Acn100 2024 01 SG

Accounting for Managers
ACN100
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Prescribed Reading
The prescribed textbook for Accounting for Managers I (ACN100) is:
• Maritz, C. J., and Hibling, A. J. (2021), Fundamentals of Bookkeeping

and Financial Accounting. 4th ed. Cape Town: EDGE Education.
[ISBN: 978-1-432-70111-6]
ASSIGNMENT
Semester 1 2024
Module name Accounting for Managers I
Module Code ACN100
Due date 22 April 2024
Total Marks 100
This assignment is compulsory and must be submitted through CANVAS,

inside the corresponding Module Class Course on or before 22 April 2024 by
24:00.
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LIST OF REFERENCES
Refer to the STADIO Referencing guide HERE for guidance.
©STADIO Assignment – 2024 Semester 1 ACN100 – ACCOUNTING FOR MANAGERS I

Page 1 of 8
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Page 2 of 8
Question 1 (30 marks)
ACCOUNTING EQUATION AND VAT
SECTION A – [24]
ACCOUNTING EQUATION
1.1 Tristan Traders trades in clothing. The business only started trading on 1
September 2023, and by 1 October 2023, only the following balances appeared
in their books:
Debit Balances: Bank R425 000

Credit Balances: Capital R325 000
Bank Loan R100 000
The financial position on 1 October 2023 could thus be shown as follows under the
accounting equation:
Assets(R) = Owner’s Equity(R) +

Liabilities(R)
425 000 325 000 100 000
Tristan Traders entered into the following transactions during October 2023 (ignore
VAT).
Date Details
1 The owner, Mr Tristan Davies, made another capital contribution of R100 000
to his business, by making an EFT in favour of his own business from his
personal bank account. He also contributed a vehicle to the value of R300 000.
7 The business paid back R5 000 on the bank loan.
8 Paid the bookkeeper’s salary by EFT, R9 000.
10 Sold trading goods on credit for R25 000.
13 Sold inventory with a cost price of R2 000 on credit for R4 500.
25 Rendered services to a client for R10 000. The client paid R4 000 upfront and
will pay the balance off in six equal monthly instalments, starting on 1 November
2023 (no interest will accrue to the client’s account).
31 The owner took two pairs of shoes with a cost price of R340 each, from
inventory for personal use.

Page 3 of 8
REQUIRED:
1.1.1 What is the initial financial position of Tristan Traders as of October 1, 2023?
(3)
1.1.2 What transactions did Mr Tristan Davies make on October 1, 2023, and how did
they affect the financial position of the business? (2)
1.1.3 What effect did the payment of R5 000 on the bank loan have on Tristan
Traders' financial position? (2)
1.1.4 How did the payment of the bookkeeper's salary on October 8, 2023, impact
the financial position of Tristan Traders? (2)
1.1.5 What were the consequences of Tristan Traders' sale of trading goods on credit
for R25 000 on October 10, 2023? (2)
1.1.6 Explain how the sale of inventory with a cost price of R2 000 on credit for
R4 500 on October 13, 2023, affected the financial position of the business.
(4)
1.1.7 What were the financial implications of Tristan Traders rendering services for
R10 000 on October 25, 2023? (3)
1.1.8 On October 31, 2023, Tristan Traders' owner took two pairs of shoes with a cost
price of R340 each for personal use. How did this action affect the business's
financial position? (1)
1.1.9 Imagine you are an accountant at Tristan Traders, and it’s the end of October
2023. The owner, Mr Tristan Davies, is interested in understanding the financial
performance of the business for the month. Provide a summary of the financial
events that occurred in October and how they have affected the company’s
financial position. (5)
SECTION B – [6]
VAT
1.2 VAT may be claimed, depending on whether a business buys an exempt supply
or a zero-rated supply.
1.2.1 What is the difference between exempt supplies and zero-rated supplies in the
context of Value Added Tax (VAT), and how do businesses handle VAT when
making purchases related to each category? (6)

Page 4 of 8
INVENTORY SYSTEMS, TRADE RECEIVABLES AND TRADE PAYABLES
SECTION A – [16]
INVENTORY SYSTEMS
2.1 Assume that the business made the following payments from petty cash during
April 2023.
Date Details
3 Purchased R240 of inventory (petty cash voucher P108).
21 Paid R120 plus VAT to FR Transport for carriage on purchases (petty cash
voucher P111).
28 Paid R604 plus VAT in customs duties relating to the purchase of inventory from
abroad (petty cash voucher P112).
30 Paid R1 012 plus VAT for import tariffs relating to the purchase of inventory
from abroad (petty cash voucher P113)
REQUIRED:
Using the periodic and perpetual inventory system, answer the following questions:
2.1.1 Explain the key differences between the periodic and perpetual inventory
systems and how they impact the accounting treatment of petty cash payments
for inventory. (7)
2.1.2 What is the significance of distinguishing between expenses related to inventory
and direct inventory costs in accounting, and how does this impact financial
reporting and accuracy? (9)
SECTION B – [19]
TRADE RECEIVABLES AND TRADE PAYABLES
2.2 The information below is taken from the books of Evan’s Book Store. Most of
the sales take place on credit; debtors are allowed 30 days credit. The business
does not expect to award settlement discount nor to qualify for any settlement
discounts. All occurrences of settlement discounts are therefore incidental in
nature.

Page 5 of 8
INFORMATION:
1. You are provided with incomplete trade receivables for the month of May 2023.
Trade Receivables
Date Day Details Fol. Amou Date Day Details Fol. Amou
nt nt
May 1 Balance B/d 12 May 31 Bank 18 82
2023 500 2023 0
31 Sales 26 00 Sales and 320
and VAT 0 VAT
Sales 1 200 Credit 150
returns losses and
and VAT VAT
Interest 80
income
2. You are also provided with a Debtors list with the balances owing by the different
debtors on 31 May 2023.
Debtors list as at 31 May 2023
Debtor Pre-adjustment balance (R)
A. Ashmore 5 000
B. Barnes (720) Cr
C. Cawood 7 000
D. Davis 5 130
3. The following errors/omissions were noted:

• The total of the Debtors journal was overcast by R160.
• A return of goods by C. Cawood for R720 was correctly recorded in the journal
but posted to the account of B. Barnes.
• An invoice issued to C. Cawood for R1 900 has been posted to the wrong side
of his personal account.
• A credit note issued to A. Ashmore for R650 has been incorrectly entered in
her personal account as R560.
• Goods sold on credit to Barnes for R1 450 including VAT have been
incorrectly entered in the Debtors journal as a sale to C. Cawood and posted
as such.

Page 6 of 8
REQUIRED:
2.2.1 What is the purpose of a trade receivables ledger in a business, and why is it
important to maintain accurate records of debtor balances? (8)
2.2.2 You are the financial manager of Evan's Book Store, and you are tasked with
reconciling the trade receivables ledger for May 2023. The ledger contains
errors and omissions, as mentioned in the case study above. Calculate the
corrected balances for each debtor as of May 31, 2023, and explain the steps
you would take to ensure the accuracy of the trade receivables ledger going
forward. (11)
BANK RECONCILIATION
The following information has been taken from the books of Auxetics Traders on 30 June
2023.
1. The following bank reconciliation statement was drawn up on 31 May 2023
Details Amount (R)
Balance as per bank statement (unfavourable) 16 200
Outstanding deposit 2 400
Outstanding EFTs:
CS114 1 690
CS115 2 140
Add EFT incorrectly debited twice on bank statement 2 900
Balance as per bank account ?
2. A comparison of the cash receipts journal and the cash payments journal for June,
the above bank reconciliation statement and the bank statement for June showed
the following:
• Provisional totals in the cash receipts and cash payments journals on 30 June
2023 were as follows:
o Cash receipts journal R112 000
o Cash payments journal R99 600
• The outstanding deposit at the end of May for R2 400 appeared on the bank
statement on 2 June 2023.

Page 7 of 8
• EFT no. CS114 appeared on the bank statement for June2023.
• EFT no. CS154 appeared on the bank statement on 4 June 2023 for R2 740.
An investigation revealed that the bank statement amount was correct.
• The EFT payment of R2 900 that was incorrectly debited twice by the bank has
since been corrected by the bank.
• The cash receipts journal showed an amount of R10 400 on 30 June 2023, that
did not appear on the bank statement.
• The bank statement showed the following charges:
o Bank charges R364
o Interest on overdraft R840
o A stop order to insurance company R4 800
• An investigation revealed that the bank has paid the insurance policy twice, i.e.
the monthly premium is R2 400.
• The following EFTs appear in the cash payments journal but not on the bank
statement:
o CS197 for R1 840 (dated 30 June 2023)
o CS199 for R1 480 (dated 07 July 2023)
• The bank statement showed an electronic transfer into our account from
B March, a debtor, for R3 000.
The bank statement received on 30 June showed an unfavourable balance of
•
R15 414.
REQUIRED:
3.1 What is the purpose of a bank reconciliation statement, and why is it important
for businesses like Auxetics Traders? (8)
3.2 What is the final adjusted bank balance as per Auxetics Traders' records on
June 30, 2023, and is it favourable or unfavourable? (3)
3.3 Bank reconciliations offer several benefits to businesses like Auxetics Traders.
List seven such benefits and explain each. (13)
3.4 Imagine you are the financial controller of Auxetics Traders, and you are tasked
with preparing the bank reconciliation statement for June 30, 2023. Using the
information provided, calculate the adjusted bank balance as per Auxetics
Traders' records on that date. (11)
Assignment Total: 100 Marks

Page 8 of 8
Table of contents
Heading Page number
Contents
WELCOME 1
TOPIC 1 INTRODUCTION TO BUSINESS, BOOKKEEPING AND ACCOUNTING 3

1.1 Introduction 3
1.2 A Brief History of Accounting 4
1.3 Users and Uses of Financial Information 5
1.4 Developments in the Accounting Field 5
1.5 Different Business Forums 8
1.6 Different Fields in Accounting 9
1.7 The Bookkeeping and Accounting Cycle 10
Summary 10
Self-Assessment Question 10
TOPIC 2 THE ACCOUNTING EQUATION AND THE DOUBLE ENTRY SYSTEM 11

2.1 Introduction 11
2.2 The Accounting Equation 12
2.3 The Business Entity Rule 15
2.4 The ‘T’ – Account in the General Ledger 16
2.5 An Introduction to Inventory (Stock) Systems 19
Summary 20
Self-Assessment Question 20
TOPIC 3 VALUE ADDED DESK 21

3.1 Introduction 21
3.2 How Does the VAT System Work? 21
3.3 VAT Supply Categories 22
3.4 VAT Calculations 23
3.5 VAT Returns 26
Summary 28
TOPIC 4 RECORDING CASH TRANSACTIONS 29

4.1 Introduction 29
4.2 Recording Cash Transactions 30
4.2 Source Documents 30
4.3 Cash Flow and Your Business 31
4.4 Introducing Journals 31
4.5 Cash Journals 32
4.6 Posting to the General Ledger 33
4.7 Listing the General Ledger Account Balances on a Trial Balance 38
Summary 39
TOPIC 5 RECORDING CREDIT AND SUNDRY TRANSACTIONS 40

5.1 Introduction 40
5.2 Subsidiary Journals for Credit and Sundry Transactions 41
5.3 The General Ledger Reconciliation Statement 43
Summary 43
TOPIC 6 INVENTORY SYSTEMS 44

6.1 Introduction 44
6.2 Inventory 44
6.3 Initial Measurement of Inventory 45
6.4 Perpetual for Some; Periodic for Others 45
6.4 Which System is Best – Perpetual or Periodic? 48
Summary 48
TOPIC 7 BANK RECONCILIATION 49

7.1 Introduction 49
7.2 Reconciliation 50
7.3 The Business and the Bank 50
7.4 The Bank Reconciliation Procedure 51
7.4 Alternative Steps that may be Followed 52
Summary 53
TOPIC 8 THE CONTROL ACCOUNTS – TRADE RECEIVABLE AND TRADE

PAYABLES 54
8.1 Introduction 54
8.2 The Subsidiary Ledger 55
8.3 The Structure of the Subsidiary Ledgers for Debtors and Creditors 55
8.4 The control accounts 56
Summary 57
REFERENCES 58
Welcome
Welcome to Accounting for Managers I (ACN100). We trust that you will enjoy
the exciting issues and challenges you face. We look forward to accompanying
you on this meaningful and positive learning journey.
This subject represents the first-year level of accounting. We furthermore trust

that you will find the learning very useful and develop an understanding and
appreciation for how accounting applies to business and how you can apply it to
add value to your work environment.
Several economic transactions and events take place in a fast and

ever-changing world. Therefore, knowledge of accounting for managers will
enable you to conduct financial transactions in an orderly and systematic
manner, give an account of such transactions, and measure business
performance. Accounting has many definitions, among other the following:
 An information system that measures, processes and communicates

financial information about an identifiable economic entity.
Therefore, it is crucial that you understand certain basic concepts to document

(process) certain information or data from source documents in an orderly and
systematic manner.
Since we live in a dynamic world, South Africa must keep up with the latest
trends in accounting as used by the rest of the world. Although the prescribed
textbook and study guide contains the latest information, you still have a
responsibility to ensure that you keep up to date with new changes that are
taking place and will continue to take place in the accounting field.
The textbook and the topics of this study guide are prescribed for assignment
and examination purposes, with the contents included in the assignments and
examinations. Both resources must be used to prepare for the assignments and
examinations.
© STADIO (Pty) Ltd Accounting for Management I (ACN100)

1
Be warned that the study guide alone is insufficient by itself. The prescribed
textbook remains the primary source of learning, supported by the study guide
that contextualises and supports the learning presented in the prescribed
textbook. Should you elect not to purchase or use the prescribed textbook, you
will do so at your own risk.
We want to wish you much success while completing this module.

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Topic 1
Introduction to Business, Bookkeeping and
Accounting
1.1 INTRODUCTION
The first chapter of the prescribed textbook provides a handy explanation of why
accounting needs to be studied. Not all users of financial information want to be
trained as accountants, but if you want to pursue a business career, you should
have a basic understanding of accounting.
After completing this topic, you should be able to:
• Provide a summary of the history of accounting.

• Identify and describe the users and uses of financial information.
• Identify and explain the different forms of business entities.
• Explain the differences between Financial Accounting and Managerial
Accounting.
• Explain bookkeeping and the accounting cycle.
This topic introduces you to business, bookkeeping and accounting with a brief
overview of accounting history and the double entry principle.
This module focuses on the following:
• How financial information is used and by whom?

• Which different forms of business enterprises are available for new
business owners or entrepreneurs?
• How accounting has developed using the reporting standards of GAAP
and IFRS and the differences between internal and external reporting of
financial statements.
• The two domains or fields of accounting, namely financial accounting and
management (managerial) accounting.
• The differences between these two fields and the importance of
management accounting in managing an enterprise.

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• The emphasis on the future, flexibility and relevance of the data to be
used.
• The importance of timely information as opposed to precise information.
• Bookkeeping and accounting cycles.
Reading
Before continuing with this topic, please read the following in the prescribed
textbook:
1. Fundamentals of Bookkeeping and Financial Accounting, TOPIC 1

[ISBN: 978-1-432-70111-6]
Please ensure that you read this study guide carefully, as there is additional
information in this guide that is not found in the prescribed textbook.
1.2 A BRIEF HISTORY OF ACCOUNTING
Activity
1. Read through the pages on the history of accounting.

[ISBN: 978-1-432-70111-6]

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1.3 USERS AND USES OF FINANCIAL INFORMATION
Figure 1: Examples of Users of Financial Information.
Activity
1. Name and discuss any five (5) users of accounting information.

2. Name any five (5) uses of accounting information.
[ISBN: 978-1-432-70111-6]
Ensure you can identify and explain who the different users are and why they
are interested in financial information.
1.4 DEVELOPMENTS IN THE ACCOUNTING FIELD
There are two main categories of financial information users: external and
internal. On the other hand, management uses internal information for the day-
to-day management and operation of the entity.

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The following are examples of internal users:
• Management
• Employees
External users are users from outside the entity who are not directly involved in
the management and operations of said entity. They need formal financial
information, such as those provided in financial statements.
External Reporting – International Financial Reporting Standards (IFRS)
Financial statements should reflect an accurate and fair view of the organisation’s
business affairs. As various constituents of society/regulators use these
statements, they must provide a true and accurate representation of the
organisation’s financial position.
Qualitative characteristics of financial statements prepared by IFRS include:
• Fundamental qualitative characteristics:
o Relevance
o Faithful representation
• Enhancing qualitative characteristics:
o Comparability
o Understandability
o Timeliness
o Verifiability
Generally Accepted Accounting Principles (GAAP) and International Financial

Reporting Standards (IFRS)
With rules, guidelines and standards, the uniformity of financial statements

would be apparent and there would be order in accounting. Information might
need to be more reliable and understandable to users of financial information.
Accounting has a theoretical basis that forms the foundation for accounting
practice, also known as generally accepted accounting principles (GAAP).
Generally accepted accounting principles (GAAP) refer to the standard framework

of guidelines for financial accounting used and are generally known as accounting
standards or standard accounting practice.

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These include the standards, conventions, and rules accountants follow in
recording, summarising and preparing financial statements.
Definition of Generally Accepted Accounting Principles (GAAP)
The common set of accounting principles, standards and procedures that

companies use to compile their financial statements. GAAP are a combination of
authoritative standards (set by policy boards) and simply the commonly accepted
ways of recording and reporting accounting information.
GAAP are imposed on companies so that investors have a minimum level of

consistency in the financial statements they use when analysing companies for
investment purposes. GAAP covers revenue recognition, balance sheet item
classification and outstanding share measurements. Companies must follow
GAAP rules when reporting their financial data using financial statements.
Many countries use or are joining the International Financial Reporting Standards
(IFRS), established and maintained by the International Accounting Standards
Board. In some countries, local accounting principles are applied for regular
companies, but listed or large companies must conform to IFRS, so statutory
reporting is comparable internationally.
Activity
1. Study the pages in the prescribed textbook for a good overview and
understanding of GAAP and IFRS.
[ISBN: 978-1-432-70111-6]
GAAP Principles:
• Matching
Income earned and expenses incurred must be reported in the same
financial period to calculate the correct net profit.
• Historical Cost
The financial statements reflect land and buildings at a cost price of
R900 000, although the market price is R2 000 000.

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• Going Concern
This concept assumes that the business will continue to operate in the
future.
• Prudence
All possible losses are recorded in the Income Statement, but anticipated
profits are only reported once realised.
• Business Entity
The financial affairs of a business must be kept separate from the
personal financial affairs of the owner.
1.5 DIFFERENT BUSINESS FORUMS
You can choose one of several forms of ownership for your business, namely:
• The Sole Trader

• The Partnership
• The Close Corporation
• The Private Company
• The Public Company
Each form of business has its characteristics, advantages and disadvantages that
distinguish it from the others. There is no ideal form of ownership. The new
business owner must consider the circumstances of the business and choose the
most suitable form.
When choosing a specific form of business, the new business owner must
consider the main differences between the various forms of business:
Legal Personality:
Some form of business is a legal person. The business can exist independently
from its owners and the owners are not responsible for its debts in their capacity.
A business that is a legal person has an unlimited lifespan, as it does not depend
on the life expectancy of the owners.
Start-up Procedures:
Some business forms are easy to start, but others have lengthy and complicated
procedures to follow.

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Ownership and Management:
The owners’ participation in the management and sharing in profits or losses of
the business varies. When a business has more than one owner, the owners must
agree on how to manage the business and share profits and losses.
Obtaining Capital:
The amount of starting capital needed depends on the nature and size of the
business. A grocery store needs less capital than a factory for manufacturing
cars. Owners need to consider future capital requirements and expand the
business.
Distribution of Profits:
The various forms of business distribute profit in different ways. In some cases,
the owner takes all the profit, while other business forms distribute the profit in
an agreed ratio or take only part of the profit.
Income Tax:
How income tax is calculated differs for the various forms of business.
Sometimes, the business is responsible for tax payments; in other instances, the
owner is personally responsible. The business pays tax at a fixed rate, while the
individual pays tax on a sliding scale according to taxable income.
The following are the different forms of ownership:
1.5.1 Sole Traders

1.5.2 Partnerships
1.5.3 Companies and close corporations
1.6 DIFFERENT FIELDS IN ACCOUNTING
Management accounting is a field that analyses and provides cost information to

internal management for planning, controlling and decision-making.
Managerial accounting provides information to managers, i.e., people who direct

and control its operations. Managerial accounting provides the essential data with
which organisations are run.
Financial accounting is concerned with providing information to stockholders,

creditors, and others outside an organisation. Financial accounting provides the
scorecard by which a company’s past performance is judged.

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1.7 THE BOOKKEEPING AND ACCOUNTING CYCLE
The Accounting Cycle is a series of steps repeated every reporting period. The
process starts with making accounting entries for each transaction and closing
the books.
Bookkeeping is the recording, on a day-to-day basis, of financial transactions

and information about a business. It is concerned with ensuring that records of
individual financial transactions are accurate, up-to-date and comprehensive.
Accuracy is, therefore, vital to the process.
The prescribed textbook diagram will help you understand the accounting cycle.
Summary
After studying this topic, you should understand the context in which accounting
was developed, especially regarding what accounting is about and its role in
business.
Ensure you understand the fundamental concepts; you will need it as a

foundation to continue.
Self-Assessment Question
Work through all the examples and exercises in the prescribed textbook for this
unit.

10
Topic 2
The Accounting Equation and the Double Entry
System
2.1 INTRODUCTION
• Discuss the assets, liabilities, and equity concepts and explain the
accounting equation.
• Explain and demonstrate the duality concept.
• Discuss and explain the business entity rule.
• Apply the accounting equation to a variety of accounting transactions.
• Explain the role and purpose of an ‘account’ within an accounting system.
• Distinguish the different categories of accounts used within an
accounting system.
• Demonstrate and understand an account's generally accepted format
and apply such formats in the accounting process. Differentiate between
a debit and credit procedure and apply both these procedures to a variety
of accounting transactions.
• Complete the accounts in the general ledger.
• Distinguish between periodic and perpetual inventory systems.
• Calculate the cost of sales.
In this topic, the principles of accounting are discussed. You will therefore be
able to recognise financial transactions and to measure and record them.
It is essential that you realise that you must develop a high degree of competence
in terms of the contents of this topic. Competence means you must have
thoroughly mastered the learning contained in this topic and developed the skills
to practically apply the knowledge in actual or simulated situations with accuracy.
You will also do an introduction to trading stock, which is very important to the
cost of sales account. It would be best to display the correct attitude in processing
the accounting data according to set accounting conventions and formats.

11
Reading
textbook:
• Fundamentals of Bookkeeping and Financial Accounting, TOPIC 2.

[ISBN: 978-1-432-70111-6]
2.2 THE ACCOUNTING EQUATION
For you to understand what you read, you need to know the meaning of the
following concepts:
2.2.1 Assets
Assets are the business's possessions and are expected to flow to the entity
controlled by the entity because of past events. Assets include
non-current (long term) and current assets (short term).
Activity
• Answer the questions in the prescribed textbook related to assets.

[ISBN: 978-1-432-70111-6]

12
2.2.2 Liabilities
A liability is a present obligation (money owed by the business to another person

or entity), the settlement of which is expected to result in an outflow of
resources.
Activity
• Answer the questions in the prescribed textbook related to Liabilities.

Activity
[ISBN: 978-1-432-70111-6]
2.2.3 Equity
Equity is the owners’ interest and residual interest in an entity’s assets after
deducting all the liabilities.

13
Table 1: Summary of the Accounting Equation
ACCOUNTING EQUATION
A = OE + L
Assets Owner’s Equity Liabilities

+ - - + - +
NON-CURRENT Drawings (-) Drawings (+) NON-CURRENT
ASSETS: Decrease Increase LIABILITIES:
(Debit) (Credit)
Fixed/Tangible Assets:
Land and buildings. Loss Profit Loan (long-term, more
than 12 months).
Vehicles. Mortgage bond.
Equipment.
Financial Assets DR CR Current Liabilities
Expenses (-) Income (+)
Fixed deposits. Cost of sales. Sales. Creditors.
Investments. Interest paid. Interest received. Bank overdraft
(unfavourable/ credit
balance).
Rent expense. Fees income. Loan (short-term, less
than 12 months).
Fees income. Rent received.
Salaries. Discount received.
Wages.
Discount allowed.
Stationery.
Fuel.
Packing material.
Repairs.
Insurance.
Advertising.
Telephone.
Water and electricity.
Current Assets:
Inventory.
Trading stock.
Debtors.
Cash.
Bank (favourable/debit
balance).
Cash float.
Petty cash.
Dr Assets Cr Dr Liabilities Cr
Increase Decrease Increase Decrease
(+) (-) (+) (-)

14
2.3 THE BUSINESS ENTITY RULE
Business Entity - The financial affairs of a business must be kept separate from
the personal financial affairs of the owner.
Activity
1. Work through this section's examples and exercises in your prescribed

textbook.
[ISBN: 978-1-432-70111-6]
2.3.1 Proprietary accounts
Capital
The owner invests money in the business. This money does not belong to the
business. It is a loan from the owner to the business. Always remember to look
at transactions from the business’ point of view. This is why the accountant sees
a capital contribution as a cash receipt.
Drawings
The owner takes something that belongs to the business for personal use. It can
be cash or trading stock. This type of transaction is referred to as ‘drawings’.
(Remember, we view transactions from the point of view of the business and
NOT from that of the owner.)
Income
The amount of money received over a period either as payment for work, goods
or services or as profit on capital.
Expenses
An amount of money spent to buy or do something in the day–to–day running of
the business.
2.3.2 Profit
Profit is defined as all the income received minus all the expenses paid for in a
specific period.

15
Profit can be divided into three categories:
1. Gross Profit
Sales minus cost of sales
2. Operating Profit
Gross profit plus operating income minus operating expenses
3. Net Profit
The remaining income after all expenses like tax and interest have been
considered.
Activity

textbook.
[ISBN: 978-1-432-70111-6]
2.4 THE ‘T’ – ACCOUNT IN THE GENERAL LEDGER
The accounts in the General Ledger are in the form of a capital “T”, generally
referred to as T-accounts.
The account’s name is written at the top and in the middle. The left-hand side of
the account is known as the debit side and the right-hand side is the credit side.
An account has the following functions:
• It keeps records of each transaction in the relevant account.

• It distinguishes between increases and decreases in each account.
• It stores the transaction information for future reference.
• It shows the balance of each account.
• Each transaction must be recorded.
• Each transaction has a debit and a credit entry when it is recorded.
• In accounting, the double-entry principle is used.
• This double-entry (duality) principle forms the basis of all accounting
entries.

16
2.4.2 The Double-entity Principle
• The equation A = OE + L must balance.

• For each transaction that takes place, TWO entries are made. One
account is debited and another account is credited. Therefore, the
equation will balance.
• A trial balance is prepared to check whether the accounts balance.
Rules to remember:
• Each transaction has TWO accounts.

• Each transaction has a Debit and a Credit entry.
• One account is debited; the other account is credited.
Figure 2: Summary of the Double-entry Principle
2.4.3 Calculating the selling price and cost price of a product
The following formulas are used to calculate the cost price and the selling price
of a product if the markup percentage is 50% of the cost price.
Calculating the Cost Price (CP) if the selling price = R200
Figure 3: Calculation of Cost Price

17
Calculating Selling Price (SP) if the cost price = R133.33
Figure 4: Calculation of Selling Price
2.4.4 Cross-references
The debit and credit transactions are recorded on opposite sides in the ledger
account. This procedure is known as ‘cross-referencing’ or ‘contra entries’.
Figure 5: Cross-referencing
Activity

textbook.
[ISBN: 978-1-432-70111-6]

18
2.5 AN INTRODUCTION TO INVENTORY (STOCK) SYSTEMS
Based on generally accepted accounting principles (GAAP), two types of

inventory accounting methods can be used: the periodic and perpetual inventory
systems. Today, all major retailers use the perpetual inventory system, but in
times past, the periodic system made better use of resources. The differences
between the two systems significantly affect how an entity manages its business.
2.5.1 The Periodic Inventory System
The periodic inventory system's primary use occurred before introducing point-
of-sale scanners and computers. Entities that sold lots of small merchandise
found it easier to update their inventory balances periodically instead of trying
to account for every item sold daily.
2.5.2 The Perpetual Inventory System
With a periodic inventory system, an entity knows how much inventory it has at
the beginning and the end of a period. This system does not track inventory
daily; instead, it relies on periodic physical inventory counts to determine
inventory levels. A perpetual inventory system keeps a running balance of
inventory. Every transaction that decreases or increases inventory is recorded
immediately. The entity that uses a perpetual inventory system always knows
how much money it has invested in its inventory.
Activity

textbook.
[ISBN: 978-1-432-70111-6]

19
Summary
After studying this topic, you should have some understanding of the framework
in which accounting takes place, especially as far as the following aspects are
concerned:
• The Accounting Equation.

• The Business Entity Rule.
• The T-account Principle.
• Debiting and crediting concepts.
• Inventory (stock) systems.
Self-Assessment Question
Answer the relevant examples and exercises in the prescribed textbook related
to this section.

20
Topic 3
Value Added Desk
3.1 INTRODUCTION
• Explain the role and purpose of Value-added tax (VAT).

• Explain what taxable and exempt supplies are.
• Discuss the difference between exempt and zero-rated supplies.
• Perform correct and accurate VAT calculations.
• Demonstrate an understanding of the procedures for collecting and
paying VAT.
• Explain the basic concepts of VAT and recording VAT based transactions
in the journals.
• How to calculate VAT of inclusive or exclusive supplies.
• Calculate VAT payable and collectable.
• Post VAT transactions from source documents to the correct journals.
• Process transactions affected by VAT.
3.2 HOW DOES THE VAT SYSTEM WORK?
Value-added tax (VAT) is a tax charged on the supply of goods and services by
a vendor. Vendors registered for VAT collect VAT from customers on behalf of
the South African Revenue Services (SARS).
The government is responsible for providing the services, such as protection of

citizens, social welfare and infrastructure.
Taxes must be paid to the government so that they have an income to pay for
these services. Taxes include income tax, VAT and customs and excise duties.
VAT amounts to 25% to 30% of the government’s income.
Compulsory registration for VAT. A business with a turnover of more than R1 000
000 p.a. must register with SARS as a VAT vendor.

21
Voluntary registration. A business with a turnover between R50 000 and
R1 000 000 p.a. may voluntarily register as a VAT vendor.
A business may not register for VAT if the turnover is less than R50 000 p.a.
VAT is classified as an indirect form of taxation, as the final consumer bears the
tax cost.
The suppliers of goods and services in the production process will charge VAT
and pay the VAT on the ‘value added’ over to SARS. Still, at the end of the
process, the final consumer will be charged the total value of VAT, as VAT is
included in the selling price/service price.
VAT is considered the fairest taxation system in South Africa as it applies equally
to all persons. No person, irrespective of their earnings, is exempt from paying
VAT.
3.3 VAT SUPPLY CATEGORIES
• VAT rate
VAT is currently calculated at a standard rate of 15%. The
Minister of Finance can change this rate at any time.
• Zero-rated Supplies
Some goods are charged at a zero rate (0%). It means no VAT
is charged on them. The Minister of Finance can also change this
rate if the need arises. Nature of the zero-rated goods. These
goods are zero-rated, so poor people can afford these necessary
items.
• VAT-exempt Supplies
Certain supplies are NOT subjected to VAT.
• Non-allowable Items
Sometimes, although the vendor charged output VAT, the
subsequent acquirer of the goods or service may not claim input
VAT on them.

22
Activity

textbook.
[ISBN: 978-1-432-70111-6]
3.4 VAT CALCULATIONS
Familiarise yourself with how to calculate the different VAT amounts.
3.4.1 Calculate the price exclusive of VAT and inclusive of VAT

amounts
Calculate the amount of VAT
The following example demonstrates how the VAT amount is calculated if the
selling price (including VAT) is known.
• Price (100%) + VAT (15%) = Final Price with VAT included (115%)
• R435, including VAT

(The amount you have determined = known amount)
• VAT amount = 15%
(The amount you want to determine = unknown amount)
Table 2: Calculating VAT

Price
100%
(VAT Exclusive)
15% (VAT) 15% Unknown amount
?
(What you want to determine)
Final Price 100% + 15% = Known amount
(VAT Inclusive) 115% R435
(What you have determined)

23
Calcula�on: How to work out the amount of VAT Insert the amount
you have determined
Insert the amount you (The Price)
want to determine on top
(Amount of VAT) 15 435 (Known Amount)
on top x = Amount of VAT
115 1
(Unknown Amount)
Therefore, the amount of VAT =R56,74
Figure 6: Calculating the VAT amount when the price is known
Calculate the Price Exclusive of VAT
The following example demonstrates how the VAT amount is calculated if the
selling price (including VAT) is known.
• Price (100%) + VAT (15%) = Final Price with VAT included (115%)
• R435, including VAT

(The amount you have determined = known amount)
• Amount excluding VAT = 100%
(The amount you want to determine = unknown amount)
Table 3: Calculating VAT

Price
100%
(VAT exclusive)
15% VAT 15% Unknown amount
?
(What you want to determine)
Final Price 100% + 15% = Known amount
(VAT inclusive) 115% R435
(What you have determined)

24
Calcula�on: How to work out the price excluding VAT Insert the amount
you have determined
Insert the amount you (The Price including VAT)
want to determine on top
(Price excluding VAT) 100 435 (Known Amount)
on top x = Price ex. VAT
115 1
(Unknown Amount)
Therefore, the price exclusive of VAT =R378,26
Figure 7: Calculating the price excluding VAT
Note
VAT Moves with the Goods
• When goods come in (are purchased) – Input VAT

• When goods go out (are sold) – Output VAT
Activity

textbook.
[ISBN: 978-1-432-70111-6]
3.4.2 The mark-up, the gross margin and VAT
We always work with VAT EXCLUSIVE prices for mark-up percentages or gross
margins.
• Cost price (Excl. VAT) + Gross profit amount (Excl. VAT) = Selling price
(Excl. VAT)
• R300 + R60 = R360 (In this example the mark-up % is 20%).
• R60 ÷ R300 x 100 = 20%

25
3.5 VAT RETURNS
3.5.1 Documentation required in respect of input VAT claims
When a purchase is made for consideration over R50, the vendor must have a
valid tax invoice to claim the input tax deduction. In addition, where a vendor
alters a tax invoice, a credit note or debit note must be issued by him. The
information that is required to be included on a tax invoice, credit note and debit
note for VAT purposes is essential. Check the table in your textbook the specific
information needed.
3.5.2 Accounting basis
There are two bases available for traders to account for VAT to SARS.
1. Invoice Basis
The invoice basis requires traders to account for VAT on
invoices issued in the VAT period in question. This
scheme can be disadvantageous from a cash flow point
of view as traders must pay VAT to the SARS before
receiving payment from customers.
2. Payments Basis
The cash receipts basis, also known as the monies
received basis, allows traders to account for VAT on cash
they received in the VAT period in question.
Activity

textbook.
[ISBN: 978-1-432-70111-6]
3.5.3 VAT periods
A vendor will fall into a specific category to determine his VAT periods' length
and end dates. All VAT transactions within a specific VAT period must be
accounted for in the VAT return (VAT201) applicable to this period.

26
Activity
1. Familiarise yourself with the VAT periods in your prescribed textbook.

[ISBN: 978-1-432-70111-6]
3.5.4 Due dates of payments
If a manual VAT return is submitted, VAT payment is due on the 25th of the
month following the end of the VAT period. If a return is submitted by eFiling,
the payment and return are due on the last business day of the month following
the end of the VAT period. E.g., suppose a VAT period ends on 30 June 2021 and
covers May and June 2021.
In that case, the VAT return applicable to this period must be submitted via
eFiling (and payment made to SARS where applicable) by 31 July 2021 to avoid
interest and penalties.
3.5.5 Penalties and interest
Where VAT is paid after the due date, SARS levies a penalty of 10% of the VAT
outstanding. Additionally, interest is charged at the prescribed rate for the
outstanding VAT period. SARS may reduce the penalty if the vendor applies for
a reduction and if SARS is of the view that the vendor did not intend to evade or
postpone VAT.
SARS may reduce the interest where the State did not make a financial loss, or
the vendor did not benefit financially by paying the tax late – although it seems
complicated to comprehend when this would apply.
Where VAT is refundable and SARS does not pay this refund within 21 business
days, interest is payable by the Commissioner to the vendor at the prescribed
rate. The 21 business days free interest can be extended where SARS cannot
gain access to the vendor’s records to verify the refundable amount.

27
3.5.6 VAT avoidance and evasion
S59 of the VAT Act covers the offences and penalties applicable to VAT evasion.
A person convicted of an offence under the Act can be fined or imprisoned for up
to five years. The offence covers fraudulent activities engaged in to avoid the
payment of VAT or to claim false inputs. S60 provides that SARS can levy an
additional tax of up to 200% of the VAT evaded. Interest will also be levied on
this additional tax. SARS is also allowed to publish the names of VAT offenders
as well as report unprofessional conduct of a person to that person’s professional
body.
3.5.7 Submission to SARS
VAT returns (VAT201) must be completed by the vendor or the responsible

person either manually or via eFiling.
Activity
1. Work through the templates and exercises in your prescribed textbook.

[ISBN: 978-1-432-70111-6]
Summary
After studying this topic, you should understand VAT and the process of how it
works. You should also be able to do VAT calculations.

28
Topic 4
Recording Cash Transactions
4.1 INTRODUCTION
• Identify appropriate source documents to use to process accounting

transactions.
• Distinguish the different source documents used for different
transactions.
• Apply and ensure that source documents comply with Value-added Tax
(VAT) requirements where applicable.
• Demonstrate an understanding of relevant journals and subsidiary
journals used in the accounting process.
Reading
textbook:

[ISBN: 978-1-432-70111-6]
Work through all the examples in the prescribed textbook - it is vital that you do
so.

29
4.2 RECORDING CASH TRANSACTIONS
• The transaction data are recorded on a source document.

• The transaction data are analysed using the double-entry principle to
determine the impact on the relevant accounts.
• The transaction data are recorded in a journal (book of prime entry), also
known as journalising.
• The information in the journal entry is transferred to the appropriate
accounts. Also known as posting from the journals to the ledger
accounts.
• The General Journal is a book of first entries where we record various
transactions that do not fit in any other subsidiary journals.
• A journal entry (an entry in the General Journal) shows which account to
debit and which to credit.
• The journal narration is a short explanation of the entry that briefly
describes each transaction. This journal narration is critical because of
the various transactions recorded in the general journal and for control
and audit purposes.
Note
Familiarise yourself with the layout and format of the different types of journals.
In this regard, refer to examples of the layouts and formats in the prescribed
textbook.
4.2 SOURCE DOCUMENTS
4.2.1 Tax invoices and credit notes
Familiarise yourself with the following:
• Cash invoices
• Credit invoices
• Credit notes
• Cash slips
Study the prescribed textbook in this regard.

30
4.2.2 Other source documents
Other source documents to familiarise yourself with are:
• Cash receipts
• The cheque and its counterfoil
Confirmation slips such as:
• The Electronic Fund Transfer (EFT)

• The petty cash voucher
• The journal voucher
4.3 CASH FLOW AND YOUR BUSINESS
The primary purpose of a business is to make a profit and increase the owner’s
equity level in the process. Although the profitability of a business should be
monitored very closely, monitoring cash movements to and from the enterprise
is equally important. The importance of adequate, effective and efficient cash
flow in a business cannot be overemphasised. Many businesses have failed due
to a lack of cash management; failing into the dreaded ‘liquidity trap’ has become
a worldwide phenomenon.
4.4 INTRODUCING JOURNALS
Businesses have so many transactions that entering them separately in the

General Ledger is impossible. To ensure that the internal control of cash, stock,
etcetera is effective, the work must be spread among several staff members to
obtain maximum information in the minimum time. To achieve this, subsidiary
or specialised journals are used.
All business transactions are organised into categories and a subsidiary journal
is kept for each. These journals are written up daily.

31
The information to be recorded in the journal is obtained from the source
document - the first transaction record. The general rule is if a document
(invoice, purchase order, etc.) is produced, the original is given to the customer
or supplier and the duplicate is retained to use to record transactions in owner
books. It is important to know which essential to use and which source document
provides the information for the entry.
Activity
1. Study this section and work through the examples and exercises in your
prescribed textbook.
[ISBN: 978-1-432-70111-6]
4.5 CASH JOURNALS
The three journals bookkeepers and accountants use to record cash flows are the
cash receipt, payment and petty cash journals. The cash receipts journal records
cash inflows and the cash payment and petty cash journal record cash outflows.
4.5.1 Defining cash transactions
A cash transaction is settled at the point of sale – i.e., neither party owes the
other after the transaction. Cash transactions can be classified into cash receipt
transactions and cash payment transactions.
4.5.2 The cash receipt journals
Use the following structure for the cash receipt journal:
Figure 8: Cash receipt journal structure

32
4.5.3 The cash payment journal
Use the following structure for the cash receipt journal:
Figure 9: Cash payment journal structure
4.5.4 The petty cash journal
Use the following structure for the petty cash journal:
Figure 10: Petty cash payment journal structure
Activity
1. Work through this section and complete all examples and exercises in
your prescribed textbook.
[ISBN: 978-1-432-70111-6]
4.6 POSTING TO THE GENERAL LEDGER
Ledger accounts were discussed in TOPIC 2. In this unit, you will be introduced
to the formal format of a ledger account. Please ensure you understand the
structure of the account and the rules for posting to the ledger.

33
In its most straightforward format, an account consists of four sections:
• The title of the account (which includes an account number)

• The left side of the account
• The right side of the account
• The balance of the account
The conventional account is presented in the form of a” T”. The name is written
above the horizontal bar and the transactions to either the left or right of the
vertical line, depending on whether they involve increases or decreases of the
item.
The left side of an account is called the debit side and the right side is the credit
side:
Figure 11: Entry into an account

Source: Myburgh et al. 2011:57
An entry on the debit side of an account is known as a debit entry and an entry
on the credit side is a credit entry.
The process of debiting an account entails making an entry on the debit side and
the process of crediting an account, entails an entry being made on the credit
side. In English the abbreviation Dr is used for debit and Cr for credit.
4.6.1 The structure of the general ledger and the rules for posting
The following is the standard format of a general ledger account (T-account):

34
Figure 12: Format of a ledger account
Activity
Read through the following example of how to complete a cash sales and cash
payment journal.
Required
1. The following transactions must be shown in the cash journals of
Zizi Traders.
2. Post to the general ledger.
Information
The Profit markup is 100% of the cost and cash received is deposited daily.
Transactions
Jan 01 Cash register roll shows: credit card sales R1 800, cash sales
R2 000.
02 Paid R100 for freight costs on purchases to AJ Carriers. Issued
cheque No. 240.
03 Paid R200 for transport costs to AJ Carriers to deliver goods sold
for cash to a client B. Baloyi.
04 Received a cheque from P. Peters for rent R5 000. (Rec. 210)
05 Bought goods from PP Wholesalers R7 000. Issued cheque 260.
Received a 10% trade discount.
06 The bank returned the cheque received from P. Peters on the
4th, marked R/D.

35
Answers:
Cash receipt journal:
Cash payment journal:
Balance sheet accounts section:

36
Normal accounts section
4.6.2 The rules for balancing an account
Balancing of accounts refers to the month-end process of “totalling’ the accounts.

The month-end posting process to the ledger is followed by preparing the trial
balance, a list of all the general ledger accounts and their respective ‘totals’.
Thus, such accounts need to be balanced to arrive at the account totals.
Balancing of accounts can be categorised into three classes:
1. Where an account has only one entry. No balancing is needed.
2. Where the account has multiple postings on one side only.

37
3. Where the account entries are on both sides.
Activity
1. Work through the examples and exercises in your prescribed textbook.

[ISBN: 978-1-432-70111-6]
4.7 LISTING THE GENERAL LEDGER ACCOUNT BALANCES ON A

TRIAL BALANCE
A trial balance lists all the accounts in a business's General ledger. This list will
contain the names of the accounts in the nominal account section and the
balances of each. Each account will either have a debit balance or a credit
balance. The debit balances will be listed in the debit column of the trial balance
and the credit balances in the credit column.
The trial balance is usually prepared by a bookkeeper or accountant who records

the transactions and then posts them to the nominal and personal ledger
accounts. The trial balance is a part of the double-entry bookkeeping system.
Activity
[ISBN: 978-1-432-70111-6]

38
Summary
After studying this topic, you should understand the link between subsidiary
journals and the different ledger accounts. You should also have developed a
high level of competence in using ledger account information to prepare trial
balances.

39
Topic 5
Recording Credit and Sundry Transactions
5.1 INTRODUCTION
• Distinguish between cash and credit transactions.

• Explain/discuss basic credit concepts.
• Record credit transactions in all journals.
• Post credit transactions to the relevant General Ledger accounts.
In this topic, you will be familiarised with credit transactions, how to record them
in journals and posting the information to the different ledgers. Without credit,
the global economic system would grind to a halt. Credit allows customers to buy
things they could not afford immediately.
Most people would only be able to purchase a house with credit. Most young
adults need more savings to afford the cost of even the humblest of homes.
Yet, credit allows them to purchase a home that they can gradually pay off over
time as their earnings increase. With credit, many individuals would be able to
purchase a vehicle. Credit also makes it convenient to make spontaneous
purchases without carrying large sums of cash.
Businesses rely upon credit to manage their cash flow. Consumers buy goods
from merchants on credit. Without credit, the economy would slow to a halt.
Credit benefits consumers by allowing them to acquire things they need now,
even if they do not have the necessary money currently available but will in the
future.

40
Reading
textbook:

[ISBN: 978-1-432-70111-6]
so.
5.2 SUBSIDIARY JOURNALS FOR CREDIT AND SUNDRY

TRANSACTIONS
Activity
1. Study this section in your prescribed textbook and familiarise yourself

with the work.
[ISBN: 978-1-432-70111-6]
5.2.1 Defining credit transactions
To enter a transaction in a Cash Journal, one of the following words has to be in

the sentence: cash bank paid cheque. No cash has changed hands if one of these
words is not mentioned. This would be a credit transaction, which has to be
recorded on the date it was entered so that the business knows how much money
will be received or paid later.
In other words, the asset (debtor) or liability (creditor) must be recognised
(brought into account) immediately.

41
Processing credit transactions
These are the journals you need to know for this TOPIC:
Figure 13: Summary processing credit transactions
5.2.2 The creditor and creditor allowances journals
Figure 14: Creditors allowance journal
5.2.3 The debtors and debtors allowance journals
Figure 15: Debtors allowance journal

42
5.2.4 The general ledger
Figure 16: General ledger
Activity
[ISBN: 978-1-432-70111-6]
5.3 THE GENERAL LEDGER RECONCILIATION STATEMENT
Activity
[ISBN: 978-1-432-70111-6]
Summary
You should now have a comprehensive understanding of credit transactions.

43
Topic 6
Inventory Systems
6.1 INTRODUCTION
• Define what inventories are.

• Understand how inventories are measured.
• Differentiate between Perpetual and Periodic inventory systems.
Reading
textbook:

[ISBN: 978-1-432-70111-6]
so.
6.2 INVENTORY
Inventory is the stock, goods, or merchandise the business makes to resell or

purchase from another business to sell to make a profit. It is classified as an
asset/current asset because it forms part of the cash flow in the business.
Inventories (trading stock) are goods bought to be resold at a profit.

44
Stock is permanently recorded in the books at cost price.
Inventories are classified as current assets, as the business intends to sell them
(and usually does) within a year from the date it is listed on the balance sheet.
6.3 INITIAL MEASUREMENT OF INVENTORY
Inventory should initially be recognised at cost, which includes all costs incurred
to bring the inventory to its location and condition for sale. This means that when
we purchase a product and are liable for transport costs from the supplier to our
premises, this additional cost must be included in the inventory purchased.
Other items that may affect the cost of inventory include bulk and trade discounts
(this will reduce the cost of inventory) and import tariffs, insurance costs and
customs duties. Note that the inventory cost includes only the costs incurred to
get the inventory ready for sale, not the costs incurred after the inventory has
left the shelf.
6.2.1 Initial measurement vs. reporting requirements
Note that there is a difference between the initial inventory measurement on the
purchase date and its eventual measurement on the reporting date. The
reporting date is when the statement of financial position and the statement of
profit and loss and other comprehensive income are prepared. Disclosure
requirements will be discussed in more depth when we deal with reporting
requirements for different entities.
6.4 PERPETUAL FOR SOME; PERIODIC FOR OTHERS
There are two ways of accounting for inventory in a business:
• Perpetual stock system

• Periodic stock system

45
Perpetual Stock System
When the firm buys stock the Trading Stock account is debited (+) and when
this stock is sold the Trading Stock account is credited (-) with the cost of sales.
Therefore, the balance of the Trading Stock account at any time will reflect the
amount of stock that has not been sold.
At the end of the financial period or any other time, the business must have a
physical inventory count to calculate how much stock is on the shelves and in
the storeroom. This total is then compared to the balance on the Trading Stock
account to determine how much stock loss took place. We call this trading stock
deficit.
Periodic Stock System
Periodic means occasionally or now and then.
This stock system is used by some businesses because:
• An entity may feel it is not worth investing in a costly computer system.

• An entity may, for example, sell many small items at various markups,
so the computer system needed would not be a simple, affordable one.
• It is impossible to put the barcode on the products they sell.
Businesses that need a computer system to update the stock account by reading
the barcode will only occasionally know how much stock they have. They will only
know how much stock they have when they do a physical inventory count at the
end of the financial year.
Cost of sales equals:
Opening trading inventory

 Plus: Purchases (less purchases returns)
 Plus: Carriage/Railage/Freight on purchases
 Plus: Import tariffs
 Plus: Customs duties
Less: Closing trading inventory

46
Table 4: Comparison between the periodic and perpetual stock systems
Periodic System Perpetual System

Cost of Sales There is NO account called YES - the cost of sales
cost of sales because there is account is always used
no computer to record the because the computer
cost of each item sold. reads the barcode
showing the cost price
every time stock is sold.
Trading Stock There is NO account for This business can calculate
Deficit Trading Stock Deficit because how much has been stolen
the business does not know because the Trading stock
how much has been stolen. It account balance shows how
needs to know how much much stock should be on
stock it should have. the shelves.
{See Note below}
Note
Remember the following:
Table 5: Stock Systems
Activity

[ISBN: 978-1-432-70111-6]

47
6.4 WHICH SYSTEM IS BEST – PERPETUAL OR PERIODIC?
The perpetual and periodic inventory systems offer distinct advantages and
disadvantages. Read through this section in the prescribed textbook.
Summary
You should now clearly understand inventories, how they are measured and the
differences between Perpetual and Periodic inventory systems.

48
Topic 7
Bank Reconciliation
7.1 INTRODUCTION
• Explain the daily banking process used by entities.

• Explain the role and purpose of bank statements.
• Explain the role and purpose of bank reconciliations.
• Discuss the reasons for differences between an entity's bank balance and
bank statement balance.
• Identify the adjustments required to reconcile the bank account and
statement balance.
• Perform a complete bank reconciliation for an entity.
You should now clearly understand inventories, how they are measured and the
differences between Perpetual and Periodic Inventory Systems.
Reading
textbook:

[ISBN: 978-1-432-70111-6]
so.

49
7.2 RECONCILIATION
Reconciliation means to work out the differences between TWO ‘things’ that do
not agree. We need to find the reasons why they disagree. When this process is
finished, the two will still not agree, BUT we will know why, i.e., we have
reconciled them.
We will work with:
1. The Bank Statement is a copy of the entity account in the bank's books.
2. The cash journals record all money deposited into and paid out of the
entity's bank account in its books.
These two documents will only agree if there is a time delay. An entity makes
the deposit and cheque entries in its journals today, but the bank will only know
about them later.
A Bank Reconciliation Statement is a record of all the items that the bank still
needs to learn about and therefore, it shows why the Bank's balance in their
books does not agree with the Bank account balance in our General Ledger.
7.3 THE BUSINESS AND THE BANK
7.3.1 The daily banking process
The daily banking process is critical in the day-to-day running of a business. All
monies received must be banked daily; keeping money on the premises can only
lead to theft or fraud.
7.3.2 The bank statement
A bank statement is a report released (on a fixed date every month) by a bank
that lists deposits, withdrawals, cheques paid, interest earned, and service
charges or penalties incurred on an account. It shows the cumulative effect of
these transactions on the account's balance up to the date the report was
prepared.

50
7.4 THE BANK RECONCILIATION PROCEDURE
Why is it necessary to do the reconciliation procedure?
1. It is a control procedure. By checking internal records against external

documents received from the bank, the entity ensures that no errors
have been made in its books or the bank's books and that no fraud has
occurred.
2. It is necessary to update the cash journals with all the items the entity
was unaware of until the Bank Statement is received, e.g., bank charges,
R/D cheques, direct deposits, interest, etcetera. Hence, the entity’s bank
balance is accurate.
When does one do this reconciliation process?
It is done as soon as the Bank Statement is received, i.e., at the beginning of

the following month.
Note
An entity always assumes that the balance on the Bank Statement is a credit,
i.e., to its credit in the bank’s books. This is a favourable balance. If this is not
so, the bank will have a ‘DR’ or 'O/D' or minus sign next to the balance amount.
Study the steps outlined in the prescribed textbook or use the alternative
procedure below.

51
7.4 ALTERNATIVE STEPS THAT MAY BE FOLLOWED
Figure 17: The Bank reconciliation procedure
• The Bank Reconciliation Statement is made from the Bank's point of view
as it does not know about the outstanding items.
• There are only five items – learn them.
• OUTSTANDING means it still must happen.

52
Figure 18: Template for a Bank reconciliation statement
Activity

[ISBN: 978-1-432-70111-6]
Summary
After studying this topic, you should understand the context in which cash and
cash equivalents are dealt with.
Ensure you understand the fundamental concepts; you will need it as the
foundation to continue your studies.

53
Topic 8
The Control Accounts – Trade Receivable and
Trade Payables
8.1 INTRODUCTION
• Complete the subsidiary ledgers for Debtors and Creditors.

• Complete the Control accounts in the General ledger.
Reading
textbook:

[ISBN: 978-1-432-70111-6]
so.

54
8.2 THE SUBSIDIARY LEDGER
A subsidiary ledger contains the details to support a general ledger control

account. For instance, the subsidiary accounts receivable or payable ledgers
contain all the information on the credit sales to customers or purchases from
suppliers, all remittances, merchandise returns, discounts, and so on.
With these details in the subsidiary ledgers, the Accounts Receivable and Payable
accounts in the general ledger can be controlled. As a control account, it will
simply report the aggregate amounts of the accounts receivable or payable
activities.
8.3 THE STRUCTURE OF THE SUBSIDIARY LEDGERS FOR DEBTORS

AND CREDITORS
A company can better control its financial information by having the details of
the accounts receivable (Debtors) in a subsidiary ledger. For example, the credit
manager and others in a company's credit department will have access to all the
credit sales or purchase information through the subsidiary ledger without
accessing any other account in the entity’s general ledger.
However, in some instances, there is a need to track transactions within a single

account in more detail. This is accomplished by using the specific accounts in the
subsidiary ledgers (Debtors and Creditors ledgers).
8.2.1 Individual debtor’s accounts
Debtor’s Ledger
Figure 19: Format of Debtors Ledger Account

55
Activity
1. Study the format and notes in your prescribed textbook and work
through the associated examples and exercises.
[ISBN: 978-1-432-70111-6]
8.2.2 Individual creditor’s account
Figure 20: Format of a creditor’s ledger
8.4 THE CONTROL ACCOUNTS
A control account is a summary account in the general ledger. The control

account contains accumulated totals for transactions individually stored in
subsidiary ledger accounts.
Control accounts are most used for trade receivables and trade payables since
these accounts contain a large volume of transactions and need to be separated
into subsidiary ledgers rather than cluttering up the general ledger with too much
detailed information.
The balance in a control account should match the total for the related subsidiary
ledger. If the balance does not match, it is possible that a journal entry was
made to the control account but was not made in the subsidiary ledger.

56
Activity
1. Complete all the question activities in your prescribed textbook.

[ISBN: 978-1-432-70111-6]
Summary
At the end of this unit, you should be able to complete all journals and post to
all ledgers, including the Debtors and Creditors ledgers.

57
References
• Maritz, J. & Hibling, A.H. 2015. Accounting for general management I.

Cape Town: EDGE Learning Media.
• Myburgh, J.E., Fouché, J.P. & Cloete, M. 2012. Accounting: an
introduction. 11th ed. LexisNexis.

58

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Accounting for Managers

Please consult CANVAS@mySTADIO to confirm whether a prescribed textbook

There may also be reference to additional recommended reading material

A Glossary of terms may be provided at the end of this study guide.

It is your responsibility to regularly access CANVAS@mySTADIO to make sure

We encourage students to make use of the available resources on the STADIO

Our commitment to our students is to maintain friendly, fast and efficient

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STORE: Secondhand Books

The prescribed textbook for Accounting for Managers I (ACN100) is:

• Maritz, C. J., and Hibling, A. J. (2021), Fundamentals of Bookkeeping

This assignment is compulsory and must be submitted through CANVAS,

STEP 1: COMPLETING YOUR ASSIGNMENT

©STADIO Assignment – 2024 Semester 1 ACN100 – ACCOUNTING FOR MANAGERS I

STEP 2: SUBMITTING YOUR ASSIGNMENT ON CANVAS

1. Log in to CANVAS using your MySTADIO details:

PLEASE ENSURE THAT THE ANSWER THAT YOU SUBMIT IS IN MS WORD OR

©STADIO Assignment – 2024 Semester 1 ACN100 – ACCOUNTING FOR MANAGERS I

ACCOUNTING EQUATION AND VAT

Debit Balances: Bank R425 000

Assets(R) = Owner’s Equity(R) +

©STADIO Assignment – 2024 Semester 1 ACN100 – ACCOUNTING FOR MANAGERS I

©STADIO Assignment – 2024 Semester 1 ACN100 – ACCOUNTING FOR MANAGERS I

INVENTORY SYSTEMS, TRADE RECEIVABLES AND TRADE PAYABLES

©STADIO Assignment – 2024 Semester 1 ACN100 – ACCOUNTING FOR MANAGERS I

Debtors list as at 31 May 2023

Debtor Pre-adjustment balance (R)

3. The following errors/omissions were noted:

©STADIO Assignment – 2024 Semester 1 ACN100 – ACCOUNTING FOR MANAGERS I

Question 3 (35 marks)

1. The following bank reconciliation statement was drawn up on 31 May 2023

Details Amount (R)

Balance as per bank statement (unfavourable) 16 200

Outstanding deposit 2 400

Add EFT incorrectly debited twice on bank statement 2 900

Balance as per bank account ?

©STADIO Assignment – 2024 Semester 1 ACN100 – ACCOUNTING FOR MANAGERS I

Assignment Total: 100 Marks

©STADIO Assignment – 2024 Semester 1 ACN100 – ACCOUNTING FOR MANAGERS I

Heading Page number

TOPIC 1 INTRODUCTION TO BUSINESS, BOOKKEEPING AND ACCOUNTING 3

TOPIC 2 THE ACCOUNTING EQUATION AND THE DOUBLE ENTRY SYSTEM 11

TOPIC 3 VALUE ADDED DESK 21

TOPIC 4 RECORDING CASH TRANSACTIONS 29