GBS 520

:FINANCIAL AND MANAGEMENT

ACCOUNTING

BY
BRYSON MUMBA
MBA, MAcc, FCCA, FZICA, DiCG, BSc(Hons)
Unit 3

Accounting Process

Part One
Unit Structure
• Accounting Cycle
• Steps in Accounting Process
• Posting Transactions
• Accounting Equation
• Double Entry System
Accounting Information System Management
Accounting
Reports

Inputs Processing Outputs

Source Documents Accounting

Cycle Financial Statements:
1. Statement of Financial
Position(Balance Sheet)
2. Statement of Comprehensive
Income(Income Statement)
3. Statement of Cash Flows
4. Statement of Owners’ Equity
 Steps in The Accounting Cycle

Analyze Journalize Post entries to Prepare a trial

source transactions in the accounts in balance.
documents. the general the Ledgers &
journal. general ledger.

Prepare financial
statements.
Prepare Management
reports
 The “BOOKS” in accounting
General Journal - Book used to
record transactions before recording JOURNAL
them in the accounts.
- Listing of transactions by date.
General Ledger - Binder of all the
accounts. (T or ledger format) -
Table of contents to the general ledger is
called the “Chart of Accounts”
Information ends up being recorded
twice. It’s just organized differently. LEDGER

Process of copying transactions from

journal to ledger is called POSTING
 The Account and its Analysis

An
An account
account isis aa
record
record ofof increases
increases The
The general
general ledger
ledger
and
and decreases
decreases in in aa isis aa record
record
specific
specific asset,
asset, containing
containing allall
liability,
liability, equity,
equity, accounts
accounts usedused byby
revenue,
revenue, or or expense
expense the
the company.
company.
item.
item.
Types of Ledger Accounts
• Asset Accounts
• Resources in a business – e.g. cash, debtors, motor vehicles
• Liability Accounts
• Amounts owed by the business for companies that have
supplied assets to the business – e.g. loans, creditors
• Equity/Capital Accounts
• Amounts put into the business by owners e.g. share capital,
retained earnings
• Expenses Accounts – e.g. salaries, telephones,
• Revenue or Sales accounts – e.g. cash sales, credit sales
 Ledger and Chart of Accounts
The ledger is a collection of all accounts for an
information system. A company’s size and
diversity of operations affect the number
of accounts needed.

The chart of accounts is a list of all accounts and

includes an identifying number for each account.
101 Cash 319 Dividends
106 Accounts receivable 403 Consulting Revenues
126 Supplies 406 Rental revenue
128 Prepaid insurance 622 Salaries expense
167 Equipment 637 Insurance expense
201 Accounts payable 640 Rent expense
236 Unearned revenue 652 Supplies expense
307 Common stock 690 Utilities expense
318 Retained Earnings
 THE ACCOUNTING EQUATION
• By adding up what the accounting records say
belongs to a business and deducting what they
say the business owes, you can identify what
the business is worth according to the
accounting records.
• The whole of financial accounting is based upon
this very simple idea.
• It is known as the accounting equation.
• It can be explained as follows;
 THE ACCOUNTING EQUATION
• If the business is to be set up and start
trading, it will need resources.
• Assuming it is the owner of the business
who supplied all of the resources.
• This can be shown as :
Resources in the business = Resources
supplied by the owner
ACCOUNTING EQUATION
THE ACCOUNTING EQUATION CONTINUED
• Resources owned by the business are
called ASSETS.
• Resources supplied by the owner is called
CAPITAL
• This means if the owner has supplied all
the resources ,the accounting equation
can be shown as Assets = Capital
ACCOUNTING EQUATION
THE ACCOUNTING EQUATION CONTINUED

• Usually however , lenders other than the

owner have supplied some of the assets.
• The accounting equation changes to :
• Assets = Capital + Liabilities
• The two sides of the equation will have the
same totals.
ACCOUNTING EQUATION
 THE ACCOUNTING EQUATION
Assets = Capital + Liabilities

Alternatively

Resources: what they are = Resources :who supplied

them

(Assets) = (Capital + Liabilities)

 THE STATEMENT OF FINANCIAL
POSITION OR BALANCE SHEET
• The accounting equation is
expressed in a financial position
statement or Balance sheet.
• Listing all the assets on one side and
the capital and liabilities on the other
side.
 EXAMPLE 1 INTRODUCTION OF CAPITAL
• On 1ST January 2019 James started a business
called Jamo Ltd.
• James deposited K160,000 as Share Capital
into a bank account opened specially for the
business at Zanaco.

Required:
• Show Jamo Ltd’s statement of financial position
as at 1st January 2019
EXAMPLE 1 INTRODUCTION
OF CAPITAL
• Effect of the transaction is to increase the
asset called Bank Account by K160,000 and
the Share Capital by K160,000.
 EXAMPLE 1 INTRODUCTION OF CAPITAL
Jamo Ltd
Statement of financial position
as at 1 January 2019
Assets: K

Cash at bank 160,000

=
Capital 160,000

Note: The accounting equation balances 160,000 = 160,000

EXAMPLE 2 ACQUISITION OF AN ASSET BY
CHEQUE
• On 3 January 2019 Jamo Ltd buys a van
for K 32,000 paying by cheque .

Required:
• Show Jamo Ltd’s statement of
financial position as at 3rd January
2019
EXAMPLE 2 ACQUISITION OF AN ASSET BY
CHEQUE

• The effect of this transaction on the statement

of financial position is that the asset Bank is
decreased by K32,000 and is replaced by a
new asset Van worth K32,000;
EXAMPLE 2 acquisition OF AN ASSET BY
CHEQUE

Jamo Ltd
Statement of financial position
as at 3 January 2019
Assets: K
Van 32,000
Cash at bank 128,000
Total assets 160,000
=
Capital 160,000
Note: The accounting equation balances 160,000 = 160,000
 EQUALITY OF THE ACCOUNTING
EQUATION
• It can be seen that every transaction has
affected two items.
• Sometimes it has changed two assets by
reducing one and increasing the other.
• In other cases it has different effects.
• The accounting equation has held true
throughout the examples ,and it always
will.
THE DOUBLE ENTRY SYSTEM
The double entry system of accounting is
characterised by the following features:
• Each transaction requires two entries to be made
• Each transaction requires
• One debit entry
• One credit entry.
•For each transaction this means that a bookkeeping
entry will have to be made to show an increase or
decrease of one element and another entry to show
the increase or decrease of the other element
 THE DOUBLE ENTRY SYSTEM

• Instead of constantly drawing up statements of

financial position after each transaction ,what we have
instead is the double entry system.
• The basis of this system is that the transactions which
occur are entered in a set of accounts within the
accounting books.
• An account is a place where all the information
referring to a particular ELEMENT(asset, liability,
expense, Income or to capital) is recorded.
• Thus there will be an account where all information
relating to specific transactions will be entered.
 THE ACCOUNTS FOR DOUBLE ENTRY

• Each account should be shown on a separate page in

the accounting books.
• The double entry system divides each page into two
halves.
• The left hand side of each page is called the DEBIT
side.
• While the right hand side is called the CREDIT side
• The title of each account is written across the top of the
account at the centre.
• The layout of a page of an accounts book can be
shown as follows:
General Ledger Account
T-Account Format

Account Name
Debit Credit

For the sake of simplicity, we often use this format in

teaching accounting even though it is no longer used
in practice as it is now done on Computer using
accounting packages such as Pastel, ACCPAC.
The T-Account

Increases to the T-
account are recorded on
one side of the T-
Account Name
account, and decreases
are recorded on the Debit Credit
other side.
The T-Account

The side which

increases and the side
which decreases is Account Name
determined by the
type of account. Debit Credit
 What Are Debits and Credits?
• Debit refers to the LEFT and Credit to the RIGHT side
of the T-Account.
• Debit and Credit are neutral terms and do not
connote value judgments. Neither is “good” or “bad”!
• debits and credits are used to increase or decrease
account balances.
• Determining whether to use a debit or credit to
record an increase or decrease depends on the type
of account in question.
• The Balance Sheet equation is the basis for the
determination.
RULES FOR DOUBLE ENTRY BOOKKEEPING
The rules for double entry bookkeeping are outlined in
the following table:

Account Type To Increase the To reduce the

Account Account
Assets Debit Credit
Expenses Debit Credit

Capital Credit Debit

Liabilities Credit Debit
Income Credit Debit
 RECORDING ACCOUNTING TRANSACTIONS PROCEDURE

1. Identify the affected elements

2. Check whether the T-Accounts for each identified
Element exists already. If NOT create it
3. Make the correct entries into the affected T-Accounts
using the Double Entry Rules.
4. In making the entries ensure that you include the
Date, Detail and Amount in the T-Account
5. Detail should represent the name of the T-Account
where the other entry is taken
 COMPREHENSIVE EXAMPLE

Record the following

transactions in the books of
Moyo Ltd:
COMPREHENSIVE EXAMPLE
2019  
July 1 Mrs L. Moyo started business called Moyo Ltd and deposited K5,500
in bank as share capital
July 2 Purchased goods for resale on credit for K 540 from Trade Kings
July 5 Recorded sales on credit for K450 to Chongwe Council
July 6 Paid rent on office premises by cheque for K450
July 10 Withdrew K800 from bank for use in cash till
July 14 Recorded sales for K180 in cash
July 22 Paid insurance in cash K45
July 23 Goods returned valued at K180 were returned by Chongwe Council
July 27 Bought delivery van on credit from Toyota (Z) Ltd for K2,500
July 31 Paid sundry expenses K67 cash
2019  
July 1 Mrs L. Moyo started business called Moyo Ltd and
deposited K5,500 in bank as share capital

1. Identify the affected elements

2. Check whether the T-Accounts for each identified
Element exists already. If NOT create it
3. Make the correct entries into the affected T-Accounts
using the Double Entry Rules.
4. In making the entries ensure that you include the Date,
Detail and Amount in the T-Account
5. Detail should represent the name of the T-Account
where the other entry is taken
2019  
July 1 Mrs L. Moyo started business called Moyo Ltd and
deposited K5,500 in bank as share capital

Capital a/c
Date Detail Amount Date Detail Amount
01-Jul-19 Bank 5500
 
 
 
 

Bank a/c
Date Detail Amount Date Detail Amount
01-Jul-19 Capital 5,500
 
 
 
 
2019  
July 2 Purchased goods costing K 540 on credit from
Trade King

1. Identify the affected elements

2. Check whether the T-Accounts for each identified
Element exists already. If NOT create it
3. Make the correct entries into the affected T-Accounts
using the Double Entry Rules.
4. In making the entries ensure that you include the Date,
Detail and Amount in the T-Account
5. Detail should represent the name of the T-Account
where the other entry is taken
2019  
July 2 Purchased goods costing K 540 on credit from
Trade King

Purchases a/c
Date Detail Amount Date Detail Amount
2019/2/7Trade King 540
 
 

Trade Kings
Date Detail Amount Date Detail Amount
  2019/2/7Purchases 540
 
2019  
July 5 Recorded sales on credit for K450 to Chongwe
Council

1. Identify the affected elements

2. Check whether the T-Accounts for each identified
Element exists already. If NOT create it
3. Make the correct entries into the affected T-Accounts
using the Double Entry Rules.
4. In making the entries ensure that you include the Date,
Detail and Amount in the T-Account
5. Detail should represent the name of the T-Account
where the other entry is taken
2019  
July 5 Recorded sales on credit for K450 to Chongwe
Council

Sales a/c
Date Detail Amount Date Detail Amount

  19/07/2019 Chongwe Council 450

Chongwe Council
Date Detail Amount Date Detail Amount

19/07/2019 Sales 450

 
July 6 Paid rent on office premises by cheque for K450

1. Identify the affected elements

2. Check whether the T-Accounts for each identified
Element exists already. If NOT create it
3. Make the correct entries into the affected T-Accounts
using the Double Entry Rules.
4. In making the entries ensure that you include the Date,
Detail and Amount in the T-Account
5. Detail should represent the name of the T-Account
where the other entry is taken
July 6 Paid rent on office premises by cheque for K450

Bank a/c
Date Detail Amount Date Detail Amount
01-Jul-19Capital 5,500 2019/6/7Rent 450
 

Rent a/c
Date Detail Amount Date Detail Amount
2019/6/7Bank 450
 
2019  
July 10 Withdrew K800 from bank for use in cash till

1. Identify the affected elements

2. Check whether the T-Accounts for each identified
Element exists already. If NOT create it
3. Make the correct entries into the affected T-Accounts
using the Double Entry Rules.
4. In making the entries ensure that you include the Date,
Detail and Amount in the T-Account
5. Detail should represent the name of the T-Account
where the other entry is taken
2019  
July 10 Withdrew K800 from bank for use in cash till

Bank a/c

Date Detail Amount Date Detail Amount

01-Jul-19Capital 5,500 2019/6/7Rent 450

  2019/10/7Cash 800
 
Cash A/c

Date Detail Amount Date Detail Amount

2019/10/7Bank 800
2019  
July 14 Recorded sales for K180 in cash

1. Identify the affected elements

2. Check whether the T-Accounts for each identified
Element exists already. If NOT create it
3. Make the correct entries into the affected T-Accounts
using the Double Entry Rules.
4. In making the entries ensure that you include the Date,
Detail and Amount in the T-Account
5. Detail should represent the name of the T-Account
where the other entry is taken
2019  
July 14 Recorded sales for K180 in cash

Cash A/c
Date Detail Amount Date Detail Amount

2019/10/7Bank 800

14/07/2019 Sales 180

Sales a/c
Date Detail Amount Date Detail Amount

  19/07/2019 Chongwe Council 450

  14/07/2019 Cash 180

 
2019  
July 22 Paid insurance in cash K45

1. Identify the affected elements

2. Check whether the T-Accounts for each identified
Element exists already. If NOT create it
3. Make the correct entries into the affected T-Accounts
using the Double Entry Rules.
4. In making the entries ensure that you include the Date,
Detail and Amount in the T-Account
5. Detail should represent the name of the T-Account
where the other entry is taken
2019  
July 22 Paid insurance in cash K45

Insurance
Date Detail Amount Date Detail Amount
22/07/2019 Cash 45
 
 
Cash A/c
Date Detail Amount Date Detail Amount

2019/10/7Bank 800 22/07/2019 Insurance 45

14/07/2019 Sales 180

2019  
July 23 Goods that had been sold to Chongwe Council for
K180 were returned.

1. Identify the affected elements

2. Check whether the T-Accounts for each identified
Element exists already. If NOT create it
3. Make the correct entries into the affected T-Accounts
using the Double Entry Rules.
4. In making the entries ensure that you include the Date,
Detail and Amount in the T-Account
5. Detail should represent the name of the T-Account
where the other entry is taken
2019  
July 23 Goods that had been sold to Chongwe Council for
K180 were returned.

Returns inwards a/c

Date Detail Amount Date Detail Amount
Chongwe
23/07/2019 Council 180
 
Chongwe Council
Date Detail Amount Date Detail Amount

19/07/2019 Sales 450 23/07/2019 Returns inwards a/c 180

2019  
July 27 Bought delivery van on credit from Toyota (Z) Ltd for
K2,500

1. Identify the affected elements

2. Check whether the T-Accounts for each identified
Element exists already. If NOT create it
3. Make the correct entries into the affected T-Accounts
using the Double Entry Rules.
4. In making the entries ensure that you include the Date,
Detail and Amount in the T-Account
5. Detail should represent the name of the T-Account
where the other entry is taken
2019  
July 27 Bought delivery van on credit from Toyota (Z) Ltd for
K2,500

Delivery Van a/c

Date Detail Amount Date Detail Amount
27/07/2019 Toyota Z Ltd 2500
 
 
Toyota Zambia
Date Detail Amount Date Detail Amount
27/07/2019 Delivery Van 2500
 
 
2019  
July 31 Paid sundry expenses of K67 in cash

1. Identify the affected elements

2. Check whether the T-Accounts for each identified
Element exists already. If NOT create it
3. Make the correct entries into the affected T-Accounts
using the Double Entry Rules.
4. In making the entries ensure that you include the Date,
Detail and Amount in the T-Account
5. Detail should represent the name of the T-Account
where the other entry is taken
2019  
July 31 Paid sundry expenses of K67 in cash

Cash A/c
Date Detail Amount Date Detail Amount

2019/10/7Bank 800 22/07/2019 Insurance 45

14/07/2019 Sales 180 31/07/2019 Sundry Expenses 67

Sundry Expenses
Date Detail Amount Date Detail Amount
31/07/2019 Cash 67
 
SOLUTION COMPREHESIVE
EXAMPLE
Share Capital Account
2019   K 2019   K
      July 1 Bank 5,500

Bank Account
2019   K 2019   K
Jul 1 Share Capital 5,500 Jul 6 Rent 450
      Jul 10 Cash 800
 SOLUTION COMPREHESIVE
EXAMPLE
Purchases Account
2019   K 2019   K
Jul 2 Trade King 540      
Sales Account
 
K 2019   K
   
  Jul 5 Chongwe 450
Council
   
  Jul 14 Cash 180
Chongwe Council
2019   K 2019   K
Jul 5 Sales 450 Jul 23 Returns inwards 180
 SOLUTION COMPREHESIVE EXAMPLE
Trade King Account
2019   K 2019   K
      July 2 Purchases 540
Rent Account
2019   K 2019   K
Jul 6 Bank 450      
Cash Account
2019   K 2019   K
Jul 10 Bank 800 Jul 22 Insurance 45
Jul 14 Sales 180 Jul 31 Sundry 67
expenses
 SOLUTION COMPREHESIVE
EXAMPLE
Returns inwards Account
2019   K 2019   K
Jul 23 Chongwe 180      
Council
Insurance Account
2019   K 2019   K
Jul 22 Cash 45      
 SOLUTION COMPREHESIVE
EXAMPLE
Toyota (z) Ltd Account
2019   K 2019   K
      Jul 27 Van 2,500
Van Account
2019   K 2019   K
Jul 27 Toyota(Z) 2,500      
Ltd
Sundry expenses Account
2019   K 2019   K
Jul 31 Cash 67      
NEXT STEPS
•Summarising:
1. Balancing off accounts
2. Extraction of Trial Balance
3. Period End Adjustments
THE END

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