ACT 110 Is EASY POP!

ACT 110Is EASY

POP!

Our Confession

Because ME en come to UG fuh FAIL! Yo mad or

what!

Accounting Cycle

Source Documents

Record in Daybooks/Journals

Post to Ledgers

ExtractTrial Balance

Prepare Financial

Statements

Posting to LedgersLecture Notes 2

Posting to LedgersPosting• Before transactions are posted they are recorded in the

Books of Original or Prime Entry/Journals• The Books of Prime Entry are then used to Post to the

Various accounts in the three ledgers:– General Ledgers – Records general transactions– Purchase Ledgers – Records Credit Purchases– Sales Ledgers – Records Credit Sales

• There are three types of transactions that would occur in the Business

Posting to LedgersPosting• There are three types of transactions that would occur

in the Business:– Transactions that affect Assets, Capital an Liabilities– Transactions that affect Expenses, Revenue, Assets,

Liabilities, and sometimes Capital– Transactions that affect the stock, assets, Liabilities

and sometimes Capital• Each transactions should be entered the Accounts in

the Ledgers using the Double Entry Principle

Posting to LedgersPosting• How to identify the double entry effect of a transaction?– Identify the accounts affected the transaction– In order to do so, ask yourself the questions:• Who is affected?• What is happening?• How is happening?• Why is this happening?

– After identifying accounts post to the accounts within the Ledgers while ensuring that each debit entry is matched by equal corresponding credit or vice-versa.

Posting to LedgersPosting – RULES• Debit all Expenses Credit all Income• Debit the Receiver Credit the Giver• Debit what Comes In Credit What Goes Out

Posting to LedgersPosting - Example• Purchase Motor Vehicle for cash $2m and paid a deposit

of $500,000.• Purchase goods by credit $20,000• Sold goods for cash $30,000• Sold Goods on credit $26,000• Purchase goods for cash $50,000• Paid rent $50,000• Paid wages $250,000

ACT 110Is EASY

POP!

Our Confession

Because We Men Lead the Women in getting

A’s

The Account Format

Title of AccountDate DateDetails Details$ $

Debit Side Credit Side

Stock Adjustments PostingLecture Notes 2

Stock Adjustment PostingPurchases – Increase in Stock• Goods purchase for resale are entered in the Purchases

Account and not stock account.• They are entered on the debit side of the account,

whether or not the transaction is for cash or credit. • The corresponding entries are made either to the cash

or creditor’s account (creditor). • Why is goods bought not entered in stock account• If goods purchased for resale were entered in the stock

account at cost, when they are sold they would have to be entered in the stock account at cost, requiring calculations for each transaction of sale.

Stock Adjustment PostingSales – Decrease in Stock• Goods sold for cash or credit are entered in Sales

Account.• Both cash and credit sales of trading goods are entered

on the credit side of the sales account. • The corresponding entry if it is a cash sale goes to the

debit side of the cash account. • A credit sale will require a debit entry to the debtor’s

account (credit customer).

Stock Adjustment PostingSales Returns – Return of Stock by Customer• Return of sales, are entered in a separate account

known as the sales return or returns inward account.• The corresponding account if the sales transaction was

on credit would be a credit to the debtor’s account.

Purchases Returns – Return of Stock to supplier• Return of purchases, are entered in the purchases

return account or returns outward account. • The corresponding account if the purchase was on

credit would be a debit to the creditor’s account.

Stock Adjustment PostingOther Considerations• Purchases and Sales Return accounts are used so as not

to offset the transactions in one account and thus reduce our ability to analyze.

• Cost is defined in relation to the different categories of stock as being that expenditure which has been incurred in the normal course of business in bringing the product or service to its present location and condition.

• This expenditure should include, in addition to purchase; such costs of conversion as are appropriate to the location and condition.

Closing an AccountLecture Notes 2

Closing and AccountHow to Close off the Accounts• Add both sides• Place the greater of the two sides on both sides• Record the difference on the smaller side.• Balance (bal.) carried down (c/d) is placed next the

balancing figure and balance brought down (b/d) at the bottom figure under the total of the greater side.

The Account Format

Purchases AccountDate DateDetails Details$ $

Credit Purchases Balance c/d

2,000Cash Purchases

5,000 7,0007,0007,000

7,000Balance b/d

15/1/11

31/1/11 31/1/11

01/2/11

Closing and AccountAccounting Steps• Double entry bookkeeping for each transaction or event.• Closing of the accounts and bring down the balances.• Prepare a trial balance indicating Balance Sheet items

and Profit and Loss items.• Prepare a Trading and Profit and Loss Account.• Prepare Balance Sheet Statement

Trial BalanceLecture Notes 2

Trial BalanceDefinitionThe Trial Balance is a summary of the balances in a double entry system, and is used to check the arithmetic accuracy, and prepare the financial statements.

Errors that are not revealed in the Trial Balance:-• Errors of Omission – there is neither a debit nor a credit

in relation to the transaction. • Errors of Principle – the amount is correctly recorded

but placed in the wrong class of account.

Trial BalanceErrors that are not revealed in the Trial Balance:-• Errors of Commission - where an amount is correctly

recorded but entered in the wrong personal account.• Errors of Original Entry - where the transaction is

recorded with the wrong amount.• Errors of Compensation – here the error on one side is

compensated by an error/s of similar amount on the other side.

• Complete Reversal of Entry – Incorrect posting of the debit and credit of a transaction, that is the debit of the transaction is credited and the credit is debited.

Trial BalanceErrors that are revealed in the Trial Balance:-• Errors in extraction of the Trial Balance.• Omission of an account balance.• Errors in computation of the balances of the accounts.• Non-correspondence of debit and credit.

• Other Considerations:-• In the Trial Balance, the stock usually is of the previous

year or the Opening Stock. • The value of the stock at the end of the year or at the

Trial Balance date is usually given as a note.

Trial Balance• Other Considerations:-• Items or accounts that will always appear on the debit

side of the Trial Balance:- – All assets– Debtors– Cash at Bank– Cash in Hand

• These accounts are also referred to as debit balances, as the debit side is greater than the credit side.

Trial Balance• Other Considerations:-• Those that will appear on the credit side:-– All liabilities– Creditors– Capital– Bank Overdraft

• These accounts are referred to as credit balances, as the credit side is greater than the debit side.

• Those accounts with the debit side being equal to the credit side are referred to as zero balances.

• Such accounts are not placed in the trial balance.

ACT 110Is EASY

POP!

Our Confession

Because ME en come to UG fuh FAIL! Yo mad or

what!