COMPUTERIZED ACCOUNTING OPERATIONS

Financial/ Accounting Applications

Are implemented using financial packages

Methods of implementing the above;

Manual Method-Accounting operations are implemented using mechanical machines to record and
store accounting transactions.

Electronic Method-Implemented using electronic devices and techniques to record and store accounting
operations.

Examples of Electronic/Accounting application packages;

Sage

Pegasus

Pastel

Peachtree

Accounting plus

Office accounting

QuickBooks

Accounting

Is recording, processing and preparation of accounting and financial information/statements about

asset, liability, income and expense.

An Account

Is a record that summarizes the increase and decrease in a particular asset, liability, capital, income and
expense item.

Accountant

A person who interprets, analyzes and summarizes accounts and reports such as financial statements.

Book Keeper

Is a person who records day to day business transactions such as purchases, payment, sales and
receipts.

Book keeping
Recording items owned by a business and money owed by the business and how these change from day
to day.

Branches of Accounting

 Managerial Accounting

Has methods and concepts which provide detailed information to decision makers such as managers.

 Cost Accounting

Is a branch of accounting that establishes cost of production of a good or a service in a business

organization.

 Financial Accounting

It is a branch of accounting that establishes financial statements and accounting information then
communicates the same to external users.

Systems of accounting

 Cash

Recognizes and records transactions only when cash is either received or paid.

 Accrual accounting

Recognizes and records business transactions only when an expense is incurred or when an income is
earned whether or not cash has been paid or received.

Types of an Account

1) Personal

Record transactions that have a person or a group of persons.

Usually personal account record credit transactions.

2) Real Account

Records properties /assets

3) Nominal Account

Records income, revenue, gain, loss and expenses.

Objectives of book keeping

 Provides a permanent record of each business transaction.

 To get to know profit and loss from book keeping entries of income and expense.
 To measure business performance using bookkeeping records and form that formulate business
policies.
 To assess amount of taxes to pay based on book keeping records.
 To ascertain the amount to pay or receive from suppliers and customers.
 To assess the soundness and health of a business from the records of book keeping about assets
and liabilities.

Role of Book keeper.

 To define book keeping procedures and policies.
 To journalize and post transactions such as payments, receipts and sales.
 Balance various accounts by reconciliation of entries.
 To process trade documents such as invoices, orders then prepare such trade documents.
 Do all day to day paperwork and filing in the business organization

Role of Accountant

 Define accounting procedures and policies.

 Interprets, analyze and summarize accounts.
 Construct and generate reports, such as audits, financial statements and tax reports.

The Accounting Equation

Accounting is based in the equation that.

Assets= Capital/Equity +Liabilities

Liabilities=Assets-Capital/Equity

Capital/Equity=Assets-Liabilities

NB: Income, earnings, investment, profits and retained profits all increases capital/equity.
Whereas drawings, expenses, loss and depreciation all decrease capital/equity
Terms and Concepts
1) Income
Is money an individual or a business receives for providing goods or services
2) Profit
Is money earned by selling items such as assets at a higher price than they were bought for.
Gross profit is total earnings while net profit is total earnings minus cost of earning.
3) Earnings/gains
Are inflow of resources into a business for a period of time.
4) Expense
Is money an individual or a business pays out for purchasing goods or for receiving services.
Types of expenses
Direct-can be directly traced to a specific product, customer or department.e.g. amount of money
used to purchase goods, cost of raw materials.
Indirect Expenses-Arise from generally keeping the business running but not from creating any
particular goods or services in a business.
 5) Cost of trading/cost of goods sold.
Are costs of buying goods for sale or cost of creating services to offer for sale in a business.
6) Revenue
Is amount of cash money a business receives during a period of time.
7) Loss
Is disposal of an asset for lower price than it was bought at.
8) Expenditure
Is spending money or any business resource by giving money or any asset for a service, event or
good.
9) Drawings.
Is money, goods or assets the owner of the business takes from the business for his personal use
10) Owner/proprietor
Is the person who makes the investment in the business and who bears all the risks connected with
the business.
11) Goods
Are items that a business offers for sale and trades in.
12) Services
Are actions a business offers to earn money after being paid by the consumer of the actions (doings
trading)
13) Sales
Are previously bought/manufactured goods that are sold to make profit.
14) Purchase

Are goods bought for resale so as to sell them for a profit later. They are credit and cash purchase.
15) Discount
Is a deduction from stated price of a good or a service in trading
Types of discount
 Cash Discount-Allowed by the seller to motivate a buyer /customer to pay before specified
time.
 Trade discount- allowed by the seller when customer buys goods in large quantity.
16) Invoice
Is a commercial document issued by the seller during trading to a buyer indicating details of product
or service bought by the buyer on credit.
Invoice may have the following details
o Products/services sold
o Quantities
o Price
o Payment terms
17) Business entity

Is an enterprise established to accomplish an economic goal.

18) Voucher
 Is a document that supports a transaction and is a proof that transaction has taken place for the
value stated in the voucher.

19) Petty cash voucher-is a document recorded once money is withdrawn/taken from a petty
cash fund and disbursed to someone.

PCV Contains; date, amount disbursed, name of person receiving the money, reason for
disbursement, signature of disburse.

20) Petty cash-is small amount of cash in a business used for paying for minor expenses
/expenditures in cash.
21) Cash book

Is an accounting book where amounts of money in cash is received or paid out then recorded.

Depreciation

Is declining in value of an asset due to being worn out or due to obsolescence.

Calculation=Cost of asset-salvage value

Years of useful life

Salvage value
Is value of an asset after it has come to the end of its useful life.
Going concern
Is a business that continues to function and to operate without the threat of liquidation in the near
future.
Solvent business
Is a business that has assets that exceed liabilities. Such a business is economically healthy. Owner of
such a business is said to be solvent.
Insolvent business
Is a business whose liabilities exceed assets.
Liquidation of a business
Is bringing a business to an end by winding it up or dissolving it.
Return on capital
Is a ratio of a business profitability compared to capital employed.

Calculation=Earnings pre tax divided by capital employed.

Financial statements
Is a financial report of final financial accounts of a business.
Income statement
Is a record of various incomes in a business for a certain period of time.
Cash flow statement.
Is a record of how cash in a business is generated and how it is used.
Payroll
Is a list of amounts of money paid to employees for work done on a period of time.
Goodwill
Is intangible asset arising from a business having a good reputation or a good employee relations.
Carrying/book value
Is original cost of an asset less the accumulated depreciation.
Fair value/market value
Is unbiased estimate of price of a good or a service or an asset which seller is willing to sell and
buyer is willing to buy at.
Nominal value
Is the stated value or price of good or a service.
Real value
Is the nominal value or price of of good minus discount.
Posting transaction/account.
Is one that does affect income/expense and balance sheet accounts.
Non posting account/transaction
Is one that never affects income, expense and balance sheet accounts.
Control account
Is a general ledger account whose balance shows the total balances of all related subsidiary ledger
accounts.
Purpose of control accounts.
 Serve as a cross check to accuracy of individual associated subsidiary records.
 Keep general ledger free of too much detail since its summary.

Sale tax

Is amount charged on sale of merchandise which is calculated and given to tax authority of a
country.

Suspense account

Is an account in the ledger where amounts are temporarily recorded before being moved elsewhere.

Accounting entity

Is a distinct business entity carrying out clear business activities and keeping record of accounts.

Concept of business entity

Credit note

Is a document issued by the seller to the buyer stating that a certain amount of money has been
credited to the buyers account.

It is issued because;

 A seller has overcharged a buyer hence credit notes correct an overstated invoice amount.
 A seller receives back goods returned by the buyer.
 A seller acknowledges goods spoilt by the time they reached the buyer.

Debit note
Is a document issued by the buyer to the seller stating the amount debited.

Buyer issue debit note because

 A buyer realizes he has been overcharged so prompts the seller to correct the overcharged
amount.
 A buyer returns goods to the seller for various reasons such as wrong goods received or
spoilt goods received

Business Transactions
Is an exchange of goods or services for money either in cash or on credit and recording of that
exchange .
Examples.
 Purchase of vehicle(good)
 Pay for cleaning of premises(service)
 Pay for salary(Expense)
 Receive rent payment(Income)

Versions of Business Transactions.

Cash Transaction

Is a transaction where goods/services are paid for in cash money or cash money is received for a
good/service. All cash transactions are recorded in cash book.

Credit transaction

Cash money is not paid or received at the time transaction takes place.

From the above we get the following.

Creditor

Is a supplier from whom goods or services have been bought on credit?

A business owes money to a creditor

Creditor is account payable and is account liability or a short term liability.

Asset
Is an item or resource of economic value to an individual or a business.

Types of Assets.

Current asset (Floating asset)

Is a short-lived asset that can be converted into cash memory easily and quickly? E.g. Stock and cash
in bank.

They are used to meet day to day requirements of a business.

Fixed Asset (Non-Current Asset)

This is an asset that has a long life and is retained in the business for a long time.

Its acquired for use in a business in a long time e.g. land, buildings and machinery.

Fixed assets are obtained by the business at the beginning and are required to conduct the business
smoothly.

Nominal asset

Is an asset that has no market value and cannot be sold e.g. prepaid salary.

Real Asset

This as an asset that has market value and can be sold for money e.g. stock, land etc.

Tangible Asset

Is an asset that has physical existence, can be seen, touched and felt

Intangible Asset

This is an asset that has no market physical existence and cannot be seen, touched and felt e.g.
patent, copyright or goodwill, trademark.

Wasting asset

Is an asset whose value and quantity reduce gradually due to use until the asset is completely
exhausted e.g. goldmine, forest.

Investment

Is a purchase of shares or ownership of shares in a company

Liabilities
Are all debts or all obligations repayable by a business to another entity owned.

Types of Liabilities

a) Long term liability

This is a liability repayable by a business over a long period of time e.g. a loan of 3 years or a
mortgage of 7

b) Current Liability

This a liability payable by a business in a short period of time such as 1 year or less. E.g. creditor and
tax payable.

c) Contingency
This Is a liability that arise only on some happenings or some events hence not always.

A contingency liability may occur or not occur and depends on future events examples bill
dishonored by accepts guarantor paying amount he had guaranteed if the borrower defaults paying.

Capital/Equity
Is money/resources into a business by the owner plus any profits or losses attributes to the owner.

Capital does not include any borrowing.

Types of capital.

Loan capital (Equity Capital)

This is amount borrowed by the business to fund business trading in cash or in resources.

Interest is paid to the lenders of the loan capital.

Working capital

This is a liquid cash/resources at the disposal of a business at that time.

Usually it’s the difference between current liability and current asset.

Capital Employed

This is a total capital put into work for business operations at a particular time.

It is all the capital put together.

NOTE: Any idle capital should not be included in capital employed.