FINANCIAL STATEMENTS
MODULE 1 – RECORDING BUSINESS FINANCIAL TRANSACTION
1. Accountancy is the ‘Language of Business’
2. Luca Pacioli developed the double entry system (T-accounts)
3. OE = A – L
4. OE = Capital + Net Profit – Drawings
5. Capital and Drawings DO NOT for part of the liability and asset calculations on TB
6. Bookkeeping and Accounting cycle
a. Transaction takes place
b. Source documents are captured through journals ¹
c. Journals summarise the source documents bookkeeping function
Bank reconciliation must be done (monthly process)
d. General ledger ² summarises the journals
e. Trial balance summarised the general ledger
f. Statement of financial performance - income
Statement accounting function
g. Statement of financial position - balance sheet (annual process)
7. Subsidiary journals ¹
- Cashbook payments CBP/
Cash payment journals CPJ
- Cashbook receipts CBR/
Cash receipts journals CRJ
- Petty cash journals PCJ 8 subsidiary journal types
- General journal GL
- Creditors journal CJN
- Creditors allowance journals CAJ
- Debtors journal DJ
- Debtors allowance journals DAL
8. General ledger ²
The general ledger is ultimately a summary of the journals, categorised into owners’ equity, assets or
liabilities.
,9. Assets
Formal definition
‘Refer to resources CONTROLLED by the firm, as a result of past events, and from which future economic
benefits are LIKELY to flow into the business.’
To this effect, two alternative definitions for assets are provided:
Assets are all the cash on hand as well as all the items that will be exchanged for cash at some time in
the future, provided that these items are not used up in the business within one year
Assets are all the cash or potential (and expected inflows of cash to the business.
It can therefore be said that an asset can be one of two things:
Something that you own
Something that you are owed by someone else
NB – this does NOT include items with no retained value in the business, e.g. running expenses
Non-current assets – resources that are not expected to be turned to cash within 1 year - e.g. vehicles,
computer expenses, land and buildings, etc
Current assets (short term assets) - resources that are expected to be turned to cash within 1 year – e.g.
inventory, trade receivables, bank, petty cash, cash float, VAT Input (VAT on expenses owed to business
by SARS)
10. Liabilities
In simple terms liabilities refer to the debt of the business.
Non-current liabilities – these are long term debts that are not expected to be settled within 1 year – e.g.
mortgage bond, HP agreements, long term loans
Current liabilities – these are short term debts that are expected to be settled within 1 year – e.g. short-
terms portion of non-current liabilities, bank overdraft, VAT Output (VAT on income owed to SARS by
business)
11. Owners’ Equity
This refers to the owner’s wealth in the business
Capital – money/assets that owner puts into business
Drawings – money/assets that owner takes out of business for personal use
Drawings and capital DO NOT form part of the calculation of profit
, FINANCIAL STATEMENTS
MODULE 2 – DEPRECIABLE ASSETS
1. Depreciation refers to the loss in value of a non-current asset and is done at financial year end!!!
2. The only time depreciation is written off is either at the end of the financial year, or when an asset is
sold mid-way through the financial year
3. Accountant attempts to adjust the value of the non-current asset to a value which is generally referred to
as the net realisable value (this would be the realistic trade value of the asset as at that date)
4. The adjusted value of the non-current asset is referred to as the carrying value (book value)
5. Methods of depreciation
2 of the most common methods of depreciation are the straight-line method and the diminishing
(reducing) balance method
straight-line method – depreciation is calculated on cost of asset
diminishing (reducing) balance – depreciation is calculated on carrying value of asset
6. The asset register
ASSET REGISTER JAYPEG ENGINEERING
Asset description Delivery Vehicle (DGP075GP) Page 1
General ledger account B6
Details of depreciation
Date purchased 01.04.2015
From Musgrave Motors Date Current Accumulated
depreciation depreciation
Cost R212,500 31.03.2016 R42,500 R42,500
Depreciation 20% pa db 31.03.2017 R34,000 R76,500
Sold to Ivan Marshall 31.03.2018 R27,200 R103,700
Date sold 31.03.2018
Selling price R108,000 (CR 351)
7. Disposal of a fixed asset
There are 4 steps in the asset disposal process
Take the initial cost price out of books
Debit: Disposal of asset (N)
Credit: Asset (B)
Take the accumulated depreciation out of books
Debit: Accumulated depreciation (B)
Credit: Disposal of asset (N)
Record the selling price
Debit: Bank (cash sale) (B)
Trade receivable (credit sale) (B)
Trade payable / HP (trade-in) (B)
Credit: Disposal of asset (N)
Calculate the profit / (loss) on disposal
Debit / (Credit): Asset disposal (N)
Credit / (Debit): Profit / (loss) on disposal of asset (N)
MODULE 1 – RECORDING BUSINESS FINANCIAL TRANSACTION
1. Accountancy is the ‘Language of Business’
2. Luca Pacioli developed the double entry system (T-accounts)
3. OE = A – L
4. OE = Capital + Net Profit – Drawings
5. Capital and Drawings DO NOT for part of the liability and asset calculations on TB
6. Bookkeeping and Accounting cycle
a. Transaction takes place
b. Source documents are captured through journals ¹
c. Journals summarise the source documents bookkeeping function
Bank reconciliation must be done (monthly process)
d. General ledger ² summarises the journals
e. Trial balance summarised the general ledger
f. Statement of financial performance - income
Statement accounting function
g. Statement of financial position - balance sheet (annual process)
7. Subsidiary journals ¹
- Cashbook payments CBP/
Cash payment journals CPJ
- Cashbook receipts CBR/
Cash receipts journals CRJ
- Petty cash journals PCJ 8 subsidiary journal types
- General journal GL
- Creditors journal CJN
- Creditors allowance journals CAJ
- Debtors journal DJ
- Debtors allowance journals DAL
8. General ledger ²
The general ledger is ultimately a summary of the journals, categorised into owners’ equity, assets or
liabilities.
,9. Assets
Formal definition
‘Refer to resources CONTROLLED by the firm, as a result of past events, and from which future economic
benefits are LIKELY to flow into the business.’
To this effect, two alternative definitions for assets are provided:
Assets are all the cash on hand as well as all the items that will be exchanged for cash at some time in
the future, provided that these items are not used up in the business within one year
Assets are all the cash or potential (and expected inflows of cash to the business.
It can therefore be said that an asset can be one of two things:
Something that you own
Something that you are owed by someone else
NB – this does NOT include items with no retained value in the business, e.g. running expenses
Non-current assets – resources that are not expected to be turned to cash within 1 year - e.g. vehicles,
computer expenses, land and buildings, etc
Current assets (short term assets) - resources that are expected to be turned to cash within 1 year – e.g.
inventory, trade receivables, bank, petty cash, cash float, VAT Input (VAT on expenses owed to business
by SARS)
10. Liabilities
In simple terms liabilities refer to the debt of the business.
Non-current liabilities – these are long term debts that are not expected to be settled within 1 year – e.g.
mortgage bond, HP agreements, long term loans
Current liabilities – these are short term debts that are expected to be settled within 1 year – e.g. short-
terms portion of non-current liabilities, bank overdraft, VAT Output (VAT on income owed to SARS by
business)
11. Owners’ Equity
This refers to the owner’s wealth in the business
Capital – money/assets that owner puts into business
Drawings – money/assets that owner takes out of business for personal use
Drawings and capital DO NOT form part of the calculation of profit
, FINANCIAL STATEMENTS
MODULE 2 – DEPRECIABLE ASSETS
1. Depreciation refers to the loss in value of a non-current asset and is done at financial year end!!!
2. The only time depreciation is written off is either at the end of the financial year, or when an asset is
sold mid-way through the financial year
3. Accountant attempts to adjust the value of the non-current asset to a value which is generally referred to
as the net realisable value (this would be the realistic trade value of the asset as at that date)
4. The adjusted value of the non-current asset is referred to as the carrying value (book value)
5. Methods of depreciation
2 of the most common methods of depreciation are the straight-line method and the diminishing
(reducing) balance method
straight-line method – depreciation is calculated on cost of asset
diminishing (reducing) balance – depreciation is calculated on carrying value of asset
6. The asset register
ASSET REGISTER JAYPEG ENGINEERING
Asset description Delivery Vehicle (DGP075GP) Page 1
General ledger account B6
Details of depreciation
Date purchased 01.04.2015
From Musgrave Motors Date Current Accumulated
depreciation depreciation
Cost R212,500 31.03.2016 R42,500 R42,500
Depreciation 20% pa db 31.03.2017 R34,000 R76,500
Sold to Ivan Marshall 31.03.2018 R27,200 R103,700
Date sold 31.03.2018
Selling price R108,000 (CR 351)
7. Disposal of a fixed asset
There are 4 steps in the asset disposal process
Take the initial cost price out of books
Debit: Disposal of asset (N)
Credit: Asset (B)
Take the accumulated depreciation out of books
Debit: Accumulated depreciation (B)
Credit: Disposal of asset (N)
Record the selling price
Debit: Bank (cash sale) (B)
Trade receivable (credit sale) (B)
Trade payable / HP (trade-in) (B)
Credit: Disposal of asset (N)
Calculate the profit / (loss) on disposal
Debit / (Credit): Asset disposal (N)
Credit / (Debit): Profit / (loss) on disposal of asset (N)
