BUSINESS ACCOUNTING SSS 1 COMMERCIAL

Q2. Explain the following terms:

a) Ledger
A ledger, also called a general ledger, is a record of a business's financial
transactions. It summarizes all the revenue and expenses of the business, plus
the debts owed and assets owned.
A ledger in accounting refers to a book that contains different accounts where records of
transactions pertaining to a specific account are stored. It is also known as the book of final
entry or principal book of accounts. It is a book where all transactions either debited or
credited are stored.

A ledger account is a combination of all the ledgers and contains information related to all
the accounting activities of an organisation. It is regarded as the most important book in
accounting as it helps in creating a trial balance that acts as a precursor to the preparation
of financial statements.

The information stored in a ledger account contains both starting and ending balances
which are adjusted during the course of the accounting period with respective debits and
credits.

A ledger contains different components which include the various transaction elements such
as date, amount, particulars and (ledger folio). Individual transactions are contained within a
ledger account and are identified by a transaction number or any other type of notation.

b): Invoice

An invoice is a document issued by a seller to the buyer that indicates the quantities and
costs of the products or services provider by the seller.

An invoice specifies what a buyer must pay the seller according to the seller’s payment
terms. Payment terms indicate the maximum amount of time that a buyer has to pay for the
goods and/or services that they have purchased from the seller.

An invoice indicates that a buyer owes money to a seller. Therefore, from a seller’s point of
view, an invoice for the sale of goods and/or service is called a sales invoice. From a buyer’s
point of view, an invoice for the cost of goods and/or services rendered is called a purchase
invoice.

An invoice has historically been a paper document mailed to the buyer, but these days
sellers can request payments online with electronic invoices.

C) Credit Not
 A credit note is a letter sent by the supplier to the customer notifying the
customer that he or she has been credited a certain amount due to an error in the
original invoice or other reasons.

A credit note is also known as a credit memo, which is short for "credit memorandum." This
is a commercial document that the supplier produces for the customer to notify the
customer that a credit is being applied to the customer for various reasons.

The reasons normally include the following:

 the customer returned the goods or rejected the services for any number of reasons

 the goods were damaged in some way, usually during transit

 there was a mistake in the price on the original invoice

 the customer overpaid the original invoice

On the credit note, the supplier will list the products, quantities and product or service
prices that were agreed-upon by both parties. It will normally reference the original invoice
and state the reason for the credit note.

The credit can be provided to the customer as money, or (as usual) it can be applied to
future purchases.

d) Debit Note

A debit note, also known as a debit memo, is issued from a buyer to their seller to request a
return of funds due to incorrect or damaged goods, purchase cancellation, or other
specified circumstances.

A debit note is similar to a credit note, except it’s issued from the buyer's side. Therefore,
debit notes are issued before a credit note can be created by the supplier.
A debit note acts as a buyer's formal request for a credit note from the seller. The document
serves as evidence to support a purchase return in the accounting books of a buyer.

An example of a situation when a debit note is issued:

 Company A. purchases goods worth le200 from Company B.

 Upon arrival at Company A, the goods are damaged. Company A would like to return the
goods to Company B.
 Company A. issues a debit note - containing all the relevant information including the
original purchase amount and VAT.

 When Company B receives the debit note, they can review and approve the request, and
issue a credit note as proof of reimbursement to Company A.

In this case, it’s the buyer who issues a debit note to the supplier as a request for credit
or reimbursement.

Supplier issued debit note example

However, there are also cases when a debit note is issued from the supplier to the buyer.
For example:

 A supplier, Company Z, sells and ships goods worth £5000 to a buyer, Company X.
 Company Z invoices Company X for only £4000 (due to a mistake)
 Company Z realises their mistake and issues a debit note to Company X for £1000 to resolve
the difference and make the necessary adjustments in their accounts receivable.

e) DISCOUNT

In finance and investing, a discount refers to a situation when a security is

trading for lower than its fundamental or intrinsic value.

In fixed-income trading, a discount occurs when a bond's price is trading

below its par or face value, with the size of the discount equal to the
difference between the price paid for a security and its par value. Bonds may
trade at a discount for several reasons, including rising interest rates, or due
to credit issues or riskiness associated with the underlying company compared
to comparable bonds.

A discount should not be confused with the discount rate, which is an interest
rate used for computing the time value of money.

Q.3 IDENTIFY SIX (6) USERS OF INFORMATION AND EXPLAIN THE INTEREST OF EACH USERS

Users of Accounting Information and their Interest:

The public, the government and its agencies, management, employees, lenders,
suppliers, and other creditors in the business world are among the users of
accounting information. These users make use of accounting information according
to their needs:
1. Public: The public is impacted by businesses in a number of different ways. For
instance, businesses may have a significant positive impact on the community’s
economy through their employment of locals and the use of their suppliers.
Financial statements can help the public by informing them of recent changes and
trends that have affected the enterprise’s success and the scope of its activities.
2. Government and their Agencies: The allocation of resources and, consequently,
business activities are of interest to the government and its agencies. They also
need the information to set tax policy, control business activity and calculate
various indicators, like GDP and National Income.
3. Management: In order to assess the firm’s short-term and long-term solvency,
management needs information regarding the firm’s activity. Management needs
accounting information to make several decisions, like determination of selling
price and other strategies. It is also needed for comparison of performance with
similar enterprises in the industry and to make plans for the future regarding
expansion, reduction, etc.
4. Employees: The stability and profitability of the employers are topics that
interest both the workforce and the groups that serve as its representatives.
Additionally, they are looking for facts that will help them judge whether the
company can afford to pay salaries, offer retirement benefits, and create job
prospects.
5. Creditors: In order to decide whether to prolong, sustain, or restrict the flow of
credit to a specific firm, short and long term creditors need to know if the amount
owed to them will be paid when due. To ascertain if their principal amounts and
interest accrued will be paid when due and whether to prolong, maintain, or
restrict the flow of credit to a firm, short and long-term creditors need information.
Such information helps them to understand the paying ability of the enterprise.
6. Customers: Customers are curious about an organisation’s future, especially if
they depend on it or have a long-standing relationship with it. Accounting
information increases or decreases a firm’s goodwill amongst its customers.
Q5. DEFINE THE TERM ‘ACCOUNTING’ AND GIVE FIVE (5) OBJECTIVES OF ACCOUNTING
Accounting is basically the systematic process of handling all the financial
transactions and business records. In other words, Accounting is
a bookkeeping process that records transactions, keeps financial records,
performs auditing, etc. It is a platform that helps through many processes, for
example, identifying, recording, measuring and provides other financial
information.

Objectives of Accounting
The functions of accounting facilitate the objectives of accounting.
There are many objectives of accounting. For instance,
1. Accounting facilitates the systematic management of the records
of the transaction and other financial data.
2. It gives an idea about the chances of profitability or failure or
losses.
3. The process assists the management by helping them to make
the best decisions. Besides that, accounting ascertains the
financial position of an organization.
4. It also helps in the evaluation of the employee and their working
efficiency, in addition, communicating and spreading the
accounting information to the user.
5. Accounting contributes the biggest to any organization by
preventing fraud and prevents profit risks.