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Fa1 Session 2 by N Pande

ACCA FA 1 NOTES

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Nelson Pande
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33 views40 pages

Fa1 Session 2 by N Pande

ACCA FA 1 NOTES

Uploaded by

Nelson Pande
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FA1 SESSION 2

Duality of Transactions and


Double entry system
Slides By Nelson Pande
SESSION OBJECTIVES
By the end of the session you should understand,
and answer questions relating to:
1. Assumptions made when recording transactions
2. Ledger accounts, and double entry system
3. Balancing of accounts, and extracting a trial
balance
Money
Measurement
Concept

Assumptions
Made when
Recording
Separate Dual
Entity
Transactions aspect
concept concept
MONEY MEASUREMENT CONCEPT

Only record transactions that can be measured in


monetary terms.
BUSINESS ENTITY CONCEPT

A business is identified separately from its owners.


DUAL ASPECT CONCEPT

Every financial transaction has a double effect and


requires two entries to be recorded.
IDENTIFYING THE
DUAL EFFECT OF
TRANSACTIONS
Identify two items affected by the
following transactions….
1. Started a business with cash
2. Started business with a motor van
3. Received a loan in cash
4. Took cash for personal use
5. Deposited cash into the business bank account
6. Paid wages and salaries by cheque
7. Repaid the loan by cheque
Double
entry
system
The double entry system is a method in accounting
where every transaction is recorded in the ledger
with equal debits and credits to maintain balance.
SO WHAT IS A
LEDGER

A ledger is a book or electronic record where


financial transactions are systematically recorded
and organized, serving as a central repository of all
account balances and activity.
THE LEDGER
DOUBLE ENTRY
RULES
DEBIT

Debiting will increase assets and expenses, and


decrease liabilities, equity and income.
CREDIT

Crediting will increase in income, liabilities and


equity, and decrease assets and expenses.
Before you start recording transactions in the
ledger make sure you can identify assets,
liabilities, expenses, revenues, capital, and you
can identify whether they are increasing or
decreasing.
INCREASE OR
DECREASE

PRACTICE QUESTION
For each transaction state
what is increasing or
Decreasing
Started a business with cash
Started business with a motor van costing
Received a loan in cash
Took cash for personal use
Bought goods for resale cash
Paid rent by cheque
Sold goods cash
REMEMBER THIS..
Transactional example

June 20
Bought machinery
$5,000 paying cash.
When the owner of the business takes assets
of the business for personal use you record
them in a DRAWINGS account.
Dr. Drawings Cr. Asset taken
Transactions Account Account
to be to be
Debited Credited
Started a business with cash

Started business with a motor van costing

Received a loan in cash

Took cash for personal use

Bought goods for resale cash

Paid rent by cheque

Sold goods cash


DETAILED EXAMPLE 1
Record the following transactions using the double
entry system :
February
1. Started business with cash $10 000
10.Bought goods on credit from Britafanel for $3 500
15.Paid rent and rate $500 cash.
26.Received rent $1500 cash from tenant.
28.Paid Britafanel $2 000 cash.
PRACTICE QUESTION 1
Record the following transactions using the double entry
system :
December
1 Started business with cash $20 000

12 Received a loan from Zed $10 000 in cash

13 Took cash $500 for personal use

15 Sold goods cash $1000.

31 Repaid Zed part of the loan $1 000 by cash.


BALANCING OF
ACCOUNTS
Balancing accounts involves comparing the total
debit and credit amounts of each account,
identifying discrepancies (The Balance), and making
adjustments to ensure that the debits equal the
credits.
How much cash we
have at the bank and
in hand

Balances
derived How much we owe our
suppliers and how
much we are owed by
help us our customers

know..
Total sales, purchases
made so far, Expenses
to date etc.
SO NOW LET US LOOK BACK AT
OUR DETAILED EXAMPLE 1 AND
BALANCE THE LEDGER ACCOUNTS
TRIAL BALANCE
A trial balance is a list of balances
extracted from the ledger on a particular
date.
SAMPLE TRIAL BALANCE
Trial balance as at 31 December 2013 Dr. Cr.
$000. $000.

Capital a/c 1,000


Cash a/c 500
Bank a/c 2,000
Drawings a/c 1,000
Loan a/c 2,000
Total 3,000 3,000
Detection of errors

What is a
Checking the
trial arithmetical
accuracy in manual
balance systems
used for? Provides list of
balances for the
preparation of
financial statements
EXAMPLE 2
Using ledger accounts from example 1, balance the
accounts on the 28th of February and extract a trial
balance as at 28 February.
PRACTICE QUESTION 2
Using ledger accounts from Practice question 1,
balance the accounts on the 31st of December and
extract a trial balance as at 31 December.
Every debit entry has a corresponding credit entry
For double entry to be completed there must be a
debit and a corresponding credit entry
Assets and expenses have debit balances while
liabilities, equity and income have credit balances
Examination Type
36
Questions
The double-entry system of bookkeeping normally
results in which of the following balances on the
ledger accounts?

Debit balances Credit balances


A Assets and revenues Liabilities, capital & expenses
B Revenues, capital and liabilities Assets and expenses
C Assets and expenses Liabilities, capital & revenues
D Assets, expenses and capital Liabilities and revenues
If the owner of a business takes goods from
inventory for his own personal use, the accounting
concept to be considered is the

A Prudence concept
B Accruals concept
C Money measurement concept
D Separate entity concept
Andy has started a business and transferred his
computer, worth $1,500 into the business.

What are the accounting entries to record this?

A. Dr Capital Cr Computer
B. Dr Computer Cr Capital
C. Dr Computer Cr Drawings
D. Dr Drawings Cr Computer
The following transactions were extracted from the books of
Sharon for her first month of trading:
Jan 1 Started business with $100,000 cash
Jan 2 Bought goods on credit from Kitana $40,000
Jan 3 Sold goods on credit to Tiny $60,000
Jan 8 Paid Kitana $10,000 cash
Jan 8 Received payment from Tiny $13,000 cash
Jan 9 Deposited $15,000 cash into the bank
The balance on the cash account on the 8th of January is?
A. $103,000 Debit
B. $103,000 Credit
C. $88,000 Debit
D. $88,000 Credit

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