Study notes for FRK111 or FRK133, from the textbook An Introduction to the Understanding of Accounting (2021). Describes the double-entry system, defines accounting and an entity, Accrual concept is discussed and the conceptual framework of accounting and lastly the measurement elements of financia...
The Double Entry System
→ This system is defined as an accounting system in which there was a debit and a credit
entry for each transaction.
EMPLOYMENT OF FUNDS IN ENTITY GENERATION OF FUNDS WHETHER
= INTERNALLY OR EXTERNALLY
DEBIT Credit
Duality concept
ASSETS EQUITY +LIABILITIES
=
DEBIT Credit
→ Assets, Equity and Liabilities will each have both a debit and credit side. Each type
assets, equities and liabilities will each have its own account (in General Ledger)
ASSETS
Transactions that will increase assets will be Transactions that will decrease assets will be
recorded on the debit side recorded on the credit side
EQUITY
Transactions that will decrease assets will be Transactions that will increase assets will be
recorded on the debit side recorded on the credit side
LIABILITIES
Transactions that will decrease assets will be Transactions that will increase assets will be
recorded on the debit side recorded on the credit side
→ The nature of the double entry system can be understood by recognising that this
system did not only record the goods that are traded with, but also for a business to
keep track of assets and liabilities and to calculate profits and losses. The double entry
system also had other effects such as honesty and accuracy.
, → In South Africa, financial information had to adhere to the South African Standards of
Generally Accepted Accounting Practice (GAAP).
→ 2005 South Africa adopted the International Financial Reporting Framework Standards
(IFRS).
→ The two most prominent South African accounting bodies are:
o The South African Institute of Charted Accountants (SAICA)
o The South African Institute of Professional Accountants (SAIPA)[formerly known
as CFA and CPA]
→ The goal of the IFRS is to provide a global framework for how entities prepare and
disclose their financial statements.
→ IFRS provides general guidance for the preparation of the financial statements.
→ Having international standards provides for the interests of other countries and
simplifies accounting procedures by allowing an entity to use one reporting language
throughout, it also provides investors and auditors with a consistent view of finances.
What is Accounting?
→ Accounting is seen as provision of financial information about an entity the
communication of this information to those who may need this information.
→ Accounting is thus defined as:
o A continuous scientific process,
o That not only involves the bookkeeping of transactions.
o But also involves the reporting on the economic activities of an entity,
o Through financial statements to the users thereof.
→ The aim of accounting:
o To provide financial information about economic activities of an entity
o To current and future interested parties.
o To enable them to make informed decisions about the entity.
This information is communicated through financial statements and users of
financial statements use financial reporting to access management’s
stewardship.
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