accoiuntinmg
APPLY FUNDAMENTALS OF ACCOUNTING
Unit Code: BUS/OS/AC/CR/01/6
UNIT DESCRIPTION
This unit outlines the competencies required to apply the fundamentals of accounting. It covers:
-
Understanding accounting principles and policies
-
Applying the double-entry system
-
Classifying capital, liabilities, and assets
-
Correcting accounting errors and preparing suspense accounts
-
Preparing financial statements for sole traders, partnerships, and companies
ELEMENTS AND PERFORMANCE CRITERIA
Below are the elements (major competency areas) and their related performance criteria (required performance standards).
1. Demonstrate Understanding of Accounting Principles and Policies
Performance Criteria:
1.1 Establish the nature and purpose of accounting.
1.2 Identify users of accounting information and their information needs.
1.3 Determine the qualities of accounting information.
1.4 Identify accounting concepts/principles.
1.5 Determine relevant accounting standards.
1.6 Prepare the accounting equation.
2. Apply Double Entry Concept
Performance Criteria:
2.1 Prepare accounting source documents.
2.2 Determine the books of original entry.
2.3 Apply the double-entry system to prepare ledger accounts.
2.4 Prepare the trial balance and basic financial statements.
2.5 Apply computerized accounting systems in accordance with accounting guidelines.
3. Classify Capital, Liabilities and Assets
Performance Criteria:
3.1 Determine accrued and prepaid expenses according to accounting principles.
3.2 Apply accounting for revenue.
3.3 Determine accounts receivable, bad debts, and allowance for doubtful debts.
3.4 Manage property, plant and equipment (PPE) accounts.
3.5 Recognize and value inventory based on cost methods.
3.6 Account for cash and cash equivalents, including bank reconciliation.
3.7 Account for accounts payable, including creditors control account.
4. Correct Accounting Errors and Suspense Account
Performance Criteria:
4.1 Determine errors detectible by a trial balance.
4.2 Identify errors causing the trial balance not to balance.
4.3 Identify errors that do not affect the balancing of the trial balance.
4.4 Determine procedures for correcting errors according to organizational objectives.
4.5 Identify errors corrected using a suspense account.
4.6 Prepare the suspense account in line with standard operating procedures (SOPs).
5. Prepare Sole Trader Statement
Performance Criteria:
5.1 Establish sources of capital for a sole trader.
5.2 Draft the income statement for a sole trader for a given accounting period.
5.3 Prepare the statement of financial position for a sole trader for a given period.
6. Prepare Partnership Statements
Performance Criteria:
6.1 Determine the contents of a partnership agreement following SOPs.
6.2 Prepare current and capital accounts according to accounting standards.
6.3 Prepare the income statement according to accounting standards.
6.4 Prepare the appropriation account (profit/loss distribution).
6.5 Prepare the statement of financial position according to organizational requirements.
7. Prepare Company Statements
Performance Criteria:
7.1 Identify types of share capital as per the Companies Act.
7.2 Determine types of reserves as per organizational objectives.
7.3 Determine the issue of shares based on organizational requirements.
7.4 Calculate rights issues and bonus issues in accordance with company policies.
7.5 Identify provisions and reserves.
7.6 Calculate income tax according to SOPs.
7.7 Apply appropriate accounting treatment and presentation of company financial statements.
1. Demonstrate Understanding of accounting principles and policies
1.3. Nature and purpose of accounting is established.
Nature and Purpose of Accounting
1. Nature of Accounting
The nature of accounting refers to what accounting is and how it works. Accounting is:
a) A systematic process
Accounting involves systematic recording, classifying, summarizing and reporting of financial transactions.
b) A financial information system
It provides financial information to different users for decision-making.
c) Quantitative in nature
Accounting records information that can be measured in monetary terms (money).
d) Based on rules and principles
It follows accounting principles, concepts, and standards (e.g., IFRS, IAS).
e) Historical and predictive
It records past transactions (historical) and helps forecast the future (predictive).
f) An art as well as a science
-
Science because it uses rules (principles)
-
Art because it involves judgment and estimation
2. Purpose of Accounting
The purpose of accounting refers to why accounting is done. Accounting aims to:
a) Determine profit or loss
It helps find out if the business made a profit or incurred a loss over a period.
b) Show financial position
It shows assets, liabilities, and owner’s equity at a specific date (Statement of Financial Position).
c) Facilitate decision-making
Managers, owners, and other users rely on accounting information to make informed decisions.
d) Ensure proper record-keeping
Accounting keeps accurate and organized records of all transactions.
e) Aid in planning and control
-
Planning future activities
-
Controlling costs
-
Budgeting
f) Provide information to stakeholders
Accounting provides information to:
-
Owners
-
Investors
-
Government
-
Creditors
-
Management
-
Employees
g) Ensure compliance
Helps businesses comply with laws, tax regulations, and reporting standards.
h) Safeguard assets
Accounting systems help to track and protect assets from loss or misuse.
Short Summary (Exam-ready)
Accounting is a systematic process of recording, classifying, summarizing, and interpreting financial transactions. Its purpose is to determine profit or loss, show the financial position, help in decision-making, maintain proper records, assist planning and control, ensure compliance, and provide useful information to stakeholders.