Basic Financial Accounting 4th Edition W. Bosua pdf download
Basic Financial Accounting 4th Edition W. Bosua pdf download
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Basic Financial Accounting 4th Edition W. Bosua Digital
Instant Download
Author(s): W. Bosua, M. Schutte
ISBN(s): 9781485102786, 1485102782
Edition: 4th
File Details: PDF, 1.20 MB
Year: 2014
Language: english
6mm
E DI T I ON
FOURT H
BASIC FINANCIAL ACCOUNTING
FOURTH EDITION
BASIC
This fourth edition has been thoroughly revised to take into account
the latest IFRS terminology. New activities have been added to each
chapter, and an entirely new chapter on Value-added Tax has been
FINANCIAL
included.
ACCOUNTING
W Bosua • M Schutte
FOURTH EDITION
Student Support
This book comes with the following online resources accessible from the resource page on the
Juta Academic website:
• Exam and study skills
Lecturer Support
Lecturer resources are available to lecturers who teach courses where the book is prescribed. To
access the support material, lecturers register on the Juta Academic website and create a profile.
Once registered, log in and click on My Resources.
All registrations are verified to confirm that the request comes from a prescribing lecturer.
This textbook comes with the following lecturer resources:
• Solutions to the exercises in the textbook
• PowerPoint® presentations
W.S. Bosua
M.Com HED (SAIPA)
M. Schutte
M.Com Ph.D. (SAIPA)
Basic Financial Accounting
All rights reserved. No part of this publication may be reproduced or transmitted in any form or
by any means, electronic or mechanical, including photocopying, recording, or any information
storage or retrieval system, without prior permission in writing from the publisher. Subject to
any applicable licensing terms and conditions in the case of electronically supplied publications,
a person may engage in fair dealing with a copy of this publication for his or her personal or
private use, or his or her research or private study. See section 12(1)(a) of the Copyright Act 98 of
1978.
The author and the publisher believe on the strength of due diligence exercised that this work
does not contain any material that is the subject of copyright held by another person. In the
alternative, they believe that any protected pre-existing material that may be comprised in it has
been used with appropriate authority or has been used in circumstances that make such use
permissible under the law.
Contents
Module 1 Accounting equation 1
1.1 What is accounting? 1
1.2 What is a transaction? 1
1.3 Starting a business 1
1.4 Capital 2
1.5 Drawings 2
1.6 Grouping of items 2
1.7 Explanation of concepts 4
1.8 The principle of double entry based on the principle of duality 5
Summary 8
Exercises 8
vi
Preface
A serious need exists among students who have not previously come into contact
with financial accounting for an exposition of the basic principles of the subject.
The authors hope that this publication will fulfil that need and also satisfy the
requirements of a bridging course.
Not only is this publication ideal as an introduction for new students in this
subject, but it will also be of great assistance to any person learning the basic
maxims of accounting.
The fourth edition contains an expanded set of exercises in each chapter as well
as an entirely new chapter on value-added tax.
May the contents of this book inspire a sincere interest in this subject.
Note
Solutions to all exercises are made available to lecturers at prescribing institutions.
Please refer to www.jutaacademic.co.za for details.
vii
Module
Accounting equation 1
Specific outcomes
By the end of this module you should be able to:
1. Understand and explain the following concepts:
assets
liabilities
income
expenses.
2. Apply the double-entry principle.
3. Know what is meant by a ‘‘transaction’’.
4. Indicate what the effect of a given transaction will be on the accounting
equation.
5. Understand and explain the following concepts:
owner’s equity
debtors (trade receivables)
creditors (trade and other payables)
settlement discount granted
settlement discount received
returns.
1.4 Capital
Any contribution to the business made by the owner.
1.5 Drawings
Any thing (assets, money, etc.) taken from the business by the owner.
For the successful operation of a business, the following items are necessary:
buildings
vehicles
equipment
inventory (articles you want to sell)
personnel.
Classification of assets
Current assets
Current assets: articles of value with a lifetime of less than one year which are
easily convertible into cash.
2
MODULE 1: Accounting equation
Classification of liabilities
Owner’s equity: this is the interest of the owner in the business. Owner’s equity
can also be expressed by the following equation:
Owner’s equity = Capital + Profit – Drawings.
Long-term liabilities: these are obligations negotiated by a business which are
payable over a period of more than one year.
Current liabilities: these are obligations negotiated by a business which are
payable within one year.
In other words, the assets and liabilities of a business give us a picture of the
financial position of the business at a certain time.
TOTAL ASSETS
Fixed assets Investments Current assets
Land and buildings Fixed deposit Inventory
Furniture Debtors (trade receivables)
Equipment Petty cash
Machinery Bank
Vehicles
TOTAL LIABILITIES
Owner’s equity Long-term liabilities Current liabilities
Capital Loan (long term) Creditors (trade and other
+ Profit Bond on property payables)
– Drawings Bank overdraft
Loan (short term)
3
Basic Financial Accounting
The difference between the income and expenses gives us a picture of the financial
results (gross profit and net profit) of a business during a certain period.
4
MODULE 1: Accounting equation
1.7.2 Creditor
A creditor is a person to whom the business owes money, in other words, the
business has bought something from him on credit.
1.7.3 Settlement discount received
This refers to the discount the business receives if a debt to a creditor is paid on
time.
1.7.4 Settlement discount granted
This refers to the discount granted to a debtor by the business if the debtor pays his
debts to the business on time.
1.7.5 Credit losses
If a debtor is unable to pay his debt, the amount must be written off as
irrecoverable (credit losses).
1.7.6 Depreciation
The amount by which the fixed assets are reduced on an annual basis.
1.7.7 Returns outwards
Returns outwards are damaged items which we send back to the supplier (creditor),
i.e. we are the buyer/we bought.
1.7.8 Returns inwards
Returns inwards are damaged items which are sent back to us by the buyer
(debtor), i.e. we are the seller/we sold.
5
Basic Financial Accounting
A transaction can affect the accounting equation in one of the following ways:
Example:
In this example only transactions with assets and liabilities will be discussed.
Transaction
number
1. An owner, A, started a business and deposited R60 000 cash in the
bank account of the business.
2. Purchased land and buildings cash, R200 000.
3. Purchased equipment cash, R10 000.
4. Purchased furniture on credit from X, R15 000.
5. Long-term loan from the NBS, R15 000.
6. Purchased inventory on credit from Z, R12 000.
7. Paid creditors by cheque, R15 000.
8. Receipts from debtors in full settlement of their debts, R10 000.
6
MODULE 1: Accounting equation
Owner’s
= Assets – Liabilities
equity
+200 000
2. = –
–200 000
+10 000
3. = –
–10 000
+ 10 000
8. = –
–10 000
Example:
In this example only transactions with income and expenses will be discussed.
Transaction
number
1. Bought stationery from the ACN on credit, R500.
2. Paid salaries of personnel, R8 000.
3. Received interest on investment from the bank, R800.
4. Paid the water and electricity bills by cheque, R1 300.
5. Received R6 000 from A for services rendered during the month.
Owner’s
= Assets – Liabilities
equity
1. –500 = – +500
2. –8 000 = –8 000 –
7
Basic Financial Accounting
3. +800 = +800 –
4. –1 300 = –1 300 –
5. +6 000 = +6 000 –
Summary
1. All accounts can be classified into four basic groups, namely
assets, liabilities, income and expenses.
2. In accounting everything must always balance. Therefore the
accounting equation is: Assets = Owner’s equity + Liabilities.
3. An increase in income reflects an increase in the owner’s equity and a
decrease in income reflects a decrease in the owner’s equity.
4. If an expense increases, the owner’s equity will decrease and if an
expense decreases the owner’s equity will increase.
5. Owner’s equity = Capital + Profit – Drawings.
6. Profit = Income – Expenses.
Exercise 1.1
Classify the following items as either assets (A), liabilities (L), income (I) or
expenses (E):
A L I E
1. Bank
2. Capital
3. Buildings
4. Depreciation
5. Rent paid
6. Inventory
7. Transport costs
8. Repairs and maintenance
9. Services rendered
10. Revenue
11. Salaries and wages
8
MODULE 1: Accounting equation
A L I E
12. Water and electricity
13. Debtors
14. Interest received
15. Mortgage on land and buildings
16. Investment
17. Interest paid
18. Vehicles
19. Stationery
20. Rates and taxes
21. Profit
22. Equipment
23. Creditors
24. Bank overdraft
25. Petty cash
Exercise 1.2
Indicate the influence of the following transactions on the accounting equation:
Owner’s
= Assets – Liabilities
equity
1. The owner deposited R50 000 in the bank account of the business.
O A L
= –
9
Basic Financial Accounting
Exercise 1.3
Principle of double entry (income and expenses)
Indicate the influence of the following transaction on the accounting equation:
Owner’s
= Assets – Liabilities
equity
1. Paid interest on a loan at NBS, R500.
O A L
= –
10
MODULE 1: Accounting equation
Exercise 1.4
What is the effect of the following transactions on the accounting equation?
Owner’s
= Assets – Liabilities
equity
1. The owner withdrew R4 000 from the bank account of the business for his
own use.
2. Paid a creditor R1 600 in full settlement of his account of R1 700.
3. Paid the wages of R11 000 for the month.
4. Interest paid on bank statement amounts to R56.
5. Sold an old vehicle for R12 000 cash.
6. Bought equipment on credit from Gauteng Stationers for R4 000.
7. Paid R1 000 interest on the loan to NSS bank.
8. Received R3 500 from a debtor in full settlement of an account of R3 560.
11
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