Accounting O Level
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This document provides definitions and explanations of accounting terms and concepts for an O Level accounting course. It covers topics such as capital, working capital, employed capital, journals, ledgers, trial balances, ratios, adjustments including depreciation and bad debts, and accounting equations. Examples of recording transactions and preparing income statements and balance sheets are also included. The document is meant to serve as notes for an introductory accounting course.
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Accounting O Level
- 1. Accounting O Level 0 Ezz Eldin Adham Ezz El Din Adham Shalaby MM ACCOUNTING OL NOTES Bta3t Ezz
- 2. Accounting O Level 1 Ezz Eldin Adham Definitions Term Explanation Capital Financial assets or the financial value of assets Capital Owned It includes owner’s investments in business Working Capital Capital used on the short run Employed Capital Capital used on long run Journal A book of prime entry which transactions are recorded for the first time under double entry system Ledger Book of 2nd entry as transactions are posted from journal to accounts Trial Balance A list of all debit and credit account’s balances at a specific date
- 3. Accounting O Level 2 Ezz Eldin Adham The Capital Capital Owned Opening Capital Net profit Additional capital Drawings Working Capital Current assets Current liabilities Importance Paying short term debts Paying day to day expenses Benefiting from discounts offered Buying stock when needed Employed Capital Fixed assets current assets current liabilities Or Fixed assets working capital Or Capital Long term liabilities FA+CA = CL+ LTL+ Cap
- 4. Accounting O Level 3 Ezz Eldin Adham Ratios � � � = � � � � × � � = � � � × � % = � � � � × � � = � � � � × � = � � � � = ⋯ . : � � = − � � � � =. : � � = � × 3 � � � = � / � ℎ × 3 = � � = � + � 2 � = × 3 Advantages of using Ratios: Trend Analysis Inter firm comparison Making important decisions Compare with other investment alternatives Avoid over accumulation of stock (Stock Rationalization)
- 5. Accounting O Level 4 Ezz Eldin Adham Improving How to improve … Gross profit margin Increase selling price Decrease cost of sale (cheaper suppliers) Buy in bulk (cheaper) Decrease packing expenses etc Net Profit Margin Control other expenses Find other incomes: using unused fixed assets Current Ratio Inject more capital in business Reduce cash drawings Sell excess fixed assets Obtain (long term) loan Quick Ratio Same as Current Ratio Increase sales by advertising and market research Stock turnover ratio Increase sales Advertising and market research Increase sales Decrease stock levels Offer trade discount DCP Offer cash discount Charge interest on late amounts Send regular statements of accounts Fix a credit limit for each debtors Investigate debtors CPP Obtain a long credit period from suppliers Mark up% Gross profit margin ROCE Net profit margin
- 6. Accounting O Level 5 Ezz Eldin Adham Questions What are the factors considered in inter firm comparison? Size of business measuring capital Type of goods Durables and non-durables Structure of expenses, labour, Capital-intensive Accounting policies as depreciation methods Experience and good will according to age of business Market conditions Type of ownership Seasonal sales variation What are the limitations of F/s thus of Ratios? All Fa are recorded at their original cost which doesn’t match sales values due to historic concept Only items of monetary value are recorded in business books leaving out important non- financial items as good will, labour skills, management efficiency Time factor (as important transactions between date of preparation of F/s and their presentation will not appear in F/s) F/s are condensed and brief leaving out important details
- 7. Accounting O Level 6 Ezz Eldin Adham Accounting Equation & recording Accounting Equation Assets= Capital (Equity) + Liabilities Extended Accounting Equation Assets + Expenses = Capital + Liabilities + Income Steps of Recording Financial Transactions F/DocJournalLedgerTBAdjustmentsI/SB/SH Financial documents a) Invoices i. Issued by seller ii. Records sales on credit for seller and purchase on credit for buyer iii. Examine the example below: Name(seller) Invoice Info about buyer Invoice No and date Description Quantity Price Total Model234 Model567 4 6 7.00 8.00 28 48 Total Less Trade discount Carriage on the above goods Net Invoice Value 76 7.6 20 88.4 Buyer info Order no and date Discount for settlement within a specific time b) DeBit Notes i) Issued by Buyer to seller to ask for returning goods ii) Not used in recording c) Credit Notes i) Issued by seller to buyer to accept returning goods ii) used in recording sales/purchase Returns
- 8. Accounting O Level 7 Ezz Eldin Adham d) Statement of account i) A copy of debtor’s account in creditor’s books ii) Sent by Creditor to debtor To remind debtor of amount due To inform debtor of due date To remind debtor of cash discount iii) Shows Amount, Date, Cash discount e) Cheques i) Used to record bank transactions f) Receipts i) Used to record cash transactions g) Vouchers i) Used to record petty cash transactions Journal A book of prime entry which transactions are recorded for the first time under double entry system General Journal Form Date Details Dr. Cr. 1/1/11 Dr. sales 2000 Cr. Cash 2000 Narrative All in cash Ledger Book of 2nd entry as transactions are posted from journal to accounts a) T a/c form cash Date Details $ 1/1 Balance b/d 1000 1/2 Balance b/d 500 Date Details $ 2/1 wages 500 31/1 bal. c/d 500 b) Computerized a/c form cash Date Detail Dr Cr Balance 1/1/11 2/1/11 3/1/11 Bal b/d Wages bank 1000 400 500 1000Dr 500Dr 900Dr
- 9. Accounting O Level 8 Ezz Eldin Adham Trial balance A list of all debit and credit account’s balances at a specific date Its purpose: i) Detect errors ii) Useful in preparing I/S iii) Prove mathematical equality between DR and CR balances under double entry system iv) Opening stock appear on TB while closing stock appears as a note under it v) Bank can be given as Dr or Cr value as withdrawals may exceed balance and become a liability rather than an asset Trial balance Form Account Value Dr Cr Sales Motor Cash Bank 9000 4000 3000 2000 4000 3000 2000 9000 Totals 9000 9000 Adjustments Its purpose is to give a true view to the user avoid over or under statement. a) Provision for Depreciation i) The part used of the cost of fixed asset ii) It is a contra asset account opened to decrease value of fixed assets by expected loss over its useful lifetime iii) Calculated by : 1. Straight line method : (a) (cost-scrap value)/useful life (b) Cost * % of depreciation per year 2. Reducing balance method: (a) Net book value * % 3. Revaluation method (a) Valuation at beginning – valuation at end iv) Causes of depreciation (a) Usage (b) Passage of time (c) Depletion (d) Economic reasons (e) New tech
- 10. Accounting O Level 9 Ezz Eldin Adham v) Difference between Straight line and reducing methods Straight line Reducing method Fixed Dep. Each year Falling dep. Each Dep based on cost Dep based on NBV Easier to determine dep rate Difficult to determine dep rate Takes scrap value in consideration Ignores scrap value vi) Why provide for dep.? (a) Application of prudence concept where dep. Is an expected loss in value of FA (b) To avoid overstatement of FA & NP in F/S (c) Application of matching concept where depr. Is charged in period of usage (d) To spread cost of asset on its useful lifetime vii) Why apply same method when providing for dep for the same asset (a) Application of consistency concept where treatment of similar assets should be the same from year to year (b) To avoid misleading users of F/S by overstatement of NP and FA in F/S viii)Journal Date Detail Dr Cr 31/12 Dr profit and loss I/S 1000 Cr provision for depreciation of machinery 1000 ix) Ledger Bal c/d 3000 Total 3000 Bal b/d 2000 I/s profit & loss 1000 Total 3000 Bal b/d 3000 x) Profit and loss extract Income statement for year ended at … Other expenses Depreciation 1000 xi) Balance sheet Extract Balance sheet for year ended at …. Fixed assets Machinery at cost -accumulated prov for dep 5000 3000 = NBV 2000
- 11. Accounting O Level 10 Ezz Eldin Adham b) Bad Debts i) Bad Debts written off when debtors fail to pay a. Journal Date Detail Dr cr .../…/… Dr bad debts 5000 Cr debtor (name) 5000 b. Ledger Debtor (name) 5000 I/S profit & loss 5000 ii) Bad Debts Recovered when Bad debt is paid after being written off a. Journal Date Detail Dr cr .../…/… Dr cash 5000 Cr bad debt recovered 5000 b. Ledger I/s profit & loss 5000 Cash 5000 iii) Provision for Bad Debts a. A contra asset account opened to decrease value of debtors a/c by expected loss of bad debts b. Calculating bad debts by i. Percentage of expected bad debts *value ii. Investigating debtors and giving value c. Why provide for bad debts? i. App of prudence concept ii. App of matching concept d. Journal Date Detail Dr Cr .../…/… Dr I/s profit & loss 3000 Cr provision for bad debts 3000 .../…/… Dr provision for bad debts 2000 Cr I/s profit & loss 2000 e. Ledger Provision for bad debts a/c Balance C/d 11000 Total 11000 I/s 2000 Bal c/d 9000 Total 11000 Balance b/d 8000 I/s 3000 Total 11000 Balance b/d 11000 Total 11000 Bal b/d 9000
- 12. Accounting O Level 11 Ezz Eldin Adham f. Profit & loss extract Income statement for year ended at … Other expenses Provision for bad debts 3000 Or Income statement for year ended at … Other income Provision for bad debts 2000 g. Balance sheet extract Balance sheet for year ended at …. Current assets Debtors -New provision for bad debts 110000 11000 = Net Trade Receivables 99000 Or Balance sheet for year ended at …. Current assets Debtors -New provision for bad debts 90000 9000 = Net Trade Receivables 81000 c) Withdrawal of Goods i) Journal Date Detail Dr Cr .../…/… Dr withdrawals 3000 Cr purchases 3000 ii) Ledger Purchase Bank 6000 Ahmed 3000 Total 9000 Bal b/d 6000 Withdrawals 3000 Bal c/d 6000 Total 9000 iii) I/s Income statement for year ended at … -Cost of sales Withdrawals 3000 iv) B/sh Balance sheet for year ended at …. Financed by Capital Drawings Withdrawals +net profit +new injected capital 100000 1000 3000 10000 2000 = Capital owned 108000
- 13. Accounting O Level 12 Ezz Eldin Adham d) Prepayments i) Amount paid or received before due time ii) Could be considered as current asset or current liability accordingly iii) Journal Date Detail Dr Cr .../…/… Dr prepayment 3000 Cr I/s profit & loss 3000 Or Date Detail Dr Cr .../…/… Dr I/s profit & loss 3000 Cr prepayment 3000 iv) Ledger 1/1 Bal b/d 5000 Bank 1000 Bal B/d 3000 I/s p & l 3000 Bal c/d 3000 Or Profit and loss 3000 Bal c/d 3000 Bal b/d 5000 Bank 1000 Bal b/d 3000 v) I/s Income statement for year ended at … - Other Expenses -Prepayments 3000 Or Income statement for year ended at … +Other income -Prepayments 3000 vi) B/sh Balance sheet for year ended at …. Current assets Prepayment (expense) 3000 Or Balance sheet for year ended at …. Current Liabilities Prepayment (Income) 3000
- 14. Accounting O Level 13 Ezz Eldin Adham e) Accruals i) Amount not received after due time ii) Journal Date Detail Dr Cr .../…/… Dr profit & loss 3000 Cr Accruals 3000 Narrative Expense due but unpaid Or Date Detail Dr Cr .../…/… Dr Accruals 3000 Cr Profit & loss 3000 Narrative Income due but unrecieved iii) Ledger Bank 2000 Bal c/d 4000 Bal b/d 3000 Profit & loss 3000 Bal b/d 4000 Or Bal b/d 3000 Profit & loss 3000 Bal b/d 4000 Bank 2000 Bal c/d 4000 iv) I/s Income statement for year ended at … +Other income +Accrued Income 3000 Or Income statement for year ended at … -Other Expenses +Accrued Expense 3000 v) B/sh Balance sheet for year ended at …. Current Assets Accruals (Income) 3000 Or Balance sheet for year ended at …. Current Liabilities Accruals (Expense) 3000
- 15. Accounting O Level 14 Ezz Eldin Adham Journal I/s B/sh Prepaid Expense Dr. prepayment Cr. I/s profit & loss Other expenses -Prepayment Current assets prepayments Prepaid Income Dr. I/s Profit & loss Cr. Prepayment Other Income -Prepayment Current Liabilities Prepayments Accrued Expense Dr. I/s Profit & loss Cr. Accruals Other Expenses Accrued Expense Current Liabilities Accrued Expense Accrued Income Dr. Accruals Cr. I/s Profit & loss Other Income Accrued Income Current asset Accrued Income Income Statement a) Shows profits and losses for the year ended b) Divided into i) Trading a/c ii) Profit and loss a/c 1. Horizontal format Trading a/c Sales returns 2000 Cost of sales 110000 Gross profit 88000 Total 200000 Sales 200000 Total 200000 Profit and loss a/c Other expenses 17200 Net Profit 85300 Total 104500 Gross profit 88000 Other income 14500 Total 104500 Balancing off income & expenses account Income account I/s 1000 Cash 1000 Expense account Cash 1000 I/s 1000
- 16. Accounting O Level 15 Ezz Eldin Adham Vertical Form Details $ $ Sales -Sales returns 200000 (2000) = Net sales (net revenues ) NS. 198000 -Cost of sales Opening stock + purchases - purchases returns - withdrawals + carriage inward + packing expenses +warehouse expenses -Closing stock 6000 90000 (6000) (3000) 7000 5000 6000 (1000) 110000 = Gross profit GP 88000 + other income Rent Received Commission received Discount received Bad debts recovered Provision for bad debts -prepayment Accruals - other expenses Rent Salaries wages Accruals Carriage outwards Discount allowed Bad debts written off Provision for depreciation Provision for bad debts Advertising / insurance etc. - Prepayment 6000 3000 500 4000 1000 (1000) 1000 3000 7000 1000 1000 200 1000 3000 1000 2000 (2000) 14500 17200 =Net Profit NP. 85300
- 17. Accounting O Level 16 Ezz Eldin Adham Balance sheet It shows the financial position as at a certain date by matching assets against liabilities Horizontal Format Assets Liabilities Fixed Assets Land / building Machinery - Provision for dep. Good will Patent right Trade mark Fixtures and fittings Office equipment +Current assets Stock Debtors - Provision for bad D + prepayments +Accruals Bank Cash 200k 20k (2k) 5k 7k 9k 10k 3k 1k 9k (1k) 3k 100k 10k 256k 124k Financed by Capital - withdrawals - Drawings Net profit injected capital + Long term liabilities Loan Mortgage +Current liabilities Creditors Accruals Bank OD Prepayment 100k (2k) (3k) 80k 25k 50 50 50k 10k 10k 10k 200k 100k 80k Total Assets 380k Total L + capital 380k Who are the users of Financial statements? Owner to calculate NP or NL Bank to accept/ reject loans , set credit periods Manager to take improvement decisions Government to calculate taxes Creditors to accept/reject credit purchase Investors to assess business profitability & efficiency
- 18. Accounting O Level 17 Ezz Eldin Adham Vertical Format Assets Fixed assets Land / building Machinery - Provision for depreciation Good will Patent right Trade mark Fixtures and fittings Office equipment 200k 20k (2k) 5k 7k 9k 10k 3k 256k Current assets Stock Debtors - Provision for bad D + prepayments Bank Cash 1k 9k (1k) 3k 100k 10k 124k Current liabilities Creditors Accruals Bank OD Prepayment 50k 10k 10k 10k (80k) Working capital 44k Capital employed 300k Liabilities and capital Financed by Capital - withdrawals -Drawings Net profit injected capital 100k (2k) (3k) 80k 25k 200k Non-current liabilities Loan Mortgage 50 50 100k Capital Employed 300k
- 19. Accounting O Level 18 Ezz Eldin Adham Errors Errors that affect TB 1. Overstatement or understatement of a/c balance 2. Error in addition in TB 3. Single entry 4. Wrong side of a/c balance What to do when detecting errors 1. Re sum Dr and Cr columns 2. Check side of each a/c balance 3. Check no balance is omitted 4. Check value of each balance 5. Re total balances in ledger a/c 6. Check posting from journal 7. Open suspense a/c To Equate Dr and Cr columns To be able to prepare F/s Errors not affecting TB 1. Error of Omission Transaction unrecorded Record it ;) 2. Error of Principle Posting transaction to wrong type of a/c Example :a purchase of computer by 5000 debited to purchase account Correction: Dr. computer 5000 Cr. Purchase 5000 3. Error of commission Transaction added to right type but wrong name Example : a credit sale of 8000 to Jones debited to James Correction :Dr. Jones 8000 Cr James 8000 4. Error of compensation 2 errors of same amount cancel each other Example : cash is over casted by 1000 while bank under casted by 1000 Correction: Dr bank 1000 Cr cash 1000 5. Error of original entry Posting transaction by wrong amount Example: purchase of computer by 5000 recorded as 500 Correction Dr computer 45000 Cr cash 45000 6. Error of complete reversal Posting to wrong side of account Example :purchase of comp. 1000$ debited to cash and credited to computer Correction Dr. computer 2000 Cr. Cash 2000
- 20. Accounting O Level 19 Ezz Eldin Adham Net Profit Correction Statement Net Profit Before Correction 200k Add 5k Less 3k Net Profit after correction 202k Bank Reconciliation Why is a copy of the business account in bank books sent to the business periodically ? o To detect errors by checking statement against business books o To inform business of account balance and dishonuored cheques Reconciliation should be made between both balances o Update cashbook with missing entries o Detect errors o Detect fraud o Discover dishonoured cheques Items recorded by cash book but not Bank statement o Un-presented cheques o Deposit in transit Items recorded by Bank statement but not cash book o Credit Transfer: collection from debtors o Direct Debit : payment to creditors o Standing order : regular payment o Bank charges : fees for bank service o Bank interest :income on bank deposit o Dishounored cheques :cheques rejected for Insufficient funds Amount different in numbers from in letters Unable to verify signature Cheque is expired Updating Cashbook Dr Updating cashbook bank column Cr Bal b/d =c/d in cashbook Bank interest Credit Transfer Bank charges Direct debit Standing order Dishonoured cheque Bal c/d=updated CB bank bal Reconcile the bank statement balance Balance as in bank statement Add: deposit in transit Less : un-presented cheques Updated cashbook bank balance
- 21. Accounting O Level 20 Ezz Eldin Adham Control Accounts Used to control debtors and creditors accounts Advantages of preparing them? o Detect errors o Detect fraud o Useful in preparing F/s Information is obtained from journals not from ledgers to avoid repetition of supposed errors in ledger so they can be detected Why would there be additional Cr balance in SL a/c or additional Dr balance in PL a/c o Overpayment of an account o Return of goods after payment o Payment in advance for goods Sales Ledger control A/c Dr Sales Ledger Control A/c Cr Bal b/d Sales Interest Cash Refund Dishonoured cheques Bal b/d Sum-beg Sales journal General J Cash book Cash book Sum-End/Beg Bank/ cash Sales returns Discount allowed Bad debts Contra PL Bal C/d Cash book Sales R j Cash book General J General J Purchase Ledger control a/c Dr Purchase Ledger Control A/c Cr Purchase returns Bank/cash Disc received Contra SL Bal c/d Purchase R J Cash book Cash book General J Sum End Bal b/d Purchase Interest Cash refund Bal b/d Sum Beg Purchase J General J Cash book Sum End/Beg
- 22. Accounting O Level 21 Ezz Eldin Adham Incomplete Records Preparing I/s with Incomplete records Details Sales Cost of sales Opening stock Purchases Closing stock ? ? = Gross profit +Other Income -Other expenses = Net profit Calculating sales by Sales ledger Control a/c Sales = cash sales + credit sales Cash sales are given in question Dr Sales Ledger Control A/c Cr Bal b/d Sales Bal b/d Given ? Bank/cash Discount allowed Bad debts Bal C/d Given Given Given Given Bal b/d + sales = bank/cash +disc a/d + bad debts Calculating purchase by purchase ledger control a/c Purchases = cash P + credit P Cash P given Dr Purchase Ledger Control A/c Cr Bank/cash Disc received Bal c/d Given Given Given Bal b/d Purchase Bal b/d Given ? Sum End/Beg Bal b/d + Purchase = bank/cash +disc R/d Preparing statement of affairs from incomplete records Statement of affairs at ../../.. Fixed assets Land/ buildings Machinery FA Current assets Stock Debtors Bank Cash CA -Current Liabilities Creditors Bank overdraft (CL) -Long term liabilities Loan Mortgage (ltl) Capital at ../../.. Cap.
- 23. Accounting O Level 22 Ezz Eldin Adham How to Calculate Net Profit /loss? Opening statement of affairs to calculate capital at beginning of year Assets-liabilities Closing statement of affairs to calculate capital at end of year assets – liabilities Capital Manufacturing Accounts It shows the breakdown of COP into Prime cost and Indirect expenses (over head) Prime cost of production(PCOP) = DM ,DE .DL Cost of production of finished goods = PCOP+ Indirect expenses (OH)+ opening stock of Work In Process – closing stock of WIP Manufacturing accounts Direct Raw Material Opening stock of RM Purchase of RM Carriage inwards on RM -closing stock of Rm () DM Direct Labour Manufacturing /direct wages Accrued direct wages DL Direct Expenses Royalties License fees DE = Prime Cost of Production PC + Indirect Expenses (overhead) Factory indirect labour Factory insurance Factory rent Depreciation on factory machines Oil used in factory OH = cost of Production Cop + opening stock of Work in process - closing stock of work in process WIP = Cost of Production of finished goods Replace purchases in COS in I/s with Cost of Production of finished goods and carry on as any normal I/s In B/sh add 1. Stock of Raw materials 2. Stock of work in process 3. Stock of finished goods Under Current Assets Capital Additional capital Net profit Drawings 10k 5k 3k 3k New capital 15k Drawing Net loss Bal c/d Bal b/d Additional cap Net profit
- 24. Accounting O Level 23 Ezz Eldin Adham Disposal Account A temporal account opened at disposal of a fixed asset Four journal entries are made against disposal account Canceling o Cost of FA o Provision for dep of FA Recording o Trade in value of disposed FA o Recording Gain or loss while selling FA Prepare four numbers 1) cost of FA 200k 2) Provision for Depreciation for this asset 80k 3) Selling price 75k 4) Gain/loss -45k Date Detail Dr Cr .../…/… Dr Disposal 200k Cr Machinery 200k Narrative Deleting cost of FA Date Detail Dr Cr .../…/… Dr Provision for Depreciation 80k Cr Disposal 80k Narrative Deleting provision for Depreciation Date Detail Dr Cr .../…/… Dr cash 75k Cr disposal 75k Narrative Recording trade value Date Detail Dr Cr .../…/… Dr I/s Profit & loss 45 Cr disposal 45 Narrative Recording loss (if gain vice versa) Recording Disposal in a/c Machinery account Bal b/d 500k Bal b/d 300k Disposal 200k Bal c/d 300k Provision for depreciation Disposal 85k Bal c/d 230k Bal b/d 280k I/S (dep for rest of FA) 30k Disposal of Machinery Machinery 200k Total 200k Depreciation 85k Cash 75k I/s 45k Total 200k Provision for depreciation can be calculated using months if asked in question that asset is depreciated from date of purchase to date of disposal
- 25. Accounting O Level 24 Ezz Eldin Adham Stock Valuation Stock is valued at lowest of Cost = purchase +production expenses Or Net realized value =selling price – selling expenses Carriage inwards production expenses Carriage outwards selling expenses Goods sent on sale or returns are added on closing stock -------------------------------------------------------------------------------------------------------- Expenditures Capital expenditure -Amount spent on acquiring a new FA -Amount spent on adding value to old FA -Costs to acquiring a new asset as installation fees Revenue Expenditure -Amount spent on day to day running expenses of business -costs related to purchases Capital receipts : amounts received at disposal of FA Revenue receipts : amounts received from day to day running expenses of the business Capital Expenditures are recorded at B/sh Revenue Expenditures are recorded at I/s
- 26. Accounting O Level 25 Ezz Eldin Adham Division of Journals Sales Journal Sales Returns Journal Purchase Journal Purchase Returns Journal Cashbooks General Journal Cashbooks 2 column cashbook Dr /IN cash Bank Cr /OUT Cash bank Bal b/d Bank Bal b/d 100 70 50 20 70 Wages Cash Bal c/d 10 20 70 70 3 column cash book IN Dr cash bank D A/d Out Cr cash bank D R/d Bal b/d Petty cashbook IN Out Stat. post Bal b/d Cash 30 70 Stationary Post Stationary Bal c/d 30 20 20 30 30 20 20 Total 100 Total 100 50 20 For Debtors For Creditors For Cash Transactions Every Thing Else
- 27. Accounting O Level 26 Ezz Eldin Adham Journal Type of transaction Document recorded Advantages Sales Sales on Credit Invoice 1- specialization of Labour 2-Provide total of …. To be put in ledger Sales Returns Sales Returns on Credit Credit note Purchase Purchases on credit Invoice Purchase returns Purchase returns on credit Credit note Cashbook Bank and Cash transactions Small expenses in petty cashbook Reciepts Cheques Vouchers in petty cashbook Combines Cash and bank a/c in one book 3 column cashbook gives total of both discounts to be entered I general ledger General Bad debts expense Provision for Depreciation Provision for Bad Debts Correction of errors Purchase of FA on credit - Contra Entry within cashbook ;) which is a ledger & journal together Division of journals Why? 1- Division of labor 2- Useful in preparing ledgers 3- Easy reference by classifying types of transactions in similar books Advantages of petty cashbook 1- training of small accountants 2- Seniors concentrate on more important jobs 3- avoid CB overcrowding 4- control overspending 5- Reduce entries in CB and nominal ledger Advantages of Analysis column ? 1- Control overspending 2- Provide total of each expenses to be posted to Dr side of its account Define Imprest system Petty cashier receives a fixed amount and uses it for small expenses then at end of period amount is restored again
- 28. Accounting O Level 27 Ezz Eldin Adham Division of Ledgers Why divide ledger to 3 main books? -Specialization of labor -easier control over debtors & creditors -Reduce possibility of fraud and errors -Easy reference by classifying similar account General Ledger Discounts Bad debts Purchase Sales Sales returns Purchase returns Equipment Loan Computers Stationary Sales ledger Debtors Purchase ledger Creditors