FIRST TERM E-LEARNING NOTE

SUBJECT: FINANCIAL ACCOUNTING CLASS: SS1

SCHEME OF WORK

WEEK TOPIC
1 Introduction to Book-Keeping and Accounting
2 Transactions – Meaning and Classifications
3 Books of Accounts – Layout and Formats
4-5 Double Entry Principle: Posting of Transactions to Ledger Accounts;
Combinations of Cash and Bank Account
6–7 Balancing of Ledger Accounts; extraction of the Trial Balance
8 Source Documents: Purpose Characteristics and Functions
9 -10 Subsidiary Books: Purpose, Characteristics, Functions and Preparations

WEEK ONE
TOPIC: INTRODUCTION TO BOOK – KEEPING AND ACCOUNTING
CONTENT
 Definition of Book-Keeping and Accounting
 Differences between Book-Keeping and Accounting
 Users of Accounting Information/Financial Statements
 Importance/Benefits of Book-keeping and Accounting
 History of Accounting/Book-Keeping

Book Keeping is the systematic recording of the daily financial transactions of an organization so that the
financial position of a business can be readily ascertained or determined at any time.

Accounting is the act of recording, classifying, analyzing, summarizing, interpreting and communicating
financial information of an organisation to various end-users of such information.

DIFFERENCES BETWEEN BOOK-KEEPING AND ACCOUNTING

1. Book-keeping concentrates only on the routine recording of transactions while accounting goes
beyond the aspect of recording to classify, analyse, summarise and interprete financial information
2. Book-keeping is limited in scope (i.e area of coverage) while accounting has a wider scope
3. The time required for training to be a qualified book-keeper is shorter (about few months) compared to
an accountant (about five years)
4. Book-keeping records are mainly for internal use in an organisation while accounting records are both
internal and external use.
5. Book-keeping is an integral part of accounting while accounting is more complex and has book-
keeping as one of its components.

USERS OF ACCOUNTING INFORMATION/FINANCIAL STATEMENTS

1ST TERM/FINANCIAL ACCOUNT/SS1 Page 1

The following interested users of financial information should be noted as well as the reasons/purpose for
which they would require or utilise the relevant information.
1. Owners of the Business
a. To determine the profitability of the business
b. To assess the competence of the managers of the business
c. To assist them in making important business/investment decisions
2. Shareholders of a Company
a. To determine the profitability of the business
b. To assess the ability of the company to pay their expected dividends
c. To project the future growth of the company
3. Loan Creditors (i.e. lenders to the business)
a. To assess the ability of the business to repay loans
b. To assess the ability of the business to repay the interest as and when due
c. To assess the possibility/probability of the borrowing company defaulting in repayments
d. To know whether adequate assets are available as security
e. To determine the level of credit to grant
4. Trade Creditors/Suppliers i.e. those that supply goods to the business on credit
a. To assess the credit worthiness of the business
b. To assess the ability of the business to pay back its debts
c. To determine their level of exposure to the business
5. Competitors
a. To fix their own prices relative to the prices of similar products produced by the business
b. To determine their position in the market i.e. market share as to sales, profits, number of
employees etc.
6. Customers
a. To know if the business is a guaranteed/secured source of supply
b. To assess the financial position of the business
7. Employees of the Business
a. To know the profitability of the business
b. To know the extent of job security and the prospects of their future careers
c. To negotiate for better conditions of service and improved wages/salaries
8. Tax Authorities e.g. Lagos State Board of Internal Revenue (LSBIR) or Federal Board of Inland
Revenue (FBIR)
a. To determine the amount of tax to be paid by the business
9. The Government
a. To compute statistics about businesses operating in the country
b. To enhance the formulation of government policies e.g. on industrialization
c. To regulate the activities of business by government agencies e.g. CBN, NDIC, SEC, CAC, NSE
etc.
10. The Public
a. For employment and economic considerations
b. To know whether to invest in the enterprise

EVALUATION QUESTIONS
1. Define the following terms:a. Book-keeping b. Accounting
2. State three differences between book-keeping and accounting

IMPORTANCE OF BOOK-KEEPING AND ACCOUNTING OR REASONS WHY

ACCOUNTING RECORDS ARE KEPT
1. To determine the profit or loss made by the business during a particular trading period
2. The existence of financial records helps in decision making by managers of the business
3. Financial records helps in the prevention of fraud
1ST TERM/FINANCIAL ACCOUNT/SS1 Page 2
 4. To assess and ascertain the financial position of the business as at a particular date
5. To determine the solvency and liquidity of a business
6. It serves as a basis for assessing the tax to be paid by the business
7. To ascertain the assets and liabilities of the business
8. It is useful for making economic comparison among businesses and comparing recent financial
results with past financial results.
9. Properly kept records are used for planning purposes i.e. setting of targets and determining the best
ways to achieve them.

HISTORY OF THE DEVELOPMENT OF ACCOUNTING

There is no accurate record as to when accounting started but available information suggests that record
keeping is as old as man.

The double entry system of modern book-keeping was developed in 1494 by an Italian named Luca
Pacioli. In Nigeria, the earliest formal record of business transactions came with the granting of royal
charter to the Royal Niger Company in 1886.

On 1st September, 1965 the Institute of Chartered Accountants of Nigeria was established while the
Association of National Accountants of Nigeria was established on 31 st July,1979 as the second
professional accounting body in Nigeria.

EVALUATION QUESTIONS
1. List five benefits of book-keeping and accounting.
2. State four duties of an accountant in a business organisation

READING ASSIGNMENT
Simplified and Amplified Financial Accounting Page 1 – 7

WEEKEND ASSIGNMENT
1. The systematic recording of business transactions in monetary terms is A. auditing B. book-
keeping C. debiting D. crediting
2. Financial accounting information is for A. internal use only B. external use only C.
business use only D. internal and external use
3. Which of the following is not a purpose of financial accounting A. determining profit B. fixing
prices C. credit dealings D. determining cash balance
4. The fourth stage of the accounting information system is A. recording B. summarizing C.
interpreting D. classifying
5. The double entry principle of accounting was developed by A. Frank Wood B. Akintola
Williams C. Luca Pacioli D. William Pickles

THEORY
1. a. What is book-keeping?
b. Give five reasons why accounting records are kept.
2. List eight users of accounting information.

WEEK TWO
TOPIC: TRANSACTIONS – MEANING AND CLASSIFICATION
CONTENT
 Meaning of Transaction
 Classification of Transactions

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Transaction
Transaction involves the transfer of goods, services, money or money’s worth (e.g. assets) to and from a
business organization.
The essential feature of transactions in accounting is that such transactions to be recorded should be
quantifiable in monetary terms hence it is usually described as financial transactions.

CLASSIFICATIONS OF TRANSACTIONS
Financial transactions which are recorded, summarised, classified and analysed in accounting could be
either of two types
1. Cash Transactions: This occur whenever goods are received by a person or business and payment
is made immediately for such goods or services received. Payment in this sense could be either by
cash, cheque, bankdrafts, postal orders etc.
2. Credit Transactions: This occur whenever goods are received by a person or business and the
payment for such goods received (or services enjoyed) is postponed or deferred to a future time.

The classification described above can be represented diagrammatically:

Transactions

Cash Transactions Credit Transactions

EVALUATION
1. Differentiate between Cash Transactions and Credit Transactions.
2. Give three examples of business transactions that are not financial in nature.

READING ASSIGNMENT
Simplified and Amplified Financial Accounting Page 16 – 17

WEEKEND ASSIGNMENT
Identify whether the transactions below are cash transactions or credit transactions
a. Jan 2: Started business with N10, 000 cash
b. Jan 3: Paid N7, 000 of the business money into the bank
c. Jan 7: Paid rent of shop by cash N600
d. Jan 12: Bought goods for cash N1, 200
e. Jan 14: Bought goods on credit from Ayodele N30, 000
f. Jan 15: Sold goods and received cheque in payment N14, 000
g. Jan 20: Bought Motor vehicle paying by cheque N9, 000
h. Jan 25: Paid salary of shop assistants by cheque N1, 000
i. Jan 28: Sold goods to Akinyemi N7, 000
j. Jan 31: Bought furniture for cash N3, 000

WEEK THREE
TOPIC: BOOKS OF ACCOUNTS
CONTENT
 The Ledger
 The Journal

Books of accounts are the books that are used in recording financial transactions in accounting.
The books of accounts in use are:

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1. The Ledger – The Principal book
2. The Journal – The Subsidiary book

The Ledger
The ledger is the principal book of account which contains in a classified form, the permanent records of
all the financial transactions of a business.

The recording into the Ledger are done in classified form using ledger accounts.

Format of A Ledger Account

Date Narration Folio Amount Date Narration Folio Amount

The Ledger account is divided into two sides i.e. The Debit and The Credit.
Therefore in accounting entries are described as being ‘debited’ or ‘credited’ to particular accounts.
Transactions are recorded in the Ledger based on the double entry principle.

The Journal
The Journal is the subsidiary book of account into which credit transactions are first recorded before they
are posted in totals to the Ledger.
The Journal therefore contains the temporary records of credit transactions:

Format of The Journal

Date Narration Folio Details Totals

The recording of financial transactions into the Journal does not follow the double entry principle
Cash Transactions are recorded directly into the Ledger while Credit Transactions are first recorded
into the Journal (i.e. the subsidiary books) before being posted in totals to the ledger.

Diagrammatically the path of transactions can be represented as below:

Cash Transactions Credit Transactions

Ledger Journal

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EVALUATION
1. Draw the format of a ledger account.
2. State three differences between the ledger and the journal.

READING ASSIGNMENT
Simplified and Amplified Financial Accounting Page 41

WEEKEND ASSIGNMENT
1. A book that contains the accounts for the financial transactions of an organisation is the A.
journal B. ledger C. folio D. register
2. The two fundamental books of accounts are A. Cash Book and Petty Cash Book B. Receipt
and Invoice C. Journal and Ledger D. Notes and Coins
3. Which of the following is the principal book of account? A. General Journal B. Sales book C.
Purchases book D. Ledger
4. Which of the following is not contained in the Ledger? A. date of transaction B. description of
the transaction C. folio number of transaction D. address of the customer
5. The process of entering transactions from one book to another is A. reading B. posting C.
numbering D. casting

THEORY
1. What is a Ledger?
2. State two differences between the ledger and the journal.

WEEK FOUR AND FIVE

TOPIC: DOUBLE ENTRY BOOK – KEEPING
CONTENT
 Double Entry Principle
 Posting of Transactions to Ledger Accounts
 Combination of Cash Account and Bank Account
 Double Entry Records for Sales, Purchases, Returns, Carriage inwards, Carriage Outwards,
Capital, Drawings, Expenses, Income, Assets and Liabilities

Note
The day-to-day transactions of a business are recorded in the books of account using the double entry
system of bookkeeping. The term double entry is used because the two effects of a transaction (a giving
and a receiving) are both recorded in the ledger.
Double entry bookkeeping is the system of keeping account which involves the recording of the two-fold
aspect of every transaction, whereby one account that receives value is debited and another account, which
gives value is credited.

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Rules of Double Entry
a. All transactions must be recorded in two accounts, one account is debited and another account
credited.
b. For every debit entry in an account, there must be a corresponding credit entry in another account.
c. For every credit entry in an account, there must be a corresponding debit entry in another account.
d. Debit the account that receives value, credit the account that gives values.

Illustration
Record the following transaction in the ledger of F. Sanusi for the month of July 2016.
July 1 Started business with N50, 000 cash
“ 3 Bought goods for cash N8, 500
“ 7 Bought goods on credit N11, 600 from K. Nasiru
“ 10 Sold goods for cash N14, 000
“ 14 Returned goods to K. Nasiru N2, 000
“ 18 Bought goods on credit N18, 000 from S. Dauda.
“ 21 Returned goods to S. Dauda N5, 000
“ 22 Sold goods to A. Femi N27, 000 on credit
“ 24 Paid K. Nasiru’s account by cash N9, 600
“ 25 A. Femi returned goods worth N3, 000 to us
“ 27 Bought ceiling fan for shop by cash N6, 000

Solution

Cash Account
2016 N 2016 N
July 1 Capital 50, 000 July 3 Purchases 8, 500
“ 10 Sales 14, 000 “ 24 K. Nasiru 9, 600
“ 27 Fittings 6, 000

Capital Account
N N
July 1 Cash 50, 000

Purchases Account
N N
July 3 Cash 8, 500
“ 7 K. Nasiru 11, 600
“ 18 S. Dauda 18, 000

K. Nasiru’s Account
N N
July 14 Returns Outward 2, 000 July 7 Purchases 11, 600
July 24 Cash 9, 600

Sales Account
1ST TERM/FINANCIAL ACCOUNT/SS1 Page 7
 N N
Jul10 Cash 14, 000
Jul 22 A. Femi 27, 000

Returns Outwards Account

N N
Jul 14 K. Nasiru 2, 000
Jul 12 S. Dauda 5, 000

S. Dauda’s Account
N N
Jul 21 Returns Outward 5, 000 Jul 18 Purchases 18, 000

A. Femi’s Account
N N
Jul 22 Sales 27, 000 Jul 25 Returns Inwards 3, 000

Returns Inwards Account

N N
Jul 25 A. Femi 3, 000

Fittings Account
N N
Jul 27 Cash 6, 000

A business maintains a separate ledger account for each type of asset, liability, expense and income and
also for each individual debtor and creditor. Every transaction is recorded in the ledger account relating to
that particular item or person.
In practice, each ledger account has its own page or sheet (i.e. folio). As this is not possible in examination
questions and class exercises, it is usual to find several accounts displayed on one page.

EVALUATION
1. Complete the following table, showing the accounts to be debited and those to be credited:
Accounts to be debited Account to be credited
i. Bought furniture by cheque
ii. Paid wages by cash
iii. Cash sales
iv. Cash purchases
v. Started business with money in bank
vi. The owner took cash for his personal use
vii. Sold goods on credit to Mr. Anayo
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 viii. Bought fixtures on credit from Odunlade
ix. Bought machinery by cheque
x. Received loan by cash from Mr. Evans
2. Business Accounting 1 by Frank Wood, Exercise 3.6, 3.9A and 3.10A

READING ASSIGNMENT
1. Simplified and Amplified Financial Accounting page 20 – 27
2. Business Accounting 1 page 21 – 38

GENERAL EVALUATION QUESTIONS

1. State four differences between book – keeping and accounting.
2. List ten users of financial information.
3. State seven benefits of keeping accounting records.
4. List three differences between the Journal and the Ledger.
5. Explain the principle of double entry system

WEEKEND ASSIGNMENT
1. Cross referencing among different books of account is achieved with the use of A. columns B.
reference numbers C. folio D. margin
2. A ledger is a A. summary of entries B. book of original entry C. book of account D.
double entry posting
3. A trader set aside from his private funds N70, 000 for business purposes. The N70, 000 would be
referred to as A. drawings B. profit C. capital D. loan
4. Purchases in accounting refers to goods bought for A. repairs B. permanent use C. resale
D. owner’s use
5. When goods are sold for cash, the credit entry goes to the ___? A. trader’s account B. cash
account C. customer’s account D. sales account

THEORY
1. What is a ledger?
2. Explain the principle of double entry system.

WEEK SIX AND SEVEN

TOPIC: BALANCING OFF LEDGER ACCOUNTS
CONTENT
 Balancing Ledger Accounts
 The Divisions of the Ledger
 Extraction of the Trial Balance

NOTES
At the end of the month (or year or at some other convenient intervals), it is usual to balance the ledger
accounts that are kept by the business. The balance of each ledger account is the difference between the
two sides of the account and it represents the amount which is left in that account.

The steps necessary to balance a ledger account are summarized as follows:

a. Using a calculator, add-up each side of the account and find the difference between the total of the two
sides.
b. Enter this difference on the next available line on the side with the smaller total. Enter the date
(usually the last day of the month) in the date column and the word “Balance” in the details column. It

1ST TERM/FINANCIAL ACCOUNT/SS1 Page 9

 is usual to insert “c/d” in the folio column. This is the abbreviation for “carried down” and indicates
where the double entry for this item will be made.

c. Now total each side of the account. This is done by drawing total lines and inserting the total figure
between the lines. It is usual to show a single line above the total and a double line below the total.
The totals of an account must be on the same level and must be the same figure.

d. Make the double entry for the balance carried down. On the line below the totals, write the amount of
the balance on the opposite side to where the words “Balance c/d” were written. Enter the data
(usually the first day of the next month) in the date column and the word “Balance” in the details
column. It is usual to insert “b/d” in the folio column. This is the abbreviation for “brought down” and
indicates where the double entry for this item was made

Illustration: Using the Cash Account prepared in Week 4 – 5.

Cash Account
2016 N 2016 N
Jul 1 Capital 50, 000 Jul 3 Purchases 8, 500
“ 10 Sales 14, 000 “ 24 K. Nasiru 9, 600
Jul 27 Fittings 6, 000
Balance c/d 39, 900
64, 000 64, 000

Aug 1 Balance b/d 39, 900

NB: (a) If the total of the debit entries exceeds the total of the credit entries the account is said to have a
debit balance.
(b) If the total of the credit entries exceeds the total of the debit entries, the account is said to have a
credit balance.

EVALUATION
Business Accounting 1 Exercise 3.11 A

The Sub – Divisions of the Ledger

As a business grows, the volume of transactions increase and the number of ledger accounts required to
keep the financial records increase. It will therefore be necessary to divide the ledger into different
sections.

Dividing the ledger into sections makes it more convenient to use as the same type of accounts can be kept
together and the task of maintaining the ledger can be divided between several people. The ledger is
usually divided into the following specialized areas:
1. Cash Book – i.e. the main Cash Book and the Petty Cash Book
2. Sales Ledger – This is also referred to as the Debtors Ledger. All the personal accounts of debtors
(credit customers) are kept in the sales ledger
3. Purchases Ledger – This is also referred to as the Creditors Ledger. All the personal accounts of
creditors (credit suppliers) are kept in the Purchases Ledger
4. General Ledger (or Nominal Ledger) – Apart from the Cash account, the bank account and the
accounts of debtors and creditors, all the remaining accounts are kept in the General Ledger. This
ledger will contain accounts of assets, liabilities, expenses, incomes, sales, purchases and returns.
Asset accounts are known as real accounts. Accounts for expenses, income, gains and losses are
known as nominal accounts.

1ST TERM/FINANCIAL ACCOUNT/SS1 Page 10

The above classifications of the ledger must be reflected when transactions are recorded in the ledger
using the double entry principle.

EVALUATION
1. What is a ledger?
2. List and explain three classifications of the ledger.
3. List six accounts found in the nominal ledger.

Extraction of the Trial Balance

Resulting from the operation of the double entry system it is obvious that the total amount of all the debit
entries made in the books should equal the total of all the credit entries. To check if the two sides of the
books balance, a Trial Balance may be drawn up periodically.

A Trial Balance is a list of the balances on the accounts in the ledger at a certain date. A trial balance is
prepared to check the arithmetical accuracy of the double entry bookkeeping. The name of each account is
listed in the trial balance. The balance on each account is shown according to whether it is a debit balance
or a credit balance. The trial balance will show if the total of the debit balances is equal to the total credit
balances.
It is important to remember that the trial balance is not a part of the double entry system of book-keeping
as it is simply a list of balances. If the ledger accounts are balanced monthly then a trial balance may also
be draw up at the end of each month.

The trial balance should be headed with the title “Trial Balance as at ………” along with the date on
which it was prepared

Illustration: Using the ledger accounts prepared in week 4 – 5:

F. Sanusi:
Trial Balance as at 31st July, 2016
Dr Cr
N N
Cash 39, 900
Capital 50, 000
Purchases 38, 100
Sales 41, 000
Returns Outwards 7, 000
Sundry Creditors 13, 000
Sundry Debtors 24, 000
Returns inwards 3, 000
Fittings 6, 000

111, 000 111, 000

From the above, it can be seen that the totals of the debit column of the trial balance agrees with the total
of the credit column. This indicates that the double entry bookkeeping is arithmetically correct.
In practice, a trial balance is drawn – up using the actual ledger accounts.
However, in examination questions this does not always occur. Sometimes, students are presented with a
list of balances and asked to prepare a trial balance. Sometimes, a trial balance containing errors is
presented and students are asked to prepare a corrected trial balance. In these situation, students cannot
look at the ledger account in order to determine whether the account has a debit or a credit balance. It is
necessary to know the type of accounts which have a debit balance and those which have a credit balance.

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The table below will be useful in this regard:
Debit Balance Credit Balances
Assets Liabilities
Expenses Income
Drawings Capital
Purchases Sales
Returns Inwards Returns Outwards

EVALUATION
Simplified and Amplified Financial Accounting Exercise 7, 8x and 9.

READING ASSIGNMENT
1. Simplified and Amplified financial Accounting page 80 – 94
2. Business Accounting 1 page 37 – 48

GENERAL EVALUATION QUESTIONS

1. What is a Trial Balance?
2. Give the format of a Trial Balance with ten items.
3. Explain the purpose of the Trial Balance.
4. Explain the principle of double entry system.
5. State four differences between the ledger and the journal.

WEEKEND ASSIGNMENT
1. The purchase of a typewriter for office use for N65, 000 should be debited to A. bank account
B. purchases account C. cash account D. equipment account
2. Carriage inwards are incurred on goods A. on display B. sold C. purchased D. on return
3. Returns inwards is also called A. carriage inwards B. carriage outwards C. purchases returns
D. sales returns
4. Which of the following accounts will have a credit balance? A. purchases account B. returns
account C. returns outwards account D. drawings account
5. An account is said to have a debit balance because A. the first entry made in it is on the debit side
B. there are more entries on the debit side than on the credit side C. total value of debit entries is
more than total value of credit entries D. there is no entry at all on the debit side

THEORY
1. List four features of the ledger.
2. List and explain three classifications of the ledger.

WEEK EIGHT
TOPIC: SOURCE DOCUMENTS
CONTENT
 Definition of Source Documents
 Examples of Source Documents
 Features and Uses of Source Documents

NOTES
Source documents are the instruments that are generated when businesses enter into business transactions
with others.

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They are the written evidences of business transactions that describe the essential facts of those
transactions. They are used in preparing the books of account.
Every business transaction whether cash transaction or credit transaction must be supported (or evidenced)
by a source document. The source documents are the original documents on which information about the
transactions are recorded.
It follows therefore that accounting records can only be verified when the appropriate source documents
are available to do so.

Examples of Source Documents

1. Receipt
2. Invoics
3. Cheque (or Cheque stub)
4. Bank – paying – in – slip
5. Debit note
6. Credit not
7. Statement of Account
8. Vouchers

1. Receipt: This is a written document issued by one person to another, to acknowledge that money or
valuable property has been received. When goods are sold for cash, the customer is usually provided
with a receipt.
2. Invoice: An invoice is a business document prepared when goods are sold. It is normally sent by the
seller of the goods to the buyer. When a business sells goods on credit, it will issue an invoice to the
purchaser. To the seller of the goods, the copy of the invoice is a sales invoice. The same document in
the hands of the buyer of the goods is called a purchase invoice.
The invoice contains the following information:
a. The name and address of the supplier.
b. The name, address and the account number of the customer.
c. The supplier’s invoice number.
d. The customer’s order number (for goods supplied in response to an order).
e. The date on which the transaction is effected.
f. A detailed description of the goods clearly showing the quantity bought, unit price, total price,
terms of sale, terms of payment, details of trade discounts etc.
3. Cheque: A cheque is a written order made by a customer to the bank to pay a stated sum of money to
the person or business named on the cheque. When cheques are issued to make payment, the cheque
itself or its counter foil (or stub) would serve as the source document for the payment.

EVALUATION
1. List five features of a cash receipt.
2. List six feature of a cheque.
3. Explain the following terms as it relates to a cheque:
(a) Drawer (b) Drawee (c) Payee

4. Bank – Paying – in – Slip: This is the standard form required to be filled in duplicate or triplicate
whenever cash cheques, bank drafts etc. is being paid into an account maintained with the bank.
5. Debit Note: This document is issued by the seller of goods to correct an undercharge made in the
account of the purchaser of the goods. For example if the amount due from the purchaser of the goods
is N18, 500 and the seller has mistakenly charged (or recorded) N15, 800 on the invoice, it follows
that the purchaser has been undercharged by N2, 700. The seller will therefore issue a debit note of
N2, 700 to the purchaser to correct the undercharge

1ST TERM/FINANCIAL ACCOUNT/SS1 Page 13

6. Credit Note: This document is issued by the seller of the goods to correct an overcharge made in the
account of the purchaser of the goods. A credit note is therefore prepared when for a number of
reasons the amount due from the customer (to whom goods have been sold on credit) is to be reduced.
The following are some of the reasons why the seller will issue a credit note to his customers:
a. When a customer has been overcharged e.g. by a mistake on the sales invoice.
b. The customer returns some of the goods he previously bought.
c. Some allowance is to be made to the customer e.g. in respect of damaged goods retained by the
customers.
7. Statement of Account: This is the summary of the transactions between the seller and his credit
customers. It is issued by the seller and sent to the customers at regular intervals (usually at the end of
each month).
8. Vouchers: These are source documents used for obtaining authorization for all payments whether by
cash, cheque or letters of authority.

Uses of Source Document

1. They are used in the preparation of books of account.
2. They provide written evidences of the business transactions that has taken place.
3. They can serve as proof of ownership of property e.g. receipt.
4. They are used for audit purposes.
5. They are used for reconciliation of accounts.
6. They are used to obtain authorization for payments made e.g. vouchers.
7. They are used to correct an overcharge or undercharge made in the customer’s account.

EVALUATION
1. Give a description of the purpose of each of the following business documents
(a) credit note (b) debit note (c) cheque (d) invoice (e) receipt (f) statement of account
2. Bello Masari is a trader.
(a) Arrange the following business documents in the order they would be issued by Bello Masari
to a credit customer.
statement of account: credit note: receipt: invoice
(b) Explain why a credit customer may send a debit note to Bello Masari.
(c) Give four items of information you would expect to find on a statement of account.

GENERAL EVALUATION QUESTIONS

1. Differentiate between book-keeping and accounting.
2. State four features of the ledger.
3. List five ledger accounts that have debit balances.
4. State the reason for preparing a Trial balance.
5. List five uses of source documents.

WEEKEND ASSIGNMENT
1. Goods returned by the buyer is recorded in the seller’s books as __________ A. carriage inwards
B. carriage outwards C. returns inwards D. returns outwards
2. A customer has been charged N152 for a purchase instead of N134. The document issued by the
seller to correct the error is A. a credit note B. a debit note C. an invoice D. a statement of
account
3. Which of the following is a source document for recording sales? A. debit note B. credit note
C. sales journal D. invoice
4. When a buyer is under – charged, the seller forwards A. a debit note B. a credit note C. an
invoice D. a payment receipt
5. Which of the following is not a source document? A. credit note B. invoice C. bank note
D. debit note
1ST TERM/FINANCIAL ACCOUNT/SS1 Page 14
THOERY
1. What is a source document
2. Give seven examples of source document

WEEK NINE AND TEN

TOPIC: SUBSIDIARY BOOKS
CONTENT
 Definition of Subsidiary Books
 Uses of the Subsidiary Books
 Preparation of the Subsidiary Books
 Transfer of the Totals of the Subsidiary books to the Ledger.

NOTES
Subsidiary books are the books of prime entry (or books of original entry) into which transactions are first
recorded in details before they are posted in totals into the Ledger.

Businesses use subsidiary books to record goods sold on credit, goods purchased on credit, sales returns,
purchases returns etc. The subsidiary books are basically listing devices, which means that a lot of detail is
removed from the ledger. It also means that bookkeeping can be divided between several people. The
name book of original (or prime) entry has arisen because all transactions should be recorded in one of
these books before they are entered in the ledger.
The subsidiary books are:
1. Sales Journal
2. Purchases Journal
3. Returns Inwards Journal
4. Returns Outwards Journal
5. General Journal
6. Cash Book
7. Petty Cash Book

Uses of the Subsidiary Books

1. Sales Journal or Sales Day Book: This is used to record goods that are sold on credit to the
customers of the business.
2. Purchases Journal or Purchases Day Book: This is used to record goods bought on credit from the
suppliers
3. Return Inwards Journal or Returns Inwards Day Book: This is used to record goods returned by
the customers to the business.
4. Returns Outwards Journal or Returns Outwards Day Book: This is used to record goods returned
by the business to suppliers.
5. General Journal / Principal Journal / Journal Proper or The Journal: The general Journal has
multiple uses.

Uses of the General Journal

a. It is used to record opening entries.
b. It is used to record closing entries.
c. It is used to correct errors.
d. It is used to record the purchase of fixed assets on credit.
e. It is used to record the sale of fixed assets on credit.
f. It is used to record one-off transactions.

1ST TERM/FINANCIAL ACCOUNT/SS1 Page 15

 g. It is used to effect transfers of balances between ledgers.
h. It is used to demonstrate the principle of double entry.
i. It is used to record transactions that cannot be conveniently passed through any other subsidiary
book.
j. It is used to write off bad debts.
k. It is used to record the purchase of business.
l. It is used to record the issue, redemption and conversion of shares and debentures.
6. Cash book: This is a subsidiary book of account that is used to record the receipt and payment of
money (cash or cheque) to or by a business organization. The cash book is part of the double entry
system. It functions both as a ledger and a subsidiary book of account.
7. Petty Cash Book: This is the subsidiary book of account that is used to record the minor (low – value
or petty) cash payments made by a business. Like the Cash Book, the Petty Cash Book is a subsidiary
book and since it is part of the double entry system, it is also a ledger account.

EVALUATION
1. What are books of prime entry?
2. List eight uses of the General Journal.

Illustration
K. Laolu, a trader undertook the following transactions in the month of April 2016.
April 1 Started business with N25, 000 cash
“ 2 Put N18, 000 of the cash into a bank account
“ 5 Purchased from Co-operative Stores –
15 drums of groundnut oil at N20, 400 each
12 bags of garri at N3, 500 each.
Invoice subject to 10% trade discount
“ 8 Sold to T. Okediran –
8 drums of groundnut oil at N24, 000 each.
Less 5% trade discount,
4 bags of garri at N4, 250 each
200 yams at N450 each
“ 9 Returned to Co-operative Stores –
3 drums of groundnut oil bought on 5th April, 2016.
“ 10 Bought from Oyesile & Sons –
650 yams at N380 each,
32 bags of onions at N12, 500 per bag,
60 bags of Dangote 50kg iodized salt at N3, 200 per bag.
“ 12 Paid Co-operative Stores N65, 700 cheque on account
“ 15 T. Okediran returned 3 drums of groundnut oil bought on the 8th of April, 2016.
“ 18 Sold 320 yams at N550 each for cash
“ 19 Bought from Ayodele & Co –
45 bags of onions at N12, 000 each,
50 cartons of Gino Tomato Paste at N14, 000 per carton,
20 drums of palm oil at N3, 800 per drum,
Invoice subject to 15% trade discount.
“ 21 Returned to Ayodele & Co –
8 cartons of Gino Tomato Paste and 5 drums of palm oil bought on the 19th April, 2016.
“ 22 Sold to Adjei Balama –
16 drums of palm oil at N4, 500 per drum,
20 bags of onions at N14, 000 each,
120 yams at N600 each,
Invoice subject to 5% trade discount
1ST TERM/FINANCIAL ACCOUNT/SS1 Page 16
“ 25 Paid sundry expenses N8, 400 by cheque
“ 26 Paid rent of shop N15, 000 cash
“ 27 Adjei Balama returned 5 drums of palm oil to us because they were damaged
“ 29 T. Okediran paid by cheque for all the sales made to him.
“ 30 Bought weighing machine from Standard Tools Ltd on credit N62, 000

You are required to record the above transactions in the appropriate books of original entry.

(a)
Cash Book
Cash Bank Cash Bank
2016 N N 2016 N N
April 1Capital 25,000 April 2Bank c18,000
“ 2 Cash c 18,000 “12 Co-operative stores 65, 700
“ 18 Sales 176, 000 25 Sundry Expenses 8, 400
“ 29 T, Okediran 221, 000“ 26 Rent 15, 000
“30 Balance c/d 168,000 164, 900
201, 000 239, 000 201, 000 239, 000

May 1 Balance b/d 168, 000 164, 900

(b)
Purchases Journal
Date Narration Details Total
2016 N N
April 5 Co-operative stores –
15 drums of groundnut oil at N20, 400 each 306, 000
12 bags of garri at N3, 500 each 42, 000
348, 000
Less 10% trade discount 34, 800 313, 200

April 10 Oyesile & Sons –

650 yams at N380 each 247, 000
32 bags of onions at N12, 500 per bag 400, 000
60 bags of Dangote 50kg iodized salt at N3, 200 per bag 192, 000 839, 000

1ST TERM/FINANCIAL ACCOUNT/SS1 Page 17

April 19 Ayodele & Co. –
45 bags of onions at N12, 000 each 540, 000
50 cartons of Gino Tomato Paste at N14, 000 per carton 700, 000
20 drums of palm oil at N3, 800 per drum 76, 000
1, 316, 000
Less 15% trade discount 197, 400 1, 118, 600

Total Transferred to Purchases Account in the General Ledger 2, 270, 800

1ST TERM/FINANCIAL ACCOUNT/SS1 Page 18

(c)
Sales Journal
Date Narration Details Total
2016 N N
April 8 T. Okediran
8 drums of groundnut oil at N24, 000 each 192, 000
Less 5% trade discount 9, 600
182, 400
4 bags of garri at N4, 250 each 17, 000
200 yams at N450 each 90, 000 289, 400

April 22 Adjei Balama -

16 drums of palm oil at N4, 500 per drum 72, 000
20 bags of onions at N14, 000 each 280, 000
120 yams at N600 each 72, 000
424, 000
Less 5% trade discount 21, 200 402, 800

Total Transferred to Sales Account in the General Ledger 692,200

(d)
Returns Outwards Journal

Date Narration Details Total

2016 N N
April 6 Co-operative Stores -
3 drums of groundnut oil at N20, 400 each 61, 200
Less 10% trade discount 6, 120 55, 080

April 21 Ayodele & Co. -

8 Cartons of Gino Tomato Paste at N14, 000 per carton 112, 000
5 drums of palm oil at N3, 800 per drum 19, 000
131, 000
Less 15% trade discount 19, 650 111, 350

Total Transferred to Returns Outwards Account in the 166, 430

General Ledger

1ST TERM/FINANCIAL ACCOUNT/SS1 Page 19

(e)
Returns Inwards Journal

Date Narration Details Total

2016 N N
April 15 T. Okediran –
3 drums of groundnut oil at N24, 000 each 72, 000
Less 5% trade discount 3, 600 68, 400

April 27 Adjei Balama –

5 drums of palm oil at N4, 500 per drum 22, 500
Less 5% trade discount 1, 125 21, 375

Total Transferred to Returns Inwards Account in the 89, 775

General Ledger

(f)
General Journal

Date Narration Dr Cr
2016 N N
April 30 Equipment Account 62, 000
Standard Tools Ltd 62, 000
Being cost of weighing machine bought on credit

EVALUATION
1. List seven books of original entry.
2. State the use of each of the following.
(a) Sales Journal (b) Purchases Returns Journal (c) Petty Cash Book

GENERAL EVALUATION QUESTIONS

1. What are books of prime entry?
2. List any seven books of prime entry.
3. State ten uses of the General Journal.
4. Explain the principle of double entry.
5. What is a source document?

WEEKEND ASSIGNMENT
1. Which of the following is entered in the general journal? A. Purchase of good B. Sales of
goods on credit C. Returns inwards D. Acquisition of fixed assets
2. Which of the following subsidiary books involves cash movement? A. Sales Day Book
B. Purchases Day Book C. Returns Inwards Book D. Petty Cash Book

1ST TERM/FINANCIAL ACCOUNT/SS1 Page 20

 3. Which of the following is an example of a subsidiary book? A. Cash book B. Bank statement
C. Trial balance D. Suspense
4. Which of the following is used to record the purchase of fixed asset on credit? A. Sales journal
B. Purchases Journal C. Journal proper D. Cash book
5. A sales journal is used to record A. Cash sales B. Credit sales C. Sales expenses D. Sales
returns

THEORY
1. State one advantage of sub-dividing the Journal into different classes.
2. List ten books of account used in recording financial transitions of a business.

1ST TERM/FINANCIAL ACCOUNT/SS1 Page 21