1. Topic three Measuring and recording transactions

2. Learning outcomes In this lesson you will learn  Differences between subsidiary and general ledger  How to post transactions to the T Accounts  How to balance off T Accounts  Transferring balances to the trial balance  Preparation of financial statements from the trial balance 6/2/2016Measuring and recording transactions

3. Recapitulation Let us remind ourselves some of the important lessons we have learnt.  What is the accounting equation?  How do we record increase in  Assets  Liabilities  Capital  Income  Expenses 6/2/2016Measuring and recording transactions

4. Recapitulation 6/2/2016Measuring and recording transactions AccountIncreaseDecrease AssetsDebitCredit ExpensesDebitCredit IncomeCreditDebit CapitalCreditDebit LiabilitiesCreditDebit

5. Recapitulation The table above forms the basic foundation of accounting The double entry concept is also critical; ◦ A transaction will always have both a debit and a credit entry. ◦ Total debit amount(s) from a transaction should be equal to the total credit amount(s) 6/2/2016Measuring and recording transactions

6. General ledger and subsidiary ledger Subsidiary ledgers contain account listings say for customers or suppliers General ledger is a control total of amounts in the subsidiary accounts In the case of customers’ accounts, the subsidiary ledger will contain details of each customer General ledger will show total amounts due from all customers 6/2/2016Measuring and recording transactions

7. Subsidiary accounts example 6/2/2016Measuring and recording transactions Abdi Retailers Account Debit Credit ReferenceDateAmountReferenceDateAmount Sales23.07.11500 Bal c/d 500 Total 500 Total Amounts Yusuf Traders Account500 Debit Credit800 ReferenceDateAmountReferenceDateAmount450 Sales16.07.11800 1,750 Bal c/d 800 Total 800 Rukia Juma Groceries Account Debit Credit ReferenceDateAmountReferenceDateAmount Sales31.07.11450 Bal c/d 450 Total 450

8. General ledger 6/2/2016Measuring and recording transactions Richy Wholesalers Accounts receivables Subsidiary Ledger For the month ended 31 July 2011 Debit Credit Ref.DateAmountReferenceDateAmount SalesJul-111,750 Bal c/d 1,750 Total 1,750

9. General account The amount of $1,750 in the general ledger is simply a sum total of the figures in the three customers accounts. Note that the transactions in customer account are posted according to the date of transaction General ledger provides a summary of transactions for a period, in this case for the month of July 2011 6/2/2016Measuring and recording transactions

10. Posting to the T-Accounts Do you recall the lessons learnt in topic two about posting transactions to the ledger accounts Refer to the recap in the beginning of the topic on how to record changes in various accounts The notes provide a summary of some of the most common types of transactions and how to post them 6/2/2016Measuring and recording transactions

11. Posting to T-Accounts Common transactions  Credit sales Dr Accounts receivables Cr Sales  Cash sales Dr Cash Cr Sales  Credit purchases Dr Stocks/inventories Cr Accounts payable 6/2/2016Measuring and recording transactions

12. Posting to T Accounts  Cash purchases Dr Stocks/inventories Cr Cash  Cash payment for expenses Dr Expenses Cr Cash  See the next slide for a class exercise 6/2/2016Measuring and recording transactions

13. Posting to T Accounts Based on the guidance provided above, determine how to post the following  Payment for credit purchases  Receipt from credit customers  Sales discounts  Purchase discounts  Sales returns  Purchase returns  Cash payment for expenses  Accrued expenses  Purchase and disposal of property, plant and equipment  Capital contribution by owners  Borrowings 6/2/2016Measuring and recording transactions

14. Prepare a trial balance In Topic 5 we learnt that after transactions have been recorded in the T Accounts, they should be balanced off Balances in each of the account should then be transferred to the trial balance In case balances are not properly transferred, errors will occur As we shall learn in Topic 5, such errors might cause the trial balance not to balance and should be identified 6/2/2016Measuring and recording transactions

15. Prepare trial balance Other errors committed at this stage will not cause the trial balance not to balance Need for one to be keen when transferring balances from ledger accounts To help us learn more about this process, we look at a detailed illustration 6/2/2016Measuring and recording transactions

16. Illustration Mr. Isaac Hassan is a retailer of motor parts in an establishment named Ouru Super Stores located in the heart of a busy town. At 1 Jan 2010 the opening balances for the business were as tabulated below. 6/2/2016Measuring and recording transactions

17. 6/2/2016Measuring and recording transactions Ouru Super Stores Opening Trial Balance As at 01.01.2011 Amount ($) DrCr Capital 11,042 Bank Account 2,600 Cash in Hand 100 Motor Vehicles - cost 5,600 Motor Vehicles - Accumulated deprec. 1,400 Fixtures and Equipment - cost 1,200 Fixtures and Equipment - Accumulated deprec. 300 Trade Accounts receivable 7,800 Trade Accounts payable 900 Bank loan 4,700 VAT Control Account 700 Accrued telephone 52 Accrued electricity 46 Inventories at 01.01.2011 1,840 19,140

18. 6/2/2016Measuring and recording transactions Receivables Payables Mr Daniel2,000 Mr Suleiman1,400 Mr Ahmed2,400 Mr Sheikh2,000 Mr Halima200 Mr Salim100 Mr Khalif600 7,800900 Additional information Opening balances for accounts payables and receivables were as per the table below;

19. For the 3 Months to end of March 2011, the following transactions were recorded. 6/2/2016Measuring and recording transactions 02-JanCash sales of $940 inclusive of VAT made 03-JanSales on account of $1520 plus VAT to Mr Ahmed 03-JanPurchased on account of $1200 plus VAT from Mr Halima 06-Jan$10 from petty cash spent to purchase stamps. No VAT was charged on stamps 08-Jan Received $1900 from Mr Daniel in settlement of his balance at 1.1.2011, cash discount was given for the balance 10-Jan$2000 received from Mr Sheikh in full settlement of his debt 11-JanPaid Mr Salim on account $100 11-JanPaid insurance premiums for the year amounting to $450. No VAT was charged 12-JanSales on account of $2000 plus VAT to Mr Suleiman 17-JanPaid outstanding VAT liability to the tax agencies 19-JanPaid advertising costs $47 including VAT from petty cash 25-JanReceived a telephone invoice for $376 inclusive of VAT 31-JanReceived bills for welding gas $84 including 5% VAT 02-FebSpent $10 on stamps from petty cash 05-Feb Invoice for electricity received and immediately paid, $126 inclusive of VAT at 5%. 09-FebLegal fees invoice of $80 plus VAT received and paid

20. 6/2/2016Measuring and recording transactions 12-FebWelding gas bill settled in full 17-FebTelephone bill settled in full 25-Feb Mr Khalif paid $550 in settlement of his opening balance at 1.1.10 and remainder of the balance given as discount 28-FebSold goods on account to Mr Daniel for $400 plus VAT 28-FebInjected $5,000 into the business as capital 28-FebSold goods to Mr Ahmed on account for $600 plus VAT 01-Mar Received $1,300 from Mr Suleiman in respect of his opening balance at 01.01.11, balance allowed as a discount 02-MarMade cash sales of $611 including VAT 03-Mar Paid Mr Halima $180 in settlement of his balance at 1.1.09, remainder of the balance being given as a discount 4-Mar Bought new equipments on account at a cost of $440 plus VAT payment to be made in in 6 months’ time. The equipment was imported with import duty of $52 was paid 08-MarCash sales of $235 including VAT made 11-Mar Sold a motor vehicle for $300 in cash. The vehicle originally cost $800 on 22.3.07. Full year’s depreciation is charged in the year of acquisition and none in the year of disposal. 15-MarPurchased goods on account for $200 plus VAT from Mr Halima 18-MarPurchased goods on credit for $320 plus VAT from Mr Salim 21-MarSold goods on account to Mr Ahmed for $1000 plus VAT 27-Mar Purchased a vehicle on account for $400 plus VAT, the payment will be done due in May 2011 31-MarReimbursed petty cash float to top back up to $100 by raising a cheque

21. Additional information VAT unless otherwise stated is charged at a rate of 17.5%. Required:-  Post the above transactions in the respective ledger balances  Prepare a trial balance as at 31 March 2011  Prepare final accounts. 6/2/2016Measuring and recording transactions

22. Suggested solution To be worked out in class 6/2/2016Measuring and recording transactions

23. Conclusion The illustration provides an extensive coverage of the accounting cycle Students should rework on the same and where challenges are faced seek help in the next lesson See our course text for similar exercises 6/2/2016Measuring and recording transactions

24. Questions Topic two: measuring and recording transactions2016/06/0224