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THIRD TERM E-LEARNING NOTE

 

SUBJECT: FINANCIAL ACCOUNTING CLASS: SS2

 

SCHEME OF WORK

 

WEEK TOPICS

1-3 Single Entry and Incomplete Records

4-5  Control Accounts

6-8  Accounts of Non-Profit-Making Organizations

9  Joint Venture Accounts

10  Consignment Accounts

 

 

WEEK ONE

TOPIC: SINGLE ENTRY AND INCOMPLETE RECORDS

ecolebooks.com

CONTENT:  (i) Introduction (ii) Steps Involved in preparing a P&L A/C and Balance Sheet from Incomplete Records (iii) Example

i.   INTRODUCTION:

 Most businesses keep records of receipts and payments. The records may consist of bank paying – in – book counterfoils, cheque book counterfoils and bank statements in addition to supplies invoices and copies of sales invoices. From these records it may be possible to prepare a P&L A/C and Balance Sheet.

 

ii  STEPS INVOLVED IN PREPARING A P&L A/C AND BALANCE SHEET FROM INCOMPLETE RECORDS;- The necessary steps are as follows:-

Step 1: Preparing an opening statement of affairs (so as to obtain opening capital)

Step 2: Prepare a receipt and payments A/C

Step 3: Prepare control A/CS for debtors and creditors, if necessary to calculate sales and purchases. It is the sales and purchase figure that will be required to make the account balance.

Step 4: Adjust the receipts and payments accounts prepayments and accruals at beginning and end of the period.

Step 5: Calculate provisions for doubtful debts, depreciation and any other matters not mentioned above.

Step 6: Prepare the P&L A/C and Balance Sheet from the information now available

 

Example:

The only record that Azim has kept for his business are bank pay-in-book, counterfoils, cheque book counterfoils and records of debtors and creditors. With these it is possible to summarize his transactions with the bank in the year ended 31/12/03 as follows taking paid into the bank: N8000

Cheques drawn: Payment to suppliers N2430, rent N600, electricity N320, postage and stationeries N80, purchase of shop fittings N480, cheques drawn for personal expenses N2700.

 Azim banked all his taking after paying the following in cash:-

Creditor for supplies N400 and sundry expenses N115.

Azim estimated his assets and liabilities at 1st January, 2003 to be: shop fittings N1600. Stock N1960, debtors N240 rent prepaid N80. Bank balance N1500, cash in hand N 50, creditors for goods N420; electricity owing N130.

At 31st December, 2003 Azim listed his assets and liabilities as follows. Shop fittings N1800; stock N1520; debtors N380 rent repaired N50; bank balance N2640; cash in hand N 50; creditors for goods N390; electricity owing N225.

Required prepar Azim’s profit and loss accounts for the year ended 31 December, 2003 and his Balance Sheet at that date.

Solution:

Step 1: Opening statement of Affairs

N N

Assets  

Shop fittings 1600  

Stock 1960

Debtors 240

Rent prepaid   80

Bank 1500

Image From EcoleBooks.comCash in hand 50

Image From EcoleBooks.com 5,430

Less Liabilities

Creditors for goods 420

Electricity owing 130   550  

CAPITAL AT 1ST JAN. 2003 4,880

 

Step 2: Receipts and payments Account. This includes only those amounts actually received and spent. It is a cash book summary with columns for cash and bank.

 Cash Bank  Cash Bank

  N N   N N

1/1/03 Balance b/f 50 1500   Trade

 Takings Creditors 400 2430

 (8000+460+115)  8515 Rent   600

 Cash 8000   Electricity   320

  Postage and

  Stationery   80

  Shop fittings 480

  Sundry Exps. 115

  *Drawings  

  (2700+250) 2,950

  Bank C 8,000

  Balance c/d   50 2640

Image From EcoleBooks.comImage From EcoleBooks.comImage From EcoleBooks.comImage From EcoleBooks.comImage From EcoleBooks.comImage From EcoleBooks.comImage From EcoleBooks.comImage From EcoleBooks.com 8565 9500  8565   9,500

*N250 is money not accounted for and is treated as Azim’s drawing.

 

 

 

 

 

Step 3:
Debtors and creditors controls accounts

Debtors Control A/C  Creditors Control A/C

Image From EcoleBooks.comImage From EcoleBooks.com N   N N N

1/1/03 Bal b/f 240   31/12/03 Cash 8515

Bal b/f N380 31/12 Bank1/1/03 Bal b/f 420

Sales (2) 8655 and Cash 2830   Purchase(3) 2800

Image From EcoleBooks.com   8895 8895   Bal b/f 390

3220 3220

 

Steps 4: Adjustment for Prepayment and Accounts

 

Image From EcoleBooks.comImage From EcoleBooks.comRent A/C   N  Electricity A/C

Image From EcoleBooks.comN N     N

Prepaid Cash 320 1/1/03  

At 31/12/03 50  Owing   Accrued b/f  130

1/1/03 P&L ac 31/12/03 225   P&L A/C  415

Prepaid b/f 80  (payable for)  545  545

Cash 600  the year 630

  680 680  

N

Steps 5: Calculate depreciation of shop fitting: Shop fittings at valuation 1/1/03  1600

Add fittings purchased in the year 480

2080

Shop fittings at valuation 31/12/03  1800

Therefore Depreciation for the year = 280

 

Step 6:  AZIM

Trading and profit and loss accounts for the year

Ended 31 December 2003

 N N

Sales  8655

Less cost of sales

Stock at 1st Jan 1960

Add Purchases 2800

Less closing stock 4700

Less stock at 31/12 1520 3240

Gross Profit 5415

Less:  EXPENSES

Rent  630

Electricity 415

Postage and stationery   80

Sundry expenses 115

Depreciation – shop fitting  280 1520

NET PROFIT    3,895

 

 

 

 

Balance sheet at 31st December, 2008

 $ $ $

Fixed assets: shop fitting 1800

CURRENT ASSETS

 Stock  1520

 Trade debtors 380

 Rent prepaid   50

 Bank  2640

Cash   50

 4640

 

LESS CURRENT LIABILITIES

 Trade creditors  390  

Image From EcoleBooks.comElectricity owing  229 615 4025

5825

 

 Capital at 1st Jan. 4880

Profit for the year 3895

 8775

Less drawings 2925

 5825

EVALUATION QUESTIONS

1.  What is the purpose of the opening statement of affairs in complete records?

2.  What is the debtors control account prepared to reveal?

 

 READING ASSIGNMENT

1.  Essential Financial Accounting by O.A. Longe Page 371 – 384

2.  Accounting by Harold Randall Page 279 – 290

 

WEEKEND ASSIGNMENT

  1. Debtors control account reveals (a) debtors (b) creditors (c) cash received (d)sales
  2. In incomplete records creditors control account is prepared to reveal (a) sundry creditors (b) purchases (c) cash paid to creditors (d) discount received
  3. In adjustment accounts prepaid rent A/C should have _______ balance (a) credit (b) Debit (c) both debit and credit (d) either debit or credits
  4. In adjusting for final account, accrued wages should have ______ balance (a) debit (b) credit (c) debit and credit (d) debit or credit
  5. Calculation of provisions for doubtful debts, depreciation, etc is done in step ____ in other to prepare P&L a/c and balance sheet from incomplete records (a) 1 (b) 2 (c) 5 (d) 6

Theory

1.  List and explain the six steps necessary to prepare a P&L a/c and balance sheet from incomplete records.

2.  Prepare debtors and creditors control accounts formats and highlight what each of them reveals.

 

GENERAL EVALUATION QUESTIONS

  1. State three characteristics of single entry accounting system
  2. List four disadvantages of single entry accounting system
  3. List five steps of converting single entry accounting system to double entry system
  4. Explain five differences between a trial balance and a balance sheet
  5. State eight items that will cause a disagreement between the Cash Book balance and the Bank Statement balance

WEEK FOUR

TOPIC:- CONTROL ACCOUNT

i.  Definition of Control Accounts

ii.  Advantages of Control Accounts

iii.  Division of control and their format

Note

Control accounts is the extraction of trial balance from individual ledger account of a large organization. Generally speaking, large organizations prepare different types of ledger accounts, but error might occur when preparing these ledgers. To locate the error easily individual trial balance need to be opened for each ledger account, anyone that fails to agree indicates that there are errors. Control account is an easy way to locate errors from ledger account. Control account is also called self balancing ledge.

ADVANTAGES OF CONTROL ACCOUNT

  1. It helps in locating errors
  2. It saves time
  3. It can be used to detect missing figures
  4. Fraud becomes difficult when control accounts are prepared
  5. It is used to check accuracy of balance of the ledgers
  6. The total debtors and creditors can be easily calculated.

 

Division of control accounts

Basically control accounts is divided into two: Sales Ledger Control Account and Purchases Ledger Control Accounts.

  1. Sales Ledger Control Account: This account recorded all account debtors control account.
  2. Purchases Ledger Control Account: This account recorded all account of creditor. It is also called Total Creditors Control account.

 

EVALUATION

1.  What is a control account?

2.  List four advantages of control account.

 

Format

Image From EcoleBooks.comSales Ledger Control Account

Image From EcoleBooks.com N   N

1990 Jan  Balance b/f   X   1990 Jan. Cash from customers X Credits sales   X     Cheque from customers X

Debit note issued   X Returns inward X

Interest charged X Bad debts X

Dishonour cheque X Discount allowed   X

Discount disallowed X Credit notes issued   X

Carriage outwards X   Bills Receivable X

  Set offs X

  Balance c/d X

Image From EcoleBooks.comImage From EcoleBooks.com X X

Purchase Ledger Control Account

Image From EcoleBooks.comImage From EcoleBooks.com N N

1990 Jan.  Cash to supplier   X 1990 Jan. Balance b/f   X

Cheque to suppliers X Credit purchases X

Returns outwards X   Discount received withdrawn received X

Credit notes received X Cash refunds   X

Discounts received   X

Set offs X

Bills payable X

Image From EcoleBooks.comImage From EcoleBooks.comBalance c/d     X  X

XX  XX

 

Note: The closing balance of sale ledger control account represents debtors which will appear in balance sheet under current assets. While closing balance of purchase ledger control account represents creditors which will appear in balance under current liability.

Evaluation

  1. Define the term control account and mention two divisions of control account.
  2. Mention five advantages of control account.

Reading Assignment

Essential Financial Accounting by O.A. Longe 187-189

GENERAL EVALUATION QUESTIONS

1 List seven types of errors a trial balance will not reveal

2 Explain the term apportionment in departmental accounts

3 List six uses of control account

4 Explain the components of prime cost

5 List five items found in the total creditors control account

WEEKEND ASSIGNMENT

  1. Another name for control account is (a) sale ledger (b) purchase ledger (c) self balancing ledger (d) general ledger.

    Used the information and options provided, Under it to answer question

    2-5

  2. Credit Sales
  3. Discount received
  4. Return Outward
  5. Credit Purchase

    The above items are recorded under

(a)  Purchase ledger control account

(b)  General ledger control account

(c)  Proper Journal Control account

(d)  Sales Ledger Control account

SECTION B

Draw up the typical format of

(1) Total debtors control account

(2) Total creditors control account

 

WEEK FIVE

TOPIC: CONTROL ACCOUNT

Illustration: The following balance were extracted from the books of Olotun Enterprises on 30th October, 1993  N

Purchase 1993    7,532

Purchase ledger 1/10/93  7,948

Sales ledger 1/10/93  90,454

Sales day book 77,530

Returns outwards 3,960

Returns inwards 14,180

Cheque received from customers 56,680

Cheque paid to suppliers  61,860

Cash overpaid to supplier 240

Discount allowed 3,774

Discount received 2,678

Credit notes received   280

Debit notes issue 530

prepare

(a) Sales ledger control account

(b) Purchase ledger control account

 

EVALUATION

1.  Draw up the format of Sales Ledger Control Account with ten items.

2.  Draw up the format of Purchases Ledger Control Account with twelve items.

 

Image From EcoleBooks.comImage From EcoleBooks.comSales Ledger Control Account

  N   N

1993 Oct. Balance b/f  7,948   1993 Oct. Return inwards 14,180

Sales 77,530 Cheques received from customers 56,680

Debit notes issued   530 Discount allowed 3,774

  Balance c/d   11,374

Image From EcoleBooks.com 86,008 86,008

Purchase Ledger Control Account N N

1993 Oct.Returns Outwards 3,960  1993 Oct. Balance b/f   7,532  Cheques paid to supply 61,860  Purchases 90,454  Credit note received   280  Cash over paid 240

 Discount received 2,678

Balance c/d 29,448

Image From EcoleBooks.com 98,226    98,226

 

EVALUATION QUESTION

  1. Explain what is meant by the following (a) Total debtors control account (b) Total creditors control account.
  2. State three reasons for preparing Control Accounts.

 

READING ASSIGNMENT

Essential Financial Accounting by O.A. Longe Page 188-191

 

GENERAL EVALUATION QUESTIONS

1 What is a petty cash book?

2 Explain the imprest system as used in petty cash accounting

3 State four advantages of operating a petty cash system

4 State two reasons for separating capital expenditure from revenue

expenditure

5 Explain two factors which must be considered in determining whether any

particular item is capital or revenue expenditure

 

WEEKEND ASSIGNMENT

Use the following information and options provided under it to answer question 1-5

  1. Bill receivable
  2. Bill payable
  3. Dishonour Cheque
  4. Credit notes issued
  5. Credits notes received

    The above items are recorded under

(a)  General ledger control account

(b)  Purchase Control account

(c)  Proper Journal Control account

(d)  Sales ledger control account

 

SECTION B

The following were extracted from Abiona enterprises on 1st January, 1980

Purchase ledger balance: Debit N 570

Credit   N13,252

Sales ledger balance: Debit   N12,520

Credit N221

Totals for the year:  N

Purchase Journal 170,198

Sales Journal    224,608

Return Inward     5,002

Return Outward Journal   3,123

Cheques Paid to suppliers 146,800

Cheques received from customers 189,120

Provision for bad debts   7,000

Cash received from customers   5,000

Discount allowed     6,112

Discount received     3,300

Cash sales   4,500

Cash paid to suppliers   550

Bad debt written off   399

Customers cheque dishonoured 419

Ayo was both debtor and creditor by N725 and N550 respectively. Set this off in the account.

Prepare:- (a) Sale ledger control account

(b) Purchase ledger control account

 

 

WEEK SIX

TOPIC: ACCOUNTS OF NON-PROFIT – MAKING ORGANIZATIONS

WHAT ARE NON-PROFIT MAKING ORGANIZATIONS?

Non-profit-making organizations exist to provide services for their members. Example are. Sports and social clubs, dramatic societies, music clubs, etc.

 

Making a profit is not their main purpose, although many carry on fund – raising activities to provide more or more services for the members. The organization is owned by all its members and not by just one person or a few of the members.

 

Records of money received and spent are usually kept by a member who is not a trained bookkeeper or accountant. Besides, these records of money received and spent, usually no other records are kept. Because of this his topics is an extension of incomplete records treated in the previous weeks.

 

SPECIAL FEATURES OF THE ACCOUNTS OF NON-PROFIT MAKING ORGANIZATIONS

  1. An Income and Expenditure Account takes the place of the profit and loss Account (2). The words Surplus of Income Over Expenditure are used in place of Net profit. (3). The works Excess of Expenditure Over Income are used in place of net loss. (4). The term Accumulated Fund is used in place of capital Account. (5). A trading Account is only prepared for an activity that is in the nature of trading and carried on to increase the club’s funds.

 

THE TREATMENT OF INCOME:

Income of a club should be treated in the club’s accounts as follows:-

  1. SUBSCRIPTIONS

    The amount credited to the income and Expenditure Account should equal the annual subscription per member multiplied by the number of members. It may be helpful to prepare a subscriptions account as workings to decide how much should be credited to the Income and Expenditure Account Subscriptions in Arrears and subscriptions is advance should normally be treated as accruals and prepayments. However, each club has its own policy for treating subscriptions in arrears or in advance. The two possible policies are as follows:-

     

    (i) Cash basis: The amount actually received in the year is credited to income and Expenditure Account. This may include subscription for a previous year or paid in advance for the next year.

     

    (ii) Accrual Basis:- All subscription due for the year including those not yet received are credited to the income and expenditure Account it will usually be the Club’s policy to write off as bad debts, subscriptions that are not received the year after they were due.

 

  1. Life subscription and entry fees

     Life subscription and entry fees are received as lump sums but should not be credited in full to the income and expenditure Account when received. The club should have a policy of spreading it his income over a period of say, five years. The amount received should be credited to a deferred Income account and credited to income and Expenditure Account equal annual installments over a period determined by the club committee

 

  1. Donations

    Donations and legacies to a club are usually made for particular purposes, e.g. towards the cost of a new hall or equipment. Such a donation should be credited to an account opened for the purpose and expenditure on it debited to the account. Money received for special purpose should be placed in a separate bank account to ensure that it is not spent on other things.

     

  2. Supporting Activities

    There are some supporting activities to a club’s main purpose. They raise money to supplement income from subscription. If they involved some sort of trading, a Trading Account should be prepared for them as part of the annual accounts, and the profit or loss should be transferred to the income and expenditure Account.

     

    Non-trading activities, such as social get together, outings and dinner – dances may be dealt with in the income and Expenditure Account with the income and costs being grouped together as follows:-

    N N

    Annual dinner-dance  

    Sale of tickets 600

    Less: hire of band (100)

    Catering and drinks  (240)

     NET RECEIPTS 260

 

EVALUATION:

State and explain five special features of the account of non-profit-making organizations.

 

READING ASSIGNMENT: Financial Accounting with Ease by Onatowokan Oluyombo Page 185-187.

WEEKEND ASSIGNMENT

  1. Which of the following is NOT a source of revenue to a non-profits-making organization? (a) Donation (b) Entry fee (c) fine (d) Provision
  2. Subscriptions prepaid is (a) current capital (b) current liabilities (c) fixed asset (d) working capital

 

  1. Subscription outstanding is (a) current asset (b) current liabilities (c) working capital (d) fixed asset

 

  1. The capital of a non-profit organization is referred to as (a) Net profit (b) gross profit (c) accumulated fund (d) net deficiency
  2. For a non-profit-making organization the equivalent of a profit and loss account in a profit-making business concern is (a) trading account (b) receipt and payment (c) accumulated fund (d) income and expenditure account

 

THEORY QUESTION

1.  List and explain five special characteristics of the accounts of non-profit-making organizations.

 

2.  Write short notes on:-

 (i) Subscriptions prepaid (ii) Subscriptions accrued (iii) donations

 

GENERAL EVALUATION QUESTIONS

  1. List five methods of providing for depreciation of fixed assets
  2. State five reasons for making provision for depreciation of fixed assets
  3. List eight errors that will affect the agreement of the trial balance
  4. Give five reasons for preparing departmental accounts
  5. List and explain five classifications of the Ledger

 

 

WEEK SEVEN AND EIGHT

TOPIC: PREPARATION OF ACCOUNTS OF NON-PROFIT-MAKING ORGANIZATIONS-PRACTICAL ILLUSTRATION

Example

The star sports and social club provides recreational activities, refreshments and social events for its members. Its assets and liabilities at 31st December, 2003 were as follows

Fixed Assets N

Pavilion 120,000

Club sports equipment   40,000

Motor roller 2,000

 

Current Assets

Stock of equipment for sale to members   4,000

Annual subscription owing 1,200

Bank balance 6,730

 

Current liabilities

Creditors for equipment for sale to members 1,300

Annual subscription received in advance   800

Life subscriptions fund   1,750

 

In the year ended 31st December, 2003 the club’s cash receipts and payments were as follows.

Receipts

Annual subscriptions  N18,000

Proceeds from sale of equipment N12,000

Sale of tickets for dinner-dance N4,400. Refreshment and bar takings N2660. Life members subscription N400

 

 

Payments

Caretaker’s wages N8,000. Repairs to club equipment N1,700 purchase of club equipment N2000. Equipment for sale to members N4000. Heating and lighting N1800. Food for refreshment bar N1400. Secretary’s expenses N840.

Dinner – dance expenses: – Hire of band N 200 – Catering N 1000

 

Further information

 

  1. At 31st December 2004: annual subscriptions in arrears N1400, annual subscriptions received in advance were N900
  2. Stock of equipment for sale to members N200
  3. Creditors of equipment for sale to members N900
  4. A member donated N5000 to a fund to encourage young people to train for sport. This donation was invested in saving bonds.
  5. the club transfers life subscriptions to the income and Expenditure Account in equal installment over five years
  6. Depreciation is to be provided on fixed assets by the reducing – balance method as follows:- pavilion 6%. Sport equipment 20%, motor roller 20%. Required (a) prepare the star sport and social club’s income and Expenditure Account for the year ended 31st December, 2004 (b) prepare the club’s balance sheet as at 31st December, 2004

 

 

Solution

Step 1:  Prepare an opening statement of affairs. This will give the balance on the Accumulated fund at 1st January 2004 and will be the starting point for recording the transactions during the year.

 

Statement of affairs as at 31st December, 2003.

 

Fixed Assets:- N

Pavilion Sport equipment  120,000

Club sports equipment 40,000

Motor roller   20,000

Current Assets

Stock of equipment for sale to members 4,000

Annual subscriptions owing   1,200

Bank balance   6,730

Total Assets  173,930

 

Current Liabilities

Creditors for equipment for sale to members 1,300

Annual subscription received in advance 800

Life subscription fund 1,700   3,850

Accumulated fund 1st January, 2004    170,080  

Step 2:-  prepare a receipt and payments Account. This will summarize all the transactions affecting the Income and Expenditure Account and balance sheet and calculate the bank balance at 31st December, 2004.

 

Image From EcoleBooks.comImage From EcoleBooks.comReceipts and payments account for the year ended 31st December, 2004

  

 

1 Jan. 

Balance b/f 

6,730 

31 Dec. Caretaker’s wages 

8000 

31 Dec. 

Annual subscriptions  

18,000 

Repair’s club equipment  

1,700 

 

Sales of equipment 

12,000 

Purchase club equipment

2,000 

 

Sales of tickets dinner-dance 

 

4,400 

Purchase of equipment for resale  

 

4,000 

 

Takings-refreshment  

2,660 

Heating and lighting 

1,800 

 

Life membership subscriptions 

 

400 

Dinner dance hire of band 

200 

   

Catering  

1000 

   

Food for refreshment bar

14000 

   

Secretary’s expenses 

840 

   

Balance c/d 

23,250 

  

Image From EcoleBooks.com44,190

 

44,190 

 

 

Step 3:- prepare workings to adjust for accruals, prepayments, depreciation and any other items. Show these workings with your answer.

 

1. Purchase of equipment for resale

 

Image From EcoleBooks.com

Image From EcoleBooks.comCash part

4000 

Creditors b/f (opening bal.)  

1,300 

Creditors c/f 

900 

Income and Exp. a/c 

3,600 

 

4,900 

 

4,900 

 

 

Image From EcoleBooks.com2.   Annual subscriptions A/C

 

 

Image From EcoleBooks.comOwing at 1st January

1,200 

Prepaid  

800 

Prepaid at 31st December

900 

Cash (R & Payt a/c)

18,000 

I & E a/c 9for the up) 

18100 

Owing at 31st December

1,400 

 

20,200 

 

20,200 

 

3.  Life Subscriptions A/C

 

Image From EcoleBooks.com

Image From EcoleBooks.com

I & Exp. A/C (1/5 x 2/50 )

430 

B/F 

1,700 

Balance c/f 

1,720 

Cash received (i.e. additional) 

400 

 

2,150 

 

2,150 

 

4.  Club Sport equipment A/C

Image From EcoleBooks.com

Image From EcoleBooks.comN

 

Bal b/f 

40,000 

I & Exp a/c (20% x 4200) 

8,400 

Cash (addition) 

2,000 

Bal c/d 

33,600 

 

42,000 

 

42,000 

 

 

Step 4: The income and expenditure A/C and Balance sheet may now be copied out from steps 1, 2 and 3. As the sale of equipment to members is trading, a trading A/C should be prepared even though the question did not ask for it.

 

If steps 1, 2 and 3 have been carefully carried out, preparing the income & Expenditure A/C and balance sheet is now only copying exercise and can be completed in little time.

 

Sales of equipment A/C

Sales 

Less: Cost of sales  

 

1,200 

Stock 1st January

4000 

 

Purchase (wk. 1) 

3,600 

 
 

7,600 

 

Less closing stock 31/12/04 

2000 

5,600 

Profit on sales of equipment (transferred to income and expenditure account)

 

 

6,400 

 

STAR SPORTS AND SOCIAL CLUB

INCOME & EXPENDITURE ACCOUNT FOR THE YOUR ENDED 31/12/04

 

Annual subscriptions (wks. 2) 

  

18,000 

Life subscription (wks. 3) 

  

430 

Profit on sale of equipment  

  

6,400 

Dinner/dance:-

   

Sales of ticket 

 

4,400 

 

Less: Hire of band 

200 

  

Catering 

1,000 

1,200 

3,200 

Refreshment Bar 

   

Takings 

 

2,660 

 

Less: cost of food 

 

1,400 

1,260 

   

29,390 

Less expenses  

   

Caretaker’s wages 

 

8,000 

 

Repairs to club equipment 

 

1,700 

 

Heating and lighting

 

1,800 

 

Secretary’s expenses 

 

840 

 

Depreciation: Pavilion (6% x 120,000) 

 

7,200 

 

:Equipment (wks. 4) 

 

8400 

 

: Motor roller (20% x N2000) 

 

400 

28,340 

SURPLUS OF INCOME OVER EXPENDITURE  

  

1,050

 

BALANCE SHEET

AS AT 31ST DECEMBER, 2004

 

Fixed Assets at net book value 

  

Pavilion  

 

112,800 

Club equipment  

 

33,600 

Motor roller 

 

1,600 

  

148,000 

 

Current Assets

Stock of equipment for resale to members 

2000 

Subscription owing  

1,400 

Bank balance

23,250 

 

26,650 

 

Less current liabilities 

   

Creditors 

900 

  

Subscriptions prepaid 

900 

  

Life subscriptions (wks. 3) 

1,720 

3,520 

23,130 

   

171130 

Presented By: 

  

170080 

Accumulated fund at 1/1/04

Add surplus of income over expenditure 

  

1050

171130

 

Fund to encourage young people to train for sports  N5000

Presented by savings fund N5000

 

Evaluation

Write short note on (a) subscription prepaid (b) subscription accrued

 

Reading Assignment

Financial accounting with Ease by Onafowokan O., Harold Randall pages 95-98

WEEKEND ASSIGNMENT

  1. Life subscription A/C should have a (a) debit balance (b) credit balance (c) neutral balance (d) none of the above
  1. Club sports equipment A/C should have a balance (a) credit (b) debit (c) debit and credit (d) neutral
  1. Sales of a equipment to members is a form of (a) asset (b) trading (c) gambling (d) debating
  1. Subscriptions accrued is an/a_______ (a) asset (b) liabilities (c) accumulated fund (d) working capital
  1. Repair of club equipment is a ______ expenditure (a) revenue (b) capital (c) fixed (d) floating

 

THEORY

  1. Write short notes on (a) annual subscription (b) life subscriptions (c) subscription prepaid (d) subscription accrued
  2. Differentiate between life membership subscriptions and annual subscription of a non-profit-making organization.

 

GENERAL EVALUATION QUESTIONS


  1. List five sources of income for a not-for-profit making organizations
  2. State five differences between a Receipts and Payments Account and

    an Income and Expenditure Account

  3. State five uses of a Control Account
  4. State six errors that will not affect the agreement of the trial balance
  5. Explain the objective of transfer pricing in Manufacturing Accounts

     

     

WEEK NINE

TOPIC: JOINT VENTURE ACCOUNTS

CONTENT

  1. Definition of Joint Venture.
  2. Accounting entries required for joint ventures.
  3. Practical illustration of joint ventures.

Definition

Joint venture is a business relationship of two or more persons or venturers, for the purpose of carrying on a particular transaction with the aim of profit making. The principle of Joint Venture borrows from partnership but the difference is that the Venture ceases operation immediate the purpose of its establishment is achieved.

Joint Venture is not a going concern.

Major account prepared are:

i.  Individual Joint Ventures Account: basically, the individual in joint ventures prepares joint ventures account affecting him in his books.

ii.  Memorandum Joint Venture Account: This is profit and loss account of joint ventures. In this account, profit or loss attributed to each joint-venturer is ascertained and shared between the individuals concerned.

Accounting entries

  1. Debits all expenses to individual Joint Venture account.
  2. Credited all revenue to Individual Joint Venture account.
  3. In Memorandum Joint Venture account.

i.  Credit both revenue of Joint Venture.

ii.  Debits both expenses of Joint Ventures.

EVALUATION QUESTIONS:

1.  State three similarities between Joint Venture and Partnership.

2.  List four differences between Joint Venture and Partnership.

Practical Illustration: Biodun (Kaduna based) and (Kola Lagos based) agreed to enter into Joint Venture in 1992, for the purchase of textile materials in Onitsha and resell.

 

Biodun and Kola agreed to share the profit or loss in ratio 3:2 respectively. The following transactions took place.

1992 Feb. 1 Biodun made a cash purchase of goods N2,200

4 Kola bought N3,500 worth of goods

10 Biodun purchased goods for N4,000

15 Biodun sold goods for cash N5000 selling expenses N430

20 Kola sold goods for cash, N6,500

25 The remaining items were dispatched to Kaduna by Kola, transport expenses N600

27 Biodun sold goods N10,200

 Prepare:  (a) Individual Joint Venture account

(b) Memorandum Joint Ventures account

Note: In individual Joint Ventures account, if balance b/d is in the credit side, it implies that the persons or firm has received more than he is entitled to. So he need to pay the amount of the balance to the other party who has received less than his entitlement.

 

 (a) In the books of Biodun:

 

Image From EcoleBooks.comImage From EcoleBooks.comSolution   Joint Ventures with Kola

1992 N 1992 N

Feb. 1    Purchases 2,200 Feb. 15 Sales 5,000

” 4    Purchases 4,000 Sales   10,200  

” 15  Selling expenses   430

” 29  Share of profit  6,582

” Bal. c/d   1988

Image From EcoleBooks.comImage From EcoleBooks.com   15,200  15,200

Image From EcoleBooks.comImage From EcoleBooks.comMar. 3 Cheque to Kola   1,988 M. I Balance b/d 1,988

 

 

In the Books of Kola:

Image From EcoleBooks.comImage From EcoleBooks.comJoint Venture with Biodun

1992   N 1992   N

Feb. 4 Purchases   3,500 Feb. 29  Sales 6,500

25  Transports Exp. 600     29  Balance c/d 1,988

Image From EcoleBooks.com 29 Share of Profit 4,388

Image From EcoleBooks.com   8,488  8,488

Image From EcoleBooks.comImage From EcoleBooks.comMar. 1 Balance   1,988 Mar. 3 Cheque from Biodun 1,988

 

 

 

(b) In the books of Kola and Biodun:

 

Memorandum Joint Ventures Accounts

Image From EcoleBooks.comImage From EcoleBooks.com1992  1992

Purchases:  Biodun 6,200 Sales Biodun 15,200

Kola 3,500  Kola 6,500

Selling exp. Biodun 430

Transport exp. Kola 600

Share of profit 10,730

Biodun (3/5 x 10, 790) 6,582

Kola (2/5 x 10,970) 4,388

Image From EcoleBooks.comImage From EcoleBooks.comImage From EcoleBooks.com 21,700 21,700

Image From EcoleBooks.com

Evaluation Questilon

1.  Define Joint Venture.

2.  Mention the major accounts prepared in Joint Venture.

 

Reading Assignment: Essential Financial Accounting page 343-348

 

WEEKEND ASSIGNMENT

1.  The major account in Joint Venture are ____________

(a) Individual Joint Ventures account and memorandum  (b) Profit and Loss account and balance sheet (c) appropriation account and balance sheet (d) cash book and ledger

 

2.  Expenditure of each joint venture is ____________

 (a) credited (b) debited (c) all of the above (d) none of the above

3.  Revenue of each joint venture is ______

 (a) credited  (b) debited (c) none of the above (d) all of the above

4.  In memorandum account revenue is _______

 (a) Debited   (b) Credited (c) averted   (d) included

5.  In memorandum account expenditure is ______________

 (a) included   (b) excluded (c) debited   (d) credited

 

THEORY

A & B entered into a Joint Venture in a consignment of 100 articles each costing N10.

A supplies such goods and sends them to B for sale, paying carriage there on N20. B is to have 10% commission on sales and the profit divided in the ratio of 2:1

 

It was found that 10 articles were below standard, and it was agreed that. A would take them back and sell them as his own goods without commission and loss thereon being borne sorely by A. It was further agreed that at the same time 5 articles be returned to A as he was in a position to effect a sale (on account of the Joint Venture) at N18 each, being a better price than what B could get. B sells the remaining articles (less 3 articles taken over by him at an agreed price of N 11 each) at N14 each. The carriage on the goods returned by B to A is N4, and it is agreed that N2 thereof relate to the cost of returning the articles and to be borne by A.

 

Show the accounts of A in B’s books. B in A’s books and Memorandum Joint Venture Account.

 

GENERAL EVALUATION/REVISION QUESTIONS

  1. Explain the following : (a) bank loan (b) bank overdraft (c) standing order (d credit

transfer

  1. State five reasons for making provision for depreciation on fixed assets
  2. List four accounts found in each of the following (a) nominal ledger (b) private ledger

(c) general ledger

4 What is the difference between depreciation and amortization

5 List five examples each of assets associated with depreciation and amortization

 

 

WEEK TEN

TOPIC: CONSIGNMENT ACCOUNT

CONTENT

  1. Definition
  2. Accounting Entries
  3. Practical illustration

Note

Consignment of good means the sending of goods by a supplier to his agent to receive, store and sell them on behalf of the supplier after which the proceeds, having deducted all expenses incurred, will be remitted to supplier. The sender of the goods is called consignor while the agent to whom the goods are sent is called consignee.

 

ACCOUNTING ENTRIES

In the Books of the consignor you will open

(a)  Consignment account

i.  Debits all expenses relating to goods consigned

ii.  Credits all revenue relating to goods consigned

 

(b) Goods sent on consignment account

i.  Debit trading a/c with the value of goods consigned

ii.  Credit consignment account

 

(c)  Bank account (Extracts)

i.  Debit proceed from consignee (agent) after deducting all expenses incurred.

ii.  Credit all expenses incurred by the consignor.

 

(d)  Consignee account i. Debit sales account

ii.  Credit all expenses incurred in respect of sales

 

EVALUATION QUESTION

1.  Define the term consignment of goods

2.  Explain a. Consignor b. Consignee

 

Practical Illustration

On January 1, 1995, Pfizer Product Plc consigned 10 cartons of visine eye drop to Standard Pharmacy at N150 per carton. In the course he paid N400 for freight charges, N140 for insurance, and N850 for advertisement. On receiving the goods on January 5 Standard Pharmacy incurred the following expenses. Storage N100, wages N380, selling expenses N120. By January 24, Standard Pharmacy had sold all the articles and realized a total sum N21,500 in the following analysis is sales by cash N20,000, Credit sales to Kunle N1,500. The agreed commission was 3% and del-credere commission was 2% of the total sales. Required

1.  Prepare the account submitted by consignee on 31/1/95

2.  Prepare all necessary account to record the transaction in the books of the consignor.

Solution

1.  Account sales submitted by Standard Pharmacy

N N

 Sales 21,500

 Less: Storage 100

Wages 380

Selling expenses 120

Commission: General (0.03 x 21,500)  645

 ”  Del-credere (0.02 x 21,500) 430 (1,675)

 Sight draft enclosed 19,825

2.  In the books of Pfizer Product Plc. (consignor)

Image From EcoleBooks.comImage From EcoleBooks.comGood sent on consignment account

  Trading a/c (N1,500 x 10) 15,000 consignment  15,000

Image From EcoleBooks.comConsignment Account

Image From EcoleBooks.comGoods sent on consignment 15,000  standard pharmacy    21,500

Bank: freight cheque   400

 Advertisement   850

 Insurance 140

Standard Pharmacy

Storage 100

Wages 380

Selling expenses 120

Commission: General   645

Del-credere commission   430

P&L a/c (profit) 3,435

Image From EcoleBooks.com   21,500 21,500

Image From EcoleBooks.comImage From EcoleBooks.comBank account (Extracts)

Standard Pharmacy  19,825 Consignment   N

 Freight charges  400

 Advertisement  850

 Insurance 140

 

Image From EcoleBooks.comImage From EcoleBooks.comStandard Pharmacy account (consignee)

Consignment: sales  21,500 Consignment   N

 Storage 100

 Wages 380

 Selling expense   120

 Comm. General   645

 Del-credere 430

 Bank 19,825

 21,500 21,500

 

EVALUATION QUESTION

1.  List the accounts that are opened to record consignment of goods.

2.  Explain the treatment of consignment outwards in the balance sheet.

 

Reading Assignment

Simplified Bookkeeping and A/C, Femi Olatunji 260 -265

 

Weekend Assignment

  1. The person that sends goods to another person for the purpose of selling it is (a) collector (b) consignor (c) consignee (d) none of the above
  2. The person who received the goods on behalf of another is (a) consignor (b) collector (c) consignee (d) none of the above
  3. Consignment of goods means (a) receiving of goods (b) producing of goods (c) sending of goods (d) all of the above
  4. In Goods sent on consignment account, consignment is (a) Debited (b) credited (c) all of the above (d) none of the above
  5. In consignment account, advertisement is (a) revenue (b) expenses (c) income (d) none of the above.

 

SECTION B

On February 1, 1997 Fadeke Stores consigned 100 cases of electric clippers to her agent Bimbo, at N3,000 per case sundry expenses N420. Bimbo expenses are: warehousing N20 Railways charges N150, selling expenses N50. On April, Bimbo sold the whole consignment for N380,000 and all receipt were taken in cash. Commission Bimbo 3% plus a delcredere commission to of 1% on sales. On 13th April Bimbo prepared his account sales which, together with bank draft for-remittance, was sent to Fadeke. Required to prepare.

a.  The account sales sent by Bimbo

b.  The necessary ledger accounts in the books of consignor (Fadeke)

 

GENERAL EVALUATION/REVISION QUESTIONS

  1. What are books of prime entry
  2. List any seven books of prime entry
  3. Explain the following concepts (a) business entity (b) going – concern
  4. What is a ledger
  5. List and explain three classification of ledger accounts



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