SCHEME OF WORK
WEEK TOPIC
THEME 1: INTRODUCTION AND HISTORICAL DEVELOPMENT OF BOOK KEEPING
1. Book-keeping and Accounting: (a) Definition and meaning of Book-keeping and Accounting (b) History of Accounting in Nigeria: Origin; Accounting as a profession; Future prospects.
2. Book-keeping and accounting: (c) The need for Book-keeping and Accounting: (i) Keeping of Accounting records as the soul of the business. (ii) Valuation of stock (iii) Valuation of assets. (iv) Determine debtors and creditors (v) Conservation of assets.
3. Ethics of Accounting: (a) Qualities and Accounting ethics- (i) Honesty, (ii) Transparency, (iii) Integrity, (iv) Accountability (v) Fairness, (vi) Objectivity and (vii) Trustworthiness.
THEME 2: PRINCIPLES AND CONCEPTS IF ACCOUNTING
4. Principles and Practice of Double Entry: (a) Concept of the double entry (b) Review of double entry with comprehensive illustrations
5. Accounting Concepts: (a) Extraction of accounting concepts (i) Entity concept (ii) Going concern etc. (iii) Conservation and prudence concept. (iv)Historical cost concept. (v) Money measurement (vi) Materiality (vii) Realization.
THEME 3: JOURNALS AND CASH ACCOUNT
6. General journal: (a) General Journal Uses (b) Opening and closing entries (c) Correction of errors
7. Analytical Cash Book: (a) Types of discount(b) Single column cash book(c) Double column cash book with emphasis on Contra entries
8. Analytical Cash book: (d) Analytical petty cash (e) The three columnar book (f) Petty cash transaction to the ledger
9. Bank Reconciliation Statement: (a) Differentiate the types of bank document (b) Terminologies used in bank reconciliation
10. Bank Reconciliation Statement: (c) Interpretation of bank statement (d) Adjustment of cash book (e) Bank Reconciliation.
11. Revision
1ST TERM
WEEK 1
TOPIC: INTRODUCTION AND HISTORICAL DEVELOPMENT OF BOOK KEEPING
CONTENT:
1. Definition and meaning of Book-keeping and Accounting
2. History of Accounting in Nigeria:
(a) Origin
(b) Accounting as a profession
(c) Future prospects.
FULL CONTENT
SUB-TOPIC 1: MEANING OF BOOK KEEPING AND ACCOUNTING
Meaning of Book Keeping:
Book-keeping from time immemorial has been defined as a science of recording business transactions in a systematic manner so as to exact financial position of the business that can be easily ascertained at any time.
Book-keeping may be defined as the art of recording business transactions in a systematic manner so that the books of account will reveal at any time the financial position of the business to the owner and other stakeholders in the business.
Meaning of Accounting:
Accounting is the process of obtaining, recording, classifying, summarizing, reporting, interpreting and presenting financial information in a manner that will facilitate informed decision by the users of accounting information.
Boateng,(1884) ”accounting is the process of identifying, measuring, and communicating economic and financial information to permit informed judgment and decision by the users of the information”.
EVALUATION
1. Define accounting
2. Mention two differences between book keeping and Accounting
Sub-Topic 2: HISTORY OF ACCOUNTING IN NIGERIA
Origin of Accounting in Nigeria
Nigeria has a long standing history in international trade even before colonization came tom African. Back in the olden days, properly organized system of trade and government were in existence in the ancient kingdoms of South- south/ South-west, Western part of Nigeria, and part of the Northern part (Benin, Oyo and Borno Etc).
The granting of the Royal Charter to Niger Company in 1886 necessitated the preparation of proper records by the company. From that time till the independence in Nigeria in October 1960, the law governing accounting in Nigeria was tailored after her colonial master (Great Britain). The Association of Accountants of Nigeria, which later became Institute of Chartered Accountants of Nigeria, was established in the 1965. Majority of the members were trained in Britain.
In 1965, the Federal government of Nigeria passed an Act of Parliament No.15 establishing the Institute of Chartered Accountants of Nigeria and was affiliated with the professional Institute of Britain and United State of America (USA).
Many Nigerians came back as professional accountants and became a member. One of these is the doyen of accounting profession in Nigeria is Chief Akintola Williams. The Institution has about 26,000 Accountants as at December 2008 and more than 120,000 as student members.
In 1982, Nigeria Accounting Standard Board was born to set standards to guide accounting operations. Members include:
Central Bank of Nigeria
Ministry of Finance
Nigeria Accounting Teachers Association
Chamber of commerce
Office of the Auditor General etc.
i. Accounting as a profession: Accounting opens doors in every kind of business coast to coast. It can prepare you to become a partner in an accounting firm, to pursue a career in finance or corporate management, to work in government, or even to become an entrepreneur. In fact, no matter what you decide to do, having an accounting background can open doors wide."
The reason why accounting may be the best route to a successful business career is, accounting has always been considered as the language and basic tool of business. It has always concerned itself with determining how a business is doing and what the bottom line is.
In this increasingly complex and competitive business environment, accounting skills are very much in demand and accounting has become a dynamic career.
Future prospect:
The demand for accountants appears to be growing and outstripping supply. Job opportunities in today’s business climate are better than ever for accountants.
EVALUATION:
1. Read Essential Financial Accounting For Senior Secondary Schools O.A. Longe & R.A. Kazeem Chapter 1 page 2 and summarize the history of accounting in Nigeria in five sentences.
2. Mention four future prospect of Accountant.
CONTENT:
1. Definition and meaning of Book-keeping and Accounting
2. History of Accounting in Nigeria:
(a) Origin
(b) Accounting as a profession
(c) Future prospects.
FULL CONTENT
SUB-TOPIC 1: MEANING OF BOOK KEEPING AND ACCOUNTING
Meaning of Book Keeping:
Book-keeping from time immemorial has been defined as a science of recording business transactions in a systematic manner so as to exact financial position of the business that can be easily ascertained at any time.
Book-keeping may be defined as the art of recording business transactions in a systematic manner so that the books of account will reveal at any time the financial position of the business to the owner and other stakeholders in the business.
Meaning of Accounting:
Accounting is the process of obtaining, recording, classifying, summarizing, reporting, interpreting and presenting financial information in a manner that will facilitate informed decision by the users of accounting information.
Boateng,(1884) ”accounting is the process of identifying, measuring, and communicating economic and financial information to permit informed judgment and decision by the users of the information”.
EVALUATION
1. Define accounting
2. Mention two differences between book keeping and Accounting
Sub-Topic 2: HISTORY OF ACCOUNTING IN NIGERIA
Origin of Accounting in Nigeria
Nigeria has a long standing history in international trade even before colonization came tom African. Back in the olden days, properly organized system of trade and government were in existence in the ancient kingdoms of South- south/ South-west, Western part of Nigeria, and part of the Northern part (Benin, Oyo and Borno Etc).
The granting of the Royal Charter to Niger Company in 1886 necessitated the preparation of proper records by the company. From that time till the independence in Nigeria in October 1960, the law governing accounting in Nigeria was tailored after her colonial master (Great Britain). The Association of Accountants of Nigeria, which later became Institute of Chartered Accountants of Nigeria, was established in the 1965. Majority of the members were trained in Britain.
In 1965, the Federal government of Nigeria passed an Act of Parliament No.15 establishing the Institute of Chartered Accountants of Nigeria and was affiliated with the professional Institute of Britain and United State of America (USA).
Many Nigerians came back as professional accountants and became a member. One of these is the doyen of accounting profession in Nigeria is Chief Akintola Williams. The Institution has about 26,000 Accountants as at December 2008 and more than 120,000 as student members.
In 1982, Nigeria Accounting Standard Board was born to set standards to guide accounting operations. Members include:
Central Bank of Nigeria
Ministry of Finance
Nigeria Accounting Teachers Association
Chamber of commerce
Office of the Auditor General etc.
i. Accounting as a profession: Accounting opens doors in every kind of business coast to coast. It can prepare you to become a partner in an accounting firm, to pursue a career in finance or corporate management, to work in government, or even to become an entrepreneur. In fact, no matter what you decide to do, having an accounting background can open doors wide."
The reason why accounting may be the best route to a successful business career is, accounting has always been considered as the language and basic tool of business. It has always concerned itself with determining how a business is doing and what the bottom line is.
In this increasingly complex and competitive business environment, accounting skills are very much in demand and accounting has become a dynamic career.
Future prospect:
The demand for accountants appears to be growing and outstripping supply. Job opportunities in today’s business climate are better than ever for accountants.
EVALUATION:
1. Read Essential Financial Accounting For Senior Secondary Schools O.A. Longe & R.A. Kazeem Chapter 1 page 2 and summarize the history of accounting in Nigeria in five sentences.
2. Mention four future prospect of Accountant.
WEEK 2
TOPIC: BOOK-KEEPING AND ACCOUNTING
CONTENT: The need for book keeping and Accounting
1) Keeping of accounting records as a soul of the business.
2) Valuation of stock
3) Determine debtors and creditors
4) Valuation of asset
5) Conservation of assets
SUB-TOPIC 1: NEED FOR BOOK-KEEPING AND ACCOUNTING:
The recording phase of accounting is known as the book-keeping. The practice of accountancy will be virtually impossible if there is no day-to-day recording of financial transactions as they occur.
(a) Keeping Accounting records as a soul of the business: Recording of relevant information in accounting is the pivotal and backbone of accounting principle. The recording provides both accounting/financial information to members of the public who are interested in the business through the financial statement. It also helps the management decision making.
(b) Valuation of stock: Bookkeepers use various methods for valuing stock. Four ways in which you can do this are:
• LIFO (Last In, First Out): Assumes last (most recent) item put on the shelf is the first product sold.
• FIFO (First In, First Out): Assumes first (oldest) item put on the shelf is the first one sold.
• Averaging: You don’t need to worry about what item came in first or last. Average the cost of stock when calculating stock value.
• Specific identification: Track how much you paid for each individual item to determine stock value.
(c) Valuation of Asset: No organization keeps proper record without taking into cognizance of her Asset. To be able to ascertain the cost and usefulness (input) of the assets to the organization. It help to determine the life span of that asset and the depreciation, as well as when to replace such an asset
(d) Determine debtors and creditors: It shows an accurate standing position of business in relation to its customers i.e. what is owed and what is owned by the firm.
(e) Conservation of assets: Book keeping enables a firm to determine the salvage value of an asset. It helps an organization to know when to dispose and replace an asset to avoid low production. e.g. plant and machinery, building etc.
The need and Importance of bookkeeping becomes necessary for the following reasons:
(i) It is for easy reference of business financial records.
(ii) It reveals profits and losses position to the company through trading profit and loss account.
(iv) It provides information to members of the public who are interested in the business through the balance sheet.
(v) Auditors use the books to issue their audit reports.
(vi) The records help in management decision-making.
(vii) The records project the image of the business to the public.
The need for Book-keeping and Accounting cannot be over emphasized.
EVALUATION:
1. List four methods of stock valuation.
2. Mention three needs for book keeping
CONTENT: The need for book keeping and Accounting
1) Keeping of accounting records as a soul of the business.
2) Valuation of stock
3) Determine debtors and creditors
4) Valuation of asset
5) Conservation of assets
SUB-TOPIC 1: NEED FOR BOOK-KEEPING AND ACCOUNTING:
The recording phase of accounting is known as the book-keeping. The practice of accountancy will be virtually impossible if there is no day-to-day recording of financial transactions as they occur.
(a) Keeping Accounting records as a soul of the business: Recording of relevant information in accounting is the pivotal and backbone of accounting principle. The recording provides both accounting/financial information to members of the public who are interested in the business through the financial statement. It also helps the management decision making.
(b) Valuation of stock: Bookkeepers use various methods for valuing stock. Four ways in which you can do this are:
• LIFO (Last In, First Out): Assumes last (most recent) item put on the shelf is the first product sold.
• FIFO (First In, First Out): Assumes first (oldest) item put on the shelf is the first one sold.
• Averaging: You don’t need to worry about what item came in first or last. Average the cost of stock when calculating stock value.
• Specific identification: Track how much you paid for each individual item to determine stock value.
(c) Valuation of Asset: No organization keeps proper record without taking into cognizance of her Asset. To be able to ascertain the cost and usefulness (input) of the assets to the organization. It help to determine the life span of that asset and the depreciation, as well as when to replace such an asset
(d) Determine debtors and creditors: It shows an accurate standing position of business in relation to its customers i.e. what is owed and what is owned by the firm.
(e) Conservation of assets: Book keeping enables a firm to determine the salvage value of an asset. It helps an organization to know when to dispose and replace an asset to avoid low production. e.g. plant and machinery, building etc.
The need and Importance of bookkeeping becomes necessary for the following reasons:
(i) It is for easy reference of business financial records.
(ii) It reveals profits and losses position to the company through trading profit and loss account.
(iv) It provides information to members of the public who are interested in the business through the balance sheet.
(v) Auditors use the books to issue their audit reports.
(vi) The records help in management decision-making.
(vii) The records project the image of the business to the public.
The need for Book-keeping and Accounting cannot be over emphasized.
EVALUATION:
1. List four methods of stock valuation.
2. Mention three needs for book keeping
WEEK 3
TOPIC: ETHICS OF ACCOUNTING
CONTENTS:
Qualities and Accounting Ethics
1) Honesty: Honesty means to be truthful. Not only to be truthful but candid and forthright, absence of lie and deception..
2) Transparency: Transparency means to be open-minded, being straight-forward in dealing with clients without hypocrisy and pretends.
3) Integrity: An accountant should behave with integrity in all professional, business and financial relationships. Integrity implies not mere honesty but fair dealing and truthfulness. Integrity is an important fundamental element of the accounting profession. Integrity requires accountants to be honest, candid and forthright with a client and financial information.
4) Accountability: Accountants should acknowledge and accept personal accountability for the ethical quality of their decisions and omissions to themselves, clients, and their companies. Accountability simply means being responsible for any cause of action. Ability to be depended or relied upon.
5) Fairness: Fairness means just in all dealings. Not to exercise power arbitrarily or use overreaching or indecent means to gain, maintain any advantage nor take undue advantage of another’s ignorance or difficulties. Fairness also means to be open-minded
6) Objectivity: Objectivity is the state of mind which has regard to all considerations relevant to the task in hand but no other; Objectivity is essential for any professional person exercising professional judgement. It means accountants should not allow bias, conflicts of interest or undue influence of others to override professional or business judgement. It is sometimes described as ‘independence of mind’
7) Trustworthy: Trustworthy is the state of relying and depending on someone’s ability, professional competency. It simply means to believe somebody sincerely. Accountants should be competent enough to be trusted by the client in all professional standard and business.
EVALUATION
1. List five professional ethics in accounting
2. Briefly explain three of the ethics mentioned
GENERAL EVALUATION
Objectives
1. The profession ethic that is sometimes described as ‘independence of mind’ is called (a) Honesty (b) fairness (c) Trustworthy Objectivity.
2. Being open-minded, being straight-forward in dealing with clients without hypocrisy and pretence is the example of …………. (a) Trustworthy (b) Transparency (c) Objectivity (d) Accountability
3. Another name for Honesty is (a) Forthright (b) Boldness (c) Truthful (d) Cunning
4. One of the following is NOT part of professional ethics of accounting(a) Fairness (b) Integrity (c) Transparency (d) Responsibility
WEEK END ASSIGNMENT:
Define the following terms:
1. Trustworthy
2. Accountability
3. Fairness
4. Integrity
5. Transparency
PRE-READING ASSIGNMENT:
Read the following:
1. History of double entry
2. Concept of double entry
WEEK END ACTIVITY
REFERENCE:
O.A. Longe, etal; Essential financial Accounting, tonad publisher, Lagos , Nigeria 2012. (page)
Frank Wood, Business Accounting 1, Longman, Nigeria, 2008. (Page 72-77)
Robert. O.I., Financial Accounting Made Simple 1, ROI publisher, Lagos Nigeria, latest edition. (14-16)
CONTENTS:
Qualities and Accounting Ethics
1) Honesty: Honesty means to be truthful. Not only to be truthful but candid and forthright, absence of lie and deception..
2) Transparency: Transparency means to be open-minded, being straight-forward in dealing with clients without hypocrisy and pretends.
3) Integrity: An accountant should behave with integrity in all professional, business and financial relationships. Integrity implies not mere honesty but fair dealing and truthfulness. Integrity is an important fundamental element of the accounting profession. Integrity requires accountants to be honest, candid and forthright with a client and financial information.
4) Accountability: Accountants should acknowledge and accept personal accountability for the ethical quality of their decisions and omissions to themselves, clients, and their companies. Accountability simply means being responsible for any cause of action. Ability to be depended or relied upon.
5) Fairness: Fairness means just in all dealings. Not to exercise power arbitrarily or use overreaching or indecent means to gain, maintain any advantage nor take undue advantage of another’s ignorance or difficulties. Fairness also means to be open-minded
6) Objectivity: Objectivity is the state of mind which has regard to all considerations relevant to the task in hand but no other; Objectivity is essential for any professional person exercising professional judgement. It means accountants should not allow bias, conflicts of interest or undue influence of others to override professional or business judgement. It is sometimes described as ‘independence of mind’
7) Trustworthy: Trustworthy is the state of relying and depending on someone’s ability, professional competency. It simply means to believe somebody sincerely. Accountants should be competent enough to be trusted by the client in all professional standard and business.
EVALUATION
1. List five professional ethics in accounting
2. Briefly explain three of the ethics mentioned
GENERAL EVALUATION
Objectives
1. The profession ethic that is sometimes described as ‘independence of mind’ is called (a) Honesty (b) fairness (c) Trustworthy Objectivity.
2. Being open-minded, being straight-forward in dealing with clients without hypocrisy and pretence is the example of …………. (a) Trustworthy (b) Transparency (c) Objectivity (d) Accountability
3. Another name for Honesty is (a) Forthright (b) Boldness (c) Truthful (d) Cunning
4. One of the following is NOT part of professional ethics of accounting(a) Fairness (b) Integrity (c) Transparency (d) Responsibility
WEEK END ASSIGNMENT:
Define the following terms:
1. Trustworthy
2. Accountability
3. Fairness
4. Integrity
5. Transparency
PRE-READING ASSIGNMENT:
Read the following:
1. History of double entry
2. Concept of double entry
WEEK END ACTIVITY
REFERENCE:
O.A. Longe, etal; Essential financial Accounting, tonad publisher, Lagos , Nigeria 2012. (page)
Frank Wood, Business Accounting 1, Longman, Nigeria, 2008. (Page 72-77)
Robert. O.I., Financial Accounting Made Simple 1, ROI publisher, Lagos Nigeria, latest edition. (14-16)
WEEK 4
TOPIC: PRINCIPLES AND PRACTICE OF DOUBLE ENTRY:
CONTENTS:
(a) Concept of Double Entry
(b) Review of Double Entry and Comprehensive illustration
SUB- TOPIC 1: CONCEPT OF DOUBLE ENTRY SYSTEM:
Among the oldest known and indisputable principles of accounting is the Double Entry principle.
The principle states that, ‘for every debit entry there must be a corresponding credit entry’, which in everyday English means that for every receiver there must be a giver.
The receiver is always regarded as the Debtor whiles the giver as a creditor under this principle.
As far as double entry principle is concerned, there must always be two parties to a transaction.. One entry at the debit side for the debtor or the receiver and the other entry at the credit side for the creditor or the giver.
REVIEW OF DOUBLE ENTRY WITH COMPREHENSIVE ILLUSTRATIONS
The principles of Double Entry
The double entry principles applied by observing two rules. The rule states that debit all receiver, credit all giver; meaning that, debit the receiving account and credit the giving account. The double entry system of book keeping will be used for recording transactions in the ledgers.
Summary: Debit= Receiving account
Credit=Giving account
Procedures to be followed:
Every transaction must affect two accounts
Give names to the two accounts
Debit – Receiving account (Receiver)
Credit – giving account (Giver)
ILLUSTRATION
Jan. 1 Miss. Faith starts business with N800.00 in bank
There are two accounts involved:
Capital account---------giving---------- Credit = N800.00
Bank account-----------receiving--------Debit = N800.00
Miss. Faith is the owner of the business therefore her name must not appear in the books. Entries in the ledger
CAPITAL ACCOUNT
DR CR
N
N
Bank 800.00
DR BANK ACCOUNT CR
N
Capital 800.00 N
Jan. 2 purchased goods N300.00 by cheque.
Two accounts are involved:
Purchases account-------receiving----- Debit = 300.0
Bank account-------------giving---------Credit= 300.00
DR PURCHASES ACCOUNT CR
N
Bank 300.00 N
DR. BANK ACCIOUNT CR
N N
PURCHASES 300.00
Jan. 4 Sold goods N700.00 cash
Two accounts are involved:
Sales account--------giving------- Credit =N700.00
Cash account -------receiving-----Debit =700.00
DR. SALES ACCOUNT CR
N N
Cash 700.00
DR CASH ACCOUNT CR
N
Sales 700.00 N
Jan.7 Paid wages N50.00 cash
Two accounts are involved:
Wages account ------Receiving------ Debit =N50.00
Cash account ---------Giving--------Credit =N50.00
DR WAGES ACCOUNT CR
N
Cash 50.00 N
DR CASH ACCOUNT CR
N N
Wages 50.00
Jan. 8 bought machinery N500.00 paying by cheque
Two accounts are involved:
Machinery account---------Receiving------ Debit =500.00
Bank account--------------- Giving---------- Credit =500.00
DR. MACHINERY ACCOUNT CR
N
Bank 500.00 N
DR. BANK ACCOUNT CR
N N
Machinery 500.00
Jan. 10 Cash drawings N80.00
Two accounts are involved:
Cash account------Giving------- Credit =80.00
Drawings account-------Receiving-----Debit =80.00
DR CASH ACCOUNT CR
N N
Drawings 80.00
DR DRAWINGS ACCOUNT CR
N
Cash 80.00 N
Jan.12 Goods returned to us by Baba N200.00
Two accounts are involved:
Returned inward account-----receiving------ Debit =N200.00
Baba’s account-----------Giving---------Credit =N200.00
DR. RETURN INWARD A/C CR
N
Jan. 12 Baba 200.00 N
DR BABA ACCOUNT CR
N N
Jan. 12 Returned inward 200.00
Jan.17 Took cash N2, 400.00 from the bank and put it into cash till.
Two accounts are involved:
Bank account------Giving---------Credit =N2, 400.00
Cash account ------Receiving----Debit =N2,400.00
DR BANK ACCOUNT CR
N N
Jan. 17 cash 2,400.00
DR CASH ACCOUNT CR
N
Jan. 17 Bank 2,400.00 N
Jan. 20 we returned goods worth N100.00 to Jasper
Two accounts are involved:
Returned outward account----Giving------Credit = N100.00
Jasper account -------------------receiving---- Debit = N100.00
DR RETURNED OUTWARD A/C CR
N N
Jan. 20 Jasper 100.00
DR JASPER ACCOUNT CR
N
Jan. 20 Returned outward 100.00 N
Jan. 22 received commission in Cash N350.00
Two accounts are involved:
Commission------giving------Credit = N350.00
Cash--------------receiving-----Debit = N350.00
DR COMMISSION ACCOUNT CR
N N
Jan. 22 Cash 350.00
DR CASH ACCOUNT CR
N
Jan. 22 commission 350.00 N
Jan. 23 took loan from Mark by cheque N750.00
Two accounts are involved:
Loan (Mark) -----Giving------- Credit =N750.00
Bank--------------Receiving----Debit =N750.00
DR LOAN ACCOUNT CR
N N
Jan. 23 Bank 750.00
DR BANK ACCOUNT CR
N
Jan. 23 loan 750.00 N
Jan. 25 sold car on credit to Ojo N220.00
Two accounts are involved:
Car account -----giving----- Credit =N220.00
Ojo account ------receiving-----Debit =N220.00
DR CAR ACCOUNT CR
N N
Jan. 25 Ojo 220.00
DR OJO ACCOUNT CR
N
Jan. 25 car 220.00 N
Jan. 27 paid cash for repairs of Motor Vehicle N1, 500.00
Two accounts are involved:
Motor Vehicle-----Receiving------ Debit =N1, 500.00
Cash --------------giving-------------Credit =N1, 500.00
DR MOTOR VEHICLE ACCOUNT CR
N
Jan 27 Cash 1,500.00 N
DR CASH ACCOUNT CR
N N
Jan. 27 Motor Vehicle 1,500.00
Jan 30 withdraw N1, 000 cash for personal use
Two accounts are involved:
Drawings --------Receiving----- Debit =N1, 000.00
Cash------------giving---------- Credit =N1, 000.00
DR DRAWINGS ACCOUNT CR
N
Jan. 30 Cash 1,00.00 N
DR CASH ACCOUNT CR
N N
Jan. 30 Drawings 1,000.00
EVALUATION:
1. Explain the principle of double entry system
2. Complete this table showing which account should be debited and which should be credited:
Started business with cash
Paid part of the opening cash into the bank
A vehicle was sold for cash
Charles lent us cash
Cash purchases
CONTENTS:
(a) Concept of Double Entry
(b) Review of Double Entry and Comprehensive illustration
SUB- TOPIC 1: CONCEPT OF DOUBLE ENTRY SYSTEM:
Among the oldest known and indisputable principles of accounting is the Double Entry principle.
The principle states that, ‘for every debit entry there must be a corresponding credit entry’, which in everyday English means that for every receiver there must be a giver.
The receiver is always regarded as the Debtor whiles the giver as a creditor under this principle.
As far as double entry principle is concerned, there must always be two parties to a transaction.. One entry at the debit side for the debtor or the receiver and the other entry at the credit side for the creditor or the giver.
REVIEW OF DOUBLE ENTRY WITH COMPREHENSIVE ILLUSTRATIONS
The principles of Double Entry
The double entry principles applied by observing two rules. The rule states that debit all receiver, credit all giver; meaning that, debit the receiving account and credit the giving account. The double entry system of book keeping will be used for recording transactions in the ledgers.
Summary: Debit= Receiving account
Credit=Giving account
Procedures to be followed:
Every transaction must affect two accounts
Give names to the two accounts
Debit – Receiving account (Receiver)
Credit – giving account (Giver)
ILLUSTRATION
Jan. 1 Miss. Faith starts business with N800.00 in bank
There are two accounts involved:
Capital account---------giving---------- Credit = N800.00
Bank account-----------receiving--------Debit = N800.00
Miss. Faith is the owner of the business therefore her name must not appear in the books. Entries in the ledger
CAPITAL ACCOUNT
DR CR
N
N
Bank 800.00
DR BANK ACCOUNT CR
N
Capital 800.00 N
Jan. 2 purchased goods N300.00 by cheque.
Two accounts are involved:
Purchases account-------receiving----- Debit = 300.0
Bank account-------------giving---------Credit= 300.00
DR PURCHASES ACCOUNT CR
N
Bank 300.00 N
DR. BANK ACCIOUNT CR
N N
PURCHASES 300.00
Jan. 4 Sold goods N700.00 cash
Two accounts are involved:
Sales account--------giving------- Credit =N700.00
Cash account -------receiving-----Debit =700.00
DR. SALES ACCOUNT CR
N N
Cash 700.00
DR CASH ACCOUNT CR
N
Sales 700.00 N
Jan.7 Paid wages N50.00 cash
Two accounts are involved:
Wages account ------Receiving------ Debit =N50.00
Cash account ---------Giving--------Credit =N50.00
DR WAGES ACCOUNT CR
N
Cash 50.00 N
DR CASH ACCOUNT CR
N N
Wages 50.00
Jan. 8 bought machinery N500.00 paying by cheque
Two accounts are involved:
Machinery account---------Receiving------ Debit =500.00
Bank account--------------- Giving---------- Credit =500.00
DR. MACHINERY ACCOUNT CR
N
Bank 500.00 N
DR. BANK ACCOUNT CR
N N
Machinery 500.00
Jan. 10 Cash drawings N80.00
Two accounts are involved:
Cash account------Giving------- Credit =80.00
Drawings account-------Receiving-----Debit =80.00
DR CASH ACCOUNT CR
N N
Drawings 80.00
DR DRAWINGS ACCOUNT CR
N
Cash 80.00 N
Jan.12 Goods returned to us by Baba N200.00
Two accounts are involved:
Returned inward account-----receiving------ Debit =N200.00
Baba’s account-----------Giving---------Credit =N200.00
DR. RETURN INWARD A/C CR
N
Jan. 12 Baba 200.00 N
DR BABA ACCOUNT CR
N N
Jan. 12 Returned inward 200.00
Jan.17 Took cash N2, 400.00 from the bank and put it into cash till.
Two accounts are involved:
Bank account------Giving---------Credit =N2, 400.00
Cash account ------Receiving----Debit =N2,400.00
DR BANK ACCOUNT CR
N N
Jan. 17 cash 2,400.00
DR CASH ACCOUNT CR
N
Jan. 17 Bank 2,400.00 N
Jan. 20 we returned goods worth N100.00 to Jasper
Two accounts are involved:
Returned outward account----Giving------Credit = N100.00
Jasper account -------------------receiving---- Debit = N100.00
DR RETURNED OUTWARD A/C CR
N N
Jan. 20 Jasper 100.00
DR JASPER ACCOUNT CR
N
Jan. 20 Returned outward 100.00 N
Jan. 22 received commission in Cash N350.00
Two accounts are involved:
Commission------giving------Credit = N350.00
Cash--------------receiving-----Debit = N350.00
DR COMMISSION ACCOUNT CR
N N
Jan. 22 Cash 350.00
DR CASH ACCOUNT CR
N
Jan. 22 commission 350.00 N
Jan. 23 took loan from Mark by cheque N750.00
Two accounts are involved:
Loan (Mark) -----Giving------- Credit =N750.00
Bank--------------Receiving----Debit =N750.00
DR LOAN ACCOUNT CR
N N
Jan. 23 Bank 750.00
DR BANK ACCOUNT CR
N
Jan. 23 loan 750.00 N
Jan. 25 sold car on credit to Ojo N220.00
Two accounts are involved:
Car account -----giving----- Credit =N220.00
Ojo account ------receiving-----Debit =N220.00
DR CAR ACCOUNT CR
N N
Jan. 25 Ojo 220.00
DR OJO ACCOUNT CR
N
Jan. 25 car 220.00 N
Jan. 27 paid cash for repairs of Motor Vehicle N1, 500.00
Two accounts are involved:
Motor Vehicle-----Receiving------ Debit =N1, 500.00
Cash --------------giving-------------Credit =N1, 500.00
DR MOTOR VEHICLE ACCOUNT CR
N
Jan 27 Cash 1,500.00 N
DR CASH ACCOUNT CR
N N
Jan. 27 Motor Vehicle 1,500.00
Jan 30 withdraw N1, 000 cash for personal use
Two accounts are involved:
Drawings --------Receiving----- Debit =N1, 000.00
Cash------------giving---------- Credit =N1, 000.00
DR DRAWINGS ACCOUNT CR
N
Jan. 30 Cash 1,00.00 N
DR CASH ACCOUNT CR
N N
Jan. 30 Drawings 1,000.00
EVALUATION:
1. Explain the principle of double entry system
2. Complete this table showing which account should be debited and which should be credited:
Started business with cash
Paid part of the opening cash into the bank
A vehicle was sold for cash
Charles lent us cash
Cash purchases
WEEK 5
TOPIC: ACCOUNTING CONCEPTS AND CONVENTIONS
CONTENTS:
(a)Extraction of Accounting Concept
i. Entity concept
ii. Going concern Concept
iii. Conservatism and prudency concept
iv. Historical cost concept
v. Money measurement
vi. Materiality
vii. Realization
SUB-TOPIC: ACCOUNTING CONCEPT
Accounting concepts which is also referred to as principles and fundamental accounting postulate, are rules adopted as guides to actions in preparation of accounting statements.
Entity Concept: This concept draws a distinction between the business and the owner. This concept states that the business is a personality of its own, which can sue and be sued in its own name and not in the name of the owner.
Going Concern: This is an assumption that an organization will exist forever (at least in the force able future) except otherwise proved. This concept is the authority behind the recording of assets in the books where values of properties are extended into the future especially as concerning their benefits.
Money concept: This states that all financial transactions must be expressed with the currency in use in that location. The currency used in recording the financial data can be translated into other currency using the convertible nature of money.
This concept believes strongly that only financial oriented transaction should be given effect.
Historical cost concept: This states that the cost values of financial transaction should be used in recording such a transaction instead of fair current market values e.g. where Olu purchased a “Honda Car” latest series for N2million in Lagos while his friend Musa bought the same brand of Honda Car at the sum of N1.5million in Togo. It is expected that Olu should record his vehicle based on N2million and not otherwise while Musa do as N1.5 million and not otherwise.
Matching concept: (Revenue vs. Expenses). This is otherwise known as accrual concept which states that the income of a period should agree with the expenditure of the same period. Consequently, the relevant cost incurred in fetching a particular income should be matched together in arriving at the actual profit or loss of the concern.
Periodicity Concept: This is also known as time interval concept which states that financial records and statements should be prepared for a period of twelve calendar months as agreed to by the users of financial statements and the accounting world in general.
This concept is the follow-up of the going concern concept which states that a concern or entity will exist forever except otherwise proved. The life of a concern therefore emanates from commencement to cessation. Consequently, a company cannot wait until cessation to prepare its record and statements. The user of financial statement deems it fit to prepare statements after twelve calendar months.
Double Entry concept: This states that in any transaction. i.e. a financial event, there must be a debit and a corresponding credit entry. The total debit side must be equal or agree with the credit side which is the reason behind the agreement of the balance sheet.
Realization Concept: This states that the income and expenditure of a concern must be objectivity determined i.e. income earned by an organization should be based on the services rendered, received and receivables in line with the reality of the transaction. For instance, the income received from a contract award should be used on the cost of work incurred.
SUB-TOPIC 2: ACCOUNTING CONVENTIONS
Accounting convention is used in resolving conflicts arising out of the application of the concepts. Accounting convention therefore provide the way out, or better still, in resolving all identifiable conflicts and puzzles emanating from the application of concepts. The accounting conventions are as follows:
Consistency: This convention simply states that accountants and financial practitioners’ are free to choose from alternative policies and such a policy so taken must be strictly followed without deviations. This, by implication, portrays accountants as reliable, dependable, trustworthy and forthright in their professions. The job of an accountant demands transparency as a basis of building trust.
Prudency: This convention is also known as conservatism which states that accountants and book keepers should not anticipate future profit but future loss. This convention portrays the accountant as a person that is pessimistic and not optimistic.
Materiality: The term materiality is relative. i.e. what is material to one person is immaterial to the other. The essence of Materiality is to assess the significance of an item in relation to the whole and such item will be treated based on its size or monetary significance.
Example: an item of revenue of N4, 000,000 in an account of a company with a turnover of N15million can be considered material and hence require special attention. While the same N4, 000,000 in the account of a company with a turnover of N900million may not be considered as material.
Objectivity: This states that financial records should be prepared in line with verifiable evidence i.e. whatever is considered as income or expenditure should be supported with documentary evidence and facts.
EVALUATION:
1) What is the difference between concept and convention in accounting?
2) Mention four accounting concepts and explain two of them.
GENERAL EVALUATION:
Objectives:
1. The following are accounting concepts EXCEPT
(a) Going concern (b) Historical (c) Objectivity (d) Realization
2. The accounting convention that states there should be “free choice from alternative policies and such a policy so taken must be strictly followed without deviations” is known as (a) Going concern (b) Money concept (c) Consistency (d) Realization.
3. The following are examples of accounting concepts EXCEPT (a) Objectivity (b) Prudency (c) Materiality (d) Realization
4. The convention that states that what is material to one person may be immaterial to the other, is (a) Objectivity (b) materiality (c) Entity (d) prudence
5. Realization concept states that (a) income and expenditure of a concern must be objectivity determined (b) financial records should be prepared in line with verifiable evidence (c) collecting money from customer selling goods (d) the business is different from the owner.
WEEK END ASSIGNMENT:
List five Concepts and Three Conventions of accounting and explain each of them.
PRE-READING ASSIGNMENT:
List the types of Journal you know and explain them
WEEK END ACTIVITY: Study page 44 of O.A. Longe, etal; Essential Financial Accounting, tonad publisher, Lagos , Nigeria 2012.
REFERENCE:
O.A. Longe, etal; Essential Financial Accounting, tonad publisher, Lagos, Nigeria 2012.
Frank Wood, Business Accounting 1, Longman, Nigeria, 2008.
Robert. O.I., Financial Accounting Made Simple 1, ROI publisher, Lagos Nigeria, latest edition.
CONTENTS:
(a)Extraction of Accounting Concept
i. Entity concept
ii. Going concern Concept
iii. Conservatism and prudency concept
iv. Historical cost concept
v. Money measurement
vi. Materiality
vii. Realization
SUB-TOPIC: ACCOUNTING CONCEPT
Accounting concepts which is also referred to as principles and fundamental accounting postulate, are rules adopted as guides to actions in preparation of accounting statements.
Entity Concept: This concept draws a distinction between the business and the owner. This concept states that the business is a personality of its own, which can sue and be sued in its own name and not in the name of the owner.
Going Concern: This is an assumption that an organization will exist forever (at least in the force able future) except otherwise proved. This concept is the authority behind the recording of assets in the books where values of properties are extended into the future especially as concerning their benefits.
Money concept: This states that all financial transactions must be expressed with the currency in use in that location. The currency used in recording the financial data can be translated into other currency using the convertible nature of money.
This concept believes strongly that only financial oriented transaction should be given effect.
Historical cost concept: This states that the cost values of financial transaction should be used in recording such a transaction instead of fair current market values e.g. where Olu purchased a “Honda Car” latest series for N2million in Lagos while his friend Musa bought the same brand of Honda Car at the sum of N1.5million in Togo. It is expected that Olu should record his vehicle based on N2million and not otherwise while Musa do as N1.5 million and not otherwise.
Matching concept: (Revenue vs. Expenses). This is otherwise known as accrual concept which states that the income of a period should agree with the expenditure of the same period. Consequently, the relevant cost incurred in fetching a particular income should be matched together in arriving at the actual profit or loss of the concern.
Periodicity Concept: This is also known as time interval concept which states that financial records and statements should be prepared for a period of twelve calendar months as agreed to by the users of financial statements and the accounting world in general.
This concept is the follow-up of the going concern concept which states that a concern or entity will exist forever except otherwise proved. The life of a concern therefore emanates from commencement to cessation. Consequently, a company cannot wait until cessation to prepare its record and statements. The user of financial statement deems it fit to prepare statements after twelve calendar months.
Double Entry concept: This states that in any transaction. i.e. a financial event, there must be a debit and a corresponding credit entry. The total debit side must be equal or agree with the credit side which is the reason behind the agreement of the balance sheet.
Realization Concept: This states that the income and expenditure of a concern must be objectivity determined i.e. income earned by an organization should be based on the services rendered, received and receivables in line with the reality of the transaction. For instance, the income received from a contract award should be used on the cost of work incurred.
SUB-TOPIC 2: ACCOUNTING CONVENTIONS
Accounting convention is used in resolving conflicts arising out of the application of the concepts. Accounting convention therefore provide the way out, or better still, in resolving all identifiable conflicts and puzzles emanating from the application of concepts. The accounting conventions are as follows:
Consistency: This convention simply states that accountants and financial practitioners’ are free to choose from alternative policies and such a policy so taken must be strictly followed without deviations. This, by implication, portrays accountants as reliable, dependable, trustworthy and forthright in their professions. The job of an accountant demands transparency as a basis of building trust.
Prudency: This convention is also known as conservatism which states that accountants and book keepers should not anticipate future profit but future loss. This convention portrays the accountant as a person that is pessimistic and not optimistic.
Materiality: The term materiality is relative. i.e. what is material to one person is immaterial to the other. The essence of Materiality is to assess the significance of an item in relation to the whole and such item will be treated based on its size or monetary significance.
Example: an item of revenue of N4, 000,000 in an account of a company with a turnover of N15million can be considered material and hence require special attention. While the same N4, 000,000 in the account of a company with a turnover of N900million may not be considered as material.
Objectivity: This states that financial records should be prepared in line with verifiable evidence i.e. whatever is considered as income or expenditure should be supported with documentary evidence and facts.
EVALUATION:
1) What is the difference between concept and convention in accounting?
2) Mention four accounting concepts and explain two of them.
GENERAL EVALUATION:
Objectives:
1. The following are accounting concepts EXCEPT
(a) Going concern (b) Historical (c) Objectivity (d) Realization
2. The accounting convention that states there should be “free choice from alternative policies and such a policy so taken must be strictly followed without deviations” is known as (a) Going concern (b) Money concept (c) Consistency (d) Realization.
3. The following are examples of accounting concepts EXCEPT (a) Objectivity (b) Prudency (c) Materiality (d) Realization
4. The convention that states that what is material to one person may be immaterial to the other, is (a) Objectivity (b) materiality (c) Entity (d) prudence
5. Realization concept states that (a) income and expenditure of a concern must be objectivity determined (b) financial records should be prepared in line with verifiable evidence (c) collecting money from customer selling goods (d) the business is different from the owner.
WEEK END ASSIGNMENT:
List five Concepts and Three Conventions of accounting and explain each of them.
PRE-READING ASSIGNMENT:
List the types of Journal you know and explain them
WEEK END ACTIVITY: Study page 44 of O.A. Longe, etal; Essential Financial Accounting, tonad publisher, Lagos , Nigeria 2012.
REFERENCE:
O.A. Longe, etal; Essential Financial Accounting, tonad publisher, Lagos, Nigeria 2012.
Frank Wood, Business Accounting 1, Longman, Nigeria, 2008.
Robert. O.I., Financial Accounting Made Simple 1, ROI publisher, Lagos Nigeria, latest edition.
WEEK 6
SUBJECT: FINANCIAL ACCOUNTING
CLASS: SS 1
TOPIC: JOURNAL AND CASH ACCOUNT
CONTENTS:
a. General Journal Uses
b. Opening and Closing Entries
c. Correction of Errors
SUB-TOPIC 1: GENERAL JOURNAL:
General Journal:
General journal is designed as an all-purpose book- this means that any business transaction can be conveniently recorded in it. But its entries are usually restricted to records of opening and closing entries of business e.g.
The purchases or the sales of fixed asset on credit,
Correction of errors,
adjustment in account
purchases of new business
and other transfer
General Journal is also called Journal proper, it is also part of the books of original entry in which are recorded the initial entries in chronological order.
USES OF GENERAL JOURNAL:
1) Opening entries
2) Closing entries
3) Correction of errors
4) Transfer between accounts
5) Purchases of fixed asset on credit
6) Sales of fixed assets on credit
7) To answer questions on double entry
CLASSES OF ENTRIES
Simple Entries: Only two accounts are involved. One account will be debited and another credited.
Composite entries: these may involve several accounts to be debited and only one account to be credited or vice versa.
FARMAT OF JOURNAL ENTRIES
DATE PARTICULARS FOLIO DR CR
Name of account to be debited
Name of account to be credited
Narrations. ×××
×××
Note: it should be noted that any transaction which cannot be entered in the subsidiary books must appear in the journal before being posted to the ledgers.
1. Sales and purchases of fixed assets on credit: e.g.
(a) Sold Furniture to Rita on credit N600.00
DATE PARTICULARS DR CR
Furniture
Rita
Sales of furniture to Rita N
600.00 N
600.00
(b) Purchases of Motor Vehicle N5,000.00 from Ali on credit
DATE PARTICULARS DR CR
Motor Vehicle
Ali
Purchases of Motor Vehicle from Ali N
5,000.00 N
5,000.00
2. USE OF JOURNAL TO ANSWER QUESTIONS ON DOUBLE ENTRY SYSTEM:
EXAMPLES:
(a) Paid rent N400.00 for cash
(b) Cash sale N650.00
JOURNAL
DATE PARTICULARS DR CR
Rent
Cash
Rent paid with cash N
400.00 N
400.00
DATE PARTICULARS DR CR
Cash
Sales
Being sales of goods for cash
N
650.00 N
650.00
3. OPENING ENTRIES
EXAMPLE:
Jojo’s book shows the following balances on 1st January, 2013
ASSETS: Motor Van N800.00, Stock N450.00, Plant and machinery N900.00, Furniture N450.00, Cash N500.00 Debtor N200.00 Bill receivable 550.00
LIABILITY: Creditor 1,600.00, Loans 1,400.00 Bill payable 850.00
DATE PARTICULARS DR CR
Asset: Motor van
Stock
Plant and machinery
Furniture
Cash
Debtors
Bill receivable
Liability:
Creditor
Loans
Bill receivable
N
800.00
450.00
900.00
450.00
500.00
200.00
550.00
3,850.00
N
1,600.00
1,400.00
850
3,850.00
4. CORRECTION OF ERRORS
EXAMPLES:
Cash sale N300.00 was omission completely from the books
DATE PARTICULARS DR CR
cash
sales
correction of cash sales omitted N
300.00 N
300.00
5. TRANSFER BETWEEN ACCOUNTS
EXAMPLES:
Bola, a doctor, could not pay N1, 000 owed to us but bought machinery for full settlement.
DATE PARTICULARS DR CR
Bola
Machinery
Full settlement of debt with machinery
N
1,000.0 N
1,000.00
(b) Corrections of Error: In accounting literature errors are classified into two broad categories: the first group of errors does not affect the Trial Balance while the second group affects the Trial Balance. It means that if the Trial balance fails to agree it is due to the second group of errors.
There are six main errors in the first group:
a) Error of omission
b) Error of principles
c) Error of commission
d) Compensating error
e) Error of original entry
f) Error of complete reversal of entry
1. Error of Omission: There is an error of omission if the transaction is completely omitted from the books of account. That is, there is no entry on either side of all the books of account.
2. Error of Principles: An error of principles occurs when the entry of a transaction is made in a wrong account. Such a situation may arise where a transaction of a fixed asset (real account) is entered in a nominal account.
3. Error of commission: An error of commission occurs when personal account of one person, organization or firm is entered in an account of other person, organization or firm.
4. Compensating error: The compensating error occurs when the effect of the mistake is exactly offset by another mistake of the same size working in the reverse direction.
5. Errors of original entry: This is an error committed right from the prime books, which are transferred into the ledger entries the same way.
6. Errors of complete reversal of entry: This is a case where an item that was supposed to be the debited was credited and the one to be credited was debited.
Errors not affecting the agreement of the Trial Balance
The second groups of errors that visibly affect the agreement Trial Balance are called clerical errors. Where clerical errors occurs the trial balance is usually balanced by opening, an interim, a suspense account to take records of the difference between the two sides, until the errors are discovered and necessary corrections made. These errors include:
(a) Error in casting the figures in either the books of the original entry or the ledger accounts. Thus an account may be over cast or under cast.
(b) Mistakes in the addition of the trial balance.
(c) Omission of some balances in the ledger including the cash book when extracting the trial balance.
(d) Mistakes in the calculation of the balances.
(e) Some items not posted from the books of the original entry.
CLASS: SS 1
TOPIC: JOURNAL AND CASH ACCOUNT
CONTENTS:
a. General Journal Uses
b. Opening and Closing Entries
c. Correction of Errors
SUB-TOPIC 1: GENERAL JOURNAL:
General Journal:
General journal is designed as an all-purpose book- this means that any business transaction can be conveniently recorded in it. But its entries are usually restricted to records of opening and closing entries of business e.g.
The purchases or the sales of fixed asset on credit,
Correction of errors,
adjustment in account
purchases of new business
and other transfer
General Journal is also called Journal proper, it is also part of the books of original entry in which are recorded the initial entries in chronological order.
USES OF GENERAL JOURNAL:
1) Opening entries
2) Closing entries
3) Correction of errors
4) Transfer between accounts
5) Purchases of fixed asset on credit
6) Sales of fixed assets on credit
7) To answer questions on double entry
CLASSES OF ENTRIES
Simple Entries: Only two accounts are involved. One account will be debited and another credited.
Composite entries: these may involve several accounts to be debited and only one account to be credited or vice versa.
FARMAT OF JOURNAL ENTRIES
DATE PARTICULARS FOLIO DR CR
Name of account to be debited
Name of account to be credited
Narrations. ×××
×××
Note: it should be noted that any transaction which cannot be entered in the subsidiary books must appear in the journal before being posted to the ledgers.
1. Sales and purchases of fixed assets on credit: e.g.
(a) Sold Furniture to Rita on credit N600.00
DATE PARTICULARS DR CR
Furniture
Rita
Sales of furniture to Rita N
600.00 N
600.00
(b) Purchases of Motor Vehicle N5,000.00 from Ali on credit
DATE PARTICULARS DR CR
Motor Vehicle
Ali
Purchases of Motor Vehicle from Ali N
5,000.00 N
5,000.00
2. USE OF JOURNAL TO ANSWER QUESTIONS ON DOUBLE ENTRY SYSTEM:
EXAMPLES:
(a) Paid rent N400.00 for cash
(b) Cash sale N650.00
JOURNAL
DATE PARTICULARS DR CR
Rent
Cash
Rent paid with cash N
400.00 N
400.00
DATE PARTICULARS DR CR
Cash
Sales
Being sales of goods for cash
N
650.00 N
650.00
3. OPENING ENTRIES
EXAMPLE:
Jojo’s book shows the following balances on 1st January, 2013
ASSETS: Motor Van N800.00, Stock N450.00, Plant and machinery N900.00, Furniture N450.00, Cash N500.00 Debtor N200.00 Bill receivable 550.00
LIABILITY: Creditor 1,600.00, Loans 1,400.00 Bill payable 850.00
DATE PARTICULARS DR CR
Asset: Motor van
Stock
Plant and machinery
Furniture
Cash
Debtors
Bill receivable
Liability:
Creditor
Loans
Bill receivable
N
800.00
450.00
900.00
450.00
500.00
200.00
550.00
3,850.00
N
1,600.00
1,400.00
850
3,850.00
4. CORRECTION OF ERRORS
EXAMPLES:
Cash sale N300.00 was omission completely from the books
DATE PARTICULARS DR CR
cash
sales
correction of cash sales omitted N
300.00 N
300.00
5. TRANSFER BETWEEN ACCOUNTS
EXAMPLES:
Bola, a doctor, could not pay N1, 000 owed to us but bought machinery for full settlement.
DATE PARTICULARS DR CR
Bola
Machinery
Full settlement of debt with machinery
N
1,000.0 N
1,000.00
(b) Corrections of Error: In accounting literature errors are classified into two broad categories: the first group of errors does not affect the Trial Balance while the second group affects the Trial Balance. It means that if the Trial balance fails to agree it is due to the second group of errors.
There are six main errors in the first group:
a) Error of omission
b) Error of principles
c) Error of commission
d) Compensating error
e) Error of original entry
f) Error of complete reversal of entry
1. Error of Omission: There is an error of omission if the transaction is completely omitted from the books of account. That is, there is no entry on either side of all the books of account.
2. Error of Principles: An error of principles occurs when the entry of a transaction is made in a wrong account. Such a situation may arise where a transaction of a fixed asset (real account) is entered in a nominal account.
3. Error of commission: An error of commission occurs when personal account of one person, organization or firm is entered in an account of other person, organization or firm.
4. Compensating error: The compensating error occurs when the effect of the mistake is exactly offset by another mistake of the same size working in the reverse direction.
5. Errors of original entry: This is an error committed right from the prime books, which are transferred into the ledger entries the same way.
6. Errors of complete reversal of entry: This is a case where an item that was supposed to be the debited was credited and the one to be credited was debited.
Errors not affecting the agreement of the Trial Balance
The second groups of errors that visibly affect the agreement Trial Balance are called clerical errors. Where clerical errors occurs the trial balance is usually balanced by opening, an interim, a suspense account to take records of the difference between the two sides, until the errors are discovered and necessary corrections made. These errors include:
(a) Error in casting the figures in either the books of the original entry or the ledger accounts. Thus an account may be over cast or under cast.
(b) Mistakes in the addition of the trial balance.
(c) Omission of some balances in the ledger including the cash book when extracting the trial balance.
(d) Mistakes in the calculation of the balances.
(e) Some items not posted from the books of the original entry.
WEEK 7
TOPIC: ANALYTICAL CASH BOOK
CONTENTS:
1. Types of discount
2. Single Column Cash Book
3. Double Column cash book
4. Contra entries
SUB-TOPIC: TYPES OF DISCOUNT
What is Discount?
Discount can be defined as the reduction in the price of goods in order to induce or encourage the customer to purchase in bulk or for prompt payment. Discount accounts are nominal accounts. On the debit side is the discount allowed and on the credit side is the discount received.
TYPES OF DISCOUNT:
Trade Discount
Cash Discount
Trade Discount is an allowance made by manufacturer or wholesaler to a retailer in form of deduction from the catalogue price of goods supplied. It is an inducement to the customer to buy goods in large quantity.
Cash discount is a percentage allowance for prompt payment of an account or for payment within a specified period of time. It is not ignored in the account as in the case of trade discount
Classification of Cash Discount:
A. Discount Received: This is the discount granted customers by suppliers when it pays its accounts quickly. It is treated as an income and credited to the three- column cash book. Cash discount is posted to the income side of the profit and loss account.
B. Discount allowed: This is discount allowed by a firm to its customers when they pay their accounts quickly. It is entered on the debit side of the three-column cash book and is treated as expenses in the profit and loss account.
COMPARISON BETWEEN CASH AND TRADE DISCOUNT
CASH DISCOUNT TRADE DISCOUNT
1. It is giving for prompt payment.
2. Will be posted to the ledger.
3. Must be deducted after trade discount.
4. Giving to customer who pay on time
5. It is conditional 1. It is giving to encourage or induce purchase of large quantity of good
2. Will not be posted to the ledger.
3. Will be deducted before cash discount.
4. It is giving to every buyer
5. It is unconditional
EVALUATION:
1. Mention four differences between Cash and Trade Discount
2. List the types of Cash discount and briefly explain them
3. Mention 5 types of errors that will not affect the agreement of Trial Balance
SUB-TOPIC: SINGLE COLUMN CASH BOOK
CASH BOOK: Cash book is the book of prime entry which record cash transactions only. Cash book is the book for recording detailed particulars of all money received and paid. It is a subsidiary book and also performs the function of a ledger.
Single Column Cash Book
ILLUSTRATION 1.Enter the following transactions in the cash book of A. Diamond, a sole trader, for the month of January, 2013.
N
Jan. 1 Start business with cash 7,200.00
2 bought goods for cash 1,800.00
3 sold goods for cash 440.00
3 paid carriage 80.00
6 paid advertising account 80.00
9 Ham paid cash on account 340.00
14 lent U.Olu 800.00
16 purchase goods for cash 1,600.00
18 cash sales 850.00
24 paid wages 180.00
28 cash sales 760.00
29 paid rent and rates 100.00
30. U. Olu paid on account 400.00
Open cash book, ledger accounts and extract a trial balance as at 31st Jan., 2013.
SUGGESTED SOLUTION:
DIAMOND
DR. CASH BOOK FOR THE MONTH END 31JAN. 2013CR
Date particulars Fol. Cash
N Date particulars Fol. Cash
N
Jan.1
9
12
18
28
30
Feb1 Capital
Sales
Ham
U.Olu
Sales
Sales
U. Ola
Balance b/d 7,200
440
340
800
850
760
400
10,790
6,950
Jan.2
3
6
16
24
29
31 Purchases
Carriage
Advert
Purchases
Wages
Rents
balance
c/d 1,800
80
80
1,600
180
100
6,950
10,790
DR. CAPITAL ACCOUNT CR.
Date particulars fol N Date particulars fol N
Jan. 1 cash 7,200
DR PURCHASES A/C CR
Date particular l/f N Date particulars l/f N
Jan. 3
19
Feb. Cash
Cash
Bal.b/d
1,800
1,600
3,400
3,400 Jan.31 Bal.c/d 3,400
3,400
DR. SALES ACCOUNT CR.
Date particulars l/f N Date particulars l/f N
Jan31 Bal.c/d 2,050
2,050 Jan.
Fed 1 Cash
Cash
Cash
Bal. b/d 440
850
760
2,050
2,050
DR WAGES ACCOUNT CR.
Date particulars l/f N Date particulars l/f N
Jan.5 cash 80
DR ADVERTISING A/C CR.
Date particulars l/f N Date particulars l/f N
Jan.8 cash 80
DR. HAM ACCOIUNT CR.
Date particulars l/f N Date particulars l/f N
Jan.9 cash 340
DR. U. OLU ACCOUNT CR.
Date particulars l/f N Date particulars l/f N
Jan31
Feb.1 Cash
Bal.b/d 800
800
400 Jan29
31 Cash
Bal.c/d
400
400
800
DR. WAGES ACCOUNT CR.
Date particulars l/f N Date particulars l/f N
Jan25 cash 180
DR. RENT AND RATE A/C CR
Date particulars l/f N Date particulars l/f N
Jan cash 100
NOTE: the cardinal point in posting items from cash book to the ledger is that all items from the debit side of the cash book except the balance(s) and cash discounts are posted to the credit side of the ledger and vice versa.
EVALUATION 1:
MR .DADA commenced business as a petty trader in Lagos, on 1st of March, 2011 with N5, 000 in cash. During the month, the following transactions took place. N
1. Mar. Bought office furniture……………….. 400.00
3 Mar. Bought assorted goods for sale……. 2000.00
5 Mar. Bought postage stamps ……………….. 10.00
7 Mar. Sold goods for cash……………………… 80.00
8 Mar. Paid for cleaning materials …………… 10.00
10 Mar. Received cash from Godwin….. 50.00
14 Mar. Paid Mark ………..…………………… 90.00
16 Mar. Bought Stationery for cash…………..… 5.00
18 Mar. Bought sundry articles for Resale…… 500.00
20 Mar. Received cash from Malin…………….. 100.00
22. Mar. Cash Sale……………………………..... 50.00
24. Mar. Paid Jemima Kemi Cash………...… 100.00
28 Mar. Paid wages to assistant……………….. 100.00
30 Mar. Paid rent………………………………… 50.00
You are required to post the above entries to a single column cash book.
CONTRA ENTRIES:
The word contra is a Latin word meaning opposite. In some cases in business, there may be excess cash in hand which needs to be paid into the bank for official use.
These are known as contra entries because both sides of the cash book will have entries concerning each transaction. Contra entries are denoted by “c” or “cc” in the folio columns and on the ledger. A bank that is credited in the cash book will be debited, while cash debited on the cash book will be credited.
ILLUSTRATION 3:
Enter the following transactions in a double column cash book of TUCKSHOP INT’L Enterprises from the following particulars:
N
May 1 Cash in office 260.00
May 1 Cash at Bank 1,800.00
May 3 Received bank cheque from Aboh 160.00
May 5 Cash Sales to date 500.00
May 6 Paid cash into bank 650.00
May 8 Paid Attabor by cheque 140.00
May 12 Paid rent by cheque 100.00
May 14 Bought Stationery by cash 100.00
May 17 Withdraw cash from bank to office 400.00
May 18 Purchase goods for cash 160.00
May 29 Cash sales to date 600.00
May 30 Paid cash to the bank 150.00
May 31 Paid wages in cash 100.00
May 31 Bank desired charges 50.00
You are required to prepare double column cash book
TUCHSHOP INT’L
DR Double Column Cash Book for the Month End 31st May, 2013 CR
Date particulars f Cash
N Bank
N Date particulars f Cash
N Bank
N
May.1
3
5
6
29
30
Jun.1 Bal.
Aboh
Sales
Cash
Sales
Cash
Bal.b/d
c
260
500
600
1,360
500 1,800
160
500
150
2,510
1,820 May.6
8
12
14
17
18
31
31
31 Bank
Attbor
Rent
Stationery
Cash
Purchases
Wages
Charges
Bal.c/d c
c
500
100
160
100
500
1,360
140
100
400
50
1,820
2,510
EVALUATION: 3
Enter the following transactions in a double-column cash book of TUCK SHOP, a sole trader based in DLHS Lagos for the month of March 2013
Mar.1 Capital at start: Cash ………………. N4, 500.00
Bank……………… N9, 000.00
“2 Lent to Favour in cheque………….. N1, 500.00
“4 Purchase goods by cheque……….. N7, 500.00
“6 Cash sales…………………………… N6, 000.00
“9 Paid expenses…………………………… N150.00
“15 Cash sales paid into the bank……. N1, 500.00
“22 Paid cash into the bank…………..... N3, 000.00
“25 Favour paid cheque on account... N750.00
“25 Withdraw cash from bank for office use N600.00
“28 Paid T. Baba by cheque ……………… N750.00
“28 Cash sales……………………………….. N750.00
“29 Paid wages in cash……………………… N300.00
“30 Cash sales paid into bank……………. N350.00
“30 Paid cash into bank…………………..... N600.00
Prepare the Double column Cash Book
GENERAL EVALUATION:
Objectives:
1.__________ is not a column in the ledger. (a) Date B. Folio C. Cash
2.________ is a column for entering page numbers. A. Particulars B. Folio C. Discount D. bank
3. The debit side of the ledger is at the _______ A. Left-hand side B. Right-hand side C. Centre side D.Both sides of the account
4. The column used for recording the actual monetary value is called ______ A. Folio B. Discount C. Amount D. Date
5. The type of cash book that record discount is called………….. A. single column B. Three-column C. Double column D. Discount account
WEEK END ASSIGNMENT: Read Essential Financial Accounting (pages 46-52)
PRE-READING ASSIGNMENT: Read about the Petty Cash book check it up in Essential Financial Accounting (pages 53-58)
WEEK END ACTIVITY: Explain the major differences between Single column and Double Column Cash book.
REFERENCE:
O.A. Longe, etal; Essential financial Accounting, tonad publisher, Lagos, Nigeria 2012.
Frank Wood, Business Accounting 1, Longman, Nigeria, 2008.
CONTENTS:
1. Types of discount
2. Single Column Cash Book
3. Double Column cash book
4. Contra entries
SUB-TOPIC: TYPES OF DISCOUNT
What is Discount?
Discount can be defined as the reduction in the price of goods in order to induce or encourage the customer to purchase in bulk or for prompt payment. Discount accounts are nominal accounts. On the debit side is the discount allowed and on the credit side is the discount received.
TYPES OF DISCOUNT:
Trade Discount
Cash Discount
Trade Discount is an allowance made by manufacturer or wholesaler to a retailer in form of deduction from the catalogue price of goods supplied. It is an inducement to the customer to buy goods in large quantity.
Cash discount is a percentage allowance for prompt payment of an account or for payment within a specified period of time. It is not ignored in the account as in the case of trade discount
Classification of Cash Discount:
A. Discount Received: This is the discount granted customers by suppliers when it pays its accounts quickly. It is treated as an income and credited to the three- column cash book. Cash discount is posted to the income side of the profit and loss account.
B. Discount allowed: This is discount allowed by a firm to its customers when they pay their accounts quickly. It is entered on the debit side of the three-column cash book and is treated as expenses in the profit and loss account.
COMPARISON BETWEEN CASH AND TRADE DISCOUNT
CASH DISCOUNT TRADE DISCOUNT
1. It is giving for prompt payment.
2. Will be posted to the ledger.
3. Must be deducted after trade discount.
4. Giving to customer who pay on time
5. It is conditional 1. It is giving to encourage or induce purchase of large quantity of good
2. Will not be posted to the ledger.
3. Will be deducted before cash discount.
4. It is giving to every buyer
5. It is unconditional
EVALUATION:
1. Mention four differences between Cash and Trade Discount
2. List the types of Cash discount and briefly explain them
3. Mention 5 types of errors that will not affect the agreement of Trial Balance
SUB-TOPIC: SINGLE COLUMN CASH BOOK
CASH BOOK: Cash book is the book of prime entry which record cash transactions only. Cash book is the book for recording detailed particulars of all money received and paid. It is a subsidiary book and also performs the function of a ledger.
Single Column Cash Book
ILLUSTRATION 1.Enter the following transactions in the cash book of A. Diamond, a sole trader, for the month of January, 2013.
N
Jan. 1 Start business with cash 7,200.00
2 bought goods for cash 1,800.00
3 sold goods for cash 440.00
3 paid carriage 80.00
6 paid advertising account 80.00
9 Ham paid cash on account 340.00
14 lent U.Olu 800.00
16 purchase goods for cash 1,600.00
18 cash sales 850.00
24 paid wages 180.00
28 cash sales 760.00
29 paid rent and rates 100.00
30. U. Olu paid on account 400.00
Open cash book, ledger accounts and extract a trial balance as at 31st Jan., 2013.
SUGGESTED SOLUTION:
DIAMOND
DR. CASH BOOK FOR THE MONTH END 31JAN. 2013CR
Date particulars Fol. Cash
N Date particulars Fol. Cash
N
Jan.1
9
12
18
28
30
Feb1 Capital
Sales
Ham
U.Olu
Sales
Sales
U. Ola
Balance b/d 7,200
440
340
800
850
760
400
10,790
6,950
Jan.2
3
6
16
24
29
31 Purchases
Carriage
Advert
Purchases
Wages
Rents
balance
c/d 1,800
80
80
1,600
180
100
6,950
10,790
DR. CAPITAL ACCOUNT CR.
Date particulars fol N Date particulars fol N
Jan. 1 cash 7,200
DR PURCHASES A/C CR
Date particular l/f N Date particulars l/f N
Jan. 3
19
Feb. Cash
Cash
Bal.b/d
1,800
1,600
3,400
3,400 Jan.31 Bal.c/d 3,400
3,400
DR. SALES ACCOUNT CR.
Date particulars l/f N Date particulars l/f N
Jan31 Bal.c/d 2,050
2,050 Jan.
Fed 1 Cash
Cash
Cash
Bal. b/d 440
850
760
2,050
2,050
DR WAGES ACCOUNT CR.
Date particulars l/f N Date particulars l/f N
Jan.5 cash 80
DR ADVERTISING A/C CR.
Date particulars l/f N Date particulars l/f N
Jan.8 cash 80
DR. HAM ACCOIUNT CR.
Date particulars l/f N Date particulars l/f N
Jan.9 cash 340
DR. U. OLU ACCOUNT CR.
Date particulars l/f N Date particulars l/f N
Jan31
Feb.1 Cash
Bal.b/d 800
800
400 Jan29
31 Cash
Bal.c/d
400
400
800
DR. WAGES ACCOUNT CR.
Date particulars l/f N Date particulars l/f N
Jan25 cash 180
DR. RENT AND RATE A/C CR
Date particulars l/f N Date particulars l/f N
Jan cash 100
NOTE: the cardinal point in posting items from cash book to the ledger is that all items from the debit side of the cash book except the balance(s) and cash discounts are posted to the credit side of the ledger and vice versa.
EVALUATION 1:
MR .DADA commenced business as a petty trader in Lagos, on 1st of March, 2011 with N5, 000 in cash. During the month, the following transactions took place. N
1. Mar. Bought office furniture……………….. 400.00
3 Mar. Bought assorted goods for sale……. 2000.00
5 Mar. Bought postage stamps ……………….. 10.00
7 Mar. Sold goods for cash……………………… 80.00
8 Mar. Paid for cleaning materials …………… 10.00
10 Mar. Received cash from Godwin….. 50.00
14 Mar. Paid Mark ………..…………………… 90.00
16 Mar. Bought Stationery for cash…………..… 5.00
18 Mar. Bought sundry articles for Resale…… 500.00
20 Mar. Received cash from Malin…………….. 100.00
22. Mar. Cash Sale……………………………..... 50.00
24. Mar. Paid Jemima Kemi Cash………...… 100.00
28 Mar. Paid wages to assistant……………….. 100.00
30 Mar. Paid rent………………………………… 50.00
You are required to post the above entries to a single column cash book.
CONTRA ENTRIES:
The word contra is a Latin word meaning opposite. In some cases in business, there may be excess cash in hand which needs to be paid into the bank for official use.
These are known as contra entries because both sides of the cash book will have entries concerning each transaction. Contra entries are denoted by “c” or “cc” in the folio columns and on the ledger. A bank that is credited in the cash book will be debited, while cash debited on the cash book will be credited.
ILLUSTRATION 3:
Enter the following transactions in a double column cash book of TUCKSHOP INT’L Enterprises from the following particulars:
N
May 1 Cash in office 260.00
May 1 Cash at Bank 1,800.00
May 3 Received bank cheque from Aboh 160.00
May 5 Cash Sales to date 500.00
May 6 Paid cash into bank 650.00
May 8 Paid Attabor by cheque 140.00
May 12 Paid rent by cheque 100.00
May 14 Bought Stationery by cash 100.00
May 17 Withdraw cash from bank to office 400.00
May 18 Purchase goods for cash 160.00
May 29 Cash sales to date 600.00
May 30 Paid cash to the bank 150.00
May 31 Paid wages in cash 100.00
May 31 Bank desired charges 50.00
You are required to prepare double column cash book
TUCHSHOP INT’L
DR Double Column Cash Book for the Month End 31st May, 2013 CR
Date particulars f Cash
N Bank
N Date particulars f Cash
N Bank
N
May.1
3
5
6
29
30
Jun.1 Bal.
Aboh
Sales
Cash
Sales
Cash
Bal.b/d
c
260
500
600
1,360
500 1,800
160
500
150
2,510
1,820 May.6
8
12
14
17
18
31
31
31 Bank
Attbor
Rent
Stationery
Cash
Purchases
Wages
Charges
Bal.c/d c
c
500
100
160
100
500
1,360
140
100
400
50
1,820
2,510
EVALUATION: 3
Enter the following transactions in a double-column cash book of TUCK SHOP, a sole trader based in DLHS Lagos for the month of March 2013
Mar.1 Capital at start: Cash ………………. N4, 500.00
Bank……………… N9, 000.00
“2 Lent to Favour in cheque………….. N1, 500.00
“4 Purchase goods by cheque……….. N7, 500.00
“6 Cash sales…………………………… N6, 000.00
“9 Paid expenses…………………………… N150.00
“15 Cash sales paid into the bank……. N1, 500.00
“22 Paid cash into the bank…………..... N3, 000.00
“25 Favour paid cheque on account... N750.00
“25 Withdraw cash from bank for office use N600.00
“28 Paid T. Baba by cheque ……………… N750.00
“28 Cash sales……………………………….. N750.00
“29 Paid wages in cash……………………… N300.00
“30 Cash sales paid into bank……………. N350.00
“30 Paid cash into bank…………………..... N600.00
Prepare the Double column Cash Book
GENERAL EVALUATION:
Objectives:
1.__________ is not a column in the ledger. (a) Date B. Folio C. Cash
2.________ is a column for entering page numbers. A. Particulars B. Folio C. Discount D. bank
3. The debit side of the ledger is at the _______ A. Left-hand side B. Right-hand side C. Centre side D.Both sides of the account
4. The column used for recording the actual monetary value is called ______ A. Folio B. Discount C. Amount D. Date
5. The type of cash book that record discount is called………….. A. single column B. Three-column C. Double column D. Discount account
WEEK END ASSIGNMENT: Read Essential Financial Accounting (pages 46-52)
PRE-READING ASSIGNMENT: Read about the Petty Cash book check it up in Essential Financial Accounting (pages 53-58)
WEEK END ACTIVITY: Explain the major differences between Single column and Double Column Cash book.
REFERENCE:
O.A. Longe, etal; Essential financial Accounting, tonad publisher, Lagos, Nigeria 2012.
Frank Wood, Business Accounting 1, Longman, Nigeria, 2008.
WEEK 8
TOPIC: ANALYTICAL CASH BOOK
CONTENTS:
Analytical Petty Cash Book
Three columns Cash Book
Cash transaction to ledger
SUB-TOPIC: Analytical Petty cash Book
The petty cash book is the book for recording small disbursements .i.e. expenses. Petty cash is the book of original or prime entry which is used for recording small disbursements or expenses.
IMPRESS SYSTEM: It is a system for recording petty cash transactions, which are paid out of a cash float. The system is set up by giving a specified sum known as cash float to the cashier in order to cover petty expenses during the period.
The petty cashier will pay out money from the float for all authorized vouchers. At frequent intervals, he/she will be re-reimbursed for the amount spent thus bringing it to the original amount.
Columns in a Petty Cash Book
DEBIT SIDE
1 Amount
2 Dates
3 Particulars of expenses
4 Voucher number
5 Total amounts
CREDIT SIDE
On the credit side we have the analysis of expenses of a ledger account. This has different columns for different expenses e. g stationery, postage, transport, etc.
Recording of Receipts and Payments in Petty Cash Book
1. The credit entry is made in the cash book
2. The debt entry is made in the petty cash book
3. The entries on the credit side of the petty cash book are first made in the total column and then, extended into the relevant expenses column,
4. The expenses columns have various headings for different expenses,
5. The last column of the petty cash book is known as a ledger account.
Preparation of a Petty Cash Book
Example
Record the following in the relevant columns of the petty cash book of Chillington, a sole proprietor.
Jan 1. Petty cashier received an Imp rest amount of N2000
2 Paid for bus fare N200
4 Paid for postage N150
8 Paid for duplicating paper N300
12 Bought envelops N250
16 Paid Mr. Kalu N500
25 Bought office pins N100
26 Bought stamps N100
30 Paid taxi fare N200
Chillington’s Petty Cash Book
DR CR
Amount Received Date Particulars Voucher
number Total
Amount Analysis of Payments
Stationery Postage Transport Office Account
2,000 Jan 1
2 Bus fare 1 200 200
4 Postage 2 150 150
8 Paper 3 300 300
12 Envelopes 4 250 250 500
16 Mr. Kalu 5 500
25 Office Pins 6 100 100
26 Stamps 7 100 100
30 Taxi fare 18 200 200
31 Balance c/d 1,800
200
300 300 400 100 500
2,000
2,000
200 Feb 1 Balance c/d
The above table is a petty cash book.
IMPREST SYSTEM
This is a method used in controlling the amount of money given to the petty cashier. A fixed amount called Imp rest is given to the cashier weekly or monthly to pay for small expenses.
At the end of the period, the petty cashier gives account of what she spends and the balance remaining. The amount spent will be reimbursed. This process of giving a petty cashier some amount of money for petty items at the beginning of every month is called “Imp rest system”.
The sum of money giving to a petty cashier is called “Cash float”, the document used in raising petty cash is known as a “Petty Cash Voucher”
Petty Cash
This is a small amount of discretionary funds in the form of cash used for expenditures where it is not sensible to make any disbursement by cheque, because of the inconvenience and costs of writing, signing and then cashing the cheque.
EVALUATION:
BASI LIMITED operates a petty cash on the imprest system with a cash float of N3000
Jan.1 envelope…………………… 40
Jan.5 petrol……………………….. 160
Jan.7 postage stamps…………. 70
Jan.9 petrol ……………………….. 180
Jan.9 envelopes …………………. 120
Jan.11 office cleaning ……….. 20
Jan.11 stationery ………………. 210
Jan.12 travelling expenses….. 100
Jan. 13 transport fee…………… 90
Jan.16 postage stamps………… 30
Jan. 17 paid Gracious…………… 90
Jan.20 stationary………………… 120
Jan.21 petrol……………………….. 50
Jan.21 settled Ojo ………………… 70
Jan.22 travelling expenses……. 60
Jan.22 office cleaning …………… 100
Jan.25 postage……………………… 40
Jan. 28 paid Eije……………………. 50
Jan. 30 travelling ………………….. 80
You are required to enter the transactions into the pretty cash book under the following headings: postage and stationary, Motor expenses, transport, office cleaning,
ESSAY:
A. What is a Petty Cash Book?
B. Define Imprest System
SUB-TOPIC 2: THREE COLUMN CASH BOOK
This is a book that combines Cash, Bank, and Discount accounts together in a single ledger. It has column for cash, bank and discount. The principle of double entry is also applicable in the three-column cash book.
ILLUSTRATION:
Mr. SUCCESS made the following transactions in the month of March, post the transactions in a three – column cash book:
March 1. Cash at hand 200
Cash in bank 2,000
1. Withdrawal of office cash 300
2.Customer R. Adelai settle his account of
N200 by cash and was allowed 5% discount
4 Paid wages by cheque 700
5 Receive cheque from R.Winla 1,160
Allowed him discount 10
5 Purchase of goods less 5% discount
(Discount received) by cash 400
6 Paid T. Chike by cheque 280
Discount received 20
6 Bought packaging materials for cash 200
7 Cash sales 3,000
7 Paid into bank 2,800
What was the balance brought down on 7th Mar, 2013?
DR SUCCESS
Date Particulars Folio Disct. Allwd Cash Bank Date Particulars Folio Disct. Received Cash Bank
Mar 1
Mar 2
Mar 2
Mar 5
Mar 7
Mar 7
Oct. 1 Balance
Bank
R. Adelai
R. Winla
Sales
Cash
Bal b/d b/d
cc
10
40
200
300
190
3000
2,000
1160
2,800 Mar 2
Mar 4
Mar 5
Mar 6
Mar 6
Mar 7
Mar 7 Office Cash
Wages
Purchases
T. Chike
Packing mat.
Bank
Bal c/d
cc
20
20
380
20
2,800
490 300
700
280
4,680
50 3,690 5,960 40 4,500 8,000
490 4,680
Three Column Cash Book for March 2013 CR
Dr Office A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 2
Bank 300
Dr Bank A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 2 Bank
300
Dr R. Adelai A/c Cr
Date Particulars Amount N Date Particulars Amount
Apr 1 Balance c/d 200 Mar 2
Mar 2 Cash
Discount 190
10
Dr Wages A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 4
Bank 700
Dr R. Winla A/c Cr
Date Particulars Amount N Date Particulars Amount
Apr 1
Balance b/d 1,200
1, 200 Mar 5
Mar 5 Bank
Discount 1,160
40
1, 200
Dr Purchase A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 5
Mar 5
Cash
Discount 380
20 Apr 1 Balance c/d 400
400
400
Dr T. Chike A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 6
Mar 6
Bank
Discount 280
20 Apr 1 Balance c/d 300
300
300
Dr Packing Materials A/c Cr
Date Particulars Amount N Date Particulars Amount N
Mar 6
Cash 20
Dr Sales A/c Cr
Date Particulars Amount N Date Particulars Amount N
Mar 7 Cash 800
Dr Discount Received A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 5
Mar 6
Purchases
T. Chike 20
20 Apr 1 Balance c/d 40
40
40
Dr Discount Allowed A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 2
Mar 5 R. Adelai
R. Winla 10
40
Dr Cash Account Cr
Date Particulars Amount N Date Particulars Amount N
Mar 7 Cash 2,800
GENERAL EVALUATION
Objectives:
1. _____________ is not found on the debit side of a petty cash book. A. Date given B. Voucher Number C. Total Amount D. Folio
2. Which of the following expenditures can be paid from petty cash? A. Rent B. Equipment C. Motor vehicle. D. Furniture
3. The book where all small expenditures are recorded is called a __________ A. Ledger B. Petty cash book C. Journal
4. The sum of money giving to a petty cashier is called A. Imprest B. Cash C. Reimbursement D. Cash Float
5. The book for recording small disbursements or expenses is called A. Cash book B. Bookkeeping C. Petty Cash Book D. Ledger account
WEEK END ASSIGNMENT: Read Essential Financial Accounting (page 46-52)
PRE-READING ASSIGNMENT: Read about the petty Cash check it up in Essential Financial Accounting (page 53-58)
WEEK END ACTIVITY: Look for the major differences between Single column and Double Column Cash book and write them out.
REFERENCES:
O.A. Longe, etal; Essential financial Accounting, tonad publisher, Lagos, Nigeria 2012. (Pages 40-58)
Frank Wood, Business Accounting 1, Longman, Nigeria, 2008. (pages 90-95)
CONTENTS:
Analytical Petty Cash Book
Three columns Cash Book
Cash transaction to ledger
SUB-TOPIC: Analytical Petty cash Book
The petty cash book is the book for recording small disbursements .i.e. expenses. Petty cash is the book of original or prime entry which is used for recording small disbursements or expenses.
IMPRESS SYSTEM: It is a system for recording petty cash transactions, which are paid out of a cash float. The system is set up by giving a specified sum known as cash float to the cashier in order to cover petty expenses during the period.
The petty cashier will pay out money from the float for all authorized vouchers. At frequent intervals, he/she will be re-reimbursed for the amount spent thus bringing it to the original amount.
Columns in a Petty Cash Book
DEBIT SIDE
1 Amount
2 Dates
3 Particulars of expenses
4 Voucher number
5 Total amounts
CREDIT SIDE
On the credit side we have the analysis of expenses of a ledger account. This has different columns for different expenses e. g stationery, postage, transport, etc.
Recording of Receipts and Payments in Petty Cash Book
1. The credit entry is made in the cash book
2. The debt entry is made in the petty cash book
3. The entries on the credit side of the petty cash book are first made in the total column and then, extended into the relevant expenses column,
4. The expenses columns have various headings for different expenses,
5. The last column of the petty cash book is known as a ledger account.
Preparation of a Petty Cash Book
Example
Record the following in the relevant columns of the petty cash book of Chillington, a sole proprietor.
Jan 1. Petty cashier received an Imp rest amount of N2000
2 Paid for bus fare N200
4 Paid for postage N150
8 Paid for duplicating paper N300
12 Bought envelops N250
16 Paid Mr. Kalu N500
25 Bought office pins N100
26 Bought stamps N100
30 Paid taxi fare N200
Chillington’s Petty Cash Book
DR CR
Amount Received Date Particulars Voucher
number Total
Amount Analysis of Payments
Stationery Postage Transport Office Account
2,000 Jan 1
2 Bus fare 1 200 200
4 Postage 2 150 150
8 Paper 3 300 300
12 Envelopes 4 250 250 500
16 Mr. Kalu 5 500
25 Office Pins 6 100 100
26 Stamps 7 100 100
30 Taxi fare 18 200 200
31 Balance c/d 1,800
200
300 300 400 100 500
2,000
2,000
200 Feb 1 Balance c/d
The above table is a petty cash book.
IMPREST SYSTEM
This is a method used in controlling the amount of money given to the petty cashier. A fixed amount called Imp rest is given to the cashier weekly or monthly to pay for small expenses.
At the end of the period, the petty cashier gives account of what she spends and the balance remaining. The amount spent will be reimbursed. This process of giving a petty cashier some amount of money for petty items at the beginning of every month is called “Imp rest system”.
The sum of money giving to a petty cashier is called “Cash float”, the document used in raising petty cash is known as a “Petty Cash Voucher”
Petty Cash
This is a small amount of discretionary funds in the form of cash used for expenditures where it is not sensible to make any disbursement by cheque, because of the inconvenience and costs of writing, signing and then cashing the cheque.
EVALUATION:
BASI LIMITED operates a petty cash on the imprest system with a cash float of N3000
Jan.1 envelope…………………… 40
Jan.5 petrol……………………….. 160
Jan.7 postage stamps…………. 70
Jan.9 petrol ……………………….. 180
Jan.9 envelopes …………………. 120
Jan.11 office cleaning ……….. 20
Jan.11 stationery ………………. 210
Jan.12 travelling expenses….. 100
Jan. 13 transport fee…………… 90
Jan.16 postage stamps………… 30
Jan. 17 paid Gracious…………… 90
Jan.20 stationary………………… 120
Jan.21 petrol……………………….. 50
Jan.21 settled Ojo ………………… 70
Jan.22 travelling expenses……. 60
Jan.22 office cleaning …………… 100
Jan.25 postage……………………… 40
Jan. 28 paid Eije……………………. 50
Jan. 30 travelling ………………….. 80
You are required to enter the transactions into the pretty cash book under the following headings: postage and stationary, Motor expenses, transport, office cleaning,
ESSAY:
A. What is a Petty Cash Book?
B. Define Imprest System
SUB-TOPIC 2: THREE COLUMN CASH BOOK
This is a book that combines Cash, Bank, and Discount accounts together in a single ledger. It has column for cash, bank and discount. The principle of double entry is also applicable in the three-column cash book.
ILLUSTRATION:
Mr. SUCCESS made the following transactions in the month of March, post the transactions in a three – column cash book:
March 1. Cash at hand 200
Cash in bank 2,000
1. Withdrawal of office cash 300
2.Customer R. Adelai settle his account of
N200 by cash and was allowed 5% discount
4 Paid wages by cheque 700
5 Receive cheque from R.Winla 1,160
Allowed him discount 10
5 Purchase of goods less 5% discount
(Discount received) by cash 400
6 Paid T. Chike by cheque 280
Discount received 20
6 Bought packaging materials for cash 200
7 Cash sales 3,000
7 Paid into bank 2,800
What was the balance brought down on 7th Mar, 2013?
DR SUCCESS
Date Particulars Folio Disct. Allwd Cash Bank Date Particulars Folio Disct. Received Cash Bank
Mar 1
Mar 2
Mar 2
Mar 5
Mar 7
Mar 7
Oct. 1 Balance
Bank
R. Adelai
R. Winla
Sales
Cash
Bal b/d b/d
cc
10
40
200
300
190
3000
2,000
1160
2,800 Mar 2
Mar 4
Mar 5
Mar 6
Mar 6
Mar 7
Mar 7 Office Cash
Wages
Purchases
T. Chike
Packing mat.
Bank
Bal c/d
cc
20
20
380
20
2,800
490 300
700
280
4,680
50 3,690 5,960 40 4,500 8,000
490 4,680
Three Column Cash Book for March 2013 CR
Dr Office A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 2
Bank 300
Dr Bank A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 2 Bank
300
Dr R. Adelai A/c Cr
Date Particulars Amount N Date Particulars Amount
Apr 1 Balance c/d 200 Mar 2
Mar 2 Cash
Discount 190
10
Dr Wages A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 4
Bank 700
Dr R. Winla A/c Cr
Date Particulars Amount N Date Particulars Amount
Apr 1
Balance b/d 1,200
1, 200 Mar 5
Mar 5 Bank
Discount 1,160
40
1, 200
Dr Purchase A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 5
Mar 5
Cash
Discount 380
20 Apr 1 Balance c/d 400
400
400
Dr T. Chike A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 6
Mar 6
Bank
Discount 280
20 Apr 1 Balance c/d 300
300
300
Dr Packing Materials A/c Cr
Date Particulars Amount N Date Particulars Amount N
Mar 6
Cash 20
Dr Sales A/c Cr
Date Particulars Amount N Date Particulars Amount N
Mar 7 Cash 800
Dr Discount Received A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 5
Mar 6
Purchases
T. Chike 20
20 Apr 1 Balance c/d 40
40
40
Dr Discount Allowed A/c Cr
Date Particulars Amount N Date Particulars Amount
Mar 2
Mar 5 R. Adelai
R. Winla 10
40
Dr Cash Account Cr
Date Particulars Amount N Date Particulars Amount N
Mar 7 Cash 2,800
GENERAL EVALUATION
Objectives:
1. _____________ is not found on the debit side of a petty cash book. A. Date given B. Voucher Number C. Total Amount D. Folio
2. Which of the following expenditures can be paid from petty cash? A. Rent B. Equipment C. Motor vehicle. D. Furniture
3. The book where all small expenditures are recorded is called a __________ A. Ledger B. Petty cash book C. Journal
4. The sum of money giving to a petty cashier is called A. Imprest B. Cash C. Reimbursement D. Cash Float
5. The book for recording small disbursements or expenses is called A. Cash book B. Bookkeeping C. Petty Cash Book D. Ledger account
WEEK END ASSIGNMENT: Read Essential Financial Accounting (page 46-52)
PRE-READING ASSIGNMENT: Read about the petty Cash check it up in Essential Financial Accounting (page 53-58)
WEEK END ACTIVITY: Look for the major differences between Single column and Double Column Cash book and write them out.
REFERENCES:
O.A. Longe, etal; Essential financial Accounting, tonad publisher, Lagos, Nigeria 2012. (Pages 40-58)
Frank Wood, Business Accounting 1, Longman, Nigeria, 2008. (pages 90-95)
WEEK 9
TOPIC: BANK RECONCILIATION STAEMENT
CONTENTS:
Identify the types of Bank document
Terminologies used in bank reconciliation
SUB-TOPIC 1: BANK DOCUMENTS:
It is normal for businessmen to be interested in knowing his balances of cash in hand and bank at the end of the month. The bank also checks the customer’s account with it to know the customer’s worth at the end of each month. While customer prepares cash book to show the required balances the bank prepares a bank statement. The usual practice is that, bank debits all cheques that are credited to the cash book because they reduce the amount of money in the customer’s credit and credit all cheques that are debited to the cash book because they work to increase the customer’s credit in it (bank).
BANK STATEMENT
Bank Statement is a document prepared periodically and sent by the bank to a current account holder showing the transactions between the customer and the bank within a period of time usually a month.
BANK RECONCILIATION STATEMENT
This is a statement that is prepared by a current account holder for the purpose of finding out the differences or discrepancies between the cash book and bank statement balances.
SUB-TOPIC 2: TERMINOLOGIES USED IN BANK RECONCILIATION STATEMENT
Unpresented Cheques
UncreditedCheques
Dividend
Standing order
Dishonouredcheque
Credit transfer
Bank charges
Direct debit
Undercast and overcast
1. UNPRESENTED CHEQUES: These are cheques drawn or issued out in favour of somebody but have not been drawn from the bank at the time of preparation of the bank statement.
2. UNCREDITED CHEQUES:These are cheques received and entered on the debtit side of the cash book and lodged in the bank but have not been entered in the credit side of the customer’s bank statement as at the date of reconciliation.
3. STANDING ORDER: this is an instruction giving by the account holder to the bank to make regular payment on his behalf. The bank will make the payment and debit the bank statement but no entry in the cash book. e.g. insurance, water bill etc.
4. DISHONOURED CHEQUES: these are cheques lodged or deposited into a bank but were rejected by the bank due to certain irregularities.
The possible reasons why bank dishonours cheques are:
Irregularity in signature
Insufficient fund in the account
Alteration of the cheque
Disparity between amount in words and figure
Post dated cheque
Stale cheque
5. CREDIT TRANSFER: These are cheques or cash received directly by the bank on behalf of the firm, without notifying the firm until they receives the bank statement.
6. BANK CHARGES AND INTEREST: It is an amount deducted by the bank (bank charges) for service rendered to customers. The bank charge customer’s account based on the following reasons:
Cheques issued
Particular account (current)
Service rendered
Purchase of forms etc
7. DIRECT DEBIT: This is an arrangement whereby a person’s account is debited with a sum of money at the instance of supplier with the account owner prior permission.
8. DIVIDEND: this is part of profit distributed to shareholder of an organization. This will be paid into the account of the owner directly.
9. UNDERCAST AND OVERCAST: when either there is under cast and overcast of payment or receipt by the cashier will also cause disagreement between the bank and the cash book.
EVALUATION
i. What is a bank statement?
ii. Define bank reconciliation statement
iii. List the causes of discrepancies between a cash book and a bank statement, explain any five of them.
CONTENTS:
Identify the types of Bank document
Terminologies used in bank reconciliation
SUB-TOPIC 1: BANK DOCUMENTS:
It is normal for businessmen to be interested in knowing his balances of cash in hand and bank at the end of the month. The bank also checks the customer’s account with it to know the customer’s worth at the end of each month. While customer prepares cash book to show the required balances the bank prepares a bank statement. The usual practice is that, bank debits all cheques that are credited to the cash book because they reduce the amount of money in the customer’s credit and credit all cheques that are debited to the cash book because they work to increase the customer’s credit in it (bank).
BANK STATEMENT
Bank Statement is a document prepared periodically and sent by the bank to a current account holder showing the transactions between the customer and the bank within a period of time usually a month.
BANK RECONCILIATION STATEMENT
This is a statement that is prepared by a current account holder for the purpose of finding out the differences or discrepancies between the cash book and bank statement balances.
SUB-TOPIC 2: TERMINOLOGIES USED IN BANK RECONCILIATION STATEMENT
Unpresented Cheques
UncreditedCheques
Dividend
Standing order
Dishonouredcheque
Credit transfer
Bank charges
Direct debit
Undercast and overcast
1. UNPRESENTED CHEQUES: These are cheques drawn or issued out in favour of somebody but have not been drawn from the bank at the time of preparation of the bank statement.
2. UNCREDITED CHEQUES:These are cheques received and entered on the debtit side of the cash book and lodged in the bank but have not been entered in the credit side of the customer’s bank statement as at the date of reconciliation.
3. STANDING ORDER: this is an instruction giving by the account holder to the bank to make regular payment on his behalf. The bank will make the payment and debit the bank statement but no entry in the cash book. e.g. insurance, water bill etc.
4. DISHONOURED CHEQUES: these are cheques lodged or deposited into a bank but were rejected by the bank due to certain irregularities.
The possible reasons why bank dishonours cheques are:
Irregularity in signature
Insufficient fund in the account
Alteration of the cheque
Disparity between amount in words and figure
Post dated cheque
Stale cheque
5. CREDIT TRANSFER: These are cheques or cash received directly by the bank on behalf of the firm, without notifying the firm until they receives the bank statement.
6. BANK CHARGES AND INTEREST: It is an amount deducted by the bank (bank charges) for service rendered to customers. The bank charge customer’s account based on the following reasons:
Cheques issued
Particular account (current)
Service rendered
Purchase of forms etc
7. DIRECT DEBIT: This is an arrangement whereby a person’s account is debited with a sum of money at the instance of supplier with the account owner prior permission.
8. DIVIDEND: this is part of profit distributed to shareholder of an organization. This will be paid into the account of the owner directly.
9. UNDERCAST AND OVERCAST: when either there is under cast and overcast of payment or receipt by the cashier will also cause disagreement between the bank and the cash book.
EVALUATION
i. What is a bank statement?
ii. Define bank reconciliation statement
iii. List the causes of discrepancies between a cash book and a bank statement, explain any five of them.