Topic three

1. Topic three Measuring and recording transactions

2. Learning outcomes • In this lesson you will learn • Differences between subsidiary and general ledger • How to post transactions to the T Accounts • How to balance off T Accounts • Transferring balances to the trial balance • Preparation of financial statements from the trial balance Measuring and recording transactions

3. Recapitulation • Let us remind ourselves some of the important lessons we have learnt. • What is the accounting equation? • How do we record increase in • Assets • Liabilities • Capital • Income • Expenses Measuring and recording transactions

4. Recapitulation Measuring and recording transactions

5. Recapitulation • The table above forms the basic foundation of accounting • The double entry concept is also critical; • A transaction will always have both a debit and a credit entry. • Total debit amount(s) from a transaction should be equal to the total credit amount(s) Measuring and recording transactions

6. General ledger and subsidiary ledger • Subsidiary ledgers contain account listings say for customers or suppliers • General ledger is a control total of amounts in the subsidiary accounts • In the case of customers’ accounts, the subsidiary ledger will contain details of each customer • General ledger will show total amounts due from all customers Measuring and recording transactions

7. Subsidiary accounts example Measuring and recording transactions

8. General ledger Measuring and recording transactions

9. General account • The amount of $1,750 in the general ledger is simply a sum total of the figures in the three customers accounts. • Note that the transactions in customer account are posted according to the date of transaction • General ledger provides a summary of transactions for a period, in this case for the month of July 2011 Measuring and recording transactions

10. Posting to the T-Accounts • Do you recall the lessons learnt in topic two about posting transactions to the ledger accounts • Refer to the recap in the beginning of the topic on how to record changes in various accounts • The notes provide a summary of some of the most common types of transactions and how to post them Measuring and recording transactions

11. Posting to T-Accounts • Common transactions • Credit sales Dr Accounts receivables Cr Sales • Cash sales Dr Cash Cr Sales • Credit purchases Dr Stocks/inventories Cr Accounts payable Measuring and recording transactions

12. Posting to T Accounts • Cash purchases Dr Stocks/inventories Cr Cash • Cash payment for expenses Dr Expenses Cr Cash • See the next slide for a class exercise Measuring and recording transactions

13. Posting to T Accounts • Based on the guidance provided above, determine how to post the following • Payment for credit purchases • Receipt from credit customers • Sales discounts • Purchase discounts • Sales returns • Purchase returns • Cash payment for expenses • Accrued expenses • Purchase and disposal of property, plant and equipment • Capital contribution by owners • Borrowings Measuring and recording transactions

14. Prepare a trial balance • In Topic 5 we learnt that after transactions have been recorded in the T Accounts, they should be balanced off • Balances in each of the account should then be transferred to the trial balance • In case balances are not properly transferred, errors will occur • As we shall learn in Topic 5, such errors might cause the trial balance not to balance and should be identified Measuring and recording transactions

15. Prepare trial balance • Other errors committed at this stage will not cause the trial balance not to balance • Need for one to be keen when transferring balances from ledger accounts • To help us learn more about this process, we look at a detailed illustration Measuring and recording transactions

16. Illustration • Mr. Isaac Hassan is a retailer of motor parts in an establishment named Ouru Super Stores located in the heart of a busy town. At 1 Jan 2010 the opening balances for the business were as tabulated below. Measuring and recording transactions

17. Measuring and recording transactions

18. Additional information Opening balances for accounts payables and receivables were as per the table below; Measuring and recording transactions

19. For the 3 Months to end of March 2011, the following transactions were recorded. Measuring and recording transactions

20. Measuring and recording transactions

21. Additional information • VAT unless otherwise stated is charged at a rate of 17.5%. Required:- • Post the above transactions in the respective ledger balances • Prepare a trial balance as at 31 March 2011 • Prepare final accounts. Measuring and recording transactions

22. Suggested solution • To be worked out in class Measuring and recording transactions

23. Conclusion • The illustration provides an extensive coverage of the accounting cycle • Students should rework on the same and where challenges are faced seek help in the next lesson • See our course text for similar exercises Measuring and recording transactions

24. Questions Topic two: measuring and recording transactions