SS 2 Book keeping Third Term Lesson Notes

                                                                 SS 2 OMEGA TERM

                                                 BOOK –KEEPING SCHEME OF WORK

WEEK

1.                                                                     Revision

2-4                                             Trading profit and loss account

5-7                                          Receipts and Payments Accounts

8-10                                         Income and Expenditure account

                                     TRADING PROFIT AND LOSS ACCOUNTS

TRADING ACCOUNT: This is the account constructed  for the purpose of finding the gross profit or loss of a business at a particular period. It is a revenue account and form part of the double entry system. 

LAYOUT OF TRADING ACCOUNT

                                Trading Account for the year ended 31st dec. 19×9

                                                                            #                                                                        #

Opening stock                                               xx              sales                                  xx

Add purchases                             xx                           less return inward                 x              xx

Carriage inwards                          x                                                                            ___           

                                                      ____                                                       

                                                       xx 

 less returns outward                   x

goods withdrawn                         x

                                                    ____             xx

                                                                        ____

                                                                         Xx

Less closing stock                                           x

                                                                          ___

 Cost of goods sold                                         xx

 Gross profit                                                     xx

                                                                        _____                                                                               ____

                                                                          Xx                                                                                    xx

                                                                           ___                                                                               ____

TERMINOLOGIES:

SALES: This represents the total cash and credit sales during the period .It is credited to trading account.

RETURNS INWARDS: This is the total value of goods returned to the seller by the customers out of goods previously sold to them .This is also known as sales return and must be deducted from the total sales 

TURNOVER ;This is the total net sales during a period of time .This means sales less return inwards .

PURCHASES: This represents the total of the cash and credit purchases of goods for resale .It is debited to the trading account. 

RETURNS OUTWARDS: This is the total value of goods returned to supplier out of the goods bought .It is also known as purchases returns 

CARRIAGE INWARDS: Carriage inwards is the cost of transportation charged on goods purchased .Carriage inwards is the cost incurred in order to bring the goods purchased to the present location

CARRIAGE OUTWARDS; This is the cost of transportation charged on goods sold to customers .It is a selling expense and is debited to profit and loss account

COST OF GOODS SOLD: This is the total cost of goods actually sold by the organization 

COST OF GOODS AVAILABLE FOR SALE: This is the addition of opening stock and purchases

STOCK OF GOODS:

1. Opening stock: This represents goods available in a business at the beginning of the trading period 
2. Closing stock: This is the stock of goods unsold at the end of the trading period

PROFIT AND LOSS ACCOUNT:This is the account constructed by a business organization to show the net profit or net loss .Expenses incurred by the organization are debited while gross profit from trading and other gains are credited.

Note: the profit is carried to the capital account 

The main purpose is to arrive at the net profit after charging all the expenses from the gross profit .

                                             LAYOUT OF PROFIT AND LOSS ACCOUNT

                                                                             #                                                                            #

Expenses                                                                     Gross profit                                                xx

Discount allowed                                            x        discount received                                         x

Telephone                                                         x

Lighting                                                               x

Legal charges                                                    x

General expenses                                             x

Carriage outwards                                             x

Postages                                                              x

Insurance                                                            x

Advertising                                                          x

Rent and rates                                                     x

Salaries & wages                                                x

Commission payable                                         x

Travelling expenses                                           x

Sundry expenses                                                 x

       Net profit                                                     x

                                                                     _____                                                                        _____

                                                                       Xx                                                                               xx

                                                                    ____                                                                           ______

ADJUSTMENT IN THE PROFIT AND LOSS ACCOUNT

ACCRUALS AND PREPAYMENTS

1. 1. ACCRUALS: Accruals concepts states that revenue and expenditure are recognized as they are earned or incurred and dealt with in the profit and loss account for the period to which they relate and not period they are paid and received.It can be divided into :Accrued income and Accrued expenses.

a.Accrued income: These are income which are due in respect of the current trading period but such income have not been received at the close of final account preparation.

Treatment in final account s

Cr: profit and loss account

assets in the balance sheet

                         DR                          income account                             CR

                                                              #                                                           #

Last year accrual                                x        cash                                            x

Profit and loss                                     x     current year accrual                  x

                                                          ____                                                       ___

                                                           Xx                                                           xx

                                                         ____                                                       ___

                                                                          Bal b/d                                       x

Illustration: write up the ledger accounts of Mr Johnson as at 31st Dec. 1996 showing the transfer to the final account .He earned commission from sales for the year 31st Dec. 1996 #8500:Owing as at 31st dec. 1995 #800:  Owing at 31st Dec. 1996 #1450

                                   Commission receivable account

                                                              #                                                                                #

Bal b/f                                              800      cash                                                              8500

Profit and loss                            9150      bal b/d                                                           1450

                                                    ______                                                                           ____

                                                   9950                                                                               9950

                                                ______                                                                           ______

Bal b/f                                    1450

The balance of #1450 should be treated as current asset in the balance sheet

1. Accrued Expenses: These are expenses ,which accrue but have not been discharged.

These could be called expenses owing or creditor for expenses e.g telephone , rates

Treatment in final accounts

Debited to profit and loss account

Current liability in the balance sheet.

                                                     Expenses account 

                                                                        #                                                                                #

Cash paid                                                      x     amount owing from last yr                             x

Owing during the trading yr                      x     profit and loss                                                   x

                                                                  ____                                                                         ____

                                                                     X                                                                              x

                                                                   __                                                                           ____

Illustration:Write up the ledger account of Okondo as at 31st Dec.1998

General expenses paid for the year #15000

General expenses owing at 31st Dec.1997 #3000

               General expenses owing at 31st Dec.1998 #2700

                                                            #                                                                 #

Cash                                         15000       BAL b/f                                             3000

BAL c/d                                        2700       profit and loss                               14700

                                                    ____                                                               _____

                                                 17700                                                            17700

                                                   ____                                                             _____

                                                                       Bal b/d                                   2700

The balance of #2700 should be treated as current liability in the balance sheet

2. PREPAYMENTS: Prepayments represents amount paid in the current period for a subsequent period. Expenses can be paid in advance and income can be received in advance. It can be referred to as prepaid or paid in advance.
3. Expenses in advance: These are expenses like rent , insurance etc.which are paid in advance for subsequent period .Only the expenses for the must be charged to the profit and loss account

Treatment in final accounts

Reduction in expenses debited to profit and loss account

Current assets in the balance sheet

        DR                                                      Expenses account                                                        CR

                                                                          #                                                                                      #

Prepaid last year                                            x     prepaid next year                                                   x

Cash                                                                  x     profit and loss                                                        x

                                                                         __                                                                                     ___

                                                                           X                                                                                        x

                                                                       ___                                                                                   ____

Bal b/d                                                             x

Illustration:Write up the ledger accounts of Mr Victor as at 31st Dec. 1998 .He paid insurance of #5000 for the year ended 31st DEC. 1998 ;prepaid as at 31st Dec. 1997 #740 ;prepaid as at 31st Dec. 1998 #1000

          DR                                                   Insurance account                                                              CR

                                                                         #                                                                                           #

Prepaid last year                                          740           profit and loss                                             4740

 Cash                                                             5000   prepaid for next year                                        1000

                                                                       ____-                                                                                _____

                                                                   5740                                                                                       5740

                                                                  ______                                                                                  _____

Bal b/d                                                      1000

The balance brought down of #1000 will be treated as current assets in the balance sheet

1. Income in advance: These are income received by the organization during the current period which relates to the next trading period e.g. rent received in advance

Treatment in final account:

Decrease in income credited to the profit and loss 

Current liability in the balance sheet

DR                                            INCOM ACCOUNT                                                                      CR

                                                                        #                                                                                       #

Profit and loss                                               x      last year advance                                                  x

Advance for next year                                  x      cash                                                                         x

                                                                   ____                                                                                      ___

                                                                       X                                                                                          x

                                                                 ____                                                                                     ____

                                                                                      Bal b/d                                                                 x

Illustration: Write up the ledger account of Mr. James as at 31st Dec. 1999. He earned commission of #30000 for the year 31st Dec. 1999.Prepaid at 31st Dec.1998 #7700; paid in advance at 31st Dec. 1999 was #6830

                     DR                                                 Commission account                                                     CR

                                                                                        #                                                                               #

Profit and loss                                                    30870    last year advance                                          7700

Advance for next year                                      6830       cash                                                               30000

                                                                             _____                                                                             _____

                                                                              37700                                                                            37700

                                                                            ______                                                                              ____

                                                                                               Bal b/d                                                        6830

EVALUATION:Show the journal entries and the appropriate accounts to make the following adjustments that were brought to your attention on 31st march this year after you have completed the trial balance for Sunshine Bakeries .Show how items will appear on the balance sheet this date

1. Motor vehicle ,#11000000 have been revalued at #8600000
2. commission owed to sales representative stands at #400000.The balance on this account is currently #1800000

ASSIGNMENT:State five differences between trading account and profit and loss account

RECEIPTS AND PAYMENTS,INCOME AND EXPENDITURE ACCOUNT

Receipts and payments account:

This is a statement of cash actually received and paid during a given period , Receipts being debited and payments credited .The receipts and payments account is a summary of the cash book

FEATURES OF RECEIPTS AND PAYMENTS ACCOUNT

1.It is a real account

2. Balance represent cash in hand
3. Only actual receipts and payments are recorded 

4 Include capital and revenue items

                    DR                              receipts and payments account                                                      CR

                                                                                #                                                                                       #

Bal b/f                                                                     x       rent                                                                         x

Donation                                                                x         wages                                                                    x

Subscription                                                          x          postage                                                                x

Dance receipt                                                        x            stationery                                                          x

Refreshment                                                           x          honorarium                                                        x

Annual dinner                                                          x    meeting expenses                                                  x

                                                                              ___                                                                                    ___

                                                                                Xx                                                                                       xx

                                                                              ___                                                                                  ____

                                              INCOME AND EXPENDITURE ACCOUNT

This is the account which shows the summary of revenue and running cost of a non- profit making organization.It follows the same principles as the profit and loss account of a trading concern. It is part of the double entry and income is shown on the credit side and expenditure on the debit side .

The balance represents surplus of income over expenditure and vice versa

FEATURES OF INCOME AND EXPENDITURE ACCOUNT

1. Equivalent of profit and loss in a trading concern
2. Balance represents surplus or deficiency
3. Expenditure are debited and income credited i.e it is a nominal account.
4. Adjustment for accruals and prepayments are made 
5. capital receipts and expenditure are not posted but only revenue items

LAYOUT OF INCOME AND EXPENDITURE ACCOUNT

                             INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31ST DEC.19X9

                                                                                                     #                                                                     #

                                                  Expenditure                                                         income

                                           Rent                                                  x                 subscription                              x

                                          Printing                                              x           interest on investment                 x

                                          Postage                                             x              entrance fees                               x

                                             Depreciation                                 x             donation                                         x

                                             Honorarium                                  x             annual dinner                                 x

                                               Wages                                           x              letting of halls                              x

                                          Stationery                                         x              rent received                                  x

                                          Meeting expenses                          x               profit on bar                                  x

                   Surplus of income over expenditure                   x             interest on deposit                        x

                                                                                                                         Sales of ticket                              x

                                                                                                 ___                                                                   ____

                                                                                                 Xx                                                                    xx

                                                                                              ____                                                                    ____

SIMILARITIES BETWEEN RECEIPTS AND PAYMENTS AND INCOME AND EXPENDITURE

1. Both accounts follow the principles of double entry
2. They are summaries of financial statements
3. Both are prepared by non-profit making concern
4. They are prepared to cover the same period

DIFFERENCES BETWEEN RECEIPTS AND PAYMENTS AND INCOME AND EXPENDITURE

RECEIPTS AND PAYMENTS                              INCOME AND EXPENDITURE

1. Real account                                                    Nominal
2. Only actual cash receipt and payments      cash accruals and prepayments are

Are recorded                                                     included

3. No record of depreciate                           give effect to depreciation
4. Balance represent cash or bank overdraft balance represent surplus of income or expenditure
5. Another name for cash book adopted    another name for profit and loss adopted by clubs

Adopted by clubs

6. Included capital and revenue items        Only revenue items are recorded
7. receipts is debited and payments            expenditure is debited and income is credited

Credited.

Illustration:From the following prepare:

a.An income and expenditure for the Western club for the year ended 31st Dec. 1999

1. A receipts and payments account

                                                                                                                                                  #

Subscription received for previous year                                                                           2000

“                        “                  current year                                                                            18000

Paid for:

Rent                                                                                                                                          5000

Transport                                                                                                                                  4000

Wages                                                                                                                                      6800

Supplies for refreshment                                                                                                    8500

Printing and stationery                                                                                                       3000

Repairs                                                                                                                     1200

Salaries                                                                                                                    10000

Receipts from:

Donations                                                                                                                6000

Refreshment                                                                                                           12500

Ticket                                                                                                                        1000

Cash in hand:

1st JAN                                                                                                                           1800

31ST Dec.                                                                                                                      2800

Subscription for current year due and unpaid                                                     3000

Accounts due but unpaid:Repair                                                                           800

                                               Salaries                                                                         2200

              DR                                                     Western club                                                             CR                                                                

INCOM AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31ST DEC.1999

                                                                                      #                                                                          #

                           EXPENDITURE                                                 INCOME

Rent                                                                        5000    subscription(18000+2000-2000+3000) 12000

Transport                                                                4000  donation                                                      6000

Wages                                                                   6800     refreshment                                               12500

Supplies of refreshment                                    8500       tickets                                                         1000

Printing and stationery                                       3000     excess of expenditure over income        1000

Repairs       (1200+800)                                        2000

Salaries     (10000+2200)                                    12200

                                                                                   ___                                                                          ____

                                                                             41500                                                                           41500

                                                                             _____                                                                           _____

                     receipts and payments account for the year ended 31st 1999

                                                                           #                                                                                   #

Bal b/f                                                        1800 rent                                                                   5000

Subscription (1998)                               2000     transport                                                       4000

“                      (1999)                               18000 wages                                                              6800

Donations                                                6000   supplies of refreshment                                8500

Refreshment                                          12500   printing and stationery                                3000

Tickets                                                     1000    repairs                                                               1200

                                                                              Salaries                                                             10000

                                                                                  Bal c/d                                                           2800

                                                              _____                                                                               ______

                                                               41300                                                                              41300

                                                            _____                                                                                   ____

                         EVALUATION: Give 5 differences between receipts and payments and income and expenditure account

ASSIGNMENT: From the following given below, make up the receipts and payments account for the Tiny Tots swimming club(TTSC) for the end of Dec this year:

Cash in hand: 1 January #245000

Receipts: subscriptions, #512000, donation, #822200 sale of swimming aids #235200 sales of refreshment #417200

Payments: Purchase of swimming aid #235200; purchase of refreshment; #280000, printing and stationery #19120 cleaning charges, #110000 cost of visits to other clubs #139600