ACCOUNTING NOTES GR 11-12 IEB SYLLABUS
Sections:
- GAAP
- Asset Disposal
- Companies
- Budgets
- Ratios
- Inventory systems
- Manufacturing
- VAT
- Reconciliations
,GAAP
G – generally
A – accepted
A – accounting
P – principals
Entity (drawings)
The owner and this business are seen as separate
Refers to unit that exists independently and can be clearly
defined
Going concern
Refers to the fact that the operations of an accounting entity
will continue for the foreseeable future
Historical cost
All assets purchased by a business are recorded at cost and not
at carrying value
Ledger accounts of assets show it at cost, but the financial
statement shows the value of the asset as their carrying value
Cost price – accumulated depreciation = carrying value
Matching
Ensures that the incomes and cost incurred in generating
incomes are recorded in the same accounting period
At end of financial year – rent expense only been paid for 11
months, rent account must be adjusted at end of financial year
to include all 12 months
Prudence
Implies that the most conservative method of calculating profit
must be used
, One way of applying this is the adjustment for provision for bad
debts at the end of the financial year
Materiality
Implies to whether a transaction is worth recording in the
books of the business
Examples
Business entity - the financial affairs of the owner is kept
separate from the business
Business entity - dividends paid to shareholders must be
reflected in the appropriation account as a distribution to
shareholders, and not in the income statement as an expense
Historical cost - unless otherwise stated, assets are recorded at
original cost price
Historical cost - land and buildings bought for 2m are now
valued at 4m. They must be shown in financial statements as
2m
Matching - expenses that are related to income must be
recorded in the same financial period
Matching- the interest on load for last 2 months event been
recorded. Rent for the 1st month of next year is received in
advance. Adjustments must be put through at the end of the
year.
Prudence - in making adjustments in the books, accountants
must regard events of a financial nature in a pessimistic way
Prudence - the directors have inspected the collections from
debtors and have decided to increase provision for bad debts
from 5% to 10%
Materiality - information that is important to the reader of the
financial statements must be clearly shown as a separate item
Materiality - directors fees and audit fees must be shown in
ledger accounts of their own and mustn’t be recorded as
salaries and or administration expenses
Final accounts vocab:
Book value: caring value = reducing balance= diminishing balance
,Fixed assets: vehicles, equip, furniture = decreases in wear and tear.
NON- CASH expenses : depreciation
Appreciation: land and buildings = value increase
Accumulating depreciation: negative asset because it brings down
the cost price value.
Income accrued: ASSET (DEBIT)
Income rec in adv: LIABILITY (CREDIT)
Expenses prepaid: ASSET (DEBIT)
Expenses accrued/payable: LIABILITY (CREDIT)
Consumables On hand: ASSET (DEBIT)
Provision of bad debts is a negative asset PRUDENCE concept
,ASSET DISPOSAL
Asset Disposal- nominal account
Accumulated Depreciation- negative asset
Depreciation- non-cash expense
1. Transfer ORIGINAL cost price (historical cost) of the asset being
sold from asset account to asset disposal account
Dr asset disposal
Cr vehicles/ equipment etc
2. Calculate any additional depreciation on the asset
- If asset is sold during the year, work out depreciation for the
current year
- Usually only calculate depreciation at financial year end
- Do not calculate extra depreciation for current year if sold on
1st date of financial year
Dr depreciation
Cr accumulated depreciation on equipment/vehicles
3. Transfer all depreciation for sold asset (including amt
calculated in 2) to the asset disposal account
Dr Accumulated Depreciation on vehicles/equipment
Cr Asset Disposal
4. Record the sale
Dr Bank (if sold for cash)
Debtors Control (if sold on credit)
Creditors control (if traded in)
Cr Asset Disposal
5. Calculate a profit or loss on the sale
- This will act as the balancing figure
- There is never b/d in asset disposal
Dr asset disposal OR Dr Loss on sale of asset
,CR Profit on sale of asset Cr Asset disposal
Write down method + % A
+Accumulated depreciation
on equipment-
S Asset GJ XXXX Balance B/D XXXX
disposal
Bal of dep
for S + dep
for current
yr
S Dep (beg of yr GJ XXXX
date of sale)
c/d Dep (yr end) GJ XXXX
(O/R + N)
Beg of yr date
of purchase
end of yr
yr end
b/d
balance at yr end –
B.S
Dates:
1. Financial year end: Start + end
2. Sell asset S
- Beg of yr > date of sale
3. Buy new asset N
- Date of sale > current
4. Remaining/old assets left over R/O
- Beg of yr > yr end
, NOTE: if the sold asset is sold on the last day of the financial year, it
goes on the same transaction as the old + new
- 28 Feb Dep (sold+ old+new)
-OE+
Asset disposal
Asset account GJ XXXX Accumulated GJ XXX
depreciation on
(vehicles/ (equipment /veh)
equip)
Profit on sale of GJ XXXX Bank / Debtors CRJ XXXX
asset Control/Creditors /
GJ
XXXX XXXX
Must be the same total
OR
Asset disposal
Asset account GJ XXXX Accumulated GJ XXX
depreciation on
(vehicles/ (equipment /veh)
equip)
GJ XXXX Bank / Debtors CRJ XXXX
Control/Creditors /
GJ
Loss on sale of GJ XXXX
asset
XXXX XXXX
Must be the same total
For R1 value, start off with BV of the asset so when you calculate dep
and its over the BV, you know you cant use it
Trade-in value= amount received for it
Theory:
Sections:
- GAAP
- Asset Disposal
- Companies
- Budgets
- Ratios
- Inventory systems
- Manufacturing
- VAT
- Reconciliations
,GAAP
G – generally
A – accepted
A – accounting
P – principals
Entity (drawings)
The owner and this business are seen as separate
Refers to unit that exists independently and can be clearly
defined
Going concern
Refers to the fact that the operations of an accounting entity
will continue for the foreseeable future
Historical cost
All assets purchased by a business are recorded at cost and not
at carrying value
Ledger accounts of assets show it at cost, but the financial
statement shows the value of the asset as their carrying value
Cost price – accumulated depreciation = carrying value
Matching
Ensures that the incomes and cost incurred in generating
incomes are recorded in the same accounting period
At end of financial year – rent expense only been paid for 11
months, rent account must be adjusted at end of financial year
to include all 12 months
Prudence
Implies that the most conservative method of calculating profit
must be used
, One way of applying this is the adjustment for provision for bad
debts at the end of the financial year
Materiality
Implies to whether a transaction is worth recording in the
books of the business
Examples
Business entity - the financial affairs of the owner is kept
separate from the business
Business entity - dividends paid to shareholders must be
reflected in the appropriation account as a distribution to
shareholders, and not in the income statement as an expense
Historical cost - unless otherwise stated, assets are recorded at
original cost price
Historical cost - land and buildings bought for 2m are now
valued at 4m. They must be shown in financial statements as
2m
Matching - expenses that are related to income must be
recorded in the same financial period
Matching- the interest on load for last 2 months event been
recorded. Rent for the 1st month of next year is received in
advance. Adjustments must be put through at the end of the
year.
Prudence - in making adjustments in the books, accountants
must regard events of a financial nature in a pessimistic way
Prudence - the directors have inspected the collections from
debtors and have decided to increase provision for bad debts
from 5% to 10%
Materiality - information that is important to the reader of the
financial statements must be clearly shown as a separate item
Materiality - directors fees and audit fees must be shown in
ledger accounts of their own and mustn’t be recorded as
salaries and or administration expenses
Final accounts vocab:
Book value: caring value = reducing balance= diminishing balance
,Fixed assets: vehicles, equip, furniture = decreases in wear and tear.
NON- CASH expenses : depreciation
Appreciation: land and buildings = value increase
Accumulating depreciation: negative asset because it brings down
the cost price value.
Income accrued: ASSET (DEBIT)
Income rec in adv: LIABILITY (CREDIT)
Expenses prepaid: ASSET (DEBIT)
Expenses accrued/payable: LIABILITY (CREDIT)
Consumables On hand: ASSET (DEBIT)
Provision of bad debts is a negative asset PRUDENCE concept
,ASSET DISPOSAL
Asset Disposal- nominal account
Accumulated Depreciation- negative asset
Depreciation- non-cash expense
1. Transfer ORIGINAL cost price (historical cost) of the asset being
sold from asset account to asset disposal account
Dr asset disposal
Cr vehicles/ equipment etc
2. Calculate any additional depreciation on the asset
- If asset is sold during the year, work out depreciation for the
current year
- Usually only calculate depreciation at financial year end
- Do not calculate extra depreciation for current year if sold on
1st date of financial year
Dr depreciation
Cr accumulated depreciation on equipment/vehicles
3. Transfer all depreciation for sold asset (including amt
calculated in 2) to the asset disposal account
Dr Accumulated Depreciation on vehicles/equipment
Cr Asset Disposal
4. Record the sale
Dr Bank (if sold for cash)
Debtors Control (if sold on credit)
Creditors control (if traded in)
Cr Asset Disposal
5. Calculate a profit or loss on the sale
- This will act as the balancing figure
- There is never b/d in asset disposal
Dr asset disposal OR Dr Loss on sale of asset
,CR Profit on sale of asset Cr Asset disposal
Write down method + % A
+Accumulated depreciation
on equipment-
S Asset GJ XXXX Balance B/D XXXX
disposal
Bal of dep
for S + dep
for current
yr
S Dep (beg of yr GJ XXXX
date of sale)
c/d Dep (yr end) GJ XXXX
(O/R + N)
Beg of yr date
of purchase
end of yr
yr end
b/d
balance at yr end –
B.S
Dates:
1. Financial year end: Start + end
2. Sell asset S
- Beg of yr > date of sale
3. Buy new asset N
- Date of sale > current
4. Remaining/old assets left over R/O
- Beg of yr > yr end
, NOTE: if the sold asset is sold on the last day of the financial year, it
goes on the same transaction as the old + new
- 28 Feb Dep (sold+ old+new)
-OE+
Asset disposal
Asset account GJ XXXX Accumulated GJ XXX
depreciation on
(vehicles/ (equipment /veh)
equip)
Profit on sale of GJ XXXX Bank / Debtors CRJ XXXX
asset Control/Creditors /
GJ
XXXX XXXX
Must be the same total
OR
Asset disposal
Asset account GJ XXXX Accumulated GJ XXX
depreciation on
(vehicles/ (equipment /veh)
equip)
GJ XXXX Bank / Debtors CRJ XXXX
Control/Creditors /
GJ
Loss on sale of GJ XXXX
asset
XXXX XXXX
Must be the same total
For R1 value, start off with BV of the asset so when you calculate dep
and its over the BV, you know you cant use it
Trade-in value= amount received for it
Theory:
