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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
2.3. Accounting source documents are prepared
Accounting Source Documents Are Prepared
Source documents are the original records that provide written or electronic evidence that a business transaction has taken place.
They are the first step in the accounting cycle and are used to record transactions accurately.
1. Meaning of Source Documents
A source document is a proof of a transaction.
It contains key details such as:
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Date of transaction
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Amount involved
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Nature of transaction
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Parties involved
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Signatures / Authorization
These documents must be prepared, collected, and kept for accounting and auditing purposes.
2. Common Types of Accounting Source Documents
Below are the main source documents used in business and what they are used for.
1. Invoice
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Issued when goods or services are sold on credit.
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Seller prepares a sales invoice.
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Buyer receives a purchase invoice.
2. Receipt
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Proof that payment has been received.
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Issued when cash or cheque is received.
3. Credit Note
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Issued when goods are returned by the customer.
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Reduces the amount owed by the customer.
4. Debit Note
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Sent by the buyer when returning goods to the supplier.
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Request to reduce the amount payable.
5. Delivery Note
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Shows goods delivered to the buyer.
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Signed as proof that goods were received.
6. Payment Voucher
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Used to authorize payments, especially in organizations.
7. Cheque and Cheque Counterfoil
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Cheque: document instructing the bank to pay.
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Counterfoil: proof that a cheque was issued.
8. Bank Statement
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Issued by the bank showing deposits, withdrawals, and balances.
9. Cash Register Tape / Till Roll
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Shows cash sales made during the day.
10. Purchase Order
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Sent to supplier requesting goods.
11. Goods Received Note (GRN)
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Confirms goods received from suppliers.
3. How Source Documents Are Prepared
a) Filling in transaction details
Each document must capture:
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Date
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Name of supplier or customer
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Description of goods/services
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Quantity
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Price
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Total amount
b) Authorization
Source documents must be:
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Signed
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Stamped
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Approved by relevant officers
c) Issuing and filing
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Original copy is sent to the customer or supplier.
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Duplicate copy is kept for records.
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Documents are arranged and filed by date for easy retrieval.
d) Using electronic systems
Many source documents are now created using:
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Accounting software
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Point-of-sale (POS) systems
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Enterprise resource planning (ERP) systems
These systems automatically store and organize source documents.
4. Purpose of Source Documents
Source documents are prepared to:
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Provide evidence of transactions
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Support entries in books of original entry
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Help with audit trails
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Prevent fraud
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Enhance accuracy and accountability