BUAD 803 Summary
BUAD 803 Summary
BUAD 803 Summary
Module 1
Study Session 1 Accounting Concepts.
✓ Definition: Accounting is a discipline which records, classifies, summarizes and interpret financial information
about the activities of a concern so that intelligent decisions can be made about the concern.
✓ Attributes Of Accounting:
o (i) Recording: It is concerned with the recording of financial transactions in an orderly manner, soon
after their occurrence in the proper books of accounts.
o (ii) Classifying: It is concerned with the systematic analysis of the recorded data so as to accumulate
the transactions of similar type at one place. This function is performed by maintaining the ledger in
which different accounts are opened to which related transactions are posted.
o (iii) Summarizing: It is concerned with the preparation and presentation of the classified data in a
manner useful to the users like preparation of financial statements such as Income Statement, Balance
Sheet, and Statement of Changes in Financial Position, Statement of Cash Flow, and Statement of
Value Added.
o (iv) Interpreting: Nowadays, the aforesaid three functions are performed by electronic data processing
devices and the accountant has to concentrate mainly on the interpretation aspects of accounting. The
accountants should interpret the statements in a manner useful to action. The accountant should
explain not only what has happened but also (a) why it happened, and (b) what is likely to happen
under specified conditions.
✓ Nature of Accounting:
o Accounting as a service activity: service activity that provides qualitative financial info for making
economic decisions.
o (ii) Accounting as a profession: e.g. ICAN, FCA
o (iii) Accounting as a social force: The accounting information/data is to be used to solve the problems of
the public at large such as determination and controlling of prices.
o (iv) Accounting as a language: It is one means of reporting and communicating information about a
business.
o (v) Accounting as Science or Art: Accounting is science bcos it had laid down rules and principles like
double entry system, Accounting is an art as it also requires knowledge, interest and experience to
maintain the books of accounts in a systematic manner
o (vi) Accounting as an information system:
✓ ITQ: What is the nature of accounting?
✓ ITA: i) Accounting as a service activity (ii) Accounting as a profession (iii) Accounting as a social force (iv)
Accounting as a language (v) Accounting as science or art
(vi) Accounting as an information system
✓ Key objectives of accounting
o To keep systematic records,
o To protect business properties,
o To ascertain the operational profit or loss,
o To ascertain the financial position of the business,
o To facilitate rational decision making and Information System
✓ ITQ: What are the key accounting concepts?
✓ ITA:
o Money measurement concept. Accounting only records transactions that can be measure in terms of
money
o Cost concept or exchange price. According to this concept an asset is ordinarily entered on the
accounting records at the price paid to acquire it.
o Going-concern (continuity) concept: Accountants assume that the business entity will continue
operations into the indefinite future unless there is good evidence to the contrary.
o Periodicity (time periods) concept: It requires that the life of the business should be divided into
appropriate segments for studying the financial results shown by the enterprise after each segment.
o Separate Business Entity Concept: In accounting we make a distinction between business and the
owner. When a person invests ₦10.00 into a business, it will be treated that the business has borrowed
that much money from the owner and it will be shown as a ‘liability’ in the books of accounts of
business.
o Dual Aspect Concept. Total amount debited always equals the total amount credited.
▪ Assets = Liabilities + Owners Equity............... (1)
▪ Owner’s Equity = Assets - Liabilities............... (2) (Accounting Equation)
o The Matching concept. In other words, income made by the enterprise during a period can be
measured only when the revenue earned during a period is compared with the expenditure incurred for
earning that revenue.
o Accrual Concept: The accrual concept in accounting means that expenses and revenues are recorded in
the period they occur, whether or not cash is involved. The benefit of the accrual approach is that
financial statements reflect all the expenses associated with the reported revenues for an accounting
period.
o Realization Concept. The realization principle is the concept that revenue can only be recognized once
the underlying goods or services associated with the revenue have been delivered or rendered,
respectively. Thus, revenue can only be recognized after it has been earned
✓ Balancing An Account:
✓ The process of finding out the difference between the totals of the two sides of a Ledger account is known as
balancing and the difference of the total debits and the total credits of accounts is known as balance
✓ If the total of the credit side is bigger than the total of the debit side, the difference is known as credit balance.
✓ In the reverse case, it is called debit balance.
✓ Steps for balancing ledger account
o 1. Make the total of both sides of an account in a worksheet.
o 2. Write down the higher amount on the side obtained i.e. the side that has highest figure
o 3. Also write down the higher figure as total on both sides
o 4. Find out the difference between the two sides of the account.
o 5. If the debit side is more than credit side; therefore, there is a debit balance of ₦500.
o 6. If the credit side is more than debit side; therefore, there is a credit balance of ₦500.
o 5. This debit balance of ₦500 is to be shown as "By Balance c/d" in the account on the credit side.
o 6. Finally, the amount of the closing balance should be brought down as the opening balance at the
beginning of the next day.
✓ Personal accounts are balanced regularly to know the amounts due to the persons or due from the persons.
✓ Real accounts are generally balanced at the end of the accounting year.
✓ Nominal accounts are not balanced, as they are to be closed by transferring them to the final accounts
✓ Prime Books
o Sales day book
o Sales Returns Day Book
o Purchases Day Book
o Purchase returns sales book
Module 2
Study Session 5 Double Entry and the General Ledger.
✓ The Principles of Double-Entry: Each page of the ledger is split into two halves: the left half is called the debit
side and the right half is called the credit side.
✓ The ledger is divided into sections called accounts. In practice, each of these accounts is on a separate page.
There is usually an 'account' for every class of expenditure, income, asset, and liability.
✓ The general rule of double entry is to debit the account that receives value and credit the account which gives
value with the amount involved.
✓ The actual process of placing the bookkeeping entry in each account is called 'posting the transaction'
CASH ACCOUNT
DR CR
DATE PARTICULAR AMOUNT(N) DATE PARTICULAR AMOUNT
Jan 1 Vehicle Account 10,000
✓ A 'T' account leaves out some of the detail that is given in ledger accounts, such as the reference to the folio
page and contains less lines. A typical 'T' account looks like the following:
DR MOTOR VEHICLE ACCOUNT CR
Date Particular Amount Date Particular Amount
Jan 1 Cash Account 10000
DR CASH ACCOUNT CR
Date Particular Amount Date Particular Amount
Jan 1 Vehicle Account 10,000