FAC1502

Interest: The "price" of money- Draw Time Line

-Can be Receivable ex. investments (Income)

-Can be Payable ex. Loans, bonds, debentures (Expense)

To calculate interest need amount, interest rate,  period/time span.

-When calculating remember to convert ‘period’ i.e. dive by 12 months.

-Amount × % × period ÷ 12 = Interest per month

Profit:

To Calculate Profit need amount, percentage - no period/time span.

-Cost Price × 1.(%-amount) = Selling Price [Profit on Cost Price]: + % to cost price.

-Selling Price × 0.(100 - %-amount) = Cost Price [Profit on Selling Price]: - % from selling price.

-Selling Price ÷ 1.(%-amount) = Cost Price [Profit on Cost Price].

Calculate Settlement Discount:

-Settlement Discount Granted (Expense)

-Settlement Discount Received (Income)

To Calculate SD need amount, percentage - no period/time span.

-Selling Price × 0.(100 - %-amount) = Net Selling Price [Cash/Trading discount on Sales] - % from selling price.

-Amount Payable× 0.(100 - %-amount) = Net Amount to Pay [SD on Account Payments] - % from payable.

Tax @ 14%:

Vat Output – Vat Input = Amount Payable to / Refundable from SARS

Depreciation:- Draw Time Line

  • Straight-line Method
  • Diminishing Balance Method

Provision for Credit Losses:

  • Creating Provision:

-(Debtors – New Credit Loss) x % = Amount that goes to SoFR as Other Expense & SoFP

  • Adjusting:

-(Debtors – New Credit Loss) x % = Amount that goes to SoFR as Other Expense & SoFP

WHAT IS ACCOUNTING

  • Defined as the orderly & systematic recording of monetary values of financial transactions of entity.
  • The Reporting of Results
  • Providing financial information as a basis for decision making

Consist of three main activities:

  1. Identifying: Selecting evidence of economic / financial activity (transactions)
  2. Recording transactions to provide permanent history of businesses' financial activities
  3. Communication recorded information to interested users by use of accounting reports i.e.financial statements

"Accounting is a 'language' [i.e. monetary terms] used to convey financial information to interested parties/users."

Complete Set of Financial Statements Consists of:

-Statement of Financial Position as et end of period;

-Statement of profit or loss and other comprehensive income for period;

-Statement of changes in equity for period;

-Statement of cash flows for period;

-Notes: Summary of Accounting Policies, Property, Plant & Equipment, other Explanatory Information.

FORMS OF OWNERSHIP

  • Sole Trader / Proprietor
  • Partnership
  • Close Corporations
  • Company,
  • Non-profit Organizations

USERS OF FINANCIAL INFORMATION

  • Investors: Shareholders/Providers of capital concerned with risk, return and profit (Dividends) – Financial interest.
  • Employees: Stability and Profitability.
  • Creditors: Lenders of money, merchandise and services to determine whether loans and interest will be paid back.
  • Customers: Whether the business will continue to exist.
  • Management: In order to plan and set new goals for future economic growth
  • Government and their Agencies: Taxes and statistical purposes, resource allocation – Macro-Economic planning.

[FIELDS OF ACCOUNTING & NATURE OF ACCOUNTING – wikistudent notes p2-4]

RECORDING TRANSACTIONS

DOUBLE-ENTRY SYSTEM

  • Effect on BAE
  • Accounts involved
  • Amounts to Credit & Debit should equal
  • Date
  • Name of Contra ledger account
  • Folio Number

CAPITAL CONTRIBUTIONS [CRJ, SoFP, SoCE]

T.Tom draws R130 000 from personal bank a/c and deposits as capital for Entity:

DrBank(Asset Increases +130 000)

CrCapital(Owner's Equity Increases +130 000)

WITHDRAWAL'S BY OWNER [CPJ, SoFP, SoCE]

Owner withdrew R1 000 for own use:

DrDrawings(Drawings: Owner's Equity Decreases -1 000)

CrBank(Assets Decreases -1 000)

  • Balance of closed off to:

-Capital account.

PURCHASE ASSETS FOR CASH [CPJ, SoFP]

Entity bought equipment from XY Furnishers for R100 000, paid by cheque:

DrEquipment(Asset Increases +100 000)

CrBank(Asset Decreases -100 000)

PURCHASE ASSETS ON CREDIT [GJ, SoFP]

Entity bought furniture on credit from Joc Limited, R2 000:

DrFurniture(Asset Increases +2 000)

CrCreditors(Joc Ltd)(Liabilities Increases +2 000)

LOAN ACQUISITIONS [GJ, SoFP]

Entity obtains R25 000 loan from ABC Bank:

DrBank(Asset Increases +25 000)

CrLoan: ABC Bank(Liabilities Increases +25 000)

PAYMENT TO CREDITORS [CPJ, SoFP]

Entity paid Joc Ltd.'s account of R2 000:

DrCreditors(Joc Ltd)(Liabilities Decreases -2 000)

CrBank(Assets Decreases -2 000)

SETTLEMENT DISCOUNT RECEIVED [CPJ, GJ, ?]

Issued a cheque of R20 000 to Photo Corp. Received a discount of R171:

DrCreditors Control(Liabilities Decreases -20 171)

Cr Settlement Discount Received(Income: Owner's Equity Increases +171)

CrBank(Asset Decreases -20 000)

  • VAT – On Settlement Discount Allowed Cr to VAT Output (Increase amount owed to SARS)

PAYMENTS RECEIVED FROM DEBTORS [CRJ, SoFP]

C canon settled his account in part, R2 000:

DrBank(Assets Increases +2 000)

CrDebtors(C. Canon)(Assets Decreases -2 000)

SETTLEMENT DISCOUNT GRANTED [CRJ, GJ, ?] & REVERSAL OF VAT

Account of R13 680 settled within 30 days, 5% discount allowed:PTB 5.3.3.5 Ex5.3

DrBank(Assets Increases +12 996)

DrSettlement Discount Granted(Expense: Owner's Equity Decreases -684)

CrDebtors Control(Assets Decreases -13 680)

  • VAT – On Settlement Discount Granted is Dr to VAT Input (Reduce amount owed to SARS)

CASH INCOME [CRJ, SoFR, SoCE, SoFP]

Entity provided services for client S. Silver and received cash cheque of R1 000:

DrBank(Assets Increase +1 000)

CrServices Rendered(Income: Owner's Equity Increases +1 000)[Fees Earned]

CREDIT INCOME[SJ, SoFR, SoFP]

Entity provided services worth R6 000 to C. Canon on credit:

DrDebtors(C. Canon)(Assets Increase +6 000)

CrServices Rendered(Income: Owner's Equity Increases +6 000)[Fees Earned]

CASH EXPENSE [CPJ, SoFR, SoCE, SoFP]

Entity paid wages R800 by cheque:

DrWages(Expense: Owner's Equity Decreases -800)

CrBank(Assets Decreases -800)

CREDIT EXPENSE [GJ, SoFR, SoCE, SoFP]

Entity placed an advert in the paper R200, payment was only due in 30 days:

DrAdvertisements(Expense: Owner's Equity Decreases -200)

CrCreditors (Liabilities Increases +200)

COST OF SALES

PURCHASE MERCHANDISE (PERIODIC) ON CREDIT [PJ

DrPurchases(Assets Increases

CrCreditors Control(Liabilities Increases

PURCHASE MERCHANDISE (PERPETUAL) ON CREDIT [PJ

DrInventory(Assets Increases

CrCreditors Control(Liabilities Increases

  • VAT – On Purchases is Dr to VAT Input

DrPurchases(Expense

DrVAT Input(AssetsIncreases

CrCreditors Control(Liabilities Increases

PURCHASES RETURNS [PRJ, SoFR]

Product returned to the value of:

DrCreditors Control(Liabilities Decreases -600 – Cost Price)

CrPurchases Returns(Assets Decreases -600 – Cost Price)

  • VAT – On Purchases Returns is Cr to VAT Input

MERCHANDISE SOLD (PERIODIC) ON CREDIT [SJ, SoFR

DrDebtors Control(Assets Increases

CrSales(Income: Owner's Equity Increases

MERCHANDISE SOLD (PERPETUAL) ON CREDIT [SJ, SoFR

DrDebtors Control(Assets Increases

CrInventory(Asset Decreases

  • VAT – On Sales is Cr to VAT Output

DrDebtors Control(Assets Increase

CrSales(Income:

CrVAT Output(Liabilities Increases

SALES RETURNS [SRJ, SoFR]

Product returned to the value of:

DrSales Returns (Expense: Owner's Equity Decreases – Selling Price)

CrDebtors Control(Assets Decreases – Selling Price)

  • VAT – On Sales Returns is Dr to VAT Output

PREPAID EXPENSES [GJ, SoFR, SOFP]

Annual insurance premium of R2 400 paid. Actual/current period amount R400, R2 000 paid in advance:

DrPrepaid Expense(Temporary Assets is Increased +2 000

CrInsurance(Expense Account has to be reduced -2 000; Owner's Equity Increases +2 000)

ACCRUED EXPENSES [GJ, SoFR, SoFP]

R2 880 Water & Electricity expenses, R360 not yet taken into account:

DrWater & Electricity(Expense Account has to be increased +360; Owner's Equity Decreases -360)

CrAccrued Expense(Liability Increases +360)

CONSUMABLE INVENTORY [GJ, SoFR, SoFP]

R500 Stationery purchased, R150 still on hand; R350 actual expenditure:

DrInventory: Stationary(Assets Increased +150)

CrStationary(Expense Account has to be reduced -150; Owner's Equity Increases +150)

INCOME RECEIVED IN ADVANCE [GJ, SoFR, SoFP]

Rent Income Received of R10 400. Actual/current period amount R9 600, R800 received in advance:

DrRent Income(Income Account has to be reduced -800; Owner's Equity Decreases -800)

CrIncome Received in Advance(Liabilities Increases +800)

ACCRUED INCOME [GJ, SoFR, SoFP]

Commission income received of R2 200. R200 earned but not yet received:

DrAccrued Income(Assets Increases +200)

CrCommission Income(Income: Owner's Equity Increases +200)

CREDIT LOSSES a.k.a. Bad Debts [GJ, SoFR, SoFP]

F Field's balance of R5 000 to be written off as irrecoverable:

DrCredit Losses(Expense: Owner's Equity Decreases -5 000)

CrDebtors (F Field)(Assets Decreases -5 000)

ALLOWANCE FOR CREDIT LOSSES

ALLOWANCE FOR SETTLEMENT DISCOUNT

DEPRECIATION

Bought Machinery to the value of R80 000. Depreciation of R12 000 has to be written off:

DrDepreciation(Expense: Owner's Equity Decreases -12 000)

CrAccumulated Depreciation: Machinery(Assets Decreases -12 000)

ACCUMULATED DEPRECIATION

PROVISION FOR

  • Balances of Income & Expense [Nominal] Accounts Closed Off to:

-Trading account and/or

-Profit / Loss account: Profit to Capital account

Credit Losses Recovered: (Revenue/Income)

DRAWINGS

Balance to Capital account

TEMPLATES

Entity / CASH RECEIPTS JOURNAL – mm / yyyy / CRJ1
Date / Details
(Provider's Name) / Bank / Sales / Fees / Debtors Control / VAT Input / VAT Output / Settlement Discount Granted / Sundry Accounts
Amount / Fol / Details
R / R / R / R / R / R
( ) / ( ) / Capital
( ) / ( )
Entity / CASH PAYMENTS JOURNAL – mm / yyyy / CPJ1
Date / Details
(Beneficiary Name) / Bank / Purchases / Fees / Creditors Control / VAT Input / VAT Output / Settlement Discount Received / Sundry Accounts
Amount / Fol / Details
R / R / R / R / R / R
( ) / ( ) / Drawings
( ) / ( )
Entity / PURCHASES JOURNAL – mm / yyyy / PJ1
Date / Details / Fol / VAT Input / Purchases / Creditors Control
R / R / R
Entity / PURCHASES RETURNS JOURNAL – mm / yyyy / PRJ1
Date / Details / Fol / VAT / Purchases Returns / Creditors Control
R / R / R
Entity / SALES JOURNAL – mm / yyyy / SJ1
Date / Details / Fol / VAT Output / Sales / Debtors Control
R / R / R
Entity / SALES RETURNS JOURNAL – mm / yyyy / SRJ1
Date / Details / Fol / VAT Output / Sales Returns / Debtors Control
R / R / R
Entity / GENERAL JOURNAL – mm / yyyy / J1
Date / Details / Fol / Debit / Credit
R
Account to be Debited
Contra Account to be Credited
"Narrative Explanation"
  • Used for recording the following transactions:

-Credit Losses (Bad Debts to be written off)

-Interest on Debtors Accounts

-Correction of Errors

-Year-end Adjustments

-Closing off of accounts i.e. VAT

-Purchases for goods other than merchandise (trading stock)

GENERAL LEDGER – ACCOUNTS

Dr / Name of Account (at cost) / Cr
Date / Details / Fol / R / Date / Details / Fol / R
yyyy / yyyy
31st / Balance / c/d
1st / Balance / b/d

TRIAL BALANCE

  • List of balances brought down (b/d ) of ledger accounts at a specific date.

BANK STATEMENT

BANK RECONCILLIATION

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

a.k.a Statement of Financial Result/Performance/Income Statement ["For the Year Ended"]

Net Profit / Loss=Income-Expenditure

Over specific Period Revenue & GainsNormal & Losses.

(assets=equity+liability)

Capital + Income - Expenditure.

"Statement of Profit or Loss and other Comprehensive Income for Entity for the period ended dd / mm / yyyy"

/ Notes / R
Revenue(Sales-Sales Returns/Services Rendered/Fees Earned-Discount Allowed / 2
- / Cost of Sales
Openening Inventory
Purchases (Purchases-Purchases Returns-Discount Received
Freight/Transport/Customs on Purchase
Closing Inventory
= Gross Profit
Other Income
Credit Losses Recovered
Commission Income
Dividend Income
Interest Income
Profit on Sale of Asset
Rent Income
Discount Received?
Distribution, administrative and other expenses / ( )
Advertising
Credit Losses(New + OldProvision for Credit Losses
Commission Paid
Bank charges
Carriage on sales
Delivery Expense
Depreciation
Insurance
Postage
Rent expense
Repairs
Salaries & wages
Stationary Consumed
Telephone Expenses
Water & electricity
Finance Costs / ( )
Interest on bank overdraft
Interest on mortgage
Interest on long-term loan
Interest paid on capital/savings accounts in a partnership
Profit/Total comprehensive income for the year [Net Profit]

Sales

'Purchases of inventory

Customs & excise duty

Cost of raw material

Carriage on purchases

Interest expenses

Tax expenses

STATEMENT OF CHANGES IN EQUITY

Link between SoFR and SoFP

Simplest form:

"Entity – Statement of changes in equity for the period ended dd / mm / yyyy"

/ R
Balanceas at [beginning of financial period]
Profit/Total Comprehensive income for the Year [SoFR]
Drawings / ( )
Balance as at [end of financial period]

PROPERTY, PLANT & EQUIPMENT[PPE]

Note for Non-Current Asset Depreciation in Statement of Financial Position

Equipment / Furniture / Total
R / R / R
Carrying amount at beginning of period / / /
Cost Price
Accumulated Depreciation / ( ) / ( )
Additions
Disposals / ( ) / ( )
Depreciation
Carrying amount at end of period / / /
Cost
Accumulated Depreciation / ( ) / ( )

STATEMENT OF FINANCIAL POSITION [BAE]

a.k.a Balance Sheet["As At"]

Assets= Interest

Use of Funds=Owner's Financial Interest+Creditor's Financial Interest[Sources of Funds]

assets=equity+liability

Non-/Current AssetsNon-/Current Liabilities.

  • Reflects net worth of entity at a specific point in time [net worth/asset value"Equity" = Assets – Liability].

"Statement of Financial Positions for Entity as at dd / mm / yyyy"

ASSETS / Note / R
Non-Current Assets
Property, Plant and Equipment(Professional Library, Machinery, Vehicles, Land & Buildings / 3
Financial Assets(Investments, Fixed Deposits
Current Assets
Inventories/Trade Stock/Merchandise/Goods(Stationary On Hand/closing
Trade and other receivables (Debtors-Credit Losses-Provision for CL+AccruedIncome+PrepaidExpenses+Deposit?)
Cash and Cash Equivalents (Bank, Cash, Petty Cash, Cash float
Total Assets
EQUITY AND LIABILITIES
Capital and Reserves
Capital (Capital – Drawings + Profit / - Loss) or [SoCE]
Total Liabilities
Non-Current Liabilities
Long-term Borrowings/Loan
Mortgage Loan(Bond
Current Liabilities
Bank Overdraft
Short-term Loan
Trade and other Payables (Creditors+Accrued Expenses+ Income Received in Advance
Current Portion of Mortgage Loan
SARS
Total Equity and Liabilities

'heading: entity name, date position was measured, currency'

'Property, Plant & Equipment

Investment Property

Intangible assets

Financial assets [Additional]

Investments accounted for using equity method

Biological Assets

Inventions

Trade and other receivables [Debtors]

Cash and Cash Equivalents [Cash in Bank]

Trade and other Payables [Creditors]

Provisions

Financial Liabilities [Additional]

Liabilities and Assets for current tax

Deferred tax liabilities and assets

Minority interest presented within equity

Issued capital and reserves

ADJUSTMENTS

Future commitments cannot be recognised as liability until asset has been received/irrevocable agreement to acquire asset has been entered into

DEFINITIONS/REFERENCES

Asset: Resource controlled by the entity as a result of past events from which future economic benefits/value can be expected i.e. provide inflow of cash/cash equivalents.

Income: Increases in economic benefits during accounting period in form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity other than those relating to contributions from equity partners.

Profit: Difference between purchase price an costs thereof and higher, selling price (Owner's Equity).

-Proceeds available for use, increases entity's assets (Assets).

VAT Output: Tax charged by business on sales of goods / services rendered. (Sales)

VAT Input: Tax payable by business for goods purchased / services received. (Purchases)

Creditors: Applicable for purchases or services received which are to be paid at a later date/you owe money to.

Cash Equivalents: Short term investments, easily withdrawn with minimal risk of changes in value.

Bookkeeping: The identification and recording of economic events forms part of accounting process

SAICA: South African Institute of CharteredAccountantsprovides conceptual framework and other rules.

APB: Accounting Practices Board Rules have to have Accounting Conceptual Framework's approval.

IFRS Framework: Conceptual Framework for Financial Reporting 2012 – International Financial Reporting Standards.

IASB: International Accounting Standards Boards

About Finansial Accounting Vol 2 – Reporting

Partnership

WITHDRAWAL'S BY OWNER [CPJ, SoFP, SoCE]

Owner withdrew R1 000 for own use:

DrDrawings(Drawings: Owner's Equity Decreases -1 000)

CrBank(Assets Decreases -1 000)

  • Balance of closed off to:

-Capital account.