poa sec3 term 1

• Monetary theory: Only business activities that can be expressed in monetary terms are recorded in the business' books.
• Trading business : buys goods from suppliers and sell goods to customers to earn profit.

  Service business : provides services to customers to earn fee income.
• Stakeholders are groups of people who will make use of information about the business to make decisions.
• Professional ethics:

  • Integrity: will be straightforward and honest in all professional relationships
  • Objectivity: will not let biased , conflict of interest o the undue influence of others override his or her professional judgement
• Accounting is an information system that provides accountancy information for stakeholders to make informed decisions regarding the management of resources and performance of business.
• Business transactions: are any activities carried out by the business

  • cash transaction: payment is made immediately or same time at the point of sale
  • credit transaction: payment is delayed or postponed
• the accounting information system is a system that a business uses to collect, store, process accounting data and prepare financial reports so that the stakeholders can use that information for decision-making
• Accounting cycle :

  1. Identify and record
  2. Adjust
  3. Report
  4. Close
• Source documents:

  • businesses rely on source documents to record business transactions
  • Source documents provide evidence to capture occurrence of a transaction
  • Source documents contain the details of a business transaction that are needed for recording
  • The recording of business transactions using source documents satisfies the objectivity and historical cost theories.
• Objectivity theory : Transactions must be recorded based on information that is reliable and verifiable to prove that theses transactions have taken place.
• Historical cost theory : Transactions should be recorded at the original cost.
• Source documents :

  • Receipt - acknowledge payment received from customers immediately after goods were sold or services were provided
  • Remittance advice - inform credit supplier that payment by cheque has been made for a specific invoice
  • Invoice - states the amount the buyer owes the seller for goods or services provided on credit
• • Credit note - states the amount to be reduced from the invoice issued earlier due to overcharged or goods returned
  • Debit note - states the amount to be added on to the invoice issued earlier due to undercharged
  • Payment vouchers - process payment to credit suppliers
  • Bank statement - check and tally against the business bank records of its cash at bank account
• Assets: Resources a business owns or controls which is expected to provide future benefits

  Liabilities: Obligations owed by a business to others which Is expected to be settled in the future

  Equity: Claim by the owner(s) on the net assets the business
• Assets :

  • Office equipment
  • Equipment
  • Fixtures and fittings
  • Property
  • Motor vehicles
  • Machinery
• liabilities:

  • Mortgage loan
  • Loan from X
  • Trade payables
  • Bank overdraft
• Equity:

  • Income
  • Sales revenue
  • Service fee revenue
  • Other income ( interest income, rent income commission income)
  • Expenses ( cost of sales, wages and salaries, rent, utilities, advertising
• AccountIng Entity theory : the activities of a business are separate from the action for the owner. All transactions are recorded from the view of the business.
• Accounting equatIon:

  • Assets =Liabilities + Equity
  • Assets = Liabilities + Capital +(Income - Expenses ) - Drawings