17 Maintain Business Records

QUEENS’ college AYERTENA CAMPUS
Training, Teaching and Learning Materials
ACCOUNTS AND BUDGET SUPPORT LEVEL III
Learning Guide
Unit of CompetenceMaintain Business Records
Module Title Maintain Business Records
LG Code: BUF ACB3 17 0812
TTLM Code: BUF ACB3M17 0812
TTLM Development Manual Date: 2010/17

Compiled by : Acct department
INTRODUCTION
Welcome to the module “Maintain Business Records”. This learner’s

guide was prepared to help you achieve the required competence in “Accounts and
Budget Support Level III ”. This will be the source of information for you to
acquire knowledge attitude and skills in this particular occupation with minimum
supervision or help from your trainer.
Summary of Learning Outcomes
After completing this learning guide, you should be able to:

Lo1:- Collate business records
Lo2:- Update business or records system
Lo3:- Prepare reports from the business or records system
How to Use this TTLM
o Read through the Learning Guide carefully. It is divided into sections

that cover all the knowledge, skills and attitude that you need.
o Read Information Sheets and complete the Self-Check at the end of
each section to check your progress
o Read and make sure to Practice the activities in the Operation Sheets.
Ask your trainer to show you the correct way to do things or talk to
more experienced person for guidance.
o When you are ready, ask your trainer for institutional assessment and
provide you with feedback from your performance.

Lo1:- Collate business records
Definition
Accounting is the process of recording, summarizing, analyzing, and interpreting financial
(money-related) activities to permit individuals and organizations to make informed judgments
and decisions.
Accounting is an information system that provides reports to stakeholders about the economic
activities and condition of a business
Accounting is a ‘language of businesses. This is because accounting is the means by which
business information is communicated to stakeholders
Importance
In order to provide financial information about the economic activities of an enterprise this is
useful for making economic decisions
By law all businesses must keep accounting records. Decisions are based on accounting
information for profit and non-profit companies alike.
Users of Accounting Information
The users of accounting information can be divided in to two major categories:-
i. Internal users are
A) the company managers who are responsible for planning and control of operations on a day
by day and long term basis.
B) Employees of the business
ii. External Users : include
1. Owner(s) .
2. Investors
3. Creditors and Financial Institutions.
4. Government.
Forms of Business Organizations
There are different forms of business organizations:
o Private business—object
business—object is to earn a profit
o Sole Proprietorship—owned
Proprietorship—owned by one person
o Partnership—co-owned
Partnership—co-owned by two or more persons
o Corporation—owned
Corporation—owned by investors called stockholders (The business—not the
Owners—are responsible for the company’s obligations.)
There are different types of business organizations:
o Service business—doctors,
business—doctors, lawyers, barber shop, etc.
o Merchandising business—purchases
business—purchases goods for resale
o Manufacturing business—produces
business—produces a product to sell
Accounting Principles and Concepts
Accounting principles and concepts are standards or guidelines that the accountant should follow
in identifying, measuring, recording and reporting the financial statements of an organization.
 Business entity concept

The accounting records for the financial activities of an organization should be separate
from the financial activities of its owners or the organization.
 Going concern (Continuity) principle
A business enterprise will continue in operations for a period of time long enough to
fulfill its objectives and meets its contractual agreement
 Unit of Measure concept(Monetary principle)
All business activities of an enterprise are expressed and recorded in terms of money
 Cost concept
It requires that properties and services purchased by a business enterprises be
recorded at their cost (historical cost)
The Elements of Accounting

Assets
Assets are items with money value that are owned by a business. Some examples are: cash,
accounts receivable (selling goods or services on credit), equipment (office, store, delivery, etc.),
and supplies (office, store, delivery, etc.).
Liabilities
Liabilities are debts owed by the business. Paying cash is often not possible or convenient, so
businesses purchase goods and services on credit. The name of the account used is Accounts
Payable.
Another type of liability is Notes Payable. This is a formal written promise to pay a
Specific amount of money at a definite future date.
Owner’s equity
The difference between Assets and Liabilities is Owner’s Equity. The can also be called capital,
proprietorship, or net worth.
The accounting equation
Assets = Liabilities + Owner’s Equity
This equation must always balance!
Assets – Liabilities = Owner’s Equity
Business transactions and the Accounting Equation
A transaction is any activity that changes the value of a firm’s assets, liabilities, or owner’s
equity.
Each transaction has a dual effect on the basic accounting elements. A transaction may affect
more than two accounts in a transaction. This is called a combined entry.
Withdrawal (Drawing) is the removal of business assets for personal use by the owner. This
transaction decreases the asset taken and the value of the business.
Each transaction increases or decreases (or both) the basic elements in the accounting equation.
The effect of recording a business transaction must always leave the two sides of the accounting
equation in balance.
Example
Consider the following business activities or events of a typical firm:
- the firm owned assets of $100,000
- the firm owed creditors $80,000
- the firm owed the owner $20,000
The accounting equation would be:
Assets
Assets =
= Liabilities
Liabilities +
+ Owners' Equity
$100,000
$100,000 = = $80,000
$80,000 +
+ $20,000
Suppose that $6,000 was used to reduce liabilities and the balance remained in assets side of the
equation.
equation. And then, as you would expect, the accounting equation would be changed:
Assets
Assets =
= Liabilities
Liabilities +
+ Owners' Equity
$94,000
$94,000 =
= $74,000
$74,000 +
+ $20,000
What is bookkeeping?
Bookkeeping is a process of recording and summarizing the financial activities of a business.
The difference between Accounting & Bookkeeping
Bookkeeping Accounting
- It records business transaction in - It designing accounting system
Prescribed manner &interpreting financial statements
-It is technical in nature - It is about directing & reviewing the record of aBookkeeper
- It requires conceptual & analytical skills
1.2 Gathering data

Data is unprocessed (raw) information.
Informationis processed data about people, object and facts
Data processing in accounting
Data
Unprocessed raw facts
It includes transactions
Processing
-Manual
-mechanical
- Electronic (automated)
Information
Processed data ready for the users of decisions
It includes financial statement analysis summarizes, reports
They are accounting outputs
Preparing beginning balance sheet

In accounting a business form that lists what is owned, what is owed and what a business is
worth on specific date is called Balance sheet
The purpose of the financial position of a business on a particular date, it is sometimes called a
position statement.
Balance sheet has two forms:-
1. Accounting form
Under this form the part of the balance sheet is classified in two sections as right left column.
Assets:-Liaibilities&capital
Cash ----------------------XXX Accounts payable------------------XXX
Supplies-------------------XXX Dashan bank ---------------------- XXX
Equipment--------------- XXX Total Liabilities---------------- XXX
Building------------------ XXX capital ------------------------- XXX
Land------------------------XXX
Land------------------------XXX
Total Assets --------------XXX

--------------XXX Total Liabilities & capital --------XXX
--------XXX
2. Report form
Under this form the part of the balance sheet Assets, liabilities and capital is listed from up to
bottom in one section.
Assets:-
Cash -------------------------XXX

Supplies----------------------XXX
Equipment--------------- ---XXX
Building------------------ ---XXX
Land---------------------------XXX
Total Assets -------------- ---XXX

---XXX
Liaibilities&capital
Accounts payable-----------------XXX
Dashan bank ----------------------XXX

----------------------XXX
Total --------------------------------XXX
--------------------------------XXX
capital-----------------------------XXX
capital-----------------------------XXX
--------------------------XXX
Total --------------------------------XXX
--------------------------------XXX
Total Liabilities & capital ------- XXX
Balance sheet has two parts:-
1. Heading
The heading of the balance sheet contains three items:-
- The name of the business for which the balance sheet is prepared
- The name of the form
- The date of the form on which it is prepared
2. Body
The body of the balance sheet contains three items (sections) that show what is owned,
(assets),what is owed (liability) and what the business is worth (capital)
Steps in preparing a balance sheet

Balance sheet is prepared by using the following five steps

1. write the heading in three lines:-
- The name of the business for which the balance sheet is prepared
- The name of the form
- The date of the form on which it is prepared
2. Prepare the asset section on the left hand side

3. Prepare the liability section on the right hand side
4. Prepare the capital section on the right hand side beneath the liability
5 rule double line if the balance sheet is in balance
ABC service business
Balance sheet
As of December 31, 2010
Asset Liabilities & capital
Cash 10,00 Accounts payable 5,000

Equipment 0
15,00 Dashen Bank 10,000
Supplies 8,000
0 welwallo Trading 8,000
Furniture 6000 Total Liabilities 23,000
capital
Mulalem Capital 10,000
Total Asset 33,00 Total Liabilities & capital 33,000

0
Journal
The first book in which the records of a business are written is called journal
The entry that records the data show in on a beginning balance sheet is called opening entry
The journal is also known as a book of original entry

There are about three types of journals:-
1. General journal ;-two amount columns in which all kinds of entries

recorded
2. special journal : in which one kinds of entry is recorded
3. Combination journal:- a combination of the two journals
Steps in recording the opening Entry

1. date of the entry
2. debit part of the entry
3. credit part of the entry
4. post reference
5. Rule a single line to add the amount column
6. Rule double lines to balance the amount column and complete the journal
Post
Date Account Title Ref Debit Credit
BEGINNING BALANCE SHEET
Assets Liabilities &

Capital
GENERAL JOURNAL
Date Debit Credit

Column Column
Relation ship of items in beginning balance sheet to general journal columns
Every journal entry has four parts :) date, a debit part, a credit part and, a brief
explanation or an indication of the source document.
Steps in Recording the Opening Entry
Step 1: Date of the entry:

entry: - Write the date of the opening entry as
illustrated in the general journal in a year, month and date orders.
Step2:Debit
Step2:Debit part of the entry: write the name of each asset at the extreme left edge of
the Account Title Column and write the amount of each asset in the debit
column,
Step3:Credit
Step3:Credit part of the entry: write the name of each liability and capital
indenting about one-half inch from the left edge of the Account title and
write the amount of each credit item in the credit column. Indenting the
names of the credit items helps to separate the credit part of the entry from
the debit part.
Step4:
Step4: Reason for or source of the entry:
entry: write a brief explanation or indicate
the source document used for making the entry in the Account title column
immediately below the last credit item by indenting about one inch from the left

edge. If the explanation takes more than one line, each line should be indented
one inch. The purpose of an explanation or an indication or the source
document is to supply the reason for the journal entry or to identify its source
in case further information needed.
General journal Page Number

Post
Date Account title ref. Debit Credit
2000 Cash 650 00
August 1 Operating supplies 250 00
Car wash equipment 3600 00
Office equipment 500 00
Auto cash equipment 850 00
Marco plumbing 150 00
company 4000 00
HS, capital
August 1 balance
sheet
The opening entry of ABC Car Wash Company
Posting the opening entry

The Ledger – A book of secondary Entry
After business transactions are recorded in the journal, and then next step will
be transferring the entries to the accounts in the ledger. An accounting form
that is used to sort and summarize the changes caused by business
transactions is called an Account.
Account.

A group of accounts is called a ledger. Because the information recorded in the
ledger is taken from the journal, the ledger is also known as a book of
Secondary entry.
entry.
The two- column Account form
There are different forms of ruling to a ledger. One form of ruling is in two
amount columns which have. One Debit column and anther credit column. The
two column account form is divided in to two halves. These are right hand side
and the left hand side. The left hand side of a two column account form is
called the debit side.
side. The right hand side of a two column account form is
called the credit side.
An entry on the left hand side of a two column account form is called a debit
entry.
entry. An entry on the right hand side of a two column account form is called a
credit entry.
entry. The abbreviations Dr for debit and Cr for credit, are derived from
the words Debtor and Creditor, are usually used in accounting.A form for a two
column account is shown below
Date Item Post Dr Date Item Post Credit

reference reference

Chart of Accounts
An accounting form that is used to sort and summarize the changes caused by
business transaction is called An Account.
Each account has a name and a number. The name given to an account is
called the account title.
title.
The number given to account to show its location in the ledger is called the
account number.
number.
A list of account titles along with their numbers showing the arrangement of
the accounts in the ledger is called a chart of accounts.
accounts. The accounts are
arranged in the ledger in numerical order. As a result they can be located
easily. Account number may consist more then one digit.
The first digit of each account number tells the major division of the ledger the
account is located and the second digit may show the sub division of the ledger
the account is located and the third digit may show the position of the account
on the subdivision. In the chart of account there are five major divisions
division 1: all asset accounts
division 2: all liability accounts
division 3: all capital accounts
division 4: all revenue accounts
division 5: all expense accounts

Example of chart of account ABC car wash Company
Chart of account
1. Asset 3. Capital
11. Current Asset 31 ABC capital
111. Cash 32 Income summary
112. Account receivable
113. Prepaid rent 4. Revenue
41 Rent income
12. Plant Asset 42 Sales
121. Equipment 43 Fees earned
122. Land
123. Building 5. Expenses
51 Insurance expense
2. Liability 52 Utility
expense
Current liability 53 Advertising expense
211. Account payable
212. Notes payable
Long-term liability
long-term loan
Mortgage payable
Opening Accounts in the ledger

An account needs to be opened in the ledger for each account listed on the
chart of accounts. Writing the account title and the account number on the
first line of a ledger account form is calledopening
calledopening an account
account. As additional
accounts are needed, they are listed on the chart of accounts and are opened
in the ledger.

Cash is the first account to be opened in the ledger because it is the first
account in the chart of accounts.
The cash account is opened by:
1. Writing the name of the account cash at the left on the first line of the
first page of the ledger, and
2. Writing the number of the cash account, 111 in the upper right hand
corner of the ledger page. The cash account, after it is opened,
appears as follows,:
Account cash
Account No 111
Post post
Date Item ref. Debit Date Item ref. Credit
The procedures, in opening each of the remaining accounts is the same as that
followed in opening the cash account.
Posting the opening entry to the ledger

Each account in the opening entry of ABC wash shown in lesson and it
transferred to the proper ledger account. Transferring the entries in a journal
to the accounts in a ledger is called posting. Posting sorts the data in the
journal bringing all the data of one kind together.
The following five steps are followed in posting of the opening entry.
(1) Write the amount of the cash debit in the debit column of the cash
account in the ledger
(2) Write the date of the journal entry, in the date column of the ledger
account the same as it is written in the journal entry
(3) Write the word balance in the item column of the account. This helps to
distinguish between the beginning amount in an account and the
amounts recorded later as a result of normal business transactions.
(4) Write JI in the post-reference column of each account. JI is written in the
post reference column of the account to show that this debit to cash
came from page 1 of the general journal. (J is the abbreviation for
General Journal.)
(5) Reform to the journal and write in the post Ref-column of the journal the number of the
account, 111,to which the item was posted. Writing the number 111in the post. Ref.
Column of the general journal shows that this item was posted to account number111.
The number also shows that all the details of the posting of this line have been
completed.
General journal Page 1
Post
Date Account title ref. Debit Credit
2000 Cash 111 650 00
August 1 Operating supplies 112 250 00
Car wash equipment 113 3600 00
Office equipment 114 500 00
Auto cash equipment 121 850 00
Marco plumbing company 122 150 00
Harry Shaw, capital 31 4000 00
August 1 balance sheet
Account cash account No.111

Date Item Post ref Debit Date Item Post Credit
Ref.
2000
August 1 Balanc J1 650 00
e
The credit items in the general journal are posted in the same manner as the debit
items. The exception is that the credit items are posted to the credit side of the
accounts.
After the posting of the opening entry has been completed, the Post Ref, Column in the
general journal appears as shown in the illustration. The numbers in the posting
reference columns in the journal and in the ledger is useful for cross-reference. With
this information the entry in the journal can be quickly located. This cross referencing
information is useful when the accuracy of the posting is being checked. Accuracy is
extremely important in all accounting work.
DUYTY-TWO
MAINTAINING DAILY FINANCIAL RECORDS FOR
SERVICE RENDERING ENTERPRISE
Introduction
Services are produced and consumed simultaneously. Thus they are
characterized by sensitive nature.
We define the service as follows:
A service is any activity or benefit that one party can offer to another that is
essentially intangible and does not result in the ownership of anything. Its
production may or may not be tied to a physical product.

Renting a hotel room, depositing money in a bank, traveling on an airplane,
visiting a psychiatrist, getting a haircut, having a car repaired, watching a
professional sport, seeing a movies, having clothes cleaned at a dry cleaners
getting advice from a lawyer- all involve buying a service.
As the main purpose of this duty is to show how transactions of these service
rendering organizations recorded and reported then the subtopics hereunder
will discuss you about it.
2.1 Analysing business transaction

Account Balance
After the opening entry is posted, all the accounts appear in the ledger with
beginning amounts. The difference between the totals of the amounts posted to
the two sides of an account is called the account balance.
When an account has only one posting, this single amount is the account
balance.
As business transactions are recorded and posted, amounts will be found on
both sides of some accounts.
When the total of the debit amount in an account exceeds the total of its credit
amounts, the account has a debit balance.
When the total of the credit amounts in accounts exceeds the total of its debit
amounts, the account has a credit balance.
Each asset account normally has a left hand or debit balance. Assets therefore are
found listed on the left hand side of the balance sheet.
Each liability account and the capital account normally have right hand or credit
balances.
Liability accounts and the capital account, there fore, are found listed on the right
hand side of the balance sheet.
Every business transaction increases or decreases the balance of two or more

accounts.
These increases or decreases are shown in the records when the transaction is
recorded in a journal, and then posted to a ledger.
The two sides of a two column ledger account are used to show the increases
and decreases in account balances.
All increases are recorded on the balance side of the account. All decrease is
recorded on the side opposite the balance side of the account.
Principles of debit and credit for balance sheet accounts

The left side of an account is called the debit side and the right side is called
the credit side. The word debit or credit doesn’t mean increase or decrease by it
self rather its meaning depends on the nature of the account used.
Rules of debit and credit for balance sheet accounts are shown as follows.
Account Increase Decrease Account balance
Asset Debit Credit Debit
Liability Credit Debit Credit
Capital Credit Debit Credit
Analyzing Business Transactions Affecting
Balance Sheet Accounts
A business transaction is the occurrence of an event or a condition that must be recorded. Before a
transaction can be recorded in a journal, it must be analyzed to determine in what ways the assets, the
liabilities, or the capital have been increased or decreased by the transaction. This analysis determines
the accounts to be debited and credited. When analyzing the effect of a transaction on accounts, the
following three questions are answered.
A. What items are affected?

B. What is the classification of each account or item affected?
C. What is the balance of each of these accounts affected?
Example1:
Example1: The sale of an asset for cash
Jan1. Received cash form the sale of supplies for Birr750.

In order to analyze the effect of these transactions we have to take into account
the above mentioned three questions and answer in brief.
A. What are the names of the accounts affected? Cash & supplies
B. What is the classification of each account or item affected?
The major classifications of these account is Asset. Because cash is an
asset account and supplies is also an asset account.
C. What is the balance of each of these accounts affected?
Cash & supplies decreases by Br.750
- The increasing side of an asset is debit and a decreasing side of an
asset is a credit.
- Therefore the cash account is debited for 750 and the supplies
account is credited for the amount of the decrease Birr750.
Examples 2:
2:
Jan 1. Paid cash in part payment of the amount owed Birr350, to Auto
wash equipment Company
Analysis of the transaction

1. What are the names of the accounts affected?
Auto wash equipment co. and cash
2. What is the classification of each account affected?
-Auto wash equipment co. is a liability account, cash is an asset
account
3. What is the balance of these accounts changed?
The balance of Auto wash equipment co. account, a liability account, is
decreased by Br 350,and debited for the amount of the decrease Birr350. How
ever the balance of cash account, an asset account, is decrease by Br. 350. The
cash account is therefore credited for the amount of the decrease Br 350.
Examples 3:- Additional Investment of Capital by the Owner
Jan1. Received cash from the proprietor, as an additional investment, for the business
Br. 300.
The names of the accounts affected are cash and capital
-cash is an asset account, & capital is the owner’s capital account
3. How are the balances of each of these accounts changed?
The balance of the cash account, an asset account, increased by Birr 300.
However, the balance of capital is increased by Br 300 the balance side of any
proprietor’s capital account is credit side. An increase in any account balance is
recorded on the balance side of the account. The proprietor’s capital is therefore
credited for the amount of the increase in investment Br. 300.
2.2 Recording Accounting Information to journal

Reason for Journalizing: After each business transaction is analyzed in to
its debit and credit parts, it is recorded in a book of original entry-a journal.
Recording each part of a business transaction in a journal is called
journalizing.
Business transactions are recorded first in a journal and not recorded directly in a ledger accounts for
two main reasons.
1) Journalizing Increase Accuracy: when the debit and credit parts of

a transaction are recorded together in a journal entry, the equality of
the two amounts is readily seen. Thus, if only apart of the transaction
is journalized, the omission is seen easily and the error can be
corrected immediately.
2. Journalizing provides a record of transactions in their
chronological order.
A journal contains the day to day transactions in the life of a
business. Therefore, when facts about transactions are needed some

days or months after is occurred, the journal is an easy source to
consult.
Double – entry Accounting: The recording of the debit part and the
credit part of each transaction is called double entry accounting. Double
entry accounting is used in practically all well – organized businesses. It is
the only method that provides a complete record of the effect of each business
transaction on the ledger accounts. Complete accounting, then, is double entry accounting.
Journalizing Cash Transactions in A general Journal

A two column general journal was used by ABC car wash for recording its opening entry. This
kind of journal can be used for recording all the transactions of a business. If ABC car wash
continued to use its general journal for journalizing the first five transactions analyzed in the
previous entries would appear as shown below.
Post Debit Credit

Date Account Title Ref
1. Cash 10
Office equipment 10
Receipt No. 1
1 Auto wash equipment 200 200

Cash
Check no.1
1 Cash 500 500

ABC show, capital
Receipt No.2
2 Rent expense 350 350

Cash
Check no.1
Journalizing Transactions in a special Journal

Each business plans its journals to fit its own needs. Few businesses use only
a general journal. Some businesses may use several journals. Some use a
single multi column journal. For example, ABC car wash finds that the work is
more easily completed if a journal for cash transactions only is used. A journal
that is used to record only one type of entry is called a special journal.
journal.
2.3 Maintain General Ledger

In double entry accounting the debit amount must equal the credit amount for each
business transaction recorded in a journal. If no errors are made when posting, the
total of the debit amounts in the ledger should equal the total of the credit amounts in
the ledger. The proof of the equality of the debits and the credits in the ledger is called
a trialbalance.
trialbalance.
2.4 Posting journal entries
Methods of checking the accuracy of accounting records
Accounting records must be accurate. All accounting clerks must be careful to

avoid errors. They must also know how to check the accuracy of their work to
make sure errors have not been made. Two methods of checking the accuracy
of the accounting records are:
1. Proving the accuracy of the cash account
2. Proving the accuracy of the ledger
Furthermore, accounting clerks must know how to correct errors when they
are found.

Proving the Accuracy of the Cash Account
Cash, more than any other asset, is subject to loss, theft, or misuse. As a
result, control over cash is important to both the owner and the employees of a
business. Close control over cash protects this asset of the owner and helps the
employee to avoid suspicion of being dishonest or carelessness. One means of
controlling cash is to prove frequently that the amount of cash on hand agrees
with the balance of the cash account.
The three steps in figuring and recording the cash balance are:
1. Foot the columns.
columns.
2. Figure the account balance
3. Record the account balance
2.5 Definition of Revenue, Expense, Profit And Loss
Revenues are the gross increases in capital as the result of the sale of
merchandise, the performance of services for a customer, the rental of
property, the lending of money etc. Revenues are also known as Income.
Expense: Is the decrease in capital that results from the operation of a
business. Business expenses are the costs of items and services used to
produce revenue.
Profit: when the total revenue exceeds the total cost of operating a business or
expenses, the difference is called a profit.
Loss:
Loss: When the total expense (costs) exceeds the total revenue the difference is called
net loss.
Need for separate Revenue and Expense accounts

Every kind of business needs detailed revenue records.
records. As a result a business
with different kinds of revenue keeps not only a capital account but also a
separate account for each kind of revenue.

If the business had other sources of revenue, a separate account would be
opened for each kinds of revenue. Revenue account is placed in the fourth
major division of the ledger.
All expense transaction cause a decrease in capital. Expenses are recorded in
expense accounts instead of the capital account. When there are different
kinds of expenses, a separate account will be opened for each kind of expenses.
Crediting all revenue transactions and debiting all expense transaction to the
capital account would make that account large and hard to analyze. Therefore
revenues and expenses are recorded in separate revenue and expense accounts
instead of the capital accounts. Detailed information about each kind of
revenue enables the manger or owner to see what sources of revenue are
increasing or decreasing and how much. This information helps in making
such decision as the amount of money to spend on advertising or the number
of employees needed by the business. Separate expense accounts show the
owner how much is being spend for each kind of expense. A separate expense
account also shows which expenses are increasing and how much it increases.
Principles of Debit and Credit for Revenue and Expense Accounts
The principles of debit and credit for revenue and expenses account are shown
as follows:
Account Increase Side Decrease side Account balance

Revenue Credit Debit Credit
Expense Debit Credit Debit
Note! An increase in any revenue account is recorded as a credit and a
decrease in any revenue account is recorded as debit. However, an increase in
any kind of expense account is recorded as a debit and a decrease in any kind
of expense account is recorded as a credit.

Analyzing Revenue and Expense Transaction
Jan 1, 2002. Received cash from sales Br 150
- cash and sales
Cash is an asset account and sales is a revenue account
3. How is the classification of each account affected?
Cash: The cash account is debited for the amount of the increase Br
150.
Sales: the balance side of every revenue account is the credit side.
Therefore, the revenue account sales is credited for the amount of the
increase Br 150.
Jan 1, 2002, paid cash for rent Br 250.
Analysis of transactions
. Rent expense and cash
-Rent expense is an expense account and cash is an asset account
3. How is the balance of each of these accounts changed?
Cash: the balance of cash account is decreased by Br 250. The cash

account is therefore credited for the amount of the decrease Br 250.
Rent expense: the balance side of any expense account when increased is
the debit side. Therefore, the expense account, rent expense, is debited for
the amount of the increase br 250.

2.6 Preparing a trial balance:

balance: A trial balance is a business form which shows the
equality of debts and credits sides of end period account balances on a specific date.
There are five steps that are followed in preparing the trial balance and these five steps
in preparing a trial balance are explained and illustrated as follows using the trial
balance of ZYZ Company. Look the points given in numbers to represent the steps
carefully and identify their differences:
1. Write the trial balance heading at the top of a sheet of Paper that has two amount
columns.The
columns.The heading consists of three lines:
a) the name of the business

b) the word trial balance, and
c) the date for which the trial balances is prepared. Each line of the heading
should be centred.
2. Enter on the trial balance each account in the ledger and its balance. In each cash the
account title, the account number, and the balance. Enter debit balance in the left
hand or debit column. Enter credit balances in the right-hand or credit column.
3. Rule a single line across both amount columns of the trial balance under the
last amount listed
4. Add each column and compare the totals. If the two totals are the same, write
the totals on the first line below the single ruling. (if the totals are not the
same, the error or errors must be found and corrected)
5. Rule a double line under the totals across the amount columns . A double
ruling indicates that the work has been completed. The double line is not
drawn until the trial balance is in balance.

XYZ Company
Trial balance 1
August 31, 2000
Account title A/No Debit Credit

Cash 11 1690 00
Operating supplies 12 314 50
Auto wash equipment 21 650 00
Marco plumbing company 22 150 00
Harng Shaw, capital sales 31 4500 00
Advertising expense 41 1318 00
Fvel expense 51 18 00
Miscellaneous expense 52 73 50
Rent expense 53 31 50
Utilities expense 54 350 00
55 68 50 3
6618 50 6618 50

Step 2
5
Preparing the six - column work sheet
Definitions
Accounting paper with a number of amount columns that can be used to sort
and analyze information is called analysis paper.
paper. The amount columns are
used to classify and summarize amounts in the trial balance. The number of
amount columns used depends on the kind and size of business.
Analysis paper on which the financial condition of a business is summarized is
called a work sheet.
sheet. The work sheet is used
(a) To summarize the financial condition of a business and
(b) To assist in the preparation of financial reports.
The work sheet is not part of the permanent records of the business and may
be prepared in pencil.
A business analyzes its financial condition and prepares financial statements
at regular intervals.
The length of time for which an analysis of business operations is made is
called a fiscal period.
Afiscal period is also known as an accounting period.
period. Fiscal periods may be
consisting of a month, a quarter of a year, a half year, or a year. An accounting
period of twelve consecutive month is called a fiscal year.
year.
The fiscal year does not always begin in the same month as the calendar year.
How ever, many businesses do use the calendar year as their fiscal period.
The Use of the Six – Column Work Sheet
The three-line heading on the work sheet shows the name of the business, the
name of the form, and the fiscal period for which the analysis is made.
The account title column contains a list of the ledger accounts. The Account No
Column lists the account numbers. The six amount columns on this work
sheet are composed of Pair of Debit and credit columns under the major
headings of Trial balance, Income statement, and Balance sheet.

The Trial Balance columns are used to sort the general ledger account balance
in the proper Trial balance Debit or Credit column.
The Income Statement columns of work sheet are used to list all the expenses
and all revenue. The balance of each expense account is listed in the Income
statement Debit column. The balance of each revenue account is listed in the
Income statement credit column. The different between the totals of these two
columns shows whether the business is operating at profit or loss. When the
total revenue is larger than the total expenses, the difference is called net
income.
income.
When the total expenses are larger than the total revenue, the difference is
called net loss.
loss. Thus, the Income statement columns of the work sheet are
used for finding the amount of net income or net loss for the fiscal period.
The balance sheet columns are used to list the up-to-date balances of accounts
that will be reported on the balance sheet. The balance of each asset account is
listed in the balance sheet Debit column. The balance of each Liability account
and the balance of the capital account are listed in the balance sheet credit
column.
Steps in preparing the six – column work sheet
The steps that are followed in preparing the six column work sheet are
explained as follows. As you study these steps, check each one with the
illustration of the work sheet of ABC car wash.
1. Write the heading on three lines
2. Write the column heading: (Reading from left to right the column
headings are: Account Title, Acc No., Trail balance with Debit and
Credit, Income statement with Debit and Credit, and Balance sheet
Debit and credit.
3. Record the trail balance: For each account in the general ledger list the
account title in the Account title column, account numbers in the
Acct-No. column, and the account balance in the appropriate Trial

balance Debit or credit column. Rule a single line across both trial
balance columns under the last amount listed. Add the trial balance
columns. If the totals of the debit and the credit columns are equal,
draw double lines below the totals in columns 1 and 2. If the totals
are not equal, find the errors and correct them before completing the
work sheet.
4. Extend the balance sheet items: extend the balance sheet items into
the balance sheet columns as follows as:
a) Extend the balance of each asset account from the trial balance
Debit column in to the balance sheet debit column.
b) Extend the balance of each Liability account and the balance of the
capital from the Trial balance credit column into the Balance Sheet
credit column.
5. Extend the Revenue and Expense items:extend
items:extend the revenue and
expenseitem into income statement columns as follows:
a) Extend the balance of each revenue account from the Trail balance
credit column into the Income Statement credit column.
b) Extend the balance of each expense account from the trial balance
Debit column into the Income statement Debit column.
6. Total the Income statement columns and the Balance sheet columns as
follows:
a) Rule a single line across the income statement columns and the
balance sheet columns to indicate addition.
b) Add each column and write the totals on the same line as the trial
balance totals.
7. Figure and record the net income (or the net loss) as follows:
a) Subtract the smaller total in the Income statement columns.
Example:
Total of revenue Br.1,318.50

Less: Total of expense 541.50
Net Income: (revenue minus expenses) ---- Br 777.00
Note! When the total of the Income statement Debit column is

larger, subtract the total of the credit column from the total of the
debit column to find the net loss.
b) Write the amount of net Income, Birr 777.00, immediately below
the smaller of the two totals in the Income Statement columns.
c) Write the words Net Income in the Account Title column on the
same line as the amount of the net income.
d) Rule single line across the Income statement columns and add
these columns. Write the proving totals on the next line. (When
these two proving totals of the Income statement columns are
equal, the amount of the net income (or the net loss) is assumed to
be correct.
8. Extend the Net Income into Balance Sheet credit column as follows.
follows.
a) Extend the amount of net income Birr777.00, into the balance
sheet credit column. This amount shows the increase in capital as
a result of the net income earned by the business during the
month of August.
(If there is net loss for the month, the capital is decreased.) The
amount of a net loss is therefore extended into the Balance sheet
Debit column)
b) Rule a single line across the balance sheet column and add these
columns.
(When these two proving total of the balance sheet columns are
equal the amount of the net income (or the net loss) is assumed to

be correct. If the two proving totals of the Balance sheet columns
are equal the error must be found and corrected.
9. Rule double lines: rule double line below the final totals of the income
statement columns and the balance sheet columns. The double lines
show that all work has been completed and is assumed to be correct.
ABC car wash

Work sheet
For month ended August 31, 2002
Acc.
Account title No Trial balance Income statement Balance sheet
Debit Credit Debit Credit Debit Credit

Cash 1690 50 1690 50
Operating supplies 314 50 314 50
Car wash equipment 3600 00 3600 00
Office equipment 472 00 472 00
Auto wash equipment 650 00 650 00
Macro plum. Company 150 00 150 00
Capital 4500 00 4500 00
Sales 1318 50 1318 50
Advertising expense 18 00 18 00
Fuel expense 73 50 73 50
Misc. expense 31 50 31 50
Rent expense 350 00 350 00
Utility expense 68 50 68 50
6,618 50 6618 50 541 50 1318 50 6077 00 5300 00
777 00 777 00
1318 50 1318 50 6077 00 6077 00
Lo2:- Update business or records system

Merchandise business
A merchandise business is a business organization which purchases or buys goods for resale to
customers. A person or firm to whom a business sells merchandise is called a customer. The goods that
a merchandise business purchases for resale to customers are calledmerchandise.
calledmerchandise.
Analyzing Purchases of Merchandise Transactions

The value of the goods a business purchases to resell to customers is called the cost
of merchandise.
merchandise. All costs of merchandise are deductions from the revenue of the
business. Therefore the costs of merchandises are recorded as debits. Cost of
merchandise is kept in a separate division of the general ledger.
ledger.
A merchandising business frequently purchases merchandise for resale to

customers and buys supplies and equipment for use in conducting the
business.
The Account that shows the cost of merchandise purchased for resale to
customers is titled purchases..
purchases.. This account is used only for merchandise
bought for resale.
The purchase account has a debit balance just as an expense account had a
debit balance. Therefore, the purchase account is increased on its balance side
which is its debit side. The purchase account is decreased on its credit side.
Purchase of Merchandise for cash:
The source document for a cash purchase transaction is the check stub of the check
issued in payment.
Example:
Nov. 2, 2001 purchase merchandise for cash Br 248.00 check no. 124
This cash purchase of merchandise transaction increases the balance the
purchases account. The cost of account purchases had a debit balance and is
increased on its debit side. The purchase account is debited for Br 248.00 and
the cash account is credited.
Purchase of Merchandise on Account :A transaction in which merchandise is

purchase with an agreement to pay at a later date is called purchase of
merchandise on Account. The business from which merchandise is purchased on
account is called a creditor.

When a seller sends merchandise to a buyer, the sellers prepare a form
showing what has been sent. A form describing the goods shipped the method
of shipment, the quantity and the price of the goods is called an Invoice.
Invoice. A copy
of an invoice that the seller uses as the source document for recording the
purchase of merchandise is called aPurchase
aPurchase Invoice.
The purchase invoice can be paid after the total has been verified. The
agreement between the buyer and the seller as to payment for merchandise is
called the terms of sale.
The general ledger account that summarizes the amount owed to all creditors
is titled Account Payable which is a liability account.
Example. On November 3, 2001 purchase merchandise on Account from a supplier Br 770.00 purchase
invoice no. 21
This transaction increases the balance of the purchase account. Therefore it is

debited for Br. 770.00 This transaction also increase the amount owed to
creditors. The liability account accounts payable has a credit balance and
increased on its credit side. Account payable therefore is credited for Br 770.00
Analyzing Sales of Merchandise Transaction
Sales of merchandise may be occurred either on cash basis or on Account
bases. A sale in which cash is received for the full amount at the time of the
transaction is called a cash sale. An enterprise uses a cash register to record
all cash sales.
sales. The cash register tapes are then used as the source document
for the cash sales transaction.
Example of cash sales
November 5, 2001 cash sales for the week Br. 1,432.00
The case sales transaction increases the balance of the asset account cash.
Therefore, cash is debited for Br 1432.00. All sales of merchandise are recorded
and accumulated in an account called Sales.
Sales. This transaction increases the
balance of the revenue account sales. Because sales have a credit balance, the

account is increased on its credit side. Sales, therefore, is credited for Br
1432.00.
Sales of Merchandise on Account: A sales transaction with an Agreement
that merchandise will be paid for at a later date is called a sale of merchandise
on Account. A sale of merchandise on Account is also known as a charge sale
or a credit sale.
sale. A person or a business to which a sale on Account is made is
called a charge customer.
customer.
The source document for recording the sale of merchandise on account is a
sales invoice. A sales invoice is also known as sales ticket or sales slip.
All merchandises sold on account are summarized in a single general ledger
account called Account Receivable.
Receivable. Account receivable is an asset account.
Example:
Example: November 7, 2001 sold Merchandise on account Br 60 sales invoice
No. 42.
This sale of merchandise on Account increases the amount to be collected from customers. The asset
account accounts receivable has a debit balance. Thus, it is increased on the debit side. Account
receivable therefore is debited for Br 60.00. This transaction also increases the balance of the sales
account. The revenue account sales have a credit balance and are increased on its credit side. Sales
therefore, are credited for Br 60.00.
Cash received on Account: When cash is collected or received from

merchandise which was sold on account. Cash account will be debited and
account receivable account will be credited.
Example:
Example: Received on Account from a customer Br 110.00
This cash received on Account increases the balance of the asset account cash. Cash
is therefore debited for Br 110.00. This transaction also decreases the amount to be
collected from customers. The asset account receivable, therefore, is credited for Br
110.00
Lo3:- Prepare reports from the business or records system

Maintain general and subsidiary ledgers

General Ledger: The process of transferring debits and credits from the journal to the accounts
in the ledger is called posting. Posting transaction from a journal to a ledger account helps sort
and summarize the date for future use. A ledger that contains all the accounts needed to prepare
an income statement and a balance sheet is called a general ledger.
ledger.
Subsidiary ledger: Frequently accounts that are similar are placed in a
separate ledger.
For example, a business must keep an individual account for each charge
customer to know how much each customer owes. A general ledger can obtain
an account for each charge customer.
Controlling Account: An account in the general ledger that summarizes all
the accounts in a subsidiary ledger is called a controlling account.
account. The
separate ledger kept for charge is a subsidiaryledger.
subsidiaryledger. For example the general
ledger account receivable is the controlling account. The balance of a
controlling account equals the total of all the account balances in the
subsidiary ledger.
Posting to the Account Payable Ledger: A business could include an account

for each creditor in its general journal. When there are several creditors, it is
often easier to have one controlling account, Account payable, in the general
ledger. If a controlling account is used, an account for each creditor is kept in a
subsidiary ledger. The controlling account shows the total amount owed to all
creditors.
When the balance of a creditors account is changed, the balance of the

controlling account, Account payable must also be changed.
A subsidiary ledger that contains accounts with creditors only is called an

account payable ledger. The balance of the individual accounts payable ledger
(a subsidiary ledger) are brought together and summarized in account payable (
a controlling account in the general ledger).

An account payable is a liability and liabilities have credit balances. Therefore,
the form used in the account payable ledger has a credit balance column. Each
entry in the accounts payable columns of the combination journal affects the
creditors named in the account title column. Each amount listed in these two
columns is posted daily to the proper creditors account in the account column
ledger. The totals of these special amount columns are posted at the end of the
month.
Posting to the General Ledger: Posting from the combination journal to the general ledger is
done periodically through out the month. However, the posting must be done at least once a
month. Each amount in the general debit column or the general credit column in the
combination journal is posted individually to the account shown in the account title column.
Posting the general columns may be done periodically through out the month; however, all
posting is done at least once each month.


17 Maintain Business Records

Uploaded by

Copyright:

Available Formats

17 Maintain Business Records

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

17 Maintain Business Records

Uploaded by

Copyright:

Available Formats

QUEENS’ college AYERTENA CAMPUS

Training, Teaching and Learning Materials

ACCOUNTS AND BUDGET SUPPORT LEVEL III

TTLM Code: BUF ACB3M17 0812

TTLM Development Manual Date: 2010/17

Welcome to the module “Maintain Business Records”. This learner’s

Summary of Learning Outcomes

After completing this learning guide, you should be able to:

How to Use this TTLM

o Read through the Learning Guide carefully. It is divided into sections

TTLM Development Manual Date: 2010/17

Lo1:- Collate business records

 Business entity concept

TTLM Development Manual Date: 2010/17

The Elements of Accounting

Bookkeeping is a process of recording and summarizing the financial activities of a business.

The difference between Accounting & Bookkeeping

Prescribed manner &interpreting financial statements

- It requires conceptual & analytical skills

1.2 Gathering data

Informationis processed data about people, object and facts

Data processing in accounting

It includes financial statement analysis summarizes, reports

They are accounting outputs

Preparing beginning balance sheet

Balance sheet has two forms:-

Cash ----------------------XXX Accounts payable------------------XXX

Supplies-------------------XXX Dashan bank ---------------------- XXX

Equipment--------------- XXX Total Liabilities---------------- XXX

Building------------------ XXX capital ------------------------- XXX

Total Assets --------------XXX

TTLM Development Manual Date: 2010/17

Total Assets -------------- ---XXX

Dashan bank ----------------------XXX

Total Liabilities & capital ------- XXX

Balance sheet has two parts:-

The heading of the balance sheet contains three items:-

- The name of the form

- The date of the form on which it is prepared

Steps in preparing a balance sheet

TTLM Development Manual Date: 2010/17

- The name of the form

- The date of the form on which it is prepared

2. Prepare the asset section on the left hand side

5 rule double line if the balance sheet is in balance

ABC service business

As of December 31, 2010

Asset Liabilities & capital

Cash 10,00 Accounts payable 5,000

Mulalem Capital 10,000

Total Asset 33,00 Total Liabilities & capital 33,000

The journal is also known as a book of original entry

TTLM Development Manual Date: 2010/17

There are about three types of journals:-

1. General journal ;-two amount columns in which all kinds of entries

2. special journal : in which one kinds of entry is recorded

3. Combination journal:- a combination of the two journals

Steps in recording the opening Entry

2. debit part of the entry