Mathematics Notes

Form 3 Mathematics – ACCOUNTS

msomimaktaba,

ACCOUNTS

Accountsis a place in a ledger where all the transactions are relating to a particular asset, liabilities and capital, expenses,or revenue items were recorded.
Accounts is a wider concept with identifying measuring and communicating economic information to permit informed judgments and decisions by users of the information. The part of accounting that is concerned with recording data is known as book keeping.

Book keeping – is the art of recording financial business transactions on a set of books in terms of money or money’s worth.

Why do we need to keep business records?

  • To determine whether the business is making profit or loss.
  • To determine financial strength of the business.
  • To enable the government to access reliable resources.
  • To enable different stake holders to make reliable decisions about the business i.e. investors, bankers, customers etc.

THE DOUBLE ENTRY SYSTEM

Before looking at the system of double entry let us look at the meaning of business transactions. Transactions means movements of money,goods or services from one part/person to another. For example: Selling goods in cash Tshs 10,000/= or selling goods worth Tshs 10,000 on credit to Aisha.

The double entry system – Is the process of recording these business transactionstwice.

LEDGERS

A ledger is a main principle book of accounts in which business transactions are recorded in double entry system.

The ledger contains section called “Accounts” which contain detail of transactions for specific items each account bears a title and a number called folio i.e. page of the ledger.

Each account should be shown on a separate page. The double entry system divides each page into two values;
a. The left hand side is called the debit side
b. The right hand side is called the credit side.

The title of each account is written across the top of the account at the center so double entry system needs every debit entry should have corresponding credit entry. An example of a ledger;

NAME OF THE ACCOUNTS

Date Particulars folioAmount Date particularfolioAmount

Each side of account should have four column i.e. date, particulars, folio and amount.

Use of columns;

  1. i) Date column
    For writing year, month and date.
  2. ii) Particulars
    For short descriptions of the transactions

iii) Folio column
For pages of reference

  1. iv) Amount column
    For writing amount of money

Worked examples on how to record transactions in double entry system;

1. Juma starts business with Tshs 20,000/= in cash on 1st January 2006. The transaction needs to debit cash account and credit capital account as follows.

Dr CASH ACCOUNTCr

Date ParticularfolioAmount Date particularfolioAmount
1/1/2006capital20,000

Dr Capital account Cr

Date ParticularfolioAmount Date particularfolioAmount
1/1/2006Cash20,000
  1. John started a business on 1st Jan 2000 with capital at Tshs 5,000,000 in cash

January

2) 2 purchased goods and paid in cash T.shs. ………… 1,000,000/=

3) 3 Brought goods for cash. ………………… 500,000/=

5paid wages in cash …………… 50,000/=

7sold goods in cash …………… 300,000/=

8brought goods in cash ………. 800,000/=

9received loan from C.R.D.B………….. 70,000/=

12bought parking materials in cash…….. 20,000/=

28paid transport charges ……… 30,000/=

28 drew cash for burial Tshs……….. 10,000/=
Enter the above transaction in the ledger and complete the double entry

Solution

 

 

 

EXERCISE

  1. Mark commenced business on 1st June 2001 with capital Tshs. 1,000,000.

June 2 bought for cash……… 500,000/=

2 paid transport charges………….. 50,000/=

3 bought parking charges………….. 10,000/=

4sold goods for cash …………. 300,000/=

5sold goods for cash…………… 100,000/=

6purchased goods and paid cash… 180,000/=

8paid wages …….38,000/=

10 cash sales…… 200,000/=

12 cash purchases…………. 180,000/=

15 cash sales to date ……….. 250,000/=

20 paid rent …………. 50,000/=

Enter the above transactions in the cash account complete the double entry balance the accounts at the end of the month and extract a trial balance

TRIAL BALANCE AT THE END OF THE MONTH 30TH JUNE 2001

NO. Details Debit Credit
1Cash872,000
2Capital1,000,000
3Purchases830,000
4Transport50,000
5Packing10,000
6Sales850,000
7Wages38,000
8Rent50,000
Total1,850,0001,850,000

FIRMS NAME

DR Trading account for the year ended CR

Opening stock xxxSales xxx
Add purchases xxxLess. RIN xxx
Less outwards xxxNet sales xxx
Net purchases xxx
Cost of goods available
For sale xxx
Less : closing stock xxx
Cost of goods sold xxx
Gross profit c/d xxx
XxxXxx

PROFIT AND LOSS ACCOUNT

This is an account prepared in order to ascertain the net profit and loss by the business. All expenses are debited to this account while gains or profits are credited to this account and debited with all incurred expenses.

Note

If the business has made profit it increases the capital and if it has suffered loss it reduces the capital.

It’s lay out;

FIRM’S NAME

DRPROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED CR

Expense xxx

Net profit xxx

 

xxx

Gross profit b/d from trading account xxx

Other gains [income]xxx

 

xxx

Note

The excess of expenses over incomes is formed as net profit.

Example

  1. From the following trail balance you are required to prepare a trading profit and loss account. For the year ended 30th June 2006 B Samanga.

Trial balance as at 30th June 2006

s/nNAME OF THE ACCOUNTDEBIT CREDIT
1Sales3,850
2purchases2,900
3Rent240
4Lighting expenses and general expenses150
5Fixtures and fittings60
6Debtors300
7Salaries680
8creditors910
9Cash in hand1,710
10Bank20
11Drawings700
12Capital2000

Note
Closing stock was valued at Tshs 300. B Samanga and profit account.

DR TRADING ACCOUNT B SAMANGA AS AT 30TH JUNE 2006 CR

Opening stock 0000Sales 3,850
Add purchases 2,900R.Inward 0000
Less R outwards – 0000Net sales 3,850
Net purchases 2,900Add all receivables
Cost of goods available for sale 2900
Less closing stock -300
Cost of goods sold 2,600
Gross profitc/d 1,250
3,8503,850
Balanceb/d 1,250
Expenses
Rent 240Gross profit 1,250
L and G 150
Salaries 680
Total expenses 1,070
Net profit/balance c/d 180
1,2501,250
Balance b/d net profit 180

BALANCE SHEET FOR THE YEAR ENDED 30TH JUNE 2006

ASSETSLIABILITIES
Fixed assetsLong term liabilities
Fixture and fittings 60Capital 2,000
Current assetsCreditor 910
Stock 300Net profit 180
Debtors 3003,090
Less drawing – 700
Bank 20
Cash hand 1,710
Total current assets 2,330
Total fixed asset 2,3902,390

ALL NOTES FOR ALL SUBJECTS QUICK LINKS:

Basic Mathematics Study Notes Form 3 Basic Mathematics Study Notes

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