9781485710165 ntd acc n4 stb eng za

Financial Accounting N4

SCHOOL FOR SMALL BUSINESS MANAGEMENT CC

9781485710165_ntd_acc_n4_stb_eng_za.indb 1 2020/05/23 14:04

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First published in 2020

ISBN 9781485710165 (print)

ISBN 9781485718536 (epdf)

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Contents

Module 1: Introduction ................................................1Unit 1.1: Accounting theory, principles and concepts ..................................... 2

Unit 1.2: The recording of transactions from source documents .................. 32

Unit 1.3: Bank reconciliation ............................................................................ 83

Unit 1.4: Control accounts .............................................................................. 122

Module 2: Accounting entries for a trading concern according to the perpetual inventory system .....................................137Unit 2.1: Results of sole traders: Activities and financial status .................. 138

Module 3: Accounting entries for a trading organisation according to the periodic inventory system ........................................199Unit 3.1: Recording inventory transactions in ledger accounts ................... 201

Unit 3.2: Adjusting columns of journals to accommodate the periodic inventory system .............................................................. 211

Unit 3.3: Calculation of cost of sales ............................................................. 217

Unit 3.4: Trading inventory as year-end adjustment .................................... 219

Unit 3.5: Closing transfers .............................................................................. 221

Unit 3.6: Financial statements ........................................................................ 228

Module 4: Departmental accounts according to the periodic inventory system .............................231Unit 4.1: Aim of departmental accounts ....................................................... 232

Unit 4.2: Adaptation of source documents ................................................... 233

Unit 4.3: Adaptation of books of original entry ........................................... 234

Unit 4.4: Adaptation of departmental purchases and sales accounts ......... 236

Unit 4.5: Departmental trading statement ................................................... 243

Unit 4.6: Departmental Statement of Profit or Loss ..................................... 246


Module 5: Organisations without a profit motive ..253Unit 5.1: Aim of organisations without a profit motive .............................. 254

Unit 5.2: Special items – Ledger Accounts typical to NPOs .......................... 257

Unit 5.3: Special funds .................................................................................... 263

Unit 5.4: Concepts in respect of income and expenses as well as receipts and payments .................................................................... 273

Unit 5.5: Analysis Cash Book .......................................................................... 275

Unit 5.6: Trading account per activity .......................................................... 280

Unit 5.7: Statement of Profit or Loss ............................................................. 282

Unit 5.8: Adjustments of accounts to provide for a profit section ............. 285

Unit 5.9: Statement of Financial Position of non-trading organisations .... 289

Module 6: Statement of Cash Flow .........................301Unit 6.1: Aim of a Statement of Cash Flow ................................................... 302

Unit 6.2: Users of a Statement of Cash Flow ................................................. 303

Unit 6.3: Cash flow items and setting out Statements of Cash Flow........... 304

Unit 6.4: Non-cash flow items ........................................................................ 306

Unit 6.5: Procedure for drafting a Statement of Cash Flow ........................ 307

Unit 6.6: Special items in the Statement of Cash Flow ................................. 310

Glossary .....................................................................322


1

Introduction

Learning outcomes

After studying this module, you should be able to: ■ Briefly describe the basic accounting theory, principles and

concepts ■ Accounting theory, principles and concepts

■ Identify the different forms of organisations by explaining the similarities and differences between each

■ Sole Trader ■ Partnership ■ Non-profit companies ■ Profit companies

■ Personal liability companies (Inc) ■ State-owned companies (SOC) ■ Private company (Pty Ltd) ■ Public company (Ltd) ■ Close Corporation (can no longer be registered by the

CICP) ■ Identify the business activities of these organisations (mentioned

above) and indicate the difference between each i.r.o generating profit

■ Service activities ■ Trading activities ■ Manufacturing activities ■ Activities with no profit motive

■ Identify the source documents and the accounts involved with each transaction, and to determine which account must be debited or credited as well as explaining the influence of the relevant transaction on the accounting equation

■ The accounting transactions of service and trading activities with relation to the usage of source documents, the double entry principle and influence of the double entry transactions on the accounting equation

1Module


2 Module 1: Introduction

LEARNING OUTCOMES

■ Describe the basic accounting concepts, principles and policy ■ Demonstrate an understanding of the concept ‘financial accounting’

Exam tipCollect two recent DHET exam question papers. Start working through them to assess your strong points.

IntroductionEvery day, millions of �nancial transactions take place all over South Africa. For a large entity such as a KFC outlet or a public TVET college, it would be impossible to remember which transactions took place, if no proper record-keeping was done. But it does happen that proper �nancial records are sometimes not kept. For example, in South Africa, we regularly hear that the Auditor-General is unhappy with some municipalities, since no proper records of payments were kept. Yet, if a transaction is not recorded, how will the owner of a business or the municipality know how much income was received or whether suppliers have been paid?

Sub-unit 1.1.1: Accounting theory

LEARNING OUTCOMES

■ Briefly describe the basic accounting concepts, principles and policy

1. The concept ‘financial accounting’Financial accounting is basically a method to communicate �nancial information and activities about an entity to those who have an interest in the �nancial affairs of that entity. It consists of three elements:

■ identify or select activities that are labelled as transactions ■ record the transactions in an orderly and systematic way ■ compile accounting reports and communicate the information to interested

parties or users.

Unit 1.1: Accounting theory, principles and concepts


3 Unit 1.1: Accounting theory, principles and concepts

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There are various accounting reports or �nancial statements, for example: ■ statement of pro�t or and other comprehensive income (previously known as

the income statement) ■ statement of �nancial position (previously known as the balance sheet) ■ explanatory notes (to the statement of �nancial position)

2. The concept ‘bookkeeping’The bookkeeper uses the information that was captured on source documents and records it in the journals and ledger accounts of the entity on a daily basis. At the end of each month the bookkeeper compiles a trial balance. This process is repeated every month and as such, bookkeeping has a monthly cycle.

Bookkeeping is an important occupation since bookkeepers do all the preparatory work that is needed by chartered accountants.

3. Objective of financial accountingThe objective or purpose of �nancial accounting is to provide information about:

■ the �nancial performance or results for the year of the entity ■ the �nancial position on the last day of the year of the entity.

Financial performance answers the following questions: ■ Did the entity make a pro�t or a loss? ■ What is the monetary value of the pro�t or loss? ■ What was the income of the entity for the year? ■ What were the expenses in producing that income?

Financial position answers the following questions: ■ What is the type and value of the assets the entity possesses? ■ How much does the entity owe other entities, e.g. SARS, etc.? ■ What is the amount of capital of the entity?

4. Users of financial information Various users need accounting and �nancial information. Some of these are listed in Table 1.1, together with whether the users are internal or external and why they require the information.

Table 1.1: Users of accounting and financial information

User Internal/External Why information is needed

Management Internal users to plan future expansions, etc.

Government/SARS External user to calculate tax obligations of the entity

Lenders External users to assess the ability of the entity to repay loans

Suppliers External users to assess the ability of the entity to pay for purchases

Employees Internal users to be sure that the employer can provide stable employment and remuneration

Did you know?Bookkeeping is only part of the total accounting process.



5. The profit motiveAn entrepreneur or group of entrepreneurs will start a business with the primary objective of making a pro�t. When a pro�t is made, the business can continue rendering a service or trading activities. As pro�ts increase over time, the business will be able to expand its operations.

The primary objective of a business is not to employ people. Only when the owners believe that a pro�t can be made, will staff be appointed. As pro�ts realise, will the staff enjoy job security. When pro�ts increase a lot, will the business expand and appoint more people.

Pro�t refers to the situation when the income covers all the expenses incurred for the �nancial period and there is still money left. The basic formula for pro�t is:

Pro�t = Sales _______________ Income – Expenses

There are three basic categories of industries based on their output in the economy: ■ Manufacturing concerns, i.e. small and large factories making products. ■ Trading concerns, i.e. businesses buying already manufactured products and

selling these products to retailers or to customers. ■ Service undertakings that render a service to clients.

Remember, all businesses involved in trading activities are buying products (including importing products) and resell these products to retailers and customers at a higher price. The secret in business is to add an amount (called mark-up) that will cover all expenses, as well as leave an extra amount for pro�t. In a trading business we have two types of pro�t:

■ gross pro�t ■ net pro�t.

If the mark-up is too small, the owner will not be able to pay for all the expenses and will make a loss. Soon he or she will be out of business. If the mark-up is too big, the owner will not be able to sell all the products,

since they will be more expensive than the products of his or her competitors. Over time, the business will go bankrupt.

6. International developments and standardsIf each entity were to develop and prepare �nancial reports according to its own accounting rules or its own interpretation of accounting principles, they would be unable to understand one another’s accounting reports.

In South Africa, the accounting standards were known as GAAP ( Generally Accepted Accounting Practice). GAAP was a set of principles regulating the way in which �nancial transactions were reported. The objective was to prepare �nancial statements that were understandable and reliable, as well as to be able to compare the information of different organisations.

Over the years most countries have developed their own accounting standards, resulting in accounting words and concepts sometimes having different meanings in different countries.

Taxis are an example of a service



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When different countries use different accounting terms, it poses a dilemma for international investors and other users of accounting information to understand one another. Table 1.2 contains some examples.

Table 1.2: Examples of GAAP and IFRS terms

GAAP terms used in South Africa IFRS terms used in rest of world

Debtors Accounts receivable

Creditors Accounts payable

Sales Revenue

Balance Sheet Statement of Financial Position

A few years ago, the South African body of accountants adopted the International Financial Reporting Standards (IFRS). The IFRS is constantly updated to ensure that all member countries speak the same accounting language.

7. Early accounting historyBasic accounting transactions were recorded more than 5 000 years ago. There was no need for a sophisticated system in those days, since only a few trading transactions took place. More advanced forms of accounting only developed thousands of years later during the 12th century BCE. At this stage there was widespread trading among communities.

Rome was the centre of this trading movement. The Romans were the most developed of societies at the time. Rome imported foods from outside their kingdom and sold it to other regions at great pro�t. This eventually led to a better way of recording transactions.

An Italian, Benedetto Cotrugli, in 1458 wrote a book on commerce. A chapter in his book discussed some basic bookkeeping aspects.

7.1 Friar Luca Pacioli: The ‘father of accounting’The ‘double entry system’ was the �rst step to modern accounting. The �rst person to give the double entry system a thorough academic base was Luca Pacioli.

Between 1472 and 1475, he became a Franciscan friar (a priest in the Roman Catholic Church). On 10 November 1494 (just two years after Columbus discovered America) he wrote the �rst book on the double-entry accounting system. Although Friar Luca is often called the ‘Father of Accounting’, he did not invent the system. He merely described the method used by merchants in Venice to do their books. However, he added various aspects to lay down various accounting principles, such as the following:

■ The accounting cycle as we know it today.

■ The use of journals and ledgers. He warned that a person should not go to sleep at night until the debits equalled the credits. His ledger included assets (including receivables and inventories), liabilities, capital, income and expense accounts.

■ Friar Luca proposed that a trial balance be used to prove a balanced ledger.

His impact on accounting was so great that in 1994 (when South Africa became a democracy) accountants from around the world gathered in the Italian village of San Sepulcro to celebrate the 500-year anniversary of Luca’s book.

Luca Bartolomeo de Pacioli was born in 1445 in Italy.



8. Relationship between the owner and his or her business

From a practical or business operational viewpoint it is important to separate the business from its owners (or owner). This implies that the owner must keep his or her personal transactions separate from that of the business. Furthermore, the owner must have a separate bank account for the business. In this way it will be easier to determine if a net pro�t has been made for the year, and so on.

In the next unit (dealing with legal business formats), we will look at what legislation stipulates regarding the relationship between the owners of an entity and the entity itself in the event of legal disputes, bankruptcy, and so on.

9. Principle of increasing and decreasing wealth The principle of increasing and decreasing wealth is looked at from the viewpoint of the entrepreneur. An entrepreneur needs money to start a business. The money that the entrepreneur gives to the business, is called capital. The capital contributed or invested in the business, is not a loan that the business must pay back to the entrepreneur. This money now belongs to the business. The objective is that the business will make a net pro�t. At a later stage the entrepreneur may give additional capital to expand the business, which also increases capital. The capital amount indicates the wealth or share of the owner in that business.

However, when the entrepreneur takes money or stock from the business for personal use, the wealth or share of the owner in the business decreases. If the business is sold in later years, the entrepreneur should make a good pro�t on the sale of the business. This pro�t then belongs to the entrepreneur. However, if the business goes bankrupt, the owner will lose all the capital invested in the business.

In summary: Increasing the wealth or share of the entrepreneur in the business happens when:

■ contributing capital in the business ■ contributing additional capital at a later stage ■ making an annual net pro�t.

The wealth or share of the entrepreneur in the business decreases when he or she withdraw anything from the business or makes an annual net loss.

10. Account namesEvery organisation or entity works with many accounts, e.g. electricity, telephone, salaries, wages, stationery, suppliers, and so on. These different accounts are grouped into �ve categories. Some categories have many different accounts (e.g. assets and expenses), while other categories only have a few different accounts (e.g. owner’s equity).

Did you know?You, as the accountant, work for the business. You do not work for the owner. You must always approach transactions in a test or an exam from the viewpoint of the entity (i.e. the business) and not from the viewpoint of the owner. The business accounts must be seen and treated as separate from the personal accounts of the owner or owners.



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10.1 The five accounting categories

Assets

Owner’s equity

Liabilities

Expenses Income

Group 1: AssetsAssets refer to the possessions of an organisation. Examples of assets include:

■ land and buildings ■ debtors (people who owe the organisation money) ■ equipment.

There are two types of assets, namely: ■ �xed assets (also known as non-current assets) ■ current assets.

Fixed assets (non-current assets)Fixed assets or non-current assets refer to those assets that the business buys for generating an income. These assets are not for resale and the intention is usually to use them for longer than one �nancial year. Examples of non-current assets are:

■ �xed deposit (i.e. money invested at a �nancial institution for a period of more than one year to earn interest)

■ furniture and �ttings (items such as cabinets, desks and chairs, as well as water basins, built-in cupboards and mirrors).

Current assetsCurrent assets refer to those assets that can be changed into cash within one �nancial year. The value of these assets changes or �uctuates on a daily basis during a �nancial year. Examples of current assets are:

■ cash in the bank ■ debtors ■ trading stock or stock.

Group 2: Owner’s equityOwner’s equity is the worth of the owner in the business, i.e. the claim of the owner on the business. The value of the owner in the business depends on his or her capital contributions to the business, the amount the owner withdraws from the business, known as drawings, and the pro�t ploughed back into the business.

Capital contributions by the ownerAn entrepreneur needs capital to start a business. Capital is the money and/or other assets (e.g. equipment and vehicles) that the owner invests in the business to



start it, as well as to expand it at a later stage. The owner may make several capital contributions over the lifespan of the business, for example:

■ to start the business (known as start-up capital) ■ to expand the business at a later stage.

The account name for a capital contribution is simply Capital.

DrawingsThe entrepreneur has the right to take money and products from the business for personal use, as long as it is recorded. Examples of drawings are:

■ pay the home telephone account with a business credit card ■ use business cash pay for fuel for his or her daughter’s car ■ take products from the business for use home in his or her home.

Drawings is the account name for all of the above and other situations in which the owner takes cash or products for personal use.

Group 3: LiabilitiesLiabilities refer to money that the business owes to other parties, i.e. �nancial obligations that must be paid back. There are two types of liabilities or �nancial obligations:

■ non-current liabilities (long-term liabilities) ■ current liabilities (short-term liabilities).

Non-current liabilitiesThese are �nancial obligations or debt that the business will pay back over a long period of time exceeding 12 months, e.g. 5 years for vehicles such as a delivery van (account name is Vehicle Financing) or 20 years for land and buildings (account name is Mortgage Loan).

Current liabilitiesThese are �nancial obligations or debt that the business must pay back within 12 months, e.g.:

■ when the business buys goods on credit from suppliers (account name is Creditors Control)

■ to pay SARS outstanding taxes on pro�ts (account name is ‘SARS’) ■ when the business receives an overdraft facility from the bank (account name is

Bank Overdraft).

Group 4: IncomeThe objective of every business is to make a pro�t. This implies that a business must receive an income:

■ from providing a service (account name is usually Current Income, but an educational institution may also call it Fees)

■ from selling products or goods (account name is Sales). Sales occur when the business sells goods to customers (sale of trading stock).

Besides current income and/or sales, other income accounts are: ■ Rent Received (also known as rent income) ■ Interest Received (also known as interest income) ■ Discount Received.

The effect of income accounts is that they increase the owner’s worth in the business.

Did you know?Owner’s equity and capital are not synonyms. Capital is one element of owner’s equity.



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Group 5: ExpensesExpenses are the cash items the business must pay on a regular basis to ensure that the business can continue operating. Typical examples are:

■ Advertisements ■ Donations ■ Insurance ■ Licence fees ■ Rates and Taxes (expense paid on �xed property such as land an buildings) ■ Rent paid (also known as rent income) ■ Stationery ■ Salaries and Wages ■ Water and Electricity

There are two different stock systems for businesses. The one that you used in high school is known as the perpetual inventory system. Under this system, trading stock is an asset, which either increases or decreases assets. Chapter 3 in this book deals with the second system, namely periodic inventory system. Under this inventory system, we do not use the term or the account Trading Stock. Purchases is the account name for goods that are bought to sell to customers. Purchases are by convention an expense account under the periodic stock system. The effect of expense accounts is that they decrease the owner’s worth in the business.

When we buy equipment (e.g. a cash register) for use in the business, it is not for resale purposes and therefore it is not part of purchases.

11. Ledger accounts or T-accountsSince Grade 8 you have learned that all accounts have the lay-out of a T-shape. This means that each account has two sides, namely a debit side and a credit side:

■ debit (abbreviated as ‘Dr’) means left side ■ credit (abbreviated as ‘Cr’) means right side.

Dr Cr

Date Details Fol. Amount Date Details Fol. Amount

Mar 1 Balance b/d 75 00

For example, the Vehicles Account will look as follows:

Dr Vehicles Cr

Date Details Fol. Amount Date Details Fol. Amount

Debit or Dr means left Credit or Cr means right



11.1 The double-entry systemThe double-entry system means that when a transaction takes place, two accounts will be involved. For example:

■ The owner gives R50 000 as capital contribution.

The two accounts involved are the Bank (pay per cheque) and Capital (capital contribution). The one account will be debited, and the other account will be credited:

■ Debit means that the entry will be recorded on the left side of the account.

■ Credit means that the entry will be recorded on the right side of the account.

How do you know which side to use to record an accounting entry? The accounting equation will help you in this regard.

The basic accounting equationThere is a very important relationship between Assets, Owner’s equity and Liabilities, known as the accounting equation:

Assets (A) Owner’s equity (O) Liabilities (L)= +

Do you agree that the following statements are all true?

Assets = Owner’s equity + Liabilities 200 = 200 + 0 500 = 0 + 500 300 + 300 = 0 + 0 –450 = –450 + 0

Do you agree that the following statements are all untrue?

Assets = Owner’s equity + Liabilities 200 = –200 + 0 500 = 0 + 0 –300 +300 = 300 + 0 –450 = 450 + 0

We can illustrate the application of the basic accounting equation as follows:

Assets (A) Owner’s equity (O) Liabilities (L)= +

+ – – + – + Dr Cr Dr Cr Dr Cr

Let’s call this the Golden Rule in accounting (learn the above by heart).

KeywordEquation An equation means that the left side has the same value as the right side of the equation.



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(over the bridge: signs swop)+ – – + – +=

■ When an asset account increases, the account is debited. ■ When an asset account decreases, the account is credited. ■ When an owner’s equity account decreases, the account is credited. ■ When an owner’s equity account increases, the account is debited.

EXAMPLE 1 The owner gives a cheque of R50 000 as capital contribution

The two accounts involved are the Bank (business receives cash) and Capital (capital contribution).

■ Bank (asset) increases with R50 000 ▶ Dr ■ Capital (owner’s equity) increases with R50 000 ▶ Cr

EXAMPLE 2 Business pays a supplier R20 000 by EFT after invoice was received

The two accounts involved are the Bank (business pays per EFT) and Creditors Control (creditor is paid).

■ Bank (asset) decreases with R20 000 ▶ Cr ■ Creditors Control (liability) decreases with R20 000 ▶ Cr

Now you know how to apply the basic accounting equation for the three basic account categories. But what about expenses and income? How do we decide which one to debit and which one to credit?

Expenses (E) Income (I)

Owner’s equity (O)

– +

– +

Expenses and incomehave a special relationship or effect on Owner’s equity

Expenses always decrease Owner’s equity

Income always increases

Owner’s equity

KeywordEFT An abbreviation for ‘electronic funds transfer’, which is when the Internet is used to make payments from one bank account to another.



EXAMPLE 3 The business pays for pens and files per cheque, R300

The two accounts involved are the Bank (business pays per cheque) and Stationery (pens and files).

■ Stationery (expense decreases owner’s equity) with R300 ▶ Dr ■ Bank (asset) decreases with R300 ▶ Cr

EXAMPLE 4 The business receives rental from tenant, R5 000

The two accounts involved are the Bank (business receives cash) and Rent Income (for renting office space).

■ Bank (asset) increases with R5 000 ▶ Dr ■ Rent income (income increases owner’s equity) with R5 000 ▶ Cr

Remember the process: ■ Identify the two accounts involved. ■ Identify the two account categories. ■ Decide if the account is increasing or decreasing, then apply the Golden Rule. ■ Decide if second account is increasing or decreasing, then apply the Golden Rule.

ACTIVITY 1.1 Formative assessment

RequiredNick Twala started a tyre sales and tyre fitting shop on 1 February 20__.

Open the required ledger accounts as you complete the transactions. Enter the transactions in these accounts. Use your own account folio numbers as well as ledger paper. Indicate the effect on the accounting equation.

February 20__Nick Twala deposited all his savings of R300 00 in the Bank Account of the business as start-up capital. 3 The business bought an electronic tyre testing machine per cheque, R80 000.5 Bought a counter, desk and chairs on credit from Office Suppliers, R40 000. 8 Purchased different tyres brands per cheque, R45 000.10 Paid the local municipality for electricity and water per cheque, R3 500.12 Cash tyre sales from a large truck business. Issued receipt, R75 000.15 Cash sales as per cash register roll, R15 000.18 Paid wages per cheque, R3 500.22 Paid Office Suppliers per cheque as partial payment of their account, R20 000.28 Paid Telkom per cheque, R2 100.28 Used a business cheque to pay for his wife’s cell phone, R1 200.



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Sub-unit 1.1.2: Forms of ownership

LEARNING OUTCOMES

■ Identify the different forms of organisations by explaining the similarities and differences between each:

■ Sole trader ■ Partnership ■ Non-profit companies ■ Profit companies

■ Personal liability companies (Inc) ■ State-owned companies (SOC) ■ Private companies (Pty Ltd) ■ Public companies (Ltd) ■ Close corporations

IntroductionThe economy is divided in three main sectors:

■ Primary sector – refers to the products that are extracted from natural resources, for example agriculture, forestry, �sheries, mining, and so on.

■ Secondary sector – refers to the different manufacturing industries, i.e. processing natural resources into usable products, for example wood is used to manufacture school desks, vegetables are processed as frozen foods, diamonds and platinum are used to make wedding rings, and so on.

■ Tertiary sector – refers to the provision of various services, for example education, technology, health, communication services, �nancial services, and so on.

In these three sectors we �nd hundreds of thousands of different businesses, for example jewellery shops, motor dealers, cell phone shops, private schools, and so on Each one of these businesses must have a speci�c legal status, known as a form of ownership. The following are some of the factors that must be considered when deciding which form of ownership will be selected:

■ Number of owners ■ Legal requirements or formalities ■ How capital will be raised ■ The personal liability of each owner ■ Who will manage the entity ■ How pro�ts or losses will be shared ■ Continuity, i.e. what happens after the death of an owner.

Some businesses are separate legal entities which are seen as a separate legal person with its’ own name. They can trade as a separate person apart from its owner or owners. In these cases, the business can even sue and be sued, as well as enter into contracts with other entities.

KeywordForms of ownership refers to the ownership model, i.e. who is going to own the business, who is going to receive the profits, who will take the risk if the business fails, and so on ‘Forms of ownership’ is the legal term for legal status.

NoteSeparate legal entity means that the business has a legal status separate from that of the owner or owners.



1. Sole traderA sole trader or sole ownership is a business owned by one person. It is easy to start, since there are no legal start-up requirements. Most informal or small businesses are sole ownerships.

Characteristics ■ Formation: No legal start-up requirements (sometimes the local municipality

may require a trading licence, e.g. when working with meat, etc.) ■ Number of owners: One ■ Legal status: No legal status ■ Liability: Unlimited liability

Advantages ■ A sole ownership is very easy to start. ■ The owner can make decisions quickly, since he or she does not need to consult

other co-owners.

Disadvantages ■ A sole ownership has unlimited liability. ■ Since there is only one owner contributing money, the size of the business and

its expansion potential is limited.

2. PartnershipA partnership is a business owned by a minimum of two and a maximum of 20 owners, also called partners. There are no legal start-up requirements. However, it is advisable to have a partnership contract or agreement, outlining at least the following:

■ what each partner is contributing towards the business ■ how they will share the pro�ts ■ how they will divide the management tasks between them.

Characteristics ■ Formation: No legal start-up requirements (a partnership agreement is

advisable). ■ Number of owners: Minimum of 2 and a maximum of 20 partners. ■ Legal status: No legal status. ■ Liability: Jointly and severally liability.

NoteThe concept of jointly and severally liability has some unique aspects. For example, it could happen that a partner who contributed the least capital and as such received the smallest share of the profit could, if the partnership went bankrupt, lose the most personal assets of all the partners. This would happen if the partners with the majority capital contribution have too few personal assets to pay the debt, while the partner who made the lowest capital contribution has sufficient personal assets to do so. In this case, the partner who has sufficient personal assets must sell them to repay the debt.

What can you learn from this type of liability?

NoteA sole trader is a business owned by one person.

Unlimited liability (there is no limit) means that the owner or owners could lose their personal possessions to repay any debt should the business go bankrupt or being sued.

NoteA partnership is a business owned by a minimum of two and a maximum of twenty partners, but with jointly and severally liability (a special form of unlimited liability). Jointly and severally liability means that the partners could lose their personal possessions to repay any outstanding debt should the business go bankrupt.



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Advantages ■ More capital and skills are contributed resulting in greater expansion potential. ■ Partners can cut costs by sharing equipment and other facilities, and so on

Disadvantages ■ A partnership has jointly and severally liability with regards to outstanding debts. ■ Disagreement between partners can result in slowing down decision-making

processes and even business failure.

3. Non-profit companiesNon-pro�t companies, also known as organisations with no pro�t motive or non-pro�t organisations (NPOs), are entities which are not driven by the pro�t motive. They are formed to dedicate themselves to speci�c causes, such as charity, education and training, promoting gender equality, welfare (like feeding schemes), and so on. Most of their income is used to advance their cause. They are dedicated to the public interest and their �nances are open to public inspection.

The Non-pro�t Organisations Act No. 71 of 1997 prescribed the standards of governance and public accountability within which NPO’s must conduct their activities.

Every NPO must have a constitution outlining various aspects of the NPO, such as:

■ the organisation of the NPO, for example number of board members (usually at least �ve members)

■ its purpose ■ its functions ■ person or persons in charge ■ details about how the constitution can be changed if needed.

The primary task of board members of the NPO is to make sure that there are suf�cient resources to promote the mission of the NPO.

NPOs do not have owners, only founders. The founders of an NPO are not allowed to make a pro�t from the NPO or bene�t from the net earnings of the entity. They can receive compensation for services rendered like other employees or for expenses incurred.

The Income Tax Act prescribes the types of activities that NPOs can undertake to receive tax-exempt status (i.e. not pay company tax on their income). Once tax-exemption is approved by SARS, the NPO obtains Public Bene�t Organisation (PBO) status.

It is not compulsory for NPOs to pay VAT (VAT exempt). As an employer, the NPO needs to register employees for PAYE (if salary is over income threshold) and UIF.

The income and property of an NPO cannot be distributed to its members or of�ce bearers, except as reasonable compensation for services rendered.

Characteristics ■ Formation: Various legal start-up requirements. ■ Number of owners: There are no owners. The founders must draw up a

constitution which will prescribe the number of board members. ■ Legal status: Has legal status. ■ Liability: Limited liability.

KeywordOrganisations with no profit motive an entity formed to serve a public given cause. NPOs do not operate for profit, but provide and promote social services, i.e. public causes such as charities.



Advantages ■ Separate legal entity. ■ Limited liability protection. ■ Tax-exempt status. ■ Contributions from donors are tax exempt. ■ Access to grants. ■ Tax-deductible donations. ■ Credibility.

Disadvantages ■ Creating an NPO takes time, effort and money. ■ Subject to strict �nancial reporting requirements. ■ Accessing grants is a tedious process.

4. Profit companies4.1 Personal liability companyThe name of a personal liability company must have the abbreviation ‘Inc.’ at its end, for example Smart Accountants Inc., or must end with the word ‘Incorporated’. A personal liability company (Inc.) is a company that is mainly used by highly skilled professionals who form specialised businesses, for example engineers, accountants or lawyers. The legal start-up requirements for a personal liability company are less complicated than for a public company.

A personal liability company is governed by a Memorandum of Incorporation which determines the number of shareholders. These shareholders enjoy limited liability. The Memorandum of Incorporation must also stipulate the maximum number of directors. The Companies Act No. 71 of 2008 prescribes that the Board of a personal liability company must consist of at least one director. Directors of personal liability companies do not enjoy limited liability. The principle of personal liability applies to them.

Characteristics ■ Formation: Various legal start-up requirements. ■ Number of owners: Memorandum of Incorporation will determine number

of shareholders. ■ Legal status: Has legal status. ■ Liability: Limited liability for shareholders, but directors do not enjoy

limited liability.

Advantages ■ Separate legal entity. ■ Shareholders enjoy limited liability. ■ Enough capital can be raised from more people.

Disadvantages ■ Various legal requirements. ■ Pro�ts of a company are taxed according to a �xed rate. ■ Principle of personal liability applies to directors.

NotePersonal liability means the current and previous directors of the company can be held responsible for the debts of the company. They can lose their personal possessions to repay any debt should the business go bankrupt or sued for debt.



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4.2 State-owned enterprises (SoEs)State-owned enterprises were created to be commercial entities managing a speci�c commercial activity on behalf of government. The majority of the provisions of a public company also apply to state-owned companies. SoEs should make pro�ts and serve as extra income for government.

There are more than 700 SoEs in South Africa owned by government (on all three levels of government). This means that government is the only shareholder or the majority shareholder in these enterprises. Some of the most well-known SoEs are ESKOM, SABC, SAA, PRASA, Rand Water and SA Post Of�ce.

SoEs that are wholly owned by government do not pay corporate income tax on their corporate pro�ts. Government will simply request that the dividend distributions are paid over to government, since the government is the only shareholder.

State-owned enterprises in South Africa have over the last number of years been constantly in the news, due to large-scale corruption, state capture, incompetent top managers, and so on.

Despite being commercial entities, many SoEs make huge losses and cost the government (i.e. taxpayers) billions of rand per year as bailouts. This means that government must cut budgets of important areas, for example police, clinics, to assist SoEs.

Many of the SoEs do not hand in annual �nancial statements due to incompetent senior managers, nepotism and state capture. Especially the Auditor-General is concerned about this and other forms of �nancial neglect.

4.3 Private company with limited liability The name of a private company with limited liability ends the abbreviations ‘Prop. Ltd’ or ‘Pty Ltd’. A private company with limited liability is a business entity trading for pro�t. It must have at least one director and must have a minimum of one shareholder. Membership is limited to a maximum number of 50 shareholders. It is a more complicated process than a close corporation to start-up. But the new Companies Act has made the start-up process simpler. There are also fewer disclosure and transparency requirements than a public company.

Characteristics ■ Formation: Various legal start-up requirements. ■ Number of owners: Minimum of one shareholder; maximum number of 50

shareholders (if more than 50, it must form a public company). ■ Legal status: Has legal status. ■ Liability: Limited liability.

Advantages ■ Shareholders enjoy limited liability. ■ Enough capital can be raised from many people/shareholders.

Disadvantages ■ Fewer legal requirements and a simpler process to form a private company. ■ Pro�ts of a company are taxed according to a �xed rate.

KeywordA state-owned enterprise a legal entity that is created by a government (on all three levels) to manage a specific commercial activity on behalf of the government.

Did you know?The new South African Companies Act (Act No. 71 of 2008) became effective on 1 May 2011. It replaced the old Companies Act No. 61 of 1973.



4.4 Public company A public company’s name ends with the abbreviation ‘Ltd’). A public company is a business entity whose shares are freely traded on recognised stock markets, for example JSE. It has a minimum of seven shareholders (no maximum number of shareholders – may even be thousands). It is a complicated process to start-up, since there are many legal start-up requirements. Public companies must have at least three directors.

Another term for a Public Company (Ltd) is Company with limited liability (Ltd). In the UK the term is Public Limited Company (Plc), for example Manchester United Plc.

Characteristics ■ Formation: Many legal start-up requirements. ■ Number of owners: Minimum of seven shareholders. ■ Legal status: Has legal status. ■ Liability: Limited liability.

Advantages ■ Shareholders enjoy limited liability. ■ Enough capital can be raised from thousands of people.

Disadvantages ■ Many legal requirements and complicated process to form a company. ■ Pro�ts of a company are taxed according to a �xed rate.

4.5 Close corporationA close corporation is a business entity owned by one member/director with a maximum of 10 members/ directors and where all the members enjoy limited liability. It is relatively easy to start, since there are little legal start-up requirements. However, new close corporations may not be formed anymore.

Characteristics ■ Formation: Few legal start-up requirements. ■ Number of owners: One to a maximum of 10 members. ■ Legal status: Has legal status. ■ Liability: Limited liability.

Advantages ■ Each member enjoys limited liability. ■ Dividends paid to members are not taxed.

Disadvantages ■ Fixed tax rate on pro�ts. ■ Certain administrative requirements to meet, for example accounting

requirements, and so on.

KeywordShareholders the owners of a company, since they have bought shares in the business.

NoteMembers of a close corporation enjoy limited liability. However, if it can be proved that members acted irresponsibly or negligently by not keeping to the rules governing close corporations, members may lose their claim to limited liability.



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Sub-unit 1.1.3 Business activities of organisations

LEARNING OUTCOMES

■ Identify the business activities of the organisations (in Sub-unit 1.1.2) and indicate the difference between each in respect of generating profit:

■ service activities ■ trading activities ■ manufacturing activities ■ activities with no profit motive.

IntroductionThere are four broad activities that organisations engage in based on their output (i.e. what they sell or market) in the economy:

■ Service activities that render a service to clients, i.e. they market and sell intangible bene�ts on a pro�t basis. Examples are accounting activities, electrical installation and repair work, legal activities and motor repair services.

■ Trading activities, i.e. buying already manufactured products (tangible bene�ts) and selling these products to retailers or to customers on a pro�t basis. Examples are businesses that sell electrical products, groceries, clothing and motor spare parts or vehicles.

■ Manufacturing activities, i.e. small and large factories making products, i.e. converting raw materials or half-�nished products into new products on a pro�t basis. Examples are using raw vegetables and process it into canned or frozen food or using fabrics and convert it into dresses, suits, and so on

■ Activities with no pro�t motive, i.e. to render services to communities. Examples are charity activities that are funded by government of corporate businesses. The bene�ciaries receive the bene�ts at a low fee or totally free. Other examples are sport clubs and hobby societies that charge a fee to cover costs. The intention is not to make a pro�t, but to breakeven.

Accounting students need to know the differences among these four broad activities that organisations engage in, since the accounting administration and processes of each differs. For example, in a manufacturing business the focus is on cost accounting to determine the various cost elements when manufacturing products. Cost and Management Accounting N5 focuses on this �eld of accounting. A trading business, on the other hand, focuses on calculating the cost of sales to determine gross pro�t, while a service business does not have any cost of sales (and thus no gross pro�t calculation).



Sub-unit 1.1.4: Accounting transactions

LEARNING OUTCOMES

■ Identify the source documents and the accounts involved with each transaction ■ Determine which account must be debited or credited, as well as explaining the

influence of the relevant transaction on the accounting equation.

IntroductionWhen a transaction takes place, the information is captured or recorded on a source document. Accountants need these documents to start the accounting process. Source documents are the �rst step in the accounting cycle. Source documents contain information about a transaction, for example:

■ date of transaction ■ source document number ■ purpose or reason of transaction ■ who was involved in the transaction ■ amount involved (usually both in words and amount).

Source document numbers are usually pre-printed on the document. These numbers appear in numerical order. Staff members need to ensure that none of these documents goes missing. Should a document go missing, the matter needs to be investigated.

We will brie�y discuss the following source documents: ■ receipts ■ cash register slips (or till slips) and cash register rolls ■ cheques and cheque counterfoils ■ deposit slips ■ cash invoices.

We will also look at supporting documents. We will discuss other source documents such as Petty Cash vouchers and Bank Statements in later modules.

1. ReceiptsA receipt is issued to a customer when the business receives cash. The following are examples for which a business issues a receipt:

■ owner of business gives capital to his or her business ■ customer pays for goods or client pays for services ■ customer settles an account ■ business receives cash for rent.

Receipts are pre-printed in duplicate form. The customer receives the original (top) copy, while the business keeps the duplicate (second or bottom) copy. The bookkeeper or accountant uses the duplicate copy to record the transaction. Figure 1.1 illustrates a handwritten receipt.

NoteSource documents must be completed for each and every transaction.

Did you know?Note that source documents come in different sizes and formats; for example, the cash register slip of KFC looks different from the one of Checkers, and so on.



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Receipt R c

Date: 31 January 2020 Receipt no: 078

Received from: Ms Mary Dube

The sum of: Seven Hundred and Fifty Rand

Nil cents

For: Repair motor

Signature: Vusi Mda

With thanksFor: Vusi Repairs

750 00

Figure 1.1 Example of a receipt

2. Cash register rolls and cash register slipsInside a manual cash register are two paper rolls. The transaction information is captured on both rolls. The copy roll stays inside the till. This information is later used by the bookkeeper to record the transactions in the accounting process. The other roll, the original roll, provides the till slip for the customer.

A computerised cash register system has only one roll, from which the till slips are issued to customers. The transaction information is captured directly on the accounting system in the server or mainframe at the head of�ce.

3. Cheque and cheque counterfoils Cheques are used by organisations and private persons to pay for goods and services. A cheque is a payment method, similar to notes and coins. Due to new technology (such as e-banking), rising costs and especially cheque fraud, the popularity of cheques has decreased signi�cantly in recent years.

Businesses and banks are very strict when cheques are used. They usually request identity documents and contact details in transactions that involve the use of cheques. There are three parties involved in cheque transitions, namely:

■ the drawee – the bank whose cheque is used ■ the drawer – the party (business or person) who writes out (issues) the cheque ■ the payee – the party (business or person) who receives the cheque.

A cheque book consists of two sections, as illustrated: ■ cheque counterfoils (these remain in the cheque book) ■ cheques.

Figure 1.2 Example of a cash register slip



4. Deposit slipsA deposit slip is completed every time when an employee deposits cash into the bank account of the business or into the account of another business. Some businesses use a deposit book consisting of a hundred or two hundred deposit slips. Deposit slips usually have two sections for the various deposits:■ section for notes, coins and postal orders■ section for cheques.

The employee hands the bank teller the deposit slip with all the cash, i.e. notes, coins, postal orders (PO) and cheques. The amount of the deposit slip must match the amount of the cash.

Individuals usually deposit money at an ATM. When individuals deposit cash over the counter at the bank, they also need to complete a deposit slip.

SIMBANKLimited/Beperk

Pay Good Hope Spares

Amount Seven � ousand Two Hundred Rands and

Forty � ree Cents

or Bearer

DATE 30/01/2020TO Good Hope SparesFOR Spare PartsBALANCE B/F R17 200.85DEPOSITS R3 000.00TOTAL R20 200.85THIS CHEQUE R7 200.43NEW BALANCE

12-43-00

Vusi Repairs

120-487-023120-487-023

Vusi Mda

Date 30/01/2020

7 200.43R

Cheque counterfoil Cheque

Figure 1.3 Example of a cheque and its counterfoil

Figure 1.4 Example of a deposit slip

SAAB DEPOSIT SLIP

Paid in by A. Student

Signature AStudent

Tel 071 541 � �

R C

Notes

Coins

MO and PO

Subtotal

Drawer’s name Bank Branch code

1 F. At� r Simbank 012-345-67 1 � 0 � 2

3

Credit � � e� � � ty Town Date 20-03-2020

I ACCEPT THE CONDITIONS PRINTED ON THE REVERSE Total R 1 0 0 0 . 0 0

Account no. 4 0 6 1 7 9 4 2 2 6 Dep. ref. 1 4 1 - 6 0 7 - 9 8 1

No cheque exceeding R500 000.00 can be

accepted.

TELLER’S STAMP

Authorised by

Authority no



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Some banks use deposit slips that are completed in triplicate, while other banks use deposit slips that are completed in duplicate. The business or client keeps the original (with a bank stamp af�xed to it), while the bank keeps the copy or duplicate.

5. Cash invoicesWhen a business receives cash from customers or clients, one of the following source documents are issued:

■ receipt – usually an informal business selling goods or rendering a service ■ cash register roll – any business having a till point with a cash register roll ■ cash invoice – usually a formal business selling goods or rendering a service.

Businesses with a computerised system will issue a computer printed cash invoice, while other businesses will complete it by hand. The example shown in Figure 1.5 was completed by hand. The information printed on a cash register roll is the same as that on a cash invoice. Only the format, i.e. the layout, is different.

Cash Invoice

iseecreative events7 Creative Street

CAPE TOWN 8000

Date: 12 February 2020 Cash Invoice No. 129

To: Mr & Mrs Peters Account No. SI 067 5 Wedding Avenue GATESVILLE 7460

Quantity Description Unit price Amount

3 Coffee table wedding albums R700.00 R2 100.00

1 Wedding video R5 000.00 R5 000.00

1 Photo shoot CD (300 photos) R3 000.00 R3 000.00

Terms:

30 days 10% discount if

settled within 20 days of

invoice

Total exclusive of VAT R10 100.00

VAT @ 15% R1 515.00

Total including VAT R11 615.00

Figure 1.5 Example of a cash invoice completed by hand



5.1 Invoices An invoice is a source document that serves as proof that goods were bought on credit (will pay at a later stage).

When our business buys on credit from another party, that party will issue our business the original invoice. When our business sells to customers on credit, these customers will receive the original invoice and the business keeps the duplicate of the invoice.

To the buyer it is known as a purchase invoice. To the seller it is known as a sales invoice.

5.2 Credit notesA credit note is a source document that serves as proof that unwanted goods were returned (and that the business has accepted the return of these unwanted goods).

When our business returns unwanted goods, the supplier issues our business the original credit note (supplier keeps the duplicate). When our business receives unwanted goods from customers, the customer receives the original credit note and the business keeps the duplicate credit note.

6. Supporting documentsA source document is the proof that a speci�c transaction took place. For many transactions we also �nd supporting documents. For example, when the business deposits cash with the bank teller, the deposit slip (with the date stamp for that speci�c day) serves as the source document of the transaction. However, at the end of the month, the bank sends a Bank Statement. This Bank Statement re�ects all the deposits. The Bank Statement is the supporting document for all the different deposits, including the deposit for that speci�c day.

The Bank Statement is also the supporting document for all the different payments, such as cheque payments (besides the cheque counterfoil), electronic fund transfers or EFT (besides the EFT slip), and so on Another example of a supporting document is the following situation:

■ The business pays a supplier for services rendered or products delivered per cheque or per EFT. The business will have the cheque counterfoil or EFT advice as the source document for the payment. However, the supplier will issue a receipt when the cheque or EFT is received. This receipt is the supporting document to the transaction that has taken place.

Supporting documents are usually not used as proof of transactions. However, when a source document is not available or unreadable, the supporting document will be used to record a transaction.

6.1 Internal and external documentsAccounting documents, such as source documents, come from only two sources, namely:

■ the organisation that issues these documents ■ the organisation that receives them from other organisations

When the organisation completes and issues the source documents, they are known as internal documents (come from inside our organisation or business).

KeywordSupporting document an additional document that confirms that the transaction took place, for example, a Bank Statement.



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When the organisation receives the source documents from other organisations such as suppliers, they are known as external documents (come from outside our organisation).

Internal documents are numbered according a numbering system selected by our organisation. For example, if the name of our business is Iseecreative Events, then our business may decide to number receipts as IER 001, IER 002, IER 003, and so on When receipts are issued to clients, these receipts are recorded in numerical order (starting from No. 001) in the books of our business.

External documents are numbered according a numbering system selected by the outside organisation, for example a supplier. Since the business will buy from many different suppliers, these documents cannot be recorded in numerical order. For example, when cash invoices are received from suppliers, these cash invoices with their totally different document numbers will be recorded in date order as they are received. Some businesses renumber these external documents and then record them in the new numerical order.

6.2 Original and duplicate documentsIn the various sections we have already explained the difference between original and duplicate source documents, as well as who issues and receives them. The basic guidelines are:

■ Our business will always have or keep the duplicate source documents of the internal documents, since the originals are given to customers and organisations.

■ Our business will always receive and keep the original source documents of external documents, since our business now becomes the customer to suppliers and other organisations.

ACTIVITY 1.2 Identifying source documents for financial transactions

1. Complete the following table:

Transactions Source document Internal/ External

Original/ Duplicate

Till sales for the day, R2 500.

Business pays supplier for merchandise by cheque, R4 000.

Owner gives a cheque as additional capital, R10 000.

Customer pays R350 for goods received.

Business deposits cash for the day with SimBank, R7 000.

Customer settles her account, R250.

Business buys fuel on credit from local garage, R450.

Business pays Telkom by cheque, R600.

Cash sales for the day, R4 200.

Business returns unwanted goods to the supplier, R500.

2. Provide the supporting document in each of the above examples.



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r C

red

ito

rs C

on

tro

l

Cre

dito

rs C

ontr

ol (B

10)

80

0

0–8

00+

800

=+



Tran

sact

ion

Sour

ce

docu

men

t/-s

Jour

nal

Gen

eral

Led

ger

(tw

o ac

coun

ts in

volv

ed)

Effe

ct o

n ba

sic

acco

unti

ng e

quat

ion

Dr

CrA

OL

11B

Smar

t Te

chno

logi

es

rece

ived

R15

0 as

inte

rest

in

com

e on

cur

rent

ac

coun

t.

Ban

k St

atem

ent

CRJ

Ban

k (a

sset

incr

ease

s)

▶ D

r B

ank Ba

nk (B

3)

15

0

Inte

rest

inco

me

on

cu

rren

t ac

cou

nt

(inco

me

incr

ease

s ow

ner’s

equ

ity)

▶ C

r In

tere

st In

com

e o

n

Cu

rren

t A

cc

Inte

rest

Inco

me

on

Cur

rent

acc

ount

(N4)

15

0

+15

0+

150

0

12A

ccou

nt o

f de

btor

for

R2

50 m

ust

be w

ritte

n of

f as

irre

cove

rabl

e.

Inte

rnal

m

emo

-ra

nd

um

GJ

Cre

dit

loss

es /

Bad

d

ebts

(inc

reas

e in

exp

ense

s de

crea

ses

the

owne

r’s e

quity

) ▶

Dr

Cre

dit

Lo

sses

Cre

dit

Loss

es (N

20)

25

0

Deb

tors

Co

ntr

ol

(ass

et d

ecre

ases

) ▶

Cr

Deb

tors

Co

ntr

ol

Deb

tors

Con

trol

(B3)

25

0

–250

–250

0

13Pa

y th

e ac

coun

t of

C

ompu

ter

War

ehou

se

per

EFT

afte

r a

stat

emen

t w

as r

ecei

ved,

R2

0 00

0.

EFT

no

tice

of

pay

men

tB

ank

Stat

emen

t

CRJ

Cre

dit

ors

Co

ntr

ol (

liabi

lity

decr

ease

s)

▶ D

r C

red

ito

rs C

on

tro

l

Cre

dito

rs C

ontr

ol (B

10)

20

000

Ban

k (a

sset

dec

reas

es)

▶ C

r B

ank Ba

nk (B

3)

20

000

–20

000

0–2

0 00

0

14A

deb

tor’s

acc

ount

for

R1

000

was

six

mon

ths

over

due.

Inte

rest

is

char

ged

at 1

0% p

.a.

Inte

rnal

m

emo

-ra

nd

um

GJ

Deb

tors

Co

ntr

ol (

asse

t in

crea

ses)

▶

Dr

Deb

tors

Co

ntr

ol

Bank

(B3)

50

Inte

rest

inco

me

on

o

verd

ue

acco

un

t (in

com

e in

crea

ses

owne

r’s e

quity

) ▶

Cr

Inte

rest

Inco

me

on

O

verd

ue

Acc

ou

nt

Inte

rest

Inco

me

on

Ove

rdue

acc

ount

(N5)

50

+50

+50

0

=+



Mo

du

le 1

Tran

sact

ion

Sour

ce

docu

men

t/-s

Jour

nal

Gen

eral

Led

ger

(tw

o ac

coun

ts in

volv

ed)

Effe

ct o

n ba

sic

acco

unti

ng e

quat

ion

Dr

CrA

OL

15C

orre

ct e

rror

:It

was

fou

nd t

hat

repa

irs

done

to

the

deliv

ery

van

for

R3 0

00, w

as

inco

rrec

tly d

ebite

d to

th

e ve

hicl

e ac

coun

t.

Inte

rnal

m

emo

-ra

nd

um

GJ

Rep

airs

(cor

rect

wro

ng

entr

y: e

xpen

se d

ecre

ases

ow

ner’s

equ

ity)

▶ D

r R

epai

rs

Repa

irs (N

10)

3

000

Veh

icle

s (c

orre

ct e

rror

: as

set

decr

ease

s)

▶ C

r V

ehic

les

Vehi

cles

(B3)

3

000

–3 0

00–3

000

0

16In

clud

ed w

ith t

he

Bank

Sta

tem

ent,

was

a

cheq

ue o

f a

debt

or,

mar

ked

R/D

, R60

0.(A

rev

erse

ent

ry m

ust

be

mad

e.)

Ban

k St

atem

ent

CPJ

Deb

tors

Co

ntr

ol (

asse

t in

crea

ses)

▶

Dr

Deb

tors

Co

ntr

ol

Deb

tors

Con

trol

(B3)

80

0

Ban

k (a

sset

dec

reas

es)

▶ C

r B

ank Ba

nk (B

3)

60

0

+60

0–6

000

0

17Bo

ught

inve

ntor

y /

trad

ing

stoc

k fr

om

Com

pute

r W

areh

ouse

pe

r ch

eque

, R25

500

. (p

erpe

tual

/ co

ntin

uous

in

vent

ory

syst

em)

Ch

equ

e co

un

terf

oil

(rem

ain

s in

ch

equ

e b

oo

k)

CPJ

Trad

ing

sto

ck (a

sset

in

crea

ses)

▶

Dr

Trad

ing

sto

ck

Trad

ing

Stoc

k (B

6)

25

500

Ban

k (a

sset

dec

reas

es)

▶ C

r B

ank Ba

nk (B

3)

25

500

+25

500

–2

5 50

00

0

18Bo

ught

tra

ding

sto

ck

from

a s

uppl

ier

on

cred

it, R

20 0

00.

(per

petu

al in

vent

ory

syst

em)

Ch

equ

e co

un

terf

oil

(rem

ains

in

cheq

ue b

ook)

CPJ

Trad

ing

sto

ck (a

sset

in

crea

ses)

▶

Dr

Trad

ing

sto

ck

Trad

ing

Stoc

k (B

6)

20

000

Ban

k (a

sset

dec

reas

es)

▶ C

r C

red

ito

rs C

on

tro

l

Cre

dito

rs C

ontr

ol (B

10)

20

000

+20

000

0+

20 0

00

=+



Tran

sact

ion

Sour

ce

docu

men

t/-s

Jour

nal

Gen

eral

Led

ger

(tw

o ac

coun

ts in

volv

ed)

Effe

ct o

n ba

sic

acco

unti

ng e

quat

ion

Dr

CrA

OL

19C

ash

sale

s fo

r th

e da

y,

R2 5

00. C

ost

pric

e R1

750

.(p

erpe

tual

inve

ntor

y sy

stem

)U

nder

the

per

petu

al

inve

ntor

y sy

stem

, you

m

ust

reco

rd t

wo

doub

le

entr

ies:

■

Reco

rd t

he c

ash

sale

s pa

rt

■Re

cord

the

cos

t of

th

e sa

les

(cos

t pr

ice)

Cas

h r

egis

ter

roll

(CR

R)

CRJ

Ban

k (a

sset

incr

ease

s)

▶ D

r B

ank Ba

nk (B

3)

2

500

Co

st o

f Sa

les

(exp

ense

de

crea

ses

owne

r’s e

quity

) ▶

Dr

Co

st o

f Sa

les

Cos

t of

Sal

es (N

16)

1

750

Sale

s (in

com

e in

crea

ses

owne

r’s e

quity

) ▶

Cr

Sale

s Sale

s (N

1)

2

500

Trad

ing

Sto

ck (a

sset

de

crea

ses)

▶

Cr

Trad

ing

Sto

ck

Trad

ing

Stoc

k (B

6)

1

750

+2

500

–1 7

50+

750

+2

500

–1 7

50+

750

0

20C

redi

t sa

les,

R3

000.

C

ost

pric

e R1

500

.(p

erpe

tual

inve

ntor

y sy

stem

)U

nder

the

per

petu

al

inve

ntor

y sy

stem

, you

m

ust

reco

rd t

wo

doub

le

entr

ies:

■

Reco

rd t

he c

redi

t sa

les

part

■

Reco

rd t

he c

ost

of

the

sale

s (c

ost

pric

e)

Du

plic

ate

Cre

dit

Invo

ice

Deb

tors

Jo

urna

l/ Sa

les

Jour

nal

Deb

tors

Co

ntr

ol (

asse

t in

crea

ses)

▶

Dr

Deb

tors

Co

ntr

ol

Deb

tors

Con

trol

(B13

)

3

000

Co

st o

f Sa

les

(exp

ense

de

crea

ses

owne

r’s e

quity

) ▶

Dr

Co

st o

f Sa

les

Cos

t of

Sal

es (N

16)

1

500

Sale

s (in

com

e in

crea

ses

owne

r’s e

quity

) ▶

Cr

Sale

s Sale

s (N

1)

3

000

Trad

ing

Sto

ck (a

sset

de

crea

ses)

▶

Cr

Trad

ing

Sto

ck

Trad

ing

Stoc

k (B

6)

1

500

+3

000

–1 5

00+

1 5

00

+3

000

–1 5

00+

1 5

000

=+



Mo

du

le 1

Exam practice questionsYou will receive at least two previous exam question papers. Complete these and hand them in for assessment.

Exam preparationNo theory questions, for example definitions or accounting equation, were asked during the past number of exam papers. Despite this tendency, do not be surprised when a future exam question or sub question is set on the accounting equation.


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