Fundamentals of accountancy that form the backbone of the syllabus, especially for the Accounts Officer role.
The double-entry system records every transaction in at least two accounts — a debit in one, a credit in another — so total debits always equal total credits. The journal is the "book of original entry" where transactions are first recorded chronologically; from there, entries are posted to the ledger, where each account (cash, sales, a specific debtor, etc.) has its own page summarising all transactions affecting it.
A trial balance lists every ledger account's balance to confirm that total debits equal total credits — it checks arithmetic accuracy only, not whether transactions were recorded in the correct accounts. Errors that don't affect the trial balance's agreement (e.g., an entry posted to the wrong account but with the correct amount and side) are called errors not disclosed by the trial balance. When the trial balance doesn't tally, the difference is temporarily parked in a Suspense Account until the error is located and rectified.
A BRS reconciles the difference between the cash book's bank balance and the bank passbook/statement balance — usually caused by timing differences (cheques issued but not yet presented, cheques deposited but not yet cleared) or bank-side entries the business hasn't yet recorded (bank charges, interest credited, direct debits).
The two standard depreciation methods are the Straight-Line Method (SLM) — an equal amount charged every year over the asset's useful life — and the Written Down Value (WDV) method — a fixed percentage applied to the asset's reducing balance each year, so the depreciation charge is higher in early years and tapers off. Capital expenditure creates or enhances a long-term asset (e.g., buying machinery) and is spread over years via depreciation; revenue expenditure is consumed within the accounting year (e.g., repairs, salaries) and is charged fully to that year's Profit & Loss Account.
Final accounts are prepared in sequence: the Trading Account (calculates gross profit from sales, purchases and direct expenses), the Profit & Loss Account (deducts indirect expenses from gross profit to arrive at net profit), and the Balance Sheet (a snapshot of assets, liabilities and capital on a given date). Adjustments — outstanding expenses, prepaid expenses, accrued income, income received in advance, depreciation, provision for doubtful debts — must be incorporated correctly across all three statements, not just one.
Non-profit organisations (clubs, societies, NGOs) don't prepare a Trading/P&L account since they aren't run for profit. Instead, they maintain a Receipts and Payments Account (a summary of actual cash received and paid, like a cash book) and an Income and Expenditure Account (the non-profit equivalent of a P&L account, prepared on an accrual basis to show surplus or deficit), alongside a Balance Sheet.
Financial ratios are grouped into four broad categories: liquidity ratios (current ratio, quick ratio — measure short-term solvency), solvency ratios (debt-equity ratio — measure long-term financial stability), turnover/activity ratios (inventory turnover, debtors turnover — measure how efficiently assets are used), and profitability ratios (gross profit ratio, net profit ratio, return on investment — measure earning capacity).
Generally Accepted Accounting Principles (GAAP) rest on a set of foundational concepts: the going concern concept (the business is assumed to continue operating indefinitely, so assets aren't valued at forced-sale/liquidation prices); the accrual concept (income and expenses are recorded when earned/incurred, not when cash changes hands); the matching concept (expenses are matched against the revenue they helped generate, in the same period); the business entity concept (the business is treated as separate from its owner(s) for accounting purposes); and the money measurement concept (only transactions expressible in monetary terms are recorded).
Alongside these sit accounting conventions — practical guidelines rather than strict rules: conservatism (anticipate no profits, but provide for all probable losses — "don't count your chickens before they hatch"), consistency (use the same accounting methods period after period, for comparability), and materiality (only information significant enough to influence a user's decision needs separate disclosure).
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