Chapter 1: Basic Accounting Concepts

Term Definition
The process of recording, summarising, analysing, and interpreting
Accounting
financial information.
Resources owned by a business that provide future economic benefits
Assets
(e.g., cash, vehicles).
Debts or obligations owed by a business to outsiders (e.g., loans,
Liabilities
creditors).
Owner’s Equity
The owner’s financial interest in the business (Assets – Liabilities).
(Capital)
Income Money earned by the business (e.g., sales, interest received).
Expenses Costs incurred to generate income (e.g., wages, rent).
Accounting Equation Assets = Owner’s Equity + Liabilities
A financial event that changes the value of assets, liabilities, or
Transaction
equity.
Cash or other assets taken out of the business by the owner for
Drawings
personal use.
Profit = Income − Expenses (If expenses exceed income, the result is
Profit/Loss
a loss.)

Accounting Equation
Basic formula:
Assets = Owner’s Equity + Liabilities.

🧾 Worked Example 1: Accounting Equation

A business starts with:
 R50 000 in the bank (Asset)
 The owner contributed this as capital (Equity)
Initial Equation:
Assets = Owner’s Equity + Liabilities
50 000 = 50 000 + 0
Then:
 Buys a vehicle for R20 000, paid from the bank
Updated Equation:
Assets = Owner’s Equity + Liabilities
(30 000 Bank + 20 000 Vehicle) = 50 000 + 0
50 000 = 50 000
Then:
 Takes out a R10 000 loan (Liability)
 Deposits it into the bank
Final Equation:
Assets = Owner’s Equity + Liabilities
(40 000 Bank + 20 000 Vehicle) = 50 000 + 10 000
60 000 = 60 000 ✅
🧠 Tips for Remembering
 Use the acronym A = OE + L
(Assets = Owner’s Equity + Liabilities)
 Drawings decrease equity, not income.
  Income and expenses affect profit, not equity directly.

📝 Quick Recap Table

Component Increases With Decreases With
Assets Purchase, income Sale, payment
Liabilities New loans Loan repayments
Owner’s Equity Capital, profit Drawings, loss
Chapter 2: Source Documents & the Accounting Cycle

Key Concepts & Definitions

Term Definition
Source Original written record of a financial transaction. Acts as proof for entries
Document into the accounting system.
Accounting The full process of recording and processing all financial transactions of a
Cycle business — from source document to final financial statements.

📑 Types of Source Documents

Source Document Used For Example
Cash Register Roll (CRR) Cash sales Supermarket daily sales
Duplicate Invoice Credit sales Selling goods on account
Original Invoice Credit purchases Buying goods on account
Cheque Counterfoil Payments made by cheque Paying rent
Deposit Slip Money deposited into bank Customer payment
Receipts Cash received Cash sales
Bank Statement Transactions through the bank Bank charges, EFTs
Credit Note Goods returned by a customer Refunds on returns
Debit Note Returning goods to a supplier Sending back damaged stock
Petty Cash Voucher Small cash expenses Buying stamps or refreshments

🔄 The Accounting Cycle

The Accounting Cycle is a sequence of steps used to collect, record, and report financial
data.
Steps:
1. Transaction Occurs
o Documented by a source document (e.g. receipt, invoice)
2. Recording in Journals
o Captured in appropriate subsidiary journal (e.g. Cash Receipts Journal)
3. Posting to General Ledger
o Balances from journals are posted to ledger accounts
4. Trial Balance
o Ensures total debits = total credits
5. Adjustments
o Year-end entries for accrued/prepaid income/expenses
6. Financial Statements
o Prepare Income Statement & Balance Sheet
7. Closing Entries
o Clear out temporary accounts (e.g. income & expenses)

🧾 Worked Example 1: Source Document to Journal

Transaction: On 5 March, ABC Traders sells goods worth R1 000 on credit to a customer.
 Source Document: Duplicate Invoice
 Journal: Debtors Journal
  Entry:
o Debit: Debtors Control (R1 000)
o Credit: Sales (R1 000)

🧾 Worked Example 2: Petty Cash Voucher

Transaction: Buy coffee and milk for R50 from petty cash
 Source Document: Petty Cash Voucher
 Journal: Petty Cash Journal
 Entry:
o Debit: Refreshments Expense (R50)
o Credit: Petty Cash (R50)

📌 Tips
 Every transaction must be backed by a source document
 Filing source documents by date helps with easy reference and auditing
 Understand which document goes with which journal

📝 Quick Recap Table: Source Documents & Journals

Transaction Source Document Journal
Cash sale Cash Register Roll Cash Receipts Journal
Credit purchase Original Invoice Creditors Journal
Goods returned to supplier Debit Note Creditors Allowances
Customer returns goods Credit Note Debtors Allowances
Payment by cheque Cheque Counterfoil Cash Payments Journal
Petty cash expense Petty Cash Voucher Petty Cash Journal
📘 Chapter 3: The General Ledger and T-Accounts

🔑 Key Concepts & Definitions

Term Definition
A collection of all the accounts of a business. It shows the balances of
General Ledger
each account after transactions are recorded.
A detailed account for each item (e.g., Bank, Sales, Rent Expense)
Ledger Account
showing increases and decreases.
A visual format for recording transactions, shaped like a “T”. Debits on
T-Account
the left, credits on the right.
Transferring totals or individual transactions from journals to ledger
Posting
accounts.
Double-entry Every transaction affects two accounts: one debit and one credit — totals
Principle must always balance.

📊 Layout of a T-Account
Account Name
---------------------------
| Debit | Credit |
|------------|-------------|
| | |
 Left side = Debit
 Right side = Credit
 Used to record increases/decreases depending on account type

📘 Rules of Debit and Credit

Account Type Increase On Decrease On
Assets Debit Credit
Liabilities Credit Debit
Owner’s Equity Credit Debit
Income Credit Debit
Expenses Debit Credit
Drawings Debit Credit

🧾 Worked Example 1: Open a Bank Account

Transaction: Owner deposits R50 000 into the business bank account as capital.
 Accounts Affected:
o Bank (Asset) → Debit
o Capital (Equity) → Credit
T-Accounts:
Bank (Asset) Capital (Equity)
------------------- ----------------------
Debit | Credit Debit | Credit
50 000 | - | 50 000

🧾 Worked Example 2: Pay Rent of R5 000

Transaction: Pay rent from bank.
 Accounts Affected:
 o Rent Expense → Debit
o Bank → Credit
T-Accounts:
Rent Expense Bank
------------------- -------------------
Debit | Credit Debit | Credit
5 000 | 50 000 | 5 000

📌 Tips
 Every transaction = 1 debit + 1 credit
 Total debits must always equal total credits in the ledger
 T-accounts help visualise what happens before preparing a trial balance

🧠 Memory Trick
Use the acronym DEAD CLIC:
Debit: Expenses, Assets, Drawings
Credit: Liabilities, Income, Capital

📝 Quick Recap Table

Transaction Debit Credit
Owner invests capital Bank (Asset) Capital
Pays rent Rent Expense Bank
Buys vehicle for cash Vehicle (Asset) Bank
Sells goods for cash Bank Sales (Income)
Takes drawings Drawings Bank
📘 Chapter 4: Journals and Subsidiary Books

🔑 Key Concepts & Definitions

Term Definition
Books where transactions are first recorded before posting to the general
Journals
ledger. Known as books of first entry.
Subsidiary Specialised journals used to group similar types of transactions together
Journals (e.g. all credit sales).
Posting Transferring information from journals into ledger accounts.
Source A written proof of the transaction (e.g. invoice, receipt) used to make a
Document journal entry.

📘 Types of Subsidiary Journals

Journal Name Records Source Document
Cash Receipts Journal (CRJ) All cash received Receipts, deposit slips
Cheque counterfoils,
Cash Payments Journal (CPJ) All cash payments
EFTs
Debtors Journal (DJ) Credit sales Duplicate invoices
Debtors Allowances Journal
Returns from customers Credit notes
(DAJ)
Creditors Journal (CJ) Credit purchases Original invoices
Creditors Allowances Journal
Returns to suppliers Debit notes
(CAJ)
Petty Cash Journal (PCJ) Small cash expenses Petty cash vouchers
Other entries (e.g. bad debts,
General Journal (GJ) Various docs
corrections)

🔄 How Journals Fit Into the Accounting Cycle

1. Transaction Occurs → Source Document created
2. Captured in Journal (based on transaction type)
3. Posted to General Ledger using account names
4. Used to compile Trial Balance and Financial Statements

🧾 Worked Example 1: Entry in Cash Receipts Journal

Transaction: Received R10 000 cash from a customer for a previous credit sale.
 Journal: Cash Receipts Journal (CRJ)
 Source Document: Receipt
 Entry:
o Debit: Bank R10 000
o Credit: Debtors Control R10 000

🧾 Worked Example 2: Entry in Creditors Journal

Transaction: Bought stock on credit from Supplier A for R15 000.
 Journal: Creditors Journal (CJ)
  Source Document: Original Invoice
 Entry:
o Debit: Trading Inventory R15 000
o Credit: Creditors Control R15 000

🧾 Worked Example 3: Petty Cash Journal

Transaction: Paid R80 for milk and sugar for the office kitchen.
 Journal: Petty Cash Journal (PCJ)
 Source Document: Petty Cash Voucher
 Entry:
o Debit: Refreshments Expense R80
o Credit: Petty Cash R80

📌 Tips
 Journals organise and simplify data entry
 Always check the source document type to determine the correct journal
 Each journal totals at month-end before posting to ledger accounts

📝 Quick Recap Table

Transaction Type Journal Debit Credit
Received cash from sale CRJ Bank Sales
Paid rent via EFT CPJ Rent Expense Bank
Sold on credit DJ Debtors Control Sales
Returned goods to supplier CAJ Creditors Control Trading Inventory
Customer returns goods DAJ Sales Returns Debtors Control
📘 Chapter 5: Posting to the Ledger and the Trial Balance
🔑 Key Concepts & Definitions
Term Definition
The process of transferring entries from journals to the appropriate
Posting
ledger accounts.
An account in the general ledger showing all movements and the balance
Ledger Account
of a specific item.
A list of all general ledger balances (debit and credit) at a specific date to
Trial Balance
test arithmetic accuracy.
Balancing an Summing the debits and credits in a ledger account to determine the
Account closing balance.

🧾 Steps in Posting to the Ledger

1. Complete Journals
o Each transaction is first recorded in the correct journal (e.g. CRJ, CPJ).
2. Post to Ledger Accounts
o Use the account names (e.g. Bank, Rent, Sales) to post each journal entry into T-
accounts in the general ledger.
3. Balance the Accounts
o Add up each side (debit and credit) of the ledger accounts, subtract, and
determine the closing balance.
4. Prepare the Trial Balance
o List all ledger balances on a trial balance form, placing them in either the debit
or credit column.

📘 Rules for Trial Balance

Account Type Appears in:
Assets Debit column
Expenses Debit column
Liabilities Credit column
Income Credit column
Owner’s Equity Credit column
Drawings Debit column

🧾 Worked Example: Posting and Trial Balance

Transaction 1: Owner invests R100 000
 Debit: Bank
 Credit: Capital
Transaction 2: Paid rent of R5 000
 Debit: Rent Expense
 Credit: Bank
Transaction 3: Sold goods for cash R12 000
 Debit: Bank
 Credit: Sales

📘 Ledger Accounts (T-format)

Bank
-----------------------
Debit | Credit
100 000 | 5 000
12 000 |
-----------------------
112 000 | 5 000
Balance c/d | 107 000

Capital
-----------------------
Debit | Credit
| 100 000

Rent Expense
-----------------------
Debit | Credit
5 000 |

Sales
-----------------------
Debit | Credit
| 12 000

📊 Trial Balance
Account Debit (R) Credit (R)
Bank 107 000
Capital 100 000
Rent Expense 5 000
Sales 12 000
Totals 112 000 112 000
✅ Debits = Credits → Trial Balance balances

📌 Tips
 Always double-check that every transaction has one debit and one credit.
 Trial balance doesn't catch all errors (e.g. wrong account used or double entry with
wrong amounts).
 Use pencil when posting for the first time so that errors can be corrected.

📝 Quick Recap Table

Step Action
Record transactions In journals (CRJ, CPJ, etc.)
Post to ledger Use T-accounts
Balance accounts Determine closing balances
Prepare trial balance List balances by debit/credit
📘 Chapter 6: The Cash Receipts Journal (CRJ)

🔑 Key Concepts & Definitions

Term Definition
Cash Receipts Journal A journal used to record all cash and EFT inflows into the business
(CRJ) bank account.
Documents that serve as proof of receipt (e.g. receipts, deposit
Source Documents
slips, cash register rolls).
Bank Column Always debited — shows total money received.
Categorise receipts: e.g. Current Income, Debtors Control, Capital,
Analysis Columns
etc.

Common Source Documents for CRJ

Document Used For
Duplicate Receipt Cash received from customers
Deposit Slip Bank deposits
Cash Register Roll (CRR) Daily cash sales
Bank Statement EFTs, interest received

🧾 Layout of a CRJ
Date Details Doc. No. Bank Current Income Debtors Control Capital Sundry Accounts

🧾 Worked Example 1
Transactions for 1–3 March:
1. 01 Mar: Received R5 000 cash from customer J. Jonas for credit sale (Receipt 12)
2. 02 Mar: Cash sales of R3 000 (CRR)
3. 03 Mar: Owner invested R10 000 capital (Deposit Slip)

💻 CRJ Example
Doc. Current Debtors Sundry
Date Details Bank Capital
No. Income Control Accounts
01 Mar J. Jonas Rec 12 5 000 5 000
02 Mar Cash Sales CRR 3 000 3 000
Capital
03 Mar Dep 10 000 10 000
Invest
Totals 18 000 3 000 5 000 10 000

🔁 Posting to Ledger (from CRJ)

 Bank Account (Debit total from Bank column)
 Debtors Control (Credit total received from customers)
 Current Income (Credit for cash sales)
 Capital (Credit for new capital)

📌 Tips
 Always cross-reference amounts from the source document.
 If money is received from a debtor, it's posted to Debtors Control.
 If money is received for a sale, it's posted to Current Income.
 If received from the owner, post to Capital.
🧠 Memory Aid
Use the acronym “CRJ = Cash Received Journal” to remember it's for inflows only.

📝 Quick Recap Table

Type of Receipt Column in CRJ
Cash sales Current Income
Payment by debtor Debtors Control
Owner capital Capital
Anything else (e.g. rent received) Sundry Accounts
📘 Chapter 7: The Cash Payments Journal (CPJ)

🔑 Key Concepts & Definitions

Term Definition
Cash Payments Journal A journal used to record all cash or EFT outflows (payments)
(CPJ) made by the business.
Provide proof of payment, such as cheque counterfoils, EFT slips,
Source Documents
bank statements.
Bank Column Always credited — reflects money leaving the business.
Categorise payments (e.g. Creditors Control, Wages, Drawings,
Analysis Columns
Sundry Accounts).

Common Source Documents for CPJ

Document Used For
Cheque Counterfoil Cheques issued for payments
EFT Confirmation Online payments
Bank Statement Debit orders, bank fees

🧾 Layout of a CPJ
Doc. Creditors Sundry Details
Date Details Bank Wages Drawings
No. Control Accounts (Sundry)

🧾 Worked Example
Transactions for 1–3 March:
1. 01 Mar: Paid wages of R2 000 (Cheque 15)
2. 02 Mar: Paid Supplier A (a creditor) R6 000 (EFT)
3. 03 Mar: Owner withdrew R3 000 for personal use (Cheque 16)

💻 CPJ Example
Doc. Creditors Sundry Details
Date Details Bank Wages Drawings
No. Control Accounts (Sundry)
01 Chq
Wages 2 000 2 000
Mar 15
02 Supplier
EFT 6 000 6 000
Mar A
03 Chq
Owner 3 000 3 000
Mar 16
11
Totals 6 000 2 000 3 000
000

🔁 Posting to Ledger (from CPJ)

 Bank Account (Credit total from Bank column)
 Creditors Control (Debit: amount paid to creditors)
 Wages & Drawings (Debit relevant expense/equity accounts)

📌 Tips
 CPJ = money OUT of the business.
 When you pay a creditor, you reduce both the Bank and Creditors Control.
  Payments to the owner = Drawings.
 Wages, rent, telephone, etc. go to Sundry Accounts if no column exists for them.

🧠 Memory Aid
Use “CPJ = Cash Payment Journal” to remember it’s for outflows only.

📝 Quick Recap Table

Type of Payment Column in CPJ
Paid a creditor Creditors Control
Wages or salaries Wages
Drawings by owner Drawings
Other expenses (e.g. rent, stationery) Sundry Accounts
📘 Chapter 8: The Debtors Journal (DJ)

🔑 Key Concepts & Definitions

Term Definition
Debtors Journal (DJ) Records all credit sales of trading inventory (goods) to customers.
Debtors Customers who owe the business money for goods bought on credit.
Source Document Duplicate invoice (proof of credit sale).

💼 Important Notes
 Only sales of goods on credit are recorded in the DJ.
 Services sold on credit do not go in DJ — they go in General Journal (GJ).
 VAT (if applicable) is included in entries.

🧾 Layout of a Debtors Journal

Date Invoice No. Debtor Folio Sales VAT Total

🧾 Worked Example
Transactions:
1. 05 Mar: Sold goods on credit to S. Steyn for R2 000 + VAT (15%)
2. 06 Mar: Sold goods on credit to M. Moore for R1 500 + VAT

💻 DJ Example
Date Invoice No. Debtor Folio Sales VAT Total
05 Mar INV001 S. Steyn D1 2 000 300 2 300
06 Mar INV002 M. Moore D2 1 500 225 1 725
3 500 525 4 025

🔁 Posting to Ledger
 Debtors Control (Asset): Debit total amount (R4 025)
 Sales (Income): Credit R3 500
 VAT Output: Credit R525

📌 Tips
 Always check if VAT is included and apply correctly.
 Credit sales increase Debtors Control and Sales.
 Always use the duplicate invoice as your source.

🧠 Memory Tip
DJ = “Debt Journal” = credit sales = customers owe us.

📝 Quick Recap Table

Action Account Affected
Sale of goods on credit Debit Debtors Control
Increase in revenue Credit Sales
VAT collected on behalf of SARS Credit VAT Output
📘 Chapter 9: The Debtors Allowances Journal (DAJ)

🔑 Key Concepts & Definitions

Term Definition
Debtors Allowances
Records returns and allowances for goods sold on credit.
Journal (DAJ)
The source document issued to a debtor when goods are returned
Credit Note
or a discount is given after a credit sale.
An income-reducing account that reflects goods returned or
Debtors Allowances
allowances granted to customers.

💼 When to Use the DAJ

 A debtor returns damaged or incorrect goods
 A price adjustment or trade discount is given after the sale
 Only for goods originally sold on credit

🧾 Layout of a Debtors Allowances Journal

Date Credit Note No. Debtor Folio Debtors Allowances VAT Total

🧾 Worked Example
Transactions:
1. 07 Mar: S. Steyn returned goods worth R500 + VAT.
2. 08 Mar: M. Moore granted R300 discount due to damage (VAT included).

💻 DAJ Example
Date Credit Note No. Debtor Folio Debtors Allowances VAT Total
07 Mar CN001 S. Steyn D1 500 75 575
08 Mar CN002 M. Moore D2 260.87 39.13 300
760.87 114.13 875

🔁 Posting to Ledger
 Debtors Control (Asset): Credit R875
 Debtors Allowances (Contra-Income): Debit R760.87
 VAT Output (Liability): Debit R114.13

📌 Tips
 DAJ entries reduce income and reduce debtor balances
 VAT must always be adjusted accordingly
 Always issue a credit note for the return/allowance

🧠 Memory Aid
DAJ = Debt Adjustment Journal
Think: “Debtors return = we allow them credit back”

📝 Quick Recap Table

Action Account Affected Dr/Cr
Goods returned by debtor Debtors Allowances Debit
Reduce debtor’s account Debtors Control Credit
Action Account Affected Dr/Cr
VAT reversal VAT Output Debit
📘 Chapter 10: The Creditors Journal (CJ)

🔑 Key Concepts & Definitions

Term Definition
Creditors Journal Records all credit purchases of trading inventory or goods for
(CJ) resale.
Suppliers the business owes money to because of purchases made on
Creditors
credit.
Source Document Original invoice received from the supplier.

💼 Important Notes
 Only used for credit purchases of goods for resale (inventory).
 Other credit purchases (e.g. equipment, services) go in the General Journal (GJ).
 The Creditors Journal increases both Creditors Control (Liability) and Inventory
(Asset).

🧾 Layout of the Creditors Journal

Date Invoice No. Supplier Folio Trading Inventory VAT Total

🧾 Worked Example
Transactions:
1. 10 Mar: Bought inventory from Supplier A for R4 000 + VAT
2. 11 Mar: Bought goods from Supplier B for R3 000 + VAT

💻 CJ Example
Date Invoice No. Supplier Folio Trading Inventory VAT Total
10 Mar INV101 Supplier A C1 4 000 600 4 600
11 Mar INV102 Supplier B C2 3 000 450 3 450
7 000 1 050 8 050

🔁 Posting to Ledger
 Creditors Control (Liability): Credit R8 050
 Trading Inventory (Asset): Debit R7 000
 VAT Input (Asset): Debit R1 050

📌 Tips
 Always check that the goods are for resale — not fixed assets or services.
 VAT is added as input VAT (we are paying it and can claim it back).
 Use the original invoice as your source document.

🧠 Memory Tip
CJ = Creditors Journal = Credit Purchases

📝 Quick Recap Table

Action Account Affected Dr/Cr
Bought inventory on credit Trading Inventory Debit
Owe supplier Creditors Control Credit
Action Account Affected Dr/Cr
VAT paid (claimable) VAT Input Debit
📘 Chapter 11: The Creditors Allowances Journal (CAJ)

🔑 Key Concepts & Definitions

Term Definition
Creditors Allowances Records returns and allowances for goods previously
Journal (CAJ) purchased on credit.
The source document issued by the business when goods are
Debit Note
returned to a supplier.
A contra-expense account that reduces the value of purchases
Creditors Allowances
or trading inventory.

💼 When to Use the CAJ

 You return damaged or incorrect goods to a supplier
 You receive a discount or price reduction after a credit purchase
 The original transaction was recorded in the Creditors Journal

🧾 Layout of a Creditors Allowances Journal

Date Debit Note No. Supplier Folio Creditors Allowances VAT Total

🧾 Worked Example
Transactions:
1. 13 Mar: Returned goods worth R1 000 + VAT to Supplier A (DN001)
2. 14 Mar: Received R500 credit for damaged stock from Supplier B (DN002)

💻 CAJ Example
Date Debit Note No. Supplier Folio Creditors Allowances VAT Total
13 Mar DN001 Supplier A C1 1 000 150 1 150
14 Mar DN002 Supplier B C2 500 75 575
1 500 225 1 725

🔁 Posting to Ledger
 Creditors Control (Liability): Debit R1 725
 Creditors Allowances (Contra-Expense): Credit R1 500
 VAT Input (Asset): Credit R225

📌 Tips
 The CAJ reduces what we owe to suppliers
 The Creditors Control account is debited (because we now owe less)
 Only use this journal if the original purchase was in the Creditors Journal

🧠 Memory Tip
CAJ = “Creditors Adjustment Journal” = returns to suppliers.

📝 Quick Recap Table

Action Account Affected Dr/Cr
Returned goods to supplier Creditors Allowances Credit
Action Account Affected Dr/Cr
Reduce amount owed to creditor Creditors Control Debit
VAT claim adjusted downward VAT Input Credit
📘 Chapter 12: The Petty Cash Journal (PCJ)

🔑 Key Concepts & Definitions

Term Definition
Petty Cash Journal Records small cash payments made from the petty cash fund (e.g.
(PCJ) stamps, milk, taxi fare).
Petty Cash A small amount of cash kept on hand for minor expenses.
Petty Cash Voucher The source document used to record each petty cash payment.
A petty cash system where a fixed amount is maintained and reimbursed
Imprest System
regularly.

💼 When to Use the PCJ

 To pay for small day-to-day items: refreshments, postage, parking, etc.
 When using physical cash — not EFTs or cheques
 Each payment must be recorded using a petty cash voucher

🧾 Layout of the Petty Cash Journal

Voucher Sundry Details
Date Details Total Postage Stationery Refreshments
No. Accounts (Sundry)

🧾 Worked Example
Petty Cash Float: R1 000 (imprest system)
Transactions:
1. 15 Mar: Paid R40 for milk (Voucher 01)
2. 16 Mar: Paid R30 for stamps (Voucher 02)
3. 17 Mar: Paid R25 for parking (Voucher 03)

💻 PCJ Example
Voucher Sundry Details
Date Details Total Postage Stationery Refreshments
No. Accounts (Sundry)
15
Milk 01 40 40
Mar
16
Stamps 02 30 30
Mar
17
Parking 03 25 25 Parking
Mar
Totals 95 30 40 25

🔁 Posting to Ledger
 Each column is posted to the relevant expense account (e.g. Postage, Refreshments)
 The total of the Total column is posted as a credit to Petty Cash

📌 Tips
 Under the imprest system, you top up petty cash to its original amount (e.g. R1 000)
 The PCJ is updated manually by the petty cashier
 Petty cash payments should be recorded immediately and supported by a voucher
🧠 Memory Tip
Think: “PCJ = Pocket Change Journal”

📝 Quick Recap Table

Action Account Affected Dr/Cr
Pay for small item (e.g. milk) Refreshments Expense Debit
Record full PCJ total Petty Cash Credit
Maintain float (imprest system) Bank → Petty Cash Replenish after total spent
📘 Chapter 13: The General Journal (GJ)

🔑 Key Concepts & Definitions

Term Definition
General Journal Used for recording non-regular transactions that don’t fit into other
(GJ) journals (e.g. bad debts, corrections, year-end adjustments).
Source
Varies — includes memos, debit/credit notes, internal records, etc.
Documents
Double Entry Every entry in the GJ must still follow the rule of debit = credit.

When to Use the General Journal

Type of Transaction Examples
Year-end adjustments Depreciation, accrued expenses
Correction of errors Incorrect entries needing reversal
Bad debts written off Debtor no longer expected to pay
Opening entries Establishing accounts for a new business
Credit sales of non-inventory items Selling assets/services on credit

🧾 Layout of the General Journal

Date Details Debit Credit
Each entry contains a narration (brief explanation).

🧾 Worked Example 1: Write Off Bad Debt

Transaction: On 31 Mar, write off S. Steyn’s debt of R1 150 as irrecoverable.
 Entry:
Date Details Debit Credit
31 Mar Bad Debts 1 150
Debtors Control – S. Steyn 1 150
Write off irrecoverable debt

🧾 Worked Example 2: Correction of Error

Transaction: R500 rent was incorrectly recorded as stationery. Correct it.
 Entry:
Date Details Debit Credit
31 Mar Rent Expense 500
Stationery 500
Correct misposting of rent

🔁 Posting to Ledger
 Each GJ entry is posted to the relevant ledger accounts
 Narrations help trace and explain the nature of each transaction

📌 Tips
 The General Journal does not total monthly like other journals
 Always include narrations
 Use only when no other journal is appropriate

🧠 Memory Aid
GJ = “Go-to Journal” for special cases

📝 Quick Recap Table

Transaction Type Debit Account Credit Account
Write off bad debt Bad Debts Debtors Control
Correction of error Correct account Incorrect account
Depreciation Depreciation Expense Asset Account
📘 Chapter 14: Adjustments and the Trial Balance

🔑 Key Concepts & Definitions

Term Definition
A journal entry made at the end of the financial year to update accounts
Adjustment
so that they reflect the accrual basis of accounting.
Revenues and expenses are recorded in the period they are earned or
Accrual Basis
incurred, not necessarily when cash is received or paid.
Trial Balance A list of all ledger account balances after adjustments are made to
(Adjusted) ensure the financial statements are accurate.

🧾 Common Year-End Adjustments

Type of Adjustment Debit Credit
Accrued Expense Expense Accrued Expense (Liability)
Prepaid Expense Prepaid Expense (Asset) Expense
Accrued Income Accrued Income (Asset) Income
Income Received in Income Received in Advance
Income
Advance (Liability)
Depreciation Depreciation Expense Accumulated Depreciation
Bad Debts Written Off Bad Debts Debtors Control

🧾 Worked Example: Accrued Rent

Scenario: R2 000 rent is owed but not yet paid.
 Entry:
o Dr Rent Expense R2 000
o Cr Accrued Expenses R2 000

🧾 Worked Example: Prepaid Insurance

Scenario: R1 200 paid in advance for insurance covering the first 2 months of the next year.
 Entry:
o Dr Prepaid Insurance R1 200
o Cr Insurance Expense R1 200

🧾 Worked Example: Depreciation

Scenario: Equipment worth R10 000 depreciates at 10% per annum.
 Entry:
o Dr Depreciation Expense R1 000
o Cr Accumulated Depreciation R1 000

🧾 Adjusted Trial Balance Layout

Account Debit (R) Credit (R)
Rent Expense 2 000
Account Debit (R) Credit (R)
Accrued Expenses 2 000
Prepaid Insurance 1 200
Insurance Expense 1 200
Depreciation Expense 1 000
Accumulated Depreciation 1 000
Totals 4 200 4 200
✅ Debits and credits still balance after adjustments.

📌 Tips
 Adjustments are non-cash entries that ensure matching principle is followed.
 Always update expense and income accounts so they reflect only what belongs to
the current period.
 Prepaid = Future benefit (asset); Accrued = Still owing (liability)

🧠 Memory Aid
PAID:
 Prepaid = Asset
 Accrued = Liability
 Income received in advance = Liability
 Depreciation = Expense + Accumulated contra-asset
📘 Chapter 15: The Income Statement

🔑 Key Concepts & Definitions

Term Definition
Income A financial report that shows a business’s performance over a period —
Statement specifically its profit or loss.
Income Revenue generated (e.g. sales, interest received).
Cost of Sales
The cost of goods sold to generate sales.
(COS)
Gross Profit Sales – Cost of Sales.
Net Profit Gross Profit – Operating Expenses.

📐 Layout of the Income Statement

ABC Traders
Income Statement for the year ended 28 February 20XX

Sales XXXX
Less: Cost of Sales (XXXX)
---------------------------------------------------
Gross Profit XXXX

Add: Other Income XXXX

Less: Operating Expenses (XXXX)
---------------------------------------------------
Net Profit XXXX

📊 Common Items in the Income Statement

Section Examples
Income Sales, Interest Received
Cost of Sales Opening Inventory + Purchases – Closing Inventory
Operating Expenses Rent, Wages, Depreciation, Bad Debts
Other Income Discount Received, Commission Income

🧾 Worked Example
Details:
 Sales: R150 000
 Cost of Sales: R90 000
 Rent Expense: R12 000
 Wages: R30 000
 Discount Received: R1 000

💻 Income Statement Example

ABC Traders
Income Statement for the year ended 28 February 20XX

Sales 150 000

Less: Cost of Sales (90 000)
---------------------------------------------------
Gross Profit 60 000

Add: Discount Received 1 000

Less: Expenses:
Rent 12 000
Wages 30 000
---------------------------------------------------
Total Expenses (42 000)

Net Profit 19 000

📌 Tips
 Only include income and expenses, not assets or liabilities.
 Accrued and prepaid adjustments must be made before preparing the Income
Statement.
 Cost of Sales must be calculated using:

Opening Inventory + Purchases – Closing Inventory

🧠 Memory Aid
"I See Gross – Others Exit Now"
(Income – COS = Gross Profit → add Other Income → less Expenses = Net profit)
📘 Chapter 16: The Balance Sheet

🔑 Key Concepts & Definitions

Term Definition
A financial statement that shows the financial position of a
Balance Sheet
business at a specific point in time.
Items of value owned by the business (e.g. bank, vehicles,
Assets
inventory).
Liabilities Amounts the business owes (e.g. loans, creditors).
Owner’s Equity The owner's financial interest in the business. Calculated as:
Assets – Liabilities =
Owner’s Equity.
Assets = Owner’s Equity + Liabilities — the basis of the balance
Accounting Equation
sheet.

📐 Layout of the Balance Sheet

ABC Traders
Balance Sheet as at 28 February 20XX

ASSETS
Non-Current Assets:
Equipment XXXX
Vehicles XXXX
Current Assets:
Inventory XXXX
Debtors XXXX
Bank XXXX
--------------------------------------------
Total Assets XXXX

EQUITY AND LIABILITIES

Owner’s Equity:
Capital XXXX
Add: Net Profit XXXX
Less: Drawings (XXXX)
--------------------------------------------
Closing Capital XXXX

Non-Current Liabilities:
Loan XXXX
Current Liabilities:
Creditors XXXX
Accrued Expenses XXXX
--------------------------------------------
Total Equity and Liabilities XXXX

🧾 Worked Example
Item Amount (R)
Equipment 50 000
Inventory 30 000
Debtors 15 000
Bank 10 000
Loan 20 000
Creditors 5 000
Capital 75 000
Net Profit (from Income Statement) 19 000
Drawings 14 000

💻 Balance Sheet (Simplified Example)

ABC Traders
Balance Sheet as at 28 February 20XX

ASSETS
Non-Current Assets:
Equipment 50 000
Current Assets:
Inventory 30 000
Debtors 15 000
Bank 10 000
--------------------------------------------
Total Assets 105 000

EQUITY AND LIABILITIES

Owner’s Equity:
Capital 75 000
Add: Net Profit 19 000
Less: Drawings (14 000)
--------------------------------------------
Closing Capital 80 000

Non-Current Liabilities:
Loan 20 000
Current Liabilities:
Creditors 5 000
--------------------------------------------
Total Equity and Liabilities 105 000
✅ It balances!

📌 Tips
 The balance sheet is a snapshot on a specific date.
  All year-end adjustments must be processed before preparing it.
 Ensure that total assets = total equity + total liabilities.

🧠 Memory Aid
“A = OE + L”
(Assets = Owner’s Equity + Liabilities)
📘 Chapter 17: The Post-Adjustment Trial Balance

🔑 Key Concepts & Definitions

Term Definition
A list of all ledger account balances to check that total debits = total
Trial Balance
credits.
Post-Adjustment Trial A trial balance prepared after all adjustments have been made at
Balance the end of the accounting period.
To ensure that the adjusted ledger is still mathematically
Purpose
correct before preparing financial statements.

🔁 Difference Between Pre- and Post-Adjustment Trial Balance

Pre-Adjustment Trial Balance Post-Adjustment Trial Balance
Prepared after adjustments (e.g. depreciation,
Prepared before year-end entries
accruals)
Does not reflect actual closing
Shows accurate, up-to-date balances
balances
Used for checking journals and ledger Used for preparing financial statements

🧾 Example: Adjustment Impact

Scenario: Rent of R2 000 is outstanding and not yet recorded.
 Before adjustment:
o Rent Expense = R10 000
o No Accrued Expense account
 After adjustment:
o Rent Expense = R12 000
o Accrued Expenses = R2 000
✅ This changes the trial balance.

📊 Post-Adjustment Trial Balance Layout

Account Debit (R) Credit (R)
Bank 20 000
Inventory 30 000
Equipment 50 000
Debtors 15 000
Accumulated Depreciation 5 000
Rent Expense 12 000
Accrued Expenses 2 000
Capital 100 000
Drawings 10 000
Creditors 8 000
Sales 120 000
Cost of Sales 70 000
Wages Expense 20 000
VAT Output 10 000
Account Debit (R) Credit (R)
VAT Input 8 000
Totals 235 000 235 000

📌 Tips
 Always ensure all adjustments (from Chapter 14) are included before compiling the
post-adjustment trial balance.
 All figures from this trial balance will flow into the Income Statement and Balance
Sheet.
 If the totals do not balance, recheck your ledger balances and adjustments.

🧠 Memory Aid
Think of it like a final checklist:
✅ "Adjusted and balanced? Ready for statements!"
📘 Asset Realisation
🔑 What is Asset Realisation?
Asset realisation is the process of selling a business’s assets in order to:
 Settle debts when the business is closing (liquidation/insolvency)
 Distribute remaining funds (if any) to the owner

🧾 Steps in Asset Realisation:

1. List all assets
(e.g. vehicles, inventory, equipment, furniture)
2. Sell the assets
o Convert them into cash ("realising" the assets)
3. Use the cash to:
o Pay off secured creditors (e.g. bank loans with security)
o Pay off preferential creditors (e.g. SARS)
o Then unsecured creditors
o Any remaining amount goes to the owner

📌 Important Terms
Term Explanation
Liquidator The person managing the sale of the business’s assets
Secured Creditor Has legal claim over specific assets (e.g. a loan backed by a vehicle)
Preferential Creditor Has a legal priority (e.g. tax authorities)
Unsecured Creditor Paid only if funds remain after others

🧮 Worked Example:
 Total assets sold: R100 000
 Secured creditors: R40 000
 Unsecured creditors: R50 000
 R10 000 remaining → goes to owner as capital return
If liabilities exceed assets, creditors may receive only a portion of what they are owed.

📘 Bank Reconciliation
🔑 What is Bank Reconciliation?
It’s a process to compare the business’s cash book with the bank statement and find
reasons for differences.

🔁 Common Reasons for Differences:

Cause Effect on reconciliation
Outstanding deposits Not yet shown in bank statement
Unpresented cheques Cheques issued but not yet cashed
Bank charges Bank deducts fees not yet in cash book
Direct deposits (EFTs) Money received by bank but not in cash book
Errors Recording errors in cash book or bank side

🧾 Reconciliation Steps:
1. Start with Cash Book balance
2. Add deposits not yet reflected
3. Subtract cheques issued but not yet presented
4. Adjust for bank charges, direct deposits, and errors
5. The adjusted balance should equal the Bank Statement balance

💳 Adjusting the Cash Book:

Entry Type Debit / Credit Example Journal Entry
Bank charges Dr Bank Charges / Cr Bank
EFT from customer Dr Bank / Cr Debtors
Interest earned Dr Bank / Cr Interest Income
Correction of errors Depends on error

🧮 Bank Reconciliation Statement Example:

pgsql
CopyEdit
Balance as per bank statement R15 000
Add: Outstanding deposit R 5 000
Less: Unpresented cheque (R2 000)
---------------------------------------------------
Adjusted balance R18 000
✅ This R18 000 should now match your cash book balance.