ACC757

NATIONAL OPEN UNIVERSITY OF NIGERIA
FACULTY OF MANAGEMENT SCIENCES
COURSE DEVELOPMENT
Course Code ACC757
Course Title: PRINCIPLES OF ACCOUNTING
Writer DR. UCHE LUCY ONYEKWELU, ACA

Department of Accountancy
Faculty of Management Sciences
Enugu State University of Science and Technology
Course Editor PROF EMMA OKOYE

Department of Accountancy
Nnamdi Azikiwe University, Awka
Programme Coordinator DR. OKOH JOHNSON IFEANYI

Department of Financial Studies
Head of Department DR. OFE INUA

Department of Financial Studies
1
CONTENTS PAGE
Introduction…………………………………………………………
What you will Learn in this Course ……………………………….
Course Aims………………………………………………………
Course Objectives………………………………………………
Working Through this Course ………………………….................
Course Materials ……………….. …………………………………
Study Units…………………………………………………………
Set Text Books …………………………………………...................
Assignment File………………………………………………………
Presentation Schedule………………………………………………
Assessment………………………………………………………
Final Examination and Grading ……………………………
How to get the most from this Course……………………………
Tutors and Tutorials………………………………………………
Summary…………
INTRODUCTION
Principles of Account is a 700 level second semester course. It will be available to all students to
take towards the core module of their Post Graduate Diploma in Accountancy. The course is also
very apt for every student in the school of financial studies. The course has been designed to
prepare students who have come to do a diploma to enable them switch over to accounting as a
discipline at the post graduate level. The course carries Thirty Units and the course material has
been developed to reflect the local content of Nigeria. There are no compulsory pre-requisites for
this course however understanding some basic accounting concepts via Introduction to
Accounting and Financial Reporting.
.
COURSE GUIDE
The course guide tells students briefly what the course is about, what course material will be
used, and how you can work your way through the study material. It suggest some general
guidelines for the amount of time you are likely to spend on each unit of the course in order to
complete it successfully.
The guide also gives you some guidance on your tutor-marked assignments, which will be made
available to you in the Study Centre. There are regular tutorial classes that are linked to the
course. You are advised to attend these sessions.
WHAT YOU WILL LEARN IN THIS COURSE
The overall aim of this course Principles of Account is to teach you how the accounts of
organizations are kept. During this course, you will learn about the Principles of Account and
how accounts of organizations are prepared. Accounting is vital to the efficient management of
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organizations. Since accounting is a language through which economic and financial transactions
are interpreted, the course will enable you understand how accounts of organizations are
maintained.
Worthy of note is that the content of this course is in compliance with the International Financial
Standards as spelt out by the International Accounting Standards Board(IASB). This is to help
students live up to the challenges of IFRS adoption in Nigeria since 2010 effective, 1stJanuary,
2012.
COURSE AIMS
The aims of this course are as summarized below:

(a) Teaching you the principles of account
(b)Teaching you how accounts of various organizations are prepared.
COURSE OBJECTIVES
To achieve the aims set out above, the course sets overall objectives. In addition, each unit also
has specific objectives. The unit objectives are always included at the beginning of a unit; you
should read them before you start working through the unit. You may want to refer to them as
you progress. You should always look at the unit objectives after completing a unit. In this way,
you can be sure that you have done what was required of you by the unit.
Set out below are the wider objectives of the course. By meeting these objectives, you should
have achieved the aims of the course as a whole .On successful completion of the course, you
should be able to:
(a) Explain the different methods for the collection of data for final accounts from incomplete
records;
(b) Prepare manufacturing accounts;
(c) Prepare the accounts of non-trading organizations;
(d) Explain and prepare bill of exchange accounts;
(e) Prepare joint venture accounts;
(f) Explain consignment goods on sales or return;
(g) Prepare royalties accounts.
WORKING THROUGH THIS COURSE
To complete this course, you are required to read the study units, read set books and read other
materials provided by the National Open University of Nigeria (NOUN). Each unit contains
assignments which you are required to attempt and submit for assessment purposes. At the end of
the course, there will be a final examination. The course should take you a total of 16 - 17 weeks
to complete.
Below, you will find listed all the components of the course. What you have to do and how you
should allocate your time to each unit in order to complete the course successfully on time. The
list of all the components of the course is as presented.
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COURSE MATERIALS
Major components of the course are:
 Course Guide
 Study Units
 Textbooks
 Assignment
 Presentation Schedule
Study units
The study units in this course are as follows:
Module 1 Manufacturing Accounts
Unit 1 Manufacturing account I

Unit 2 Manufacturing account II
Unit 3 Manufacturing account III
Module 2
Unit 1. Account for Partnership Business I
Unit 2 Account for Partnership Business II
Unit 3 Account for Partnership Business III
Module 3
Unit 1 Account of non-trading concern I
Unit 2 Account of non-trading concern 11
Unit 3 Account of non-trading concern- Peculiar items I
Unit 4 Account of non-trading concern - Peculiar item II
Module 4
Unit 1 Adjustment before preparing final accounts1
Unit 2 Adjustment Treatment in account II
Unit 3 Adjustment Treatment in account III
Unit 4: Incomplete Records
Module 5
Unit 1 Joint Venture Accounts
Unit 2 Consignment Account I
Unit 3 Consignment Account 11
Unit 4 Consignment Account III
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Module 6
Unit 1 Bills of enhancing instruments of credit I
Unit 2: Bills of enhancing instruments of credit II
Unit 3: Bills of enhancing instruments of credit III
Unit 4. Incomplete Record 1
Unit 5. Incomplete Record 11
The first units will treat the manufacturing accounts. The next three units on Adjustment and the
Treatments in account, the next two units on manufacturing accounts while the next deals with
account of non-trading organization, the next five units on bills of exchange, the next three units
is on joint venture account, the next seven units on consignment account and finally the last two
units is on royalties account. The course is divided into 6 modules consisting of about 5 or 6
units. Each study module consist of about three to four weeks work and includes specific
objectives, direction of study, reading materials commentaries and readings in set books from
other sources, additional materials and summary of key issues. The units direct you to work on
exercises related to the required readings. Each exercise questions is based on the materials you
have covered. Together with tutor marked assignments, these exercises will assist you in
achieving the stated learning objectives of the individual units and the course
TEXTBOOKS
At the end of each unit of the course, there are reference materials to which you can refer in
order to increase the depth of your knowledge on the course. Please take this seriously. You are
advice to acquire the following textbooks and any other that could assist you in his course.
Frank, Wood & Alan Sangster, Business Accounting 1 & 2, 13th Ed.
Pickles & Lafferty: Book Keeping & Accounts
Uche Lucy Onyekwelu-Fundamentals of Financial Accounting 1 & 2: A Simplified Approach
(Revised Edition, IFRS Compliant)
ASSIGNMENT FILES
A number of assignments have been prepared to help you succeed in this course. They will guide
you to have understanding and good grasp of the course.
PRESENTATION SCHEDULE
The presentation schedule included in your course materials also have important dates of the year
for the completion of tutor-marked assignments (TMAs) and your attending to tutorials.
Remember, you are to submit all your assignments by the due date. You should guard against
falling behind in your work.
ASSESSMENTS
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There are two aspects to the assessment of the course: first are the tutor-marked assignments and
a written examination.
In tackling the assignments, you are expected to apply information, knowledge and techniques
gathered during the course. The assignments must be submitted to your tutor for formal
assessment in accordance with the deadlines stated in the Presentation Schedule and the
Assignment File. The work you submitted to your tutor will count for 30 percent of your total
course mark.
At the end of the course, you will need to sit for a final written examination of ‘three hours’
duration. This examination will also count for 70 percent of your total coursework.
TUTOR-MARKED ASSIGNMENTS (TMAs)
Each of the units in the course material has a tutor-marked assignment (TMA) in this course.
You only need to submit five of the eight assignments. You are to answer all the TMAs and
compare your answers with those of your course mates. However, you should ensure that you
collect four (TMAs) from the Study Centre. It is compulsory for you to answer four (4) TMAs
from the Study Centre. Each TMA is allocated a total of 10 marks. However, the best three (3) of
the four marks shall be used as your continuous assessment score.
You will be able to complete your assignment from the information and materials contained in
your reading, references and study units. However, it is desirable in all degree level education to
demonstrate that you have read and researched more widely than the required minimum. Using
other references will give you a broader viewpoint and may provide a deeper understanding of
the subject.
FINAL EXAMINATION AND GRADING
The final examination for ACC757 will not be more than three hours’ duration and has a value of
70 percent of the total course grade. The examination will consist of questions, which reflect the
types of practice exercises and tutor-marked problems you have previously encountered. All
areas of the course will be assessed.
Use the time between finishing the last unit and sitting for the examination to revise the entire
course. You may find it useful to review your tutor-marked assignments and comments on them
before the examination. The final examination covers information from all parts of the course.
COURSE MARKING SCHEME

Table showing the total course marking scheme is shown below:
ASSESSMENT MARKS
Assignment 4 (TMAs) Best three marks of the 4 TMAs @ 10 marks is
30 marks of the course = 40%
Final Examination 60% of overall course marks
Total 100% of course marks
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COURSE OVERVIEW
This table brings together the units and the number of weeks you should spread to complete them
and the assignment that follow them are taken into account.
Unit Title of Work Week Assessment
Activit (end of unit
y
Module 1
1 Manufacturing account I 1 Assignment 1
2 Manufacturing account I1 1 Assignment 2
3 Manufacturing account I11 1 Assignment 3
Module 2
4 Account for Partnership Business I 1 Assignment 4
5 Account for Partnership Business I1
6 Account for Partnership Business I11
Module 3
7 Account of non-trading concern I 1 Assignment 5
8 Account of non-trading concern I1
9 Account of non-trading concern- Peculiar items I
10 Account of non-trading concern- Peculiar items I1 1 Assignment 6
Module 4
11 Adjustment before preparing final accounts1
12 Adjustment Treatment in account II
13 Adjustment Treatment in account III
14 Incomplete Records
Module 5:
15 Joint Venture Accounts 1 Assignment 7
Consignment
1 Account I
7
Consignment Account 11
Consignment Account III
Module 6
Bills of enhancing instruments of credit I 1 Assignment 8

Bills of enhancing instruments of credit I1
Bills of enhancing instruments of credit I11
Revision
Total 17
HOW TO GET THE MOST FROM THIS COURSE
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In distance learning, the study units replace the university lecturer. This is one of the great
advantages of distance education. You can read and work through the specially designed study
materials at your own pace, and at a time and place that suits you best. Think of it as you read the
lecture notes and that a lecturer might set you some readings to do.
The study unit will tell you when to read your other materials. Jut as a lecturer might give you an
in-class exercise, your study units also provide assignments for you to do at appropriate points.
Each of the study units follows a common format. The first item is an introduction to the subject
matter of the unit, and how a particular unit is related with the other units and the course as a
whole.
Next is a set of learning objectives. These objectives let you know what you should be able to do
by the time you have completed the unit. You should use these objectives to guide your study.
When you have finished the unit, you must go back and check whether you have achieved the
objectives set. If you make a habit of doing this, you will significantly improve your chances of
passing the course.
The main body of the unit guides you through the required reading from other sources. This will
usually be either from Reading Section or some other sources.
Self-tests/assignments are interspersed throughout the end of units. Working through these tests
will help you to achieve the objectives of the unit and prepare you for the examinations. You
should do each of the assignments as you come to it in the study unit. There will also be
numerous examples given in the study units, work through these when you come to them too.
The following is a practical strategy for working through the course. If you run into any trouble,
telephone your tutor. When you need help, don’t hesitate to call and ask your tutor to provide it.
In summary:
(1) Read this course guide.
(2) Organise a study schedule. Refer to the course overview for more details. Note the time
you are expected to spend on each unit and how the assignments relate to the unit.
Important information e.g. details of your tutorials and the date of the first day of the
semester is available. You need to gather together all information in one place, such as
your diary or a wall calendar. Whatever method you choose to use, you should decide on
and write in your own dates for working on each unit.
(3) Once you have created your own study schedule, do everything you can to stick to it. The
major reason that students fail is that they get behind with their coursework. If you get
into difficulty with your schedule, please let your facilitator know before it is too late for
help.
(4) Turn to unit 1 and read the introduction and the objectives for the unit.
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(5) Assemble the study materials. Information about what you need for a unit is given in the
‘Overview’ at the beginning of each unit. You will always need both the study unit you
are working on and one of your set books, on your desk at the same time.
(6) Work through the unit. The content of the unit itself has been arranged to provide a
sequence for you to follow. As you work through this unit, you will be instructed to read
sections from your set books or other articles. Use the unit to guide your reading.
(7) Well before the relevant due dates (about 4 weeks before the dates) access the
Assignment file on the web and download your next required assignment. Keep in mind
that you will learn a lot by doing the assignments carefully. They have been designed to
help you meet the objectives of the course and, therefore, will help you pass the
examination. Submit all assignments not later than the due dates.
(8) Review the objectives for each study unit to confirm that you have achieved them. If you
feel unsure about any of the objectives, review the study material or consult your tutor.
(9) When you are confident that you have achieved a unit’s objectives, you can then start on
the next unit. Proceed unit by unit through the course and try to pace your study so that
you keep yourself on schedule.
(10) When you have submitted an assignment to your tutor for marking, do not wait for its
return before starting on the next unit. Keep to your schedule. When the assignment is
returned, pay particular attention to your facilitator’s comments. Consult your tutor as
soon as possible if you have any questions or problems.
(11) After completing the last unit, review the course and prepare yourself for the final
examination. Check that you have achieved the unit objectives and the course objectives.
TUTORS AND TUTORIALS
There are eight (8) hours of tutorials provided in support of this course. You will be notified of
the dates, times and location of these tutorials, together with the names and phone number of
your tutor, as soon as you are allocated a tutorial group.
Your tutor will mark and comment on your assignments, keep a close watch on your progress
and on any difficulties you might encounter as they would provide assistance to you during the
course. You must mail your tutor-marked assignments to your tutor well before the due date (at
least two working days are required). They will be marked by your tutor and returned to you as
soon as possible. Do not hesitate to contact your tutor by telephone, e-mail, or discussion board
if you need help. The following might be circumstances in which you would find help necessary.
Contact your tutor if:
 you do not understand any part of the study units or the assigned readings;
 you have difficulty with the tutor-marked assignments;
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 you have a question or problem with an assignment or with your tutor’s comments on an
assignment or with the grading of an assignment.
You should try your possible best to attend the tutorials. This is the only chance to have face-to-
face contact with your tutor and to ask questions which are answered instantly. You can raise any
problem encountered in the course of your study during such contact. To gain the maximum
benefit from course tutorials, prepare a question list before attending them. You will learn a lot
from participating in discussions actively.
SUMMARY
As earlier stated, the course ACC757, principles of Accounts is designed to teach you how the
accounts of organizations are kept. During this course, you will learn about the Principles of
Account and how accounts of organizations are prepared. Accounting is vital to the efficient
management of organizations. Since accounting is a language through which economic and
financial transactions are interpreted, the course will enable you understand how accounts of
organizations are maintained.
We hope you enjoy your acquaintances with the National Open University of Nigeria (NOUN)
and wish you every success in the future.
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CONTENTS PAGE
Module 1 ……………………………………………… 1
Unit 1 Manufacturing account I……………………

Unit 2 Manufacturing account II…………………..
Unit 3 Manufacturing account III…………………
UNIT 1 MANUFACTURING ACCOUNTS 1
1.0 CONTENT
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Manufacturing Accounts
3.2 Definition of Terms
3.3 Demonstration Question 1& Solution
3.4 Demonstration Question 2 & Solution
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading
1.0 INTRODUCTION:
Manufacturing Account is prepared by organizations that produce goods. The account sums up
the costs that were incurred in the production of goods. These costs are basically the cost of
buying raw materials,paying for the labour (wages) of workers andoverheads
incured.Manufacturing account assists business organizations in ascertaining both the cost of
production thereby creating a very objective basis for fixing selling prices of the goods they have
produced. The prices determined through the manufacturing (Cost of goods produced) is
transferred to the Income Statement or Profit or Loss Account.
2.0 Objectives:
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At the end of this unit, you should be able to:
 Define manufacturing account
 Understand the terms used in manufacturing accounts
 Prepare a manufacturing account showing theprime cost and cost of goods produced;
 Prepare the Manufacturing Accounts, Income Statement and Statement of Financial
Position of a manufacturing concern.
1.1 The manufacturing account is an account format with debit and credit side. The expenses
incurred in production (raw materials, labour and factory overheads) are posted to the debit side
while the credit side is balanced up with the total cost of production. Manufacturing account is
therefore prepared to show the total cost incurred in the production of goods by a business
concern in a given period.
1.2 Terminologies in Manufacturing Accounts

 Direct Raw Material Cost: This is the cost expended in the purchase or procurement of
raw materials within the financial year. What makes up the raw materials for production
varies from one manufacturing organisation to another. For a bakery, the raw materials
wcould be cost of butter, flour, groundnut oil, sugar, yeast and so on, while for a brewery
industry it will be cost of malt, water, yeast, wheat, preservatives and so on. For building
project, the direct raw material constitutes of the cement, sand, water and so on.
Therefore, the aggregate cost of acquiring the above listed materials constitutes the direct
material cost.
 Carriage Inwards: These are the expenses made on the transporting of raw materials to
the factory premises, location or warehouse.
 Closing Stock of Raw Materials: These are the raw materials that have not been utilised
for the production and have not undergone any processes of production. They are raw at
the end of the accounting year. Though they were bought for production but they remain
unused at the end of the financial year. The value at cost is therefore deducted from the
total cost of raw material available for production.
 Direct Wages: These are the wages paid to factory workers like bakers, mixers, block
moulders, factory attendants and so on.
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 Factory Direct Overhead/Expenses: These are those expenses directly traceable to the
production like cost of water,lighting expenses, rent, repairs and maintainance,
depreciation plant and machinery used in production.
1. Posting to the Manufacturing Accounts: the following should guide your postings to the
manufacturing accounts:
2.1The Accounting Entries for posting in Manufacturing Accounts:
Dr.Cost of Opening Raw Materials,which is raw materials as at 1st January or beginning of
production year.
Dr. TheCost of Raw Materials bought for the year’s production activities.
Dr. Direct Labour (wages paid to factory workers such aswages paid to bread bakers).
Dr. Factory overheads
Dr. TheOpening Work-in-Progress.
Cr. The Closing Work-in-Progress.
Format of Manufacturing Account
For the Year Ended, Date........
N N N
Opening Raw Materials xx
Add:
Purchases of Raw Materials xx
Carriage Inward on xx Production Cost Xx
RawMaterials
Raw Materials Available

for Production xx
Less:Closing Raw xx
Materials
Cost of Raw Material used
for Production xx
Add:Direct Wages(Labour) xx
Expenses xx
Factory Direct Overhead xx
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Prime Cost xxx
FactoryOverhead:
Lightning Xx
Wages Xx
Depreciation Xx
Rent Xx
Rates Xx
Fuel and Gas Xx
Factory General Expenses Xx
Royalties Xx
Transport Xx
Lubricants Xx
Repairs and Maintenance of Xx
Factory Equipment
Production cost transferred xxx Xxx
to trading accounts
In summary:
Step 1: Debit the Manufacturing Account with: All Direct Production expenses (Direct
Materials, Direct Labour and any other direct expenses)
Step 2: Debit Manufacturing Account with Factory Overheads (Salaries, Factory Heating,
Insurance, Depreciation etc.
Step 3: Debit the Manufacturing Account with the opening Work- in-Progress
Step 4: Credit the manufacturing Account with closing Work- in- Progress.
Format of Manufacturing Account:

ABC Agencies
Manufacturing Account
for the Year Ended, Date........
N N N
Opening Raw Materials xx
14
Add:
Purchases of Raw Materials xx
Carriage Inward on xx Production Xx
RawMaterials Cost
Raw Materials Avail. for

Production xx
Less:Closing Raw xx
Materials
Cost of Raw Material used
for Production xx
Add:Direct Wages(Labour) xx
Expenses xx
Factory Direct Overhead xx
Prime Cost xxx
FactoryOverhead
Lightning xx
Wages xx
Depreciation xx
Rent xx
Rates xx
Fuel and Gas xx
Factory General Expenses xx
Royalties xx
Transport xx
Lubricants xx
Repairs and Maintenance of xx
Factory Equipment.
Production cost xxx Xxx
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transferred to trading
accounts
2.2Accounting Treatment for Work- in- Progress:

Work in progress also known as semi-finished goods are goods which have not been fully
processed. The opening semi-finished goods are referred to as opening work-in-progress. Often
than not, unfinished goods emerge from the process at the end of the production period. These
sets of goods are known as closing work in progress.
To account for work–in- progress in the manufacturing account.Thus:
N
Total Production Cost Xx
Add: Opening Work- in-Progress Xx
Xx
Less:Closing Work- in-Progress Xx
Total cost of production transferred to trading account Xxx
2.3 Preparation of Accounts of a Manufacturing Accounts

Illustration 1:
Vanice Wears Company Limited is a company involved in the manufacture andsales of children
wears. Below is the company’s trial balance as at 31st December, 2x15.
N
Opening Inventory of Raw Materials 611,875
Closing Inventory of Raw Materials 815,525
Purchases of Raw Materials 3,234,125
Carriage Inwards on Raw Materials 36,125
Manufacturing Wages (Direct) 376,250
Rent 365,000
Depreciation of Plants & Equipment 41,600
GeneralExpenses(Indirect) 14,000
16
Factory Lighting 66,000
Required:
Prepare a Manufacturing Account for Vanice Wears Company Limited as at 31st December,
2015.
Solution
Vanice Wears Company Limited
Manufacturing Account for the Year ended
31stDecember, 2x15
N N
Opening inventory of Production
Raw Materials 611,875 cost 3,929,450
Transferred to
Income
Statement
Purchase of Raw
Materials 3,234,125
Cost of Raw Materials
available for production 3,846,000
Add:Carriage Inwards 36,125

3,882,125
Less:Closing Stock of
Raw Materials 815,525
used for Production 3,066,600
Add:Direct Wages 376,250
Prime Cost 3,508,850
Add: Factory Overhead

Rent 365,000
17
Depreciation 41,600
(Property,Plant and
Equipment)
Indirect General 14,000
Expenses
Total Indirect Overhead 420,600
Cost of Production 3,929,450 3,929,450
Note* That the sum of N3,929,450 is the cost of finished goods and will be transfered to Income
Statements where it will be added to the inventory of finished goods.
Using the Vertical Format:
Vanice Wears Company Limited Manufacturing Account for the Year ended 31st December,
2015
NN
Opening inventory of Raw Materials 611,875
Purchases of Raw Materials 3,234,125
Carriage Inwards 36,125
3,270, 250
Cost of Raw Materials Available
for Production 3,882,125
Closing inventory of
Raw Materials (815,525)
Cost of raw materials consumed in
Production 3,066,600
Add: Direct Wages 376,250
3,442,850
Add: Direct Expenses
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Add:Indirect Overhead
Rent 365,000
Depreciation:
Plant and Equipment 41,600
General Expenses 14,000 420,600
3,929,450
Add: Opening Work- in- Progress 600,000

Less: Closing Work-in-Progress (487,750)112,250
Total Production Cost 5,672,750
Illustration 2
DPV Company produces paints. The company also markets the product. The company has
presented you with its trial balance at the end of 31stDecember, 2015. Thus:
Dr Cr
N N
Opening Inventory 1/1/15:
Finished Goods 77,800
Work-in-Progress 27,000
Purchase of Raw Materials 740,000
Carriage Inward (Raw Materials) 7,000
Capital Account 1/1/15 593,600

Office Equipment (@ cost N40,000) 24,000
Drawings 40,000
Factory Direct Labour Cost 374,000
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Property, Plant and Equipment (Cost 460,000
N560,000)
Factory Indirect Wages 290,000
Lighting 15,000
Factory heating 27,400
Office Salaries 88,000
Sales Commission 83,000
Discount Allowed 9,600
Sales 2,000,000
Insurance premium 8,400
Office General Expenses 26,800
Bank Charges and Interests 4,600
Carriage Outwards 11,800
Trade Receivables 284,600
Trade Payables 250,000
Factory General Expenses 62,000
Rent and Rates 24,000
Bank 113,600
Cash 3,000
Profit or Loss c/d 21,600
2,843,600 2,843,600
Additional information:
1. Closing inventories of Raw Materials=N48,000; Work-in-Progress N30,000 and Finished
Goods =N80,000.
2. The depreciation on Property, Plant and Equipment is 10% of cost of acquisition.
3. The expenses on rent, insurance and electricity are to be allocated on the ratio of 2:1 for
the factory and office respectively.
You are required to prepare manufacturing account and income statement for the company for
the year ended 31st December, 2015
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DPV Company
Manufacturing Account
For the Year Ended 31st December, 2015
N N
Opening Raw Materials 42,000
Add: Purchases of Raw Materials 740,000
Carriage inwards 7,000
789,000
Less: Closing Inventories of Raw Materials (48,000)
Cost of Raw Materials consumed 741,000
Add: Direct Labour Cost 374,000
Add Indirect Manufacturing Costs:

Factory General Expenses 62,000
Lighting (2/3 x 15,000/1) 10,000
Factory Heating 27,400
Rents & Rates (2/3 x 24,000/1) 16,000
Insurance Premium (2/3 x 8,400/1) 5,600
Depreciation: Plant & Machinery 56,000
Indirect Wages 467,000
290,000 1,582,000
Add: Opening Work-in-Progress 27,000
Less: Closing Work –in-Progress 30,000
(3,000)
Cost of Finished Goods 1,579,000
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DPV Company
Income Statement for the Year Ended 31st December,2015
N N
Sales 2,000,000
Less: Cost of Sales

Opening Finished Goods 77,800
Add: Cost of Goods Produced 1,579,000
Cost of Goods available for sales1,656,800
Closing Inventories of
Finished Goods (80,000)
Cost of Goods Sold (1,576,800)
Gross Profit 423,200
Distribution Costs:
(104,400)
318,800
Administrative Expenses:
Insurance Premium 2,800
Office General Expenses 26,800
Lighting 5,000
Rent and Rates 8,000
Depreciation: Office Equipment 4,000 (134,600)
184,200
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Finance Cost:
Bank Charges and Interests (4,600)
Net Profit 179,600
Illustration 2
Sammy and SammyLimited for has presented you the following list of balances on its
transactions for the year ended 30/06/2016.
N N
Inventories as at 1/07/15:
Purchases: Raw Materials 937,296
Salaries 150,840
Rent: Factory 115,200
:Office 52,800
Van Expenses 60,000
Lighting :Factory 68,616
Office 26,640
Factory Wages 1,091,280
General Expenses:
Factory 135,360
Office 91,584
Property, Plant&
Equipment(@cost N1,200,000) 780,000
Furniture (@cost N360,000) 264,000
Sales 3,276,000
Trade Receivables 680,880.
Bank Balance 320,088.
Buildings@ cost N1,200,000) 960,000.
23
Capital 3,298,944
Drawings 205,440
7,041,744 7,041,744
Additional Information:
1. Closing inventories as at 30/6/2016: Raw Materials N217,200.00 and
Finished Goods N748,800.00.
2. Property, Plant and Machinery to be depreciated N48,000.00, Furniture N36,000.00
and Building N24,000.00
3. Manufacturing Wages of N7,320.00 has accrued.Office rent of N2,592.00 was paid in
advance.
You are required to prepare manufacturing account, income statement and statement
of financial position for the firm for the financial year ended 30/6/16
Notes
N
1. Manufacturing Wages
As per Trial Balance 1,091,280
Add: Wages accrued 7,320
1,098,600
2. Office Rent
As per Trial Balance 52,800
Less: Prepaid rent 2,592
50,208
Sammy and Sammy Limited

Manufacturing Account for the Year Ended 30th June, 2016
Notes N
Opening inventories: Raw Materials 205,560
Add: Purchases 937,296
Available for Production 1,142,856
24
Closing Stock of
Raw Materials (217,200)
925,656
Add:Factory Wages (1) 1,098,600
Add:Factory Overhead
Rent 115,200
Lighting 68,616
General Expenses 135,360
Depreciation of PPE 48,000 367,176
Cost of Production 2,391,432
Sammy and Sammy Limited

Income Statement for the Year Ended 31st December, 2016
Notes N N
Sales 3,276,000
Less: Cost of Sales
Opening Stocks of Finished Goods 707,520
Add: Cost of Goods Produced 2,391,432
Cost of Goods Avail.for Sales 3,098,952
Less: Closing Stock of Finished Goods. (748,800)
Cost of goods sold (2,350,152)
Less: Administrative Expenses

Office Rent (2) 50,208
Delivery Van Expenses 60,000
25
Depreciation: Land and Building 24,000
Furniture 36,000
Lighting 26,640 439,272
486,576
Sales Commission (188,640)
Net Profit 297,936
SAMMY AND SAMMY LIMITED

STATEMENT OF FINANCIAL POSITION AS AT
31STDECEMBER, 2016
NotesN N
NON-CURRENT ASSETS
Property, Plant and Equipment 1,896,000
Current Assets:
Inventories 966,000
Prepayment: Rent 2,592
Bank 320,088 1,969,560
3,865,560
EQUITY AND LIABILITIES
Capital 3,298,944
Drawings (205,440)
Profit for the Year 297,936
3,391,440
Current Liabilities:
Trade Payables466,800
Wages Accrued 7,320474,120
26
3,865,560
Notes to the Accounts:
Property, Plant and Equipment Cost Accumulated Net Book Value

Depreciation
N N N
Building 960,00024,000 936,000
Plant & Machinery 780,000 48,000 732,000
Furniture 264,00036,000228,000
2,004,000108,0001,896,000
Exercise:
1. What is a manufacturing account
2. What do you understand by prime cost
3. What does WIP stand for in this context.
4. Give three items that may be classified as direct factory overheads?
5. Give three items that may be classified as indirect factory overheads?
Illustration 2.3:
Angelic Paper Mills is a company which deals in the manufacturing and sale of exercise books.
It has the following transaction for the year ended 31st December, 2016.
Particulars N
Stock of Raw Materials 1/1/16 7,825,200
Stock of Raw Materials 31/12/16 3,598,310
Work-in-Progress 1/1/16 890,000
Work-in-Progress 31/12/16 515,000
Wages: Direct 320,000
Indirect 192,000
Raw Materials Purchased 5,200,000
Fuel and Lubricants 410,000
Direct expenses 280,000
Carriage inwards of Raw Materials 192,000
Electricity 85,000
Factory Rent & Rates 96,200
27
Depreciation of factory Property, Plant and 18,920
Equipment
Factory Transport 29,450
Insurance of Factory Equipment 32,400
You are required to prepare the company’s manufacturing account for the financial year ended
31st December, 2016.
2. Benard-Brew Agencies is a soft drink manufacturing company with many sales outlets for its
products. It has the following trial balance for the financial year ended 30th June, 2015
Dr. Cr.
N N
Capital 825,000
Drawing 110,000
Purchases of Raw Materials 990,000
Sales 4,950,000
Inventories 1/7/14:
Work-in- Progress 83,875
Carriage Inwards of Raw Materials44,000
Salaries 929,500
Rent 206,250
Lighting 137,500
Bad debts 35,750
Insurance Premium 52,250
Factory Wages 1,091,280
Office Wages 763,125
General Expenses :Factory 66,000
:Office 41,250
28
Director’s fee 572,000
Plant and Machinery 500,500
Motor Van 231,000
Discount Received 88,000
Cash 215,875 -
6,193,0006,193,000
1. Closing Inventories as at 30th June, 2016
Raw Materials N159,500.00
Work-in-Progress N112,750.00
Finished goods N338,250.00
2. Charge depreciation of:
Plant and Machinery N82,500.00
Motor Van N27,750.00
3. Prepaidinsurance was N8,250.00 while office general expenses accrued at N4,125.00.
4. Rent and Lighting should be allocated 75%:25%, while insurance be shared 60% and
40% to factory and office respectively.
5. Salary accrued at N4,500.00.
You are required to prepare:
 Manufacturing Accounts showing prime cost and total cost of production for the
accounting years.
 Profits or Loss Account for the period.
 Statement of Financial Position for the year ended 30th June 2015.

Germain Nig. Ltd records for the year Ended 31st December, 2016 shows the following:
N
Purchases of Raw Materials 64,300
Carriage on Raw Materials 1,605
29
Direct Labour 65,810
Delivery Van 256,000
Rent 2,700
Opening Inventory:
Lighting 57,600
Land and Building 9,850,000
Depreciation: Factory Equipment 83,000
Office Equipment 19,500
Motor Vehicle 6,800,000
Sales 2,006,000
Factory Fuel and power 59,200
Maintenance of Plant and Machinery 285,000
Stationery 152,500
Electricity 785,000
Factory Wages 36,500
Insurance 45,200
Salaries 86,000
Rent 65,000
You also have the following additional information:
1.Closing Inventories; Raw Materials N32,420, Finished Goods N25,650.00

2. Depreciate Office Equipment 12.5%, Motor Van 20% and Land and Building
10%.
3.Apportion electricity 2/3 and 1/2 to the factory and office respectively.
4.Apportion Rent, 60% and 40% to factory and office respectively.
30
Prepare Manufacturing Accounts showing the prime cost, total cost of production.
Trading, Profit and Loss Accounts for the year ended 31st December,2016.
(I)The prime cost
(2) The cost of raw materials utilized for the period
(3) The production cost of goods manufactured during the year
(4) The percentage of the net profit on capital
(5) The value at selling price of goods manufactured during the year
You are advice to acquire the following textbooks and any other that could assist you in his
course.
Frank, Wood& Alan Sangster,. Business Accounting 1 & 2, 13th Ed
Pickles & Lafferty : Book Keeping & Accounts
Uche L. Onyekwelu-Fundamentals of Financial Accounting 1 & 2: A Simplified Approach

Uche Lucy Onyekwelu- Financial Accounting Manual: A Test and Examination Pack for
Students
UNIT 2 MANUFACTURING ACCOUNTS II

CONTENT
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Cost of Raw Materials
3.2 Cost of conversion
3.3 Some important points
3.4 Scrap
3.5 Work-in-progress
3.6 Stock of finished goods
4.0 Conclusion
5.0 Summary
1.0 Introduction
In unit 2 you learnt about manufacturing account including the calculation of prime cost and
production or manufacturing cost. In this unit you will learn further about manufacturing account
and related important points. In case of trading concerns, you can find out the cost of goods and
the gross profit by preparing trading account. But a manufacturing concern has to first prepare
another account called manufacturing account with the help of which it works out the cost of
goods produced. The cost of goods produced is then transferred to the Trading Account for
31
ascertaining the cost of goods sold and the gross profit. A manufacturing concern purchases raw
materials from the market and converts them into finished goods for sale. The cost of goods
produced thus includes two major cost:
(i) Cost of raw materials consumed and

(ii)Cost of conversion.
2.0 Objective
• Prepare manufacturing account and calculate cost of goods produced.
3.0 Main Content
3.1 Computation of Cost of Raw Materials Consumed

The cost of raw material consumed is determined by summing up all in expenses incurred in the
purchases of raw materials utilized in the manufacturing of a product. To do this, the raw
materials at beginning will have to be adjusted with the closing raw material cost.
Illustration One: An entity by name Yingi Limited has the following records:
N
Opening Inventories 185,000
Purchase of Raw Materials 1,250,000
Inventories(31/12/2016) 65,780
You are required to calculate the cost of raw materials consumed.
Solution:
N
Opening Inventory of Raw Materials 185,000
Add: Purchase of Raw materials 1,250,000
Cost of Raw Materials Available for production 1,435,000
Less: Closing Inventory of Raw Materials 65,780
Cost of Raw Materials Consumed 1,369,220
Note: When direct expenses such as freight, dock, dues, cartage, and import duty are incurred
such costs are included in the cost of raw materials consumed. They could also be posted
separately on the debit side of the Manufacturing Account. Posting such expenses separately will
enable readers to see the makeup of such expenses.
3.2 Cost of Conversion

Cost of conversion includes the expenses incurred in the process of transforming the raw
materials in the factory. They include expenses such as wages paid to labour, salaries of
supervisory staff, factory rent and rates, motive power, repairs to plant and machinery,
depreciation on plant etc. Allthese expenses are debited to the Manufacturing Account.
32
Illustration:
Manufacturing Account of……………….for the period ended………………….
DR CR
Particulars Amount Particulars Amount
To work –in Progress at the Beginning
To Raw Materials Consumed:
Opening Inventory of Raw Materials
Add: Purchases of Raw Materials
Less: closing inventory of Raw Materials
To carriage Inwards
To freight Import duty, dock dues etc
To Manufacturing Wages
To motive power
To coal, Gas& Water
By Sales of scrap
By work-in-Progress at the end
By cost of goods Produced (transfer
To Trading account)
To oil and Grease
To factory Lighting and Heating
To factory Insurance
To repairs to Factory building
To repairs to plant and machinery
To depreciation
On factory Buildings
To depreciation
On plant& Machinery
3.3 Some Important Points
3.3.1 Scrap
The term 'Scrap' is used for waste materials coming out of the manufacturing
process. Cutting of cloth in readymade garments factory and metal cutting in
engineering factories are some examples of scrap. Any amount realized from
the sale of scrap must be adjusted in the cost of goods produced. Hence, it is
credited to the Manufacturing Account.
3.3.2 Work-In-Progress
It is quite likely that at the end of the year, there may be certain goods which
are still in the process of manufacture. Such goods are called 'semi-finished
goods' or 'work. in-progress'. There will always be some work in-progress at
the beginning as well as at the end of the accounting year. Their cost must be
adjusted while working out the cost of goods produced. Hence, the opening
33
work-in-progress is shown on debit side of the manufacturing account while
the closing work-in-progress is shown on its credit side.
3.3.3 Inventories of Finished Goods

Besides the stock of raw materials and semi-finished goods every firm will
have the stock of finished goods. This is to be adjusted in the cost of goods
produced, Hence, it is not shown in the manufacturing account. As you learnt
earlier, it will be shown in the trading account.
Exercise:
I. Distinguish between:
(a) Cost of goods sold and cost of goods processed
(b) Direct expenses and indirect expenses
(c ) Trading account and manufacturing account
2.Below is the records of Uceey Agencies for the production of its product for the 2016
accounting year.
N
Opening Inventory 50,000
Purchases 1,200,000
Return Outwards 80,000
Sales 1,900,000
Closing Inventory 70,000
Direct Expenses 60,000
Indirect Expenses 100,000
Determine the cost of goods sold.
Solution
Uceeys Agencies
Trading Accounts
for the year ended 31/12/2016
N N
Sales 1,900,000
Opening Inventory 50,000
Add: Purchases 1,200,000
Less: Returns Outwards 80,000 1,120,000
Cost of goods available for sale 1,170,000
Less: Closing Inventory 70,000

1,100,000
34
Add: Direct Expenses 60,000
Cost of Goods Sold 1,160,000
4.0 Conclusion
You have learnt that a manufacturing concern has to prepare manufacturing account before
preparing the trading and profit and loss account. Thoughconsidered desirable but many firms do
not do so because it is notcompulsory. You will also generally be asked to prepare only the
trading
account without preparing such manufacturing account. In such a situationyou will show all
items of manufacturing account in the trading accountitself. In other words, cost of raw materials
consumed, expense on purchasesof raw materials, all manufacturing expense. The opening and
closing workin-progress, sale of scrap, etc will also be shown in the common practice i.e.the
items like depreciation and repairs to plant and machinery and factorybuilding will be shown in
the profit and loss account and not in the tradingaccount.
5.0 Summary
The manufacturing concern may also prepare a manufacturing account for ascertaining the cost
of goods produced which is then transferred to thetrading account for ascertaining the cost of
goods sold and the gross profit,this however is not compulsory.Most manufacturing concern
prepare trading account directly by showing allexpenses incurred in the factory (including cost of
raw materials consumed),in the trading account itself.

1. Prepare Manufacturing, Trading, Profit or Loss Account from following balances of Jumbo
Nigeria Limited for the year ended 31/12/2x14.
N
Purchases: Raw Materials 64,300
Carriage on Raw Materials 1,605
Direct Labour 65,810
Stock at 1/1/14:
Work- in- Progress 23,600
Sales 200,600
Factory Fuel and Power 5,920
35
Rent 2,700
Office Lighting and Heating 5,760
Depreciation: Plant and Machinery 8,300
Wages 15,060
Salaries 18,600
Repairs: Factory Building 8,650
Plant and Machinery 19,600
Discount allowed 15,600
Discount received 18,980
Carriage Inwards 25,600
Insurance 12,500
1.Closing Stock of Raw Materials amounts to N28,000; Closing stock of work-in-progress
N35,000 while that of finished goods is N72,000.
2.The depreciation on office equipment, plant and machinery is 20% of cost of acquisition.
3. The expenses on rent, insurance and electricity should be shared on the ratio of 3:1 for the
factory and office respectively.
7.0 REFERENCES/FURTHER READING

course.
 Frank, Wood& Alan Sangster,. Business Accounting 1 & 2, 13th Ed
 Pickles & Lafferty : Book Keeping & Accounts
 Uche L. Onyekwelu-Fundamentals of Financial Accounting 1 & 2: A Simplified Approach,(Revised
Edition, IFRS Compliant).
 Uche L. Onyekwelu- Financial Accounting Manual: A Test and Examination Pack for Students
MODULE 2: PARTNERSHIP ACCOUNTS
1.0 CONTENTS
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Partnership Accounts
4.0 Conclusion
36
5.0 Summary
 Introduction:
People often come together to engage in businesses with an intention to carry on the
business for a very long time. The number of people involved could be two or more. This
form of business is called partnership. The Partnership Act of 1890
definedpartnershipbusiness as ‘a relationship that subsists between two or more people with
an aim of making profit’. Thebusiness unlike the joint venture business, involves two or
more people coming together temporarily to execute specific business, the relationship in
partnership is considered a permanent relationshiphas a long term commitment to
operate.Parties involved in a partnership business are refered to as partners and they
maintain one set of accounting records, have equal access to books of accounts and share the
profit and losses arising from the business according to a pre-agreed ratio.
Learning Objectives:
At the conclusion of this chapter, you should be able to:
 Define partnership business;
 State the reasons for partnership
 Define partnership deed or agreement;
 State and explain the contents of partnership deed or agreement;
 Distinguish partnership from other forms of business;
 Prepare the necessary ledger accounts to record the transactions of a partnership business;
 Prepare the the necessary final accounts of a partnership business;
 Apply the knowledge learnt herein in solving other related accounting questions.
1.1 Definition of Partnership: The Partnership Act of 1890 definedpartnership business as ‘a

relationship that subsists between two or more people with an aim of making profit. This
definition does not foreclose the fact that a partnership business can make a loss. However, it
assumes that every business exists primarily to make profits.
1.2 Reasons for Partnerships:
There are many reasons why people engage in partnership business. Some of the reasons are:
37
1. Partnership helps in entrepreneurship as it helps in pulling resources together in order to
establish businesses which the partieswould not be able to fund on individual basis. There is high
probability that partnership will have more income or capital to do business than that which is
run by one person.
2. Individual abilities such as technical known-how, management capabilities among others are
brought together for establishment of a more formidable business concern.
3. Partnership business often command more trust and respect of customers and other
stakeholdersthan a sole proprietorship.
4. The going concern of a partnership business is more assured than sole proprietorship.
5.Naturally bankers and other credit facility agents will be more disposed to give loans and
advances to partnership than sole proprietorship.
6. The inherent risks are less in partnership than sole proprietorship as more people would be
sharing the risk.
5. By involving more than one person’s expertise, the chances of failure of such business is
reduced.
6. Partnership creates a platform for increased partonage and enlarged market share for goods
and services produced when compare to a sole proprietor.
1.2 Features ofPartnership Business:

The common attributes of a partnership business:
(a) Most partnership business is formed to make profits while partners are allowed free access to
books of accounts.
(b) Partnership are to conformto the Partnership Act of 1890. The Limited Partnership must in
addition be in consonance with the Limited Partnership Act of 1907 as spelt out in Sections 41.3.
38
(c) A partnership is formed by a minimum of two and a maximum of twenty persons.However,
partnerships for purposes of banking cannot be more than ten partners while
Accountants,Solicitors,stock exchange, Surveyors, Auctioneersmay enjoy unlimited number of
members.
(d)Partners with the exception of limited partners must pay their share of any liabilities which
could not be settled. This means that they could be forced to sell their private propertyin order to
pay their share of debts incurred in the business, hence their liabilities are unlimited in nature.
(e) Partners have equal access to the books of records or accounts of books while partners have
right to participate in the management of business with the exception of a limited partner.
1.3 Limited Partnership:

Limited partnership is partnership that contains one or more limited partners. A limited
partnership must be registered with the Registrar of Companies. The most important
distinguishing feature of a limited liability partner is that the partners’ liability is restricted tothe
capital contribution in the time of liquidation. That is, he or she is not liable for the outstanding
debts as in Section 41.2(4) of the Act.
Other characteristics of limited liability partner includes:

a. A limited partner is not allowed to take out or receive back any part of his
contribution to the partnership during its life time.
b. A limited partner does not participate in the management of the partnership or have
power to make the partneship take a decision. If they do, they become liable for all
the debts and obligations of the partnership up to the amount taken out or received
back or incurred while taking part in the management of the business.
c. All the partners cannot be limited partners, as such there must be one general partner
with unlimited liability.
1.4Partnership Deed:A partnership deed may be defined as a set of terms, principles or rules
which the partners willingly subscribe and have agreed to guide their conducts in the business.
39
Partnership agreement could be drawn up by a Lawyer or an Accountant. It need not be written.
However, having a deed in writing helps to reduce incidence of disagreement among partners
and it could serve as a document/basis for the settlement of disputes between partners if the need
arise.
1.4 Contents of Partnership Deed or Agreement.

A partnership deed or agreement contains as much clauses as the partners may wish. However,
the following are the basic contents of a deed:
i) Partners’ capital contribution
ii) Interest to be paid on capital contributed
iii) Whether the partnership should maintain a current account and the basis for the
contribution.
iv) Partner’s profits or losses sharing ratio.
v) Basis for allowing drawings will be allowed and percentage of interests (if any).
vi) Salaries, commissions among others payable to partners
vii) Treatment on the admission of new partners.
viii) Treatment of a retiring or a deceased partner.
ix) Treatment of goodwill.
x) Treatment of loans due and from partners.
xi) Basis for revaluation of assets etc.
The above issues are very critical and must be addressed at the on-set of the business to
minimise disagreement among partners or even help in resolving them in case of conflicts.
To understand these contents we will look at the issues in details:
i) Capital Contribution by Partners:By this, the partners clearly agree on the amount
each of them should contributeto the business.
ii) Interests Payable on Partner’s Capital: This interest payable to partners serves as a
form of compensation for the capital contributed in the business. The partners will
however agree on the percentageto be paid to on the capital contribution.
40
iii) Whether Partner’s will maintain Current Accounts: Partners may agree to contribute
additional monies to be known as current account. This is to help them run the day to
day activities of the business. Partners will also agree on the basis for such
contribution.
iv) Partner’s Profit and Loss Sharing Ratios: Business exists basically to make profit.
Therefore, partners must agree from the inception of the business on the basis for the
sharing of the profit made and also how to share losses if they occour.
v) Drawings and Interests on Drawings: It is very important that partners agree on

whether drawings can be allowed in the business. Partners need to agree on the
interests members will pay on drawings made. This is to discourage partners from
making unnecessary cash and goods withdrawals as such can liquidate the business.
vi) Partnership salaries and other forms of compensation: Some partners are usually more
active in the running of the business than others and may therefore need to be
rewarded for their services to the partnership. These rewards come in the form of
salaries, commission. The salaries are deducted before appropriating the balance to
the other partners.
vii) Admission and treatment of new members:As the business grows, others may be
willing to join it as partners. Partners should agree on the possibility of admitting new
members and the treatment to be given to assets and liabilities if such condition arise.
viii) Treatment of a retiring or deceased partner: A partnership business is assumed to

be dissolved in the event of retirement or death of a member. The partners should
spell out in the deed, the treatment to be given to the assets, liabilities and capital of
the business if such arise.
41
ix) Treatment of goodwill in the books of partnership: Partnerships that have existed for
many years and have made some good reputations may decide to value its goodwil.
Goodwill is defined as the excess (monetary value) of the worth of the business over
its assets. The partners must agree on the bases for valuing its goodwill and the ratio
allocation to members and when that would be necessary.
x) Treatment of Loansto and from Members: Usually, when additional funds are needed
for the running of the business, partners may lend the needed money to the business.
The partnership should agree on how to pay back to the partner,that is whether it will
pay interest or not on the principal lent. On the other hand they should also agree if
partners that borrow funds from the business should be asked to pay interest and at
what percentage.
xi) Basis for Revaluation of Assets: Partners should also agree if they would need to
value their assets and if the revaluation surplus or loss should be capitalised, that is
added to capital account or not.
1.5 Rights of partners in the absence of a written agreement

According to Section 24 of Partnership Act of 1890, the rights of partners in the absence of
agreement are:
1. Equal share of profits and losses.
2. All partners may take part in the management of the business.
3. Partners should not earn interests on capital before profit is ascertained.
4. Partners are to earn interest of 5% on any fund in excess of capital.
5. Records must be kept at the principal place of business while all partners areto enjoy
equal access to the books.
6. Partners are not entitled to salaries.
7. The partnership must indemnify every partner who:
 In respect of payments made and liabilites incured in the ordinary and proper
conduct of business of the partnership;
42
 In or about anything necessary done for the preservation of the business or
property of the partnership.
8. No partner may be admitted as one without the consent of other partners.
9. Ordinary differences may be decided by the majority vote but no change may be madin
the nature of the business without the consent of all.
1.6 Duties of Partners

According to Sections 28 and 30 of 1890 Act, partners duties include the following:
i. Partners are bound to render true accounts and give full information of any things
affecting the partnership to any partner or is its legal representative.
ii. Every partner must account for all profits derived without the consent of the others from
any partnership transaction or use of firm name or connection.
iii. No partner may carry on another business of the same nature or compete with the firm
without the consent of other, and if he does, he must account for or pay over all profits
made.
3.0 EXERCISE
a. Define Partnership business according to the Partnership Act.
b. State and explain five reasons why people go into partnership
c. Define the Partnership Deed?
d. State and explain three contents of the Partnership Deed.
4.0 CONCLUSION
Partnership business is a very important form of business in which two or more people come
together to carry on a business with the aim of making profit. Partnership deed is also made
by partners to guide the business. The knowledge from partnership business will also help
students in the preparation of final accounts of other forms of business.
5.0 SUMMARY
43
In this unit, you have been successfully introduced to partnership business account by defining
what partnership is, the reasons for partnership, partnership deed and contents of partnership
deed. You were also taught the duties of a partnership and who a limited partner is.
6.0 TUTOR-MARKED ASSIGNMENT

Attempt the following questions:
a. Define Partnership business Aaccording to the Partnership Act.

b. Define Partnership business State and explain five reasons why people go into
partnership
c. Define the Partnership Deed?
d. State and explain three contents of the Partnership Deed.

Set Textbooks
course.
 Frank, Wood & Alan Sangster,. Business Accounting 1 & 2, 13th Ed.
 Pickles & Lafferty: Book Keeping & Accounts.
 Fundamentals of Financial Accounting 1 & 2: A Simplified Approach
(Revised Edition, IFRS Compliant) by Uche Lucy Onyekwelu.
 Financial Accounting Manual: A Test and Examination Pack for Students by Uche Lucy
Onyekwelu.
UNIT 2 ACCOUNTING ENTRIES FOR PARTNERSHIP ACCOUNTS

1.0 CONTENT
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Patnership Accounts
4.0 Conclusion
5.0 Summary
2.0 Objectives:
44
 Define and prepare the partners’ capital account.
 Define and prepare partners’ current account.
 Prepare Partners’ Drawings Account.
 Prepare Partners’ Profit or Loss Appropriation Account.
 Prepare Partners’ Statement of Financial Position (Balance Sheet).
Introduction:
The partnership business like every other business keeps records of its transactions so it could
determine the profit or loss it has sustained over any given period. In addition to the usual
trading, profit or loss account and the statement of financial position, the partnership has some
accounts that are peculiar to it. These accounts are prepared to take care of the specific nature of
partnership business.
The accounts are:
 Partners’ Capital Account.
 Partners’ Current Account.
 Partners’ Drawings Account.
 Partners’ Profit or Loss Appropriation Account.
 Partners’ Statement of Financial Position (Balance Sheet).
(1) Partners’ Capital Accounts:This isanaccountwhich records the initial funds and any
subsequent ones contributed by the partners for the acquisitionof initial assets and for the
running of the business.It could be in form of cash or cash equivalent.
Illustration 1.1. Anne and Ella established a partnership business in Lagos. The
business trades on ladies’ bags and shoes. They contributed Five hundred and fifty
TthousandNaria Only (N550, 000.00) and Seven Hundred and Fifty Thousand Naira
Only (N750, 000.00) respectively at the commencement of the business. The partners are
to receive 5% interest on capital at the end of every accounting year. Thebusinessmade
net profit of N72, 000.00 at the end of the year. Partners share profit and lossin the ratio
of 1:2. You are to assume that the partnership do not maintain a separate current account.
45
Required: Prepare the partners’capital account as at 31st December, 2x14.
Solution
Anne and Ella Partnership
Partnership Capital Account as at 31st December,2x14
Date Particul Anne Ella Date Particular Anne Ella
arrs s
N N N N
1/01/1 Bal b/d 750,0
550,00 00
0
31/12/ Int. on 27,500 37,50

1 capital 0
601,5
31/12 Bal c/d 00 835,5
00
31/12/ Share of 24,000 48,00
1 profit 0
601,5 835,5 601,50 835,5

00 00 0 00
31/12Bal b/d 601,500 835,500
Note: The basic assumptions of the above accounts are:
(i) The partners did not maintain a separate current account.
(ii) The income received in the year like interest in capital and share of profit have
affected the position of capital account as the new capital balance=N601, 500 and
N835, 500 respectively.
46
(2) Partners’ Current Accounts:This isanaccountwhich takes care of the expenses which
partners incurred in the running of the business.It could be in form of cash or cash
equivalent.
Illustration 1.2
Still using the same illustration, assume that they currently maintains a current account in
addition to their capital account. Partners agreed to contribute to open a current account. Anne
contributed Two Hundred and Twenty Thousand Naira Only (N220,000.00) while Ellapaid in
Four Hundred and Sixty Thousand Naira Only (N460,000.00). The businessmade a net profit of
One Hundred and Five Thousand Naira Only(N105,000.00). Partners are to maintain theirprofit
and loss sharing ratio.
You are required to prepare the partners’capital account at the end ofthe period.
Note: Partners do not maintain a separate current account. Show your answer in a tabular form.
Anne and Ella
PartnershipCapital Account as at 31/12/14
Date Particul Anne Ella Date Particul Anne Ella
ar ar
N N N N
01/1/14 Bal b/d 550,000 750,000

01/1/14 Current
A/c 220,000 460,000
31/12/1 Interest
4 on 27,500 37,500
Capital
31/1 Bal c/d 832,50 1,317, 31/12/1 Share of

2/x1 0 500 4 Profits 35,000 70,000
832,50 1,317, 31/12/x Bal /d 832,500 1,317,5
47
0 500 1 00
Bal c/d 832,500 1,317,500
PartnershipMaintains a Separate Current Account
When a partnership maintains a separate current account,it means that a current account is
openedin addition to the capital account. The partnership current account records those items
which may increase or decrease partners’ worth. These items include drawings, interest on
drawings, partner’s salary, commissions, interests on capital, share of profits or loss among
others.
Illustration 1.3: If the partnership of Anne and Ella maintains a separate current account. Their
capital accounts and the current account in the 2nd year willreflect thus:
Anne and Ella
Partnership Capital Accounts as at 31/12/14
Date Particular Anne Ella Date Particular Anne Ella
N N N N
1/1/x2 Cash 550,000 750,000
31/12/14 Bal c/d 550,000 750,000
550,000 750,000 31/12/x2 550,000 750,000
Note: The capital account shows a separate balance of N550,000 andN750,000 for Anne and
Ellarespectively as there was no additions/ increase in capital account.
The partners’ current account will reflect the changes as follows:
Anne and Ella

Partnership Current Account
Date Particular Anne Ella Date Particular Anne Ella
N N N N
01/1/14 Cash 220,000 460,000
31/12/14 Intereston 27,500 37,500
capital
31/12/14 Share of
31/12/14 Bal c/d 282,500 567,500 profits 35,000 70,000
48
282,500 567,500 282,500 567,500
31/12/14 Bal b/d 282,500 567,500
Drawings by Partners:
Drawings by partners can be either through cash or goods. However, when partners drawings
from the business the cash equivalent is debit to the partners current account.
Thus:
Dr. Partner’s Current Account if they maintain that or Capital Account as the case may be.
Cr. Partnership’s Cash/Bank Account
Dr. Partner’s Drawing Account

Cr. Partnership Cash/Bank Account
Illustration 1.4
Still using illustration 1.1 on Anne and Ella.Assume that the partners also madedrawing of N52,
000 andN84, 000 in the same year respectively. Partners agreed on 5% interst charge on
drawings.
Prepare the partnership drawings and current accounts to show the above transactions of
partners.
Anne and Ella

Partners’Drawings Account
Date Particular Anne Ella Particular Anne Ella
N N N N
Dec.
31st Cash 52,000 84,000
31st Dec
Dec. Transfer
31st Interest 2,600 4,200 to Current
A/c 54,600 88,200
49
54,600 88,200 54,600 88,200
Anne and Ella

Date Particular Anne Ella Date Particular Anne Judith
N N N N
31/12/14 Drawings 52,000 84,000 1/1/14 Bal b/d 220,000 460,000
Intereston 31/12/14 Intereston

31/12/14 drawings 2,600 4,200 Capital 27,500 37,500
31/12/14 Share of
31/12/14 Bal c/d 227,900 479,300 Profit 35,000 70,000
31/12/14
Bal b/d 227,900 479,300
Explanation:
In the Current Account;
Dr. Drawings.
Dr. Interest on Drawings.
Cr. The PartnershipCash Book.
Loan from Partners:

Partnership business can access loans from individual partner just like it access from other
avenues such as banks. When a partner contributes any funds in excess of capital required are
also, the fund is regarded as loan from that partner. Such are consequently paid interests on the
said funds. The interest is credited to the current account of the partner.Interest is also
appropriated to the partner in the partners’ profit and loss appropriation account.
Thus:
 The principal borrowed:
Dr. Partnership Cash book with loan received.

Cr. Partner’s Loan Account.
 Accrued Interest
50
Dr. Interest payable account
Cr.Partner’s Current Account with interests that has accrued.
Illustration 1.5
Anne and Ella partnership still subsists. The business borrowed the sum of Four Hundred and
Eighty Thousand Naira Only (N480,000)from Anne to pay a supplier. She is to receive a 5%
interest on that loan.
Prepare relevant partner’s account to show this transaction.
Solution:
Principal amount = N480, 000
Interest = 5% per annum
5 % of N480,000 = N24,000
Dr. Interest paid by partnership business i.e interest account
Cr.The partner Anne account withN24,000.
Solution:
Anne and Ella
Date Particul Dann Judit Date Particul Dann Judit
ar y h ar y h
N N N
1/1/15
31/12/1 Drawing 18,00 22,00 Balb/d 220,00 460,00
5 s 0 0 0 0
31/12/1 Interest 31/12/
5 onDrawi 450 550 15 Int. on 7,500 12,500
51
ngs cap.
31/12/
31/12/1 Bal c/d 115,4 162,7 15 Int. on 19,200 -
5 50 20 loan
31/12/ Share of
15 profit s 35,200 52,800
133,9 185,3 133,90 185,30
00 00 0 0
Explanation:
Dr.The interest paid account by the partners and charge to the P&LA/c.
Cr.Interest on loan obtained from Danny ofN19, 200 is creditedto his current account.
Anne and Ella

Partnership Profit and Loss Appropriation Account for the Year Ended, 31/12/ 2x15
N N
Net Profit b/d 88,000
Interest on Loan:
Anne 19,200
Add: Other income:
Interest on capital: Interest on drawings

Anne 7,500 Anne: 450
Ella 12,50020,000 Ella: 5501,000
39,200
Share of Profit:
Anne: 2/5 x 49, 800=19,920
Ella: 3/5 x 49, 800 =29,880 89,000 89,000
3.0 EXERCISE
a. Differentiate capital account from current account of partnership business.
b. Kingsley, Jennyand Collins are in partnership selling electronics. Their capital
account on 31/12/14 was as follows: KingsleyN960,000;JennyN1,108,000 and
Collins N1,250,000. The current account balances on the same date
were:Kingsley N650, 000; Jenny N490, 000; Collins N710, 000. Jenny who
52
has been a veryactive partner will receive a monthly salary of N46, 000.00.
Collins made a loan of N1, 032, 000 to the business. Interest on the loan is 5%
interest. Jenny and Collins is to receive commission ofN6, 800 and N11, 420
each. Drawings of the partners stood at N24, 000; N32, 000 and N 56,000
respectively. Interest on drawing is to be charged at 8.5% while interest on
capital is 5%. Net profit for the year was N180, 000 while profit is to be
shared in the ratio of 1:2:3.
You are required to prepare the partnership Capital Account and Current
Account for the year ended 31st December, 2014.
4.0 Conclusion
The partnership business prepares a capital account to show to show the amount of
investments which the partners have made in the business and this is shown in the capital
account. However, the business sometimes maintains a separate account to take care of some
recurring expenditure of the business and this is shown using the current account. When
partner draws either cash or goods from the business the partnership maintains the
partnership drawings account. When loans are also taken from partners the business
maintains the loan account.
5.0 SUMMARY
In this unit, you have been successfully taught the basic accounts prepared by partnership
business. These account include the partners capital account, current account, drawings account
and loan account.

Attempt the following questions:
Darl and Carl established a partnership business in Lagos. The business trades on ladies’ bags
and shoes. They contributed Six Hundred and Fifty Thousand Naira Only(N650,000.00) and
Four Hundred and Fifty Thousand Naira Only(N450,000.00) respectively at the commencement
of the business. 5% interest on capital will be paid to the partners. The partners also made a
drawings of N8,500 and N5000 respectively. Thebusinessmade net profit of N58, 000.00 at the
53
end of the year. Partners share profit and lossin the ratio of 3:2. You are to assume that the
partnership do not maintains a separate current account.
You are to prepare the necessary account to show the capital account, current and drawings
account.

Set Textbooks
course.
(Revised Edition, IFRS Compliant) by Uche Lucy Onyekwelu
Onyekwelu
UNIT 3: FINAL ACCOUNTS OF A PARTNERSHIP ACCOUNTS
1.0 Content
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Trading Accounts of the Partnership Business
3.2 Profit or Loss Accounts of Partnership
3.3 Statement of Financial Position
4.0 Conclusion
5.0 Summary
2.0 Objectives:
 Prepare the Trading Accounts of the Partnership Business
 Prepare Profit or Loss Accounts of Partnership Business
 Prepare Partners’ Statement of Financial Position
54
UNIT 2 ACCOUNTING ENTRIES FOR PARTNERSHIP ACCOUNTS
1.0 CONTENT
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Patnership Accounts
4.0 Conclusion
5.0 Summary
2.0 Objectives:
 Define and prepare the partners’ capital account
 Define and prepare partners’ current account
 Prepare Partners’ Drawings Account
 Prepare the Trading Account
 Prepare the Profit or Loss Account
Introduction:
The partnership business prepares the final accounts to show the actual profit or loss position and
statement of financial position of the business.
The accounts are:
 Prepare the Trading Account
 Prepare the Profit or Loss Account
55
1. Trading Account: The trading account is an account format where the cost of sales is
debited against the sales or net sales of a merchandizing business. For the partnership
business, the trading account aggregates the cost of sales. The cost of sales is however
deducted from the sales for the period. The end result of the trading account is either the
gross profit or gross loss.
Illustration:
Lilly and Prisca are in a partnership business. They share profit and losses equally. Thefollowing
trialbalance shows their transactions for the period ended 31st December 2x15:
Dr. Cr.
N N
Motor Vehicle 263,250
Furniture (cost) 3,726,000
Trade Receivables/ Trade Payables 848,880 659,138
Sales 3,659,985
Purchases 2,901,015
Salaries 340,889
Office Expenses 55,485
Capital Account as at 1/1/15:
Lilly 1,093,500
Prisca 486,000
Current Account as at 1/1/15:
Lilly 55,850
Prisca 49,046
Drawings:
Lilly 222,750
Prisca 162,000
Accumulated Depreciation as at 1/1/15

Furniture & Fittings 149,040
56
Motor Van 78,975
Inventories as at 1/1/15 1,011,285
Cash Balance 24,908
Bank Balance 5,670
6,231,534 6,231,534
Additional Information
(a) Closing inventories was valued atN1,107,270
(b) Office expenses was outstanding N4,455
(c) Interest of 10% is to be charged on capital account; while Lilly and Prisca are to pay
interest on drawings of N7,290 and N8,505 respectively.
(d) Provide for depreciation of 10% on cost of furniture and fittings and 20% on motor
vehicles.
You are required to prepare the following accounts to record the partnership transactions for the
period:
(i) Trading Account
(ii) Profit orLoss Account
(ii) Profit orLoss Appropriation Account
(iii) Capital Account
(iv) Current Account
(v) Statement of Financial Position
Present your answers in a columnar form. Show all workings.

Workings/ Notes:
(1) Office Expenses
N
Amount as per the Trial Balance = 55,485
Add: Amount Outstanding = 4,450
Dr. P &LA/c = 59,940
Note*** The outstanding amount of N4,455 will be recorded in the balance sheet as a current
liability.
(2) Interest on Capital Accounts:
57
(i) Lilly: 10% of N 1,093,500 = 109,350
(ii) Prisca: 10% of N 486,000 = 48,600
(3) Interest on Drawings:
(i) Lilly = N 7,290
(ii) Prisca = N 8,505
(4) Depeciation:
(i)Furniture &Fittings: 10% of N372,600 = 37,260(P or L A/c)
Accumulated Depreciation: N149,040 + N37,260=N186,300
(ii) Motor Vehicles: 20% of N 260,250 = 52,650
Add: Accumulated Depreciation =78,975
131,625
Lilly and Prisca

Trading,Profit or Loss Account for the Year ended31st December, 2x15
Notes N N
Sales 3,659,985
Less: Cost of Sales
Opening stock 1,011,285
Add: Purchases 2,901,015
Cost of goods available for sales 3,912,300
Less: Closing Stocks (1,107,270)
Cost of goods sold (2,805,030)
Less:Other Expenses
Salaries 340,889
Office expenses (1) 59,940
Depreciation (4)
(4i) Furniture& fittings 37,260
(4ii) Motor Vehicles 52,650
513,541
Net Profit 341,414
Lilly and Prisca Partnership

Capital Account as at 31st December 2x15
Date Particula Lilly Prisca Date Particul Lilly Prisca
rs N ars N
58
N N
31/12 1/1/1
/15 1,093,5 486,00 5 1,093,50 486,00
00 0 0 0
1,093,5 486,00 1,093,50 486,00
00 0 0 0
Lilyand Prisca Partnership Profit and Loss Appropriation Account for the Year Ended
31/12/15
N N
Net Profit b/d 341,414
Add: Interest on Drawings
Lilly 7,290
Prisca 8,505 15,795
Less: Interest on Capital 357,209
Lilly 109,350
Prisca 48,600
(157,950)
Profit available to partners 199,259
Lilly ½ x 199,259= 99,629.5
Prisca ½ x 199,259= 99,629.5 199,259
Balance nil

Current Account as at 31st December, 2x15
Date Particulars Lillly Prisca Date Particulars Lilly Prisca
N N N N
31/12/15 Drawings 222,750 162,000 1/1/15 Bal b/d 55,850 49,046
31/12/15 Inter on 109,350
Capital 48,600
59
31/12/15 Interest on 7,290 8,500 31/12/15 Share of 99,630 99,630
drawings Profit
31/12/15 Bal. c/d 34,790 26,776
247,830 197,276 264,830 197,276
1/1/16 Bal. b/d 34,790 36,770
Note:
The new balance of the current account of the partnership has decreased to N34,790 and
N29,776 respectively. This is due to the drawings and interest on drawings paid.
Statement of Financial Position as at 31st December, 2x15
N NN
Non-Current Assets Cost Dep. NBV
Motor Vehicle 263,250 (121,625) 131,625
Furniture & Fittings 372,600 (186,300) 186,300
635,850 317,925317,925
Current Assets:
Inventories 1,107,270
Bank 24,908
Cash 5,670
Total Assets 1,986,728
2,304,653
Equity and Liabilities
Capital Account:
Lilly 1,093,500
Prisca 486,000
Current Account:
Lilly 34,790
60
Prisca 26,770
1,641,060
Current Liabilities
663,593
2,304,653
3.0 EXERCISE
Clara, Jenny and Olivia are in partnership business. They trade on stationery and sports wears.
The profits or losses will be shared among the partners in the ratio of 2:3:5. Below is the
partnership trial balance as at 1st January, 2x16.
Dr. Cr.
N N
Purchases 1,920,660
Sales 2,947,000
Sales returns 95,200
Salaries and Wages 256,144
Repairs and Maintenance
of Motor Vehicle 55,160
Telephone Expenses 34,300
Office Equipment (cost) 117,600
Delivery Van (cost) 175,000
Provision for depreciation as at 1/01/16:
Delivery van 58,800
Office equipments 37,800
Debtors and Creditors 520,492 340,984
Rent 13,230
Provision for bad debts 1/01/16 11,200
Bad Debts 17,276
61
Carriage inwards 21,000
Cash at Bank 9,324
Inventories 1/1/16 599,900
Capital Accounts:
Clara 420,000
Jenny 224,000
Olivia 168,000
Current Accounts:
Clara 19,460
Jenny 2,142
Olivia 29,036
Drawings:
Clara 176,540
Jenny 117,838
Olivia 87,024
4,256,280 4,256,280
i) Inventories as at 31st March 2009 was value at N714,840
ii) Telephone expenses paid in advance was N2,660
iii) Rent prepaid N1,680
iv) Depreciation: Delivery Van N35,000
Office Equipment N23,520
v) Jenny and Olivia are to receive salaries of N16,800 and N9,800 respectively.
vi) Partner are to pay interest on drawings as follows:
Clara N2,380
Jenny N1,540
Olivia N1,680
62
vii) Partners are to earn 10% interest on capital .

i) The Partners’ Trading, Profit or Loss Accounts for the year ended 31st December, 2x16
ii) Partners’ Current Account (You are to assume that the partners maintain a separate current
account).
iii) Partners’ Capital Account.
iv) Statement of Financial Position as at the year end.
4.0 CONCLUSION
Partnership business is a very important form of business in which two or more people come
together to carry on a business with the aim if making profit. The final accounts of a
partnership helps the partners to understand the position of the business over a given period.
5.0 SUMMARY
In this unit, you have been taught how to prepare the final accounts partnership business. The
Income statement/ profit or loss accounts shows the sales made within the period and the
expenses incurred (cost of sales). The cost of sales is deducted from sales to determine profits or
loss. Again the Profit or Loss Appropriation account is prepared to allocate the various
earnings/expenses of the partners such as partners’ salaries, commission and interest on capital as
the case may be. Profits are also distributed.

Attempt the following question:
2. Meshark and Shedrack are in business sharing profit in the ratio of 1:2. Below is their
trial balance as at 31/12/16:
DR. CR.
NN
Equipment at cost 65,000
Vehicle at Cost 92,000
Provision for Depreciation:
63
Vehicle 36,800
Equipment 19,500
Inventories 31/12/16 249,700
Cash at bank 6,150
Cash in hand 1,400
Sales 903,700
Purchases 716,300
Salaries 84,170
Current Account as at 31/12/16

Meshack 13,790
Shedrack 12,110
Capital Account: 31/12/16

Meshack 270,000
Shedrack 120,000
Drawings:
Meshark 55,000
Shedrack 40,000
1,538,6501,538,650
a) Inventories, 31/12/16: N273,400; (b) Office Expenses owing N1,100; c).Provide for
depreciation : Vehicle 20% of cost, Equipment 10% of cost.d). Interest is to be charged on
capital at 10%. Charge interest on drawings of NI,800 on Meshark and N2,100 on Shedrack.
64
Required: Prepare Trading, Profit or Loss Account for the partnership business for the year
ended 31/12/16. You should also prepare the Statement of Financial Position as at that date.

Set Textbooks
course.
 Frank, Wood & Alan Sangster,Business Accounting 1 & 2, 13th Ed
Onyekwelu
MODULE 3:ACCOUNTS OF NON- TRADING CONCERNS
UNIT 1: ACCOUNTS OF NON- TRADING CONCERNS I

CONTENT
65
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Accounting Records of non-trading organizations
3.2 Final Accounts
3.3 Receipts and Payments Account
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
The accounting system you have studied so far relates to the organization,
which engages in some kinds of business activities. The accounting records
are equally important for welfare organization, which may not be doing any
business such as clubs, societies, educational institutions, hospitals etc. they
are basically charitable organization which function without any profit
motives. They are usually termed as non-trading concerns. Such
organizations also have to keep proper records of their receipt and payment
and match their expense with incomes. This is a legal.
2.0 Objective
After studying this chapter, you should be able to:
 Define non-for trading organization;
 State some of the sources of revenue/income to a non-trading organisation;
 State some of the expenditure incurred by non-trading organisations;
 Prepare the receipts and payments accounts;
 Make appropriate entries relating to subscriptions, registration fees, donations,
grants.
 Prepare income and expenditure accounts and balance sheets for non-for- profit
making organisations.
Introduction: Though the primary objective for setting up most business outfits is profit
making, yet there are organizations that exist basically not to make profit but to satisfy some
welfare needs of its members and other stakeholders. These outfits are referred to as Non-for-
Profit making organizations. Examples of non-trading making organizations are:
1. Charity organisations such as the Nigeria Red Cross,Rotary Club, Boys Scout, Girls’
Guide among others.
66
2. Clubs like the SportsClubs of Enugu, Gulf Club of Nigeria, Super Eagles Supporters’
Club of Nigeria etc.
3. Welfare Association such as Police Officers Wifes’ Association,Society of Women
Accountants Association(SWAN).
4. Churches and other related societies such as the Christian Association of Nigeria,
Catholic Women Organisation, Mothers’ Union, Women’s Guild and so on.
5. Non-Governmental Organization like the Women for Women International, Council for
Intellectual Co-orperation of Nigeria and so on.
6. Town Unions meetings and groups.
7. Professional Associations namely theInstitute of Chartered Accountants of Nigeria,
Association of National Accountants of Nigeria, Chartered Institute of Taxation of
Nigeria, Nigeria Society of Engineers among others.
8. Sport association like Rangers Football Club of Enugu, Dolphin Football Club of Port
Harcourt, Super Eagles, and so on.
9. Trade unions and associations like Nigeria Labour Union, Nigeria Medical Association,
Nigeria Union of Journalists etc.
4.1 Sources of Revenue

The activities of the above mentioned associations often are to provide comfort and cater for
the welfare needs of its members.The activities often yield revenue/income and sometimes
make them to incur expenses for the associations. For example the football clubs, organise
football tournaments and earn some revenue through gate fees and advertisements placed by
companies on football peaches. While the sports clubs earn revenue through subscriptions
paid by members etc.
Other sources of revenue/income non-for-trading organisations are:

(a) Registration/Entrance fees paid by members
(b) Proceed from bars/ sales of drinks
(c) Proceed from restaurant
(d) Grant from Donor Agencies like the World Health Organisations.
(e) Monthly and annual ssubscription fees from members
67
(f) Collection from members for lateness to meetings and other club activities.
(g) Other miscellenous receipts.
(h) Rent received where the association has built some houses and so on.
4.2 Expenditure
In the course of running the association, certain expenses are inevitable that is they must be
incurred if the organisation must exist. Some of the ways through which they incure expenditure
are:
1. Transportand travelling.
2. Wages and Salaries for restaurant and bar attendants.
3. Advertisement and publicity of its activities
4. Rent and rates
5. Bank charges and interests
6. Insurance premium
7. Legal service
8. Entertainment for members and other related expenses.
9. Scholarship endowment and donations to other organisation of interest.
10. Printing and stationery.
The above mentioned activities either result to cash inflow or cash outflow hence some special
accounts are prepared to show the effect on the worth of the business.The accounts prepared to
capture these activities is referred as accounting for Non-for- profit making organization.
4.3 Accounts for Non-Trading Concerns

1Two different types of account are peculiar and are prepared for the activities of such
organizations. They are:
(1) Receipt and Payment Account
(2) Income Expenditure Account
Receipts and Payments Account: Isan account with a debit and credit format prepared to show all
the cash inflows and cashoutflows of the organization. This account does not separate between
expenses of revenue or capital nature.
68
Dr. All cash payment are objective the accounting year it belong)
Cr. All cash payment (outflow) respective of accounting date it relates
69
Format for Receipt and Payment Account
Name of Club or Association

Receipts and Payments for the Year Ended Date/Month/Year
N
N
Receipts Payments
Balance b/d xx Purchase of drinks xx
Grants xx Salaries and wages xx
Donations Purchases of assets Xx
Sales-Cash from bar Xx Repairs to assets Xx
takings
Entrance fees xx Staff Training xx
Subscriptions xx Printing and Stationery xx
Endowment Xx Entertainment Xx
Bank iinterests received xx Rent paid xx
Proceeds from sales of xx Expenses on prizes xx
Motor Van
Proceeds from sale of Sundry expenses Xx
Otherassets Xx
Rent received Xx
Dividendsreceived Xx
Sundry receipts Xx Surplus Xx
xxx Xxx
This above format can also be presented in a vertical form thus:
70
Name of Club or Association
Receipts and Payments for the Year Ended Date/Month/Year
N N N
Balance b/f xx
Add: Actual cash received

Members subscriptions xx
Bar Takings xx
Grants xx
Donations xx
Entrance fees received xx
Endownments xx
Proceeds from the sale of motor van xx
Proceed from the disposal of other assets xx
Rent received xx
Dividend received xx
Commission received xxxx xxx
Less: Payments
Salary and Wages xx
Purchases of Motor Van xx
Purchases of assets xx
Staff training xx
Repairs to assets xx
Printing and Stationery xx
Entertainment xx
Rent paid xx
Expenses on prizes xx (xxx)
Surplus /(deficiency) xxx
71
The receipt and payment account is prepared to determine if the business has made a surplus or
deficitin its transaction. Thus, if the cash receipts that is the debit side is more than the
credit(payment side) it is regarded as surplus.However,if the credit (payment) is more than the
debit side it shows that business has borrowed to finance its activities and is therefore owing.
(ii)Accumulated fund: The accumulated fund of such entity is the equivalent of capital of a profit
oriented business organization. An accumulated fund represents the value of the organization at
the beginning of any financial year.
Accumulated Fund = Assets less liabilities atthe beginning of the financial year.
The assets of suchaNot–for- Profit businessesconsist of:

(i) Freehold Property/Land and Buildings
(ii) Plant and Machinery
(iii) Furniture and fittings
(iv) Sports facilities and equipment
(v) Motor Vehicle and any either asset
(vi)Subscriptions due or in arrears/ other debtors
(vi) Cash at Bank and cash in hand
The liabilities may consists of the following:

i. Subscriptions paid in advance.
ii. Unpaid bills due from restaurant/bar items.
iii. Bank loan and overdrafts
iv. Accumulated Fund (owners worth i.e the members’ contributions in the form of capital)
Illustration 1:
72
Port Harcourt Polo Club 11 has the following transactions for the year ended 31st December,
2015.
N
Subscription from members 61,500
Sale of tickets for a for welcom party
for new inductees 795,000
Sale of sport wears to member 21,000
Take-offgrant from parent, Ph Club 112,000
Proceeds from sales Bar takings) 6,000
Proceeds from disposal of furniture 101,500
Registration fees from members10,500
Proceeds from raffle draws 7,500
Bank interets earned 6,000
Donation received 148,500
The expenses for the year include:

Rent 43,500
Purchases (bar and restaurant) 618,000
Printing and stationery 6,750
Electricity bills 19,500
Salaries for bar attendants 106,500
Purchases of prizes 9,750
Bank interests and charges 7,500
Purchase of gymnastics equipment 57,000
Repairs and maintenance expenses 10,500
Legal fees (premises) 14,250
You are required to prepare a receipts and payment accounts for the club for the year ended 31st
December, 2015
Solution
Port Harcourt Polo Club 11
73
Receipts and Payment Account
for the year ended 31stDecember, 2015.
Receipts N Payments N
Subscriptions 61,500 Endowment 160,000
from members (Scholarships)
Proceedfrom Rent & Rates 43,500
sales of tickets 795,000
Sales of sports Purchases of
wears to 21,000 refreshments for
members members 618,000
Sales of sports Purchases of
wears to 21,000 refreshments for
members members 618,000
Take of grant 12,000 Printing and 6,750
stationery
Proceeds from
sales 6,000 Telephone expenses 4,250
refreshments
Proceed from
disposal of 109,500 Electricity bills 19,500
property
Bank Interest 6,000 Salaries for attendants 106,500
received
Donation 148,500 Purchase of prizes 9,750
received
Bank charges and
interests 7,500
Purchase of sporting
equipment 57,000
Maintenance fee 10,500
Legal fees paid 14,250
74
Surplus 109,500
1,167,000 1,167,000
0
Explanation: The District has a favourable balance of N109, 500 from its activities. The receipt
and payment account serves the purpose of determining the total cash received within the period
and how it was spent. This account shows the balance of cash at end of the period only and
cannot serve well in determining the actual income earned in the period to determining the profit
or loss made by the organization and hence the need for an income and expenditure account.
Income aand Expenditure Accounts:

The income and expenditure account just like the profit and loss account of a profit making
organization. It is prepared with the intent of capturing only the particular income and expenses
due the organization in the year under review. The Income are summed up while the expenditure
(expenses) are deducted irrespective of whether they were received/paid for or not as the case
may be. Here the income and expenditure must be of revenue nature and not capital.
Illustration
Lime-Light Club has the following records as at 31st December. 2014.
N N
Bal b/d 425,000 Equipment 5,000
Cash and Bank 900,000
balances Wages paid 1,150,000
Donations Received 200,000 Fittings 25,000
Interests received 450,000 Entertainment 100,000
Subscriptions from 1,250,000
members Insurance 50,000
Sundry receipts 15,000 Rates 25,000
Repairs 10,000
Telephone Expenses
75
35,000
Sundry Expenses 5,000
76
(1) Additional Information available are that:
As at 31st December 2014, the bank and cash balances was N935,000 while investment
was N1,000,000.
(2) Interest received in advance was N100,000 with an outstanding interest to be received
was N115,000
(3) Wages of N50, 000 was paid in arrears whileN75,000 was due in the next year.
(4) Subscriptions received from members include N500,000 due in 2013, subscriptions due
in 2014 not yet received was N350,000.00.
(5) At the beginning of year, asset balance were:
Equipments N100,000
Land and buildingsN10,000,000
Inventory N175,000.00
(6) The following depreciation rates apply on the assets:
Land and building 2.5%
Equipment 6.0%
Fittings 20%

i) The statement of affairs of the organisation as at the beginning of 1st January, 2014
ii) Income and Expenditure Account for the year ended 31st December, 2014 and the
Balance Sheet as at that date.
Solution:
To determine the capital of the club at the beginning of the year, deducted by
Assets as at 1.1. 2014 xx
Less: Liabilities as at 1.1.2014 xx
Accumulated fund xx
Thus :
77
Lime- light club
Statement of Affairs as at ist January, 2014
N
Assets:
Equipment 100,000
Land and Buildings 10,000,000
Investment in Shares 750,000
Subscription in arrears 350,000
Interests (1) 115,000
Investment 1,000,000
Stocks 175,000
Subscription in arrears (3) 350,000
Cash Balance 935,00013,475,000
Liabilities
Accumulated fund 13,475,000
13,475,000
Lime-Light Club
Income and Expenditure Account for the year ended 31st, December,2014
Notes NN
Income:

Interest received (1) 115,000
Subscriptions (3) 1,100,000
Sundry receipts 15,000
1,430,000
Expenditure:
Wages (2) 1,125,000
78
Entertainment 100,000
Insurance 50,000
Rent and rates 25,000
Repairs 10,000
Depreciations:
Land and building 250,000
Equipment 6,000
Fittings 5,000 261,000
Telephone 35,000
Sundry expenses 5,000(1,610,100)
Deficit of income over expenses (181,000)
79
Lime Light Club
Statement of Financial Position as at 31st December, 2014
N N N
Non-Current Assets:
Land and Building 9,750,000
Equipment 94,000
Fittings 20,000
Current Assets
Stocks 175,000
Interest 15,000
Members’ subscription outstanding 350,000
Wages prepaid 75,000
Interest prepaid 100,000
Cash balance 935,000 1, 750,000
Current liabilities - 11,614,000
Financed by:
Accumulated funds 11,433,000

Deficit (181,000)
11,614,000
80
Notes :
1.Interests Received:
N
As per trial balance 450,000
Add:Payment in arrears 115,000
560,000
Less: Prepayment 100,000
Income and expenditure account 455,000
2.Wages Paid :
As per trial balance 1,150,000

Add: Payment in arrears 50,000
1,200,000
Less: Prepayments 75,000
1,125,000
3.Subscriptions :
As per trial balance 1,250,000

Add: subscriptions in arrears 350,000
1,600,000
Less : Prepayments 500,000
1,100,000
Tutor Assignment
(1)Women in Education Club, has its receipt and payments for the year ended 31st December,
2016 as follows:
N
Balance 1/1/2016 48,310
Proceeds of Dance 36,150
Transfer to bank deposit 120,000
Rates 10,000
Entrance fees received 5,000
Subscription received 300,000
Wages Paid 72,300
Equipment bought 40,000
Repairs 16,172
Stationery 9,790
Interest received on bank deposit 12,000
Additional information
(a) Wages of N4,800 were due and unpaid at 31/12/2016;
(b) Rates prepaid of N2,000. General expenses owing since last year was N3,000.
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(c) Included in the subscription received, N 8,000 was received in arrears while N 20,000 was
paid in advance for the coming year while N I2,000 was still owing.
(d).The club has the following properties as at 31/12/08,Club House N 960,000;Equipment N
600,000;Bank DepositN400,000.
(e).Depreciate Club House by 5% and Equipment including additions within the year by 10%.
Required:
Prepare Income and Expenditure Account for the year ended 31/12/15
(2)Federation of Women Lawyers club has its receipt and payments for the year ended 31st
March, 2016 as follows:
N
Balance 1/04/2016 508,310
Proceeds from sales from bar 326,150
Transfer to bank deposit 230,000
Purchase of sporting equipment426,000
Repairs of office equipments 34,170
Insurance 12,150
Registration fees received 46,700
Wages paid 72,300
Bank charges 14,200
Rent 18,560
(a) .Subscription received, N25,000 relates to the previous year. However, some members
paid in the sum N18,600 in advance.
(b). The club has the following properties as at 31/04/07, Land and Building N742,000.00;
Office EquipmentN820,000; Current account with credit balance of N350,000.00
(c). The following expenses were outstanding at the end of the accounting year insurance of
N24,100.00; rent of N13,200.00; and bank interest of N24,500.
e. General expenses prepaid of N12,400.00.

d. Depreciate Land and Building 8.5%
Office Equipment25%
Required: Prepare the Club’s Income and Expenditure Account for the year ended 31/03/16.
82
UNIT 2 ACCOUNTS OF NON-TRADING CONCERNS II
CONTENT
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Income and Expenditure Accounts
3.2 Difference between Receipts and payments Account and Income and
3.3 Expenditure
3.4 Balance Sheet
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
In unit 7, you learnt about the accounting records of non-trading organization, final account of
non-trading organization and the receipts and payments account of same. In this unit, you will
learn about the income and expenditure account, the difference between receipts and payments
account and income and expenditure account and the statement of financial position of a non-
trading organization.
2.0 OBJECTIVE
• explain and prepare the income and expenditure account of a non-tradingconcern.
• explain the difference between receipt and payment account and the incomeand expenditure
account.
• explain the balance sheet of a non-trading organization.
3.0 Main Content

3.1 Income and Expenditure Accounts
The income and expenditure account serves the same purpose for non-trading organization as the
profit or loss account for a trading organization.It is also prepared exactly in the same manner as
the profit or loss accountall income are shown on the credit side and all expense and losses on
the
debit side.
For the not-trading concerns, the excess of income over expenses losses is not termed as profit. It
is called Excess of Income over Expenditure or Surplus, in case of cooperative society, similarly
the excesses of expense and losses over income is termed as Excess of Expenditure over Income
or Deficiency.
As stated earlier, the income and expenditure account is prepared with thehelp of receipts and
payments account and the additional information available.
83
You know the income and expenditure account will show incomes and expenses only for the
period to which it relates and that too on accrual basis. Hence, while taking figures from receipts
and payments account, you will have to make the necessary adjustments. It should be deducted
for purposes of computing the income from subscriptions. Similarly, if certain amount of
subscriptions relating to 1987 is still to be received (outstanding), it would not appear in the
receipts and payments account. But, it has included in the income from subscriptions for 1989
andso added thereto. Another precaution you have to take relates to the distinction between
capital and revenue items. In the income and expenditureaccount, you are to include only the
revenue items, the capital items will be ignore.
Then, you will also have to provide the necessary amount of depreciation on all fixed assets and
make provisions for doubtful debts. The items do not appear in the receipts and payments
account. Let us now list the steps to be followed for preparing the income and expenditure
account from the receipts and payments account.
Procedure for Posting in the Income and Expenditure Accounts

1. Go through the receipts side for ascertaining all items of income and thepayment side for all
items of expenses and losses.
2. Ignore opening and closing balances
3. Ignore capital receipts and capital payments
4. Ignore receipts and payment relating to the preceding and the followingyears. If however a
receipt or payment includes any amount which relatesto the preceding or the following year, the
same should be deducted.
5. Add the outstanding amounts to the respective items of income andexpense.
6. Provide for depreciation and doubtful debts if required.
7. If any fixed asset has been sold during the year, complete the amount of
profit or loss on such a sale and show the same in the income and expenditure account. Note
that the sale of old sports materials is not to be regarded as sale of a fixed asset. The total
amount received from such sale is an income. Let us prepare the income and expenditure
account from the receipts and payments account.
3.2 Difference between Receipts and Payments Account and Income or

Expenditure:
While preparing the receipts and payments account and the Income andexpenditure account, you
must have noticed that they differ in many ways.
84
The various points of difference can be summarized as follows:
S/N Receipts and Payments Account Income and
Expenditure Account
1 It is the summary of the cash book It is like a profit or loss account

2 It is a real account and records cash It is a nominal account and records cash
transactions only as well as non-cash
transaction
3 It is prepared on cash basis It is prepared on accrual basis.
4 Includes opening cash Does not include the opening cash
bank balances and bank balance.
5 Both the revenue and capital receipts are Only the revenue items are recorded.
recorded
6 Shows receipts on the debit side while Shows income on the credit side and
the payments are shown on the credit expenditure is shown on the credit side
side. of the account.
7 Includes items relating to preceding Concerns only with the amounts related
concerns only with the amounts related or succeeding year to the current year.
or succeeding year to the current year.
8 Does not recognize outstanding Recognizes all income and

expenses. income and expenditure which are due
but not received or paid.
9 Depreciation and impairments are Records depreciation and impairements.

excluded.
10 Closing balance represent cash in Closing balance represents surplus or
hand and cash at bank (or overdraft)
deficiency of Income over expenditure.
Source: Author’s Compilation.
3.3 Statement of Financial Position: Statement of Financial Position was formerly known as
the balance sheet of a non-trading organization is prepared in the samemanner as that of the other
organizations. It shows all assets and liabilities asat the end of the year in the usual way.
However, the excess of assets overliabilities in their case is termed as Capital Fund or General
Fund and not
85
capital as in case of the trading concerns. The capital fund actually comprisethe excess of income
over expenditure and other income like lifemembershipfees, entrance fees, etc which have been
capitalized from time totime. Effectively it constitutes the capital of the institution. Sometimes
you may also have to prepare the balance sheet as at the beginning. This isrequired mainly to
ascertain the opening balance of capital fund.
Exercise: List the steps you will follow in preparing the income and
Expenditure Account from the Receipts and Payments Account.
4.0 CONCLUSION
The non-trading concerns like societies club, educational institutions,hospitals etc also maintain
a proper record of their financial transactions. It isnot only a legal requirement for all registered
bodies. But it is also considereddesirable for effective control of funds. The accounting records
of the non trading records are based on the same principles as those applicable to
tradingconcerns. However, the nature of their income and expenses is slightly different and most
of their transactions are cash transaction. Hence, theirmain book of original entry is cash book.
They also maintain ledger whichshows all the concerned accounts.
5.0 SUMMARY
The final accounts of non-trading organization consists of:
(i) receipts and payments accounts
(ii) Income and expenditure accounts
(iii) Statement of Financial Position
As earlier stated, receipts and payments account is simply a summary of all cash transactions
relating to the accounting year which begins with the opening cash and bank balances and ends
with their closing balances.
Income and Expenditure Accounts which is likened to the Profit or Loss Account (also known as
Income Statement) is prepared to show the surplus (excess of income over expenditure) or
deficiency (excess of expenditure over income).
Finally, the Statement of Financial Position formerly known as the Balance Sheet is done to
show the assets, capital liabilities of the business in any given time.

The Golf Club of Shagamu has the following list of balances for the period ended 31st
December, 2016.
Dr.
N
Premises 420,000
Equipment 136,100
Proceed from Entrance Fee 99,600
86
Accumulated fund 1/1/16363,500
Wages for restaurant attendants 56,180
Stock of restaurant consumables 1/1/1635,280
Purchases of bar/restaurant consumables 233,160
Sales from bar and restaurant 359,460
Gardner’s wages153,960
Allowances to tournament participants 120,000
Repairs and other expenses 11,600
Cash balances 31,400
Additional information
a. The closing stock for bar and restaurant consumables amounted to N19,780
b. The club does not maintain any bank account and thus all its transactions are on cash.
c. Some members paid their subscription for 2017 and this amounted to N 3600
d. Provide for depreciation of equipment of N1,520
Required to do:
a. The Bar/ Restaurant trading account for the year 31 December, 2016.
b. Income and expenditure for the year ended 31st December, 2016.
c. Statement of Financial position as at 31st, December, 2016.

1.7 Set Textbooks
You are advice to acquire the following textbooks and any other that could assist you in this
course.

Uche L. Onyekwelu-Financial Accounting Manual: Test and Examination Pack for Students
UNIT 3: TREATMENT OF PECULIAR ITEMS IN ACCOUNTS OF NON-TRADING

CONCERNS
Contents
87
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Subscriptions
3.2 Donations
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
You have learnt that the final accounts of non-trading concerns are preparedalmost in the same
manner as those of others. Of course, the nature of theirincome and expenditure is slightly
different from those of the tradingconcerns. There are those of the trading concerns, there are a
number of itemswhich are peculiar to non-trading concerns and their treatment in finalaccounts
need to be clarified. Two of those items peculiar items are hereby treated. They are namely
subscriptions and donations.
2.0 Objective
• explain and record subscription in the final accounts
• explain donation and record it in the final account
3.0 MAIN CONTENT

3.1 Subscriptions
Definition: in the context of not-for- profit making organization, subscription is described as the
annual dues and charges which members of a club or any other non-trading concern pay to the
organization for being a member. It is therefore a source of income to the business outfit.
Posting of Subscription: Posting of subscriptions is done to reflect three things:

1. Actual Subscription Received with the accounting year.
2. Subscription Received in Advance
3. Subscription Received in Arrears
Actual SubscriptionReceived: The actual cash subscriptions received are posted to the debit
side of the receipt and payments account.
Dr. Receipt and Payment Account

Cr. Income and expenditure account
Illustration 1: Integrity Club of Kano City has One Hundred (100) members as at 31st December,
2016. The members pay a subscription fee of Five Thousand Naira every year. Sixty members
were able to pay the subscription fee as at the year end.
Prepare the necessary records to post the subscription fee received to the receipt and payment
account and the income and expenditure account.
88
Solution:
Since 60 out of One Hundred members paid the annual subscription, thus:
60 x N5, 000 = N300,000.
Dr. Receipt and Payment Account, N300, 000

Cr. Subscription Account, N300, 000
In the Income and Expenditure Accounts:

Dr. Cash/Bank Account, N300, 000
Dr. Subscription in Arrears N200, 000
Cr. Income and Expenditure Accounts, N500, 000
Subscription Received in Advance: These are subscriptions received from members well ahead
of the accounting year due. The subscription does not belong to the period.
Accounting Treatment:
Dr. Income and Expenditure Accounts
Cr. The Cash Accounts
Illustration 2: Unique club of Enugu has One Hundred and Twenty members as at 31st
December, 2017. It has received the full subscriptions from members for the year. Twenty
members have also paid the subscription fee for year 2018. Annual subscription fee is Three
Thousand Naira per member.
You are to prepare the necessary records to show the transactions.
Solution
Subscription due in 2017 = 120 x N3,000
= N360,000
Subscription due in 2018 received in 2017

20 x N3,000=N60,000
Total Subscription Received =
N360,000+N60,000= N420,000
Dr. Receipt and Payment Account N420,000

Cr. Income and Expenditure Account N420,000
Dr. Income and Expenditure Account N60,000
Cr. Subscription received in advance account, N60,000
Dr. Receipt and Payments Accounts,
89
Subscription Received in Arrears: These are subscriptions received after the year it was due.
This means that the members could not pay within the accounting year it belonged.
Dr. Income and Expenditure Accounts
Cr. The Cash Accounts
Illustration 3: If we use the Integrity Club of Kano City has One Hundred (100) members as at
31st December, 2016. The members pay a subscription fee of Five Thousand Naira every year.
Sixty members were able to pay the subscription fee as at the year end. The remaining members
paid the subscription in 2017.
You are to prepare the necessary records to show the transactions.
Solution
Since 60 out of One Hundred members paid the annual subscription, thus:
60 x N5, 000 = N300,000.
Dr. Receipt and Payment Account, N300, 000

Cr. Subscription Account, N300, 000
In the Income and Expenditure Accounts:

Dr. Cash/Bank Account, N300, 000
Dr. Subscription in Arrears N200, 000
Cr. Income and Expenditure Accounts, N500, 000
To record the arrears received in 2017 = N200,000
Dr. Cash Account

Cr. Subscription in Arrears Account
3.1 Donations
Most of the not-for-trading organizations are for welfare purposes. For this, most of them are
involved in one form of charity or the other. Because of this many individuals including
members and even other organizations make donations to them. For instance, the Rotary Club,
Red Cross Society and so on receives voluntary contributions from various sources. Donations
are therefore a huge source of income for the institutions.
90
Dr. Receipt and Payment Accounts
Cr. Income and expenditure account (General donations, those not of capital nature)
That when donations are received for specific purpose such as buildings and endowments;
Dr. Receipt and Payment Accounts
Cr. Amount due in that year.
The balance will be recorded in the Statement of Financial Position as liabilities.
Exercise:
Select the most appropriate alternative.
(a) Subscription received in advance are shown on the:
(i) Credit side of the income and expenditure account
(ii) Assets side of the balance sheet
(i) Liabilities side of the balance sheet
(b) Subscription due but not yet received are shown on the:
(i) On the liabilities side of the balance sheet
(ii) On the asset side of the balance sheet
(iii) On the credit side of the balance sheet -
4.0 CONCLUSION
Some items which needed peculiar treatment in the transactions of not-for –trading organization.
Subscription and donations require very special treatment so they can be incorporated in the
annual financial statements.
5.0 SUMMARY
The items which demand special treatment while preparing the final
account of non-trading organizations consists of subscriptions and
donations have been treated in this unit. The remaining peculiar items shall
be dealt with in the following units.

As unit 9 and 10 must be studied together, please see i.e T.M.A of unit 21 (Relevant to both
units)

course.

91
UNIT 4: TREATMENT OF PECULIAR ITEMS IN ACCOUNT’S OF NON TRADING

CONCERNS 11
CONTENT
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Entrance Fees
3.2 Life membership Fees
3.3 Legacies
3.4 Special Funds
3.5 Sale of old newspapers
3.6 Sport materials used
3.7 Honorarium
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
In unit 9, you learnt about donation and entrance fee, this unit you will be thought
about entrance fee, membership fees, legacies, special funds, sale of old newspaper,
sport materials used and honorarium. These are some of the peculiar items in
accounts of non-trading organization. Note this unit must be read in conjunction with
unit 20.
2.0 OBJECTIVE
• explain the peculiar items in the account of non-trading organization and
deal with the accounts proper.
3.0 MAIN CONTENT

3.1 Entrance Fees
An entrance fee is the fee an intending member pays before he is admitted into into the club. It
therefore means that before anybody can claim to be a member of any of the clubs or
organization the member must have satisfied this demand/ condition. Any expenses that the
outfit incurs in the process of admitting such members are also charged against the income and
therefore recorded as expenditure.
Accounting records of the entrance fee:

When entrance fee is received
Dr Cash Account
92
Cr. Entrance fees Account
Posting of Expenses incurred on Admitting New Members

Dr. Entrance Fees Account
Cr. Cash Account
3.2 Life Membership Fees

Certain institutions also provide for life members and charge fees from persons who opt for it.
The amount of subscription received from them is termed as life
membership fees and it is treated as capital receipt. In other words, the life, membership fee is
not shown in the income and expenditure account it is directly, added to the capital, fund as
shown in the Statement of Financial Position formerly known as Balance Sheet.
3.3 Legacies
Legacy is the cash or its equivalent (Plant, Property and Equipment) which are received
following the will of the deceased donor. This type of donation is not a recurring phenomenon.
Since the amount which is often received is generally large hence, the practice is to capitalize it
and show it over a specified in the Statement of Financial Position. Depending on the amount
received the small amounts of legacies received from time to time may be shown in the income
and expenditure account of the period in which they are received or written off over a number of
years depending on the terms spelt out by the donor.
3.4 Special Funds

Special funds are funds and accounts which are set aside for accomplishing some projects of the
organization in the promotion of the welfare of its people or in pursuance of the aims and
objectives of the organization. The funds could be for ‘Health Awareness Funds’
Educational/Sholarship Prizes’ Fund, Sport Fund’, among others. When income received on
account of special fund investments, the funds are to the particular funds they are meant for.
Expenses which are incurred are also to be deducted from such funds.
Illustration: If ABGClub of Abuja has fund for the sponsorship of Scholarship in Secondary
Schools in Abuja titled ‘Best Science Scholar Award’
The special fund is sponsored through members’ goodwill. In the year 2016, the fund
commenced with the sum N350,000. In the same year, the fund spent N320,000. Members also
donated additional N220,000 to the funds. You are to show the necessary records to post the
transactions in the funds accounts.
Solution:
Dr. Cash Account N350,000

Cr. ABG Club Best Science Scholarship Award, N350,000
Posting of the Expenses;

Dr. ABG Club Best Science Scholarship Award, N320,000
Cr. Cash Account, N320,000
93
Posting of the additional funds;
Dr. Cash Account N220,000
Cr. ABG Club Best Science Scholarship Award(Additional Funds), N220,000
3.5 Sales Old Newspapers

The sale of old newspapers is of a recurring nature and is credited to the Income &
expenditure account.
3.6 Sport Materials Used
In case of sports clubs, the expenditure on sports materials is a common item. But you know the
materials purchased in accounting year may not be fully consumed. Some materials may still be
in stock. Hence, to ascertain the exact amount of expenditure chargeable to the income and
expenditure account of the year, you have to work out the amount of materials consumed by
adjusting the opening and closing stock of such materials in their purchases.
Illustration: Ladies Gold Club has the following records:

N
Opening inventories of sporting materials 1/1/15 150,000
Purchases of more sports materials 256,500
Closing inventory 31/1/15 22,200
You are to show the cost of sporting materials consumed
Within the accounting year.
Solution:
N
Sport materials consumed the year
Opening inventory 150,000

Add: Purchases of Sporting Wears 256,500
Cost of Sporting Wear Available 406,500

Less: Closing inventory 22,200
Cost of wears consumed 374,300
The amount charged to the income and expenditure account for 1988 on account of sports
materials will be N374,300. It is also possible that the club receives certain amount by selling the
used sports materials like bats and balls. This will be an income of the club and should be
credited to the income & expenditure account.
Note*** Income which arise from sale of scraps are not taken credited into the account as such
amount of spots materials consumed because such income arises out of the consumed materials
themselves. Similar treatment may be adopted for ascertaining the amount of stationery and
printing materials consumed by such organizations or tinned provisions consumed in the
restaurant.
94
3.7 HONORARIUM
Honorarium is fees which are paid to non-employees of the club or society. Such expenses are
incurred when some outsiders especially professionals of various types are invited for special
assignments or to render some specialized services to the body. Examples of the expenses which
may attract honorarium may include inviting guests to deliver lecture on certain economic or
social topics for the benefit of the members. Professional accountants who visits to audit the
accounts of the organization are also paid honorarium. The remuneration paid to the secretary or
treasurer may be termed as honorarium because they are not the employees of the organization.
Honoraiums are generally treated as expenses and are debited in both the Receipts and Payment
Accounts and Income and Expenditure Account.
Exercise:
From the following information, compute the amount to be debited to the income and
expenditure account in respect of printing and stationery.
N
Opening inventories 70,000
Purchase of Printing & Stationery 80,000
Closing inventories 15000
4.0 CONCLUSION
In this unit, you have learnt about a number of items which are peculiar to non-trading concerns
and their treatment in final account, this items includes: entrance fees, life membership fees,
legacies, sales of old newspapers, sport materials used and honorarium. You should keep what
you learn about these items in your memory for further studies.
5.0 SUMMARY
The non-trading organization may prepare a trail balance, but the receipts &
payments account constitute the major source for the preparation of income &
expenditure and balance sheet. Certain items like subscriptions, entrance fees,
donations, legacies, special funds etc need special care while preparing the final
accounts of such organization.

From the following receipts and payments account of Ladies of the Ivory Towers, prepare the
income and expenditure account for the year ended 31 December, 2016 and the statement of
financial statement as at that date.
Receipts & Payments Account for the year ended 31, December, 2016
DR CR
N N
To Balances on 1/15 10000
By expense
To Subscriptions 1/16 1400
2013 -
2014 - 2400 3400
95
2015 -2100 By household land 4000
1916-150 2630 By interest paid 400
To entrance Fees 800 By refreshment
To Locker rent 700 expenses 2000
To income from By balance on
refreshment 4000 31/2/88 8330
N 18130 N18130
====== =======
Balance Sheet as on December 31,2016
DR CR
Liabilities N Assets N
Capital Fund 33620 Building 30000
Subscriptions Subscriptions
received in advance 600 outstanding 380
Outstanding expenses 1400 Outstanding locker 240
Loan 5000 rent
Cash in hand 10000
_______
N 40620 N 40620
====== =======
Adjustments:
i) Expenses Outstanding as on31/12/88 were N 500
ii) Subscription Outstanding on 31/12/88 were N 800
iii) Salary due but not paid up to 31/12/88 were N 200
iv) Depreciation of N2000 is to be charged on buildings
v) Entrance fees are to be capitalized

course.
Frank, Wood & Alan Sangster,. Business Accounting 1 & 2, 13th Ed
Uche Lucy Onyekwelu-Fundamentals of Financial Accounting 1 & 2: A Simplified Approach

MODULE 4: ADJUSTMENTS REQUIRED BEFORE THE PREPATION OF FINAL

ACCOUNTS
UNIT 1: ADJUSTMENTS REQUIRED BEFORE THE PREPATION OF FINAL

ACCOUNTS
96
CONTENT
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.3 Accrued Income
3.2 Prepayment
3.3 Accruals
3.4 Income received in advance
3.5 Bad Debt
3.6 Bad Debt recovered
3.7 Discount
3.8 Discount allowed
3.9 Discount receivable
4.0 Conclusion
5.0 Summary
7. 0. References/Further Studies
Introduction
Business organizations are expected to enjoy the prospects of going concern which means that
they are expected to continue in their business for an indefinite period of time or according to
International Accounting Standards 1(Conceptual Framework) should exist for the next
accounting year. The process of business transactions (income or expenditure) often see it
spanning for more than one accounting year. These transactions are recorded and and accounted
for whether the bills have been settled or not.
The importance of the adjustment helps business organization to articulate all financial
transaction whether paid for or not. This approach is known as accrual accounting and is opposed
to the cash system of accounting.
Most often than not, organizations do not insists on immediate payments or receipts for products
sold or services rendered especially for organizations or individuals that have long standing
relationships with them. In the course of the interactions, there arise situations when services are
paid for in advance or in arrears. Again, some income earned by organizations is received in
advance or are still in arrears till the end of accounting year. To show the true picture of all the
transactions in terms of income and expenditure, and in conformity with the principle of
matching concept, the Accountant is expected to adjust for the expenses paid in arrears or
advance and income earned but not received till the end of the year. The matching concept
requires that all income earned in a period should be matched with the corresponding expenses
incurred within the same period whether settled or not to determine the true position of the
company’s profit or loss in any given accounting year. Adjustments enable the Accountant to
capture all the income & expenses that are due to a particular accounting period. Consequently, it
97
helps him or her to produce a true & fair view of the state of affairs of the organization for any
accounting period.
2.0 OBJECTIVES
After studying this unit, you should be able to explain the following:
(i) Accrued Income earned but not received by the business as at end of the year.
(i) Accrued Expenses incurred but not paid for.
(ii) Expenses paid for while the service is yet to be rendered to organization.
(iii) Depreciation and provisions for depreciation.
(iv) Amortization of goodwill.
(v) Bad debts & provisions for bad debts
3.0: MAIN CONTENT
3.1 Accrued Income:
These are income earned but not been received by the business from its customers: These are
income that due or earned through goods sold to them or services rendered but have not been
paid for by customers. When a business renders services to other companies and they are not
paid for, such income has accrued to the organization and will be recorded income in the profit
or loss account. It will also be recorded as a current asset in the statement of financial statement.
3.2 Accrued Expenses: These are expenses which the business has incurred including services it
has received from others but not paid for. These are expenses or payments that the business
should have made to its suppliers for either goods supplied or services rendered. The business
has enjoyed such goods/services but has not paid as at end of the accounting period. Such
payments are outstanding and should be adjusted for.
3.3 Prepayments: These are payments madefor expenses which services the organization is yet
to receive. This is also referred to as payment in advance. These are expenses paid for which
service is yet to be rendered to the organization. These expenses may be in the form of bills
like Light Bills, GSM Prepaid Recharge cards among others or even goods.
3.4 Depreciation andProvision for Depreciation:

Adjustments are made for depreciation because the wear and tears on assets are also part of the
expenses incurred for the year to generate the income.
3.5. Income Receive Advance

Just as organization or individuals pays in advance, so they at times, receive in advance. The
98
income received in advance may be termed prepaid income. It is thus a liability because benefit
enjoyed is one for which the service for the income received has not been provided. The prepaid
income is therefore a liability. To enter any prepaid income that occurs in the book of account
debit the income account and
credit the prepaid income account.
3.6 Bad Debt: Baddebt is usually a percentage of debt owed to a business which is considered
irrecoverable after a specified period. Since allowing credits in business is normal, bad debts is a
normal business expense. To that effect, prudency concept of accounting demands that bad debts
are written- off the existing trade receivables and charged against the profit of the year. This is to
enable the business to reflect clearly what its debtors are and the actual profit made in the year.
Bad debts could occur in a business when any of the following happens:
a). The debtor has refused to pay.
b). When a debtor’s business collapses and the owner cannot pay. The business is declared
bankrupt.
c). The demise of a debtor is most likely to make a debt unrecoverable.
d). The debtor has opted to pay only a part of the debt and it is very unlikely that the remaining
part will be recovered.
3.7 Bad Debt Recovered

Bad debt recovered is that part of bad debt which is paid back by the debtors. When a percentage
of bad debt is paid for that is decided Sometimes a debt which had been written off may become
recoverable some years
later. When the debt is now paid back, it is called a bad debt recovered. When such
situation arises, the best way of recording the bad debt recovered is by debiting cash
account and crediting the bad debt recovered account then the value of the bad debt
recovered would be transferred to the credit side of the profit and loss account as
revenue thus closing the bad debt recovered account.
3.8 Discount
This is an inducement offered by a creditor to debtors to pay promptly (cash
discount).
• A deduction from the selling price of an article generally allowed by a
wholesaler to a retailer, that is, trade discount.
• With reference to bill of exchange, to discount a bill means to acquire it by
purchase for a sum less than its face value, the amount of this discount
depending partly on the length of the unexpired term of the bill and partly on
the amount of risk involved.
• When a recently issued stock falls below its issued price, it is said to stand at
a discount.
99
3.4.1 Discount Allowed
Discount allowed is an incentive given to encourage the debtors to settle their
account or debts promptly. On the other hand, the provision for discounts allowed is
the amount set aside from the profit to cater for the discounts allowed in case the
need to give such discounts arises.
However, the major reason behind the creation of the provision for discounts allowed
is similar to that behind creating provision for bad debts. No wonder the accounting
treatments of the two are closely similar.
3.4.2 Discount Receivable

Discount received is a rebate from a supplier when he is paid within a stipulated
period. If it is envisaged that discount will be received from a supplier as a result of
the credit purchase made now, then a provision would be for discounts receivable
(i.e. discounts on creditors). However, such a provision is regarded as an asset
because a certain amount of money is estimated to be received in future. Thus, unlike
the other provision earlier discussed, the provision is then credited in the profit and
loss account for the year in which it is made because it increases the profit.
Exercise:
(a) Distinguish between discount allowed and discount receivable.
(b) How does bad debt recovered differ from bad debt?
(c) What is accrued income?
4.0 CONCLUSION
Adjustments as highlighted in Prepayments, Accruals and Bad debts are very important aspect of
accounting. In fact, the true picture of the financial transaction will only be seen when the
necessary adjustments are made. Understanding it is therefore very important to the
understanding of financial accounting.
5.0 SUMMARY
Accrued income are income which are due to an organization whoreplace ‘who’ with ‘which’
have rendered a service or sold goods to another. Prepayments are payments made now for the
benefit to be enjoyed tomorrow such payments are regarded as payments in arrears, while
Accruals are expenses that are due for payment now but which remains unpaid, these are called
accruals or accrued expenses. Bad debts is regarded as being bad if the debtor for one reason or
the other refused to settle his debts. In account, prepayment is deducted from the payment
concerned in the profit and loss account and added to the current assets in the balance sheet,
accrual is an expenses in Profit or Loss account which is added to the expenses concerned and
100
shown in the balance sheet as a current liability. Bad debt is treated in the same way as accrual in
the profit and loss account and the statement of financial position

Set Textbooks
course.
 Pickles & Lafferty: Book Keeping & Accounts
Onyekwelu
UNIT 2 : ADJUSTMENTS REQUIRED BEFORE THE PREPATION OF FINAL

ACCOUNTS 11
CONTENT
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.3 Accrued Income
3.2 Prepayment
3.3 Accruals
3.4 Income received in advance
3.5 Bad Debt
3.6 Bad Debt recovered
3.7 Discount
3.8 Discount allowed
3.9 Discount receivable
4.0 Conclusion
5.0 Summary
7. 0. References/Further Studies
Introduction
Business organizations are expected to enjoy the prospects of going concern which means that
they are expected to continue in their business for an indefinite period of time or according to
International Accounting Standards 1(Conceptual Framework) should exist for the next
accounting year. The process of business transactions (income or expenditure) often see it
spanning for more than one accounting year. These transactions are recorded and and accounted
for whether the bills have been settled or not.
101
The importance of the adjustment helps business organization to articulate all financial
transaction whether paid for or not. This approach is known as accrual accounting and is opposed
to the cash system of accounting.
Most often than not, organizations do not insists on immediate payments or receipts for products
sold or services rendered especially for organizations or individuals that have long standing
relationships with them. In the course of the interactions, there arise situations when services are
paid for in advance or in arrears. Again, some income earned by organizations is received in
advance or are still in arrears till the end of accounting year. To show the true picture of all the
transactions of in terms of income and expenditure, and in conformity with the principle of
matching concept, the accountant is expected to adjust for the expenses paid in arrears or
advance and income earned but not received till the end of the year. The matching concept
requires that all income earned in a period should be matched with the corresponding expenses
incurred within the same period whether settled or not to determine the true position of the
company’s profit or loss in any given accounting year. Adjustments enable the accountant to
capture all the income & expenses that are due to a particular accounting period. Consequently, it
helps him or her to produce a true & fair view of the state of affairs of the organization for any
accounting period.
1.0 INTRODUCTION: In unit 2 you learnt some of the necessary adjustments that may be
needed before final account is prepared. This section will teach you how to do the adjustment
when the need arise.
In this unit you will learn how to treat adjust the items. Here the principle of double entry will
apply. This unit will specifically accrued income, accrued expenses and prepayments.
2.0 OBJECTIVES
(i) Accrued Income
(vi) Accrued Expenses
(vii) Prepayments
(viii) Record the above in the books of accounts applicable.
3.0: MAIN CONTENT
3.1 Accrued Income:
These are income earned but not been received by the business from its customers: These are
income that due or earned through goods sold to them or services rendered but have not been
paid for by customers. When a business renders services to other companies and they are not
102
paid for, such income has accrued to the organization and will be recorded income in the profit
or loss account. It will also be recorded as a current asset in the statement of financial statement.
Illustration 1. GINO Ltd has rented a ware house from Harvard Limited at a cost of N840, 000.
ABC however paid only N640, 000.00 by the end of the year. You are required to show the
effects of these transactions on the accounts of the two companies.
Solution
In the books of Harvard Mortgage the following analysis will ensue:
N
Income due from GINO Ltd 840,000
Cash received 640,000
Amount outstanding 200,000
In the books of Harvard Limited

Dr. Gino A/C N840, 000
Cr. P& L A/c N840, 000
On receipt of N640, 000
Dr. Cash book N640, 000

Cr. Gino Ltd N640, 000
In the Balance sheet: Record, Rent due from GINO Ltd N200, 000 as a current
asset.
In the books of GINO Ltd the entries will be:

Dr. Rent Expenses A/c N840, 000
Cr. Harvard A/c N840, 000
On payment of N640, 000
Dr. P& L A/c N640, 000

Cr. Harvard A/c N640, 000
In the Balance Sheet: Record the unpaid amount as rent outstanding or rent in arrears stated as a
Current Liability.
3.2 Accrued Expenses: These are expenses which the business has incurred including services it
has received from others but not paid for. These are expenses or payments that the business
should have made to its suppliers for either goods supplied or services rendered. The business
103
has enjoyed such goods/services but has not paid as at end of the accounting period. Such
payments are outstanding and should be adjusted for.
Illustration 2. ABC Ltd is into transport; it had ordered and used N560, 000 worth of
fuel from Texaco Ltd. However, ABC Ltd was able to pay N500, 000 before the end of
the accounting year.
You are required to record the above transaction in the books of ABC Ltd and Texaco
Ltd.
Thus: N
Total cost of Fuel consumed 560,000
Less: Amount paid 500,000
Accrued/outstanding amount 60,000
In the book of receiver (Texaco Limited)

Dr. Cash book A/c 500,000
Cr. ABC LTD 500,000
In the book of the payer

Dr. Fuel Expenses A/C 560,000
Cr. Cashbook 500,000
Cr. Creditors 60,000
The total amount of N560,000 = is debited to the P & LA/C as expenses on Fuel & Gas
for the period therefore providing fully for the cost incurred on fuel for period not
minding that only N500,000 = was paid for.
 Expenses paid for while the service is yet to be rendered to organization (prepaid or
payment in advance).
These are expenses paid for which service is yet to be rendered to the organization. These
expenses may be in the form of bills such as electricity bills, telephone bills, water bills among
others.
ABC Ltd makes a monthly payment for the sum of N100, 000 for the repair of its buses and
lorries. It however paid N1, 500,000 for 2009 accounting year ending 31/12/09.
You are required to show the entries in the books of ABC Ltd.
The analysis of the payment is thus:

N
Total amount paid 1,500,000
Total amount due for one year 1,200,000
Prepayment/advance payment 300,000
The amount due for one month = N100, 000

The amount due for one year = N100,000x 12months= N1, 200,000 amount paid =
N(1,500,000-1,200,000) = N300,000
104
The sum of N300, 000 will be adjusted by deducting if from total amount paid to determine that
N1, 200,000 is the only expenses due to repairs in one accounting year while the excess is treated
as prepaid expenses or payment in advance.
Thus:
Dr. Repairs & Maintenance of Motor Vehicle N1, 200,000
Cr. Cash book N1, 500,000
Dr. Prepayment(Repairs& Maintenance) N300,000
In the Balance Sheet:

Record the unused amount of N300, 000 as prepaid expenses or repairs payment in advance. It
should be recorded as current assets.
3.4 Prepayments: These are payments madefor expenses which services the organization is yet
to receive. This is also referred to as payment in advance. These are expenses paid for which
service is yet to be rendered to the organization. These expenses may be in the form of bills
like Light Bills, GSM Prepaid Recharge cards among others or even goods.
Credit: Expense A/c

Debit: Prepaid Expenses
(The actual amount paid in advance)
Exercise: Dolly Ltd has a supermarket and has the following records as at 1st January 20x8.
N
Salaries outstanding 650, 000
Rent received in advance 450, 000
Insurance prepaid 150,000
Advertisement Expenses paid arrears 83,200
Electricity expenses in advance 14,620
The following expenses were however incurred in the year 20x8
Paid for salaries N480,000; received rent N742,000;Insurance paid N360,000; Advertisement
expenses paid N65,000; Electricity Expenses paid N23,000
As at 31st December, rent in arrears was N360,000; and insurance paid in advance was
N152,000; salaries outstanding N120,000.
a. Prepare the insurance, wages and rent receivables accounts for the year ended 31st
b. Show the end balances.
c. Prepare the Profit and Loss account extract showing clearly the amounts transferred from
each of the above account for the year ended 31st December, 20x9.
105
4.0 CONCLUSION
Adjustments as highlighted in Prepayments, Accruals and Bad debts are very important aspect of
accounting. In fact, the true picture of the financial transaction will only be seen when the
necessary adjustments are made. Understanding it is therefore very important to the
understanding of financial accounting.
5.0 SUMMARY
Accrued income are income which are due to an organization which have rendered a service or
sold goods to another. Prepayments are payments made now for the benefit to be enjoyed
tomorrow such payments are regarded as payments in arrears, while Accruals are expenses that
are due for payment now but which remains unpaid, these are called accruals or accrued
expenses. Bad debts is regarded as being bad if the debtor for one reason or the other refused to
settle his debts. In account, prepayment is deducted from the payment concerned in the profit and
loss account and added to the current assets in the balance sheet, accrual is an expenses in Profit
or Loss account which is added to the expenses concerned and shown in the balance sheet as a
current liability. Bad debt is treated in the same way as accrual in the profit and loss account and
the statement of financial position

Set Textbooks
course.
 Pickles & Lafferty: Book Keeping & Accounts
Onyekwelu
UNIT 3: INCOMPLETE RECORD

CONTENT
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Incomplete Records

3.2 Disadvantages of Incomplete Records
4.0 Conclusion
5.0 Summary
106
1.0 INTRODUCTION
Conventionally, accounting records are kept by observing the rules as applied in double entry
system of accounting. Double entry approach is preferred because it helps in ensuring that all
transactions are captured thereby enhancing the degree of accuracy of such records. Sometimes,
this rule is not strictly adhered to as accounting records/documents are not properly kept. In some
cases some documents are lost. This is often the case with small and medium scale enterprises
that do not employ trained and qualified Accountants for accounting purposes. This situation
often lead to a situation of incomplete records.
2.0 OBJECTIVE
After studying this unit you should be able to:
 Explain the term ‘incomplete records’
 identify and explain the different methods of collating accounting information; Calculate
profit where only the increase in capital and details of drawings are known;
 Deduce the figure for cash drawings when all other cash receipts and cash payments are
known;
 Deduce the figures of sales and purchases from incomplete records;
 Prepare a trading and profit and loss from records of incomplete nature;
 Prepare a balance sheet from records of incomplete nature.
3.0 MAIN CONTENT

3.1 INCOMPLETE RECORDS

Explain the term ‘incomplete records’
 identify and explain the different methods of collating accounting information; Calculate
profit where only the increase in capital and details of drawings are known;
 Deduce the figure for cash drawings when all other cash receipts and cash payments are
known;
 Deduce the figures of sales and purchases from incomplete records;
 Prepare a trading and profit and loss from records of incomplete nature;
 Prepare a balance sheet from records of incomplete nature.
3.0MAIN CONTENT
3.1INCOMPLETE RECORDS
The concept of iincomplete records or single entry explains the practice whereby the normal
principle of double entry which is the basis of modern accounting is not followed strictly,and yet
accounting records are said tobe kept.In a situation, where records like cash received, expenses
107
paid but other records like drawings are not kept, the owner of the business knows his initial
capital but at times may not record other subsequent capital injections or introduction into the
business within period yet he or she would want to determine the true position of the business at
the end of a given financial period. The need for making up financial information from the above
situation revolve around the above concept called incomplete or single records.
The accounting personnel is now charged with the responsibility of picking whatever available
records in order to determine any of the following accounting information:
- The profit for the period.
- Sales/Purchases made.
- Drawings within the period.
- Actual cash lodged into bank.
- Actual debts owed by customers at a particular period.
- Actual goods supplied and amount due to creditors.
- Trial balance
- Accounting / financial statement.
9.1 Features of Single Entry or Incomplete Records
The critical features of single entry are:

1) The keeping of personal account only with no corresponding rent or normal accounting in
the books of accounts.
2) Incomplete and unsatisfactory and it is clear that accurate information of the operation is
not maintained.
3) Lack of maintainance of sales accounts without any debtor control account maintained to
reconcile sales to debtors.
4) Lack of maintainance of purchases accounts without corresponding creditors account to
reconcile it to creditors purchases to actual payments made.
5) More often than none, is the only receipts and invoices are maintained with an absence of
a sales or purchases ledger.
6) Situations where some accounting documents are either lost or destroyed and so on.
108
7) Situations where receipts and payments are made through banks without any
corresponding records kept in the office.
8) It creates problems to management because it is difficult to keep full control of records to
avid misappropriations.
9) Arithmetic accuracy of records is not assured because trial balance cannot be prepared.
(10)Valuation of assets is difficult when business is considered for sale.
Illustration One:
Clara Super Market has an opening capital of N62,000 and the closing capital reads,
N85,000 (assuming that there was no drawing). The profit generated for the period in
question will be calculated as thus: N
Closing Capital 85,000
Less: Opening Capital 62,000
Net Profit 23,000
Explanation: The increment of N23,000 is attributed to the profit earned during the period.
IllustrationTwo
ABL Business Centre does notmaintain proper account based on double entry principle. The
proprietor operates three departments(X,Y and Z) but has however managed to present you with
the following records for its year ended 31st December, 2015
N N N
Capital balance. 1/1/15 50,000 40,000 80,000
Capital balance 31/12/15 100,000 80,00060,000
Drawings 12,000 10,000 8,000
Capital Additions 24,000 18,00015,000
The capital structure is as follows:

N
Balance as 31/12/15 100,000
Less:
Opening capital bal. 1/1/15 50,000
50,000
Add: drawings 12,000
62,000
Less: Introduction of Capital 24,000
109
Profit for the year 38,000
YN
Balance as at 31/12/xx 80,000
Less:Opening capital bal 1/1/xx 40,000
40,000
Add:Drawings 10,000
50,000
Less: Introduction of capital 8,000
X
N
Balance as at 31/12/15 60,000
Less:Opening Capital 1/1/15 80,000
20,000
Add: drawings 8,000
28,000
Less: Introduction of capital 15,000
A
N
Balance as at 31/12/15 60,000
Less:Opening capital 1/1/15 120,000
(60,000)
Add: Drawings 25,000
(35,000)
Less: Introduction of capital (30,000)
Loss for the period 65,000
Illustration 3
110
The book-keeper of Yinusa Mart had the following balances as at 31st
31st December, 2015 and 31st December, 2016
31 Dec.,2016 Dec. 31,2015
N N
Motor Van 6,000 5,100
Furniture & Fittings 1,050 945
Inventories 8,838 9,000
Trade Receivables 11,384 11,500
Cash & Bank 16,233 20,400
Payment for Stationery 357 -
Trade Payables 12000 11,985
Accrued Rent 360 150
Drawings - 1,500
You are required to calculate the net profit of the business for the periods
Solution:
Opening Statement of affairs of Yinusa Mart Mini Market
N
Capital (Difference) 31,500 Non-Current Assets
Motor 6000
7,050
Current Liabilities Current Assets:
Trade Creditors 12,000 Inventories 8,838
Rent Accrued 360 12,360 Trade Receivables 11,382
Cash & Bank 16,233
______ Prepayment(Stationery) 35736,810
N 43,860 43,860
=======
Opening Statement of affairs of Yinusa Mart Mini Market

N
Capital 31,500
Net Profit 6,810 Non-Current Assets
38,310 Motor Van 6000
Less: Drawings 1,500 1,500 Less: Prov for Deprecation 900
36,810 5,100
Less: Prov for Deprecation 105

945
Current Liabilities Current Assets:
111
Trade Creditors 11,985 Inventories 9,000
Rent Accrued 150 Trade Receivables 13,500
12,135 Cash & Bank 20,400
42,900
48,945 48,945
The following equation could help in the determining the components of financial statement
especially when the records are incomplete. Thus:
1. Assets = Capital + Liabilities

Capital= Assets – Liabilities
Liabilities= Assets- Capital
2. To determine:
Profit = Closing Capital + Drawing -Opening Capital
Note: Steps for preparing double entry from incomplete recordsfor an accounting period
are:
1. Prepare a statement of affairs at the beginning of the financial period.Thus:
Dr. All assets
Cr. All liabilities
(Exclude debtors and creditors, cash and bank.)
 Open a nominal account thus:
Dr.All assets with the opening balances

Cr. All liabilities with the opening balances
 The Capital account becomes the balances, the balancing figure which could be a debit or
credit.
2. The subsidiary books or journals are opened and figures posted to the appropriate side of
nominal accounts for example the discount are drawn from the cash book either the discount
allowed or discount received.
3. Carefully check the un-posted items, which will be posted to the appropriate accounts like
nominal accounts or real accounts, like electricity bills paid, interest paid, land and buildings.
112
4. The withdrawals made from the business either in the form of cash or goods which are often
forgotten most be added together and posted under the withdrawal accounts.
Summary
First step:- Establish what the opening figures are in the statement of affairs.
Second step:-Define the accounts to be opened and record the opening balance there accordingly
except the cash and bank item and debtors and creditors, which are already recorded in the
books.
Third step: - Separately open anoriginal entry and post the necessary figures.
Calculating Profits from Incomplete Records.
To ascertain profits from incomplete records, the followingpoints should be noted. They are:
 Increase in capital shown within any financial year is an increase in profit or
 Capital is also increased by the introduction of new capital from other sources.
Decrease in capital means that there is decrease in profit, that is:

 Losses are deducted from the capital thereby decreasing the level of capital available
from the business.
 That any withdrawal is a decreasein capital as withdrawal is deducted from capital.
Exercise
Young Adebayo started business on the 1st of August 2015 with the sum of N240000 . Below are
the list of transactions within the period:
1. Rose Henshaw Gloceries did not keep books in accordance with the double entry
principles. However, it has managed to keep the following record for the 2015 financial
year.
N
Delivery Van 1,995,000
Inventory 244,500
Trade Debtors 355,500
113
Trade Creditors 259,500
Cash balance 150,000
As at the end of the financial year the business recorded

N
Delivery Van 4,026,000
Inventory 580,500
Trade Debtors 658,500
Trade Creditors 272,100
Cash Balance 207,000
Rose Henshaw also invested more capital of N2,250,000. She also made withdrawal of N37,500
monthly for her personal expenses. You are to prepare the necessary accounts to show the
business transactions. Show the capital account, the profit for the period and statement of affairs
for the period.
4.0 CONCLUSION
Proper bookkeeping is required for good accounting process. However, lack of adequate records
makes it difficult for proper accounting to be done. This process of preparing accounts from
incomplete records has taken note of this.
5.0 SUMMARY
In this unit, you have been taught how to determine profit, capital among others from incomplete
records

1. OliveAgencies is a dealer in groceries.She maintains a bank account but does not keep proper
book of accounts. Below are some ofher records:
N N
Balance b/f 212,500 106,250
Cash Sales 7,313,500 3,658,750
Rent paid 725,000 362,500
Printing & Stationery 122,500 61,250
114
Advertisement 70,000 35,000
Furniture & Fittings 1,200,000 600,000
Rates 255,000 127,500
Cash balance 307,500 153,750
Purchases 4,850,000 2,425,000
She has also made the following expenses – paid salaries/month of N60,000. The Additional
information, miscellaneous performing N56,150, withdraw N25,000 monthly for personal use.
The additional information:

As at 1/12/16 31/12/16
N N
Stock 325,000 227,500
Trade Creditors 187,500 125,000
Printing & Stationery 9,375 6,250
Rates paid in advance 17,500 12,500
Furniture &Fitting(Cost) 387,500 787,500
Depreciation –Furniture 217,500 78,750
Rent Outstanding 72,500 103,750
Cash in hand 43,750 25,000
2.Mr. Kenneth Young runs a bakery business and maintains incomplete records. She however
has the following balances.
1st Jan, 2x8 31/12/x8
N N
Trade Creditors 30,000 45,000
Stocks 22,500 33,000
Receivable 90,000 105,000
Furniture 60,000 64,000
Cash in hand 66.000 112,500
115
You are required to prepare Mrs. Kenneth Young’s
1. Statement of Affairs
2. Current year’s profit

Set Textbooks
course.
 Frank, Wood & Alan Sangster,. Business Accounting 1 & 2, 13th Ed
Onyekwelu
MODULE 5 JOINT VENTURE ACCOUNTS

UNIT 1 JOINT VENTURE ACCOUNTS1
CONTENT
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Manufacturing Accounts
3.3 Differences between Joint Venture and Partnership
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
Joint venture is a business relationship that exists between two individuals or body corporate
with aim of executing a specific trade or transaction within a very short time frame. The aim is
116
for each to pull its resources together to execute the business after which they share the profit (all
things being equal) that is made after all.
Organizations through joint venture pull their resources (capital or human) to handle business
projects which they may not be able to execute alone. Accounts are therefore opened for the
purpose of the joint venture business. This unit will introduce you to the process of recording the
accounts of joint venture business.
2.0 OBJECTIVES:
After concluding this unit, you should be able to:

 Define joint venture business;
 Features of joint venture business;
 Outline the importance of joint venture;
 Differentiate joint venture from partnership business.
3.0 MAIN CONTENT

3.1 Joint Venture
Unlike partnership business which is a permanent partnership, the joint venture business is one
that exists often on very short period with an aim to execute a specific business. To this extent,
joint venture is the coming together of two or more people or even corporate organization for
the execution of a set business (already well defined) after which the business relationship ceases
to exist. The joint venturers (parties involved in the business) share the profit or losses based on a
pre-defined basis. The businesses or persons involved in the business do not need to change their
names unlike in the mergers and acquisitions. They retain their individual names since the life
span of the business is usually very short period.
Joint venture business is often seen in construction, oil and gas firm and even
telecommunication. It also involves people or organizations pulling resources together. These
resources can be in the form of cash, infrastructure (land and other forms of plant, property and
equipment) and human capital (technical known-how/competencies).
Features of Joint Venture Business:

 The business is formed by two or more individual or corporate organizations;
 The aim is to execute a particular project or business transaction;
 The venturers still retain their separate names and do not choose any other names for the
purpose of the joint venture.
 The duration is often very short and is temporal in nature.
 The parties to a joint venture are usually continue in their various business except if
otherwise agreed.
 The venturers share profits or losses based on pre-determined ratio or percentages.
117
Advantages of Joint Venture:
 Sufficient Resources: Since two or more persons pool their resources, there is sufficient
capital available.
 Ability and Experience: The different venturers may be having different skills and
experience.
 Spreading of Risk: The co-venturers agree to share the profit and losses in a particular
ratio.
17.1 Major Differences between Joint Venture and PartnershipBusiness.

 The aim of joint venture is to carry on a specific business and share the profit after while
partnership is more permanent with well spelt out deed of partnership.
 Unlike the partnership that is expected to last for a reasonable number of years, joint
ventures business can come to an end within a short time just enough to execute the
business. Its life span can be as short as two weeks, a month, and a year or as agreed by
the parties. In other words, the life span of joint venture is definite and well spelt out.
 Partnership business is guided by Partnership Act of 1890 especially in the event of
disputes while the joint venture is guided by the agreement of parties.
 A partnership business will have a different name however, for the joint venture there is
no need for a separate name.
 A joint venture business has a definite life span but the duration for partnership is
indefinite.
 Separate books of accounts are to be maintained. There is no need for a separate set of
books, the accounts can be maintained even in one of the co-ventures books only.
 In partnership, no partner can carry on a similar business. Co-venturers are free to carry
on any business of their choice.
 In partnership a minor can be admitted to benefit from the firm where as a minor cannot
be a co-venturer on the grounds of his or her age.
EXERCISES
1. Define joint venture business?
2. State two advantages of joint venture business?
3. State two differences between joint venture and partnership business?
4.0 CONCLUSION
In this unit, you have learnt about joint venture business. Joint venture business is the coming
together of two or more people or body corporate to carry out a specific business venture with
aim of sharing the profits at an agreed basis. You also learnt about the difference between joint
venture and partnership business?
5.0. SUMMARY
Joint venture is a temporary coming together of two or more persons or body corporate who have
agreed to undertake jointly a specific project or job. On the completion of the project or the job
118
after which the business comes to an end.The joint venture also differs from partnership mainly
because the joint venture is set out to carry out a particular business after which the business is
dissolved while partnership is more permanent in nature.
6.0 TUTOR MARKED ASSIGNMENT

Mirabel and Mikel are in Joint Venture for the construction of a feeder road for the government.
Each had contributed capital of N800,000 and N1,200,000 for the project. They also agreed
to share profit or losses in the ratio of 2:3. The joint venture had made a profit of N240,000.
You are to show:

a) The name of the business
b) The share of profit received by each co-venturer.

Set Textbooks
course.
 Financial Accounting by A.R Jennings
Onyekwelu
UNIT 2: JOINT VENTURE, ACCOUNTING TREATMENT
CONTENT
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Forms of Accounts kept by venturers
3.2 Accounting treatment for transactions of joint venture
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION: You learnt in the last unit, the definition, importance, features of and
differences between the joint venture business and partnership business. In this unit you will
learn the various forms and books of accounts that are kept in the joint venture business. You
will also learn how the transactions are recorded in the books of accounts of joint venture.
2.0 OBJECTIVE
119
3.0 After studying this unit, you should be able to:
 Record the transactions of the joint venture in the books of one joint venturer
 Post the transactions in the books of all the joint venture
 Post the relevant transactions of the venturers to the memorandum of joint venture
account.
 The Accounting Treatment

The account of a joint venture is usually kept in line with the following, namely:
• In the books of one co-venture: One of the co-venture may be maintaining the records
of the business the transactions in his book on behalf of the other venturers. The party
that keeps accounts would receive the contributions of members to the business by
opening a Joint
Venture Account and the personal accounts of other co-venturer in his
books.
• in the books of all the co-venturers: when all co-venturers are
working actively, each one of them shall open a Joint Venture
Account and the personal accounts of other co-venturers in his books.
In such a situation each co-venturer informs others about the
transactions undertaken by him so that they can incorporate them in
their books.
Memorandum Joint Venture Account: Sometimes each co-venturer
records only such transactions as are directly concerned with him. In
that case he cannot work out the profit or loss because his books do
not include all transactions of the joint venture. Hence, for calculating
the profit or loss of the joint venture, a memorandum joint venture
account has to be prepared by incorporating all transactions related to
the joint venture. Thereafter the Joint Venture Account is completed
and closed.
• Separate set of Books: Sometimes for the sake of convenience, a
Separate set of books are maintained for the joint venture. Under this
system a, Joint Bank Account, a Joint Venture Account and the
personal accounts of all the co-ventures are to be opened in the
independent set of books of account.
3.4 Books of Accounts Maintained in Joint Venture

120
It is important to note that party’s joint ventures are at liberty to maintain their own books of
account. This account is called the joint venture with other party account.
Joint Venture with the other Party Account

This is an account maintained by each party in which they records all the expenses made on
behalf of the business and all the receipt of income from the business.
Illustration: If Mr. X & Mr. Y are in joint venture and they both maintain this book.
Accounting entries requirements:

Debit: 1. Purchases
2. All expenses paid and all expenses taken over.
3. Share of profit
4. Amount refunded by the other parties.
Credit: 1. Proceed from sales

2. Assets taken over
3. Amount to be refunded to the other joint venture or party
4. Share of loss
Example: If Jane and Kelly are in a joint venture:
Joint Venture between Jane & Kelly

The Proforma of the Joint Venture Account with Kelly (in the books of Jane)
N N
Purchases (Jane) Xx Sales proceeds Xx
(Jane)
Expenses incurred (Jane) Xx Assets taken over by xx
Jane
Share of profit (Jane) due
to Jane from the xx
transaction
Amount due from other
Joint Venture parties xx
(Balancing figure) Xx
xx xxx
Note: that if the balancing figure is a credit balance, the party that maintains that account owes
the other that party. But if the balancing figure is a debit balance, than the party that maintains
that account will receive that as due from the other party.
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Memorandum Joint Venture Account
The memorandum joint venture account is drawn up to calculate the profit or loss due to each
party to the Joint Venture. This is by capturing or aggregating expenses incurred by the parties
and the monies received by them, assets taken over, expenses to be settled by each party. The
Memorandum Joint Venture Account is also used to compute and produce the amount due to the
settlement from and to each party.
The Accounting Requirement for Memorandum Joint Venture Account is thus:

Debit: All Purchases
All Wages and Salaries
Other Expenses incurred/taken over
Net profit as apportioned according to sharing ratio.
Credit: All Sales Proceeds

All Assets taken over
Loss as apportioned according to the sharing ratio.
Joint Venture with Jane Accounts (in Kelly’s book)

Dr N Cr N
Purchases (Kelly) xx Sales proceeds xx

(Kelly)
Expenses incurred (Kelly) xx Assets taken over xx
(Kelly)
Expenses taken xx
over(Kelly)
Share of profit due to Balancing figure
Kelly from the Joint xx (Amount due to other
Venture party) xx
xxx xxx
Note:
 That Jane will also prepare the same type of account to reflect her transactions on behalf of
the business.
 This means that Kelly has received more than the inputs he has made plus his share of profit
and then he needs to pay up the difference as a balance to Jane in form of each and that is the
equivalent of the balancing figure.
Memorandum of Joint Venture Account

Dr. N Cr. N
(At an aggregate amount) (Aggregate cont)
Purchase (Jane + Kelly) Xx Sales proceed Xx
122
Expenses incurred Xx Asset taken over by Xx
(Jane+any
Kelly)
party
Share of Profit:
Jane xx
Kelly xx Xx
xxx xxx
Illustration 1
CEE Ltd and GEE Ltd decided to form a Joint Venture on the 1st Jan, 2007. The following is the
details of the transactions.
Name Particulars N
- CEE Ltd Purchased goods 540,000
- CEE Ltd Paid wages 60,000
- GEE Ltd Settled transport 36,000
- GEE Ltd Electricity bill 96,000
- CEE Ltd Handling charges 54,000
- CEE Ltd Received cash 960,000
proceeds
You are required to prepare the Joint Venture Accounts and Memorandum of Joint Venture
Account for the Joint Venture business of CEE Ltd and GEE Ltd.
Step I:
Open a Joint Venture Account for each of the parties separately and record the transactions
profits shared.
Thus: In the books of CEE Ltd.
Joint Venture with GEE Ltd

N N
Purchase of goods 540,000
Wages paid 60,000
Handling charges 54,000
Share of profit 87,000
Amount to receive
from GEE Ltd 74,000
741,000 741,000
In the books of GEE Ltd.
Joint Venture with CEE LTD
N N
123
Transport Exp. 36,000 Cash Received 960,000
(Sales)
Electricity Bill 96,000
Share of Profit 87,000
Refund to GEE 741,00
Ltd 0
960,00 960,000
0
CEE LTD & GEE LTD

Memorandum of Joint Venture Account
Dr N Cr N
Purchases (CEE Ltd) 540,000
Wages Paid (CEE Ltd) 60,000 Cash received 960,000
(GEE Ltd)
Handling Charges 54,000
(CEE Ltd)
Transport Exp. (CEE 36,000
Ltd)
Electricity Bill 96,000
Share of Profit:
CEE 186,000 /2 87,000
GEE 186,000/2 87,000
960,000 960,000
Illustration 2
Rose, Kate and Julie are in a joint venture business sharing profits in the ratio of 3:2:1. The
following transactions took place. Thus:
Jan. 2x15:
2nd Rose paid for rent for the 1st quarter of the year N18,000
3rd Kate purchased delivery van for N324,000
5th Kate also bought goods for sale N78,000
15th Oct. – Rose cash sales N454,800
18th Julie paid electricity bill N14,400
20th Cash sales made by Kate N93, 600 and held the money
21st Julie paid for goods N52,800
23rd Julie made cash sales of N118,800
23rd Julie disposed the delivery van for N252,000
24th Julie and Rose paid for office expenses of N96,000 was settled at half each.
29th The business ended with unsold goods worth N252,000 and was taken over by Kate.
30th Julie paid for cleaning expenses of N48,000.
You are required to show:
i. Joint Venture Account in each party’s books.
124
ii. Memorandum Joint Venture Account.
Solution:
In the Book of Julie
Joint Venture with Rose and Kate
Dr. Cr.
N N
Oct. 15 Sales 454,800
” 18 Electricity 14,400 Oct 23rd sale of motor 252,000
st
” 21 Purchases 52,800 23rd sales 118,800
” 24thOffice Exp. 48,000
” 30th Cleaning Exp. 48,000
Cash to Rose 342,000
Cash to Emeka 254,400596,400 825,600
825,600
In the Book of Rose

Joint Venture with Kate & Jullie
N N
Jan. 2 Rent 18,000 Jan. 12 Cash from Julie 342,000 Purchases 454,800
24th Office Exp. 48,000
Share of profit 132,000 342,000 342,000
In the Book of Kate

Joint Venture with Rose & Jullie
N N
rd th
Jan. 3 Delivery Van 324,000 Jan. 20 Sales 93,600
5th Purchases 78,000 Inventory (taken over) 342,000
Bal. figure 164,400
600,000 600,000
Rose, Kate and Julie

Memorandum Joint Venture Account
N N N
Purchases: Sales:
Rose 454,000 Rose -
Kate 78,000 Kate 93,600
Julie 52,800 584,800 Julie 454,800
Julie 118,800 667,200
Rent (Rose) 18,000
Sale of Van- Julie 252,000
Office expenses (Rose) 48,000 Inventory taken 252,000 504,000
‘’ (Julie) 48,000
125
Motor Van(Kate) 324,000
Cleaning (Julie) 48,000
Electricity ‘’ 14,400
Share of profits
Rose 335,400
Kate 223,600
Julie 111,800 1,171,200
1,171,200
EXERCISES
4. Define joint venture business?
5. State two advantages of joint venture business?
6. State two differences between joint venture and partnership business?
4.0 CONCLUSION
In this unit, you have learnt about the books of accounts which are kept in recording joint venture
business transactions. The memorandum of joint venture is kept to determine the profit or loss
that are due to the parties to the joint venture. Again, in the case of a small business one member
may be asked to keep the books. Each party may also keep his own records of the transactions.
5.0. SUMMARY
Joint venture is a temporary coming together of two or more persons or body corporate who have
agreed to undertake jointly a specific project or job. The accounts are kept to determine if the
venture has been profitable by using the memorandum of the joint venture.

(3) Diamond, Silver and Gold are in joint venture handling a road construction contract.
Diamond won the contract but believe that it would need the equipment of Silver and
Technical known how of Gold to execute the project. Within the one month of the contract
duration, the following transpired: They share profit at 2:1:1
1st Diamond paid for site clearing for N82,500.
2nd Diamond received part of contract payment N890,000.
4thDiamond paid for sand filling on the roads for N740,000.
5th Diamond bought a truck for N865,000.
12th Silver brought some earth moving machine that worked for 8hours with a charge of
N2,800 per hour. Silver received a payment for those days of work.
15th Three Engineers from Gold have worked for 12 days without remuneration, they were
however paid at the close of the day at N2,600 per day.
16th Gold paid for the transport of the engineers to site for N2,500.
20th Silver paid for electricity bill N3,400 and postal expenses of N1,580.
22nd Gold bought a staff bus for N980,600.
23rdDiamond was some monies for the expertise N420,000.
25th Silver received some contract fee N820,000.
126
26th Silver paid for hire of trucks to lift sand to site N650,000.
27th Silver received the balance of contract fee of N10,800,000 and also collected the staff
bus for N650,000.
th
28 Diamond paid for telephone expenses of N6,980.
29th On closing Silver took the truck valued N560,000.
30th Silver took the remaining sand for N230,000.
You are required to show:

i. Joint Venture Account in each party’s books.
ii. Memorandum Joint Venture Account.

Set Textbooks
course.

Onyekwelu
UNIT 2 Consignment Account 1
UNIT 1 CONSIGNMENT ACCOUNT1
CONTENT
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1Definition of peculiar Terms
3.2 Books of the Accounts
3.2.1 In the books of the Consignor
3.2.2 In the books of the Consigneecount
3.4 Goods sent on consignment account
3.5 Consignee Accounts
3.6 Demonstration Question & Solution
127
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
Most business outfits that operate branches and outlets and often have need to send goods across
to those outlets from where customers can buy the goods. They also send goods to customers
who may demand for them from time to time. The goods so sent are referred to as consignment’.
This unit will teach you how the accounts for consignment are maintained both in the book of the
sender(consignor) and that of the receiver(consignee). These goods are dispatched to their
representatives usually called agents while the sender is known as the principal.
2.0 OBJECTIVES:
At the end of this unit you should be able to:
 define some peculiar terms relating to consignment business.
 Record the transactions on consignment in the relevant journals
3.0 MAIN CONTENT
3.1Definition of Peculiar Terms

Consignment: A consignment may be described as the goods sent (dispatched) by the principal
(owner) to the agent(representative) for sales purposes.
Consignor: The consignor is the sender or principal owner of the goods being sent to the agent
for sales.
Consignee: This is the receiver or agent to whom the consignment(goods) is being dispatched or
sent to.
Consignment outwards: This is considered the worth of goods sent from the consignor to the
consignee.
Consignment inwards: The worth of the goods which the consignee receives from the consignor.
Del credel: Refers to the additional commission paid to the consignee whereby he has agreed to
make up for any loss which the consignor may suffer as a result ofbad debts. They may also
agree that the agent be remunerated based on the percentage of profits.
128
Note: (1) That a consignment is not the same as sales by the consignornor a purchase by the
consignee.
(2) That goods are removed from one department to another does not constitute a
sales no matter the distance.
(3) The consignor sends to the consigneestatement as a guide indicating price and
quantity of goods with specific instruction to the selling price.
(4) A consignment is not to be regarded as good on sale or return, their purchase or
forward sale rather it is merely a transfer of goods from one place to another with
a view to be sold by the recipient on behalf of the sender.
(5) Remuneration: The consignee (agent) receives his remuneration in the form of
commission. The consignee is compensated for his services to the consignee.The
consignee is entitled to reimbursement for legitimate expenditure and any other
remuneration because he is neither the buyer nor seller on this capacity.
Commission due to the consignee is usually calculated based on the total value of
goods sold.
EXERCISES
7. Define Consignment?
8. What is the difference between a consignor and consignee?
4.0 CONCLUSION
In this unit, you have learnt what consignment is and the role played by the consignee and
consignor as it consigns consignment. You have also learnt the various terminologies associated
with consignment such as the principal, agent among others.
5.0. SUMMARY
Consignment accounts are maintained between the various parties to the business involving the
shipment of goods from the principal and the agent. The agent receives the goods and incurs
some expenses while selling the goods. The consignment accounts help both parties in
determining the sales and associated expenses which were incurred in the transactions.

a. Define the term consignment
b. Why is the agent paid a del credel
129
Set Textbooks
course.
Onyekwelu
UNIT 2 CONSIGNMENT ACCOUNT III
CONTENT
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.2.2 In the books of the Consignee
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
Both the consignor and consignee are required to open up necessary accounting record for the
goods dispatched. In line with this the consignor and consignee have book of accounts which
they maintain and it will be treated in this unit.
2.0 OBJECTIVES:
By the time you complete this unit, you should be able to:
 Identify the necessary accounting records neededinconsignment account;

 Post the transactions to the necessary journals and accounts.
3.0 MAIN CONTENT
3.1Accounts Entries for Consignment
130
There are records and accounts which are and often sent from the consignee to the consignor to
explain or show the affairs of their transactions. These accounts are:
i. Statement showing the goods received.

ii.Statement showing the sales made.
ii. Statement showing the expenses incurred.
iv. Statement showing the commission charged.
i. Statement showing the remmittances made with the resultant balances due by him also
called account sales.
3.2.1Accounts maintained by the Consignor

In the books by the consignor:The consignor keeps and maintains some special account to enable
him record the various transactions between him the consignor (principal) and the consignee.
The accounts are:
1.The consignment account: The consignment account can be compared to a trading, profit and
loss account. Infact, it is a special form of trading, profit and loss account. This is because the
principles applied to the account is applicable to trading, profit and loss account.
9.4 Accounting Entries - When goods are sent at cost price:

a.Total cost of goods:
Dr. Consignment account with total cost price of goods sent out.
Cr. Goods sent out on consignment account
b. Balance of goods at the end of the period:
Dr. The Stock Account
Cr. Purchases or Trading Account
c. Expenses incurred by consignor on consignment:
Dr. The Consignment Account
Cr. Cash account.
Dr. The Expense Accounts
131
Dr. The Consignment Account.
(d) Receipt/remmittance from consignee

Dr. Personal Account with Gross proceed
Cr. Consignment Account
Note: That the consignor expects the proceeds of sales less (expenses + commission)from the
consignee. A personal account is opened for the consignee to do this.
Proforma of a consignment account .
DR CR
N N
Total cost price of Total sales xx
good sent Xx
Add: Expenses Stock at hand
relevant incurred for Xx (consignment
the consignment stock account) Xx
Profit/loss on the Xx
consignment
xxx Xxx
In a case that profitis made on consignment, the balance will be transferred to the credit side of
the profit or loss on consignment account. But if it is a loss, it will be entered on the credit sale
and transferred to the debit side of profit and loss on consignment account to be transferred to the
profit and loss account at the end of the accounting period.
Illustration 1
On the 1st of January 2015, the Managing Director of Janney Limited located in Dubai sent some
consignment (shoes) to its agent in Nigeria (Clerk Agencies) goods worthN250,000.00. The
consignor, Janney Ltd paid the following expenses in regards to the consignment(carriage and
132
freight expenses) of N17,500; Insurance of N5,000. Clerk Agencies is entitled to 5% selling
commissions and 1.25% decledere commission. On January 30th,Clerk Agencies sent his account
on the sales as follows:
20th January sold goods = N400,000.00

25th January Expenses incurred= N30,000.00
Stock on hand as at 30th January = N7,500.00
On the 31st of January = N 7,500.00
You are required to show the necessary accounts to record the transactions in the books of the
consignor on the consignment as at 31st of January.
Solution
Note: The consignor is Janney Limitedlocated in Dubai.
The consignee is the Clerk Agencies while the consignment – goods(shoes) sent of
worthN250,000.00.
Accounts to be prepared are:
- Goods on consignment: To record the worth of goods actually dispatched to the
consignee.
- Consignment to clerk agencies to record transactions about the goods.
- Profit &loss account to records any profit or loss that arise from the transaction.
- Personal Account/creditor account in respect of clerk agencies to show his indebtedness
to Janney Limited.
Goods on Consignment Account

Date Particulars Dr. Date Particulars CR
Cr.
N 1st N
31/12/ Purchase 250,000 Jan. Consignment
(Trading to Clerk 250,000.00
A/c) Agencies
250,000 250,000.00
133
Consignment to Clerk Agencies
Particulars Dr. Date Particulars CR
Date
N N
Jan. Goods on 250,000 20th Clerk Agencies
1 consignment Jan. Sales 400,000
th
“ Insurance 5,000 30 Stock c/d 7,500.00
“ Carriage/freight 17,500
25th Expenses 30,000
Sales 25,000
Commission
5% of 20,000
N400,000
30th Profit/
Jan. LossAccount 120,000
407,500 407,500
Profit or Loss Account

Date Particulars N Date Particulars N
30th Jan. Consignment to 80,000
Clerk Agency
th
30 jan. Bal c/d 80,000
80,000 80,000
Clerk Agency Ltd

1st Jan. Consignment 80,000
30thJan. Bal c/d 80,000
80,000 80,000
134
Clerk Agency Ltd (Trading Accounts)
st
1 Jan Consignment
to Clerk
Agency 40,000 1st Jan. Expenses 30,000
(Sales)
25th Jan. Commission 25,000.00
30th Jan. Remmitance 345,000
40,000 400,000
Notes:
- Consignment Debtor Account: Here the agent is a Del Credere Agent where he is not
provided with a control over the debtors.
- Stock are valued on the basis of the lower of cost or net realizable value: Cost at
destination constitutes of an aggregate of all expenses incurred to getting the goods to the
consignee(agent and in a marketable condition).These expenses include insurance, freight
charge, custom duties, warehousing among others. These cost are aggregated and are
often put at the invoice but should be segregated while posting to the individual ledger.
3.2.3 In the book of the Consignee
The consignee has been defined as that agent of the principal who receives the goods for the
purposes of resale. The consignee maintains some accounts on his own to reflect his transaction
with the principal.
Entries in consignee’s books can be presented in two different ways. Thus:
The First Approach:

- On receipt of the consignment: The consignee only makes entries in his stock books
when:
He makes no entries at all on the books of accounts (as the goods are not assumed to be
purchases).
135
If he incures expenses on handing of the goods like landing charges, import duties,
warehousing and storage.
Dr Cash or Debtor’s PersonalAccount

Cr Cash (creditors or expenses)
He raises a memorandum entry in the stock book to reflect thus;

Dr. Cash or Debtors with cash received on sales
Cr.Consignor’s Personal Account.
To record the commission due to the consignee:
Dr consignor’s personal account
Cr commission Account
Close the consignors account by issuing a draft to the consignor at the end of the account
year;
the consignor hasthe balance due to the or from the consignee, which will appear in the
Balance sheet as creditor or debtor.
Dr the Bad debt account

Cr del credelaccount with any outstanding debt.
Illustration 2
On the 1st of March, 2016Ranchers Electronics Limited sent a consignment of electronics to its
agent Sammy Electronic Nigeria.
N
The goods were worth 850,000
Paid freight expenses 159,500
Insurance fee 317,000
It was agreed that Sammy Limitedwill receive 7½% commission on sales. On 25thMarch,
2016Sammy Electronics made sales of N1,360,000.00.Sammy also incurred expenses of
136
N102,000. Stock in the hand of the consignee as at 31st March was N25,500. Sammy
electronics remmitted:
Cash N136,000
Cheque N595,000
You are required to show the accounts in the books of Sammy Electronics as at 31st, March,
2016.
Solution
In the books ofSammy (Consignee)Electronics
March
25th Sales 1,360,000 25/3/x8 Expenses 102,000
25/3/x8 Commission
7 ½ % of 102,000
1,360,000
Remittance 1,156,000
1,360,000 1,360,000
Goods on Consignment Account

Date Particulars Dr. Date Cr.
N Particulars N
1st Consignment
March to Sammy 31st March, 850,000
Electronics 850,000 bal c/d
850,000 850,000
Consignment to Sammy Electronics
Date Particulars Foli Dr Date Particula Foli N
o N rs o
137
1st Goods on 25th Sammy 1,360,0
March Consignme 850,000 March Group 00
nt
31st Balance 25,000
“ Freight 59,500 March of stock/
Expenses stock at
hand
“ Insurance 17,000
Exp.
25th Sammy 102,000
March Group
expenses
31st Profit and 357,000
March Loss on
consignmen
t
1,385,5 1,385,5
00 00
Date Particulars Foli Dr Date Particula Foli N

o N rs o
1st Goods on 25th Sammy 1,360,0
March Consignme 850,000 March Group 00
nt
31st Balance 25,000
“ Freight 59,500 March of stock/
Expenses stock at
hand
“ Insurance 17,000
Exp.
th
25 Sammy 102,000
138
March Group
expenses
st
31 Profit and 357,000
March Loss on
consignmen
t
1,385,5 1,385,5
00 00
Profit and Loss on Consignment

Date Particular Dr Date Particulars N
s
N 375,000
30th Consignme
March nt
st
31 March Balance 357,00
c/d 0
357,00 357,000
0
EXERCISES:
Phina Phyll Breweries on 1st June, 2011 consigned 50,000 crates of its goods N375,000 to its
agent. It estimates however that it will sell the goods with a profit of 25% margin.On shipment,
Phina paid some bills on behalf of the consignment as follows: freight N30,000 on the same date.
On receiving the goods, the consignee paid carriage expenses of N10,000. On the 20th of June, he
139
made a sales of 40,000 cartons for N400,000.00. He is entitled to a commission of 5% on sales.
You are required to prepare the necessary accounts in the books of the consignor.
4.0 CONCLUSION
In this unit, you have learnt how to record transactions in the books of consignor and consignee.
5.0. SUMMARY
The key players in the business namely the consignor and consignee are expected to show the
records from time to time. The consignment accounts help both parties in determining the sales
and associated expenses which were incurred in the transactions.

a. On 5th, January 2016 Unilever Nigeria Plc consigned 20,000 units of its detergent brand to Uni
Part Limited Ghana,goods valued at N1,000,000. 1,000 units was reported as damaged in transit,
and therefore worthless. The goods were however insured against loss. The expenses incurred on
the consignment before the loss occurred wasN16,000; after the loss, selling expensesof
N38,000. However, 60,000 units were sold for N140,000 on the 8th of January 2016.
You are required to show the consignment account in the books of the consignor.
Set Textbooks
course.
Onyekwelu
CONTENT
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.2.2 In the books of the Consignee
140
4.0 Conclusion
5.0 Summary
2.0 Introduction
Accounting treatment for loss of stock: It is very pertinent that some goods consigned may be
lost or damaged, necessary entries should be made to adjust the position in the books. These
entries will depend on whether the loss has been insured against or not.
*If the goods have been insured against loss or damage
Dr. Insurance Account
Cr. Consignment Account with any loss anticipated.
Note:
(1) All the expenses incurred before the loss goods were damaged must be apportionedas part of
the lost of the goods accordingly.
(2) The value of the remaining goods in the caselost will be made up of two parts as follows:
(i) Proportion of the cost of the goods, plus expenses incurred on all goods.
(ii) Proportion of the expenses incurred subsequent to loss.
However, for the loss that was not insured against, it must not be left to adjust itself in the
consignment account by merely inserting the stock as reduced by the loss.
In the books of consignor. The entries should be:

Dr. Uninsurred Loss Account.
Cr. Consignment Account stock with the actual cost that existed.
Illustration 2:
On 5th, January 2016 Unilever Nigeria Plc consigned 20,000 units of its detergent brand to Uni
Part Limited Ghana,goods valued at N1,000,000. 1,000 units was reported as damaged in transit,
and therefore worthless. The goods were however insured against loss. The expenses incurred on
the consignment before the loss occurred wasN16,000; after the loss, selling expensesof
N38,000. However, 60,000 units were sold for N140,000 on the 8th of January 2016.
141
You are required to show the consignment account in the book of the consignor.
Workings:
(1) The claim against the insurer
Cost of damaged goods = 1,000 x1,000,000
20,000 1
=50,000.00
Expenses before loss=1,000 x16,000= 800.00
20,000 1 50,800.00
(2) The value of the stock/cost of goods

= 8000 x 1,000,000 = 400,000
20,000 1
Expenses before loss = 8,000 x 16,000 =6,400

20,000 1 =406,400
Add: Expenses after loss= 8,000x 38,000

19,000 (20,000 – 1,000) = 16,000
=N422,400
Consignment Account
Dr. Cr.
Date Particulars Qty Amount Date Particulars Qty Amount
(Unit) N (Unit)
5th Cost of 20,000 100,000

June goods
Expenses 16,000 8th Feb. Sales 11,000 140,000
prior to loss 2011
Expenses 38,000 Insurance 1,000 50,000
142
after loss claim
account
Inventories 8,000 422,400
c/d
Selling 60,000 to P & a/c 50,800
Expenses
20,000 663,200 663,200
This two consignment accounts can be opened to show:

(i) Consignment account showing goods lost
Consignment Account
Date Particulars Qty Amount Date Particulars Qty Amount
(Unit)
N N
5th 1,000 50,000 June Insurance 1000 50,800
June Cost of 2011 claim A/c
2011 goods
Expenses 6,400
prior to loss
1,000 56,400 1,000 50,800
(ii) Consignment Account (showing goods in good condition)

Date Particular Qty Amou Date Cr Qty Amou
s (Unit) nt nt
N 140,00
June Cost of 19,000 95,00 June Sales 11,0 0
2011 goods 0 2011 00
Stock 8,00 62,400
balance 0
Expenses 15,20 5,800
143
prior to 0 Transfer
loss to Profit
and Loss
on
consignm
ent
account
Expenses 38,00
after loss 0
Selling 60,00
expenses 0
19,000 208,2
00
Stock b/d
 Note that the calculation above was based on 19,000 units of the product which are good.
That is the stock balance of8,000 =
8000 x 148,200
19,000 1 = 62,400
 The balance in units is = 8,000
Illustration 1. Janet Agencies received a consignment of 350,000 cartons of Red Juice from its
principal overseas. They had agreed on a selling expenses of 5% on sales which is N35,000.On
arrival,half of the goods were received as damaged goods. The consignor agreed to make an
allowance of 75% of the total damaged goods.The consignee made a sales of N140,000 with a
cost price ofN87,500.00. The damaged goods were however disposed off for N7,350. You are to
show the accounting treatment for the closing stock.
Workings:
1. To determine cost of half(½) of the goods sent on consignment.
144
before the apartment
 To goods sent on
consignment = ½ x N 350,000= N175,000
2. Apportionment of expenses on the closing stock

Cost price of goods = N87,500 x Expenses
N175,000
= Cost Price of damage goods
Cost price of 1/2 the good senton consignment
87,500 xexpenses excluding selling expenses

245,000
 Expenses excluding selling expenses

87,500 x 35,000
245,000 1 = 12,500
(2) Proportion of the undamaged stock to the total undamaged goods consigned
87,500 x 35,000
175,000 1 17,500
Method I is however preferable as the expenses were insured for the total consignment and the
damaged proportion must share out of the proportion of its value.
 In a case where no damaged goods are sold the proportion to be added to cost will be
computed as follows:
N
Original value of goods sent 350,000
Less allowance 105,000
Revised value of goods sent 245,000
The damaged goods remaining N(175,000–105,000)=70,000
Add: The undamaged goods remaining =N(175,000–87,500) = 87,500
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Check: N
Revised value of goods = 245,000
Less:Sales = 87,500
Value of remaining goods = 157,500
Goods sent at Invoice Price: This method values the consignment using the price at which the
goods will be sold. Valuation are based on selling price of the goods. This is because most
consignor send their good with proforma invoice or price. This good are sent on consignment
with a price that could cover the cost and also a margin as profit. The actual price realized is
made known by the consignor when the consignee renders account of consignment.
Under this method,the following entries will be raised in the consignors books.
* Dr. Consignment Stock Account;
Cr.Goods on consignment account;
The consignment @ selling price.
* At accounting year end

Dr.Goods on consignment account;
Cr. Consignment Stock Adjustment Account.
* Dr.Consignee’s sales account

Cr.Consignment stock account with sales
Credit Stock on consignment at selling price and used to balance the accounts.
- All expenses are to be maintained in aseparate expenses account and apportioned in the
ratio of the unsold stock to the stock;
- The amount apportioned to unsold stock must be carried forward and balance transferred to
consignment trading account;
- Amount apportionable to unsold stock should be brought down as a balance;
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*Dr.The Stock Adjustment Account;
*Cr. The Consignment Trading Account with the realized profit ie selling price less cost price;
- If the current net realizable value is less than the cost;

*Dr.Profit and Loss on consignment account
*Cr.Stock provision to show depreciation of stock value.
- Transfer the balance of profit and loss on consignment account to the general profit and loss
account.
EXERCISE:
On 1stOctober, 2016,PJ Limitedconsigned1,000 bags of Golden flour costing N800 each to its
Agent, Jambo Agencies in Zaria on consignment terms. PJ paid freight, duty and insurance
premium of N2,100.00. On 31stOctober, Jambo sold the 1,000 bags of the flour at the price of
N1,100 each and remitted the balance to PJ after deducting landing charges of N2,400 ;
commission of 5%.
You are to show the relevant account in the books of PJ Limited, of the above transactions on the
consignment made.
4.0 CONCLUSION
In this unit, you have learnt how to record transactions in the books of consignor and consignee.
5.0. SUMMARY
a. On 5th, January 2016 Unilever Nigeria Plc consigned 20,000 units of its detergent brand to
Uni Part Limited Ghana,goods valued at N1,000,000. 1,000 units were reported as damaged in
transit, and therefore worthless. The goods were however insured against loss. The expenses
147
incurred on the consignment before the loss occurred wasN16,000; after the loss, selling
expensesof N38,000. However, 60,000 units were sold for N140,000 on the 8th of January 2016.
You are required to show the consignment account in the books of the consignor.
Set Textbooks
course.
Onyekwelu
CONTENT
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.2.2 Consignment for loss of goods in Transit
4.0 Conclusion
5.0 Summary
Balance of unsold goods:Here part of the the goods sent on consignment remains unsold for a
particular period especially till the end of a financial year.The cost of the unsold goods will be
ascertained by adding a representative proportion of the cost incurred by both the consignor on
the consignment, that is the selling expenses and commission due to the consignee and
commission due from the consignment. Where the goods are invoiced to consignee at a price
mark – up, the mark up is usually deducted to ascertain cost price.
148
Accounting Entries Loss of Goods on Transit - that is when goods are partly or wholly lost
in transits, the insurance company usually compensates the consignor once the goods were
insured.
The accounting treatment:

Dr. Goods lost on transist at the point of loss.
Cr. The Agents (Consignee) Account with the cost of goods lost.
Memorandum Column Method: This method is preferred especially when no specific method is
required.
Using the example in illustration six, the memorandum column method would be:
Date Particul Qty Me Amo Da Particu Qty Memo Amount
ars mo unt te lars
N
30t
h
Consig 40,0 400,000 400,000
Jun nee 00
e
Goods 50,0 500, 375,0 30t Stock 10,0 100,000 75,000
1st on 00 000 00 h
c/d 00
June consign Jun
ment e
account
th
30 Consign
June ment
trading 100,0
account 00
50,0 500, 475,0 50,0 500,000 475,000
00 000 00 00
149
Consignment Trading Account
Date Particulars Amou Date Particular Amount
nt (N) s
1st June Cash 30th Consignme

Freight 30,000 June nt Stock
Expenses Account 100,000
20th Consignee
June Expenses 10,000
30th Commission 40,000 Expenses
June 1/5
(N30,000 + 8,000
10,000)
30th Profit/(Loss) on
June consignment 48,000
108,00 108,000
0
th
30 Expenses b/d 8,000 25,000
June
Consignment Account
Date Particulars Amount( Date Particulars Amount
N) (N)
30th Consignmen 20th Consignmen 10,000
June t stock June t Trading
account 400,000 Account:
sales Expenses
30th Commission 20,000
June
150
30th Balance c/d 370,000
400,000 400,000
June Balance b/d 370,000
30th
Date Particu Qty Me Amo Dat Particul Qty Me Amo

lars mo unt e ars mo unt
June N 375,0
30th Purchas Jun Consign 50,0 50,0 00
es 50,0 500, 375,0 e1 ment 00 00
Trading 00 000 00 stock
Accoun account
t
Consignment Account
Particulars Qty Amou Particula Qty Amoun
nt rs t
N 400,000
Goods 50,00 375,00 Sales 40,00
0 0 0
Expenses 30,000 Stock 83,000
(freight ) 10,00
0
Carriage 10,000 20% of
expenses 20,000 N
Selling 415,000
commission
151
Profit and loss
on consignment
a/c 48,000
50,00 483,00 50,00 483,000
0 0 0
Stock b/d 10,00 483,00
0 0
On 1stOctober, 2016,PJ Limitedconsigned1,000 bags of Golden flour costing N800 each to its
Agent, Jambo Agencies in Zaria on consignment terms. PJ paid freight, duty and insurance
premium of N2,100.00.
On 31stOctober, Jambo sold the 1,000 bags of the flour at the price of N1,100 each and remitted
the balance to PJ after deducting landing charges of N2,400 ; commission of 5%.
consignment made.
EXERCISE:
On 1st August, 2015, Tee Jee Limitedconsigned 8,000 bags of Golden flour costing N3000 each
to its Agent, Genuine Agencies in Zaria on consignment terms. Tee Jee Limited paid freight,
duty and insurance premium of N6,100.00. On 31stOctober, Genuine Agencies sold the 6,000
bags of the flour at the price of N3,100 each and remitted the balance to Tee Jee after deducting
landing charges of N2,400; commission will be paid at 5%.
consignment made.
4.0 CONCLUSION
In this unit, you have learnt how to record transactions in the books of consignor and consignee
especially the loss of stocks and damage.
5.0. SUMMARY
152
a. On 5th, January 2016 Unilever Nigeria Plc consigned 50,000 units of its detergent brand to
Uni Part Limited Ghana,goods valued at N2,000,000. 3,000 units were reported as damaged in
transit, and therefore worthless. The goods were however insured against loss. The expenses
incurred on the consignment before the loss occurred wasN24,000; after the loss, selling
expensesof N48,000. However, 40,000 units were sold for N180,000 on the 20th of January 2016.
You are to show the consignment account in the books of the consignor.
Set Textbooks
course.
Onyekwelu
153
MODULE 3 : BILLS OF ENHANCING INSTRUMENT OF CREDIT
Unit 1 Bills of enhancing instrument of credit I
Unit 2 Bills of enhancing instrument of credit II
Unit 3 Bills of enhancing instrument of credit III
UNIT 1 BILLS OF ENHANCING INSTRUMENTS OF CREDIT I
CONTENT
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Types of instruments of credit
3.2 Bill of exchange
3.3 Promissory note
3
1.1 .4 Distinction between bill of exchange and promissory note
3.5 Terms and due date of a bill
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
You learnt how to use the subsidiary books which were commonly used in recording business
transactions. In line with this, distinct subsidiary books can also be used in recording transactions
relating to bills of exchange. Usually, transactions of this nature is recorded first in the journal
before it is recorded in the subsidiary books. This unit will seek to define the bills of exchange
154
and the promissory notes. The differences between the two will also be highlighted.
2.0 OBJECTIVE
• identify different types instruments of credit
• define bill of exchange
• define promissory note
• distinguish bill of exchange from promissory note.
3.0 MAIN CONTENT

3.1 Type of Instruments of Credit
For many business transactions and relationships to hold, they often extend one form of credit or
the other to the customer. This is often applicable to high profile businesses which buy in bulk.
This is often done to encourage the customers so that it could pay up at a later agreed date.
However, to formalize this credit relationship, the parties use some instruments so that the terms
of transactions are clear to all concerned.
Some of these instruments are namely:
i) Bills of Exchange
ii) Promissory Notes
3.2 Bill of Exchange

A bill of exchange is a credit instrument which is usually drawn by the seller (a creditor) on the
buyer (a debtor) requesting the buyer to pay the amount he is owing at a specified period. This
serves as an evidence that the buyer is indebted to the seller. A bill of exchange is an instrument
in writing containing an unconditional order, signed by the maker, directing a person to pay a
certain sum of money
only to, or to the order of a certain person, or to the bearer of the instrument.( According to the
negotiable instrument Act 1882).
3.2.1 Features of the Bill of Exchange:

From the above definition it is clear the some of the features of a bill of exchange are:
 Parties to the bill of exchange are known: The parties are namely: drawer: a person who
draws the bill; drawee: a person who accepts the bill and payee: a person who is to
receive the payment.
 The parties aware of the transaction and must have given their consent to the deal at least
by the drawer.
 The bill must be dated with the specified amount and specific due date for payments.
 There must be an intention to honour the bill by paying.
 It must be in writing and contain an order
 The order must be unconditional and be signed by the maker of the
 It is made by the creditor and duly accepted by the debtor.
155
Illustration: Chukason Groceries sells goods to Janet’s Outfit. Chukason draws a bill for
N220,000 for one month ending on the 20th of September, 2017. This bill is payable to Nky and
Co.
You are to identify the drawer, drawee and payee in the above transaction.
Solution:
Drawer: Chukason Groceries
Drawee: Janet’s Outfit
Payee: Nky and Co
Figure 1.1 Bill of Exchange

Abuja
20th July, 2016
N220,000
Revenue
Stamp
Two months after date pay to me or my order,

The sum of Two Hundred and Twenty Thousand Naira Only, for value received.
To:
Janet C. James
Port Harcourt Signature
3.3 Promissory Note

As stated earlier a written undertaken by the buyer to make payment on a specified date can take
the form of a bill of exchange or as promissory note. A promissory note, on the other hand, is
written by
the buyer promising the seller to pay a specified amount after a specified period to him, or his
order. This is opposed to the bill of exchange where a seller initiates the instrument.
A promissory note is defined instrument in writing (not being a bank note or a currency note)
containing an unconditional undertaking and signed by the maker to pay a certain sum of money
to, or to the order of a certain person, or to the bearer of the instrument.
The issuance of a promissory note needs only two parties. The parties are:
1. Maker of the Note: The person who makes the note and promises to pay the amount
2. Payee: A person who is to receives the amount.
Using the example above, The In this example B is the maker and A is the payee. You should
note
Drawer: Janet’s Outfit
156
Drawee: Chukason Groceries
Figure 1.2 Promissory Note
Abuja
20th July, 2016
N220,000
Revenue
Stamp
Two months after date, I promise to pay C. James to me or Order,

the sum of Two Hundred and Twenty Thousand Naira Only, for value received.
To:
C. James Janet
Abuja Signature
Features of Promissory Note:

a. It must be in writing and be an undertaking to pay
b. The undertaking must be unconditional,
c. Must be signed by the maker of the instrument
d. It is made by the debtor
e It must be for a specified amount and period
3.4 Differences between Bill of Exchange and Promissory Note

In line with the features of the above credit instruments, the following distinctions are
drawn:
Basis for Distinction Bill of Exchange Promissory Note
Originator of the Instrument The creditor originates the The debtor originates the
instrument instrument
Conditions needed It is an unconditional order to It is an unconditional promise
pay to pay
Acceptance Acceptance by the debtor is No acceptance is required
necessary
Basis for dishonoring the Notify the Notary Public(Law Notification is not necessary.
instrument court) when the bill is
dishonored
No of parties needed Three parties are needed Two parties are needed
Note: A bill of exchange is a bill receivable for the drawer or the payee and a bill payable (B/P)
for the drawee. Similarly a promissory not is a bill receivable for the payee and a bill payable for
the maker. A bill receivable is an asset for the business whereas a bill payable is a liability. For
accounting purposes no distinction is made between bill of exchange and the promissory note.
3.5 Term and due date of a Bill

A bill is generally written for a defined period of time say two months (60days), three months
157
(90 days) and so on. The period of a bill is called ‘Term’ or ‘Tenor’ of a bill, the date of which
the bill falls due is called ‘the ‘due date’ or the ‘date of Maturity’.
The due date is calculated by adding three days of grace to the actual period of the bill’ for
example, a bill drawn on April 1 for a period of three months will be come due for payment on
July 4 (add three months and three days to April, you arrive at July 4th. If the due date is a public
holiday, the bill becomes due on the previous working day. In the above example, if July 4 were
to be a public holiday, July 3 would be treated as the due date.
EXERCISES
1. Define Bill of Exchange?
2. How does Bill of Exchange differ from a Promissory Note.
3.On February 1, Jude draws on Judith a bill for three months for ending for N7,500
payable to Collin. It is duly accepted by Judith and sent to Jude.
Identify the drawer, drawee and the payee of the instrument.
4.0 CONCLUSION
In this unit you have learnt about the types of instruments of credit, that is bill of exchange and
promissory note and the term and due date of a bill, you also learnt about the distinction between
a bill of exchange and a promissory note. YOUR Understanding the above issues is important for
your ability to understand the accounting treatment for bill of exchange.
5.0 SUMMARY
The instruments of credit are basically two, the Bill of Exchange which is an unconditional order
in writing signed by the marker, directing a person to pay a certain sum of money to or to the
order of a certain person or bearer. There are three parties to a bill, the drawer, the drawee and
the payee. The drawer is the person that writes the bill, the drawee is the person to pay and the
payee is the person to receive payment. The second instrument of credit is the promissory note:
This is an instrument in writing containing an unconditional undertaking, signed by the maker, to
pay a certain sum of money to or to the
order of a certain person or bearer. There are two parties to a promissory note:- The maker, a
person who make the note and the payee: the person who receive money.

i. Define a Promissory
ii.State five features of the bill of exchange
iii. State three features of the promissory note.

Set Textbooks
course.
Onyekwelu
158
UNIT 2 BILL OF ENHANCING INSTRUMENTS OF CREDIT III
CONTENT
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Treatment of bill by the holder and its accounting
3.2 Retaining the bill
3.3 Discounting the bill
3.4 Endorsing the bill
3.5 Treatment of bill by the acceptor and its accounting
3.6 Dishonouring the bill
4.0 Conclusion
5.0 Summary
6.0 Tutor Marked Assignment
1.0 INTRODUCTION
In unit 13, you have learnt about the types of instruments of credit i.e. Bill of
exchange, promissory note, distinction between bill of exchange and
promissory note and the terms and due date of a bill. In this unit, we shall
first identify the type of transaction which usually take place in-connection
with bills and study how they are to be recorded in the books of various
parties.
2.0 OBJECTIVE
At the end this unit, you should be able to:
• Post the transaction relating to bills in the journal of drawer, drawee and
endorse.
3.0 MAIN CONTENT

3.1 Treatment of Bill by the Holder and its Accounting
As pointed out earlier no distinction is made between a bill of exchange and a
promissory note for accounting purpose when a bill or a promissory note is
received by the person who is entitled to receive its payment, he becomes a
holder of the bill. It is a bill receivable for him. He will pass the following
journal entry in his book at the time of receiving the bill or promissory note
drawn in his favour.
159
Dr: Bills Receivable A/c
Cr. Drawee
(Being acceptance received from the drawee)
Approaches ro handling the Bill: After the holder has received bill, the receiver can adopt any of
the following three approaches: Retain it till the date of maturity, discount it with his banker and
receive the amount less discount, immediately or may endorse it in favour of his own creditor
Journal entries are: .
3.1.1 Retaining the Bill

Here the holder of the bill decides to retain the bill till the date of maturity
no further entry is required till that date. If on the date of maturity the bill is
dishonoured he will pass the following entry.
Dr. Bank A/c

Cr. To Bills Receivable A/c
(Bill payment received)
3.1.2 Discounting the Bill

If the holder of the bill needs fund he can approach the bank for encashment of the bill before
due date. The bank will make the payment of the bill after deducting some interest. The process
of cashing the bill with the bank before the date of maturity is called discounting a bill’ and the
interest charged by bank is called ‘discount’. When a bill is discounted the holder of the bill
(drawer) will pass the following journal entry in his books.
Dr. Bank A/c
Dr.Discount A/c
To Bill receivable A/C
(Being bill discounted)
On the date of maturity, payment of a discounted bill will be received by the

bank and not by the drawer.
Hence, at the time of payment, the drawer will not pass any entry in his book.
3.1.3 ENDORSING THE BILL

When the holder of the bill endorses the bill to a third party, the bill is said to
be endorsed. He is called the endorser and the party to whom it is endorsed is
called endorses. At the time of endorsement, the following journal entries
will be passed in his books of the endorser and the endorsee.
In the Books of Drawer (Endorser)

Dr. Endorsee (Creditor)
To Bill Receivable A/c
(Being bill endorsed)
160
In the Books of Drawer (Endorsee)
Dr. Bill Receivable A/c
To Endorser (Drawer)
(Being bill received)
On the date of maturity, the payment will be received by the endorsee.

At the time of payment the endorser will not pass any entry in his
books.
Endorsee will pass the following entry in his books.
DR Bank A/c
Cr Bill Receivable A/c
(Being payment received)
3.2 Treatment of Bill by the Acceptor and its Accounting

For the person who accept a bill of exchange or makes a promissory note, it
is a bill payable. He will pass the following journal entry in his books when
he accepts a bill or make a promissory note.
Dr Drawer (Creditor)
Bills payable A/C
(Being bill accepted)
When a bill is discounted or endorsed by the holder of the bill, the drawee is
not required to pass any entry in his books. He comes into picture only when
the bill becomes due for payment, when he makes the payment on due date,
he will pass the following journal entry in his book irrespective of the fact
whether the bill is retained, discounted or endorsed.
Dr Bills payable A/c

To Bank A/c
(Being bill paid)
Look at illustration 1 and study how journal entries are passed in the books of
various parties concerned with the bill.
Illustration 1
On August 1, 2017 X sold to Y goods worth N10, 000 on the same date. The sellers X
drew on B three bills for N4,000, N5000 and N1000 for one month, two months
and three months respectively. Y accepted all the three bills and sent them
back to X. X however retained the first bill discounted the second bill with the bank
for N4500 on January 1, and endorsed the third bill to T on January 6, on the
due date Y met his acceptances. Record the above transaction in the books of
X, Y and T.
161
SOLUTION
IN THE BOOK OF THE (DRAWER)
JOURNAL
DATE Particular Dr. Cr.
2016 N N
August 1 To Sale A/c 10,000
(Being goods sold to Y) 10,000
Bills Receivable A/c
September 1 To Y 4,000
(Being second bill received 4,000
for two months)
Bills Receivable A/C
October 1 Bills Receivable A/c 5,000

To B 5,000
(Being third bill received
for three months)
October 5 Bank A/C Dr 1000
Discount A/C Dr
To Bills Receivable A/C 1000
(Being second bill discounted)
August 6 C Dr 4,500
To Bills Receivable A/C
(Being third bill endorsed 4,500
to C)
BOOK OF C (ENDORSEE)
JOURNAL
DATE Particular Dr. Cr.
2016 N N
August 6 Bills Receivable A/c 4000
To X 4,000
(Being
Bills Receivable from X)
September Bank A/c 4,000

To Bills Receivable A/c 4,000
(Being bill honoured)
3.2.1 Dishonoured Bill

When due to some reason the drawee (the person who has to make the payment) is not in a
162
position to make the payment of the bill on the due date, the bill is said to be dishonoured. In
such a situation the holder of the bill gets an endorsement from the Notary Public. The purse of
such notation is to establish the facts of presentation and the dishonour. The endorsement is
down either on the bill or on a separate paper attached to the bill called ‘allonge’. The holder of
the bill has to pay a small charge for service of the Noting Public. It is called ‘noting charges’.
These noting charges are to be borne ultimately by the drawee. The journal entries for the
dishonour of the bill and noting charges in the book of the drawer, drawee and the endorsee are
as follows:
Books of Drawer
(i) if the bill is retained
Dr Drawee
To Bill Receivable A/c
To cash A/c
(Being bill dishonoured and noting charges paid)
(ii) If the bill is discounted

Dr Drawee
To Bank A/c
(Being discounted
bill dishonoured)
(Note: The amount will be inclusive of noting charges)
(iii) If the bill is endorsed:

Dr Drawee
To Endorsee
(Being endorsed
bill dishonoured)
(Note: The amount will be inclusive of noting charges)
Books of Drawee
The drawee passes the Following entry in his books irrespective of the fact whether the bill is
retained,
Discounted or endorsed.
Dr Bills payable A/C

Dr Noting charges A/C
To Drawer
(Being bill accepted dishonoured, nothing charges involved)
Books of Endorsee
-
-
Dr Endorser
A/c To Bills Receivable
163
To cash A/c
(Being bill
dishonoured and
noting charges paid)
If the drawee is declared Insolvent on or before the due date, the bill is deemed to have been
dishonored and all entries for dishonor will have to be passed in the books of the concerned
parties as given above.
EXERCISE
1.What do you understand by discounting of a bill
2. State the Journal entries to be passed in the books of the drawer if Mr Ken drew a 1st of
January, 2015 bill on Jack for N30,000 payable after one month if ;
(a) the bill is retained
(b) the bill is discounted with the bank for N28,150
(c) the bill is endorsed to James
4.0 CONCLUSION
In this unit you have learnt about the treatment of bill by the holder and its accounting, retaining
the bill, endorsing the bill, treatment of bill by the acceptor and it accounting, dishonouring bill
and discounting the bill. The journal entries must be noted and the knowledge is important for
keeping the books of the drawer, the drawee and the endorser.
5.0 SUMMARY
The basis for accounting for the bill of exchange and a promissory have no distinction. When a
business receives a promissory note or an accepts a bill, the business may deal with it in three
ways. It may retain it, discount it with the bank, or endorse it to his own creditor. However, when
the bill or a promissory note becomes due for payment, the drawee of a bill or the issuer of the
promissory may deal with it in four ways: honour it, dishonour it, renew it or retire it.
All transactions with regard to bills and promissory notes are recorded in the journal.

1. Three bill for N5400, N6500, and N6600 were drawn for two months, three months and four
monthsrespectively. The first bill was discounted with the bank for N5,300. The second bill was
endorsed to a creditor in settlement of a debt and the third bill was retained by the drawer.
Show the journal entries in the books of drawer, drawee and endoursee if:
(a) the bills is honored on the due date
(b) the bill is dishonoured on the due date and noting charges N20 are paid in all the three cases
by the holder of the bill.

Set Textbooks
course.
164
Onyekwelu
course.
 Pickles & Lafferty
 Frank Wood
UNIT 3 BILL OF ENHANCING INSTRUMENTS OF CREDIT III

CONTENT
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Renewal of the bill
3.2 Retiring the bill
4.0 Conclusion
5.0 Summary
1.0 INTRODUCTION
You have learnt how to identify the types of transaction which usually take place in connection
with bills and you have also studies how they are recorded in the books of the drawer, the drawee
and the endorsee, in the unit you will study renewal of the bill and retiring the bill and all the
journal entries that are peculiar to them.
2.0 OBJECTIVES
• explain renewal of a bill and its journal entry
• explain retiring the bill and the necessary entries.
3.0 MAIN CONTENT

3.1 Renewal of a bill
The drawee in some circumstances appreciate the fact that he may not be able to honour the bill
on the due date. In such a situation, the drawee can request the drawer for extension of time. If
the drawer agrees, the old bill is treated as dishonoured and a new bill is drawn in lieu thereof.
This process is called renewal of bill. The drawer may charge interest for the period of the new
bill. This interest may be paid in cash or included in the amount of the new bill. There is no need
for getting the bill noted since the drawee himself make a request for cancellation of the bill.
The journal entries passed at the time of renewal of the bill are as follows:
165
BOOK OF DRAWER
i) For dishonour of the bill
Dr. Drawee
Cr. Bnak A/c
(Endorsee A/c)
ii) For interest due

Dr Drawee
Cr. Interest A/c
iii) For drawing new bill

Dr Bills Receivable A/C
To Drawee
IN THE BOOK OF DRAWEE

i) Dr Bill Payable A/c
Cr. Drawer
(ii.) Interest A/c

To Drawer
(iii.) For accepting new bill
Drawer Dr
To Bills Payable A/C
NOTE: Dishonour entry is passed keeping in view whether the bill is retained,
discounted or endorsed.
ILLUSTRATION 1
Raymond drew a bill on Timothy for N1000 on April, 2015 for two months. On May
15 Tom requested Ram to renew the bill for two months. Raymond agreed to
renew the bill and charged interest @ 6% p. a. A new bill was drawn for
N1010 including interest. The bill was honoured on due date.
Record all this in the book of Raymond and Timothy.
SOLUTION
IN THE BOOK OF RAYMOND (DRAWER)
JOURNAL
DATE PARTICULARS CR
2016 DR
N N
August 1 To Sale A/C 1000
(Being goods
166
sold to Timothy) 1000
Bills Receivable
A/c
APRIL 1 Bills payable A/c 1000

To Raymond 1000
(Being bill
dishonoured on
account
of renewal)
MAY 15 Timothy 10
To interest A/c 10
(Being interest
due for two
months)
MAY 15 Bills Receivable 1010

To ‘Timothy’ 1010
(Being a new bill
received
inclusive of
interest
July 18 Bank A/c 1010
To Bills 1010
receivable A/c
(Being bill
honoured on due
date)
IN THE BOOK OF THE TIMOTHY (DRAWEE)

JOURNAL
DATE PARTICULARS CR
2016 DR
N N
MAY 15 Raymond 1000
To Bills Payable
A/c
(Being bill 1000
accepted)
Bills payable A/c
MAY15 Timothy 1000

To Bills 1000
Receivable A/c
167
(Being bill
dishonoured on
Account
of renewal)
MAY 15 Interest A/c 10

To Raymond 10
(Being interest
due to Ram for
two
months)
EXERCISE
Kasim owed Taye N4, 400 on January 1, 2015 he accepted two bills of N2200
each for one month and two months respectively. First bill was retained
whereas the second was endorsed to Dayo in settlement of a debt. Both bills
were dishonoured on the due date and noting charges N10 were paid in each
case. A new bill for the full amount was drawn for four months and was
accepted including interest at 6% p.a. Before the due date of the renewed bill
Niyi was declared insolvent and only 50k in a Naira was received from his
estate.
Required:
Journalize the above transactions in the books of Kasim, Taye and Dayo.
4.0 CONCLUSION
In this unit you have learnt in details the Renewal of the Bill and Retiring of
the bill including all the journal entries in the books of all the concerned
parties that is the drawer, the drawee and the endorsee.
5.0 SUMMARY
When the drawee foresees that he would not be able to honour the bill on the
due date and thus requested the drawer for extension of time and the drawer
agree to such a request the old bill is treated as dishonored and the new bill
is draw in replacement of the old. This process is known as ‘Renewal of Bill’.
In this case the drawer will charge some interest for the period of the new
bill. Furthermore, sometimes he i.e. the drawee may offer the payment before
the due date. In that case, the bill is said to have been retired and the drawee
is allowed some discount on account of early payment and such a discount is
termed as ‘Rebate’.

On June 1, 2016, A owes B N12000. On the same date A draws two bills of
N8000 and N4000 for two months and three months respectively. The first bill
was endorsed to C on June 5 and the second bill was retained. Both the bills
168
were retired on July, 2016; A got a rebate of 6% p.a. on both the bills.
Required:
Record the above transaction in the books of A, B and C.

Set Textbooks
course.
Onyekwelu
169

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NATIONAL OPEN UNIVERSITY OF NIGERIA

FACULTY OF MANAGEMENT SCIENCES

Course Code ACC757

Course Title: PRINCIPLES OF ACCOUNTING

Writer DR. UCHE LUCY ONYEKWELU, ACA

Course Editor PROF EMMA OKOYE

Programme Coordinator DR. OKOH JOHNSON IFEANYI

Head of Department DR. OFE INUA

WHAT YOU WILL LEARN IN THIS COURSE

The aims of this course are as summarized below:

WORKING THROUGH THIS COURSE

Major components of the course are:

The study units in this course are as follows:

Module 1 Manufacturing Accounts

Unit 1 Manufacturing account I

TUTOR-MARKED ASSIGNMENTS (TMAs)

FINAL EXAMINATION AND GRADING

COURSE MARKING SCHEME

3 Manufacturing account I11 1 Assignment 3

Bills of enhancing instruments of credit I 1 Assignment 8

HOW TO GET THE MOST FROM THIS COURSE

(1) Read this course guide.

TUTORS AND TUTORIALS

Unit 1 Manufacturing account I……………………

UNIT 1 MANUFACTURING ACCOUNTS 1

1.2 Terminologies in Manufacturing Accounts

Raw Materials Available

Format of Manufacturing Account:

Raw Materials Avail. for

2.2Accounting Treatment for Work- in- Progress:

Total cost of production transferred to trading account Xxx

2.3 Preparation of Accounts of a Manufacturing Accounts

Add:Carriage Inwards 36,125

Add: Factory Overhead

Total Indirect Overhead 420,600

Cost of Production 3,929,450 3,929,450

Add: Opening Work- in- Progress 600,000

Capital Account 1/1/15 593,600

Prime Cost 1,115,000

Add Indirect Manufacturing Costs:

Less: Cost of Sales

Sammy and Sammy Limited

Sammy and Sammy Limited

Gross Profit 925,848

Less: Administrative Expenses

SAMMY AND SAMMY LIMITED

Property, Plant and Equipment Cost Accumulated Net Book Value

6.0 Tutor-Marked Assignment

You also have the following additional information:

1.Closing Inventories; Raw Materials N32,420, Finished Goods N25,650.00

Pickles & Lafferty : Book Keeping & Accounts

Uche L. Onyekwelu-Fundamentals of Financial Accounting 1 & 2: A Simplified Approach

UNIT 2 MANUFACTURING ACCOUNTS II

(i) Cost of raw materials consumed and

3.0 Main Content

3.1 Computation of Cost of Raw Materials Consumed

You are required to calculate the cost of raw materials consumed.

Cost of Raw Materials Consumed 1,369,220