Book Keeping Form 3

Yaliyomo

1. 1. Journal Proper

   Majaribio 1 Maswali 15

   Maelezo ya mada

   • What is the journal proper?
   • Opening entries
   • Fixed assets, drawings and bad debts
   • Closing entries and posting the journal
   • Summary

   Meaning The journal proper (general journal) is the book of prime entry used for transactions that cannot be recorded in any other book of prime entry. For each entry it shows: the date, the account to be debited (written first), the account to be credited (written below and indented), the amounts, a folio column and a…

2. 2. Capital and Revenue Expenditure

   Majaribio 1 Maswali 16

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   • Capital expenditure
   • Revenue expenditure
   • Capital receipts and revenue receipts
   • Effects of wrong classification
   • Summary

   Capital expenditure Capital expenditure is money spent to buy fixed assets or to add to their value or earning capacity. The benefit lasts for more than one accounting period. It is shown in the balance sheet as an asset. Examples: buying land, buildings, machinery or vehicles; costs of bringing a new asset into use,…

3. 3. Depreciation of Fixed Assets (1): Methods

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   • What is depreciation?
   • Why depreciation is charged: important terms
   • The straight line method
   • The reducing balance method and choosing a method
   • Summary

   Meaning Depreciation is the permanent fall in the value of a fixed asset over its useful life. It spreads the cost of the asset over the years in which it is used, so that each year bears a fair share of the cost. Depreciation is an expense in the profit and loss account but it does not involve paying cash. Causes of…

4. 4. Depreciation of Fixed Assets (2): Recording and Disposal

   Majaribio 1 Maswali 15

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   • The provision for depreciation account
   • Balance sheet presentation and part-year depreciation
   • Disposal of a fixed asset: the disposal account
   • Loss on disposal and a complete example
   • Summary

   Recording depreciation The modern method keeps the asset at cost in its own account and collects depreciation in a separate provision for depreciation account (accumulated depreciation). Each year: Dr Profit and loss account; Cr Provision for depreciation account - with the year's depreciation. In the balance sheet the…

5. 5. Provisions

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   • Bad debts and bad debts recovered
   • Creating a provision for doubtful debts
   • Increasing and decreasing the provision
   • Provision for discounts and provisions compared with reserves
   • Summary

   Bad debts A bad debt is an amount owed by a debtor that will never be paid, e.g. because the customer has died with no estate, disappeared or gone bankrupt. It is written off: Dr Bad debts account; Cr Debtor's account . At the year end the bad debts account is closed to the profit and loss account as an expense. If a…

6. 6. Adjustments in Final Accounts

   Majaribio 1 Maswali 16

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   • Why adjustments are needed
   • Accrued and prepaid expenses in the ledger
   • Accrued income and income received in advance
   • Opening and closing accruals and prepayments
   • Final accounts with adjustments
   • Summary

   Why adjustments? Under the accruals (matching) concept , the profit and loss account must show all the income earned and all the expenses incurred in the period, whether or not cash has been received or paid. The trial balance shows only amounts paid and received, so at the year end we make adjustments . The four main…

7. 7. Correction of Errors

   Majaribio 1 Maswali 16

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   • Errors that do not affect the trial balance
   • Errors that affect the trial balance: the suspense account
   • A full suspense account example
   • Effect of corrections on profit and the balance sheet
   • Summary

   Introduction Errors are corrected through the journal proper , never by crossing out or erasing figures. Each correction moves the amount from the wrong account to the right one, with a narration. Errors that do not affect the trial balance Errors of omission, commission, principle, original entry, complete reversal…

8. 8. Control Accounts

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   • What are control accounts?
   • The sales ledger control account
   • The purchases ledger control account and set-offs
   • Using control accounts: agreement, credit balances and missing figures
   • Summary

   Meaning A control account (total account) is an account that summarises in totals all the entries made in a ledger. Its closing balance should equal the total of the individual balances in that ledger. There are two main types: Sales ledger control account (total debtors account). Purchases ledger control account…

9. 9. Single Entry and Incomplete Records

   Majaribio 1 Maswali 15

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   • Single entry and the statement of affairs
   • Finding profit by comparing capital
   • Finding missing figures
   • Preparing final accounts from incomplete records
   • Mark-up, margin and estimating lost stock
   • Summary

   Meaning Many small businesses (kiosks, market traders, small shops) do not keep full double entry records. They keep incomplete records (the single entry system): usually a cash book, lists of debtors and creditors, and some receipts. From these we can still find profit, by two methods. Method 1: statement of affairs…

10. 10. Accounts of Non-Trading Organisations

    Majaribio 1 Maswali 16

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    • Non-trading organisations and their special terms
    • The receipts and payments account
    • Subscriptions: arrears and advance
    • Income and expenditure account, bar trading account and balance sheet
    • Summary

    Meaning Non-trading (non-profit) organisations are bodies formed to serve their members or the public, not to make profit: sports clubs, social clubs, churches and mosques, school associations, professional societies and charities. They receive money mainly from subscriptions , donations, entrance fees, fund-raising…

11. 11. Manufacturing Account

    Majaribio 1 Maswali 17

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    • Manufacturing businesses and the elements of cost
    • Raw materials consumed and prime cost
    • Factory overheads, work in progress and cost of production
    • Trading and profit and loss account of a manufacturer
    • Summary

    Meaning A manufacturing account is prepared by a business that makes the goods it sells. It finds the cost of production of the finished goods completed in the period. This figure then replaces "purchases" in the trading account. Elements of cost Direct materials : raw materials that become part of the product (e.g.…