Bca100 Lecture 3 Notes

RECORDING BUSINESS TRANSACTIONS
Some common terms
1. Creditors: persons who supply goods to a business on credit

2. Debtors: customers who buy goods from a business on credit
3. Stock: goods for sale
4. Cash: cash in hand
5. Bank cash at bank
6. Drawings money withdrawn by the owner from the business for personal use
7. Expenses any money spent other than purchase of a fixed asset . The main expense in a
business is purchase of goods for resale. Other expenses are rent, wages, salaries,
stationery, rates, travelling expenses, postage, telephone, interest ,electricity, water bills,
commission etc.
8. Income any money earned apart from sale of a fixed asset . The main income in a
business is sale of goods /stock. Other expenses are interest received, commission
received, rent received, etc
Ledger accounts
A ledger is a book that contains accounts where business transactions are recorded. An account is
a page in a ledger where transactions are recorded. An account has two sides. The left -hand side
referred to as Debit and the right- hand side refered to as Credit. To record a transaction on the
left-hand side is to Debit. To record a transaction on the right- hand side is to Credit.
FORMAT OF ACCOUNT
DEBIT CREDIT
DATE DETAIL FOLIO AMOUN DATE DETAIL FOLIO AMOUN

L T S T
DATE Record the date of transaction
DETAILS record the name of account where the corresponding entry will be found
FOLIO is the reference of the page in the ledger on which that particular column is provided to
facilitate a ready reference of the page in the ledger on which that particular account appears.
AMOUNT record the amount in money involved in the transaction
FEATURES OF LEDGER
1. Ledger is an account book that contains various accounts to which various business transactions of a
business enterprise are posted.
2. It is a book of final entry because the transactions that are first entered in the journal or special purpose
Books are finally posted in the ledger. It is also called the Principal Book of Accounts.
3. In the ledger all types of accounts relating to assets, liabilities, capital, income and expenses are
maintained.
4. It is a permanent record of business transactions classified into relevant accounts.
5. It is the ‘reference book of accounting system and is used to classify and summarize transactions to
facilitate the preparation of financial statement
IMPORTANCE OF LEDGER
1. Knowledge of Business results
Ledger provides detailed information about incomes and expenses atone place. While finding out business results
the income and expenses are matched with each other.
2. Knowledge of book value of assets
Ledger records every asset separately. Hence, you can get the information about the Book value of any asset
whenever you need.
3. Useful for management
The information given in different ledger accounts will help the management in preparing budgets. It also helps the
management in keeping the check on the performance of business it is managing.
4. Knowledge of Financial Position
Ledger provides information about assets and liabilities of the business. From this we can judge the financial
position and health of the business.
5. Instant Information
The business always needs to know what it owes to others and what the others owe to it. The ledger accounts
provide this information at a glance through the account receivables and payables.
DOUBLE ENTRY SYSTEM
Each business transaction involves a two fold aspect,
(1) The yielding or giving of a benefit, and
(2) The receiving of that benefit.
In other words every business transaction involves exchange of value for value, or inter-change
of money or money’s worth or every business transaction involves receiving something having
value and giving something which has value. According to Double Entry System, both these
aspects of the transaction, the receiving aspect and the giving aspect, are recorded
For every transaction there must be an account debited and an account credited.
Effects of transactions on ledger accounts
An increase in assets is debited
A decrease in assets is credited
An increase in liabilities is credited
A decrease in liabilities is debited
An increase in capital is credited
A decrease in capital is debited
An expense is debited
A income is credited
Effects of transactions on specific accounts ledger accounts
SN TRANSACTION ACCOUNT ACCOUNT

DEBITED CREDITED
1 PURCHASE OF FIXED ASSET ON FIXED ASSET CASH
CASH
2 PURCHASE OF FIXED ASSET BY FIXED ASSET BANK
CHEQUE
3 PURCHASE OF FIXED ASSET ON FIXED ASSET SUPPLIER
CREDIT (NAME)
4 SALE OF FIXED ASSET ON CASH CASH FIXED ASSET
5 SALE OF FIXED ASSET BY CHEQUE BANK FIXED ASSET
6 SALE OF FIXED ASSET ON CREDIT BUYER (NAME) FIXED ASSET
7 PURCHASE OF GOODS ON CASH PURCHASES CASH
8 PURCHASE OF GOODS BY CHEQUE PURCHASES BANK
9 PURCHASE OF GOODS ON CREDIT PURCHASES CREDITORS
10 SALE OF GOODS ON CASH CASH SALES
11 SALE OF GOODS BY CHEQUE BANK SALES
12 SALE OF GOODS ON CREDIT DEBTORS SALES
13 PAYMENT TO CREDITORS BY CASH CREDITORS CASH
14 PAYMENT TO CREDITORS BY CREDITORS BANK
CHEQUE
15 RECEIVING CASH FROM DEBTORS CASH DEBTOR
16 RECEIVING CHEQUE FROM BANK DEBTOR
DEBTORS
17 OWNER INTRODUCING MONEY CASH CAPITAL
INTO THE BUSINESS IN FORM OF
CASH
18 OWNER INTRODUCING MONEY BANK CAPITAL
INTO THE BUSINESS IN FORM OF
CHEQUE
19 BORROWED A LOAN BANK LOAN
20 PAID EXPENSES BY CASH EXPENSES CASH
21 PAID EXPENSES BY CHEQUE EXPENSES BANK
22 RECEIVED INCOME BY CASH CASH INCOME
23 RECEIVED INCOME BY CHEQUE BANK INCOME
24 DEPOSITED CASH INTO THE BANK BANK CASH
25 WITHDRAW MONEY FOR BUSINESS CASH BANK
USE
26 WITHDRAW MONEY FOR PERSONAL DRAWINGS BANK
USE
ILLUSTRATION
The following information relates to Jones traders for the month of September 2020
Oct 1 started business with sh 200,000 in the bank
Oct 2 Borrowed a loan of sh50,000 from Equity bank
Oct 3 Bought goods on credit from Patrick sh15,300 and Jess sh41,620
Oct 4 Sold goods on cash sh 19,000
Oct 5 Took sh2, 000 cash and deposited in the bank
Oct 6 Sold goods on credit sh 13,000 to Risey
Oct 8 Sold goods on credit sh 3,000 to Taylor
Oct 10 Bought goods on credit from Patrick sh8, 300
Oct 13 Bought furniture by cheque sh 12,000
Oct 15 paid Patrick sh15, 000 by cheque
Oct 18 received a cheque of sh 10,000 from Risey
Oct 20 paid rent by cheque sh 7,000

Oct 23 bought stationery by cash sh 4,350
Oct 25 sold goods on credit to Medline sh 9,400
Oct 30 received an interest of sh 26,000 by cheque
Oct 31 Withdrew sh 10,000 from the bank for personal use and sh 6,000 for business use

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RECORDING BUSINESS TRANSACTIONS

Some common terms

1. Creditors: persons who supply goods to a business on credit

DATE DETAIL FOLIO AMOUN DATE DETAIL FOLIO AMOUN

DATE Record the date of transaction

AMOUNT record the amount in money involved in the transaction

1. Knowledge of Business results

2. Knowledge of book value of assets

3. Useful for management

DOUBLE ENTRY SYSTEM

Each business transaction involves a two fold aspect,

(1) The yielding or giving of a benefit, and

(2) The receiving of that benefit.

Effects of transactions on ledger accounts

An increase in assets is debited

A decrease in assets is credited

An increase in liabilities is credited

A decrease in liabilities is debited

An increase in capital is credited

A decrease in capital is debited

SN TRANSACTION ACCOUNT ACCOUNT

Oct 1 started business with sh 200,000 in the bank

Oct 2 Borrowed a loan of sh50,000 from Equity bank

Oct 4 Sold goods on cash sh 19,000

Oct 5 Took sh2, 000 cash and deposited in the bank

Oct 6 Sold goods on credit sh 13,000 to Risey

Oct 8 Sold goods on credit sh 3,000 to Taylor

Oct 10 Bought goods on credit from Patrick sh8, 300

Oct 13 Bought furniture by cheque sh 12,000

Oct 15 paid Patrick sh15, 000 by cheque

Oct 18 received a cheque of sh 10,000 from Risey

Oct 20 paid rent by cheque sh 7,000

Oct 25 sold goods on credit to Medline sh 9,400

Oct 30 received an interest of sh 26,000 by cheque

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