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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.
2. Apply double entry concept
2. Apply Double Entry Concept
This element covers all the steps required to collect source information, record it in the books of original entry, post to ledger accounts using double-entry, prepare a trial balance, and use computerized systems.
2.1 Accounting Source Documents Are Prepared
Source documents are the original written or electronic records that provide proof a transaction has occurred.
They are the starting point of the accounting process.
Examples of source documents:
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Invoices (sales or purchases)
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Receipts
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Debit notes
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Credit notes
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Delivery notes
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Purchase orders
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Cheque counterfoils
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Bank statements
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Cash register tapes
These documents are used to:
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Verify transactions
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Record accurate details (date, amount, parties involved)
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Support auditing and financial reporting
2.2 Books of Original Entry Are Determined
Books of original entry are the first accounting books where transactions are recorded before posting to ledger accounts.
Types of books of original entry:
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Sales Journal – for credit sales
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Purchases Journal – for credit purchases
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Sales Return Journal – for goods returned by customers
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Purchases Return Journal – for goods returned to suppliers
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Cash Book – for all cash and bank transactions
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Petty Cash Book – for small daily payments
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General Journal (Journal Proper) – for:
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Opening entries
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Closing entries
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Correction of errors
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Adjustments
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Transfers
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2.3 Double Entry System Is Applied to Prepare Ledger Accounts
The double entry system states that every transaction has two equal and opposite effects:
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A Debit (Dr) entry
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A Credit (Cr) entry