Accounting System

ELECTRONICS &TELECOMMUNICATIONS,
AND COMPUTER ENGINEERING

(COTET & ICT)
DEPARTMENT
8/17/2020 - 10/5/2020 By: HajiSM_COTET & ICT_Department (2020) 1

ACCOUNTING SYSTEM
By
Mr. Haji SM
(KIST)

Introduction
Accounting is a business language.
We can use this language to communicate financial transactions and
their results.
Therefore: Accounting is a comprehensive system to collect, analyze,
and communicate financial information.

Who is a bookkeeper
A bookkeeper may record financial transactions according to certain
accounting principles and standards and as prescribed by an
accountant depending upon the size, nature, volume, and other
constraints of a particular organization.
With the help of accounting process, we can determine the profit or
loss of the business on a specific date.
It also helps us analyze the past performance and plan the future
courses of action.

What is a bookkeeping
It is record-keeping aspect of accounting which provides data to
which accounting principles are applied.
is the recording of financial transactions, and is part of the process
of accounting in business.
Transactions include purchases, sales, receipts, and payments by an
individual person or an organization/corporation.

What is a bookkeeping
Bookkeeping is the work of a bookkeeper (or book-keeper), who
records the day-to-day financial transactions of a business.
They usually write the daybooks (which contain records of sales,
purchases, receipts, and payments), and document each financial
transaction, whether cash or credit, into the correct daybook—that
is, petty cash book, suppliers ledger, customer ledger, etc.—and
the general ledger.
Thereafter, an accountant can create financial reports from the
information recorded by the bookkeeper.

What is an Accounting
There are different authors , organizations and books define the
Accounting as the following.
1) The American Institute of Certified Public Accountant has
defined Financial Accounting as:
“the art of recording, classifying and summarizing in a significant
manner and in terms of money, transactions and events which in part
at least of a financial character and interpreting the results thereof.”

What is an Accounting
2) The American Accounting Association (AAA) defined
accounting as:
“the process of identifying, measuring and communicating economic
information to permit informed judgments and decisions by users of
information”.
3) (Microsoft; Encarta Reference Library 2004)
Accounting is the art of identifying, measuring, recording, and
communicating economic information about an organization or other
entity, in order to permit informed judgments by users of the
information.
Objectives and Scope of Accounting
Let us go through the main objectives of Accounting:
To keep systematic records: Accounting is done to keep systematic
record of financial transactions. The primary objective of accounting
is to help us collect financial data and to record it systematically to
derive correct and useful results of financial statements.
To ascertain profitability: With the help of accounting, we can
evaluate the profits and losses incurred during a specific accounting
period. With the help of a Trading and Profit & Loss Account, we can
easily determine the profit or loss of a firm.

To ascertain the financial position of the business: A balance sheet
or a statement of affairs indicates the financial position of a
company as on a particular date. A properly drawn balance sheet
gives us an indication of the class and value of assets, the nature and
value of liability, and also the capital position of the firm. With the
help of that, we can easily ascertain the soundness of any business
entity.
To assist in decision-making: To take decisions for the future, one
requires accurate financial statements. One of the main objectives of
accounting is to take right decisions at right time. Thus, accounting
gives you the platform to plan for the future with the help of past
records.
To fulfill compliance of Law: Business entities such as companies,
trusts, and societies are being run and governed according to
different legislative acts. Similarly, different taxation laws (direct
indirect tax) are also applicable to every business house.
Accounting helps in running a business in compliance with the law.

What are the advantages of Accounting
Accounting Replace Human Memory.
Accounting Helps in Knowing Profit
Accounting Helps Knowing Financial Position of an Organization.
Accounting Helps in Knowing list of Creditors and Debtors.
Accounting Helps in Paying Taxes.
Accounting Helps in Rising More Fund by Supplying information to
Investors.
Accounting Helps in Planning Expansion.
Accounting Helps in Getting Bank Loans.

Summary of differences
between
Accounting and Book-keeping
Accounting Book-keeping
• Accounting is four (4) stage • Book-keeping is a part of
process of recording, Accounting. It s merely a
classifying, summarizing and mechanical aspect of recording,
the interpretation of the classifying and summarizing
financial statements.
transaction.
• This four stages are:
• Therefore, keeping the books
• Recording - transactions being of accounts is always the
recorded in the books of the
business theme in book-keeping.

Summary of differences
between
Accounting and Book-keeping
Accounting Book-keeping
• Classifying – sorting and • The finer aspect of interpreting
categorizing into meaningful and all these data into information
orderly types or manner. for management to act upon is
• Summarizing – the accounting excluded.
data are summarized.
• Interpreting – financial data are
analyzed and used to assist
decision making.

FIELD OF ACCOUNING
• Accounting may be divided into three major areas, as the
following:-
A) Financial Accounting:
• The field of accounting is primarily concerned with the provision of
financial information about the business firm mainly to external
users.
• For this reason the financial statements are ‘general purpose’ in
nature, and the account must adhere to prescribed standards and
principles in preparing them.

FIELD OF ACCOUNING
B) Management Accounting:
• This branch of accounting is mainly concerned with the provision of
accounting information to internal users, that is, the management
of the firm. The kinds of financial reports and data which
management accounting offers are aimed to help management in
planning and controlling business operations, and in decision
making.
• Cost Accounting is a sub-set of management accounting and has
evolved because of the needs of the management for accounting
for accounting information regarding the costs of production,
pricing of products, etc.

FIELD OF ACCOUNING
C) Government Accounting:
• The area of government accounting is financial accounting’s
counterpart for the government sector.
• There are, however, basic differences between the two which explain
why government accounting has come to be considered as a separate
area of accounting.
• Unlike the business firm, government entities are not concerned with
profits but with the delivery of social services which in most cases are
provided at no cost the user.

FIELD OF ACCOUNING
• Government Accounting:
• The planned expenditures of the government are embodied in a
budget which, upon approval by the parliament, becomes law. This
legal characteristics of the government budget led to the use of
budgetary funds.
• In government accounting, the focus measurement is fund. A fund
which has been set aside for a specific purpose may not be
transferred to another fund even though both are managed by the
same government entity. It will be considered a violation of law.

FIELD OF ACCOUNING
• Government Accounting:
• Government revenues mainly depend on taxes collected from
business firms and individual taxpayers, hence, the accounting
procedure used in recording and reporting its revenues is different
from other business enterprises.

Forms of business organization
Business organizations can be classified according to (a) ownership
and (b) the nature of the business.
a) Ownership – using this basis, the following are the types
of business.
- Single or sole proprietorship – This type of business is owned only
by the person. Usually the owner is also the manager of business.
- Partnership – This is a business organization with two or more
owners. The owners, called partner, agree on the capital
contributions, management of the firm, sharing of profits and losses,
and other matters pertaining to the operation of the firm.
- Limited Company – This is a legal entity established by operation of
law. Ownership is divided into shares and the owners are called
Shareholders.
- Cooperatives – A cooperative is a business formed, owned and
controlled by a group of people who agree to follow special rules in
running it. It has open and voluntary membership and democratic
control with every members entitled only to one vote.

b) Nature of business – Accounting to this basis, the following
are three types of the business.
- Service entity – This deals with the rendering of the services to the
customers such as tailoring shops, garages, auditing and accounting firms,
doctors, advocates, etc.
- Trading or Merchandising firm – This type of business deals with the
buying and selling of goods for profit. Examples are grocers, supermarket,
department stores, etc.
- Manufacturing – This business involves purchase of raw materials and
converting these materials into finished products for sale. Examples are
textile manufacturing, breweries, plastic company, etc.

NEED FOR ACCOUNTING DATA
Accounting is principally associated with the business enterprise of
firm as a distinct entity from its owner.
Record are maintained to keep track of the economic activities and
business transactions of the firm. The activities of the owner are
recorded only as they related to the business firm. For example,
when the owner contributes capital, that is, invests money or other
property into the business.
This transaction pertains to both the owner and the firm and should
be recorded in the business firm’s books of accounts.

When the business enterprise is relative small, for example, a small
shop, the owner can easily manage the business operations as well
as keep record of the day to day transactions.
However, as the business organization grows complex for example,
from a small shop to a supermarket, the owner will need to hire
employees to carry-on the different functions of selling, procuring
supplies, record-keeping, etc.
The owner may continue to manage the business enterprise
personality, but to be able to do this effectively, he will need
classified accounting information. This will enable him to plan and
make decisions regarding business operations.

Therefore, periodic financial statements and reports prepared from the
accounting records are very essential to good management.
The principal accounting reports are:-
a) The statement of comprehensive income which shows whether the
business is earning profits are sustained losses.
b) The Statement of Financial Position which shows the value of Assets
owned by the business, the amount of Debts and Equity of the owner.
c) The Cash flow Statements which shows the changes that have taken
place in the working capital of the firm, as well as the cash inflow and
cash outflow of the working capital during the accounting period.

• Accounting provides information that is intended to be useful. This
information can be used for making decisions by different groups
of people which include the owners, future investors, suppliers,
lenders, employees, customers as well as the government.
• To be useful as an aid in decision making, accounting information
must comply with acceptable accounting standards so that there is
general conformity and comparability of information provided in
different years and between different entities. These should be
available to users when needed.

USERS OF ACCOUNTING INFORMATION
AND REPORTING
Accounting is often described as the “language of business” because
it is the medium of communication between a business firm and the
various parties interested in its financial activities. The will include:-
a) Owners/ Shareholders
This group’s interest in accounting information lies in the fact that it
is their money which is invented in the firm. They would like to
ensure that they are getting a good return on their investments. This
is assessed by how much profit the firm is making and whether their
investment is increasing in the value. For shareholders in companies
this means they will get good dividend and the market value of their
shares will increase and they can make profit if these were sold.

AND REPORTING
b) Management
Boards of Directors and Managers use accounting information for
making decisions and in planning the business operations. They are
responsible to the owners/ shareholders in carrying out policies and
directives, and in running the business efficiently and effectiveness.
c) Bank / Loan Companies
This group is interested not only in the firm’s profitability but in its
ability to repay its loans. They rely on the financial reports as the
basis of assessing the firm’s liquidity position or long-term solvency.

AND REPORTING
d) Employees
They are part of organization and feel that their efforts contributed
to the firm’s profit. The accounting information will be their basis for
claiming bonus and salary increases. A stable financial position of the
firm gives an indication of the job security.
e) Suppliers
Suppliers usually extend credit to the firm for goods supplied and
they want to be assured of punctual payments of accounts due.
Their interest in accounting information will be similar to that of the
banks and loan companies, that is, has the firm sufficient funds to
pay its maturing obligations?
AND REPORTING
f) Customers
The regular customers of the firm usually rely on it for steady supply
of he/her merchandise for re-sale or raw materials in case of
manufacturing firms. Therefore, they are interested to know if the
firm is able to continue in its operation on a long-term basis and is
capable of meeting its customers demand for goods.
g) Prospective Investors
They are interested in a firm’s profitability and potential for growth.
They rely on accounting information in making their investment
decisions.
• Others Government etc.

METHODS OF ACCOUNTING
• Cash basis
• Accrual basis
• Hybrid (modified cash or accrual basis)
• Considering the objectives of accounting system, it may be concluded
that accounting systems are designed and maintained primary to
provide information on the financial position and operating results of an
enterprises to all interested parties, which may be classified as internal
and external users.
• Internal users include the different management levels of the firm as
well as the employees.
• External users include creditors, investors, suppliers, customers,
government agencies, etc.

• Accrual Basis Accounting.
Under the accrual basis accounting, revenues and expenses are
recognized as follows:
• Revenues recognition: Revenue is recognized when both of the
following conditions are met:
a) Revenue is earned.
b) Revenue is realized or realizable.
Revenue is earned when products are delivered or services are
provided.

Note: Realized means cash is received.
Realizable means it is reasonable to expect that cash will be
received in the future.
• Expenses recognition: Expenses is recognized in the period in which
related revenue is recognized (Matching Principle)
• Cash Basis Accounting:
Under the cash basis accounting, revenues and expenses are recognized
as follows:
• Revenue recognition: Revenue is recognized when cash is received.
• Expenses recognition: Expenses is recognized when cash is received.

Timing differences in recognizing revenues and expenses.
• There are potential timing differences in recognizing revenues and
expenses between accrual basis and cash basis accounting.
Four types of timing differences.
• Accrual Revenue: Revenue is recognized before cash is received.
• Accrual Expenses: Expenses is recognized before cash is paid.
• Deferred Revenue: Revenue is recognized after cash is received.
• Deferred Expenses: Expenses is recognized after cash is paid.

• An Example of Accrued Revenue:
Example: Products are sold at Tzs 5,000 on May 1, 2010 and cash is
received on May 10, 2010.
May 1, 2010 May 10,2010
Revenue is recognized Cash is received
[Journal entry on May 1, 2010]

Debit Credit
Account receivable 5,000
Sales 5,000

• [Journal entry on May 10,2010]
Debit Credit
Cash 5,000
Account receivable 5,000
An Example of Accrued Expense
Example: On May 1, 2010, Company A borrowed Tzs 100,000 from a
bank and promised to pay 12% interest at the end of each quarter.
May 31, 2010 June 30, 2010
Interest expense is recognized for May Cash is paid at the end of the quarter

• [Journal entry on May 1, 2010]
Debit Credit
Cash 100,000
Borrowing from bank 100,000
• [Journal entry on May 31,2010]
Debit Credit
Interest expenses 1,000
Interest payable 1,000
• Tzs 100,000 * 12/100 * 1/12 = Tzs 1,000 for each month

• Interest payable is a liability account.
• Credit side of interest payable ( a liability account) represents an
increase.
• [Journal entry on June 30,2010]
Debit Credit
Interest expense 1,000
• Credit side of interest payable ( a liability account) represents an increase.

Debit Credit
Cash 2,000
• Company pays Tzs 2,000 as interests for May and June.
• Debit side of interest payable (a liability account) represents a decrease.

• An Example of Deferred Revenue
• Example: On May 1, 2010, Company A had a new lease contract with
a tenant (leaseholder) and received Tzs 6,000 for two month rent.
May 1,200 May 31 and June 30, 2010
Cash is received Revenue is recognized at the end of May
and June.
• Revenue is recognized when Company A provides service. In this

example, service is provided when time passes.
• Debit Credit
Cash 3,000
Unearned rent revenue 3,000

• Unearned rent revenue is a liability account.
• Credit side of unearned rent revenue (a liability account) represents
an increase.
• “Unearned revenue” accounts represents the account of Cash
received before services are provided. Since services have not been
provided yet, it is not revenue.
• “Unearned revenue” accounts are liabilities of the company, because
they should be paid back to the other party if services is not provided
in the future.

Debit Credit
Rent revenue 3,000
• Debit side of unearned rent revenue (a liability account) represents a decrease.
• Credit side of rent revenue (a revenue account) represents an increase.
• [Journal entry on June 30, 2010]
Debit Credit
Rent revenue 3,000
• Debit side of unearned rent revenue (a liability account) represents a decrease.

• Credit side of revenue (a revenue account) represents an increase

• An Example of Deferred Expense.
• Example: Company A purchased an insurance for a period from May
1, 2010 to July 31, 2010 and paid Tzs 6,000 Cash for three months
insurance premium.
May 1, 2010 May 31, June 30, July 31, 2010
Cash paid Expense is recognized at the end of May,
June and July

Debit Credit
Prepaid Insurance 6,000
Cash 6,000
• Prepaid Insurance is an Asset account.
• Debit side of prepaid insurance ( an Asset account) represents an
increase.
Debit Credit
Insurance expense 2,000
Prepaid insurance 2,000
• Credit side of prepaid insurance (an Asset account) represents a
decrease.
• [Journal entry on June 30, 2010]
Debit Credit
• Credit side of prepaid insurance ( an Asset account) represents a
decrease.

• [Journal entry on July 31, 2010]
Debit Credit
• Credit side of prepaid insurance (an Asset account) represent a
decrease

BASIC ACCOUNTING PRINCIPLES
There are five basic accounting principles. These are outlined below:
1. Principle of double entry — each transaction is entered twice in
the books of accounts. For every debit there must be a
corresponding credit.
2. Principle of recording — all accounting entries emanate
(originate) from a source document. This is the authority for
entry into journals (and to the general and subsidiary ledgers).
3. Principle of profit determination — the life of a business is
divided into time periods. Revenue and expenses from those
periods can be matched to determine whether a profit or loss has
been obtained.

BASIC ACCOUNTING PRINCIPLES
4. Principle of reporting — accounting information is to be
conveyed to a person without accounting knowledge in a clear,
logical and understandable form. Examples are the Revenue
Statement and the Balance Sheet.
5. Principle of control — accountants and bookkeepers must be
constantly alert to ensure that the accounting practices minimize
the chances of error and fraud.

Accounting Cycle/Process
Accounting cycle refers to the specific tasks involved in completing
an accounting process. OR
It is a complete sequence beginning with the recording of the
transactions and ending with the preparation of the final accounts.
The length of an accounting cycle can be monthly, quarterly, half-
yearly, or annually.
It may vary from organization to organization but the process
remains the same.

The following chart shows the basic steps in an accounting cycle:

Accounting Concepts
The most important concepts of accounting are as follows:
Business Entity Concept
Money Measurement Concept
Going Concern Concept
Historical Cost Concept
Dual Aspects Concept
Accounting Period Concept
Matching Concept
Accrual Concept
Objective Evidence Concept
Consistency Concept
Realization

Accounting Concept…
The first two accounting concepts, namely, Business Entity Concept
and Money Measurement Concept are the fundamental concepts of
accounting.
Let us go through each one of them briefly:
Business Entity Concept :
According to this concept, the business and the owner of the
business are two different entities.
In other words, I and my business are separate.

For example:
Mr. A starts a new business in the name and style of M/s
Independent Trading Company and introduced a capital of
Tzs 2,000,000/= in cash.
It means the cash balance of M/s Independent Trading
Company will increase by a sum of Tzs 2,000,000/=. At the same
time, the liability of M/s Independent Trading Company in
the form of capital will also increase.
It means M/s Independent Trading Company is liable to pay
Tzs 2,000,000 to Mr A.
Money Measurement Concept:
According to this concept, “we can book only those transactions in our
accounting record which can be measured in monetary terms.”
This means money is used as a unit of measure in recording and reporting all
financial transactions of the business. The specific currency used must be clearly
indicated, e.g Tzs, US $, etc. Under this concept, it is assumed that currency will
remain stable in value.
Example
Determine and book the value of stock of the following items:
Shirts Tzs 5,000/=
Pants Tzs 7,500/=
Coats 500 pieces
Jackets 1000 pieces
Value of Stock = ?
Here, if we want to book the value of stock in our accounting record,
we need the value of coats and jackets in terms of money.
Now if we conclude that the values of coats and jackets are Tzs
2,000 and Tzs 15,000 respectively, then we can easily book the value
of stock as Tzs 29,500 (as a result of 5000+7500+2000+15000) in our
books.
NOTE: We need to keep quantitative records separately.

Going Concern Concept:
“Our accounting is based on the assumption that a business unit is a
going concern.” i.e an assumption that the business will continue to
trade into the foreseeable future.
We record all the financial transaction of a business in keeping this
point of view in our mind that a business unit is a going concern; not
a gone concern. Otherwise, the banker will not provide loans, the
supplier will not supply goods or services, the employees will not
work properly, and the method of recording the transaction will
change altogether.

The concept of going concern does not work in the following cases:
a) If a unit is declared sick (unused or unusable unit).
b) When a company is going to liquidate and a liquidator is
appointed for the same.
c) When a business unit is passing through severe financial crisis
and going to wind up.

Historical Cost Concept
It is a very important concept based on the Going Concern
Concept.
We book the value of assets on the cost basis (original cost), not on
the net realizable value or market value of the assets based on the
assumption that a business unit is a going concern.
No doubt, we reduce the value of assets providing depreciation to
assets, but we ignore the market value of the assets.

Dual Aspect Concept:
There must be a double entry to complete any financial
transaction, means debit should be always equal to credit.
Hence, every financial transaction has its dual aspect:
a) we get some benefit, and
b) we pay some benefit.

For example, if we buy some stock, then it will have two effects:
the value of stock will increase (get benefit for the same amount),
and
it will increase our liability in the form of creditors.
Transaction Effect
Purchase of Stock for Stock will increase by Tzs 25,000 (Increase in debit
Tzs 25,000 balance)
Cash will decrease by Tzs 25,000 (Decrease in debit
balance)
Or
Creditor will increase by Tzs 25,000 (Increase in credit
balance)

Accounting Period Concept
The life of a business unit is indefinite as per the going concern
concept. To determine the profit or loss of a firm, and to ascertain its
financial position, profit & loss accounts and balance sheets are
prepared at regular intervals of time, usually at the end of each year.
This one-year cycle is known as the accounting period. The purpose
of having an accounting period is to take corrective measures
keeping in view the past performances, to nullify the effect of
seasonal changes, to pay taxes, etc.

Matching Concept
Matching concept is based on the accounting period concept. The
expenditures of a firm for a particular accounting period are to be
matched with the revenue of the same accounting period to
ascertain accurate profit or loss of the firm for the same period. This
practice of matching is widely accepted all over the world. Let us
take an example to understand the Matching Concept clearly.

• The following data is received from M/s Globe Enterprises during
the period 01-04-2012 to 31-03-2013:
ParticulaTzs Amount
1. Sale of 1,000 Electric Bulbs @ Tzs 10 per bulb on cash basis. 10,000.00
2. Sale of 200 Electric Bulb @ Tzs. 10 per bulb on credit to M/s Atul 2,000.00
TradeTzs.
3. Sale of 450 Tube light @ Tzs.100 per piece on Cash basis. 45,000.00
4. Purchases made from XZY Ltd. 40,000.00
5. Cash paid to M/s XYZ Ltd. 38,000.00
6. Freight Charges paid on purchases 1,500.00
7. Electricity Expenses of shop paid 5,000.00
8. Bill for March-13 for Electricity still outstanding to be paid next 1,000.00
year.

Based on the above data, the profit or loss of the firm is calculated as follows:
Particulars Amount Total

Sale 12,000.00
Bulb 45,000.00
Tube 40,000.00 57,000.00
Less:-
Purchases 5,000.00
Freight Charges
Electricity Expenses 1,500.00
Outstanding Expenses 47,500.00
1,000.00
Net Profit 9,500.00

In the above example, to match expenditures and revenues during
the same accounting period, we added the credit purchase as well as
the outstanding expenses of this accounting year to ascertain the
correct profit for the accounting period 01-04-2012 to 31-03-2013.
It means the collection of cash and payment in cash is ignored while
calculating the profit or loss of the year.

Accrual Concept
As stated above in the matching concept, the revenue generated in
the accounting period is considered and the expenditure related to
the accounting period is also considered. Based on the accrual
concept of accounting, if we sell some items or we rendered some
service, then that becomes our point of revenue generation
irrespective of whether we received cash or not. The same concept
is applicable in case of expenses. All the expenses paid in cash or
payable are considered and the advance payment of expenses, if
any, is deducted.

Objective Evidence Concept
According to the Objective Evidence concept, every financial entry
should be supported by some objective evidence. Purchase should
be supported by purchase bills, sale with sale bills, cash payment of
expenditure with cash memos, and payment to creditors with cash
receipts and bank statements. Similarly, stock should be checked by
physical verification and the value of it should be verified with
purchase bills. In the absence of these, the accounting result will not
be trustworthy, chances of manipulation in accounting.

Realization
With this concept, accounts recognize transactions (and any profits
arising from them) at the point of sale or transfer of legal ownership
rather than just when cash actually changes hands. For example, A
company that makes a sale to a customer can recognize that sale when
the transaction is legal – at the point of contract. The actual payment
due from the customer may not arise until several week (or months)
later – if the customer has been granted some credit terms.

Materiality
Only significant items should be considered when preparing financial
statements. These are items whose omission or non-disclosure will
result in a distorted view of the financial statements and will mislead
the users of these financial statements. Items may be considered
significant in amount or importance depending on the nature and size
of the firm. For example, a miscellaneous expense of T.shs 10,000/=
may be significant for a sole trader but may not be significant for a
large insurance company.

Chart of Accounts
• A Chart of Accounts is an index to the accounts in the general and
subsidiary ledgers.
• Ledger accounts are classified into the five groups of accounts. A
Chart of Accounts is an index to place these five groups into an
order, to assist in locating ledger accounts, which allows for the
accounts to be easily accessed.
• The listing of all accounts and their account numbers is called the
chart of accounts.

Chart of Accounts
• A typical account numbering scheme might appear as follows:

Chart of Accounts
• Sample Chart of Accounts for a Small Company
• This is a partial listing of sample chart of accounts.
• Note that each account is assigned a three-digit number followed
by the account name. The first digit of the number signifies if it is
an asset, liability, etc.
• For example, if the first digit is a "1" it is an asset, if the first digit is
a “4" it is a revenue account, etc.
• The company decided to include a column to indicate whether a
debit or credit will increase the amount in the account. This sample
chart of accounts also includes a column containing a description
of each account in order to assist in the selection of the most
appropriate account.
Chart of Accounts
• Asset Accounts

Chart of Accounts
• Liability Accounts

Chart of Accounts
• Owner's Equity Accounts

Chart of Accounts
• Operating Revenue Accounts

Chart of Accounts
• Operating Expense Accounts

Chart of Accounts
• Non-Operating Revenues and Expenses, Gains, and Losses

Types of accounts
Common types of accounts described are:-
• Personal accounts: these are for debtors and creditors (i.e customers
and suppliers)
• Impersonal accounts:
These are divide into two-
a. Real account – Accounts in which possessions (Assets, Liabilities &
Equities) are recorded. Examples are buildings, machinery, fixtures
and inventory. Real accounts are permanent.
b. Nominal account – accounts in which expenses, income (revenue) and
capital are recorded. Nominal accounts are temporary.
Types of accounts
accounts
Personal Impersonal
accounts accounts
Accounts Accounts Real accounts Nominal accounts

receivable payable For possessions For expenses, income
of all kinds and capital

Five groups of accounts
It is very important to be able to distinguish between the five groups
of accounts: Assets, Expenses, Equity, Revenue and Liabilities.
An understanding of these groups leads into the essential learning
tool, the ‘rules of double entry’,
Definitions
• Assets are items of value owned/controlled by a business;
examples are cash, inventories, buildings and motor vehicles.

• Liabilities are amounts owed to people or to organizations outside
of the business; examples are amounts owed to Creditors control
for purchases, or to a bank for a loan, overdraft or mortgage.
• Equity is represented by the business’s assets less its liabilities (or
the amount that the business owes to the owner).
Equity is the amount originally invested in a business plus extra cash
introduced, plus profits and less losses and drawings of cash or
inventories from the business by the owner.

• Revenue items are the earnings of a business; examples are income
from sales of trading stock, interest, commission, rent and discount
received.
• Expenses are outflows from a business; examples are payment for
wages or salaries, purchases of trading stock, payments for
advertising, freight, motor vehicles expenses and discount allowed.


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My Dearest Friends.

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ELECTRONICS &TELECOMMUNICATIONS,

AND COMPUTER ENGINEERING

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[Journal entry on May 1, 2010]

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• Tzs 100,000 * 12/100 * 1/12 = Tzs 1,000 for each month

• Credit side of interest payable ( a liability account) represents an increase.

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• Revenue is recognized when Company A provides service. In this

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• Debit side of unearned rent revenue (a liability account) represents a decrease.

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• [Journal entry on May 1, 2010]

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