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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:
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Understanding accounting principles and policies
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Applying the double-entry system
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Classifying capital, liabilities, and assets
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Correcting accounting errors and preparing suspense accounts
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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
1.2. Users of accounting information and their information needs is established
Users of Accounting Information and Their Information Needs
Accounting information is used by different groups of people to assist them in making financial and economic decisions. These users can be classified into internal users and external users.
1. Internal Users
Internal users are people within the organization who use accounting information to manage business activities.
a) Owners / Entrepreneurs
Information needs:
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Profit or loss for the period
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Value of their investment (capital)
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Financial position of the business
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Liquidity and solvency
b) Management
Information needs:
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Performance evaluation
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Budgeting and planning
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Cost control
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Financial forecasts
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Resource allocation
c) Employees
Information needs:
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Job security
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Ability of the business to pay wages/salaries
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Bonus or profit-sharing prospects
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Stability and growth of the company
2. External Users
External users are people outside the organization who use accounting information for decision-making.
a) Investors (Existing and Potential)
Information needs:
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Return on investment (profitability)
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Financial position and stability
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Future growth potential
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Dividend prospects
b) Creditors / Lenders
(Banks and suppliers)
Information needs:
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Business ability to repay loans
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Liquidity position
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Creditworthiness
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Cash flows
c) Government and Regulatory Bodies
Information needs:
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Tax assessment (VAT, income tax, corporate tax)
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Compliance with laws
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Evaluation of economic performance
d) Customers
Information needs:
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Stability and continuity of business
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Ability to continue supplying goods and services
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Long-term contracts reliability
e) General Public
Information needs:
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Company’s contribution to society
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Employment opportunities
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Environmental responsibility
f) Trade Unions
Information needs:
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Ability of business to pay fair wages
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Profitability
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Employee-related benefits
g) Competitors
Information needs:
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Market performance comparison
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Benchmarking against others
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Strategies for competition