Basics of Accounting
Assets- The resources in the business
Liability- The resources supplied by the outsiders
Capital- The resources supplied by owner
Expense- The cost arises to generate revenue
Income- The amount of money a business earns
Financial year – Period of twelve month in which is earned
Rules of Accounting
Increase Decrease Normal Balance
Asset Debit Credit Debit
Liablities Credit Debit Credit
Capital Credit Debit Credit
Drawings Debit Credit Debit
Expenses Debit Credit Debit
Income Credit Debit Credit
Format of Ledger accounts
Asset A/c
Date Details Amount Date Details Amount
May1 Balance b/d XXX
20-4
May Balance C/d XXX
31
1
Format of Trail Balance
Trail Balance
Name of the Business
Details Debit Credit
Items should be debited and credited in trail balance
Debit Credit
Assets Liabilities
Expenses Capital
Drawings Incomes
Sales return Purchase return
Discount allowed Discount received
2
SOLE PARTNERSHIP
Format of Income statement
Name of the owner/Business
Income statement for the year ended …………………………………………
Amount Amount
Sales/ Revenue XXX
Less:Sales returns/ Return inwards XXX
XXX
Less: Cost of sales XXX
Opening Inventory
Add:Net Purchases
Purchases XXX
Less:Purchases returns/ Return (XXX)
outwards (XXX)
Less:Goods drawings
XXX
XXX XXX
Add:Carriage inwards XXX
(XXX)
(XXX)
Less: Closing Inventory XXX
Gross Profit
Add: Other Incomes XXX
Commission received XXX
Rent Received XXX
Discount Received XXX
Profit on disposal of assets
Reduction in the provision for doubtful XXX XXX
debt XXX
Less: Expenses XXX
Wages and Salaries XXX
Rent and Rates XXX
Motor Vehicle Expenses XXX
Finance Costs XXX
Depreciation of current assets XXX
Loss on disposal of assets XXX
Provision for doubtful debt (XXX)
XXX
Profit from operating expenses (XXX)
Less: Interest on loan
Net Profit or Loss XXX
3
Format of Statement of Financial position
Name of the Owner/Business
Statement of Financial position as at …………………………………………………
Cost Depreciaton Book Value
Non-Current Assets
Land and Buildings XXX (XX) XXX
Fixtures and Fittings XXX (XX) XXX
Motor Vehicle XXX (XX) XXX
XXX (XX) XXX
Current Assets
XXX
Closing Inventory
XXX
Trade Receivables/Debtors
XXX
Bank
XXX
Cash
XXX
Other receivable- Prepaid
expenses
XXX
Accrued Income
Total Assets XXX
Liabilities and Capital
Capital XXX
Add:Net Profit for the year XXX
Less: Drawings (XXX)
XXX
Non-Current Liabilities
Long term loan XXX
Current Liabilities
Trade Payables/ creditors XXX
Other Payables(Outstanding XXX
expense)
Prepaid income XXX XXX
XXX
Total Liabilities and Capital
4
CLUBS AND SOCIETIES
Format of Receipts and payment account
Date Details $ Date Details $
Balance b/d Balance b/d XXX
Cash XXX (Bank overdraft)
Bank XXX Wages XXX
Subscription XXX Rent XXX
Rent received XXX Committee expenses XXX
Printing and Stationery XXX
Balance c/d XXX Balance c/d XXX
(Bank overdraft)
XXX XXX
Preparation of an income statement of a Shop in club and society
$ $
Revenue XXX
Less: Cost of sales
Opening inventory XXX
Purchases XXX
XXX
Less: Closing inventory (XXX)
XXX
Wages of Shop assistant XXX
Depreciation of Shop equipment XXX
(XXX)
Profit on Shop(Transferred to income and XXX
expenditure account)
5
Income and Expenditure account
Income and Expenditure account for the year ended……………….
$ $
Income
Subscription XXX
Profit on shop XXX
Entrance fees XXX
XXX
Expenses
Wages XXX
Rates and insurance XXX
General expenses XXX
Depreciation on equipment XXX
(XXX)
Surplus for the year XXX
6
Preparation of statement of a financial position of a clubs and societies
Statement of financial position For the year ended…………………….
Cost Depreciaton Book Value
Non-Current Assets
Land and Buildings XXX (XX) XXX
Fixtures and Fittings XXX (XX) XXX
Motor Vehicle XXX (XX) XXX
XXX (XX) XXX
Current Assets
XXX
Closing Inventory
XXX
Trade Receivables
XXX
Bank
XXX
Cash
XXX
Other receivable- Prepaid
expenses
XXX
Accrued Income
Total Assets XXX
Liabilities and Capital
Accumulated fund XXX
Add: Surplus for the year XXX
XXX
Non-Current Liabilities
Long term loan
XXX
Current Liabilities
Trade Payables
Other Payables(Outstanding XXX
expense) XXX
Prepaid income
XXX XXX
Total Liabilities XXX
7
MANUFACTURING ACCOUNTS
Manufacturing account for the year ended………………………
Opening Inventory of Raw materials XXX
Add: Purchases of raw materials XXX
Add: carriage inward XXX
Less:Purchase return (Return outwards of raw (XXX)
materials
XXX
Less: Closing inventory of raw materials XXX
XXX
Add: Direct labour XXX
Add: Direct materials XXX
Add: Direct expenses XXX
Add: Royalty XXX
Prime cost xxxxx
Add: Factory lighting XXX
Factory heating XXX
Factory insurance XXX
Factory rent XXX
Factory maintenance XXX
Factory indirect wages XXX
Factory supervisor’s wages XXX
Depreciation on plant and machinery XXX
Depreciation on factory building XXX XXX
Factory cost/ factory overheads XXXX
8
Add: Opening inventory of work in progress XXX
XXX
(XXX)
Less: closing work in progress
Cost of production XXXX
FORMAT OF INCOME STATEMENT OF A MANUFACTURING CONCERN
Income statement for the year ended……………………………
Sales of finished goods XXX
Less: Sales return/Return inwards XXX
XXX
Less cost of goods sold
Opening inventory of finished goods XXX
Add: cost of production XXX
Less: Closing inventory of finished goods (XXX)
Less: Finished goods drawings by the owner (XXX) (XXX)
Gross profit /Gross loss XXX
Less: Expenses related to office expenses
Administration expenses XXX
Selling and distribution expenses XXX
Profit for the year XXX
9
Format of Statement of Financial position of Manufacturing firm
Statement of Financial position as at …………………………………………………
Cost Depreciaton Book Value
Non-Current Assets
Land and Buildings XXX (XX) XXX
Fixtures and Fittings XXX (XX) XXX
Motor Vehicle XXX (XX) XXX
XXX (XX) XXX
Current Assets
XXX
Closing Inventory of finished
XXX
goods
XXX
Trade Receivables/Debtors
XXX
Bank
XXX
Cash
Other receivable- Prepaid
XXX
expenses
Accrued Income
XXX
Total Assets
Liabilities and Capital XXX
Capital XXX
Add:Net Profit for the year (XXX)
Less: Drawings XXX
Non-Current Liabilities XXX
Long term loan
Current Liabilities XXX
Trade Payables/ creditors XXX
Other Payables(Outstanding
expense) XXX XXX
Prepaid income
XXX
Total Liabilities and Capital
10
PARTNERSHIP
Partnership (Name)
Profit and loss appropriation account for the year ended ………………………………..
$ $
Net Profit XXX
Add: Interest on drawings- Partner A XXX
Partner B XXX
XXX
XXX
Less: Interest on capital- Partner A XXX
Partner B XXX
(XXX)
XXX
Less: Partners Salary- Partner A XXX
(XXX)
XXX
Profit for the year
Profit Share Partner A- XXX
Partner B- XXX
Where the full details of the partners current accounts are not required the “financed by”
section of a partnership balance sheet could be presented as follows
Partnership (Name)
Extract from Balance Sheet at…………………………………………………………………..
Partner A Partner B Total
Capital accounts XXX XXX XXX
Current accounts XXX XXX XXX
XXX XXX XXX
11
Where the full details of the partners current accounts are not required the “financed by”
section of a partnership balance sheet could be presented as follows
Partnership (Name)
Extract from Balance Sheet at…………………………………………………………………..
Partner A Partner B Total
Capital accounts XXX XXX XXX
Current accounts
Opening balance XXX XXX
Interest on capital XXX XXX
Partners salary XXX XXX
Profit shares XXX XXX
XXX XXX
Less: Drawings (XXX) (XXX)
Interest on drawings (XXX) (XXX)
XXX XXX XXX
XXX
Capital a/c
Date Details Amount Date Details Amount
Balance b/d XXX
Balance c/d XXX Additional capital XXX
XXX XXX
12
Current A/c
Date Details Amount Date Details Amount
Drawings XXX Balance b/d XXX
Interest on drawings XXX Interest on capital XXX
Partners salary XXX
Balance c/d XXX Interest on loan XXX
Share of profit XXX
XXX XXX
INCOMPLETE RECORDS
1.Opening/ Closing balances of Debtors, Credit Sales, and Amounts received from Debtors.
When
any of these items is missing from the question, it can be calculated by preparing the Trade
Receivables Account as follows.
Trade receivable account
Date Details Amount Date Details Amount
Balance b/d XXX Bank(cheque received) XXX
Credit sales XXX Cash received XXX
Discount allowed XXX
Return inwards XXX
Bad debt XXX
Balance c/d XXX
XXX XXX
2.Opening/Closing balances of creditors/ Payments to creditors/ Credit purchases. When any
of
these items is missing, it can be calculated by preparing the following Trade Payable A/C
13
Trade payable A/c
Date Details Amount Date Details Amount
Bank(Cheque paid) Balance b/d XXX
Cash paid Credit purchases XXX
Discount received
Return outwards
Balance
XXX XXX
Bank A/c
Date Details Amount Date Details Amount
Balance b/d XXX Payments to suppliers XXX
Receipts from
customers XXX Balance c/d XXX
XXX XXX
Equations
Mark Up = Gross profit/Cost of goods sold * 100
Gross profit = Revenue / 100+Mark up* Mark up
Margin = gross profit/revenue * 100
Gross profit= Cost of sales / 100-margin * margin
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Gross profit = revenue – cost of sales
Cost of sales = Gross profit – revenue
Revenue = Gross profit + cost of sales
Cost of sales = opening inventory + purchases – closing inventory
Purchases= closing inventory + cost of sales – opening inventory
Statement of Affairs as on…………………………….
Cost Depreciaton Book Value
Non-Current Assets
Land and Buildings XXX (XX) XXX
Fixtures and Fittings XXX (XX) XXX
Motor Vehicle XXX (XX) XXX
XXX (XX) XXX
Current Assets
XXX
Closing Inventory
XXX
Trade Receivables/Debtors
XXX
Bank
XXX
Cash
XXX
Other receivable- Prepaid
expenses
XXX
Accrued Income
Total Assets XXX
Liabilities and Capital
Capital(balancing fig) XXX
Non-Current Liabilities
Long term loan
Current Liabilities
Trade Payables/ creditors XXX
Other Payables(Outstanding
expense) XXX
Prepaid income XXX
Total Liabilities and Capital XXX
15
Capital A/c
Date Details Amount Date Details Amount
Drawings XXX Balance b/d XXX
Additional capital XXX
Net profit XXX
Balance c/d XXX
XXX XXX
LIMITED COMPANIES
Statement of Changes in Equity for the year ended 31st march 2018
Ordinary Share General Retained Total
capital reserve earning
Balance on 1st April 2017 XXX XXX XXX XXX
Profit XXX XXX
Dividend (XXX) XXX
Transferred to general XXX (XXX) -
reserve
Balance on 31st March 2018 XXX XXX XXX XXXX
16
Format of statement of financial position of Limited companies
Statement of Financial position as on…………………………….
Cost Depreciaton Book Value
Non-Current Assets
Land and Buildings XXX (XX) XXX
Fixtures and Fittings XXX (XX) XXX
Motor Vehicle XXX (XX) XXX
XXX (XX) XXX
Current Assets
XXX
Closing Inventory
XXX
Trade Receivables/Debtors
XXX
Bank
XXX
Cash
XXX
Other receivable- Prepaid
expenses
XXX
Accrued Income
Total Assets XXX
Equity and Liabilities
Capital and reserves XXX
Non-Current Liabilities
Long term loan
Current Liabilities
Trade Payables/ creditors XXX
Other Payables(Outstanding
expense) XXX
Prepaid income XXX
P
Total Equity and Liabilities XXX
17
CONTROL ACCOUNT
Dr format of sales ledger control account Cr
Balances b/d(debit balance) -------- Balances b/d(credit balance) ---------
Credit sales -------- Cash/cheque from debtors ----------
Returned cheque discount allowed ---------
(unpaid cheque) --------- Sales returns ---------
Interest charged to debtors -------- Bad debts written off ----------
Cash refunds to customers --------
Balances c/d(credit balance) ------- Set off or contra entries ---------
Balances c/d(debit balance) ---------
xxxxx xxxx
Balances b/d (debit balance) ---------- Balances b/d (credit balance) ----------
Sources of information for items appearing in the sales ledger control account
a. Credit sales- sales journal
b. Sales return-sales return journal.
c. Receipt from credit customer-cash book
d. Discount allowed to credit customer-cash book
e. Dishonoured cheque- cash book
f. Refund to credit customers-cash book
g. Bad debts written off – general journal or bad debts account.
h. Set off or contra entries- general journal.
i. Interest charged to overdue account- General journal
Format of purchase ledger control account
Balances b/d (debit balance) --------- Balances b/d (credit balance) ---------
Cash /cheques paid to creditors --------- Credit purchases ---------
Discount received --------- Interest charged by Creditors ---------
Purchases returns -------- Refunds from suppliers ---------
Set off /contra entries -------- Balances c/d (debit balance) ---------
Balances c/d (credit balance) --------
xxxxx xxxxxx
Balances b/d (debit balance) -------- Balances b/d (credit balance) --------
18
Sources of information for items appearing in the purchases ledger control account
a Credit purchases – purchases journal
b. purchase return-purchase return journal
c. Cash/cheque paid to creditors – cash book
d. Discount received – cash book
e. refund from suppliers-cash book
f. Set off or contra entries – general journal.
h.interest charged on overdue account-general journal
BANK RECONCILAITION STATEMENT
Bank Reconcilation statement as on…………………………
Balance as per bank statement XXX
Add: Amount not yet credited-
Cash sales XXX
Cheque received from customer XXX
XXX
Less: Cheque not presented
Cheque paid to suppliers (XXX)
Balance as per cash book XXX
ACCOUNTING RATIOS
➢ Current ratio= Current assets : Current liabilities
Satisfactory level of current ratio: 2:1
➢ Liquid/ acid test/ Quick ratio= Current assets – Inventory : Current liabilities
Satisfactory level: 1:1
➢ Rate of Inventory turnover ratio
In days
19
➢ Trade Receivable turnover
➢ Trade payable ratios
➢ Gross margin = Gross profit / Sales × 100
➢ Profit margin= Net profit/ sales× 100
➢ Return on capital employed = Profit before interest/ Capital employed × 100
Capital employed = Capital = non- current liabilities
or
= non-current assets+ working capital
working capital = current assets - current liabilities
20
CORRECTION OF ERRORS
Balance on the Suspense Account
The Balance on the Suspense Account is a Statement of Financial Position account,
A debit Balance = Current Asset
A credit Balance = Current Liability
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