TABLE OF CONTENT

CHAPTER ONE: THE BASES AND EVOLUTION OF ACCOUNTING PRACTICE

CHAPTER TWO: THE ENTERPRISE AND ITS ACTIVITIES
CHAPTER THREE: THE NOTION OF ECONOMIC FLOWS AND BASIC MECHANISMS
CHAPTER FOUR: THE BALANCE SHEET AND ITS VARIATION
CHAPTER FIVE: ACCOUNTING LAW AND ACCOUNTING PLAN
CHAPTER SIX: OPERATIONS ON PURCHASES AND SALES OF GOODS
CHAPTER SEVEN: DEPRECIATIONS
CHAPTER EIGHT: IMPAIREMENTS (PROVISIONS)

CHAPTER ONE: THE BASES AND EVOLUTION OF ACCOUNTING PRACTICE

I) DEFINITION OF ACCOUNTING
Accounting is the art of recording, classifying and summarizing in a significant manner and in terms
of money, transactions and events which are in part at least, of a financial character, and interpreting the
results thereof.
Accounting can also be defined as a technique of managing information, using conventional
language to treat and represent in figurative form, the structure, activities and the performance of an
enterprise.
II) Objectives of accounting
The financial score of the business is kept by the accounting system. This system points out the
problems faced or likely to be faced by the business, brings to the notice of the business or economic entity
the opportunities that are likely to arise and indicates possible action when needed.
The objectives of accounting are to provide information for the following purposes
 Making decisions concerning the use of limited resources, including the identification of crucial decision
areas, and the determination of objectives and goals
 Effectively directing and controlling an organization’s human and materials resources
 Maintaining and reporting on the custodianship of these resources
 Facilitating social functions and control
III) FIELDS OF ACCOUNTING
a) Financial accounting
It provides information to decision makers who are not involved in the day-to-day operations of the
organization. The information is distributed primarily through general purpose financial accounting
statements.
b) Management or management accounting
It involves providing information to an organization’s managers. Managerial accounting report often
include much of the same information used in financial accounting. Here we have; general accounting, cost
accounting and budgeting.
c) Tax accounting
Many taxes raised by the state, cities and local councils are based on the income earned by tax payers.
Another tax accounting activity involves planning future transactions to minimize the amount to be paid as
tax.

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 IV) Evolution of accounting
Accounting had been developed over many centuries as a result of the need to account for assets (properties)
entrusted to people and / or institutions with the responsibility to deal with these assets in a particular manner.
It is expected of a person to whom assets have been entrusted called the entrepreneur, to give account of the
financial results to the suppliers of the assets regarding the economic application thereof
Although business transactions were recorded more than 6,000 years ago,
 Benedetto Cotrugli was probably the first person who wrote a chapter on accounting, in a book
published in 1458 about the commercial function. In that chapter he presented a brief discussion of
bookkeeping.
 Franciscain LUCA PACIOLI was the first to publish a work on double entry book keeping.
 In the rest of Europe, the first works on double-entry bookkeeping appeared towards the middle of the
sixteenth century:
 The development of the theory of accounting. The why as opposed to the how, began only in the
nineteenth centuries?
Towards the middle of the nineteenth century, the formation of professional accounting Societies began in
many countries. The purpose of the various institutes and societies was to make recommendations on
accounting practice to their members. This was to improve uniformity in dealing with financial transactions
and to formulate basic principles applicable to financial statements. Today the issuing of recommendations on
accounting practice is one of the most important functions of professional societies of accountants and auditors
throughout the world.
Internationally wise, the International Accounting Standards Committee (IASC) Foundation is the body
ensuring the regulatory system of the practice of accounting. It was formed in 1973.
The objectives of the IASC Foundation, which is the supervisory body of the whole structure, are to:
 Develop a single set of understandable and enforceable high quality worldwide accounting standards;
 Which require high quality, transparent and comparable information in financial statements to help those in
the world's capital markets and other users make economic decisions;
 Promote using and applying these standards;
 Bring about convergence of national and international accounting standards.
The organs of the IASC Foundation include
 The International Accounting Standards Boards (1ASB) which is solely responsible for International
Accounting Standards (IASs), standards now called International Financial Reporting Standards (IFRSS),
 The Standard Advisory Council (SAC) which is a sub-organ of the IASB, offers advice to the IASB when
drawing up new standards: and
 The International Financial Reporting Interpretations Committee (IFRIC) what was formerly known as the
Standing Interpretation Committee (SIC), it issues rapid guidance on accounting matters where divergent
interpretations of IFRSS have arisen.
Examples of national accounting bodies include:
 In the UK, the Accounting Standards Board (ASB):
 In the US, the Financial Accounting Standards Board (FASB) created in 1973 to replace the Accounting
Principles Board (APB) which was highly criticized,
 In France, the National Accounting Council created in 1957 and restructured in 1996;
 In South Africa, the Accounting Practices Board (APB).
 In the ECCAS and ECOWAS zones, the Organization for the Harmonization of Business
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 Law in Africa (OHADA). For international convergence of accounting standards and principles, and
because the IASB on its own cannot enforce compliance with its standards, national accounting bodies work
hand in hand with the IASB.
NB: The IASC Foundation should not be confused with the IASC. The latter was merely the setting board of
LASS, created and changed to IASB in 2001. The former to which Foundation is attached is the supervisory
body.
The recording of business transactions is equally based on certain assumptions known as accounting
concepts or principles. This is to help bring in uniformity in the keeping of accounting records. These concepts
are the agreed practices that underpin the preparation of accounting information, and about some of the
regulations that have been developed to be used in accounting practice. These rules are known internationally as
"Generally Accepted Accounting Principles" (GAAP). Some of these principles includes
 The economic entity or the separate entity assumption:
 The monetary measure assumption:
 The Going Concern assumption
 The Periodicity assumption
 The Matching assumption
 The Historical cost assumption

CHAPTER 2: THE ENTERPRISE AND ITS ACTIVITIES

I- NOTION OF AN ENTERPRISE
A) DEFINITION OF AN ENTERPRISE
The enterprise is a financially independent organization which produces goods or services for the
market. From this definition, we can bring out general characteristics that are found in all enterprises.
1. Organization
It is formed for duration and to carry out a series of operations turning towards a determined aim. Therefore,
isolated acts are not the operations of an enterprise.
2. Produces goods or services
A bank, a factory, an insurance company, a business house etc ... are enterprises which create or transform
goods or services in order to satisfy wants of individuals or other enterprises. Therefore, syndicates, religious
communities etc are not enterprises.
3. An enterprise produces for the market
The entrepreneur should run the economic risk. An organization that produces for self-consumption is
not an enterprise.
4. An enterprise is independent.
Its activity is carried on its own authority and it is responsible for any risk. Therefore, syndicates,
religious communities etc. are not enterprises.
B) ROLES OF AN ENTERPRISE.
An enterprise plays both economic and social roles.
1- Economic roles
The enterprise produces goods or services in order to satisfy wants of the community. (it allocates scarce
and limited resources)
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2- Social roles
- It fights against unemployment.
- It contributes to the formation and training of individuals;
-It improves on the standard of living of individuals by distributing revenues in the form of salaries wages,
dividends (dividends are distributed to shareholders).
C) CLASSIFICATION OF ENTERPRISES
Enterprises are classified following their ownerships, their sizes or their domains of activity.
1. Classification according to the ownership
From these points of view, we distinguish:
a) Private enterprises belonging to individuals and made up of:
- Sole proprietorship (one-man business)
- Partnerships (general and limited partnership)
- Limited liabilities companies (private limited liability companies and public limited liability companies)
b) State owned or para-stata enterprises belonging entirely or partly to the state or group of states
2. Classification according to the size of the enterprise
The factors taken into consideration here are the staffing situation (number of workers: the amount of capital
and the turnover. Thus, we distinguish:
- Small size enterprises;
- Medium size enterprises
- Large size enterprises
3. Classification according to the domain of activity
Here, we distinguish,
- Commercial enterprises.
- Industrial enterprises.
- Agricultural enterprises
- Mixed enterprises
4. Classification according to sectors
- Primary sector
- Secondary sector
- Tertiary sector

II- THE ENTERPRISE IN ITS ECONOMIC ACTIVITY

DEFINITION OF ECONOMIC ACTIVITY
Economic activity is the whole behavior tending to the production, the repartition and the consumption
of goods and services. The persons who intervene in the economic activity are economic agents, grouped
under sectors.
B-THE CONCEPT OF ACTIVITY ACCORDING TO THE SYSCOHADA
1- DEFINITION OF ACTIVITY. The activity of an enterprise is made up of all transactions realized
by an enterprise in view of reaching the main goal. These transactions are divided into:
- main activities called "ordinary activities" (in respect of the ultimate goal of the enterprise)
- accessory activities termed "off ordinary activities
2- CHARACTERISTICS OF THOSE ACTIVITIES

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  By ordinary activities, the SYSCOHADA means transactions carried out by the enterprise within the
framework of its ultimate goal, in respect of the exploitation conditions, and which are recurrent; they
correspond to the social object of the enterprise. Example: - Purchases of raw materials for an industrial
firm; Heavy loss on an important customer's credit; Fiscal and penal amends, gift and tips, etc ...
 By off ordinary activities, The SYSCOHADA means transactions distinct from ordinary activities
transactions and consequently supposed not occurring in regular frequency. Example: Sales of fixed
assets.
3- OBJECTIVES
The distinction operated at the level of activities entails
 The determination of "ordinary activities” result and of “off ordinary activities” results;
 The high lighting in the result account and in the balance sheet, of ordinary activities items and off
ordinary activities items.
C- ECONOMIC SECTORS
1- DEFINITION
An economic sector is a set of economic agents having the same economic behavior.
2- THE SEVEN ECONOMIC SECTORS
The National Accounting counts seven Economic sectors.
 Non-financial companies, which are public or private organizations, whose essential function is to
produce marketable goods and services; e.g International Soap Factory, Sotramilk.
 Financial institutions. Which are public organizations whose essential function is the collection and
redistribution of financial means; e.g banks
 Insurance companies; whose essential function are to cover risks.
 Public administrations; that produces non-marketable services for the entire population e.g. schools,
hospitals.
 Private administrations that produces non-marketable services for particular groups; e.g Non-
Governmental Organizations.
 Households whose essential function is to consume and eventually to produce (individual enterprises are
included in this sector).
 The others. Considered fictitious agents who buys what the country exports and sells what the country
imports.
D- ORGANISATIONAL ENVIRONMENT OF THE ENTERPRISE
The enterprise combines factors of production (natural factors, human factors and financial factors) to
obtain goods or services that it sells off. Therefore, the enterprise interacts with other economic agents.
THE ENTERPRISE AND ITS ENVIRONMENT

STATE SOCIAL ORGANISATIONS

CUSTOMERS

SUPPLIERS
THE ENTERPRISE

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 The activity of the enterprise is thus characterized by the relations it has with its external environment.
E- THE MEMORIZATION OF TIHE ENTERPRISE ACTIVITY
The enterprise realizes changes with its external environment. It also carries out international operations. It
is important to follow up and to analyze the external exchanges and the internal operations of the enterprise.
Accounting is in charge of this double mission (follow up and analyze the operations of the enterprise).
The handling of accounting is a legal obligation:
- The code of commerce makes it an obligation to traders to record in the chronological order all the
transactions realized.
- The same code defines the registers (journal and inventory book) to be kept and the manner in which
they should be kept.
- The fiscal authority imposes to enterprises the presentation of accounting documents

CHAPTER 3: THE NOTION OF ECONOMIC FLOWS AND BASIC MECHANISMS

5SECTION 1-THE ECONOMIC FLOWS
1-THE NOTION OF ECONOMIC FLOW
1- DEFINITION OF ECONOMIC FLOWS
It is the movement of goods, services and cash into (inflow) and out of (outflow) of the enterprise.
These movements of goods and values put into contact economic agents. It results that economic flows
have:
- a sense (direction):
- value
2- TIHE SENSE (DIRECTION) OF AN ECONOMIC FLOW
It is made up of its departure point and its arrival point. It is said that a flow has: an origin (departure point);
and a destination (arrival point).
3- THE VALUE OF AN ECONOMIC FLOW
In accounting, quantities in movements are always measured in monetary units. The value of a flow is the
expression in monetary units of its quantity
AN ECONOMIC FLOW is presented as follows
Origin Destination
A B

4- ACCOUNTING ANALYSIS OF ECONOMIC FLOWS: THE NOTIONS OF "USE AND

SOURCE"
The origin of a flow indicates a source, that is "what renders possible the satisfaction of a need” The
destination of a flow indicates the use: that is "the utilization of an element transferred by the economic flow".
Example: LAYMAN Enterprise buys 20kg of raw materials from Ngodie Enterprise for 750 000 CFAF paid in
cash.
Solution
20 kg of raw materials, value 750 000F
USE SOURCE
Cash, value 750 000F
SOURCE
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REMARK: Any transaction between the enterprise and an external economic agent always results in two flows
of opposite sense and of equal value.
THE DIFFERENT TYPES OF ECONOMIC FLOWS
 Real flows or physical flows
 Financial flows
 External flows
 Internal flows
1. REAL OR PHYSICAL FLOW
They correspond to the movement of goods and services.
Example:
- Sale of 20kg of raw materials by JOHN to NDOTI
- ENOW entrusts the keeping of his accounting to EBAY.
The first example represents a visible physical flow, while the second, a non-visible physical flow.
2. FINANCIAL FLOWS
They correspond to the movements of money or other means of settlement (credit payment). Example:
Banzeka sold goods to John worth 120 000CFAF, paid 1/3 on credit and the rest in cash.
Real flow, goods worth 120 000F
Financial flow, cash 80 000F
BANZEKA Financial flow, credit 40 000F JOHN

ACCOUNTING RECORDING OF ECONONICTLOWS

I- The recording of external flows
It should be noted that an exchange transaction between the enterprise and the external economic agent results
in two flows of opposite direction and of equal value.
For the enterprise, one of these flows has its origin in the enterprise and the other flow, its destination in
the enterprise.
The accounting of the enterprise notes the flows in relation to the enterprise. It records:
- The flow whose origin is the enterprise, as a source
- The flow whose destination is the enterprise, as the use
Example: TAMO enterprise sold 1 000kgs of rice to ZOMIA enterprise for 70 000CFAF each.
Solution

II- ACCOUNTING RECORDING OF INTERNAL FLOWS

Each internal transaction results in one flow whose origin and destination are within the enterprise, e.g
transfer of 100 000 CFAF cash to the bank account of the enterprise.
Source: Cash value: 100 000CFAF
Use: Bank, value: 100 000CFAF
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APPLICATION
An enterprise carried out the following transactions during the month of May, 2020 with other economic
agents
- May 5th: Goods bought in cash for 100 000CFAF
- May 8th: Cash deposit in the bank 500 000CFAF
- May 13th: Additional money brought in and used for:
A deposit in the bank 3 000 000CFAF,
Purchase of goods 4 500 000 CFAF
- May 15th: Machine bought for 2 500 000CFAF paid immediately 1500 000 CFAF in cash and the
balance on credit.
- May 17th: Settlement by postal cheque of the above debt, that is 1,000,000CFAF
- May 24th: Goods sold on credit to customer JACQUES 300 00OCFAF, cost of goods 280 000CFAF
- May 27th: Sold goods in cash to customer THOMAS 40,000 CFAF, cost of goods sold 70 000CFAF.
Work required: Carry out the accounting analysis of the above transactions

CHAPTER 4: ACCOUNTING LAW AND ACCOUNTING PLAN

The OHADA accounting law and system is presented in the OHADA Uniform Act on the Organization
and Harmonization of Accountancy, simply referred to as the “Uniform Act”.
1) NATURE OF THE OHADA UNIFORM ACT ON THE ORGANIZATION AND
HARMONIZATION OF ACCOUNTANCY
The uniform act carries 113 articles, presented in four main parts,
 Part 1: The personal Accounts for enterprises (artificial and natural persons): carries seventy-three
articles (articles 1 to 73) on rules relating to accounting conventions, routine bookkeeping procedures,
and the value of accounting records,
 Part 2: Consolidated and combined Accounts: It carries articles 74 to 102 of the Uniform Act and
attempts to blend the Anglo - American accounting model with e French uniform accounting approach
by codifying key provisions of International Financial Reporting Standards. It also carries a novelty - the
notion of combined accounts - which does not exist in Anglo-Saxon accounting.
 Part 3: Penal or Criminal Provisions: It carries penalties on accounting often committed by executives
of businesses such as failure to draw up final accounts.
 Part 4: Final Provisions: It carries final legal enforcements on the application of the OHADA Law on
Accounting Practice This uniform act lays down the general policies, norms and procedures on
accounting practice under the OHADA system based on the following
1.1 Nature of Accounts under the OHADA system
Article 18 of this Uniform Act stipulates that:
 Accounts in the OHADA system are grouped in similar categories called classes
 For financial or general accounting, the classes comprise of two main categories of accounts.
 Classes for financial situation accounts (balance sheet accounts) and
 Classes for management accounts (profit and loss accounts).
 Each class is subdivided into accounts to be identified by their codes of 2 or more digits,

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  If the official OHADA accounting chart of accounts does not provide the necessary sub-accounts suited
for the operations of an enterprise, that enterprise can create or open other suitable sub-accounts based
on the general accounting plan.
 If the accounts in the official chart are too detailed out as compared to the operations of an enterprise,
that enterprise can regroup the accounts.
2) THE OHADA CHART OR LIST OF ACCOUNTS
According to the OHADA Official Gazette a chart of accounts is “a methodical list of accounts created by
the General Accounting Plan and put at the disposal of business organizations with each business organization
having the latitude to adopt is own specific codification based on its needs and characteristics”.
Accounts in the OHADA chart are grouped into similar categories called classes, with the chart containing 9
classes of accounts as follows:
 Class 1: Accounting of Permanent or Durable Resources.
 Class 2: Fixed assets accounts,
 Class 3: Stocks or inventories Accounts.
 Class 4: Accounts of third parties or personal accounts.
 Class 5: Cash and cash equivalents accounts.
 Class 6: Accounts for Expenses of ordinary activities,
 Class 7: Accounts for Revenues from ordinary activities.
 Class 8: Accounts for other expenses and Revenues (for extra ordinary activities),
 Class 9: Accounts for contingencies and managerial accounting
NB:
 Classes I to 5 represent balance sheet accounts,
 Classes 6 to 8 represent profit and loss accounts.
 Classes I to 8 are to be used for financial or general accounting records.
 Class 9 is to be used for management accounting records and contingent items.
3) THE CODIFICATION OF ACCOUNTS IN THE OHADA SYSTEM
Under the OHADA system, accounts are obligatorily identified by a code and a title (name or heading).
Here, an account represents a group of similar items. This system has adopted the alphanumerical method of
codification of accounts, with
 The alpha method for the codes of accounts in financial statements, and
 The numerical method for codes of accounts in the daily books of accounts and the trial balance.
For the numerical codification:
 The number of each class of account constitutes the first digit of the account numbers or codes of all the
accounts falling under that class
 Each class of accounts is divided into 9 or 10 main account, with the second digits ranging from 0 to 9,
except classes three and eight that range from 1 to 9. These accounts are known as two digits or main
accounts.
 Each main account is divided into divisional accounts known as three – digit accounts, with the third
digit account identifying the various accounts falling under that main account.
 Some sub – accounts are further divided into subsidiary accounts with the 4 th digits of the codes
identifying the subsidiary accounts that fall under each three – digit account.
Examples:
 Account 10 – capital (a main or two – digit account)

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  Account 101 – share capital (a divisional or three – digit account)
 Account 1011 – Subscribed, uncalled up capital (a subsidiary account)
The significance of some digits used in the codification
The digits of the code numbers of accounts have the following significance.
i) The first digits of all the codes in the OHADA chart of accounts show the class of accounts to which
the accounts belong to. For instance:
 Account 215 – Goodwill (a class two account)
 Account 371 – Intermediary products (a class 3 account)
ii) The significance of the digit 9 in two – digit or main accounts
For two – digit accounts of class 1 to 7, the digit 9 is used to identify those accounts which are to be
used in the recording of provisions and impairments. For example
 19 – Financial provision for risks and expenses
 29 – Impairment of fixed assets
iii) The significance of 9 as the third or fourth digit of the codes
 For class 2 accounts, the digit 9 when used as the last digit of three – digit accounts identify
fixed assets in progress or in process. For instance:
 219 – Intangible fixed assets in progress
 239 – Building and fixtures in progress
 For classes 1 to 4 accounts, the digit 9 in the third or fourth position shows an account with a
contrary balance as compared to the normal balances of the other accounts in the category.
For instance:
 109 – shareholders subscribed uncalled up capital
 129 – Debit balance brought forward
 409 – suppliers, debtors (suppliers with debit balances)
 For purchase accounts, 9 as the 4 th digit of an account code is used to record post – invoice
reductions (rebates, trade discounts and bonuses) obtained.
iv) The significance of 8when used as the third or fourth digit of the code of accounts
For personal (class 4) accounts, the digit 8 at the third position is used to identify accrued expenses
and revenues linked to these accounts (except account 478 and 488) for instance:
 408 – suppliers, awaited invoices
 418 – Customers, accrued revenues
v) The significance of even and odd number digits as the second digits of the main accounts of class 8
For main accounts of class 8, the second digits are used to distinguish expenses and revenues of
extra ordinary activities. That is
 Odd digits for expenses
 81 – Accounting values of disposal of fixed assets
 83 – E.O.A expenses
 Even digits for revenues
 82 – Revenues from disposals of fixed assets
 84 – E.O.A Revenues

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NB:
 Ordinary activities: These are transactions carried out by the enterprise that corresponds to its
fundamental reason of existence under normal operating conditions. These transactions are usual,
frequent, and recurrent operations or transactions carried out by that business. For instance, sales of
goods by trading undertakings
 Extraordinary Activities: These are transactions or operations that are made on irregular, unusual or
exceptional basis. For instance, the sales of fixed assets.

CHAPTER 5: THE BALANCE SHEET AND ITS VARIATIONS

THE BALANCE SHEET
GENERAL PERSPECTIVE OF THE BALANCE SHEET
1- DEFINITION
Balance sheets summarize a firm's assets, liabilities, and equity at a specific point in time.
 Assets are anything a firm owns, both tangible and intangible, that has monetary value.
 Liabilities are the firm's debts, or the claims of creditors against a firm's assets.
 Equity (also called stockholders' equity or net worth) is the difference between total assets and total
liabilities.
Total Assets = Liabilities + Net Worth
2- ELEMENTS OF THE BALANCE SHEET
2.1 ASSETS
Assets are generally listed according to the length of time it would take an ongoing firm to convert them to
cash. We have
2.1.1 FIXED ASSETS
The fixed assets are long-term assets bought for company use rather than for resale. In other words,
fixed assets are tangible and intangible items that have long lives and are not readily convertible to cash.
Examples; land, buildings, equipment, furniture, and vehicles, and such intangible items as patents, trademarks,
and goodwill.
2.1.2 CURRENT ASSETS
Current assets include cash and other items such as marketable securities, that the company can or
expects to convert to Cash in the nearest future that is, in less than a year. Cash, as the name suggests, includes
both on-hand and in bank deposits. Marketable securities are short-term, interest-bearing, money-market
securities that are issued by the government, businesses, and financial institutions.
2.1.3 TOTAL ASSETS
Total assets are the sum of the current and fixed assets.
2.2 LIABILITIES
Liabilities are generally listed according to the length of time in which they are due.
2.2.1 STOCKHOLDER’S EQUITY (OWNERS EQUITY)
Shareholders' equity represents the owners' claims on the firm. It is made up of; owners’ equity, reserves and
profit or loss of the period.
2.2.2 LONG-TERM DEBT

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 Long-term debt (or Long-Term Liabilities) is the sum of debts owed by the firm for which repayment is
not due in the current year. Long- term loans are usually retired by periodic repayments over their life, which is
more than one year and usually less than 15 years.
2.2.3 CURRENT LIABILITIES
Current liabilities are the sum of debts owed by the firm for which payment is due the current year.
Accounts payable is the amount the firm owes to others for goods or services purchased from them on credit.
1.1.1 Liquid (cash) liabilities:
Resources made available to the entity for a short period of time. e.g. Bank overdraft, discount credit etc.
1.1.2 Total Liabilities
Total liabilities are the sum of the liquid, current and long-term liabilities. The repayment of this debt
takes precedence over satisfying the equity of stockholders in the event the firm declares bankruptcy.
3 – THE BALANCE SHEET EQUATION
It is given as:
Total Assets = Total liabilities + Net worth
Total Assets = Capital + Liabilities
4- THE STRUCTURE OF THE BALANCE SHEET
ASSETS AMOUNT LIABILITIES AMOUNT
FIXED ASSETS DURABLE RESOURCES

CURRENT ASSETS CURRENT LIABILITIES

CASH ASSETS CASH LIABILITIES

Example 1: On the 01/01/2019, open an entity with the following elements: goodwill 600 000, License 900
000, Building 2 000 000, Transport equipment 4 000 000, Stocks of goods 800 000, Bank overdraft 50 000,
Customer 300 000, Bank 200 000, Cash 50 000, Capital 4 600 000, Borrowings 3 500 000, suppliers 700 000
Work require: Present the opening balance sheet

THE JOURNAL
The journal is a book of prime entry in which transactions are first of all recorded before transfers are
made from one account to the other. This is done in a chronological order.
THE ROLE OF A JOURNAL
 It obeys a legal requirement
 It helps to avoid errors and fraud
 It helps to check the respect of the double entry principle.

PRESENTATION AND CONTENT OF THE JOURNAL

CODES OF DETAILS AMOUNTS
A/C (DATES, ACCOUNT TITLES AND
D C NARRATIONS) D C

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 TOTALS C/D
EXAMPLE: On the 20/01/2022 LANDRINE receives invoice n o 0125 of amount 500 000CFAF from BOBGA
for the purchase of goods. This transaction can be recorded as follows in the books of LANDRINE.
Exercise: The following transactions were carried out by AKOKO enterprise:
 5/10 – invoice no 142 to customer MEM, sale of goods in cash for 700 000CFAF.
 7/10 – Invoice no 175 from Industrial Machinery Ltd, acquisition of a commercial equipment settled by
bank cheque no 012 price 3 245 000CFAF
 7/10 – Settlement of various expenses in cash (cash voucher no 14)
 Electricity bill of the month of September: 95 000CFAF
 Insurance premium: 360 000CFAF
Note: The total to be brought forward for the journal as at 04/10 is 4 567 000CFAF
Required: Analyse the above transactions in terms of “sources” and “applications” and prepare the
corresponding journal entries for AKOKO enterprise.
Solution

THE GENERAL LEDGER

The general ledger is a book or file or again the collection of all the accounts opened in the enterprise.
The general ledger carries all the transactions that have been recorded in the journal. Because the information
recorded in the ledger is gotten from the journal. The ledger is also known as a book of secondary entry.
The most common forms of ledgers include:
 Bounded pages’ ledger
 Loose-leaf book ledger
 Ledger sheets or ledger cards
Posting from the journal to the general ledger
This involves transferring debits and credits recorded in individual journal entries to the specific
accounts affected.
Example: from the above exercise, post the journal entries to their respective ledger accounts (traditional
layout)
Solution
THE TRIAL BALANCE
After the journal and the general ledger, the next book of accounts is the trial balance. This is simply a
list of the general ledger accounts. It indicates for each account, its total debits, total credits and balance at a
particular date. Accounts are classified following their order in the general accounting plan. We have;
 The two column trial balance which records the closing balances
 The four column trial balance which records the movements of the periods and the closing balances.
 The six column trial balance which records the opening balances, movements and closing balances.
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Example: FATWOMAN ltd carries out the commercial activity on orders without any storage. The opening
balance sheet as at 01/01 is as follows:
ASSETS LIABILITIES
A/C ELEMENTS AMOUNTS A/C ELEMENTS AMOUNTS
245 Office equipment 450 000 109 Personal capital 840 000
311 Stock of goods 300 000 401 Suppliers 90 000
411 Customers 70 000
521 Local bank 60 000
571 Head office cash 50 000
Totals 930 000 Totals 930 000
FATWOMAN business realized the following transactions during the week;
 01/01: Credit purchases of goods worth 580 000CFAF
 10/01: Cash sales of goods to customers 800 000
 14/01: Credit purchases of goods from suppliers worth 400 000CFAF
 20/01: Settlement of suppliers in cash 750 000CFAF
 24/01: Cash saving to bank 100 000CFAF
 27/01: Settlement of suppliers through the bank 80 000CFAF
Required:
a) Show the journal entries for these transactions
b) Post the entries to the general ledger
c) Extract a 4-column trial balance
d) Extract a 6-column trial balance
Solution

CHAPTER 4: OPERATIONS ON PURCHASES AND SALES OF GOODS

I- GENERALITIES
The purchases and sales transactions are the ones putting into contact the enterprise with its suppliers and
with its customers. Generally, the purchases represent the greatest expenses of the enterprise while the sales
generate the resources of the enterprise
1- THE CONTRACT OF SALES AND ITS EFFECTS
The purchase and sales transactions bring together the seller and the buyer. They are linked by a contract of
sales through which the seller transfers the ownership of an article to the buyer against the payment of a price.
As consequence;
 The buyer becomes the proprietor of the article sold by the seller.
 The seller must deliver the sold article

14 | P a g e
  The buyer must pay the price and the necessary expenses (transport expenses, containers, warehousing
etc)
If one of the parties to the contract does not execute his obligations, the other is not also held to execute
his
One of the documents used to serve as a proof to these transactions is the invoice
DOCUMENTS USED IN PURCHASES AND SALES
 Enquiries
When the department in charge of purchases receives the requisition from the user department, the
purchase department will send out inquiries to relevant suppliers asking for the availability of such items, their
prices, trading conditions and possible delivery dates. An inquiry can be a letter, a note or even an e-mail
inviting a potential supplier to quote prices, conditions and delivery times for the supply of goods.
 Quotations or Price List
A quotation is a response to an enquiry. The pricing information may be contained in the catalogue and
in such a case there will be no additional price list produced by the supplier.
 Purchase orders
When a supplier confirms that the goods needed by the buyer are available and can be supplied at the
trading terms and delivery dates as indicated by the buyer, the buyer then issues a purchase order as an offer to
buy.
 Pro forma invoices
Sometimes a seller requires payments for goods before they are dispatched or delivered. In such
situations a pro forma invoice is sent well in advance of the delivery or dispatch, so that approval may be
obtained from the buyer. Later, after agreement has been reached, the goods are sent according to agreement.
 Dispatch note
This is a document prepared by the supplier to the customer when goods are to be delivered through a
carrier or transporter and when the goods have to be delivered in a foreseeable future period. Its aim is to
inform the customer that the goods are already on their way such that the customer can prepare for warehousing
and/or payment formalities in advance.
 Delivery note
This is a document accompanying a shipment of goods that lists the description, and quantity of the
goods to be delivered. A copy of the delivery note, signed by the buyer or consignor, is returned to the seller or
consignor as a proof of delivery.
 Debit note
Also called a debit memo, this is a form or letter issued by a seller to advice the amount owed by the
buyer. The uses of a debit note are similar to an invoice. In most cases the supplier will send a debit note to the
customer for the following reason.
 There is an under charge in a previously sent invoice, i.e the supplier made an error such that the full
cost of the goods sold was not charged on the invoice. In this case, a debit note will be sent to claim the
additional payment from the buyer.
 It sometimes happens that more goods were dispatched than were originally ordered and invoiced.
 Credit note
A credit note is a document issued by the supplier to his customer in order to inform the customer that
his account has been credited or reduced by a given amount situation where:
 Goods were overcharged on the original sales invoice.
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  Unsuitable goods are returned by the customer to his supplier, or
 The customer obtains a reduction after the sales invoice had been established
 THE INVOICE
The invoice is a document materializing the purchases/sales operation. It is established by the seller
(supplier) to the buyer (customer) to let him know the details of goods sold, the net amount to be paid and the
condition of payment. An invoices is important in the sense that.
 It permits the buyer to verify the calculation of the prices
 In case of contestation, an accepted invoice constitutes a means of proof of the sales and the condition of
its execution.
 It permits a more rigorous control of transactions and notably of prices (fiscal aim)
 It is a basic document for the recording of transactions both for the seller and the buyer

Specimen of an invoice

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 BUSINESS NAMES
FULLL ADDRESS AND LOCATION
Taxpayer’s number
Phone, fax, website,
Banker ………………..
and e-mail contacts
Bank a/c No …………
INVOICE
Your order No ………………… DEBIT
Order Date: …………………….
Invoice No: ……………………..
Date: ……………………………..
Customer No: …………………

REF DESCRIPTION UNIT QUANTITY UNIT AMOUNT

PRICE

GROSS AMOUNT: …………………………..

Less Trade discount …………………………….
Balance Calculations …………………………….
Less rebate …………………………….
Net trade ……………………………..
Less cash discount …………………………….
Financial Net …………………………….
Add carriage ……………………………..
Add consignment ……………………………….
Add VAT ……………………………….
TOTAL AMOUNT PAYABLE ………………………………
Terms: ………………………………..
Seal and signature Customer’s signature

1. RECORDING OF INVIOCES
A- INVOICES WITHOUT REDUCTIONS NOR INCREASES (CHARGES)
There are two systems of inventory used for the recording of purchases and sales of goods: the permanent or
perpetual inventory and the intermittent or periodic inventory
I- THE PERPERTUAL INVENTORY
The purchases and sales of goods are transactions that generate profit. The profit is the difference between
the selling price of goods and the purchase cost of goods sold. In order to follow up at any moment the
evolution of this profit, is necessary for the enterprise to know for each sale the purchase cost of the goods sold.
The only technique that permits this calculation is the perpetual inventory.
a) RECORDING OF PURCHASES AND SALES UNDER THE PERPERTUAL INVENTORY

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It is carried out in two stages
Stage 1-Purchases of goods
601 purchase of goods 401/402/552/571
X X

NB: Considering the nature of the good (item) bought, account 602, 604, 605, or 608 is debited
Stage 2: storage of goods
311 Stock of goods 6031 Variation of stock of
X goods
X

Example 1: Invoice No 112 for order No 41 of 25th june 2020 received by Dream World Bamenda from New
Ventures Kumba on the 15th of July 2020 carries the following information:
 Marked prices: 5 000 CFAF per unit for good A and 4 000CFAF per unit for good B.
 Reference A10 for A and B10 for B
 No. of units invoiced: 200 cartons for A and 100 cartons for B
Required: Establish and journalize this invoice for the two businesses considering that the cost of goods sold is
1 000 000CFAF
SOLUTION
Example 2: On the 05/11/2020, mr Dooh sold goods for 200 000frs. cost of goods sold 160 000frs. Do the
accounting recordings

2-THE PERIODIC INVENTORY

With this system, it is not possible to follow up at any moment the evolution of the gross profit. Here, the gross
profit is calculated at the end of the period. In the purchase and sales operation, the following accounts will be
recorded:
Purchases of goods
601 purchase of goods 401/402/552/571/531/521
X X

Sales of goods
411/412/552/571/521/531 701 Sales of goods
X X

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Example 1: On the 22nd June 2018, invoice no 5702 received from supplier Arno, goods worth 250 000F credit
settlement. 25th June, invoice no 6720 to customer ENOW, goods worth 720 000F: cash settlement. VAT
19.25%
Required: Do the recordings
Solution
Example 2: On the 28/10/2020 Ndong carried out the following transactions
 bought 20bags of rice at 12 000frs each,
 bought 150 cartons of maggi at 20 000frs each VAT 19.25%
Work required: do the journal recording

B-INVOICES WITH REDUCTIONS

1- TYPES OF REDUCTIONS
In business, for a reason or another, the selling price of an article can be reduced depending on the
relationship between the participants. The reductions on price are divided in to two main categories
commercial reductions and financial reductions,
a) COMMERCIAL REDUCTIONS
There are three types of commercial reductions: Rebates, trade discounts and bonuses
 Rebate: this is an exceptional reduction granted by the supplier to the customer when the goods
delivered are not exactly those ordered; that is non conformable goods.
 Trade discount: this deduction is granted to a customer in consideration of the importance of the
purchases (purchases in bulk) or of the profession of the customer.
 Bonuses: reduction awarded for the faithfulness of the customer. It is calculated at the rate of a certain
period on the amount of the turnover realized with that customer
b) FINANCIAL REDUCTION:
 Cash discount
The main financial reduction is the cash discount. It is a reduction that is granted as a result of prompt cash
payment, In other words, it is the interest received by the customer when he pays the supplier earlier.
2- ACCOUNTING VIEW OF REDUCTIONS
When reductions are mentioned on the initial invoice, cash discount is recorded, but commercial reductions
are not recorded only the commercial net is recorded by the supplier and the customer. The commercial net is
the amount of the gross sale/purchase on an invoice after the deduction of the commercial reduction. The
according recording is done as follows
 In the suppliers books
Date
4-/5- Customer or cash account xxx
673 Cash discount granted xxx
701 Sales of goods xxx
4431 State, VAT invoiced on sales xxx
o
Being invoice n ……

 In the customer’s books

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 Date
601 Purchases of goods xxx
4452 State, VAT on purchases xxx
4-/5- Customer or cash account xxx
773 Cash discount received xxx
Being invoice no ……

Example: On the 12/12/2019, Ets SODIP P.O Box 147 Douala, Tel 67548944 sold goods to Ets Mofor P.O
Box 1247 Bamenda at 1 500 000CFAF, sales condition, rebate 10%, Trade discount 2%, cash discount 5%
VAT 19.25%. Gross profit 20%.
Work required: present an invoice and do the recording in both books.
SOLUTION

EXERCISE:
On the 21/06/2021 SOREPCO SA P.O Box 12 Bamenda bought the following items from FORKOU SA P.O
Box 15 Bafoussam
- 50 bags of cement at 5 000CFAF
- 20 cartons of tiles at 15 000CFAF a carton
- 20 rod 10 at 2500CFAF each
On June 22nd 2021 through invoice no. 124 with a trade discount of 5% and a cash discount of 4%.
Work required: Show the calculations to appear on invoice no. 124 and journalise these transactions for
the two business
SOLUTION
C-ADDITION ON INVOICES
Additional expenses are being incurred by the customer in the course of buying goods: they are known
as purchase expenses and they include
 Transport expenses (account 61)
 Insurance premium (account 25)
 The middlemen and consultancy remunerations (account 632)
Our attention will be focused on transport expenses that present many facets following the terms of the sales
contracts (carriage free)
 The expenses are borne by the supplier.
 The expenses are borne by the customer
I) Transport expense or carriage is borne by the supplier
When the carriage is to be borne by the supplier, this supplier may either use his transportation van or may hire
and pay a transporter to channel the goods to the customer.
The supplier uses his own transportation van. In this situation, no accounting entry is to be made for the
transportation transaction as the expenses involved in this transaction are recorded in the following expenses
accounts:
 Salary accounts (66) for the driver:
 Other purchases account (605) for fuel;
 Depreciation (68) for depreciation expense on the van.
The supplier hires and pays a transporter
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 In this case, the transport expense paid to the transporter is recorded as transport on sales by the following
a4ccounting entry
Date
612 Transport on sales xxx
4453 State, VAT recoverable on transport xxx
4-/5- Supplier of services or cash account xxx
o
Being invoice n …… for carriage.

Example: LAMBARD Ets Bamenda bought from SUZANE Ltd Kumba 100 units of Goods Z at a marked
priced of 5 000 CFAF and 200 units of Goods H at a marked price of 4000 CFAF on July 28th 20X2 through
invoice no 1166 with a trade discount of 5% and a cash discount of 4%. The invoice carries the information
"carriage free". However, SUZANE Ltd pays 35 775 CFAF (incl. VAT) by receipt No. 1123 to Mondial
Express for these goods to be transported to Bamenda on this same day.
Required: Show the calculations to appear on invoice no. 1166 and journalise these transactions for the two
businesses.
II) Transport expense or carriage is borne by the customer
When the customer has to bear the cost of transporting the goods bought, the customer may use the supplier's
transport van and pay for the service or the customer may ask the supplier to hire a transporter on his account
and reimburse the payment if the supplier is not having a van. Three situations are to be examined when
transportation is at the charge of the customer:
 The supplier uses his van and invoices the cost to the customer;
 The supplier hires a transporter and invoices the same cost to the customer without a margin;
 The supplier hires a transporter, but invoices the transport cost with a margin.

1) The supplier uses his van and invoices the cost to the customer
In this case, the invoice will carry the information "Carriage invoiced or carriage forward" and the
accounting records for the transportation shall be as follows:
In the supplier's books: The supplier would be receiving two types of revenues:
 A first revenue for the sale, and
 A second revenue for the transportation service.
Date
4-/5- Cash or customer account xxx
701 Sales of goods xxx
4431 State, VAT invoiced on sales xxx
4432 State, VAT invoiced on services rendered xxx
7071 Carriage invoiced xxx
Being carriage invoiced

In the customers books

Date
601… Transport on purchases xxx
4453 State, VAT recoverable on purchases xxx
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 4-/5- Cash or suppliers account xxx
Being carriage on purchases

Example
Let's assume that Dream World Bamenda buys from New Ventures Kumba 100 units of Goods A at a
marked priced of 5 000 CFAF and 200 units of Goods B at a marked price of 4000 CFAF on July 30th 20X2
through invoice no 1170 with a trade discount of 5% and a cash discount of 4%. New Ventures includes 30 000
CFAF (Excl. VAT) for these goods to be transported by her driver using her transportation van.
Required: Show the calculations to appear on invoice no. 1170 and journalise these transactions for the two
businesses.
SOLUTION

2) The supplier hires a transporter and invoices the same cost to the customer
In this case, the invoice will carry the information “carriage paid” and the accounting records for the
transportation shall be as follows:
 In the supplier's books: The supplier would first of all record the cash voucher for the transport paid to
the transporter (at the VAT inclusive value) and then transfer it to the customer in a second entry as
follows:
st
1 entry: recording of payment to transporter:
Date
613 Transport on behalf third party xxx
571 Head office cash xxx
Being carriage paid for ……..

2nd entry: transfer of transport expense to customer in the sale invoice

Date
4-/5- Customer or cash account xxx
781 Transfer for operating expenses xxx
Being invoice No …. to ……..

 In the customers books: The customer is not concerned with the payment to the transporter, so he only
has to record the transport on the sales invoice as follows:
Date
601… Transport on purchases xxx
4453 State, VAT recoverable on transport xxx
5-/4- Cash or supplier account xxx
Being carriage purchases

Example
Let's assume that Dream World Bamenda buys from New Ventures Kumba 100 units of Goods A at a
marked priced of 5 000 CFAF and 200 units of Goods B at a marked price of 4000 CFAF on August 1st 20X2
through invoice no 1173 with a trade discount of 5% and a cash discount of 4%. New Ventures pays 35 775
22 | P a g e
CFAF (Incl. VAT) by receipt number 1123 to Mondial Expresss for these goods to be transported to Bamenda
on this same day and includes this amount on invoice No 1173 TO BE PAID IN 30 days.
Required: Show the calculations to appear on invoice no. 1173 and journalise these transactions for the two
businesses.
SOLUTION

3) The supplier hires a transporter and invoices the customer with a margin
In most business practices, the supplier contacts a transporter, arranges for the goods, pays and transfers the
amount paid to the customer with a margin. The margin normally is to compensate for the time taken to do the
negotiation and other communication expenses involved. In such a practice, the transportation transaction shall
be accounted for as follows:
 In the supplier's books: The payment made by the supplier to the transporter and the transferring of the
amount to the customer with a margin should be treated as a purchase and a sale of services. The
supplier would first of all record the cash voucher for the transport paid to the transporter and then
record the invoice carrying the transport to the customer in a second entry as follows:
st
1 entry: recording of payment to transporter
Date
6057 Purchases of services xxx
4453 State, VAT recoverable on services xxx
5711 Head office cash xxx
Being carriage paid to …….

2nd entry: recording the transport in the sale invoice

Date
4-/5- Transport on purchases xxx
7061 Services sold in the region xxx
4432 State, VAT invoiced on services xxx
Being invoiced N0 … to ….

 In the customers books: The customer is neither concerned with the payment to the transporter nor the
margin, so he only has to record the transport on the purchase invoice as transport on purchases by:

Date
601… Transport on purchases xxx
4453 State, VAT recoverable on transport xxx
5-/4- Cash or supplier account xxx
Being carriage on purchases

Example
Let's assume that Dream World Bamenda buys from New Ventures Kumba 100 units of Goods A at a
marked priced of 5 000 CFAF and 200 units of Goods B at a marked price of 4000 CFAF on August 5th 20X2
through invoice no 1183 with a trade discount of 5% and a cash discount of 4%. New Ventures pays 35 775
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CFAF (Incl. VAT) by receipt number 1123 to Mondial Express for these goods to be transported to Bamenda
on this same day but invoices 47 700 CFAF on invoice N o 1183 to be paid in 15 days.
Required: Show the calculations to appear on invoice no. 1183 and journalise these transactions for the two
businesses.

SECTION: CREDIT NOTE AND DEBIT NOTE

A: THE CREDIT NOTE
A credit note is a document drawn by the supplier to the customer, informing him/her that his/her
account has been credited in his books or entity. This document may be sent for any of the following reasons
 When the customer returned goods or packages
 When deductions are allowed to him out of the original invoice
 When goods are overcharged or less quantity sent.

I) Return of goods or packages

When defective or non-conformity goods sent are returned, there is partial cancellation, if part is return and
total cancellation, if all the goods are returned. The supplier, then draws a credit note and sent to the
customer. The supplier or customer makes the inverse recording of the invoice previously recorded.
When the customer returned packages consigned from the supplier in good state, condition and at the
agreed time, the supplier prepares a credit note and sent to the customer.
II) Credit note for reductions granted out of the invoice.
Rebate, trade discount, bonuses granted after the invoice has been sent to the customer, necessitates the
creation of a credit note. The supplier may give this deduction to encourage fidelity or compensate damages.
Cash discount granted by the supplier to the customer after the sales invoice, requires the creation of a
credit note. The discount is granted if the customer pays before the stipulated date. The recordings are done
as follows;
 In the suppliers books
Date
701 Sales of goods xxx
673 Cash discount granted xxx
4431 State, VAT invoiced on sales xxx
4111 Customer xxx
o
Being credit invoice n ……

 In the customers books

Date
4011 Suppliers or cash account xxx
6019 Trade discount obtained xxx
773 Cash discount received xxx
4452 State, VAT recoverable on purchases xxx
Being credit note no…….

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Example: on the 14/11/2019, Mr. Paul sent a credit note n o 012 to Mbah for a trade discount of 35 000 CFAF
and a cash discount amounting to 30 000 CFAF due to prompt payment. VAT 19.25%
SOLUTION
B: DEBIT NOTE
It is a discount sent by the supplier to the customer, informing the customer that his/her account has
been debited in the supplier’s books. It is sent when goods are undercharged or more goods are sent than those
quoted on the original invoice.
It should be noted that, the debit note is recorded the same with an ordinary invoice.
Example: on the 28/09/2019, Ako notice that, instead of dispatching 20 cartons of sugar as charged on the
invoice, instead 22 cartons were sent. He prepared a debit note N o 0214. Cost of a carton 10 000 CFAF. Trade
discount 10%, cash discount 5%, VAT 19.25%.
SOLUTION

APPLICATION
Exercise one
As a dream seating in an office as an account clerk, in Luolefac company PO Box 1715 Bamenda. The
following Transactions are presented to you for recording in the classical journal for the month of October 2020
- 1/10/2020. Received an order number 004 for goods. Gross amount 8.000. 000trs sales condition trade
discount 5%, cash discount 2%, packages consign 100,000 FRS, Transport invoice 10% of the last
commercial net,
- On the 6/10/2020, cash purchases of raw materials, gross amount 150,000frs, trade discount 10% cash
discount 3% and transport fee 10,000frs
- On the 8/10/2020, purchases invoice No 007. Gross amount 9.000 000 frs, cash discount 2%, transport
paid 50 000 frs. Rebate 5%, trade discount 10%, and packages consign 90.000 FRS
- On the 13/10/2020, Returned packages consigned to us on the 8/10/2020,
- On the 14/10/2020 received a credit note number 011
- On the 18/10/2020. Received a credit note number 009 for goods whose gross amount is 200.000 FRS
were returned against the purchases of the 8/10/2020. Rebate 5%, trade discount 10% cash discount 2%
Transport on returned of goods paid by the customer on the supplier's behalf 10, 000 FRS.
- 20/10/2009 payment of electricity bils 59.000frs
NB consider VAT at the rate of 19.25%. Mark-up rate 20
Exercise two:
The SOQUICAM SA is a commercial entity subjected to VAT at the rate of 19.25%. During the month of
March 2018, the following transactions were realized:
 03/03. Remittance of a cheque of 600 000 FCFA to supplier JOSS for advance payment on goods
ordered for a gross amount of 5,000,000 FCFA
 04/03 Supplier JOSS delivered the goods and addresses the invoice no V-310 comprising the following
elements: trade discount 5%, cash discount 3%. The goods are delivered in 20 drums consigned at
10,000 FCFA each, the transport amount to 100,000 FCFA executed by JOSS on behalf of SOQUICAM
SA. VAT 19.25%
On reception of the invoice, a cheque is issued for the payment of half.
 07/03, SQUICAM SA returns to the supplier part of goods contained in 2 drums for a gross amount of
500,000 FCFA, transport paid by the customer on behalf of the supplier 20,000 FCFA. On the same

25 | P a g e
 day, supplier JOSS addresses the credit note AV 234 while granting a supplementary rebate of 125,000
FCFA in addition to the trade discount on the goods retained.
 On the 10/03 SOQUICAM SA, receives the credit note AV234 of 07/03
 15/03 JOSS delivered the goods to SOQUICAM SA, transportation is done by GENERAL EXPRESS
VOYAGES for so 000 FCFATF. paid by cash document no 15 on the behalf of SOQUICAM SA
supplier JOSS for advance payment on goods
The invoice V314 is received from JOSS for a net payable of 3 913 785 FCFA and comprising among
others, the following elements: 120 boxes consigned at 8 000 FCFA each, VAT 19.25 %% WORK
REQUIRED
1-Schematize the different invoices
2-Rocord these operations in the journal following the permanent inventory in the books of
SOQUICAM SA and in those of JOSS knowing that the mark up fate in JOSS is 30%
Exercise 3
A “Dream” come true with you siting in an office on a round comfortable chair as an accountant in
NANAKIAKAM Company PO Box 437 Bamenda Tel 7519893 Bank account 7778923467149-44C Amity
Bank Bamenda postal chegue no 77892346711234- 448 Bamenda on the 30/04/05 you receive an order number
070071 sent by SOREPCO Company PO Box 1414 Yaounde, Tel 7022796 Bank account number
67842143682-420 NFC Bank Yaounde Station No 058 for the following items. The distance between Bamenda
and Yaounde is 96km
 300 dozens of Tea cups Ref. 14C1 at 100frs a tea cup
 720 bottles of Lucozade Ref 91L at 20,00frs a dozen
 2000 dozen of Romi Rof R6 at 2000frs for half (1/2 /) a dozen
 500 Laminas Ref L54 5 for 5000 FRS.
 10 bundle of Zinc Ref 25 (a bundle of Zinc is 50 sheets) and one sheet is 2000frs
NANAKIAKAM Company offers the following condition
Trade discount 20%, Cash discount 5%, Rebate 10%, Transport paid 100,000 FRS for a distance below 80km
and 120,000trs for a distance above 80km, Packages consign 12,000trs. Mode of delivery, BY Road
Sales
ModeInvoice no 142
of payment.
12/12/2019
 1/4 by cash, 1/4 by a 30 days bill of Exchange domiciled In NFC
Description
 1/4 by a promissory Amount
note due in 40 days and domicile in Amity bank.
Goods 860 000
 1/4 by check no 46893213689411-44C. Payable in Amity Bank
Work Required ……………
Trade
a) discount
Prepare an5%order no
…456
b) Prepare an invoice……………
no 031 (knowing that Laminas are completely finished and none was sent, there was a
Commercial net …
shortage of Romi and only 1000 dozen were sent).
Cashc)discount 2%
Do the accounting ……………..
Recording.
……………
Exercise four: The following documents are extracted from the books of AMINGO. Complete and do the
Financial
recording net …
……………..
VAT 19.25% .
Transport 420 000
VAT on transport ……………..
19.25% .
Deposit on containers 240 000
VAT
26 | Pon
a gcontainers
e ……………
19.25% …
……………
Net payable ….
Purchase Invoice no 134
12/11/2019
Description Amount
Computer 840 000
20 reams of special papers 300 000
……………
Trade discount 10% …
Commercial net ……………..
……………
VAT 19.25% …
……………..
Amount payable .

Sales Invoice no 120

15/12/2019
Description Amount
…………….
Gross amount .
……………
Trade discount 5% …
……………
Commercial net …
2nd Trade discount …………….
2% .
……………
2nd Commercial …
…………….
Cash discount 5% ..
Financial net …………….
Transport invoice 24 400
VAT 19.25% 1 366 750
……………
Net payable …

27 | P a g e
Sales Invoice no 121
11/12/2019
Description Amount
Gross amount ……………..
Trade discount ……………
10% …
……………
Commercial net …
Cash discount 5% ……………..
……………
Financial net …
VAT 19.25% 197 505
Net payable ……………

CHAPTER FIVE: DEPRECIATION

1- NATURE OF DEPRECIATION
Depreciation is an estimate of the loss in value of a non-current asset over the expected working life.
Depreciation is the allocation (or the spreading) of the cost of a non-current asset over its effective working life.
Depreciation complies with the matching principle as non-current assets are used to generate revenue, some
amount of cost (depreciation) should be matched with this revenue.
As a reminder, in accordance with the Cameroon General Tax Code 2018 in its Section 7, the threshold
value for minor equipment and tools (considered as fixed assets and subject to depreciation) is 500,000 CFAF,
if not it is not a fixed asset but a revenue expenditure.
2- ORIGIN OF DEPRECIATION
Depreciation can arise from various reasons such as:
 Physical deterioration: This results from factors such as:
 Wear and tear-when an asset wears out through its use.
 Rust, rot and decay - when an asset falls into a bad physical state.
 Economic reasons: This is when an asset becomes out of date because newer and more efficient assets
are available. This is known as obsolescence.
 Passage of time: When an asset has a fixed life, such as a lease on a building for a set of number of
years. Leases or patents are amortized (written off over their lifespan).
 Depletion: When the value of an asset such as mine or an oil well falls over a period of time as the coal,
oil etc. is taken out.
3- FACTORS AFFECTING DEPRECIATION
Three factors are to be established at the time the asset is put into use:
 Service life or useful life;
 Allocation or calculation base, and
 Allocation or calculation method.
3.1 - Service life or useful life

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 The service life, or useful life, of a non-current asset is the amount of use that the entity expects to
obtain from the asset before disposing of it. This use can be expressed in units of time, or in units of activity.
For example, the estimated service life of a delivery truck could be expressed in terms of years or in terms of
the number of miles that the company expects the truck to be driven before disposition.
Physical life provides the upper bound for service life of tangible non-current asset. Physical life will
vary according to the purpose for which the asset is acquired and the environment in which it is operated. For
example:
 A diesel powered electric generator may last for many years if it is used only as an emergency backup or
for only a few years if it is used regularly;
 A Toyota-Carina E vehicle may last for many years if it is used only for family purposes or for only a
few years if it is used regularly for commercial purpose as a taxi for instance.
The service life of a tangible non-current asset may be less than physical life for a variety of reasons which
include:
 Obsolescence: new technological changes push the company to keep an asset for a period of time much
shorter than physical life
 Shift in demand: the market demands new products, rendering the machines used in making the old
products useless or shortening their lifespan
 Management policy (or strategy): the management intention also may shorten the period of an asset's
usefulness below its physical or legal life. For example, a company may have a policy of using its
delivery trucks for a three-year period and then trading the trucks for new models
At the end of this period of service or useful life, the asset is fully depreciated
3.2 - Allocation base
The total amount of cost to be allocated over an asset's useful life is called its allocation base or
depreciable base (or value). The amount is the difference between the initial value of the asset at its
acquisition (its cost) and its residual or salvage value.
"Residual value" or "salvage value" is an estimate of the value of the asset at the end of its useful life.
If we plan to use the asset until it is utterly worthless, then the residual value will simply be zero. However, we
may dispose of the asset while it still has some value. This amount will then not be consumed by our business,
but by another entity.
3.3 - Allocation method. The allocation method is commonly referred to as the "method of calculating
depreciation". In determining how much cost to allocate to periods of an asset's use, a method should be
selected that corresponds to the pattern of the loss of the asset's usefulness. The objective is to try to allocate
cost to the period in an amount that is proportional to the amount of benefits generated by the asset relative to
the total benefits provided by the asset during its life.
4-DEPRECIATION RELATED TERMINOLOGY
Cost allocation of non-current assets bears different names in function of the type of non-current asset
concerned. The cost allocation can be known as
 Depreciation: for tangible non-current assets (property, plant and equipment),
 Depletion: for natural resources; or
 Amortization: for intangibles and financial non-current assets
In additional to these, the following terms are frequently used when allocating depreciation expenses to the
period to which they relate
 Depreciable asset: it is an asset which:
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 - Is expected to be used during more than one accounting period;
- Has a limited useful life (the period over which a depreciable asset is expected to be used by an
undertaking);
- Has a material value (of at least 500,000 CEAF for example)
 Cost of asset (CA): It is also called "original cost (OC)” or “original vale (OV)” or “historical cost
(HC)" and it is the value of the non-current asset which could be:
- The acquisition cost (Excl. Tax) for assets acquired;
- The cost of construction (Excl Tax) for assets constructed or created by the enterprise;
- The fair value (market value) for assets brought in as capital contribution by a partner/shareholder or
freely received by the enterprise.
A non-current asset is accounted for tax exclusive when the tax is recoverable. Otherwise, the cost will include
the tax.
 Depreciation annuity (A): This is annual depreciation: the amount of depreciation practiced yearly or the
depreciation allocation of the period. In some cases, the depreciation will not correspond to a period of one
year if the asset has not been used for the whole year because it is bought within the year or sold before the
year end. The depreciation will then be a function of the number of months of usage during the year.
 Depreciation rate (r): it is the number of years of usage expressed in percentage terms. This percentage is
applied on the depreciation annuity.
r = 100 / d; if useful life is 20 years, r = 100 / d = 5%.
 Accumulated depreciation (AD): This is the total depreciations practiced since acquisition (or date the
asset was brought into service) to a given date.
 Net Accounting Value (NAV) or Book Value (BV) or Carrying Value (CV): this is the difference between
the cost of the asset and the accumulated depreciations at a given date.
 Depreciation or Amortization schedule: This is a pre-conceived table which summarizes depreciation
and related information on an asset at the end of each year such as the depreciation annuity, the
accumulated depreciations and the net accounting value (or book value).
 Acquisition date: This is the entry date of the non-current asset into the patrimony of the enterprise,
 Brought-into-use-date (or brought-into-service date): This is the date which marks the start of the
depreciation of the non-current asset. It is a later date to the acquisition date. The acquisition date should
be used as the brought-into-service date when the latter is not known or given.
 Salvage value: It is an estimate of the value of the asset at the time it will be sold or disposed of, it may be
zero or even negative. Salvage value is also known as scrap value or residual value.

5-METHODS OF CALCULATING DEPRECIATION

As earlier indicated, the allocation method or method of calculating depreciation chosen and used should
ensure "a cost allocation in a systematic and rational manner and should correspond to the pattern of
using the asset" In practice, there are multiple approaches and methods of calculating depreciation. However,
the following methods will be studied
 The straight line method;
 The digressive method
 The sum of the years' digits method.
5.1- Straight-line depreciation method

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 This method is equally called the “equal installment or constant or linear method”. Straight line
depreciation is the simplest and most often used method. In this method, the entity estimates the salvage value
(scrap value) of the asset at the end of the period during which it will be used to generate revenues (useful life).
The entity will then charge the same amount to depreciation each year over that period, until the value shown
for the asset has reduced from the original cost to the savage value.
Here, the annual depreciation expense is obtained as follows:
¿
annual depreciation expense = Cost of ¿ Asset−Residual value Useful Life of Asset ( years)

5.1.1- Straight line method related basic formulae

The following formulae underpin the practice of the straight line method
a) Annual depreciation expense
Depreciable value = Original cost- residual value (where applicable)
Deprecition value Depreciable value x r
Annual depreciation expense = or
useful life 100
Annual depreciation expense x No of months
Mid-year depreciation expense = OR
12
No of moths r
Mid-year depreciation expense = Depreciable value x x
12 100
Example1: A delivery van is purchased at the cost of 7,800,000 CFAF tax exclusive; it is depreciable during
5years and has a residual value of 600,000 CFAF.
Required:
1. Calculate the depreciable value.
2. Calculate the depreciation expense as at December 31, 2020 while considering that the asset is bought
and brought into use on:
- January 1, 2020.
- May 1, 2020.
Solution:

Example 2: A transport equipment was acquired on the 2 nd March 2012 at 6,000,000F to be used in the
enterprise for 4 years. Calculate the constant rate of depreciation and the depreciation expenses on the
31/12/2012.
SOLUTION

b) Calculation of the constant rate (r): The constant rate (r) can be calculated only when the life span of
the fixed asset (n) is given thus:
100 100
Depreciation rate (r) = Or r =
useful life (d ) d
Example: An Enterprise acquired a vehicle for 8,000,000F to be depreciated for 4 years according to the
constant or straight line depreciation method. Calculate the constant rate of depreciation for the vehicle,
SOLUTION

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 c) The useful life or depreciation duration (d)
Its calculated as:
Original cost 100
Useful life (duration)(d) = or d =
Annual depreciation expense r

Example: Consider the example 1 above and suppose that the Enterprise intends to depreciate the vehicle at
the constant rate of 12.5%. Calculate the life span of the vehicle in the enterprise,
SOLUTION

Example 2: The annual depreciation expense as at December 31, 2019 of a machine purchased on January 1,
2019 at 6,000,000 CFAF tax exclusive with a null residual value, is 750,000 CFAF under the straight-line
method.
Required: determine the useful life of this machine

d) Original cost (OC)

It is calculated as:
Annual depreciatiexpense( A) x 100
Original cost (OC) = or A x d
rate
Example: The annual depreciation expense as at December 31,2018 is 2,400,000CFAF: this machine has a
useful life of 5 years with a null residual value. It was acquired on January 1, 2018 and it is depreciated under
the straight line method.
Required: determine the original cost of this machine
Solution

e) Accumulated depreciation (AD)

Depreciable value x r x t Depreciable value x r x t
Accumulated depreciation(AD) = OR
100 1200
Example: As at 31 December 2019, the account “Depreciation of data processing equipment” shows a credit
balance of 3,000,000CFAF after all the necessary adjustments. This equipment was purchased and brought in to
use on 30th April 2016. It is depreciated under the straight line method at the rate of 20%.
Required: calculate the original cost of this computer equipment.
Solution

5.1.2- Depreciation schedules under the straight line method

A depreciation schedule provides the following information, at each year end: the depreciation expense, the
accumulated depreciations and the book value (or net accounting value).
YEAR DEPRECIATION RATE DEP. PREV DEP ACC. DEP NAV
BASE EXPENSE

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 Given that annual depreciation expense is time apportioned, two cases of preparing the depreciation
schedules should be considered:
 A schedule for non-current assets brought-into-use at the start of the year, and
 A schedule for a non-current asset brought-into-use part way through the year.
a) The non-current asset is brought-into-use at the start of the financial year
The calculation of the annual depreciation expenses is straightforward; it simply requires the application of the
above-mentioned formula for the constant annual depreciation expenses to be determined.
Example: Prepare the depreciation schedule, using the straight line method, of a machine that is purchased at a
cost of 17,000,000 CFAF, which depreciates over 5 years with a salvage value of 2,000,000 CFAF. This
machine was acquired and brought-in-service on January 1, 2018.
Solution

b) The non-current asset is brought into use part way through the year
Two important procedures are to be considered here: the starting point of depreciation and the annuity of the
first period.
i) The starting point of deprecation
The practical solution is to calculating deprecation for the first year in function of the number of months of
use (in proportion to time or pro rata temporis) basis.
ii) Working out the half-yearly depreciation expense
An additional working is required for the half-yearly proportion of the original annual depreciation since the
depreciation expense relates to only some months of the year. The calculations for the part-yearly depreciation
are as follows:
Annual depreciatioin expense x no of months of usage
Depreciation expense =
12
Depreciablevalue x No of months of use x rate
Or Depreciation expense =
1200
Example: Prepare the depreciation schedule, using the straight line method, of a machine that is purchased at a
cost of 17,000,000 CFAF, which depreciates over 5 years with a salvage value of 2,000,000 CFAF. This
machine was acquired and brought into use on April 1, 2019

C- THE SUM OF THE YEAR’S DIGITS METHOD.

1. PRINCIPLE

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 Also called diminishing or digressive method with decreasing rate it consist of depreciation of
equipment by using the decreasing arithmetic progression. In fact the annuity is calculated by the application of
the decreasing rate on the constant depreciation Based.

2-Calculation of the decreasing rate. The decreasing rate is obtained by expressing the ratio of the number of
the years remaining to the sum of the year's digits.

EXAMPLE: Prepare the depreciation schedule, using the sums of the years digit method, of a machine that is
purchased at a cost of 17,000,000 CFAF, which depreciates over 5 years with a salvage value of 2,000,000
CFAF. This machine was acquired and brought into use on April 1, 2019

Calculation of the sum of the year's digits:

3-Presentation of the depreciation table. The annual depreciation can be calculated with the following
formula. Let's consider

 OV = depreciation base
 N = the life span
 P = a given period of depreciation
 A = annuity
20V ( N +1−P )
 a=
N ( N +1 )

Application. On the 15/01/2018, a transport equipment bought at 15,000,000 FCFA is to be depreciated over 5
years under the digressive method with decreasing rate or the sum of the years digit

Work required Present the depreciation table

SOLUTION

THE DIGRESSIVE METHOD OF DEPRECIATION:

This method of calculating depreciation is also known as diminishing or reducing balance method. The
market for second handed goods shows that depreciation is higher at the beginning than at the end of the life
span of a fixed asset. Thus, depreciation should therefore be digressive.

5.2.1- PRINCIPLE:
a) The depreciation is calculated based equally on the probable useful duration or life span of the asset,
b) The depreciation rate to be applied is obtained by multiplying the constant depreciation rate of a fixed asset
by one of the following coefficients:

1.5 if the life span is 3 years or 4 years,

2 if the life span is 5 years or 6 years,
2.5 if the life span is above 6 years,
c) The annual depreciation is obtained by applying the digressive rate of depreciation on the Net Accounting
Value of the fixed asset at the beginning of the period.
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5.2.2- PRACTICAL MODALITIES
a) Duration of depreciation
The mathematical form of the Net Accounting Value is NAV = OV.(1-r) n with 0 < r < 1. It follows that
this value tends towards zero (O) but never reaching but since the depreciation should be ended with the
probable life span, the law decided that, when the digressive annuity becomes less than the constant annuity
calculated on the NAV in function of the years remaining to run, the enterprise can practice the constant method
of depreciation.

b) Fixed Assets depreciable at the digressive method

Only the following assets can be depreciated according to the reducing balance method:
 Industrial buildings and equipment except tourism vehicles, typewriters, administrative and commercial
buildings,
 The equipment have to be new thus; second handed equipment are excluded,
 The life span must be at least three (3) years,

Example 6:
a) Calculate the digressive rate of depreciation in the following cases;
 Where the life span of a fixed asset is 4 years,
 Where the life span of a fixed asset is 5 years,
 Where the life span of a fixed asset is 8 years,
b) An accounting machine which was bought new for 3,000,000F at the start of the period is being
depreciated at the reducing balance method for 5 years. Calculate the reducing balance rate and the
annuity of depreciation at the end of the period.

5.2.3- TABLE OF DEPRECIATION

a) Case of Fixed Assets acquired at the start of the period
Example 7:
Office equipment bought on the 1/01/2012 for 5,000,000F is being depreciated for 4 years according to
the digressive method. Present the table of depreciation of the equipment.
b) Case of Fixed Assets bought within the year (period)
Example 8:
An Enterprise bought Computer equipment on the 15/04/2012 for 1,500,000F to be used for 8 years and
to be depreciated following the diminishing balance method.
Task: Present the depreciation schedule of the equipment over its life span.
YEAR OV CR RBR ANNUITY PREV DEP ACC. DEP NAV
2012 1 500 000 12.5 31.25 351 562.5 - 351 562.5

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 I- ACCOUNTING RECORDING OF DEPRECIATION EXPENSES AT THE YEAR END
31/12/n
a) Ordinary Activities depreciation
At the year ended 31/12/n, the endowment of depreciation for the period is recorded in the classical
journal as follows:
31/12/n
6811 Operating depreciation expenses of deferred charges Xxx
6812 Operating depreciation expenses of intangible fixed assets Xxx
6813 Operating depreciation expenses of tangible fixed assets Xxx
28. Depreciation expenses of. . . . . . . Xxx
Endowment of operating depreciation for the period
N.B:
2. The role of “Pro rata-temporis” does not exist when the expenses are incurred during the period thus; the
full year’s depreciation is recorded for all the years.

b) Financial Depreciation
It records the endowment of depreciation on bonds and debentures redemption premiums and other
depreciations having a financial character as follows:
31/12/n
6872 Depreciation of bonds & debentures redemption premiums Xxx
6878 Other financial depreciation expenses Xxx
206. Bonds / Debentures redemption premiums Xxx
28. Depreciation expenses of. . . . . . . Xxx
Endowment of financial depreciation for the period

c) Off Ordinary Activities Depreciation

This is the case of non-recurrent or exceptional depreciation. It also corresponds to the depreciation of
fixed assets due to natural catastrophes such as fire accident, flood, earth quake etc and the restructuring works
of the company. In each case, the accounting recordings are as follows:

31/12/n
852 Extra-ordinary Activities depreciation expenses Xxx
28.. Depreciation expenses of . . . . . . Xxx
Endowment of extra-ordinary activities depreciation

II- PRESENTATION OF DEPRECIATION IN THE BALANCE SHEET

The depreciation expenses accumulated on depreciable fixed assets is recorded in the asset side of the
balance sheet as follows:

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 Assets Gross Dep./Prov. Net Liabilities Amounts

III- DETERMINATION OF THE DATE OF CREATION OF AN ENTERPRISE

The date of creation of any enterprise is very important because it marks the beginning of operating
activities of the enterprise. It is the date when both fixed and current assets are put into operation. This date if
not precised, could be determined from the movements of the fixed assets which were available at the start of
the life of the enterprise.

CONSOLIDATION EXERCISES
Exercise One:
From the trial balance of Y entity on 31/12/2019 before inventory, we extracted the following:
 Industrial and Commercial buildings 2,400,000F,
 Accumulated depreciation 1,800,000F,
The asset is being depreciated at a constant rate of 15%.
Work required
1.1- Determine the date of creation of Y entity,
1.2- Calculate and record the annual depreciation expenses for the year ended 31/12/2019,
*
Exercise Two:
The account Office Equipment appears in MUSA enterprise’s balance sheet on 31/12/2011 before
inventory for 5,800,000F. This account includes the following:
 A Micro Computer acquired during the formation of the enterprise and depreciated at the constant rate
of 12.5% has a net book value at the end of the fourth and sixth years of 2,078,125F and 1,203,125F
(2010) respectively.
 A Photocopying Machine acquired on the 15/02/2011 is being depreciated in respect of the reducing
balance method with a life span of 5 years.
Work required
2.1- Determine the original value of Micro Computer and that of the Photocopying Machine,
2.2- Determine the date at which the company was formed,
2.3- Determine the duration of Micro Computer and the depreciation rate of the Photocopying Machine,
2.4- Prepare a depreciation schedule for each of the equipment,
2.5- Record the depreciation expenses of the year end 31/12/2011 in the enterprises journal.

Exercise Three:
The following information concerns NDEH’S enterprise provided on 31/12/2011 before inventory:
Acquisition Original Accumulated Net Book Depreciation
Elements
date value depreciation Value Method
Deferred Expenses 1/03/2009 - 3,500,000 5,250,000 Linear
Office Equipment 01/06/2008 - - 2,975,000 Constant
Building 18/04/2009 24,000,000 - 12,632,812 Reducing balance
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Transport Equipment - 30,400,000 11,259,375 - -
Other information:
 Depreciation expenses for 2008 on office equipment was 1,225,000F
 Transport Equipment includes:
o Vehicle A acquired on 01/08/2007 for 9,300,000F and being depreciated according to the
straight line method,
o Vehicle B acquired on 01/01/2009 for 14,000,000F and being depreciated following the reducing
balance method with a Net Accounting Value of 7,875,000F on 01/01/2011,
o Vehicle C bought on 15/06/2011 and being depreciated in respect of the linear method, has a life
span of 5 years.

Task: Record the endowment of depreciation expenses for 2011.

Exercise Four:
The situation of fixed assets of MEMOCAM is given in the table below:

Fixed Assets Original value Rate Dep. method

Patent & software 2,000,000 20% Constant
Transport equipment 1,500,000 40% Reducing balance
Office furniture 1,000,000 15% Linear
Knowing that the assets are in their second year of usage,
Task:
4.1- Present the unique table of depreciation for the fixed assets,
4.2- Calculate and record the depreciation expenses for the year,
4.3- Present the assets’ side of the balance sheet

CHAPTER 7: ACCOUNTING FOR IMPAIREMENT LOSSES

a) DEFINITION
An impairment loss is the amount by which the carrying value of an asset exceeds its recoverable value.
Impairment Losses recognize the probable fall in value of an asset resulting from Causes of which the effects
are deemed non-irreversible
b) Reasons for recognizing Impairment loss
The main sources of information which help in recognizing impairment losses.
 A fall in the assets market value
 Evidence of obsolescence or physical damage on the assets economic performance
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  A significant change in the technological environment of the business in which the assets are employed.
c) Measurement of the impairment loss
The amount of the impairment loss is equal to the amount of the probable loss. That is, when the actual
value is less than the net accounting value. Therefore, impairment loss = actual value – accounting value.
Two accounting procedures are made for impairment losses.
 Creation of the impairment loss at the end of the accounting period
 Cancellation of the impairment at the end of the next accounting period with the Possible creation of a
new one, if any.
i) Impairment of fixed assets
DR: 691, 6914, 6972, 858= Impairment losses on …
CR: 29. Impairment
The situation of Fixed Assets of the current financial year should be analyzed. This analysis entails one
of two actions.
 Cancellation of the previous year impairment loss and the endowment of the new one when the fixed
asset are still in the keeping of the enterprise.
 Cancellation of the previous year Impairment loss on fixed assets which must have been disposed of
during the year N + 1
Example. As a result of the implementation of the new town planning project of the Douala city council,
FONING Ent. encountered a fall in value of its goodwill which is estimated at 5 500000 CFAF assessment
made at stock - Taking as of 31/12/2021. After the implementation of the new town planning Project of the
Douala city Council in March 2022, FONING Ents witnessed an increase in its Sales for the year 2022.This
amount has never been recorded by this enterprise in the past years.
Required:
1- Show the accounting entry for this impairment losss.
2- On the basis of the current situation of sales of the year 2022, indicate whether the impairment loss on
goodwill created last year is still valid
3- Indicate the accounting action to to taken for the year ended December 31/12/2022.
SOLUTION
ii) Impairment of stocks and products in process
The specific issue to be taken note of on the impairment of stock items is that instead of cancelling the
impairment loss of the previous year and recognizing the new one for the current year ended, there is an
alternative action where by the previous can merely be adjusted to the new one as shown below.
Readjustment of the impairment loss
The new impairment loss should be analysed and the old impairment loss should be adjusted.
iii) IMPAIRMENT LOSSES ON DOUBTFUL AND DISPUTED CUSTOMERS
Sales are made undoubtedly to creditworthy customers. If the credit period allowed to the settlement of
the debt elapses, this customer can no longer be qualified as a credible customer.
Again, if by the end of the year the insolvency persists, this customer losses his position of credible
customer to that of doubtful customers.
A debt on a customer is considered as doubtful when an event that took place in the course of the year
make an entity or the manager think with certainty that they will not recover all the debt.
a) MEASURING THE IMPAIRMENT LOSS FOR DOUBTFUL DEBTS
The rule to observe is as follows

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 - The amount of the impairment loss is equal to the amount of the probable loss (estimate of the risk)
- The impairment loss is expressed, generally, as a percentage of the amount of the doubtful debt. This
percentage is determine base on any of the following
 Forecasted probable loss percentage – 30% => 30% impairment loss
 Forecasted probable collection percentage 30% => 70% impairment loss
To justify the amount of impairment loss, the entity has to establish the statement of doubtful customers at
stock taking.
b) Accounting for impairment loss on doubtful customers
An estimated loss is recorded as follows.
Date
6594 Provisioned Operating expenses for debts xxxx
491 Impairment on doubtful customers xxxx
Being Probable depreciation of debts for the period

1. The case of new doubtful customers

Before accounting for any impairment loss on customers’ accounts, it is imperative to reclassify
the customers from ordinary customers to disputed and doubtful customers as follows:
Date
6594 Disputed or doubtful customers xxxx
411 customers xxxx
Being Probable depreciation of debts for the period

Example
At stock-taking of the financial year 2021, the statement of new doubtful customers is presented as
follows:
Amount Impairment
NAME Tax incl. Tax excl. VAT % Amount
Bonja 1,431,000 1,200,00 231,000 20 240,000
Kum 4,054,000 3,400,000 654,500 60 2,040,000
Doris 3,100,500 2,600,000 500,500 30 780,000
Totals 8,586,000 7,200,000 1,386,000 3,060,000
Required:
a) Show the journal entry of the reclassification of ordinary customers to doubtful customers
b) Show the journal entry of the creation of impairment loss on doubtful customers
SOLUTION

2. The case of old doubtful customers

The situation of the old doubtful customer should be analysed. This analysis could result in the
calculation of a new impairment loss on the debt.
 Cancellation of the previous year’s impairment
Date
4912 Depreciation of Doubtful debts xxxx
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 6594 Provisioned Operating expenses for debts xxxx
Being Probable depreciation of debts for the period
 The recognition of the impairment loss of the current year
Date
6594 Disputed or doubtful customers xxxx
4912 Impairment of doubtful customer xxxx
Being Probable depreciation debts for the period

3. The case of fully irrecoverable or bad debt

When a debt becomes irrecoverable or bad debt, it is considered as a loss. In this case two situations are
seen
 Loss on an ordinary customer
 Loss on an existing doubtful customer.
I- Loss on an ordinary customer
An ordinary customer is one who is not doubtful. There is therefore no need reclassifying the customer into
doubtful customers and creating an impairment loss when it is certain that he wil be unable to pay the debts. It is
recorded as follows.

Date
6511 Losses on customers xxxx
4431 State; VAT invoiced on sales xxxx
4111 Customers
Being irrecoverable debts xxxx

Example
At stock taking for the year ending 2021, customer James (who has never been doubtful) is considered
fully irrecoverable; his debt tax inclusive is 2,981,250CFAF
Required: Account for this situation as at 31/12/2021
Solution

II- Loss on an existing doubtful customer

This is a customer on whom an impairment loss had earlier been created. When a debt is irrecoverable, it is
a loss and recorede as follows.
Date
6511 Losses on customers xxxx
4431 State; VAT invoiced on sales xxxx
416 Doubtful customers
Being irrecoverable debts xxxx

The specific case of doubtful customers having creditors with preferential rights
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 There are situations whereby a doubtful customer may have creditors enjoying preferential rights in the
repayment of the debts. We have the following creditors.
 Super privilege creditors: These are those creditor, whose debts are settled first before thinking of other
creditors. Examples are workers’ salaries
 Privilege creditors: Their settlement comes after the super privilege creditors. Examples state and
creditors who have real surety or guarantee as building , equipment
 Ordinary creditors: These creditors re the last to be settled. They think of them after all the privilege
creditors are settled.
Example: You are working with BABINO entity as a bookkeeper and you are given the statement of doubtful
customers as follows
Statement of doubtful customers as at 31/12/2021
Customers Debts Tax Impairment Settlement Observation as at 31/12/2021
inclusive 2020 2021
CFAF
ATEAZE 1,144,800 50% 1,001,700 To balance off the account of
ATEAZE
ACHAMO 429,300 20% Nil Probable loss 30%
CHAMO 858,600 40% 715,500 Hope to recover at most 35%
ZEFACK 572,400 - - Irrecoverable at 100%
AGENDIA 715,500 - - (1)
NGEFACK 228,960 - - Set impairment loss at 60%
( 1 ) AGENDIA’s patrimony is as follows:
- Actual Net Assets: 9,840,000CFAF
- Liabilities:
 Privileged liabilities: 3,600,000CFAF
 Ordinary liabilities: 9,600,000CFAF (including BABINO Entity’s debt).
Required:
(i) Prepare the statement of BABINO’s doubtful customers as at 31/12/2019
(ii) Journalise the impairment and losses on customers’ account.

iv) Impairment losses on securities

Securities are certificates acquired in a bid of making short-term gain. We have two types of securities
 Investment securities, which are recorded in account 26/27 at their purchase cost.
 Marketable securities which are recorded in account 50 at their purchase cost.
At stock taking, the entity notices that some securities have an actual value less than the carrying value. This
is an indication that a risk of probable loss has arisen. To the entity, this state of affairs corresponds to a
reduction in the value of an item of assets resulting from causes of which the effects are considered non-
ireversible.
a) Measuring the impairment loss on securities
The amount of impairment loss is equal to the amount of the probable loss. The assessment of the
impairment is carried out through the comparison between.
Value at stock-taking > purchase value = capital gain => no impairment
Value at stock-taking < purchase value = capital loss => impairment
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 The valuation rule of securities at stock-taking is as follows.
 Quoted securities are valued at the last month’s stock exchange average rate
 Unquoted securities are valued at their probable negotiation value

b) Accounting recording
a) For investment securities (equity securities)
Date
6972 Impairment losses of financial assets xxxx
296 Impairment of equity securities xxx
Being impairment loss

b) For marketable securities

Date
6795 Impairment losses of marketable securities xxxx
590 Impairment of marketable securities xxx
Being impairment loss

Example:
The situation of participation certificates in the books of PLANTECAM PLC is as follows on the 31/12/2012

Acquisition Cost Provision on Market value on

Nature
Quantity Unit Price 31/12/2011 31/12/2012
ABC Shares 100 11,300 51,000 11,400
UCB shares 500 5,700 - 48,160
Guinness shares 50 12,400 - 12,200
Brasseries Shares 150 98,000 - 94,000
Required: Present the statement of participation certificates on the 31/12/2012 and record the adjustment
entries in the classical journal of PLANTECAM PLC.

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