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ACCOUNTING
Definition: provide information to uses on economic resources for optional decision
...

Financial Accounting
Information (financially) collected from source documents bank slips, receipt, memos and classified,
summarized into final accounts
...
g
...

Expenses to run the balance sheet to be able to sell goods & services at a profit, salaries &
wages, rent, utilities, sales fees
...
g
...

Current assets – assets that lasts for a short period of time e
...
cash, insurance, stock
-balance sheet contains assets that is fixed & current assets
...

Equity/capital – investment by owners
...


Close accounts means


Easy year that you’ll close the net income into the capital results of the owner

Uses of accounts – owners
Objectives of a business
 Profitability
 Liquidity/survival
 Growth

Statement of cash flow – how cash flow in & out of operating activities
You look for three activities of cash
1
...
g
...
To facilitate investments of activities
3
...

2) Managerial accounting – under this is cost accounting internal use
3) Tax accounting – used by tax authorities
...
Recording business transactions e
...
started a business with Kshs
...

200,000 in cash
A) journal (dr) debt bank acc
...
E
...
Kelly 6,000
Dr
...
R
...
g
...
Classification
Cash accounting
DETAILS
Capital
Balance

SHS
...
: drawings acc 40,000
Credit (Cr); bank
Mark withdrew Kshs
...


4,000
3,400

DATE
2/9
30/9

DETAILS

KSHS

Bal acc

4,000
4,000

SHS
...
It is the record keeping phase of an accounting
...
It is the record keeping phase of an
accounting
...
It does not require any special skills or
knowledge
3
...
It is done by book keeper
...
It is done by a complete picture of the
financial position of a business
...
Summarizing phase of business
transaction
2
...
It has branches
4
...


5
...


Objectives of an accounting
1
...

3
...

5
...


To ascertain if the business is making profit or loss
To facilitate credit transactions
A tool of control
For planning purposes
For taxation purposes
A proof of the financial position of the business
...
It records only monitoring transactions i
...
those transactions which can measured in
monitoring terms
...
The effect of price level changes is not fully considered in accounting
3
...

4
...

5
...
e
...
e
...

Users of accounting information
1
...
e
...

Managers to help them plan in the organization and help them making decision
II
...

owners
2
...

Stakeholders/shareholders
II
...
e
...

Creditors e
...
stationeries to USIU, suppliers
IV
...

Financial institutions e
...
bank
VI
...

General public
VIII
...

Investors
X
...
e
...
They have no authoritative list by the concept have a fairly general support
Accounting convention
They did not circumstances which guide the accounting while preparing financial statement
...
e
...

Accounting principles
Refers to a fundamental believe or a general truth which once established it does not change
...

The science of accounting is not in its finish form
...

The general acceptance of an accounting principles usually depends o how well it need the three
criteria – relevance
-objectivity
-feasible
Accounting principal can be classify into two categories
Accounting principals

Accounting concepts
-

Business entity
Money measurement
Going concern
Dual aspect
Accounting period
Matching concept
Realization
Accmal concept
Objective evidence
Cost concept

Accounting conventions
-materiality
-consistency
-full disclosure
-conservation or prudence

-

Substance over form

Classification of accounts
-

Every transaction gives rise to two effects
...
e
...

Types of an account
Accounts
Personal a/c

Capital a/c

Debit a/c

Impersonal a/c
Credit a/c

Real a/c
Tangible

Intangible

Nominal a/c
Revenue/
Gains

Expenses/
loses

Personal account - This are account recording a transaction with a person or group oe person
...

Capital account – account recording transaction between the procreator and the business
...
The amount owned by the
creditor is recorded to his her personal account e
...
DR
...
CR
...
Money owed the business against goods sold
to customers on credit basis
...
They are items we
can see, touch and move e
...
land
Tangible account e
...
land, machinery, buildings
Intangible account – e
...
good will, salaries, copy rights, patents
...
g
...
18,000 in cash Dr (debit) rent a/c 18,000
...

2
...

4
...

6
...

8
...

10
...
In case a firm is to be set up and start trading it
...
The sources are called
liabilities
Resources owned by the business are called assets
ASSEST = liabilities = capital
Capital = A - L (assets –Liabilities)
Liabilities = Assets – Capital
Roles of accounting equation
1
...
The increase is debited and when there is
decrease we credit the asset account
2
...
Capital – when owners equity is decreased by the amount of revenue expenses
...
Income or profit – the owners equity is increased by the amount of revenue income
...
When business transactions takes place in
business transaction the first step is to record on the books of original entry or subsidiary books or
books of prime entry or journal e
...

1
...
g
...
6,000
2
...
Purchases day book – to record details and amount of goods purchased on credit also called
purchase journal e
...
purchase goods from bella on credit Kshs
...
Returns out-wards debit/returns out words journal- record details and amount of goods
purchased from seller to buyer
...
General journal/general ledger/journal proper – used to record details and other four original
books of entry
...
g
...
200,000 from silent night ltd
...
Petty cash book – used to record the small cash receipts and payment within an organization
e
...
paid for postage Kshs
...
200
7
...
E
...

bought stationeries for Kshs
...

EX 1604
Purchase day book
INVOICE NO
...
F
K
...
Norman
0058
PL – 02
V
...
Ferguson
0082
PL – 04
K
...
Norman
0091
PL – 2
J
...
Danies
0093
PL – 7
Totals to be transport to purchase a/c in the general legder

KSHS
...
Rigby
E
...
Green
H
...

0015
0018
00181
00182
00180
00156

L
...

510
246
356
307
250
185

E
...
Norman
N
...
Cook
C
...

0061
0062
0064
0065

L
...

30
16
13
11
70

Totals to be transferred to return outwards a/c in the GL
Returns Inwards day book
DETAILS
E
...

0015
0018
00181
001
...
F
SL – 2
SL – 3
SL – 02
SL – 01

KSHS
18
22
27
30
97

Totals to be transferred to return inward a/c in the GL
M
...
Cook a/c
DETAILS
R/Outward
Bal c/d

KSHS
13
167
180

DATE

180

Thomas a/c
DETAILS
3/07 – Sales

KSHS
356

DATE
14

DETAILS
R/Inward

KSHS
22

Bal c/d

334
356

Totals bal b/d
356
Show the transfer for the general ledger
Purchase a/c
DETAILS
Invoices

KSHS
3332

DATE

DETAILS

KSHS

KSHS

DATE

DETAILS
Invoices

KSHS
1724

KSHS

DATE

DETAILS
Debit Note No
...


Typical Uses of the Journal
 The purchase and sale of fixed assets on credit
 Writing off bad debts e
...
a debit of Kshs
...
DR
...
CR Mathews a/c 78
 Correction of errors in the ledger account
...
g
...
3,000
...
sales a/c 3
...
CR
...
these are entries needed to open a new set of books
 Adjustments to any of the entries in the ledger
...
It is a subsidiary book derived from the
cash book
...
Task of handling and reaching the cash payment is delicated by a cashier to a junior member as
the cashier is relieved of too much wok by the petty cash book
...
It listens works
...
The general ledger when a petty cash book is maintain as the cash book is relieved of
too many entries e
...
paid postage Kshs
...
200 paid electricity Kshs
...
g
...

The petty cashier is given an adequate sum of money to enable him meet payments for a refund e
...

one week
Any payment must be supported by a petty cash vouchers
At the end of the period the cashier ascertain the amount and given to the petty cashier has the same
amount of money all times
...

The impress system is used for control purposes i
...
the petty cash is subject to cheques at any time and
the cash float is usually equal to cash in hand plus expenses (payment)
Accounting Entries
1
...
the Petty cash book
...
When the petty cashier makes any payment Dr
...
Petty cash book a/c
NB: the petty cash balance is an asset
EX 18
...
F

Date

Details

6000

1/06
1/06
2/06
2/06
3/06
6/06
8/06
9/06
12/6
12/6
14/6
16/6
16/6
21/6
22/6
23/6
24/6
25/6
26/6
29/6
30/6

Cash
F
...

By Cleaning materials
By envelop paid
By petrol paid
By lyon casual labor
By T-upto cleaner
Paper clips
petrol
Adhesive tape
Petrol
Motor taxation
F
...
Upton cleaner
J
...
Mo

CBI

5280
11270
6000

Total c/d

Voucher
No
...


M
Exp

Cleaning

Gen
...

All cash receipts are recorded on the debit side where as all cash payment are recorded on the credit
side
A cash book should always shows a debit balance since payment should not exceed the receipt at any
time
...
g
...
bank
a/c 20,000 (going) Cr
...
Trade discount
2
...
root
cash 4
wages
Motor expenses
General expenses
Insurance

80

Bal c/d

Balance brought
forward (Bal b/d)
Sales
Cash a/c
F
...
Bill
K
...
Braga
L
...
Hudd
M
...
Age
Aline
Sales
Bal c/d

DISCOUNT
ALLOWED

CASH
A/C
420

41
16
22
52

BANK
A/C
4,940
779
304
418
988
740

DATE

400
1,260
4

276
324
980

135

3,060

12,623
21,392

DETAILS
Rent
M
...
Bell
Cash 4
Wages
R
...
Dury
Fixtures
Lorry
Stationery
Bal c/d

DISCOUNT
RECEIVED

CASH
A/C
340

9
24
10

BANK
A/C
351
936
390
400

540
15
12

70

295
400
4,320
14,300
56
2,124
3,060

21,392

Difference between cash book column & bank Statement








Errors by the bank keeper/bank clients
Un-credited checks (cheque deposited but not reflected in the bank statement)
Balanced cheques (unpaid cheques) bank charges
Standing orders / instruments to the bank to make payment on your behalf e
...
rent, insurance,
mortgage
Direct transfer
Bank may pay interest to the clients
Un-presented cheques
...
3
UPDATED CASH BOOK
Dec 31 bal b/d 3,437
T
...


Bal b/d
Over cast

1,691,195
1,800

Under cast
Bank services charges
Disowners cheques
Uncast notes payable

1,430,288

36,000
2,500
88,000
22,400
1281,388
1,430,288

Cash book

Bal b/d
diposits

1,691,195
655,040

Payments
Bal c/d

Bank reconciliation statement
Bal as per updated cash book

1,281,388

Add un-presented cheques

348,170

Less un-credited cheques

518,027

Balance as per the bank statement

1,888,045

6,812,747

Three column cash book
details
Bal b/d
j
...
Mutisya
Sales

Discount
allowed
100

4,000
100
750

Bank c/c
Bal c/d

Cash Bank
a/c
a/c
5,400
18,200
1,260 1,150

1,600
0
100

Total bal b/d

2,420
9,110 2,577
2,330 2,420

Date

Details

5/3
9/3

Bal b/d
Drawings
J
...
Mutisya icdc paid
Cash a/c
Salaries
Bal c/d

Bank
a/c
1,500
650
520

4,000
3,000
1,480

52

1,500
1,600
1,200 3,500
2,330
9,110 25,770
2,420

Final accounts
Final accounts are presented in business to assist the business as certain whether its making a profit or
loss
...
The principle
financial statements of a business whether of;a) A sole trader
b) Partnership firm
c) A company involves the presentation of
I
...

Presentation of the statement of the financial position of a business
...
g
...

NB: the presentation of summary of final account should be made in a vertical format
...

Bad debts

xxxx

Bank charges

xxxx

Insurance

xxxx

Carriage out-wards xxxx
Discount allowed

xxxx

Interest on loan

xxxx

Net Profit

xxxxxx

Prior year adjustment
1
...
Prepaid expenses – paying in advance
3
...


Land & building (premise)

xxxx

xxxx

xxxx

Equipment & machinery

xxxx

xxxx

xxxx

Fixtures & fittings (furniture)

xxxx

xxxx

xxxx

Motor vehicles

xxxx

xxxx

xxxx

Investments

xxxx

xxxx

xxxx

Good will (intangible asset)

xxxx

xxxx

xxxx

Patents rights (intangible asset)

xxxx

xxxx

xxxx

Current assets
Inventories / stock

xxxx

Accounts receivable / debtors

xxxx

Notes receivables’

xxxx

Cash in hand

xxxx

Prepaid expense

xxxx
Xxxx

Total assets

xxxxx

Capital & liabilities
Capital

xxxx

= net profit

xxxx

-

Drawings

xxxx

Currents liabilities
Accounts payable/creditors xxxx
Notes payable

xxxx

Net book Value (NBV)

Accruals

xxxx

Bank overdraft

xxxx

Total liabilities

xxxxxxx

Ex 9
...
OWEN’S TRADING PROFIT & LOSS A/C AS 31/3/09
Sales
Return inwards
Net sales
Less cost
Opening inventories
(=) purchases
(+) carriage inwards
(-) return outwards
(_) closing stock
Gross profit

Less expense
Business rate
Carriage outwards
Salaries & wages
Communication
Insurance
Saundry
Commission paid

276,400
x
276,400
52,800
141,300
1,350
(2,408)
(58,440)

134,602
141,798

3,800
5,840
63,400
714
1930
208
1,930
77,722
64,076

Net profit

T
...
Current assets cost accum
...
A – C
...
10a
J
...
Of fixtures & fittings
Dep
...
c/d

740

Bal b/d
Increase in the
prov

740

740

J
...
Current assets

Costs

Accum
...
B
...
12A
CURRENT Liabilities
Creditors
Bank overdraft
Accrued office exp
...
I = C
...
Purchases ledger control a/c / creditors control account
2
...

To check the errors and frauds
To speed up the preparation of financial statements
To check the accuracy of the debtors and creditors totals
A proformer a purchases ledger / creditors control a/c
DETAILS
KSHS
DATE
Bal b/d
xxxx
Return outwards
xxxx
Discount received
xxxx
Bills payable
xxxx
Cash payments to creditors
xxxx
Cheques payments
xxxx
Set-off (inter-ledger transfer)
Bal c/d
xxxx
xxxx

DETAILS
Bal b/d
Credit purchases
B/payable & dishonored

KSHS
Xxxx
Xxxx
Xxxx

Bal c/d

Xxxx

xxxx

Sales ledger / debtors Control A/C
DETAILS
Bal b/d
Credit sales
B/R & dishonoured
Interst on overdue a/c
Dishonoured cheques

Bal c/d

KSHS
Xxxx
Xxxx
Xxxx
Xxxx
Xxxx

DATE

Xxxx
xxxx

DETAILS
Bal b/d
Return inwards
Discount allowed
Cash received from debtors
Cheques received from
debtors
Bad debts / written off
Set-offs
Bill received (B/R)
Bal c/d

KSHS
Xxxx
Xxxx
Xxxx
Xxxx
Xxxx
Xxxx
Xxxx
Xxxx
Xxxx
xxxx

Accounting for fixed assets
Depreciation in accounting
-

Reduction invalid of a fixed assets in the cost of usage
...

Fixed assets do not last forever
...

Depreciation is part of the original cast of a fixed assets consumed during its period of use in
viewed by an organization
It is an expense to the business and therefore charged to the profit and loss account
...
Straight line / fixed installment methods
Dep = cost – scrap value
life
2
...
20,000
Rate = 5% p
...

4
...

6
...
4,000
a)
...
show the calculation for each years
Cost = 23,000
(-)dep = (4,750)
Cost = 18250
(-)dep = (4,750)
Cost
13,500
(-)dep = 4,750
8,750
Cost = 8,750
(-)dep = (4750)
Cost
4,000

c)
...
U
23,000

(4750) = 9,000 4,000

Reducing balance method
Using the reducing balance we do not factor in
Cost = Kshs
...
Dep
18895

N
...
U
4105

Quiz 26,11A – 30/9/2006
Cost Kshs
...
D
...
03
Dep = 30/100 x 2,400 x 9/12 = 540
(-)Dep = 30/100 x 2400 = 558
(-)Dep = 30/100 x (1860 – 558) = 1302
(-) Dep = 30/100 x 1302 = 391
(-) Dep = 30/100 x 911 = 273
Cost

accum – dep

Zero

N
...
O

1762

638

1st May 2004
1
...
2003 – 3
...
2004
1
...
2004 – 30
...
2005
1
...
2005 – 30
...
2006
Dep = 30/100 x 2500 x 5/12 = 150/12 x 25 = 3750/12 = 313
Cost = 2500 – 313 = 2197
Dep = 30/100 x 2187
Cost = 2187 – 656 = 1531
Dep = 30/100 x 1531 = 459
Cost = 1531 – 459 = 1072
Dep = 30/100 x 1072 = 321
...
Asset a/c
-Credit cash / bank / creditor’s a/c Cr
...
profit and loss a/c
Cr
...
Asset disposal a/c
Cr
...
Cash / bank/ insurance claims a/c / debtors a/c
Cr
...
provision for dep a/c
Cr
...
Asset disposal a/c
Cr
...
01
...

2800

1
...
06
1
...
06

To bal b/d
Bank a/c

2800
2800
3500
6300

1
...
07

To bal b/d

6300

date
31
...
05

details
By bal c/d

Kshs
...
12
...
01
...
07
...
01
...
12
...
01
...

290
620
910
910
130
1040
1040

date
31
...
05

details
By bal c/d

Kshs
...
12
...
12
...

420

date
31
...
05

details
By bal a/c

Kshs
...
01
...
01
...
FIXTURE
DATE
2005
2006

FIX 1
145
14

FIX 2
31
30

PER FOR DEP FIXTURE A/C
DATE
31
...
05

DETAILS
By Bal c/d

KSHS
46

DATE
31
...
05

DETAILS
By pd a/c

46
31
...
06

By Bal c/d

KSHS
46
46

1
...
06
31
...
06

By bal b/d
By pd a/c

46
51
97

1
...
07

97

Bal b/d

97

97

Profit & loss a/c – Extract
Gross Profit
2006

xxxx

less expense
Dep of machinery

420

2006

Dep of machinery

882

2006

Dep of fixtures

46

Dep of fixed assets

51

Balance sheet extracts 31/12/2006

2005
2006
2005
2006

Non – Current
assets
Machinery
machinery
Fixture
Fixtures

cost

Accum - dep

N
...
V
...
Dep

KSHS

Cash proceeds
accum
...
dep

10,000

7,000

39,000

Disposal of fixed asset a/c

Cost (A)
Profit

31,200
760

Cash proceeds
Accum dep

Cash proceeds
Accum – Dep
Loss on disposal

31,960
19,600

7,000
24,960
31,960
10,500
7,840
1,260

19,600
Cost (D)

19,600
Cash proceeds
Loss of disposal

39,000

39,000

37,600
1,400
39,000

Schedule of depreciation
DETAILS
1/4/2002 - 31/3/2003
1/4/2003 - 31/3/2004
1/4/2004 - 31/3/2005
1/4/2005 - 31/3/2006
1/4/2006 - 31/3/2007
TOTALS

A
6,240
6,240
6,240
6,240
X
24,960

B
X
X
3,920
3,920
X
7,840

C
X
X
X
9,760
9,760

D
X
X
X
X
6,560

E
X
X
X
X
X

F
X
X
X
X
7,520

TOTALS
6,240
6,240
10,160
19,920
23,840

Depreciation of plant a/c
DATE
31/3/03

DETAILS
By bal c/d

KSHS
6,240

DATE
31/3/03

DETAILS
By pd a/c

6,240
31/3/04

By bal c/d

6,240

12,480
1/4/03
31/3/05

By bal b/d
By pd a/c

12,480
31/3/05

By bal c/d

22,640

By bal c/d

42,560

1/4/04
31/3/05

By bal b/d
By pd a/c

24,960
7,840
33,600

1/4/06
31/3/06

By bal b/d
By pd a/c

22,640
19,920
42,560

1/4/06
31/3/07

By bal b/d
By pd a/c

66,400

Gross profit
Dep of m/lorry
Gross profit
Dep of m/lorry
Gross profit
Dep of m/lorry
Gross profit
Dep of m/lorry
Gross profit
Add profit on disposal
Less dep of m/lorry
Less loss on disposal
Less loss on disposal

42,560
23,840

66,400

Profit and loss a/c extract

31/3/2003
Less
31/3/2004
Less
31/3/2005
Less
31/3/2006
Less
31/3/2007

12,480
10,160
22,640

42,560
Disposal (A)
Disposal (B)
Bal c/d

6,240
6,240
12,480

22,640
31/3/06

KSHS
6,240

Xxxx
6240
Xxxx
6240
Xxxx
10160
Xxxx
19920
Xxxx
760
23840
1260
1400

Balance sheet as at 31/3/2007
Non - current assets
M/LORRY

Cost
119,200

Accum
...
B
...

The stock control systems are usually classified into two;
1)
...

2)
...
This is no closing down of
complete stock taking
...

2
...

4
...

6
...


FIFO – fast in fast out
LIFO – last in fast out
SAC – Simple average cost
WAC – weighted average cost
SC – Standard cost
NIFO – next in fast out
RC – replacement cost

Stores ledger card – FIFO
PURCAHSES
DETAILS
Open bal b/d
Issues /sales
Purchases
Purchase
Sales
Purchases
Sales

UNITS
400
180
100
50
-

C
...
U
18
16
14
15
-

T
...
P
...
C
18
1,440
18
2,700
170 @18 3,060
90 @16
1,440
90 @16
1,440
50 @14
700

UNITS
400
320
500
600
450
500
330
240
150
100

12 x ½ =

DETAILS
Open bal b/d
Issues /sales
Purchases
Purchase
Sales

PURCAHSES
UNITS C
...
U
400
18
180
16
100
14
-

Purchases
Sales
sales

50
-

15
-

T
...
O
...
P
...
C
UNITS
400
1,440 320
500
600
1,440 500
800
450
500
750
450
2,080 320
1,440 240
2,520 100

BALANCE
7,200
5,760
8,640
10,040
7,340
8,090
5,030
3,590
2,150
1,450

BALANCE
7,200
5,760
8,640
10,040
8,640
7,840
8,590
7,840
5,760
4,320
1,800

Trading a/c using LIFO
Sales
Less C
...
S
Open stock
+ purchases
(-) closing stock
Gross profit

17,200
7,200
5,030
(1,800)

12,230
10,430
6,770



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