Topic 1: Introduction to Book-Keeping - Book Keeping Notes Form One New Syllabus

Topic 1: Introduction to Book-Keeping – Book Keeping Notes Form One New Syllabus

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Topic 9: Manufacturing Account - Book Keeping Form Three, Book-Keeping Form One Notes New Syllabus, Topic 7: Basic Financial Statements - Book Keeping Notes Form One New Syllabus, Trial Balance, Meaning of Books of Prime Entry: Books of prime entry: Are the books in which transactions are recorded before being posted to their respective ledgers. Books of prime entry: Are the books of account that are used to record any transaction for the first time. When a particular transaction has occurred for the first time in a business should be entered into the primary books known as books of prime entry/books of original entry/ subsidiary books/daily books/ journals before being posted to their respective ledger accounts. The word Journal is adopted from a French word which means “daily recording” THE TYPES OF BOOKS OF PRIME ENTRY: There six (06) types of books prime entry which are; Purchases day book (purchases journal) Sales day book (sales journal) Purchases returns day book (Returns outwards journal) Sales returns day book (Returns inwards journal) Cash book Journal proper (General journal) USE OF BOOKS OF PRIME ENTRY: The following are brief descriptions and purpose of each of the book of prime entry: Purchases day book (purchases journal) this journal is used to record details of goods bought by the business with the promise that payment will be made in the future. Purchase returns daybook (purchase returns journal): the purchase returns daybook is used to record transactions related to purchase returns, or returns of goods to suppliers who supplied goods on credit (creditors). Sales day book (sales journal): is the journal used to record details of goods sold on credit with the promise that payment will be received in the future. Sales returns daybook (sales returns journal): this book is used to record details of transactions related to sales returns, or returns of goods from customers to whom goods were sold on credit (debtors). Cash book: is the book used to record transactions related to receipt and payment of cash as well money placed into the bank (bank deposits) and those taken from the bank (bank withdrawals). Cash book is divided into different categories which are Single columns cash book. Two columns’ cash book. Three columns’ cash book. Petty cash book General journal (journal proper) this book of prime entry is used to record transactions related to other items, which according to their nature are not recorded in any other books of prime entry. SOURCE DOCUMENTS/ACCOUNTING INFORMATION: These are documents from which transactions to be recorded in the books of prime entry are extracted. They are documents used in the books of prime entry. These documents are used in the books of prime entry. Source documents can be summarized as follows INVOICE This is a document issued when goods are sold or bought on credit. Sales invoice is issued when goods are sold on credit whereas purchases invoice is issued when credit purchases are made. Invoices are used in preparation of sales day book and purchases day book. DEBIT NOTE is the document prepared and sent by the seller to the buyer to adjust undercharges on the invoice. This document is used by the buyer in preparation of Purchases returns day book/ Returns outwards journal CREDIT NOTE is the document sent by the seller to the buyer to correct an overcharge on an invoice. This document is used in preparation of sales returns day book/ returns inwards journal. CHEQUE: This is a written order by a customer to his/her bank to pay a specified sum of money to the named person at a specific period of time. Is the document used by the drawer to withdraw cash from his or her account. This document is used in preparation of a cash book. PAY-IN-SLIP: This is a bank deposit form filled in by depositor and stamped by a teller as evidence of accepting the deposit. WITHDRAW SLIP: This is a document filled by a person withdrawing money from the bank upon being accepted by the bank teller. CASH RECEIPT/ CASH RECEIPT VOUCHER: is the document that acts as proof that cash has been received. Money could be received from customer for cash sale of goods or goods, or cash received when a credit customer settles his or her debt with the business. PAYMENT VOUCHER: is the document that presents evidence that money has been paid. Money might be paid to the supplier for cash purchase of goods or service or settlement of account payable for goods previously bought on credit. PETTY CASH VOUCHER: is the document used by a petty cashier as evidence for making small payment from petty cash fund. This document is used in preparation of Petty Cash Book. STATEMENT OF ACCOUNT: is the document sent by the seller to the buyer at the end of every period (usually each month) acting as a reminder to the buyer to pay the outstanding balance. JOURNAL VOUCHER: is the document that provide evidence of authorization for all transaction other than those which are evidenced by the previously mentioned source documents. This document is used in the preparation of General journal or Journal proper. PREPARATION OF BOOKS OF PRIME ENTRY: As per the accounting cycle or process introduced in chapter one, once transactions are identified they are entered in the books of prime entry, followed by posting the entries to relevant ledgers account. In section, you are going to learn the six special journal and how information from source documents is entered followed by the general journal. CASH BOOK: This is a book where receipts or payments are recorded. This book is both a ledger and a book of prime entry. Receipts and payments entered in on debit side and credit side respectively. Receipt/cheque: are documents which are used to obtain information to prepare Cash book. Moreover, an account has four columns in both Dr and Cr sides of account namely: The format of a Cash account is illustrated below; DR CASH BOOK CR Date Particulars Folio Amount Date Particulars Folio Amount Date column: Is the column used to record the date at which the given transaction took place. Particulars/narration/details: Is the column used to record a short description of the transactions that took place. Folio column: is the column used to record the reference page in books of account. Amount column: is the column used to record the amount of money that used in purchasing or selling the goods. Example 1: Kafuku commenced business on 1st January 2022 with Capital in cash TZS 200,000. Her transactions during the month were as follows: January 2. Purchased goods for cash 40,000 3. Sold goods for cash 10,000 3. Paid rent for cash 60,000 4. Cash purchases 16,000 6. Paid postage charger 1,000 13. Commission received for cash 50,000 17. Paid salaries for cash 9,600 19. Paid adverting expenses for cash 7,000 24. Bought furniture for cash 10,000 28. Paid wages for cash 16,000 Required: Draw up a cash book, balance it and bring down the balance to the following months DR. CASH BOOK CR. Date Particulars Folio Amount Date Particulars Folio Amount 2022 2022 Jan. 1 Capital 2 200,000 Jan. 2 Purchases 3 40,000 3 Sales 4 10,000 3 Rent 5 60,000 13 Commission 7 50,000 4 Purchases 3 16,000 Received 6 Postage 6 1,000 Charges 17 Salaries 8 9,600 19 Advertising 9 7,000 Expenses 24 Furniture 10 10,000 28 Wages 11 16,000 31 Balance c/d 100,400 260,000 260,000 Feb. 1 Balance b/d 100,400 Example 2: Moshi & his Son Islam started business with a capital of Tsh 60000, on 1st September 2022. During the month the following transaction took place: – Sept 2, Purchased of goods for cash Tsh 3000 Sept 4, Paid carriage charge Cash Tsh 2000 Sept 6, Paid Transport charge Cash Tsh 4000 Sept 8, Bought Motor Vehicle for cash Tsh55000 Sept 10, Cash Sales Tsh 44000 Sept 12, Paid Rent for Cash Tsh1500 Sept 15, Paid commission charge Tsh 1000 Required: Records the above transaction into Cash book account and bring down the balance as on 30th September 2022. DR CASH ACCOUNT CR SALES DAY BOOK Sales day book is in which sales made on credit are recorded. It is a book of original entry that contains the list of credit sales made in a business. It is also known as sales journal Sales invoice: is a document prepared and issued by a seller to the buyer containing information about goods sold on credit. This information includes name, quantity and prices of the products sold. Format of the sales day book: The sales day book has six columns which are: Date: this column is used to write the date, month, and the year of the transaction. Generally, it shows when the transaction took place. Particulars: this column gives a short description of the entry for the transaction recorded. Folio: this column records page of reference in books of accounts.it indicates in what ledger and on what page the transaction has been posted. Invoice number: this column records the details of the invoice number which identify the invoice received when a particular transaction was made. Invoice details: this column records the details of the invoice involved in the transaction. Invoice total: this column records the total amount of money being transacted. SALES DAY BOOK Date Particulars Folio Invoice Details Invoice Total Example 1. Co-operative shop made the following purchases during the month of August, 2021. August 1. Credit sales to Mwangomo 100 bags of Rice @ 550/= 50 bags of sugar @ 750/= August 5. Sold to Dons and Sons Ltd. 10 boxes of cooking fat @ 320/= 12 pairs of sandals @ 150/= August 10. Credit sales to Shilabela Traders. 20 pairs of bed sheets @ 170 50 shirts @ 350/= August 15. Sold to Michael and Sons Ltd 2 cartons of Malaika soap @ 500/= Required: Draw up the Sales journal for the months. SALES DAY BOOK/SALES JOURNAL Example 2. On 1stDecember 2022 Mr. Kasoma started the business and the Transaction during the year was as follows: Dec 1stSold the following goods to Kimatah Gilagiza companies 5 Crown colour each Tshs 7,000 11 Cement each Tshs 22,000 4 Cartons of Nyati cola each Tshs 11,000 10th Dec 2022. Said Mrisho Kanyegeli supplier of Mwamgongo village received the following item sold to him. 6 Boxes of cigarette @ 5000 9 Carton of shoes shs 4500 per carton 10 Boxes of Tanga milk shs 9000 @ 16th Dec 2022, Sold the following items to Mwimbe General Supplier 15 Boxes of shoes @ Shs 12,000 60 Crates of Coca-Cola @ 23,00 10 Breads @ 850 and 6 cakes @ 2,500. Required: Enter the above transactions in the Sales Journal Answer Mr. KASOMA SALES JOURNAL PURCHASES DAY BOOK/ PURCHASES JOURNALS This is a book of original entry where credit purchases are recorded before being posted to the ledger. It contains amount of goods are bought on credit. Purchases invoice: is the document that used in preparation of purchases day book. Note: Cash Purchases are not entered in the purchases journal. Format of the purchases journal: The sales day book has six columns which are: Date: this column is used to write the date, month, and the year of the transaction. Generally, it shows when the transaction took place. Particulars: this column gives a short description of the entry for the transaction recorded. Folio: this column records page of reference in books of accounts.it indicates in what ledger and on what page the transaction has been posted. Invoice number: this column records the details of the invoice number which identify the invoice received when a particular transaction was made. Invoice details: this column records the details of the invoice involved in the transaction. Invoice total: this column records the total amount of money being transacted. PURCHASES DAY BOOK, Application of the Double Entry System, The accounting equation Accounting equation is the equation that shows resources owned by a business against those due to others (liabilities). Accounting equation is the equation that show the relationship between assets, capital and liabilities. Assets: are resources that an enterprise controls and uses to conduct its business. Capital or owner equity: is the amount of resources contributed by the owner. Liabilities: are resources in the business supplied by non-owners of the business. They are obligations that a business has to settle by means of transferring resources to other persons or business. At a point when the business has just started, the total value of assets equals the value of capital: When a business has resources supplied by the owner of the business and others who do not own the business, the accounting equation changes as follows: The equation can also be changed or written in words as follows: Example 1. Complete gaps in the following table. S/n Assets TZS Liabilities TZS Capital TZS a) 5000,000 720,000 ? b) 1,120,000 196,000 ? c) 6,720,000 ? 5,000,000 d) 7840,000 ? 6,580,000 e) ? 4,660,000 1,580,000 f) 2,520,000 7,680,00 ? Solution: From the accounting equation which state that Question 1; Complete the following table STATEMENT OF AFFAIRS: is the statement which shows the list of all assets and liabilities (together with their financial value) at a particular date to enable one calculate value of capital. STATEMENT OF AFFAIRS: Is the statement shows the figures of assets and liabilities to determine the amount of capital. This approach is specifically helpful in a situation where one knows the assets and liabilities of the business and wants to calculate the figure if capital. The effects of revenue and expenses on the equity element of accounting can lead to an extended accounting equation which appears as follows Arithmetically, this equation can be re-arranged. Foe ease of understanding the double entry principle, the re-arrangement of the extended accounting equation is as follows: FORMAT OF A STATEMENT OF AFFAIRS: Statement of Affairs as at (date, Month, Year) Example 1. Kyela Business Enterprise has invested in farming activities. They do not keep complete books of accounts. However, the following information is available as at 31st December 2020. Prepare statement of affairs to calculate amount of capital. Example 2. Mr. Salim has the following transaction took place during the year 2023 December 31st. you are required to calculate capital and prepare the initial statement of the affairs. CONCEPT OF DOUBLE ENTRY: The accounting equation is the foundation of the concept of double entry. Double entry deals with the recording and posting of business transactions in the books of accounts. Business transactions are posted to ledger accounts following principle of double entry. Meaning of double entry system: This is the principle which calls for recording each business transactions twice in the books of accounts. The principle of double entry states that, every business transaction should be recorded twice, that is, every debit entry must have its corresponding credit entry of the same amount. Therefore, one side of the account receives while the other side gives depending on the nature of transaction. Double entry is the most commonly used system of book keeping based on the principle that every financial transaction involves the simultaneous receiving and giving of value, and is therefore recorded twice. IMPORTANCE OF DOUBLE ENTRY:, Basic Principles of Book-Keeping, Introduction to Book-Keeping
   

Topic 1: Introduction to Book-Keeping – Book Keeping Notes Form One New Syllabus

Main competence:

To enable students to appreciate the importance of keeping business financial transactions and have ability to negotiate and reason effectively during business deals.

CONCEPT OF BOOK-KEEPING

  • Even business operators or owners without a proper knowledge of Book keeping will somehow unknowingly apply Book keeping principles in order to achieve various objectives of their businesses.

Origin Of Book-Keeping:

  • The origin of Book-keeping can be traced back to the ancient civilians like Sumeria and Egypt.
  • These societies developed systems to record and track transactions and goods exchanged.
  • Overtime, Book-keeping principles advanced to various techniques through contributions from Greeks and Romans entrepreneurs.
  • In the medieval period, Luca Pacioli in 1494 played a significant role in promoting double entry Book- keeping system.
  • This introduction was a significant development that revolutionized the field of Book- keeping has continued to evolve, adapting to changing economic systems and technological advancements.
  • As we speak, Book-keeping remains a vital part of accounting and financial management, ensuring maintenance of records, facilitating financial reporting, analysis, and maintaining transparency and accountability in financial affairs.

Meaning Of Book-Keeping

Book keeping can be defined as the art of recording business financial transactions in the  books of accounts in an orderly manner.

Book keeping is the process of recording data relating to accounting transactions in the accounting books.

Book-keeping is the systematic recording, organizing and tracking of financial transactions and activities within a business.

Book keeping is the technique of recording financial transactions as they occur so that summaries may be made of the transactions and presented as a report to the users of accounting information.

book-keeping is a branch of accounting which deals with recording financial data of business transactions or events.

The person who keeps the records of business is known as Book keeper.

Scope Of Book-Keeping

The process of Book-keeping covers the recording, classification, organization and maintenance of records of financial transactions.

It plays central role in providing accurate financial information for decision making, legal and regulatory compliance and financial analysis within a business.

PURPOSE OF BOOK-KEEPING

The specific purposes of Book-keeping include;

Financial records

It provides a comprehensive record of financial transactions, which helps in maintaining a clear and accurate account of the enterprise’s financial activities.

Compliance and legal requirements

Organized and appropriate financial records are necessary for preparing tax returns and, meeting financial reporting requirements.

Financial management

By having up-to-date financial records, an enterprise can make informed decisions regarding investment, budgeting and resource allocation.

Facilitating business decision making

Management with accurate financial data can analyze different aspects of the business, identify areas for improvement, and make strategic decisions to drive business growth.

THE IMPORTANCE OF BOOK-KEEPING

Book keeping is important to business owners and other parties outside of an enterprise for the following reasons:

Determination of the amount of profit or loss

If the business man/woman keeps records by all means he/ she should know whether they run business into profit or losses through the preparation of Income statement.

Knowledge of credit dealings/ Knowledge of credit transactions

book keeping helps enterprises to maintain appropriate records of their credit transactions and know the amount due from each of its debtors and the amount owing to each of its creditors since such records can systematically be kept following Book- keeping principles.

Business control/ control of business

A business man / woman can be able to control his /her business as required by the principle, because he /she would be able to follow the proper records. also help the proprietor to detect errors, frauds, and any misappropriation of funds.

Fair tax assessment

Tax authorities such as Tanzania Revenue Authority (TRA) requires the proper keeping of financial records helps both the owner and the tax authorities to assess the amount of tax payable fairly.

Reliable financial position of the business

in order to know the value of property and the amount of capital and liability, the business man/woman need to keep the record of book keeping, the owned and their capital increase or decrease.

ACCOUNTING PROCESS/ACCOUNTING CYCLE

Meaning of Accounting Cycle:

The accounting cycle is the systematic process of identifying, recording, processing, and summarizing financial transactions of a business during a specific.

It ensures that a company’s financial statements are accurate and comply with accounting standards.

The six basic stages in the accounting cycle/ accounting process are summarized as follows:

Stages of the Accounting Cycle:

Identifying transactions and recording in source documents:

This is the first stage in the accounting process where financial transactions are identified and evidenced through source documents such as receipts, payment vouchers, invoices, cheques, debit note, and credit note.

Recording the transactions in the  books of prime entry:

The transaction is initially recorded in these books before it is recorded or posted anywhere else. This book will focus on six types of books of prime entry, namely a sales journal, a purchases journal, a sales returns journal, a purchase returns journal, a general journal, and a cash book.

Posting transactions to the ledger accounts

This process involves the posting of entries that were initially recorded in the books of prime entry to the ledger accounts. The posting of entries to the respective ledger accounts is done by following the double entry system of Book-keeping.

Extracting the trial balance

The trial balance is a list prepared at a specific date showing net figures or balances of all general ledger accounts. The account balances extracted from the general ledger are listed in the debit and credit columns of the trial balance.

Making adjusting entries and correction of errors

A trial balance is expected to reveal some errors which may have been made when transactions are first entered in the books of prime entry or when double entry is done in the ledger. This is a process that goes together with making any necessary adjustments of the balances before the preparation of financial statements.

Preparing the financial statements

The aim of preparing the financial statements is to know the performance, financial position, and cash flows of the enterprise.

TYPES OF BOOK-KEEPING METHODS/SYSTEMS

The following are the two systems of Book-keeping:

Double-entry Book-keeping Double-entry:

It follows the principle that every transaction has equal and opposite effects on at least two accounts.

Each transaction is recorded with a debit entry in one account and an equal credit entry in another.

This method maintains a system of accounts, including assets, liabilities, equity, revenue, and expenses. Double-entry book-keeping ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced.

Single-entry Book-keeping:

In this method, only a single entry is made for each transaction, typically in a revenue or expense journal or a cash book. It records income and expenses, but it does not track individual accounts for assets and liabilities.

While single-entry book-keeping is suitable for small businesses with straightforward transactions, double-entry book-keeping is the standard method used by most businesses due to its accuracy, reliability, and ability to provide a comprehensive financial overview.

Introduction to Book-Keeping

BOOK KEEPING FORM ONE

Common terms used in Book-keeping

The following are some basic terms used in book-keeping;

  • Drawings

is the amount of money or goods taken from the business for personal uses.

  • Assets

are resources controlled by a business owner that have economic benefits to the business. include cash, inventory, equipment, and property.

  • Liabilities

Are Debts or obligations of a business to external parties, such as loans, trade and other payables, and accrued expenses.

  • Expenses

Are Costs incurred by a business in the process of generating revenue, including salaries, rent, utility bills and other operating expenses.

  • Debit entry

An entry that results in an increase in assets or expenses or a decrease in liabilities.

  • Credit entry

An entry that results in an increase in liabilities, or revenue or a decrease in assets or expenses.

  • Double-entry

Is a system of book-keeping that records each financial transaction with equal and opposite entries on two different accounts.

  • Ledger

is a main  book or digital record in which financial transactions are recorded.

  • Journal

is the book or electronic record where financial transactions are recorded for the first time.

  • Debtor

This term refers to a customer who buys goods or services from business on credit. debtor is a person who owes money to the business. He or she has an obligation to the business. Another name for this account is accounts receivable.

  • Creditor

This term refers to a person who sells goods or renders services on credit to the business. Therefore, a creditor is a person to whom the enterprise owes money. Another name for creditors is accounts payable.

  • Trade receivables

This refers to money owed to a business by its customers for goods sold on credit.

  • General ledger

This refers to the central repository of all financial transactions recorded by a business. It is categorized by account such as assets, liabilities, revenue, and expenses.

  • Trial balance

It is a statement that show the list of all general ledger accounts with their respective debit and credit balances.

  • Revenue

refers to income generated by a business from its primary operations such as sales of goods or services.

  • Depreciation

This refers to the reduction in the value of a long-term asset over its useful life. This refers to the systematic allocation of the cost of a long-term asset over its useful life to match such cost with the revenue generated by the asset over its life.

  • Cash flow

This refers to the movement of cash into and out of a business over a specific period.

  • Business

This refers to any legal activity undertaken with the aim of making profits. Examples of business include farming, a restaurant, a salon, and a kiosk.

  • Capital

It is the amount of money or money’s worth provided by the owner to start an enterprise or to expand it.

  • A sole proprietor

is the owner of the enterprise who provides capital to start or expand the enterprise alone.

  • Goods

These are items bought and sold by the proprietor and they have the characteristics of being seen and touched. Goods are sold by business people to satisfy the needs of customers. Examples of goods include pens and exercise books for a stationery business, food for a restaurant business, and cement for a hardware business.

  • Services

These are activities performed by the enterprise in the course of business that does not involve itself in selling physical goods. Examples of services offered by different enterprises are hairdressing, drama shows, advertising, and training.

  • Profit

is the excess of revenues over expenses for a particular period or activity.

  • Loss

is the excess expenses over revenues for a particular period or activity.

  • Transaction

refers to the movement of money or money’s worth between two or more parties. For example, Juma paid Paula TZS 20,000 to buy a pair of shoes.

  • Cash transaction

is the transaction occurring when cash is paid immediately after receiving goods or services.

  • Credit transaction

is the transaction occurring when cash is paid later after receiving goods or services.

  • Bank overdraft

is the situation where by customer allowed to withdrawal more money than what he/she has in the bank account.

  • Bad debt

is the amount of money that customer failed to pay the business.

  • FASB (financial Accounting, Standards Board)

is the organization responsible for setting accounting standards in the United States.

RELATIONSHIP BETWEEN BOOK-KEEPING AND OTHER DISCIPLINES

The knowledge and skills acquired in Book-keeping are also applicable in different subject areas covered in the Ordinary Secondary Education Curriculum and beyond.

The relationship that exists between Book-keeping and some other disciplines is explained as follows:

  • Accountancy

Book-keeping lays down the foundation of the Accountancy subject. It deals with recording and posting entries to various ledgers that are used by accountants to analyze, interpret and make informed decisions about the business.

Accountants produce reports popularly known as financial statements. Therefore, without the knowledge of Book-keeping, it would be difficult for accountants to prepare and analyze financial statements.

The following are the differences between Book-keeping and Accounting

S/N

BOOK-KEEPING

ACCOUNTING
i. It is concerned with the recording of business financial transactions in the  books of accounts It is more extensive since it deals with classification, summarization, and interpretation of financial statements
ii It is based on accounting policies and systems already laid down It lays down policies and systems for use in Book keeping
ii It is done according to accounting standards and concepts It is done according to accounting standards but techniques used for analyzing and interpreting financial statements vary from firm to firm
iv Book keeping serves the purpose of having the transactions recorded in books and reflected in the financial statements It ensures that the system is in place for having the Book-Keeping process undertaken, and spans further into making appropriate assumptions and estimates
v It requires skills in double entry system of Book-Keeping In addition to Book-Keeping skills, accounting requires analytical
  • Business studies

Business Studies provide a broader understanding of the overall business environment and operations, while Book-keeping is a systematic recording of financial transactions gained from business activities.

Book-keeping develops skills for maintaining economics records, calculating national income, performing cost analysis and production costs.

  • Home Economics

Book-keeping supports Home Economics by providing a system to financial record- keeping, budgeting, expenses tracking, financial planning, tax preparation and decision-making within household.

It helps individuals and families to effectively manage their resources, making informed financial choices and achieve their financial goals.

  • Computer Science

Computer has automated tools that enhance financial record-keeping, data analysis, security measures, and reporting processes. order to do that, one needs to have Book- keeping knowledge and skills.

  • Agriculture

Helps farmers to maintain financial records, assess profitability, optimize resource allocation, comply with tax obligations, and make informed decisions to achieve sustainable and profitable agricultural operations.

In order to do that, one needs to have Book-keeping knowledge and skills.

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