Accounting

Principles

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Unit 1: Introduction to Business Accounting > Also looks at summarising financial data into
financial statements; like income statements
Key things to know:
(statement of financial performance) and the
o Explain the difference between accounting and
balance sheet (statement of financial position).
bookkeeping.
(2)Bookkeeping – a narrower subset of accounting.
o Explain the meaning of profit.
> At a transactional level.
o Explain the different types of businesses (service and
> Primarily deals with the systematic and routine
trading) recording of financial transactions.
o Discuss the forms of business enterprises. > Maintaining the ledgers and journals (different
o Discuss the difference between cash and credit business cases in which you would record financial
transactions. statements/ records and other accountant
o Explain what a source document is and give examples of records that will help you track the company’s
it. income and its expenses)
o Explain why a business should file all source documents > Ensures financial transactions are correctly
(keep records of everything) documented and normally done on a daily basis.
o Explain groups into which source document can be filed.
o Discuss order in which source documents can be filed. 1. Types of businesses
- A business is owned by one or more people. Its main
purpose is to make a profit. It provides products/
Accounting and Bookkeeping
services to customers.
- Helps to decode the concept of profitability, which is the
- Service businesses and trading businesses
difference between sales and expenses.
(1)Service businesses
- Bookkeeping is just a small portion of accounting.
> Do not deal with physical products but with
- The differences between Accounting & Bookkeeping:
skills, expertise and experiences, usually based
(1)Accounting – a more comprehensive and complex
on time spent.
process.
> Primarily offer intangible services to customers
> Manages company-wide financial info.
(what you see on a daily basis)
> Includes things like recording of all financial
 Healthcare providers (doctors, nurses, etc)
transactions, classifying them into appropriate
 Accountant/ Law/ Educational firms
categories like revenue, expenses, assets and
(2)Trading businesses
liabilities.
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 > Buying and selling of tangible goods/ - Provides limited liability to owners (means that
merchandise (think of retail stores) whatever money you invest into the LLC, you only stand
> Spar, etc – get in the store, there’s a product to lose your investment – which means the business is
to buy the separate legal entity from the owner).
> If not wholesalers, e-commerce platforms - Company and owners are different
(takealot) - Provides owners limited liability and flexibility in
> They purchase products with the intention to management and taxation.
resell and e-businesses distribute/deliver the - Example > Private LLC: you cannot issue shares to the
goods to you. public.
2. Forms of business enterprises C > Public LLC: you can buy the shares (e.g.
(1)Sole Proprietor MTN, etc)
- Business owned and operated by single individual.
- The owner will have full control and is personally liable 3. Source documents
for debts. - Are original records that provide evidence of a business
transaction.
(2)Partnership - Proof that a purchase took place:
- Business owned by 2 or more individuals.
Examples: Details:
- Share profits, losses and responsibilities. > Invoices > Date
- General (equal-sharing) or Limited (where one person’s > Receipts > Amount
liability is limited). > Purchase > Name of both Buyer &
orders Seller
> Bank > Description of goods
(3)Corporation statements > Address of seller’s
- Legal entity is separate from its owner’s. business, etc
- Limits risks and Limited liability to shareholders. - Importance of filing Source Documents:
- Involve more complex governance & taxation. > Important for purpose of maintaining accurate
records, also helps in facilitating audits, also helps
(4)Limited Liability Company (LLC) in complying with tax laws and supporting legal
- Either private or public LLC requirements.
- Combine characteristics of both Partnerships and > Allows for transparency and accountability of
Corporations. financial transactions.

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 - Different groups of filing Source Documents: Unit 1: Introduction to Business Accounting
> Can be grouped into categories based on purpose Key Learning Outcomes
and content. 1. Differentiate between Accounting and Bookkeeping
o Related concepts.
> Common groups include:
o Bookkeeping ends where accounting begins.
› Sales documents (journals and invoices) 2. Define and Explain Profit
› Purchase documents (suppliers’ invoices, payment o Understand what profit is.
receipts) o Learn how it is calculated (sales – expenses).
› Financial documents (bank statements) 3. Identify Types of Businesses
› Personnel documents (employee timesheets, payroll o Service businesses
records) o Trading businesses
o Manufacturing businesses
- Order for filing these Source Documents: 4. Discuss Forms of Business Enterprises
> May vary from company to company, it depends on o Sole proprietorship
the organisations’ needs and their chosen filing o Partnerships
o Limited companies
system.
5. Understand Business Transactions
> Could be filed: o Difference between cash and credit transactions.
o Impact of each on financial recording.
› Chronologically (date) › Numerically (doc.
6. Define and Provide Examples of Source Documents
› Alphabetically (name/ doc. reference number)
o Proof of a transaction.
type)
o Examples will be covered in detail.
Module Overview
7. Explain the Importance of Filing Source Documents
 Lecturer Introduction: Lecturer introduces the module and its o Vital for keeping accurate records.
structure. o Crucial for audits, investor confidence, and accountability.
 Module Focus: Basics of accounting spread over 10 chapters.
8. Understand Grouping and Filing of Source Documents
 Purpose: Emphasis on financial literacy as crucial for better
o Documents are categorized for easier recording.
decision-making.
o Prepares students for Chapter 5 (journals and recordings).
 Teaching Approach:
9. Discuss the Order of Filing Source Documents
o Concept explanation.
o Helps in systematic record-keeping and tracking.
o Reinforcement through practical exercises.
o Focus more on examples than pure theory.
Unit 2 & 3: Key Concepts in Accounting
o Consistent structure in all chapters:
1. Specific outcomes. 1. Difference Between Accounting and Bookkeeping
2. Key concepts. Accounting
3. Practical exercises.  Broader process encompassing financial information
management.
 Includes:
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 o Recording financial transactions. 3. Forms of Business Enterprises
o Classifying them into categories (revenue, expenses, A. Sole Proprietorship
assets, liabilities).  One owner has full control.
o Summarizing data into financial statements:  No separation between business and owner.
 Statement of Financial Performance (Income Statement)  Owner is personally liable for debts and losses.
 Statement of Financial Position (Balance Sheet) B. Partnership
o Analysing and interpreting results for decision-making.  Business owned by 2 or more people.
 Purpose: Helps stakeholders assess financial health and  Governed by a partnership agreement (profit-sharing, roles,
profitability. responsibilities).
Bookkeeping  Types:
 Subset of accounting focused on routine, daily record-keeping. o General Partnership – Equal sharing and responsibility.
 Includes: o Limited Partnership – Liability limited to amount invested
o Maintaining ledgers (e.g. income and expense accounts). (e.g., sleeping partner).
o Recording in journals (organized financial records). C. Corporation (Company)
o Supporting accounting through documentation and  Separate legal entity from its owners.
transaction tracking.  Limited liability for shareholders.
 Purpose: Ensures all transactions are accurately and  More complex governance and taxation.
consistently recorded.  Note: New corporations can't be registered in SA anymore
Summary: Bookkeeping is the foundation, while accounting builds (closed corporations phased out).
on it with analysis and interpretation. D. Limited Liability Companies (LLCs)
 Blend of partnership and corporation features.
2. Types of Businesses  Offers:
A. Service Businesses o Limited liability
 Provide intangible services (no physical goods). o Flexible management and tax structure
 Examples:  Can be:
o Hospitals, clinics (healthcare) o Private Limited Company (cannot issue shares to the
o Accounting/consulting firms public)
o Law firms o Public Limited Company (can sell shares to the public via
o Schools/colleges (e.g. Boston College) stock exchanges, e.g., Clicks, Checkers)
 Purpose: Offer skills, knowledge, and expertise to clients. Summary:
B. Trading Businesses  Owner = Business ➜ Sole Proprietorship, Partnership
 Buy and sell tangible products.  Business ≠ Owner ➜ Corporation, LLC (Private or Public)
 Examples:
o Retail stores (Checkers, Crazy Store) 4. Source Documents
o E-commerce (Takealot) Definition
 Purpose: Purchase goods and resell for profit.  Original proof of a business transaction.

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 Used for verification, audits, tax compliance, and legal
purposes.
 Examples:
o Invoice – Proof of sale/purchase.
o Receipt – Proof of payment.
o Purchase order – Document requesting goods/services.
o Bank statement – Record of financial activity.
Purpose of Filing Source Documents
 Maintain accurate records.
 Enable audits and resolve disputes.
 Comply with legal and tax regulations.
 Promote transparency and accountability.
Groups of Source Documents
1. Sales Documents - Invoices, sales orders, customer receipts
2. Purchase Documents - Purchase orders, supplier invoices,
payment receipts
3. Financial Documents - Bank statements, financial statements,
expense reports
4. Personnel Documents - Employee timesheets, payroll records, HR
records
Filing Methods Exercise 1.1 – Key Questions and Concepts
 Chronological – By date 1. What is a Business Transaction?
 Alphabetical – By name/type  A business transaction refers to an exchange between two
 Numerical – By document number parties, typically involving the transfer of a product or a
 Should be easy to retrieve and organized according to service.
business needs.  Example: A company buys a vehicle from a dealership. The
dealership (seller) provides the vehicle, and the company
Conclusion (buyer) pays or agrees to pay for it.
Units 2 and 3 build a strong understanding of: 2. How many parties are involved in a business transaction & who
 The structure and purpose of accounting systems. are they?
 The different business models and legal structures.  Normally, two parties are involved: the buyer and the seller.
 The critical role of documentation in maintaining financial  These parties can be individuals or businesses.
integrity.  Emphasis is placed on using the term “parties” rather than
“people” because the entities involved can vary.
3. Name the Two Types of Business Transactions
 Cash Transactions
 Credit Transactions
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4. Explain the Difference Between Cash and Credit Transactions  Understand the format: While businesses may have slightly
 Cash Transaction: Immediate payment is made when the different layouts, the core elements remain consistent (e.g.,
product or service is received. date, item details, VAT, total).
 Credit Transaction: Payment is delayed, based on an  Be able to complete a till slip: Students should know how to
agreement (e.g., pay in 30, 60, 90, or 120 days). accurately fill in all necessary fields on a till slip.
 Example: Buying groceries and paying immediately = cash;
buying stock on account = credit. 3. Cash Sales Invoices
5. What is a Source Document?  Describe a cash sales invoice: A document issued when a
 A source document serves as proof that a business transaction sale is made and payment is received in cash.
took place.  List information on a cash sales invoice: Includes details such
 It provides legal and verifiable evidence of a transaction. as seller and buyer info, date, items sold, quantity, unit price,
 Example: A receipt from a store when company stationery is total amount, and payment received.
purchased, or an invoice from a supplier.  Complete a cash sales invoice: Students must be able to fill
6. Explain the Difference Between a Product and a Service Sale out all relevant sections correctly.
 Product Sale: Involves a tangible item (something physical).
o Example: A cell phone, groceries, or a vehicle. 4. Cash Receipts
 Service Sale: Involves something intangible like a skill or  Describe what a receipt is: A proof of payment issued to the
experience. buyer.
o Example: Mobile data service, consulting, or banking  List the information required on a receipt: Date, receipt
services. number, amount, payer details, reason for payment, and
 Some businesses offer both (e.g., MTN sells phones = product; signature.
airtime/network = service).  Know the format of a cash receipt.
Unit 2: Cash Transactions  Prepare a proper cash receipt.
2.1 Learning Outcomes
1. Understand Cash Transactions
5. Deposit Slips
 Explain what a cash transaction is: A cash transaction refers
 Describe what a deposit slip is: A form used when depositing
to any business exchange where payment is made in cash
money into a bank account.
immediately at the time of the transaction.
 List the necessary information: Account number, depositor's
name, amount (cash or cheque), date, and total deposit.
2. Till Slips  Understand the format.
 Describe what a till slip is: A printed record generated from a  Be able to prepare a deposit slip.
point-of-sale system after a sale is made—commonly seen in
retail stores (e.g., Checkers). 6. Credit Card Slips
 List the importance of information on the till slip: Although
 Describe a credit card: A card allowing users to borrow
often discarded, the data on a till slip is essential in
money for purchases, which they repay later with possible
accounting for sales, tax, and auditing.
interest.

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  List information on a credit card slip: Cardholder’s name,
date, transaction amount, merchant name, and authorization
number. Conclusion
 Know the format of a credit card slip.
These outcomes ensure that students:
 Follow the trail: Be able to trace transactions back using card
 Understand all documentation related to cash transactions.
slips for recordkeeping and reconciliation.
 Know how to read and prepare essential transaction
documents like slips, invoices, receipts, and orders.
7. Debit Cards  Can differentiate between payment methods and their
 Describe a debit card: A card used to make payments that practical use in daily business and personal finance.
directly deduct funds from the user's bank account.
 Explain the use: Used in physical stores, online shopping, and
for ATM withdrawals.

8. Electronic Transfers
 Explain what an electronic transfer is: The process of moving
money from one account to another using internet banking
or banking apps.
 Explain how it works: Typically done through apps or online
banking platforms; requires details like recipient’s account
number and bank code.

9. Debit Orders vs. Stop Orders

 A debit order is: An arrangement where a company debits
your account regularly for payments like subscriptions, loans
or gym fees.
 Explain its use: Automates recurring payments for
convenience.
 Explain what a stop order is: A scheduled payment initiated 2.2: Cash Receipt / Deposit Slips:
by the payer, usually set up for fixed-term payments like
Overview: Importance of Cash Transactions
savings or transfers.
 Use: Provides control over timing and amount of outgoing  Cash is vital to business survival, often referred to as “cash is
payments. king.”
 Without sufficient cash flow, business operations cannot
continue.

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 Cash is not only physical (notes and coins)—only ~5% is Information on a Cash Sale Invoice
physical; ~96% of cash transactions happen electronically (via  Title of document
debit cards, credit cards, or mobile apps).  Unique invoice number
 It’s important to understand all types of cash handling,  Business details
including cash receipts and deposit slips, both of which are  Tax (VAT) registration information (explored more in
foundational in accounting. chapters 4 & 10)
 Payment method (cash or card)
1. Cash Receipts  Itemized breakdown of sales
Definition and Role Importance
 A cash receipt is proof of a cash transaction where a customer  These help in balancing the till and tracking every
pays immediately—either for: transaction for fraud prevention and accountability.
o Cash sales (e.g., buying a product and paying immediately).
o Payment of accounts (e.g., settling an Edgars account after 3 4. Cash Receipts (Continued)
months). When Issued: when customers settle accounts/ make any form of
cash payment.
2. Till Slips Information on a Cash Receipt
Function: A till slip is a small but vital document that records  Document name and number (often in alphanumeric order)
details of a cash transaction at the point of sale.  Name, address, and telephone number of the business
Information Found on a Till Slip  VAT registration number
 Name of the business (e.g., Pick n Pay)  Date of the transaction
 Date of transaction  Payment method (optional)
 Items purchased (with descriptions)  Details of the sale (unit prices, total)
 Total cost  Signature of the person completing the invoice
 Amount received from customer Formats: Can be handwritten (small businesses) or computer-
 Change given generated (modern systems).
 Till slip number Summary of Receipt Contents
Purpose  Receipt number  Purpose of payment
 Serves as proof that a cash transaction occurred.  Business information  Signature
 Both buyer and seller keep records for auditing, tax, and  Customer’s name
control. 5. Bank Deposits
Why Deposit Cash?
3. Cash Sale Invoice
 Cash is not left on premises overnight.
Modern Usage
 For safety and accountability, businesses deposit cash into
 With computerized systems, businesses often issue cash their bank account daily.
sale invoices rather than physical till slips.
 One copy is given to the customer, and the business
retains a digital copy.
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6. Deposit Slips o Credit Cards
Definition o Debit Cards
 A deposit slip is used to record and confirm the amount of o Debit Orders (used for recurring monthly payments)
cash being deposited into the business’s bank account.
Steps Before Depositing 2. Credit Cards
 Business reconciles the day’s cash (from till slips, invoices, Definition & Function
receipts) and prepares the deposit slip with the total  A credit card is a plastic card issued by a bank that allows
amount. users to borrow funds (within a limit) to make purchases.
Information on a Deposit Slip  Users repay the borrowed amount later, often with interest if
 Name of the business or individual depositing the funds not paid in full by the due date.
 Branch name and code where the account is held  Credit cards eliminate the need to carry cash but can lead to
 Date of the deposit overspending or debt if not managed carefully.
 Business bank account number
 Name and contact number of the depositor Getting a Credit Card
 Breakdown of funds:  Banks issue credit cards only after checking your credit
o Notes (e.g., number of R200 or R100 bills) history and affordability.
o Coins (bronze, nickel, etc., each listed separately)  You must show proof of income and good creditworthiness to
 Signature of the depositor qualify.
 Optional reference (used for internal tracking or customer
identification) Details Found on a Credit Card
 16-digit card number
Conclusion: Why It All Matters
 Expiry date
 Understanding cash receipts, till slips, invoices, and deposit  Cardholder’s name
slips is critical in:  Bank’s name
o Ensuring cash flow accuracy  Card type (e.g., Visa, MasterCard, American Express)
o Preventing fraud or theft  Subcategories (e.g., Gold, Silver) based on credit limits
o Maintaining proper financial records  A signature panel on the back
o Meeting tax and legal compliance

Using a Credit Card

2.3: Cash Payments:
 Most shops use Speedpoint machines to process payments.
1. Introduction to Cash Payments
 Payment process:
 While cash receipts involve money coming into the business, 1. Swipe or tap the card.
cash payments refer to money going out of the business. 2. Cashier enters the amount.
 In modern transactions, cash payments are rarely physical. 3. Customer inputs their PIN.
The most common forms of payment are: 4. Transaction is either approved or declined.
o Electronic Transfers (EFTs)

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 5. Debit Orders
Risks & Disadvantages Definition
 Transaction fees (typically 2%–7% of the transaction).  A debit order is a recurring, automated withdrawal from your
 Risk of theft or loss, although banks now offer features to bank account.
immediately block lost/stolen cards.  Set up for regular payments like:
 Potential for debt if not used responsibly. o Medical aid
o Gym memberships
3. Debit Cards o Loan repayments
Definition & Function o Insurance
 Debit cards look like credit cards but are linked to the user’s Advantages
bank account.  Convenient – no need to remember due dates.
 When using a debit card, you're spending your own money  Time-saving – payments are made automatically each month.
(e.g., from your salary or savings).
 No borrowing is involved—only available funds can be used. Conclusion: Principles of Cash Payments
Details Payment
Uses Key Features
 Requires a PIN (usually 4–5 digits) for secure transactions. Method
 Acts as a safer, cashless payment method. Borrowing for Uses bank’s money; risk of interest and
 Same card information as credit cards (name, card number, Credit Card
purchases debt
expiry date).
Direct payment Requires existing balance; safer and
Debit Card
from own funds more controlled
4. Electronic Transfers (EFTs)
Electronic One-time Fast, efficient, and done via online
Definition
Transfer payments banking
 EFTs are electronic banking transactions used to send money
Recurring
from one bank account to another. Automatic and reliable; requires setup
Debit Order monthly
 Done via banking apps or websites, allowing quick, with the service provider
payments
contactless, and safe payments.
Usage
 Common for: Exercise 2.1 – Electronic Transfers
o Paying bills  Objective: Complete electronic transfer slips for three different
o Settling invoices transactions by Action Computers.
o Transferring money between personal or business  Key Transactions:
accounts 1. Purchase of Office Furniture
Key Points  R12,000 paid via electronic transfer to Smart Furniture.
 Details included: date (11 March 20X4), time, trace ID,
 EFTs reduce the need for physical banking.
payer (Action Computers), payee (Smart Furniture),
 Safe and traceable—ideal for modern business and personal
account number, bank details, branch code, and
transactions.
reference ("furniture").
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 2. Payment for Utilities o Used when no till slip system is available (e.g., small
 R1,432 paid to City of Tshwane for water and electricity. businesses).
 Similar details entered: Apsa Bank, branch code, o Bought from stores like CNA or PNA with duplicate copies
reference “utilities”. for records.
3. Owner’s Drawings o Still serves as valid proof of payment.
 R1,000 withdrawn by the owner for private use (classified
as “drawings”). 3. What is a Transaction Account:
 Payment also processed electronically with the same o Basic bank account for day-to-day transactions.
documentation structure. o Salary gets deposited here.
o Used for card swipes, payments, transfers.
Exercise 2.2 – Cash Sale and Proof of Payment o Spending is limited to available balance.
 Scenario: On 15 July 20X4, Action Computers made the ffg. o Often has monthly service fees.
cash sales:
o 1 Stiffy Disk – R45
o 1 Computer Keyboard – R195
o 1 Printer Cartridge – R850

 Key Tasks:
 Create a Tax Cash Sale  Create an Electronic
Invoice: Transfer Slip:
 Included: item  Date: 15 July 20X4
descriptions,  Time: 10:45
quantities, unit prices,  Trace ID (auto-
total prices. generated)
 All prices inclusive of  Payer: Brown & Brown
VAT.  Payee: Action
 Payment method: Computers
Electronic Transfer  Bank details and
 Total Sale Amount: reference included
R1,090 Exercise 2.4: Cash Deposits and Related Concepts
Exercise 2.3 – Short Answer Questions 1. Three Breakdown Cash Categories for Bank Deposits
1. Purpose of a Cash Register Slip / Invoice:  Notes: Paper money (e.g. R200, R100, R50, R20, R10).
o Acts as proof of payment for the customer.  Nickel (Silver coins): E.g. R5, R2, R1, 50c.
o Also, proof for the business that a sale occurred.  Bronze (Brown coins): E.g. 10c, 20c, 5c, 2c.
o Prevents theft or loss of goods.
2. Difference Between a Stop Order and a Debit Order
2. Why a Receipt is Issued:  Stop Order:
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 oYou instruct your bank to make a payment to someone Score Range Rating
(e.g. sending R1000 to your mother monthly). 681–766 Good
o Bank sends money automatically at regular intervals.
 Debit Order:
767–999 Excellent
o You authorize a company (e.g. Virgin Active) to deduct
money from your bank account.
o The company pulls the funds directly from your account
5. Completing a Cash Deposit Slip Example
with your permission.  Cash Breakdown:
o Notes:
 R20 × 35 = R700
3. What is "Amount Tendered"?
 R200 × 10 = R2000
 The amount of money given to a cashier when making a
 Total Notes = R2700
purchase (e.g. paying R20 for bread).
o Nickel (Silver coins):
 It’s the physical cash handed over in a transaction.
 R2 × 90 = R180
 R5 × 30 = R150
4. What is a Credit Rating?  Total Nickel = R330
 A credit rating is a score that reflects your creditworthiness o Bronze (Brown coins):
(your ability to repay debt).  20c × 325 = R65
 Factors:  50c × 48 = R24
o How much debt you currently have  Total Bronze = R89
o How much you earn  Subtotal (Cash Total) = R2700 + R330 + R89 = R3119
o How well you’ve repaid debt in the past  Electronic Transfers:
 Key Points: o From Mkize (Nedbank): R2490
o No debt history = bad credit rating (you are "unproven") o From Naidoo (FNB): R5400
o Too much debt = bad credit rating (you are o Total EFTs = R7890
overextended)  Grand Total = R3119 + R7890 = R11,009
 Example:  Depositor: Nick Nord
o Opening a clothing account and paying it off improves  All details (account numbers, bank names, branch codes) to
credit score. be filled in based on Chapter 1 data.
 Credit Score Ranges: Exercise 2.5: Electronic Payments and Card Transactions
Score Range Rating 1. Difference Between a Credit Card and a Debit Card
0–486 Poor  Credit Card:  Debit Card:
487–526 Unfavourable o You borrow money from the o You use your own money
bank (loan). directly from your account.
527–582 Below Average
o You pay interest on the o No interest because it’s not
583–613 Average money used. a loan.
614–680 Favourable

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2. What is a Speedpoint Machine?  Focuses on credit transactions, which are very common in
business.
 A card-swiping device used by retailers to receive payments.
 Most businesses handle both cash and credit transactions.
 Issued by banks (e.g. FNB, Standard Bank).
 Used for both debit and credit card payments. 🔹 Credit Purchases: Step-by-Step Process
3. What is a PIN Number? 1. Order Process
 A Personal Identification Number used to authorize card  Understand & explain the sequence of steps for making a
transactions. credit purchase:
 Enhances security. 1) Identify stock needs
 Many banks allow tap-to-pay for small amounts no PIN 2) Request internal approval
needed. 3) Contact supplier for quotes
 Higher amounts require PIN to prevent theft or fraud. 4) Place an order
4. What is a Merchant Copy? 5) Receive delivery
6) Verify received goods
 When paying by card, two receipts are generated:
7) Record the purchase
o Merchant’s Copy: For the business (sometimes signed by
customer).
2. Forms to Be Completed During Credit Purchases
o Customer Copy: For your own records.
a. Stock Report
5. Is a Card Transaction Credit or Cash?
 Used to determine what stock is needed.
 From the business’s perspective, it’s always a cash  You should be able to:
transaction. o List the information that goes on a stock report
 Whether you pay with a debit or credit card, the business o Prepare a stock report
receives money immediately. b. Requisition Form
6. What is Electronic Banking?  A formal request to purchase specific goods.
 Doing banking online or via mobile apps.  You should be able to:
 Improves customer experience and bank efficiency. o List required information on the form
 Benefits: o Prepare a completed requisition form
o Faster o Offers services like: c. Quotation
o Cheaper  Payments  Request sent to suppliers asking for prices and terms.
o Avoids long  Airtime/electricity purchases  You should be able to:
queues  Investments o List quotation information (supplier details, item
 Funeral plans descriptions, prices, terms)
Unit 3: Credit Transactions o Prepare a quotation
3.1 Introduction/ Learning Outcomes d. Order Form
Overview  Sent to supplier to confirm purchase after quotation is
 In Chapter 2, we covered cash transactions (payments made accepted.
immediately).  You should be able to:

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 o List the details on an order form (product, quantity, prices, 🔹 Return of Goods
delivery date) 1. Return Situations
o Prepare a complete order form  Occurs when:
e. Delivery Note o Goods are damaged
 Document received when goods are delivered. o Incorrect items were delivered
 You should be able to: o The buyer no longer needs the item
o List key information (date, item names, quantities, condition, 2. Credit Note vs. Debit Note
supplier)
a. Credit Note
o Prepare a delivery note
 Issued by the seller when goods are returned by the buyer.
f. Goods Received Note
 Reduces the amount owed by the buyer.
 Confirms the items delivered match the delivery note.
 You should be able to:
 You should be able to:
o Explain when it's issued
o List information to include (quantities received, condition,
o List required information
item match)
o Prepare a credit note
o Prepare a goods received note
b. Debit Note
g. Tax Invoice
 Issued by the buyer to request a credit for returned goods.
 Issued by the supplier for payment purposes.
 Used as a formal claim for a refund or credit.
 You should be able to:
 You should be able to:
o List the information needed (supplier details, buyer info, VAT
o Explain when it's issued
no., total)
o Prepare a tax invoice o List required information
o Prepare a debit note
🔹 Credit Sales: Process and Forms
Summary of Chapter
1. Steps to Follow
 This chapter covers credit transactions in detail:
 Understand the order to follow in making a credit sale.
o Credit Purchases
 Includes providing the customer with the correct
o Credit Sales
documentation & terms.
o Returns (debit notes and credit notes)
 You will learn how to handle documentation and understand
2. Forms to Be Completed During Credit Sales
the flow of credit transactions in a business.
 Same types of documents apply, but from the seller’s point
of view:
o Sales order
o Delivery note
o Tax invoice

3.2 Credit purchase/ Tax Invoice

16
Overview o Supports informed decision-making about what and when
 This chapter explores credit purchases, a core concept in to buy
business and commerce. 2. Requisition Form
 Also known as trade credit, credit purchases allow businesses  Purpose: An internal request to buy goods.
or individuals to acquire goods immediately and pay for them  Prepared by: Sales/ department manager after reviewing the
later—typically within 30, 60, or 90 days. stock report.
 Credit purchases help businesses manage cash flow while  Includes:
maintaining operations. o Business name
o Requisition number
🔹 What is a Credit Purchase? o Date
 A credit purchase is when goods or services are bought but o Department requesting the goods
payment is delayed to a future date. o Item descriptions
 Example: Buying clothes on account at Edgars or Mr Price— o Quantities needed
goods are taken home now; payment is made over several o Product codes
months. o Selling prices
 This benefits: o Manager’s signature
o The buyer, by getting the goods immediately.  Role: Acts as a bridge amid identifying needs and initiating
o The seller, by securing future payment and customer procurement.
loyalty.
3. Order Form
 Purpose: Formal document sent to the supplier to place an
🔹 Key Documents in Credit Purchases Process
order.
Document play a specific role from requesting to receiving &  Prepared by: Buyer, after requisition approval.
paying for goods.  Includes:
1. Stock Report o Buyer’s business details
 Purpose: Helps track current stock and determine reordering o VAT registration number
needs. o Delivery address and arrangements
 Prepared by: Inventory manager. o Supplier details
 Includes: o Delivery date
o Business name o Requisition/quotation numbers
o List of required items (e.g. computers, keyboards) o Detailed item description (quantities, unit prices)
o Current stock levels o Trade/settlement discounts (if applicable)
o Reorder level: When to restock o Name and signature of buyer
o Maximum stock level: Maximum quantity allowed o Total order value
o Date of report  Role: Ensures the procurement process is clear and legally
o Name of person responsible for stock valid.
 Benefits:
o Identifies fast-moving vs slow-moving stock

17
4. Quotation o Name and signature of receiving person
 Purpose: Supplier’s response to a buyer’s price request.  Role:
 Requested by: Buyer before placing the order. o Verifies and confirms delivery
 Includes: o Aids inventory tracking and accounting
o Supplier name and address 7. Tax Invoice
o Date of quotation  Purpose: Official billing document from the supplier to the
o List and description of goods buyer.
o Unit prices (incl. or excl. VAT)  Legal requirement for financial records and VAT claims.
o Expiry date of quote  Includes:
o Supplier’s signature o Supplier’s name, address, VAT number
 Use: Buyer compares quotes to choose the best supplier in o Tax invoice number
terms of price and value. o Date of transaction
o Buyer’s information (if applicable)
5. Delivery Note
o List of items, quantities, unit prices
 Purpose: Sent with goods from the supplier to confirm what o Total invoice value (incl. VAT if applicable)
was delivered.  Use:
 Includes:
o Acts as proof of purchase
o Supplier details
o Used for bookkeeping, tax, and auditing
o Delivery note number
o Delivery/purchase date
🔹 Key Takeaways
o Item descriptions and quantities
o Unit prices (optional)  Credit purchases allow goods to be bought now and paid
o Name and signature of the person receiving goods for later, helping manage business finances.
 A series of source documents ensures that the process is
 Use: Used by the buyer to verify if the correct items and
quantities were delivered. orderly, transparent, and traceable.
 Accurate documentation supports better inventory
6. Goods Received Note (GRN) management, supplier relationships, and financial
 Purpose: Confirms that goods have been received as per the reporting.
delivery note.
 Prepared by: Purchaser upon receiving goods.
 Includes:
o Business details
o GRN number
o VAT number
o Date of receipt
o Requisition/quote numbers
o Description and quantity of items received
o Unit prices and total value

18
  Quantity received by customer
 Name and signature of the person receiving the goods
 Purpose: Helps verify that the correct goods were delivered
and serves as proof of delivery.

3.3: Credit Sales/ Returns of Goods and credit Note Issuance 3. Tax Invoice and Invoicing Process
🔹 Definition and Importance Once goods are delivered, an invoice is issued to the customer.
 Credit sales refer to transactions where goods are sold, but 🔸 Tax Invoice Includes:
payment is deferred to a later date.  Supplier's and customer's details (name, address, VAT
 This allows customers flexibility in payment while still number)
receiving the goods immediately.  Invoice number and transaction date
 It is a common method used by businesses to boost sales and  Item codes, descriptions, and quantities
cater to customers who may not have immediate cash.  Total invoice value
 Notes on any errors or omissions (for corrections like
🔹 The Credit Sales Process incorrect VAT)
1. Order Placement 🔸 Invoicing Process:
 Initiated by the customer who wants to purchase goods on  Invoices are created in three copies:
credit. o Original goes to the customer
 The customer places an order specifying: o Copy 1 is kept by the accounts department
o Type of goods o Copy 2 is used for filing
o Quantity  The invoice sets the payment terms and acts as a legal and
o Any additional preferences financial record of the sale.
 This serves as the starting point of the transaction.
🔹 Goods Return Process
2. Goods Preparation & Delivery Note Sometimes, customers return goods due to defects or errors.
 Once the order is received:
o The company checks inventory, prepares, and packages 4. Debit Note (Issued by Customer)
the goods.  A debit note is a formal notification from the buyer to the
o A Delivery Note is created in triplicate (3 copies). seller that goods are being returned.
 It is used to request a refund or correction of the invoice.
🔸 Delivery Note Must Include: 🔸 Debit Note Must Include:
 Supplier’s name and VAT registration number  Purchaser’s information and VAT registration number
 Unique delivery note number  Unique debit note number
 Recipient (customer) details  Supplier’s details
 Date of delivery  Date of return
 List of goods delivered: codes, descriptions, unit prices,  Quantity and description of goods returned
total prices  Unit prices
19
  Reason for return (e.g., damaged, incorrect item,  All documents must be accurate, authorized, and well-
overcharge) documented to ensure smooth business operations and
 Reference to the original invoice number, invoice date, and compliance.
delivery note number

5. Credit Note (Issued by Supplier)

 If the supplier agrees with the complaint, they issue a credit
note to adjust the buyer’s account.
 It acts as confirmation that the buyer is owed a credit or
refund.
🔸 Credit Note Must Include:
 Supplier’s details and VAT number
 Unique credit note number
 Customer’s account number
 Date of return
 Description and quantity of returned goods
 Reason for return
 Total value of goods being credited
 Authorization signatures to validate the document

🔹 Purpose and Use of Credit Notes & Debit Notes

 These documents help maintain accurate financial records,
correct mistakes, and resolve disputes.
 They are essential for proper accounting, inventory control,
and customer service.

🔹 Final Takeaways
 Credit sales involve a step-by-step process: Order → Delivery
→ Invoicing → Returns (if any).
 Key documents used:
o Order Form
o Delivery Note
o Tax Invoice
o Debit Note
o Credit Note

20
3.4 Credit Purchases (Action Computers) 🔹 Step-by-Step Credit Purchase Process
🔹 Overview 🔸 Step 1: Stock Report Sheet 🔸 Step 2: Requisition Form
Credit purchases occur when a business buys goods from  Prepared by: Joe Mulefe (Stock  Prepared by: Mike Kent (Sales
suppliers but pays at a later date, not immediately. The process Checker) Manager)
involves a sequence of documentation and approval, from  Purpose: To assess inventory  Purpose: Official request to
levels. purchase stock based on the stock
identifying stock needs to receiving goods and paying invoices.
📄 Stock Report Includes: report.
🔹 Scenario Example: Action Computers  Current stock on hand 📄 Requisition Form Includes:
The scenario involves a business named Action Computers and  Quantity of stock needed  Details of stock required
several employees playing different roles in the credit purchase  Maximum stock allowed  Quantities
process.  Helps identify reorder levels  Reason for purchase
✅ This report is submitted to the  Product codes and selling prices
Sales Manager. ✅ Acts as a bridge between internal
stock management and procurement.
🔸 Step 3: Requesting
Quotations 🔸 Step 4: Order Form
 Handled by: Vish Naidu  Prepared by: Vish Naidu after
(Procurement/Quotations selecting the best quote
Officer)  Purpose: To place an official order
 Purpose: To obtain quotes from with the chosen supplier.
different suppliers. 📄 Order Form Includes:
📄 Quotation Process:  Company details
 Contacting multiple suppliers  Delivery address and contact info
 Comparing prices, quality, and  List of products with item codes
terms and prices
 Selecting the most cost-  Order number and reference to
effective supplier the requisition
✅ Vish evaluates the quotes and  Total cost and any applicable
chooses the best one. discounts
✅ This document formalizes the
<<
purchase.

🔸 Step 5: Goods Delivery 🔸 Step 6: Supplier’s Invoice

 Supplier delivers goods to  Issued by the Supplier to
Action Computers. Action Computers after
Two Documents Involved: delivery.
1. Delivery Note (from the 📄 Invoice Includes:
supplier)  Supplier and buyer details
o Confirms what the supplier  Invoice number and date
has delivered.  VAT registration numbers
o Includes item descriptions,  Description of goods,
codes, quantities, and delivery quantities, and unit prices
21
 details.  Total amount payable 🔹 What is a Stock Report Form?
2. Goods Received Note (GRN) ✅ This is the final document in the The Stock Report Form, also called the Inventory Report Form, is
(completed by Action credit purchase process. It is used the first step in the credit purchase process. It helps businesses
Computers) for recording the transaction and
track their current stock levels and identify when and what needs
o Confirms what has actually making future payments.
been received.
to be reordered.
o Must match the delivery note.
o Includes date received, item 🔹 Who Prepares It?
list, and who checked and  Prepared by: Joe Mulefe (Stockroom/Inventory Clerk)
received the goods.  Sent to: Mike Kent (Sales Manager)
✅ These documents are compared
to ensure accuracy of delivery.
🔹 Key Components of the Stock Report Form
🔹 Summary of the Credit Purchase Flow Each line item on the form includes the following details:
Ste Responsible Field Description
Document Purpose
p Person
The product being monitored (e.g., HP Compaq,
1 Stock Report Joe Mulefe Assesses stock needs Item Name
Sony VAIO, etc.)
2 Requisition Form Mike Kent Requests purchase of stock
Product Code Unique identifier for each item (e.g., PCVR22)
3 Quotation Request Vish Naidu Obtains best prices
Stock Level
4 Order Form Vish Naidu Officially places order Quantity currently in stock
(units)
5 Delivery Note Supplier Details goods delivered
Reorder The minimum stock level that triggers the need to
Goods Received Action
Verifies goods received Level reorder
Note Computers
6 Invoice Supplier Billing document for payment Maximum The highest quantity that can be ordered for that
Level item
Key Takeaways
Reorder Based on the gap between current stock and
 The credit purchase process is systematic & involves internal
approvals, supplier interaction, and document verification. Amount maximum, plus budget considerations
 Documents must be accurately prepared & retained for: Inventory
control. Financial accounting. Legal and audit purposes.
 This process ensures that the business maintains stock availability 📌 Example:
without immediate cash outflow. For the Sony VAIO (Code: PCVR22), current stock is 5 units,
3.5 Stock (Inventory) Report Form (Action Computers) reorder level is 4, and max is 8. Since stock is above the reorder
This section focuses on the inventory management process, level, no need to reorder.
beginning with the stock report form—a critical document for But for HP Compaq, stock is at 3 units, and reorder level is 4 →
initiating credit purchases. The section walks through a real-life reorder needed.
business example (Action Computers) and highlights the
sequence of documentation that follows.

22
🔹 How Reordering Is Decided o Quoted by Maurice Major
 Reordering does not always mean ordering up to the o Provided same details
maximum. o Total price shown: R30,000
 It's based on: 3. Keyboard Computers
o Budget constraints o Quote from supplier includes item details and unit prices,
o Sales forecasts no total amount
o Space and storage capacity o Signed by supplier representative
 Example: If current stock is 3, and the max is 8, the 🔍 Multiple quotes allow Action Computers to choose the most
business might reorder only 4 units to keep total stock at 7. cost-effective supplier.

🔹 After the Stock Report Step 4: Placing Orders

Step 2: Requisition Form After evaluating quotations, Vish Naidu places official orders with
 Prepared by: Mike Kent (Sales Manager) chosen suppliers.
 Purpose: To formally request the purchase of stock that’s 📄 Order Form Includes:
below reorder levels.  Business name (Action Computers)
📄 Requisition Form Includes:  Physical address
 Requisition number  Order number
 Company details (Action Computers)  Date of transaction
 Date (e.g., 15 March 20X1)  Delivery date
 Product descriptions  Requisition date
 Quantity to order  List of items ordered (with product codes, unit price,
 Product codes quantities)
 Selling price (VAT inclusive)  Total cost
 Authorization signature (Mike Kent)  Supplier’s name
✅ This form is based on Joe’s stock report and lists only items that  Authorized by Vish Naidu (with signature)
need to be replenished. 📝 Example:
 First Order to Compute Wholesalers: Total R38,668
Step 3: Requesting Quotations  Second Order to Keyboard Computers: Total R10,170
Handled by: Vish Naidu (Procurement Officer) ✅ Each supplier receives an official order based on their quotation.
Purpose: To obtain pricing from multiple suppliers for the items
listed in the requisition form. Key Takeaways
🧾 Examples of Suppliers & Quotations: 1. Stock Report Form is the foundation of inventory control and
1. Superior Traders credit purchases.
o Quoted by Neville Nash 2. Accurate stock levels help prevent understocking or
o Includes product codes, unit prices, total (VAT inclusive), overstocking.
and signature 3. The process from stock report to purchase involves:
2. Compute Wholesalers o Internal inventory check

23
 o Requisition form  Action Computers prepares a Goods Received Note (GRN)
o Multiple supplier quotations to record what they received.
o Price comparisons These two documents must be matched to ensure all goods
o Formal order placement ordered were received in correct quantities and condition.
4. Each document is completed and signed by the appropriate
role in the process. 📄 1. Goods Received Note (GRN)
 Prepared by: Vishnu from Action Computers
Full Credit Purchase Document Flow (So Far)  Purpose: To record and verify that goods received match
Ste Person the original order and delivery note.
Document Purpose  Each GRN:
p Responsible
o Matches a specific order
Stock Report Identify low stock and reorder o Contains:
1 Joe Mulefe
Form needs  Business details
Requisition Request specific items to be  Date of delivery
2 Mike Kent
Form ordered  Description of goods
 Quantities received
Get prices from different
3 Quotations Vish Naidu  Total value
suppliers
 Person who checked and accepted goods (Vishnu)
Official purchase order to 📝 Example 1:
4 Order Forms Vish Naidu
selected supplier  GRN total: R38,668
 Matches an order to Compute Wholesalers

📝 Example 2:
 GRN total: R10,170
 Matches an order to Keyboard Computers
3.6 Delivery note and Goods Received Note (Action Computers) 📑 2. Delivery Note
This section explains the next phase in the credit purchase cycle:  Prepared by: The supplier
receiving the goods from suppliers and documenting the delivery  Purpose: To indicate what was sent to the buyer.
using Delivery Notes and Goods Received Notes (GRNs). It  Sent with the goods to Action Computers
emphasizes the importance of cross-checking these documents  Key Details:
for accuracy and accounting consistency. o Supplier name and details
o Delivery note number
🔄 What Happens After Orders Are Placed? o Items delivered
Once Action Computers (the purchasing company) places an o Quantities
order, the supplier must deliver the goods. When goods arrive: o Total value of goods
 Supplier issues a Delivery Note to Action Computers. o Signature of delivery and receiving personnel
Each delivery note must be cross-checked against the
corresponding GRN to confirm:
24
  The correct items were delivered Document Prepared By Purpose
 Quantities and values match Computers received, match with delivery
 Nothing is missing or extra Note (GRN)
(Vishnu) note
📝 Matching Examples: Record what was sent to the
Delivery Note Supplier
buyer
Delivery Note Matched GRN
Supplier Status Official billing document sent
Amount Amount Tax Invoice Supplier
to the buyer after delivery
Compute
R38,668 R38,668 ✅ Matched
Wholesalers
Why Matching Is Crucial
Keyboard  Ensures accountability and accuracy in orders and payments
R10,170 R10,170 ✅ Matched
Computers  Prevents discrepancies in stock and invoices
 Forms the basis for payment and financial record-keeping
🧾 3. Tax Invoices
 After delivery, the supplier also sends a Tax Invoice.
 Issued by: The supplier
 Sent to: Action Computers
 Purpose: To serve as the official billing document for
accounting and payment.

📋 Tax Invoice Must Include:

 Supplier’s name and VAT number
 Invoice number and date 3.7 Credit Sales (Action Computers)/Returns of Goods by Customer
 Recipient (Action Computers) details & Supplier
 Description and quantity of goods This chapter explains how Action Computers handles credit sales,
 Price per unit and total amount (including VAT) including receiving orders, issuing delivery notes and invoices,
🧾 Invoice Examples: and managing customer returns through debit and credit notes.
1. Compute Wholesalers: Invoice total matches R38,668
2. Keyboard Computers: Invoice total matches R10,170 STEP 1: Customer Places an Order
These invoices should match both the delivery note and the GRN  The credit sales process starts when a customer sends an
to confirm that the ordered, delivered, and billed goods are order form to Action Computers.
identical.  The order includes:
o Item codes
Key Points Recap o Descriptions
Document Prepared By Purpose o Quantities
o Prices
Goods Received Action Record what was physically
o Total order value
25
  The customer’s order is then forwarded to the storeroom to  Additional Scenario: Cash Sales
begin fulfilment. If a customer walks into the store and pays immediately, the
Example: process differs:
Customer = Menlyn Steakhouse  No order form is needed.
Order Total = R15,727  No delivery note is issued.
 Only a tax invoice is created at the point of sale.
STEP 2: Prepare the Delivery Note This is considered a cash sale, not a credit transaction.
 The storeroom staff at Action Computers checks the order,
picks and packs the items, and prepares a Delivery Note.  Returns from the Customer (Credit Returns)
 Three copies of the delivery note are created: Sometimes, customers are not satisfied with some or all of the
(1) Original – Given to the customer goods delivered.
(2) Copy 1 – Sent to the accounts department When this happens:
(3) Copy 2 – Kept for filing 1. The customer returns the item(s) with a Debit Note.
📌 The delivery note must match the order value and items 2. If the supplier agrees, they issue a Credit Note to the
requested. customer.
Example:
 Delivery Note Total = R15,727  Step-by-Step Credit Return Process
 Same customer: Menlyn Steakhouse A. Customer Issues a Debit Note
 Same products and quantities as per order  Explains why goods are being returned (e.g., damaged, wrong
item, poor condition)
STEP 3: Issue the Tax Invoice  Lists the item(s), quantities, and value being returned
Example:
 Once the goods are delivered, Action Computers prepares a
 Returned Item = Studio Work Screen
tax invoice to officially bill the customer.
 Quantity = 1
 Three copies of the invoice are created:
 Reason = “Goods received in unsatisfactory condition”
(1) Original – Given to the customer
 Documented by: Menlyn Steakhouse
(2) Copy 1 – Sent to the accounts department
(3) Copy 2 – Kept for filing B. Supplier Issues a Credit Note
📄 Invoice Details Include: If Action Computers reviews the return and accepts the reason,
 Customer and supplier details they issue a Credit Note that:
 VAT registration numbers  Matches the Debit Note amount
 Description of items sold  Confirms a refund or credit adjustment
 Quantities and unit prices  Serves as an official reversal of the original sale
 Total invoice amount (incl. VAT) Example:
Example:  Credit Note Total = Same value as the returned item
 Invoice Total = R15,727  Issued by: Action Computers
 Matches both the order and the delivery note  Authorized by: School of Business

26
Document Overview Purchased Items (by Rainbow High School):
Document Issued By Purpose Quanti
Item
Order Form Customer Requests goods from Action Computers ty
Delivery Action HP Compact
Confirms delivery of goods to the customer 1
Note Computers Computer
Soft Keyboard 1
Action
Tax Invoice Official billing for goods sold ViewSonic Monitor 1
Computers
HP Printer 1
Debit Note Customer Indicates returned goods and reason
You are required to complete a tax invoice using a price list.
Action Acknowledges return and issues a refund or
Credit Note
Computers credit adjustment Tax Invoice Details:
You need to:
Key Points to Remember
 Use the price list provided to find:
 Credit sales involve multiple steps and documentation. o Item codes
 Documents must be steady in terms of quantities, prices, total o Unit prices (inclusive of VAT)
amounts.  Complete a tax invoice as if prepared by Action Computers.
 Proper handling of returns through debit and credit notes
ensures accuracy and customer satisfaction.
 Credit sales differ from cash sales: cash sales skip the order
and delivery steps and go straight to invoicing.
Exercise 3.1 – Credit Sales with Return (Rainbow High
School) Price List (from provided reference):
This exercise tests your ability to apply knowledge of: Unit Price (VAT
 Tax invoices Item
Incl.)
 Debit notes (customer returns)
HP Compact
 Credit notes (business response) R4,960
Computer
It’s based on a realistic business scenario involving a credit sale
and a return transaction between Rainbow High School and Action Soft Keyboard R125
Computers. ViewSonic Monitor R2,135
HP Printer R1,240
Scenario Overview: Total Calculation:
 Customer: Rainbow High School 4,960 + 125 + 2,135 + 1,240 = R8,460
 Supplier: Action Computers This becomes the total tax invoice amount, inclusive of VAT.
 Customer Account No.: R44
 Transaction Date: 26 May 2011 Returned Item (Faulty Product)
 Address: 66 Norwood Drive  Returned Item: Soft Keyboard
 Transaction Type: Credit Sale  Quantity: 1
 Unit Price: R125
27
  Reason for Return: "Faulty/damaged goods" (e.g. discovered  Ensure all documents reconcile in terms of quantity, item,
upon assembly) and value.

Debit Note
Completed by: Rainbow High School (Customer)
Details:
 Item: Soft  Total: R125
Keyboard  Reason: Goods
 Quantity: 1 damaged/unsatisfactory condition
 Unit Price: R125  Completed by: Joe (staff at
Rainbow High)
Sent to Action Computers

Credit Note
Completed by: Action Computers (Supplier)
Details:
 Sent: Rainbow High  Unit Price: R125
School  Total: R125
 Account No.: R44  Reason: Accept return due to
 Item: Soft Keyboard damaged goods
 Quantity: 1  Matches the debit note exactly
Summary of Required Documents in Exercise 3.1: Exercise 3.2 – Review Questions on Credit Purchases, Sales, and
Docume Completed Total Returns
Purpose 1. What is a Stock Report?
nt By Value
Tax Action Sale of 4 computer items to A stock report is a summary document that:
R8,460  Shows how much inventory the business currently holds.
Invoice Computers Rainbow High School
Debit Rainbow High Return of 1 Soft Keyboard  Indicates reorder levels (minimum stock before a reorder is
R125 necessary).
Note School (faulty item)
Credit Action Acknowledgement and  Lists the maximum allowable reorder quantity.
R125  Helps the sales department track stock and avoid stockouts
Note Computers approval of the returned item
or excess.
 Ensures customers’ needs can be met consistently.
Key Learning Points:
 Tax invoice must reflect accurate product codes, prices,
Purpose: Maintain optimal inventory and prevent loss of sales due
and customer details. to low stock.
 When goods are returned, a debit note is sent by the
customer and a credit note is issued by the seller.
 All amounts are inclusive of VAT.

28
2. Which Document is Issued When Goods Are Returned Due to 7. What is a Credit Sale?
Damage? A credit sale is a transaction where:
 If a buyer receives damaged goods, the buyer (purchaser)  The buyer receives the goods or service immediately.
issues a debit note.  Payment is deferred to a later agreed date (e.g. 30, 60, or 90
 The supplier, after reviewing the reason and accepting the days).
return, then issues a credit note. Example: Buying clothes on account and paying over a few
Flow: months.
(1) Buyer identifies the damage → issues debit note
(2) Supplier verifies → issues credit note 8. What is Meant by Cross-Reference?
Cross-reference means:
 Using the same reference number or code to link related
3. Why is a Delivery Note Prepared for the Customer?
documents.
A delivery note is issued to:
 Example: Linking a credit note to the original debit note.
 Provide proof that goods were delivered.
Purpose: Ensures accuracy, prevents confusion, and aids in clear
 Confirm the quantity and items delivered.
tracking of returns, credits, and corrections in records.
 Ensure the customer signs or acknowledges receipt.
Example: When you shop online, the courier presents an
electronic signature pad as a form of delivery note. Summary of Key Concepts Reviewed:
Concept Purpose
4. Give Two Reasons Why a Credit Note May Be Issued: Stock Report Track inventory levels and reorder needs
Credit notes are issued when: Debit Note Initiate return of goods by the buyer
(1) There was an incorrect amount on the original invoice. Credit Note Confirm and process returns by the seller
(2) Goods were damaged or faulty and needed to be returned. Delivery Note Confirm delivery and receipt of goods
(3) There were calculation mistakes in the original invoice. Invoice Document the sale of goods/services
These correct errors and adjust the buyer's account accordingly.
Quotation Supplier’s price estimate before a sale
Goods/services sold now; payment made
5. What Is the Purpose of an Invoice? Credit Sale
later
An invoice is a:
 Source document used to record a sale. Cross- Link documents for traceability and accurate
 Official record of a product or service sold. reference records
 Proof that a legal transaction occurred between seller and Exercise 3.3 – Summary Application of Credit Purchases Process
buyer. Scenario:
 It's used for accounting, auditing, and payment purposes. Power Plumbing has decided to computerize their accounting
department. The managing director has approved the next phase
6. If You Want Prices from Suppliers, What Should You Ask For?
of this project, which involves purchasing computer equipment.
You should ask for a: Quote or quotation. One item (a mouse) was later found to be faulty, and this affects
This helps the buyer compare prices before placing an order. the documents to be processed.

29
Step-by-Step Breakdown of the Process and Documents 🔹 Step 6: Supplier Accepts Return
🔹 Step 1: Request for Quotations  The supplier reviews the return and accepts the reason for the
 Power Plumbing (the buyer) contacts suppliers to request fault.
quotations.  They then issue a Credit Note to Power Plumbing for the faulty
 This is the first step to initiate a credit purchase. mouse.
 Purpose: To compare prices, terms, and availability of required 📄 Document Involved: Credit Note (issued by supplier to Power
computer items. Plumbing)
📄 Document Involved: Quotation (provided by supplier)
Summary of All Key Documents Involved
🔹 Step 2: Order Placement
 After evaluating the quotations, Power Plumbing places an
Ste
Action Document Issued By
official order. p
 This is done by completing and sending an order form to the 1 Request for price Quotation Supplier
chosen supplier. Power
📄 Document Involved: Order Form (from Power Plumbing to 2 Official purchase Order Form
Plumbing
supplier)
Confirm sale and Invoice + Delivery
🔹 Step 3: Supplier Response 3 Supplier
delivery Note
 Once the supplier receives the order, they prepare and send
Goods Received Note Power
two key documents: 4 Receive and check items
(1) Invoice – Billing document listing goods, prices, and totals (GRN) Plumbing
(2) Delivery Note – Confirms what goods are being sent for Return of faulty item Power
5 Debit Note
delivery (mouse) Plumbing
📄 Documents Involved: Invoice & Delivery Note (from supplier) Acknowledge and
6 Credit Note Supplier
🔹 Step 4: Receipt of Goods approve return
 Power Plumbing receives and checks the delivery using the
delivery note. Key Learning Outcome:
 They create a Goods Received Note (GRN) to verify that the This exercise provides a practical summary of the credit
items match what was ordered and delivered. purchases process, highlighting:
📄 Document Involved: Goods Received Note (prepared by Power  The proper document flow between buyer and supplier.
Plumbing)  The role of each document in ordering, receiving, and
returning goods.
🔹 Step 5: Faulty Item Identified (Mouse)  How faulty goods are managed with debit and credit notes.
 On inspection, Power Plumbing finds the mouse to be faulty.
 As a result, they decide to return the item to the supplier.
📄 Documents Involved: Debit Note (issued by Power Plumbing, Exercise 3.4 – Debit and Credit Note Transaction (Returns)
explains the return and reason)

30
Scenario Overview: 📄 Key Point: The credit note confirms acceptance of the return
 Action Computers (the buyer) placed an order for 50 soft and credits the buyer’s account with the value of the returned
keyboards from Keyboard Computers (the supplier). goods.
 When the goods were delivered, 3 of the keyboards were Summary of Transaction Flow:
found to be cracked/damaged. Ste Amount
 Because of this, a return process is initiated which requires: Action Document Completed By
p (R)
(1) A debit note (from Action Computers)
50 soft keyboards Keyboard
(2) A credit note (from Keyboard Computers) 1 Tax Invoice 6,250
ordered Computers
Documents to be Completed: 3 keyboards found Debit Note Action
🔹 1. Debit Note (DN456) 2 375
damaged DN456 Computers
Prepared by: Action Computers Supplier approves Keyboard
Purpose: To inform the supplier of damaged goods being 3 Credit Note 375
return Computers
returned.
Details included:
 Reference number:  Unit price: R125 Key Learning Points:
DN456  Total (inclusive of VAT): 3 × 125 =  A debit note is always issued by the buyer when goods are
 Date: 5 August 20X1 R375 being returned.
 Supplier: Keyboard  Reason for return: Goods were  A credit note is issued by the supplier upon accepting the
Computers damaged (cracked keyboards) return.
 Item returned: Soft  Completed by: Malefi (staff
 Amounts on both documents should match (R375 in this case).
keyboards member from Action Computers)
 Quantity returned: 3  These documents form part of the returns process in credit
Key Point: The debit note serves as the buyer’s formal notice of transactions and are essential for accurate recordkeeping in
returning goods. accounts.

🔹 2. Credit Note
Prepared by: Keyboard Computers
Purpose: Acknowledge the return & provide credit to the buyer
(Action Computers).
Details included:
 Date: 6 August 20X1 (the day  Unit price: R125
after the debit note)  Total (inclusive of VAT): R375
 Account type: Account  Reason: Goods received were
purchase (not EFT, cash, or damaged
card)  Authorized by: Jane (staff
 Item returned: Soft keyboards member from Keyboard
 Quantity: 3 Computers)

31
32
Unit 4: Value Added Tax (VAT)  The ability to separate VAT is important for businesses to
4.1 Learning Outcomes report correctly and reclaim input VAT where allowed.
Introduces (VAT) in the South African context. South African VAT
rate is 15%. 4.2 Value Added Tax/VAT Basic Principles
Overview
Key Learning Outcomes This chapter unpacks the concept of VAT—how it works, who pays
1. Define VAT: Understand what VAT is and its role in financial it, and how it’s calculated. The goal is to help you understand:
transactions.  The purpose and flow of VAT in the economy.
2. Calculate VAT Percentages: Apply the 15% VAT rate to different  The difference between input VAT and output VAT.
 How to calculate VAT-inclusive and VAT-exclusive amounts.
amounts as required.
3. Work with VAT Fractions: Understand and calculate VAT using
What Is VAT?
fractions (especially when reversing or finding exclusive values).
 VAT (Value Added Tax) is a consumption tax charged on most
4. Calculate VAT-Exclusive Amount: goods and services at 15% in South Africa.
 VAT-exclusive means: The price before VAT is added.  It’s called “value added” because it's levied at every stage of
 Important for separating VAT from a total inclusive price. production where value is added.
5. Calculate VAT-Inclusive Amount:  End consumers ultimately pay the VAT.
 VAT-inclusive means: The price including VAT.
 In South Africa, the prices seen on shelves are already VAT- Story Example to Explain VAT Flow
inclusive (i.e., you pay what you see). Using the journey of furniture to show how VAT is added at each
 Contrasts with countries like the U.S., where prices shown are stage:
exclusive of VAT (or sales tax), and the tax is added at the till. (1) Tree Grower
6. Explain a VAT Vendor: A VAT vendor is a person or business o Buys seeds (already VAT-charged) and grows trees.
(2) Sells to Saw Mill
registered to charge VAT on their sales and claim VAT on
o Trees → Planks = Value added → VAT charged (15%)
purchases. (3) Planks to Furniture Manufacturer
7. Explain & Calculate Output VAT: Output VAT: VAT charged by a o Planks → Furniture = More value added → Another 15%
business on goods/services it sells. VAT
8. Explain & Calculate Input VAT: (4) Furniture to Retailer (e.g. Rochester)
 Input VAT: VAT paid by a business on goods/services it o Manufacturer sells final product to retailer with VAT.
purchases. (5) Retailer to You (Consumer)
 Businesses can often claim input VAT back from SARS (South o You buy it at full price (e.g. R20,000), and pay 15% VAT on
African Revenue Service). the final full price.

Extra Context: Key Point:

 The idea of VAT-inclusive pricing helps with customer Although VAT is charged multiple times, it is not a cumulative tax
transparency ("what you see is what you pay").

33
—VAT registered businesses claim back VAT paid on purchases VAT Calculations
(input VAT) and only pay SARS the difference (output – input). 1. VAT-Exclusive Amount 2. VAT-Inclusive Amount
 This is the price before  This is the price after VAT is
Definition Recap: VAT is added. added.
🔸 VAT (Value Added Tax):  To calculate it from a  To calculate it from an
A tax charged on the value added to goods and services during VAT-inclusive total: exclusive amount:
production and distribution. o Formula: o Method 1 (step-by-step):
🔸 VAT Rate in South Africa: 15% (increased from 14% in 2018) VAT-exclusive = Total  15% of R1,000 = R150
🔸 Zero-Rated Items: amount ÷ 1.15  R1,000 + R150 = R1,150
o Example: o Method 2 (shortcut):
Some essential goods (e.g., petrol) are 0% VAT, meaning no VAT
R1,150 ÷ 1.15 =  1.15 × R1,000 = R1,150
is charged.
R1,000
→ VAT amount = R150
How VAT Works in a Transaction
 You buy yogurt at Pick n Pay for R100.
 Pick n Pay adds 15% VAT = R15. Same applies with R100:
 You pay R115 at the till.  VAT = R15
 Pick n Pay keeps R100, and sends R15 to SARS.  Inclusive total = R115
 That R15 is called: Output VAT – VAT charged on sales.  Exclusive = R100
 Formula: R115 ÷ 1.15 = R100
Businesses & VAT
 VAT-registered businesses: Conclusion
o Charge output VAT on sales. By the end of this section, you should:
o Claim input VAT on purchases.  Understand what VAT is and why it exists.
o Remit the difference to SARS every 2 months.  Know who pays it (the consumer).
 Be able to calculate VAT-inclusive and exclusive prices.
 Know the difference between output VAT (on sales) and input
VAT (on purchases).
 Be aware that businesses act as collection agents for SARS.

34
 Output VAT vs Input VAT
Output VAT Input VAT
 Charged on sales to  VAT paid by a business when
customers. buying goods/services for business
 Collected from customers operations.
by the business.  Can be claimed back from SARS to
 Then remitted to SARS. reduce total VAT payable.
 Example: Pick n Pay sells  Example: PnP buys from Tiger
goods and charges VAT— Brands:
this is output VAT. o Goods = R5,000
o VAT (15%) = R750
Think of it as: o Total paid = R5,750
Customer → Business (collects o PnP claims back R750 from
VAT) → SARS SARS.
4.3 VAT Vendor and VAT Remittance/Practical Example Think of it as:
Main Focus: Business → Supplier (pays VAT) →
Understanding who a VAT vendor is, and the roles of output VAT SARS (claims it back)
and input VAT in a business’s VAT system under South African tax
law.
Why Does SARS Allow Input VAT Claims?
What Is a VAT Vendor? To ensure fairness:
 If businesses charge VAT (output), they should also be
A VAT vendor is:
 Any person or business registered with SARS for VAT purposes.
allowed to claim VAT paid (input).
 But businesses usually sell at a higher price than they buy.
 Being registered means the business is legally authorized to:
o Charge VAT (15%) on the goods and services it sells.
Example of Net VAT:
o Claim VAT on goods and services it buys for business use.  Pick n Pay buys goods for R1,000 + R150 VAT = R1,150
Important: Only registered vendors can charge or claim VAT.  Sells them for R2,000 + R300 VAT = R2,300
 Output VAT collected: R300
 Input VAT paid: R150
Example: Computer Store
 VAT owed to SARS: R300 – R150 = R150
 A registered computer store sells a laptop for R10,000. SARS calculates only the difference (net VAT) to be paid or
 Adds 15% VAT = R1,500. refunded.
 Selling price to customer = R11,500.
 The R1,500 VAT is collected on behalf of SARS.
Key Points to Remember
 This amount must be paid to SARS (called remitting VAT) on a
bi-monthly basis. Concept Description
VAT Rate 15% in South Africa
VAT
A registered business that charges & claims VAT
Vendor
35
 Concept Description  If divided into 4 parts:
Output 1 ÷ 4 × 100 = 25%
VAT collected on sales  If divided into 8 parts:
VAT
1 ÷ 8 × 100 = 12.5%
Input VAT VAT paid on purchases, and can be claimed from SARS Key Concept: Always start by considering the whole as 1, then
Remittanc VAT returns and payments are usually made every 2 divide by the number of parts.
e months
The difference between Output VAT and Input VAT is 2. Fractions
Net VAT Fractions are used to express a portion of a whole.
what gets paid/refunded
Fraction = Percentage ÷ 100
Converting Percentages to Fractions:
 50% → 50 ÷ 100 → simplify → 1/2
 25% → 25 ÷ 100 → simplify → 1/4
 60% → 60 ÷ 100 → simplify → 3/5
 65% → 65 ÷ 100 → simplify → 13/20
Simplification Tip: Cancel out common factors like zeroes or use
division by common numbers like 5, 10, or 25.

3. Improper Fractions
An improper fraction has a numerator greater than the
4.4 Mathematical Skills for Calculating VAT/Fractions denominator.
Main Focus: Examples:
Developing basic mathematical skills necessary for working with  250% → 250 ÷ 100 → simplify → 5/2
VAT calculations, including: → Convert to a mixed number: 2 into 5 = 2 remainder 1 → 2 ½
 Percentages  320% → 320 ÷ 100 → simplify → 16/5
 Fractions → Convert: 5 into 16 = 3 remainder 1 → 3 ⅕
 Converting between percentages and fractions Terminology:
 Using money and amounts in VAT contexts  Numerator = Top number (e.g., 16)
 Denominator = Bottom number (e.g., 5)
1. Percentages
Percentages represent parts of a whole. The method used to What This Section Helps With
calculate percentage is: Percentage = (Part ÷ Whole) × 100 All these skills are foundational for:
Examples:  Calculating VAT-inclusive and VAT-exclusive prices
 If you have 1 part out of 1 whole:  Understanding how VAT works in financial documents
1 ÷ 1 × 100 = 100%  Breaking down amounts to/from percentages for accurate tax
 If the whole is divided into 2 parts: work
1 ÷ 2 × 100 = 50%
36
Summary Table  Calculation:
Concept Explanation Example ¼ × 20 = 5
Example 2:
Percentage 1 ÷ 4 × 100 =
(Part ÷ Whole) × 100 ½ of R1,500
Formula 25%
 Calculation using fraction:
To Convert % to Write % over 100, then 60% → 60/100 ½ × 1,500 = 750
Fraction simplify → 3/5  Same as:
250% → 5/2 = 50% × 1,500 = 750
Improper Fractions Numerator > Denominator Conclusion: ½ = 50%, and both give the same result.
2½
Helps break down or build up R100 VAT-
Useful for VAT 3. Percentages of Money
VAT amounts inclusive?
Percentages work the same way:
25% of R5,000 = (25 ÷ 100) × 5,000 = 1,250
This is the same as:
¼ × 5,000 = 1,250
Example 3:
25% of R5,000 = 1,250
Percentages and equivalent fractions can be used
interchangeably.
4.5 Money as a Fraction
Objective: 4. Improper Fractions and Mixed Numbers
To understand how to use fractions and percentages when An improper fraction is when the numerator (top number) is
working with monetary values, which is essential for VAT greater than the denominator (bottom number).
calculations and financial literacy. Example 4: 23/5
 5 goes into 23 4 times
 4 × 5 = 20
1. Key Concept: "Of" Means Multiply
 Remainder = 3
When you see a phrase like:  So, 23/5 = 4 3/5
"What is one-quarter of R20?" This is called a mixed number: whole number + fraction.
This means:
¼ × 20 = 5
"Of" = Multiply 🧠 Recap of Key Skills Learned
Skill Description Example
2. Examples: Fractions of Money Using "of" as multiply "¼ of 20" means ¼ × 20 = 5
Example 1: Converting
¼ of R20 percentages to 50% = 50/100 = ½ 25% = ¼
fractions
37
 Skill Description Example Term Definition
Working with money Apply fractions or % ½ of R1,500 = VAT-
Final price including VAT
and fractions directly to rand amounts R750 Inclusive
Improper to mixed Use division: 5 VAT The portion of the inclusive price that represents the
Convert 23/5 → 4 3/5
fractions into 23 = 4 R3 Amount 15% VAT
Fractions and ¼ = 25% → both
Interchangeability percentages often of R5,000 = 1. VAT Calculation Basics
express the same idea R1,250 To calculate VAT:
VAT Amount = 15% of VAT-exclusive price
This section strengthens your foundation for calculating: = 0.15 × Exclusive Amount
 VAT-inclusive and VAT-exclusive amounts
 Real-life price breakdowns, discounts, and markups 2. Example Calculations
Given VAT-Exclusive Prices:
VAT-Exclusive VAT Amount
VAT-Inclusive Price
Price (15%)
0.15 × 2,000 = 2,000 + 300 =
R2,000
R300 R2,300
0.15 × 3,000 = 3,000 + 450 =
R3,000
4.6 Calculating VAT – Part 1/Calculating VAT on Inclusive Amount R450 R3,450
Objective: 0.15 × 4,300 = 4,300 + 645 =
To understand how to: R4,300
R645 R4,945
 Calculate VAT amounts (15%)
 Find VAT-inclusive amounts
 Differentiate between VAT-exclusive and VAT-inclusive values 3. Shortcut: Calculate VAT-Inclusive Price Faster
 Apply shortcuts for quick calculations Instead of doing two steps (find VAT, then add it), use:
VAT-Inclusive Price = 1.15 × VAT-Exclusive Price
Key Terms This is because:
 1 = 100% of original price
Term Definition
 0.15 = 15% VAT
Value Added Tax applied to most goods and services  So 1.15 = 100% + 15%
VAT
in SA (currently 15%) Example Using Shortcut:
VAT- Multiply by
Price before VAT is added Exclusive Price Inclusive Price
Exclusive 1.15
R2,000 1.15 × 2,000 R2,300

38
 Multiply by
Exclusive Price Inclusive Price
1.15  Example:
R3,000 1.15 × 3,000 R3,450 VAT-Inclusive Price VAT Amount
R4,300 1.15 × 4,300 R4,945 R2,300 15/115 × 2300 = 300
Faster, simpler, and ideal for exams or quick business math. R3,450 15/115 × 3450 =
450
Summary of Methods R4,945 15/115 × 4945 = 645
Task Method
Find VAT Amount 0.15 × VAT-Exclusive Amount Calculating VAT-Exclusive Amount from VAT-Inclusive:
VAT Amount + Exclusive Price OR 1.15 × VAT-exclusive amount = VAT-inclusive amount/ 1.15
Find VAT-Inclusive Price  Example:
Exclusive
VAT-Inclusive
Convert Inclusive to (Not covered yet, usually: Inclusive ÷ VAT-Exclusive Price
Price
Exclusive 1.15)
R2,300 2300 ÷ 1.15 = 2000
R3,450 3450 ÷ 1.15 = 3000
Key Takeaways
 Always assume VAT is 15% unless otherwise stated. R4,945 4945 ÷ 1.15 = 4300
 Use 0.15 for calculating just the VAT.
 Use 1.15 to get VAT-inclusive prices quickly. Calculating VAT-Exclusive Amount from VAT Amount:
 Know the difference between VAT-exclusive and VAT-inclusive VAT-exclusive amount = VAT amount/ 0.15
values.  Example:
VAT Amount VAT-Exclusive Price
R300 300 ÷ 0.15 = 2000
R450 450 ÷ 0.15 = 3000
R645 645 ÷ 0.15 = 4300
4.7 Calculating VAT – Part 2
Objective: Learn how to calculate VAT amount, VAT-exclusive, and
Summary of Key VAT Formulas:
VAT-inclusive amounts when given the VAT-inclusive amount or
What to Calculate Formula
just the VAT amount, and understand the key formulas for all VAT
calculations. VAT Amount (from excl.) VAT exclusive × 15% (0.15)
VAT Inclusive Amount VAT exclusive × 1.15
Calculations from VAT-Inclusive Amount: VAT Amount (from incl.) VAT inclusive × (15 ÷ 115)
 Calculate VAT amount from VAT-inclusive price:
VAT amount= 15/115 × VAT-inclusive amount VAT Exclusive Amount VAT inclusive ÷ 1.15

39
 What to Calculate Formula o VAT charged on sales to o VAT the business pays on
customers. purchases.
VAT Exclusive + VAT Amount VAT inclusive amount o Example: When Pick n Pay o Can be claimed back from
sells products, they charge SARS if you’re a VAT vendor.
Key Takeaway: 15% VAT on the sale price.
o This VAT is collected from
If you remember these four formulas, you can solve any VAT
customers but must be paid
calculation question, whether you start with: over to SARS.
 VAT-exclusive amount, o It's treated as a current
 VAT-inclusive amount, or liability because it’s money
 VAT amount only. owed to SARS (not the
business’s own income).

Example – Calculating Output VAT:

 A business buys goods for R200 (excluding VAT).
 They add a markup of R100 (to cover costs and profit).
 New price = R300 (still VAT exclusive).
 To calculate VAT:
VAT =15/ 100 × 300 = R45
 VAT-inclusive price:
o Option 1: R300 + R45 = R345
o Option 2: R300 × 1.15 = R345

Key Points:
 Output VAT = always on  To find VAT-inclusive
sales prices:
 15% is the current VAT rate o Use VAT Exclusive ×
 VAT collected by vendors is 1.15
4.8 VAT Vendor (Output VAT)
not their money—it's owed o Or VAT = 15 and add to
Who Is a VAT Vendor?
to SARS the total.
 A VAT vendor is any person or business registered with SARS
4.9 VAT Vendor (Input VAT)
for VAT.
 Only registered VAT vendors can: Input VAT vs Output VAT
o Charge VAT on their sales Type Definition When it Occurs What Happens
o Claim VAT on their purchases When the business Business can claim
Input VAT paid on
buys goods or this amount back from
Types of VAT: VAT purchases
services SARS
There are two main types of VAT: Output VAT charged When the business Business must pay this
(1) Output VAT: (2) Input VAT:
40
 Type Definition When it Occurs What Happens  Therefore:
sells goods or o VAT-exclusive price = R228 – R29.74 = R198.26
VAT on sales amount to SARS o Input VAT claimed = R29.74
services

Summary of Key Concepts:

Example: Pick n Pay
 Input VAT = VAT paid on purchases, claimed from SARS
When Pick n Pay Buys from Supplier (e.g. Tiger Brands):  Output VAT = VAT collected on sales, paid to SARS
 Let's say they purchase goods for R2,000 (exclusive of VAT).  Net VAT = Output VAT – Input VAT
 Input VAT is: R2,000 × 15% = R300 o If Output > Input, you pay SARS
 Pick n Pay claims this R300 back from SARS (input VAT). o If Input > Output, you can claim from SARS
 Calculations rely on the 15% VAT rate (use 15/115 for inclusive
When Pick n Pay Sells to Customers:
values)
 They sell the goods for R3,000 (exclusive of VAT).
 Output VAT is: R3,000 × 15% = R450
 Pick n Pay owes SARS this R450.

Final VAT Payable: Netting Input vs Output

 Claimed (Input VAT): R300
 Owed (Output VAT): R450
 Net VAT Payable to SARS = R450 – R300 = R150
SARS does not pay Pick n Pay the R300 first and then collect
R450.
Instead, SARS calculates the net difference and Pick n Pay pays
R150.

Why This System Exists: The Margin Concept

 Businesses buy at one price and sell at a higher price to make
a profit.
 VAT is calculated on both purchase (input) and sale (output)
values.
 The difference in these values (the markup) leads to a
difference in VAT amounts, which results in either paying or
claiming back from SARS.

VAT Inclusive Example: 4.10 Value Added Tax Practice Question

A table is used with three columns:
Suppose Pick n Pay buys goods for R228 (VAT inclusive):
1. VAT Exclusive Amount
 Use the formula: VAT=15/115 × 228 = R29.74
2. VAT Amount (15%)
41
 3. VAT Inclusive Amount More VAT-Only Examples (Student Practice)
For these, divide the VAT amount by 0.15 to get the exclusive,
Key VAT Calculation Methods: then add VAT to get the inclusive:
Given What to Find Formula VAT Only Exclusive Inclusive
Exclusive VAT amount Exclusive × 0.15 R157.50 157.5 ÷ 0.15 = 1,050 1,050 + 157.5 = R1,207.50
Exclusive Inclusive Exclusive × 1.15 R195 195 ÷ 0.15 = 1,300 1,300 + 195 = R1,495
Inclusive Exclusive Inclusive ÷ 1.15 R742.50 742.5 ÷ 0.15 = 4,950 4,950 + 742.5 = R5,692.50
Inclusive VAT amount Inclusive – Exclusive R3,750 3,750 ÷ 0.15 = 25,000 25,000 + 3,750 = R28,750
VAT Only Exclusive VAT ÷ 0.15
VAT Only Inclusive (VAT ÷ 0.15) + VAT Final Notes:
 Multiple methods (direct multiplication or breakdown) lead to
Step-by-Step Example Summaries the same correct VAT calculations.
1. Given: VAT Exclusive = R600 2. Given: VAT Inclusive = R460  Knowing how to work from any given value—whether it's
o VAT: 600 × 0.15 = 90 o Exclusive: 460 ÷ 1.15 = 400 exclusive, inclusive, or VAT only—makes you flexible in solving
o Inclusive: 600 + 90 = R690 or o VAT: 460 – 400 = R60 exam problems.
600 × 1.15 = R690  Practice ensures fluency and speed in these calculations.
3. Given: VAT Exclusive = R1,000 4. Given: VAT Inclusive = R11,500
o VAT: 1,000 × 0.15 = 150 o Exclusive: 11,500 ÷ 1.15 =
o Inclusive: 1,000 + 150 = 10,000
R1,150 or 1,000 × 1.15 VAT: 11,500 – 10,000 = R1,500
5. Given: VAT Only = R3,000 6. Given: VAT Only = R2,445
o Exclusive: 3,000 ÷ 0.15 = o Exclusive: 2,445 ÷ 0.15 =
20,000 16,300
o Inclusive: 20,000 + 3,000 = o Inclusive: 16,300 + 2,445 =
R23,000 R18,745
7. Given: VAT Inclusive = R1,380 8. Given: VAT Inclusive = R1,725
o Exclusive: 1,380 ÷ 1.15 = o Exclusive: 1,725 ÷ 1.15 =
1,200 1,500
o VAT: 1,380 – 1,200 = R180 o VAT: 1,725 – 1,500 = R225
9. Given: VAT Exclusive = R2,010 10. Given: VAT Exclusive =
o VAT: 2,010 × 0.15 = 301.50 R25,400
o Inclusive: 2,010 + 301.50 = o VAT: 25,400 × 0.15 = 3,810
R2,311.50 o Inclusive: 25,400 + 3,810 =
R29,210

Exercise 4.1 – Fractions and Percentages

42
1. What is a Fraction?  ¼ × 16 = 4, so:
 A fraction is a number that has: o Colour in 4 parts
o A numerator (top part) o As a fraction of 16: ⁴⁄₁₆
o A denominator (bottom part) 6. Colour Three Quarters of 16
 It represents a part of a whole.  ¾ × 16 = 12
o Example: ½ means one part out of two. o Colour 12 parts out of 16
 To convert a fraction to a percentage, multiply by 100: o As a fraction: ¹²⁄₁₆
o ½ × 100 = 50%  Visual representation: Shade 12 blocks, leave 4 unshaded
 Key idea: The whole is 100%. A fraction represents a portion
of that whole. 7. Shade 5 Eighths of a Rectangle
 The rectangle is divided into 8 equal parts (eighths)
2. What Does 100% Mean?  To show 5⁄₈, simply shade 5 of the 8 parts
 100% means the whole or entire thing.
o Visual example: A full pizza cut into slices. Conclusion:
o If you ask for 100%, you're asking for everything. This exercise reinforces:
o It’s complete or the total.  How to interpret fractions and percentages
 How to convert between the two
3. Dividing a Whole in Half  How to visualize fractions using shaded diagrams
 If you divide one whole item (e.g., a pizza) into 2 equal parts,  It builds foundational understanding needed for future VAT
each part is: calculations
o As a fraction: ½
o As a percentage: ½ × 100 = 50%
 Takeaway: Fraction to percentage = Multiply by 100

4. Dividing a Whole into 10 Equal Parts

 If you divide a whole into 10 equal parts, each part is called
a:
o Tenth → ¹⁄₁₀
 Example fractions from 10 equal parts:
o 3 parts: ³⁄₁₀
o 4 parts: ⁴⁄₁₀
o 6 parts: ⁶⁄₁₀, which can simplify to ³⁄₅

Exercise 4.2 – Fractions (Lowest Forms & Common Factors)

5. Colour One Quarter of 16 Question 1: Two Ways to Express Parts of a Whole
 The square is divided into 16 equal parts (1) Fractions – e.g. ½ (one part out of two)
43
(2) Percentages – multiply the fraction by 100  Examples:
o Example: o 25/100:
½ = 1 ÷ 2 = 0.5 × 100 = 50%  Common factor: 25
Key Idea:  ÷25 = 1/4
Fractions and percentages are just different ways of expressing o 30/60:
parts of a whole.  Common factor: 10 (initially)
 30 ÷ 10 = 3
Question 2: What is Meant by "Lowest Form"?  60 ÷ 10 = 6 → gives 3/6
 A fraction is in lowest form when it can no longer be simplified  Then use 3:
(i.e., no common factor remains except 1).  3÷3=1
 Example:  6 ÷ 3 = 2 → final: ½
o 50% = 50/100  Definition:
 Divide by 10: 5/10 A common factor allows you to simplify a fraction without
 Divide again by 5: 1/2 introducing decimals.
o So, ½ is the lowest form of 50%
Another example: Conclusion
 60% = 60/100 This exercise teaches you:
o Divide by 10: 6/10  How to express parts of a whole as fractions or percentages.
o Divide by 2: 3/5  How to simplify fractions to their lowest terms.
o Final lowest form: 3/5  How to find and use common factors to reduce fractions.
 How to avoid decimals when simplifying.
Question 3: Simplify the Given Fractions to Their Lowest Form
Original Final
Simplified Steps
Fraction Answer
25/100 ÷25 → 1/4 ¼
75/100 ÷25 → 3/4 ¾
30/60 Cancel 0s → 3/6 → ÷3 → 1/2 ½
Cancel 0s → 9/10 (no further
90/100 9/10
simplification)
2/10 ÷2 → 1/5 ⅕
Note: A fraction is fully simplified when no further division is
possible without getting decimals. Exercise 4.3 – Fractions (Calculations & Improper Fractions)
Question 4: What is a Common Factor? This exercise focuses on:
(1) Calculating fractional values.
 A common factor is a number that divides evenly into both the
(2) Understanding improper fractions.
numerator and the denominator (without decimals).

44
(3) Converting improper fractions into mixed numbers Improper Fraction Division Result Final Mixed Number
(lowest/simplified form).
1003 ÷ 8 125 remainder 3 125 3/8
Steps to Convert:
Question 1: Calculate the Following Fractions
(1) Divide the numerator by the denominator.
1) 7/10 of 1000 (2) The quotient is the whole number.
o 7/10 × 1000 = 700 (3) The remainder becomes the numerator of the fractional part.
2) ¾ of 600 (4) Denominator stays the same.
o ¾ × 600
o 600 ÷ 4 = 150
Conclusion
o 150 × 3 = 450
 Calculate values from fractions and whole numbers.
3) 5/8 of 400
 Identify and convert improper fractions.
o 400 ÷ 8 = 50
 Simplify to mixed numbers using basic division and
o 50 × 5 = 250
subtraction.
Key Concept:
Multiply the fraction with the whole number by simplifying first
where possible, then multiplying across.

Question 2: What is an Improper Fraction?

An improper fraction has:
 A numerator (top number) larger than the denominator
(bottom number).
Examples:
 5/2 = 2 ½
o 2 goes into 5 two times, remainder 1.
 10/7 = 1 3/7
 25/6 = 4 1/6
✅ Key Concept:
Improper fractions can be converted into mixed numbers by
dividing and expressing the remainder as a fraction.

Question 3: Convert Improper Fractions to Mixed Numbers Exercise 4.4 – Understanding VAT and Mark-Up Calculations
Improper Fraction Division Result Final Mixed Number Question 1: What is Value-Added Tax (VAT)?
36 ÷ 7 5 remainder 1 5 1/7  VAT is an indirect tax charged on most goods and services.
 The standard rate is 15%.
66 ÷ 5 13 remainder 1 13 1/5
 Some items:
29 ÷ 3 9 remainder 2 9 2/3 o Are zero-rated (e.g., basic food like brown bread) – charged
52 ÷ 9 5 remainder 7 5 7/9 at 0%.
45
 o Are VAT exempt – no VAT charged at all. Question 7: What is a Mark-Up?
o May incur VAT, but cannot be claimed back (e.g.,  Mark-up is the extra amount added to the cost price to
entertainment expenses). determine selling price.
Example:
Question 2: What is a VAT Vendor?
 Cost Price = R2,000  Selling Price = 2,000 ×
 A VAT vendor is a person or business registered for VAT with
 Markup = 35% 1.35
SARS.
 Compulsory registration if annual revenue exceeds
= R2,700
 Profit = 2,700 - 2,000
R1,000,000.
 Voluntary registration allowed if revenue is over R300,000.
= R700
Selling Price = Cost Price × (1 + Mark-up % as decimal)
Question 3: What is Input VAT?
Question 8: What is the Tax Fraction?
 VAT paid on purchases by a business.
 Can be claimed back from SARS.  The tax fraction is the VAT rate expressed as a fraction:
 Treated as a current asset. 15/100

Question 4: What is Output VAT? Key Concepts Recap

 VAT charged on sales by a business. Concept Description
 Must be paid over to SARS.
 Treated as a current liability.
VAT Tax on goods/services at 15% standard rate
Person/business registered for VAT (mandatory if
VAT Vendor
Question 5: Calculate VAT (Inclusive Price R57) revenue > R1 million)
Two methods shown: VAT paid on purchases (asset – claimable from
Input VAT
Method A: Method B: SARS)
1. VAT Exclusive 1. VAT Amount Output VAT VAT charged on sales (liability – payable to SARS)
= 57 ÷ 1.15 = 57 × (15 ÷ 115) VAT Inclusive ÷ 1.15 = Exclusive; OR VAT = Inclusive ×
= R49.57 = R7.43
Calculation (15 ÷ 115)
2. VAT Amount
= 57 - 49.57 Mark-Up Selling Price = Cost Price × (1 + markup %)
= R7.43 15100\frac{15}{100}10015 – expresses VAT rate as
Both methods lead to the same VAT amount. Tax Fraction
a fraction
Question 6: Find Original Price from Inclusive Price (R3,933)
 VAT Exclusive = 3,933 ÷ 1.15
= R3,420 Exercise 4.5 – Calculating the VAT Inclusive Amount on an
 VAT Amount = 3,933 - 3,420 Invoice
= R513 Objective of the Exercise
 To get exclusive price, divide by 1.15.
 To calculate the VAT inclusive amounts for various items sold.
 To accurately complete an invoice by showing:
46
 o Item descriptions o VAT amounts This exercise teaches how to:
o Quantities o VAT inclusive totals (1) Add a markup to a cost price.
o Unit prices (VAT (2) Calculate VAT on the marked-up price.
exclusive) (3) Determine the final VAT-inclusive selling price.
Scenario
Context  The company Action Computers is pricing products.
 The invoice is dated 24th March.  An example model is priced at R991 (cost price).
 Customer: Mr. Edward  A markup of 100% is to be applied.
 The exercise includes multiple items listed on the invoice.  The VAT rate is 15%.

Key Steps in Completing the Invoice Step-by-Step Breakdown

1) Calculate the Selling Price (Excl. VAT)
(1) List Each Item: (3) Calculate VAT Inclusive Price:
Each line includes: o Option A: Add the VAT to the o Markup of 100% means:
o Item description exclusive amount. Selling Price (Exclusive VAT) = Cost Price × 2
o Quantity o Option B: Multiply the exclusive = 991×2
o VAT-exclusive unit amount by 1.15 to get the =1982
inclusive price directly. 2) Add VAT to Get the Final Selling Price
price
VAT Inclusive = o Method 1 (Quick method):
(2) Calculate VAT per VAT Exclusive×1.15 Selling Price Inclusive VAT = 1982 × 1.15
Item: =2279.30
o Multiply the VAT- (4) Sum Up Totals: o Method 2 (Longer method):
exclusive price by Add up:  Calculate VAT amount:
15% (0.15) to get o Total VAT-exclusive amount for all VAT = 1982 × 0.15
the VAT amount. items c= 297.30
o Total VAT amount  Add VAT to exclusive price:
o Total VAT-inclusive amount Total Inclusive VAT = 1982 + 297.30
=2279.30
Learning Outcomes
By completing this exercise, students should be able to: Key Concepts Reviewed
 Prepare a basic invoice for a sale transaction.  Markup increases the cost price to determine profit.
 Accurately calculate VAT on individual items.  VAT must be added after markup is applied.
 Understand how to record VAT-inclusive amounts on a formal  Two methods (quick vs long) are valid for finding VAT-inclusive
document. prices:
 Gain familiarity with the structure and details required in an o Multiply by 1.15
invoice. o Or calculate 15% of the amount and add it.
Exercise 4.8 - VAT Calculations (Inclusive vs. Exclusive)
Exercise 4.6 – Calculating Selling Price with Markup and VAT This exercise focuses on calculating:
47
  VAT amounts from inclusive prices
 VAT amounts from exclusive prices
 Exclusive values from inclusive prices
All answers are rounded up to the nearest 0.05 as required.

Summary of Calculations
🔹 1. Invoice to Jig 🔹 4. Payment for Water &
 Total (incl. VAT): R1,436 Electricity
 VAT = 1436 × 15/115  Total (incl. VAT): R665
= 187.30  VAT = 665 × 15/115
= 86.08 ≈ 86.00
🔹 2. Credit Note to Jig
 Total (incl. VAT): R436 🔹 5. Sales for Cash
 VAT = 436 × 15115  Total (incl. VAT): R2,000
= 56.86 ≈ 56.90  Exclusive Amount:
2000/1.15 =1,739.13
🔹 3. Purchase from Fourways 
Wholesalers 🔹 6. Sales to Reality Traders
 Total (excl. VAT): R1,200  Total (incl. VAT):
 VAT = 1200 × 0.15 R18,000
= 180.00  Exclusive Amount:
18000/1.15 = 15,652.17

Key Takeaways
 Inclusive to VAT: VAT = Inclusive Amount × 15/115
 Exclusive to VAT: VAT = Exclusive Amount×0.15
 Inclusive to Exclusive: Exclusive Amount =
Inclusive Amount1.15

48
Unit 5: Objectives and Purpose of Bookkeeping/
Accounting & Recording 5.2 Fundamental Concepts of Bookkeeping/Accounting
5.1 Learning Outcomes/Overview of Module Terminology
Main Concepts Introduced: 🔹 Purpose of Accounting in 🔹 Importance of Accurate
1) Common Financial Transactions Management Recordkeeping
o Includes: Expenses, Purchases, Income, Sales, etc.  Helps management make  You can’t measure
o These need to be recorded properly in accounting records. informed decisions on: performance or make good
o Supplier relationships decisions without accurate
2) Learning Objectives of Chapter 5
o Income generation strategies books.
o Understand the format of ledger accounts (T-accounts).
o Product and service pricing  Sound accounting is essential
o Know what a journal is and its role in accounting. for testing strategies and
o Cash flow tracking
o Grasp the principles of debits and credits.  A good accounting system assessing business health.
o Learn how to prepare journal entries and post them to the helps build a reliable and
ledger. organized business.
3) Accounting Process Overview
🔹 Key Financial Terms Explained
o Step 1: A transaction takes place.
1) Non-Current Assets 4) Purchases
o Step 2: It is recorded in the journal (book of first entry).
o Assets used for more than one o Goods bought by the business
o Step 3: It is then posted to the ledger (T-accounts). year (e.g., a company car for resale or use.
4) Importance of Journals and Ledgers bought on credit for two o Examples: Buying inventory
o The journal records transactions in chronological order. years). like shoes to resell.
o The ledger organizes financial data by account type. o Considered long-term o Purchases are investments in
o Posting correctly ensures that financial information is resources. products that generate
accurate and accessible. 2) Operating Expenses income.
5) Key Accounting Principle o Day-to-day items like: 5) Sales vs. Income
o A solid grasp of debits and credits is essential to correctly: Water, snack, stationary, o Sales: Direct revenue from
transport. selling goods/services.
 Record transactions in the journal.
o Necessary for business o Income: Broader category;
 Post entries to the ledger.
operations. includes sales and other
o If you don’t spend, you can’t income (e.g., interest, service
End Goal generate income. fees).
By the end of this section, you should be able to: 3) Income o Sales fall under the income
 Accurately record transactions in a journal. o Revenue earned by the umbrella.
 Post journal entries to the correct ledger accounts. business through operations.
 Understand and apply the debit and credit system. o Appears on the first line of the
income statement.
o Without income, you cannot
cover expenses.
Key Takeaways
 A well-managed accounting system is essential for:
o Making pricing and purchasing decisions.
49
 o Monitoring financial health. (2) Journal entry is made
o Ensuring the business can pay expenses and stay (3) Entry is posted to the ledger
profitable. (4) Information is later extracted to form financial statements
 Clear distinction between expenses, income, purchases,
and sales helps organize financial data properly. 🔹 5. Next Step: Trial Balance
5.3 Recording Business Transactions/Double Entry Illustration  After posting to the ledger, a trial balance is prepared to:
🔹 1. Foundation of Double Entry System o Ensure debits = credits
 Every transaction affects two sides: o Check for errors before creating final accounts
o One side increase, and the other decreases (or both can
increase/decrease in different accounts). Key Takeaways
 This principle forms the basis of double-entry bookkeeping:
 The double entry system ensures accuracy and completeness
o Debit one account, credit another for every transaction.
in accounting.
o Keeps accounting records balanced.
 Journals provide detailed transaction documentation.
🔹 2. Understanding the Ledger  Ledgers organize financial information for reporting.
 A ledger is like a central record-keeping house.  Narrations in journals give context to entries.
 Each ledger account has:  Everything flows into the trial balance, the bridge to final
o A debit side accounts.
o A credit side
 Ledger accounts track:
o The type of transaction
o The value involved
o The date of occurrence
 All transactions from journals are posted into ledger accounts
for accurate reporting.
🔹 3. The Journal (Book of First Entry)
 The journal is the first-place transactions are recorded.
 Each journal entry includes:
o Date
o Accounts affected
o Debit and credit amounts
o A narration (short explanation for the transaction)
 Journals are also referred to as:
o Books of original entry
o Daybooks
🔹 4. Flow of Accounting Information
(1) Transaction occurs
50
5.4 Diagram of the Bookkeeping System – Transactions/Journals
🔹 1. Overview: The Accounting Cycle 🔹 4. Types of Transactions
The accounting life cycle involves several key steps:  Cash Transactions: Handled in CRJ, CPJ, PCJ.
(1) Transaction takes place (e.g., purchasing a vehicle).  Credit Transactions: Handled in CJ, CAJ, DJ, DAJ.
(2) A source document is used to verify the transaction (e.g., a  Other Transactions: Go to the General Journal (GJ).
tax invoice).
(3) The transaction is first recorded in the journals (books of 🔹 5. Purpose of Using Different Journals
first entry).
 Organizes similar transactions together.
(4) Journal entries are summarized and posted to ledgers.
 Helps businesses:
(5) These steps ensure accurate and organized financial
o Track cash inflows and outflows clearly.
reporting.
o Distinguish between credit sales and purchases.
o Maintain accurate and efficient recordkeeping.
🔹 2. Source Documents
 Proof that a transaction took place.
Key Takeaways
 Examples:
o Original invoice (for purchases).  Every accounting entry begins with a source document.
 Journals serve as the books of first entry for recording
o Duplicate invoice or receipt (for sales).
transactions.
 Used to record entries in the appropriate journal.
 Different journals exist for different types of transactions
(cash, credit, and others).
🔹 3. The 8 Journals (Books of First Entry)  This system improves clarity, structure, and reliability in
Abbreviati accounting records.
Journal Type of Transaction Source Document
on
Cash Receipts Duplicate cash
CRJ Cash received (sales)
Journal invoice
Cash Payments Cash payments Original
CPJ
Journal (purchases) invoices/receipts
Petty Cash Journal PCJ Small cash payments Petty cash vouchers
Creditors Journal CJ Credit purchases Original invoice
Creditors Returns/rebates to Credit notes from
CAJ
Allowances supplier supplier
Duplicate credit
Debtors Journal DJ Credit sales
invoice
Debtors
DAJ Sales returns/rebates Credit note issued
Allowances
General Journal GJ All other transactions Journal voucher

51
5.5 Diagram of the Bookkeeping System – General Ledger/Annual  The accounting process flows from source documents →
Financial Statements journals → ledgers → trial balance → financial statements.
🔹 1. From Journals to Ledgers 🔹 3. Three Types of Ledgers 5.6 Assets/Owner’s Equity/Liabilities
 After recording transactions in  Receivables Ledger: Records 1. The Accounting Equation
the books of first entry credit sales (money customers  Formula: Assets = Owner’s Equity + Liabilities
(journals), the next step is to owe you).
 Simplified Explanation:
post entries to the General  Payables Ledger: Records credit
Ledger. purchases (money you owe To a 12-year-old:
 The General Ledger is made up suppliers). o Assets = What you own (e.g., house worth R2.1 million)
of T-accounts (debit and credit  General Ledger: Records all o Liabilities = What you owe (e.g., loans of R1.5 million)
sides) for each account (e.g., other transactions not related to o Owner’s Equity = Your net worth = Assets – Liabilities =
Vehicle, Bank, Sales, etc.). receivables or payables. R600,000
 This is where double-entry 2. Assets
accounting is applied: 🔹 4. Financial Statements (Step 6 –
 Non-Current Assets (held for more than a year):
o Every transaction affects 2 Not covered in detail here)
o Land & buildings, machinery, equipment, furniture,
accounts: one is debited, & Once the trial balance is correct,
the other is credited. financial statements are prepared: vehicles, long-term investments
o Example: Buying a vehicle for (1) Statement of Financial  Current Assets (used within a year, usually 3 months):
R200,000 in cash: Performance (formerly Income o Trading inventory
 Debit Vehicle (asset Statement) – shows profit/loss. o Trade receivables (credit customers)
increases) (2) Statement of Financial Position o Bank account (daily use)
 Credit Bank (asset (Balance Sheet) – shows o Petty cash (small cash transactions)
decreases) assets, liabilities, equity. o VAT Input (claimable from SARS)
(3) Statement of Cash Flow – 3. Owner’s Equity
🔹 2. The Trial Balance (Step 5 in shows inflows/outflows of
the Accounting Cycle)  Definition: Net worth of the business
cash.
 After posting all ledger entries, Note: Bookkeeping stops at the trial  Increased by:
a Trial Balance is extracted. balance. Financial accounting starts o Capital: Money injected by the owner
 Purpose: to ensure that total from preparing the financial o Income: Sales or services, rent income, interest income,
debits = total credits. statements. commissions received, bad debts recovered
 If they do not balance, it  Decreased by:
indicates an error in the ledger o Drawings: Money withdrawn by the owner for personal use
entries.
o Expenses: Cost of sales, rent, interest, salaries, insurance,
advertising, repairs, etc.
Key Takeaways
4. Expenses (Examples)
 Double-entry principle (debit = credit) is central.
 Cost of sales (e.g., cost of purchasing goods for resale)
 Posting to the General Ledger ensures transactions are
 Rent, salaries, insurance, repairs
organized under correct accounts.
 Interest expense
 The Trial Balance checks for accuracy.
 Bad debts (now called credit losses)
 There are three key ledgers based on transaction type.
 Utilities and communication (e.g., telephone, fuel, postage)

52
Advice: Avoid giving loans to family — it often results in unpaid
debts and family conflict.
5. Income (Examples) 5.7 Debit and Credit Principles
 Sales (goods) 1. Core Principle: Total debits must always = total credits to
 Services rendered keep balance.
 Rent income  This accounting equation: Assets = Owner’s Equity +
 Interest income Liabilities
 Credit losses recovered o Example:
 Commission received  Assets =  Then, Owner’s Equity = R6,000
6. Liabilities R10,000  Then: Owner’s Equity = Assets –
 Non-Current Liabilities: Owed for more than a year  Liabilities = Liabilities
 Current Liabilities: Owed within a year R4,000
o Short-term loans 2. Understanding Basic Debits and Credits
o Trade payables (suppliers)  Basic Debit Accounts:  Basic Credit Accounts:
o Bank overdraft (recallable anytime) Increase on the debit (left- Increase on the credit (right-
hand) side, decrease on the hand) side, decrease on the
o VAT Output (collected on behalf of SARS and must be paid
credit side: debit side:
to SARS) o Assets o Liabilities
7. Key Takeaways for Accounting o Expenses o Income
 Understand categories: o Drawings o Capital
o What qualifies as an Asset, Liability, Income, Expense, 3. T-Account Visual Concept
Capital, Drawings  T-Account Left side = Debit Right side =
 For Debit & Credit entries, you must know: format: Credit
o Which accounts are affected
Debit Side (Increase) Credit Side (Increase)
o Whether they increase or decrease equity
Assets Liabilities
Note: You don’t need to split between current and non-current
when doing basic debit & credit entries. Expenses Income
Drawings Capital
 Each type of account consistently increases on its designated
side and decreases on the opposite:
o Assets, Expenses, Drawings → Increase on Debit, Decrease on
Credit
o Liabilities, Income, Capital → Increase on Credit, Decrease on
Debit

4. Summary Table Overview: 5. Key Takeaway

 Categorizing accounts
into basic debits and
basic credits helps
53
 Account Increases Decreases simplify the accounting o If paid cash: Debit Vehicle (Asset increases), Credit Bank
Type On On process. (Asset decreases).
 All debit-type accounts
Assets Debit Credit
behave similarly, and all
Expenses Debit Credit o If bought on credit: Debit Vehicle (Asset increases), Credit
credit-type accounts
behave similarly— Payables (Liability increases).
Drawings Debit Credit
making it easier to apply
Liabilities Credit Debit
the double-entry system. o Important to distinguish if it’s a credit purchase (you owe
Income Credit Debit money) or a credit sale (someone owes you).
Capital Credit Debit
4. Classification:
5.8 Double Entry Accounting/Journal/Ledger
1. Fundamental Rule: o Vehicle = Asset

o All increases on the debit side; all decreases on the credit o Bank = Asset
side (for assets, expenses, income, and liabilities).
o Payables = Liability
o Conversely, some accounts increase on credit and
decrease on debit (e.g., liabilities). 5. Account Increases and Decreases:

2. Four-Step Process for Recording Double Entries: o When asset increases (vehicle bought), debit side is
affected.
a. Identify which two accounts are affected by the
transaction. o When asset decreases (cash paid), credit side is affected.

b. Classify these accounts as assets, liabilities, income, or o When liability increases (credit purchase), credit side is
expenses. affected.

c. Determine which account is increasing and which is 6. Debit and Credit Principle:
decreasing.
o Every debit has a corresponding credit.
d. Translate the changes into debits and credits
accordingly. o The relationship is not strictly plus = debit, minus = credit
but depends on the account type.
3. Example Explained:
o The key is debit = credit for every transaction.
o Company buys a vehicle for 200,000.

54
7. Journal Entry Format:

o Date, details, debit account on one line.

o Credit account indented on the next line.

o Amounts aligned with debit and credit sides.

o Description of the transaction (e.g., purchase of vehicle

cash).

8. Ledger Accounts:

o Transactions recorded in journals are posted to ledger

accounts.

o Example: Vehicle ledger debited with 200,000, Bank ledger

credited with 200,000.

o Ledger entries reference the journal and include date,

description, and amounts on debit or credit sides.

55
5.9 Example 5.1 - Part 1 When selling on credit, the asset (money owed) increases and income
Introduction: Double Entry System – Example 5.1 increases.
 The example demonstrates how to record various business 🔹 Transaction 3: Paid rent by electronic transfer – R5,000
transactions using the double entry method.  Accounts Affected: Rent & Bank
 For each transaction:  Classification:
1. Identify the two accounts affected. o Rent = Expense
2. Classify them (Asset, Liability, Expense, Income). o Bank = Asset
3. Determine which is increasing/decreasing.  Change:
4. Translate into Debit and Credit. o Rent (Expense) → Increasing
o Bank (Asset) → Decreasing
🔹 Transaction 1: Bought goods on credit from Visual Marketing –  Double Entry:
R28,000 o Debit Rent R5,000
o Credit Bank R5,000
 Accounts Affected: Purchases (or Inventory) & Payables
Electronic transfer implies cash payment; hence the use of the Bank
 Classification:
account.
o Purchases = Expense (or Inventory = Asset)
o Payables = Liability
🔹 Transaction 4: Bought office furniture on credit from D. Durell –
 Change:
o Purchases (Expense) → Increasing R130,000
o Payables (Liability) → Increasing  Accounts Affected: Furniture & Payables (D. Durell)
 Double Entry:  Classification:
o Debit Purchases/Inventory R28,000 o Furniture = Asset
o Credit Payables (Visual Marketing) R28,000 o Payables = Liability
Alternative terms (Inventory vs Purchases) don't affect the debit/credit  Change:
outcome. o Furniture (Asset) → Increasing
o Payables (Liability) → Increasing
🔹 Transaction 2: Sold goods on credit to Al Roli – R13,200  Double Entry:
 Accounts Affected: Sales & Receivables (Debtors/Customers) o Debit Furniture R130,000
 Classification: o Credit Payables (D. Durell) R130,000
o Sales = Income Buying on account means it’s a credit transaction; no cash involved yet.
o Receivables = Asset
 Change: 🔹 Transaction 5: Bought a second-hand delivery vehicle, paid via
o Sales (Income) → Increasing electronic transfer – R55,000
o Receivables (Asset) → Increasing  Accounts Affected: Vehicle & Bank
 Double Entry:  Classification:
o Debit Receivables (Al Roli) R13,200 o Vehicle = Asset
o Credit Sales R13,200 o Bank = Asset
 Change:

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 o Vehicle (Asset) → Increasing 5.10 Example 5.1 - Part 2
o Bank (Asset) → Decreasing 🧾 1. From Transactions to Journals
 Double Entry: A. Structure of a Journal Entry:
o Debit Vehicle R55,000 Each journal entry contains:
o Credit Bank R55,000  Date (e.g. 20X3, January 1)
Both accounts are assets; one increases while the other decreases.  Transaction details (description of what occurred)
 Debit and Credit columns
Final Key Concepts:  Folio/reference numbers (used for tracking)
 For every transaction: one account is debited, and one is  A narration/description (brief explanation of the
credited — the amounts must be equal. transaction)
 Knowing how each account behaves (when it increases or B. Example Transactions:
decreases) helps in determining whether to debit or credit it. 1. Bought goods on credit from Visual Marketing – R28,000
 Follow the 4-step process consistently to avoid errors: o Debit: Purchases (Folio 1)
1. Identify accounts involved o Credit: Payables (Folio 2)
2. Classify them o Description: "Goods bought on credit"
3. Determine increase/decrease 2. Sold goods on credit to Al Roli – R13,200
4. Apply debit/credit rules o Debit: Receivables (Folio 3)
o Credit: Sales (Folio 4)
o Description: "Goods sold on credit"
3. Paid rent by EFT – R5,000
o Debit: Rent (Folio 5)
o Credit: Bank (Folio 6)
o Description: "Rent paid via bank transfer"
4. Bought office furniture on credit from D. Durell – R130,000
o Debit: Furniture (Folio 7)
o Credit: Payables (Folio 8)
o Description: "Office furniture bought on credit"
5. Bought second-hand delivery vehicle paid by EFT – R55,000
o Debit: Motor Vehicles (Folio 9)
o Credit: Bank (Folio 6 – reused)
o Description: "Vehicle purchased via bank transfer"
🔁 Note: Folio numbers are reused for recurring accounts (e.g.,
Bank is always Folio 6). New accounts receive new folio numbers.

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📒 2. Transferring Journals to Ledger (T-Accounts) o Date: Jan 3, 20X3
A. Ledger Account Setup: o Details: Rent
 Each account (e.g., Purchases, Payables, Rent) has its own o Reference: J5
T-account. o Amount: R5,000
 Debit entries go on the left, Credit entries on the right. iv. Furniture (Debit) & Payables – D. Durell (Credit)
 The description on each side is the opposite account  Furniture Account:
involved in the journal entry. o Date: Jan 4, 20X3
B. Posting Process – Example Breakdown: o Details: Payables – D. Durell
i. Purchases (Debit) & Payables – Visual Marketing (Credit) o Reference: J7
 Purchases Account: o Amount: R130,000
o Date: Jan 1, 20X3  Payables – D. Durell Account:
o Details: Payables – Visual Marketing o Date: Jan 4, 20X3
o Reference: J1 o Details: Office Furniture
o Amount: R28,000 o Reference: J8
 Payables – Visual Marketing Account: o Amount: R130,000
o Date: Jan 1, 20X3 v. Motor Vehicles (Debit) & Bank (Credit)
o Details: Purchases  Similar posting process using T-accounts.
o Reference: J1
o Amount: R28,000 🧠 3. Key Concepts and Takeaways
ii. Receivables (Debit) & Sales (Credit)  Journals are where debit and credit rules are first applied
 Receivables Account: and transactions are recorded in full detail.
o Date: Jan 2, 20X3  Ledger accounts (T-accounts) are just a transfer of the data
o Details: Sales already journalized.
o Reference: J4 o You're not analyzing the transaction again—just
o Amount: R13,200 copying the correct entries from the journal.
 Sales Account:  Folio numbers help in tracing entries between journals and
o Date: Jan 2, 20X3 ledgers.
o Details: Receivables – Al Roli  The description in each T-account comes from the opposite
o Reference: J4 account in the journal entry.
o Amount: R13,200  Proper formatting ensures clarity and prevents errors when
iii. Rent (Debit) & Bank (Credit) summarizing or checking balances later.
 Rent Account:
o Date: Jan 3, 20X3
o Details: Bank
o Reference: J5
o Amount: R5,000 5.11 Example 5.2 - Part 1
 Bank Account:
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5.12 Example 5.2 - Part 2

5.13 Example 5.2 - Part 3

5.14 Example 5.2 - Part 4

5.15 Exercise 5.1

5.16 Exercise 5.2

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