ACC 101 Basic Accounting Concepts (3 Credits- Compulsory) Course Duration: Three hours per week for 15 weeks (45 Hours)

Transcription

1 Course: ACC 101 Basic Accounting Concepts (3 Credits- Compulsory) Course Duration: Three hours per week for 15 weeks (45 Hours) Lecturer: OLANIYI, Taiwo Azeez Ph.D. (Unilorin), M.Sc. (Unilorin), B.Sc. (Unilorin), MBA(Unilorin), ACA (ICAN) Department of Accounting and Finance, Faculty of Business and Social Sciences University of Ilorin, Ilorin, Nigeria. E- Mail: Office Location: Room 18, Otunba Adekanola Building, Department of Accounting and Finance, Faculty of Business and Social Sciences, University of Ilorin, Ilorin. Consultation Hours: Mondays and Thursdays 3-5pm. Course Content - Basic and Current Accounting Methods-Nature, purpose and basic concepts of accounting - Measurement of Income, cost, assets, equities. - The accounting equation - Business transactions, single and double entry book-keeping - Basic accounting records - Preparation of financial statements- Accrual and Cash accounting - Accounting for fixed assets - suspense accounts and correction of errors - Bank reconciliation statements - Incomplete records - Receipt /payment, income and expenditure accounts/statements.

2 Course description This course is an introductory course in accounting; in fact, it is the first course to be taken in accounting at the university level. It is therefore a compulsory course. It presents to the students the origin of accounting and book keeping as well as the underlying assumptions/concepts or conventions guiding accounting. It also deals with basic accounting records needed to be kept as well as the nature of accounting transactions. In this same course nature of accounting transactions are treated as well as documentation of these transactions. Efforts are also made to deal with preparation of cash book, journal and trial balance for eventual preparation of financial statements such as profit and loss accounts and balance sheet. It also covers preparation of bank reconciliation statements as well as suspense accounts and correction of errors. Accounts of non-profit making organizations are also covered. Course justification The need to get students acquainted with the source and the need for accounting became evident since the entry requirement to study accounting/finance does not require initial knowledge in it at ordinary levels. Thus, students are taking through the basic principles of accounting, nature of accounting transactions before finally going into nitty-gritty of accounting at subsequent (200, 300 and 400) levels. Course objective There is the need to build a foundation before erecting structure, thus, this study objective is to build a solid foundation for the students in the form of introductory stage before going into the complexities in accounting. Course requirement Basic accounting concept is a compulsory course for all specialists in accounting and finance and is a prerequisite for ACC 103(Financial accounting/ theory).

3 To qualify to sit for examinations of this course, students are expected to have at least seventy percent 75% classroom/ lecture attendance. Delivery strategies This course will be delivered by face to face tutoring /instruction and interactive sessions as well as group assignments. Assessment and Evaluation The total mark obtainable in this course is one hundred percent 100% broken down as follows: S/NO Types Score (%) 1 Individual Assignment 5 2 Group Assignment 5 3 Continuous Assessment Test 20 4 Comprehensive Final Examination 70 5 Total Score 100 LECTURE CONTENT WEEK 1 TOPIC: Background of current accounting method This topic is descriptive in nature and it involves no calculation or mathematical computations at all. Objective At the end of this topic students are expected to:

4 - Know the definition of accounting and differentiate it from that of bookkeeping. - Be able to trace the origin of accounting to the source country and to a particular person as well. - Understand the need for accounting; - Be informed of the nature accounting takes in the earliest periods - Understand the medium through which documentations are made in the earliest periods. Study questions 1. Define accounting 2. Define book-keeping 3. Differentiate between book-keeping and accounting 4. From which country does accounting originate? 5. Who is the person that actually started accounting? Reading list 1. Hartman, B.P; Harper R.M, Knoblett, J.A and Reckers, P.M(2000): Intermediate Accounting, 3 rd Edition, South Western College Publishing(Thompson Learning). Pages Available in the University Library. 2. Stott, J.R (2003): Teach Yourself basic Accounting. Hodder Headline Education LTD. UK. Pages Available in the University Library. WEEK 2 TOPIC: NATURE, PURPOSE AND BASIC ACCOUNTING CONCEPTS OF ACCOUNTING This topic consists of theoretical aspect of the course only. It involves discussion on the legal framework upon which anything in accounting is based in terms of the rules, principles/concepts and conventions of accounting.

5 Objective At the end of this topic, students should be able to: - Define accounting concepts - Differentiate concepts from conventions - The need for the concepts and conventions Study questions 1. Define accounting concepts 2. What is accounting convention and how does it differ from accounting concepts. 3. Explain the following accounting concepts: - Cost concept - Accrual - Money measurement 4. Give two examples of accounting conventions 5. Explain in detail the following accounting conventions: - Materiality - Consistency Reading list 1. Hartman, B.P; Harper R.M, Knoblett, J.A and Reckers, P.M(2000): Intermediate Accounting, 3 rd Edition, South Western College Publishing(Thompson Learning). Pages Available in the University Library. 2. Igben, R.O.(2007):Financial Accounting Made Simple; Vol.1 2 nd Edition. Pages Akinbuli, S.F(2006): Financial Accounting: Principles and Application, BPrint, Yaba. Lagos. pages 26-41

6 WEEK 3 TOPIC: MEASUREMENMT OF INCOME, COST ASSETS AND EQUITIES This topic involves no calculation at all as it s all in all theoretical. It entails theories guiding recognition of revenue and income as well costs, assets and liability acquisitions. Objective At the end of this topic, students are expected to understand: - how and when revenue is to be recognized - revenue recognition concept - income and expenses recognition - the difference between historical cost, current cost, fair value, net realizable /settlement value or present value Study questions 1. when is revenue recognized? 2. What are the four criteria needed to be met before an event, transaction or circumstance giving rise to an asset, liability or change in an asset or liability can be recognized? 3. Discuss any three measurement of asset recognition 4. An increase in retained earnings is also an increase in (Liabilities/ Equity). 5. Olaniyi enterprises borrowed N20,000 from bank on 1 st April, What is the impact of this cash receipt on the equity of the business? a. Increased b. Decreased c. Did not change

7 Reading list 1. Anthony, N.A. and Breitner, L.K. (2006): Essentials of Accounting, Pearson Educational International, Prentice Hall. Pages Available in the University Library. WEEK 4 TOPIC: THE ACCOUNTING EQUATION This topic is descriptive in nature and it involves no calculation or mathematical computations at all. Objective After completing this topic, students are expected to: - Understand what accounting equation means to both the business that owes liabilities and those that owes nothing. - Explain the relationship between assets, liabilities and capital as well as their definitions - Define what shareholders fund means - Differentiate between capital and revenue - Know the components of or items in the balance sheet of an organization - Explain different types of liabilities - Explain different types of assets Study questions 1. What do you understand by the accounting equation? 2. Differentiate between capital and revenue 3. What is the component of shareholders fund? 4. Define assets and explain the different types of assets known to you 5. Define liabilities and explain different types of liabilities known to you.

8 Reading list 1. Horngreen, C.T and Harrison, W.T(2007): Format and Managerial Accounting; Chapters 1-13; Pearson Prentice Hall, New Jersey. Pages Available in the University Library. WEEK 5 TOPIC: BASIC ACCOUNTING RECORDS This topic involves only theoretical aspect of the course and no calculation is involved. Objective This topic will afford the students the opportunity to: - Understand what an account is - Differentiate between personal and impersonal account - Know the principal books and the subsidiary books used in accounting - Know the distinction between a ledger and a journal as well as when each of them is being used. - Know the classification/division of the ledger. - Understand the usage as well as conditions guiding the usage of cash book. - Be able to differentiate between the 2-column and three column cash book and how they are being prepared. Study questions 1. Define an account and give the distinction between personal and impersonal account 2. What are the principal and subsidiary books used in accounting and what is the difference between the two. 3. Define a ledger and give the types of ledgers known to you. 4. When is a journal normally used in accounting?

9 Reading list 5. Under what condition is a cash book become useful in accounting. 6. Differentiate between 2-column and 3- column cash book. 1. Stickney, C.P and Weil, R.L.(2008): Financial Accounting: An introduction to Concepts, methods and uses. Pages Available in the University Library. WEEK 6 TOPIC : BUSINESS TRANSACTIONS, SINGLE AND DOUBLE ENTRY BOOK-KEEPING This topic is only theoretical in nature and no calculation is involved. It introduces students to what accounting transactions look like as well as its different types and treatments. Objectives At the end of this topic, students will: - Be able to know the components of accounting transactions - Be able to understand the distinction between debit and credit entries in accounting; - Which account is to be debited and which account is to be credited for a particular accounting transaction - Know the difference between debit balance and credit balance accounts - Differentiate between transactions on cash basis and those on credit basis. - Understand the difference between single entry and double entry transactions - Know the treatment of both credit and cash transactions - Know the books to records accounting transactions - Understand the posting of transactions through accounting records to the extraction of trial- balance.

10 Study questions 1. Differentiate between a single entry and double entry transactions. 2. When is a transaction classified as being on cash or credit basis? 3. Give two examples each of debit balance and credit balance accounts. 4. Ade bought goods from Jimoh for N500, which account is to be credited and which account is to be credited and why. 5. How are contra-entries treated in accounting Reading List 1. Stott, J.R (2003): Teach Yourself basic Accounting. Hodder Headline Education LTD. UK. Pages Available in the University Library. WEEK 7 TOPIC: PREPARATION OF FINANCIAL STATEMENTS This topic takes students through preparation of simple financial statements like the trading and profit and loss accounts and extraction of balance sheets. It is both descriptive and mathematical in nature. It requires the use of calculators. Objective At the end of this topic, students will be able: - Post accounting transactions from source documents through the ledgers and extract a trial balance and; - to prepare simple trading and profit and loss accounts - extract a balance sheet from the records

11 Study questions 1. which side of the profit and loss account will you post discount received 2. Which side of the profit and loss account will you post provision for bad and doubtful debts? 3. What is the difference in the treatment of bad debt and provision for bad debts in the profit and loss accounts? 4. What is the impact of opening and closing stocks on gross profit 5. Opening value of motorvan for the year was N95,000 while its corresponding accumulated depreciation was N5000 and additional motorvan costing N40,000 was acquired during the year. The old asset has been used only for one year. Required: How much goes to the profit and loss accounts and how much goes to the balance sheet. Reading List 2. Stott, J.R (2003): Teach Yourself basic Accounting. Hodder Headline Education LTD. UK. Pages Available in the University Library. WEEK 8 TOPIC: CONTINUATION OF PREPARATION OF FINANCIAL STATEMENTS This week involves calculations only and solution to relevant questions Objective Include ability to tackle complex questions on final accounts.

12 Study questions 1. What is the difference in the treatment of bad debt and provision for bad debts in the profit and loss accounts? 2. The trial balance of Olaniyi enterprises shows the following as at 31/12/2010: N Motorvan purchased on (1/1/2010) 200,000 Accumulated depreciation 5000 Motorvan purchased on (30/6/2010) 50,000 Required: 3. Compute the amount that will go to profit and loss account as depreciation 4. Compute the amount that will go to balance sheet as depreciation 5. What is the net book value of motorvan in the balance sheet. Reading list 1. Igben, R.O.(2007):Financial Accounting Made Simple; Vol.1 2 nd Edition. Pages 1-57.Availabe in the University Lirary. 2. Dyson, J.R.(1992): Accounting for Non-Accounting Students, Pitman Publishing, London. Pages Available in the University Library. WEEK 9 TOPIC: SUSPENSE ACCOUNTS AND CORRECTION OF ERRORS This topic is both quantitative and qualitative in nature. It involves translation and interpretation of word problems into computational treatment; that is identification and treatment of errors that occur in the treatment of accounting transactions from source documents to the extraction of trial balance and after the preparation of profit and loss accounts and balance sheet.

13 Objective Treating this topic will allow students to understand: - What accounting errors are - Difference between errors, fraud and mistake - Those errors that will affect the agreement of trial balance - Those errors that will not affect the agreement of trial balance - The treatment of each class of errors and their possible effect on the profit and loss accounts. - Errors that will be corrected through the journal and those that will be corrected through suspense accounts. Study questions 1. What do you understand by errors in accounting? 2. Differentiate between errors, fraud and mistake in accounting language. 3. Identify those errors that will affect the agreement of trial balance 4. Identify those errors that will not affect the agreement of trial balance 5. Give two examples each of errors that will be corrected through the journal and those that will be corrected through suspense accounts. 6. What are the points to note when correcting errors Reading list 1. Igben, R.O.(2007):Financial Accounting Made Simple; Vol.1 2 nd Edition. Pages Availabe in the University Lirary. 2. Barton, A.D (1978): Te Anatomy of Accounting, University of Queensland Press, Queensland. pages Availabe in the University Lirary

14 WEEK 10 TOPIC: BANK RECONCILIATION STATEMENTS This topic is both qualitative and quantitative in nature. It involves agreeing the discrepancies between cash book of an organization and the bank statement of the same period. It also entails preparation of adjusted cash book if the needs be and subsequently the preparation of bank reconciliation statement. Objective At the end of this topic, students will be able to: 7. Understand why the cash book balance is always different from that of the bank statement; 8. Know the causes of the disagreement between the cash book and the bank statement; 9. Know the preparation of adjusted cash book; 10. Know the items on the debit and credit side of the adjusted cash book; 11. Identify the difference between un-credited and un-presented cheques 12. Understand how to prepare both the adjusted cash book and bank reconciliation statement. Study questions 1. What are the reasons for the disagreement between the cash book and the bank statement and; 2. Identify the causes of such disagreement. 3. List the items on the debit and credit side of the adjusted cash book 4. Give the description of the treatment of items in bank statement only 5. How are dishonored cheques treated?.

15 Reading list 1. Stott, J.R (2003): Teach Yourself basic Accounting. Hodder Headline Education LTD. UK. Pages Available in the University Library. 2. AKINBULI, S.F(2006): Financial Accounting: Principles and Application, BPrint, Yaba. Lagos. pages WEEK 11 TOPIC: ACCOUNTS OF NOT-FOR-PROFIT ORGANISATIONS (RECEIPT AND PAYMENT ACCOUNTS / INCOME AND EXPENDITURE ACCOUNTS) This topic is more analytic than descriptive because it requires the sound knowledge of accruals and prepayments. It is the accounts of not for profit organizations like social club or any other organization set up to facilitate the achievement of certain objectives which may be political, educational, social or religious. It involves the establishing the cash book/receipt and payment account for as well as preparing final accounts (income and expenditure) for such organizations. Objective Include ability to: - Understand sources of income as well as expenditure outlets to not- forprofit organizations since they are not trading or manufacturing. - Understand the nature of their activities vis-as-vis registration with the government and tax implications on their profits/loss. - Be able to establish the capital of such organizations called accumulated fund - Prepare receipt and payment accounts

16 - Study questions 1. What do you understand by accumulated fund? 2. Enumerate the sources of capital available to not-for-profit organizations. 3. Provide the formular for estimating accumulated fund 4. What is the tax implication on the profit/loss of not-for-profit organizations. 5. Differentiate between income and expenditure accounts and receipt and payment accounts. WEEK 12 TOPIC: CONTINUATION OF ACCOUNTS OF NOT-FOR-PROFIT ORGANISATIONS (RECEIPT AND PAYMENT ACCOUNTS / INCOME AND EXPENDITURE ACCOUNTS) In addition to what obtains in week 9, it involves discussion of the items on the credit and debit sides of income and expenditure accounts as well as necessary adjustment that be required. Objective At the end of this week, students should be able to: - Prepare income and expenditure accounts - Extract balance sheet after the preparation of income and expenditure accounts - Compare the structure of income and expenditure accounts with that of trading profit and loss accounts. Study questions 1. Differentiate between income and expenditure accounts and the conventional profit and loss accounts.

17 2. On April 1 st 2008, the assets and liabilities of Okunlola Youth Club include: N Insurance prepaid - 20 Tools and hobbies equipment 415 Subscription in arrears 30 Games equipment 640 Furniture and fittings 1500 Subscription in advance 80 Take note of the following: The receipt and payment account prepared by the treasurer reveals a sum of N520 Subscription received and this is inclusive of the amount in arrears for the previous year, and 20 was in arrears for the current year. At the end of the year, Annual insurance premium of N120 were paid to 30 th June, Required: 3. How much will be debited to income and expenditure account for insurance 4. Prepare a statement of accumulated fund 5. How much subscription will be regarded as income for the year. Reading list 1. Igben, R.O.(2007):Financial Accounting Made Simple; Vol.1 2 n Edition. Pages Availabe in the University Lirary. 2. Akinbuli, S.F(2006): Financial Accounting: Principles and Application, BPrint, Yaba. Lagos. pages

18 WEEK 13 TOPIC: INCOMPLETE RECORDS This topic is both descriptive and analytical in nature. It involves the preparation of final accounts from records that are not prepared using appropriate accounting procedures or records that are not complete in term of double entry recordings. Objective At the end of this topic, students will be able to: - The meaning of incomplete records - Causes and situations that might lead to incomplete records - Treatment of such situations - Disadvantages of incomplete records - Conversion of incomplete records to double entry - Adoption of mark-up and margin to solving incomplete records problems Study questions 1. Define incomplete records 2. Explain the causes/situations that might lead to incomplete records 3. What are the documents adopted in converting incomplete records to double entry 4. Adebayo supplies you with the following information relating to the activities of his business in the year ended 31 st December, 2008 N Cash paid into the bank proceeds of sales of personal property 240 childrens school fees paid by cheque 900 cheque paid to creditors 9300 payments received from debtors payment to creditors(cash and cheque) 9540 wages 1800 carriage outwards 720 rent 162 electricity bill 108 insurance 300

19 bank interest received 120 Assets andliabilities at the beginning and end of the periods supplied to you are: 1/1/ /12/2008 Stock Bank balances Cash in hand Debtors (trade only) Creditors(trade only) Sundry fixed assets He informs you that any discrepancy in the cash in hand should be taken as further drawings by him. The bank interest is taxed at the rate of 9.1%. Required: Prepare a trading and profit and loss accounts for the year ended 31 st December, 2008 and a balance sheet as at that date. Reading list 1. Geaorge, C.N.(2005): Principles and practice of Financial Accounting; royalbird ventures Ltd. Mushin. Lagos. Page Available in the University Library. 1. Stott, J.R (2003): Teach Yourself basic Accounting. Hodder Headline Education LTD. UK. Pages Available in the University Library. WEEK 14 TOPIC: REVISION

20 COMPREHENSIVE QUESTIONS 1. TOLANI LTD had a debit balance of N1060 at June 30,2008 but this was not born out of the bank statement at the same date. Investigation reveals the following : i. A cheque paid for public relations on for N628 had been entered in the cash book as N682. ii. A standing order for subscription of N80 had been paid by the bank on 29/06/2008 but no entry had been made in the cash book foe this. iii. Cheques received from customers amounting to N3200 were paid into the bank on 30/06/2008 but this was not reflected in the bank statement. iv. On 20/06/2008, a cheque for N228 was received from a customer in settlement of an invoice for N240. An entry of N240 was made in the cash book v. Cheques for N1554 sent to creditors on 30/06/2008 were not paid by the bank until 6 th July. vi. Cheques for N504 lodged in by TOLAWI who has an account with the same bank was credited wrongly by the bank to the account of TOLANI LTD. vii. The bank statement showed an overdrawn balance of N120. Required: Prepare bank reconciliation statement. 2. On April1st 2008, the assets of Ijaodola Youth Club were: N i. Insurance prepaid 20 ii. Subscription 30 iii. Tools &hobbies equipment 415 iv. Game equipment 640 v. Furniture 1500 The only liability as at that date was subscription in advance of N80.

21 The treasurer prepares the following summary of the receipt and payment for the year ended 31/3/2009 as follows: RECEIPT AND PAYMENT ACCOUNT N N Bal. b/d 1/4/ Electricity 270 Subscription 520 expenses on annual dinner 310 donation 500 new tool equipment 90 Sale of annual ticket 590 new game equipment 60 Sale of dance ticket 670 expenses on dance 270 Cleaners wage 520 Printing and stationery 50 Repairs 140 Insurance 120 Bank 910 The following additional information is provided: i. Subscriptions received include the amount in previous year N20 arrear for the current year. ii. Annual insurance premium N24 was paid to June iii. Repairs outstanding is N30 iv. 10% depreciation is to be written off the balance as at 31/03/2009 on furniture& fittings, game equipment and tool and hobbies equipment. Required: i. Statement of accumulated fund as at 1/04/2008

22 ii. The income and expenditure account for the year ended 31/03/2009 iii. Balance sheet as at that date. Use the information below to answer the questions that follows it: LATUNDE trial balance as at 31 st December, 2008 is as follows: DR(N) CR(N) Electricity bill 250 Capital 8000 Purchases and sales Loan 60 Wages 60 Drawings 1000 Return inward and outwards Discounts Debtor and creditors Shop fixtures Cash in hand 3757 Motorvan 4000 Stock 5000 Bank Additional information: i. Stock at 31 st December, 2008 amounted to N3000 ii. Accrued wages was N20.

23 Questions: 3. Calculate the cost of goods sold 4. What is the cost of sales figure? 5. Compute the net profit for the business 6. The total of the two sides of OLTUNDE balance sheet is? 7. What is the working capital of the business? is always recorded on the credit side of the cash book? a. Discount received b. Discount allowed c. Discount waived d. Discount removed 9. It is the that sends the invoice. a. Debit note b. Credit note c. Advise note d. Correction note 10. Which of the following errors will affect the agreement of trial balance? a. Casting error b. Error of omission c. Error of commission d. Compensating error.