ACN-101-M Page 51
CURRENT ASSETS
 Must be listed second under assets in balance sheet.

 ANY ONE of the FOLLOWING CRITERIA must be satisfied:
1. It is expected to be realised in ,or is intended for sale or consumption in ,the entity's NORMAL
OPERATING CYCLE.
2. It is held primarily for the purpose of being TRADED.
3. It is expected to be realised within 12 months after the balance sheet date.
4. It is a cash or cash equivalent unless it is restricted from being exchanged or used to settle a
liability for at least 12 months from the balance sheet date.
5. ALL OTHER ASSETS SHALL BE CLASSIFIED AS NON-CURRENT.
6. eg:Inventories,debtors,bills receivable,cash at bank.
LIABILITIES:
Definition:
Liabitities are present obligations of the entity arising from past events the settlement of which is expected to result in an outflow from
the entity of resources embodying economic benefits.
1. Must be a present obligation from a past event eg:to act in some way(Service) or (Pay) or - (Goods).
2. Future possible commitments cannot be recognised as liabilities.
Liability-Must first (1)Receive an asset for
(2)OR Irrevocable agreement entered into first.
3. Settle by:Service/Goods/Money/Other
4. In many cases Settlement of Obligations enforced by Contractual or - or
other Statuatory or other Authoritive agreements.
5.
6. borrowing-entity borrows from financial institution
5.2. bank overdraft-current account overdraft facility
5.3. payables-owing by entity for goods and services bought on credit.
5.4. liabilities can be legal obligations of an enterprise to pay fixed ammounts at fixed points to in time to 'Payables.'
CURRENT LIABILITIES.
If liability satisfy ANY ONE of the following CRITERIA it is classified as a current liability – ANY OTHER liability is a non-current liability.
(framework IAS1(AC101)
1. It is expected to be settled in the entities normal operating cycle.
2. It is held primarily for the purpose of being traded.
3. It is due to be settled within 12 months of the balance sheet date.
eg:creditors,bank overdraft
NON-CURRENT LIABILITIES.
1.Are long term debts ,which have to be settled AFTER one year of the balance sheet date.
-LONGER THAN ONE YEAR-
3.3.3. EQUITY.pg40t
1. The amount the owner/s own,"THE AMOUNT THE ENTITY OWES OWNER"
2. Residual interest in assets of entity after deducting all it's liabilities.
3. Interest of owner/s in NET ASSETS of an entity.
4. Equity from A-profit or B-owner contributions.
5. Equity contributed by owner in:
5.1. SOLE PROPRIETER = CAPITAL.
5.2. COMPANY =SHARE CAPITAL.
5.3. CLOSE CORPORATIONS =MEMBERS INTEREST.
6. EQUITY-entity owns it's owners.
7. Equity is an obligation that does not have to be settled ,whereas liability is an obligation that must be settled.
8. E=A-L or
9. A =E+L
3.4t MEASUREMENT OF ELEMENTS OF FINANCIAL STATEMENTSpg41
 Monetary amount
 see chapter 2 for measurement.
3.4s NET ASSET VALUE or(Net Worth)pg15

1. E=A-L=Net Asset Value.
2. Net asset value called Equity or Net Worth –residue after all liabilities deducted.
ACN-101-M Page 52
3.6t,3.5s BAE pg41t,pg15s

1. BASIC ACCOUNTING EQUATION(called the BAE for short.)=A=E-L (ONLY)
2. All entities Assets =OWED= to either owner or creditors.
3. Assets=What entity owes(all and all of).
4. From transaction-a)owner paid Capital get profit and creditors paid entity.
5. –What entity owns =what entity owes- from Double entry principle.
6. therefore assets =equity +liabilities.
7. By using this equation any unknown elements can be calculated.
8. "BAE"="A=E+L"-actually -and not any other way around.
9. OR ASSETS =(WHAT OWE OWNER +WHAT OWE CREDITOR)
10. WORK FROM ABOVE:A=E+L
A(-E)=(E+L)-E
A-E=L
THEREFORE L=A-E
11. OR :A=E-L
A-L=E+L(-L)
A-L=E
E=A-L
3.6s DOUBLE ENTRY PRINCIPLE:pg17
There are allways two sides to a TRANSACTION
 The double entry system is based on the fact that every transaction has an influence on two or more items in the BAE.
THE DUAL EFFECT EACH TRANSACTION HAS ON THE ELEMENTS OF THE "BAE" IS THE FUNDAMENTAL
PRINCIPLE ON WHICH ALL ENTRIES IN AN ACCOUNTING SYSTEM IS BASED
AND after each transaction has been recorded the Equation MUST still balance
Every TRANSACTION affects two or more ELEMENTS in the BAE
ACN-101-M Page 53
BAE : A=E+L
Because
IN Accountancy you get :
A or E or L
and
Every transaction must have at least 2 on opposite sides,or more involved.
3.7t THE BALANCE SHEET OR FINANCIAL POSITION.

3.1 GOLDEN RULE
The headings of all balance sheets in this study guide and in the prescribed book, can also
be: ``BALANCE SHEET AS AT . . .''
FOR EXAMPLE:
 A balance sheet is NOT part of the double entry system BUT a St atement of balances.
 No entries are made in the accounts when compiling a balance sheet.
 Usually at end fin.Period but can be compiled at any time for management purposes.
 Reflects NET WORTH/NET ASSET VALUE (=A – L)
 Financial Position is DETERMINED IN TERMS OF ASSETS AND AGAINST THAT THE INTERESTS OF THE VARIOUS PARTIES
THAT FUNDED THE ASSETS.
 the two main types of sources of finance are distinguished,they are
1. Creditors/Liabilities
2. Equity
 The Financial Position changes with each transaction or economic event,thus it is presented at a specific point in time.
 REFLECTS the financial position of an Entity in terms of the BAE
 MUST HAVE:
1. Must have a HEADING indicating

1.1. NAME of ENTITY .
1.2. DATE on which measured.
ACN-101-M Page 54
2. Reporting CURRENCY must be indicated –in RSA-Rands.

3. (in the BAE- if side by side preparation just for show then Assets shown on left,first non current then current and the source of the
funds on the right.
Equities must be first on right and liabilities second-with first non-current liabilities then current liabilities under that
(pg 43 t).)
4. Must be prepared in narrative form-that is vertically-according to GAAP.
5. Assets firstNon-Current assets first on left,then Current assets and each type under it's own heading.Assets shown on left,first non
current then current and Equities must be next below that liabilities second-with first non-current liabilities then current liabilities
under that. (pg 43 t).)
6. IAS 1(AC1101).68 STATES:
At a MINIMUM the FACE of the BALANCE SHEET shall INCLUDE line items that represent the - - following amounts:
ASSETS:
6.1. Property plant and equipment.
6.2. Investment property.
6.3. Intangible assets.
6.4. Financial assets.(excl 5,8,9)
6.5. investments accounted for using the equity method.
6.6. biological assets.
6.7. inventories.
6.8. trade and other receivables.
6.9. cash and cash equivalents .
LIABILITIES
6.10. trade and other payables.
6.11. provisions.
6.12. financial liabilities.(excl 10+11)
6.13. liabilities and assets for current tax,as defined in IAS12 -Income taxes
6.14. deferred tax assets and liabilities as defined in IAS12.
EQUITY
6.15. Minority interest ,presented within equity.
6.16. Issued capital and reserves attributable to equity holders of the parent.
NAME OF BUSINESS
BALANCE SHEET AS AT (specific point in time)

Non-Current Assets xxxxxxxxx
Property plant and equipment xxxxxxxx
investments at cost xxxxxxxx
ACN-101-M Page 55

Current Assets xxxxxxxxx
Trade and other receivables xxxxxxxx
Cash and cash equivalents xxxxxxxx
Inventories xxxxxxxx
Prepaid Expenses xxxxxxxx
Total assets xxxxxxxxxxx
EQUITY AND LIABILITIES

Total equity xxxxxxxxx
Capital xxxxxxxxx
Total liabilities
Non-current liabilities xxxxxxx
Long Term Loan.-Interest bearing borrowings:secured by xxxxxxx
Current liabilites xxxxxxx

Bank overdraft xxxxx
Trade and other payables xxxxxx
Current portion of mortgage loan xxxxx
Total equity and liabilities xxxxxxxxxx
ACN-101-M Page 56
ACN-101-M Page 57
ACN-101-M Page 58
ACN-101-M Page 59
ACN-101-M Page 60
ACCOUNTING NOTES
ACN-101-M
Chapter :4
HEADING :
CHAPTER 4: THE FINANCIAL PERFORMANCE.

OR INCOME STATEMENT
AND STATEMENT OF CHANGES IN EQUITY.
Study Unit 4.1 Introduction.

1. ???? Y/N Financial performance /income statement only comes from EQUITY ACCOUNTS:BAE—A=E+L.????
2. Second component of Primary Goal/Purpose of accounting = Income Statement.—(primary goal purpose of accounting=Financial
results=F.Pos.+F.Per.)
3. HEADING MUST STATE "for the period ended"
4. Financial period =time over which income statement is measured.
5. Financial Performance=INCOME-EXPENSES.=Income Statement=Profit/Loss over period.
4.2t Elements of the Income Statement pg49t

1. Financial performance measure over financial period(normally 1 year)
2. Net Profit = owners reward for
2.1. Entrepeneurial spirit.
2.2. Capital he/she invested.
3. Therefore Net profit increses EQUITY.
INCOME .
4.2.1.1 Definition:
Income is: Increases in economic benefits
during the accounting period
in the form of inflows or enhancements of assets
or decreases of liabilities
that result in increases in equity
other than those relating to contributions of equity participants.
4.2.1.1.1 The objective of every Enterprise is to earn as large an income as possible (Rational).
REVENUE.
4.2.1.2 Revenue is earned from entities ORDINARY ACTIVITIES.
4.2.1.3 eg:Fees earned,Sales,Interest income,Dividend income,Rent Income,Discount reveived,comission income,bad debts
recovered.
GAINS.
4.2.1.4 Gains are increases in economic benefits which DO NOT arise from normal economic activities of entity.
4.2.1.5 eg:Profit from sale of Non-Current assets.
4.2.1.6 Can be from profit on NON SALES- liability settlement deal.
4.2.1.7 When size of gains is determined,expenses are deducted before disclosing gains.
EXPENSES.
4.2.1.8 DEFINITION:
Decreases in economic benefits
during the accounting period
in the form of outflows or depletions of assets
and incurrences of liabilities
that result in decreases in equity
ACN-101-M Page 61
other than those relating to distribution to equity participants.

4.2.1.9 Expenditure is incurred to generate income.
NORMAL EXPENSES
4.2.1.9.1 Incurred in the normal course of business activity.
4.2.1.9.2 Arise from generation of income.
4.2.1.9.3 Eg:(?Purchase of inventory?),Customs and excise duty,Carriage on purchases(to warehouse/shop-not to
customer),carriage on sales,Rent expense,Salaries and wages,Cost of raw materials,Depreciation,Administrative
expenses,Water and electricity,Advertising,Interest expense,Bank charges,Bad debts,Discount allowed,Insurance.
LOSSES
4.2.1.9.4 Losses are decreases in economic benefit which do not arise from the normal operating activities of the
entity,for example ,damage caused by fire and loss on the sale of a non-current asset.
4.2.1.9.5 (???????Losses "often"disclosed net of related income.???????????Losses disclosed separately from expenses in
income statement.?????????)
INFLUENCE OF PROFIT/LOSS ON EQUITY.pg51t
4.2.2 EQUITY = CAPITAL + NET PROFIT/-NET LOSS
4.2.3 EQUITY =CAPITAL + INCOME-EXPENSES.
4.2.4 Use this:EQUITY=capital+income –expenses.
INCOME STATEMENT:or FINANCIAL RESULT

OR FINANCIAL PERFORMANCE.
DEFINITION OF INCOME STATEMENT:
Income statement is to reflect the financial performance for a financial period.
-Also called financial result(not with 's)
Extra notes in later weeks;
1. When a deduction from a list of addings for a heading is made,first make a total then put (minus) in brackets below-no further
totals needed below as end total is next to heading.
2.
3.
ACN-101-M Page 62
ACN-101-M Page 63
INCOME STATEMENT FOR THE PERIODIC SYSTEM:FOR A TRADING CONCERN:

See cost of sales breakdown below-only in periodic-NOT in perpetual.
ACN-101-M Page 64
MUST HAVE:
1. Name of business Must be shown.
2. In heading:INCOME STATEMENT FOR THE PERIOD ENDED.
3. Period of Income statement must be shown.
4. Monetary currency used(rand)
At a minimum the face of the INCOME STATEMENT SHALL INCLUDE LINE ITEMS THAT PRESENT the following amounts for the period.
INCOME:
1. Revenue
INCOME/EXPENSE:
2. Finance costs
3. Share of the profit or loss of associates or joint ventures accounted for using the equity method.
4. Pre-tax gain or loss recognised on the disposal of assets or settlements of liabilities attributable to discontinuing operations.
5. Tax expense.
6. Profit or loss.
REASONS FOR INCOME STATEMENTS. .17 of framework.

1. Assess potential changes in the economic resources that the entity may control in the future.
2. Useful in predicting the capacity of the enterprise to generate cash flows from it's existing enterprises.
3. Help assess effectiveness with which new resources will be managed.
EXAMPLE:
ACN-101-M Page 65
EXAMPLES OF ITEMS:
REVENUE OTHER INCOME Disribution,administrative and FINANCE COSTS.
other expenses.
Fees earned Bad debts recovered Advertising Interest on bank overdraft
Net sales Commission income Bad debts Interest on mortgage loan
Discount received Bank charges Interest on long term loan
Dividend income Carriage on sales Interest paid on
capital/savings accounts in a
partnership.
Interest income Delivery expenses
Profit on sale of asset Depreciation
Rent income Discount allowed
Insurance
Postage
Rent expense
Repairs
Salaries
Stationary consumed
Telephone expense
Water and Electricity
 'Finance Costs 'is a separate heading toDist,admin,and other expenses in State.
STATEMENT OF CHANGES IN EQUITY.pg 53 t

1. Stat. of changes in equity calculated only from equity accounts like income statement too.
2. forms a LINK between Income state. and Balance sheet.
3. Simplest form start balance capital beginning financial period +end balance capital end financial period.
4. BALANCE at end of statement of ch. in Equity must be same as CAPITAL in equity in balance sheet.
5. Must state in heading:STATEMENT of CH. in EQUITY. 'for period ended':(like income stat.)
6. Must :Name of Business in heading.
IAS1(AC101)
An Entity shall ,present a statement of changes of changes in equity showing on the face of the statement
1. profit or loss for the period.
2. each item of income of or expense for the period ,that ,as required by other standards or by interpretations, is recognised
directly in equity,and the total of these items.
3. total income and expense for the period(calculated as sum of a +b)showing separately the total amounts attributable to equity
holders of the parent and to minority interest.
4. For each component of equity the effects of changes in accounting policies and corrections of errors recognised in accordance
with IAS 8
5. An Entity shall also present ,either on the face of the statement of changes in equity OR in the NOTES:
6. The amounts of transactions of equity holders acting in their capacity as equity holders,showing separately distributions to
equity holders.
7. the balance of retained earnings at the beginning of the period and at the balance sheet date,and the changes during the
period.
ACN-101-M Page 66
8. A reconcilliation between the carrying amount of each class of contributed equity and each reserve at the beginning and end
of the period,separately disclosing each change.
NOTES FROM TEXTBOOK.

1. The profit / loss from Income statement is added/subtracted from the equity.
2. Additional capital withdrawals/contributions will also affect the equity.
-In this statement the balance at beginning is reconciled with the balance at end of the period.
Method:
1. First capital b/d
2. Second All:
i. Additions of capital
ii. Additions of Profit
3. Third all subtractions of capital.(DRAWINGS)
4. Fourth :New balance as at:Total double underline
5. NOTES:
i. If new Business –not "Balance as at" for beginning but 'capital contribution by owner " or such like.
ii. First all additions ,Lastly all subtractions.(eg:Drawings)
iii. Headings:see :1-Capital 2-Notes 3-R (in table)
iv. Closing balance at end of period ---NOT beginning of next.
v. For Profit /Loss state:"for month /year/period after "Profit /loss".
ACN-101-M Page 67
4.6ACCOUNTING POLICIES AND EXPLANATORY NOTES.

 Is prepared to give additional information on items appearing in the financial statements.
 Usually shown after the cash flow statement.
1. Accounting Policy Note:This note must state that the financial statements comply with GAAP,and the bases of measurement
and other policies must be disclosed.
2. Additional information on items in the fin.stat.:
1. There must be a note disclosing the source of revenue.
2. Anoter important note:Property Plant and Equipment which reconciles the carrying amount of these
assets at the beginning of the period with the carrying amount at the end of the period.
3. Other disclosures:Eg:contingencies
Eg: (1) Name: XYZ Entity NAME

(2)Heading: Notes to the financial statements at(DATE) 2007/05/05
For No : 1-(a)The annual financial statements have been prepared on the historical cost basis
(b)and comply with G.A.A.P.
ACN-101-M Page 68
For No : 2-Revenue represents fees earned for services rendered to clients.

3-Depreciation, property plant and equipment:
1) Name: XYZ Entity NAME
2)Heading: Notes to the financial statements at(DATE) 2007/05/05
__________
(1)START
Amount :___
(2)Periods
happenings_
(3)END Amount:
__________
ACN-101-M Page 69
ACCOUNTING NOTES
ACN-101-M
CHAPTER 5: THE RECORDING OF FINANCIAL TRANSACTIONS.

KEY CONCEPTS
. Debit and credit . Ledger
. Transactions . Contra account
. Effect on financial position . Folio number
. T-account . Trial balance
STUDY UNIT 5.1: INTRODUCTION:

1. Each transaction affects 2 or more elements of the BAE---Fundamental Aspect of all entries.
2. BAE :A =E+L
3. Fundamental aspects of all accounting entries is:each transaction affects 2 or more elements of the BAE.
4. BAE must allways balance after each recording of a transaction.
5. To make a double entry correctly you need :
a. A GOOD WORKING KNOWLEDGE of THE APPROPRIATE NAMES of DIFFERENT THINGS in ACCOUNTING.
b. PARTICULARLY the CONCEPTS of DEBIT and CREDIT.
6. Assets = Interests
A=E+L
THE DOUBLE ENTRY SYSTEM.

ASSETS = INTERESTS
1. BAE does not form part of the formal accounting system but it is based on the BAE.
2. A CONTRA LEDGER ACCOUNT is the other on involved in Transaction
The one account refers to the other.
3. TO MAKE A DOUBLE ENTRY YOU MUST :assets=interests
a. Decide effect of transaction on BAE or "financial position of enterprise".
b. Identify the components or accounts involved,which will have the desired effects on the equation :ie:What is A,What
is E,What is L,eg :Name of eg:SALES etc in A=E+L
c. Determine which accounts to debit./credit
d. Be sure amounts debited= amounts credited.
e. Able indicate date of the transaction.
f. Indicate name of Contra ledger account in account in which you are doing the entry.
g. Indicate the folio No. of the Subsidiary journal.
5.3 s The effect of transactions on the BAE.

 Transaction:
 DEFINITION:A transaction is an agreed upon transfer of value from one party to another which affects (changes )the
amount ,nature,or composition,of an enterprises assets,liabilities,or equity./Affects the BAE.
 Enter into transaction –if measurable monetarily.
 Affect BAE ASSETS =INTERESTS
 Gives rise to the completion of a source document.
 Generates Income or Expenditure if you enter into a transaction,and/or affects A=E+L
 A TRANSACTION DOES ONE OF 5 THINGS:Affest A/E/L/I/Exp.
A=E+L
There are 4 ways in which the equation can change but still remain in balance.
A = E +L
A = E+L
ACN-101-M Page 70
1 + = + -
2 - =
3 - = +/-
4 =
 A Transaction can affect only A/E/L/Income/Expense-5 DIFFERENT Things.

 or A= E{expense/income} +L
 or A= E-[OTHER /CAPITAL{expense/income}] +L
 Because income/expense is part of equity.
5.4 Transactions which affect only: Assets or Equities or Liabilities.
REMEMBER ASSETS=INTERESTS
1. Transactions which affect only ASSETS.

1.1. Where one asset is being replaced by another.
One asset will increase and the other decrease by the same amount.
A E+L
asset + AND -
2. Transactions which affect both ASSETS and LIABILITIES(3 of)

2.1. BUY ASSET ON CREDIT
A E+L
asset + creditor +
2.2. PAYMENT TO CREDITOR
A E+L
asset(bank) - creditor -
2.3. AQUISITION OF LOAN
A E+L
asset(bank) + creditor +
3. Transactions which affect both ASSETS and EQUITY
3.1. CAPITAL CONTRIBUTIONS
A E+L
asset(bank) + equity +
3.2. WITHDRAWALS BY OWNER
A E+L
asset - equity -
3.3. SOME INCOME AND EXPENSE TRANSACTIONS(3 of 4 types)
3.3.1. CASH INCOME
A E+L
asset(bank) + equity +
3.3.2. CREDIT INCOME
A E+L
asset(debtors) + equity +
3.3.3. CASH EXPENSES
A E+L
asset(bank) - equity -
4. Transactions which affect both equities and liabilities.
4.1. CREDIT EXPENSE
A E+L
equities - creditor +
5.5s Transactions affecting Income +Expenditure accounts.pg30,s
1. Example for only Income +Expense transactions:
ASSETS = INTERESTS
ACN-101-M Page 71
A E + L
income expense
Income Cash + Bank +
ASSETS = E + L
income expense
Income Credit +Debtors +
Expense Cash - Bank -
Expense Credit - +
Payment from debtor - Debtors + Bank none none none
Pay creditor - Bank none none - creditor
 SOME EXTRA NOTES:
 Investment of capital usually the first transaction.(even "furniture " could be capital contributed)
 Balances from before are BROUGHT DOWN ,"present state" balances are CARRIED DOWN.
 Asset Exchange/one asset exchanged for another is when only assets are involved in a transaction.
 Realisation principle applies for when: Income is recorded when a debtor starts owing money(at time of transaction) and not
only when you get paid.
 Accrual principle applies when YOUR 'creditors' get recorded on transaction date and Not only on the date you pay .
5.7s BASIC form of a Balance Sheet.

1. A balance sheet is a report and in essence is a FORMAL PRESENTATION of the ELEMENTS of the BAE.
2. Withdrawals are NOT an expenditure item.
3. Reflects the Financial Position.
5.9s;5.3t pg65 THE GENERAL LEDGER ACCOUNT.

9) {P.S. NOTE:notice,remember on the whole :, just like for any other Contra's with multiple accounts-eg bank –you just write
"payments" or receipts if their are too many contra's,down to where there are 3-eg:Debtors Vs Bank + Discount + Vat:you just say
'bank' as contra and leave other 2 out-or just bank & discount-and leave out vat etc etc}
ACN-101-M Page 72

1. The first name or two names must allways refer to CONTRA account in "details" anywhere.Can be as descriptive as you wish –no
special format required.
2. An account is opened in the general ledger for every Asset,Equity or Liability item.
3. Each account given own number-folio number.
4. An account is an accounting record in which all transactions relating to a specific item are recorded.
5. Nominal accounts ('N' in trial balance)are Income and Expense accounts.
6. ACCOUNTING PROCESS:
6.1. Transaction takes place
6.2. Recorded on a source document
6.2.1. Information in a source document:
6.2.1.1. date
6.2.1.2. amount
6.2.1.3. type of transaction
6.2.1.4. person /entity witth whom transaction taken place
6.2.2. Examples of source documents
6.2.2.1. invoices credit transactions
6.2.2.2. receipts cash transactions
6.2.2.3. cheque counterfoils cash payments
6.2.2.4. cash slips cash purchases or sales
6.2.2.5. petty cash voucher proof of small cash payment
6.2.2.6. debit and credit notes goods returned
6.3. Journal(subsidiary)
ACN-101-M Page 73
6.4. ledger accounts(general & subsidiary)

6.5. Trial balance
6.6. Financial statements
7. Ledger account is also referred to as a "T" account.(capital T)

8. A ledger account is an individual record of a specific item.
9. Left hand side of T is debit side and right is credit side.
10. Dr and Cr refer to side of account-NOT to whether Account decreases or increases.
- dr & cr refer to whether assets of entity itself increase or decrease.
11. Each transaction affects at least two accounts –one must be debited and one credited.—amount debited to accounts must equal
amount credited to other.
12. The above No 5 and No 7 below are the No 2 basis or the double entry account system after BAE base – 'Assets = Interests'.
13. After all dr & cr are added the DR Total must = Cr Total
14. Cross reference account is contra account.details and Folio in each entry refer to this account.
15. FORMAT of LEDGER ACCOUNT:
15.1. Account name must be on top.
15.2. balances in accounts start at 0
15.3. contra account is opposite cross reference account
15.4. If total out by + or – watch out for amount DOUBLE to be taken off /add
15.5. DR side:1-Month/2-Day/3-Details/4-folio/5-Amount/double line then same on CR side.
Account types:A or E or L +i and e.

1. 3 main groups of accounts:
1.1. ASSET accounts
1.2. Liability accounts
1.3. Owners equity accounts.
1.3.1. Income accounts
1.3.2. Expense accounts
2. All Main or other groups are only part of A/E/L.
2.1. ASSET ACCOUNTS
increase on LEFT side of account
on LEFT side of BAE
In BAE dr has +; cr has –
In ledger account cr has + cr has +(both)
ASSET
(+) INCREASE DECREASE(-)
3.
3.1. LIABILITY ACCOUNTS
increase on right side of account
on right side of BAE
LIABILITY
(-) DECREASE INCREASE(+)
ACN-101-M Page 74
3.2. EQUITY ACCOUNTS

increase on right side of account
on right side of BAE
CAPITAL
3.2.1.
DRAWINGS
(+) INCREASE DECREASE(-)
3.2.2.
INCOME
3.2.3.
EXPENSES
(+) INCREASE DECREASE (-)
4. RULE:(own rule-figured out)
The Assets or Net worth or "Whats there /plus to "the entity is allways a DR.
What "takes from an entity is allways a CR.
eg:E = cr :entity owes-cr-(take from entity/is owed entitys worth by the entity).
A =dr :entity got -dr-Increase entity's worth
L =cr ;entity owes –cr-takes from entity/is owed by entity,is a 'Minus' from assets of entity.
EXEPT:where an account is PART of another account ,then it has the same balance as the "SIDE ie:DR/ or/ CR " of the account it
falls under in the Account it is part of ,although the above rule still holds.
5. 5.1 GOLDEN RULE
Assets eg(bank)increase on the (Dr)side and decrease on the (Cr)side of the account.
5.2 GOLDEN RULE
Equity (eg Capital) and Liabilities (eg Creditors) increase on the credit (Cr) side and
decrease on the debit (Dr) side of the account.
5.3 GOLDEN RULE
Income (eg sales) increases equity and are credited (Cr) to the particular income account.
5.4 GOLDEN RULE
Expenses (eg wages) decreases equity and are debited (Dr) to the particular expense
account.
6. Nominal accounts are:Income and Expenditure

7. Balance sheet accounts (in trial balance folio)are A/E/L accounts only-not expense or income.
8. folio numbers of accounts can be either of :GL1/GL2 for general ledger or B1/N1 for balance sheet /nominal .(at top of account)
9. folio numbers in details are only Journal page numbers,not the above ie:not ledger account/contra account numbers.
5.4t p72,5.10s p38 Balancing an Account

As accounts have entries on Dr and Cr sides ,a calculation must be done to balance them/determine the balance.
A Balance:Definition:
The difference between total Dr and CR in an Account.
1. BALANCING different TYPES of entries in ACCOUNTS.
1.1. ONLY ONE ENTRY IN ACCOUNT:
If only one entry leave as is –this is the balance.
If more than one entry one side ;see below 3.2
1.2. MORE THAN ONE ENTRY ONE SIDE OF ACCOUNT
ACN-101-M Page 75
Add the amounts on single side and write total in next line UNDER a line drawn to indicate end of entries and Total of side.
(only one line on top of total/below list of figures added-NOT a double line under total which would indicate that it has been
balanced and closed off
with an opposite side-see next point)
1.3. THE SAME AMOUNT ENTERED ON BOTH SIDES OF ACCOUNT:

A double line is drawn under amount on either side to indicate that account has been closed off-nothing else done ,that's it.-
no c/d or b/d. necccessary.
1.4. UNEQUAL ENTRY ON BOTH SIDES OF ACCOUNT or MORE THAN ONE ENTRY ON BOTH SIDES OF ACCOUNT :
1.4.1. Add Dr side –Enter Total in pencil.
1.4.2. Add Cr side –enter total in pencil.
1.4.3. Subtract smaller total from larger total.The difference is the 'BALANCE' of that account.
1.4.4. c/d means carried down TO new side etc,,While b/d means broght down FROM the
previous month .
1.4.5. Enter difference on smaller side with DETIALS:BALANCE and FOLIO:c/d in PEN- before
drawing any lines and immediately after last entry on either side/any of two sides even if you
must miss a few empty spaces on the smaller side.must be at bottom,bottom ,bottom.– as the
c/d or carried down total(before "closing off and it,s corresponding line,then total,then double
line.) =before closing off = c/d and after closing off /ie after the double lines= b/d.
1.4.6. The totals of both sides will now be the same and can be entered in pen.Drew single line
under balanced totals to indicate a :TOTAL and a Double line drawn under totals balanced to
indicate a "CLOSING OFF of ACCOUNT. and that the account has been balanced."
1.4.7. Last step is to carry the opening balance of account for next period over to the opposite side of
account –REMEMBER TO PUT 1st DATE of following Month- and enter it under the
total(so account is still showing extra on the side it came from-not on any other carried
over/balanced side.This is opening balance of account for next period and is called in
DETAILS:BALANCE and in FOLIO:b/d.
1.4.8. c/d or b/d is written in lower case ,not upper case.
5.5 p75t;5.14 p45sTHE Trial balance.
ACN-101-M Page 76
1. A trial balance does not give undisputable proof of Zero error.(errors could have occured in the records)
2. A Trial Balance is a list of all the dr and cr balances in the ledger b/d brought down on a specific date.
3. A trial balance is compiled for :
3.1. To test mathematical correctness of entries in the ledger.(if all a= e+l)
3.2. To test whether double entries have been entered correctly.
3.3. To serve as a basis for preparing the income statement,statement of changes in equity and balance sheet.
3.4. To test if all the balances in ledger correct
4. usually before financial statements prepared and after all transactions have been recorded in the ledger.
5. All balances are :'brought down' on side ledger balance appears.
6. ON a particular date.written "as at " like balance sheet-like a picture of the finances at a point-not over a period like income
statement.
7. Recorded in order they appear in ledger.
8. Trial balance MUST:
8.1. (b/d) on side amount appears in ledger.
8.2. Name of business on top.
8.3. Date "as at" .
8.4. Double line at bottom of totals.
8.5. Monetary currency at top of columns.
8.6. debit and credit at to[p of columns.
9.
ACN-101-M Page 77
5.5.1t Errors not revealed by a trial balance.

1. Errors of omission.(transaction omitted completely ,neither dr nor cr entered.
2. Post to wrong account,but on the right side. ( of the account on dr or cr side.-usually a once off error,especially if in same
category eg:water + lights to telephone.)
3. Compensating errors.(Co-incidentally the same error occours on both sides )
4. Where the error of principle occours.(principle is wrong eg;motor account debited with repair account figures.)-(usually often
repeatedly recorded incorrectly,not once off)
Errors which will be revealed by a trial balance.

1. Trial balance cast incorrectly(amount or side)
2. Error transferring ledger balance to trial balance.eg:(just a few examples)
2.1. eg :Incorrect amount to correct side
2.2. eg :Dr balances transferred to Cr side of trial balance.
2.3. eg :balance in ledger entirely omitted from trial b.
2.4. eg :balance from ledger entered twice in trial b.
3. Dr and/or Cr balances of one or more journal entries may be incorrect.
4. Balances of ledger incorrectly calculated.eg:(a few examples)
4.1. Dr or Cr or both added incorrectly.
4.2. Dr and Cr balances correctly added but but difference incorrectly calculated.
5. Posting from journal to ledger incorrect.
5.5.1t p77 Tracing errors in a trial balance.

1. Discrepancies traced with greater ease if Trial balances drawn up on a monthly basis ie:any erreo only 1 month not many months.
2. Steps to be taken in Tracking errors down.
General approach-work back from last step performed in the preparation of the trial balance.
If there is a difference in the dr and cr balances of trial balance then;
2.1. Cast each column of the trial balance again.
2.2. Make sure all balances in Ledger have been transferred correctly and to correct side of trial balance.
2.3. Confirm the balances of the ledger accounts by recalculating all the balances.
2.4. Check the transfers from the journals to the ledger.
2.5. Check the accuracy of the ammounts :following guidelines.
2.5.1. If difference in the figures columns is 1000,100,10,1,0.1,0.01 :likely to be a CASTING error in trial balance ,ledger or
journal.
2.5.2. A difference between the 2 columns that can be /2 could mean a debit balance equal to 1/2 the difference has been
enterd as a credit balance or visa versa.ie:If a Dr balance is wrongly transferred to the cr side,the Dr balance will be
ACN-101-M Page 78
minus the amount and the cr balance plus /extra the amount.Thus the total once difference between columns calc.
should be 2 times amount wrongly transferred.
2.5.3. If the difference is divisable by 9 then 2 things could have happened:
2.5.3.1. Transposition of numbers:ie: the digits do not appear in the correct order ,so 53 is written as 35 or 270 as 720.if
difference divisable by 9 then quotient will represent difference between digits which have been reversed.
eg:if 36 written as 63 then difference on Tr.balance=27 and quotient=27/9=3
this represents the difference between 6 and 3 in the transposed amount.=3
So search for No.with difference of 3 between figures.
If Quotient is single digit = transposition occoured in units and 10's column.
If Quotient is double digit = transposition occoured in 10's and 100's column.(eg 360 was written as 630 ...
difference = 270 and quotient = 270/9=30 represents a transposition between 6 &3 in the 100's column.
Unit/tens/ hundreds/transposition test works even if units&tens transposition in big no. eg :3445'45' written as
3445'54'-then search as in example 1 above for a units and tens transposition.this only works with 9-not 99 or
999 etc.
2.5.3.2. Alternatively ,if the difference is divisible by 9,it may be result of a one column shift.-a digit could have moved by
one place to either right or left,not order of digits changed as above.
eg: if 48,60 is written 4,86 difference in Tr.Bal. will be 43.74/9=4.86 as quotient.
(if answer is negative-then seek for one column ahead of quotient in Tr.Bal. part. and answer in written from
part-own workings out)
Similarly,if a two column shift has occoured then the difference in trial balance will be divisable by 99,so that
48,60 has been written as 4860,and so forth.
5.6t pg78Preparing financial statements.

1. From the information in the Trial balance the fin.State. can be prepared.
2. Income statement:prepared from trial balance eg:
3. Balance sheet:
ACN-101-M Page 79
4. Statement of changes in equity:no example here.

5. AND The Notes to the Statements:
FIX n MAT Trading.
Notes for the month ended 31 March 2001
1.Accounting Policy
Basis of presentation
The annual financial statements have been prepared on the historical cost basis and . comply with GAAP.
2.Revenue represents fees earned for services rendered to clients
6. ACCOUNT NAMES:
A/ Ex/ Non- Balance Sheet/ Ledger
E/ Inc. Curr/ Income Statement
L Curr St. of Ch. in Equity.
Bank called Cash and Cash equivalents A c
Creditors(current) Trade an other payables L c
ACN-101-M Page 80
Debtors Trade and other receivables A c

Petrol in car Petrol account E Exp ledger ledger
Advertising in paper. Advertising account E Exp
Debtors Debtor:B.Berry. A c ledger ledger
Creditors Creditor:M.Mills L c/nc ledger ledger
Services rendered Services rendered E ledger ledger
Capital/Equipment Equipment ledger
given as capital
Capital E balance sheet??? ledger
pay creditors Bank(if from) A+L ledger
buy asset bank- equipment A+A ledger
5.5.4 p80t;5.6p49s NOTES TO THE FIN.STATEMENTS.

1. Shown at end after cash flow statement.
2. Note no.1 is used to reveal GAAP compliance(ie the accounting Policies of entity and 'cost basis')
3. Property,plant,+equipment /depreciation breakdown statement in notes.
4. Revenue'reveals' in Notes(no.2)
5. Notes must:
a. :name of entity
b. :'for the period ended' + 'date' +'notes' like income statement.
c. monetary currency used in 'breakdown box'of depreciation.
6. Can state if no depreciation was written off for a period in a separate sentence-(see pg80t)after the 'breakdown box' with all
the figures in!!
CheckSpecial notes for the following:

1. For period ended:income stat,notes to fin.stat,
2. as at or on the :balance sheet,stat of changes in equity,
3. cash flow stat????
ACN-101-M Page 81
ACCOUNTING NOTES
ACN-101-M
Chapter :6 HEADING :PROCESSING ACCOUNTING DATA

KEY CONCEPTS
. Source documents . General ledger
. Accounting cycle . Debtors ledger
. Cash receipts journal . Creditors ledger
. Cash payments journal . Comprehensive taxation
. Purchases journal . Vendor
. Purchases returns journal . Taxable supplies
. Sales journal . Exempted supplies
. Sales returns journal . Value added tax (VAT)
. General journal . Input tax
. Output tax
6.2s p62 THE ACCOUNTING CYCLE

1 Transactions taking place--------------------------------------
2 Completion of source documents------DAILY
3 Recording of transactions in journals-DAILY
3 Posting to ledgers----------------------------------------------------DAILY-Journal Totals Monthly.
4 Balancing of Accounts and preparing a Trial balance----------MONTHLY
5 Adjustments of accounts and post adjustment Trial balance-ANNUALY
6 Closing of Nominal Accounts----------------------------------------ANNUALY
7 Preparing financial statements and reporting of results--------ANNUALY
8 Analysis and interpretation of financial statements---Management.
7 Decision making by the management-------------------------
8 BACK TO START
6.1-6.2p83t 6.1-6.5s p62/63 JOURNALS

1. Journals overcome: 1-Ledgers too bulky
2-Only 1 person can work on books at a time
2. Subsidiary journals-Group transaction together by Type of Transaction ,and classify by Date and/or Document sequence.
3. BOOKS RULE : No transaction may be recorded in the Ledger before it has been recorded in the journals.
4. Source document should
i. Specially developed for particular transaction.
ii. Clearly distinguish between cash and credit transactions.
5. Source documents of same kind are grouped together and recorded in Journals .
ACN-101-M Page 82
6. Posting is transferring from Journals to Ledger.

7. Journals purpose is to summarize information and reduce the no. of postings to the ledger.
8. Every transaction Must first be recorded in a subsidiary journal before being posted to the ledger.
9. Double Entry principle applied in ledger and not in journals.
10. Source Documents ,Journals,+ledger designed to supply 'info'to the fin.reports taking the requirements of GAAP into account
as well.
11. Journals also provide more info. than ledger accounts on the Items.
12. Must provide the serial no.s of Source Documents by :REC1/2/3/4/if none given.
6.3 p84 t 6.5.1s p63 THE DIFFERENT JOURNALS.

1. An Entity can decide what their needs are and what Journal they would use(allowed to design own types).
2. THE NORMAL ONES ARE.:(following are not the only ones but used exclusively in this book)
a. Cash receipts journal e.Purchases journal
b. cash payments journal f.Purchases return journal
c. Sales journal g.General journal
d. Sales return journal
CASH JOURNALS
1. Cash receipts journal –all cash receipts
2. Cash payments journal-all cash payments.
CREDIT JOURNALS AND THE GENERAL JOURNAL.
1.1. PURCHASE JOURNAL -all credit purchases
1.2. Purchase returns journal - all credit returns(purchases)
1.3. Sales journal -All credit sales
1.4. Sales returns journal -all credit returns(sold)
1.5. General journal -bad debts,errors etc.
1.6. +add petty cash journal,creditors subsidiary journal,
CASH RECEIPTS JOURNALS :
1.1. remember discount &vat in Journals and mix up with (brackets) and Output/Input crossover Discount deductions.
1.2. Security purposes small amount cash on premises ,cash should be banked-preferably daily.
1.3. Must be proper internal control over cash :theft /fraud.
Source documents:
1.3.1. Cash register audit roll-

I. Amount per transaction,Totals for periods,or totals for different cashiers.
II. Electronic or printed,often computerized –immediate recording
III. Cheque-details in register,cashed cheque receipt for payer.
1.3.2. Electronic payment:Debtor account no.is reference to identity of payer.-customary to consult with bank first,then
program computers to prompt for an account no.(if one is not given –transfer will be rejected)Bank statement serves as
proof of payment.
1.3.3. Duplicate receipts.
1.3.4. Duplicate cash invoices
1.3.5. Duplicate bank deposit slips.
GENERAL RULES FOR CRJ>

10. 1 book many columns for types
11. Must be processed in date order
12. In larger company/system:different cash receipts journals for each1-Account or 2-Type of receipt.
12.1. sundries columns are posted on the day the transaction occours in to general ledger.
12.2. The contra-account in 'bank' in ledger from CRJ [posting is 'receipts' or 'total cash receipts'.
12.3. Foilio no.s as follows:CRJ=CRJ 1/2/3 ,CPJ=CPJ1/2/ ,General ledger=GL5.
(From study page 64s: )
13. Cash receipts for month recorded and analysed in date order.
14. Cash not banked immediately-record in analysis of receipts column and then –amount banked that day recorded in bank
column.remember to put a folio no. on headingof ledger account above "fol" space.
15. Check the addition in the columns by cross-casting .In other words when the totals of the analysis columns are added ,they must
equal total in bank column.
16. Entries in sundries are posted individually to the ledger.
ACN-101-M Page 83
17. Discounts and Vat imput(DR) must be in brackets-items and totals –all of.(the above must be subtracted from the 'bank'when
balancing CRJ before posting to ledger to because they were a discount ie:were not included in 'bank'money received.
18. EXAMPLE OF CRJ/TO/LEDGER
19. MUST PROVIDE:

19.1. Serial no. of source document
19.2. Date of csh receipt
19.3. Name of person from whom received.
19.4. Amount.
19.5. Date and amount of of all deposits into bank account.
19.6. Account or accounts to be credited.
19.7. NOTE: Analysis of Receipts column does not get posted or totaled.!
Column headings of Cash Receips Journal.

19.8. Totals of Analysis of Reciepts Column NEVER to Drawn up-not month-each day-underline when posting to bank(in
one total).
19.9. IF : Money received on regular basis for same purpose=MAKE A NEW COLUMN FOR IT.
19.10. Eg:services rendered---
19.10.a. Debtors-(receive cash from)-every day to debtors subsidiary ledger.
-end of month to debtors control account in general ledger.
19.10.b. Sundries column.posted individually to account,specified in details column,include date for each
tansaction.
19.10.c. Analysis of receipts column:Underline column only when post to to bank(ie:was banked)then post only
(1) total to bank-not individually.
19.10.d. Beore posting from journal to ledger,Journal's accounts must have cross-casting done on them.This
means –total Dr must equal total Cr to be posted to general ledger.
19.10.e. NOTE:Analys
19.10.f. is of receipts column does not get a Column total or Get posted to General Ledger.-AT ALL –it only is
used to cross check other columns.
COLUMNS FOR NON-CASH TRANSACTIONS.

I. ('Discount Allowed')-( for example)-Column in jornal for aleready completed entry in ledger..........
Amount paid will be less than
ACN-101-M Page 84
amount charged unless 'discount allowed' is recorded . This discount is usually recorded separately to give
effect to the discount and balance the recording(also the General Journal has something with this ).
II. only 'discount allowed column ' on regular basis to use necessity in cpj otherwise put in ”General Journal"
III. All amounts in CRJ and CPJ must be in (brackets) for any ("MINUSES")
IV. If 'discount allowed in crj as a column
19.10.f.IV.1. NOT a cash tansaction
19.10.f.IV.2. Recorded and treated as an expense.
19.10.f.IV.3. Total is debited to discount allowed account.(equity expense account –NOT assets)
19.10.f.IV.3.1. For 'discount allowed' Entry in CRJ Bank.
Cash payment - entered in CRJ –In(???) Column Discount
allowed - entered in CRJ –'In Discount . ..
allowed'(as an expense) column Total to have been paid- In column-
In debtors column
19.10.f.IV.3.2. Bank column Total -Debited -Bank account(asset) Discount
allowed columnTotal-Debited -(as expense )discount . . allowed account
Debtors column
-Credited -Debtors Account(Asset) CRJ –CR/DR-to LEDGER
19.10.f.IV.3.3. Other examples:
19.10.f.IV.3.3.1. COST OF SALES
19.10.f.IV.3.3.2. Reversal of Vat to discount.
19.10.g. When "cross-casting" is done before posting to ledger - Totals of Non-cash transactions should be
I. Either deducted from analysis column total
II. Or added to bank column(ie as an expense already)
19.11. (??????If one payment is made on credit for multiple accounts choose 'first date' to for account to debit
/credit.??????)
FOLIO COLUMNS
19.12. Reason for folio columns:
19.12.a. reference
19.12.b. proof of posting
19.13. First folio column is only for Source Document eg:invoice no.
19.14. When CRJ columns posted
19.14.a. Ledger Page entered in at bottom of column of CRJ as folio proof of posting and reference,also in each
sundries column for each sundries posting (even if two entered next to each other.)
19.14.b. CRJ page entered in folio column of ledger as proof of posting +reference.
19.14.c. In CRJ first folio column used for page invoice no. ledger. AND OTHER for page . general
ledger from 'sundry accounts' and is next to each sundry total the in the . CRJ.
Folio no. of general ledger account for each Column total entered below total.
6.3.2.P89 t P 64 s CASH PAYMENTS JOURNAL

2. All cash Payments –that is (payments by cheque) are recorded in CPJ.
3. At end of Month only 1 total is credited to 'bank' account.
4. All other columns are Contra-accounts.
5. Sundry transactions posted individually.
6. SOURCE DOCUMENTS FOR CPJ.

6.1. Cheque counter foils.
6.2. Debit Notes.
6.3. OR Bank Statement issued by the bank.-for debit order /stop order /internet payment (only Recorded on receipt of)
7. Entries recorded +processed in CPJ in same order as the CHEQUE NUMBERS.
8. 'Amount on cheque ' is amount recorded in 'bank column'.
9. More analysis Columns as required by organisation.
10. If one Cash payment for Creditors Account for 1-Merchandise 2-Extras then choose by date which 1-/expense or 2-/purchases
account.
11. To have proper control over internal control over cash all cash payments exept petty cash shoulkd be made by cheque.
11.1. such payment should be authorised by senior person ,and –if possible
11.2. signed by 2 people.
12. Cheques cancelled should be filed for reference and indicated in CPJ as 'CANCELLED'
13. Bank reconcilliation (bank records )are an added measure of control over cash.
14. Payments from a bank account can be made by
14.1. Cheque
14.2. Electronic transfer
ACN-101-M Page 85
14.3. stop order or debit order

14.4. direct debit by the bank
15. CHEQUE QUALITIES:
15.1. detatchable
15.2. pre-numbered
15.3. printed corresponding serial no.s
15.4. counterfoil duplication
15.5. duplicate underneath (some )which serve as source document.
16. payment usually made on receipt of source documents from 3rd party,payment should be supplemented by internal documents
eg:signed delivery note or goods received note.
17. bank statement of payee is source document for electronic cash transfers.(debit order/stop order)
18. If salaries –electronic hard copy is supplied to bank to pay directly into accounts then-only total paid will show on bank statement-
hard copy /list of payments (own one) will serve as source document for wages/salaries.Bank statement is source document for
electronic payments-only recorded on Receipt of.
19. A CASH PAYMENT JOURNAL MUST HAVE:Should provide for:
19.1. Serial no. of cheque or other payment voucher.(for first column in left edge or in details column BUT NEVER in folio
columns-only for sundries or bottom of column ledger acc. no.)
19.2. Date of payment
19.3. name of beneficiary
19.4. Amount of cheque
19.5. Accounts to be debited or
19.6. accounts to be credited
19.7. Folio /1-Sundries 2-Column totals/ allways the general ledger-GL1/2/3/4 ones only.
19.8. If entity more than one bank account then separate Cash Payment Journal must be kept . for each account.
19.9. Sundries details are :Contra account name
19.10. If entity makes cash payments a petty cash journal must be kept.
19.11. Details of CPJ is either
1. Cash eg:for wages
2. or :Entity Paid eg:for Stationary creditors etc.
19.12. Discount received treated separately in CPJ like CRJ(total paid in separate 'bank' is='Creditors' or 'Sundries' etc.
Amount owed Column –Minus Discount =bank amount
19.13. Folio no. in General ledger is allways CPJ1/2/3.
19.14. 'discount received' is an 'income account' (in/of equity accounts) and it's contra-account is 'Creditors control' account.
19.15. The double entry principle/BAE must balance:To check CPJ before posting you must work out (in workings )total
DR=Total CR(remember to add/subtract)(eg;discount)
19.16. Remember to add discount received to Bank or Assets or to subtract from debits/contra accounts to bank ie:it is an
'income account.'
19.17. Total 'bank column ' is credited as payments or 'total payments ' to general ledger bank account.
19.18. CPJ does not have an "analyses of payments" column,only a bank column.
19.19. Amount comes before "details" in sundries column ie:1-amount2-folio3-details.(at end)
19.20. If on echeque is used to pay for 2/3 different things then it is all done in one line eg:1 cheque +many columns
headings,payments = in one line /record per cheque eg1-stationary(consumables) and 2-equipment(nc assets) if in one
line (different columns) or put in rows beneath each other for multiple same column entries.
19.21. Dont forget to go back and fill in folio numbers after ledger accounts are written up/transferred.
19.22. In folio column of general ledger page no. of CPJ is given,not contra-ledger account number.(ie not top of ledger acc. no.
for folio account.)
19.23. All discount received in CPJ or CRJ whether in sundries or own column must be in (BRACKETS) for (minusing from)
19.24. The (discount )and (vat output)corrections in brackets (all the figures for these)must be in brackets,must be added to
bank account Total to balance cpj/crj,-ie:they were a discount !
19.25. Folio no.s can be either :(B/N 1or 2or 3)- balance sheet or nominal accounts.or GL1or 2 or 3 for general ledger accounts.
19.26. EXAMPLE OF CPJ and BALANCE SHEET ENTRIES.(ALSO P 94 t)
ACN-101-M Page 86
6.3.3 p95t Credit Journals and the General Journal
1. The Transactions from activities are basis of design of journals and accounts.eg:1-Buy/Sell type journal design or 2-Services type
journal design.
2. 'Debtors control' + 'creditors control' accounts are 'interim' accounts between sale and realisation of cash.
3. Debtors /creditors accounts are 'control accounts' ,ie they are not :Creditor: P.Fitzpatric' etc.
4. 'Creditors subsidiary journal';If an entity must record that credit purchases other than those for 'sales' purposes ie:'inventory for
re-sale' as a normal part of the operations,then use this book –(not include in this module –only purchases and general for other
things)
5. In column 1 of Credit journals put :source document no. ,or in details column if none available.,but never in folio column-only for
General ledger transfer numberings.
6. Source documents for credit and general journals:
6.1 Cheque no.
6.2 credit note no.
6.3 copy of invoice no.
ACN-101-M Page 87
6.4 receipt no. (etc)
p 95 t Inventory Systems
1. 'Periodic' -'purchases account' -Purchases column in journal
2. 'Perpetual' -'Inventory account' -Inventory column in journals
-Cost of sales columns in-1 sales journals
-2 cash receipts journals
To update ?????what i dont know???
a. Cost of sales account:debit
b. Inventory :credit (not
the same as discount where single entry due to debtors has taken full figure into account.)
3. Periodic system: Cost of goods sold only determined at end of fin.period when inventory counted and 'inventory account
updated then only.
a. Practical because of 1-relative simplicity and 2- low cost of implementing,therefore used mostly by small entities(use
this one most)
6.3.3.1 p96 6.3.3 p70s PURCHASES JOURNAL

1. Source document no. in column or details ,nec=ver in folio column.
2. Only for inventory/resale goods.
3. only for recording credit purchases
4. After necessary authorizations- merchandise is then ordered
5. Purchases = Equity/expense account and Inventory =Asset account.
6. invoice from supplier usually source document for buying –but cannot record without goods received note to state received goods
(invoice anytime)although invoice is used to record from,just not without goods received note.
7. Invoices from sellers have untrustworthy numbering ,so they can be re-numbered consecutively or /and goods received notes can
be consecutively numbered and these used as reference no.s.
8. A "trade discount' is not recorded separately in journals,(not for early payment)-not necessary because considered part of different
purchasing price structure.
9. 'Discount received' is recorded separately in journals because amount originally recorded is to be adjusted /changed –thus it is
recorded and balanced separately for early payment-thus cpj join.
10. Purchases recorded in date order.
11. Creditors ledger updated daily from purchases journal.
12. Columns totaled end of month.
13. Purchase account=Expense account
14. Inventory =Asset account
15. For 'Periodic Inventory System': the 'Purchases Account' Debited to ledger :Assets:'Purchases"at end of month only.
16. For 'Perpetual ' :'Inventory account' is used.
17. creditors name and amount must be clearly shown.
18. Creditors column total is credited to the creditors control account at end of month only.
19. Details column:Name of supplier (etc)-more Info than ledger.
20. Totals of creditors control must correspond with balance of creditors ledger.
21. folio number column in PJ used for creditors ledger daily entries.
22. For the 'CREDITORS LEDGER' three column is preferred over t account because balance can be calculated each time.
23. EXAMPLE OF PURCHASES JOURNAL.
ACN-101-M Page 88
p97t PURCHASES RETURNS JOURNAL.

1. Credit note no.s in column 1,only folio of ledger in folio column.
2. Purchase returns is an income account –credit it.
3. Request for issue of credit notes for goods –incorrect,damaged/incorrect price.
4. Where returns are regular PRJ is used-see 8 below
5. Also credit notes on overcharges go in this book.
6. credit note should first be received from supplier before entry is entered in PRJ.
7. Source document no. in column 1 or with details./never in folio column-only for general ledger!
8. It is appropriate /berrer to record purchases returns separately to :Identify suppliers who consistently supply inferior goods.
NOTES
1. You can issue a debit note or receive a credit note for purchases returns.,but should wait for the credit note more.
2.
9. EXAMPLES OF PURCHASE RETURNS:
ACN-101-M Page 89
p98/99t 6.3.3.3 p72 6.6.4s SALES AND SALES RETURNS JOURNAL
P98 t p 72 s SALES JOURNAL

5. Objective of a sales system .
6. To accurately record any sales transaction.
7. Perpetual inventory –sales(cost of sales) –credited to inventory.
8. purchasing dept assisted by the above (inventory-perpetual)
9. credit to clients :BEFORE A TRANSACTION CAN BE RECORDED:
9.1. new clients: credit control dept determines credit rating of client –if approved conditions of credit finalised with client.
9.2. existing client:debtors account must be checked to confirm that client still conforms to the conditions;(credit rating perhaps as
well)
10. Source document in column 1 or in details (if no details )never in folio column.
Design of a sales journal.

1. Design procedure statrts after credit rating as above.
2. MINIMUM INFORMATION NECESSARY.
2.1. invoice no.
2.2. Date of transaction.
2.3. name and address of customer.
2.4. amount of invoice.
2.5. terms of settlement.
Sales journal
1. creditors updated every dayfrom sales journal(creditors ledger)
2. folio column in Sales Journal for Creditors ledger ="CL"
3. columns totaled end of month in SJ
4. folio at bottom of column 'GL' for general ledger.
5. perpetual inventory system:
5.1. must have "cost of sales" column in SJ
ACN-101-M Page 90
5.2. must debit cost of sales account in 'GL'

5.3. credit inventory account in GL from cost of sales column in SJ
5.4. Source document for sales journal is duplicate invoice.
5.5. EXAMPLE:
p99 SALES RETURNS JOURNALS

1. If inferior goods returned by buyer,seller will usually issue him with a credit note informing him his account has been reduced
by amount.(He invoiced goods out at selling price first)
2. Uses of SRJ:
2.3 SRJ can be used where returns are regular.
2.4 also good /appropriate to use SRJ to identify reasons forreturns and identify suppliers of inferior quality.ie:better a
separate record than a debit on the sales account
2.5 Overcharges-also credit notes from overcharges go in this book.
3. source document for SRJ is duplicate credit note
4. sales returns account is an 'expense(DR) account' or the returns side of 'sales(CR) account'.
NOTES:
1. you can receive a debit note or issue a credit note for sales returns
2.
5. EXAMPLE:
ACN-101-M Page 91
Debtors & Creditors ledger

1. The invoice number etc. must go in the details column of debtors/creditors ledger.
2. The Journal total of column gets posted to control accounts at end of month-not the debtors ledger at all-Just must make a
calculation at end of list in debtors/creditors ledger to double check if totals match /balance with the debtors/creditors control
3. Pnly for bad debts reversals does 2 entries go in details and 2 in folios ie;one for debtors control and one for debtors
Ledger,:eg:debtors control/debtors ledger:A.boeka----folioGL1/DL7
4. See example above(a copy of a debtors ledger is on previous page): for:the debtors ledger balance must correspond with
debtors control account.(end of month)----
5. also creditors ledger balance must correspond with Creditors control account.
???????????????????????????????????????????????????????/
ACN-101-M Page 92
6.3.3.5 General Journal p74 s
1. Principle:every transaction can be recorded in the general journal as a book of first entry.
2. If business notices recurring entries for any particular gen. journal entries they can design a separate journal for it.
3. If no journal for specific transaction –then automaticly it goes to the general journal.
4. For purposes of this module credit purchases & credit sales of goods exept for 'Merchandise 'go to general journal.
5. Used normally for:eg Bad debts,adjustments, non-merchandise accounts's creditors/debtors.
Format of general journal:

6. The account to be DEBITED in GL is entered FIRST in GJ.
7. 2 different accounts cango in one line---!! (eg :'Debtors ledger : name' + 'creditors control') written with 1 stripe between for 2
names in 1 line in GJ-----then also both folios are written next to each other in folio column for that entry:eg: 'DL 4/GL8'
8. Narration at bottom is very important because:
8.1. Gives reason for the entry.(details)eg:delivery vehicle bought on credit.
8.2. Gives the name of the source document eg:(per) invoice 001
9. amount dr first in first of 2 columns(DR)
10. amount cr details indented (to right)and in column 2(cr)
11. folio only ledger reference eg:GL1
12. An 'Analysis General Journal" is if too many debtors and creditors in GJ , 2 extra columns can be added for posting to DR and
CR Control accounts can be added.
13. GJ can have 2 entries in DR and 1 in CR eg;(cash sales) and (1-Vat and 2- Bank)
14. GJ can have 2 entries in one line and 2 folio entries in one line: Both for eg bad debt adjustment -(eg :'Debtors ledger : name' +
'creditors control') written with 1 stripe between for 2 names in 1 line in GJ-----then also both folios are written next to each other
in folio column for that entry:eg: 'DL 4/GL8'
15. A General journal without debtors or creditors columns never gets balanced or totalled.
16. EXAMPLE: general journal.:
ACN-101-M Page 93
17.
17.Example:general journal PREPARED WITH 2 Extra DEBTORS /CREDITORS COLUMNS FOR transfer to control accounts at month end
if one has too many debtor and creditor postings.
GOLDEN RULE#1 ch6

The total of all the balances of the individual debtor acconts in die subsidiary debtors
ledger MUST equal the balance of the debtors control account in the general ledger.
GOLDEN RULE#2 ch6

The total of the individual creditor accounts in the subsidiary creditors ledger MUST equal
the balance of the creditors control account in the general ledger.
NOTES EXTRA:
1. Non Merchandise to General Journal-all merchandise to Sales.J or Purchases.J or EVEN Cash Receipts or Cash
Payments Journals
VALUE ADDED TAX t p102 6.9s p83

SARS rules:
1) Vat levied on each stage from raw materials to final customer.
2) Currently 14% in RSA
3) Certain terms are defined in the 'VAT Act'.
i) Goods :Includes corporeal movable things as well as fixed property.
ii) Supply :includes all forms of supply ,irrespective of place.-any derivation of word.
iii) Enterprise :Embraces various types of activities.
iv) A Vendor :A person registered or required to be registered for VAT
v) Taxable Supplies:Is turnover of enterprise excluding amounts exempted from VAT.
4) Level of turnover from which a vendor will be required to register for VAT is defined in VAT act.
i) May register voluntarily.
ACN-101-M Page 94
ii) If taxable supplies in previous 12 months or reasonable grounds for following 12 months more than 300 000 –excl. 1-
Exempted Supplies,2-Tax,3-Abnormal receipts.
iii) Within 21 days of becoming liable-onus is on business to then register.
5) If not registered cannot claim Vat.
6) Some submit 1 or 2 monthly,but SARS can allocate period of 6 months.(to submit claims)
6.4.3pg104 t Accounting Recording Vat:
7) Normally on a 2 month basis
8) Completed VAT 201 return must be :
i) Submitted by 25th of month following tax period month,detailing output&input transfers.
9) Therefore necessary acc.records record vat input & vat output
10) To control:Vat input& output accnts. end Vat period transferred+closed off against Vat Control Account.
11) Vat levied on behalf of the Gov.-vat levied belongs to gov. does not form part of profit of Entity.
Exempt and Taxable Supplies.:

 Two types-Taxable at 14 % and zero rated 0%.
2) TAXABLE:
i) Most Supplies
3) ZERO RATED:(a few examples only,not all of)
i) Grade mielie meal for human consumption.
ii) Brown bread
iii) Goods used for agricultural purposes.
iv) Petrol and oil
v) International flights-passengers +goods
EXEMPTED GOODS:
i) Supply educational services.
ii) Transport passengers by road or rail.
iii) Members contributions to trade union
iv) Supply accomodation in dwelling
v) Supply financial services.
3) EXEMPT good differ from zero rated in that supplier is unable to claim any Input tax for vat paid by him in the
manufacture &/supply of that exempted good,as well as no Output tax is charged.
4) Vat IS charged on Services eg:1-Water&Lights,Telephone,Repairs.+Property Plant & equipment sell/buy eg:machines/vehicles
5) Vat IS NOT CHARGED on Interest from a bank account or any other interest.,& Not on wages+salaries
Theory of VAT.
to be noted specially:
 Note contra account for discount reversal in CPJ /crj is Debtors/Creditors not bank(all others as per logical exept this one)
 In Cash Paymn. and Cash Receipt Journals,if Vat from discounts must be deducted from old VAT INPUTS, New Vat Output
column or Entry(sundries) and add to that to deduct discounts' Vat-Visa Versa for Old(from credit sales) Vat Output deductions
—Add to Vat Input.
 Note if Entity not registered for Vat then Vat is treated as just part of any purchase price.
1) Every 2 months must submit to SARS:Unequal=(1)Jan,(3)Mar(5) OR Equal=(2)Feb,(4)April(6)
2) INPUT Tax :Supplier of goods to you levies VAT on what you bought and charges you VAT on top of price.
3) OUTPUT Tax :You levy Vat on what you sell and charge the customer this on top of normal price.
4) VAT payable to SARS =Output tax–Input tax.
1) A Tax Invoice is issued by seller to Buyer so he can claim Vat back from Government
5) Tax is only levied on Value Added because claim on input value can be claimed back.ie:Output Vat-Input Vat =Vat Added.
6) Vat IS charged on Services eg:1-Water&Lights,Telephone,Repairs.
7) Vat IS NOT CHARGED on Interest from a bank account or any other interest.
8) THE TWO DIFFERENT TREATMENTS for VAT reversals:
i) For discounts:
(1) Dr input for 'opposite' delete from Output vat- for a discount on a Credit Sale for early payment(in Cash Receipts
Journal now)-to delete from the output vat already recorded in Sales journal- just add to normal side (Dr) of Vat
Input. (+visa versa for discounts on "purchases"){ because you probly already paid to /received from SARS the
applicable vat by the time the discount happens so you claim it back/or pay it back –like this.
(2) Also for bad debts:use same opposite entry:because you probly already paid SARS the applicable vat by the time
the bad debt happens so you claim it back instead of "subtracting from Output vat".Thus one just puts it in Dr side
of : " vat input " to reverse the original " Cr to vat output at time of sale".
ii) For Returns :Cr the VAT Input to delete from an Input vat for a purchase return (+visa versa for sales return)
9) ONLY 5 DIFFERENT Vat Methods in Module:
ACN-101-M Page 95
i) Cash Sales/Purchase: Logical only-(A) 'Vat' to Vat accnt. in CPJ/CRJ, (B) 'Price –VAT' to "specific item" (C)Bank is
Contra account for both of these. (even if no indication in contra-acc. of this one and if amounts do not equal-only for
'discount' itself and not 'Vat' are both contra's written in details column of single-to-double contra acc. situation—PS re-
phrase this sentence when got time)
2)
i) Credit Sales/Purchase Logical only-(A) 'Vat' to Vat accnt. in PJ/SJ, (B) 'Price –VAT' to "Purchases"/"Sales" (C)
"Creditors Control"/"Debtors Control" is Contra account for both of these. (even if no indication in contra-acc. of this one
and if amounts do not equal-only for 'discount' itself and not 'Vat' are both contra's written in details column of single-to-
double contra acc. situation—PS re-phrase this sentence when got time)
3)
4) Discounts: For Vat Deductions in CashPay.J or CashRec.J for Discounts
i) CashPay.J For Discounts to You-(to be deleted from Vat Input by adding to Vat output)
(1) = ( Discount Amount * 14parts/of 114 parts ) = amount already in Vat Input Account from "Credit Purchase
Recording" that must be deleted--- to be added to 'vat outputs' with brackets (xxx ) to subtract it from
what you want to claim from SARS..(the receivers part of discount)----(you didn't pay this Vat because you got
discount later!!) (xxx brackets only show to subtract from all other accounts when balancing with bank for" "CPJ balancing" ONLY)
(2) (The discount total amount) –(minus vat input part moved to vat output column) =amount that goes to discount
column-also in Brackets(xxxxx)-to show a minus for Journal balancing. ie:DO NOT PUT total discount
amount in discount column!!!!!
ii) Contra Account For Vat(and 'Discount')here is Creditors Control.NOT Bank(In Ledger) (Note: even if no indication in
contra-acc. of this one and if amounts do not equal-only for 'discount' itself and not 'Vat' are both contra's written in
details column of single-to-double contra acc. situation—PS re-phrase this sentence when got time)
(3)
iii) Cash Receipts Journal - VISA VERSA (put in Input to deduct from Output).
5) VAT on PURCHASE or SALES RETURNS:
i) Cr the VAT Input to delete from an Input vat for a purchase return (+visa versa for sales return ie Dr the Vat output
to delete a Vat output entry from a sale)
ii) subtract Vat from the 'Rand value of return' and the leftover goes to "Purchases Returns"
iii) Contra account is CREDITORS/DEBTORS for both "Vat in/out" and "Purch/Sales Retrns"(even if no indication in contra-
acc. of this one and if amounts do not equal-only for 'discount' itself and not 'Vat' are both contra's written in details
column of single-to-double contra acc. situation—PS re-phrase this sentence when got time)
{own practice: Vat on "Cash Product Returns" :In General journal}

iv) for cash purchase return- Dr Bank- Cr Out Vat(creditor)- Cr Purchases Returns(income=cr)
v) for cash sales return - Cr Bank- Dr In Vat(debtor) - Dr Sales Returns(expense=dr)
6) GENERAL journal type :For 'Non-merchandise' Purchase or Sales on credit.
i) Only in General Journal
ii) Put all debits under each other,and all credits under each other.eg:Vat-Dr,Furniture-DR in 1
iii) P.S.For "debtors ledger"and "control account " entry in one-put names and folios next to each other in one line.
iv) Works same as Sales/Purchases journal-exept "Purchases account"/"Sales account" is now item eg:"Furniture account"----
the contra account for vat is also simply creditors. (even if no indication in contra-acc. of this one and if amounts do not
equal-only for 'discount' itself and not 'Vat' are both contra's written in details column of single-to-double contra acc.
situation—PS re-phrase this sentence when got time)
v) EG:Vat Input='Furniture Account'=DR////Vat Account=DR////Creditors account=CR
10) You ONLY EVER Debit a vat input account as a debtor-for discounts or any thing EXEPT "Returns" where VAT Input is
credited to remove vat from return,visa versa for Vat Output(Cr)
11) For Cash receipts journal –both (-inp-)+outp COLUMNS
12) For Cash sales Journal--both inp+(-outp-) COLUMNS
13) For Purchases Returns Journal- Only Vat INPUT :for purchase returns.(right way around –input accnt.gets credited-{Rem.only
the 'discount vat ' is wrong way around})
14) For Sales Returns Journal- Only Vat OUTPUT :for sales returns. (right way around –output accnt.gets debited-{Rem.only the
'discount vat ' is wrong way around})
15) Contra-Accounts:
1) For Discount : In Cash Receipts/Payments Journal :Creditors/Debtors Only (for discount? too?)
2) For Cash Purchase/Sales: Bank
3) For Credit Purchase/Sales- Creditors/Debtors Control
4) For Returns of Purchases/Sales- Creditors/Debtors control (not 'Purchase returns etc.'!)
Payment basis/Accounting basis:

1) Invoice Basis: Payment calculated on whichever comes first of:
a) Issue of an invoice or
ACN-101-M Page 96
b) Receipt of a payment.
2) Payments basis: Vat is calculated only on payments actually received-this method only allowed if certain conditions can be
met by Company- for SARS .
Accounts to be used:
1.
2. VAT-INPUT:
a. Debtors account-(asset)-current asset.
b. Only Vat paid out to a supplier.
c. crj,cpj,pj,prj,gj.
d. for discount calculation to remove vat part. All (DR)in (CRJ)or (GJ)in brackets ie;(400)
e. You ONLY EVER Debit a vat input account as a debtor-for discounts or any thing EXEPT "Returns" where VAT
Input is credited to remove vat from return
f. THE TWO DIFFERENT TREATMENTS for VAT reversals:
1- For discounts: Dr input for 'opposite' delete from Output vat- for a discount on a Credit Sale for early
payment (in Cash Receipts Journal now)-to delete from the output vat already recorded in Sales journal-
just add to normal side of Vat Input.
2- For Returns :Cr input to delete from an input vat for a purchase return
g. For Cash receipts journal –both (-inp-)+outp COLUMNS
h. For Cash sales Journal--both inp+(-outp-) COLUMNS
i. For Purchases Returns Journal- Only Vat INPUT :for purchase returns.(right way around –input accnt.gets credited-
{Rem.only the 'discount vat ' is wrong way around})
j. For Sales Returns Journal- Only Vat OUTPUT :for sales returns. (right way around –output accnt.gets debited-
{Rem.only the 'discount vat ' is wrong way around})
k. Contra-Accounts:
1- For Discount : In Cash Receipts Journal :Creditors Only (for discount? too?)
2- For Cash Sales: Bank
3- For Credit Sales- Creditors Control
4- For Returns of Purchases- Creditors control (not 'Purchase returns'!)
3. VAT-OUTPUT:
a. Creditors account –(liability)- current liability.
b. Only Vat charged to vendors customers.
c. All (cr) for discount etc. in CPJ or GJ :goes in brackets eg: (400)
d. You ONLY EVER Credit a vat Output account as a creditor-for discounts or any thing EXEPT "Returns" where VAT
Output is debited to remove vat from a sales return.
e. THE TWO DIFFERENT TREATMENTS for VAT reversals:
1- For discounts: CR OUTPUT for 'opposite' delete from INPUT vat- for a discount on a Credit Purchase for
early payment by you (in Cash Payments Journal now)-to delete from the input vat already recorded in
Purchase journal- just add to normal side of Vat Output.
2- For Returns :Dr output to delete from an output vat for a sales return
f. For Cash receipts journal –both Vat inp+Vat outp COLUMNS

g. For Cash sales Journal--both Vat inp+Vat outp COLUMNS
h. For Purchases Returns Journal- Only Vat OUTPUT.for purchase returns.
i. For Sales Returns Journal- Only Vat INPUT .for purchase returns.
j. Contra-Accounts: Only -1-Bank For Cash books -2-Creditors/Debtors for all other books exept General Journal .
k. crj,cpj,sj,srj,gj
5-VAT CONTROL ACCOUNT:

1. At End of period of VAT period Close off & transfer from Vat Input /Output accounts to Vat Control Account ONLY
2. DR Balance –SARS owes company.
3. CR Balance –Company owes SARS
4. Performs like a-ACCOUNT DEBTORS /CREDITORS-depending on which side balance is.
5. Input-goes on DR side /////Output on CR
6. Allways close off account and put b/d balance below double line .
Transfering From Vat In/Out to Vat Control :Notes on the 3 Vat Accounts
1. First one eg:Input Vat gets transfered
a. In:Ledger : Input Vat Accnt: no 'balance,b/d,c/d' Only :"Vat Control"+ Date+ Transfer Rands:+Journal Folio(eg:J.G.
2)......then close account utterly+no b/d or c/d below double lines -because it was transferred.
b. In: G.Journal: double entry (Rem. dr first) :"Input Vat"-CR Side(+from+) transfer//" Vat Control"-DR Side(actual side)
(+to+)Transfer....
ACN-101-M Page 97
c. In:Ledger: Control Vat Accnt: Input-Dr side,(Output is Cr side) then balance c/d ------/draw double line/ then
balance b/d with date below.
2. Then other eg:Output Vat
a. In:Ledger : Output Vat Accnt: no 'balance,b/d,c/d' Only :"Vat Control"+Date+Transfer Rands:+Journal Folio(eg:J.G.
2)......then close account utterly+no b/d or c/d below double lines -because it was transferred.
b. In: G.Journal: double entry (Rem. dr first) :"Output Vat"-DR Side(is opposite for "from") transfer//" Vat Control"-CR
Side(+to+)Transfer.... then same as above for (c)Ledger
3. -NO b/d Total in Vat input/output-account gets closed utterly-only"Vat control" as heading.
4. Must put folio of G.Journal in Ledger.
5. DO NOT transfer Vat Inp./Outp. to Trial balance at end of 2 mnth period BUT DO TRANSFER to trial balance in in-between months.
(end period close off to Vat contrl. accnt.,between go Tr.Bal.
6. You Transfer to Vat Control account from Vat Inp.Outp. accounts,you do not Post.
7. VAT Input is like a "Debtor"
8. VAT Output is like a "Creditor".
9. A Vat Control Account in DR: SARS MUST PAY YOU ////In CR :YOU MUST PAY SARS.
Vat Calculations:
10. Cost less vat from Vat Inclusive =100%/114%* vat inclusive price.
11. Vat from vat Inclusive =14%/114% * vat inclusive price
12. To Add Vat= Cost *114/100
13. GOLDEN RULES
14. OUTPUT TAX is the tax levied (charged) by the business on sales of goods or services
rendered by the business.
15. INPUT TAX is the tax paid (or payable) on goods delivered and/or services rendered to
the business, including imports. Deductions for input tax will only be allowed if a proper
tax invoice is received and kept.
16. OUTPUT TAX minus INPUT TAX = amount payable/refundable, i.e. the amount payable
to the South African Revenue Services (SARS) or the amount that can be claimed from
SARS.
Example of Vat accounts.
ACN-101-M Page 98
ACN-101-M Page 99
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ACCOUNTING NOTES
ACN-101-M
CHAPTER 7 STUDY GUIDEp99 | Chapter 7 Textbook115
Chapter :7 HEADING :ADJUSTMENTS

KEY CONCEPTS
KEY CONCEPTS
. Adjustment
. Closing
. Prepaid expenses
. Accrued expenses
. Consumable inventory adjustments
. Income received in advance
. Bad debts
. Depreciation
. Accumulated depreciation
. Asset contra account
. Carrying amount
. Pre-adjustment trial balance
. Post-adjustment trial balance
. Post-closing trial balance
ADJUSTMENTS P99s,p115t
Introduction:
1) At the end of the fin. period ,the ledger accounts ,each ledger account has to be analysed with great care to determine if the
balance on that account needs to be adjusted to ensure tht the Income,Expense,Asset,liability and Equity accounts are correctly
stated.
2) Income statement done once in 12 months,Sometimes accounts must be adjusted before fin.stat..
3) Additional entries which do not originate from source documents are prepared.
1) To understand adjustments important to know which accounts are :A = E/inc,exp/ +L
2) Adjustments only at end of period-Examine ledger and then Adjust.
Source Documents of Adjustments:
 Internal Vouchers-specially developed and Signed /Authorised by authorised person.
Journal:
Adjustments recorded in General Journal as book of first entry.
Characteristics of Adjustments:
1) Only meant for financial statements to make sure only expense/income for that specific year are shown,and not mixed up with last
years or next years payments/receipts etc.
ACN-101-M Page 101

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2) Adjustments are not mistakes.
3) GOLDEN RULE :Adjustments allways influence at least :
i) one Nominal (Inc/Exp) account and
ii) one Balance Sheet account
4) Only at End of period.
5) Not part of Closing off procedure.
6) Of all 7 adjustments-each one gets its own temp. heading:Eg "Adj:pre-paid expenses-d" and only two dont let many other
accounts : transfer to same heading -1-consumable inventory adj. and ddepreciation ie:consumable inventory must hav e name of
type in front:eg Adj:Stationary Inv./entory-A ----Adj:depreciation machinary
7) I have developed own style for Adjustment headings ;namely :Adj:Accrued expenses-D D/C/E/I/A/L=debtor/creditor
/expense/income etc.
8) Can be taken into account for interim statements but not recorded,only at period end.
4) Adjustments neccessary to comply with
i) Accrual basis :???(check what recognition of transactions means/fits in here)
1.4. Realisation Principle:?????-
1.5. Matching Principle:matching costs with revenue????-
6) Adjustments mostly temporary thus
i) Adjustments to reflect a temporary situation should be REVERSED at Beginning of Next Year,or accounts+balance sheet and
income statement will be wrong for the next year.
ii) Due to continuous nature of business.
7) ONE LEG usually affects Income/Expense account(NOMINAL account)
8) ONE LEG usually affects BALANCE SHEET account.(A or L)
----5----Steps to take when doing Adjustments:
1) Identify the Accounts in Ledger which must be adjusted.
2) Determine how accounts will be affected and what new balance.
3) Calculate amounts involved.
4) Record adjustments in General Journal and post to Ledger.
5) Check if new account balances are correct.
ACN-101-M Page 102

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-1- Special Notes: Adjustments : ACCRUED EXPENSES(accrued means arrears)

ACN-101-M Page 103
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 At end of Financial year each Ledger Account analysed with great care to determine:
 Golden Rule:One Leg of Journal allways affects a Nominal (I/E) the other a Balance sheet account .
SHORT TERM ADJUSTMENTS:
Part of :ACCRUED and PREPAID EXPENSES:
1 -ACCRUED EXPENSES.=(liability)
1. Definition : Yet unpaid expense from Financial Period(current period).
2. Accrued means the same as 'in Arrears'
3. Expenses Incurred during financial period but not recorded in books nor paid yet.eg:Water +lights account for previous months
usage-(account received late problem)
4. Adjustment needed where all costs must be reflected in current Financial periods Fin.Statements and not in next years.
5. CONTRA-ACCOUNT – The contra-account egWater+Lights is "Distribution Administration and Other' in the Income Sheet.
(Liabilities in balance sheet would show the :"Accrued Expenses"
6. DOES go into Profit and Loss statement /affects it.(New Expense 'Discovered')
7.
EXAMPLE
EXAMPLE : water + lights account received in month (after) close of financial period(month fin. stat.are done in).------Received May 14
for April 'end of year'
FINANCIAL STATEMENTS
ADJUSTMENT ACCOUNTS AFFECTED TYPE OF ACCOUNT
AFFECTED
Dr :Water+ Electricity Expense (N) :Increase Income Statement
ACCRUED EXPENSES
Cr:Adj:Accrued Expenses Liability (B) :Increase Balance Sheet
-2- Special Notes: Adjustments : PREPAID EXPENSES

 At end of Financial year each Ledger Account analysed with great care to determine:(only meant for make Financial
statements to show the correct expenses/income that specific year.)
 Golden Rule:One Leg of Journal allways affects a Nominal (I/E) the other a Balance sheet Acc .
ACN-101-M Page 104

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Part of :ACCRUED and PREPAID EXPENSES:
2 -PREPAID EXPENSES.=(Asset - normally Current OR -Non-Current- )
1. Definition: Expense paid for already in current financial period where expense relates all Or In Part to a FUTURE FINANCIAL
PERIOD or more than one future financial period.
2. Eg: Insurance Expenses usually payable in advance or Rent ,Advertisements.
3. Matching Principle: Prepaid Expenses Adj. neccessary to Match Only that portion of expense relating to Specific Fin. Period against
income for that period.
4. Merely 'reversed' out of Profit and Loss statement : Becomes an Asset instead.
5. Pre-Paid Expense is an Asset - normally Current ,but can be Non-Current for part recoverable over more than 12 months..
6. Thus-Where an Expense Account includes a Pre-Payment ,the Pre-paid portion should be identified and transferred to the Pre-paid
Expenses (Asset) Account.
7. NOTE: If Insurance :Perhaps first calculate year payment /12 months* No. Not Used = No.prepaid
8. No transfer gets made to a'profit and loss account'if eg:'Cleaning Expenses'balance is '0'after Adj.
EXAMPLE
EXAMPLE : On 2 January 20.1 Xa-Xa Dealers paid a new annual insurance premium of R2 400. Its financial year ends on 28 February
20.1. Using this information we can work out that the actual amount it spent on insurance up to and including 28 February was only
R400, which is R2 400 / 12 = R200 per month for two months, namely January and February. The R2 000 which was paid in advance
represents an asset at that point. The apportionment of the amount between asset and expenditure elements will be as follows: R400
is an expenditure item in respect of insurance for the current financial year. This amount must appear in the profit and loss account and
the income statement. The R2 000 is a prepaid expense and therefore represents an amount that will be used in future. It must appear
on the balance sheet of 28 February 20.1 and is therefore a short-term (current) asset.
AFFECTED
Dr:Adj:Pre-paid Expenses Asset (B) :Increase Balance Sheet
Pre-Paid EXPENSES
Cr :Insurance(asExp. ac) Expense (N) :Decrease Income Statement
-3- Special Notes:Adjustments :Accrued Income(accrued means arrears)

statements to show the correct expenses/income that specific year-nothing else from adj.
Part of :ACCRUED INCOME and INCOME RECEIVED IN ADVANCE
ACN-101-M Page 105

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3 -ACCRUED INCOME=(Asset -Current)(accrued means arrears :owed but not yet recorded)
9. Definition: Income earned but Not Recorded in books yet and No Cash Received.(accrued-arrears)
10. Eg: Investment ; if over 1 year and profit/interest paid at end of year,and financial year end is half-way in between –for Adj.
interest on months applicable must be calculated.,also Commission unrecorded &unpaid
11. Principle: ??????
12. Accrued Income is an Asset- Current .(very similar to a debtor)(accrued means arrears)
13. Thus-Where an Income Account excludes a Accrued income ,the accrued portion should be identified and added to the Relevant-
Income- eg:Interest and Accrued Income-Asset- Account.
14. NOTE: for Interest:perhaps you must first calculate the amount to be included: Interest=Capital amount*Interest
rate*Time :thus first calc.how many months interest are for number of months in Fin.Period for which the Fin.statements are
relevant.-then * by per/month
EXAMPLE
On 28 February 20.1, the end of its financial year, Xa-Xa Dealers' commission income account shows an income of R2 200. On closer
examination it is established that an amount of R200 earned in commission has not yet been received.
With this information the actual income in commission can be determined. It is R2 200 + R200 = R2
400. The apportionment of the item between actual earnings in commission and the associated asset
(the commission which has not yet been received) will be as follows: R2 400 which has actually been
earned and R200 which is still to be received.
AFFECTED
Dr:Adj:Accrued Income Asset (B) :Increase Balance Sheet
ACCRUED Income
Cr :Commission Income Income (N) :Increase Income Statement
The closing transfer completely separate from Adjustment-just to show(in case)Interest incomenotreversed out thus closing transfer
will apply(nothing recordedyet
Special Notes: Adjustments :Income Received in Advance(PrePaid
Part of :ACCRUED INCOME and INCOME RECEIVED IN ADVANCE
4 -INCOME RECEIVED IN ADVANCE( PREPAID INCOME)=(Liability - normally Current)
15. Definition:Usually relates to cash received for services not yet rendered /goods not yet supplied.
16. Eg: Rental received in advance ,Magazine subscriptions,The sale of tickets by airlines.
17. Principle: Recognition of income:In terms of latter income cannot be recognised until earned.
18. Income received in advance is a Liability- Current .(very similar to a creditor)
19. Thus-Where an Income Account includes an Income received in advance,the advance portion should be identified and
subtracted/moved to the Relevant Inc.Rec.in Adv. account.now a creditor
20. NOTE: only portion related to current period can be recorded as income-(where amount includes an advance payment,the rest
must be adjusted)
ACN-101-M Page 106

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EXAMPLE
On 28 February 20.1, the end of its financial year, Xa-Xa Dealers' rent income account shows that R10 400 was received. Xa-Xa Dealers
rent out a part of their building for R800 a month. On closer investigation it is established that the rent for March 20.1 has already been
received. With this information the actual income received in rent for the year can be determined, that is R10 400 - R800
=R9 600 (=R800 * 12).
The apportionment of the item between actual income and the liability (amount owing) component will be as follows: R9 600 is the
actual income and R800 is due to the lessee because it was paid in advance. Differently stated, the income has not yet been earned.
AFFECTED
Dr :Rent Income Income (N) :Decrease Income Statement
Income Received in Advance Cr:Adj:Income received in Liability (B) :Increase Balance Sheet
Advance
Special Notes: Adjustments :Bad Debts:

5 –BAD DEBTS = (is an Expense Account)
21. Definition: Before Credit Sale –credit rating neccessary-on approval-The Sale then Recorded and Recognised).-Irrespective of
method used for credit rating, some people however will still not pay.
22. Eg:Bankruptcy-Any/ depends on how long /type of customer before a debt is declared "bad debt"
23. Principle:?????
24. Bad debts: Is an Expense./Expense account.
25. Thus-Where an Income Account includes a bad debt,the bad debt should be identified and subtracted/moved to the Bad Debts
account.now an expense.
EXAMPLE
On 25 January 20.1 Xa-Xa Dealers receive a notification that a debtor, A Boeka, is insolvent.
On closer investigation it is established that the debtor still owes R230.
With this information an adjustment must be made in A Boeka's account. The outstanding
amount of R230 must be removed from his account and shown as an expense or loss.
The assets will therefore decrease and an expense or loss component, namely bad debts, will
come into being.
AFFECTED
ACCRUED EXPENSES Dr :Adj:Bad Debts:Expense Expense (N) :Increase Income Statement
ACN-101-M Page 107

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(expense acc)
Cr:Debtor Control Asset (B) :Decrease Balance Sheet
Special Notes: Adjustments:CONSUMABLE INVENTORY ADJUSTMT.

6 - CONSUMABLE INVENTORY ADJUSTMENTS =(Assets-Current)
26. Definition: This happens when an entity purchases consumables during a Financial Period and they are not completely consumed
by the end of the Period and become Assets.
27. Eg:Stationary not completely consumed.
28. Principle:?????
29. Consumable Inventory on hand classified as "Type of Inventory on Hand" eg:"Stationary on Hand" once adjusted is an ASSET –
Current.(gets converted from an –expense- to an asset here (if left over at end of period)
30. Thus-Where consumables(eg stationary) are left over at end of Fin.period ,a Consumable Inventory on Hand Account is
opened/used to move whats left from the Expense account(eg 'Stationary Expense') to.
31. NOTE: only what's left according to a stock take is moved-the rest that got used is an expense .
EXAMPLE
On 28 February 20.1, the end of its financial year, Xa-Xa Dealers' stationery account shows
that stationery to the value of R500 was purchased during the year. At a physical count it is
determined that R150's worth of stationery is still on hand. With this information the actual
expenditure on stationery can be calculated, namely R500 - R150 = R350. The apportionment
of the item between actual expenditure (profit and loss account and income statement) and the
asset element (balance sheet) will be as follows: R350 represents expenditure on stationery
while R150 represents the value of the stationery that will be used in the future.
AFFECTED
Dr:Adj:Inventory:Stationary Asset (B) :Increase Balance Sheet
ACCRUED EXPENSES
Cr:Stationary Expense Expense (I) :Decrease Income Statement
ACN-101-M Page 108

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Special Notes: Adjustments: DEPRECIATION ADJUSTMENTS.

LONG TERM ADJUSTMENTS:
7 – Depreciation adjustments =(Assets-Non-Current & Expense)
32. term Definition:Tangible Assets not for resale decrease in value due to wear /tear /age /obsolete . Depreciation over useful life
charged against profits. Eg:Stationary not completely consumed.(depreciation is thus the accounting process by means of which
the cost of an asset is fairly and systematicly allocated to expenses over the economic life of that asset.
33. Principle:????
34. You DO NOT CREDIT ASSET Account directly.
35. term Asset contra Account:You DO CREDIT this:ie:" Accumulated Depreciation : -Asset Name- "
36. term "CARRYING AMOUNT".The value of Asset ; eg 'Motor vehicle' ,after the amount in the contra-ledger account has been
subtracted from its original value is known as the
37. " Accumulated Depreciation : -Asset Name- "is classified as an EXPENSE.
38. Thus-Where Accumulated depreciation is apportioned to an asset it is credited to the assets contra account to make it less-eg
'Accumulated depreciation :machinary' and debited to an expense account :"Depreciation" to go to Income statement as an
expense.
39. NOTE:
40. Note: method of working out cost from carrying amount if they only give you a
carrying amount in exam etc.
For straight line method: EG 20% over 5 years – then after 2 years : 1- acc depr= 20+20% ,
2-carrying amount = 100-(20+20)= 60%. 3- cost = 100/60 X carrying amount.
For Reducing balance Method : same as above exept : for 20% on reducing balance
method = 1-year
1= 20% 2- year 2 = 20% + (20% X 80%)= 36% 3-year 3 = 36% + (20%x 64 %)
=36+12.8=48.8% 4-year 4 = 48% + (20% x 52%) = 48+10.4=58.4% and so on etc. etc.
41. NOTE: For the movement during year :
a. Disposals of Assets: Put it at carrying amount – less [pro-rata depreciation to that
month+other years depreciation]
b. Depreciation: include all : incl -rata depreciation to that month for any disposals/sold
assets + other unsold assets.
42. Note: for end of year balances:
a. LEAVE out any depreciation from disposals -out of Acc. Depr. , and also leave out
costs of disposals out of ‘Cost’.
43.
EXAMPLE
Xa-Xa Dealers bought machinery to the value of R80 000 during the year. On 28 February
20.1, the end of its financial year, an amount of R12 000 has to be written off as depreciation.
AFFECTED
ACN-101-M Page 109

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Dr:"Depreciation :expense" Expense (N) :Increase Income Statement
CONSUMABLE INVENTORY
ADJUSTMENTS Cr:"Adj:Accumulated Contra Asset (B) : Balance Sheet :deducted from
Depreciation:machinary" cost of asset in notes
9 –term Pre-Adjustment Trial Balance.

 This is the 1st Normal Trial balance after all journal entries have been posted to ledger ,done at each month end.
10-term Post Adjustment Trial Balance
 This is the 2nd Trial Balance after all the Adjustments have been posted to the ledger/s.
11-term Post Closing Trial Balance.
 This is the 3rd Trial balance after all the Closing Journal Entries have been posted to ledger.

 GOLDEN RULE
 One entry or ``leg'' of the adjustment journal always affects a nominal account and thereby
 the trading or profit and loss account. The other entry or ``leg'' of the journal always affects
 a balance sheet account.
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ACN-101-M Page 111

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ACCOUNTING NOTES
ACN-101-M
Chapter :8 HEADING :The Closing –off Procedure ,determining Profits and Preparing
Financial Statements.
KEY CONCEPTS
. Financial period
. Nominal accounts
. Cost of sales
. Gross profit
. Net profit
. Inventory
. Perpetual inventory system
. Periodic inventory system
. Closing entries
. Trading account, profit and loss account
. Income statement, statement of changes in equity, balance sheet and notes.
Introduction:The Accounting Cycle:

1) Transactions taking place--------------------------------------
2) Completion of source documents------DAILY
3) Recording of transactions in journals-DAILY
4) Posting to ledgers----------------------------------------------------DAILY-Journal Totals Monthly.
5) Balancing of Accounts and preparing a Trial balance----------MONTHLY
6) Adjustments of accounts and post adjustment Trial balance-ANNUALY
7) Closing of Nominal Accounts----------------------------------------ANNUALY
8) Preparing financial statements and reporting of results--------ANNUALY
9) Analysis and interpretation of financial statements---Management.
10) 7 Decision making by the management-------------------------
11) BACK TO START
The Closing Off Procedure:

Closing off Nominal Accounts
GOLDEN RULES
To determine the financial result All nominal accounts (i.e. income or revenue and expense acounts) MUST be closed off
(made NIL) at the end of the financial period to either the Trading account or the Profit and
Loss account.
Only entities that trade i.e. buy and sell merchandise, will have a Trading account.
Closing Off TO : Trading Account

GOLDEN RULE
The trading account, being also a nominal account, is closed off to the profit and loss
account. (See the schematic representation.)
 For the below GENERAL Journal procedure:to do all entries in Journal at once instead of separately-one must put all the
accounts exept the "trading or profit/loss" on the OPPOSITE side to from where they "Come from" in ledger,,,,,and the
"trading and profit &loss "on the side where it will balance these others out to ZERO (in this journal write-up).But of course IN
THE trading/pr&loss acc. amount goes on same side as from where ORIGINALLY came.-(so: -1-where it balances& on -2-side
opposite to came from)
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 Trading account never gets "balance c/d or b/d ---only ever gets closed-off to the Profit &Loss account.
(balance never goes below double lines!!!-only in Capital account at end of yearEVER)
 In acc. terms Gross profit=Sales(at selling price)- [Cost price of goods sold :{ Opening inventory+Purchases(all at cost price) –
Closing inventory} ] -Purchasing costs(import duties/assembly costs/freight in/)
 Closing off Inventory :is valued at the lower of -1-historical cost or //// -2-market price.It is recorded in books by General
journal entry and Inventory is an Asset.(remains as a balance sheet account after nominals closed-only the opening inventory
is 'deleted'completely to trading account as Expense for profit calc..
 The Gross Profit on the Trading account is only obtained when the 'Balance' is determined (and b/d..c/d..) on the Trading
account.
 Bad debts+Discount allowed +Discount reveived NOT for Trading account only profit &Loss
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Closing off TO : Profit and loss accounts
 Try pd 136-study guide for the notes as above for this section and for the next-Capital- section
 To the Pr& Loss Acc GOES:
o The Gross Profit/(or just Revenue for the Service Entity)
o All Business expenditure
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o ALL Other Income(eg:Discount received+Interest charged+Rent etc.)
Closing off TO Capital Account
 See page 138 s for good explanation.
The Post closing Trial balance:

 Balances from here (not are used to prepare the trial balance
 There are no NOMINAL or DRAWINGS accounts left to put on it-because they were closed off.
The Closing Off Procedure: of a Service Entity:135t,119S

1. Term Nominal or (Temporary) account-called this because they only refer to a certain period ie:because they get closed off at
end of year.
2. Term Balance Sheet or (Permanent accounts):Assets, Equity,Liabilities(Perm.-not closed-off)
3. At End Of Financial Year only
4. Called "Closing entries."
5. CLOSING OFF is 2 Processes. :(1) First Nominal Accounts closed off to Profit&Loss Accnt.,Then (2)'Drawings' and 'Profit
&Loss Accnt ' both closed off to CAPITAL ACCOUNT=last account where they all reside.
6. For the below procedure:to do all entries in Journal at once instead of separately-one must put all the accounts
exept the "trading or profit/loss" on the OPPOSITE side to from where they "Come from" in ledger,,,,,and the
"trading and profit &loss "on the side where it will balance these others out to ZERO (in this journal write-up).But
of course IN THE trading/pr&loss acc. amount goes on same side as from where ORIGINALLY came.-(so: -1-where
it balances& on -2-side opposite to came from)
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7.
8.
STEP:(1)-Closing off NOMINAL ACCOUNTS to the PROFIT & LOSS ACCOUNT:
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1. METHOD:
a. All Nominal accounts are closed off (balanced+transferred) to Profit +Loss Account.
b. ONLY the -1- 'Income' +-2- 'Expense' Accounts are affected
c. Each Nominal account first transferred to General Journal-Then to Profit&Loss Account:
1. Expense:
a. Ledger:From Ledger expense accnt.:Put Cr balance(opposite side) in ledger(answer after
calculations) to balance and write:Contra Account ="Prof&Loss Accnt." +Date + Amount+Folio
of G.Journal.
b. Journal:Write : (also write only:"closing entry" as bottom description.)
i. ALL of the EXPENSE ACCOUNTS go under each other in ONE same single Journal
entry ,NOT in SEPARATE multiple journal entries,and single 'Pr&Loss Accnt' entry on
the other side. ::::: Write:"expense accnt Name"+Cr balance in Journal(still
opposite side-ie.- from-) +Folio of Ledger Expense Accnt.THEN next and next etc.
expense accnts. underneath it to last.
ii. Write:Name:"Profit &loss Accnt"+ Dr Amount balance (REAL side now for-To-
Profit+Loss Account).+ Folio of 'Pr&Los Accnt'
c. Ledger:To Profit & Loss Account. :Write: Contra-account="Expense Accnt Name" + Dr
Amount balance (REAL side now in Profit+Loss Account). +Folio of GJournal. +Date
2. Income: Visa Versa to expense.
STEP:(2)Closing off the DRAWINGS ACCOUNT and the PROFIT & LOSS ACCOUNT to the CAPITAL
ACCOUNT.
METHOD:
1. The Drawings Account and the Profit & loss Account are closed off to to the CAPITAL ACCOUNT.
2. Only the : -1- 'Equity=Drawings and Capital' + -2-'Profit & Loss' accounts are affected.
3. The Drawings Account and the Profit & loss Account are first transferred to the General Journal-Then to Capital Account
1. Profit & Loss Account:
a. Ledger:From Ledger Profit &Loss Accnt.:Put balance(opposite side) in ledger(answer after
calculations) to balance and write:Contra Account ="Capital Account" +Date + Amount+Folio
of G.Journal.
b. Journal:Write : (also write only:"closing entry" as bottom description.)
i. Write:"Profit & Loss Accnt "+balance in Journal(still opposite side-ie.- from-) +Folio of
Ledger 'Pr&Loss Accnt.'
ii. Write:Name:"Capital Account "+ Amount balance (REAL side now for-To- Capital
Account)+ Folio of 'Capital Account'.
c. Ledger:To Capital Account :Write: Contra-account=" Profit & Loss Accnt " +Amount balance
(REAL side now in Capital Account ) +Folio of GJournal. +Date
2. Drawings Account-Same as above exept close off Drawings now to Capital Account.
5. AFTER CAPITAL ACCOUNT has all transfers in it already-it must be balanced just like any other Ledger Account at end of a
Month/ or Year and its 'balance ' total first b/d ,then c/d below double ruled lines -WRITE NEXT MONTHS DATE : the 1ST of.
(not current months date!!!)
4. OWN EXTRA NOTES:
a. Interest is an 'expense'
b. Remember to balance/cd & b/d capital account after all transfers finished.
c. Any closed off account with a 'balance ' allways gets a double,not single line under totals.
Income Statement:
 The Info. on Profit & Loss Account Is exactly the same as in the Income statement (exept short 'cost of sales'&'sales') but in a
different Format.-Can use Pr&Loss statement to compile Inc.Statement –(although one can also use the Trial Balance to
compile Inc.State.)
see chapter 4 for examples.
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 Differences between income statement and Profit&Loss account:
 Income Statement  Profit& Loss Account
 According IAS1 (AC101)  According requirements of Entity
 Compiled when required by Mngmnt.  Compilied ONLY end of Fin.year.
 Profit/loss used to calc. State.Ch.Equity  Profit/loss closed-off to CAPITAL Acc.
Statement of Changes in equity
 see chapter 4 for examples.(in own notes) or pg 138t
 Profit/loss goes here.
Balance Sheet.
 see chapter 3 examples(in own notes) or pg 139 t
 Balance Sheet or (Permanent accounts):Assets, Equity,Liabilities(Perm.-not closed-off)(includes the 'Capital Account'-as
the equity account)
Notes to the Statements:
1. see chapter 4 for examples(in own notes) or pg 160t
The Closing off Procedure of a Trading Entity:p139t
1. INCOME from a trading entity=called=SALES
2. EXPENSES from a trading entity=divide in 3 categories:
a. Cost of Sales
b. Distribution,Administrative and other Expenses.
c. Finance Costs
3. Gross Profit =Sales –cost of Sales------Calculated in "TRADING ACCOUNT"
a. Possible reasons for Gross profit Mark-up different to Actual gross profit.
i. Trade discounts allowed
ii. method used to calculate the cost of goods
iii. loss/shrinkage/waste/pilferage
iv. Accuracy of the physical inventory account
v. method used to calculate the inventory on hand.
4. Net Profit -only- =Income-Expenses---------Calculated in "PROFIT &LOSS ACCOUNT"
5.
Closing off Procedure for a TRADING ENTITY.
1. Same as for a service entity exept a 'trading account' must be added as a process in beginning.
2. Method:
a. The Difference between Sales &Cost of Sales is calculated in a Trading Account=Gross Profit
b. Trading account never gets "balance c/d or b/d ---only ever gets closed-off to the Profit &Loss account.(balance
never goes below double lines!!!-only in Capital account at end of yearEVER)
Cost of Sales : p140
1. If 1000 merchandise bought in year BUT 500 only sold Must calculate Cost of sales forREVENUE
2. Periodic Inventory System : Cost of Sales Account is Never opened/used and the actual cost of sales is only :may be calculated
in the Income statement and in Trading account itself. only sort of calculated in Trading account at END of Fin. Year-and closed-
off to Profit and Loss account etc.-
3. Perpetual Inv System: 'Cost of Sales Account' – ALLWAYS - exists and is updated with every transaction and only CLOSED-OFF
to ????at End of Fin Year.
4. Cost of sales = includes all costs of bringing goods to present location &condition.
a. Transport costs/ Freight :Called a 'Freight in account' or 'Freight on purchases account'
i. All Expenses related to purchase costs are seen as part of the price of the goods bought,and included as
such in calculating the Gross profit from trading alone in the Trading Account-And in the perpetual system
also goes straight to Inventory account and - they are seen as an ASSET-ie financially as a part of the asset
purchased's cost price-to be divided out to cost of sales on transfer from Inventory Acc. to the Cost of Sales
Acc. for each and every sale)
ii. If seller incurs 'selling (OUTWARD not IN) transport costs' it is allways ever only an EXPENSE and ONLY
Debited to the Profit &Loss Account,NOT Trading account.
iii. Packaging costs not just seen as a cost of sale but an expense(ie: an exeption).
b. Assembling Costs
c. Import Duties
d. Purchase returns And Allowances :debit note from
purchaser with goods when he returns a defective goods : expects a credit note from supplier to be sent soon
-normally wait for credit note before enter 'Return' in Books,but not allways.
i. Purchase returns are a contra to purchases
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ii. 'Allowances are if seller offers at Cheaper price instead of a Return-The amount less/off goes to a
"Allowances account"as a DR –Do a general journal entry with Allowances:DR(expense) and Debtors
Control& D.Ledger/Acc. CR(by amount to less owe)-also a nominal account.
The Perpetual and Periodic Inventory System.
2. for GROSS PROFIT close-off to="TRADING ACCOUNT".
3. for NET PROFIT close-off to ="PROFIT &LOSS ACCOUNT".
4. for EQUITY/CAPITAL close-off to ="CAPITAL ACCOUNT".
5. REMEMBER TO CONVERT: AT COST FOR : All 'Inventory' or 'Cost of Sales' (or Purchases) or 'Purchases
Returns'
6. REMEMBER TO CONVERT: AT SELLING PRICE FOR :All 'Sales' or 'Sales Returns'
DRAWINGS and DONATIONS of inventory

1. DRAWINGS and DONATIONS of inventory are recorded at Cost Price IN the General Journal.
2. from VAT.The Vat is HOWEVER calculated on
DRAWINGS and DONATIONS of inventory are not exempted
the cost price and is credited to the output vat account as normal(it will automaticaly balance
and come out as having input vat cancel/balance the output vat.
Transaction Perpetual Inventory Periodic Inventory
Inventory 'Drawings' by Owner Dr Drawings Dr Drawings
Cr Inventory Cr Purchases
Donation of Inventory Dr Donations Dr Donations
Cr Inventory Cr Purchases
3.
7. PERPETUAL SYSTEM 8. PERIODIC SYSTEM
-1-merchandise purchased debited to inventory account all merchandise purchased debited to purchases acc.
-2-ALL purchasing expenses debited inventory acc.-AND they Purchasing expenses debited to a specific expense acc.
are seen as an ASSET-ie financially as a part of the asset
purchased cost price-to be divided out to cost of sales on
transfer for a sale(from Inv. to Cst.Sal
-3-purchases returns are credited to inventory acc. only purchases reutrns are credited to the purchases returns acc.
-4-cost of sales acc. maintained thus updating inventory . the cost price of merchandise is not recorded at time of sale
with sales
-5-sales returns recorded as sales returns-Inventory and cost sales returns are only recorded in the sales returns acc.
of sales must also be updated here though.
-6-at any time cost inventory on hand known inventory counted periodicly to determine inventory
-7-the gross profit can be determined for every sale the gross profit can be determined only after the cost of
sales has been determined.
-8-
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The Perpetual Inventory System:
REMEMBER TO CONVERT: AT COST FOR : All 'Inventory' or 'Cost of Sales' (or Purchases) or 'Purchases
Returns'
REMEMBER TO CONVERT: AT SELLING PRICE FOR :All 'Sales' or 'Sales Returns'
If MARKUP=25% of SELLING PRICE=25/100=Markup amount:Cost=(100-%Mark)/100 *Price =cost
if MARKUP =25% ON COST PRICE= 100/125 =COST
1. WHERE IT IS USED :
a. each item must be easily identifiable and measurable and value get attached to them as sold/bought
b. Eg:where barcode scanners used for Sales+purchases
c. Not where many items are sold(and unrecordable /unidentifiable immediately)
2. INVENTORY = ALLWAYS but ALLWAYS at COST ONLY-must be at cost.
3. Gross Profit CAN be(if want to) determined Continuously by deducting Cost.. Sales from Sales.,BUT is only Automaticly done at
year-end :by Closing both Nominal Acc's off toTradingAcc
4. JOURNAL Columns needed:
a. In Purchases and Cash Receipts Journals:
i. INVENTORY Column(goes ONLY to Inventory account) (NOT 'purchases column like periodic sys.')
+Creditors +Vat
b. In Sales and Cash Sales Journals:
i. (COST OF SALES Column –PLUS-Dr-Expense)&(Inventory-MINUS-Cr-Asset) column(goes to Inv
-Cr+Cost Sls. -Dr accounts) + Debtors + Sales +Vat
5. new type LEDGER Accounts needed:
a. INVENTORY Account :Asset Acc. -(BALANCE SHEET Acc.)
b. COST OF SALES Account.:Expense Acc.-(NOMINAL Acc.)(because you get rid of assets?)
c. FOR YEAR END CLOSING-OFF:"TRADING ACCOUNT" + other normal closing off accounts="Profit & Loss
account" and "Capital account".
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6. Method :FOR a PURCHASE : ONLY 1 Account involved :
a. 'Inventory Account 'is Debited (as expense/asset) DIRECTLY from Journal(cpj or pj) and not only at end of
Fin Year after stock-count.-Vat treated normally.
b. CPJ & P Journal Must have a 'INVENTORY'column and not a 'PURCHASES' column.
c. Ledger must have an 'INVENTORY account'.
d. Inventory is an "Asset" immediately.-not like 'purchases' in'Periodic-expense till stocktak
7. Method:FOR A SALE : 2 Accounts Involved:
a. 'Cost of Sales Account'(a Nominal :Expense: Account) is Debited with 'cost price PART OF sale +share of
extra costs' from INVENTORY ACCOUNT only-NOT with the full amount of the sale-the cost price of
each sale must first be worked out (NOT just SELLING price given) { One must also include the SHARE of
extra costs incurred in purchase as the "share of extra costs" ie:work out first the part that belongs to the 'SALE' of
all the - carriage duties,import duties,assembly costs- that are in the 'Inventory Account,and include the amount.}
(the complete/whole incl.purchase price transfer amount is now an expense-Equivalent now of 'purchases'/-
both actually Nominal accounts)asset) DIRECTLY FROM Journal(cpj or pj)(daily Sundries)or monthly if cost of
sales columns provided in Journal.---(as well as crediting 'SALES' as an income &Dr Bank/Debtors)
b. 'Inventory Account 'is Credited with - "Cost Price + Share of Extra costs"(to delete sold good) DIRECTLY
from "Cost Of Sales Column" in Journal- NO SEPARATE INVENTORY COLUMN Just PUT Double Folio below
column (cpj or pj)(or daily- Sundries-with 'Cost of Sales' for "Details"-also double folio) (monthly if COST OF
SALES column is provided inJournal) ........................................................ [....Remember : -NOT with the full
amount of the sale-the COST PRICE of each sale must first be worked out (NOT just SELLING price
given) and also remember to :{ One must also include the SHARE of extra costs in the amount to be transferred :ie.
costs incurred in purchase ie:work out first the part that belongs to the 'SALE' , of all the - carriage duties,import
duties,assembly costs- that are in (all got written in previously)the 'Inventory Account,and include the amount. in
transfer,not separately,but as part of the purchase price as one figure} ]
c. CSJ & SJournal Must have a 'COST OF SALES' column and a 'SALES' column.-(And No Separate
INVENTORY COLUMN –the transfer to Inventory account is directly from Cost of sales account-You just
have to put a Double Folio under 'Cost Of Sales column' –[or in sundries if daily]-)
d. Ledger must have a 'COST OF SALES account' and a 'INVENTORY account'.
8. Method:FOR A Credit :SALES RETURN : 4/5 Accounts Involved:
9. Method:FOR A Cash :SALES RETURN:: 4 Accounts Involved:
10. Method:FOR A merchandise returned to creditor: PURCHASES RETURNS SALE : 3 Accounts Involved:
11. Vat input account is debited with Vat same as normal when 'Inventory accnt' system is used.
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5. ALL EXTRA EXPENSES: includes all costs of bringing goods to present location &condition.... ......... .GO STRAIGHT TO
"INVENTORY ACCOUNT"
a. Transport costs(in not out/exclude packaging unless specified)—NO Account For
b. Assembling Costs—NO SEPARATE Account For
c. Import Duties—NO SEPARATE Account For
d. Purchase Returns-NO SEPARATE Account For
6. Sales Returns & Allowances :DOES: have a Sales Returns Account & an Allowances Account(both are EXPENSE
acc.) (2) and both get closed-off to TRADING ACCOUNT as expenses well. ???????????????????????????
7. DISCOUNT RECEIVED AND GIVEN are NOT recorded in the TRADING ACCOUNT -are seen as a separate (finance
type) income /expense for closing to PROFIT&LOSS acc.
8. TRADE DISCOUNT left out of books entirely-seen as part of purchase/selling price.
9. The inventory should be checked once per year anyway with a stocktake to be sure,for good prac
10. Method :CLOSING–OFF Procedure at FINANCIAL Year End: FOR:A Perpetual Inventory System
a. Trading account never gets "balance c/d or b/d ---only ever gets closed-off to the Profit &Loss account.(balance
never goes below double lines!!!-only in Capital account at end of yearEVER)
b. EXTRA:FOR:Gross Profit: FOR: A TRADING ENTITY : First :TO GET: Gross Profit ,"nominal inc : Sales"
+nominal exp : Cost of sales +nominal expense Sales Returns Account & if have a nominal exp. Allowances
Account must be closed off to to : TRADING ACCOUNT(also a nominal acc.):to get GROSS PROFIT
i. IN : General JOURNAL:2 double entries:
1. First:(1) – 'Cost of Sales':Close-off and Transfer =Dr -Trading Account(real side) + folio AND Cr
'COST OF Sales'(an expense 'dr' type acc.)(opposite side)to delete from/Close-Off "Cost of Sales" to
"Trading Account" for year-(permanent-utterly.)
2. Second(2)-'Sales':Close off and Transfer This Nominal income acc. by: DR 'sales account'(opposite
side to delete/transfer/close) +GL folio+ Date AND CR 'Trading Account'(real side of income acc.
=cr( income ) for new home)+ GL folio +Date.
3. ALSO:the (3) and (4) accounts are : CR :Sales Returns Account & if have one CR:
Allowances Account(both are EXPENSE acc.) &DR 'Trading Account' separately for
both ,in same manner as done above
ii. IN : Ledger :
1. Close-off utterly(must be no b/d left at end to put below double lines at bottom) the Nominal
Accounts : 'Cost of Sales' And 'Sales' to the 'TRADING ACCOUNT' as explained in previous section
for closing-off's(folio of GJournal in folios-not contra ledger account's folio)
iii. .GO STRAIGHT TO "INVENTORY ACCOUNT"
1. Transport costs(in not out/exclude packaging unless specified)—NO Account For
2. Assembling Costs—NO SEPARATE Account For
3. Import Duties—NO SEPARATE Account For
iv. Purchase and Sales Returns & Allowances :get each own account (3) and get closed-off to
TRADING ACCOUNT as an EXPENSE as well.
v. DISCOUNT RECEIVED AND GIVEN are NOT recorded in the TRADING ACCOUNT -are seen as a
separate (finance type) income /expense for closing to PROFIT&LOSS acc.
vi. TRADE DISCOUNT left out of books entirely-seen as part of purchase/selling price.
c. Then FOR:Net Profit: "TRADING ACCOUNT" +all other "Nominal acc's" CLOSED
OFF AS NORMAL to the Profit + Loss then
i. trading account treated same as any nominal expense/income account,depending on if profit or loss SO :
Closed-Off by journalising to "Profit & Loss" account(see previous section on this) (folio of GJournal in
folios-not contra ledger account's folio)
ii. Trading account never gets "balance c/d or b/d ---only ever gets closed-off to the Profit &Loss account.
d. Then FOR :Net Equity/ Capital Drawings & 'Profit&Loss acc' closed off to CAPITAL Account –(now all nominal
Gone!!!) (see previous section on this)
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The Periodic Inventory System:

NOTE:SEE page 145 Textbook for examples:
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REMEMBER TO CONVERT: AT COST FOR : All 'Inventory' or 'Cost of Sales' (or Purchases) or 'Purchases
Returns'
REMEMBER TO CONVERT: AT SELLING PRICE FOR :All 'Sales' or 'Sales Returns'
If MARKUP=25% of SELLING PRICE=25/100=Markup amount:Cost=(100-%Mark)/100 *Price =cost
if MARKUP =25% ON COST PRICE= 100/125 =COST
1. Entities that are not able to update inventory constantly-Wait till end of Year to STOCKTAKE
2. 'Inventory acc' is an ASSET ACCOUNT and cannot be closed off.
3. INVENTORY = ALLWAYS but ALLWAYS at COST ONLY-must be at cost.
4. STOCKTAKING:value of inventory at end of year is recorded BY MEANS of an ADJUSTING entry.AND the opening inventory at
beginning of year is CLOSED-OFF permanently and utterly to the 'TRADING ACCOUNT'
5. Cost Price of merchandise sold is then calculated by subtracting the closing inventory from total value of inventory available
for sale.
6. When an entity uses a Periodic System-a 'Cost of Sales account' is not usually maintained in the General
ledger-BUT the figure is calculated in the income statement.NOTE!!!!!!!!!!
7. LEDGERS and JOURNALS needed:
a. SAME as for perpetual system (see above and-re-copy to here when time)but no :
i. Ledger: Cost Of Sales account.
ii. Journal:Cost of Sales column in CRJ/CPJ or any other journals.
8. METHOD:
a. EXTRA:FOR:Gross Profit: FOR: Periodic System for TRADING ENTITY (1)First is old & new inventory to
Trading account transfer,then(2) closing off of Sales and Purchases accounts to the Trading account.
b. After Trading account finished done up/ it is closed off utterly to the Profit and loss account as an expense/income
c. (1) Old and new stocktake Transfer:First Do The New Stocktake in the Storeroom :Then Enter Count/Number
into books BY:
i. General Journal:close–off the last years balance from inventory account for good to the Trading account
FIRST-BEFORE New stocktake is transferred: JOURNAL: DR the 'Trading Account'
as details; with the last years balance amount to be permanently deleted /closed-off to the Trading Account
for Gross profit working out to make space for the new stock count in "Inventory" AND Cr Ammount:last
years balance to be deleted- Details:the inventory account(asset account)+folio of Inv.Acc.--- description at
bottom of account:Closing Entry.
ii. Ledger: CR Inventory account (contra-is-Trading acc.)to delete last yrs.balance to make place for new
balance AT COST PRICE!! (folio of GJournal in folios-not contra ledger account's folio)---AND--- Dr Trading
Account(contra is-inventory-) to transfer for working out Gross Profit'. (folio of GJournal in folios-not contra
ledger account's folio)....The new balance in Inventory account must be b/d and c/d with date :Of NEXT
MONTH when finished all calculations in it because it is a Month end(YEAR END) procedure –(and shows up
new stocktake amount-no mix ups)
iii. General Journal:AT COST PRICE: DR the 'Inventory' (once yearly only type account,still open from last
year) with the new level/count. --Details: "Inventory account +folio " AND credit CR the TRADING ACCOUNT
(details:Trading account+ folio) immediately to make/put an 'expense' part in account FOR : calculating
Gross Profit now at end of year from part leftover.(details at bottom:'write : cost price of closing inventory
on hand brought into account')(a stockcount will allways go twice through the trading account-once in year
counted+next year when deleted into trading account)(trading acc.must be closed off immediately and
balanced at least for this transfer to be effective+there must be stocktake or dos'nt work at all (trading
acc.method according to your own logic??????).
iv. Ledger:Dr Inventory account (contra-is-Trading acc.)with NEW stocktake as an 'ASSET' -(folio of GJournal
in folios-not contra ledger account's folio)--AND--- CR Trading Account(contra is-inventory-) to transfer for
working out Gross Profit'. (folio of GJournal in folios-not contra ledger account's folio)....The new balance in
Inventory account must be b/d and c/d with date :Of NEXT MONTH when finished all calculations in it
because it is a Month end(YEAR END) procedure –(and shows up new stocktake amount-no mix ups)
d. (2)Closing off of Nominal Accounts:SALES and PURCHASES (plus any other Gross Profit Type accounts
used exclusively in trading to the Trading account.
i. "PURCHASES Account" is seen as an 'EXPENSE'account
ii. "SALES Account" is seen as an 'INCOME' account
iii. They are both closed off utterly to the Trading account(just like in section one for a trading
entity-but here first to the trading account NOT first to the Profit & loss account) (folio of
GJournal in folios G'Led'-not contra ledger account's folio in G'Ld')
iv. Transport costs(in not out/exclude packaging unless specified not to ) gets own ACCOUNT in
PERIODIC SYSTEM & CLOSED–OFF to :"TRADING ACCOUNT " as "EXPENSE"
v. Assembling Costs—NO SEPARATE Account For gets own ACCOUNT in PERIODIC SYSTEM &
CLOSED–OFF to :"TRADING ACCOUNT " as "EXPENSE"
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vi. Import Duties—NO SEPARATE Account For gets own ACCOUNT in PERIODIC SYSTEM &
CLOSED–OFF to :"TRADING ACCOUNT " as "EXPENSE"
vii. Purchase and Sales Returns & Allowances :get each own account (3) and get closed-off to
TRADING ACCOUNT as an EXPENSE as well. (folio of GJournal in folios of Ledger-NOT contra ledger
account's folio for all iv to vii)
viii. DISCOUNT RECEIVED AND GIVEN are NOT recorded in the TRADING ACCOUNT -are seen as a
separate (finance type) income /expense for closing to PROFIT&LOSS acc.
ix. TRADE DISCOUNT left out of books entirely-seen as part of purchase/selling price.
e. Then FOR:Net Profit: "TRADING ACCOUNT" +all other "Nominal acc's" CLOSED OFF AS NORMAL to the Profit +
Loss then
i. trading account treated same as any nominal expense/income account,depending on if profit or loss SO :
Closed-Off by journalising to "Profit & Loss" account(see previous section on this)
ii. Trading account never gets "balance c/d or b/d ---only ever gets closed-off to the Profit &Loss account.
f. Then FOR :Net Equity/ Capital Drawings & 'Profit&Loss acc' closed off to CAPITAL Account –(now all nominal
Gone!!!) (see previous section on this)
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The Financial Statements of a Trading Entity.

1. The details in Trading account and Profit and Loss account used to compile the Income Statement
2. ON INCOME STATEMENT :Gross profit determined for "Revenue"-A separate calculation is done to show this for the periodic
system to show "Cost of Sales" see chapter 3 / ch 4: income statement.
3.
4. THE STATEMENT OF CHANGES IN EQUITY : IS THE THE SAME AS A SERVICE ENTITY.and is prepared from the CAPITAL
ACCOUNT(in chapter 5.15.2 s)///ch 4/5 own notes.
5. AND BALANCE SHEET ARE THE SAME AS A SERVICE ENTITY.-ONLY THE INCOME STATEMENT IS DIFFERENT .
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ACCOUNTING NOTES
ACN-101-M
Topic C:Accountability for Current & Non-Current Assets
Chapter :9 HEADING :Cash &Cash Equivalents.

KEY CONCEPTS
. Outstanding cheques
. Deposits
. Bank charges
. Interest on overdraft
. Direct deposits
. Dishonoured cheque
. Stale cheque
. Stopped/cancelled cheque
. Bank reconciliation statement
. Balance per bank account
. Balance per bank statement
. Petty cash float
. Imprest system
. Petty cash journal
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9.1- The Nature of Cash and Cash Equivalents.
1. Cash Equivalents Are any Investment that can be Converted to Cash in Period less 12 mnths. :Definition: short-term highly
liquid investments which are readily convertible into cash,and subject only to insignificant risks relating to the value thereof.
a. Includes:savings accounts,investments.,Money market Instruments-(eg :Treasury Bonds) and bankers acceptances.
2. Cash :Defined As: Any LEGAL means/tender of payment which can immediately be used to pay someone else: INCLUDES :
Notes & coins,ALSO: + Postal orders + Cheques + Credit card vouchers (transactions)and any demand deposits at bank.-ALL.
(P.S . notes & coins are called 'cash instruments')
3. Entries Must Comply with: .33/.34-Faithful Representation, .37-Prudence, .46Fair Presentation.
4. term Liquidity: The availability of cash for payment of claims against the entity.:Primary liquid tender is cash,savings deposit
more than 12 mnths fixed is less liquid.-The Liquidity of entity changes after each cash payment or receipt.
9.2- Internal Controls over Cash:
1. The Following are measures that can be used for Control Purposes:Internal controls
1.1. So one detects others mistakes: Duties of employees divided so one detects others mistakes-Also It Should take 2
Employees to Embezzle cash.
1.2. Cash received Check Independant Record: cash received should be recorded in such a way so it can be checked
against an INDEPENDANT daily record.
1.3. Cash Banked Daily: cash received should be banked daily.
1.4. Only Cheque Payments-exept for petty cash.:All payments should only be made by cheque - exept for some Petty
Cash payments.
1.5. Compare Bank Statement to –Cash receipts/Cash payments Journal:The Cash Receipts & Payments Journals
should be compared to the Bank Statement.
1.6. Bank Reconcilliation: Bank Statement-balance should be reconciled with the 'Bank Account' –balance.
1. Internal control over Cash receipts/payments:

1.1. Determination of responsibility:only specified personnel handle cash
1.2. Allocation of Duties:different persons receive/ record /safekeeping.& employees duties divided- one checks other's
mistakes/ + takes 2 to embezzle
1.3. Documentation Procedures.: cash recieved checked independant record
1.4. Physical,mechanical& electronic methods.:eg safes etc.
1.5. Independant internal verification:supervisors check /count cashiers money.
1.6. Other control measures.:Personell handling cash should be covered by fidelity insurance, also must take annual
leave(cash handlers), Cash Banked Daily: cash received should be banked daily.
Only Cheque Payments-exept for petty cash.:All payments should only be made by . cheque - exept
for some Petty Cash payments.
. Compare Bank Statement to –Cash receipts/Cash payments Journal:The Cash . .. Receipts &
Payments Journals should be compared to the Bank Statement.
. Bank Reconcilliation: Bank Statement-balance should be reconciled with the 'Bank . .. Account' –
balance., also cheques specific employees sign+double check etc.,Mark .. ... documents as PAID once they
have been paid.
.. GO THROUGH THIS AGAIN-RE-CHECK THINGS LEFT OUT IN TEXTBOOK!!!! VERY IMPORTANT.
9-The use of a BANK Account.:

1. Current bank account(or cheque account)-account which mainly uses cheques,also debit/stop orders/electronic transfers.
2. Overdraft= Current Liability –changes(likely) within 12 months-(also at every transaction),bank agrees on maximun facility+rate of
interest+repayment conditions, penalties for exeeding max overdraft charged..
3. internal Controls-creates a added control because bank statemnet must be reconciled.(two fold record is kept !-one at bank –for all
transactions)
4. Once account opened client is provided with :deposit slips& cheque book:cheque book has :name,address,tel. no. of client on
them.+sequentially numbered.
Depositing of money:
1. different ways of depositing:
1.1. cash deposited,
1.2. interest credited,
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1.3. 3rd party payments directly into bank account(where bank statement is source document for CRJ, it must show
separately details of client &Trnsaction(note incomplete information)
1.4. ,electronic transfer.-must all be accounted for in cash receipts journal.source document for the person paying as well as
payee are bank statement-both must regularly reconcile cpj& Crj from bank statement.
2. Source document for CRJ: Stamped Copy of deposit slip.
Issuing of Cheques:
1. A cheque is an unconditional order in writing addressed to the banker,and signed by DRAWER.
2. SOURCE DOCUMENT: cheques have a -1-counterfoil or a -2-duplicate bottom copy with same serial no.s + info :To be used as
source .Doc. for CPJ.
The Bank Statement:
1. Monthly or as requested-weekly etc.
2. Daily balance +All Transactions.eg:cheques paid- (debited),bank charges,etc.
3. Also all paid cheques are usually returned to you stamped.
4. Symbols& Format differ from bank to bank.
5. Some amounts must go to the CRJ/CPJ eg electronic payments.
Debit & Credit Memos
1-Debit memo : for bank costs,even for costs on cheque returned to bank because of alterations or no funds
2-Credit memo: only some banks issue this one:eg :for clients electronic payments.
9.3- Bank Reconcilliation Statement:

1) Entries Must Comply with: .33/.34-Faithful Representation, .37-Prudence, .46Fair Presentation.
2) Depositors are Creditors of bank,borrowers are Debtors of bank.
3) Reconcilliation is to : Reconcile bank account with bank statement:Reconcile balance in banks own books(bank statement balance)
with balance in entities 'Bank account balance' in ledger.
4) Bank Recon. Statement = a separate piece of paper or Book ruled same as General Journal
Following are most common causes of differences:
1. ITEMS IN ENTITIES BOOKS,but not yet in Banks books.
i. Outstanding Cheques : Drawn(given out to pay someone) but NOT yet Presented to Bank by them.
ii. Deposits not yet credited / processed by bank
2. ITEMS IN BANKS BOOKS ,but not yet in entities books.
i. Bank Charges:
i. Ledger Fees
ii. Cash deposit fees and Commission on Cheques
ii. Interest Paid/Charged on Favourable / Overdrawn balance
iii. Direct Deposits into Entities Bank account.-not yet recorded by entity.
iv. R/D Cheques -referred to drawer- Unpaid Cheques.
v. Bills Paid/Recovered by the Bank for the Entity.-bank advises immediately by means of debit /credit notes of these
and also unpaid cheques but entity only records all these when Bank Reconcilliation Statement is received.
3. ERRORS made by Entity OR Bank.
Reconcilliation Procedure.
(A) Official who does reconcilliation- NOT– responsible for receipts/payments of cash-detect cash fraud.
(B) - 2 Processes Involved : -1-businesses records updated -2- bank reconciliation statement prepared.
(C): FAVOURABLE Bank Account balance in Ledger & Bank Reconcilliation Statement =DR
UNFAVOURABLE Bank Account balance in Ledg.& Bank Reconcilliation Statement=CR
: FAVOUR Bank Statement balance & Bank Recon. Statement = CR

:UNFAVOUR =(DT,DR,OD) Bank Statement & Bank Recon. Statement =DR
SHORT SUMMARY before Full Main Explanation of: METHOD of the BANK RECONCILLIATION
PROCEDURE:
1) Compare Bank Statement with Cash Journals (for CURRENT MONTH)

:In Cash Receipts & Payments Journal:
i) Tick off CREDIT SIDE of Bank Statement and 'Bank column of Cash Receipts Journal.'
ii) THEN tick off DEBIT SIDE of Bank Statement and 'Bank Column' of Cash Payments Journal."
iii) NOW Move all things missing in CRJ/CPJ into these two books and Close them Off to the "Bank Account" (eg: Bank
charges,Interest Charges/;Payment,Direct deposits& electronic receipts,Electronic payments,R/D Cheques)-
iv) NOW only can the "Ledger Bank account" be "balanced & cd/bd for the month" end ,THEN only can one start
the Bank Reconcilliation Statement & Checkup :see next.
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2) NEXT Compare Bank Statement with Last Months Bank RECONCILLIATION Statement.
a) First Tick off all items on last months Recon. AND the Current Bank Statement-BOTH of -ALL TICKS. All items on LAST
MONTHS Statement BUT NOT reflecting on THIS MONTHS Statement yet, must be "carried forward" to this months statement
FIRST.
b) Now Complete The whole bank Recon Process- (1) Bank Recon &any (2)'Writing Back' of Cheques required.
:see following detailed explanation for all.
FULL METHOD FOR BANK RECON & ALL OTHER STEPS INVOLVED IN PROCESS.:
TERMS USED ON BANK STATEMENT:
'Deposits' = Your deposits in bank,including ANY cheques deposited.

'Deposit : T. van der Merve' = direct deposit by another person into your account.
'Cheques' = Your Cheques
'Admin fees,Service fees,Ledger fees' = all Bank fees
'XYZ Insurance Co.' = payment you made to them.
'Interest' = Interest paid or received on account balance.
a) Cash Payments/Receipts Journal:

i) CRJ-Tick off CREDIT SIDE of Bank Statement and 'Bank column of CRJ' - BOTH of.
ii) CPJ-Tick off Only DEBIT SIDE of Bank Statement and 'Bank column of CPJ'-BOTH
iii) FIRST post to CPJ/CRJ from B. Statm., ,all on date of Bnk. Stat. :eg 31st,no other dates, only after posting FROM
bank statement can the 'Bank' totals of the CRJ/CPJ be posted to the LEDGER: 'Bank account' and ledger get balanced &
bd/cd to the next month.THEN only can this ledger balance can go to RECON.
iv) ALL EXTRAS on Bank Statement (has extra things on)-to CPJ/CRJ –they must be :Add all changes to
CRJ/CPJ( eg direct deposits) or add nothing if all items ARE Ticked on Bank Statm-NONE short.
(i) Bank Charges: All go End Mnth usually, -are several methods-we use following-
1. To C.P.J.-VAT is included in all charges and must be (minused-for 'Vat input column'&'Bank Charges'
heading –sundries-in CPJ)-full amountgoes to 'Bank Column' in CPJ as contra to other two.
2. Ledger :Separate "BANK CHARGES account" as expense account.(sundriescpj)
3. 'Bank Charges account' –CONTRA- 'Bank Account'
4. Source doc. is bank statement., DATE is ONLY date of End Mnth. :eg 31st,no others,same one for all
entries!!
(ii) Interest Charged/Received:To C.P.J.
1. 'Finance Cost' -in Income Statement :(no VAT !)
2. CPJ/CRJ –sundries column-'Interest Income/Expense (on Current account)account' & Bank column'
3. Ledger : "Interest Income OR Expense account"(on Current account) –CONTRA- Bank account.
4. DATE is ONLY date of End. Mnth.:eg 31st,no others,same one for all entries!
(iii) Stop orders/Debit Orders:
1. either C.P.J. or C.R.J Check if Amounts CORRECT –-
2. – eg: CPJ- amount goes to 'Bank column' and CONTRA account:eg Water& Lights etc,remember Vat as
extra 2nd contra account to Bank ,Source doc. is bank statement.
3. DATE is ONLY date of End Mnth.:eg 31st,no others,same one for all entries!!
(iv) Direct deposits: C.R.J.-same as any payment ,just use Bnk. Stat. as source doc.AND Date is ONLY date of
End Mnth. :eg 31st,no others,same one for all !!!
(v) NOW ONLY CAN THE LEDGER 'BANK ACCOUNT" BE BALANCED OFF AND bd/cd FOR THE MONTH
END(after all CPJ /CRJ final entries for 'bank charges' etc etc. are completed): AFTER THAT ONLY CAN
ONE DO THE ACTUAL BANK RECON .-AS FOLLOWS.: .
b) Fill in Bank Recon Statement.
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(1) Headings used on Recon:

(a) Debit (favourable) balance as per Bank Account(B15) –FIRST/LAST
(b) Credit (favourable) balance as per Bank Statement -FIRST/LAST
(c) Debit outstanding cheques(payment by you) : No5 R350 B.Berry
No8 R850 A .Apple
Can ONLY BE CHEQUES-nothing else is used-eg direct deposit only from bank statement,cash only
from cheque,debit card only from bank statement source doc.etc.
(d) Credit outstanding Deposit (date:1 june 2007)
(e) Credit outstanding deposit(Post-Dated cheque,date:25 july 2007)
(f) credit outstanding deposit-r/d cheque-cheque no. 887 replaces no.364 :deposited 1 june 2007
(2) Format: Same as General Journal format,but can mix up dr/cr's.
(3) Your LEDGER BALANCE is only entered in the B. Reconcilliation after ALL corrections have been posted
to the CPJ/ CRJ already.
(4) First and Last: go any/either one of Ledger or Statement balance. Put one, eg:the ledger balance in on it's
original side (only one that does not go to "banks" side-across!!!) : as it is in your books.:ie-DR for
Positive balance.,then LAST put :Bank. Statement on it's original side ie:CR for positive balance.
(5) ONLY the LEDGER "BANK ACCOUNT" Balance goes to it's own side in the Recon-ie:as found in the
"Ledger Bank Account" of firms books.-
(6) ALL other entries go on OPPOSITE side to source side: to same side as a bank statement would
have.-you only do the Ledgers 'Bank Account' entry on it's OWN side- ONLY EVER –
(7) Positive Amounts –To CR side (in banks books it would say bank owes you) eg: Deposits
(8) Negative Amounts - To DR side(In banks books it would say you owe bank) eg:Payment
(9) :BUT for overdrawn account =(DT,DR,OD) Bank State. & Bank Recon. =DR balance
(10) Types of BANK RECONCILLIATION Entries.
(i) from CP/R/J :Outstanding Cheques :not on B.Stat-so put in Recon-on DR side. (banks side )
(ii) from CP/R/J: Outstanding Deposits : not on B.Stat-so put in recon-on Cr side (banks side)
(iii) from Bank Stat: Mistakes by Bank / Deposits not meant for your account: these must be shown
on bank reconcilliation only!!!, Phone bank & report matter & write an official letter explaining.
(iv) Bank Charges:?????????? All go End Mnth,
(v) Interest Charged/Received:???????
(vi) Stop orders/Debit Orders:????????? On B.Stat- Not Yours –so put in Recon-on CR side.(your side) (+
Check if Correct /accurate to your figures)
(vii) Direct deposits(to you):?????? On B.Stat- Not Yours –so put in Recon-on CR side.(your side)
2) Compare Bank Statement with Last Months Bank RECONCILLIATION Statement.
a) First Tick Off check last months Recon. with this months Bank Statement,THEN Tick off all last Recons. on BOTH OF THEM.
b) Those NOT ticked on Last Months Recon. must be Carried Forward to NEW Months Recon.unless a cheque was re-issued
by you/ or to you !!-then new No.in CPJ or CRJ.!!!
3) For bank-recon last month tick off to – bank statement this month :only one ODD problem:if re-issued r/d cheque owed to you:this
will not be ticked on old recon(different number now) and must just check first if any amounts from old recon to be transferred to
new recon are not maybe a re-issued cheque that DID infact APPEAR on BANK STATEMENT and is SUPPOSED to be ticked off.
4) Cheques Referred back to Drawer and Outdated Cheques: R/D Cheques.
a) R/D Cheque: Referred back to Drawer :because of:
i) Mistakes on Cheque :
(1) Unsigned Cheque
(2) Amounts in words.figures differ
(3) Changes made to cheque
ii) Post Dated Cheque(
iii) Outdated Cheque:ANY CHEQUE over 6 MONTHS OLD must be REVERSED/Written Back(esp. if you issued it!!!!)
iv) Insufficient Funds
 Redepositing : If a mistake/no funds / other is rectified in same month –New cheque issued can simply be redeposited
without any changes to Entities accounts-exept a note in journal-,but if redeposit only in following month then Must Go to
Recon.(if same mnth - not go to recon!) Redeposit slips must keep separate from other slips a r/d cheque that is replaced only
needs a single entry with no amounts in the CPJ/CRJ ONLY to say –replaced by cheque 597 etc. from you or to you –any of
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two.BOTH cases will go to recon.!(unless still processed by bank in same month) –one as a payment not yet processed, other
as a r/d cheque –"replaced by cheque no76" (deposit not yet credited)
b) .
c) WRITTEN BACK CHEQUES:( FROM OTHERS) If insufficient funds or if other persons cheque is Stale etc.,- the cheque can
be written back:NOT go Recon.
i) Do OPPOSITE entry in C. Payments J. to cancel C. receipts J.:The Exact Opposite no extra.
ii) Bank Discount +(Disc.Vat.-)CONTRA to Debtors Control( there is no NORMAL vat entries here-only "discount VAT" ,vat
has already been recorded and just remains the same(just back to debtors with payment)
iii) If : Got debtors column , discount allowed & vat output columns : ONLY in CPJ
(1) In CPJ: Amount + ADD Discount + allowed + vat = Back to Debtors Control (& D.L.)
(2) In CPJ:Discount goes to Discount ALLOWED column-as a reverse-NOT discount received-(in brackets for cross
casting- as a cr NOT normal dr!!!)
(3)
(4) In CPJ:???????? Vat from Discount (previously reversed by adding to vat input as receivers share of Disc.) gets
re-reversed by adding to Vat Output again as CR .- CONTRA – Dr :Debtors Control ?????????
(5) If customer has no debtors account- open a new one for him.
iv) If: NOT got all these columns : In CPJ + GENERAL JOURNAL.
(1) In CPJ: SUNDRIES :Amount ONLY , not add disc.= Back to Debtors Control (&D.L.)
(2) In General Journal :Discount (and any Interest same way) –(less Vat taken off before )- goes to Discount
ALLOWED account(CR to reverse DR expense)-as a reverse-NOT to 'discount received' - CONTRA - DR (add
again) to 'Debtors Cntrl.'+'Debtors ledger'. ALSO do all others below together with this one in one entry below
each other as cr to debtors cntrl. dr .
(3) In General Journal : 1) Discount & 2) Interest charged-& 3) vat on interest if applicable????? & ,4)VAT from
reversed Vat part added to Input Vat before (receivers share of Disc.) back into vat Output column as Cr.(to re-
reverse reversed Vat -) , - CONTRA - debtors ledger/debtors cntrl (as a Dr (add it again- he still owes you the
Vat part of former discount again + interest + discount etc. )
d) Outdated Cheques:
i) If Post-Dated-
(1) If RETURNED By bank(or already receipted –ie recorded in a Journal as a receipt): Put in Recon.
until deposited in Correct Post-Dated Month.:in recon as'Post Dated'
(2) If UNDEPOSITED yet : Do NOT Put in Recon.-Just keep till correct Date-then only do you deposit it.
ii) Stale ,or Too old- if older than 6 MONTHS :Must Immediately be written back!!! (or as stated on face of cheque):
(1) WRITTEN BACK Cheques (YOURS): IF YOUR OWN cheque is STALE-it gets written back/reversed
(2) Exact opposite of original entry in C Payment J is made in C Receipts J:
(i) In CRJ: credit Creditors Control to re-enter debt (in Sundries column) -CONTRA- debit 'Bank Column'.
(ii) In General Journal : Discount received ONLY gets done here NOT in CRJ for Your
cheques(unless special column is provided). : Dr Discount Received(to reverse CR income) –
CONTRA- Cr Creditors (to reverse liability payment by you)
(iii) General Journal :Discount (&Interest -separately- same kind of treatment if applicable) reversed by
adding to output Vat (SARS share of Disc.) gets re-reversed from Vat Output by adding to Vat
OUTPUT column As Dr.(to re-reverse the vat liability that became owing ) , - CONTRA - Creditor (as
a Cr (add it again- YOU still owe the Vat part of former discount again
(iv) If no creditors account-open new one..
(v) EXCLUDE Written back cheques from Current bank Reconcilliation.
iii) Cheques Damaged or Lost-

(1) You Issued It :
(a) Inform bank by stopping payment thereof.
(b) CPJ :write one entry in Current month- When actually replaced- saying only: "Cheque No. 5 replaces
cheque no 4 :B.Viljoen." in Details column-With NO AMOUNTS NEXT TO IT!!!
(c) Bank Recon: write: "Cheque No. 5 replaces cheque no 4 :B.Viljoen." at very bottom of recon in last
mnths finished recon if cheque received late,or In current recon in 'Details' as needed.(ie :in both)
(2) You Received it as payment :
(a) Inform drawer-request replacement-make a note in debtors ledger to know.All entries as per Logic.
To remember:add this: check for following odd/special difficult cases.
 a r/d cheque that is replaced only needs a single entry with no amounts in the CPJ/CRJ ONLY to say –replaced by cheque 597
etc. from you or to you –any of two.BOTH cases will go to recon.!(unless still processed by bank in same month) –one as a
payment not yet processed, other as a r/d cheque –"replaced by cheque no76" (deposit not yet credited)
 For bank-recon last month tick off to –bank statement this month :only one ODD problem:if re-issued r/d cheque owed to
you:this will not be ticked on old recon(different number now) and must just check first if any amounts from old recon to be
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transferred to new recon are not maybe a re-issued cheque that DID infact APPEAR on BANK STATEMENT and is SUPPOSED
to be ticked off.
 check for "unpaid cheques " as 'details' / on the bank statement –must be reversed !!---Aslo check for 'error correction' on
bank statem.
 check for date STALE cheques .!!!!
 check for : if on bank statement –a cheque with different amount to that in cash journals BUT SAME cheque number, then you
must check for error-AND JUST PUT DIFFERENCE on the bank recon –NOT rewrite cheque or any thing.
 bills receivable : + some Cr bnk state. entry means someone put money directly into your account to pay for a bills
receivable to you/or part of it.
 check for errors/ or error

EXAMPLE as per exercise 9.2on page 177 Study guide.
Petty Cash Journal:

10) For small costs eg; day workers,stamps.-KEPT completely separate from Business banking CASH.
11) IMPREST system: Monthly: responsible official (better 2 of ) counts petty cash/Checks/Restores to Specific balance with a
Cheque.------
a) Journal must be written up by another person to one responsible for petty cash handing out,
b) Official handling petty cash must NOT handle other cash as well.(?)
12) Petty cash float :Cheque for specific amount is cashed From CPJ –CONTRA- 'Petty Cash account(asset –like a small bank
-account)' and put in safe keeping :post in :Sundries column if no column for petty cash in CPJ
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13) Source Document: Consecutively numbered Petty Cash slips:signed by 'authoriser' or '2 persons'
14) Petty Cash journal:
a) Divide in 2 parts :Receipts & Payments
b) Receipts part: Has no 'details' column- only Date,'Folio',& 'Amount' ,{Folio for receipts is CPJ page no. This side for memo
purposes only-EXEPT FOR MONTH END b/d ...c/d .Comes from CPJ only.Does not transfer/post anywhere.,exept bd/ ..c/d}
:b/d total only: b/d total under all lines at bottom of "RECEIPTS" SIDE-write: "Balance b/d" –ALL-in Folio
column! +DATE 1st of NEXT Month ONLY.
c) Payments side: Exept for "bank column" is now = "Total column" ,basicly the rest is Same as the CPJ/CRJ ie: special
columns for recurring amounts + sundries column (same as CPJ ) –at end month all columns + sundries transferred to Ledger
accounts,but first do 1 extra special calculation: see below
i) Method of Posting to G.Ledger from Petty Cash Journal:
(1) Sometime in month, WHEN NECESSARY-ie when cash nearly finished ,on 20th or some date, the cash box is
counted & checked-then filled up to former(Imprest) level again with a cheque-entry only in (-as reference
mainly-Petty Cash J on "RECEIPTS"-LEFT side as Date,folio,Amount (no Totals or ruling off at all YETl)) and in
Cash Payments J.(AS: Dr Petty cash account–Cr Contra-Bank)—NOTHING ELSE-!!!!-this is a utterly
separate!!!!! process to "posting at Mnth end procedure"
(2) At Month end-posting to General ledger is done like follows:
(a) FIRST PART: on payments side :do normal totals at month end at bottom of each column(EVERY ONE-ALL)-
below a single ruled line ON PAYMENTS SIDE ONLY.-then......
(b) SECOND PART:
(i) Do a : b/d & c/d workout between the whole "RECEIPTS" side and the single total at bottom
of the "TOTAL" column of "PAYMENTS" side of P.C.J . Write this total below "TOTAL Column"
,under the "actual expenses Total of column" done in (a)(see example).: Date:31st (end) Mnth,
Details:ONLY-"balance" Folio :c/d:put in Doc.No/Folio. Column. nothing else. THEN after
double line level is ruled for both sides,put b/d total under all lines at bottom of "RECEIPTS"
SIDE-write: "Balance b/d" –ALL-in Folio column! +DATE 1st of NEXT Month ONLY.
(ii) Then put same total under sundries column total(as a cash input type of)
(iii) Now single underline below this and put all new totals under here again.
(iv) Last :double underline below and fill in all Folios of General Ledger postin.
(v) NOTE:The Folio of the "TOTAL COLUMN" goes NEXT to first ,NOT below second-Total,and only 1st –actual
expenses total – goes to general ledger Petty C.J.-so NO folio goes below TOTAL or SUNDRIES columns,only
the others get.
(vi) THEN : transfer each Column Total to specific ledger account with CONTRA-"Petty Cash Account" :eg
"Coffee& Tea Account",and ALSO each Sundry ITEM to ledger,each sundry gets own folio and each column
gets own folio of G.Ledger account number.-CONTRA- Cr Petty Cash Account from Main TOTAL
column(NOTE:folio written next to ,not below PCJ total here because of second set of totals below!) : ASSET
-like a small bank-account (Cr reduce asset) -AS PER USUAL . ALL TRANSFERS From Expense
accounts goes TO Dr SIDE Ledger.
(vii) IN "PETTY CASH ACCOUNT" ONLY FROM "Total Column" goes to Cr SIDE Ledger With
contra as –"Petty Cash Payments."-just like ,( ie :not Receipts.! or 'expenses' or anything - )-{P.S.
NOTE:notice,remember on the whole :, just like for any other Contra's with multiple accounts-eg bank
–you just write "payments" or receipts if their are too many contra's,down to where there are 3-eg:Debtors
Vs Bank + Discount + Vat:you just say 'bank' as contra and leave other 2 out-or just bank & discount-and
leave out vat etc etc}
(3) At Month End-"RECEIPTS SIDE" of P C.J is:
(a) First single/Then double at bottom ruled off –AND Totaled. (but only once-the second part,not first part –
only)
(b) Below Total –write in new b/d total under all lines at bottom of "RECEIPTS" SIDE-write: "Balance
b/d" –ALL-in Folio column! DATE:1st of NEXT month- AMOUNT:b/d balance left over.It should be
CASH ACTUALLY in the BOX and + : DATE:1st of next month
15) Ledger:'Petty Cash Control:Asset 'Account : ASSET account- it is like a "small Bank account" in a box. Every petty cash
cheque goes here from the Cash Payments Journal, -Contra – is 'Bank'(not 'cheque.. ! etc' )(also from cpj) Receipt of the float is by
the -1-ledger & -2- petty cash "Receipts" column.-both of ! ALL EXPENSES from petty cash journal are –CONTRA- to this account-
comes from 'TOTAL column' in petty cash journal to here –just like from a 'bank' column!
16) Financial Statements:
a) Petty Cash Account from ledger goes to the Cash and cash Equivalents as an ASSET.
b) PETTY cash Account From LEDGER IS NOT an Expense Account!!!!!!!!!!!,it is Asset ac
c) cash & cash equival. can also be called:deposits on demand,bank balances and cash,deposits on short notice.
d) All nominal or expense accounts related to the petty cash will be closed of as normally at year end.(eg
'Wages','Refreshments',etc.)
e) In cases where amounts on specific deposits are material they should be shown separately.
ACN-101-M Page 134

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Note: All Folios at Mnth end

transfer:
a) For TOTAL of ONLY-'TOTAL
COLUMN'- goes next to in
folios column because of
workings out below it
b) Sundries gets no Folio!
c) ALL other columns get a
folio below column.at
bottom.(under double ruled
line)
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ACCOUNTING NOTES
ACN-101-M
Chapter :10 HEADING :Trade & Other Receivables.

KEY CONCEPTS
. Credit transaction
. Trade debtors
. Credit term
. Discount allowed
. Bad debts
. Current assets
. Provison for bad debts
. Bills receivable
. Debtors control
Introduction:
 Trade debtor-from a credit sale normal operations-pay over a period known as a Credit Term.
 Loan Debtor-from giving a loan
 Sundry debtors-all others for 'Other Income' heading eg;rent etc
 Entries must comply with-Prudence ,Faithful representation,fair presentation, :
 Comply with :Accrual basis-same period record as happen,not only when paid,also matching principle-(where material or
reasonable ! )
Discount Allowed:
Discount terms:
1) n/30 or 30 days Net =MEANS (n ='net' )30 days from date of invoice-allways starting on actual date-never only on the next
day-ie:if 30 days after sale-it means day of sale is day 1 !!!
2) 1/20 n/30 =MEANS 1% discount for payment in 20 days
3) Unisa lecturer PTA says :start counting on day AFTER the date of transaction-not on date of transaction-(cannot be sure of full 8
hr day or 2 hr day) BUT stop coiunting on very day of payment.
4) 1st –to -1st next mnth= for 31days month eg jan,march- 32 days |||||| for 30 days month=31 days
5) settlement disc. =sales discount =discount allowed –all means same thing or
6) Financing separate from Sales in books and in Firm itself.
Discount & Vat Reversing
 see following accounts for method-
 remenber 14/114 (%) * total = VAT part.
 2% DISCOUNT on R500 = R10 :so 0nly (500-10=490) to Bank & (R10 – Vat part) to Discount Allowed. & Vat part to
OPPOSITE VAT to reverse- so for sales to Input vat –to reverse. here 1st of 2 types of treatments for vat reversal is used –
(here -1-indirect reversal is used -2-direct reversal is only used for sales/purchases returns)
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 NOTE for BELOW DIAGRAM: in reality cannot put all 3 as -contras- in debtors control- just put 'Bank ' or even 'Bank +
Discount+ Vat Input' (just like Debtors Cntrl. as a contra for in Sales Returns (eg) we would just put "Debtors Cntrl" , or
even "Debtors Cntrl & Vat Output &Discount Allowed"
 NOTE :if using general journal-all 3 contras to the debtors control go in 1 go in same entry/ write-up,under each other- so
use 4 lines in one entry,Not 4 full entries!!!!!
 ?????FOR A DISCOUNT REVERSAL in a Sales /Purchases Returns Journal-

o it has 4 legs:
o &you must have 3 columns in the journal(or a sundries for some)
o SalesReturns –CONTRA- -1-Discount -2-Vat Output -3- Debtors Control ??????
Interest Charged:
1) On an overdue account –You charge interest ONLY EVER at an ANNUAL RATE,and work out ? much for period Pro Rata. : R * %
*(Days/365) --or (Mnths/12) = Interest amount.
2) Eg: He will be charged 18% per annum interest (for 1 month) on R550 and will have to pay
R558,25, calculated as follows:
R550 + (R550 * 18/100 x 1/12 )

= R(550 + 8,25)
= R558,25
3) "Interest charged " goes to "Interest Charged: Income"-CONTRA- "Debtors Control" account from General Journal
Entry.
BAD DEBTS and PROVISION FOR BAD BEBTS.
Bad Debts writing off of:
1) "Bad Debts" is an Expense in the Income Statement,while "Provision for Bd. Dbts" =Asset-Contra.
2) Call bad debts:"BAD DEBTS:EXPENSE" for clarity.
3) THERE ARE 2 METHODS: The bad debts can be written off against provision account or against bad debts account:
a) -1–Using "Bad Debts" account : -AS an ADJUSTMENT: YOU dr
'Bad Debts' account(expense-dr) -CONTRA- Cr Debtors
Control/Dbtrs. Ldgr.)(to remove) finished. OR you can use
SAME AS Chapter on ADJUSTMENTS: Use name: Bad
Debts:Expense.
b) -2–Using "Provision for bad debts" account instead of "bad debts" account to write it off:
EXAMPLE:writing off R730 bad debts below from a customer.
ACN-101-M Page 137

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i) You Debit the "Provision for bad Debts Account" instead of the "Bad Debts:Expense" accnt.
ii) DIFFERENCES to method one:
(1) The "Provision for Bad Debts" account. gets used for all writing off instead of the "Bad Debts" account.
(2) You leave "Bad Debts:Expense" unchanged during year till end of years Re-Estimation and Recording of the NEW
"Provision" instead of the "Provision for Bad Debts" account.
(3) "Bad Debts" only gets: The newly estimated "Provision...." entry and then, gets closed-off immediately after to
"Profit & Loss" Acc.- ie:it ONLY EXISTS FOR A FEW MINUTES +/- at the YEAR END-never ever else.
(4) When you re-estimate& record the Provision at Year End- Here you MUST FIRST ALLWAYS EVER ANYWAY work out
the balance left (dr's & cr's) on separate paper: to work out how much to deduct /or add to "Provision ..."
account.DO NOT JUST USE LAST YEARS PROVISION>!!!!!
(5) ????:Either bad debts could be misleading OR Debtors could be misleading-or both of For Decreasing OR "Stays the
same" "Provision ..." story for the 2 methods.!!!!! ?????The balance sheet etc. will all work out no matter what the
provision/and real bad debts does because a Dr provision at year end will go to bad debts account and debtors and
balance them???????
PROVIDING for DOUBTFUL DEBTS:
NOTE: There are 2 ways of writing off bad debts- 1- from the provision account first then when
negative ,still from provision acc, and only at end of year,when new provision is made does the bad
debts acc. start to reflect and show a balance for the year(till then = 0)(or maybe:? ??????? own
idea ,alternativelywhen Prov. Acc. Goes negative ,only then do you start with a bad debts acc.
balance??? No =the new provision made anew at each year end will auto reflect in the bad dbts acc.
at year end as the correct bad debts for that year(excl.possible wrong % 's used)! Even if 0 new
debtors and far more bad debts tahn provision that year etc) ,2- you just write to bad debts acc. for
all bad debts ,and Prov. Acc stays same till each year end .=The reason/argument one can just write
off bad debts against bad debts account instead of provision for bad debts account is that the
provision is merely a valuation account (stated exactly in text book as reason for this!), just to
show the income + balance sheet in correct light (as an asset contra acc.) and not a real expense
etc.
 In Financial accounting- if one does NOT make provision using the "provision" method and only uses the "bad debts" account-
it is seen as NOT ACCEPTABLE because you do not MATCH(ing) the same years expenses (bad debts) with the same years
income(debtors) ,and ALSO (2) you do not show the Net Realisable Value in "Debtors" on the balance sheet.
 The more correct version of of 2 methods for "provisions" is deducting the provisions from the "Provision ..."account- not
the :bad debts account because you show that you are writing off against a former provisionand can follow the balance as it
changes.
Estimating doubtful debts:
1) Provision estimated& RECORDED -only ever-AFTER all known BAD DEBTS FINISHED WRITTEN OFF for the year ALREADY.
2) ONLY determined on Debtors to be carried over to Next YEAR-all known bad debts first minused.
3) Provision for Doubtful debts base on usually:
a) % of outstanding debtors: -1-experience(avg. over last 5 yrs) or -2-plain industry average
b) An age analysis:either add all thought to be accdng. to mnths arrears-2- -add % 's accdng. to mnths arrears( is a 'very
strong' matching concept practical application)
Provision for Doubtful Debts:
1) provision is only for the debts so far-up to date-to estimate them correctly on bal. sheet.,not to estimate the next years bad
debts!!!! if mnthy redone-just to see? much–for decisions-on debt.etc
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2) Policy of Prudence( or Conservatism) involved here.:-1-estimated loss provided for during period of sale & -2-debtors list is at net
Realisable value.
3) Estimate& provision done on mntly basis in large & yearly basis in small companies.
4) New Provision RECORDED & WORKED OUT -only ever-AFTER all known BAD DEBTS FINISHED WRITTEN OFF for the year
ALREADY.
5) VAT is NOT taken into account for "Provision for Bad Debts".
6) Cr "Provision for Bad debts"(liability as an asset-contra account) -CONTRA- Dr BAD DEBTS(expense)
7) The provision for doubtful debts account remains unchanged during the year. Bad debts that occur during the year are written off
against the bad debts account.
8) The " bad debts acc." is closed off to the Profit & loss account at end of year as a Cr "expense " account.
Financial Statements:
1) 'Contra-Asset' account : The 'Provision for Bad/Doubtful Debts' is a called a sort of LIABILITY called a CONTRA-ASSET account.
2) The 'Provision for Bad/Doubtful Debts' is a sort of liability, but is NOT added to liabilities ! in Bal.Sheet, it is instead deducted from
"Debtors" ,ie: in "Trade & other Receivables" heading , when Balance sheet is Done, so it makes the debtors less by the amount
expected / provided for.
Increasing/Decreasing the Provision for Doubtful Debts:
1. Two methods can be used: but same accounts etc. used.
a. Write back former Provision (in both acc's) and enter The new provision again OR
b. Just add/subtract the extra part from new provision to the "Provision for bad Debts" –we use this method.
2. Use General Journal for entry.+ give % & amount in description +do calculation in description.
3. P.S :decreasing the provision can result in a credit item in "Profit & Loss" account.!!!!!
4. Same general way a new provision is created –exactly.
EXAMPLE: INCREASING(left) or DECREASING(below right one) the PROVISION for bad debts.
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Recovery of Bad Debts written off:

1. Cr :"Bad Debts Recovered" account:(as Income acc.) –CONTRA- Dr :"Bank Account" + Note in Debtors Ledger.
2. Use Cash Receipts Journal.
3. "Bad Debts Recovered" is a separate heading under "Other Income" in the Income Statement.
4. If estate of person pays 30c in the Rand(or 30 %) -NO MENTION AT ALL in the books is made of any amount exept the full
amount received : eg: R550 debt * 30% = R165 goes to "Bad debts recovered" -CONTRA- "Bank " -----Nothing else is done
AT ALL is done exept a NOTATION in DEBTORS LEDGER.
5. IF only 30 c in rand paid off BEFORE 'BAD debt' has been written off completely-Only record that part lost as a bad debt in the
normal manner in "Bad Debt account"-AFTER- THE REST went as NORMAL to Off the "Debtors Control
Account/+Dbtrs.Ledger"
VAT,Bad Debts & Bad Debts Recovered. 10.4.7S
VAT And Bad Debts.
1. Method to Reverse:Put in OPPOSITE VAT. account to reverse(you probably already paid the vat output to sars by now –now
you must "claim it back" through Dr the Vat Input- IE:(not DR THE VAT OUTPUT)
2. SARS usually gets paid as soon as Debtors are recorded-even if entity not paid yet-(but special permission can be obtained to
3. pay only when you are paid-abnormal though)
4. Vat must be reversed from a Bad Debt written off
5. Vat must be paid to SARS (re-reversed) from a Bad debt recovered
6. TO REVERSE: VAT on a BAD DEBT:
a. USE the general Journal
b. Put VAT in OPPOSITE Vat account to Reverse(ie: Vat 'Input' not 'Output'.. for sales)
c. Put all 3 Legs of Entry under each other in One Journal entry-ie:
i. leg1 of 3 legs: 'Debtors Control&ledger' –CR
ii. leg2 of 3 legs: 'Bad Debts' –DR :(expense) ={Amount* 14/114 (Vat/[vat+100]
iii. Leg 3 of 3 legs: DR 'Vat Input' -DR (they owe you what you paid for nothing)
VAT and Bad Debts Recovered.
1. METHOD: Put back in the VAT Output account:you owe VAT on Money you Receive now.
2. Use Cash Receipts Journal.
3. Works as per Normal with Vat for Cash Sales.
Debtors With Credit balances ie: Cr:
1. All debtors with Credit balances not Dr GO in as CREDITORS IN the BALANCE SHEET ONLY:ie:Trade & Other
Receivables :ONLY IF IT IS SUBSTANTIAL ( MATERIAL)
Credit Cards Sales & Charges:
1. Use the general journal
2. If a bank is the institution open a debtors account for them,
3. If a Private institution eg:Diners Club -open a debtors account for them,
4. Any Sale with credit card;
a. : Each transaction has 2 legs
i. transaction: write up at bottom ="credit card debit notes deposited"
1. Dr XY Bank as a debtor or Other institution as a debtor
ACN-101-M Page 140

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2. Cr Sales as an 'income'
ii. charges for service:
1. Dr Credit card charges
2. Cr XY Bank or other institution eg :Diners Club.
Debtors Control Account:
1. Debtors control account must be checked at least once per month against the Debtors Ledger.
2. Posting from Journals Incl. and SALES RETURNS JOURNALS TO Debtors Ledger Takes place Daily.
3.
4. Write :'Bank and debtors ' as the contra account for any 'debtors control ' entry with debtors and even if also vat –just write
first 2 –vat is just accepted as being there automaticly-See book 214 last point.
5. SEE PAGE 216 for the reconcilliation method for the debtors control-Against debtors Ledger.
6. All errors in accounts are merely posted by the General Journal –GJ to the proper account with –CONTRA – written as the very
erroneous account where it landed up in. (eg sales:in D.Cntrl see page 216s. and below)
7. If you have Dr and Cr balances given in a test : from the 'Debtors Ledger List of Balances' of accounts:subtract the cr from the
dr to make a total up to use as the total in the first line of your reconcilliation of the debtors control & creditors ledger.-DO
NOT IGNORE the cr balance because it was supposed to be transferred or something.
8. If they give question where :G.J. says that :certain accounts were transferred to the creditors ledger from the debtors
ledger :You must add these to the DR side of the debtors control account if the G.J. entry is to be written up in 'DEBTORS
CONTROL' acc. - because the Cr debtors have reduced the debtors control balance ,now if you take them out of the debtors
section the amount must go BACK to DR side of debtors control.
a. If they give a question with visa versa to above-ALSO ADD IT to debtors if it comes from creditors now and goes to
debtors.
ALSO FIRST make a Debtors List from the debtors ledger- to work from:
Debtors List at 30 April 2005
DL 5 xxxxx(if cr then minus it!!) xxxx
DL 8 xxxxxxxif dr add it. xxxxx
TOTAL
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(1) When an error is made in totalling a journal the mistake only affects the control
account; it cannot affect the debtors list.
(2) It is possible for a creditor of a business to be a debtor of that business as well. It can
also happen that a debtor may have a credit balance on his account. If either of these
situations occurs it is advisable to transfer the debit or credit amount to the debtors or
creditors control accounts respectively.
(3) The amount in the debtors column is R16 860. This amount is the total amount
received from debtors including any discount allowed.
(4) When an entry was made on the wrong side of an account, the effect of the correction is double the amount
of the error. First, the wrong entry must be cancelled and then the amount must be correctly entered.
(5) In cases of both A Abel and B Brown, the entries in the control account are correct.
The errors have to be corrected in the accounts of the debtors and then on the list.
9. When answering a question on the reconciliation of a debtors control account with the list of
debtors, it is very important that you read the question very carefully. As you are reading,
decide what type of error is involved. Also ensure that when you do the control account, you
use the correct contra ledger account.
 FIRST THING YOU DO: go through list of corrections and put a mark for all : R= recon
items,D = debtors control items !!!!!!! ( some are in both-see below)
 a wrong side of account transfer = 2 * amount just write (2* xxx) as calculation.
 if a sales (etc) journal debtor entry is in wrong column :BOTH debtors control + Recon (debtors list) ,not just one but in
BOTH , must have the entry corrected NOW , because the daily posting to the debtors ledger would also have missed it
because it is not in debtors column.!!!! (or a R/D cheque too:both sides)( or a amount entered twice in the sales journal)
 if a creditors column in cash receipts journal it is = CR(overcharge +re-imburse back to creditors control), or a debtors
column in cash payments journal is = dr ALLWAYS EVER (r/d cheques written back into debtors control) both are normal side
entries!!!!
 an Bills receivable :all must first pass through the debtors ledger,so all must first go to cr side of debtors control(get written
out of) if they are in the bills receivable journal and you must reconstruct a debtors control from this information.!!!!!
Disclosure of Debtors& Bills receivable in the Financial Statements:

-1-Disclosure
-a-Balance Sheet
1) All Provisions for doubtful debts get subtracted from the Debtors going into TRADE & OTHER RECEIVABLES for the
balance sheet only.:under Current assets.
2) All installment sale debtors should be shown separately from the trade debtors-since money not recovered immediately .
3) All BILLS RECEIVABLE CAN GO WITH "Trade & other Receivables" UNLESS it is 'material' to disclose them separately under current
assets.
4) Bills receivable: if mortgaged (as surety) or if discounted it must be disclosed in Notes to the statements.Also as discounted they
must be treated as a liability properly for that.?????
5) Debtors with Cr and not Dr balance go to current creditors instead-(but only if substantial enough)
ACN-101-M Page 142

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-c-Notes to Financial Statements:
1) A Note is put in the Notes at end of Fin.Stat. to indicate All the amounts included in the TRADE & OTHER RECEIVABLES-and
a number next to it to index it.
2) All debtors pledged as security must get a note in the Fin Stat.
3) put a note in the statements as to if debtors with credit balances have been included in creditors? under 'policy'
'
-2-Debtors With Credit balances ie: Cr:
1. All debtors with Credit balances not Dr GO in as CREDITORS IN the BALANCE SHEET ONLY:ie:Trade & Other
Receivables :ONLY IF IT IS SUBSTANTIAL ( MATERIAL)
Bills Receivable:
1. When a debtor's account has been overdue for some time, a bill can be drawn on the debtor to give the business a stronger legal claim
should the debtor fail to meet (dishonour) the bill.
2. A bill receivable is a written agreement between the debtor and the business to pay the outstanding amount, including any interest, on a
specific or specifiable future date to the bearer of the bill.
Recording of Bills Rec.
1. Once a bill has been accepted, the asset, debtors, is replaced by another asset, bills
receivable.
2. Remove amount from debtors and Put in BILLS RECEIVEABLE:
3. Use General Journal.
4. Cr Debtors Control/Debtors ledger -CONTRA- "Bills Receivable" Account.
5. REMEMBER :Allways first put ALL EXTRA interest CHARGED in the Debtors account-BEFORE transferring full amount to Bills
rec. Account & 'Interest from Bills Rec. :Income' account
Payment of a Bill on Due Date:

1. From Cash Payments Journal- simply Cr 'Bills Receivable' –CONTRA Dr 'Bank'
Dishonouring a Bill
1. Simply move it back to the debtors control

2. Cancel : Cr "Bills receivable" –CONTRA- Re-start: Dr "Debtors control''
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1. Extra Costs ,if any get debited to debtor when the bill gets cancelled from not paying the Bill, do not first go to Bill Account,
THEY go straight to (1)Debtors & (2)Costs. ( )
2. A renewed bills receivable first get cancelled to creditors –THEN re-entered/started again.
3. ALLWAYS first put any Bills rec. Sale in the 'Debtors' –even if Bill is from sale date itself., and ONLY THEN transfer it to the
'Bills Receivable' account. !!!
Discounting a Bill
1. Special solution especially for this bills system from banks.-works a bit funny/developed.
2. Bank charges interest & if bill gets dishonoured bank immediately claims full amount back from the borrower.
3. Cr delete 'bills receivable' asset in favour of Bank (now theirs) –CONTRA- Dr 'bank' (as 'income' from a loan)
4. The Interest charged gets worked out then JUST FULL AMOUNT goes to "Interest expense"acc
Dishonouring a Discounted Bill
1. Simply move it back to the debtors control

2. Re-start : Dr "Debtors Control& Ledger" –CONTRA- Cr Bank {as expense-with all- not separately (amount + 'Noting' charges}
ACN-101-M Page 144

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ACN-101-M Page 145

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ACCOUNTING NOTES
ACN-101-M
Chapter :11 HEADING :Inventory.

KEY CONCEPTS
. Valuation of inventory
. Historical cost
. Consistency
. Gross profit percentage
. Disclosure in the financial statements
Introduction:
1) Inventory must be one of the following categories:.
goods which are kept to be sold in the normal course of business (merchandise)
. goods which are in the process of being manufactured for sale
. goods which are used during the manufacture of inventory for sale (eg manufacturing
material)
. goods which are consumed in the normal business activities (eg stationery)
2) One must customarily do an inventory count at year end-in addition to any other ones.
3) IAS 2(AC108)
The Importance of Correct Inventory Evaluation:CORRECTING MISTAKES And RESULTS
of Incorrect Evaluation:
1. ONCE A SALE IS completed-that very second the goods should be included with any inventory count done ie:
goes in that period even if not received in warehouse yet.
2. If goods are sold-they may immediately not be included in any inventory count at all.
3. It is very important that inventory is valued correctly. A mistake in the inventory figure will affect the calculation of cost of
sales, the gross profit and subsequently net profit in the income statement. On the balance sheet the total of the current
assets as well as the equity will be incorrect. This mistake will also affect the figures for the following year, because the
closing inventory for one year is the opening inventory for the next year.
4. THE RESULTS of a mistake in Evaluation of Inventories causes
a. OVER 2 YEARS : The Cost of sales + Gross Profit + Profit + Equity Is Incorrect both yrs. because last years closing
inventory is used as opening inventory this year.
b. BUT : Profit ADDED UP for BOTH years together in one Number will be correct though.! (somehow mathematicly)
Correcting Inventory Mistakes in the Income Statement etc.:
1. Nothing is said about in the journals +ledger-just remember so far they show to use GJ to transfer direct from mistake
account to account where needed.-_CONTRA- stays mistake account (P.S:the CRJ and other journals : if wrong stay wrong.-
just use GJ.)
2. First prepare a List of correct amounts by calculation for each heading from:-1-REVENUE(/SALES-Services rendered) TO
-last-CLOSING INVENTORY –ONLY –Then work out new Income Statement.
3. :SEE EXAMPLE BELOW pg:226/7 S
ACN-101-M Page 146

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Valuation of Inventory at Historical Cost:

1. This Module only uses Historical COST basis.
2. Exta costs incurred in Cost of Sales of Inventory:
a. Freight in
b. Insurance on Goods purchased.
c. Import Duty
d. Even transport from harbour-(maybe even petrol & wear+tear)
e. Non-recoverable taxes(ie NOT VAT.)
i. ALSO possible:
1. All varable & fixed overheads & direct labour for manufacturer.
2. cast of storing if product gets aged
4. etc..
3. HISTORICAL COST:
a. has disadvantages:if value of assets fall below purchase price:your inventory is overvalued.
4. NRV:Net Realisable Value method:
a. the price at which inventory can be sold,including any costs to be incurred to get product ready etc.-beyond scope of
the module.
NOTES TO The FINANCIAL STATEMENTS:
b. One Must put a note in the Financial Statements saying inventory was valued at historical cost.
c. The entire note section here is :
i. (1):Accounting Policy
1. (1.1):Financial Statements have been prepared in accordance with GAAP and the Historical Cost
Basis has been used.
ACN-101-M Page 147

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2. (1.2) Property plant & Equipment:
a. (1.2) depreciation has been calc. using at 10 % of cost price of Assets
ii. Revenue is Recognised as Net Sales to customers/OR Fees charged for services rendered.
iii. Breakdown of propery –plant –equipment(table)
iv. If trade& other receivables have other components:ie:debtors breakdown +bills rec.+ Vat control account.
(etc.)
Methods of Estimating Inventory:
2. Gross Profit can be shown by % in 2 ways:
1. Gross profit % of Cost of Sales: = Gross profit/cost of sales =%
2. Gross profit % of Sales: = Gross profit/ sales =%
3. There are different ways of estimating inventory:we only use the GROSS PROFIT method.
4. Estimating inventory is necessary when:
1. If Inventory is damaged or destroyed.
2. if no inventory count is being done quaterly etc.,
3. Or to double check the inv. count.
5. STEPS to CALCULATE the ESTIMATE for inventory:
1. calc Average Gross profit for last 3 accounting periods-for "Sales" ,NOT 'cost of sales.'(but it must be a stable % over
the years or method wont work)
2. Use Avg Gross Profit .% of Sales to Estimate the Gross Profit : from (sales * Avg %)
i. Cost of Sales:deduct gross profit you got from sales =cost of sales
ii. Value of Closing Inventory = {(a) opening inventory +(b) purchases} –(minus)-cost of sales.
3. OR one can use the Avg Gross Profit % on Cost of Sales:
i. cost of sales * (100 + % : 'GrPr. on cost') =Sales
iii. Value of Closing Inventory = {(a) opening inventory +(b) purchases} –(minus)-cost of sales.
1. Gross Profit Method:or 'retail technique' (Sales - Cost of Sales)= Gross profit.
2.
11.5 The Consistensy in the Application of Procedures.

1. Any change in methods of valuation must be written under 1-Accounting Policies as 1.3 or so –in the NOTES.
11.6 Disclosure of Inventory in the Financial Statements:
1. Inventory is a current asset. disclosed separately under it. in balance sheet
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2. Any breakdown of inventory gets done at bottom of the notes
3. Any change in accounting policy ,like a change in methods of valuation must be witten under . ... Accounting Policies As
1.3 or so,in the notes
a. product half finished etc, ready etc.-beyond scope of the module.
4. NOTES TO The FINANCIAL STATEMENTS:
a. One Must put a note in the Financial Statements saying inventory was valued at historical cost.
b. Note is :
i. (1):Accounting Policy
1. (1.1):Financial Statements have been prepared in accordance with GAAP and the Historical Cost
Basis has been used.
2. (1.2) Property plant & Equipment:
a. (1.2) depreciation has been calc. using at 10 % of cost price of Assets
ii. Revenue is Recognised as Net Sales to customers/OR Fees charged for services rendered.
iii. Breakdown of propery –plant –equipment(table)
iv. If trade& other receivables have other components:ie:debtors breakdown +bills rec.+ Vat control account.
(etc.)
5. You Allways treat packaging MATERIAL AS DISTRIBUTION ADMIN& other EXPENSES, and freight on sales(out) is also part of
this and not in cost of sales.
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ACCOUNTING NOTES
ACN-101-M
CHAPTER 12 STUDY GUIDEp234
| Chapter 12 Textbook p251
Chapter :12 HEADING :.Property Plant & Equipment.

KEY CONCEPTS
. Historical cost price
. Tangible non-current assets
. land and buildings
. machinery
. vehicles
. furniture and equipment
. Depreciation
. Accumulated depreciation
. Sale (alienation) of property, plant and equipment
. Disposal of property, plant and equipment
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Introduction:
 see 'substance over form-"economic relaity of recording an asset-lease agreement/credit-as long as corresponding liability is
recorded-asset is recorded as your asset in books-not other peoples asset.
 assets become obsolete/wear & tear-thus depreciation written off.
 proceeds from sale of an obsolete asset are normally used to finance purchase of the new asset
 For a: H.P. SALE :The asset,although legally ownership has not yet been transferred !! - is however still recorded as a
ASSET with corresponding LIABILITY
 For : a LEASED item,the lessee may record it as an ASSET with the corresponding Liability recorded as well.
 Deferred Expenses:means incurred in (but in advance)but not recorded as being for a specific period. eg: Pre-paid expenses
are an asset called deferred expenses
 Non-current assets are not aquired for re-sale-they are only aquired to generate income.
The Classification of Non-Current Assets.
1. TANGIBLE Non-current Assets.
a. LAND: NOT Depreciated since none of it is ever consumed.
b. MANUFACTURED ASSETS: eg:buildings machinary & vehicles.subject to wear&tear & obsolete +
depreciation.Buildings can be technologicaly & from old obsolete.
c. NATURAL RESOURCES:subject to deletion through use-eg:mines,'plantations !!!!',oil.
2. INTANGIBLE Non-current Assets.
a. copy-rights,patents,good-will,trade marks.
b. deferred expenses & debits( pre-paid expenses-paid but deferred to another period)
Determining the Historic Cost Price of Non–Current Assets:
1. The Actual COST PRICE of Property Plant & Equipment(Non-current assets) INCUDES:
a. Purchase price - Excluding all trade discounts & rebates+ Including all expenses all expenses incurred in
getting asset to premises(like freight in) in getting asset operational ( eg: non-refundable taxes (import duty), site
preparation ,legal,transport,installation, also including all wages of businesses own technical personell.)
2. Finance Costs on loans to aquire asset & Maintenance expenses for equipment etc. are NOT included in COST PRICE of
asset.
3. CAPITALIZED: means including(Dr) amount as part of asset cost price.
LAND:
 All costs incurred in :aquiring possession,access to,and the right of disposal,and cost of assuring land is in a usable
condition,and all costs incurred during the HOLDING PERIOD until DATE which is to be USED must be CAPITALISED.
-converting to a condition suitable for intended use,-'all costs incurred from date of purchase until it is ready to use.,-
 Incl.:option cost,legal fees,transfer duties,registration of servitudes,settling of outstanding costs relating to the land such as
municipal rates, costs of clearing & leveling-exept for a 'construction' this is building costs,not land costs-and any costs
involved in demolishing existing structures.(sale of demolished material comes OFF cost-price!!!)
 SALE of DEMOLISHED MATERIAL comes off cost price.!!!!!!
 All costs incurred during the HOLDING PERIOD until DATE on which the land is to be USED must also be CAPITALISED as
Historic Cost price of Asset.
 LANDSCAPING ,GARDENS & Paths ARE Capitalised as cost price –but NOT -Maintenance- of....
 If several properties bought one sum-MUST use reasonable market value of each,NOT all at one sum in books.
 For an exchange of assets for land eg;Shares- use price of shares etc. as cost.
 For inherited land-reasonable market value of land used.
All Manufactured & Self erected Assets.
1. Includes Purchase price - Excluding all trade discounts & rebates + Including all expenses all expenses incurred in
getting asset to premises(like freight in) in getting asset operational ( and Also: eg: non-refundable taxes (import duty), site
preparation ,legal,transport,installation, also including all wages of businesses own technical personell.)
2. Buildings: bought-include all costs of repair to get to a usable condition.If built up-includes all costs& additional expenses
to get to a usable condition:incl:insurance costs in building period ,architect etc.
3. All Expenses which prolong life of asset:beyond initial expectations-large scale repairs/modifications which would cause
prolonging of useful life of asset DO GET CAPITALISED whenever they happen.ALSO if you add things to asset-the now bigger
asset should be capitalised as such. BUT :NOT Maintenance since your 'initial expectations of lifespan' MUST include regular
maintenance-
Natural resources:
1. Three types of Natural resources:
a. mineral- mining
b. liquid- oil/gas boreholes
c. Harvested: Food crops,fisheries,orchards,plantations(harvests not allways pure natural resource-due to more
agricultural side–Must first put in a input before can expect return
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2. INCLUDE : before property indentified & purchased-all exploration costs, +DEVELOPMENT costs :incl:boreholes sinking,shaft
sinking,roads & clearing-BUT once operational(first dirt processed after last processing testsprofit from test samples comes off
cost price just like demolition rubble sales) all rest is operational costs.
3. & incl. in cost of land/natural resource (????Costs of machinery & equipment that has to be installed.???)
4. For leased property-the lease costs 'may' be discounted and capitalised but - normally rather seen as operating costs.
Intangible Assets:
1. Gives Rights or Advantages to holder.often existence is uncertain-amount used get from as per general business practice for
that asset class.
2. Historic Cost price includes :purchase price + all legal & other costs relating to purchase of.
3. If developed self- all costs relating to development MUST be recorded accurately-if possibly become part of cost price.
4. LOSS- if project to start a intangible asset fails-all cost incurred are to be written off as a loss.
5. If impossible determine value: Put as R1 ,have asset valued,or quantify advantages of self & capitalise them.
Safeguarding & Control of Property Plant & Equipment.

1. All assets must be on an asset register specifying:
1. Location
2. Serial Number or ID. mark (Own Asset no.) & Full description
3. Date of Aquisition
4. Depreciation /Annum amount,General ledger acc.no.,Purchased from,Mainenance & Repairs details.
5. Estimated Scrap value
6. Expected Lifespan
7. Cost price
8. Carrying amount
9. Current years Depreciation
10. Total Depreciation.
Asset Register and Depreciation Report FOLIO 5
Item: General Ledger Account:
Identification number: Purchased from:
Date purchased: Estimated Scrap value:
Estimated Lifespan:
Date Details Folio Asset record Depreciation record

Dr Cr Balance Dr Cr Balance
Recording the Purchase At Initial Aquisition.

1. Vehicle/ or Equipment or buildings –are 'control accounts' should get debited on purchase-they are the 'control accounts' and
asset register is like the debtors/creditors ledger- it is the details account.
ASSET/Machinary/Equipment/Vehicles ACCOUNT:
1. The Asset is recorded in the Ledger In The CLASS of Asset account:ie: ALL "Vehicles", or all "Machinery",or all "Equipment" etc
:DEFINITLY NOT EACH vehicle INDIVIDUALLY,or each machine individually!!!!! –CONTRA – Creditiors control OR Bank .
2. See below copied accounts for example/
Re-Evaluation:
1. To re-evaluate all /some asets just put new heading:Re-evaluation " below the depreciation
heading in the table in notes-and put the amount to be added or deducted in this row. put a
line in spaces where nothing was re-evaluated.
2. Same as depreciation-just another method-gets minused etc same as if a depreciation amount.
Depreciation:
General:
1. Ias .16 (AC123)mainly.
2. Depreciable asset:
a. Used over MORE than 1 accounting period.
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b. Has limited useful life
c. used for admin,production or rental out etc.
3. USEFUL LIFE of Asset:
a. Period of time over which an asset is expected to be useful.
b. Number of Production or Similar units (eg: service life eg:distance traveled)
c. Legal/contractual/other restrictions : eg:Lease period due dates.
4. Book value /Carrying amount of non-current asset:balance sheet or depreciated value.
5. matching concept-match costs with period incurred/wear& tear period
6. Viewpoint :Non-current assets merely represent deferred expenses over a period.
7. The shorter of either the economic life(technological advances) or technical life(wear & tear) is taken as the depreciation
period.
8. Regular reviews & adjustments of rates of depreciation a MUST.
9. Residual value/scrap value:value expected to be realised at end of service life –AFTER costs of –disposal are deducted.
Res. Val. must be estimated at aquisition if significant enough.
10. Depreciable value=Historical cost – (less) Residual or Scrap value. If residual is insignificant-can ignore it and not use for
depreciable value calc.Unless-insignificant.
'Depreciation :Expense' Account
1. All depreciation Dr "Depreciation :Expense" –Contra- Accumulated depreciation(Asset-contra)
2. The "Depreciation :Expense" account is closed off to the 'Profit & Loss account"
"Accumulated Depreciation Account:
1. Each CLASS of ASSETS gets one 'Accumulated Depreciation Account' –eg Machinary=1 ,Vehicles = 1,Equipment =1 ,.... NOT
ONE each per asset ,only 1 per CLASS of asset.
2. Each asset gets all its depreciation written to this account and added up over years to keep track of total to date for
depreciation table in notes.
3. Acc. Deprec. of each asset Must get removed from here to asset realisation account when sold
Methods for Depreciation calculation:

1. Straight Line Method: (Cost - Scrap/Residual value) Over/ fixed time or years usage estimated = subtract this value each year
2. Diminishing balance/ or 'Accellerated' method: (Cost - Scrap/Residual value) Over/ % value left over (amount auto. decreases
over time as value decreases)-means decrease greater in fist years than later yrs.
3. Production Method: (Cost - Scrap/Residual value) Over/ estimated no. of units production from the asset in its.lifetime.
 To choose which method to use:

o For straight line method- repair gets more as ages ,thus total expense incl. depreciation gets steadily larger., PLUS
usage/not taken into consideration
o For production unit method-preferable where usage plays a part in loosing value.
o The diminishing balance method- helps balance increased repair costs in old age.
 Must do methods consistently for effect-any change must have good reason & show in Notes
 You must make an Asset & Depreciation Schedule(not register) to calculate the depreciation:
 The :"Accumulated depreciation:Machinary " MUST have a extra name: eg: 'machinary'
41. Note: method of working out cost from carrying amount if they only give you a carrying amount in exam etc.
For straight line method: EG 20% over 5 years – then after 2 years : 1- acc depr= 20+20% , 2-carrying amount
= 100-(20+20)= 60%. 3- cost = 100/60 X carrying amount.
For Reducing balance Method : same as above exept : for 20% on reducing balance method = 1-year
1= 20% 2- year 2 = 20% + (20% X 80%)= 36% 3-year 3 = 36% + (20%x 64 %) =36+12.8=48.8% 4-year 4 = 48% +
(20% x 52%) = 48+10.4=58.4% and so on etc. etc.
44. NOTE: For the movement during year :
a. Disposals of Assets: Put it at carrying amount – less [pro-rata depreciation to that month+other years depreciation]
b. Depreciation: include all : incl -rata depreciation to that month for any disposals/sold assets + other unsold assets.
45. Note: for end of year balances:
a. LEAVE out any depreciation from disposals -out of Acc. Depr. , and also leave out costs of disposals out of ‘Cost’.

 NOTE below:this is HOW TO MAKE UP A SCHEDULE OF DEPRECIATION
ACN-101-M Page 153

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
Straight Line Method: (or Fixed Installment Method)
1. (Cost MINUS - SCRAP/RESIDUAL VALUE) Over/ fixed time or years usage estimated.
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Diminishing balance method (or Accellerated Method)

1. (ONLY Cost ONLY -not minus scrap value) Multiplied by Certain % of Value.
2. This method says asset looses more value in first years than in later years :(ie:amount subtracted auto. decreases over time
as asset value decreases)
3. This method DOES NOT SUBTRACT THE SCRAP VALUE from the COST PRICE to CALCULATE the RESIDUAL VALUE.-at all ever
4. The carrying value at end of one of the years is simply deemed the Scrap value-then no more.
5. Use same Entries as above:just 'calculation' in calc. column different.
Production Method:
1. (Cost MINUS - SCRAP/RESIDUAL VALUE ) Multiplied by: ( Units produced this year /OVER/ Estimated no. of units
production from the asset in its.lifetime. )
2. variations include :hours worked , distance traveled .
3. The depreciation rate can also be worked out at: Rands per Production unit (or kilometre) and given 2 extra columns:
depreciation per unit & annual units : in the Schedule of depreciation ,and the standard depreciation quoted as 'per unit' at
top of asset register.
4. Use same Entries as above:just 'calculation' in calc. column different.
Reviewing depreciation rates:
 If the rate CHANGES : You simply apply the new depreciation rate in the year you revise the rate.
The Treatment of Land & Buildings:
 According to IAS16(AC123) depreciation not normally provided for on real estate :UNLESS an amount must be written off due
to adverse circumstances, a write-off could be made then.
 BUILDINGS are NORMALLY grouped with land ,without showing separate values , BUT 'COULD' GET DEPRECIATED: due to
technological+area changes+old age/wear&tear.
 It is COMPULSORY for companies to disclose additional information such as location AND description , and purchase date &
cost price.
Property plant & equipment Aquired/Disposed During the financial year.

1. MUST calculate first years depreciation Pro Rata.( or no. Mnths of disposal year)
2. USE Months NOT Days (closest no. of months-if bought after 29th-does?not count as a month)
3. Annual depreciation * Mnths/12.= Pro Rata.
Disposal of Property Plant & Equipment
1. If asset is disposed of –you MUST REMOVE it from the books & Asset register :following steps:
a. Record proceeds of Sale./Journalise
b. Update interim depreciation elapsed since last year.
c. Remove the 'Cost of ' AND 'Accumulated depreciation' from the books.
d. Determine & Record any profit /loss from Sale/Demolition/scrapping of asset.
2. There are different ways to dispose of an asset:

i. Scrapping the asset:
1. If CARRYING VALUE(after depreciation) IS = 0
a. If value already '0' =No loss.
b. To be easy JUST :Delete -/Write off Machinery Acc. against Accumulated depreciation Acc.
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c. Use the General Journal.
d. Dr Accumulate depreciation –CONTRA-Cr Machinary
2. If CARRYING VALUE (after depreciation)= POSITIVE value left.

a. Use General Journal
b. Delete -/Write off from 'Machinery' acc. by Transfering specific machinery to "Realisation of machinery" account
(income /expense -nominal account).
c. First add any extra PRO RATA depreciation in normal way-G.Journal entry for :"Depreciation :Expense" acc. &
"ACCUMULATED DEPRECIATION'' ACCOUNT
d. Transfer All accumulated depreciation to the 'Realisation of Machinary' account as well.
e. Now close "Realisation of Machinary" acc. off to the "Loss/Profit on Disposal of Non-Current Assets" Account. –ie
transfer balance.
f. In Notes to Fin Stat. : Prop.Pl.& Equip. table – 'diposals' = profit/loss after depreciation
g. Remember to Add all costs of disposal to "Realisation acc." – for profit/loss on machine.
h. Each CLASS of ASSETS gets one 'Accumulated Depreciation Account' –eg Machinary=1 ,Vehicles = 1,Equipment
=1 ,.... NOT ONE each per asset ,only 1 per CLASS of asset.
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 Selling it outright:
a. Use General Journal
b. Delete -/Write off from 'Machinery' acc. by Transfering specific machinery to "Realisation of machinery" account
(income /expense -nominal account).
c. First add any extra PRO RATA depreciation in normal way-G.Journal entry for :"Depreciation :Expense" acc. &
"ACCUMULATED DEPRECIATION'' ACCOUNT
d. Transfer All accumulated depreciation to the 'Realisation of Machinary' account as well.
e. ALSO Record Money received in "Realisation of Machinary" acc. –NOT in SALES-CRJ!!
f. This can be done in C.R.J. or General Journal.
g. remember to add all the pro rata depreciation.
h. Now close "Realisation of Machinary" acc. off to the "Loss/Profit on Disposal of Non-Current Assets" Account. –ie
transfer balance.
i. In Notes to Fin Stat. : Prop.Pl.& Equip. table – 'diposals' = profit/loss after depreciation
a. Remember to Add all costs of disposal to "Realisation acc." – for profit/loss on machine.
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 Trading it in as partial payment on the purchase of a new asset

a. Trading in uses same method as selling outright:exept:
i. You record the Trade- In SEPARATE to the New Purchase
ii. Put new purchase in new Dr machinary acc, & cr Creditors with its actual purchase
price( not less any trade in yet!!!).
iii. Even if machine paid for in (only cash+trade in)-you still Go the creditor route-allways!!!
ie :first credit machines sale to the "creditors name account"- then work this off against
"bank" and "machine realisation" account-ALLWAYS –even if Paid Immediately!
iv. EXTRA: Dr- Creditor (trade-in price) -CONTRA- Cr "Realisation of Machinary acc." (as an
Income) with trade-in amount only now!!!
v. If paid cash –just use a creditor system as above and record cash payment AFTER whole
process completed but for same date!
3. If the asset is traded-in for another asset, or sold, the profit or loss made on the disposal of the asset must be treated as income
or expenditure in the income statement for the current
financial period.
1) Tax subsidies on depreciation Make NO difference to accounting treatment used above.
Summary (copied from study guide)

The following six (6) steps should be followed when dealing with the disposal of an asset:
1. Record the depreciation of the current period up until the date of disposal (general
journal):Debit: Depreciation Credit: Accumulated depreciation
Now calculate the total accumulated depreciation of the disposed asset.
2. Transfer the total accumulated depreciation of the disposed asset to the realisation
account (general journal): Debit: Accumulated depreciation Credit: Realisation account
3. Transfer the cost price of the disposed asset to the realisation account (general journal):
Debit: Realisation account Credit: The particular asset account
4. Record the amount earned on the realisation (note that the realisation account is credited in all three cases):
4.1 Sold for cash (CRJ): Debit: Bank Credit: Realisation account
4.2 Sold on credit (general journal): Debit: Debtor (and Debtors control account)
Credit: Realisation account
4.3 Asset traded in (general journal): Debit: The asset account (as part of the cost price of the new asset) Credit:
Realisation account
5-Determine the profit or loss on the disposed asset:

6-Transfer the profit or loss to the profit or loss account on disposal of that type of asset (general .. journal):
6-1 Profit: Debit: Realisation account Credit: Profit on disposal of ... account
6-2 Loss: Debit: Loss on disposal of ... account Credit: Realisation account
Presentation In the Financial Statements:

 All non-current assets go to non-current assets heading in the balance sheet.
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 For companies- fixed property –land- Extra Details : location, description,purchase date & Costprice must be disclosed
separately –(put underNEATH Table of Pr. Pl. &equimnt in NOTES
 Plant & Machinery or plant machinery & vehicles could also be used as general headings for Everything under that goes under
Property Plant & Equipment- (assorted items should all be grouped under single heading preferably).
 Must have a table for Property Plant & Equipment- in the Notes :see example- as eg:No.3
 Must disclose under eg:no1-accounting policies: say 1.3-the depreciation method & % used for each class of assets
depreciated.
 See small writing below in table for METHOD
Property Plant & Equipment: Vehicles Machinary TOTAL
Carrying amount:
Beginning of the year: ( cost – acc.depreciation)
Cost
Accumulated depreciation
Depreciation (One Year's including Pro rata for Disposals +Additions) (Brackets) (Brackets) (Brackets)
Additions (include all costs of : installation etc as COST price!)
Re-Evaluations. --------------- (Brackets) ------------
Disposals (Cost price – Accumulated depreciation ONLY ) (Brackets) (Brackets) (Brackets)
Cost (Brackets) (Brackets) (Brackets)
Accumulated Depreciation
Carrying Amount:
End of year: ( cost – acc.depreciation)
Cost
Accumulated Depreciation ( top : Accumulated. Depreciation at
beginning of Year + PLUS +-middle : Depreciation –MINUS- Disposals :
their Accumulated Depreciation =EQUALS= THIS AMOUNT.)
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ACCOUNTING NOTES
ACN-101-M
CHAPTER 13 STUDY GUIDEp263 | Chapter 13 Textbook p281
Chapter :13 HEADING :Other Non-Current Assets.

KEY CONCEPTS
. Intangible assets
. Amortisation
. Other financial assets
. Cash investments
. Loans granted
. Investments in shares
. Ordinary shares
. Investment income
Introduction:
1) assets chaharacteristics to be asset:
a) under control of entity
b) originate from circumstances in past
c) hold future economic benefits for entity.
d)
Intangible Assets:
1. Gives Rights or Advantages to holder.often existence is uncertain-amount used get from as per general business practice for
that asset class.
2. Reputation/goodwill bought for an amount should get disclosed on balance sheet at that amount-but to measure and disclose
a firms own reputation is sometimes more/(too) difficult.
3. eg :Goodwill(also reputation)Computer software,brands,franchises,patents,models,licences.
4. Historic Cost price includes :purchase price + all legal & other costs relating to purchase of.
5. If developed self- all costs relating to development MUST be recorded accurately-if possibly could become part of an intangible
asset cost price.-including the costs of developing a material /manufactured product –these 'costs' could also be an 'asset' –
the 'development itself'
6. LOSS- if project to start a intangible asset fails-all cost incurred are to be written off as a loss.
7. If difficult determine value: either :Put as R1 ,have asset valued,or quantify advantages of byyourself & capitalise them.
AMORTISATION: of Intangible assets
1. AMORTISATION means depreciation for intangible assets.
2. The economic life of intangible assets is not infinite-IT is seen by IAS38 as being 20 YEARS from date when asset is available
for use.(one can rebut this-say otherwise if definite)
3. Intangible assets are depreciated EXACTLY the SAME as NORMAl ASSETS
4. Dr Amortisation (expense) –CONTRA- Cr Accumulated Amortisation. (asset-contra)
Other Financial Assets:
1) Fixed Investments :eg :show in BALANCE SHEET.
a) Shares in listed/unlisted companies
b) Loans granted
c) Fixed deposits in banks.
2) Earnings from Fixed investments: :show in Income statement:
a) Dividends,Interest or Growth in monetary value(the last from inflation ,scarcity/collectors value
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3) Investments usually not subject to depreciation,but often do appreciate-so even if values fluctuate(eg : go down) it is NOT ever
WRITTEN OFF -thus rule is : ONLY if obvious that value has devalued should it be written off :eg bank is bankrupt.
Cost Price of other Financial Assets:
1) Purchase price + all costs incurred in purchase eg:brokers fees,stamp duty.-are cost price of other financial assets-see normal
assets chapter-EXACTLY the same methods used here,like: a simple trade for another asset is valued at valuation of other asset.
2) Stamp duty is a Tax which is paid by means of revenue stamps,and is imposed by law.
Classification of Other Assets:

1) Investment means- cash which is invested outside the entity.
2) Two types of investments:
a) Current assets:
i) eg a firm with cash from previous operating cycle to be used in next cycle, waiting for next cycle to start.
(1) easily marketable & realisable eg:short term investments,marketable shares,stock & debentures.
(2) Meant to be exchanged within 12 months.
b) Non-current Assets:
i) longer than 12 months-eg:property,long term loans!,mortgage loans!,shares etc.
Recording & disclosure of other financial assets.
Cash Investments:
 You can use the Cash Payments and Receipts Journal for all , or also the General Journal:
 If interest is received 6 mnthly-entries MUST be made every 6 mnths in books of entity to record the interest received.
 a normal savings account is NOT a fixed deposit acc. and is ALLWAYS current because 12mnth
1) When Buying an Investment :eg fixed deposit :
a) Cr Bank(pay for it ) – CONTRA- Dr Fixed Deposit :XYZ Bank (new Asset).
2) When you RECEIVE INTEREST on an Investment
a) Re-invest it:
i) Dr "Fixed Deposit: XYZ Bank" (more asset in) –CONTRA- "Interest Income" (nominal )
b) Take the cash :Dr 'Bank' (normal bank acc.) –CONTRA- "Interest Income"(nominal)
Or If Cash is Not Reinvested then:see below

only Journal.savings acc. is allways 'current'
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Loans Granted:
1) If entity grants loans varying from short to long term :they may be repaid by
a) :Fixed Installments
b) :Lump Sum at end of term.
2) Interest may be repaid atend of term or At fixed intervals(eg :yearly)
3) Interest may be calculated monthly or annually.
4) Interest may be debited to loan account or received in cash.
Method:
1) Use C.Payments Journal. usually or also General Journal.(state interest rate in sundries/or other)
2) For the LOAN:
a) Simply :Dr "Loan :Borrower name "acc.( as Debtor-investment) –CONTRA-Cr Bank (asset minus)
3) For the INTEREST income:You MUST split the main repayment & interest repayment if same time.
a) Dr "Bank" ( Asset receipt) –CONTRA- Cr "Interest Income" account.
Balance Sheet & Income Statement disclosure of loans given out :

 Under Non-Current assets as: 'INVESTMENTS' when still longer than 12 months. BUT:
 IN THE YEAR /12 mnths the loan is repayable –it becomes a "Trade & other receivables" under CURRENT ASSETS-(this in turn
gets dissembled at very end bottom of Notes-T&O Rec.)-and not an "investment " nor non-current any more.
Investments in Shares:
1) Can happen to :expand (majority stake),just invest-dividends& growth,or diversifying(+marketing)
2) if bought on 1st of january- it counts as a full month!!!!
3) Dividends are the income from shares :Are either shown as
a) NOTE: a % of the nominal value of the shares ,or as cents per share
4) DIVIDENDS MUST be recorded when they are declared, not when they are received. If Financial year end lies between them
getting declared and getting received- they become :ACCRUED INCOME and recorded as an 'adjustment.'
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Method for buying/selling shares & dividend income.
Buying shares:
SIMPLE:
Dr "Shares Investment:blue diamond" (asset bought) –CONTRA- Cr "Bank" ( amount paid for )
Dividend
SIMPLE:
same as loans given out
Dr "Bank" (money received) –CONTRA- Cr "Dividend Income:" ( income-nominal )
EXAMPLE:BUYING & DIVIDENDS.
Selling shares
1) :BIG PROBLEM:COMPLETELY DIFFERENT accounting treatment here.:
2) can use CRJ for 1st 2 legs BUT G.J for last 2.
3) This transaction has 4 legs :BUT if profit/loss = 0 leave out last 2 legs:
a) C.R.J. :1&2 : Dr "bank"(cash receipt) –CONTRA- Cr "Share Investment:Blue diamond"(asset )
b) G.J. :3&4 :Cr "Profit on Sale of Shares: Income"( for loss Dr!!!) –CONTRA- Dr "Share Investment:Blue
Diamond" (to explain the profit in the amount sold for –ie:for a loss it would be a Cr-the opposite!)you see - the amount put
in share account is larger than the cost in the share account –if it is a profit-so must balance& close shares account with a
-profit type income- transfer)
Disclosure in Fin.Stat. of shares and all Other Financial investments.
1) If investment in shares is in a subsidiary- they should get a group financial statement.

2) If investments should get revalued-they should be revalued at balance sheet date to be accurate.
3) The difference between listed and unlisted shares should be shown in balance sheet & Income statement : separate & named in
both of them.
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ACCOUNTING NOTES
ACN-101-M
Topic C:Accountability for Current & Non-Current Liabilities
Chapter :14 HEADING :Current Liabilities.

KEY CONCEPTS
. Trade creditors
. Bills payable
. Sundry current liabilities
. Value added tax payable
. Instalments payable on interest bearing borrowings
. Accrued expenses
. Provisions
. Dividends payable
. Profit share payable
. Discount received
-14.1 Introduction:
 A liability is a claim that another party has on the assets of an entity.
 less than 12 mnths current liability \\\\ more than 12 mnths non-current liability
 TIMING –matching concept – important concept in accounting-failure to record an obligation may result in incorrect operating
result for the period.
 One of the most important functions of Adjustments is to record liabilities not yet recorded:eg:interest payable , unpaid wages
.-the criterion is that it should result from a transaction in the past.
 obligations are vaued at historical cost for this module :but can also be valued at current cost,current value, or realisable
value.
 Recorded in order of either-increasing liquidity (payable last listed first OR largest amounts first
-14.2 Trade Creditors:
1. As Normal –same as for Trade Debtors –remember discount & vat though –minus/plus!
2. Creditors Ledger –DAILY TRANSFER , Creditors Control account –MONTHLY TRANSFER.
3. CREDITORS LEDGER MUST BE CHECKED & RECONCILED against creditors control account to ensure accuracy. – at every end
month + also extra regularly .
4. For Discount :record name as "Bank & Discount" in the creditors control account,not just 'bank' if discount is also given- as
the contra name in details.No need to make 2 entries,but you can if you want to.
5. Most entities keep creditors ledger due to impractiality of many creditor ledger accounts.
6. ALSO FIRST make a Creditors List from the Creditors ledger- to work from:
DL 5 xxxxx xxxx
DL 8 xxxxxxx xxxxx
TOTAL
-14.3Bills Payable
4. REMEMBER: First add ALL Interest charged extra to "CREDITORS" Before transferring it all to the bills payable
account. So : Dr (to Delete)creditors with interest + original amount & : Cr (add first)creditors with interest as
well.
5. A 60 d/d bill means it is payable 60 days from d.ate it was d.rawn.
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6. Extra Costs ,when the bill gets cancelled from not paying the Bill, do not first go to Bill Account, THEY go straight to
(1)Creditors & (2)Costs.(same as above sort of)
7. A renewed bills payable first get cancelled to creditors –THEN re-entered/started again.
8. If Works exactly same as BILLS Receivable in Chapter 10/11.
9. ALLWAYS first put any paid with a Bills Payables. Sale in the 'Creditors' –even if Bill is from sale date itself., and ONLY THEN
transfer it to the 'Bills Receivable' account AFTER. !!!
10. Use General journal for all transfers of Bills to Creditors and back. SJ is only for sale itself.
Sundry current Liabilities:
Current portion of Long term loan:

 Eg: if any portion of loan is for next 12 months: eg R100 000 per year over 5 years=R500 000 then it must go to current
liabilities.
 Simply put this part as separate heading under current liabilities –and other part in Current Lia.
VAT:
 Shown as a separate current liability in balance sheet :"SARS :Vat Payable"
Other Tax payable:

 Also separate from others in current liabilities(also separate from vat)
Accrued Expenses(arrears or accumulated obligations)

 eg :late telephone or water& lights account- goes as "Accrued expenses" under current liabiliti
Provisions
 eg:Provision for bad debts
 eg:Also "Provision for product GUARANTEE" account is another type.(if less 12 mnths –current or else if more -non-current)
Internal Control measures regarding creditors:
 timeous payment-for discount & reputation ; approval for credit ; separate responsibilities:payment one ,recording another. ;
subsidiary ledger for many transactions ; the creditors ledger should be regularly reconciled with the statements from
creditors.
Balance Sheet disclosure:
 as normal: see below
 Recorded in order of either-increasing liquidity (payable last listed first OR largest amounts first
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Creditors Control and Creditors Ledger Reconcilliation.

1. At the end of Month _All the accounts in Creditors ledger and also in Creditors Control Account must be balanced .
2. Next a List of all Creditors balances in the Creditors ledger must be drawn up.
3. If you have Dr and Cr balances given in a test : from the 'Creditors Ledger List of Balances' of accounts:subtract the dr from
the cr to make a total up to use as the total in the first line of your reconcilliation of the creditors control & creditors ledger.-
DO NOT IGNORE the dr balance because it was supposed to be transferred or something.
4. If they give question where :G.J. says that :certain accounts were transferred to the debtors ledger from the creditors
ledger :You must add these to the CR side of the creditors control account if the G.J. entry is to be written up in 'creditors
control' acc. - because the dr creditors have reduced the creditors control balance ,now if you take them out of the creditors
section the amount must go BACK to CR side of creditors control.
a. If they give a question with visa versa to above-ALSO ADD IT to creditors if it comes from debtors now and goes to
creditors.
i. If the balances are not equal- a Reconcilliation of the creditors journal must be drawn up.
b. the following errors could be made:
i. from book: . If information was omitted or was transferred incorrectly from the source document to the purchases
journal both the creditors control account and the individual creditor's account will be affected by the mistake.
ii. . If the information was entered correctly in the journal but a posting error was made to the creditors ledger, the
individual creditor's account must be corrected and the creditors list must be adjusted to correct the error.
iii. . If an adding mistake was made in one or more columns in the journals, the correction must only be made in the
creditors control account.
iv. . In this exercise the mistakes or omissions on the creditors' personal accounts were corrected on their accounts and a
new list (adjusted list) that equalled the balance of the creditors control account was compiled at 30 September 20.2.
v. other book:
vi. . Error/s in posting to either the control account and/or to the creditors ledger, eg a posting to the debit side
of an account instead of to the credit side, or transposition of figures (R123 instead of R231)
vii. . Incorrect balancing of accounts
viii. . Incorrect totalling of one or more columns in the journals
ix. . Incorrect listing of a balance
x. . Omission of a posting, where an entry in a journal (or the total column) was not posted to the ledger
account
5. Remember :a Cr balance written as a dr balance means 2* the amount (double) is moved to the right side :so write in calc: 2
* xxx = R xxxx wrongly debited etc.(half extra one side+other half short other)
A SIMPLE 'List of Creditors Balances' looks like this :
1. ALSO FIRST make a Creditors List from the Creditors ledger- to work from:
DL 5 xxxxx xxxx
DL 8 xxxxxxx xxxxx
TOTAL
A reconcilliation looks like this :(this is a debtors on but they are the same)
If:you must do a reconcilliation of both the creditors ledger & also the control account-then do 2 .. reconcilliations
next to each other, and just put as the bottom total of each: "Top total reconciled& . .. adjusted" ,then write out next line :the
reconciled total of cr. ledg. is equal to the reconciled total of ... the cr .control .. ... ... account
(below from debtors ledger reconcilliation chapter10/11)
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To:CORRECT MISTAKES:
1. To correct a mistake –you must either put a ledger account(if transferred directly from there or even back to there - as is
the norm by a general journal entry) OR – a journal type details- eg:purchase returns(not the name of journal –the
description eg cash receipts etc.
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2. more methods: ........
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ACCOUNTING NOTES
ACN-101-M
Topic C:Accountability for Current & Non-Current Liabilities
Chapter :15 HEADING :Non-Current Liabilities.

KEY CONCEPTS
. Non-current liabilities
. Long term
. Mortgage bond
. Debenture
. Registrar of Deeds
. Insured by
. Disclosure
. Interest-bearing borrowings
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-15.1 Introduction:
1. A non-current liability is a liability payable after 12 months.An Entity usually provides security for this type of loan.
2. Represent :obligations from past events-Not future events(eg not a proposed future salary)
3. Need not be legally enforceable to be included in the balance sheet as n-c liabilities.
4. eg : installment sale, debentures ,long–term loans,mortgage loans.
5. On balance sheet:Grouped in order of increasing liquidity-those payable last are listed first.
-15.2 Recording a Non-Current liability in the Books and Financial Statments.
 In this course:long term loans, mortgage bonds, and debentures ONLY
-i-Long term loans & Mortgage Bonds:
-a-Mortgage bond:
1. A mortgage bond is : a long term loan secured by fixed property.This Bond or security is registered at the registrar of deeds
office. The registration is known as a mortgage and the loan is known as a 'mortgage bond'.
2. Mortgager: person whose property is mortgaged.
3. First bond-means person has first claim over any assets sold to pay the bond,second bond gets whats left etc,etc.If you want
to sell property one cannot transfer it to the buyers name untill all money owed on mortgages has been paid .
4. Bond gets sold –not handed over-only the part of money from the sale owed goes to eg:bank –not the land.
5. The following MINIMUM INFO. IN FINANCIAL STATMENTS for a mortgage:
a. Minimum details:
i. The security. (fixed property etc.)
ii. The due date.
iii. The amounts of installments.
iv. The interest rate. eg: @ 12% pa.
b. If preferred , only the amount owed can be shown on balance sheet and additional details : By means of a Note to
statements
c. For Current liabilities heading :show separately in notes:if due in the following 12 months:
i. The amount of interest due separate in notes &
ii. Any installments due separate.
d. Notes usually state what portion of amount + interest is due as "Current Liabilities" & thus transferred to that.
6. Income statement ONLY SHOWS INTEREST CHARGES-NOT Capital REPAYMENTS!!!!!!!
7. METHOD:
a. Use the CPJ for bank payments and the G.J to record the morgage itself 's transactions.
b. Remember:CASH & MORGAGE are SEPARATE inthe LAND Account: show cash portion separate to the morgage
portion!!!!.ie:1Bank and 2Morgage
c. Remember interest is separate to morgage completely and normally paid yearly (separate)
NOTES TO THE STATEMENTS:(at bottom)

(8)Mortgage bonds consist of:
The long term obligation due to a mortgage bond :Refer to note 3 .for details:
The mortgage bond is for 500 000 repayable over a period of 4 years in installments of R128 000 per annum.,
Interest at 4 % per annum is levied on Outstanding capital and is also payable annually in addition to installment.
Outstanding liability = 500 000.
Less: Transferred to Current Liabilities: =128 000
384 000
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Debentures:
1) Debentures :are a loan by a company from others .
a) They differ from ordinary liabilities in that they are offered to the public with a TITLE DEED and with a TRUTEE is who is
appointed to look after their interests.
b) Debentures are usually secured.
c) They are subject to contractually stated conditions.
d) Normally sold in units of R100
e) The Capital sum normally paid on expiry of due date ,AND interest is paid on them periodicly.
f) Differ from share capital as follows:Do Not ensure holder of a vote,are redeemable at certain price & certain way & have a
FIXED interest obligation.
g) LAW:in terms of law it is a debt of the company as per contract conditions.
Method:
1) Details of following MUST be shown on FINANCIAL STATEMENTS for debenture:
a) Date redeemable
b) Price redeemable
c) Interest Rate & how payable
d) Security Provided.
2) Use CRJ for :"Application for debentures" receipts & CPJ for 'reinbursements' for the same.
a) G.J. used for transfer from "Application" to "Debentures" & also for ALL :INTEREST payments.
b) Inter est HAS NO EFFECT AT ALL ever on the Debenture account-ONLY to INTEREST ACCOUNT.
c) Interest goes from Bank / or Creditors control / or Accrued Expenses to "Interest:Debentures:Expense"
Account.
d) If Interest only Payable in middle next fin year- the portion from this fin year must be (xxMonths / 12 mnths *
total annual interest amount) Credited to "ACCRUED INCOME" and Debited to "Interest:Debentures:Expense"
account& go to income statement.!!!!!
FOR BELOW: ALSO remember Tricky interest/accrued interest accounts –see above 3 points in bold!
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ACCOUNTING NOTES
ACN-101-M
CHAPTER 16 STUDY GUIDEp 301 | Chapter 16 Textbook p 319
Topic C:Accounting Reporting
Chapter :16 HEADING : Financial statements of a Sole Proprietor:

Key concepts
. Sole proprietor/sole trader
. Equity
. Capital
. Net profit/loss
. Drawings
. Additional investment
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Introduction:
 IAS 1(Ac101) is all about fin statments.
 In addition to normal Fin. Statements; one can optionally have:
a. Statement of added value
b. Environmental report
c. Financial overview of the entities activities.
 Simplest form of business ownership= Sole Proprietor.
 No legislation stating how it should be established(serious stuff)-just need capitaleg:asset/cash
 Equity= capital+ profit/loss- drawings.
Overall Considerations
2. Apart from the :"recognition of assets" / and "recognition of liabilities"SEE CHAPTER 1/2", the following aspects arte to be
taken into consideration.
a. Fair Presentation:
i. of fin position(balance sh),fin performance/result(income stat),cash flow(cash flow stat,
b. Accounting policy
6. provisions
c.
d. Going concern : –entity continue exist foreseeable future
e. Accrual basis of accounting : -when transactions occour,not when recorded.
f. Consistency of presentation : -same method used one fin. period to next.
g. Materiality& Aggegation
i. –displayed separately if considered by judgement to be material,otherwise aggregated with similar
amounts.-sound judgement.
h. Offsetting
i. -Assets& liabilities And Also income & expense not offset against one another,exept where GAAP permits.-
but then must consider disclosing in 'notes'
ii. Creditor/ Debtor is only offset when with arrangement/permission of the creditor/debtor.
i. Comparitive information. –For previous period must be shown,to compare trends/tendencies.
Establishment of a Sole Proprietorship:

 Sole proprietor usually contributes capital: cash/motor vehicle etc.:Following entries Needed to start in books:
 Cash portion of capital normally recorded in the Cash Receipts Journal.
 Books for Owner Personally :would show just:"Investment in JB Television Enterprises".

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Further capital contributions would cause the ledger account to look like this:
Net Profit goes like this to the capital account from Profit& Loss account:
Drawings :
DRAWINGS ARE RECORDED AT COST –directly from asset account:eg:Inventory account(perpetual system) without affecting
the 'cost of sales' account,or from "Purchases"(periodic system) without affecting the "Sales Account" –and the drawings is an Equity
account which is transferred to "Capital" at end of Year with "Closing Entries".:Donations gets treated the same exept it is an expense
account and not an Equity account.
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Owners Equity:
Balance sheet:
Following items should appear separately:
1. Property plant & equipment
2. intangible assets
3. investments
4. trade & other receivables
5. cash & cash equivalents
6. trade & other payables
7. provisions
Notes to the statements:

a. Accounting policy
6. provisions
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ACCOUNTING NOTES
ACN-101-M
Chapter :17 HEADING : Non-Profit Organisations:
Key concepts
. Receipts and payments statement
. Income and expenditure statement
. Trading statement
. Balance sheet
. Special funds
. Nonexpendable special funds
. Expendable special funds
. Accumulated fund
. Entrance fees
. Membership fees
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Introduction:
1. A Non-profit organisation :economic entity which has the legitimate goal of furthering certain interests in the community.-
objective not distribute profits but use profits achieve stated goal.
2. Membership acquired through paying membership fees-not same rights as shares in a company.-not entitled to distribution of
profits.(normally clause in constitution that if entity is dissolved all assets go to a entity with similar objectives.)
3. Funds from:donations,membership fees,fund raising projects,bequests,government subsidies.
4. Under section 21 of companies act-61 of 1973- may register as a company not for gain.
5. Must register for Vat if 'Taxable supplies' or Income/Revenue exeeds R300 000 ,or may register if below that and want to.
Organisational & Control Characteristics.:
 Either voluntarily & unpaid by committee chosen by members or Paid managers etc in larger.
 Acc. records often incomplete-
o Smaller-treasurer likely to keep cash transaction record in a receipts & payments statement,using a single entry
system.Here only control is bank reconcilliation.
o If double entry system used- accrual basis used& normal acc. procedures followed.This means depreciation +
adjustments are done ,trial balance extracted& normal financial statements prepared.
o eg:university discloses more info. to enhance usefulness of fin.statements
 In principle however-no difference between accounts of trading entity & non-profit organisation.
Sources of finance for :
1. Membership acquired through paying first entrance fees, thereafter membership fees-not same rights as shares in a
company.-not entitled to distribution of profits.(normally clause in constitution that if entity is dissolved all assets go to a entity
with similar objectives.)
2. Funds from:donations,membership fees,fund raising projects,bequests,government subsidies.
Accounting records:
1. Return on Capital not goal of – non-profit organisation- so EQUITY REPLACED by FUNDS.
2. Profit is called a Surplus and Loss is called a Deficit- Added/ subtracted to Accumulated funds
account.
B.A.E of Non-Profit Organisations
ASSETS = FUNDS + LIABILITIES.

DIFFERENCE IN ACCOUNTS BETWEEN:
NORMAL ENTITY Non- PROFIT ENTITY
Capital Account Accumulated Funds Account
Profit and Loss Account (Yr.End) Income and Expenditure Account
Income Statement Income and Expenditure Statement
DIFFERENCE IN TERMS Used
Profit Surplus
Loss Deficit
Equity Funds
Accounting Treatment of various Sources of Finance
Capitalised:
Entrance Fees First :"Entrance fees Acc"/"Bank Acc."
End of Year Close-off to "Accumulated Funds Acc."
Membership Fees Revenue (Budget / No.members=annual fees)
Fees paid in Advance : to "Income Received in
Advance(Membership fees)" Account" + 'Trade&
Other Payables'
MUST be written back out of 'in advance' acc. in
new year back into "Membership fees" account as
pay
Fees in Arrears to "Accrued Income(Membership
Fees)" Account.+'Trade & Other Receivables' But in
new year re-reverse to act as a Debtors Account
Bad debts can be written off against "membership
fees" acc as it being a debtor account-from the
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accrued expenses on the Dr side of it allways.
Doantions & Bequests:
3.
Entrance fees:
a. Capitalised normally–Ie:First go straight to "Entrance fees" account- then at Fin .Year End with:Closing-
Entries/Procedure closed-off to "Accumulated Fund account" (like :Capital account).
b. DO NOT GET ADDED TO REVENUE in 'Income and Expenditure Statement'
Membership fees:
c. Annual Fee = Estimated Budget for Following Year / divided by / Number of members
d. Some fees could be in arrears,some could be irrecoverable.
e. "Membership fees :Income" account can act as a "debtors" account at same time as being income account.-if there
are no "debtors' for members but is actually ONLY an INCOME account by GAAP.So—1-you can write off bad debts
against it if no (2)... following is true: -2-have already (from past fin . year end procedures)put fees in arrears on
debit side –to act as a debtors.- BUT if a fin. year end has not passed& the very bad debts have been written up as
accrued income - then you cannot write the bad debts off in this manner –nor in the books at all.
f. Sometimes no debtors accounts kept for arrears members fees-so one ONLY uses adjustment accounts for arrears
membership fees + fees paid in advance's at YEAR END ONLY.
g. SOME Bad Debts( if already an accrued income in books) CAN get written off against the "Membership fees "
account if there are no "debtors accounts" for members.
h. Only bad debts that have been moved to dr side from last year ,ie , as accrued incvome
reversed in new year, can be written off as bad debts to cancel the dr (which would
have been used to cancel any payment for last years stuff in the current year).
i. "Membership Fees account" is empty at beginning of year:EXEPT FOR first entries are the adjustments transferred
back :Arrears=Debtor as DR ----- AND Income in advance='Income' as CR for new yrs. income now showing .
ALL Arrears Fees :

i. get included in Fin. Stat. as income for the year(still owing – like a debtor)under "Trade& Other Payables"
:BUT ONLY AT YEAR END.
ii. "Adj:Accrued Income" can also be called:"Membership fees in Arrears" !!!!
iii. No other arrears payments go to same adjustment acc. they must go to another
iv. Fees in arrears go to :"Adj:Accrued Income (Membership fees)" –CONTRA- "Membership Fees Income"
account same as an adjustment " at year end –BUT MUST:
v. MUST get REVERSED back into 'membership fees' account in new year (to accurately show income for new
year)- on the DEBTORS SIDE if there are no Debtors accounts.-account acts as a debtors account at same
time as an income account here.:do exact opposite to above procedure.
Fees paid in advance :

vi. go to separate account –same as for Adjustments- the 'Income Received in Advance(membership fees)"
account :Under "Trade & other Payables" on balance sheet.-
vii. "Adj: income received in advance(membership fees)" can also be called "Membership Fees Received in
Advance" account.
viii. No other advance payments go to same adjustment acc. they must go to another
ix. 'Must first go to "Membership fees: Income" Acc. from'Bank' Acc. , ONLY then to "in advance" acc. AFTER by
reversing -out of 'Membership Fees:Inc.' Acc
x. MUST be reversed back out of 'in advance' acc. in new year and re-reversed back into "Membership
account" to accurately show income for that year.
Income from Bar,Tuck Shop,Restaurant:
j. Gross profit –Not a Surplus- is Shown for "trading" only- in trading statement.
k. All trading closed off to Trading account at year end procedures as normal
l. The Gross profit for : Each trading activity must be calculated separately.as:
i. goes in income statement as calculation if any expenses which 'must' appear in inc& exp statement are
involved eg:wages: these must be subtracted in the inc & exp stat . and while all other expenses come off in
the Tading statemnt.- see example!!!!!! see calc . : Net Income /'Gross Profit'/(Expenses Incurred here in
brackets. eg: 'wages') in inc&exp. statement.
m. Otherwise all other expenses are subtracted as normal from all the Gross profits to show the Net Surplus for the year
at bottom on the "Income & Expenditure Statement". (Net profit)
Donations and Bequests:
1. Treated as REVENUE. :
2. Dr bank –CONTRA- Cr donations received( income account)
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3. UNLESS: As an EXEPTION a 'special fund' is created from it –which must NOT be added to "accumulated funds"(old 'Capital
account'), but goes to "Special Fund "account which is regarded as a 'type' of capitalisation:ALLWAYS utterly apart from other
capitalisations though eg: if very large bequeathement from a testament or donation or conditional donation.
Receipts & Payments Statement:
1. AN: analysed & classified Statement of ONLY the Cash transactions .-cash actually out or in.
2. Smaller entities with only cash as assets need ONLY show this statement For Fin.Stats. at year end.meeting-BUT larger must
show Balance sheet & Income & Expenditure Statement as well.
3. T format or Narrative-vertical where all ACTUAL cash received on DR and all cash Paid on CR.
4. Accrual principle not applied here:So Prepayments + Accrued amounts received or paid + Income received in advance All
recorded here.
5. All operational + capital nature (assets buy/sell) cash goes on here –no separate.
6. Opening balance = cash on hand in bank at beginning &
7. Closing Balance = cash on hand in bank at end of period.
8. Disadvantages: -1-No fin. performance OR fin. position can be determined from this statement.,-2-only cash transactions
recorded,-3-surplass/deficit cannot be determined,-4-includes cash from A/F/L & Inc/Exp accounts All-no distinction.
9. ALL INVESTMENTS are cash payments=CR :even fixed deposits. ALL LOANS are cash receipts.
Income and Expenditure Statement:

1. Same as normal 'Income Statement' –also prepared according to GAAP-ias1(ac101)
2. Determine surplus / deficit for a fin. year.
3. All Income ONLY shown under ONLY :heading :INCOME &
4. All Expenses ONLY shown under ONLY :heading :EXPENSES
5. NOTE : MUST SUBTRACT / ADD all relevant accrued or pre-paid Income/Expenses for the period –AND RE-ADJUST
THEM IN START OF NEW PERIOD. (see memb.fees)
6. The Gross profit Breakdown for all Trading activities works as follows:
7. IN 'INCOME' SECTION:
a. Gross Profit :'from xyz' =in this statement means no wages /similar expense still to be deducted in this
statement- was already worked out in trading statement.
b. 'Income from :xyz activity' 348.87
Gross Profit 389.44
Wages expense 40.43
.....means that an expense must still be deducted in this statement for some or .. other
reason and it gets shown like this :method 2.-The main reason being that wages do not form part of gross profit and must be shown as
a 'deduction' on this statement-not on the trading statement .
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Trading Statement:
1. IF the scale warrants it :a separate trading statement can be prepared for each operational activity'.eg :for Tuck shop one ,for
restaurant one ,for fun run one etc.
2. Layout similar to Trading section (revenue+ cost of sales....+gross profit of a normal Income Statement.
3. Closes off with gross profit NOT surplus/deficit because trading calc. done here .
4. WAGES MUST NOT BE SUBTRACTED IN THE TRADING STATEMENT :The main reason being that wages DO NOT
FORM PART OF GROSS PROFIT and must be shown as a 'separate deduction IN the Income PART' of THE: "Income and
Expenditure Statement"(see section on "Inc.&Exp. Statement")- not on the trading statement.
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5.
Accumulated Fund Account
1. The Capital Account is CALLED the 'Accumulated funds' account ,AND EQUITY is called "Funds" because: no owners=no equity
2. The following go to the "Accumulated Fund account" (-old "capital" account)
a. Any INITIAL DONATIONS made to begin organisation.
b. Entrance Fees
c. Surplus / Deficit for each period.
d. "Special Funds" donated for "General Expenses" –separate investment account must be opened.
3. Separate investment accounts must be opened for "Special Funds" donated for a special purpose :to be able to issue
meaningful reports on the acquisition & utilization of funds.
Special Funds
1. Used like an "Income" and "Expense" account same entries style for Dr & Cr .- NOT like an 'ASSET' ACCOUNT!-so for all assets
bought(asset exchanges) FIRST move(REVERSE) to Accumulated funds account-and leave it alone there.
2. Money can be set aside so not all the cash is spent on expenses of general nature :in a Special Fund..
3. A Special fund can also be established for a 'Legacy' or a 'Conditional donation' with special conditions attatched.
4. When purpose of fund is Finished / finalised –it must be closed off to the "Accumulated Funds" account.
5. FOR A RECEIPT :ALWAYS FIRST to normal bank,then only to "Investment account" Bank account,
:ALSO for a PAYMENT :first from "Investment bank acc" to normal 'bank' acc–then ONLY PAYMENT MADE from here.
(:unless stipulated otherwise in exercise instructions).
a. RECEIPT:
i. Dr bank(normal ) –CONTRA Cr "Special non-expendable : Star Fund." account.
ii. Cr bank (normal)-CONTRA- Dr Investment Bank account (eg : fixed deposit )...move to investment account.
b. PAYMENT:
i. Cr Investment Bank account-CONTRA- Dr Bank account (normal ).FIRST move to normal bank account
ii. Cr "Accumulated Funds" account –CONTRA-Cr "Special non-expendable: Star Fund." account. FIRST Move
to "Accumulated Funds" account(old 'Capital acc'.) as a new 'contribution' to 'Funds' (not called capital here)
so for all assets bought(asset exchanges) FIRST move(REVERSE) to Accumulated funds account-and leave it
alone there.
iii. Cr bank(normal ) –CONTRA Dr "ASSET BOUGHT':eg:"Land & buildings" account
c. Interest either back to same ledger account as double-up account if non-exp. , or to other income acc. if expendable.
d. Remember to add accrued interest at year end (with contra as :"accrued income") AND REVERSE IT AT BEGIN
NEW YEAR out of same account and out of contra : "accrued income"
6. If stipulated that interest MAY be used for "general expenses"-not only special ones- then the interest income goes to separate
income account :eg:"Interest: Star Special Fund :income" account. and DOES GO to normal Income & expenditure account
(old profit& loss account) & 'Income & Expenditure Statement' & part of "Surplus or deficit "etc etc.
7. All interest not used, usually should be re-invested.
8. "Income & Expenditure Account OR ..Statement :NO ENTRIES: Special Funds :the donations for them and the income
from them and expenses paid from them- should NOT be reflected on the Income & Expenditure Account OR
..Statement .-BUT through the fund account itself.-this account ats as a MINI Fin. Statments all by itself, so no extra entries
needed.
a. USED AS : 'Expense' account. –(all expenses -'Bank' is –CONTRA-)
b. Used as :'Income ' account
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c. Used as :Income & Expenditure Statement.(only this fin. stat.)
d. Used as :Statement of Changes in Equities.
e. Used as:Accumulated Fund account.-is actually officially seen as 'capitalisation' ! ( old 'capital' account) because never
goes as 'surplus' to here.
f. Used as :Income & Expenditure account (profit & loss account)
9. Putting money in a special funds account is actually officially seen as 'capitalisation' of the funds-exept kept apart from:
a. -"Accumulated Funds" account: .Special funds are normally accounted for separately from "Accumulated Funds"
account .& "Funds'( old equity)EXEPT any asset bought from/through a special fund must be added/credited to the
"accumulated fund " account-or any part of total money contributed toward asset from special fund .
b. so for all assets bought(asset exchanges) FIRST move(REVERSE) to "Special Funds" account money used to
Accumulated funds account-and leave it alone there as 'FUNDS' (same as in equity-cash type capital from an owner).
10. A separate investment (At the bank) bank account is normally opened for each special fund in which capital is deposited.
11. A Special Fund can be either of 2 types.
a. Expendable Fund: May use Capital & Interest for specific purpose.
i. Investments from these funds must be shown as separate items on the balance sheet-Cross References
must be given.
ii. CAPITAL &INTEREST-Separate on balance sheet under :"Special Funds:Expendable Funds"
b. Non-Expendable fund: May ONLY use Interest for a specific purpose.
i. Investments from these funds must be shown as separate items on the balance sheet-Cross References
must be given.
ii. CAPITAL -Separate on balance sheet under :"Special Funds:Non-Expendable Funds"
iii. Any interest accrued ,where more than (excess to) expenses in year,IF not allowed to be used for
anything(see other no.s above) gets shown ,in addition to the above, as an extra heading: "Special Fund
:Expendable Funds" -SO 2 HEADINGS FOR 1 FUND.
iv. If expenses exceed costs for fund-entity must find other means to pay for them-may not use capital portion
at all.
12. AN ASSET bought from a special fund –MUST include note in Fin statements to show this transaction,BUT treated normally in
balance sheet exactly same as all other assets.EXEPT any asset bought from a special fund must be credited to the
"accumulated fund " account-or any part of total money contributed toward it .
13. NOTE: Accrued income: gets reversed from Cr side to Dr side in beginning of ANY NEW
FINANCIAL YEAR BECAUSE at end of LAST year interest owed on account-went to "accrued
income' account ('debtors type) and to Cr side of Special fund account(as a income) to reflect.
EXAMPLE OF: A NON-EXPENDABLE SPECIAL FUND ACCOUNT:
Used like an "Income account"
EXAMPLE OF: An EXPENDABLE SPECIAL FUND ACCOUNT:

Ignore contents here –just any old account example was used –because Same as any other . ... account NOTHING
Special- used like an "Income account"
ACN-101-M Page 185

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FINANCIAL STATEMENTS -for SPECIALFUNDS

Statement of changes in Equity:
a. special funds each in own single separate column to 'accumulated funds' .
i. headings for entries in special funds columns:
1. balance at beginning of year
2. Funds Invested /or Donations(in )
3. 'Accrued Interest Income'/ or just 'Interest Income'
4. Funds used(out)
ii. headings for entries in accumulated funds section
1. balance at beginning of year(uses same entry as above section)
2. surplus for the year
3. entrance fees
4. Lapa built from donation.etc.
Balance Sheet
1. All Special funds are shown under Accumulated funds on balance sheet –under 2 separate headings-one
a. Non-expendable funds
b. Expendable funds.(remember this includes interest from non-expendable funds under same name –one put '-capital' ,
other put '-interest' next to heading (see below).
Notes to the statements;

1. normal notes + notes to disclose any assets purchased from special funds-now in accumulated funds.
2. table for depreciation: Just add below the "additions" :as a breakdown:( otherwise all the same)
a. from own funds
b. from special fund:star fund (etc)
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IF INTEREST FROM A NON-EXPENDABLE FUND – MAY BE USED FOR GENERAL EXPENSES:show like this:
TO REMEMBER:IN GENERAL:
1) There are 2 instances where one must reverse ADJUSTMENTS on the first day of the new year in
these books:
a) For MEMBERSHIP ACCOUNT:
i) Income received in advance gets reversed back in (to cr side)
ii) Accrued income gets reversed from dr side to cr side/ +deleted out of "accrued
income"(debtors)account
iii) last years total cd/bd GOES TO :INCOME & EXPENDITURE ACCOUNT-and membership fees
account is then EMPTY IN THE NEW YEAR ALLWAYS EVER!!!!!
b) fOR SPECIAL FUNDS ACCOUNT:
i) Accrued income: gets reversed from Cr side to Dr side in beginning of ANY NEW
FINANCIAL YEAR BECAUSE at end of LAST year interest owed on account-went to
"accrued income' account ('debtors type) and to Cr side of Special fund account(as a
income) to reflect.
2) Add all membership fees in arrears AS WELL AS SUBTRACT all fees paid in advance to get
the total for Income & Expenditure statement for the year.
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ACN-101-M Page 188

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ACCOUNTING NOTES
ACN-101-M
Chapter :18 HEADING : INCOMPLETE RECORDS:
Key concepts
. Incomplete records
. Statement of assets and liabilities
. Conversion to double entry system
CONTENTS
Key concepts 357
18.1 Introduction 357
18.2 Disadvantages of using incomplete records 357
18.2.1 Incompleteness 357
18.2.2 No record of non-current assets and non-current liabilities 357
18.2.3 No details of profits and/or losses 357
18.2.4 The final results are unreliable 357
18.3 Calculation of profit/loss from incomplete records 358
18.4 Conversion from a single entry into a double entry system 360
18.4.1 Where subsidiary journals are kept 360
18.4.2 Where minimal records are kept 361
18.5 Revision exercises and solutions 366
18.5.1 Revision exercise 1 366
18.5.2 Revision exercise 2 369
Self-assessment 373
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18.1 Introduction:
1) Incomplete records can arise from:
a) Double ENTRY SYSTEM not used : eg: Not statuatory/ required by law: for a Sole proprietor to keep accounting records:only
companies & close corporations : by the companies act & close corporations act : Therefore many sole proprietors keep
minimal records-eg: just list of debtor& creditors etc: referred to as the "Single entry" accounting system. –leads to incomplete
records.
i) Need for proper double entry accounting records can arise when :
(1) Apply for a loan,
(2) tax purposes,
(3) sell business.
b) If Financial data :-1-Lost , -2-Destroyed by fire , -3-Stolen.
2) Two Methods possible to remedy situation:
a) B.A.E. is used to calculate PROFIT / LOSS for a period.
b) Also possible to prepare accounts and then fin. stat. from incomplete records.
18.2 Disadvantages of using incomplete records:
1) Incompleteness –only personal records,no impersonal transactions records.
2) No record of non-current assets & non-current liabilities
3) No details of profits and/or losses.
4) The final results are unreliable. –no reconcile to control accounts,no trial bal. possible either,
18.3 Calculation of Profits / Loss from incomplete records.
1) B.A.E. is used to calculate PROFIT /LOSS where accounting records inadequate.
2) THE WHOLE PROCESS IS DONE OVER A 1 YEAR/ PERIOD WHERE 2 DIFFERENT SETS OF ASSET/LIABILITY FIGURES ARE
AVAILABLE
3) Profit/Loss is calculated by subtracting equity at begin & end of Fin. Period.THE equity is first calculated using BAE: E=A-L.
4) This very method is used by SARS to determine the income of taxpayers who have not kept proper accounting records.
5) Must compare equity at beginning of period with equity end of period-but must make provision for any drawings or owner
contributions as well. :THE equity is then calculated using BAE: E=A-L.
6) TAKE NOTE OF THE SYSTEMATIC GROUPING (standardized headings used: eg Trade & Other Receivables etc) OF ITEMS WHICH
IS WHICH IS ESSENTIAL TO G.A.A.P.(in the Statements of A & L)-vertabim as per textbook.
7) The following steps can be done to calculate the profit for the fin. year:
i) Equity at the end of the period (before adjustments)
ii) MINUS : Equity at the beginning of the period
iii) PLUS :income not yet accounted for
iv) MINUS :Expenses not yet accounted for
v) PLUS :DRAWINGS
vi) MINUS :Additional capital contributions
vii) = ESTIMATED NET PROFIT/LOSS for the period.
b) For obvious reason this method of calculating profit/loss is not very satisfactory and must only be used where inadequate
accounting data is available.
8) Value of Assets & Liabilities determined as follows: Where no ledger accounts exist.
a) Non-current assets : Refer to original purchase contracts.:for prices.,
b) Non-current assets: Start with value at beginning of period, +additions – disposals = value at end of period.
c) Debtors : invoices,credit notes,debit notes,receipts. ALSO check for discounts allowed + bad debts.
d) Cash & cash on hand:counting cash on hand,referring to bank statements,bank deposit books,cheque book counterfoils,
e) non-current liabilities:original agreements, check remember repayments made +check if new loans incurred.
f) Creditors: invoices,credit notes,debit notes,cheque book counterfoils,-compare to monthly statements received from creditors
to verify correctness.
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5) STEP 1
a) STATEMENT OF ASSETS and LIABILITIES. Do No. 1 OF 2 of :
b) (put a small calculation of equity at bottom/top)
c) Compile 1 for beginning of period /and another 1 for end of period AFTER step 2.
2) STEP 2
a) Make a calculation to determine Capital / Equity of Statement of Assets and Liabilities# 2 ,and to fill all the other totals in it in
with : simple but same as balance sheet format.(you could leave this step out really! –and substitute: (put a small
calculation of equity at bottom/top)
b) )
c) remember to minus depreciation ETC.in brackets before totals
The final capital must be determined first:

Assets R
Furniture and fittings (less depreciation =10% * 16500= 1650 ) 14850
Inventory 9 600
Sundry debtors 11 200
Bank 3 000
Petty cash 400
total: 40 700
Liabilities (13 600)
Loan: DJ Bank 5 000
Sundry creditors 8 600
Capital 27 100
In order to determine the estimated net profit for the year,drawings must first be subtracted:
STEP 3: second Assets and Liabilities Statement

d) Draw up a second Assets and Liabilities Statement for the END of Financial Period. to "Officially" show up capital/equity for
calculation of profit later.
e) (put a small calculation of equity at bottom/top)
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3) STEP 4: Do the calculation for the Profit

a) Do the calculation for the Profit at end of Financial year one by subtracting all drawings in the year from: (Equity 1 –Equity2).
(depreciation has already been subtracted from equity 2!!!)
Capital BEGINNING Fin period 23700

- (minus) Capital END Fin period (27100)
= total 3400
+ PLUS Drawings 2500
- (minus) Additional capital contributions xxxx
= ESTIMATED NET PROFIT for the year: 4250
18.4 Conversion from a Single Entry into a Double Entry System

 Once steps below are completed,the balances on accounts are used to continue in a double entry sytem.Oneshould encourage
client to use these balances and continue with using double entry system.
18.4.1 Where subsidiary journals are kept
Step 1
Prepare a statement of assets and liabilities at the beginning of the period (or use the closing
statement of the previous period).
STEP 2: "General Journal" ise conglomerate totals
The "balances'' as shown in this statement are then
journalised (general journal for all main generalised "totals" entries, other journals for all follow up single entries) and posted to the
various general ledger accounts. This procedure
opens the accounts in the general ledger in accordance with the double entry system.
Step 2 : Start all other Subsidiary Journals -ise
The next step is to prepare the various subsidiary journals as discussed in study unit 6. (general journal for all main generalised "totals"
entries, other journals for all follow up single entries) The cash receipts, cash payments, purchases, purchases returns, sales, sales
returns and any other subsidiary journals for example, bills receivable and bills payable, must be prepared.
The necessary entries for rent, salaries, wages, sundry expenses, purchase or sale of assets,
cash purchases and sales, etc. should be made in the cash journals.(do all journals for over '1 period' only-ie: like a journal for month
eg: aug 2005–put : journal for period start of business june 2001 to 31 july 2005(new start of fin year/ or just new start of 'keeping
books' .)
Step 3: Debtors/Creditors Reconcilliation.(or at least a –"check up"- sort of)
The individual debtors' and creditors' accounts should be checked carefully. Any mistakes should be corrected in the general journal.
Step 4:Full Bank Reconcilliation.
It is also essential to regularly do a bank reconciliation as well as at the end of the period.
Step 5 :Post to Ledger
The entries in the subsidiary journals can now be posted to the various ledger accounts.
Step 6 :Month End Procedure :Balance accounts+ Trial balance + (Adjustments-accrued+prepayed etc.)
Once satisfied that all the journals have been completed and that all postings have been made
to the ledger accounts, the accounts must be balanced, and a trial balance prepared.
Step 7 : prepare Closing Financial Statements for end No-books Period.
Compile the financial statements as previously discussed in this study guide.
ACN-101-M Page 192

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18.4.2 Where minimal records are kept
Because of the practical difficulties of constructing a proper set of books on the double-entry
system from incomplete entries, it is sometimes better to start by preparing the income
statement, statement of changes in equity and balance sheet. In the following year proper
systematic books and accounts can be kept. The procedure is as follows:
Step 1 :Make Assets& Liabilities (& calc.Capital )list up Beginning of Period.(preferably a Statement of Assets&
Liabilities+ equity incl.
Make a list of all assets and liabilities as at the beginning of the financial period.
Assets R
Inventory 9 600
Sundry debtors . 11 200
Bank 3 000
Petty cash 400
total: 40 700
Loan: DJ Bank 5 000
Capital 27 100
Step 2 : Reconstruc :Ledger :BANK Account

Reconstruct / Prepare a summary of the bank account for the year by using cheque counterfoils, deposit slips
and bank statements as reference.
Step 3 : Reconstruct :Ledger :Petty cash account –
Estabish if float or petty cash in use :summrise all receipts& payments and determine all cash on hand as petty cash.
Step 4 : Ascertain Assets& Liabilities Totals (NOT capital here )for END of period.(or make a list -can leave out this
though)
Ascertain the balances of the assets and liabilities at the end of the period.(Same as above (#1)method/ setout)
Step 4 :CASH / CREDIT : Sales & Purchases and Debtors & Creditors Ledger + Control Accounts in one.
The next step is to calculate the figures for purchases and sales. If no distinction can be made between cash and credit sales and
purchases, the amounts can easily be calculated with the aid of the debtors and creditors control accounts- (i think : ie:PUT ALL CASH
SALES+ DEBTOR SALES THROUGH THE DEBTORS CONTROL ACCOUNT). All money received with regard to sales of inventory must
then be credited to the debtors control account. (This procedure is unnecessary where cash sales and receipts from debtors can be
determined accurately.) Similarly, all payments for purchases of inventory are debited to the creditors control account.
Items such as discounts received and allowed, purchases or sales returns, interest received and paid, R/D cheques and bills
dishonoured, bad debts, transfers from debtors to creditors and vice versa must be correctly debited/credited in the appropriate control
accounts.
Step 4.1 : Write Bills Receivable/Payable : into debtors/credrs /by total of debtors/credrs or singly,+then write it out again as a Cr.
Careful attention must also be given to any bills receivable and bills payable. 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.,after having entered them in here first,they
are thus written out on opposite side to their respective "Bills Rec/Payable Accounts" ,but MUST first pass through "debtors/creditors"!
Step 4.2 : Use balances b/d as Sales & Purchases .
After provision has also been made in the control accounts for both opening and closing balances in respect of debtors and bills
receivable, and of creditors and bills payable, these accounts can be balanced. The balancing figure on the debit side of the debtors
control account then represents sales, and the balancing figure on the credit side of the creditors control account will represent
purchases.
Step 5 :Adjustments:for accruals & prepayments for income statement.

Where accruals and prepayments exist for income and expenditure items, the amounts which
must be disclosed in the income statement need to be calculated.
-Accrued wages from previous fin year to this statement must be written OUT OF this years wages "totals" by bringing in on the
OPPOSITE ( Cr side ,NOT "DR expense" ) side to which it would have been last year-even if nothing/anything done last year at all,just
to get this years totals right for 'MATCHING PRINCIPLE'.
Step 6 :Post all the other items to the ledger accounts + Trial balance.
-Major conglomerate totals posted from general journal, but other subsidiary journals can also be used for recurrent/ +more accurate
figures.
Step 6 :Financial Statements.
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All the required information is now available and the financial statements can be prepared
-start with the income statement ,then statement of changes in equity,and end with the balance sheet –no balance sheets/or
"Statements of assets and liabilities" done at all till now .
TO REMEMBER:
i. goes to Debit Side to end up showing up in Cr side "purchases" worked out total later when it is calculated :
( to get "total purchases amount" –ie :IT WAS deducted-Now add it to total ON Dr SIDE TO GET the
increase in the "original" PURCHASES total on the CR side you are looking for ,since discount was only
received when the payment was made to creditors weeks later,not at date of PURCHASES when you work it
out later- YOU ADD IT TO DR TO GET CR PURCHASES TOTAL-NOT TO CR immediately ! ALTHOUGH IT
LOOKS LIKE IT SHOULD –IT WILL APPEAR NOW ON CR SIDE BY ITSELF )-Although it also still goes to
income statement as a "Other Income"
b. Bills Payable :
i. Goes to Cr side to reduce "purchases worked out afterwards balancing figure" before it is/gets calculated.
1. Put on Cr side to reflect as a part of total creditors-ie it also reduces "purchases" by this amount
which is calculated on same side later!, underneath this,since this amount is now included in {either
Total creditors and total payment payed or one of the two} since it was recorded earlier. (included
as paid out! –now we must reduce "purchases" balance )
2. If interest income is still to be added to "creditors "-ie completely left out till now somehow-see no.
(f) below-last no. this part.
e. If ANYTHING is still to be added to "creditors "-ie completely left out till now somehow- then add it to the
BALANCING FIGURE THEY GIVE YOU ( to GO AT BOTTOM as b/d) and ALSO ON THE CR SIDE BEFORE
BALANCING –IT GOES IN BOTH parts ,top(as entry to add to 'creditors') and below(as balance :b/d total) to achieve
correct "Total Purchases Amount " etc.
ii. R/D cheques
1. Put on Dr side to reflect as a part of total debtors-ie it also reduces "sales" by this amount which is
calculated on same side later!, underneath this,since this amount is now included in {either Total
debtors and totall payment received or one of the two} since it was recorded earlier.charged out!
2. If interest income is still to be added to "debtors "-ie completely left out till now somehow- then
add it to the BALANCING FIGURE THEY GIVE YOU ( to GO AT BOTTOM as b/d) and ALSO ON
THE DR SIDE BEFORE BALANCING –IT GOES IN BOTH parts to achieve correct "Total Sales
Amount " etc.
vi. goes to Credit Side to end up showing up in Dr side "sales" worked out total later when it is calculated :
( to get "total sales amount" –ie :IT WAS deducted-Now add it to total ON Cr SIDE TO GET the increase in
the "original" SALES total on the DR side you are looking for ,since discount was only allowed when the
payment was received from debtors weeks later,not at date of SALES when you work it out later- YOU ADD
IT TO CR TO GET DR SALES TOTAL-NOT TO DR immediately ! ALTHOUGH IT LOOKS LIKE IT SHOULD
have–IT WILL APPEAR NOW ON CR SIDE BY ITSELF by 'mathematical cancellation' Special trick to get itto
work out like this –could also have been added straight to dr side and ALSO to worked out at end balancing
figure then to then all = "Sales" ,this is easier way!!! )-Although it also still goes to Income statement as a
"Distribution and Other Expenses"
vii. If ANYTHING :
SIDE BEFORE BALANCING –IT GOES IN BOTH parts ,top(as entry to add to 'debtors') and below(as
balance :b/d total) to achieve correct "Total Sales Amount " etc.
ACN-101-M Page 194

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1.
Bad debts go to CR side to "mathematicly increase" Dr side "Sales total" when one calculates it
later.
5. LOANS:remember to check if loans PAID amount is DIFFERENT to loans ORIGINAL VALUE: to calculate the interest for
"FINANCE CHARGES" in the Income Statement.!!!!!
6.
--------------------------------------------------------------------------------------------------------------------------------------------------------
SHORTENED Notes:ch 18
Shortened Notes ch 18:

STEP 1
b) STATEMENT OF ASSETS and LIABILITIES. Do No. 1 OF 2 of :
c) (put a small calculation of equity at bottom/top)
STEP 2 Make a calculation to determine Capital / Equity of Statement of Assets and Liabilities# 2 ,and to fill in all the other totals
a) remember to minus depreciation ETC.in brackets
b) CALCULATE totals to be calculated –could even make a whole list of all A+E+L totals up.
ACN-101-M Page 195

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(you could leave out this step and put a small calculation of equity at bottom/top of next step)
STEP 3: second Assets and Liabilities Statement for end of period to officially show up capital etc.
a) (put a small calculation of equity at bottom/top)
STEP 4: Do the calculation for the Profit :ADD ALL Drawings ,& MINUS all CONTRIBUTIONS.=Net profit for year

18.4.1 Where subsidiary journals are kept
Step 1 Prepare Statement of Assets & Liabilities at beginning of period.(or use the closing statement of the previous period).
STEP 2: "General Journal" ise conglomerate totals opens the accounts in the general ledger in accordance with the double entry
system.
Step 2 : Start all other Subsidiary Journals -ise
The next step is to prepare the various subsidiary journals as discussed in study unit 6. (general journal for all main generalised "totals"
entries, other journals for all follow up single entries) The cash receipts, cash payments, purchases, purchases returns, sales, sales
returns and any other subsidiary journals for example, bills receivable and bills payable, must be prepared.
The necessary entries for rent, salaries, wages, sundry expenses, purchase or sale of assets,
cash purchases and sales, etc. should be made in the cash journals.(do all journals for over '1 period' only-ie: like a journal for month
eg: aug 2005–put : journal for period start of business june 2001 to 31 july 2005(new start of fin year/ or just new start of 'keeping
books' .)
Step 3: Debtors/Creditors Reconcilliation.(or at least a –"check up"- sort of)
The individual debtors' and creditors' accounts should be checked carefully. Any mistakes should be corrected in the general journal.
Step 4:Full Bank Reconcilliation.
It is also essential to regularly do a bank reconciliation as well as at the end of the period.
Step 5 :Post to Ledger
The entries in the subsidiary journals can now be posted to the various ledger accounts.
Step 6 :Month End Procedure :Balance accounts+ Trial balance + (Adjustments-accrued+prepayed etc.)
Once satisfied that all the journals have been completed and that all postings have been made
to the ledger accounts, the accounts must be balanced, and a trial balance prepared.
Step 7 : prepare Closing Financial Statements for end No-books Period.
Compile the financial statements as previously discussed in this study guide.
Assets R
Inventory 9 600
Bank 3 000
Petty cash 400
total: 40 700
Loan: DJ Bank 5 000
Capital 27 100

Step 4 :CASH / CREDIT : Sales & Purchases and Debtors & Creditors Ledger + Control Accounts in one.
ACN-101-M Page 196

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purchases.
Step 5 :Adjustments:for accruals & prepayments for income statement.

Step 6 :Post all the other items to the ledger accounts + Trial balance. if asked for.
Step 6 :Financial Statements.-No second list of assets & liabilities is done because the second equity total is worked out
in the Statement of changes in equity: Only equity at start is needed!!! : +profit + contributions – drawings = answer!!
out later- YOU ADD IT TO DR TO GET CR PURCHASES TOTAL-NOT TO CR immediately ! ALTHOUGH IT
LOOKS LIKE IT SHOULD –IT WILL APPEAR NOW ON CR SIDE BY ITSELF )-Although it also still goes to
income statement as a "Other Income"
b. Bills Payable :
i. Goes to Cr side to reduce "purchases worked out afterwards balancing figure" before it is/gets calculated.
e. If ANYTHING is still to be added to "creditors "-ie completely left out till now somehow- then add it to the BALANCING
FIGURE THEY GIVE YOU ( to GO AT BOTTOM as b/d) and ALSO ON THE CR SIDE BEFORE BALANCING –IT GOES IN
BOTH parts ,top(as entry to add to 'creditors') and below(as balance :b/d total) to achieve correct "Total Purchases
Amount " etc.
ii. R/D cheques
2. If interest income is still to be added to "debtors "-ie completely left out till now somehow- then add
it to the BALANCING FIGURE THEY GIVE YOU ( to GO AT BOTTOM as b/d) and ALSO ON
THE DR SIDE BEFORE BALANCING –IT GOES IN BOTH parts to achieve correct "Total Sales Amount
" etc.
vi. goes to Credit Side to end up showing up in Dr side "sales" worked out total later when it is calculated : ( to
get "total sales amount" –ie :IT WAS deducted-Now add it to total ON Cr SIDE TO GET the increase in the
"original" SALES total on the DR side you are looking for ,since discount was only allowed when the payment
was received from debtors weeks later,not at date of SALES when you work it out later- YOU ADD IT TO CR
TO GET DR SALES TOTAL-NOT TO DR immediately ! ALTHOUGH IT LOOKS LIKE IT SHOULD have–IT WILL
APPEAR NOW ON CR SIDE BY ITSELF by 'mathematical cancellation' Special trick to get itto work out like this
–could also have been added straight to dr side and ALSO to worked out at end balancing figure then to
then all = "Sales" ,this is easier way!!! )-Although it also still goes to Income statement as a "Distribution
and Other Expenses"
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vii. If ANYTHING :
later.
ACN-101-M Page 198

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Shortened notes ch 1- 18
:INCOME CREDIT
EXPENSE DEBIT
ASSET DEBIT
LIABILITY CREDIT
EQUITY CREDIT
Ch1-6: all sales/purchases on credit terms of assets etc that are non-operational merchandise go to sundries –NOT SALES.
CH 6-VAT:
 vat on sales from past is :Vat inclusive amount * 14/114 NOT 14/100.!!!!!!!!
 Vat owed to you by sars is a dr on vat output account.
 THE TWO DIFFERENT TREATMENTS for VAT reversals:
 For discounts:
 Dr input for 'opposite' delete from Output vat- for a discount on a Credit Sale for early payment(in
Cash Receipts Journal now)-to delete from the output vat already recorded in Sales journal- just
add to normal side (Dr) of Vat Input. (+visa versa for discounts on "purchases"){ because
you probly already paid to /received from SARS the applicable vat by the time the discount
happens so you claim it back/or pay it back –like this.
 Also for bad debts:use same opposite entry:because you probly already paid SARS the
applicable vat by the time the bad debt happens so you claim it back instead of "subtracting from
Output vat".Thus one just puts it in Dr side of : " vat input " to reverse the original " Cr to vat
output at time of sale".
 For Returns :Cr the VAT Input to delete from an Input vat for a purchase return (+visa versa for sales
return)
CH 7-Adjustments:
 For exam:if they give a creditor/debtor and sale/purchase is before month end or even on last day of month-Do not send to
adjustments ;accrued expenses/income –it goes straight to creditors or debtors-as per exam paper:ONLY AFTER MONTH END
or if eg:interest not due untill next year some time etc.:ie cannot put in creditors because you do not supposed to pay it yet!!!!
ch 9 Closing off procedures
Closing Off TO : Trading Account

GOLDEN RULE
The trading account, being also a nominal account, is closed off to the profit and loss
account. (See the schematic representation.)=result of tading account is GROSS PROFIT
 Trading account never gets "balance c/d or b/d ---only ever gets closed-off to the Profit &Loss account.
 In acc. terms Gross profit=Sales(at selling price)- [Cost price of goods sold :{ Opening inventory+Purchases (ALL AT COST
PRICE) – Closing inventory} ] -Purchasing costs(import duties/assembly costs/freight in/)
 Closing off Inventory :is valued at the lower of -1-historical cost or //// -2-market price.It is recorded in books by General
journal entry and Inventory is an Asset.(remains as a balance sheet account after nominals closed-only the opening inventory
is 'deleted'completely to trading account as Expense for profit calc..
 The Gross Profit on the Trading account is only obtained when the 'Balance' is determined (and b/d..c/d..) on the Trading
account.
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 For the below GENERAL Journal procedure:to do all entries in Journal at once instead of separately-one must put all the
accounts exept the "trading or profit/loss" on the OPPOSITE side to from where they "Come from" in ledger,,,,,and the
"trading and profit &loss "on the side where it will balance these others out to ZERO (in this journal write-up).But of course IN
THE trading/pr&loss acc. amount goes on same side as from where ORIGINALLY came.-(so: -1-where it balances& on -2-side
opposite to came from)
Closing off TO : Profit and loss accounts
 To the Pr& Loss Acc GOES:
o The Gross Profit/(or just Revenue for the Service Entity)
o All Business expenditure
o ALL Other Income(eg:Discount received+Interest charged+Rent etc.)
Closing off TO Capital Account
 See page 138 s for good explanation.

 NOTES

ACN-101-M Page 200

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Notes to remember:
 FOR PURCHASES RETURNS:only the cost price-excluding any vat or discount –off the inventory account!!!
 For sales RETURNS –only the COST PRICE :ie :returns price –MINUS- profit = cost ------goes off the cost of sales account as a
cr = (decrease the expense account) AND ONLY COST price goes back to the inventory account as a dr(more asset).
 remember gross profit only ever comes from the trading account- ever only –never from any other-ie not profit & loss OR
capital ever at all!!!
Perpetual inventory system:
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Periodic inventory system
For Inventory –at closing transfer –firstBEFORE YOU TRANSFER this YEARS
closing inventory to the trading account-FIRST TRANSFER the OPENING INVENTORY (from last year) OUT/delete from the inventory
account and into the DR side of the trading account to subtract off the 'cr closing inventory'. Cr :Inventory account(delete asset) –
CONTRA-Dr Trading account (to become a minus to the closing inventory)
Chapter:9-Bank Recons & Petty cash

SHORT SUMMARY before Full Main Explanation of: METHOD of the BANK RECONCILLIATION PROCEDURE:

:In Cash Receipts & Payments Journal:
i) Tick off CREDIT SIDE of Bank Statement and 'Bank column of Cash Receipts Journal.'
ii) THEN tick off DEBIT SIDE of Bank Statement and 'Bank Column' of Cash Payments Journal."
iii) NOW Move all things missing in CRJ/CPJ into these two books and Close them Off to the "Bank Account" (eg: Bank
charges,Interest Charges/;Payment,Direct deposits& electronic receipts,Electronic payments,R/D Cheques)-
iv) NOW only can the "Ledger Bank account" be "balanced & cd/bd for the month" end ,THEN only can one start
the Bank Reconcilliation Statement & Checkup :see next.
4) NEXT Compare Bank Statement with Last Months Bank RECONCILLIATION Statement.
a) First Tick off all items on last months Recon. AND the Current Bank Statement-BOTH of -ALL TICKS. All items on LAST
MONTHS Statement BUT NOT reflecting on THIS MONTHS Statement yet, must be "carried forward" to this months statement
FIRST.
b) Now Complete The whole bank Recon Process- (1) Bank Recon &any (2)'Writing Back' of Cheques required.
:see following detailed explanation for all.
To remember:add this: check for following odd/special difficult cases.
 a r/d cheque that is replaced only needs a single entry with no amounts in the CPJ/CRJ ONLY to say –replaced by cheque 597
etc. from you or to you –any of two.BOTH cases will go to recon.!(unless still processed by bank in same month) –one as a
payment not yet processed, other as a r/d cheque –"replaced by cheque no76" (deposit not yet credited)
 For bank-recon last month tick off to –bank statement this month :only one ODD problem:if re-issued r/d cheque owed to
you:this will not be ticked on old recon(different number now) and must just check first if any amounts from old recon to be
ACN-101-M Page 202

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transferred to new recon are not maybe a re-issued cheque that DID infact APPEAR on BANK STATEMENT and is SUPPOSED
to be ticked off.
 check for "unpaid cheques " as 'details' / on the bank statement –must be reversed !!---Aslo check for 'error correction' on
bank statem.
 check for date STALE cheques .!!!!
 check for : if on bank statement –a cheque with different amount to that in cash journals BUT SAME cheque number, then you
must check for error-AND JUST PUT DIFFERENCE on the bank recon –NOT rewrite cheque or any thing.
 bills receivable : + some Cr bnk state. entry means someone put money directly into your account to pay for a bills
receivable to you/or part of it.
 check for errors/ or error
e) WRITTEN BACK CHEQUES:( FROM OTHERS) If insufficient funds or if other persons cheque is Stale etc.,- the cheque can
be written back:NOT go Recon.
i) Do OPPOSITE entry in C. Payments J. to cancel C. receipts J.:The Exact Opposite no extra.
ii) Bank Discount +(Disc.Vat.-)CONTRA to Debtors Control( there is no NORMAL vat entries here-only "discount VAT" ,vat
has already been recorded and just remains the same(just back to debtors with payment)
iii) If : Got Debtors Control account: ONLY in CPJ
(1) In CPJ: Amount + ADD Discount allowed = Back to Debtors Control (& D.L.)
(2) In CPJ:Discount goes to Discount ALLOWED column-as a reverse-NOT discount received-
(3) In CPJ:???????? Vat from Discount (previously reversed by adding to vat input as receivers share of Disc.) gets
re-reversed by adding to Vat Output again as CR .- CONTRA – Dr :Debtors Control ?????????
iv) If: NOT got debtors control column: In CPJ + GENERAL JOURNAL.
(1) In CPJ: SUNDRIES :Amount ONLY , not add disc.= Back to Debtors Control (&D.L.)
(2) In General Journal :Discount (and any Interest same way) –(less/without Vat taken off before )- goes to
Discount ALLOWED account(CR to reverse DR expense)-as a reverse-NOT to 'discount received' - CONTRA -
DR (add again) to 'Debtors Cntrl.'+'Debtors ledger'. ALSO do all others below together with this one in one
entry below each other as cr to debtors cntrl. dr .
(3) In General Journal : 1) Discount & 2) Interest charged-& 3) vat on interest if applicable????? & ,4)VAT from
reversed Vat part added to Input Vat before (receivers share of Disc.) back into vat Output column as Cr.(to re-
reverse reversed Vat -) , - CONTRA - debtors ledger/debtors cntrl (as a Dr (add it again- he still owes you the
Vat part of former discount again + interest + discount etc. )
f) Outdated Cheques:
i) If Post-Dated-
(1) If RETURNED By bank(or already receipted –ie recorded in a Journal as a receipt): Put in Recon.
until deposited in Correct Post-Dated Month.:in recon as'Post Dated'
(2) If UNDEPOSITED yet : Do NOT Put in Recon.-Just keep till correct Date-then only do you deposit it.
ii) Stale ,or Too old- if older than 6 MONTHS :Must Immediately be written back!!! (or as stated on face of cheque):
(1) WRITTEN BACK Cheques (YOURS): IF YOUR OWN cheque is STALE-it gets written back/reversed
(2) Exact opposite of original entry in C Payment J is made in C Receipts J:
(vi) In CRJ: credit Creditors Control to re-enter debt (in Sundries column) -CONTRA- debit 'Bank Column'.
(vii) In General Journal : Discount received ONLY gets done here NOT in CRJ for Your cheques. :
Dr Discount Received(to reverse CR income) –CONTRA- Cr Creditors (to reverse liability payment by
you)
(viii)General Journal :Discount&Interest (if applicable) reversed by adding to output Vat (SARS share of
Disc.) gets re-reversed from Vat Output by adding to Vat Input column As Dr.(to re-reverse the
reversed- liability) , - CONTRA - Creditor (as a Cr (add it again- YOU still owe the Vat part of former
discount again
(ix) If no creditors account-open new one..
(x) EXCLUDE Written back cheques from Current bank Reconcilliation.
iv) Cheques Damaged or Lost-
(1) You Issued It :
(a) Inform bank by stopping payment thereof.
(b) CPJ :write one entry in Current month- When actually replaced- saying only: "Cheque No. 5 replaces
cheque no 4 :B.Viljoen." in Details column-With NO AMOUNTS NEXT TO IT!!!
(c) Bank Recon: write: "Cheque No. 5 replaces cheque no 4 :B.Viljoen." at very bottom of recon in last
mnths finished recon if cheque received late,or In current recon in 'Details' as needed.(ie :in both)
(2) You Received it as payment :
(a) Inform drawer-request replacement-make a note in debtors ledger to know.All entries as per Logic.
EXAMPLE as per exercise 9.2on page 177 Study guide.
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Petty cash journal-

 Receipts side folio only comes from CPJ –never from ledger petty cash account.
 Imprest system
 petty cash is a "cash& cash equivalents" balance sheet account.
 "petty cash 'CONTROL' '' account.
Chapter 10:cash + cash equivalents:
 Discount/interest is counted from the day after th transaction takes place –not including the day itself .
Bad debts:
 When you re-estimate& record the Provision at Year End- Here you MUST FIRST ALLWAYS EVER ANYWAY work out the
balance left (dr's & cr's) on separate paper: to work out how much to deduct /or add to "Provision ..." account.DO NOT
JUST USE LAST YEARS PROVISION>!!!!!
 "Bad Debts" gets a DR balance as an EXPENSE account. = nominal = closed/gone at year end!
 "Provision for bad debts" gets a CR balance :as an ASSET- CONTRA account (not expense etc)
 PROVISION FOR BAD DEBTS as an asset-contra account gets subtracted from DEBTORS CONTROL TOTAL for "Trade & other
Receivables " in the balance sheet.
 Provision estimated& RECORDED -only ever-AFTER all known BAD DEBTS FINISHED WRITTEN OFF for the year ALREADY.
 remember in a question :if no balance for last years provision for doubtful debts is given- then use the "normal % of debtors
to be a provision" and last years debtors balance to calculate the opening balance of the "provision for bad debts".
Debtors reconcilliation.
 FIRST THING YOU DO: go through list of corrections and put a mark for all : R= recon items,D = debtors control items !!!!!!!
( some are in both-see below)
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 a wrong side of account transfer = 2 * amount just write (2* xxx) as calculation.
 if a sales (etc) journal debtor entry is in wrong column :BOTH debtors control + Recon (debtors list) ,not just one but in
BOTH , must have the entry corrected NOW , because the daily posting to the debtors ledger would also have missed it
because it is not in debtors column.!!!! (or a R/D cheque too:both sides)( or a amount entered twice in the sales journal)
 or a debtors column in cash payments journal is = dr ALLWAYS EVER (r/d cheques written back into debtors control) both are
normal side entries!!!! ( for creditors recon only : if a creditors column in cash receipts journal it is = CR(overcharge +re-
imburse back to creditors control)),
 A Bills receivable :all must first pass through the debtors ledger,so all must first go to cr side of debtors control(get written out
of) if they are in the bills receivable journal and you must reconstruct a debtors control from this information.!!!!!
Bills receivable:
 gets written out of debtors ledger as well as from debtors control when MOVED to Bills receivable account.
 allways first goes to debtors-ever at all!
 all interest /or charges to be levied on debtor :allways first to the debtors control –never direct to bills receivable only total.

Chapter 11
INVENTORY:
 ONCE A SALE IS completed-that very second the goods should be included with any inventory count done ie:
goes in that period even if not received in warehouse yet.
 If goods are sold-they may immediately not be included in any inventory count at all.
 THE RESULTS of a mistake in Evaluation of Inventories causes
o OVER 2 YEARS : The Cost of sales + Gross Profit + Profit + Equity Is Incorrect both yrs. because last years closing
inventory is used as opening inventory this year.
o BUT : Profit ADDED UP for BOTH years together in one Number will be correct though.! (somehow mathematicly)

Estimating inventory: damaged fire/ check count is accurate/quaterly no stocktake
1. STEPS to CALCULATE the ESTIMATE for inventory:
1. calc Average Gross profit for last 3 accounting periods-for "Sales" ,NOT 'cost of sales.'(but it must be a stable % over
the years or method wont work)
2. Use Avg Gross Profit .% of Sales to Estimate the Gross Profit : from (sales * Avg %)
i. Cost of Sales:deduct gross profit you got from sales =cost of sales
ii. Value of Closing Inventory = {(a) opening inventory +(b) purchases} –(minus)-cost of sales.
3. OR one can use the Avg Gross Profit % on Cost of Sales:
i. cost of sales * (100 + % : 'GrPr. on cost') =Sales
iii. Value of Closing Inventory = {(a) opening inventory +(b) purchases} –(minus)-cost of sales.
 NOTE to remember: opening inventory –minus- cost of sales OR closing inventory ='the other one' : both ways works.
 gross profit % on sales =profit/sales * 100
 gross profit % on cost of sales=profit/ cost of sales * 100
 terms in exam :cost of purchases= all cost (incl. import duty etc.)
 terms in exam :cost of sales = also with inventories +/-
chapter 12 :property plant & equipment:
 intangible assets incl. deferred expenses-pre-paid expenses.
 capitalised means :incl cost eg transport in assets total cost price.
Depreciation:
 remember to deduct scrap value to get depreciable value which is used to calc. depreciation-NOT incl. scrap value in this
calc.- must deduct it first.!
 methods:
o Straight Line Method: (Cost - Scrap/Residual value) Over/ fixed time or years usage estimated
o Diminishing balance/ or 'Accellerated' method: (Cost - Scrap/Residual value) Over/ % value left over (amount auto.
decreases over time as value decreases)-means decrease greater in fist years than later yrs.
o Production Method: (Cost - Scrap/Residual value) Over/ estimated no. of units production from the asset in
its.lifetime.
 remember pro rata depreciation for :
o 1-all sold assets
o 2-all bought assets.
Scrapping/selling/trading in an asset:
 scrapping:
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o if no loss /depreciation = 0 you can write it off direct against acc. depr. account
o but if there is a loss: must transfer to realisation account to calculate loss
o loss goes to "loss on scrapping(not sale) of machinary account"
 selling: Remember to Add all costs of disposal to "Realisation acc." – for profit/loss on machine.
o Trading it in as partial payment on the purchase of a new asset

b. Trading in uses same method as selling outright:exept:
i. You record the Trade- In SEPARATE to the New Purchase
ii. Put new purchase in new Dr machinary acc, & cr Creditors with its actual purchase
price( not less any trade in yet!!!).
iii. Even if machine paid for in (only cash+trade in)-you still Go the creditor route-allways!!!
ie :first credit machines sale to the "creditors name account"- then work this off against
"bank" and "machine realisation" account-ALLWAYS –even if Paid Immediately!
iv. EXTRA: Dr- Creditor (trade-in price) -CONTRA- Cr "Realisation of Machinary acc." (as an
Income) with trade-in amount only now!!!
v. If paid cash –just use a creditor system as above and record cash payment AFTER whole
process completed but for same date!
To remember:
o do each realisation of machinary account separate to each other with specific name –according to acc. lecturer at Pta unisa.
o allways first work out the pro rata depreciation and ADD it to acc. depreciation before you move it to reasisation account.
o move 3 things to realisation acc. , NOT just 2.: see next line:
o remember to move money/cash/debtor/off creditor/ to realisation account As well before calc. profit /loss.
o The depreciation account gets cleaned out/cleared/transferred every year to the profit & loss account! IT DOES NOT
ACCUMULATE:ckeck in exam for this!!!!!!!!!!
chapter 13 :other non-current assets:investments& loans
o intangible assets: amortisation
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Investments:
o investments are not revalued: only put in notes or in brackets behind original figure in the balance sheet ,the -1- (directors
valuation xxxxx) if unlisted or -2- (market value xxxxx)if listed
o add all brokers fees & stamp duty to the cost price of all investments:including shares.
o allways ever first put money in "Bank account" then from here a fixed deposit or other investment is done/ paid
for/withdrawn!!!!- NEVER directly.
o for interest from a fixed deposit:
o if re-invested in same account :can go direct, no need to travel through "current bank" account: dr fixed deposit ---cr
interest :fixed deposit :income.
o if NOT re-invested: go straight to current account Dr –not first into fixed deposit account!
LOANS:
Bank cr --- dr "loan xyz(Ltd)"
interest:
bank dr ---- cr "interest :loan : income"
dividends& shares:
o all profit straight from shares account to Profit/ loss on sale of shares account----not go through a realisation account! even if
only half of shares sold –then write that there and transfer the profit immediately.!!!!
o dividends:separate from shares account: "dividend income account" & bank only
o goes to profit& loss acc. at end of year(cleared out!)
Chapter 14
a provision for a product guarantee is a current liability normally, unless for more than 12 mnths .
Bills payable:
o interest all goes to creditors ONLY never directly to 'bills' - then full inclusive amount goes to bills as one shot,never
piecemeal .
o for a renewed bill- must allways first get written back to creditors,then a new bill re-started.
o a bills payable MUST allways first go to creditors-then get transferred to bills payable-
o so if for a recon you have a bills payable journal–you must subract it from creditors control and it probably was taken
off creditors ledger( daily posting here) so nothing goes to 'recon' BUT is not in creditors control yet-(end month
only).
o all interest expense if 10 % pa over a 60 day bill (d/d) must get paid –even if you pay your bill after only 5 days,you still pay
all the interest!!!!
loans:
o remember current portions of loans you owe in next 12 months- go to current liabilities.
creditors control reconcilliation:
o if you have dr & cr balance all from the creditors ledger/list given in a test :YOU MUST subtract the dr from the cr for the
start balance of the creditors ledger/list in the reconcilliation it does not come off creditors controlaccount though- it is probly
still from last months balance or something.ONLY for sake of balance sheet is the dr added back on the cr- NOT SUBTRACTED.
o if question says certain amounts were transferred to debtors ledger from creditors ledger:you must put this back in the
creditors control: SO Cr it to put back the dr that was probly taken off last months total already and is now missing - to re-
add it to creditors.
o if transfer came visa-versa : from debtors ledger to creditors ledger: you must still put it in cr side of creditors control
: ASLO .
o if a wong posting from source document to ledger:both different ledger accounts must be corrected-control & creditors
ledger separately.
chapter 15:n-c liabilities:debentures/loans
o debentures – money received first goes to a "application for debentures account".
o this is then either re-payed( bank –Cr- , -Dr-(as expense) app. for . debent. acc.) for extras or tranferred to
debenture account :( dr debentures ---cr app. for . deben.acc)
o interest is completely separate from debentures accounts.
mortgage bonds:
o land account gets : deposit/cash + second separate entry :mortgage bond:xyz bank.
o "mortgage bond 17%" account is separate from
ACN-101-M Page 207

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chapter 16 fin. statements fo a sole proprietor.

o as per normal
chapter 17- non-profit organisations

DIFFERENCE IN ACCOUNTS BETWEEN:
NORMAL ENTITY Non- PROFIT ENTITY
entrance fees account(close off to acu.fnds.acc.)
Capital Account Accumulated Funds Account
Profit and Loss Account (Yr.End) Income and Expenditure Account
Membership fees account
Accrued membership fees account
Membership fees paid in advance
special: non-expendable fund account
special: expendable funds account
Income Statement Income and Expenditure Statement
Restourant: Trading statement
equity statement
Receipts & Payments statement
DIFFERENCE IN TERMS Used

Profit Surplus
Loss Deficit
Equity Funds
Accounting Treatment of various Sources of Finance
Capitalised:
Entrance Fees First :"Entrance fees Acc"/"Bank Acc."
End of Year Close-off to "Accumulated Funds Acc."
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Membership Fees Revenue (Budget / No.members=annual fees)
Fees paid in Advance : to "Income Received in
Advance(Membership fees)" Account" + 'Trade&
Other Payables'
MUST be written back out of 'in advance' acc. in
new year back into "Membership fees" account as
pay
Fees in Arrears to "Accrued Income(Membership
Fees)" Account.+'Trade & Other Receivables' But in
new year re-reverse to act as a Debtors Account
Bad debts can be written off against "membership
fees" acc as it being a debtor account-from the
accrued expenses on the Dr side of it allways.
Doantions & Bequests:
o
Entrance fees:
o Capitalised normally–Ie:First go straight to "Entrance fees" account- then at Fin .Year End with:Closing-
Entries/Procedure closed-off to "Accumulated Fund account" (like :Capital account).
o DO NOT GET ADDED TO REVENUE in 'Income and Expenditure Statement'
Membership fees:
o Annual Fee = Estimated Budget for Following Year / divided by / Number of members
o check accrued fees & advance paid fees writing back
o
receipts & payments statement:
o investments are payments& loans receipts.
special funds account
o special funds is an equity('funds') type account – CR positive balance – all assets = cr+
o for buying an asset from a special funds account: you first move the funds to the accumulated funds account- from the special
funds account.----then the second part of this is you go cr bank (normal current account) and Dr the asset account you
purchase
o for a donation :it first goes to normal "bank" _Contra_ "Special fund star fund" then on same day from "bank" to "fixed
deposit account"
o also to buy an asset-can first transfer to normal bank account from fixed deposit, then ONLY buy it from normal bank account.
o for an expense paid from special fund- do not first transfer to accumulated fund-just pay diectly from special fund( details as
'contra' in special fund = eg:"painting tennis courts" account , etc. etc.
o all interest works same as any other interest mechanism.-totally apart from investments unless should specially get paid back
into same investment account.-so it goes to bank :fixed deposit(interest on investment) or bank:current (interest on
investment))( all in same special funds account, never in normal 'bank" account) + CONTRA – normal interest on special
funds:star fund " account
o ACCRUED INCOME ALSO GETS REVERSED out of special funds accounts in the new year: , as well as being put in here at end
of fin. year.---CONTRA---normal "interest : star fund : income" account, also show separate in income statement as same
name "accrued interest:star fund:income."etc.
o put a small narration behind every details in brackets.
Shortened Notes ch 18:

 Remember To :
 add all contributions & subtract all DRAWing :in final profit for year calculation.
 to include all "pre-paid expenses' &"income received in advance" in trade & othe receivables/payables in the statement
af assets and liabilities..
STEP 1
a) STATEMENT OF ASSETS and LIABILITIES. Do No. 1 OF 2 of :
b) (put a small calculation of equity at bottom/top)
c) put all amounts added up in (brackets behind each total!)!!! :for points!!!!!
d) also clearly show all calculations at bottom – with headings etc.
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STEP 2: second Assets and Liabilities Statement for end of period to officially show up capital etc.
b) remember to minus depreciation ETC.in brackets
c) CALCULATE totals to be calculated –(PUT AMOUNTS ADDED IN BRACKETS BEHIND for points)could even make a whole list of
all A+E+L totals up.
d) (put a small calculation of equity at bottom/top)
STEP 4: Do the calculation for the Profit :ADD ALL Drawings ,& MINUS all CONTRIBUTIONS.=Net profit for year

.
Assets R
Inventory 9 600
Bank 3 000
Petty cash 400
total: 40 700
Loan: DJ Bank 5 000
Capital 27 100

Step 4 :CASH / CREDIT : Sales & Purchases and Debtors & Creditors Ledger + Control Accounts in one. to get SALES &
PURCHASES TOTALS only!!!!!
purchases.
Step 5 :SEPARATE CALCULATION NEATLY :

Adjustments:for accruals & prepayments for income statement.
ACN-101-M Page 210

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DEPRECIATION
ANY OTHER CALCULATION NEEDED FOR THE :Financial Statements.-
STEP 6 :First INCOME statement , then st. of changes in equity, then balance sheet with the profit & equity totals from
... these last two
No second list of assets & liabilities is done because the second equity total is worked out in the Statement of changes
in equity: Only equity at start is needed!!! : +profit + contributions – drawings = answer!!
to remember:
1. All Debtors Control:

2. To dr side"
a. ONLY DEBTORS FROM LAST YEAR + BILLS RECEIVABLE(NOT as c/d or b/d-only for this years must they be a c/d or
b/d) go on the dr side because they are not include in 'sales ' for this year which is the figure you are going for.
b. also r/d cheques to dr side to decrease the "paid " amount on the cr side already,because they are probably included
in your debtors total you got for the year now again anyway,already,so to decrease sales by amount paid already.
c. also dishonoured bills receivable –on dr side because they already in
d. also Interest on debtors accounts(NOT include in sales – dr to minus from sales) to dr side
e. Refunds from debtors in respect of overpayments -already paid : SPECIAL PROBLEM :
i. Goes to dr side to reduce "sales worked out afterwards balancing figure" before it is/gets calculated because
it is not to be part of "sales" figure that gets worked out on this side now-(acts as a minus if on same side)
f.
3. Cash sales only goes in cr side of debtors control,although it belongs in both sides, because the "balanceing figure " you work
out for the dr side is= sales and will now auto. include this amount!!!! ------same for creditors control + cash purchases!!!.
4. ALSO debtors at end of period: go to cr side ,not dr side, to get them to appear as sales on the dr side : they should go on dr
side and just be added to any sales total you get out later to make up the full sales total - but this method also works and is
the one used by unisa.
5. Also discount received as above,
6. Also Bills payable.( go at bottom as a c/d with the debtors amount for this year – go separately remember first debtors,then
bills receivable-c/d & b/d one at a time
7. bad debts go on opposite side: = cr side because you add them to the "debtors total " from this year which goes to cr side as
a cd/ bd/ amount( even if debtors is negative- it still goes to the cr side to minus from "any debtors that were there"
8. ALL Creditors control

a. go opposite to this only.
10. Creditors control:SPECIAL PROBLEM (basicly problem is about:-to increase "purchases" total : on Cr side(opposite) –to
decrease "purchases" total :on Dr side(same side)
out later- YOU ADD IT TO DR TO GET CR PURCHASES TOTAL-NOT TO CR immediately ! ALTHOUGH IT E IT
SHOULD go on both sides (more was owed and then-it was also taken off creditors as a discount) –IT WILL
APPEAR NOW ON CR SIDE BY ITSELF )-Although it also still goes to income statement as a "Other Income"
b. Bills Payable :
i. last years: on cr side with last years creditors: not for this years :sales" figure so gets minused like this.
ii. this years :Include all as a cd/ bd balance at bottom on the dr side,toghether with the " creitors total " from
this year ,but separate one below the other! seen as a normal creditor etc etc.
i. Goes to Cr side to reduce "purchases worked out afterwards balancing figure" before it is/gets calculated
because it is not to be part of "sales" figure that gets worked out on this side now-(acts as a minus if on
same side)
ACN-101-M Page 211

2
e. If ANYTHING is still to be added to "creditors "-ie completely left out till now somehow- then add it to the BALANCING
FIGURE THEY GIVE YOU ( to GO AT BOTTOM as b/d) and ALSO ON THE CR SIDE BEFORE BALANCING –IT GOES IN
BOTH parts ,top(as entry to add to 'creditors') and below(as balance :b/d total) to achieve correct "Total Purchases
Amount " etc.
side(opposite) –& to decrease "Sales" total :on Dr side(same side)
1. To Dr side as a normal re-addition to debtors control after a 'dishonouring'no –they go to cr side
with all this years debtors,
ii. R/D cheques
2. If interest income is still to be added to "debtors "-ie completely left out till now somehow- then add
it to the BALANCING FIGURE THEY GIVE YOU ( to GO AT BOTTOM as b/d) and ALSO ON
THE DR SIDE BEFORE BALANCING –IT GOES IN BOTH parts to achieve correct "Total Sales Amount
" etc.
vi. goes to Credit Side to end up showing up in Dr side "sales" worked out total later when it is calculated : ( to
get "total sales amount" –ie :IT WAS deducted-Now add it to total ON Cr SIDE TO GET the increase in the
"original" SALES total on the DR side you are looking for ,since discount was only allowed when the payment
was received from debtors weeks later,not at date of SALES when you work it out later- YOU ADD IT TO CR
TO GET DR SALES TOTAL-NOT TO DR immediately ! ALTHOUGH IT LOOKS LIKE IT SHOULD have–IT WILL
APPEAR NOW ON CR SIDE BY ITSELF by 'mathematical cancellation' Special trick to get itto work out like this
–could also have been added straight to dr side and ALSO to worked out at end balancing figure then to
then all = "Sales" ,this is easier way!!! )-Although it also still goes to Income statement as a "Distribution
and Other Expenses"
vii. If ANYTHING :
later.
ACN-101-M Page 212

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1 ACCOUNTING Notes ACN-101-M CHAPTER 1

SPECIAL PROBLEMS / ODD / ILLOGICAL METHODS + SOLUTIONS IN ACCOUNTING. 13

14- NON-PROFIT ORGANISATIONS:Statement of Changes in Equity 38

THE NATURE OF ACCOUNTING: 46

ADJUSTMENTS P99s,p115t 102

The Closing Off Procedure: 113

Methods of Estimating Inventory: 147

Classification of Other Assets: 160

1- ANSWERs to questions asked:

SPECIAL CHAPTER ADDED:

+ check all adjustments for current/non-current +headings/names/bal.sheet/inc.stat.-see notes-

ACCOUNT NAMES Fin stat --- Account bal.sheet/income

Quetions to PHONE lecturer:

Notes to especially remember/work through:

1) c/d comes first top means going to new balance line.

Short Notes on each subject :

NOTES TO STILL GET RIGHT/CHECK UP/ETC:

-2- BALANCE SHEET

o trade & other receivables

ASSETS PAGE 44tsee-own notebook1-end ch3-format-dissertation. NOTES R

EQUITY AND LIABILITIES

-3- STATEMENT OF CHANGES IN EQUITY

Capital: Notes Rands

Capital: Notes Rands

-4- NOTES TO THE STATEMENTS:

(4) Trade and other Receivables consist of :

(5) Trade and other Payables consist of :

(6) Inventories/y consists of:

(7)Investments consist of:

(7.2)Listed Shares at cost:

(8)Interest Bearing borrowings:

Property Plant & Equipment: Land&Buildings Vehicles Machinary TOTAL

 100,100,10,1,0.1 0.01 etc difference –can be casting error

-6.2-Cash Payments Journal

-6.5-Sales Returns Journal

-6.6-Purchases Returns Journal

-6.7-Petty Cash Journal

-7-Ledger :The 5 different types of balancing:

-7.4-entries both side unequal

7.5:Only one figure on both sides:

-7-Bank Reconcilliation Statement.

The Bank Statement from the Bank:

-8-Reconcilliation of Debtors /OR/ Creditors Control with the Debtors/Creditors Ledger

Folio No Debtor Amount : R

-9-Reconcilliation of Inventory/Purchases/Cost of sales/Income Statement.

-10- Asset & depreciation Register:

Asset Register and Depreciation Report FOLIO 5

Date Details Folio Asset record Depreciation record

11-Asset & depreciation Schedule:

12- NON-PROFIT ORGANISATIONS Receipts & Payments Statement:

Incomplete records :Plain list of Bank amounts.

CHAPTER 1: The Basic Principles and Spheres of Accounting

Study Unit 1.1.t,s: The Basic Principles and Spheres of Accounting:

Why is it necessary to Study accounting? :

 Accounting is a means of communication.

Study Unit 1.2.t,s DEFINITION OF ACCOUNTING&BOOKKEEPING:

ACCOUNTANCY can be defined as :

The Orderly and Systematic

BOOKKEEPING can be defined as :

The Orderly and Systematic

Study Unit 1.2t,1.2.1St HISTORY OF ACCOUNTING:

1.2 GOLDEN RULE

Accounting records transactions to provide useful information for decision making.