Bookkeeping And Accountancy Made Simple E-Book

Peter Osalor

• Herausgeber: POSAG International Ltd
• Kategorie: Fachliteratur
• Sprache: Englisch

Veröffentlichungsjahr: 2023

Beschreibung

Most small and medium scale businesses fail because of either no records or incomplete records.

Our target in this manual is to ensure that at the end of careful study of this material, readers should be able to appreciate the importance of keeping proper accounting or business records and be able to:
Prepare a simple financial statement of a business,
Know how to keep complete records of business events,
Prepare monthly payroll for staff salaries,
Account for value added tax or sales tax
Differentiate between capital expenditure and revenue expenditure
And Much More

Leseprobe

BookkeepingAndAccountancy MadeSimple

ForOwnerManagedBusinesses,StudentsAndYoungEntrepreneurs

PeterOsalor

Contents

INTRODUCTION

CHAPTERONE

DefinitionofAccountingTerms

CHAPTERTWO

PrinciplesofAccountsandConcept

CHAPTERTHREE

PurposeofBookkeeping

CHAPTERFOUR

BasicofBookkeeping

DoubleEntryBookkeeping

PrinciplesofDoubleEntry

DoubleEntrySystemrules

FinancialdocumentsBooksoforiginalentryand Ledgers

1.​TYPESOF BOOKSOF ORIGINALENTRY

2.​DETAILSTOBEENTEREDINTHESE BOOKS

3.​TYPESOF LEDGER

4.​TYPESOF ACCOUNTS

DiagramofthisBooksofcommonlyused

AccountingProcess/Phases/Stages

ProcessofBookkeepingsystem

Step8–StatementofFinancialPosition(Balancesheet)

DocumentsinBookkeeping

Thebasis forRecordingfrom sourcedocuments

CHAPTERFIVE

Bookkeepingfromsourcedocuments

AccountingforCashandCreditsales

EnteringCreditsalesintosalesdaybook

Example3–EnteringSalesinvoicesinSalesDayBook

PostingcreditsalesintoCreditsalesledgerandgeneralledgerfromthesalesdaybook(fromsales daybooktoaccountofcustomerinsalesledger)

TradediscountsandCashdiscounts

Accountingforsalesreturns(Returninwardsand Credit note)

Example4-EnteringCreditnotesinSalesReturnsDay Book

PostingfromsalesreturnDaybooktoSalesLedger and General Ledger

DoubleEntryforSalesandTradereceivables

TradeDiscount/SettlementDiscount/BulkDiscount

AccountingforaCashandCreditPurchase

•​ENTER INVOICES INTO THE PURCHASE DAYBOOK

Example5–EnteringPurchaseinvoicesinPurchase Day Book

PostingCreditPurchasesintoCreditPurchase LedgerfromthePurchaseDaybook(fromPurchaseDaybooktoaccountofsupplierinPurchaseLedger)

Accounting for Purchase Returns (Return Outwards)andCreditNote

EnterCreditNoteinPurchasesReturnDayBook

Example6-EnteringCreditnotesinPurchaseReturns Day Book

PostingfromPurchasesReturnDayBookto PurchasesLedgerandGeneralLedger

Double Entry for Purchases and Creditors (Payables)

ProcessforCashbook

AccountingforCashbook

•​CASHBOOKDEBITSIDERECORDS:

•​CASHBOOK(CREDITSIDE)

•​DISCOUNT

•​ACCOUNTINGFORDISCOUNTALLOWEDAND RECEIVED

DoubleEntryforCash/BankreceivedfromTrade receivables(Customers/TradeDebtors)

EXAMPLE7–Cashreceiptfromtradereceivables (customers)

EXAMPLE9

DoubleEntryforCash/BankpaymenttoTrade Payables(Suppliers/TradeCreditors)

ProcessforPettyCashbook

BookingandAccountingforPettyCash

DoubleEntryforPettyCashpayments

Example 14 – Enteringpetty cashexpenditures

■​BALANCINGOFACCOUNTS

■​DEBITBALANCE

■​CREDITBALANCE

Balancingoffaccountstodeterminethebalances

1.​SALESLEDGER

2.​PURCHASESLEDGER

3.​SALESACCOUNT

4.​SALESRETURNACCOUNT

5.​PURCHASESACCOUNT

6.​PURCHASESRETURNACCOUNT

7.​CASHBOOK

8.​PettyCashbook

BankReconciliation

ReconcileCashbookbalanceswiththeBank Statementbalances

•​BANKRECONCILIATION

HowtoprepareBankReconciliation

Format1forBankReconciliationStatement

Format2forBankReconciliationStatement

Three–ColumnAccounts

BankReconciliation(CashbookBankAccount/ Bank Statements)

EXAMPLE–15BANKRECONCILIATION STATEMENT

CHAPTERSIX

ControlAccounts

PrinciplesofControlAccounts

SalesLedgerControl(DebtorsControl/Account Receivable)

PurchaseLedgerControl(Creditors/Account Payable)

TradeReceivables(TradeDebtorsControl Account)

CHAPTERSEVEN

Preparing Financial Statement from Incomplete records

PreparingaStatementofAffairs(SOA)

StepsinvolvedinpreparingaStatementofAffairs

Introducing Cash Book in the Single Entry Accounting system

RelationshipbetweenMark-UpandMargin

AdvantagesofDoubleEntryoverSingleEntry

DisadvantagesofSingleEntry

CHAPTEREIGHT

TrialBalance

HowtoprepareaTrialBalance

ErrorsinTrialBalance

CHAPTERNINE

IncomeStatement(ProfitandLossAccount)

NetSales

CostsofGoodsSold

DoubleEntryforIncomeStatement

IncomeStatement(ProfitandLossAccount)

CHAPTERTEN

StatementofFinancialPosition(BalanceSheet)

DoubleEntryforStatementofFinancialposition

CHAPTERELEVEN

VAT

DoubleEntryforsale

DoubleEntryforExpenditure(Purchaseand Expenses)

DoubleEntrywhereVATcannotberecoveredor BusinessnotregisteredforVAT

VATAccountformat

Example12-VATanddouble-entrybookkeeping

Example14–ComplicationinVATcalculation (to determine vat from gross)

Example15–VATanddiscount

CHAPTERTWELVE

Payroll

AccountingforPayroll

Analysis of PayrollRecordingofPayroll

EmployersTaxJournal

PaytheemployeetheNetPay

PaytheTaxtotheTaxAuthorities

Payoverthedeductions

Postingfor Employee NetPay

PostingofTaxtoTaxAuthorities

CHAPTERTHIRTEEN

CapitalandRevenueExpenditure Capital Expenditure

RevenueExpenditure

ImportanceofclassificationasRevenueandCapital Expenditure

CapitalreceiptsandRevenuereceipts

CHAPTERFOURTEEN

AccountspreparationsfromSourceDocuments

Invoicemethod

Cashmethod

Cashandinvoicemethod

StepsinPreparingAccounts

I.​Planning

•​The Addressofthebusiness

•​Companyregistrationnumber ofthebusiness

•​Thenameoftheshareholdersandtheirshareholding inthe company

•​Theprincipalactivitiesofthebusiness(Themain activity ofthe business)

•​The accountingperiod ofthebusiness

•​Source documents

II.​Preparing theaccounts

1.​Procedure1- Checking for completeness andextractinginformationfrom previousaccounts

2.​Procedure 2– Enter thedetailsofthecompany

3.​Procedure 3– Openingbalances

4.​Procedure4–Analyseandsummarisethe Cashbook (banktransactions)

AnalysisofBankPayments:

AnalysisofBankReceipts:

Bankreconciliation:

5.​Procedure 5–AnalysisofPettycashbook

6.​Procedure 6–AnalysisofCreditCardStatements

7.​Procedure 7–AnalysisofSales andPurchaseDay books

8.​Procedure 8–AnalysisofVAT

9.​Procedure 9–AnalysisofPayroll

10.​Procedure 10–FixedAssetSchedule

11.​Procedure11–HirePurchaseandLongtermloan interest

12.​Procedure 12– Journals

13.​Procedure 13–ControlAccounts andLead Schedules

CHAPTERFIFTEEN

BusinessPlan

Beforeyoustartyourbusinessplan:

Aboutyourbusinessorganisationorstructure

Writingthebusinessplan

1.​Title PageandTableofContents

Concludingthebusinessplan

SAMPLEQUESTIONS

BOOKSBYTHEAUTHOR

INTRODUCTION

Most small and medium scale businesses fail because of either no records or incomplete records.

Our target in this manual is to ensure that at the end of carefulstudy of this material, readers should be able to appreciate theimportance of keeping proper accounting or business records andbe able to:

✓Prepare a simple financial statement of a business,

✓Know how to keep complete records of business events,

✓Prepare monthly payroll for staff salaries,

✓Account for value added tax or sales tax

✓​Differentiatebetweencapitalexpenditureandrevenue expenditure

✓Etc.

At last, the non-accountant entrepreneurs will now find easy thepreparationofaprofitstatementfromthesourcedocumentsthrough various books of prime entry to ledger, trial balance andfinancial statement.

The main essence of preparing a financial statement for an entityistoreportontheentity’sfinancialperformanceorresults,financial position and the cash flow to the management of theentity and other interested users to enable them to make soundeconomic decisions. To do this, a business owner needs to put somany controls in place (financial or otherwise) to establish fullrecord keeping.

This manual will also assist numerous business owners, who arewillingly to pay income taxes but due to their inability to keeprecords for the ascertainment of profit or loss, they default in thisresponsibility.

Many business owners have not been able to apply for short termfinance because of no accounts or financial statements. Banks and other lenders want to see a business financial statement that willgive them information about the ability of the entity to pay backthe loan and interest when they fall due. Nobody will give a short term loan to a business that keeps no records.

Some business owners keep track of transactions by collectingnotes, receipts, invoices and the like in a shoebox. At the end oftheyeartheyhandtheshoeboxovertotheiraccountantand probablypaylargeamountsforthefinalaccountstobeextracted. Thereisabetterway.Bookkeepingistheskillofkeeping track of all transactions as they occur in a logical andsystematic way.

A good bookkeeper will:

1.Make use of an appropriate bookkeeping package such as expressaccounts(seenotebelowforthemeaningofexpress accounts)

2.Understand transactions and know how they should beentered.

3.Enter transactions on a regular basis.

4.Reconcilestatementsastheyarereceived.Themostimportant of these statements are the bank statements.

5.Prepare reports as and when they are required.

6.Retainoriginaldocumentation(invoices,etc.)ina systematic way.

7.Understand the big picture and recognize problem areas.

Note: Express Accounts is a professional business accountingsoftware, perfect for small businesses needing to document andreport on incoming and outgoing cash flow including sales,receipts, payments and purchases.

EasilytrackpaymentsanddeposittransactionsViewbalancesandreportstoseehowyourbusinessisdoingEmailorfaxreportsdirectlytoyouraccountant

Basic bookkeeping involves transactions, accounts and reports.

✓A transaction is an exchange of value – for example, the sale of an ice-cream is a transaction.

✓Anaccountisacollectionofsimilarrecords.Forexample, all sales for cash might be recorded in the CashAccount.

✓A report is a statement that summarizes certain accountsor transactions at a certain time or for a certain period.

✓Accounts, transactions and reports will be dealt with ingreater detail in this manual. There will also be manyexamples given.

Bookkeeping Conventions

DoubleEntryBookkeeping

Every money transaction is recorded in two different accounts inthe ledger. This is recognition of the fact thatthere are alwaystwo sides to every transaction. If Malabo lends me $5 then mycash account will increase by $5 and the Malabo account mustshow that I owe her $5. By convention the two entries have to bemade on opposite sides. If the entry in the cash account is on theleft-hand-side (LHS) then the entry in the Malabo account mustbe made on the right hand side (RHS). At any stage the totals ofall of the entries into the LHS must be the equal to the totals of all the entries into the RHS. The system must be in balance.

Fortunately,thedoubleentrysystemisvastlysimplifiedbyaccountingsoftwarepackagesincluding-ExpressAccounts.

Normallyasingleentryinanappropriate“journal”isallthatis

required when using software.

•Debit and Credit.

The money entries in an account can be entered in either the lefthand column or the right hand column. Beginners often find itdifficult to understand in which column to place an entry.

The left hand column in an account is called the Debitcolumn and the right hand column is called the Creditcolumn.

Money that you receive goes on the debit column of thecash account. Money that you pay goeson the creditcolumn ofthe cash account. The debit/creditnature of all other transactions can be determined by comparingtheir similarity to this simple transaction. IfI sell goodsto John for $10 cash. I would receive $10 and my cashaccount would be debited. Sales would be credited. Notethat in this case I do not have to record anything underJohn's name as he paid in cash. If, however, he bought on account, the transaction would be similar in that Saleswould be credited and John would be debited. Thus itturns out that people who owe me money have mainlydebit entries in their account.

DifferentViewfromDifferentColumnConfusion.

When we receive our Bank Statement each month, it will show a credit balance if we have money in the bank. This is from the bank's viewpoint. The bank sees us as theircreditor because they owe us money. However in ourbooksourbankaccountshouldshowadebitbalance.Thusacreditentryinouraccountatthebankisreflected by a debit entry in the Bank Accountin our books.

We explained earlier that a transaction is an exchange of moneyor an exchange of value. They say in science “What goes up must comedown“butinbookkeepingamoreaccurateexpression wouldbe“Ifoneaccountgivesthenanotheraccountmustreceive” or “When one account is debited another account mustbe credited”.

The bookkeeper must spend much of his time listing transactionsin such a way that shows which account is to be debited andwhich account is to be credited,– this is done in the Journal.Each entry in the Journal must be transferred to an entry in twodifferent accounts in the ledger.

In the old days this transfer had to be done manually and manymistakes were made by transferring wrong amount to one of theaccounts. These days most bookkeepers use software packagessuchasExpressAccountsandthetransferishandledautomatically.

The term bookkeeping means different things to different people:

Somepeoplethinkthatbookkeepingisthesameasaccounting. They assume that keeping a company's books and preparing its financial statements and tax reports areall part of bookkeeping. Accountants do not share theirview.

Others see bookkeeping as limited to recordingtransactionsinjournalsordaybooksandthenpostingtheamounts into accounts in ledgers. After the amounts areposted, the bookkeeping has ended and an accountantwithacollegedegreetakesover.Theaccountantwill

make adjusting entries and then prepare the financial statements and other reports.

Thepastdistinctionsbetweenbookkeepingandaccountinghavebecomeblurredwiththeuseofcomputersandaccountingsoftware.Forexample,apersonwithlittlebookkeepingtrainingcanusetheaccounting software to record vendor invoices, preparesalesinvoices,etc.andthesoftwarewillupdatetheaccounts in the general ledger automatically. Once theformat of the financial statements has been established,thesoftwarewillbeabletogeneratethefinancialstatements with the click of a button.

At mid-size and larger corporations the term bookkeeping mightbeabsent.Oftencorporationshaveaccountingdepartments staffed with accounting clerks who processaccounts payable, accounts receivable, payroll, etc. Theaccountingclerkswillbesupervisedbyoneormoreaccountants.

Our explanation of bookkeeping attempts to provide you with anunderstandingofbookkeepinganditsrelationshipwithaccounting.Ourgoalistoincreaseyourknowledgeand confidence in bookkeeping, accounting and business. In turn, wehope that you will become more valuable in your current andfuture roles.

Priortocomputersandsoftware,thebookkeepingforsmallbusinessesusuallybeganbywritingentriesintojournals.Journals were defined as the books of original entry. In order toreduce the amount of writing in a general journal, special journals or daybooks were introduced. The special or specialized journalsconsistedofasalesjournal,purchasesjournal,cashreceiptsjournal, and cash payments journal.

The company's transactions were written in the journals in dateorder. Later, the amounts in the journals would be posted to thedesignated accounts located in the general ledger. Examples ofaccounts includeSales, RentExpense,WagesExpense, Cash,Loans Payable, etc. Each account's balance had to be calculatedand the account balances were used in the company's financialstatements.In addition to thegeneralledger, acompany mayhavehadsubsidiaryledgersforaccountssuchasAccountsReceivable.

Handwriting the many transactions into journals, rewriting theamounts in the accounts, and manually calculating the accountbalanceswouldlikelyresultinsomeincorrectamounts.Todeterminewhethererrorshadoccurred,thebookkeeperprepared a trial balance.

A trial balance is an internal report that lists 1) each accountname,and2)eachaccount'sbalanceintheappropriatedebit column or credit column. If the total of the debit column did notequal the total of the credit column, there was at least one erroroccurringsomewherebetweenthejournalentryandthetrialbalance. Finding the one or more errors often meant spendinghours retracing the entries and postings.

After locating and correcting the errors the bookkeeping phasewas completed and the accounting phase began. It began with anaccountantpreparingadjustingentriessothattheaccountsreflected the accrual basis of accounting. Adjusting entries werenecessary for the following reasons:

✓additionalrevenuesandassetsmayhavebeenearnedbut were notrecorded

✓additionalexpensesandliabilitiesmayhavebeen incurred butwere not recorded

✓someoftheamountsthathadbeenrecordedbythebookkeeper may have been prepayments which are nolonger prepaid

✓depreciation and other non-routine adjustments needed to be computed and recorded

After all of the adjustments were made, the accountant presentedthe adjusted account balances in the form of financial statements.

After each year's financial statements were completed, closingentries were needed. The purpose of closing entries is to get thebalancesinalloftheincomestatementaccounts(revenues,expenses) to be zero before the start of the new accounting year.The net amount of the income statement account balances wouldultimately be transferred to the proprietor's capital account or tothe stockholders' retained earnings account.

Summarily, keeping appropriate business transaction details willfacilitate easy preparation of financialstatementswhich revealthe profitability, liquidity, capital mix and financial risk positionof an entity.

CHAPTER ONE

DefinitionofAccountingTerms

Books of Prime Entry – the books in which details of theorganisation’stransactionsareinitiallyrecordedpriortoentryinto the ledger accounts. It is also called books of first entryorbooks of originalentry.DayBooks-anothernameforbooksofprimeentryLedger – is the principal book of account in which alltransactionsareultimatelyrecordedindoubleentryform.There are different types of ledgers and they contain theaccountsofthe company.Ledger Account - is a page or space in the ledger devotedsolely to transactions of a particular kind or with a particularperson.Forinstance,anaccountof‘’PeterOsalor’’isaspacein the ledger in which all transactions with Peter Osalor arerecorded.SalesDayBook–isabookoforiginalentryinwhichnon-cash sales (i.e. credit sales) are recorded with details ofcustomer, invoice, amount and date; these details are laterpostedtoeach customer'saccount inthesalesledger.PurchasedayBook–it isabookof original entryinwhichnon-cash purchases (i.e. credit purchases) are recorded withdetailsofsupplier,purchaseinvoice,amountanddate;thesedetails are later posted to each suppliers account in thepurchaseledger.SalesReturnDaybook–itisabookofprimeentry.It isthe primary record for recording credit notes sent to creditcustomers

Purchases Return Day Book –it is a book of first entry. It is the primary record for recording credit notes received from credit suppliers

Analysed Sales Day book - a Sales Day Book where the net figures are analysed into the different types of sales.

PettyCashBook-thebookofprimeentryforrecordingpaymentsoutofandreceiptsinto pettycashCashReceiptsBook-thebookofprimeentryinwhichall

receipts into the business’s bank account are recorded

CashPaymentBook–thebookofprimeentryinwhichall

payments out of the business’s bank account are recorded

Salesledger-Asalesledgercontainsindividualaccountsofcustomers’ records to which the business has sold to oncredit. Information on sale invoices and credit notes issued,the amount of money received for your goods or services,withbalanceofmoneyowedbythecustomer(debtors).Purchaseledger–Apurchaseledgercontainstheindividualaccounts of suppliers from whom the business has madepurchases on credit. Information on invoices and credit notesreceived, and payments made, are recorded in the supplier'saccount usingthedebitsand credits system,with

the balance of each account at a given moment representing the amount currently owed to that supplier

GeneralLedger–Acompleterecord

of the financial transactions over the life of a company. A ledger that contains all accounts of the business except the personal accounts.

Nominalledger-Thenominalledger(orgeneralledgerasit’s also referred) to is the main area where all of youraccountingtransactions areheld.

Double Entry - When using the double-entry accountingmethod there will be two recorded entries for everytransaction: a credit and a debit. The act of recording abusinesstransactionsuchthatthereceivingaccountisdebitedandthegiving accountis credited.Forevery debitentry,theremustbeacorrespondingcreditentryandviceversa.Debit – (DR) it is the left hand side of the ledger. Anaccountingentrywherethereiseitheran increaseinassetsora decrease in liabilities on a company's balance sheet. Anexample of Debit entry is items of expenditure, receipts andassets.Credit–(CR)itistherighthandsideoftheledger.Anaccountingentrythat mayeitherdecrease assets

or increase liabilities and equity on the company's balance sheet, depending on the transaction. An example of Credit entry is items of income, payments and liabilities.

Incomeisthesalesfromtheprincipalactivityofthebusinesswhichis alsocalled Revenue orTurnover.Revenue-Createdbyatransactionoreventarisingduringthe ordinary activities of the business which causes anincreasein theownership interestTurnover-Thesalesmadeinabusinessandotherformsofrevenuefromoperationsofthe business.