PAPER NO. 5 FOUNDATIONS OF ACCOUNTING
UNIT DESCRIPTION
This unit specifies competencies required to perform elementary accounting functions. It involves applying accounting concepts in accounting functions, recording business transactions in books of accounts, accounting for assets and liabilities, correcting errors arising from accounting records and preparing financial reports for different entities
LEARNING OUTCOMES
• Apply the legal and conceptual framework in preparation of financial accounts
• Account for revenues and expenses
• Account for assets and liabilities
• Correct errors in accounting records
• Prepare financial statements for different business entities
CONTENT:
1. Apply accounting concepts in accounting functions
1.1 Definition of key terms
1.1.1 Accounting
1.1.2 Accounting period
1.1.3 Accrual basis of accounting
1.1.4 Credit
1.1.5 Debit
1.1.6 Accruals
1.1.7 Closing the books
1.1.8 Introduction to Accounting
1.1.8.1 Nature and purpose of accounting
1.1.8.2 The objective of financial accounting
1.2 The elements of financial statements
1.2.1 Assets
1.2.2 Liabilities
1.2.3 Equity
1.2.4 Revenues
1.2.5 Expenses
1.3 Accounting concepts (Principles)
1.3.1 Accrual principle
1.3.2 Conservatism principle
1.3.3 Consistency principle
1.3.4 Cost principle
1.3.5 Economic entity principle
1.3.6 Full disclosure principle
1.3.7 Going concern principle
1.3.8 Matching principle
1.4 Types of accounts
1.4.1 Real accounts
1.4.2 Personal accounts
1.1.3 Nominal accounts
1.5 The accounting equation
1.6 The users of accounting information (External users)
1.6.1 Creditors
1.6.2 Investors
1.6.3 Government
1.6.4 Trading partners
1.6.5 Regulatory agencies
1.6.6 International standardisation agencies
1.6.7 Journalists (Internal users)
1.6.8 Owners
1.6.9 Directors
1.6.10 Managers
1.6.11 Employees
2. Record business transactions in books of accounts
2.1 The source documents
2.1.1 Receipts
2.1.2 Bills
2.1.3 Invoices
2.1.4 Statements
2.1.5 Cheques
2.2 The books of prime entry/original entry
2.3 Journals
2.3.1 Sales journal
2.3.2 Purchases Journal
2.3.3 Sales returns journal
2.3.4 Purchases returns journal
2.3.5 General journal
2.4 Cash books
2.4.1 Single column cash book
2.4.2 Double column cash book
2.4.3 Triple column cash book
2.5 Petty cash book
2.6 The ledger
2.6.1 Definition of a ledger
2.7 Types of ledgers
2.7.1 Sales ledger
2.7.2 Purchases ledger
2.7.3 General ledger
2.8 Use of ledger
2.9 Concept of double entry
2.10 The trial balance
2.10.1 Definition
2.10.2 Format
2.10.3 Use
2.11 The financial statements
2.12 Statement of profit and loss
2.12.1 Definition
2.12.2 Format
2.12.3 Use
2.13 Statement of financial position
2.13.1 Definition
2.13.2 Format
2.13.3 Use
2.14 Manual accounting systems Vs Computerised accounting systems
3. Account for assets and liabilities
3.1 Definition of an Asset, Liabilities Incomes and Expenses
3.2 Property, plantand equipment (depreciation, acquisition, disposal, excluding revaluations)
3.2.1 Fixed asset schedule
3.3 Accounting for current assets:
3.3.1 Inventory
3.3.2 Cash in hand
3.3.3 Cash in bank
3.3.4 Bank reconciliation statement
3.4 Intangible assets
3.4.1 Softwares
3.4.2 Licenses
3.5 Trade receivables
3.5.1 Definition
3.5.2 Valuation
3.5.3 Accounting for trade receivables
3.5.6 Debtors control account
3.6 Trade payables
3.6.1 Definition
3.6.2 Accounting for trade payables
3.6.3 Creditors control account
3.7 Accrued incomes/expenses and prepaid incomes/expenses
3.7.1 Definition of accrued incomes/expenses and prepaid incomes/expenses
3.7.2 Accounting for Accrued incomes/expenses and prepaid incomes/expenses
4. Correct errors arising from accounting records
4.1 Definition of error in accounting records
4.2 Causes of errors
4.3 Types of errors (Errors affecting trial balance)
4.3.1 Error of casting
4.3.2 Error of carrying forward
4.3.3 Error of balancing
4.3.4 Error of posting to the correct account but with the wrong amount
4.3.5 Error of posting to the correct account but wrong side
4.3.6 Error of posting to the wrong side with the wrong amount
4.3.7 Error of omitting to show an account in the trial balance
4.3.8 Error of partial omission (Errors not affecting trial balance)
4.3.9 Error of complete omission
4.3.10 Error of original entry
4.3.11 Transposition errors
4.3.12 Compensating errors
4.3.13 Errors of principle
4.4 Correction of errors
4.4.1 Suspense account
4.4.2 Journals
4.5 Adjusted trial balance
5. Prepare financial statements for different entities
5.1 Financial statements of a sole trader
5.2 Statement of Profit or Loss
5.2.1 Definition
5.2.2 Format
5.2.3 Use
5.2.4 Statement of Financial Position
5.2.4.1 Definition
5.2.4.2 Format
5.2.4.3 Use
5.3 Financial statements of a partnership
5.3.1 Definition
5.3.2 Format
5.3.3 Use
5.4 The partnership deed/agreement
5.5 The statement of profit or loss and appropriation
5.6 Partners’ capital and current accounts
5.7 The statement of financial position
5.7.1 Definition
5.7.2 Format
5.7.3 Use
5.8 Financial statements of a company
5.8.1 Important concepts of a company (types of share capital, reserves, retained profits and corporation tax)
5.9 Statement of profit or loss
5.9.1 Definition
5.9.2 Format
5.9.3 Use
5.10 Statement of changes in equity
5.10.1 Definition
5.10.2 Format
5.10.3 Use
5.11 Statement of financial position
5.11.1 Definition
5.11.2 Format
5.11.3 Use
5.12 Statement of Profit or Loss
5.12.1 Definition
5.12.2 Format
5.12.3 Use
Suggested Methods of Delivery
● Presentations and practical demonstrations by trainer;
● Guided learner activities and research to develop underpinning knowledge;
● Supervised activities in class; Group discussions
The delivery may also be supplemented and enhanced by the following, if the opportunity allows:
● Visiting lecturer/trainer from the Business sector;
● Industrial visits.