Principles of Accounts

Revision Guide:

Topics to be reviewed
1.Double Entry 2.Books of Original Entry 3.Trial Balance 4.Trading, Profit and Loss Account 5.Balance Sheet 6.Control Accounts
2

Recording transactions rules of entry

TYPE OF ACCOUNT ASSET ASSET LIABILITY LIABILITY CAPITAL CAPITAL EXPENSES EXPENSES VALUE CHANGE INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE INCREASE DECREASE LEDGER COLUMN DEBIT CREDIT CREDIT DEBIT CREDIT DEBIT DEBIT CREDIT

REVENUE
REVENUE

INCREASE
DECREASE

CREDIT
DEBIT
3

BOOKS OF ORIGINAL ENTRY / BOOKS OF PRIME ENTRY

The General Journal The Sales Journal The Purchases Journal The Sales Returns / Returns Inwards Journal The Purchases Returns / Returns Outwards Journal The Cash Book
4

The general journal

USES Recording: Opening entries Closing entries Purchase or sale of an asset on credit Adjustments Writing off of bad debts Correction of errors Irregular transactions
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The general journal continued

DATE 2005 July 1 DETAILS Cash Bank Computer Capital To record opening entries FOLIO GL DEBIT 3 000 5 000 2 000 10 000 CREDIT

2005 July 5

Motor Van Auto-World Ltd. To record purchase of asset on credit

M. Small Computer To record sale of asset Sales a/c Trading a/c To transfer Sales to the Trading a/c

GL

30 000
30 000

2005 July 8

GL

2 000 2 000

2005 July 31

GL

29 000 29 000

The general journal continued

DATE
July 31

DETAILS

FOLIO

DEBIT
16 000

CREDIT

Trading a/c GL Purchases a/c To transfer Purchases to the Trading a/c Profit and Loss a/c Rent expense a/c To transfer rent expense to the Profit and Loss a/c Discount received a/c Profit and Loss a/c To transfer discount received to the Profit and Loss a/c Bad debts B. Tara To record bad debt written off

16 000

July 31

1 000

1 000

July 31

300

300

July 31

600 600
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SALES JOURNAL / SALES DAY BOOK

USE : TO RECORD THE SALE OF STOCK ON

CREDIT Source Document: Sales Invoice

DATE

DETAILS

INVOICE #

AMOUNT ($)

2006 March 05
March 13

C. Croft Clothes Palace Total Credit Sales transferred to sales a/c in the general ledger

00036 00037

SL SL GL

450 1 000 1 450

Purchases journal / purchases day book

USE: To record all stock purchased on credit for resale Source Document: Purchases Invoice
DATE DETAILS INVOICE # F AMOUNT ($)

2006 March 7 March 22 March 28

D. Bravo M. Mohammed United Grocers Total credit purchases transferred to the Purchases a/c in the General Ledger

0006789 00256 003976

PL PL PL GL

340 2 000 650 2 990

Sales Returns / Returns Inwards Journal

USE: To record goods which have been returned

to the seller ( a credit note is issued)
DATE 2006 March 7 March 17 DETAILS NOTE # F AMOUNT ($)

C. Croft Clothes Palace

004 005

SL SL

50 100

Total transferred to the returns inwards a/c in the general ledger

150

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Purchase Returns / Returns Outwards Journal

USE: To record the value of goods purchased which

are returned to the seller (A credit note is received)

DATE
2006 March 09 March 26 March 30

DETAILS

NOTE #

AMOUNT ($)

D. Bravo M. Mohammed United Grocers Total transferred to the returns outward a/c in the general ledger

00056 0000467 000890

PL PL PL

30 100 20 150
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RULES FOR POSTING IN THE DAY BOOKS

Sales journal: Dr. Debtors a/c in Sales Ledger; Cr. Sales a/c in General Ledger Purchases journal: Dr. Purchases a/c in General Ledger; Cr. Creditors a/c in Purchases Ledger Sales returns journal: Dr. Sales returns a/c in General Ledger; Cr. Debtors a/c in Sales Ledger Purchases returns journal: Dr. Creditors a/c in Purchases Ledger; Cr. Purchases returns a/c in General Ledger
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The Petty Cash Book

A type of cash book kept especially for small payments There are many small payments to be made. Cuts down on entries made in the general ledger. Relieves the main cashier from routine work, since a junior cashier could be assigned the task. The imprest System: A system where a refund is made of the total paid out in a period.

CASH IN

PETTY CASH BOOK

Cash Date Received Details

300.00

1/9/96 Cash from bank

The Float

REMEMBER:
THE FLOAT IS THE ORIGINAL AMOUNT

PETTY CASH BOOK

Cash Date Received 300.00
Details Voucher Cash Paid No. Out

1/9/96 Cash from bank

1/9/96 Car cleaning 2/9/96 Stamps

CASH OUT
1 2 20.00 35.00

PETTY CASH BOOK

Cash Date Received Details

ANALYSIS COLUMNS

Voucher Cash Paid Cleaning Postage Sundries No. Out

300.00

1/9/96 Cash from bank

1/9/96 Car cleaning 2/9/96 Stamps 3/9/96

Tea/Coffee

1 2 3

20.00 35.00 10.00

20.00 35.00 10.00

PETTY CASH BOOK

Cash Date Received Details Voucher Cash Paid Cleaning Postage Sundries No. Out

300.00

1/9/96 Cash from bank

1/9/96 Car cleaning 2/9/96 Stamps 3/9/96

Tea/Coffee

1 2 3

20.00 35.00 10.00 65.00

20.00 35.00 10.00 20.00 35.00 10.00

Total Vouchers

TOTALS

PETTY CASH BOOK

Cash Date Received Details Voucher Cash Paid Cleaning Postage Sundries No. Out

300.00

1/9/96 Cash from bank

1/9/96 Car cleaning 2/9/96 Stamps 3/9/96

1 2 Tea/Coffee 3

20.00 35.00 10.00 65.00 235.00

20.00 35.00 10.00 20.00 35.00 10.00

Total Vouchers

Cash in Box

BALANCE c/f

PETTY CASH BOOK

Cash Date Received Details Voucher Cash Paid No. Out Cleaning Postage Sundries

300.00

1/9/96 Cash from bank

1/9/96 Car cleaning 2/9/96 3/9/96 Stamps Tea/Coffee

1 2 3

20.00 35.00 10.00 65.00 235.00

20.00 35.00 10.00 20.00 35.00 10.00

Total Vouchers Cash in Box

300.00
TOTALS

300.00
TOTALS

THIS CLOSES THE PC BOOK FOR THE WEEK

PETTY CASH BOOK

Cash Date Received Details Voucher Cash Paid Cleaning Postage Sundries No. Out

300.00

1/9/96 Cash from bank

1/9/96 Car cleaning 2/9/96 Stamps 3/9/96

Tea/Coffee Total Vouchers Cash in Box

1 2 3

20.00 35.00 10.00 65.00 235.00

20.00 35.00 10.00 20.00 35.00 10.00

300.00
235.00
8/9/96 Cash in Box

300.00

BALANCE b/f

PETTY CASH BOOK

Cash Date Received Details Voucher Cash Paid Cleaning Postage Sundries No. Out

300.00

1/9/96 Cash from bank

1/9/96 Car cleaning 2/9/96 Stamps 3/9/96

1 2 Tea/Coffee 3

20.00 35.00 10.00 65.00 235.00

20.00 35.00 10.00 20.00 35.00 10.00

Total Vouchers Cash in Box

300.00
235.00 65.00
8/9/96 Cash in Box 8/9/96 Cash from bank

300.00
THE FLOAT IS BROUGHT BACK TO THE ORIGINAL AMOUNT

CASH IN

The cash book USE: To record all receipts and

payment by cash and cheque, and discount allowed and received..

N.B. Cheque receipts and

payments are recorded as bank.

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Format of the 3 column cash book

Date, details. Folio, discount allowed, cash, bank, date, details, folio, discount received, cash, bank.
Date Details F Discount Allowed Cash Bank Date Details F Discount Received Cash Bank

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Subsidiary books The General Ledger The Sales Ledger The Purchases Ledger

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The Ledgers
USE: Debtors from the Sales Journal are posted to the Sales Ledger Creditors from the Purchases Journal are posted to the Purchases Ledger All other accounts are posted to the General Ledger Format of the ledger account:

Name of the Account

Date Details F Amount Date Details F Amount

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The T Account
So called because of its shape. The name of the account is written on the top of the account.

Rent a/c

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The Trial Balance

USE:

This presents a list of all balances. The main aim is to check the accuracy of the postings.
NB: Closing stock is not listed in the Trial Balance
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Format of the Trial balance

Debit side Assets: Cash Bank Debtors Stock (opening) Furniture Fittings Machinery Equipment Motor vehicles Land and Buildings Credit side Liabilities: Bank overdraft Creditors Bank loans Mortgages Capital

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Format of the Trial balance continued

Debit side
Expense accounts: Purchases Wages Salaries Insurance Rent Transportation in (carriage inwards) Transportation out (carriage outwards) Telephone Electricity Bad debts Depreciation Discount allowed Bank interest Sales returns Drawings

Credit side
Revenue accounts: Sales Rent received Interest received Commission received Discount received Purchase returns Provision for doubtful debts Provision for depreciation

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Format For Trading Account (vertical format)

Details Sales Less: Sales returns Net sales Less: cost of sales Opening stock Add: Purchases Add: Carriage inwards Gross Purchases Less: Returns outwards Net Purchases Cost of goods available for sale Less: Closing stock Cost of goods sold Gross Profit $ $ XXXXX (XXX) XXXXX $

XXXXX XXXX XXX XXXX (XXX) XXXX XXXXX (XXXX) (XXXX) XXXX
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Format For Profit & Loss Account

Details $ $ $

Gross profit /Gross loss Add: Other Income Commission received Discount received Rent received Interest received Bad debt recovered Total revenue received Total gains / losses

XXXX

XXXX XXXX XXX XXX XXX XXXX XXXX

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Format For Profit & Loss Account Continued

Details
Total gains / losses Less: Expenses Wages and salaries Electricity Rent Telephone Carriage outwards Advertising Depreciation expense Bad debt expense Discount allowed Travelling expenses Interest payable Printing and stationery National Insurance General expenses Total expenses NET PROFIT / NET LOSS

$
XXXX

XXXX XXXX XXXX XXX XXXX XXX XXXX XXXX XXXX XXXX XXX XXXX XXX XXX
(XXXX) XXXXX
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Format of the balance sheet (vertical format)

Particulars $ XXXXX (XXXX) XXXX (XXX) XXXXX XXXX XXXX (XXX) XXXX XXXX XXXXX $ $

Fixed Assets Buildings Less: Provision for depreciation

Machinery Less: Provision for depreciation Furniture Motor van Less: Provision for depreciation Equipment Total Fixed Assets

XXXXX

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Format of the balance sheet continued

Particulars $ $ XXXX XXXX (XXX) XXXX XXXX XXXX $

Current Assets Cash Debtors Less: Provision for doubtful debt Stock Total Current Assets Less: Current Liabilities Bank overdraft Creditors Bank loan Total Current Liabilities Working Capital

XXXX XXXX XXXX (XXXX) XXXX XXXX

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Format of the balance sheet continued

Particulars Financed by: Long-term Liabilities: Mortgages Owners Equity Capital (opening) Add: Net Profit Less: Drawings Closing Capital $ $ $

XXXX

XXXXX XXX XXXXX (XXX)

XXXXX XXXXX

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Balance Sheet items in order of Liquidity

Assets Current Assets Cash in hand Cash at bank Prepaid expenses Debtors Stock Fixed Assets Motor vehicles Furniture and Fittings Equipment Computers Machinery Land and Buildings Liabilities and Capital Current Liabilities Creditors (expense creditor & Accrued expenses) Trade Creditors Bank Overdraft Long-term Liabilities Loan (to be repaid in more than 1Year) Mortgages Owners Equity Capital at start Add: Net Profit Less: Drawings Capital at end
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Balance sheet in order of permanence

Reverse the order of the balance sheet in order of liquidity to get the order of permanence
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What is a Control Account?

A control account can be used as a further check on the accuracy of the ledgers. In effect, a control account is like a trial balance for each of the sales and the purchases ledger. There are two types of Control Accounts:- Debtors Control Account and Creditors Control Account

NB:REMINDER: A few debtors may have credit balances and a few creditors may have debit balances for reasons such as over- payment or undercharges

Debtors Ledger Control Account

Source of Information Last Periods Balance Type of Information Balances b/d of total Debtors with Debit balances Total Credit Sales Total Dishonoured Cheques Total Refunds to debtors $ xxxx Source of Information Last Periods Balance Type of Information Balances b/d of total Debtors with credit balances Total Returns Inward Receipts from debtors Total Discounts Allowed Total Bad Debts Balance c/d $ xxxx

Sales Journal

xxxx

Returns Inward Journal Cash book

xxxx

Cash book

xxxx

xxxx

Cash book

xxxx

Cash book

xxxx

General Journal Balance c/d xxxx xxxx

xxxx xxxx xxxx

Creditors Ledger Control Account

Source of Information Type of Information $ Source of Information Type of Information $

Last Periods Balance

Balances b/d of total Creditors with Debit balances

Total Returns Outward Payment to Creditors Total Discounts Received

xxxx

Last Periods Balance

Balances b/d of total Creditors with credit balances

Total Credit Purchases Charges for late payments

xxxx

Returns Outwards Journal Cash book Cash book

xxxx

Purchases Journal Cash book or Notices

xxxx

xxxx xxxx

xxxx

Cash Book

Total Refunds
Balance c/d

xxxx
xxxx xxxx Balance c/d xxxx xxxx

End of Revision
This guide seeks to highlight all the key areas that you need to review during your Vacation.

It will also aid you in the completion of the first crucial part of your SBA
Any questions or queries can be forwarded to your teachers e-mails addresses. Please contact them for their information. REMEMBER: SBAs are due on the first day of the start of the new school term Study hard, Good Luck and do enjoy your Holidays