1 Carolin Stemmet
MODULE 1 – RECORDING BUSINESS FINANCIAL
TRANSACTIONS
THE BOOKKEEPING FUNCTION
• Internal or External bookkeeper task of keeping accounting records up to date.
• Small business takes form of sole proprietorship, partnership or close corporation.
• Close corporation needs to appoint accounting officer when founded and deal with monthly recording of
: transactions
: payroll functions
: related statutory returns (VAT 201, EMP201)
• Business to file all documents and hand them to accounting firm on specified date of month.
: purchase orders
: invoices
: cheque counterfoils
: bank statements
: bank deposit slips
: credit notes
• Bookkeeper summarize the various source documents and complete the bookkeeping/accounting cycle.
• Statutory returns completed and submitted and files returned to business.
The following list of accounts was extracted from the general ledger of Anthron Traders as at 31 Jan 2008 the last day of
financial year of business.
ACCOUNTS IN THE GENERAL LEDGER BALANCE
Statement of financial position accounts
Capital R 506 940.00
Drawings R 42 600.00
Land and Buildings R 426 000.00
Machinery R 106 500.00
Vehicles R 255 600.00
Furniture R 68 160.00
Bank Overdraft R 34 080.00
Inventory R 31 950.00
Long-term loan R 170 400.00
Trade receivables R 85 200.00
Trade payables R 4 260.00
Nominal accounts
Sales R 639 000.00
Cost of sales R 298 200.00
Rent received R 25 560.00
Interest on loan R 17 040.00
Commission received R 14 910.00
Telephone R 10 650.00
Water and Electricity R 8 520.00
Wages R 6 390.00
General expenses R 38 340.00
I. Calculate the total for current assets as at 31 Jan 2008
Inventory R31950 +
Trade receivables R85200
= R117150
II. Calculate the total for non-current assets as at 31 Jan 2008
Land and Buildings R426000 +
Machinery R106500 +
Vehicles R255600 +
Furniture R68160
= R856260
III. Calculate the total for Current Liability as at 31 Jan 2008
Bank overdraft R34080 +
Trade payables R4260
= R38340
,2 Carolin Stemmet
IV. Calculate the total for non-current liabilities as at 31 Jan 2008
Long term loan R170400
= R170400
V. Calculate the profit for the year ended 31 Jan 2008
EXPENSE ACCOUNT INCOME ACCOUNT
Sales R639000
Cost of sales R298200
Rent income R25560
Interest on loan R17040
Commission received R14190
Telephone R10650
Water and electricity R8520
Wages R6390
General expenses R38340
R379140 R679470
Total income R679470 – Total expenses R379 140 = Net profit R300330.
VI. There are two methods by which owners’ equity can be calculated. Explain this by referring to this question. Show the
calculation of owners’ equity using both accepted methods and make sure both answers are the same.
Method 1: Using the accounting equation
Owners’ equity = Assets – Liabilities
Owners’ equity = R117150(current asset) + R856260 (non-current asset) – Liabilities R38340 (current liabilities) + R170400
(non-current liabilities)
= R764670
Method 2: using equity accounts
Capital R506940
+ Net Profit R300330
- Drawings R42600
= Net profit R764670
THE BOOKKEEPING AND ACCOUNTING CYCLES
• Accounting = language of business
• System of recording business transactions for meaningful information to be produced
• Recording system has monthly (bookkeeping) and yearly (accounting) cycle.
o TRANSACTION TAKE PLACE
o SOURCE DOCUMENTS SUMMARISE THE TRANSACTION
o JOURNALS SUMMARISE SOURCE DOCUMENTS
o SOMEWHERE IN HERE IS BANK RECONCILIATION NEEDS TO BE DONE
o THE GENERAL LEDGER SUMMARISE JOURNALS
o TRIAL BALANCE SUMMARISE GENERAL LEDGER
o THE ABOVE STEPS ARE FOLLOWED ON MONTHLY BASIS
o AT END OF FINANCIAL PERIOD (LAST DAY OF TAX YEAR) THE FOLLOWING STEPS ARE FOLLOWED.
o STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME SUMMARISES FINANCIAL PERFORMANCE
o STATEMENT OF FINANCIAL POSITION MEASURES FINANCIAL POSITION (ASSETS = OWNERS EQUITY + LIABILITIES A=O+L)
SUBSIDIARY JOURNALS
• Every month source documents that record the business transactions are sorted, grouped and summarised in tables =
journals
• Hand system = 8 journals
• Pool similar transactions together to post similar transaction batches to general ledger
• General ledger form center of bookkeeping system.
,3 Carolin Stemmet
Name of journal Abbr. Type transaction Source doc used
1. Cashbook receipts CBR Transaction cause Duplicate cash slip (cash register roll)
Cash receipts balance of current bank Duplicate receipt
journal CRJ account to increase Eft confirmation
Duplicate bank deposit slip
2. Cashbook payments CBP Transaction cause Cheque counterfoil
Cash payments balance of current bank Eft confirmation
journal CPJ account to decrease Original invoice
Cash slip
Receipt from supplier
3. Petty cash journal PCJ Purchases from petty Petty cash voucher
cash box Original invoice
Cash slip
4. Creditors journal CJ Credit purchases any Original credit invoice with payment terms
product or service (on
account)
5. Creditors allowance CAJ Returns / rebates regard Original credit note
journal to transactions
previously entered into
CJ
6. Debtors journal DJ Credit sales of trading Duplicate credit invoice with payment terms
inventory only (on
account)
7. Debtors allowances DAJ Returns / rebates regard Duplicate credit note
journal to transactions
previously entered into
DJ
8. General journal GJ Sundry transactions that Journal voucher
cannot be recorded in
any of above 7 journals
THE GENERAL LEDGER
• Accounting system – book in which business transactions are recorded
• Collection of accounts which are classed as owners’ equity, assets or liabilities
• Account – structure with debit (left side) and credit (right side) used to record increases and decreases in owners’ equity,
assets or liabilities
• Main framework of accounting based on equation generally referred to as accounting equation.
• Mathematical equation which must always balance
• OWNERS EQUITY = ASSETS – LIABILITIES
• ASSETS = OWNERS EQUITY + LIABILITIES
• Every transaction that is recorded in books of account will have a balancing effect on the accounting equation.
• All these transactions culminate in financial statement called a statement of financial position which is nothing else but a giant
accounting equation
• There are 3 main elements of financial statements
• Framework for statement of financial position – statement that show financial position at any point in time.
1. ASSETS 2. LIABILITIES 3. OWNERS EQUITY
EXPENSES
• Items that have been consumed (used up) as part of the selling process or general running of the business.
ASSETS
• Is a present economic resource that is controlled by the business as a result of past events.
• Items that are cash already or likely to be converted into cash at some point in future.
• Does NOT include items with no retained value in the business.
• All cash on hand
• All items that will be exchanged for cash at some point in future provided these items are not used up in the business within 1
year.
• All cash or potential (expected) inflow of cash to business
, 4 Carolin Stemmet
• Something you own = money, land and buildings, trading goods, brand names, intellectual property
• Something owed to you by someone else, technically yours but currently in someone else possession
• Those items that still have value and can still be used as resources to make future profits.
• Do not usually retain their value forever. As they are used up and lose their inherent or retained value
: vehicle ages
: money in bank account is spent on running costs
: must be written off as expenses for depreciation, telephone costs etc.
NON-CURRENT ASSETS
• Not expected to turn into cash within 1 year.
• Possession of business for period longer than 1 year. Fixed (tangible) assets
: land and buildings
: vehicles
: machinery
: long term investment (endowment policies, fixed deposits, other available for sale financial assets)
CURRENT ASSETS
• Cash or likely to be turned into cash within 1 year
• Short term assets
: trading inventory
: trade receivables (money owed by customers)
: Bank
: petty cash
: cash float
: VAT input (VAT owed to business by SARS, expected cash will flow in business when SARS pay)
LIABILITIES
• Debts of the business
• Owe someone money
NON-CURRENT LIABILITIES
• Long term debt
• Not expected to be settled within 1 year
: mortgage loans
: long term loans
CURRENT LIABILITIES
• Any short-term portions tied up in long term liabilities
• Short term debts
• Expected to be settled within 1 year
: trade payables
: short term loans
: bank overdraft
: VAT output (business owes SARS the VAT and will have to be paid over to SARS within 1 year.
MODULE 1 – RECORDING BUSINESS FINANCIAL
TRANSACTIONS
THE BOOKKEEPING FUNCTION
• Internal or External bookkeeper task of keeping accounting records up to date.
• Small business takes form of sole proprietorship, partnership or close corporation.
• Close corporation needs to appoint accounting officer when founded and deal with monthly recording of
: transactions
: payroll functions
: related statutory returns (VAT 201, EMP201)
• Business to file all documents and hand them to accounting firm on specified date of month.
: purchase orders
: invoices
: cheque counterfoils
: bank statements
: bank deposit slips
: credit notes
• Bookkeeper summarize the various source documents and complete the bookkeeping/accounting cycle.
• Statutory returns completed and submitted and files returned to business.
The following list of accounts was extracted from the general ledger of Anthron Traders as at 31 Jan 2008 the last day of
financial year of business.
ACCOUNTS IN THE GENERAL LEDGER BALANCE
Statement of financial position accounts
Capital R 506 940.00
Drawings R 42 600.00
Land and Buildings R 426 000.00
Machinery R 106 500.00
Vehicles R 255 600.00
Furniture R 68 160.00
Bank Overdraft R 34 080.00
Inventory R 31 950.00
Long-term loan R 170 400.00
Trade receivables R 85 200.00
Trade payables R 4 260.00
Nominal accounts
Sales R 639 000.00
Cost of sales R 298 200.00
Rent received R 25 560.00
Interest on loan R 17 040.00
Commission received R 14 910.00
Telephone R 10 650.00
Water and Electricity R 8 520.00
Wages R 6 390.00
General expenses R 38 340.00
I. Calculate the total for current assets as at 31 Jan 2008
Inventory R31950 +
Trade receivables R85200
= R117150
II. Calculate the total for non-current assets as at 31 Jan 2008
Land and Buildings R426000 +
Machinery R106500 +
Vehicles R255600 +
Furniture R68160
= R856260
III. Calculate the total for Current Liability as at 31 Jan 2008
Bank overdraft R34080 +
Trade payables R4260
= R38340
,2 Carolin Stemmet
IV. Calculate the total for non-current liabilities as at 31 Jan 2008
Long term loan R170400
= R170400
V. Calculate the profit for the year ended 31 Jan 2008
EXPENSE ACCOUNT INCOME ACCOUNT
Sales R639000
Cost of sales R298200
Rent income R25560
Interest on loan R17040
Commission received R14190
Telephone R10650
Water and electricity R8520
Wages R6390
General expenses R38340
R379140 R679470
Total income R679470 – Total expenses R379 140 = Net profit R300330.
VI. There are two methods by which owners’ equity can be calculated. Explain this by referring to this question. Show the
calculation of owners’ equity using both accepted methods and make sure both answers are the same.
Method 1: Using the accounting equation
Owners’ equity = Assets – Liabilities
Owners’ equity = R117150(current asset) + R856260 (non-current asset) – Liabilities R38340 (current liabilities) + R170400
(non-current liabilities)
= R764670
Method 2: using equity accounts
Capital R506940
+ Net Profit R300330
- Drawings R42600
= Net profit R764670
THE BOOKKEEPING AND ACCOUNTING CYCLES
• Accounting = language of business
• System of recording business transactions for meaningful information to be produced
• Recording system has monthly (bookkeeping) and yearly (accounting) cycle.
o TRANSACTION TAKE PLACE
o SOURCE DOCUMENTS SUMMARISE THE TRANSACTION
o JOURNALS SUMMARISE SOURCE DOCUMENTS
o SOMEWHERE IN HERE IS BANK RECONCILIATION NEEDS TO BE DONE
o THE GENERAL LEDGER SUMMARISE JOURNALS
o TRIAL BALANCE SUMMARISE GENERAL LEDGER
o THE ABOVE STEPS ARE FOLLOWED ON MONTHLY BASIS
o AT END OF FINANCIAL PERIOD (LAST DAY OF TAX YEAR) THE FOLLOWING STEPS ARE FOLLOWED.
o STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME SUMMARISES FINANCIAL PERFORMANCE
o STATEMENT OF FINANCIAL POSITION MEASURES FINANCIAL POSITION (ASSETS = OWNERS EQUITY + LIABILITIES A=O+L)
SUBSIDIARY JOURNALS
• Every month source documents that record the business transactions are sorted, grouped and summarised in tables =
journals
• Hand system = 8 journals
• Pool similar transactions together to post similar transaction batches to general ledger
• General ledger form center of bookkeeping system.
,3 Carolin Stemmet
Name of journal Abbr. Type transaction Source doc used
1. Cashbook receipts CBR Transaction cause Duplicate cash slip (cash register roll)
Cash receipts balance of current bank Duplicate receipt
journal CRJ account to increase Eft confirmation
Duplicate bank deposit slip
2. Cashbook payments CBP Transaction cause Cheque counterfoil
Cash payments balance of current bank Eft confirmation
journal CPJ account to decrease Original invoice
Cash slip
Receipt from supplier
3. Petty cash journal PCJ Purchases from petty Petty cash voucher
cash box Original invoice
Cash slip
4. Creditors journal CJ Credit purchases any Original credit invoice with payment terms
product or service (on
account)
5. Creditors allowance CAJ Returns / rebates regard Original credit note
journal to transactions
previously entered into
CJ
6. Debtors journal DJ Credit sales of trading Duplicate credit invoice with payment terms
inventory only (on
account)
7. Debtors allowances DAJ Returns / rebates regard Duplicate credit note
journal to transactions
previously entered into
DJ
8. General journal GJ Sundry transactions that Journal voucher
cannot be recorded in
any of above 7 journals
THE GENERAL LEDGER
• Accounting system – book in which business transactions are recorded
• Collection of accounts which are classed as owners’ equity, assets or liabilities
• Account – structure with debit (left side) and credit (right side) used to record increases and decreases in owners’ equity,
assets or liabilities
• Main framework of accounting based on equation generally referred to as accounting equation.
• Mathematical equation which must always balance
• OWNERS EQUITY = ASSETS – LIABILITIES
• ASSETS = OWNERS EQUITY + LIABILITIES
• Every transaction that is recorded in books of account will have a balancing effect on the accounting equation.
• All these transactions culminate in financial statement called a statement of financial position which is nothing else but a giant
accounting equation
• There are 3 main elements of financial statements
• Framework for statement of financial position – statement that show financial position at any point in time.
1. ASSETS 2. LIABILITIES 3. OWNERS EQUITY
EXPENSES
• Items that have been consumed (used up) as part of the selling process or general running of the business.
ASSETS
• Is a present economic resource that is controlled by the business as a result of past events.
• Items that are cash already or likely to be converted into cash at some point in future.
• Does NOT include items with no retained value in the business.
• All cash on hand
• All items that will be exchanged for cash at some point in future provided these items are not used up in the business within 1
year.
• All cash or potential (expected) inflow of cash to business
, 4 Carolin Stemmet
• Something you own = money, land and buildings, trading goods, brand names, intellectual property
• Something owed to you by someone else, technically yours but currently in someone else possession
• Those items that still have value and can still be used as resources to make future profits.
• Do not usually retain their value forever. As they are used up and lose their inherent or retained value
: vehicle ages
: money in bank account is spent on running costs
: must be written off as expenses for depreciation, telephone costs etc.
NON-CURRENT ASSETS
• Not expected to turn into cash within 1 year.
• Possession of business for period longer than 1 year. Fixed (tangible) assets
: land and buildings
: vehicles
: machinery
: long term investment (endowment policies, fixed deposits, other available for sale financial assets)
CURRENT ASSETS
• Cash or likely to be turned into cash within 1 year
• Short term assets
: trading inventory
: trade receivables (money owed by customers)
: Bank
: petty cash
: cash float
: VAT input (VAT owed to business by SARS, expected cash will flow in business when SARS pay)
LIABILITIES
• Debts of the business
• Owe someone money
NON-CURRENT LIABILITIES
• Long term debt
• Not expected to be settled within 1 year
: mortgage loans
: long term loans
CURRENT LIABILITIES
• Any short-term portions tied up in long term liabilities
• Short term debts
• Expected to be settled within 1 year
: trade payables
: short term loans
: bank overdraft
: VAT output (business owes SARS the VAT and will have to be paid over to SARS within 1 year.
