Bookkeeping And Accountancy Made Simple: For Owner Managed Businesses, Students And Young Entrepreneurs

By Peter Osalor

Most small and medium scale businesses fail because of either no records or incomplete records.

Our target in this manual is to ensure that at the end of careful study of this material, readers should be able to appreciate the importance of keeping proper accounting or business records and be able to:
Prepare a simple financial statement of a business,
Know how to keep complete records of business events,
Prepare monthly payroll for staff salaries,
Account for value added tax or sales tax
Differentiate between capital expenditure and revenue expenditure
And Much More

• Language: English
• Publisher: POSAG International Ltd
• Release date: Jun 26, 2023
• ISBN: 9791222420776

Book preview

BookkeepingAndAccountancy MadeSimple

ForOwnerManagedBusinesses,StudentsAndYoungEntrepreneurs

PeterOsalor

Contents

INTRODUCTION

CHAPTERONE

DefinitionofAccountingTerms

CHAPTERTWO

PrinciplesofAccountsandConcept

CHAPTERTHREE

PurposeofBookkeeping

CHAPTERFOUR

BasicofBookkeeping

DoubleEntryBookkeeping

PrinciplesofDoubleEntry

DoubleEntrySystemrules

FinancialdocumentsBooksoforiginalentryand Ledgers

1. ​TYPESOF BOOKSOF ORIGINALENTRY

2. ​DETAILSTOBEENTEREDINTHESE BOOKS

3. ​TYPESOF LEDGER

4. ​TYPESOF ACCOUNTS

DiagramofthisBooksofcommonlyused

AccountingProcess/Phases/Stages

ProcessofBookkeepingsystem

Step8–StatementofFinancialPosition(Balancesheet)

DocumentsinBookkeeping

Thebasis forRecordingfrom sourcedocuments

CHAPTERFIVE

Bookkeepingfromsourcedocuments

AccountingforCashandCreditsales

EnteringCreditsalesintosalesdaybook

Example3–EnteringSalesinvoicesinSalesDayBook

PostingcreditsalesintoCreditsalesledgerandgeneralledgerfromthesalesdaybook(fromsales daybooktoaccountofcustomerinsalesledger)

TradediscountsandCashdiscounts

Accountingforsalesreturns(Returninwardsand Credit note)

Example4-EnteringCreditnotesinSalesReturnsDay Book

PostingfromsalesreturnDaybooktoSalesLedger and General Ledger

DoubleEntryforSalesandTradereceivables

TradeDiscount/SettlementDiscount/BulkDiscount

AccountingforaCashandCreditPurchase

• ​ENTER INVOICES INTO THE PURCHASE DAYBOOK

Example5–EnteringPurchaseinvoicesinPurchase Day Book

PostingCreditPurchasesintoCreditPurchase LedgerfromthePurchaseDaybook(fromPurchaseDaybooktoaccountofsupplierinPurchaseLedger)

Accounting for Purchase Returns (Return Outwards)andCreditNote

EnterCreditNoteinPurchasesReturnDayBook

Example6-EnteringCreditnotesinPurchaseReturns Day Book

PostingfromPurchasesReturnDayBookto PurchasesLedgerandGeneralLedger

Double Entry for Purchases and Creditors (Payables)

ProcessforCashbook

AccountingforCashbook

• ​CASHBOOKDEBITSIDERECORDS:

• ​CASHBOOK(CREDITSIDE)

• ​DISCOUNT

• ​ACCOUNTINGFORDISCOUNTALLOWEDAND RECEIVED

DoubleEntryforCash/BankreceivedfromTrade receivables(Customers/TradeDebtors)

EXAMPLE7–Cashreceiptfromtradereceivables (customers)

EXAMPLE9

DoubleEntryforCash/BankpaymenttoTrade Payables(Suppliers/TradeCreditors)

ProcessforPettyCashbook

BookingandAccountingforPettyCash

DoubleEntryforPettyCashpayments

Example 14 – Enteringpetty cashexpenditures

■ ​BALANCINGOFACCOUNTS

■ ​DEBITBALANCE

■ ​CREDITBALANCE

Balancingoffaccountstodeterminethebalances

1. ​SALESLEDGER

2. ​PURCHASESLEDGER

3. ​SALESACCOUNT

4. ​SALESRETURNACCOUNT

5. ​PURCHASESACCOUNT

6. ​PURCHASESRETURNACCOUNT

7. ​CASHBOOK

8. ​PettyCashbook

BankReconciliation

ReconcileCashbookbalanceswiththeBank Statementbalances

• ​BANKRECONCILIATION

HowtoprepareBankReconciliation

Format1forBankReconciliationStatement

Format2forBankReconciliationStatement

Three–ColumnAccounts

BankReconciliation(CashbookBankAccount/ Bank Statements)

EXAMPLE–15BANKRECONCILIATION STATEMENT

CHAPTERSIX

ControlAccounts

PrinciplesofControlAccounts

SalesLedgerControl(DebtorsControl/Account Receivable)

PurchaseLedgerControl(Creditors/Account Payable)

TradeReceivables(TradeDebtorsControl Account)

CHAPTERSEVEN

Preparing Financial Statement from Incomplete records

PreparingaStatementofAffairs(SOA)

StepsinvolvedinpreparingaStatementofAffairs

Introducing Cash Book in the Single Entry Accounting system

RelationshipbetweenMark-UpandMargin

AdvantagesofDoubleEntryoverSingleEntry

DisadvantagesofSingleEntry

CHAPTEREIGHT

TrialBalance

HowtoprepareaTrialBalance

ErrorsinTrialBalance

CHAPTERNINE

IncomeStatement(ProfitandLossAccount)

NetSales

CostsofGoodsSold

DoubleEntryforIncomeStatement

IncomeStatement(ProfitandLossAccount)

CHAPTERTEN

StatementofFinancialPosition(BalanceSheet)

DoubleEntryforStatementofFinancialposition

CHAPTERELEVEN

VAT

DoubleEntryforsale

DoubleEntryforExpenditure(Purchaseand Expenses)

DoubleEntrywhereVATcannotberecoveredor BusinessnotregisteredforVAT

VATAccountformat

Example12-VATanddouble-entrybookkeeping

Example14–ComplicationinVATcalculation (to determine vat from gross)

Example15–VATanddiscount

CHAPTERTWELVE

Payroll

AccountingforPayroll

Analysis of PayrollRecordingofPayroll

EmployersTaxJournal

PaytheemployeetheNetPay

PaytheTaxtotheTaxAuthorities

Payoverthedeductions

Postingfor Employee NetPay

PostingofTaxtoTaxAuthorities

CHAPTERTHIRTEEN

CapitalandRevenueExpenditure Capital Expenditure

RevenueExpenditure

ImportanceofclassificationasRevenueandCapital Expenditure

CapitalreceiptsandRevenuereceipts

CHAPTERFOURTEEN

AccountspreparationsfromSourceDocuments

Invoicemethod

Cashmethod

Cashandinvoicemethod

StepsinPreparingAccounts

I. ​Planning

• ​The Addressofthebusiness

• ​Companyregistrationnumber ofthebusiness

• ​Thenameoftheshareholdersandtheirshareholding inthe company

• ​Theprincipalactivitiesofthebusiness(Themain activity ofthe business)

• ​The accountingperiod ofthebusiness

• ​Source documents

II. ​Preparing theaccounts

1. ​Procedure1- Checking for completeness andextractinginformationfrom previousaccounts

2. ​Procedure 2– Enter thedetailsofthecompany

3. ​Procedure 3– Openingbalances

4. ​Procedure4–Analyseandsummarisethe Cashbook (banktransactions)

AnalysisofBankPayments:

AnalysisofBankReceipts:

Bankreconciliation:

5. ​Procedure 5–AnalysisofPettycashbook

6. ​Procedure 6–AnalysisofCreditCardStatements

7. ​Procedure 7–AnalysisofSales andPurchaseDay books

8. ​Procedure 8–AnalysisofVAT

9. ​Procedure 9–AnalysisofPayroll

10. ​Procedure 10–FixedAssetSchedule

11. ​Procedure11–HirePurchaseandLongtermloan interest

12. ​Procedure 12– Journals

13. ​Procedure 13–ControlAccounts andLead Schedules

CHAPTERFIFTEEN

BusinessPlan

Beforeyoustartyourbusinessplan:

Aboutyourbusinessorganisationorstructure

Writingthebusinessplan

1. ​Title PageandTableofContents

Concludingthebusinessplan

SAMPLEQUESTIONS

BOOKSBYTHEAUTHOR

INTRODUCTION

Most small and medium scale businesses fail because of either no records or incomplete records.

Our target in this manual is to ensure that at the end of carefulstudy of this material, readers should be able to appreciate theimportance of keeping proper accounting or business records andbe able to:

✓       Prepare a simple financial statement of a business,

✓       Know how to keep complete records of business events,

✓       Prepare monthly payroll for staff salaries,

✓       Account for value added tax or sales tax

✓       ​Differentiatebetweencapitalexpenditureandrevenue expenditure

✓       Etc.

At last, the non-accountant entrepreneurs will now find easy thepreparationofaprofitstatementfromthesourcedocumentsthrough various books of prime entry to ledger, trial balance andfinancial statement.

The main essence of preparing a financial statement for an entityistoreportontheentity’sfinancialperformanceorresults,financial position and the cash flow to the management of theentity and other interested users to enable them to make soundeconomic decisions. To do this, a business owner needs to put somany controls in place (financial or otherwise) to establish fullrecord keeping.

This manual will also assist numerous business owners, who arewillingly to pay income taxes but due to their inability to keeprecords for the ascertainment of profit or loss, they default in thisresponsibility.

Many business owners have not been able to apply for short termfinance because of no accounts or financial statements. Banks and other lenders want to see a business financial statement that willgive them information about the ability of the entity to pay backthe loan and interest when they fall due. Nobody will give a short term loan to a business that keeps no records.

Some business owners keep track of transactions by collectingnotes, receipts, invoices and the like in a shoebox. At the end oftheyeartheyhandtheshoeboxovertotheiraccountantand probablypaylargeamountsforthefinalaccountstobeextracted. Thereisabetterway.Bookkeepingistheskillofkeeping track of all transactions as they occur in a logical andsystematic way.

A good bookkeeper will:

1.       Make use of an appropriate bookkeeping package such as expressaccounts(seenotebelowforthemeaningofexpress accounts)

2.       Understand transactions and know how they should beentered.

3.       Enter transactions on a regular basis.

4.       Reconcilestatementsastheyarereceived.Themostimportant of these statements are the bank statements.

5.       Prepare reports as and when they are required.

6.       Retainoriginaldocumentation(invoices,etc.)ina systematic way.

7.       Understand the big picture and recognize problem areas.

Note: Express Accounts is a professional business accountingsoftware, perfect for small businesses needing to document andreport on incoming and outgoing cash flow including sales,receipts, payments and purchases.

Easilytrackpaymentsanddeposittransactions

Viewbalancesandreportstoseehowyourbusinessisdoing

Emailorfaxreportsdirectlytoyouraccountant

Basic bookkeeping involves transactions, accounts and reports.

✓       A transaction is an exchange of value – for example, the sale of an ice-cream is a transaction.

✓       Anaccountisacollectionofsimilarrecords.Forexample, all sales for cash might be recorded in the CashAccount.

✓       A report is a statement that summarizes certain accountsor transactions at a certain time or for a certain period.

✓       Accounts, transactions and reports will be dealt with ingreater detail in this manual. There will also be manyexamples given.

Bookkeeping Conventions

DoubleEntryBookkeeping

Every money transaction is recorded in two different accounts inthe ledger. This is recognition of the fact thatthere are alwaystwo sides to every transaction. If Malabo lends me $5 then mycash account will increase by $5 and the Malabo account mustshow that I owe her $5. By convention the two entries have to bemade on opposite sides. If the entry in the cash account is on theleft-hand-side (LHS) then the entry in the Malabo account mustbe made on the right hand side (RHS). At any stage the totals ofall of the entries into the LHS must be the equal to the totals of all the entries into the RHS. The system must be in balance.

Fortunately,thedoubleentrysystemisvastlysimplifiedbyaccountingsoftwarepackagesincluding-ExpressAccounts.

Normallyasingleentryinanappropriatejournalisallthatis

required when using software.

•          Debit and Credit.

The money entries in an account can be entered in either the lefthand column or the right hand column. Beginners often find itdifficult to understand in which column to place an entry.

The left hand column in an account is called the Debitcolumn and the right hand column is called the Creditcolumn.

Money that you receive goes on the debit column of thecash account. Money that you pay goeson the creditcolumn ofthe cash account. The debit/creditnature of all other transactions can be determined by comparingtheir similarity to this simple transaction. IfI sell goodsto John for $10 cash. I would receive $10 and my cashaccount would be debited. Sales would be credited. Notethat in this case I do not have to record anything underJohn's name as he paid in cash. If, however, he bought on account, the transaction would be similar in that Saleswould be credited and John would be debited. Thus itturns out that people who owe me money have mainlydebit entries in their account.

DifferentViewfromDifferentColumnConfusion.

When we receive our Bank Statement each month, it will show a credit balance if we have money in the bank. This is from the bank's viewpoint. The bank sees us as theircreditor because they