BTCHRM

BOOKKEEPING & ACCOUNTS

GST04211
 MODULE CONTENTS
INTRODUCTION TO BOOKKEEPING
ACCOUNTING PRINCIPLES
SOURCE DOCUMENTS
ACCOUNTS AND LEDGERS
DOUBLE ENTRY SYSTEM
BOOKS OF ACCOUNTS
TRIAL BALANCE
 BOOKKEEPING
Bookkeeping is the art of recording
financial transactions of the business in a
systematic manner
• The regular record of transactions are
kept in the books of accounts for further
use of business owner
• The records made includes cash and
credit sales or purchases, expenses,
profit and loss of the business.
• Therefore accurate and good records
are needed to monitor the progress of
the business weather it is improving or
there is a need to make changes .
• The records should provide true
information for making decisions for the
future of the business.
• Bookkeeping is just the part of
accounting
• The records are conforms to the entire
need/requirement of the business.
 ACCOUNTING
• Accounting is the process of recording,
summarizing, analyzing, interpreting and
reporting the economic information of the
business to the users for further decisions.
• Accounting can be the process of
consolidating financial information to
make it clear and understandable by users.
 IMPORTANCE OF KEEPING FINANCIAL
RECORDS
i. To compile the financial information from
recorded transactions and report to the
users/stakeholders of the business including
management, investors and creditors.
ii. To determine weather the business is making
profit or loss within accounting period.
iii. Provide sufficient data for making decisions
about future programs of the business on sales,
investments etc.
iv. It is the tool for control of unnecessary
expenses and misappropriation of funds i.e. cash
management.
v. Accounting records are used for the assessment
of tax to be paid by the company. This avoid over
or under estimation of tax to be paid.
v. Accounting records facilitate the credit
transactions because the records can
determine the amount due to creditors
and due from debtors.
Vii. Accounting records depicts financial
position of the business by preparing the
statement of assets and liabilities
 TRANSACTION
Transaction refers to the movement of
money or money worth from one person
to another. It is the exchange of goods or
services using money as a medium of
exchange. Transactions fall under two
categories:
1.Cash transactions are those which are
made on cash basis. The payment is made
instantly on the time of event.
2.Credit transactions are those which are.
borrowed to be paid later on agreed time
When credit transactions are made a
business will have debtors and creditors
in the business.
Creditor: A creditor is a person from
whom goods are purchased on credit
basis. Money due to creditors is taken as
current liabilities.
• Debtor: A debtor is a person to whom
goods are sold on credit basis. Money
due from debtors is taken as current
assets
 THE USERS OF ACCOUNTING INFORMATION
• There are many users of accounting information.
Without properly recorded accounting data a
business would have many difficulties in providing
the information to various users /stakeholders.
• Accounting information user is any one who is
interested to the reports of the business to find
out if it is successful or not so that they can be
attached or not.
The following are the users of
accounting information:
Managers, owners of he business,
employees, creditors/suppliers,
debtors/customers, Government
agencies, lenders /banks,
competitors etc.
CLASS CHALLENGE- QN
Mention ten users of accounting
information and discuss why each user
wants to know this accounting
information
 Accounting Principles and Concepts
• Accounting Principles are the basic assumptions or
business rules, guidelines and decision criteria that
must be followed by business company on the
preparation of financial statements
• The following are Generally Accepted Accounting
Principles. ( GAAP)
1.Business entity principle
The principle assumes that the separate and
distinct records should be maintained between
the entity and the owner. This enable the
accountants to distinguish between personal and
business transactions.
2.Consistence Principle
The treatment of like terms /events should be
recorded and reported in consistent manner from
time to time. This means that same accounting
treatment will be applied for similar items over
time
i.e depreciation of assets
3.Historic cost principle
This is based on the view that cost price of assets is
most objective measurement as it is evidenced by
the actual transaction. i.e Calculation of
depreciation should base on original price or
historical price of the asset.
4.Going on concern principle
The accounting information reflect an assumption
that the business will continue operating instead
of being closed or sold. In this case the property is
reported at cost instead of liquidation value that
assumes closure.
5. Time period assumption.
The financial reports of the business should be
produced at regular and frequent intervals.
Reporting period are usually annually, half year and
even more frequently but should be used over
time .
6.Monetary unit principle.
The assumption is that, only transactions and
events that are expressed in monetary term will be
brought in accounts because money is the
common measure that can record items in
accounts
7.Revenue recognition principle
The principle provides the guidance on when the
company must recognize revenue. The revenue
should be recognized when earned/made and
measured as incurred/gained.
8. Prudency
The principle states that entities must not
overestimate amount of revenue recognized,
assets and profits and not underestimate its
expenses but should adopt estimates policies
9. Materiality
The principle requires accountants to
provide the full information of company’s
monetary situation. The facts that are
presented should be the determinant of
income and influence the decision of
informed user of financial statements
The purpose of GAAP
• The main purposes is to ensure that the
financial statements of companies are
comparable, complete and consistent
GROUP ASSIGNMENT 1
SOURCE DOCUMENTS
These are written sources of accounting information
relating to various transactions made in the business.
They are supporting documents to whatever record or
transaction. i.e a receipt.
Required to find out and discuss twelve types of source
documents and then list the importance of source
documents
 REFERENCE BOOKS
• Wood F and Sheila R (2009), Bookkeeping and
Accounts 7th edition
• Saleeni N.A (1998), Accounting simplified.NA Saleeni
Publishers, Nairobi Kenya.
• Kimuda D.M (2008 ), Foundation of Accounting East
Africa Education Publisher ltd, Nairobi Kenya.
• Google engine.