GRADE 8 REVISION

Introduction, Concepts, Accounts, Accounting cycle and Source documents

WHAT IS ACCOUNTING?
Accounting is a systematic process of identifying, recording and summarising all the
transactions of the business, and communicating them in a format that provides the
owners with the information that is needed to make sound business decisions.

THE ROLE OF ACCOUNTING IN BUSINESS

Accounting plays a crucial role in providing financial information to internal and external
stakeholders. It helps in decision-making, planning, and evaluating the financial
performance of a business.

FORMS OF BUSINESS OWNERSHIPS

Sole trader: A business owned and operated by a single person. The owner is personally
responsible for the business's debts.

Partnership: A business structure where two or more individuals (not more than 20)
manage and operate the business. Partners share profits, losses, and liabilities.

Company: A legal entity separate from its owners (shareholders). It has separate legal
rights and responsibilities and can raise capital by issuing shares.

TYPES OF BUSINESSES

SERVICE ENTERPRISE
These businesses earn an income by rendering a service to the public, without selling
physical goods.

Examples:
Doctors, Dentists, Lawyers, Auditors, Dry Cleaners, Beauty Parlours, Cinemas,
Electricians and Taxi Services.

TRADING ENTERPRISE

These businesses earn an income by buying physical goods and then selling them at a
higher price.

Examples:
Supermarkets, Butcheries, Clothing Shops, Shoe Shops, Furniture Shops and Garages.

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TEST YOUR KNOWLEDGE

Provide as many examples of the following businesses.

Note: Hybrid business means it is a business that provides both service and trading.

Service businesses Trading businesses Hybrid businesses

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DIFFERENT STAKEHOLDERS IN BUSINESS

There are various stakeholders involved in a business. All these stakeholders have
different interests in the business. Let us have a look at some of the common role players:

Person with an idea, capital, diligence, etc.

Owner

Accountant Handles all the money and banking matters.

Keeps record of everything that takes place.

Employee
People working for the business, for example
sales personnel, cleaners, clerks, etc.

Bank
The business keeps its money in a current account
(bank account) at a bank. Can also borrow money
from the bank.

Debtors
Are people/institutions which owe the business
money

Creditors Are people or institutions to which the business owes

money.

The South African Revenue Services (SARS) makes

Government income tax assessments on profits and will therefore
be interested in the results of the business.

Potential buyers
These people want to know what the business is
worth and whether it is successful.

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ACCOUNTING CONCEPTS

In order to understand the information presented in the business accounts, you need to
understand some basic accounting concepts.

Terminology Explanation
Capital is the money that the owner uses to
start the business with.
 If the owner gives the business a vehicle or
something else of value, it can also be seen
Capital
as capital.
 The owner can increase his capital
contribution by investing more money in the
business
When the owner takes money or something of
Drawings value from the business for personal use, it is
called drawings.
Income is money generated by the business,
for example money earned by renting a place
Income
to someone else.

Expense is money used or lost by the business

which cannot be recovered again.
Expense
 For example paying the telephone account
or buying stationery which gets used
For Trading enterprise:
Gross profit
Gross profit = Sales – Cost of sales
Net profit
= Total income – total Expenses
Total income
Net Profit
= Current income + other income
OR
= Gross profit + other income
This is the total amount that the owner has
invested in the business.
 Note that since the owner owns the
business, he gets the net profit.
Owners’ equity
 The business owes this amount to the
owner.
Owner’s equity = Capital + Net Profit -
Drawings

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 Assets are items of value that belong to the
business.
 There are TWO kinds of assets:
Assets  Fixed assets
(Land and buildings, Vehicles and Equipment)
 Current assets
(Cash in the bank, Cash float, Petty cash,
Trading stock and Debtors)

A Liability is money owed to an outside party.

Liabilities  For example: Loans, b0ank overdraft
and Creditors.

An activity which involves money or items of

value.
Transaction  For example: Buying a vehicle,
receiving money for providing a service
or selling goods.
Each transaction must be recorded on a
source document.
 A source document must have all the
Source
information of the transaction available.
document
 Information - the date, who was
involved, what was the reason for the
transaction

A book into which transactions are entered.

Journal
Transactions are classified and there is a
journal for each kind of transaction

The General ledger is a book or file containing

the business’ accounts.
General Ledger
There is an account for each activity the
business is involved in.
This is a book or file containing all the
information about people or other businesses
which owe our business money.
Debtors Ledger
All the transactions with a debtor will be
entered into the account of the debtor
concerned.

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 This is a book or file containing all the
information about people or businesses that
we owe money to.
Creditors
Ledger
Transactions with creditors will always be
entered into the accounts of the creditors
concerned.

The accounts in the General ledger

have TWO sides:
 The left hand side is called “debit”
Debit and Credit  The right hand side is called “credit”

In the Debtors and Creditors Ledgers we use a

debit column and a credit column.

Nominal These are income and expense accounts.

accounts

Balance sheet These are the accounts for Capital,

accounts Drawings, Assets and Liabilities.

This is the most basic accounting

rule:
For each transaction TWO entries must be
Double-entry
made in the General Ledger.
rule
One on the debit side of an account and the
other on the credit side of another account.

An amount in cash kept on the premises for

Petty cash
small amount that may have to be paid.

The money kept in the cash register / till from

Cash float which customers are given change.

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 Trading stock consists of items which were
bought with the aim to sell at a profit.
Trading stock  Also called merchandise or goods.
 Trading stock is an asset.

The cost price of an item is the price at which it

Cost price
was bought.

A trading enterprise sells trading stock at a

higher price than the cost price in order to
make a profit.
Selling price
The price at which it is sold, is called the
selling price.

Most businesses determine their selling price

by adding a fixed percentage to the cost price.
Mark-up
This percentage is called the mark-up.

Cost of Sales is the cost price of goods which

Cost of sales
had been sold.

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CLASSIFICATION OF ACCOUNTS

The chapter embarks on a fascinating journey into the heart of accounting, where we are
going to explore the different types of accounts that help us organise and make sense of
a business's financial world. Imagine it as a toolkit, each tool with a unique purpose to
build a solid financial foundation.
It is of very importance that you know how to classify these accounts into different
categories.

ASSETS
Assets are resources owned or controlled by a business that have economic value and
can provide future benefits.

LIABILITIES
Liabilities are obligations or debts that a business owes to external parties. They
represent claims against the business's assets.

INCOMES
Income is the money earned by a business from its primary operating activities, such as
selling of goods or offering a services.

EXPENSES
Expenses are the costs incurred by a business in its efforts to generate income. They
represent the outflows of economic resources.

DRAWINGS
Drawings is the money (or anything of value) taken by the owner from the business for
personal use.

CAPITAL
Capital is the money (or anything of value) that the owner contributes towards the
business.

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The following table shows how some accounts will be classified.

ASSETS OWNERS EQUITY LIABILITIES

Non – current assets Drawings (-) Capital (+) Non-current
Land and building Loan
Vehicles Expenses (-) Incomes (+)
Equipment Cost of sales Current / fee income Current
Advertising Rent income Creditors control
Current assets Trading licence Sales (stock sold) Bank overdraft
Debtors control Salaries Donations received
Trading stock Wages Interest income
Bank Consumable stores Commission
Cash float Insurance received
Petty cash Packing materials
Telephone
Water & electricity
Stationery
Material costs
Postage
Repairs
Fuel
Vehicle expense
Rent expense

TEST YOUR KNOWLEDGE

Think about the tuckshop in your school and give examples of the following:

ASSETS INCOMES EXPENSES

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 THE ACCOUNTING CYCLE

The transactions of a business are recorded and processed according to the accounting
cycle.

1. SOURCE DOCUMENTS
Receipts, Invoices, EFTs, etc.

6. ANALYSIS AND 2. SUBSIDIARY

INTERPRETATION JOURNALS
The performance of the business is CRJ, CPJ, DJ, DAJ, CJ,
analysed using ratios. Information CAJ, PCJ & GJ
obtained from financial statements.

5. FINANCIAL 3. GENERAL LEDGER

STATEMENTS Post totals of the journals to the
Income statements, accounts in the general ledger,
Balance sheet and the debtors’ ledger & creditors ledger
notes.

4. TRIAL BALANCE
Balance or total the accounts in
the general ledger and extract the
trial balance

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SOURCE DOCUMENTS

Source documents serves as evidence of the transactions that took place in the business.
Every transaction in the business must have a supporting source document, whether it is
cash or non-cash transaction.

Source documents are the first documents to be completed in the accounting cycle. Poor
handling or management of source documents will negatively affect the entire accounting
cycle. Source documents must be safeguarded against theft.

Different source documents are used for different transactions. For example, a receipt is
completed when money is received and an invoice is issued when goods are sold on
credit to a customer.

SOURCE DOCUMENTS – CASH RECEIPT

Let us now look at the source documents that are completed when a business receives
money.

When you buy goods from a supermarket you receive a till slip as a form of receipt.
Service enterprises such as dry-cleaners and schools, usually issue a receipt as evidence
of money received. Both these source documents serve the same purpose – the owner
can check that all the money received for the day have been accounted for. These source
documents will also be used to complete the Cash Receipts Journal (CRJ).

RECEIPTS

 Receipts are issued when cash (in the

form of money or bank card) is
received by the business.
 When a business receives money for
Capital, Current Income, Rent
Income, etc. it will issue a receipt.
 Each receipt has a duplicate.
 The business will issue the original
receipt to the person from whom
money was received.
 The duplicate receipt will remain in
the receipt book and serves as a source document for entering the transaction into
the journal of the business, i.e. Cash Receipts Journal.
 Receipts are sequentially pre-numbered.

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Let us look at the following example:

Issued a receipt for R800 to a client, J Loots, for services rendered on the15 March 2000

CASH REGISTER SLIPS (TILL SLIPS)

Cash register slips are commonly used by businesses that carry

a wide range of stock and process a large number of cash
transactions each day, for example, supermarkets and large
retailers such as Pick n Pay, Checkers, Pep Stores, etc. The till
slip is issued to the customer and a copy of the same till slip
remain in the register tape inside the machine (till). The business
will total all the till slips of each day and post the sum amount
daily to the Cash Receipts Journal as “Sales”.

In large retailers, the till slip may also indicate which cashier
handled the transaction. A till slip provides evidence of the
goods purchased and paid for by the customer. The till slip is
important because when a customer discovers something faulty
with the goods purchased, the can return the goods to the store
and produce the till slip as evidence of such goods being bought
from the store. The Consumer Protection Act specifies instances
where a customer may return goods to the supplier.

CASH INVOICE

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A cash invoice is issued to a customer as a request for payment, to provide them with the
details of the product or service purchased and to let them know what amount need to be
paid. For example if the business orders cleaning materials, they will get a cash invoice
when the cleaning material is delivered. The cash invoice will give a description of the
cleaning material ordered, and will show the total amount that must be paid.

NOTE: A cash invoice is a request for payment, whereas a till slip or receipt is evidence
that payment has been received.

Pop Stationers
P O Box 512 Invoice no: 5623
Seshego INVOICE Date: 31 January 2026

Invoice to: Bush School College Tel: (015) 295 6653

Description Qty. Unit price Amount
A4 paper 500 sheets 2 R50 R100
Black pen 10 R2 R20
Printer toner 1 R800 R800

Total excluding VAT R920

VAT @ 15% R138
Total to be paid R1 058
Thank you for continued support!!!

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SOURCE DOCUMENTS – CASH PAYMENT

ELECTRONIC FUNDS TRANSFER (EFT)

EFTs have become increasingly popular in recent years due to advanced technology.
EFTs is becoming a preferred method of payments by many businesses and individuals
these days.

The proof of EFT can be printed immediately after completing the transaction and it will
serve as a source document. These methods of payments is also deemed efficient, fast,
and secure and the funds are transferred almost instantly. With the EFT method,
payments can be made anywhere at any time. Banks usually charge you a small fee for
using EFT method.

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BANK STATEMENT

Bank statements are important documents for a business as they provide the owner with
the summary of all transactions affecting the bank account of the business. It also serves
to confirm the amount of money that the business have in the bank.

If a business makes use of internet banking, they can access their bank statement at any
time online, rather than waiting for the bank to send the bank statement on paper at the
end of the month. The amounts deposited (credits) will increases the bank account and
the amounts paid out (debits) will decreases the bank account.

The owner will also reconcile the bank statement with the cash journals (CRJ and CPJ),
this means that he will check whether the amounts reflected on the bank statement have
also been recorded in the books, and that all receipts and payments in the books are
shown on the bank statement.

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