POA Term 1

• Bookkeeping- this is keeping records in different books on a daily basis.
• Accounting- this is the process of analyzing, interpreting and summerizing financial information. The information will be used to form financial statements which includes income statement and the statement of financial position.
• A-Assets- anything you own.
• L- Liabilities- anything you owe.
• C- Capital- the money used to start a business.
• Capital + Liabilities = Assets
• Assets - Liabilities = Capital
• Assets - Capital = Liabilities
• The balance sheet is also known as the statement of financial position.
• Sole Trader- This is the business operated by one person.
• The Partnership- The is the business that is operated by 2 - 20 persons.
• The Manufacturer- This is the company that makes or produces their own products.
• The Limited Liability company- this is a company that is divided into two groups: A private limited company and A public limited company.
• Private Limited company- This is a company that starts with 2 investors with a maxium of 50 investors.
• Public Limited company- This company that starts with a minimum of 7 investors with no maximum amount.
• The co-operative- This company is set up to assist its members.
• The non-profit organization- This organization is set up to assist its members.
• Careers in accounting: Accountant, Forensic accountant, Accounts clerk, Chief executive officer, Chief financial officer, Payroll clerk, Tax auditor, Auditor, Bank clerk and Management trainee.
• The Statement of Financial Position- This is a statement that shows the relationship between your assets, liability and capital.
• The Statement of Financial Position is also know as the balance sheet.
• The 14 Assets are: Land, Building, Premise, Fixtures and Fittings, Machinery, Equipment, Motor vehicles, Furniture, Investments, Inventory, Accounts receivables, Pre-Payments, Cash at bank, Cash in hand.
• The 7 Liabilities: Loan, Mortgage, Accounts payable, Bank overdraft, Accruals and Proposed dividends.
• The Accounting Cycle in order:

  1. Collect source documents
  2. Record in the books of original entry
  3. The trial balance
  4. Post trial balance
  5. Income statement
  6. Statement of financial position
• A transaction can be defined as the exchange of goods or services for money.
• For every transaction that occurs two items in the statement must be affected. The items may increase or decrease in value.
• When we purchase an asset on credit the asset increases and the accounts payable (liability) will also increase.
• The Double Entre System: For every transaction that occurs two accounts are opened in the books. One of the accounts must contain an entre on the left hand side called the debit side. The other account must contain an entre on the right hand side called the credit side.
• The Double Entre System: For every transaction that occurs two accounts are opened in the books. One of the accounts must contain an entre on the left hand side called the debit side. The other account must contain an entre on the right hand side called the credit side.
• When you purchase an asset the rule is: Debit the asset bought and credit the cash in hand or cash at bank.
• There are 4 accounts opened for the asset called inventory, these are: The purchase account, The sales account, The returns inward account and The returns outwards account.
• The three names for inventory: stock, goods and products.
• The Purchases account: this account is opened when we buy inventory for cash, cheques or on credit. This account is debited.
• The sales account: this account is opened when we sell inventory for cash, cheque or on credit. This account is credited.
• The returns inwards account: this account is opened when the customer returns inventory to us. This account is debited.
• The returns outwards account: this account is opened when we return inventory to the supplier. This account is credited.
• An expense can be defined as the payment made when operating a business.
• Examples of expenses: Rent paid, Rates, Salaries, Wages, Advertising, Telephone, Electricity, Utilities, Repairs, Discount allowed, Motor expenses, Insurance and Sundry expenses.
• Expenses decreases your capital and is always debited.
• Revenues can be defined as the income earned by the business that increases your capital.
• Examples of Revenues: Discount received, Commission received, Rent received.