AFT 04101: PRINCIPLES OF BOOKKEEPING AND ACCOUNTS

TOPIC ONE: BOOKKEEPING AND BAISC ACCOUNTING CONCEPTS

 Introduction
1. Meaning of bookkeeping
 Bookkeeping is the arts of recording of business transactions in term of money or
money worth.
 Bookkeeping is the branch of accounting which deals with recording of data or events.
 Bookkeeping is the process of recording your company’s financial transactions into
organized accounts on a daily basis.
 Bookkeeping deals with analysis classification and recording of business transactions in
the books of accounts.
 Note: Bookkeeping is an important part of accounting while accounting is broader than
bookkeeping.
 2 . The objectives or Purposes of Bookkeeping
 (a) Business control
▪ A business owner will have to maintain proper accounting records of all business
assets and liabilities this help in decision making .eg deciding matter like business
expansion according to business profit.
 (b) Knowledge of credit dealing
▪ Most business transactions are conducted on credit basis therefore the business
owner have to maintain accounting records in order to know in order to know the
amount due from debtors and those owing to his creditors.
 (c) Determination of profit
▪ The main aim of business is to make profit. Complete and proper business records
assist in ascertaining profit.
 (d) Reliable financial position
▪ It is very common for business firm to seek financial assistance from financial
institution such as bank. for business to receive such assistance the credit worthiness of
a business must be known the proper analytical business records must be maintained as
this influence the determination of selling price of business.
(e) Fair tax assessment
▪ Normally tax authority requires submission of proper final accounts for fair income tax
charge.
 3. Differences between Bookkeeping and Accounting
▪ Bookkeeping is part of account which deals with records while accounting deals with identifying,
measuring and communicating economic information to permit informed judgments and decisions
making by the users of the information.
▪ Bookkeeping is mainly concerned with daily records of business transactions while Accounting deals
with use daily records for decision making.
▪ The nature of bookkeeper work is clerical while accountants are responsible for preparation of
financial reports and statements as well as the analysis and interpretation of reports.
▪ Bookkeeping are supervised by accountants while accountant supervise the bookkeeper.
4. Common terms used in Bookkeeping
▪ Business is any economic activities that aim at profit making.
▪ Profit is the excess of business revenue over the business expenses.
▪ Assets are the resources controlled or owned by the entity from which the future economic
benefits will flow to the entity. Examples of an assets are cash in hand, cash at bank,
debtors/ accounts receivables and stock of goods/inventory these assets relate to current
assets. Motor vehicles, Buildings, Land, and Furniture's relate to Non Current assets.
▪ Capital/Owner’s equity is the total resources supplied to the business by its owner or is the
residual interest obtained after deducting liabilities from assets of business.
▪ Liabilities are loans taken by business and are to be paid back. Liabilities that are to be paid
back within one year is called Current Liabilities examples creditors/accounts payables and
Short term loan while Liabilities that are paid back more than one accounting period is known
as Non current liabilities examples bank loans from financial institutions like Bank, Saccos and
Microfinance
▪ Financial transaction
is the movement or exchange of money or money worth from one person to another person or is any
data or event which occur in organization and should be recorded in the books of accounts.
Note: There are two types of business transactions
i. Cash transactions
➢ These are transactions involving sales or purchases of goods or services and the payments is
made instantly or promptly e.g. Buying text book for cash or buying motor van for cash .
ii. Credit transactions
➢ These are transactions involving purchase or sale of goods or services and payment is made
later or in the future e.g. Buying goods now and paying in the next month. Buying goods on credit,
selling goods on credit, paying creditors by cheque, receiving money from debtors.
▪ Ledger
➢ Is the main book of account where transactions are recorded in double entry system. This book
contain a section known as account
▪ Account
➢ Is the section in a ledger where section are recorded, each account are recorded in a separate page.
Account is divided into two sides. Left hand side called Debit side and the right hand side called
credit side.
▪ Debtors
➢ Are the persons who owes money to a business for goods or services supplied to him/her. A person
can be an individual,, business firm, government, company or any other legal person.
▪ Creditor
➢ Is the person to whom money is owed for goods or services.
 5. The users of accounting information or Bookkeeping records
 There are two users of accounting information or bookkeeping records
▪ Internal user
▪ External user
▪ Internal user
➢ Is the primary user of accounting information or bookkeeping records.
➢ These are
i. Management
➢ They need information for analyzing organization’s performance and position in order
to take appropriate measures for improving company’s results.
ii. Employees
➢ They need information to asses the stability and sustainability of their employers.
iii. Shareholders/Owners
➢ They need information to assess the ability of firm to pay dividends.
 ▪ External user
 is the secondary user of accounting information or bookkeeping records.
➢ These are
▪ Investors
➢ They need information to determine whether they buy, hold or sell their investments.
▪ Lenders
➢ They need information to determine whether the firm can pay their loans and attached
interest when due.
▪ Government and their agencies
➢ They need information for tax policies and as basis for national income and similar
statistics.
▪ Suppliers and trade creditors
➢ They need information to determine whether the firm can pay their debts when due.
▪ Customers
➢ They need information to check continuance of the enterprises.
▪ Public
➢ They need information to assess the substantial contribution to the local economy
 6. Accounting concepts
 Refers to the basic assumptions and rules and principles which work as the basis of
recording of business transactions and preparing accounts.
 The following are the following important accounting concepts are
▪ Money measurement concept
 It states that the business transactions should be recorded in the unit of money.
▪ Going concern concept
➢ It states that the business operation will continue for the foreseeable future.
▪ Business entity concept
➢ It states the accounting records are recorded for the entities and not the person who
run the operation. There is a separation of ownership from management.
▪ Accounting period concept
➢ Refers to the specific interval period/fixed period of time of time for the preparation of
financial statements.
▪ Dual Aspect concept
➢ It states that the business transaction has two aspects. It means that the business
transactions should be recorded twice e.g. Debit side and Credit side
➢ Debit side means receiving of the benefit while Credit side means giving of the benefit.
▪ Historical cost/ cost concept
➢ It states that the assets of the business should be measured and recorded at their
original acquisition cost.

Thank you for listening

TUTORIAL QUESTIONS
1. An art of recording business transactions in sets of books in terms of money or money
worth is called….
a) Closing stock
b) A list of assets and liabilities
c) Bookkeeping
d) Classification of business transactions.
2. Which of the following statement is not correct?
a) Assets – capital=Liabilities
b) Liabilities + assets=capital
c) Assets= Capital +Liabilities
d) Capital= assets -Liabilities
2. Credit transaction are;
a) Transaction for credit note
b) Transaction made for future payment
c) Information relating to selling of goods
d) Creditors transaction
3. Which of the following is liabilities
a) Office furniture
b) Creditor
c) Debtor
d) Cash at bank
4. Which of the following is not non current assets?
a) Motor van
 b) Land
c) Bank balance
d) Premises
5. Business activities are separate from owners activities this is;
a) The cost concept
b) The money measurement concept

c) Business entity concept

d) Dual Aspect concept
6. A business transaction is
a) Movement of money or money worth from one person to another.
b) The arts of keeping books of accounts.
c) Information relating to buying and selling.
d) Non of the above.
7. Which of the following is not the objectives of bookkeeping
a) Determination of profit.
b) Business of credit dealing.
c) Making the business known to every one.
d) Knowledge of credit dealing.
8. The two side of an account
a) Right and left.
b) Receipt and payment.
c) Debit and credit.
d) Profit or loss.
9. Which of the following is an accounting concept:
a) Conservatism.
b) Full disclosure.
c) Going concern.
d) Consistence.
List A
i. Creditor
ii. Dual aspect concept
iii. Accounting equation
iv. User of accounting equation
v. Debit
vi. Account
vii. Ledger
viii. Business
ix. Capital
x. Assets
List B
A. Total resources supplied to the business by the owner.

B. The left hand side of an account.

C. Any legal economic activities aiming at profit
D. These are resources owned by the business.
E. Part of double entry record accounting details of transaction
F. Tax inspectors
G. Assets= Capital +Liabilities
H. A person whom money is owed for goods or services
I. Accounting concept
J. Accountant
Explanation Questions
1. Mention the advantages of business.
2. Mention the objectives of bookkeeping.
3. Mention five accounting principles
4. Mention four accounting conventions.
5. Mention and explain users of accounting information.