ACCOUNTING – SHORT SUMMARY NOTES

THE 53^RD MATHEMATICAL ASSOCIATION OF TANZANIA ANNUAL MEETING.

VENUE: MARIAN UNIVERSITY COLLEGE (MARUCO)

DURATION: 17^TH TO 22^ND SEPTEMBER 2018

TOPIC: ACCOUNTING

PRESENTER: ZAKAYO H. MKUBURO

ACCOUNTS

1. INTRODUCTION
   

Accounts refers to broad term that involves various concepts of accounting that people carry out in the process of making life easier through buying and selling commodities. Actually people cannot survive if they do not involve themselves in buying and selling for their families.

Why the topic is involved in Mathematics subject instead of being taught to students who take accounts only?

Firstly, mathematics as a compulsory subject tends to solve problems in the society that may some ways or another have no solutions. And it is believed that if students are taught and understand mathematics well, then they can perform other business more easily than those who have no idea in mathematics.

Secondly, accounts involve operations that are basically mathematics. For instance, adding and subtracting amounts can only be performed by a person who is having ability to make those operations clearly, otherwise the business entity will by then incur loss and finally closed simply because people are unable to operate on addition and subtraction.

Therefore, people who are involved in accounting disciplines are those whose abilities in mathematics are proved to be good and of course these people are doing even better in any business they may wish to perform daily.

On the other hand, the situation within the process of teaching and learning on the topic is somehow different because in many cases the topic is not taught to some schools having either no students who opt on the subject or the teachers are not competent enough to teach the topic.

Now, due to these reasons, the topic is either taught at the end of the year or not taught at all, and that make students concentrations on the topic become less compared to topics that are taught significantly earlier and with maximum revisions and at the end few students attempt the question and just few of them may get it right.

So if we teachers expect to get good results on the topic, we need to teach the topic confidently and encourage more students to engage in studying the topic because even if they will not take accounting subject for their further studies, it will be helpful to them in taking business activities in their respective areas and fields.

Though the topic seems to be difficult to teach and learn but I think that, if teachers are trained by those who have idea on the topic and students encouraged to learn it, we will find many students attempting the question on accounts and bringing positive results on the topic.

2.0    SPECIFIC OBJECTIVES

By the end of the topic each student should be able to:

1. Record business transactions in their respective ledgers by completing the double entry system
   
2. Describe different types of ledger, construct ledgers and post the given entries into their respective ledgers
   
3. Extract the trial balance, post entries from ledgers to the trial balance and check their balances and finally give the importance of trial balance in business account
   
4. Construct trading, profit and loss account, ascertain gross and net profit/loss and interpret information from trading, profit and loss account
   
5. Construct balance sheet, post entries in a balance sheet, interpret information from the balance sheet
   

1. Definitions
   

   Accounting is the process of keeping and analyzing financial record of business transactions in the books of accounts. This process involves two types of transactions namely: Cash account and Credit account. In this session we are going to consider only the cash account according to the syllabus of accounts in ordinary level.
   

    

2. DOUBLE ENTRY SYSTEM
   

   The double entry system is the situation that involves recording business transaction into two sides, the Debit side (Dr) and into the Credit side (Cr). The principle of double entry system states that: Every business transaction should be recorded twice. I.e. Every debit entry should have its corresponding credit entry.
   

   Note: The debit side (Dr) is the receiving side while Credit side (Cr) is the giving side
   

   1. Format of Cash account
      

The cash account is recorded in the book called CASH BOOK which is used to original entries for cash transactions. It contains two sides, the debit side (Dr) and the credit side (Cr). Each side is made up of four similar columns namely, date, particulars, folio and amount.

The format of cash account is given in the table below

NAME/TITLE OF A/C

Dr.                                         Cr.

    The above format is sometimes referred to as T – Account

Example.01

Record the following transactions in cash book of Mr. Juma

Feb 1:        Started business with capital in cash         sh. 15,000/=

Feb 2:        Purchased goods for cash             sh. 10,000/=

Feb 5:        Paid cash for transport             sh. 2,000/=

Feb 10:    Sold goods for cash                 sh. 12,000/=

Feb 18:    Received cash from Mr. Said              sh. 8,000/=

Feb 25:    Cash purchases                  sh. 14,000/=

Solution:

The transactions are recorded in the cash book of Mr. Juma as follows

Mr. JUMA CASH ACCOUNT

Example. 02

You are provided with business record of Mwembeyanga’s company. Record them into Mwembeyanga’s cash book then post them to ledgers and close.

On 1^st February, Mwembeyanga started business with capital in cash of sh. 60,000/=

February 2,    Purchased goods for cash             sh. 50,000/=

February 3,    Paid cash for transport              sh. 10,000/=

February 10,    Sold goods for cash                  sh. 90,000/=

February 20,     Bought furniture for cash              sh. 30,000/=

February 28,    Paid cash for carriage                  sh. 5,000/=

Solution:

MWEMBEYANGA’S COMPANY CASH ACCOUNT (1)

1. Types of ledger
   

   A ledger is the principle book of account in which the double entry of all transactions are completed. The structure of the ledger is like that of the cash account. There are three types of ledger which are: general ledger, purchases ledger and sales ledger.
   

    

   The general ledger – Is the account which keeps all accounts of the business.
   

    

   Purchases ledger     – Is the ledger which keeps supplies accounts (credit balance).
   

    

   Sales ledger     – Is a ledger that keeps customers’ accounts (debit balance)
   

Recall example 02 above, the appropriate ledgers are as follows

CAPITAL ACCOUNT (2)

PURCHASES ACCOUNT (3)

TRANSPORT ACCOUNT (4)

SALES ACCOUNT (5)

FURNITURE ACCOUNT (6)

CARRIAGE ACCOUNT (7)

Exercise. 01

The following were transactions undertaken by Mr. Chilubya’s Account on January 2010.

January 1.    Started business with capital in cash                 sh. 500,000/=

January 2.    Bought office machines for cash                 sh. 150,000/=

January 5.    Purchased goods for cash                     sh. 200,000/=

January 12.    Paid cash for transport                     sh. 30,000/=

January 16.    Sold goods for cash                         sh. 150,000/=

January 18.     Received a cash loan from Ms. Asha                 sh. 100,000/=

January 22.    Sold goods for cash                         sh. 140,000/=

January 25.    Paid electricity bill in cash                     sh. 50,000/=

January 27.    Paid house rent in cash                     sh. 30,000/=

You are required to record the transactions in the cash book and then post them to their appropriate ledgers.

Exercise. 02

Record the transactions below for Ms. Nyandaro Business in the cash book, then post them to the ledgers and balance them.

January 1, 2007.     Started business with capital in cash ……………..sh. 600,000/=

January 2, 2007.    Bought goods for cash ……………………………sh. 50,000/=

January 2, 2007.    Paid transport charges …………………………….sh. 5,000/=

January 3, 2007.    Bought parking materials for cash ………………..sh. 10,000/=

January 4, 2007.    Sold goods for cash ……………………………….sh. 30,000/=

January 5, 2007.    Sold goods for cash ……………………………….sh. 10,000/=

January 6, 2007.    Purchased goods for cash …………………………sh. 15,000/=

January 8, 2007.    Paid wages …………………………………………sh. 3,800/=

January 10, 2007.    Cash sales…………………………………………..sh. 20,000/=

January 12, 2007.    Cash purchases……………………………………..sh. 15,000/=

January 15, 2007.    Cash sales…………………………………………..sh. 25,000/=

January 20, 2007.    Paid rent…………………………………………….sh. 5,000/=

1. Trial balance
   

A trial balance is a list of balances extracted from the cash book and the ledger to check mathematical accuracy of entries.

The trial balance is used as

• The checklist of mathematics balances in the cash book and the ledger
  
• The mathematical correctness in the cash book and the ledger
  
• It gives the total amount in the debit side and credit side
  
• It enables business owners to review the entries when the Dr and Cr do not balance
  

The format of trial balance is given as follows

(NAME)……TRIAL BALANCE AS AT (TIME)………

Example. 01

From example 02 of Mwembeyanga’s account above, the trial balance can be extracted as follows:

MWEMBEYANGA’S TRIAL BALANCE AS AT 31 MARCH

Note: From the trial balance above, it can be clearly observed that both Dr and Cr have 150,000/= in their total and for that case, the transactions were correctly recorded

1. FINAL ACCOUNTS
   

    

   1. Trading, profit and loss accounts
      

Trading, Profit and loss accounts are accounts prepared at the end of financial period to ascertain the gross profit or loss. The gross profit is obtained when there is excess of sales over the cost of goods sold while the gross loss is obtained when there is a deficit of sales over the cost of goods sold. And mathematically they can be obtained as follows:

Gross Profit     =    Sales – Cost of goods sold

Gross Loss     =    Cost of goods sold – Sales

The format for trading account

The format for profit and loss account

When trading, profit and loss account are combined together, its format will be as follows

TITLE (NAME)……TRADING AND PROFIT AND LOSS ACCOUNT AS AT (TIME)………

Example. 01

Use the balances given below to prepare the trading and profit and loss account of Mr. Msemakweli for the year ended 30^th June 2009.

Open stock -sh. 150,000/=, Closing stock -sh. 10,000/=, Salaries –sh. 50,000/=,Carriage inward –sh. 12,000/=, Carriage outward –sh. 20,000/=, sales return –sh. 8,000/=, purchases return –sh. 11,000/=, discount on sales –sh. 6,000/=, discount on purchases –sh. 30,000/=, purchases –sh. 200,000/=, sales –sh. 310,000/=, rent –sh. 13,000/=, office expenses –sh. 22,000/=, commission received –sh. 10,000/= and bad debts –sh. 27,000/=.

Solution:

MR MSEMAKWELI TRADING AND PROFIT AND LOSS ACCOUNT AS AT 30^th JUNE 2009

1. Interpretation of Trading and profit and loss accounts
   

The trading and profit and loss account can be interpreted as follows:

1. Gross profit         =    Net Sales – Cost of goods sold(This occurs when income is greater than the expenses and therefore the business will generate profit)
   
2. Gross loss         =     Cost of goods sold – Net Sales (This occurs when income/sales is less than the expenses and therefore the business will generate loss)
   
3. Net profit             =    Gross profit – Expenses (i.e. income is greater than expenses)
   
4. Net loss            =    Expenses – Gross profit (i.e. income is less than expenses)
   
5. Cost of goods sold     =    Opening stock + Net purchases
   
6. Net purchases        =    Purchases + carriage inward +Direct wages – return outwards
   
7. Average stock        =     or
   

Note: When income is greater than expenses the business will generate Net profit but when the income is less than the expenses, the business will generate Net loss.

Example. 02

You are provided with the following transactions

Sales for 2009……………………………..sh. 51,000/=

Stock at start………………………………sh. 9,000/=

Purchases …………………………………sh. 34,500/=

Stock at end ………………………………sh. 6,500/=

Return on sales ……………………………sh. 1,000/=

Return on purchases ……………………….sh. 1,500/=

From the above information, calculate:

1. Net sales
   
2. Average stock
   
3. Net purchases
   
4. Cost of goods sold
   

Solution:

1. Net sales     =    Sales – Return on sales(return inwards)
   

   =    51,000/= – 1,000/=
   

   =    50,000/=
   

Net sales is 50,000/=

1. Average stock         =    
   

   =    
   

   =    
   

    =    7,750/=

1. Net purchases        =    Purchases + carriage inward +Direct wages – return outwards
   

   =    34,500/= +0 +0 – 1,500/=
   

        =    33,000/=

1. Cost of goods sold    =    Opening stock + Net purchases
   

   =    9,000/= + 33,000/=
   

    =    42,000/=.

Exercise. 03.

The following trial balance was extracted from the businessman books’ of 

Chericho Ramaji, at 31^st December 2006.

1. Capital 830,000/= 2.Purchases 1,200,000/= 3. Sales 1,750,000/= 4. Return inwards 55,000/= 5.Return outwards 64,000/= 6. Plant and machine 240,000/=

7. Furniture and fittings 75,000/= 8. Sundry debtors 137,000/=

9. Sundry creditors 86,000/= 10. Wages 228,000/= 11.Bad debts 36,000/=

12. Discount received 27,000/= 13. Opening stock 500,000/=

14. Insurance 16,000/= 15. Commission receivable 43,000/=

16. Trade expenses 22,000/= 17. Cash in hand 17,000/=

18. Cash at bank 274,000 Total 2,800,000

Prepare Trading and Profit and Loss account for the year ended 31^st December 2006

Exercise. 04

Prepare trading and profit and loss account of ABC Traders for the year ended 31^st December 2010.

Stock at start……………………sh. 230 000/=

Purchases……………………….sh. 480,000/=

Sales …………………………….sh. 720,000/=

Carriage inwards ……………….sh. 72,000/=

Returns inwards ………………..sh. 112,000/=

Returns outwards ………………sh. 105,000/=

Wages and salaries …………….sh. 60,000/=

Rent …………………………….sh. 20,000/=

Insurance ……………………….sh. 10,000/=

Discount allowed ………………sh. 10,000/=

Transport ………………………sh. 5,000/=

Discount received ……………..sh. 70,000/=

Commission received …………sh. 109,000/=

Office expenses ……………….sh. 10,000/=

Advertisement …………………sh. 5,000/=

Closing stock …………………sh. 190,000/=

1. Balance sheet
   

A balance sheet is a statement prepared at the end of financial period normally one year, to show the financial position of the business in terms of Assets and Liabilities.

Assets are properties/possessions owned by the business. They consist of current and fixed assets.

Current assets are those properties that can easily be converted into cash. Examples of current assets include, stock, debtors, cash at bank, cash in hand etc.

Fixed assets are those properties that cannot easily be converted into cash. Examples of fixed assets include, Furniture, fixture and fitting, motorcars, land, buildings etc.

Liabilities are claims against business assets. They are debts owed by the business. Liabilities consist of Current/short term liabilities and long term liabilities.

Short term liabilities are those debts that are to be paid back within a short period of time, normally not more than one year of trading period. Example include Creditors, bank overdraft etc.

Long term liabilities are debts to be repaid within a long period of trading period normally more than one year.

The structure for a balance sheet can be seen as shown below,

TITLE (NAME) …………BALANCE SHEET AS AT (TIME)………………………

Example. 01

From the balances given below, prepare a balance sheet as at 31^st December 2010.

Capital sh. 205,000/=, furniture sh. 50,000/=, cash in hand sh. 16,000/=, net profit sh. 70,000/=, motor van sh. 30,000/=, loan from bank 80,000/=, stock sh. 110,000/=, drawings sh. 24,000/=, shop fittings sh. 20,000/=, debtors sh. 180,000/=, creditors sh. 45,000/= and bank overdraft 30,000/=.

Solution:

BALANCE SHEET AS AT 31^ST DECEMBER 2010

Example. 02

Below is the trial balance of Mr. TRY AGAIN as at 31^st December 2008. From these informations, prepare trading and profit and loss account and a balance sheet for the given time.

MR. TRY AGAIN TRIAL BALANCE AS AT 31^ST DECEMBER 2008

Solution:

MR. TRY AGAIN TRADING AND PROFIT AND LOSS A/C AS AT 31^ST DEC. 2008

DR.                                                 CR.

MR. TRY AGAIN TRADING AND PROFIT AND LOSS A/C AS AT 31^ST DEC. 2008

1. Interpretation of the Balance sheet
   

The informations given in the balance sheet can be interpreted as follows,

1. Working capital – This is the excess of current assets over current liabilities,
   

   I.e. Working capital = Current assets – current liabilities
   

2. Current ratio – This is a ratio of current assets to current liabilities
   

   I.e. Current ratio =     
   

Example. 03

You are provided with the balance sheet below, use to answer the questions that follow

BALANCE SHEET AS AT 31^ST DECEMBER 2009

Calculate:

1. Total current assets
   
2. Total current liabilities
   
3. Total fixed assets
   
4. Working capital
   
5. Current ratio
   

Solution:

1. Total current assets         =    100 000 + 40 000 + 60 000 + 40 000 = 240 000
   
2. Total current liabilities    =    100 000 + 60 000 = 160 000
   
3. Total fixed assets        =    60 000 + 90 000 + 30 000 + 70 000 = 250 000    
   
4. Working capital        =    240 000 – 160 000 = 180 000
   
5. Current ratio            =     = 3:2
   

Exercise. 05

The following were the informations extracted from the books of account of Umwema Group as at 28^th February 2010.

Cash in hand ………………………………………sh. 900 000

Creditors ……………………………………………sh. 1 020 000

Debtors ……………………………………………sh. 137 200

Prepaid expenses ………………………………….sh. 67 500

Outstanding expenses ……………………………..sh.16 200

Plant ………………………………………………..sh. 150 000

Land and buildings…………………………………sh. 120 000

Loan from bank ……………………………………sh. 840 000

Motor vehicle ………………………………………sh. 180 000

Calculate:

1. Total current liabilities
   
2. Total current assets
   
3. Total fixed assets
   
4. Working capital
   
5. Current ratio
   
6. Total long term liabilities
   

Exercise. 06

From the trial balance of MC & Company Ltd below, prepare trading and profit and loss account and the balance sheet for the year ended 30^th June 2007.

Closing stock (30^th June 2010n was sh. 499 800

1. REVISION EXERCISES
   

    

2. From the transactions below, open up the cash book, post the entries in their appropriate ledgers and balance them.
   

   Jan 1. Started business with capital in cash            sh. 150 000
   

   Jan 2. Bought goods for cash                     sh. 70 000
   

   Jan 6. Sold goods for cash                        sh. 85 000
   

   Jan 7. Purchased goods for cash                     sh. 25 000
   

   Jan 10. Cash sales                            sh. 80 000
   

   Jan 12. Cash purchases                        sh. 30 000
   

   Jan 17. Paid rent by cash                         sh. 40 000
   

   Jan 19. Received cash from Herman                sh. 70 000
   

   Jan 24. Paid water bills                        sh. 20 000
   

   Jan 27. Sold goods for cash                     sh. 55 000
   

   Jan 28. Received loan from CRDB Bank             sh. 150 000
   

3. John started business on January, 2000 with capital of sh. 5 000 000 in cash.
   

   Jan 2. Purchased goods and paid in cash                 sh.1 000 000
   

   Jan 3. Bought goods for cash                     sh. 500 000
   

   Jan 5. Paid wages in cash                         sh. 50 000
   

   Jan 7. Sold goods in cash                        sh. 300 000
   

   Jan 8. Bought goods in cash                    sh. 800 000
   

   Jan 9. Received loan from C.R.D.B                 sh. 70 000
   

   Jan 12. Bought parking materials in cash                sh. 20 000
   

   Jan 28. Paid transport charges                    sh. 30 000
   

   Jan 28. Drew cash for himself                    sh. 10 000
   

Enter the above transactions in the cash book and complete double entry system.

1. Record the following in the ledgers, balance and close the accounts.
   

   Ms. Joel commenced business on 1^st Jan, 2007 with cash     sh. 600 000
   

   Jan 2. Purchased goods for cash                    sh. 300 000
   

   Jan 4. Paid office cleaners                        sh. 20 000
   

   Jan 5. Sold all the goods for cash                    sh. 340 000
   

   Jan 7. Purchased goods for cash                    sh. 200 000
   

   Jan 8. Paid carriage on goods sold                 sh. 40 000
   

   Jan 10. Sold goods for cash                     sh. 300 000
   

   Jan 15. Paid wages                         sh. 10 000
   

2. Mrs. Hamsini started business as follows
   

   March. 1, 2004 Capital in cash                    sh. 260 000
   

        2 Purchased goods for cash                sh. 70 000
   

        3 Sold goods for cash                    sh. 90 000
   

        7 Purchased goods for cash                 sh. 30 000
   

        13 Bought packing materials for cash            sh. 5 000
   

   19 Paid transport charges                    sh. 3 500
   

        21 Bought more goods for cash                sh. 20 000
   

        24 Paid insurance for cash                 sh. 6 000
   

        27 Sold goods for cash                    sh. 60 000
   

Open the ledger accounts to record the above informations, balance off the accounts and extract the trial balance as at 31^st March, 2004.

1. At the beginning of the year 2006, Mazengo high school shop started business with capital of sh. 5 000 000
   

    

   Jan. 2 Paid electricity for previous month            sh. 15 000
   

   4 Paid telephone bills                        sh. 10 000
   

        5 Bought office stationaries for cash                sh. 50 000
   

   7 Bought four chairs for cash                 sh. 100 000
   

   14 Total cash on sales                        sh. 300 000
   

   17 Sold goods for cash                        sh. 400 000
   

   20 Cash sales                            sh. 500 000
   

   24 Sold timber for cash                    sh. 250 000
   

   25 Mr. Juma paid back the loan                sh. 120 000
   

   26 Paid salaries to workers                    sh. 150 000
   

   27 Cash sales                            sh. 80 000
   

   30 Paid house rent                        sh. 180 000
   

Enter the above transactions in the cash book and open the ledger for sales and purchases.

1. The following is the trial balance of Mtakuja business company Ltd. From it prepare trading and profit and loss account and a balance sheet as at 31^st May, 1975.
   

Stock at 30^th April, 1975 was sh. 4 998.

7.0 REFERENCES

1. Owondo, V., Said, Mrisho S. And Mwambuli, Juma R. (2018). MATHEMATICS FOR SECONDARY SCHOOLS, FORM THREE, Student’s Book By Jamana Printers Ltd – Tanzania.
   
2. South Carolina State University and Ministry of Education and Vocational Training -Zanzibar (2011); MATHEMATICS FOR SECONDARY SCHOOLS. By EXPO Holdings- Malaysia and Uhuru Media Ltd.
   
3. Masinde, W. (2010); BASIC MATHEMATICS FOR SECONDARY SCHOOLS, BOOK THREE, By Nyambari Nyangwine Publishers.
   

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