vigash

• what is a business entity
• The following are short forms used in the notes. Note that these short forms will not be accepted in examinations, and no marks will be awarded for their usage:
• Short Forms


  • SOFP/BS
  • BRS
  • PNL
  • IS
  • Dep.
  • MCB
  • PCB
  • TB
  • SPOG
  • COS
  • P
• The only accepted short forms are: A/C, b/d, c/d, C
• Ticks refer to (optional but recommended) markings a candidate will make to ensure the requirements of the question have been satisfied
• Some accounts shown do not contain all the columns and details required in an examination. They show relevant details. All details will be required in the question unless mentioned
• Unless instructed otherwise, the date should be written in full (including day, month, and year)
• Bookkeeping


  A process of detailed recording of all the financial transactions of a business
• Accounting


  Accounting uses the bookkeeping records to prepare financial statements at regular intervals
• The business aims to make a profit. This is calculated in the financial statements, which are usually prepared at the end of a financial year
• Profit


  Income - Expenses
• A business can also make a loss wherein the expenses exceed the income. Loss= negative profit
• Purposes of Measuring Business Profit and Losses

  • Understand the progress of the business
  • Use ratios and compare the profit of a business to other figures in the financial statements to get a more comprehensive view of the business' progress
  • Compare the progress of the business to the progress of similar businesses
  • Comparing the business to itself from year to year
  • Base the business' future and make decisions based on the profit/loss figure
• Capital or Owner's Equity


  The amount the business owes its owner
• Assets


  Things/resources the business owns or is owed to the business
• Liabilities


  When a business borrows money from an entity that is not the owner of the business, the business now has a liability and is liable to pay for the item borrowed
• Accounting Equation


  ASSETS = CAPITAL + LIABILITIES
• Double Entry System of Bookkeeping

  Giving two effects to each business transaction, one which debits to the A/C receiving and the other which credits where the amount is being deducted
• Rules of Double-Entry Bookkeeping


  • Debit the receiver, credit the giver
  • Debit what comes in, credit what goes out
  • Debit the expense, credit the income
• Ledger


  Used to record financial transactions
• Transactions recorded using Double-Entry Bookkeeping


  • Sales, for cash 100 dollars
  • Purchases of goods 150 dollars (on credit)
  • Drawings (assets taken by a business owner for personal use, out of the business) of goods 50 dollars
  • Payment of 150 dollars (through bank) to the seller for goods bought earlier
  • Sales of 60 dollars to B Dawg (on credit)
• Trade Creditor/Trade Payables/Creditor


  An A/C, a liability to the business due to regular trading
• Trade Debtor/Trade Receivables/Debtor


  An A/C, an asset (because the entity owes money to the business, it's almost as good as having the money) due to regular trading
• Balancing a Ledger


  The debit and credit columns are individually totaled, the difference is noted, and the balance c/d entry is done on the last day of the month, and the balance b/d entry is made on the first day of the following month
• Invoice


  Issued when goods on credit are sold by the supplier, or when goods are sold for cheque/cash. Contains the name & address of the supplier & customer, the date, full details, quantities & the prices of goods sold
• Debit Note


  Issued when goods are not satisfactory, wrong goods, etc. Contains the name & address of supplier & customer, date, full details & quantities (sometimes prices) of goods returned or overcharged
• Credit Note


  Issued when faulty goods/ overcharged goods. Contains the name & address of the supplier & customer, date, full details, quantities & prices of goods returned or overcharged
• Statement of A/C


  Issued at the end of each month by a supplier, given to each customer. Contains a summary of all transactions including the name & address of supplier & customer, date, balance owing at the start of the period, invoices & Cr notes issued, payments received, any cash discounts allowed, balance owing at the end of the period
• Cheque


  Used to pay a pre-stated sum to the payee. It comes in a book of pre-printed cheques (Issued by the bank)
• Receipt


  Proof of payment, issued when goods are sold by cash
• Prime Books of Entry


  Listing devices which help to remove a lot of detail from the ledgers, where transactions are recorded before being recorded in the ledgers
• Prime Books of Entry

  • Sales Journal
  • Sales Returns Journal
  • Purchases Journal
  • Purchases Returns Journal
  • Cash Book
  • Petty Cash Book
  • General Journal
• Sales Journal


  A list of A/Cs to which Cr sales were made, their values & the dates
• Sales Returns Journal


  A list of the names of the businesses, the value of goods returned & date
• Purchases Journal


  A list of the names of businesses from which Cr purchases have been made, value & date
• Purchases Returns Journal


  A list of names of businesses to whom goods have been returned, value & date
• Cash Book


  A book that records cash and bank transactions, following the double entry system of bookkeeping
• Contra Entries


  Withdrawal of cash/deposition of cash. The Cash column can never have a Cr balance as it is a physical quantity, but the bank column can have a Cr balance which is known as a bank overdraft
• Discount Allowed/Cash Discount


  Discount a business allows to its Cr customers to encourage faster payment (within a set time span)
• Petty Cash Book


  Records any low value transactions, used to not record small cash payments in the cash book & ledgers