IGCSE ACCOUNTING
1. Fundamentals of Accounting
1.1 Purpose of Accounting
● Book-keeping: the detailed recording of all financial transactions of a business
○ Records not maintained → something will be overlooked (prone to errors)
○ Basis: double entry book-keeping
● Accounting: Using book-keeping records to prepare financial statements & assist in
decision making
○ To see if business is making P/L
○ Profit: Total revenue exceeds total costs
○ Loss: Total costs exceeds total revenue
● Purpose of maintaining accounting records
○ Information recorded is used to make IS & SOFP
es
■ Allows for calculation of P/L
■ Understand the progress/growth of the business
■ Base the business future & make decisions based on P/L
ot
1.2 Accounting Equation
● SOFP: statement of the assets & liabilities of a business on certain date
N
● Assets = Liabilities + Capital
○ Assets: Items owned by the business
■ Non-current assets (NCA)
SE
● Assets obtained for use (not for resale) which helps the business earn
revenue
● Long term assets
C
● Eg. equipment, premises, motor vehicles, fixtures & fittings etc.
■ Current Assets (CA)
IG
● Short term assets whose amounts are constantly changing
● Eg. bank, trade receivables, inventory etc.
● Inventory
y
○ Goods a business has available for resale
● Trade Receivables
a
○ Represents the amount owed to the business by its credit
nj
customer
○ Liabilities: Amounts owed by the business to others
Sa
■ ↑ liabilities = ↑ assets
■ Non-current liabilities (NCL)
● Amounts owed that aren’t due for repayment within the next year
● Eg. long-term loan, mortgage etc.
ia
■ Current Liabilities (CL)
● Amounts owed that are due for repayment within the next year
n
● Eg. trade payable, other payable, bank overdraft
● Trade payable
So
○ The amount the business owes to the credit supplier
○ Owner’s equity/capital: Total resources provided by the owner
■ More available, less need to be borrowed
■ ↑ capital = ↑ assets
■ Drawings
● Any value taken from the business by the owner of that business
2. Sources & recording of data
2.1 Double entry system of book-keeping
● Process of making a debit entry & a credit entry for each transaction
● Advantages
○ Less risk of errors/fraud
○ Easier to refer to previous transactions
○ Financial position can be ascertained
, ○ Easier to prepare the financial statements & make business decisions
● Format
● Income: Money that an individual/business received in exchange for providing a good/service
○ Eg. Sales, rent received, commission
● Expenses: Cost of an asset used by a company in its operations to produce revenues
○ Eg. Advertising, rent, wages, purchases, electricity & water
● Carriage: cost of transporting goods
○ Carriable inwards: cost of bringing the goods to the business
○ Carriage outwards: cost of delivering goods to the customer
es
● Entries
○ Sales
■ Dr bank a/c
ot
■ Cr sales a/c
○ Purchases
N
■ Dr purchase a/c
■ Cr bank a/c
● Ledger
SE
○ Divided based on the types of accounts they contain
■ Several people can bookeep simultaneously
○ Sales ledger
C
■ Ledger in which the accounts of credit customers are maintained
■ Dr balance = customers owe money
IG
■ Cr balance = business owes customers goods/customer has overpaid
○ Purchases ledger
■ Ledger in which the accounts of credit suppliers are maintained
■ Dr balance = suppliers owe the business goods
y
■ Cr balance = business owes supplier money
a
○ Nominal (general) ledger
nj
■ Ledger where all other accounts are maintained
○ Cash books (main CB & petty cash book)
Sa
■ A book of prime entry
● Transactions should be recorded before being entered in the ledger
● Then used for cash a/c & bank a/c
■ Part of the double entry system
ia
■ Impossible to have a credit balance on a cash a/c
■ 2 column cash book
n
● Combines cash & bank together
● Dr Money received
So
● Cr Money paid out
■ 3 column cash book
● Extra column to record cash discount
○ Allowance given to a customer when an account is settled
within a time limit set by the supplier
○ Encourages customers to pay promptly
○ Not part of double entry system; must be transferred
■ Dr total disc allowed column into disc allowed a/c in
nominal ledger
1. Fundamentals of Accounting
1.1 Purpose of Accounting
● Book-keeping: the detailed recording of all financial transactions of a business
○ Records not maintained → something will be overlooked (prone to errors)
○ Basis: double entry book-keeping
● Accounting: Using book-keeping records to prepare financial statements & assist in
decision making
○ To see if business is making P/L
○ Profit: Total revenue exceeds total costs
○ Loss: Total costs exceeds total revenue
● Purpose of maintaining accounting records
○ Information recorded is used to make IS & SOFP
es
■ Allows for calculation of P/L
■ Understand the progress/growth of the business
■ Base the business future & make decisions based on P/L
ot
1.2 Accounting Equation
● SOFP: statement of the assets & liabilities of a business on certain date
N
● Assets = Liabilities + Capital
○ Assets: Items owned by the business
■ Non-current assets (NCA)
SE
● Assets obtained for use (not for resale) which helps the business earn
revenue
● Long term assets
C
● Eg. equipment, premises, motor vehicles, fixtures & fittings etc.
■ Current Assets (CA)
IG
● Short term assets whose amounts are constantly changing
● Eg. bank, trade receivables, inventory etc.
● Inventory
y
○ Goods a business has available for resale
● Trade Receivables
a
○ Represents the amount owed to the business by its credit
nj
customer
○ Liabilities: Amounts owed by the business to others
Sa
■ ↑ liabilities = ↑ assets
■ Non-current liabilities (NCL)
● Amounts owed that aren’t due for repayment within the next year
● Eg. long-term loan, mortgage etc.
ia
■ Current Liabilities (CL)
● Amounts owed that are due for repayment within the next year
n
● Eg. trade payable, other payable, bank overdraft
● Trade payable
So
○ The amount the business owes to the credit supplier
○ Owner’s equity/capital: Total resources provided by the owner
■ More available, less need to be borrowed
■ ↑ capital = ↑ assets
■ Drawings
● Any value taken from the business by the owner of that business
2. Sources & recording of data
2.1 Double entry system of book-keeping
● Process of making a debit entry & a credit entry for each transaction
● Advantages
○ Less risk of errors/fraud
○ Easier to refer to previous transactions
○ Financial position can be ascertained
, ○ Easier to prepare the financial statements & make business decisions
● Format
● Income: Money that an individual/business received in exchange for providing a good/service
○ Eg. Sales, rent received, commission
● Expenses: Cost of an asset used by a company in its operations to produce revenues
○ Eg. Advertising, rent, wages, purchases, electricity & water
● Carriage: cost of transporting goods
○ Carriable inwards: cost of bringing the goods to the business
○ Carriage outwards: cost of delivering goods to the customer
es
● Entries
○ Sales
■ Dr bank a/c
ot
■ Cr sales a/c
○ Purchases
N
■ Dr purchase a/c
■ Cr bank a/c
● Ledger
SE
○ Divided based on the types of accounts they contain
■ Several people can bookeep simultaneously
○ Sales ledger
C
■ Ledger in which the accounts of credit customers are maintained
■ Dr balance = customers owe money
IG
■ Cr balance = business owes customers goods/customer has overpaid
○ Purchases ledger
■ Ledger in which the accounts of credit suppliers are maintained
■ Dr balance = suppliers owe the business goods
y
■ Cr balance = business owes supplier money
a
○ Nominal (general) ledger
nj
■ Ledger where all other accounts are maintained
○ Cash books (main CB & petty cash book)
Sa
■ A book of prime entry
● Transactions should be recorded before being entered in the ledger
● Then used for cash a/c & bank a/c
■ Part of the double entry system
ia
■ Impossible to have a credit balance on a cash a/c
■ 2 column cash book
n
● Combines cash & bank together
● Dr Money received
So
● Cr Money paid out
■ 3 column cash book
● Extra column to record cash discount
○ Allowance given to a customer when an account is settled
within a time limit set by the supplier
○ Encourages customers to pay promptly
○ Not part of double entry system; must be transferred
■ Dr total disc allowed column into disc allowed a/c in
nominal ledger
