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978-1-108-69790-3 — Study and Master Accounting Study Guide Grade 10 (Blended) English
Elsabé Conradie , Mandy Moyce , Derek Kirsch
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CHAPTER 1: Accounting terminology and
revision of Grade 9 work
What you need to know (checklist):
Topic
Basic accounting terminology:
Accounting equation, double-entry principle
Calculations:
Cost price, selling price, profit mark-up
Cash journals
General Ledger:
Entering opening balances, posting amounts to ledger accounts, balancing
ledger accounts, extracting a Trial Balance
I can do this
Introduction
In Grade 9 you learnt the basic accounting concepts and book entries. The best way
to understand Accounting in Grade 10 is to:
• recap Grade 9 Accounting terminology
• understand the accounting cycle and apply it to the bookkeeping process
• understand the accounting equation and double entry.
1. Assets
Assets belong to the business. They can be divided into two groups.
1.1
Non-current assets
These are long-term assets.
• Fixed assets have a reasonably long lifespan and are bought in order to generate
an income for the business. These assets are kept for a long time.
• Investments are assets because money is stored away in a fixed account in order
to earn interest.
1.2
Current assets
These are assets that can be converted into cash in the short term. They are used
within the businesses activities, for example, stock in bought at a certain price and
sold at a higher price to make a profit.
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The following table better explains assets:
Non-current assets
Current assets
Fixed assets
Investments
Land and Buildings:
property
Vehicles: cars, trucks, motor
cycles
Equipment: computers,
printers, etc.
Furniture: desks, chairs, etc.
Fixed deposits: money
invested for a period of more
than a year
Notice deposits: money
invested for a certain period,
which needs a notice of 90
days before it will be paid
back
Machinery
Trading stock: goods
purchased for resale
Debtors control: those who
owe money to the business
Bank: money in the current
bank account
Savings account: money in a
savings account
Cash float: cash in the
register/till
Petty cash: money used to
buy low-cost items, usually
not more than R100 per item
2. Owner’s equity
This is the owner’s interest (portion) in the business.
• Capital – The money the owner gives to start up the business
• Drawings – The money the owner takes out of the business
• Income – are earnings which increase the owners’ equity of the business.
• Expenses – are running costs which are paid in order for the business to operate.
The table lists some income and expense accounts:
Income accounts
Sales
Current income
Rent income
Commission received
Expense accounts
Cost of sales
Salaries
Wages
Rent expense
Telephone
Insurance
Stationery
Packaging
Advertising
Repairs and
maintenance
Water and electricity
3. Liabilities
Liabilities are obligations that the business has towards another business because
of a credit transaction.
• Non-current liabilities are long-term obligations that will be paid back over
a period longer than a year.
• Current liabilities are short-term obligations that will be paid back within
a year.
Non-current liabilities
Loan: money borrowed to finance business
operations
Mortgage bond: money borrowed to buy
property
2
Current liabilities
Creditors control: money owed to other
businesses
Bank overdraft: a facility offered by the bank
where you can use more money than you have
in your account
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4. The accounting equation
All accounting is based on the accounting equation and is represented as follows:
Assets = Equity + Liabilities
Equity + Liabilities also equals Net Worth or Net Assets.
5. Double-entry principle
Every transaction will affect either assets, owner's equity or liabilities. These will
either increase or decrease, and the effect is indicated as follows:
Dr
Increases with a debit entry
Assets
Decreases with a credit entry
Cr
Dr
Decreases with a debit entry
Owner's Equity
Increases with a credit entry
Cr
Dr
Decreases with a debit entry
Liabilities
Increases with a credit entry
Cr
6. Cash transactions
6.1
Cash transactions of a service business
The main source of income is services rendered. This is called current income.
Examples of service businesses are plumbers, electricians, hairdressers, garden
services and painters.
6.2
Cash transactions of a trading business
The main source of income is sales. A trading business buys items at a certain price
and sells them at a higher price. The difference between these two amounts is the
business’s income or gross profit.
6.3
Cost price, selling price and profit mark-up
A retailer determines the selling price of an item by adding a profit mark-up to the
cost price of the article.
Cost price + profit mark-up = selling price
Example: A retailer buys an item for R18. He wants to make 10% profit, so he adds
R1,80 (10% of R18). He therefore sells the article at R19,80.
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Trading stock
Items purchased
with the purpose of
selling them again;
also referred to as
goods. Trading stock
is an asset.
Cost of sales
The cost price of
trading stock that
has already been
sold
7. Cost calculations
You must be able to do three very important calculations:
• Calculation of the selling price of trading stock
• Calculation of the cost price (cost of sales) of trading stock sold
• The profit mark-up/profit percentage earned on trading stock sold.
7.1
Calculating the selling price
If you are calculating the selling price of trading stock, you need to have the cost
price and profit/profit mark-up.
Example: Bought an item for R150. A profit percentage of 20% must be taken
into account.
20% of R150 = R30, thus the selling price will be R180.
OR
Assume the cost price percentage is:
Profit percentage:
Assume the selling price percentage is:
cost price
1
×
selling price %
cost price %
= selling price
=
7.2
100%
20%
120%
150
1
×
120
100
= R180
Calculating the cost price/cost of sales
If you are calculating the cost price of trading stock, you need to have the selling
price and profit percentage.
Example: Sold an item for R240. The profit percentage was 20%.
Assume the cost price percentage is:
Profit percentage:
Assume the selling price percentage is:
selling price
1
cost price %
×
selling price %
= cost price
=
7.3
100%
20%
120%
240
1
×
100
120
= R200
Calculating the profit percentage
If you are calculating the profit percentage on trading stock, you need to have the
selling price and the cost price.
Example: An item that originally cost R200, was sold for R300.
The amount of profit is R300 – R200 = R100.
profit
cost price
×
100
1
= profit percentage
=
4
100
200
×
100
1
= 50%
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8. Purchasing trading stock and its effect on the
accounting equation
Since trading stock is an asset to the business, you are exchanging one asset for
another: Bank (cash) is exchanged for Trading Stock.
Example: Used the business debit card to purchase stock to the value of R1 500.
Remember:
Assets must still
equal Owner's
Equity.
Assets
Owner’s Equity
–1 500
Cash decreases
No effect
+1 500
Trading stock increases
In the General Ledger, always follow the double-entry principle.
Bank is an asset that decreases and is thus credited.
Trading Stock is an asset that increases and is thus debited.
Example: Used the business debit card to purchase stock to the value of R1 500.
Account debited
Trading Stock
Account credited
Bank
9. Selling trading stock and its effect on the
accounting equation
When trading stock is sold, the two amounts involved are: cost price of the items,
and the selling price of the items.
The difference between these two is the profit that the owner makes in the business.
To show the effect of this transaction on the accounting equation, remember
the following:
• The goods on the shelves/in the storeroom decrease when someone buys them,
and we use the cost price.
• The money in the cash register increases when someone pays for the goods, and
we use the selling price.
• To determine the profit made on this transaction, we calculate the profit.
Example: Sold goods for R550 cash. The cost price of the goods was R380.
Remember:
Assets must still
equal Owner's
Equity.
Assets
Owner’s Equity
–380
Trading Stock decreases
+170
+550
Bank increases
Profit earned
Always follow the double-entry principle in the General Ledger.
The two accounts affected by the cost price are:
• Trading Stock: an asset that decreases and must therefore be credited.
• Cost of Sales: decreases owner's equity and must therefore be debited.
The two accounts affected by the selling price are:
• Bank: an asset that increases and must therefore be debited.
• Sales: increases owner's equity and must therefore be credited.
Example: Sold goods for R550 cash. The cost price of the goods was R380.
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Accounts debited
Cost of Sales
Bank
Remember:
Credit cards, debit
cards, EFTs and
direct deposits all
represent cash.
Accounts credited
Trading Stock
Sales
10. Cash journals
The business uses journals to record all its transactions. One of these journals is
called a cash journal and is a “diary” of all the cash transactions of the business.
• A Cash Receipts Journal (CRJ) is used to record all cash received.
• A Cash Payments Journal (CPJ) is used to record all cash paid.
10.1 Documents used during cash transactions
EFT Electronic Funds
Transfer, when you
pay electronically
using cell phone or
Internet banking
• Receipt: document issued when money is received
• EFT proof of payment (with reference number): document used to show money
paid or received by EFT
• Cash register roll: document from the cash register indicating cash received
10.2 Source documents used to record transactions
• Duplicate receipt: kept as proof of money received
• EFT proof of payment (with reference number): kept as proof of money paid
by EFT
• Cash register roll: proof of money received for services rendered
• Duplicate deposit slip: as proof that money has been paid into the bank
• Bank statement: proof of money paid by EFT directly into the business bank
account; proof of interest received on current account; proof of bank charges,
interest on overdraft, debit orders, stop orders
• Debit card slip or Credit card slip: kept as proof of withdrawal of cash from an
ATM with the business debit card / credit card and proof of payments made with
the business debit card / credit card.
10.3 Posting from the CPJ and CRJ to the General Ledger
10.3.1 Cash Payments Journal
In the CPJ, the Bank account is always credited because assets decreased.
Therefore all the other accounts are debited.
Example
Cash Payments Journal of Cameron Traders – April 2019
Doc. Day Payee
no.
12
10 B&B Books
13
14 XYZ Traders
14
17 Telkom
15
22 Fine Foods
Fol.
Bank
Total payments
Bank
6
Stationery
350
Bank
Stationery
350
1 500
550
900
3 300
350
3 300
CPJ1
Trading Sundry accounts
stock
Amount Fol. Details
1 500
550
350
900
2 400
Telephone
550
Bank
Trading stock
2 400
Bank
Telephone
550
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10.3.2 Cash Receipts Journal
In the CRJ, the Bank account is still debited (assets increased), while all the other
accounts are credited, such as Sales.
Cost of Sales is the exception: it has nothing to do with Bank and must therefore be
posted separately. Cost of Sales is debited (increased “expenses”) and Trading Stock is
credited (decreased assets).
Example
Cash Receipts Journal of Cameron Traders – April 2019
Doc. Day Payee
no.
Total
receipts
Bank
11 505 Total
payments
Bank
Sales
350
840
315
10 000
350
840
350
840
315
200
480
180
1 505
860
15 Sales
25 Sales
30 Sales
Alma Smit
01
CRJ1
Fol. Analysis of
receipts
10 315
11 505
Sales
Bank
3 300
Bank
Trading Stock
2 400 Cost of
sales
Cost of Sundry accounts
sales Amount Fol. Details
10 000
10 000
1 505
Capital
Bank
860
Cost of Sales
860
Trading
stock
Capital
10 000
Trading Stock has entries on both sides:
The debit side is the entry from the CPJ (Trading Stock increased through
purchases).
The credit side is the entry from the CRJ (Trading Stock decreased by the
cost of sales).
10.3.3 Balancing the accounts
Balancing an account means calculating how much is in the account at the end
of the month. If an account has entries on one side of the account only, they can
simply be added. Draw only one line above the total.
Example
Stationery
2019
Jan
01 Bank
CPJ
100
14 Bank
CPJ
250
CPJ
350
Bank (R/D) (refund)
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If the account has entries on the debit and credit side, these must be subtracted from
each another to see what is “left over”. Note the double lines below these totals.
Example
Bank
2019
Jan
31 Total receipts
CRJ
2019
12 000 Jan 31 Total payments
14 Balance
12 000
Feb
01 Balance
b/d
CPJ
8 000
c/d
4 000
12 000
4 000
11. Opening balances
A business that has been operating for longer than one month, will already have
information in the General Ledger from previous months. The closing balances
from the previous month become the opening balances of the current month.
They should be identical to the previous month, for example, a closing credit
balance of R2 000 must appear as an opening credit balance of R2 000.
12. Trial Balance
The Trial Balance is a list of all the General Ledger account balances. It has a debit
column and a credit column. At the end of the month, all the debits must total all
the credits. This shows that the General Ledger “balances”.
Basic introductory activities
Activity 1.1
Required
Copy the table into your workbook. Use a tick () to indicate where each item on the list
below should appear.
Fixed
Assets
Current
Owner's Equity
Liabilities
Items
1. Delivery bicycle
2. Money in the bank
3. Telephone account
4. Donation received from the local government
5. Photocopier paper
6. Loan from FNB
7. Sales of T-shirts
8. Repairs to the vehicle
9. Interest paid on the short-term loan from FNB
10. Creditors
11. School fees of the owner’s son
12. Bank overdraft
13. Farming equipment
14. The office building
15. Cash in petty cash
16. Money received from a hairdresser for services rendered
17. Insurance premium paid to Santam
18. Advertisement in the newspaper
19. Tea and coffee for the office staff
20. Spare parts for the truck
8
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Activity 1.2
Required
Show the effect of each transaction on the accounting equation.
In each case provide the amount, effect and reason.
Example: Bought a new cash register and paid by EFT, R6 000.
Assets
Effect Reason
+R6 000 Equipment increases
–R6 000 Bank decreases
Owner’s Equity
Effect Reason
Transactions
1. Paid the telephone account by debit card at Pick n Pay, R450.
2. Received R3 000 for services rendered.
3. Paid Eskom by EFT for electricity, R2 350.
4. Bought packing material from Makro, R400, and paid by debit card.
5. Bought pens and pencils for the office at Waltons, and paid cash, R220.
6. Paid the weekly wages directly into the bank accounts of the workers, R4 000.
7. Bought a new computer for the office and paid by EFT, R8 000.
8. Paid the owner’s TV licence by debit card, R280.
9. Cash register roll for services rendered for the day, R5 500.
10. Received R2 200 from the tenants renting the office.
Activity 1.3
Copy and complete the table by calculating the cost of sales (cost price) or the selling
price (sales).
No.
Selling price
Profit %
Calculation
Example 1
280
40%
280 ×
100
Example 2
1 350
50%
900 ×
150
1.
2.
3.
4.
5.
6.
7.
750
240
50%
20%
25%
30%
40%
100%
200%
8.
160
390
728
140
100
Cost price
(to find cost price)
200
(to find selling price)
900
200
150
390
1
33 %
3
2
66 %
9.
360
3
Activity 1.4
Required
Show the effect that each transaction has on Assets and/or Owner's Equity. In each case, give
the amount, effect and reason. Also show the General Ledger accounts to be debited and
credited.
Transactions
1. Bought stock to the value of R2 400 and paid by EFT.
2. Received goods for R1 450 and paid by debit card.
No.
Assets
Effect Reason
Owner's Equity
Effect Reason
1.
2.
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No.
General Ledger
Account credited
Account debited
1.
2.
Activity 1.5
Required
Copy the tables below. Show the effect that each transaction has on Assets and/or Owner's
Equity. In each case, give the amount, effect and reason. Also show the General Ledger
accounts to be debited and credited.
Transactions
1. Sold trading stock for R230 cash (cost price R100).
2. Issued a cash register slip for the sale of goods to the value of R368.
The business maintains a profit margin of 60% on cost price.
Assets
Effect Reason
No.
Owner's Equity
Effect Reason
1.
2.
No.
Account debited
General Ledger
Account credited
1.
2.
Activity 1.6
Required
Use the transactions of Nawawi Stores, owner N Nawawi, to draw up the CRJ and CPJ of the
business for August 2019. Close off the journals properly at the end of the month.
Provide for the following columns:
CRJ: Analysis of Receipts, Bank, Sales, Cost of Sales, Sundry accounts
CPJ: Bank, Wages, Equipment, Trading stock, Sundry accounts
Transactions for August 2019
01 The owner contributed R45 000 to the business as capital. He deposited this in the
business’s bank account. Receipt no. 01 was issued to him.
03 Paid the municipality by debit card for the trading licence, R250.
04 Issued EFT no. 001 to Swazi Suppliers for the purchase of stock, R4 800.
07 Cash sales of stock, R750 (cost price R500)
09 Purchased stationery from PNA by debit card, R360.
11 Received goods from Lee Suppliers and issued an EFT to them for R6 300.
13 The owner withdrew cash from an ATM for own use, R300.
Paid the weekly wages by cash withdrawn from an ATM, R1 800.
16 Cash received for goods sold, R960 (cost price R640).
Issued an EFT to Office Suppliers for the purchase of a computer, R5 000.
19 Drew cash by debit card from an ATM to pay the weekly wages, R1 800.
Paid the municipality using the business debit card, R860. It was in payment of the
business’s water and electricity account, R610, as well as the owner’s personal account.
23 Cash sales of stock according to the cash register roll, R825 (cost price R530).
Issued an EFT to ABC Stores for goods bought from them, R570.
30 Drew cash by debit card from an ATM for the weekly wages, R1 800, and for petty cash,
R300.
Cash received for the sale of goods, R975 (cost price R650).
Issued a receipt to the owner for R5 000. This was for an increase of his capital.
10
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