BUSINESS ACCOUNTING

D E F I N A T I O N OF TERMS
B O O K K E E P I N G
I S T H E S Y S T E M A T I C R E C O R D I N G O F B U S I N E S S
TRANSACTIONS IN BOOKS OF ACCOUNTS

T R A N S A C T I O N S
A N Y BUSINESS ACTIVITY THAT CAN BE
VALUED IN TERM OF MONEY
A N Y E X C H A N G E T H A T I N V O L V E S M O N E Y

BOOKS OF ACCOUNTS

Are books in which transactions are recorded

They are made up of
1. Cash books
2. journals
 y
CASH BOOKS
Are subsidiary books used to record cash and cheques and cash received
It is used to make payments
It is prepared from receipts and cheques

TYPES OF CASH BOOKS

 Single column cash book –cash only
 Two column cash book-cash and cheques
 Three column cash book-cash, cheques and discounts
 Petty cash book –petty cash

 JOURNALS
 Are books of original entry used to record which occurs on credit
 These journals are
1. Sales journals[sales day book-credit sales]
2. Purchase journals[purchases day book- credit purchases]
3. Sales return journals[return inwards journals-goods returned by customers]
4. Purchases return journal[returns out wards-goods returned by us to suppliers]
5 general journal/journal proper
• It is used to record
1. Purchase of non current assets on credit
2. Sale or disposal of non current assets on credit
3. Writing of bad debts
4. Correction of errors
5. Any adjustments alterations of ledger accounts
Opening entries of business books

LEDGER
Is the main book of account in which transactions a recorded according to
The double entry of book keeping system

BUSINESS
 Is any activity done to generate profit
 It can be
a) Trading
b) Providing services
c) Manufacturing
d) Farming or mining
CAPITAL
Is the money and assets invested into the business by the owner
It is also known as the owners equity

DRAWINGS
Is the money or assets taken out of the business by the owner for personal
or private use
N.B the drawings account and the capital account are the personal account of
the owner

BUSSINES ASSETS
Are all resources owned by a business
 They are classified into
1. Current assets
2. Non current assets
CURRENT ASSETS

Are assets which have a short life span in the business

EXAMPLES
1. Inventory[stock]
2. Trade/accounts receivable[debts]
3. Prepaid expenses
4. Accrued revenues
5. Cash at bank
6. Cash in hand
7. Petty cash

NON-CURRENT ASSETS
Are assets which have a long life span in the business
They last for many years in the business

EXAMPLE
1. Tools and machinery
2. premises [land and buildings]
3. Furniture
4. Fixtures and fittings
5. Motor vehicles
6. Machinery

LIABILITIES
 Are all the amounts of money payable by a business
 Are all the amounts of money which a business owes other business and
Individuals
 They are divided into
I. Current liabilities
II. Non-current liabilities[long term]
CURRENT LIABILITY
Are amounts payable by a business within a year

1. EXAMPLES-trade payable[creditors]
2. bank overdraft
3. Accrued expenses
4. Loan payable in less than a year
5. Prepare revenue

NON-CURRENT LIABILITIE
 Are amount of money which a business owes other business which it must
Pay after more than one year

EXAMPLES
1. Loan
2. Mortgage
3. debenture
PURCHASES
Goods bought for resale

ACCOUNTS RECIEVABLE
Are business and individuals who care our business money[credit customers]

Accounts payable
Are business and individuals who owed money by our business
BUSINESS EXPENSES
Are day to day operating a business

EXAMPLES
1. Rents
2. Wages and salaries
3. Electricity charges
4. Insurance
5. Transport cost[carriage outwards]
ACCOUNTING EQUATION BALANCE SHEET EQUATION6/28/2018 7:47 PM
Is a equation which shows that the resources are equal to the resources
supplied into the business
The resources in the business are teamed assets whilst resources supplied into
the business are in the form of capital and liabilities
The accounting equation can be started as :
Assets=capital-simple accounting for a business which has no liabilities
Generally business have liabilities so the equation is as
1. Assets=capital+liabilities
2. Capital=assets-liabilities
3. Liabilities=assets-capital
assets liabilities capital
12 500 1 800 10 700
25 000 4 900 23 100
16 800 4 300 12 500
19 600 3 150 16 450
25 500 6 300 19 200
51 400 11 650 39 750
USES OF ACOUNTING INFORMATION

Are all stockholders of the business who makes use of the business when
making decision
These are;
1. Managers of the business
2. Creditors or suppliers of the business
3. The owners of the business
4. Government when charging taxes
5. Bank when the business want to know a loan or an over draft
6. The workers of the business when negotiating for a salary encreasement
7. Customers or debtors of the business
DOUBLE ENTRY
Is the recording of transactions in the ledger
It requires each transactions to be recorded twice
Double entry in other words is a principal observed when recording transactions
In the ledger
When conducting double entry we debit the receiver and credit the giver
For every debit entry made there is a corresponding credit entry

BALANCING OFF LEDGER ACCOUNTS

At the end of a period for example a month , six months or a year ledger
account are balanced off
This is done in order to come up with balances at the end of the period which
are then
1. Carried forward to the next period
2. Used to prepare a trial balance
TRIAL BALANCE
Is a list of all debit and credit account extracted from the ledger on a
particular date
The two sides of a trial balance should be equal to each other
All debit account balances are debited in the trial balance while credit
accounts balances are credited

PURPOSES OF A TRIAL BALANCE

1. To check the arithmetical accuracy of the ledger account
2. To provide a summary of a balance on a given date
3. To be used as a source of information for preparing final accounts
 An account is said to be having a debit balance when its debit side is
bigger than the credit side i.e. when balance b/d is in the debit side
 An account is said to be having a credit balance when its credit side is
smaller than the debit side i.e. when balance b/d is in the credit side .
THE FINAL ACCOUNTS OF A SOLE TRADER
The sole trader is a one man business i.e. a business owned and operatives
By one person

ADVANTAGES
1. All profits belong to the owner . He does not share profits with anyone
2. The owner makes quick decisions
3. The business requires less capital to start up
4. The business has less legal formalities
5. There is personal contact between the owner and the customers

DISADVANTAGES
6. The owner has no one to share loses with
7.