Accounting & financial systemsmcpc 606

Prime Entry and Ledger (cont.)When a business is very small, all the double entry accounts are kept in one book called ledger.As the business grows it is impossible to use one book to do all recording by several bookkeepers.The transactions cannot be done properly in one book, and therefore the solution to this limitation is to kept many books. 67Practice Question 2At the beginning of September, Robin Plenty had Gh₵900 in the bank. During 1 September 2016, Robin Plenty had the following receipts and payments.2/9/2016 Cash sale: receipt of Gh₵ 80.2/9/2016 Payment from credit customer Hay Gh₵400 less discount allowed Gh₵20.2/9/2016 Payment from credit customer Been Gh₵720.3/9/2016 Payment from credit customer Seed Gh₵150 less discount allowed Gh₵10. 8/9/2016 Cheque received from Len Dinger Gh₵ 1,800 to provide a short term loan.10/9/2016 Second cash sale: Receipt of Gh₵150.14/9/2016 Cash received for sale of machine Gh₵200.2/9/2016 Payment to supplier Kew Gh₵120.3/9/2016 Payment to supplier Hare Gh₵310.7/9/2016 Payment of telephone bill Gh₵4007/9/2016 Payment of gas bill Gh₵2808/9/2016 Gh₵100 in cash withdrawn from bank for petty cash.9/9/2016 Payment of Gh₵1,500 to Hess for new plant and machinery.Preparation of cash book for 31/9/2016:68Books of Prime Entry (cont.)Petty cashIt is necessary to keep small sums if money with the cashier or the petty cashier for the purpose of meeting small expense.Some expenses that petty cash can take care of are: Postage; Stationery; T & T and office sundry expenses.Petty cash book is generally maintained on a columnar basis- a separate column being allocated for each type of expenditure.69Books of Prime Entry and Ledger (cont.)JournalAny entry not entered into any of the five books of prime entry is recorded into the journal.The entry is done in the form of diary to record transactions in the form:The date The name of account (s) to be debited and amount or to be credited and amount.A description and explanation of the transactions (i.e., narrative).It is used to record the business transactions in a chronological order.Journal is one of the books of prime entry.70IllustrationYou are required to show the journal entries necessary to record the following items:April 1: Bought a van on credit from Mensah Garage for Ghc5,395.April 3: A bad debt of Ghc81 owing from Owusu was written off as a bad debt.April 8: Office furniture bought by us for Ghc610 was returned to the supplies Agya Nimo Ltd. Full allowance will be given to us.April 12: We are owed Ghc320 by Andoh. He is declared bankrupt and we receive Ghc51 in full settlement of the debt. April 14: We take goods costing Ghc22 out of the business stock without paying for them.April 28: Some time ago we paid an insurance bill thinking that it was ill in respect of the business. We now discover that Ghc62 of the amount was in fact insurance of our private house.71SolutionNo.DetailsDr.Cr.April 1Van5,395   Mensah Garage 5,395April 3Bad debt81   Owusu 81April 8Agya Nimo610   Office furniture 610April 12Bank51  Bad debt269   Andoh 320April 14Drawings22   Purchase 22April 28Drawings62   Insurance 62  6,4906,49072Practice Question 2Mr. Yaro, a sole trader, has the following transactions during the month of September 2016.Date Description6/9/2016 Bought on credit from S. Otoo 3 bags of rice at Gh₵90 each less 10% trade discount.9/9/2016 Sold on credit to M. Cudjoe 2 bags of rice at Gh₵140 each less 5% trade discount.14/9/2016 Purchased on credit from F. Nartey 4 bags of rice at Gh₵85 each less 5% trade discount.16/9/2016 Sold on credit to J. Brown 1 bag of rice at Gh₵135 and 1 at Gh₵100- no trade discount allowed. 21/9/2016 Purchased on credit to A. Best 1 bag of rice at Gh₵105 and 1 at Gh₵115 less 5% trade discount on the complete sale.Required:Enter the above transactions in the Sales Day Book and Purchases Day Book as appropriate.Post the transactions from the Day Books to the Personal Accounts concerned in the ledger.73Control AccountsWhat are Control Accounts?It is a summary account that enable the preparer to see at a glance all individual accounts held.When control account is prepare from purchase ledger it s known as purchase control accounts.When control account is prepare from sales ledger it s known as sales control accounts.It is prepare in the form of T- account.74Information for control accountsSources of information used to write Receivable Control Accounts: 75SourceKind of informationOpening balanceClosing balance of the previous years becomes the opening balance.Credit salesTotal from sales day book (i.e., sales journal)Returns inwardsTotal of sales returns day book.Receipts from receivables Cash book/journalDiscount allowedCash book- Discount allowedBad debt written offGeneral journalControl AccountsPrepare sales control account data: GhcDebit balances on 1 January 2016 1,894Total credit sales for the month 10,290Cheque received from customers in the month 7,284Cash received from customers in the month 1,236Returns inward from customers during the month 296Debit balances on 31 Jan as extracted from the sales ledger 3,36876SolutionSales Ledger ControlDateDetailsAmountDateDetailsAmountJan 1Balance b/d1,894Jan 31Bank7,284Jan 31Sales10,290Jan 31Cash1,236   Jan 31Return outwards296   Jan 31Balance c/d3,368  12,184  12,18477Control Procedures (cont.)Example on trade receivable control accountPrepare a receivable control account from the information given below: Gh₵Receivable ledger balance at 1st January 250,000Transactions during the period:Credit sales 650,000Cash sales 420,000Cheques received from accounts receivable 200,000Cash received from trade accounts receivable 300,000Bad debts written off 25,000Discounts allowed 30,000Returns inwards 15,00078Control Procedures (cont.)SolutionReceivable Control Accounts79Ghc Ghc Balance b/f 250,000Cheque received200,000Credit sales Cash received300,000Bad debts25,000 Discounts allowed30,000Returns inwards15,000 Balance c/d330,000 900,000 900,000Categories of General Ledger Accounts (cont.)Difference between real accounts and nominal accounts.Real accountsReal accounts refer to accounts taken from statement of financial position.Examples of real accounts are: Cash, accounts receivable, fixed assets, accounts payable and retained earnings.Real accounts is also refers to as permanent accounts because their balances are not transferred (or closed) at the end of the accounting period.Account balances are carried forward from one fiscal year to the next.80Extraction of Trial BalanceTrial balance:This is the lists of accounts titles and their balances at a given time.A company usually prepares a trial balance at the end of an accounting period.Debit balances are listed in the left column and credit balances in the right column.The totals of the two columns must be equal.81Extraction of Trial Balance (cont.)Nominal accountsNominal accounts refer to accounts taken from statement of comprehensive income.Examples of nominal accounts are: Revenue accounts; Salaries accounts; interest received accounts; rent accounts; transport accounts.This is also called the temporary accounts because information these accounts will be transferred at the end of the accounting period.82Extraction of Trial Balance (cont.)Below is an example of trial balance of Joseph Gyan’s accounts: 83Debit Gh₵Credit Gh₵Cash at bank6,500Capital7,000Bank loan1,000Purchases5,000Trade accounts payable--Rent3,500Shop fittings2,000Sales12,500Trade accounts receivable--Bank loan interest100Other expenses1,900Drawings1,50020,50020,500Extraction of Trial Balance (cont.)As at 25/12/2016, your business has following balances on its ledger accounts.84Dr. Gh₵Cr. Gh₵Bank loan12,000Cash at bank11,700Capital13,000Local taxes1,880Accounts payable11,200Purchases12,400Sales14,600Sundry payables1,620Trade accounts receivable12,000Bank loan interest1,400Other expenses11,020Vehicles2,02052,42052,420Extraction of Trial Balance (cont.)NotesBought materials for Gh₵1,000, half for cash and half on credit.Made Gh₵1,040 sales, Gh₵800 of which was for credit.Paid wages to shop assistants of Gh₵260 in cash.You are required to draw up a trial balance showing the balances as the end of 31/12/2016.85Extraction of Trial Balance (cont.)Solution The effects of the three transactions on 3/12/2016 trial balance are as follows:86Dr. Gh₵Cr. Gh₵DebitPurchase1,000CreditCash at bank500CreditAccounts payable500DebitCash at bank 240DebitAccounts receivable800CreditSales1,040DebitOther expenses260CreditCash at bank260Practice Question 1Mr. Tilapia started a wholesale business on 1 January 2014 with a personal savings of GHS10,000.On 2 January, he bought some inventory for GHS3,000 and paid with cheque On 10 January , he bought additional inventory on credit for GHS4,000On 15 January, she bought a small delivery van for GHS12,000, paid GHS5,000 and arrange for 2 year deferred settlement for the balance.On 18 January she arranged for an GHS6,000 overdraft with her bankers87Practice Question 1 (cont.)In Wk 3 of January, she sold inventory costing GHS5,000 for GHS6,000 , all on cash basisOn 28 January she received a rent demand notice from her land lady for January rent of GH500 On 29 January, the rent was settledIn wk 4 of January she sold inventory costing GHS1,000 to a customer for GHS900 because of the bad state of the inventory. The customer agreed to pay in a week’s time. Required to:The statement of financial position as at 31 January 201488