My Grade 11 Accounting Notes cover all of the basic concepts in the New Era Accounting textbook. These notes are designed to help you understand the underlying theory behind accounting, as well as how to apply this knowledge to practical situations.
These notes cover topics such as partnerships, ...
Accounting
Partnerships
Partnership: agreement between at least 2 people who carry out business with the aim of
making a profit and sharing it. Each partner contributes capital (cash or assets)
Legal to form orally – not advisable
Lawyer should draw up written contract – detail all important aspects that could give rise to
problems
Sole proprietor – provide all capital, take all risks, all profit/loss belongs to them
Limited by capital, experience & ability to make decisions
Advantages of partnership:
o Additional capital – help to expand
o Responsibilities shared
o Expertise, experience & discussion leads to better decisions (& better management)
o Better management means more profit (even if shared)
Disadvantages:
o Each partner can make legally binding decision without discussion – lead to financial
difficulties
o Partners are jointly & severally liable if partnership cannot pay debts
Creditor can sue partners jointly / sue 1 partner separately
Partner would have to pay full debt then recover other partner’s shares
If cannot recover, partner who paid debt can do nothing
Capital:
o Each partner has own account – fixed unless increase / withdraw contribution
o This is because:
Partners share profit in ratio of capital
Changes may affect liquidity (ability to pay debts)
o If partner leaves, retires, dies – must be paid back
Drawings:
o Each partner has own account (how much they owe the firm)
Current account:
o Shows how much business owes partner
o If debit – partner withdrawn more than entitled to – should be paid back as can
cause liquidity problems (equity of business reduced)
Appropriations account:
o Salaries – remunerate partners who work in business
o Interest on capital – reward partners for investing (would have earned interest from
bank – useful when profit ratio not according to capital)
o Bonus – reward exceptional work
Usually not made if no profit left after salaries/interest on capital
Can be % of net profit
o Share remaining profits-reward for risk of entrepreneurship (secondary distribution)
Adjustments
Prepaid expenses - business making advanced payments for goods or services to be received
in the future (Asset – Debit then decrease expense)
Accrued expenses - an expense that is recognized on the books before it has been paid
(Liability – Credit then increase expense)
Income received in advance - revenue which is to be earned in a future accounting period
but is already received in the current accounting period (Liability – Credit then decrease
income)
Accrued income - money that's been earned but has yet to be received (Asset – Debit then
increase income)
Consumable stores on hand (Asset – Debit then decrease expense)
Trading stock deficit/surplus (income/expense)
Accumulated depreciation (contra asset)
Provision for bad debts adjustment (income/expense) – not all debtors will pay but cannot
write off bad debts that haven’t happened – rather use % of debtors control to calculate a
provision for bad debts (contra asset)
Remember: accrued means shown in books before bank!
Non-Current Assets/Liabilities with Current Portions
Happen in statement of financial position (balance sheet), not books
Repayment of non-current loan in next financial period
o Non-current liability – not paid back within 12 months
o Show portion that will be paid back in 12 months in current liability account (short
term portion of long term long/mortgage)
For fixed deposit maturing in next financial period
o Financial asset under non-current assets
o If part will mature in next 12 months – show in cash & cash equivalent
Interest on Loan
Amount originally borrowed is capital amount (capitalize interest mean to add to capital
amount of loan – same with fixed deposit)
If not capitalized – interest on loan/fixed deposit goes to accrued income/expenses rather
than loan
Capitalizing means interest and capital amount are covered in repayments – more
convenient for bank/borrower
In fixed deposit – means investor will receive interest on interest
Types of Activities
Operating activities – activities in operating business (buying/selling goods, wages)
Financing activities – activities in raising funds for business from owner / lender (capital,
loan, paid/owe interest)
Investing activities – activities in investing the funds of the business with the intention of
earning a profit (fixed deposit, interest, land and buildings/other fixed assets – invest in
business to make a profit)
Operating activities include cash activities related to net income. Investing activities include cash activities related to noncurrent assets.
Fixed Assets
Tangible/fixed assets: physical, non-current assets which are used by the business to supply
goods and services or for administrative purposes
Non-current: business intends to use the assets for a long time (more than 1 year) – it may
sell it at the end of its useful life, but the intention is to use it
Installation/other costs of asset are added to the cost price
Useful life is the number of years the business intends to use it before replacing it
Depreciation
Deprecation: the decrease in book value of a tangible asset as a result of using it (imputed
expense & tax deductible)
Asset cannot be shown at cost price if you cannot sell it for that much (prudence concept)
Land and buildings not depreciated – they appreciate (not shown until sold)
Same method of depreciation used each year – principle of consistency
Ancient assets recorded at R1
When asset account starts with balance – means it is old (had it for more than 1 year)
New assets only deprecated for months owned
Control of Fixed Assets
Prevention of theft by the public
Premises secured with fencing, security, alarm
Assets insured
Prevention of theft/fraud/misuse by staff
Purchasing assets
o Separation of duties – person who asks for (requisitions) asset should not negotiate
purchase
o Senior staff member obtains quotes from supplier to decide – prevent bribe
o If business too small – owner should be involved
Asset Disposal
o Decision to sell made by owner or senior staff member
o Reason must be investigated to ensure asset no longer fulfils function
o Selling price considered so that business does not lose unnecessary money
o Staff may not buy asset without permission
o Asset scrapped if obsolete (can't be sold)
o Process controlled so staff can't have asset scrapped then use for personal use
Use of assets for personal benefit
o Need permission from owner/senior staff
o Should not use asset to make money after hours
Other Control Measures
Proof of receipt recorded in books
Legal documents kept in fireproof safe
GAAP
Separate (Business) Entity Concept
o Only transactions involving that specific entity are recorded in accounting records
Historical Cost Concept
o Asset purchased are indicated at their initial cost
Matching and Accrual Concept
o Income earned during a particular finical period and costs incurred in generating
income are matched (matching)
o Transactions affecting financial position must be brought into account when they
occur, not when cash is received or paid (accrual)
Prudence Concept
o Transactions are recorded in the way with the most conservative result
Going Concern Concept
o Value of assets recorded under the assumption that the business will continue to
operate
Materiality Concept
o All the material items should be reported properly in the financial statements
o Errors can be (temporarily) left out if they do not have a material effect on the
business
Duality Concept
o Assets = Owner’s Equity + Liabilities
Concept of Financial Period
o Period of 12 months over which the financial performance is determined so that the
financial position can be determined at the end of the period (income statement /
balance sheet)
Consistency Concept
o Deal with similar transactions in the same way (e.g. FIFO, LIFO)
King Code
Discipline
Transparency
Independence
Accountability
Responsible Management
Fairness in Dealing with Stakeholders
Social Issues
Bank Reconciliation
Bank statement: a document that summarizes business activities over a specific period
(usually a month)
Process of comparing, updating, correcting should be routine on a monthly basis
o Businesses can use electronically generated bank statement & transaction
summaries at regular intervals to make necessary entries
o May use official bank statement sent (or emailed) by the bank as the source
document form transactions in journals
Control of cash:
o Cash register should have float
o Documentary proof should be kept of all transactions
o Cash register must be cashed at the end of the day (CRR should tally with cash in
till/credit card vouchers)
o Bank reconciliation should be performed (B/S is effective control of cash)
Deposit is liability for bank (credit) & payment is decrease in liability (debit)
Possible Entries
Deposits (CRJ) may not appear on statement
Reversal of cash not deposited
EFTs issued after statement date
Bank errors
Bank charges
Interest (on overdraft/favorable balance)
EFTs omitted from journal
Debit orders/stop orders
Direct deposits
Errors in recording EFT amounts in journal
Creditors Reconciliation
Effective Control of Creditors
Prices charged and accuracy of invoices should be checked
Quantities of goods received should be checked against invoices
Discounts should be taken
Invoices must be properly processed before payment
Segregation of duties
Balance in creditors control must be reconciled with creditors list
Creditors should be paid as late as possible without interest
Other
Source Documents:
Invoice Duplicate Sales Invoice DJ
Credit Note Duplicate Credit Note DAJ
Invoice Original Credit Purchases Invoice CJ
Debit Note Duplicate Debit Note CAJ
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