BUSINESS BOOKKEEPING & ACCOUNTS
STUDY GUIDE FOR MODULE ONE
(A full ‘Study & Training Guide’ will accompany the
Study or Training Manual(s) you will receive soon by airmail post.)
This Study Guide - like all our Training Materials - has been written by professionals; experts in the Training of well over three million ambitious men and women in countries all over the world. It is therefore essential that
you:-Read thisStudy Guide carefully and thoroughly BEFORE you start to read and study Module One, which is the first ‘Study Section’ of a CIC Study or Training Manual you will receive for the Program for which you have been enrolled.
Follow the Study Guide exactly, stage by stage and step by step - if you fail to do so, you might not succeed in your Training or pass the Examination for the CIC Diploma.
)STAGE ONE
Learning how to really STUDY the College’s Study or Training Manual(s) provided - including THOROUGHLY READING this Study Guide, and the full ‘Study & Training Guide’ which you will soon receive by airmail post.
)STAGE TWO
Studying in accordance with the professional advice and instructions given.
)STAGE THREE
Answering Self-Assessment Test Questions/Exercises.
)STAGE FOUR
Assessing - or having someone assess for you - the standard of your answers to the Self-Assessment Test/Exercises.
)STAGE FIVE
Preparing for your Final Examination.
)STAGE SIX
Sitting the Final Examination.
Remember: your CIC Program has been planned by experts. To be certain of gaining the greatest benefit from the Program, it is essential that you follow precisely each one of the SIX stages in the Program, as described above.
ABOUT CIC STUDY and TRAINING MANUALS
A CIC Study or Training Manual (which comprises 4 or 6 Modules - the first Module of which follows) supplied by the College as part of your Course or Program is NOT simply a text book. It must therefore not be read simply from cover to cover like a text book or another publication. It MUST be studied, Module by Module, exactly as explained in the following pages. Each CIC Study or Training Manual has been designed and written by specialists, with wide experience of teaching people in countries all over the world to become managers, administrators, supervisors, sales and accounting personnel, business-people, and professionals in many other fields.
Therefore, it is in your own best interests that you use the Study or Training Manuals in the way CIC’s experts recommend. By doing so, you should be able to learn easily and enjoyably, and master the contents of the Manuals in a relatively short period of time - and then sit the Final Examination with confidence. Every Study Manual and Training Manual is written in clear and easy to understand English, and the meanings of any “uncommon” words, with which you might not be familiar, are fully explained; so you should not encounter any problems in your Studies and Training.
But should you fail to fully grasp anything - after making a thorough and genuine attempt to understand the text - you will be welcome to write to the College for assistance. You must state the exact page number(s) in the Study or Training Manual, the paragraph(s) and line(s) which you do not understand. If you do not give full details of a problem, our Tutors will be unable to assist you, and your Training will be delayed unnecessarily.
Start now by reading carefully the following pages about Stages Two, Three and Four. Do NOT, however, start studying the first Study or Training Manual until you are certain you understand how you are to do so.
STAGE TWO - STUDYING A CIC MODULE
STEP 1Once you have read page 1 of this document fully and carefully, turn to the first study section - called Module One - of Study or Training Manual One. (Note: In some Manuals the term “Chapter” is used instead of “Module”).
Read the whole of Module One at your normal reading pace, without trying to memorise every topic covered or fact stated, but trying to get “the feel” of what is dealt with in the Module as a whole. STEP 2
Start reading the Module again from the beginning, this time reading more slowly, paragraph by paragraph and section by section. Make brief notes of any points, sentences, paragraphs or sections which you feel need your further study, consideration or thought. Try to absorb and memorise all the important topics covered in the Module.
STEP 3
Start reading the Module again from its start, this time paying particular attention to - and if necessary studying more thoroughly - those parts which were the subject of your earlier notes. It is best that you do not pass on to other parts or topics until you are certain you fully understand and remember those parts you earlier noted as requiring your special attention. Try to fix everything taught firmly in your mind.
Note: You may not wish to, or be able to, carry out Steps 1, 2 and 3 one after the other. You could, for instance, carry out Steps 1 and 2 and then take Step 3 after a break.
STAGE THREE - ANSWERING SELF-ASSESSMENT TESTS
STEP 4When you feel that you have fully understood and learnedeverything taught in the whole Module (and if necessary after a further careful read through it) turn to the Self-Assessment Test set at the end of it, and read the Questions/Exercises in it carefully. You do not have to attempt to answer any or all of the Questions/Exercises in the Test, but it is best that you do so, to the best of your abilities. The reasons for this
are:-2By comparing your answers with the Recommended Answers printed in the Appendix at the end
of the Module, you will be able to assess whether you really have mastered everything taught in the Module, or whether you need to study again any part or parts of it.
2By answering Questions/Exercises and then comparing your attempts with the Recommended
Answers, you will gain experience - and confidence - in attempting Test and Final Examination Questions/Exercises in the future. Treat the Self-Assessment Tests as being “Past Examination Papers”.
Professional Advice on Answering Self-Assessment Test
(and Examination) Questions and Exercises
1. You may answer the Questions/Exercises in a Self-Assessment Test in any order you like, but it is best that you attempt all of them.
2. Read very carefully the first Question/Exercise you select, to be quite certain that you really understand it and what it requires you to do, because:
some Questions/Exercises might require you to give full “written” answers;
some Questions/Exercises (e.g. in English) might require you to fill in blank spaces in sentences; some Questions/Exercises (e.g. in bookkeeping) might require you to provide “worked” solutions; some Questions/Exercises (called “multiple-choice questions”) might require you only to place
ticks in boxes against correct/incorrect statements.
In your Final Examination you could lose marks if you attempt a Question/Exercise in the wrong way, or if you misread and/or misunderstand a Question/Exercise and write about something which is not relevant or required.
3. Try to answer the Question/Exercise under ‘true Test or Examination conditions’, that is, WITHOUT referring back to the relevant section or pages of the Module or to any notes you have made - and certainly WITHOUT referring to the Recommended Answers. Try to limit to about two hours the time you spend on answering a set of Questions/Exercises; in your Final Examination you will have only two hours.
4. Although you are going to check your Self-Assessment Test answers yourself (or have a friend, relative or colleague assess them for you) practise writing “written”
in clear, easy-to-read handwriting; and
in good, grammatical language.
The Examiner who assesses your Final Examination answers will take into account that English might not be your national or main language. Nevertheless, to be able to assess whether you really have learned what we have taught you, he or she will need to be able to read and understand what you have written. You could lose marks if the Examiner cannot read or understand easily what you have written.
5. Pay particular attention to neatness and to layout, to spelling and to punctuation.
6. When “written” answers are required, make sure what you write is relevant to the Question/ Exercise, and concentrate on quality - demonstrating your knowledge and understanding of facts, techniques, theories, etc. - rather than on quantity alone. Write fully and clearly, but to the point.
If you write long, rambling Final Examination answers, you will waste time, and the Examiner will deduct marks; so practise the right way!
7. When you have finished writing your answer, read through what you have written to see whether you have left out anything, and whether you can spot - and correct - any errors or omissions you might have made.
Warning: some Questions/Exercises comprise two or more parts; make certain you have answered all parts.
8. Attempt the next Question/Exercise in the Self-Assessment Test in the same manner as we have explained in 1 to 7 above, and so on until all the Questions/Exercises in the Test have been attempted.
Note: There is no limit on how much time you spend on studying a Module before answering the Self-Assessment Test set on it, and some Modules are, of course, longer than others. You will, however, normally need to spend between twelve and fifteen hours on the thorough study of each Module -and that time may be spread over a number of days if necessary - plus approximately two hours on answering the Self-Assessment Test on each Module.
STAGE FOUR - ASSESSING YOUR ANSWERS
STEP 5When you have answered all the Questions/Exercises set in Self-Assessment Test One to the best of your ability, compare them (or ask a friend, relative or a colleague/senior at work to compare them) with the Recommended Answers to that Test, printed in the Appendix at the end of the Module. In any case, you should thoroughly study the Recommended Answers
because:-As already explained, they will help you to assess whether you have really understood everything taught in the Module;
and
They will teach you how the Questions/Exercises in subsequent Self-Assessment Tests and in your Final Examination should be answered: clearly, accurately and factually (with suitable examples when necessary), and how they should be laid out for maximum effect and marks.
MARKS AND AWARDS
To assist in the assessment and grading of your answers, the maximum number of marks which can be earned for each answer to a Self-Assessment Test Question/Exercise is stated, either in brackets at the end of each one.
The maximum number of marks for any one Test is 100.
Your answers should be assessed fairly and critically. Marks should be awarded for facts included in your answer to a Question/Exercise, for presentation and for neatness. It is not,of course, to be expected that your answers will be identical to all those in the Appendix. However, your answers should contain the same facts,although they might be given in a different order or sequence - and any examples you give should be as appropriate to the Questions/Exercises as those given in the relevant “Recommended” Answers.
Add together the marks awarded for all your answers to the Questions/Exercises in a Self-Assessment Test, and enter the total (out of 100) in the “Award” column in the Progress Chart in the middle of the full ‘Study & Training Guide’ when you receive it. Also enter in the “Matters Requiring Further Study” column the number(s) of any Question(s)/Exercise(s) for which you did not achieve high marks. GRADES
Here is a guide to the grade your Self-Assessment Test Work has achieved, based on the number of marks awarded for it:
50% to 59% PASS 60% to 64% HIGH PASS
65% to 74% MERIT 75% to 84% HIGH MERIT
85% to 94% DISTINCTION 95% to 100% HIGH DISTINCTION
STEP 6
Study again thoroughly the section(s) of the Module relating to the Question(s)/Exercise(s) to which your answers did not merit high marks. It is important that you understand where or why you went wrong, so that you will not make the same mistake(s) again.
STEP 7
When you receive the complete Study or Training Manual One** from the College by airmail post,
‘revise’ - study again - Module One printed in it, and then turn to Module Two and proceed to study it thoroughly in exactly the same way as explained in Steps 1, 2 and 3 in this ‘Study Guide’.
When you have completed your thorough study, follow steps 4, 5 and 6 for the Self-Assessment Test on Module 2.
Continue in the same way with each of Modules 3, 4, 5 and 6 until you have attempted and assessed your work to Self-Assessment Test 6, and have completed the study of Study or Training Manual One. But - and this is important - study the Modules one by one;complete Steps 1 to 6 on each Module before you proceed to the next one (unless during the course of your reading you are referred to another Module).
**Note: When you receive Study or Training Manual One by airmail post, it will be accompanied by a 20-page ‘Study & Training Guide’ (containing a ‘Progress Chart’) which you MUST read very carefully before starting your study of Module Two.
TRAINING MANUAL ON
BUSINESS BOOKKEEPING
& ACCOUNTS
Module One
CONTENTS
The Ledger - the Main Book of Account page 7
Transactions; what is involved The functions of accounting:
recording, analysing, presenting Bookkeeping: the recording function
Manual bookkeeping and computerised accounting Meanings of the terms:
assets and liabilities debtors and creditors income and expenditure capital
profit and loss
Information recorded in/provided by the ledger Ledger accounts described:
what their debit and credit sides record rules concerning ledger accounts The need for double-entry bookkeeping:
the receiving and giving aspects of every transaction The basic rule of double-entry bookkeeping
Abbreviations used in ledger accounts
Entries in a ledger account examined and explained Balancing ledger accounts:
debit and credit balances Folios
Classes of ledger accounts: real, personal and nominal:
what they record rules for posting to them specimens of each examined Special notes on ledger accounts
Special notes on balancing ledger accounts
Self-Assessment Test One page 21
Recommended Answers to Self-Assessment Test One page 23
THE LEDGER
-THE MAIN ‘BOOK OF ACCOUNT’
Introduction
In business, “guesswork” is simply not good enough! The owners or managements of every business needs accurate and up to date information about the activities of their business. That information can come only from records kept about each and every ‘transaction’which occurs.
In the context of accounting, a‘transaction’is any activity which involves the exchange of money or money’s worth between a business and others, be they people or organizations. A transaction might involve a purchase or a sale, the receipt or the payment of money, the circulation of assets (possessions), the settlement of a debt, or anything else which has a‘monetary value’.
The main functions of the process called accountingare:
)Recordingthe financial transactions which affect an ‘enterprise’ (which might range from a small
one-man business to a huge public company).
)Analysing the transactions recorded.
)Presenting the records of the transactions - usually in a “summarised” format - in various
statements which should show clearly the effectsof those transactions on the performance and financial position of the enterprise.
The recording function of accounting is calledbookkeeping. The purpose of bookkeeping is to provide an accurate and detailed record of each andeverytransaction involving the exchange of money or money’s worth between a business and other parties, whether those are individuals or organizations.
Those records might be made “manually” (by hand) in actual books or in large organizations -in numerous cards or sheets, which collectively can still be thought of as compris-ing very large books. Some enterprises make use of mechanised accounting machines to make ‘entries’ in their records, whilst the modern method is increasingly towards the use of computers to maintain bookkeeping records.
Howsoever bookkeeping records are maintained, it is essential that they are always accurate, that they can be crosschecked when necessary, and that they are readily available when needed. Although computers might have many advantages over traditional manual bookkeeping - which is still very widely practised - they still perform ‘bookkeeping’ according to the same basic rules. In this Program we shall therefore first study the principles of manual bookkeeping, and relate them later to computerised systems.
Terms Used in Bookkeeping and Accounts
Before you start studying bookkeeping, it is important that you clearly understand the specialised meanings of certain words and terms commonly used in bookkeeping and accounting. At this stage, you should learn thoroughly the following explanations to ensure that your progress in further stages of the Program will be rapid and easy. Any “skipping” through the explanations or an “I know it already”
attitude at this stage, can lead to misunderstanding or difficulty in your learning other topics which will be taught as you progress through this Program.
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Assets
These are the possessionsof an enterprise, that is, what it owns. Assets include actual cash (currency notes and coins) and money in bank accounts; investments and, depending on the type and size of an enterprise, land and buildings; plant, equipment and machinery; furniture; stocks of goods for sale and/or stocks of materials to be utilised in manufacturing goods; and anything else owned by the enterprise which has monetary value, including moneyowed to itby individuals and other enterprises, and often called‘book debts’.
What are called ‘fixed assets’ are items which an enterprise “acquires” (by renting, leasing or purchasing) in order to be able to carry out its activities. They are usually acquired with the intention of their being retained for some time, perhaps many years. The variety of such items is great and, depending on the type and size of a particular enterprise, might range from desks and chairs, computers and other office equipment, to factory buildings, machinery and plant, motor vehicles, etc; in fact, any material item large or small in size or value which assiststhe enterprise to run efficiently and profitably. In some countries fixed assets are called ‘working assets’ because they enable the enterprise to perform its “work”.
All other assets of an enterprise are called ‘current assets’, and their total value is constantly changing or fluctuating with the day to day operations of the enterprise. Current assets include stocks of goods and/or raw materials, cash and bank balances, debts owing to the enterprise, etc, whose total values change daily as purchases and sales are made, as bills are paid and as customers pay their debts.
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Liabilities
These are any sums, measured in monetary value, which an enterprise owes to others, that is, they are the debtsof the enterprise. Liabilities might include the values of goods, materials or services provided by suppliers but not yet paid for; or goods, materials or services paid for by customers but not yet provided to them; as well as bank overdrafts, and loans made to the enterprise by banks and other financial institutions, etc.
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Debtors
These are people and organizations who owe money or money’s worth to the enterprise. Debtors are mainly customers who have been supplied with goods or services ‘on credit’, that is, without having had to pay for them at the time of sale. But they can also be those to whom the enterprise has loaned money and those who have been “paid in advance” for goods or services not yet provided (e.g. insurance cover is usually paid in advance for a whole year).
Those who incur debts to a business as the result of its normal business activities are commonly called its ‘trade debtors’. As mentioned earlier, debts owing toan enterprise are assets; and sums owed by trade debtors (book debts) are therefore classed as current assets.
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Creditors
These are people and organizations to whom an enterprise owes money or money’s worth. Creditors might be suppliers who have supplied goods, materials or services on credit, that is, without demanding payment at the time of supply, or might be people or organizations who have “paid in
advance” (e.g. rent paid in advance to a landlord); both groups of whom are commonly referred to as ‘trade creditors’.
Other creditors might be banks or other financial institutions which have loaned money to the enterprise, or banks which have permitted the enterprise to‘overdraw’ its current account (a matter which is dealt with fully in Module 10). As we have already stated, all sums owed to creditors are liabilitiesof an enterprise.
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Capital
This is an essential prerequisite of any business enterprise; whatever its intended or eventual size it will requireinitial capitalto enable it to commence its operations. Initial capital requirements will, of course, vary considerably, but money will be needed to acquire the necessary fixed assets as well as the relevant current assets - stocks of raw materials and/or goods for sale.
Sufficient capital - called ‘working capital’ - will also be required to ‘finance’ the enterprise, that is, to meet all the expenses which will be incurred (e.g. rent, salaries, electricity, advertising, and many others) until sufficient income from initial production and/or sales is generated.
The amount of an enterprise’s working capital at any point in time is the total value of its current assets less the total value of its current liabilities.
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Income and Expenditure
The term ‘income’ refers to all the money, in whatever form, receivedby an enterprise; whilst ‘expenditure’ is all the money, in whatever form, paid outby the enterprise to enable it to keep running - itsexpenses.
Profit
Enterprises - which in the private sector are often called‘businesses’- are started and run to make profits or gains for their owners. Any person involved with bookkeeping and accounting needs to know what profit is and how it arises. A simple example will help to make the concept clear:
A shoemaker sells a pair of shoes he has made, and with the money he receives for it he buys food or clothing or buys materials or pays the rent of his workshop. What he has done is to exchangehis materials and labour for the materials and labour of other people; what we call ‘money’is only the medium which makes the exchange easier. In order to produce his shoes, the shoemaker has to make use of three items: land, labour, and capital, which are called the ‘factors of production’.
Withoutland there would be no place or workshop for the shoemaker to work. Without hislabour no shoes would be made.
Withoutcapital there would not be the money which he needs to pay the rent of his workshop, to buy leather, tools, nails, etc, from which to produce more shoes, and to feed and clothe himself until the next shoes are made and sold.
The shoemaker must be sure in advance that his production will bring back the money he spent on materials, on labour, and on rent and bring a ‘return’ on the capital employed; and it is that returnorgainwhich is called profit.
Put simply, we can see that capital is really the result of previous production; if the shoemaker works so well that he sells his products for more money than his immediate needs, he can use that extra money as capital to finance more production. We return to the consideration of profit in Module 8, but at this stage it should be noted that the opposite of making a profit is incurring a loss.
The Ledger
The books which are the subject of bookkeeping are referred to as the ‘books of account’. The main book of account is theledger. In a summarised form the ledger records and can provide -all the following
information:-*The total income of the business, and in general the different sources from which it is derived.
*The amounts involved in meeting each type of expense, and the total expenditure incurred by the
business.
*What assets are owned by the business, the values of each general type and the total value of
all its assets.
*The values of the different liabilities of the business, and the total value of all its liabilities. *Who its debtors are, how much they owe to the business, and the total amount owed to the
business.
*Who the creditors of the business are, how much is owed to each by the business, and the total
amount owed by the business.
*Whether the business has made a profit or a loss during a given period of time, and the amount
of that profit or loss.
*The amount of working capital available to the business at any point in time.
Ledger Accounts
A ledger comprises many different sections, each of which is called an ‘account’. In a ledger “book”, there will usually be one account on each page of it; in a large business each account might have its own card or sheet - all the account-cards or account-sheets together jointly make up the business’ ledger. The following important points must be noted about ledger
accounts:-+Eachindividual account is headed by anameor by atitle. That name or title may be the name of a person or an organization or a type of asset, a type of liability, a type of expense or a source of income.
+Onlyinformation about transactions concerning the person, organization or item named at its head may be recorded in that account.
+Each account must be kept separate, or treated separately, from all the other accounts in the ledger, and there must be only one account in the ledger for any one particular person, organisation or item.
+In addition to a name or title, each account also has a number allocated to it; that number is called a folio or an account number. (The uses and values of folios or account numbers will be described shortly).
+Each ledger account is divided into two parts, often called ‘sides’, by a line - or by two close parallel lines - drawn down the middle of it, from top to bottom.
+The left-hand side of an account is called its ‘debit’side, and it records all values receivedby the person, organization or item named at the top, or “head”, of it.
+The right-hand side of an account is called its ‘credit’ side, and it records all values given(or paid) out by the person, organization or item named at its head.
Note: Accounts are also used in computerised boookkeeping or accounting systems, and they also record the “giving” and “receiving” aspects. However, the two parts of each account might not be so obvious in a computerised system as in manual systems, and might not be “side by side” as they are likely to be in a ledger kept manually. For convenience we shall use the description “sides”.
Practical Example
As we stated earlier, bookkeeping and ledgers (in one form or another) are used by businesses of all types and sizes. However, for the purpose of learning, it is easier to examine a small business which has relatively few transactions - and which therefore needs to make relatively few‘entries’ in its books of account - than it is to examine a very large business; although, of course, the principles applied will be the same in both cases, and it is only the “scale” which differs.
For the purpose of this Program we first consider the bookkeeping required by a business called “Market Grocers”, which is owned and run by Mr A Trader.
Mr Trader’s business deals in groceries; some it sells on ‘wholesale’terms, that is, in bulk or in fairly large quantities, to other organizations, such as restaurants, hotels, and small kiosks. Other goods are sold ‘retail’or “across the counter” to people who come into the shop/store from which the business operates.
The business rents its shop/store, and the storehouse it needs to hold stocks of goods (groceries in this case) which it hopes to sell. Mr Trader has a storeman/delivery-man, two shop assistants and a clerk to assist him in running the business.
The business buys the goods which it intends to sell from the manufacturers and producers of them. The business owns various assets, such as shop furniture and equipment: counters, cash registers, shelving, etc, storage equipment: racks, shelving, etc, office furniture and equipment: desks, chairs, an adding machine, filing cabinet, etc, and a delivery van.
An accurate record of each and every transaction which involves the exchange of money or anything worth money between the business and any other person or organization must be recorded - in a summarised format at least - in its ledger.
Depending in particular on the number of customers to whom Mr Trader sells goods ‘on credit’, that is, without requiring them to pay for those goods at once, and on the numbers of suppliers who allow him to purchase goods from them ‘on credit’, that is, without requiring him to pay for those goods at once (sales and purchases on credit are dealt with in Module 3), there will have to be a number of different accounts in the ledger of the business. For example, there will be an account headed “sales”, which will record the values of all sales made to customers, so that Mr Trader will always be able to find out the total value of sales made. There will also be an account headed
“purchases”, in which will be recorded the values of all goods purchased (bought) by the business, and which will be able to show the total value of all purchases made.
There will also be an account headed by the name of each general type of asset owned, for example, “shop furniture & equipment”, “office furniture & equipment”, “delivery van”, “stocks of goods”,
and so on. Similarly there will be an account for each type of expense incurred by the business, which might include: “rent”, “salaries”, “advertising”, “stationery”, “postage”, “telephone”, “electricity”, “van running expenses”, and so on.
Finally, there will need to be an account for each debtor who owes money to the business, for goods sold to them on credit and not yet paid for. And also an account for each creditor to whom the business owes money. Mainly creditors will be suppliers from whom the business has purchased goods on credit and who have not yet been paid for those goods, but if, for example, the business has been made a loan by a bank or by some other organization or person, an account for each such debt or liability will also be required in the ledger. One such account will be headed “A Trader capital”, and will record the amount of money which Mr Trader has “invested” in the business and which, in effect, it owes to him (this concept is dealt with in detail in Module 4).
Now study Fig.1/1 carefully and note in particular its layout. The reason why each entry has been made in the account, that is, the “interpretation” of the information it contains, will be explained shortly. Note: These Manuals are studied in some 200 countries around the world. Therefore, we do not use the “name” of the currency or money of a particular country against the amount or values of transactions. We call them simply “units” (of money). You may read the word “units” as being the name of the currency in use in your own country, e.g. pounds or dollars or francs or naira or kwacha or ryal or shillings or dinar or rupee, or any other, or as being the name of a currency with which you are familiar. Similarly, although we may use the symbol £ against some amounts of money, you should regard the symbol £ as referring to the currency with which you are familiar.
Double-Entry Bookkeeping
Each ledger account needs two “sides” or parts because in everybusiness transaction which occurs - no matter how large or small in value it may be - twothings happen at the same
time:-One party receives value, whilst at the very same time another party gives out that very same value.
For example, when a business sells goods and receives the payment for them at once - called a ‘cash sale’- it has given out goods but at the same time it has received money in exchange for them.
Likewise, the customer has given out money, but at the same time he or she has received goods in exchange for that money.
The same happens in everybusiness transaction, and therefore in order to record the “dual” or “double” aspect, TWO entriesare required somewhere in the ledger for each and every transaction that occurs. The two entries must
be:-) One on the creditside of an account - to record the ‘giving’aspect;
and
) One on thedebitside of an account to record the ‘receiving’aspect.
The method used to record the double aspect of each transaction is, logically, called ‘double-entry bookkeeping’. It is vital to remember always the basicrule of double-entry bookkeeping, which
is:-“There must be a debit entry and a corresponding credit entry of the same value (and vice versa) for every transaction that occurs.”
It is worth your noting at this stage that if there is both a debit and an equal (corresponding) credit entry somewhere in the ledger for each and every transaction that takes place, the total of all the debit entries in the ledger should agree exactly with the total of all the credit entries.
Information - or entries - is rarely recorded direct into the ledger accounts. Generally information is first recorded in one of the ‘subsidiary books’ or ‘day books’ - which are collectively often called ‘the books of original entry’. The information is then transferred - or ‘posted’, as the process is called in bookkeeping - to the appropriate ledger accounts in a summarised form.
The most commonly used subsidiary books are the cash book, the sales book, the purchases book and the returns inwards and outwards books, which we describe in detail in Module 2 and 3.
Before we turn to an examination of the specimen ledger account illustrated in Fig.1/1. First note the meanings of the following ‘abbreviations’ (shortened words or terms) used in the specimen account, and which will frequently be met with in bookkeeping and
accounting:-c/f is the abbreviation for‘carried forward’ and means that the figure, total or balance against which it appears has been transferred to another place, for example from the bottom of one page to the top of another, or from one book or account to another.
b/f is the abbreviation which stands for ‘brought forward’and means that the figure, total or balance alongside which it appears was transferred from another place, e.g. to the top of one page from the bottom of another, or to one book or account from another.
c/d is the abbreviation for ‘carried down’ and indicates that the balance alongside which it is written has been transferred to a lower position on the same page.
b/d is the abbreviation which stands for‘brought down’and means that the balance against which it is written has been transferred from a higher position on the same page.
bal is the common abbreviation for the word ‘balance’, which is the difference between the total value of the debit entries in an account and the total value of the credit entries in it.
Interpreting the Entries
Now look again carefully at the ledger account shown in Fig.1/1. The account appears on page 93 of Market Grocers’ ledger, and is headed “Clarendon Hotel Ltd”. It is, in fact, the account for one of Mr Trader’s customers who buys goods from him fairly frequently on credit.
As the account is in the name of “Clarendon”, it shows the position of transactions from the view of that customer, and not from the view of the seller or vendor, in this case, Market Grocers. With that in mind, we can “read” the account as giving, in date order, the following information:-May 2 The entry is on the debit side of the account which means that Clarendonreceivedvalue;
in fact the customer purchased goods on credit (without paying for them at once, remember) worth 474.60 units. From Market’s point of view the goods were given out, and that aspect of the transaction will be recorded in a different account, as you will see when we study Module 3.
May 4 The entry is on the credit side, so therefore Clarendon gave out value; the word “returns” included in the entry tells us that Clarendon returned to Market Grocers goods worth 14 units perhaps they were the wrong type or size or brand, or were damaged or substandard -whatever the reason, they were not wanted and so were returned. The effect of the return, and the recorded entry of it in the account, is to reduce Clarendon’s debt to Market Grocers
from 474.60 units to 460.60 units.
May 8 A debit entry recording a credit purchase of goods by Clarendon - whom, you will appreciate by now, receivedthe goods.
May 12 Another debit entry, which records a further credit purchase by Clarendon, this time of goods worth 162.50 units.
May 14 A debit entry for a fourth credit purchase, and receipt, of goods by Clarendon, valued at 296.20 units.
May 15 A credit entry showing at once that Clarendon gave outvalue; the description “payment” tells us that Clarendon paid the sum of 800 units to Market. A quick calculation tells us, further, that the payment covered the values of the credit purchases of May 2 and May 8 less the value of the returns made on May 4. The payment can be said to have been made ‘on account’ because it did not settle the total amount owing by Clarendon at the date it was made (or at least on the date on which it was received by Market).
Balancing a Ledger Account
After making the entry for the payment received from Clarendon on May 15, Mr Trader needed to know how much was still owed to his business by Clarendon. To obtain that information, he carried out a process called ‘balancing’. This is what he did, step by
step:-Step 1 He added up the values of the entries on the debit side of Clarendon’s account in the ledger; their total amounted to 1,272.70 units, and he wrote that total below the fourth entry -remember that Fig.1/1 shows an “historical” record, and that on May 15 the other entries shown in the account had not yetbeen made.
Step 2 He added up the values of the entries on the credit side of the account - their total, which was 814 units, was deductedor subtracted from 1,272.70 units to give the balance- the amount still owing by Clarendon - of 458.70 units.
Step 3 That amount was entered on the credit side, making the totals of the entries on both sides equal. The total was entered on the credit side, on the sameline as the total of the debit entries; and both - equal - totals were neatly underlined, or ‘ruled off’ as the process is called. Step 4 The balance was carried down from the credit side to the debit side, showing that Clarendon
had received an excess value of 458.70 units over what it had given out.
Balancing is an easy process and can be carried out on any account at any time that it is considered necessary to do so. It is generally carried out on the accounts of all debtors and creditors at the end of each month. It is also done for all accounts at the end of a “financial year” or “trading year” or other accounting period, and you will learn in Module 4 the reasons why that is done.
Let us now return to an examination of the other entries in the ledger
account:-May 25 A debit entry recording a credit purchase by Clarendon of goods worth 113.40 units. May 27 A credit entry recording the return of goods worth 21 units from Clarendon to Market
-remember, the account is credited with the value of the return because it was given out by
Clarendon.
May 31 It is customary for a business to send each credit customer a statement - called a ‘statement of account’ - at the end of each month, stating the values of the goods purchased by the customer during the month, the values of any payments received from the customer during the month, and the values of any returns of goods made by the customer during the month and - most importantly - the balance still owing by the customer on the last day of the month. Mr. Trader therefore balanced Clarendon’s account again on May 31 and the balance calculated (458.70 plus 113.40 less 21 = 551.10 units) was brought down to the start of the next month.
Note that the entries above the last “ruling off” are ignored when balancing the next time because, of course, the balance between their totals (if there is one, as was the case with
Clarendon) has already been carried down and is included in the next totalling.
You can therefore see that a ledger account, even one like that illustrated in Fig.1/1 which contains only a few entries, can give a great deal of information. In this and succeeding Modules you will be shown many other ledger accounts, and will be given information about them and the ways in which they differ from the one we have so far illustrated; balancing will also be considered further.
The Folio Column
The narrow column to the left of the value column on each side of the account is called the‘folio column’, and it contains a reference which tells us from where the entry was posted, i.e. its source, or where the corresponding entry - to complete the double-entry for the transaction - will be found. We explain fully the importance of folios and their value in Module 2.
Classes of Ledger Accounts
All the many accounts which jointly make up the ledger of a business can be divided into three classes, which are as
follows:-)
Real Accounts
These contain the records of all the “physical” or “tangible” assets of the business, for example, shop furniture, stocks of goods, delivery van, etc.
)
Personal Accounts
These are usually in the names of people or organizations, and they maintain records of (a) the transactions which a business has with its credit customers, showing the amounts still owed to the business by any of them; whilst (b) other personal accounts record the transactions which the business has with suppliers from whom it purchases goods on credit, and they will show to which creditors the business still owes money, and how much is owed to each.
)
Nominal Accounts
These keep the records of all the different types of income (sometimes called ‘revenue’) of the business, and also the records of the different types of expenditure incurred by the business in carrying out its activities.
Now let us look at a specimen of each class of account: -Fig.1/2. a specimen real account
The account shown in Fig.1/2 records the values of the different items owned by Market Grocers which together are classified as “shop furniture & equipment”; there might be many different items, but as they are all used in helping the shop to run efficiently, the records of them are kept together in one account instead of having a separate account for each type of item. You will appreciate that they are all fixed or working assets.
The first entry in the account is the balance, or total value, of shop furniture and equipment “brought forward”, from an earlier page, perhaps page 11 in the ledger. The second entry, being on the debit side, shows a receipt of value by the account; that is, a new set of scales was purchased for use in the shop, and so the total value of shop furniture & equipment is increased. (At the same time, money was given out to pay for the scales, and the credit entry to record that giving aspect is recorded elsewhere in the books - see Fig.2/1). The two values - that of the “opening” entry and that of the new one made - have been added together to show the new total value of all the shop furniture & equipment - 5,069.80 units.
When all the entries are on the same side of an account, as in Fig.1/2, there is no need to balance it, because the total of the entries on that side is automatically the balance on that account. With real accounts, most entries appear on the debit side; only if items are sold (thus reducing the total value of the assets concerned) and at the end of the accounting period, are entries likely to be found on the credit side. The rule for posting values to real accounts is:
Debit all values received, and credit all values given out.
Fig.1/3. a specimen personal account
The account illustrated in Fig.1/3 is that of a supplier from whom Market Grocers purchases goods (for re-sale) on credit; remember that it shows transactions from the point of view of Fine Foods Ltd.
The earliest entry is on the credit side on May 6 and shows that Fine Foods gave out goods worth 972.50 units - those same goods werereceived by Market, and the entry to record that aspect is recorded elsewhere in the books, as shown in Fig.3/5).
The next entry, in date order, is on May 10 and shows that Fine Foods received back goods worth 37.40 units, being a return by Market. The next entry, again “reading” the account in date order, is on the credit side for a further credit sale (giving out of value) by Fine Foods. On May 31 Mr Trader paid the sum of 935.10 units to Fine Foods - they received the money and so their account is debited (the payment was for the purchases made on May 6, less the value of the returns).
After the entry for the payment, the account was balanced, and the credit balance - representing the amount still owed by Market to Fine Foods - was carried down to the start of the next month. Note that had Market paid the total owing (621.90 units) the totals of the entries on both sides of the account would have been equal, and so there would have beennobalance, as was the case in the account shown in Fig.1/4.
Fig.1/4. a personal account with no balance
As you can see in Figs.1/1, 1/3 and 1/4, entries are generally made on both sides of personal accounts, and after a personal account has been balanced the balance can be on either the debit side or the credit side, depending upon whether money is still owed to the business or by it - and in some cases personal accounts might have no balance at all. The rule for posting values to personal accounts
is:-Debit the receiver of the value, and credit the giver of the value.
Fig.1/5. a specimen nominal account recording expenditure
With nominal accounts, the majority of entries - if not all of them - are on only one side. The entries in nominal accounts recording expenditure, as is the case with Fig.1/5, are made on the debit side because money has been given out - to pay the expense concerned, whilst the type of expense recorded by the account - has “received” the value.
Similarly, entries in nominal accounts recording sources of income, as in Fig.1/6, are mainly made on their credit side, because although money has, or will, be received in exchange for the items sold, the accounts record the “giving” aspect of the transactions concerned. This matter will become quite clear when we consider the cash book and other books of original entry in Modules 2 and 3.
The rule for posting to nominal accounts
is:-Debit the values of all expenses and losses, and credit the values of all gains.
The “balance” on an account is the differencebetween the total value of the entries on its debit side, and the total value of the entries on its credit side. If the total of the debit entries is the larger - as is the case with the accounts shown in Figs.1/1, 1/2 and 1/5 - the account concerned is said to have a ‘debitbalance’. If, on the other hand, the total value of the credit entries is the larger - as is the case with the accounts in Figs.1/3 and 1/6 - the account concerned is said to have a ‘credit balance’. It is most important to bear those facts firmly in mind.
Special Notes:
EIn some cases the word “debit” might be abbreviated to “DR”, and the word “credit” might be abbreviated to “CR”. These abbreviations should not be used in “written” or “worked” answers to Test or Examination Questions.
EThe word “credit” as used in bookkeeping and accounts has two different meanings: 1. It is the name of the right-hand side/receiving part of a ledger account.
2. It means that goods or services have been sold or purchased without payment having been made at the time of the sale/purchase.
It is most important that you do not confuse two different meanings of the same word. Always read the word carefully in the ‘context’ (its relationship with other words in the sentence) in which it is used.
ETraditionally the description of each entry on the debit side of a ledger account had to be started with the word “to”, and the description of each transaction on the credit side of a ledger account had to be started with the word “by”. Some examining bodies might still require that that is done, but the busy bookkeeper rarely has the time in practice for such “niceties” which, in any case, contribute nothing to the accuracy or meanings of entries.
EIn practice, some accounts might contain very many more entries than we have shown in our examples. Nevertheless, whether an account contains one entry or hundreds, it mustconform to the rules of double-entry bookkeeping we have so far taught you, and which will be taught in subsequent Modules of this Manual. And the same applies whether bookkeeping is carried out manually or by computer.
EALL entries in ledger accounts - and indeed in all books of account - must always be made neatly and accurately. Any untidy, unclear, careless or inaccurate entries will lead to errors, and it can be very time-wasting to trace, and correct, errors. Carelessness and inaccuracy can, further, lead to losses for a business and even - in extreme cases - to the loss of the job of the person responsible. Accuracy is just as important when making entries in - or ‘inputting’ to - a computerised accounting system. So ALWAYS be accurate in your bookkeeping work, be neat - and take pride in your work and your profession.
Additional Notes on Balancing Ledger Accounts
Commit the following points to memory, as they will help you avoid making errors in balancing accounts manually.
As soon as both sides of an account are equal in total value it should be neatly ‘ruled off’. If there is only one entryon each side of the account (equal in value) then the ruling off lines should be drawn below the entry on each side of the account; there is no need to write the total again (see Fig.1/4).
However, if there is more than one entryon either side of the account, the values of those entries should be totalled, the same total should be written on each side of the account, and ruling off lines should be ruled below those equal totals (see Fig.1/7).
If there is only one entry in an account, there is no need to balance that account, because the value of that one entry is the balance;do not rule off the account.
If all entriesin an account are on the same side of it, the total value of those entries is the balanceon that account,and so there is no need to balance it; the total value of the entries may be written in, but the account should not be ruled off (see Figs.1/5 and 1/6).
SELF-ASSESSMENT TEST ONE
Recommended Answers to these Questions - against which you may compare your answers - will be found on page 23. The maximum mark which may be awarded for each Question appears in brackets at the end of the Question. Do NOT send your answers to these Questions to the College for examination.
No.1. What is the meaning of the term “assets”? In what ways do the “fixed assets” of a business
differ from its “current” assets? (maximum 20 marks)
No.2. What are the differences between the “debtors” and the “creditors” of a business? Who are the debtors and creditors of a small trading business likely to be in general?
(maximum 20 marks) No.3. State exactly the wording of the basic rule of double-entry bookkeeping. Explain why that rule is necessary, and why it must be strictly complied with in recording every transaction which occurs
in business. (maximum 20 marks)
No.4. A business called Carib Catering Supplies has a number of “credit customers”. Below are its transactions with one of them during the month of June. Rule up a ledger account, and record each transaction - in date order - into the account for Beachview Hotel in the ledger of Carib Catering Supplies, and balance the account at the end of the month.
(maximum 20 marks) June 6 Sold goods on credit to Beachview Hotel worth 277 units.
June 8 Sold goods on credit to Beachview Hotel worth 199 units. June 10 Received back from Beachview Hotel goods worth 22 units. June 15 Received a payment of 454 units from Beachview Hotel.
June 16 Sold goods on credit to Beachview Hotel worth 210 units. June 22 Sold goods on credit to Beachview Hotel worth 306 units. June 25 Received back from Beachview Hotel goods worth 26 units. No.5. Place a tick in the box against the one correct statement in each set.
(a) A transaction takes place when:
1 an entry is made in a ledger account.
2 a debit entry and a corresponding debit entry have been made. 3 one party gives out value and another party receives the same value. 4 all the entries are on the same side of a ledger account.
(b) “Real accounts”:
1 actually exist in the ledger of a business.
2 record the values of the tangible assets of a business.
3 record the different types of revenue earned by a business, and the types of expenditure it incurs.
4 record transactions with people and organizations. (c) In bookkeeping a “balance” means:
1 the difference between the total value of the debit and the total value of the credit entries in a ledger account.
2 a scale used for weighing goods sold to customers.
3 there are the same numbers of entries on the debit and credit sides. 4 that a debit entry and a corresponding credit entry have been made.
(d) A cash sale occurs when:
1 an amount of currency is exchanged for another amount of currency. 2 a customer pays at once for goods purchased.
3 a customer does not pay at once for goods purchased. 4 a reduction in price is allowed if goods are paid for at once. (e) A ledger account only needs to be balanced when:
1 there is only one entry in it.
2 all the entries are on the same side of it.
3 the values of the entries on both sides are exactly equal. 4 the values of the entries on its two sides are not equal in total.
RECOMMENDED ANSWERS TO
SELF-ASSESSMENT TEST ONE
No.1. The term “assets” refers to anything which a business owns; its possessions, in whatever form those possessions might be. Some assets might be “tangible” items, such as buildings, machinery and cash, whilst other assets might be “intangible”, such as book debts and investments.
Fixed assets are items which a business acquires in order to be able to run smoothly and efficiently and to carry out its intended activities, whether they involve the manufacture of products, the sale of products or the provision of services. Generally, fixed assets are acquired with the intention of their being retained for some considerable time, and they are not bought and sold in the course of normal business activities.
Current assets, on the other hand, are constantly changing in value in the normal course of a business’ activities; they include such possessions as cash, stocks of goods, and debts owed to the business by trade debtors.
No.2. Debtors are the people and/or organizations which owe money to a business, whilst creditors are the people and/or organizations to whom a business owes money.
In general, the debtors of a small business are likely to be mainly customers to whom it has sold goods or services on credit, and who have not yet paid for those goods or services. In a smaller number of cases debtors might also include people or organizations to whom the business has paid in advance of receiving the goods or services paid for; for example, there are times when a business has to pay a “deposit” before it is supplied with its requirements, whilst sometimes certain expenses, such as rent and insurance premiums, have to be paid a month or longer in advance - the recipients of such payments are debtors of the business for the values of any goods or services not yet provided. The creditors of a small business are likely to be people or organizations who have supplied it with goods or services for which it has not yet made payment. Others might be those who paid in advance for goods or services not yet provided, or who have loaned money to the business, e.g. a bank. No.3. The wording of the basic rule of double-entry bookkeeping
is:-There must be a debit and a corresponding credit entry (and vice versa) of the same value for every transaction that occurs.
The rule is necessary, and must always be strictly complied with, because in every business transaction that occurs, no matter how large or small it might be, two things always happen at one and the same time: one party to the transaction receives value, whilst the other party gives out that value. To record that dual aspect of every transaction, two entries are required in the ledger; one of those entries must be a debit entry, whilst the other - of an identical value - must be a credit entry. The debit entry records the “receiving” aspect, whilst the credit entry records the “giving” aspect.
No.4. ledger account
Beachview Hotel (221)
June 6 goods SB 6 277 June 10 returns RI4 22
8 goods SB6 199 15 payment CB22454
476 476
16 goods SB8 210 25 returns RI4 26
22 goods SB9 306 30 balance c/d 490
516 516
July 1 balance b/d 490
No.5. The right statement from each of the sets selected and ticked:
WHAT YOU WILL LEARN IN MODULES 2 TO 12
OF THE CIC PROGRAM OM
BUSINESS BOOKKEEPING & ACCOUNTS
Module 2 - The Cash BookCash as a most important asset The cash book as cash account:
what it records
Entries in a cash book examined and explained Posting from the cash book to ledger accounts:
examples examined Folios or account numbers:
their value and uses Bank accounts:
why they are “opened” opening a current account pay-in slips or deposit slip:
when and why they are used counterfoils:
what they record cheques:
what they are
the parties to a cheque transaction counterfoils:
what they record
The cash book with bank columns Deposits into the bank and withdrawals:
contra entries
entries in a 4-column cash book examined special notes on contras
Balancing the 4-column cash book special notes
Bank statements
Reasons for differences between the cash book and bank statement balances:
unrecorded deposits unpresented cheques unrecorded charges Reconciliations
Various bank services described: standing or bankers orders bank drafts/money orders bank to bank transfers
travellers cheques deposit accounts
Module 3 - The Subsidiary Books Source documents:
the need for summarised information Cash sales:
what they involve cash sale slips
recording cash sales in the books Credit sales:
how they differ from cash sales invoices:
why they are issued common contents specimen examined The sales book:
what it records
Rules for posting from the sales book to ledger accounts Sales account:
what it records
how and when entries are posted to it Cash purchases
where and how they are recorded in the books Credit purchases
the meaning of “purchases” in bookkeeping and accounts The purchases book:
what it records goods received notes
Rules for posting from the purchases book to ledger accounts
Purchases account: what it records
how and when entries are posted to it Credit terms:
the monthly account fixed periods of credit The returns inwards book:
what it records
goods returned inwards notes credit notes
Rules for posting from the returns inwards book to ledger accounts
The returns outwards book: what it records
sources of information
Rules for posting from returns outwards book to ledger accounts The journal:
its uses today narrations
Rules for posting from the journal to ledger accounts Petty cash
the ordinary and imprest recording methods the petty cash book:
what it records
analysis columns and their value
Module 4 - From Opening Entries to Trial Balance Opening a set of books for an established business
practical example including:
ascertaining the values of assets and liabilities stocktaking and valuation
listing the values of assets and liabilities capital:
the owner’s equity the need for profit:
drawings
consequences of losses Journal “opening entries”:
opening the new books and ledger accounts posting from the journal
practical example
Why capital is a liability and how it arises:
the business as a separate entity from its owner(s) Worked exercise involving journal, cash book, sales and
purchases books and ledger accounts The trial balance:
why it is “extracted”
its purpose and why it should “agree” when it should be extracted
why its totals might not agree
Locating errors in the books revealed when a trial balance does not agree
Limitations of the trial balance:
possible errors made but not revealed even if its totals agree: errors in original entries
errors of principle compensating errors errors of omission
Suspense accounts as temporary solutions Journal entries for the correction of errors
Illustrations 4/1 to 4/5 are included in this Module Module 5 - Preparing for the Final Accounts
Financial/trading years and accounting periods What the final accounts comprise:
and what they seek to determine The necessity for stocktaking:
periodic stocktaking continuous stocktaking Stock valuation:
practical example Work in progress:
meaning and valuation
opening and closing stock values Adjustments necessary for:
income received in advance prepayments
income earned but not received Bad debts:
how they arise
how they are written off
Provisions for bad and doubtful debts Depreciation:
what it means and how it arises why it must be taken into account methods of charging depreciation:
the reducing balance method the straight line method
Bookkeeping entries for adjustments: journal entries for adjustments
worked practical example of each type of adjustment Illustrations 5/1 to 5/3 are included in this Module Module 6 - Manufacturing and Trading Accounts
Presenting final accounts for those who will use them An enterprise as a going concern
Consistency in presentation and content Types of enterprises
Why trading accounts are prepared: gross profit:
when it is made - factors when a gross loss is made
The prime cost of a trading enterprise Journal closing entries:
the ledger accounts affected
accounts for stocks and work in progress worked example of bookkeeping involved A trading account examined:
special points to note layout or format
Vertical presentation to incorporate statistical information and comparative figures:
turnover and ratios
Why manufacturing accounts are prepared: the prime cost of a manufacturing enterprise the cost of producing finished goods
types of stocks which might be held
Modifying the trading account to meet the requirements of individual enterprises:
composite businesses
Illustrations 6/1 to 6/10 are included in this Module Module 7 - Profit & Loss Accounts
Why profit & loss accounts are prepared: net profit and net loss
The relationship between profit & loss accounts and balance sheets
A simple profit & loss account analysed The capital account of a sole-trader
Vertical presentation of profit & loss accounts
Managerial decisions involving classification and presentation Comparative figures and ratios;
why they may be of less value than in trading accounts Business partnerships:
why they are formed partnership capital
current accounts, drawings, salaries Partnership profit & loss accounts and
appropriation accounts Limited liability companies:
the meaning of limited liability shares and shareholders:
ordinary shares preference shares dividends
Board of Directors, duties
Sectionalised company profit & loss accounts appropriation accounts
Illustrations 7/1 to 7/8 are included in this Module Module 8 - Balance Sheets
Why and how balance sheets are produced What information they contain
How a balance sheet differs from other final accounts Horizontal and vertical layouts:
presentation of information
Similarities and differences in the balance sheets of: sole-trader businesses
partnership firms limited companies treatment of capital
The significance of gross profit: direct expenditure
overheads
analysis of gross profit multi-product businesses practical example
Accounting ratios:
what they are and why common ones are computed formulae for computing them with practical examples Illustrations 8/1 to 8/4 are included in this Module Module 9 - Accounting for Goodwill and Discounts
Goodwill as an asset: how it arises
when its valuation is necessary
Bookkeeping treatment of goodwill in differing circumstances: on the admission of a new partner
on the dissolution of a partnership firm Important matters to look at when becoming
bookkeeper for a partnership firm
Trade discount and why it is offered, practical example Why quantity discount is offered:
how it differs from trade discount
Cash discount and regular custom discount: why they may be offered
Circumstances in which bookkeeping records are required for discounts allowed and/or received
prompt payment discount
Bookkeeping entries for discounts allowed and discounts received
Illustrations 9/1 to 9/5 are included in this Module Module 10. Accounting for Credit
Bank loans and loans from other organisations:
bookkeeping entries necessary in various circumstances Bookkeeping entries for loan repayments and for interest paid Treatment of loans and interest paid in the final accounts Bank overdrafts, how they differ from loans:
treatment in the books, recording of interest charged Reconciliations when a current bank account is overdrawn Dishonour of cheques:
common reasons for dishonour
precautions to take to reduce incidences of unpaid cheques bookkeeping entries for various types of unpaid cheques representation and reconciliations
Hire purchase - differences from other forms of credit
Accounting for hire purchase ‘sales’ and for ‘purchases’ under hire purchase agreements
Bills of exchange:
their uses and special features
accounting for bills receivable and bills payable
discounting bills receivable, bookkeeping entries necessary Foreign currencies:
exchange rate fluctuations bookkeeping entries
treatment in the final accounts import and export
Deposit and savings accounts: bookkeeping entries for deposits withdrawals and interest earned treatment in the final accounts
Illustrations 10/1 to 10/7 are included in this Module
Module 11 - Basic Cost Accounting, Departmental and Branch Accounts Principles of costing - differences from financial accounting
Definitions of common costing terms Different costing systems described
