Book keeping accounts
Book keeping defined;
Book keeping is the process of recording data relating to accounting transactions in the accounting books. It
is the art of correctly recording in the books of account all those business transactions that results in the
transfer of money or money’s worth. The work of a book keeper is clerical in nature and can be
accomplished through the use of mechanical and electronic equipment. Book keeping is more of a routine
work.
Users of accounting information
(a) Owners; they want to be able to see whether or not the business is profitable. They also want to
know what the financial resources of the business are.
(b) Managers; they are vested with day to day decision making and formulating strategies of the
business about the control of resources. They need information that will enable them to predict thee
likely outcomes of alternative course of action. they will need feedback on results of their previous
decisions in order to extend successful aspects of the decisions and to adapt and improve the
unsuccessful aspects
(c) Investors; these are the providers of capital and are interested in the performance of the business
entity. They need to determine risks involved and returns on their investment.
(d) Government and their agencies; these regulate he activities of the enterprise and also collection
of revenues in form of taxes. the business contribution to National income
(e) Employees; interested in the profitability of their employer and the ability to pay salaries and
allowances. They are also interested in job security, retirement benefits and employment
opportunities
(f) Suppliers assess the business ability to pay liabilities when and as they fall due.
(g) Public- Pollution, Employment and corporate responsibility of the business.
The Accounting Equation
The properties that are owned by the business are called ASSETS. These are the resources that enable the
business to trade and carry out trading. These assets are financed by the owner of the business and other
outsiders. Therefore the total assets must be equal to the total funding (both owner +non owners). This is
expressed in form of an accounting equation stated below;
ASSETS= CAPITAL + LIABILITIES this is in case of other financier besides the owner OR
ASSETS=CAPITAL where the assets are financed by the owner only
An asset is a resource controlled by a business entity as a result of past events for which economic benefits
are expected to flow to the firm. Example. Sale of goods on credit, this creates an asset called debtor, while
the sale on credit is the past event and the resource is debtor. The debtor is expected to pay so that economic
benefits flow towards the business in form of cash once the customer pays.
Assets are classified into two categories;
, (i) Non-current Assets (fixed assets). These are acquired by the business to assist in earning revenues
and not for resale. They are normally expected to be in business for a period of more than one year.
Example includes; Land and building, plant and machinery, furniture and fittings, equipment etc.
(ii) Current assets. These assets are not expected to last for more than one year. They are directly
related to the trading activities of the firm. These includes; inventory (stock), trade debtors/accounts
receivable, cash at bank and cash in hand.
(iii) Liabilities. These are debts of a business that results from past events settlement of which are
expected to result to a payment by the firm. Example, Purchase of goods for resale on credit. The
past event is the credit purchase and the liability being the creditor the firm will pay cash to the
creditor- outflow of cash from the business. Liabilities ars of two type;
(a) Non-current liabilities
(b) current liabilities
Non-current liabilities are expected to be repaid in a period of more than one year eg bank loan.
Current liabilities are expected to be repaid or settled by the business within one year eg trade
creditors and other amount owed for services supplied to the firm other than goods, salaries not paid
and rent outstanding by the year end, bank overdraft ( amount advanced by the bank for a short
term period.
Capital or Equity
This the amount the owner of the business has invested in the business.
THE BALANCE SHEET AND TRANSACTIONS AFFECTING THE BALANCE SHEET
Ledger Accounts
The ledger is the book required for a proper record of the transactions. The ledger has two sides i.e. the left and right side divided in
two equal parts. The left hand side is used for debit entry and the right hand side is used for credit entry, usually abbreviated Dr and
Cr respectively.
Dr Cr
Date Particulars Folio amount Date Particulars Folio page amount
page
The Double Entry concept
The two fold aspect of business transactions has been evolved to provide the arithmetical check regarding the accurate and complete
record of these transactions. The rule of double entry state that “for each debit entry there must be a corresponding credit entry and
for each credit entry there must be a corresponding debit entry.” Therefore, each business transaction must be recorded twice in two
different accounts. This reflects the two fold effect of a business transaction (that of debit and credit).
Book keeping defined;
Book keeping is the process of recording data relating to accounting transactions in the accounting books. It
is the art of correctly recording in the books of account all those business transactions that results in the
transfer of money or money’s worth. The work of a book keeper is clerical in nature and can be
accomplished through the use of mechanical and electronic equipment. Book keeping is more of a routine
work.
Users of accounting information
(a) Owners; they want to be able to see whether or not the business is profitable. They also want to
know what the financial resources of the business are.
(b) Managers; they are vested with day to day decision making and formulating strategies of the
business about the control of resources. They need information that will enable them to predict thee
likely outcomes of alternative course of action. they will need feedback on results of their previous
decisions in order to extend successful aspects of the decisions and to adapt and improve the
unsuccessful aspects
(c) Investors; these are the providers of capital and are interested in the performance of the business
entity. They need to determine risks involved and returns on their investment.
(d) Government and their agencies; these regulate he activities of the enterprise and also collection
of revenues in form of taxes. the business contribution to National income
(e) Employees; interested in the profitability of their employer and the ability to pay salaries and
allowances. They are also interested in job security, retirement benefits and employment
opportunities
(f) Suppliers assess the business ability to pay liabilities when and as they fall due.
(g) Public- Pollution, Employment and corporate responsibility of the business.
The Accounting Equation
The properties that are owned by the business are called ASSETS. These are the resources that enable the
business to trade and carry out trading. These assets are financed by the owner of the business and other
outsiders. Therefore the total assets must be equal to the total funding (both owner +non owners). This is
expressed in form of an accounting equation stated below;
ASSETS= CAPITAL + LIABILITIES this is in case of other financier besides the owner OR
ASSETS=CAPITAL where the assets are financed by the owner only
An asset is a resource controlled by a business entity as a result of past events for which economic benefits
are expected to flow to the firm. Example. Sale of goods on credit, this creates an asset called debtor, while
the sale on credit is the past event and the resource is debtor. The debtor is expected to pay so that economic
benefits flow towards the business in form of cash once the customer pays.
Assets are classified into two categories;
, (i) Non-current Assets (fixed assets). These are acquired by the business to assist in earning revenues
and not for resale. They are normally expected to be in business for a period of more than one year.
Example includes; Land and building, plant and machinery, furniture and fittings, equipment etc.
(ii) Current assets. These assets are not expected to last for more than one year. They are directly
related to the trading activities of the firm. These includes; inventory (stock), trade debtors/accounts
receivable, cash at bank and cash in hand.
(iii) Liabilities. These are debts of a business that results from past events settlement of which are
expected to result to a payment by the firm. Example, Purchase of goods for resale on credit. The
past event is the credit purchase and the liability being the creditor the firm will pay cash to the
creditor- outflow of cash from the business. Liabilities ars of two type;
(a) Non-current liabilities
(b) current liabilities
Non-current liabilities are expected to be repaid in a period of more than one year eg bank loan.
Current liabilities are expected to be repaid or settled by the business within one year eg trade
creditors and other amount owed for services supplied to the firm other than goods, salaries not paid
and rent outstanding by the year end, bank overdraft ( amount advanced by the bank for a short
term period.
Capital or Equity
This the amount the owner of the business has invested in the business.
THE BALANCE SHEET AND TRANSACTIONS AFFECTING THE BALANCE SHEET
Ledger Accounts
The ledger is the book required for a proper record of the transactions. The ledger has two sides i.e. the left and right side divided in
two equal parts. The left hand side is used for debit entry and the right hand side is used for credit entry, usually abbreviated Dr and
Cr respectively.
Dr Cr
Date Particulars Folio amount Date Particulars Folio page amount
page
The Double Entry concept
The two fold aspect of business transactions has been evolved to provide the arithmetical check regarding the accurate and complete
record of these transactions. The rule of double entry state that “for each debit entry there must be a corresponding credit entry and
for each credit entry there must be a corresponding debit entry.” Therefore, each business transaction must be recorded twice in two
different accounts. This reflects the two fold effect of a business transaction (that of debit and credit).
