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Principles of Accounts Notes

The document outlines the Principles of Accounts syllabus, covering key concepts such as the accounting cycle, classified balance sheets, and various financial statements. It details the functions of accounting, types of accounts, and specific accounting practices for different entities including partnerships, corporations, and non-profit organizations. Additionally, it addresses payroll accounting and control systems to detect errors and fraud.

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8 views3 pages

Principles of Accounts Notes

The document outlines the Principles of Accounts syllabus, covering key concepts such as the accounting cycle, classified balance sheets, and various financial statements. It details the functions of accounting, types of accounts, and specific accounting practices for different entities including partnerships, corporations, and non-profit organizations. Additionally, it addresses payroll accounting and control systems to detect errors and fraud.

Uploaded by

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We take content rights seriously. If you suspect this is your content, claim it here.
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In-Depth Notes on Principles of

Accounts Syllabus
SECTION 1 – INTRODUCTION TO PRINCIPLES OF ACCOUNTS
Definition and Purpose: Accounting is the systematic process of identifying, measuring,
recording, classifying, summarizing, and interpreting financial transactions. Its goal is to
provide useful financial information to stakeholders for economic decision-making.

Functions of Accounting: Recording transactions, classifying data, summarizing into


financial statements, and interpreting results.

Branches: Financial Accounting, Cost Accounting, Management Accounting, Tax Accounting.

Accounting Cycle: Transaction → Journal → Ledger → Trial Balance → Adjustments →


Financial Statements → Closing entries.

Users: Internal (managers, owners), External (creditors, investors, government).

Principles: Accrual, Going Concern, Consistency, Materiality, Prudence, Business Entity.

SECTION 2 – THE CLASSIFIED BALANCE SHEET


Purpose: Shows financial condition at a specific date.

Format: Vertical or Horizontal.

Classifications: Assets (Current and Non-current), Liabilities (Current and Non-current),


Capital/Equity.

Accounting Equation: Assets = Liabilities + Owner’s Equity.

SECTION 3 – BOOKS OF ORIGINAL ENTRY


Purpose: First record of business transactions.

Types: Sales Journal, Purchases Journal, Returns Inwards, Returns Outwards, Cash Book,
Petty Cash Book, General Journal.

Petty Cash: Uses imprest system.

SECTION 4 – LEDGERS AND THE TRIAL BALANCE


Ledgers: Sales, Purchases, General.
Double Entry: Every transaction affects two accounts.

Trial Balance: Ensures arithmetical accuracy.

Limitations: Cannot detect all types of errors.

SECTION 5 – FINANCIAL STATEMENTS OF THE SOLE TRADER


Trading Account: Calculates Gross Profit.

Profit and Loss: Calculates Net Profit.

Balance Sheet: Shows assets, liabilities, capital.

Analysis: Profitability, Liquidity Ratios, ROCE.

SECTION 6 – END OF PERIOD ADJUSTMENTS


Types: Accrued/Prepaid Expenses, Accrued/Unearned Income, Depreciation, Doubtful
Debts, Inventory Adjustments.

SECTION 7 – CONTROL SYSTEMS


Purpose: Detect errors and fraud.

Control Accounts: Sales and Purchases Ledger Control.

Bank Reconciliation: Resolves discrepancies.

Petty Cash: Operates under imprest system.

SECTION 8 – INCOMPLETE RECORDS


Causes: Missing or partial records.

Techniques: Statement of Affairs, Mark-up/Margin, Capital Comparison.

SECTION 9 – ACCOUNTING FOR PARTNERSHIPS


Features: Shared ownership, unlimited liability.

Accounts: Capital, Current, Appropriation.

Changes: Admission, retirement, goodwill adjustments.


SECTION 10 – ACCOUNTING FOR CORPORATIONS
Features: Legal entity, limited liability.

Key Concepts: Share capital, dividends, reserves, corporation tax.

Statements: Income, retained earnings, balance sheet.

SECTION 11 – ACCOUNTING FOR CO-OPERATIVE SOCIETIES


Features: Democratic control, profit distribution based on use.

Accounts: Sales, surplus distribution, member shares.

SECTION 12 – NON-PROFIT ORGANIZATIONS


Examples: Clubs, charities.

Accounts: Receipts/Payments, Income/Expenditure, Balance Sheet.

Special Items: Subscriptions, donations, special funds.

SECTION 13 – MANUFACTURING ACCOUNTS


Purpose: Calculate cost of goods manufactured.

Components: Raw materials, Prime Cost, Overheads, COGM.

SECTION 14 – PAYROLL ACCOUNTING


Components: Gross Pay, Deductions, Net Pay.

Employer Duties: Accurate records, tax remittance.

Payroll Entries: Record wages, deductions, contributions.

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