ACCOUNTS

INTRODUCTION TO ACCOUNTS

Meaning of accounts:

Account is a record or statement of money received and paid out, as by bank or business. The part of accounting that is concerned with recording data is known as Book-keeping. In short book-keeping is an art of recording financial business transactions on a set of books in terms of money or money’s worth.


Why do we need to keep business record?        

©      To determine whether the business is making profit or loss

©      To determine the financial strength of the business

©      To enable the Government to assess the reliable tax

                  ©      To enable different stakeholders to make reliable decisions about business e.g.                                          investors, bankers customers, etc.

     Double Entry:

            This is the process of recording business transactions twice. The business transaction means the  transfer or movement of money or goods or services valued in terms of money worth from one      part/person to another. Double entry is principle of accounting. Every transaction involving              money has a two-fold aspect, the receiving of value on the one hand and the giving of the same          value on the other hand. This two-fold nature in all transactions must be recorded in the books          and this gives the term “Double entry book-keeping.” 

Different accounting terminologies.

(1)   Ledger.

-     A ledger is the main book of accounting in which business transactions are recorded in double entry. The ledger contains sections called “Accounts” which contain details of transactions for a specific item.

-         When a business is very small, all the double entry accounts can be kept in one book which is now the ledger. As the business grows it would be impossible just to use one book, as many pages are needed for lot of transactions. This would mean that the book would be too big to handle.

Therefore, transactions should be posted to the ledger book, namely: -

                                                                    i.            Cash account

                                                                  ii.            Capital account

                                                                iii.            Purchases account

                                                                iv.            Sales account

                                                                  v.            Stock account

                                                                 vi.            Various expenses such as Rent, Wages, Salary, etc.

-         Each account should be shown on a separate page.

Main sides of the Ledger

1.      The left hand side, is the side which receive money or money’s worth and is called the debit (Dr) side.

2.      The right hand side, is the side which gives or pay out money or money’s worth and is called credit (Cr) side

Hint: The principle of double entry states that “Every debit entry must have a corresponding credit entry of the same amount and vice versa”

            Columns of the Ledger book

A ledger contains main eight (8) columns of which four (4) columns from the left hand side and four (4) columns from the right hand side as follows: -

Columns of the Ledger and their uses

           a.       Date – This column is used to record the year, month and date transaction took place

       b.    Particulars – This column is used to record short narration of the entry of an account i.e. Purchases, Sales, etc.

           c.       Folio – This column records page of reference in books of accounts.

          d.      Amount – This is the column for recording money received or paid out.

       (1)   Capital – The original fund with which a person enters a business

       (2)   Asset – Anything owned by business, whether cash, goods, furniture, shelves in shop etc.

      (3)   Liabilities – This is an opposite of an asset, and it is anything that the trader owes to someone else. Just the amount of money borrowed from other people or bank. E.g. business borrowed money from bank, shop owner purchased Pepsi from company.

Common abbreviations used in accounting.

v  b/f        -           Brought forward

v  c/f        -           Carried forward

v  b/d       -           Brought down

v  c/d       -           Carried down

v  Dr        -           Debit

v  Cr        -           Credit  

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