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Elizade Acc 101 Revision Lecture Notes
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Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 1
Lecture 1: NATURE AND PURPOSE OF ACCOUNTING
1.1 Introduction
Accounting has gone a long way from the 18th Century, during its early developmental days
in the hands of Luca Pacioli to a fully developed, well structured and regulated set of rules
and procedures for keeping records of personal and business dealings.
Accounting has become common-place and indispensable in our modern society. It impacts
on every aspect of our economic life in one form or the other and it is one of the requirements
for the success of any form of business, regardless of size and type.
The importance attached to accounting in recent times makes it imperative for most people to
seek knowledge in respect of the subject, yet not so much is known about it, because a lot of
misconceptions had been planted in the minds of people who do not have the opportunity of
hearing directly from the accountants. At this juncture it is important to explain the various
terms which are often confused when making reference to accounting. These are
Accounting, Accountancy, and Accountant.
- Accountancy is the profession whose members practise accounting.
- An Accountant is a member of the profession which practises accounting, e.g. a member
of the Institute of Chartered Accountants of Nigeria (ICAN)
- Accounting is an activity within an organistion that deals in the:
i. Classification and recording of business transactions in books of accounts;
ii. Presentation and interpretation of the financial transactions contained in the books of
account; and
iii. Use of historic and forecast data in making projections for the appraisal of alternative
courses of action facing management.
Knowledge of the relationship between the above sub-divisions of accounting is essential for
a thorough understanding of the course. In fact all topics contained in any accounting
syllabus have direct or indirect link with one or more of the accounting sub-divisions above.
We shall consider this in greater details later.
Accounting can be practised in a number of ways, such as:
- the provision of accounting services to an organisation by accountants employed as staff
of the organisation; or
- the provision of accounting and related services such as auditing and tax consultancy by
an accountant in professional accounting practice as external auditors or business
consultants.
In both ways, it should be understood that accounting involves providing services for others
who use such services as part of management information required for decision making in the
running of the affairs of their organisation. To this extent, accounting can be regarded as a
means to an end, and not an end in itself. Consequently, the accounts department of an
organisation can be regarded as a sub-system within the management information system. In
this regard, the organisation as a whole is a system and each of the component parts of the
organisation (departments) is a sub-system. All sub-systems must contribute towards the
achievement of the overall goals of the organisation.
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 2
ABC COMPANY
ADMIN FINANCE & PRODUCTION MARKETING
DEPT ACCOUNTS DEPT. DEPT
DEPT.
Figure 1:1 The Organisational Management
information system.
1.2 The Need for Accounting
Many have ignorantly considered accounting in business as an unnecessary paper work and
set of stringent procedures that stifles the ease of cash flow.
The need for accounting can be seen from the following perspectives:
i. Stewardship Reporting In all businesses where ownership and management are not vested in the same persons, it
becomes necessary for the managers to report to the owners of the business on their activities
during the period under review. Such report will include among others, the following:-
a. How the money (capital) of the business was invested during the period.
b. The profit earned or loss sustained during the period.
c. The financial position or state of affairs of the company as at the last day of the period
under review.
Where the scale of business is very high, it will require specialised methods, techniques and
procedures to report accurately and meaningfully on the requirements in (a) to (c) above and
this is where the accounting function comes in.
ii. Performance Review
It is natural of human beings to seek improvement or enhancement in their knowledge, trade,
and other areas of human endeavours. It will be dangerous to perceive an improvement when
in actual fact none exists. How can this happen in business? Consider the case of a trader
who has the following data:
CAPITAL PROFIT
Year 1 N50,000 N10,000
Year 2 N75,000 N12,000
This businessman might be led ignorantly to think that his business has improved in year 2
than in year 1, with the justification that there is increase in profits of N2,000. Here again,
accounting helps to make correct analysis to facilitate meaningful comparison of the results
of the of one period with another for the same company or between companies. For example,
in accounting, profitability is measured relatively, when comparisons between periods or
companies are involved.
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 3
The above illustration can be approached thus:
YEAR CAPITAL PROFIT RETURN ON
CAPITAL
N N %
1 50,000 10,000 20
2 75,000 12,000 16
Conclusion
There is a decline in relative profit in year 2.
Businesses that collapse would have been experiencing gradual decline unnoticed. The
accounting function therefore helps to identify problems before they get out of hand.
iii. Business Decision Making
The success or otherwise of a business depends on the soundness of management decisions.
Decisions facing management include method of financing, production plan, manpower
planning. Many might have ignored accounting and have succeeded in business (e.g.
illiterate millionaires whose staff strength is himself and sales clerks) but they are not likely
to have operated optimally, i.e. more returns could be obtained on their resources than are
presently obtained. Accounting helps in analysing complex business decision problems using
specialised mathematical and/or Quantitative techniques adopted to suit the business
environment.
iv. Statutory Compliance
In some cases, it is a requirement of the law that accounts be kept in a specified manner e.g.
The Companies Decree 1968 as amended by the Companies and Allied Matters Decree 1990
requires all limited liability companies to keep accounts of their financial transactions.
v. Requirement for Lending
For banks and other forms of lending, it is usual to demand for the financial statements of the
person or organisation applying to borrow money.
vi. Tax Purposes
Government relies on audited financial statements for determining the taxes payable on the
profits and/or other incomes of an individual or company.
1.3 Users of Accounting Information
The users of accounting information therefore include:
- Owners of business e.g. sole traders, partners, and shareholders;
- Trade creditors and Loan providers
- Government, through its regulatory authorities e.g. Federal Board of Inland Revenue,
Corporate Affairs Commission, Nigerian Stock Exchange etc.
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 4
Practice Questions
1. Accounting has been misconceived by many people as a set of stringent procedures
that stifles the ease of cash outflow. Correct this impression.
2. Accounting has been described as a means to and end and not an end in itself. Take a
position with reasons.
3. Outline the purposes served by the accounting information system.
4. Who are the users of accounting information, and what are their interest areas?
5. Explain the various work environments in which professional accountants can be
engaged.
6. “Accounting information is a series of statements about a particular organization. The
justification of accounting is its usefulness in attaining certain objectives”. These
objectives can be understood by understanding the functions of accounting.
List and discuss briefly five of the main objectives of accounting in an organization.
(ATS 1 March 1992 Q. 7a)
7. Enumerate briefly the uses of accounting to a business organization.
(ICAN Foundation Nov. 1994 Q. 2a)
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 5
Lecture 2: BOOK-KEEPING
2.1 The Meaning of Book-Keeping
Bookkeeping is the classification and recording of business transactions in books of accounts.
The processes involved in this definition are as follows:-
i. The classification of business transactions, using source documents;
ii. Recording of classified transactions in appropriate subsidiary books (also called books
of prime entry or books of original entry);
iii. Posting of entries from subsidiary books to the ledger; and
iv. Extraction of Trial Balance.
For a proper understanding of the above, certain aspects of the definition require explanation:
2.2 Business Transactions
Business transaction is the exchange of goods and services for cash, for a promise to pay in
future, or for goods and services.
This in accounting can be stated as:
Cash transaction;
Credit transaction, and
Contra transaction.
It follows from this definition that a business transaction takes place if money is exchanged
for goods sold or bought, or such goods are sold or bought on credit or such goods are
exchanged for a supply of goods by the other party.
The classification of business transactions is done by determining whether a business
transaction is cash, credit or contra transaction. The classification is important because it
determines the book of account in which the transactions are to be recorded.
2.3 Books of Accounts Books of accounts is a term that includes both the “subsidiary Books” and the “Ledger”.
Books of accounts form the medium to which entries relating to business transactions are
made and from which a trial balance is extracted for the preparation of financial statements.
Books of accounts are made up of the subsidiary books and the ledger.
The subsidiary books are the books of accounts where entries are first recorded before being
posted to the ledger.
2.4 Source Documents
Source documents are business documents evidencing business transactions and forming the
basis of entries in the subsidiary books.
There are several forms of business documents in use, but we shall concern ourselves with
the underlisted for now:
- Receipts
- Invoices
- Debit notes
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 6
- Credit notes
- Pay-In-Slips
- Cheques
Receipt
A receipt is a document showing that money has been received or paid for goods and/or
services sold or bought. A receipt therefore evidences cash transactions, which is the receipt
and payment of cash. Receipts are recorded in the Cash book.
Invoice
An invoice is a document that establishes indebtedness to the effect that money has not been
paid or received for goods and/or services bought or sold. An invoice therefore evidences
credit transactions which consist of credit sales and credit purchases. Invoices are recorded
in the Sales Day Book or in the purchases Day Book.
Debit Note
A debit note is a document establishing costs against the recipient. It serves as a from of
supplementary invoice to increase the indebtedness of the recipient.
It is used to correct an undercharge on invoices due to omissions or arithmetic errors. Debit
notes support adjusting entries made in the journal proper.
Credit Note
A credit note is a document accruing some claims or refund in favour of the recipient. They
are issued in the following instances:
- To grant refund on goods returned
- To correct an overcharge on the invoice
Credit notes are recorded in any of Return Inwards book, Return Outwards book or Journal
proper, depending on the purpose for which the credit note has been issued.
Pay-In-Slips and Cheques
These are banking documents used in the operation of accounts with the bank. For a current
account, Pay-In-Slips or Tellers are used to lodge money into the account, while cheques are
used to withdraw money from the bank. The documents are used to support entries in the
bank account column of the Cash Book maintained by the account holder.
It is important to note that entries are not supposed to be made in the subsidiary books, except
backed up with relevant source documents.
The link between the business transactions and subsidiary books is as given below:
Cash transactions - Cash Book
Credit transactions - Sales Journal and Purchases Journal
Contra transactions - Journal proper
Sales returns - Return Inwards book
Purchases return - Return Outwards book
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 7
Source
Document
Type of
Transaction
Supported
Description
Related
Subsidiary
Books
1. Receipt Cash
Transaction
i. Cash receipts
ii. Cash payments
Cash Book
Cash Book
2. Invoice Credit
Transaction
i. Credit Sales
ii. Credit Purchases
iii. Purchase or Sale
of a fixed asset
on credit.
Sale Journal
Purchases Journal
Journal proper
3.Credit
Note
Returns Sales Returns
Purchases Returns
Return Inwards
Book
Return outwards
Book
4. Debit
Note
Credit
transaction
Supplementary
Invoice
Sales
Journal
5. Journal
or
Adjustment
Vouchers
Contra Journal entries Journal proper
Fig. 2.1 Relationship between source documents,
Business transactions and subsidiary books.
Practice Questions
1. What is Book-keeping? How does it differ from Accounting?
2.a What are business transactions?
b. What does it mean to “classify” business transactions?
c. Give the three classification of business transactions in accounting?
3. What are source documents? Give four examples.
4. Prepare a table to link the various source documents with their related business
transactions and subsidiary books.
5. What are Books of Accounts? Give the two basic components.
6. a. Distinguish between the terms Book-keeping and Accounting.
b. Write short notes on the following:
(i) Transaction.
(ii) Asset
(iii) Balance Sheet.
(WASSCE Nov. 1999A Q. 1)
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 8
Lecture 3: SUBSIDIARY BOOKS – THE CASH BOOK
3.1 Introduction
The cash book is a subsidiary book where cash transactions are recorded. Cash transactions
consist of receipts of cash and/or payments of cash. Whether the cash book is single column,
double column or three column is determined by the number of columns into which the
“amount” column is divided. A single column cash book is either for cash account or bank
account. A double column cash book contains both cash and bank account, while a three
column cash book has discount column in addition to cash and bank columns.
A petty cash book is maintained on the same basis as other cash books, the only difference
being that the petty cash book is used for petty expenses only.
Single Column Cash Book
The single column Cash book, which can either be the Cash Account or the Bank Account is
ruled below:
CASH ACCOUNT
Date Particulars L/F Amount Date Particular L/F Amount
From the above, it can be seen that:
- the Cash book is divided into two equal halves the left side is the Debit side (DR) while
the right side is the credit side (CR)
The debit side contains all of some of the followings:
- Capital
- Sales
- Debtors collections
- Cash lodgement (as contra entry)
- Loan received
The credit side contains all or some of the followings:
- Purchases of items of stock
- Purchase of fixed assets
- Payment to creditors for trading goods
- Loan repayment
- Drawings
- Payment for operational expenses like Rent, salaries, Telephone etc.
- Cash withdrawn from bank for office use (as contra entry)
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 9
The use to which the various columns in the cash book is put is explained below:
Date: For recording the date of the transaction.
Particulars: This contains a description of the transaction. Names of corresponding
accounts are used in the Particulars column of each of the affected accounts. For example,
for the purchase of goods in cash, the affected accounts are Cash account and Purchases
account. In the Cash account the transaction is described as Purchases. In the Purchases
account it is described as Cash. Under no circumstance should the name of an account be
used to describe transaction entries under the same account.
Ledger Folio
This column is used for cross-referencing accounts. It contains the page number of the ledger
in which the corresponding entry can be found. In the example of Purchases and Cash
Accounts given above, if the entry in the Cash account is on page 5 of the Cash Book, the
reference may be CB5. If the second entry is the Purchases Account is on page 9 of the
Nominal ledger, the reference may be NL9. For cross-referencing, in the cash account the
reference NL9 is put in the ledger folio column with the description ‘Purchases’. In the
purchases Account the description is cash and the reference in the ledger folio will be CB4.
The ledger folio column is not used in examinations. It is however used in practice.
Amount: This column contains the monetary value of the transaction.
Balancing of the Cash Book
At the end of an accounting period of say one month, the cash book will be balanced to
determine the balance of cash in hand as at the balancing date.
Balancing is achieved by summing the values in each of the debit and credit sides and
subtracting the lower figure from the higher one to obtain a balancing figure which is entered
in the column with the lower figure to equate the two sides to each other. The totals on the
two sides which are now equal to each other should be stated on the same horizontal line.
Illustration 3.1 Enter the following transactions in the Cash Account of Seyi Sodamola for the month of
January 1999.
January N
1. Started business with
Capital in cash 10,000.00
2. Paid Rent for a shop 1,000.00
5. Bought goods for resale 6,000.00
10. Bought office furniture 1,000.00
12. Cash Sales 8,000.00
15 Bought goods for resale 7,000.00
18 Cash Sales 5,000.00
21 Bought stationeries 300.00
23 Withdrew Cash for personal use 1,500.00
26 Cash Sales 4,000.00
28 Office expenses paid 500.00
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 10
31 Staff salaries 1,000.00
Double Column Cash Book
As earlier explained, the double column cash book is the combination of the cash and bank
accounts in columnar form.
The format of the two-column cash book is given below:
Two Column Cash Book
Date Particulars L/F Cash Bank Date Particular L/F Cash Bank
All the contents, principles, and procedures relating to the single column cash book are also
applicable to the double column cash book.
The main point of attention in a two column cash book is the determination of which of cash
or bank column to make an entry. Both cash and cheque, receipts and payments are valid
cash transactions. Receipts and payments of physical cash are entered in the cash columns,
while receipts and payments by cheque are recorded in the bank columns.
Contra Entry
When related to the cash book, Contra entry refers either to the lodgment of business cash
into the business bank account or the withdrawal of cash from the business bank account for
office use.
When contra entries arise in the two column cash book, the letter ‘C’ is put against each entry
to identify it as a contra entry. The entries in respect of contra transactions of cash are
complete in the cash book, as both debit and credit entries are made in the cash book, and
none in the ledger.
Illustration 3.2
On 1 January 1978, Kojo commenced business as a sole trader selling provisions. He
provided, out of his savings, ¢5,000 with which to start the business.
The following transactions took place during the month of January 1978.
¢
Jan. 1 Opened a Bank Account for the business and paid in cash 5,000
5 Rented premises and paid for 1 month by Cheque 100
10 Bought furniture and fittings by cheque 200
12 Purchased goods for resale by cheque 600
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 11
17 Cash sales to date 800
18 Paid cash into bank 600
20 Purchased goods for resale from Asani & Sons 1,000
25 Cash sales 750
26 Paid cash into bank 750
27 Sold goods to Smiths 180
28 Paid Asani & sons on account by cheque 500
31 Paid salaries by cheque 77
Paid electricity bill for Kojo’s house by cheque 90
Paid sundry expenses by cheque 40
From the above transactions you are required to prepare a two column cash book.
(WASC June 1979, Q. 1 Adapted)
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 12
Three-Columns Cash Book
The three-column cash book consists of the bank, cash and discount columns. The discount
column is the only distinguishing feature from the two-column cash book. The discount on
the debit side is Discount allowed to debtors while the one on the credit side is Discount
Received from creditors
There are three different types of discount, of which only one is accommodated or recognised
in accounting records. They are:
- Trade discount,
- Quantity discount; and
- Cash discount.
Trade Discount
Trade discount is the allowance given off the catalogue price of goods. A catalogue is a list
and prices of available goods in a company. For example a catalogue price can be quoted as
N10,000.00 less 10% trade discount. In this case, and allowance of N1,000.00 is deducted
from N10,000.00 to bring the price to N9,000.00 regardless of the quantity purchased and the
timing of payment.
In accounting records, goods are recorded net of trade discount. In the above case, the
transaction will be recorded at N9,000.00 wherever it appears in the books of accounts. No
record will be made of the discount of N1,000.00.
Quantity Discount
This is an allowance given off the price of goods for purchase of large quantity of such
goods.
The treatment of quantity discount in accounting in similar to that of trade discount i.e.
transactions are recorded net of quantity discount.
Cash Discount
This is the only form of discount that in recognized and accommodated in accounting
records.
Cash discount is an inducement or an allowance given to customers for prompt settlement of
debts before the expiration of the credit period.
If for example the period of credit sale of goods to Ade is three months, with the condition
that payments made within two months will attract 10% discount, and the value of goods sold
to Ade is N50,000.00, the following entries will be made:
i. For the credit sale of goods to Ade:
- the transactions will be recorded in the sales journal at N50,000.00
- postings will be made to Ade’s account in the debtors ledger and to Sales account in the
nominal ledger at N50,000.00.
It can be seen here that the entries are made gross of discount and not net of discount, as in
the two previous cases.
ii. If Ade does not pay until after three months, no discount will be enjoyed. However if
he pays within two months, a cash discount of 10% or N5,000.00 will be enjoyed, and
the following steps will be taken:
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 13
- record the receipt of N45,000.00 from Ade as Debtor’s collection in the Cash Book
either in the bank column or cash column of the debit side, depending on whether Ade
paid by cheque or in cash.
- Record the discount of N5,000.00 allowed to Ade in the discount column of the three-
column cash book on the same horizontal line on which the entry for the related
collection is made.
- Post the discount allowed of N5,000.00 to the debit side of Discount allowed account in
the Nominal ledger and N5,000.00 corresponding credit entry to Ade’s account in the
Debtors ledger.
The same rules are observed in the case of discount received from creditors, which are dealt
with on the credit side of the three-column Cash Book.
Memorandum Entry
The entries made in the discount columns are memorandum entries. They are entries which
do not form part of double entries. Hence the discount columns are merely totalled and not
balanced against each other.
All entries made in subsidiary books other than in Cash and Bank accounts are memorandum
entries.
The format for three-column Cash book is given below:
Three Column Cash Book
Date Particular L/F Disc Cash Bank Date Particular L/F Disc Cash Bank
Alld Recd
Illustration 3.3
Yakubu started a business with N80,000 on 2/1/93 and paid it into the bank on 4/1/93. His
transactions for the rest of the month were as follows:
5/1/93 Purchases by cheque N27,300
6/1/93 Credit purchases N25,200; Electricity paid by cheque N500, Rent N700; by cheque
7/1/93 Drew cash for office use N1,200
Sales:
By cheque N42,520
By cash N480
By credit N50,000
8/1/93 Paid creditors by cheque N15,100 and received discount of N320
9/1/93 Cash Sales N17,115; Cash wages paid N500
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 14
10/1/93 Paid into bank the sales made on 9/1/93; stationery bought by cash N50
12/1/93 Received from customers cheques for N39,200 and allowed discount of N800
15/1/93 Drew cash for office use N200
16/1/93 Servicing and repairs by cash N120
Purchases: Cash N20,000
Credit N45,000
Cheques N5,000
20/1/93 Sales: Cash N37,500
cheques N17,000
22/1/93 Paid creditors N27,900 by cheque and received discount of
N100. Cash sales N2,000 and immediately lodged it into bank.
24/1/93 Payments by cheque:
Rent N1,500
Wages N2,000
28/1/93 Salaries by cheque N3,600
31/1/93 Cash lodged in bank N10,000
Drew cheque for petty cash N200
You are requested to prepare a three-column cash book for Yakubu for the month of January,
1993.
(GCE NOV. 1995 Q 5)
The Petty Cash Book
The Petty cash book is used for recording expenses of a smaller magnitude than those
recorded in the other cash book.
The Petty Cash Book is usually operated on the imprest system in which a cash float is
maintained and kept constant by periodical reimbursement of amount spent.
The only source of cash inflow to the Petty cash is the imprest, while the expenses are spread
on various items which are separately analysed. At the end of the month, or a defined period
of time, the payment analysis columns are totaled and posted to the ledger accounts, while
reimbursement is also made to restore the cash float to its original value.
The format for Petty Cash Book is given below
PETTY CASH BOOK Amount Date Particulars PCV Total Payment Analysis
Recd No Payment
postage stationery others
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 15
Illustration 3.4
Obike Enterprises maintain an imprest system of N8,000.00 per month.
The transactions for the month of September are as follows:
Sept. – 4, Petty cash in hand N25, received cash to make up the imprest. Bought stamps
- N85.
- 5, Paid transport fare N125, telegrams N145, bought shorthand note books for
office - N550. Paid cleaner N65.
- 6, Paid carriage on small parcels - N270, transport fare N150, repair of
typewriter N355.60.
- 9, Courier service N880, entertainment for the office N145, repairs of lighting in
the factory N245.40.
-16, Towing of vehicle from Idiroko to Lagos - N257, water purchased for the
canteen 1,000 gallons @ N0.08 per gallon. Paid office cleaner N65, telephone
bill paid N254.70.
- 18, Purchase of bulb N217.30, envelopes for the office N289.10 paid for erazer,
biro and pencils N289.45, electricity bill N145.30.
- 19, Water purchases 5,000 gallons @ N0.07, welding of maingate N173.50.
- 20, Despatch rider’s medical bill N125, cleaner’s wages N65.
- 21, Entertainment for the M.D. – N186.30. Paid new driver’s licence for M.D.
N60.
- 22, Tea and biscuits for the board’s meeting N135.70
- 26, Repairs of security light - N65.30, medical bill paid N147.95.
- 28, Courier service - N880, traffic offence fine paid - N120.
- 29, Casual wages - N385, NEPA bill paid - N145.10. Carriage inwards N50.
- 30, Physical cash count – N400.30
Required:
(1) What is imprest system?
(2) Prepare a petty cash book with five analysis column for – postages and
stationeries, travelling expenses, repairs and maintenance, medical, general
expenses.
(ICAN ATS I, March 1992, Q. 5)
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 16
Practice Questions
1. What is the purpose of preparing the cash book, whether single, double, three column, or
Petty Cash book?
2. What type of transactions are recorded in the cash book, and what are its components?
3. Explain the meaning and use of contra entry in the cash book.
4. In what ways are the following types of discounts treated in books of account.
i. Trade discount
ii. Quantity discount; and
iii. Cash discount
5a. What is a Memorandum entry?
b. Which entries in the cash book are memorandum entries, and why?
6. Distinguish between the four types of Cash book. i.e. single, double, three column, and
petty cash book.
7. Bolanle started small business with N80,000 on 2/1/88,and paid it into the bank on
4/1/88. His transactions for the month were as follows:
5/1/88 Purchases by cheque N27,300
6/1/88 Credit purchases N25,200;
Electricity paid by cheque N500; Rent N700 by cheque
7/1/88 Drew cash for office use N1,200;
Sales: By cheque N42,520;
“ Cash N480;
“ Credit N50,000
8/1/88 Paid creditors by cheque N15,100 and received discount of N320
9/1/88 Cash sales N17,115; cash wages paid N500
10/1/88 Paid into bank the sales made on 9/1/88. Stationery bought by cash N50
12/1/88 Received from customers cheques for N39,200 and allowed discount of
N800
15/1/88 Drew cash for office use N200
16/1/88 Servicing and repairs by cash N120
Purchases: Cash N20,000
Credit N45,000
Cheque N5,000
20/1/88 Sales:Cash N37,500
Cheque N17,000
22/1/88 Paid creditors N27,900 by cheque and received discount of N100.
Cash sales N2,000 and immediately lodged it into the bank
24/1/88 Payments by cheque:
Rent N1,200
Rates N300
Wages N2,000
28/1/88 Salaries by cheque N3,600;
31/1/88 Cash lodged into bank N10,000
Drew cheque for petty cash N200
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 17
Required:
THREE - COLUMN CASH BOOK OF Bolanle, for the month of January, 1988
(ICAN ATS 1, Sept. 1991 Q. 5)
8. Joana Bonnah operates an impest system with analysed petty cash book. There are
columns for Stationery, Transport, Postage and Medical Expenses. A float of N200,000
is maintained by the petty cashier who is re-imbursed as and when necessary.
The following transactions were recorded in the month of September, 1998.
N Sept. 2 Balance on hand 200,000 “ 6 Bought postage stamps 28,000 “ 7 Paid medical expenses 48,000 “ 12 Bought stationery 28,500 “ 16 Paid transport expenses 68,000 “ 20 Paid medical expenses 40,800 “ 22 Paid for postage stamps 6,200
Paid transport expenses 18,800 “ 24 Bought stationery 6,800 Paid transport expenses 32,600 “ 28 bought postage stamps 8,500 “ 30 paid medical expenses 26,500 You are required to enter the details above in a columnar petty cash book
(WASSCE June 1999 Q. 8) 9. The cash transactions of Mr. James Iloh, a trader, is given below. Jan 1 Cash at Inland Bank N465.03 Cash in hand N28.00 “ 3 Drew cheque for petty cash N70.00 “ 5 Received from Ade, cheque in settlement of his account N652 less 5% discount “ 5 Paid Sola’s account N518, less 2½% discount. Sold for cash, Goods worth N206
“ 8 Transferred to Current Account from Deposit Account N1,000 Paid account of R.Davis N1,482 less discount 2½ % “ 10 Drew cheque for general expenses N80 “ 11 Paid cheque for petrol and motor repairs N179.50 “ 17 Drew cheque for stationery N77 “ 20 Sold for cash 30 boxes of matches at N5 a box “ 23 Cash sales N400 “ 24 Paid into bank N756 “ 26 Drew cheque, personal drawings N100 You are required to prepare a three column cash book
(SSCE Nov. 1999b Q. 5) 10. The following information has been extracted from the books of C. Bintu:
January 1 Balance at Bank N683.
January 1 Drew and cashed cheque for N500.
January 1 Bought for cash 14 model coats for N282.
January 3 B. Aluko paid by cheque N100 on account.
Elizade University, Ilara-Mokin, Nigeria ACC 101 Lecture Notes
Lecturer: Alexander Akinduko, BSc (Unilag), MRes. (Manchester), MBA (Ogun), FCA, FCTI, MNIM. Page 18
Paid cheque into bank.
January 5 Sold for cash two costumes at N36 and N33 respectively.
January 5 Paid in cash, wages N72 and office expenses N10.
January 9 Paid by cheque, H. Abba Account N258 less 5% discount.
January 10 Cash sales to date, N76.
January 12 Paid by cheque M. Harrison Account N300.
January 14 Paid in cash carriage N33.
January 18 Paid by cheque B. Banjo Account N82.
January 18 Gave H. Abba a cheque on account N100.
January 18 Cash sales for the week N190.
January 18 B. Daodu paid N250 by cheque.
Paid cheque into bank.
January 21 Purchased for cash 7 packets office pins at N1.17 per packet.
January 22 Paid cash into bank N100.
You are required to prepare a three column Cash Book to record the above transactions.
(WASSCE June, 2000 Q.8)
11. X. Limited operates a petty cash book on the imprest system with a cash float of N300.
The following transactions took place in July
1990.
1990 N
July 2 Envelopes 4
2 Petrol 16
4 Postage stamps 7
5 Petrol 18
7 Office cleaning 20
9 Stationery 21
10 Alice Chucks – Ledger account 19
12 Petrol 10
13 Adio – Ledger account 15
14 Office cleaning 20
14 Travelling expenses 18
16 Postage stamps 12
17 Hamzat – Ledger account 15
17 Postage stamps 3
18 Stationery 46
19 Petrol 12
21 Office cleaning 20
23 Reimbursed the account
24 Travelling expenses 10
26 Petrol 12
28 Office cleaning 20
You are required to enter the transactions into the petty cash book; under the following
headings: Stationery, Postage, Transport and Travelling, Office Cleaning and Ledger.
(SSCE Nov. 1992 Q.3)