KAMPALA INTERNATIONAL UNIVERSITY

COLLEGE OF ECONOMICS AND MANAGEMENT

NAME ABAMPEIRE PURITY

COURSE DSP

REG NO 2021 _08_062021

YEAR ONE

SEMESTER ONE
 Calculate
a) non- Land (200,000,000)+ equipment
current (75,000,000)+ M.V(55,000,000)
assets 330,000,000
Inventory ( 45,000,000) + debtors (
27,000,000) + Cash in hand (5,000,000)
b) current
assets 77,000,000
c) long term 70,000,000
liabilities Loan from Pride (70,000,000)
d) short term liabilities creditors (35,000,000) +
overdraft (20,000,000) 55,000,000

ASSETS = LIABILITIES + CAPITAL

407,000,000 125,000,000 X

X 407,000,000 ---- 125,000,000

ii) Capital 282,000,000

2a) The accounting cycle is a collective process of identifying, analyzing, and recording the
accounting events of a company. It is a standard 8-step process that begins when a transaction
occurs and ends with its inclusion in the financial statements.

The key steps in the eight-step accounting cycle include recording journal entries, posting to the
general ledger, calculating trial balances, making adjusting entries, and creating financial
statements.

 The accounting cycle is a process designed to make financial accounting of business

activities easier for business owners.
  The first step in the eight-step accounting cycle is to record transactions using journal
entries, ending with the eighth step of closing the books after preparing financial
statements.
 The accounting cycle generally comprises a year or other accounting period.
 Accounting software today mostly automates the accounting cycle. 
 
Accounting Cycle
The accounting cycle is a methodical set of rules to ensure the accuracy and conformity
of financial statements. Computerized accounting systems and the uniform process of the
accounting cycle have helped to reduce mathematical errors. Today, most software fully
automates the accounting cycle, which results in less human effort and errors associated with
manual processing.
 Transaction

Closing the books Journal entries

Financial statement Posting

Adjusting entries Trial balance

Work sheet

Steps of the Accounting Cycle

There are eight steps to the accounting cycle.

Identify Transactions: 

An organization begins its accounting cycle with the identification of those transactions that
comprise a bookkeeping event. This could be a sale, refund, payment to a vendor, and so on.

Source documents that can be used are:

 Checks
 Invoices
 Receipts
  Credit memos
 Employee time cards
 Deposit slips
 Purchase orders

Record Transactions in a Journal: 

Next come recording of transactions using journal entries. The entries are based on the receipt of
an invoice, recognition of a sale, or completion of other economic events.

Several books of prime entry exist, each recording a different type of transaction:

Book of prime entry Transaction type

Sales day book Credit sales
Purchases day book Credit purchases
Sales returns day book Returns of goods sold on credit
Purchases returns day book Returns of goods bought on credit

Cash book All bank transactions

Petty cash book All small cash transactions

The journal All transactions not recorded elsewhere

Posting:

Once a transaction is recorded as a journal entry, it should post to an account in the general

ledger. The general ledger provides a breakdown of all accounting activities by account.

Unadjusted Trial Balance:

After the company posts journal entries to individual general ledger accounts, an unadjusted trial
balance is prepared. The trial balance ensures that total debits equal the total credits in the
financial records.
Worksheet:

Analyzing a worksheet and identifying adjusting entries make up the fifth step in the cycle. A
worksheet is created and used to ensure that debits and credits are equal. If there are
discrepancies then adjustments will need to be made.

Adjusting Journal Entries: 

At the end of the period, adjusting entries are made. These are the result of corrections made on
the worksheet and the results from the passage of time. For example, an adjusting entry may
accrue interest revenue that has been earned based on the passage of time.

Financial Statements:

Upon the posting of adjusting entries, a company prepares an adjusted trial balance followed by
the actual formalized financial statements.

Closing the Books:

An entity finalizes temporary accounts, revenues, and expenses, at the end of the period
using closing entries.

These closing entries include transferring net income into retained earnings. Finally, a company
prepares the post-closing trial balance to ensure debits and credits match and the cycle can begin
anew.

b) Users of accounting information, i.e., Internal and External

(1) Owners,

(2) Management,

(3) Creditors,
(4) Regulatory Agencies,

(5) Government,

(6) Potential Investors,

(7) Employees, and

(8) Researchers.

1. Owners:

The primary objective of accounting is to provide necessary information to the owners relating to

their business. For example, the shareholders of a company are interested in the accounting

information with a view to ascertaining the profitability and financial strength of the company.

2. Management:

In large business organizations there is a separation of the ownership and management functions.

The managements of such concerns are more concerned with the accounting information because

of their accountability to the owners for better performance of their concerns.

3. Creditors:
Trade creditors, debenture holders, bankers, and other lending institutions are interested in
knowing the short-term as well as long-term position of the company. The financial statements
provide the required information for ascertaining such position.

4. Regulatory Agencies:

Various governments and other agencies use accounting reports not only as a basis for tax
assessment but also in evaluating how well various business concerns are operating under
regulatory framework.

5. Government:

Governments all over the world are using financial statements for compiling statistics concerning
business units, which, in turn help in compiling national accounts.

6. Potential Investors:
Investors use the information in accounting reports to a greater extent in order to determine the
relative merits of various investment opportunities.

7. Employees:

Employees are interested in the earnings of the enterprise because their pay hike and payment of
bonus depend on the size of profits earned.

8. Researchers:

The research scholars in their research in accounting theory as well as business affairs and
practices also use accounting data. In addition, those with indirect concern about business
enterprise include financial analysts and advisors, financial press and reporting, trade
associations, labour unions, consumers, and public at large. Thus, the list of actual and potential
users of accounting information is large.
3a)

ACCOUNTING EQUATION for C. WILLIAM FOR THE PERIOD OF JUNE 1994

OWNERS’ EQUITY
ASSETS =
LIABILITIES +
Cash 750 - Capital 750
Bank 9,000 Bank 9,000
9,750 9,750

Cash 750 Loan 2000 9,750

Bank 11,000
11,750
11,750
Cash 150 11,750
Bank 11,000
Computer 600
11,750
11,750
Equipment 420 Creditors 420 11,750
Cash 150
Bank 11,000
Computer 600
12,170
12,170
Cash 350 12,170
Equipment 420
Bank 10,800
Computer 600
12,170
12,170
Cash 350 -500 12170
Equipment 420
Bank
10,300
Computer 600
11,670 11,670
Cash 350 -420 11,670
Equipment 420
Bank 9,880
Computer 600
11,250
11,250
-250 11,250
11,000
11,000
Printer 200 Creditors 200 11,000
Cash 100
Equipment 420
Bank 9,880
Computer 600
11,200 11,200
3b) Some examples of source documents include:

- Bank Statements
- Payroll Reports
- Invoices
- Leases & Contracts
- Check Registers
- Purchase Orders

3c)

Accrual principle

This is the concept that accounting transactions should be recorded in the accounting
periods when they actually occur, rather than in the periods when there are cash flows
associated with them. This is the foundation of the accrual basis of accounting. It is
important for the construction of financial statements that show what actually happened in
an accounting period, rather than being artificially delayed or accelerated by the associated
cash flows. For example, if you ignored the accrual principle, you would record an expense
only when you paid for it, which might incorporate a lengthy delay caused by the payment
terms for the associated supplier invoice.

Conservatism principle

This is the concept that you should record expenses and liabilities as soon as possible, but to
record revenues and assets only when you are sure that they will occur. This introduces a
conservative slant to the financial statements that may yield lower reported profits, since
revenue and asset recognition may be delayed for some time. Conversely, this principle
tends to encourage the recordation of losses earlier, rather than later. This concept can be
taken too far, where a business persistently misstates its results to be worse than is
realistically the case.

Consistency principle

This is the concept that, once you adopt an accounting principle or method, you should
continue to use it until a demonstrably better principle or method comes along. Not
following the consistency principle means that a business could continually jump between
different accounting treatments of its transactions that makes its long-term financial results
extremely difficult to discern.

Cost principle.

This is the concept that a business should only record its assets, liabilities, and equity
investments at their original purchase costs. This principle is becoming less valid, as a host
of accounting standards are heading in the direction of adjusting assets and liabilities to
their fair values.

Economic entity principle

This is the concept that the transactions of a business should be kept separate from those of
its owners and other businesses. This prevents intermingling of assets and liabilities among
multiple entities, which can cause considerable difficulties when the financial statements of
a fledgling business are first audited.

Full disclosure principle

This is the concept that you should include in or alongside the financial statements of a
business all of the information that may impact a reader's understanding of those statements.
The accounting standards have greatly amplified upon this concept in specifying an
enormous number of informational disclosures.

Going concern principle

This is the concept that a business will remain in operation for the foreseeable future. This
means that you would be justified in deferring the recognition of some expenses, such as
depreciation, until later periods. Otherwise, you would have to recognize all expenses at
once and not defer any of them.

Matching principle

This is the concept that, when you record revenue, you should record all related expenses at
the same time. Thus, you charge inventory to the cost of goods sold at the same time that
you record revenue from the sale of those inventory items. This is a cornerstone of the
accrual basis of accounting. The cash basis of accounting does not use the matching the
principle.
Materiality principle

This is the concept that you should record a transaction in the accounting records if not
doing so might have altered the decision making process of someone reading the company's
financial statements. This is quite a vague concept that is difficult to quantify, which has led
some of the more picayune controllers to record even the smallest transactions.
4a)

This whole process is referred to as the accounting cycle. Following is the list of books of
original entries:
- Purchase Journal
- Sales Journal
- Purchase Return
- Sales Return
- Cash Journal
- General Journal

PURCHASE JOURNAL:
Purchase Journal is used for all credit purchases. Cash Purchases are not recorded in this Journal.
This is a very important point since many accountants make this mistake by including cash
purchases in this journal. Recording of Purchases is done through source documents in all
journals; for purchase journal source document is a purchase invoice.
- Purchase journal comprises the list of credit purchases being made.
- For every posting made in the purchase journal, a ledger account will be opened for the
creditor, simultaneously.
- At the end of the month, the closing balance in the purchase journal will be transferred to
General Ledger.

SALES JOURNAL:
Sales Journal is another important Book of original entry. It is used to record credit sales
made. Sales Invoice is the source document used for recording sales in the sales journal.
- A list of Trade receivables is posed in the sales journal from sales invoice.
- A ledger of account receivable is prepared along with every posting made to sales journal,
simultaneously.
- At the end of each month the total balance of sales journal is transferred to General Ledger.
SALES RETURN JOURNAL:
Sales return journal is used to record the goods returned by customers for any reason, either they
were not the goods ordered or sent more than ordered or may be faulty. The source document
used for recording sales return is credit note. This credit note is sent by the supplier to the
customer, confirming that his account has been credited with the supplier.
- List of goods returned are added in the sales return journal.
- Along with every posting made in the sales return journal, the related customer account is
credited too.
- At the end of the month, the balance of sales return journal is transferred to the General
ledger.
PURCHASE RETURN JOURNAL:
Purchase return Journal is used to record the goods returned to suppliers for any reason, either
they were not the goods ordered or sent more than ordered or may be faulty. A Debit note is the
source document used for recording purchase return. The steps are same for posting purchase
returns to journal like for other journals:
- List of goods returned to suppliers is added in the purchase return journal.
- Supplier’s account related to purchase return is debited along with every posting made to the
purchase return journal.
- At the end of the month, the balance of the purchase return journal is transferred to General
Ledger.
CASHBOOK:
Cashbook is used to record all transactions involving cash at bank or cash at hand. The Cashbook
is divided into two columns; the Debit side represents the cash received or the amount deposited
into the bank account, while the credit side shows the amount paid in cash form or paid out of a
bank account. The source documents used for the debit side are:

- Copy Receipts
- Till Rolls
- Bank paying-in book counterfoils
GENERAL JOURNAL:
General Journal creates a lot of confusion in the accountant’s mind because specifically nothing
has been mentioned which is recorded in this book of original entry, but based on common
understanding whatever accounting transactions are not accounted for in other books of original
entry will be recorded in the General Journal. The format of the General journal is different from
other books. It records each transaction separately and uses narration after recording in the
journal Motor car purchased through Bank”.

The general journal is often used for the following transactions:

- For inter-ledger transfers
- For the correction of errors
- For the purchase of a non-current asset on credit
- For the sale of non-current on credit
- For the opening entries when the business starts trading
- For the entries when the business ceases its trading
4b) i)

SALES DAY BOOK

Date Detail Folio Amount
May 1st L. long 800,000
May 1st S. short 1,250,000
May 1st B. stone 1,000,000
May 10th Tovadis 1,161,000
May 24th L. long 2,700,000
May 24th B. stone 970,000

ii)

PURCHASES DAY BOOK

Date Detail Folio Amount
May 3rd S. Lewis 730,000
May 3rd J. Makoy 950,000
May 8th A.ladi 840,000
May 8th B. Ready 1,750,000
May 15th S.Lewis 510,000
May 15th J. Makoy 450,000
SALES RETURNS BOOK
Date Detail Folio Amount
May 4th S. Short 370,000
May 28th B. stone 180,000
May 30th Tovadis 200,000
PURCHASES RETURNS BOOK
Date Detail Folio Amount
May 9th B. Ready 500,000
May 18th J. Makoy 190,000
iii)
 4c) The main branches of accounting are financial accounting, cost accounting and
management accounting.

i. Financial accounting:
It keeps a systematic record of financial transactions which represents the operating result of
the organization.
ii. Cost accounting:
It relates to collection, classification and ascertainment of the production cost of the firm. It
also helps to control the cost and provide the required information to management for making
decision.
iii. Management accounting:
It relates to the use of accounting data collected from financial accounting and cost accounting
for the purpose of policy formulation, planning, control and decision making by the
management.