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ACCOUNTING
TEXTBOOK
Copyright © 2012 EDGE Education (Pty) Ltd. All rights reserved
Ground Floor, Bell House, 16 Bell Crescent,
Westlake Business Park,
Cape Town, 7945, South Africa
This publication and all its parts is copyright protected under the Berne Convention.
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In terms of the Copyright Act 98 of 1978 no part of this material may be reproduced, be
stored in a retrieval system, be transmitted or used in any form or be published,
redistributed or screened by any means (electronic, mechanical, photocopying,
recording or otherwise) without the prior written permission of the Publisher.
Our logos are protected under the Trade Marks Act 194 of 1993.
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Permissions may be sought from EDGE Education (Pty) Ltd,
email info@edgeeducation.com. However, permission to use any material in this work in
any way that is derived from other sources must be obtained from the original sources.
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If you are aware that any part of this text has any errors, or if you find that something
has been incorrectly referenced, please email us.
First published 2012
Ninth Edition
First Impression
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Notice: No responsibility is assumed by the publisher for any injury and/or damage to
persons or property as a matter of products liability, negligence or otherwise, or from
any use or operation of any methods, products, instructions or ideas
contained in the material herein.
ISBN: 978-1-77612-706-1
Authors: Janse Maritz MCom Financial Management;
BCom (Hons) Economics; PGDip Higher Education;
BCom Economics.
Andrew Hibling MPhil, MBChB, Bcom
Preface
On completion of this course students should be able to:
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Explain the development, role and functions of accounting as a business information
system.
Demonstrate an understanding of accounting principles and concepts in a business
environment.
Apply the accounting equation and its composites when recording transactions.
Accurately reflect financial transactions to trial balance.
Demonstrate an understanding of statutory requirements in a business environment.
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Accounting 1 A is a practical and comprehensive guide to basic concepts and principles
of accounting. This book will be invaluable to those seeking foundational knowledge of
current terminology and concepts which this ‘international language of business’ has
to offer. The purpose of the book is to provide students with basic knowledge of the
recording function up to the trial balance. By following the basic principles taught in this
manual, such individuals are provided the opportunity to enhance their financial skills
and come to terms with the accounting framework, the double-entry system, and the
processing of a wide variety of business transactions. To this effect, the most common
statutory requirements in a business environment are addressed.
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This book has been compiled to facilitate the achievement of critical and developmental
outcomes:
Critical outcomes are holistic in nature and envisage learners who are able to:
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Identify and solve problems and make decisions using critical and creative thinking.
Work effectively with others as members of a team, group, organisation and
community.
Organise and manage themselves and their activities responsibly and effectively.
Collect, analyse, organise and critically evaluate information.
Communicate effectively using visual, symbolic and/or language skills in various
modes.
Use science and technology effectively and critically, showing responsibility toward
the environment and the health of others.
Demonstrate an understanding of the world as a set of related systems by recognising
that problem-solving contexts do not exist in isolation.
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Development outcomes envisage learners who are able to:
1. Reflect on and explore a variety of strategies to learn more effectively.
2. Participate as responsible citizens in the life of social, national and global
communities.
3. Be culturally and aesthetically sensitive across a range of social contexts.
4. Explore education and career opportunities.
5. Develop entrepreneurial opportunities.
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Contents
Learning Unit 1
Learning Unit 2
Learning Unit 3
Learning Unit 4
Recording cash transactions
Learning Unit 5
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Value-added tax and source documents
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The accounting equation and double-entry system
Recording credit and sundry transactions
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1 – 24
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Page
25 – 75
76 – 105
106 – 136
137 – 184
Learning Unit 6
Inventory systems
185 – 207
Learning Unit 7
208 – 225
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Debtors (accounts receivable) and creditors (accounts payable)
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Learning Unit 8
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Salaries and wages
226 – 270
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Learning Unit 9
Year-end procedures
271 – 285
Bibliography
286 – 287
Annexure A
Question solutions
288 – 467
Annexure B
Revision questions and solutions
468 – 530
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Learning Unit 1
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1.1.1
Users and uses of financial information............................................................... 4
1.2.1
Users of accounting information........................................................... 4
1.2.2
Uses of accounting information............................................................ 5
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1.3
Double-entry accounting ......................................................................3
Developments in the accounting field ................................................................. 6
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A brief history of accounting ............................................................................... 2
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An introduction to business,
bookkeeping and accounting
1.3.1
Internal vs. external reporting .............................................................. 8
1.4
Different business forms..................................................................................... 10
1.5
Different fields in accounting............................................................................... 15
1.5.1
The bookkeeping and accounting cycles............................................................ 19
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1.6
Financial accounting vs. management accounting.............................15
Transactions ....................................................................................... 22
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1.6.1
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An introduction to business, bookkeeping and accounting
1.1
A brief history of accounting
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Learning Unit 1 lays the foundation for the rest of this book. We take a look at the origin
and role of accounting in the business environment, identify the main uses and users
thereof, and explain how this ‘language of business’ is used by different types of entities
to make their business run more efficiently. Foundational knowledge in accounting
is paramount for the successful running of a business. Through sound financial
management, entrepreneurs can achieve their primary objective, namely to make a
profit. In order to do so, ‘running the numbers’ becomes a very important function of a
manager’s responsibilities. It brings strategic planning into perspective and provides an
objective assessment of the financial well-being of the enterprise.
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The origin of accounting can be traced back over 5 000 years to early civilisation. It all
started in small villages and communities of people. When developing these societies,
a need arose to be able to record one’s assets and pieces of property and keep them
on file. People wanted to account for their property so as to legally prove ownership.
From this initial stage, the development of writing took effect. Accounting was the first
form of primitive written language. Before this there was no need for written language.
Since there was a need to document things, societies began to develop their own
written languages and began recording them on stones. The system was crude and
difficult to prove legitimate, but at that time there was not a mass amount of trading
and transactions occurring – so there was no immediate need for a more sophisticated
system. All one needed was to record what they ‘thought’ to be their property. Another
form of accounting during this time was simply recording events and things that had
taken place. Most of the things that historians know about ancient civilisations come
from crude accounts of events that have been recorded on stone and other primitive
substances. This is not what people know accounting to be today, but this was the
earliest form of accounting and a way for one to record things about their lives and how
they lived. More advanced forms of accounting would not be developed for thousands
of years.
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This ‘crude’ system of accounting lasted until the 12th century BC. At this time trading
had begun to increase between different societies. This trading soon became widespread, with Italy being the cornerstone of this trading movement. The Romans were
the most developed of societies at this time, and trading in and out of the city began to
pick up rapidly. The society was advanced enough at this time to avoid having to slave
away on the land to get enough food to survive on. They were able to spend more time
developing new technologies and advances in art. Because of this freedom from the
land they were able to import foods from places outside the kingdom and export it to
other parts of the world. Rome received great amounts of profit from this and needed a
way to record these assets in an organised way. There were many different transactions
between multiple customers and it soon became unorganised and flawed. At this
time the Romans used roman numerals to record assets, which was imprecise, and a
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change was needed if the empire was to continue to grow at the rate that it was at the
time. Arabic numerals had been developed centuries before this, and the Romans saw
this as a new tool they could use. Arabic numerals were much more precise than roman
numerals for recording financial data. The Romans were the first to use these numerals
to record financial information and admit to their importance. They used numerals
to record capital, assets and liabilities that they gained through their transactions.
Through this came the development of the double-entry accounting system.
1.1.1 Double-entry accounting
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‘Double-entry accounting’ is known to be the first modern form of accounting and is
the base of the accounting system that we still implement today in our society. This
theory was developed by a man named Luca Pacioli.
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Luca Pacioli was born in 1445 in Sansepolcro, Tuscany. He was a mathematician
and friend of Leonardo da Vinci. He wrote and taught in many fields including
mathematics, theology, architecture, games, military strategy and commerce. In 1494,
Pacioli published his famous book Summa de Arithmetica, Geometria, Proportioni et
Proportionalita (Summary of Arithmetic, Geometry, Proportion and Proportionality).
One section of this book was dedicated to the description of double-entry accounting.
The Summa was one of the first books printed using the Gutenberg press, became
an instant success and was translated into German, Russian, Dutch, and English. The
Summa made Pacioli a celebrity and insured him a place in history as ‘The Father of
Accounting’.
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However, Pacioli did not invent double-entry accounting. Instead, he superbly described
a method used by the Church. His system included most of today’s accounting
routines such as the use of memorandums, journals and ledgers. His ledger included
assets, receivables, inventories, liabilities, capital, income, and expense accounts. He
described the year-end closing entries and proposed that a trial balance be used to
prove a balanced ledger. In addition, his Summa made reference to the certification of
books, ethics and cost accounting.
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There would be little modification to Pacioli’s system for the next 500 years. The
present-day statement of financial position did not get its form until 1868 and the
statement of profit or loss and other comprehensive income was developed before
World War II. In the 1980s, the statement of cash flows was developed with the
purpose to provide relevant information about the operating, financing, and investing
activities of an enterprise and the effects of those activities on cash resources.
Pacioli made it clear that there are three things that a successful merchant needs:
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Sufficient amount of cash or credit
Thorough bookkeeping, with detailed lists of transactions
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An introduction to business, bookkeeping and accounting
1.2
An accounting system which makes it easy for one to look at transactions very
quickly and efficiently
Users and uses of financial information
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1.2.1 Users of accounting information
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Financial information prepared by bookkeepers and accountants are used by a variety
of stakeholders. These include the following:
1.2.1.1 Investors
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The providers of capital and their advisers are concerned with the risk inherent to, and
return provided by, their investments. They need information to help them determine
whether they should buy, hold or sell. Shareholders are also interested in information
which enables them to assess the ability of the enterprise to pay dividends (their return
on investment).
1.2.1.2 Employees and labour unions
1.2.1.3 Lenders
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Employees and their representative groups are interested in information about the
stability and profitability of their employers. They are also interested in information
which enables them to assess the ability of the enterprise to provide remuneration,
retirement benefits and employment opportunities.
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Lenders are interested in information that enables them to determine whether their
loans, and the interest attached to these, will be paid when due.
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1.2.1.4 Suppliers and other trade creditors
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Suppliers and other creditors are interested in information that enables them to
determine whether amounts owing to them will be paid when due. Trade creditors are
likely to be interested in an enterprise over a shorter period than lenders, unless they
are dependent upon the continuation of the enterprise as a major customer.
1.2.1.5 Customers
Customers have an interest in information about the continuance of an enterprise,
especially when they have a long-term involvement with, or are dependent on, the
enterprise.
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1.2.1.6 Governments and their agencies
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Governments and their agencies are interested in the allocation of resources and the
activities of enterprises. They also require information in order to regulate the activities
of enterprises, determine taxation policies and use as the basis for national income
and similar statistics.
1.2.1.7 The general public
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Businesses affect members of the public in a variety of ways. For example, they
may make a substantial contribution to the local economy in many ways, including
the number of people they employ and their patronage of local suppliers. Financial
statements may assist the public by providing information about the trends and recent
developments in the prosperity of the enterprise and the range of its activities.
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1.2.1.8 Management
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The management of a business has the primary responsibility for the preparation
and presentation of the financial statements of the enterprise. Management is also
interested in the information contained in the financial statements even though it has
access to additional management and financial information that helps it to carry out
its planning, decision-making and control responsibilities. Management has the ability
to determine the form and content of such additional information in order to meet its
own needs.
1.2.2 Uses of accounting information
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How good or bad is the financial condition of the business?
Has the business activity resulted in a profit or loss?
How well have the different departments of the business performed in the past?
Which activities or products have been profitable?
Out of the existing products, which should be discontinued and the production of
which commodities should be increased?
Should a component be bought from the market, or rather be manufactured?
Is the cost of production reasonable or excessive?
What has been the impact of existing policies on the profitability of the business?
What are the likely results of new policy decisions on future earning capacity of the
business?
In the light of past performance of the business, how should it strategise for the
future to ensure favourable results?
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Accounting plays an important and useful role by developing the information for
providing answers to many questions faced by the users of accounting information:
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An introduction to business, bookkeeping and accounting
In addition to this, accounting is also useful in the following respects:
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• Increased volume of business results in a large number of transactions and no
businessman can remember everything. Accounting records obviate the necessity
of remembering various transactions.
• Accounting records, prepared on the basis of uniform practices, will enable a
business to compare results of one period with another period.
• Taxation authorities (for both income taxes and sales taxes) are likely to believe
the facts contained in the set of accounting books if maintained according to
International Financial Reporting Standards (IFRS).
• Well-prepared records, backed up by proper and authenticated vouchers, are good
evidence in a court of law.
• If a business is to be sold as a going concern, then the values of different assets as
shown by the financial records assist in bargaining a proper price for the business.
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Question 1.1
There are clearly numerous advantages and benefits of using financial information. However,
there are also distinct limitations.
1.3
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Research the Web, and briefly discuss the limitations of financial accounting information.
Developments in the accounting field
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Accounting is often referred to as the ‘international language of business’. Financial
information is prepared for users all over the world, and the boundaries are widening
at a rapid rate. Accounting is similar to other languages in that, although the same
language is spoken, its interpretation and pronunciation may be different. American
English differs from British (UK) English, and words that mean one thing in a country
may mean something totally different in another. Most countries have traditionally
developed their own accounting standards. In South Africa, the accounting framework
contains the core concepts and principles on which all accounting standards are
based. The accounting standards have traditionally been referred to as Generally
Accepted Accounting Principles (GAAP). GAAP is a set of accounting principles which
used to govern the manner in which financial transactions were reported. The objective
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of GAAP was to regulate the preparation and presentation of financial statements so
that they are understandable, relevant, reliable and comparable.
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As mentioned, each country used to have its own ‘GAAP’. However, this convention
posed a dilemma for investors all over the world, since making an informed decision
across borders based on different sets of financial statements was virtually impossible.
It is due to the need for international harmonisation that the South African body of
accountants has adopted the International Financial Reporting Standards – a set of
reporting standards that are continually being updated to ensure that all member
countries speak the same language of business.
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The idea of a single global accounting language is nothing new. It all began with the
International Accounting Standards Committee (IASC) in 1973. Over the years, this
committee developed 41 global accounting standards referred to as International
Accounting Standards (IAS). The committee was then replaced by the International
Accounting Standards Board (IASB) in 2001. Most of the IAS standards are written to
govern specific types of transactions, such as:
• IAS 2 on inventory (the old AC108); and
• IAS 16 on property, plant and equipment (the old AC123).
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It is important to note that these standards are reporting standards, not recording
standards. The focus of this book will fall primarily on the recording of transactions, and
as such will not be influenced that much by IFRS. Nevertheless, there are a number of
key issues that need to be addressed at the recording stage. One such issue is the use
of the correct international terminology when setting up your books of account. To this
effect, we need to highlight a few of the internationally used terminologies and compare
these with the terms traditionally used in South Africa:
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Debtors
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Terminologies used in South Africa
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Creditors
IAS/IFRS equivalent
Accounts receivable, trade and other receivables
Accounts payable, trade and other payables
Sales
Revenue
Trading stock
Inventory, trading inventory
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(Source: EDGE Learning Media (Pty) Ltd, 2012)
Table 1.1: Local vs. international accounting terms
These concepts, among others, will be discussed in depth in the learning units that
follow.
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1.3.1 Internal vs. external reporting
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In general, most businesses have different versions of their financial statements. The
most detailed version of financial reporting is referred to as management accounts and
could reflect any possible permutation of account information required by management
to base their strategic decisions upon. For most sole proprietorships this will probably
be their only version of the financials, and will also be the set submitted to the South
African Revenue Service (SARS) for tax purposes. However for separate legal entities,
such as companies, the requirements are different. For them, internal reporting usually
takes the form of detailed management reports, with a less detailed version of the
financials being prepared for shareholders. An even less detailed version is then
prepared for publication. This is why accounting standards exist – to regulate the
minimum reporting requirements that have to be adhered to when drafting financial
statements for public scrutiny.
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1.3.1.1 Management accounts
Many small businesses limit their accounting functions to day-to-day bookkeeping,
debtors and creditors, and tax returns. This is obviously imperative, but it is important
to also keep an eye on the big picture.
How did your results compare to the budgets/forecasts?
What are the sales, expenses, debtors and creditor trends looking like?
What is your cash flow outlook for the next two months?
What capital expenditure are you likely to incur in the next few months and can you
finance it?
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Correctly prepared management accounts should show the business owner things
such as:
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Not having this very useful information can be compared to driving in a foreign city
without a map. Management accounts are often drawn up in a comparative columnar
format, usually divided into separate quarters. A typical results sheet will compare the
current quarter’s results with that of the previous quarter, and the previous financial
year.
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1.3.1.2 External reporting – International Financial Reporting Standards (IFRS)
As mentioned earlier, IFRS are standards, interpretations and the framework adopted
by the IASB.
IFRS are used in many parts of the world, including the European Union, Hong Kong,
Australia, Malaysia, Pakistan, Gulf Cooperation Council (GCC) countries, Russia, South
Africa, Singapore and Turkey. Currently, approximately 120 countries (including all of
Europe) have permitted the use of IFRS. Approximately 90 of those countries have fully
conformed to IFRS regulations when reporting for all domestic listed companies.
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IFRS are considered a ‘principles-based’ set of standards in that they establish broad
rules as well as dictate specific treatments.
International Financial Reporting Standards comprise:
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• International Financial Reporting Standards (IFRS) – standards issued after 2001
• International Accounting Standards (IAS) – standards issued before 2001
• Interpretations originating from the International Financial Reporting Interpretations
Committee (IFRIC) – issued after 2001
• Standing Interpretations Committee (SIC) – issued before 2001
• Framework for the preparation and presentation of financial statements
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Financial statements should reflect a true and fair view of the business affairs of the
organisation. As these statements are used by various constituents of the society /
regulators, they need to provide a faithful representation of the financial position of the
organisation.
Qualitative characteristics of financial statements prepared in accordance with IFRS
include the following.
Fundamental qualitative characteristics
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Relevance
Information in financial statements is relevant when it influences the economic
decisions of users. It can do that both by (a) helping them to evaluate past, present or
future events relating to an entity, and by (b) confirming or correcting past evaluations
they have made.
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Materiality is a component of relevance. Information is material if its omission or
misstatement could influence the economic decisions of users.
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Faithful representation
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In order for financial statements to be useful to the different users, it should faithfully
represent the financial performance, financial position and cash flows of the reporting
entity. This can be achieved by ensuring completeness, neutrality and freedom of error.
Enhancing qualitative characteristics
Comparability
Users must be able to compare the financial statements of an entity over time, so that
they can identify trends in its financial position and performance. Users must also be
able to compare the financial statements of different entities. Disclosure of accounting
policies is important for comparability.
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An introduction to business, bookkeeping and accounting
Understandability
Information should be presented in a way that is readily understandable by users who
have reasonable knowledge of business and economic activities, as well as accounting,
and who are willing to study the information with reasonable diligence.
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Timeliness
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To be useful, information must be provided to users within the time period in which it
is most likely to influence their decisions.
Verifiability
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Different independent observers should be able to reach consensus on the faithful
representation of the financial statements – i.e. an independent accountant should
be able to reproduce the same financial results, given the same data and accounting
policies used by the reporting entity.
Different business forms
Legal personality
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The business owner’s choice of business form will determine his or her exposure to
risk, cost and efficiency of start-up, access to capital investment, right to profits, level
of management involvement and the relevant income tax regime.
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One needs to understand the meaning of legal personality. A human being is a legal
‘entity’ from the moment he or she is born. This means that a human being is liable
for his or her own debts, and is entitled to his or her own rights. A company is another
type of legal entity, but since a company is obviously not born in the same way as a
human being, something must happen before a company is regarded as an entity that
is separate from its shareholders.
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A company acquires legal personality by being registered, and once a certificate of
incorporation has been issued the law regards the company as a separate entity.
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Starting procedures
Some forms of business are easy to start, but others have lengthy, expensive and
complicated procedures.
Obtaining capital
The amount of start-up capital required depends on the nature and size of the proposed
business. For example, a hair salon needs less capital than a motor manufacturer.
Some types of businesses need millions of rands to get going. Someone that intends
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to start a spaza shop might have enough start-up capital available to fund the project
on their own. However, a person intending to start an airline will most probably consider
a form of ownership where many investors can contribute capital.
Ownership and management
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involvement in the management of the business and the level of controlling power he/
she wishes to retain.
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Distribution of profits
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The various forms of business allow for the distribution of profit in different ways. In
some cases the owner takes all the profit, while other forms of business allow for the
distribution of either a portion or the whole of the profit to the owners in an agreed ratio.
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Income tax
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The way in which income tax is calculated differs from one business form to another.
When a business is a separate legal entity (e.g. a company or a close corporation, also
known as a CC), it is responsible for paying corporate taxes as a business. When a
business and the owner are seen as the same legal person (e.g. sole proprietorship),
taxes become payable in the personal capacity of the owner/s.
The following are the different forms of ownership.
Sole traders
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The sole trader (also known as the sole proprietorship) is the oldest form of ownership.
It suits the small business, which one person can manage efficiently – a butchery,
florist, plumber, electrician, spaza shop, the corner café, etc. The sole trader does not
have legal personality. The assets of the business belong to the owner and the owner
is personally responsible for the liabilities.
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It is easy to become a sole trader. You choose a legal name and obtain a licence (if
applicable). The sole trader usually manages the business alone, but you can appoint a
manager and staff if you so prefer. The ability of the sole trader to obtain capital depends
on how creditworthy the owner is. If the owner does not have access to much money, a
lack of capital may restrict the growth and expansion of the business. All profits generated
by the business belong to the owner, and he/she is taxed on these profits according to a
sliding scale. For the 2021 tax year, a person (under the age of 65) who earned less than
R 83 100 per annum in profits would be exempt from paying any taxes. Any amount
above the R 83 100 would be taxed at 18% until a certain higher threshold is reached,
at which point a higher percentage of tax would have become payable. The marginal
percentage reaches a maximum at 45%. In South Africa these thresholds are adjusted
for inflation on an annual basis, and become public knowledge in the national budget
speech delivered by the minister of finance during February (for implementation effective
1 March) of every year.
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Partnerships
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A partnership can be defined as an agreement between at least two or more persons
whereby they each contribute something and have a common objective of obtaining
some sort of mutual benefit. A valid partnership agreement must be concluded. Partners
have to work together in order to make a profit and divide it among themselves.
If an agreement on the proportion in which profits are to be shared is absent, the
following general rules apply:
The profits are shared between the partners in proportion to the value of their
respective contributions to the firm.
If the value of the contributions cannot be ascertained and compared, the
partners share the profits equally.
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Since a partnership does not exist independently from its partners, it does not have a
legal personality. The rights and obligations of the partnership are those of the partners
and the assets belong to the partners. Partners are co-creditors and co-debtors in
respect of the rights and obligations of the partnership during the existence of the
partnership. When one of the partners dies or retires, the partnership dissolves,
meaning it comes to an end. The partners then become joint and several co-debtors in
respect of any unpaid debts of the partnership. A creditor of the partnership may then
claim the whole amount from any of the partners individually. If that partner pays more
than his proportional share of the debt, he may recover the excess payment from his
former partners.
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The Business Names Act 27 of 1960
The Companies Act 71 of 2008
The Insolvency Act 24 of 1936
The Attorneys Act 53 of 1979
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A partnership does not need to be registered. A partnership as a business form is often
used by those in the organised professions (e.g. attorneys and auditors). Currently
there is no partnership Act in South Africa which has a bearing on partnerships, but the
Acts which among others regulate specific aspects of partnerships are:
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A valid partnership agreement is a prerequisite for the establishment of a partnership.
The partnership agreement is a contract and therefore it must comply with all the
general requirements for a valid contract. The following elements must be present:
(a)
(b)
(c)
(d)
(e)
12
the parties to the contract must have contractual capacity;
the parties must reach an agreement;
the contract must be lawful;
it must be possible to render performance in terms of the contract; and
contractual formalities, if any, must be complied with.
Learning Unit 1
There are three essential elements in a partnership agreement.
(P
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• The first is that each partner must make a contribution to the partnership or give
a binding undertaking to make a contribution. The contribution may for instance
be money, or corporeal or incorporeal things (for instance copyright, expertise,
or labour). A contribution can also consist of a combination of different types of
contributions, for example labour and money.
• Secondly, the partnership business must be carried on for the joint benefit of the
partners. This does not mean that partners must receive equal shares in the profit,
but that each partner must receive some part of the profit.
• Lastly the partnership must have the objective of making a profit. It is important
to know that the essential elements of a partnership cannot be altered or changed
through agreement between the partners. If one of the essential elements is missing,
the contract is not a partnership agreement, but another form of contract.
Ed
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It is always better to have an agreement in writing. This is because a written agreement
ensures that there can be no uncertainty about the agreement between the parties when
they entered into the contract. However, a valid partnership may, nonetheless, come
into being even if there is no written contract. Each partner has a right to participate
in the management of the partnership and to perform any management functions on
behalf of the partnership. Partners have equal management powers irrespective of
the size of their respective shares in the partnership. However, partners are entitled to
restrict management powers among themselves. They may agree that certain partners
will possess no management powers. They can also entrust all their management
powers to one partner, a so-called managing partner. In the absence of this type of
restriction agreement, a partner may, however, exercise his management powers freely.
The general management rights and duties include the power of representation, access
to management information and the rendering of accounts.
E
Companies and close corporations
ED
G
The Companies Act 71 of 2008 came into operation in 2011 and replaced the entire
previous Companies Act 61 of 1973.
The new Act broadly identifies two types of companies to be incorporated:
©
• A profit company
• A non-profit company
A profit company is defined as one incorporated for the purpose of financial gain for
its shareholders.
A non-profit company is incorporated for public benefit, with the income and property
not distributable to its incorporators. A non-profit company may be regarded as a
successor to the previous section 21 companies in the previous Act.
13
An introduction to business, bookkeeping and accounting
Profit companies could be:
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• A state-owned company (SOC)
• A private company (Proprietary Limited) if it was not state-owned and the
Memorandum of Incorporation prohibited it from offering its securities to the public
and restricted the transferability of its securities
• A personal liability company (Incorporated) if it met the criteria for a private
company and the Memorandum of Incorporation stated that it was a personal
liability company
• A public company (Limited) in any other case
(P
An external company has been defined as a foreign company carrying on a business,
or non-profit activities. ‘Carrying on a business’ includes the holding of meetings,
establishing a bank account, establishing offices, acquiring or collecting debts,
acquiring an interest in a property and entering into employment contracts.
E
Ed
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External companies can register either as a profit or a non-profit company and would
then need to follow the relevant financial reporting and auditing or review standards.
All companies will have to maintain accounting records. All have to prepare annual
financial statements within six months of the end of their financial year. Previously
the stipulated period was nine months. Importantly, the six-month deadline will also
apply to close corporations. All companies must lodge an annual return containing
information to be prescribed, but only companies that are required to have their
financial statements audited also have to lodge these with the Companies and
Intellectual Property Commission (CIPC) along with their annual returns. Different
financial reporting standards will apply to profit and non-profit companies as well
as to different categories of profit companies. Annual financial statements for public
companies and state-owned companies have to be audited. Whether or not audits are
required for some other companies depend on whether the company is operating in a
space that can be defined as having public interest.
ED
G
It can be stated that certain private companies need to have their annual financial
statements audited, while most fall outside the sphere of public interest and do not
have to be audited but only reviewed. They are even exempt from audit and review if
they are effectively owner-managed companies.
©
Other companies are either audited voluntarily at the option of the company or
independently reviewed in a manner that satisfies the regulations introduced by the
minister. Opting for a voluntary audit would invoke all the additional transparency
requirements of Chapter 2 Part C of the new Companies Act (Companies Act 71 of 2008).
Since the new Companies Act became effective, new registrations of CCs (a popular
form of business ownership in South Africa between 1984 and 2011) have been
discontinued. Current CCs can choose to either convert to a company or continue to
exist until deregistration or dissolution in terms of the Close Corporations Act 69 of
1984. No automatic conversion or dissolution is provided for, as was the case in earlier
versions of the Companies Bill. CCs that continue to exist will have to compile financial
statements as is currently the case, but will be subject to an annual audit on the same
14
Learning Unit 1
terms and conditions as the minister regulates for companies that are deemed to be
in the public interest. The current accounting frameworks would automatically be
applicable under the new Act.
Different fields in accounting
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1.5
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Historical data can be used to make informed decisions about a business. Such
historical data is created by making use of financial accounting tools like the rules of
double entry, journals, ledgers and financial statements. However, financial accounting
has its drawbacks too. Past performance is seldom a guarantee of future success, and
in today’s ever-changing business environment, there is a definite need for dynamic
and flexible financial and managerial tools to ensure the sustainability of an enterprise.
Ed
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It is all very nice and convenient to have a look at the performance of the business
in retrospect – comparing the current year’s statement of profit or loss and other
comprehensive income and statement of financial position with those of previous
years, analysing the statements through a series of ratios and assessing relative
performance compared with peers and competitors. However, the reality is that
retrospect has never truly made any entrepreneur successful. According to Hamel and
Prahalad (1994), customers are notoriously lacking in foresight. They question whether
customers saw the cell phone, fax machine and copiers coming before they arrived.
Sony’s visionary leader, Akio Morita (in Hamel and Prahalad, 1994) puts it as follows:
‘Our plan is to lead the public with new products rather than ask them what kind of
products they want. The public does not know what is possible, but we do. So instead
of doing a lot of market research, we refine our thinking on a product and its use and
try to create a market for it by educating and communicating with the public’.
G
E
Before any entrepreneur engages in a new venture, a proper cost analysis must be
carried out. There are often unexpected and hidden costs involved in business, and
the business owner needs to plan carefully to avoid the lurking pitfalls, making periodic
adjustments to a set of management accounting statements, budgets and cost sheets.
ED
1.5.1 Financial accounting vs. management accounting
©
The purpose of accounting is to provide meaningful information to users through
the recording, estimating, organising and summarising of data. There are various
disciplines that underpin the world of accounting.
Two main branches are:
• Financial accounting – provides a scorecard by which the past performance of
a business is judged in the form of the financial statements which are used by
stakeholders outside the organisation.
• Management accounting – reports are prepared for managers and other users
inside the organisation. ‘Management accounting’ is often referred to as ‘managerial
accounting’. These two terms may be used interchangeably.
15
An introduction to business, bookkeeping and accounting
The differences between financial accounting and management accounting can be
summarised as follows.
Management accounting
Financial accounting
Reports to stakeholders inside the organisation for
planning, controlling, directing, motivation and performance
evaluation
Emphasis is on summaries of financial consequences of
past events
Emphasis is on decisions affecting the future of the
organisation
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Reports to stakeholders outside the organisation:
Owners, lenders, SARS, regulators, etc.
Data must be relevant and flexible
Precision of information is required
Timeliness of information is required
Data is summarised for the entire organisation
Detailed segment reports about departments, products,
customers and employees are prepared
Must follow an accounting framework: IFRS
Need not follow an accounting framework
Mandatory to report in the form of financial statements
Reporting is completely voluntary and can be done in the
form of notes, letters, reports, memo and emails
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Data must be objective and verifiable
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(Source: EDGE Learning Media (Pty) Ltd, 2018)
Table 1.2: Financial accounting vs. management accounting
Ed
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1.5.1.1 The importance of management accounting in the management of an
enterprise
The main goal of any business is to make a profit. In order to reach this goal, the efforts
of different individuals within the organisation must be coordinated and managed. The
four essential functions of management are:
©
ED
G
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1. Planning – identifying ways of attaining goals and the resources needed in the
process of reaching these goals.
2. Organising – developing a framework or organisational structure and putting measures in place to ensure that the resources (people and materials) are in place to
reach the set goals.
3. Leading – directing the human resources of the organisation and motivating employees in such a way that their actions are in line with previously formulated goals and
plans.
4. Controlling – Check that performance and actions conform to plans to reach the
predetermined goals. Control makes it possible for management to identify any
deviations from these plans, rectify these deviations and, if needed, revise the goals
and plans.
Management accounting is a tool that:
• assists managers of any enterprise in the planning process when the initial steps to
achieve the goals must be identified; and
• provides managers with a means of control by generating ways of measuring deviations from budgeted results and formulating revised plans where needed.
16
Learning Unit 1
1.5.1.2 Factors which must be taken into account during the planning process
Lt
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As mentioned, financial accounting is based on historical data which has its origin
in the accounting records of the enterprise, while management accounting provides
reports which will assist management in the planning and control processes.
ty
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In order to plan, managers must not only look at current business practices but
projections must be made of what can be expected in the future. The general economic
environment will be one of the most important factors which must be taken into consideration. The general economic environment can be divided into:
1.5.1.3 Emphasis is on the future
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(P
• the internal environment – economic factors within the organisation over which
management has some measure of control; and
• the external environment – economic factors outside of the organisation over which
management has no control.
Ed
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The financial statements generated by financial accounting provide summaries of
past transactions. As planning of the future forms an important part of the manager’s
job, management accounting has a strong future orientation. Changes are continually
taking place in the business environment with regards to customer needs, competitors,
international economic conditions and so on. Financial accounting cannot provide
managers with sufficient information to deal with these changes, as dealing with the
changes demand that the manager’s planning be based on estimates of what will
happen rather than on summaries of the past.
1.5.1.4 Data must be flexible and relevant
ED
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Where financial accounting emphasises the need to be objective and verifiable,
managers often need information that is relevant even if it is not completely objective or
verifiable. This means that the information must be appropriate for the problem at hand.
The management accounting information system should be flexible in order to be able
to provide information for different situations as the need arises.
1.5.1.5 Timeliness of information is more important than precision
©
Managers must often make decisions on short notice. In order to make such decisions,
it is more important for the manager to receive a fair estimate now than to wait a week
for a precise answer. Providing data that is precise is costly in terms of both time and resources, and management accounting places less emphasis on precision than financial
accounting. Data needed for management decision-making can often not be expressed
in monetary terms. For example, data about customer satisfaction is very important to
management, but is difficult to express in monetary terms.
17
An introduction to business, bookkeeping and accounting
Question 1.2
Do some research and answer the following questions:
From Table 1.2, it is evident that timeliness is more important than precision when
product costing is done in a business.
Lt
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(i)
Explain what is meant by this statement, and why timeliness is so important in the
business world.
It is also clear that a segmented approach is followed in costing, whilst reporting on
the business as a whole is central to financial accounting.
ty
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(ii)
Financial accounting reports need to be presented according to a set accounting
framework according to IFRS and/or IAS.
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(iii)
(P
What do you think the benefits are to a business if they compile reports for different
segments or departments?
To which area of accounting is it relevant and why?
(i)
Ed
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Question 1.3
Determine whether each of the following statements is descriptive of financial
accounting or management accounting.
Financial
accounting
Management
accounting
E
Provides information mainly for external users
G
Generates ‘general purpose’ financial statements
Makes more use of subjective data
ED
Future-orientated reports
Emphasises objective data
Provides information mainly for internal users
©
Must conform with standards that are externally set
Generates ‘specific purpose’ financial statements
Reports on financial events of the past
Not subject to externally set standards
(ii)
18
From a management accounting perspective, we often speak of ‘cost centres’.
Discuss the meaning of this term and explain how it relates to the business
environment.
Learning Unit 1
Question 1.4
Column A
Column B
Lt
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The following information relates to the work covered thus far in the learning unit.
Materiality
A
Precision of information is required
(ii)
IFRS
B
Maximum marginal tax rate for individuals
(iii)
Fundamental qualitative
characteristics
C
May not offer securities to the general public
(iv)
Luca Pacioli
D
Component of ‘relevance’
(v)
Sole proprietorship
E
The ‘Father of Accounting’
(vi)
Financial accounting
F
Relevance and faithful representation
(vii)
Non-profit company
G
May offer securities to the general public
(viii)
Private company
H
Owners are called ‘shareholders’
(ix)
45%
I
Owner takes all the financial risks involved with the
business
(x)
Companies
J
Institute of Directors
K
Accounting equation
L
Incorporated for public benefit
M
International Financial Reporting Standards
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(i)
Required:
ED
G
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Match the items listed in Column B with those listed in Column A. Write down only the letter
of your choice next to the corresponding number. For example:
(i)
J
(ii)
B, etc.
1.6
The bookkeeping and accounting cycles
©
The illustration that follows shows the basic bookkeeping and accounting cycle. The
bookkeeping cycle is a monthly cycle that ends with a trial balance. The accounting
cycle includes the bookkeeping cycle, but ends with the annual financial statements.
The accounting cycle is therefore a yearly cycle.
19
An introduction to business, bookkeeping and accounting
Transactions take place
The General ledger summarises the journals
Ed
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The trial balance summarises the General ledger
©
ED
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Note: The above steps are followed
on a monthly basis.
At the end of the financial period,
usually the last day of the tax year,
the following two steps are followed:
The statement of profit or loss and
other comprehensive income
summarises financial
performance
&
The statement of financial position
measures financial position
(A = O + L)
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Figure 1.1: The bookkeeping and accounting cycle
20
Lt
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(P
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Note: Somewhere in here a bank
reconciliation needs to be done
(discussed in Accounting 1 B)
peated on a monthly basis
Journals summarise the source documents
re
cle is
s cy
Thi
Source documents summarise the transactions
Learning Unit 1
Question 1.5
In 1494 the Venetian monk, Luca Pacioli, had his famous Summa published. This publication
clearly outlined the double-entry system as used in the church.
Question 1.6
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Do you know how this double-entry system was portrayed in this publication? Do some
research on the origins of the double-entry system.
What do you think the term ‘accounting’ means? Formulate your own definition.
(ii)
What do you think the term ‘bookkeeping’ means? Formulate your own definition,
and explain what the difference is between bookkeeping and accounting.
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(i)
Question 1.7
Ed
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Unemployment is one of the major macroeconomic problems facing South Africa. Many
workers who are unable to find employment in the formal sector hope to find some income
from work in the informal sector. An accounting system is primarily a system of controlling
money, which is often referred to as a ‘scarce resource’. In an established business, a
comprehensive accounting system will be in use.
street vendors selling fruit and vegetables;
persons selling local artefacts at flea markets;
car guard services;
housewives baking cakes and selling them to home industries; and
existing farmers.
ED
•
•
•
•
•
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Not only is such a system compulsory, but it is also a control measure which ensures that
all receipts and payments are accounted for and that source documents exist to verify each
transaction. In most businesses the accounting system is managed by a qualified person,
either an accountant or a bookkeeper. In South Africa, as in most other countries in the
world, we also find businesses operating in what is called the ‘informal business sector’.
Examples of such businesses are:
©
These businesses mostly generate very small profits which mean that they are not liable
for tax, and the people who run the businesses mostly have little knowledge of the formal
accounting system. Yet they need to exercise a measure of control in order to survive.
Required:
Draw a comparison between the formal accounting systems as applied in the formal
business sector and an accounting system as we may find in use in an informal business
system. Do this comparison in tabular form.
21
An introduction to business, bookkeeping and accounting
Question 1.8
An entrepreneur intends to start up an ice-cream parlour in a busy shopping mall. Is it best
for a new entrepreneur to start off as a sole proprietorship or as a company in South Africa?
Lt
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Required:
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Inform the entrepreneur of the advantages and disadvantages of starting a sole proprietorship
or a company in South Africa.
1.6.1 Transactions
Ed
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Owner’s contributions of cash or other valuables/resources
Owner’s withdrawals of cash or other valuables/resources
Receipts from customers for cash sales of merchandise or other income
Invoices to customers for credit sales or services rendered
Receipts from customers for sales previously made on credit
Payments to suppliers for cash purchases of merchandise and/or other expenses
Invoices from suppliers for credit purchase of merchandise and/or other expenses
Payments to suppliers for purchases previously made on credit
Customer returns
Returns to suppliers
Other
E
•
•
•
•
•
•
•
•
•
•
•
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(P
Before we start to learn basic bookkeeping, the system for recording business financial
transactions, we first need to a have a look at the different types of transactions that
a business can have. There are many different types of transactions, but for now they
can best be grouped as follows:
G
Definition: What is a source document?
©
ED
These are paper-based or electronic records used to transcribe/summarise business
financial transactions. Receipts from debtors are documented on receipts, payments
to creditors are documented on cheques and their counterfoils or electronic fund
transfer (EFT) confirmations etc. More on source documents later.
Definition: What is a journal?
A business may have many similar transactions in a period (month), so instead of
recording a thousand cash sales receipts in the accounting system, rather place
all the receipts in a table, total up the table, and record the totals in the accounting
system. A journal is a table used to tabulate/summarise similar transactions so as
to facilitate fewer postings into the bookkeeping system.
22
Learning Unit 1
Definition: What is a bank reconciliation?
Lt
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This is a monthly process where we have to make sure that the business agrees
with the transactions recorded on the bank statement. We are reconciling our
records with the bank’s records.
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Definition: What is the General ledger?
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(P
This is the bookkeeping/accounting system per se and is a collection of accounts.
More about this later.
Definition: What is the trial balance?
Ed
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At the end of the month it is useful to see all the accounts in the General ledger in
which you have recorded all the transactions that were tabulated in the journals.
This table is called the trial balance, and is simply a list of the balances/totals on
all the accounts in the General ledger. One can therefore say that transactions are
summarised on source documents, which are then recorded in journals. Journals
are then summarised in the General ledger and the General ledger is summarised
in the trial balance.
G
E
Definition: What is a statement of profit or loss and other comprehensive income?
ED
A statement of profit or loss and other comprehensive income is a list of all
the income accounts less the expense accounts, and is used to disclose the
elements used in the calculation of financial performance of the business.
©
Definition: What is the statement of financial position?
This statement is used to disclose the financial position of the business. The
statement of financial position is a list of balances after all the income and
expense accounts have been closed off.
23
An introduction to business, bookkeeping and accounting
Computerised Accounting Fact
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all that is really required is processing
of the source document and/or the
journal entry – the computer does the
posting, and automatically updates all the
subsequent statements, such as the trial
balance, the statement of profit or loss
and other comprehensive income and
the statement of financial position. It is
important to note that, whereas (under a
hand system of accounting) journals are
usually totalled and posted at the end of a
month only, most computerised systems
allow for updating after every transaction.
As you can see, there are many different
computerised bookkeeping systems, but
they all have one thing in common: they
cut out the arduous processes involved
in summarising journals from batches of
source documents, posting of journals to
the ledger and creating further reports
from that point forward. In effect, all that
the bookkeeper has to do is complete the
books of first entry. In other words, the
computerised system makes it easier to
complete the accounting cycle, in that it
effectively excludes steps 4, 5 and most
parts of step 6 of the hand-system. In
other words, the bookkeeper only needs
to complete and file source documents,
and enter these into the correct subsidiary
journals. The computer will post the journal
entries to the General ledger and update
the trial balance automatically. By ‘running
a year-end’ the computer will be able to
extract the financial statements (statement
of profit or loss and other comprehensive
income and statement of financial position)
too. The only additional entries that need
to be made by the accountant are the
adjustments to the financial statements,
which fall outside the scope of this module.
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Perhaps the most significant addition to
contemporary accounting has been the
introduction of sophisticated computer
programs to assist with the accounting
function. Since their widespread
introduction in business and government
organisations in the 1950s, the primary
applications of computers have been in the
areas of record-keeping, bookkeeping, and
transaction processing. Such applications,
commonly referred to as data processing,
automate the flow of paperwork, account
for business transactions (such as order
processing, inventory and shipping
activities), and maintain orderly and
accurate records.
G
E
ACCPAC
Brilliant Accounting & Training
Impact
Microsoft Office Accounting
Micro Ledger
MYOB
Palladium Accounting
Sage
QuickBooks
Revelation Accounting
Simply Accounting
SYSPRO
TurboCASH
Webaccounting
©
ED
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Ed
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There are a vast number of software
packages that have developed over
the years. These are some of the more
popular brands used in South Africa (listed
alphabetically):
24
These and other competing products
have all been developed to streamline
bookkeeping and accounting processes.
When working on an accounting package,
Learning Unit 2
2
2.3
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2.1.2
Liabilities .............................................................................................29
(P
Assets .................................................................................................26
The business entity rule .....................................................................................33
2.2.1
Proprietary accounts .......................................................................... 38
2.2.2
Profit ................................................................................................... 39
The General ledger – the system of bookkeeping .............................................45
2.3.1
The T-account in the General ledger ..................................................45
2.3.2
Cross references ................................................................................ 54
An introduction to inventory systems ................................................................69
©
ED
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2.4
2.1.1
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2.2
The accounting equation ................................................................................... 26
Ed
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2.1
The accounting equation and
double-entry system
25
The accounting equation and double entry system
The accounting equation
(P
2.1
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Lt
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In this learning unit you will discover the reason why accounting has become known
as the language of business. We delve into the intricacies of an equation which holds
all financial information together – the accounting equation. You will discover how the
accounting equation can be used in everyday life, and how the same principles of
balancing the books of your own household can be applied in a business environment
to draw up a statement of financial position. You will also find that there are facts
and rules in accounting. Facts need to be understood, and rules need to be learned,
applied and practised. In order for you to become an expert in accounting, you will
need to put pen to paper, and work through numerous exercises and problems.
In this section we shall delve into the intricacies of bookkeeping and accounting, and
show you how all financial transactions are based on a simple fact of life:
at
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A person or business’s Worth = Assets (What you own) – Liabilities (What you owe)
Let’s say Andrew owns a house and that house is worth R 1 million. Let’s say that he
has mortgaged the house, and has an outstanding loan of R 400 000 owing to the
bank.
Ed
uc
How much is Andrew worth?
Worth = Assets (What Andrew owns) – Liabilities (What Andrew owes)
Worth = Assets (House @ R 1 000 000) – Liabilities (Home loan @ R 400 000)
Worth = R 1 000 000 – R 400 000
Worth = R 600 000
G
E
2.1.1 Assets
©
ED
In its simplest form, an asset is something valuable (and usually tangible) that you
own, and is thus convertible into cash. The technical definition is wider and includes
items under your control and other intangible items such as patents, copyrights etc.
Your assets are therefore all the cash resources in your possession, as well as all the
resources you are likely to convert into cash at some point in the future.
26
Learning Unit 2
Definition: What is an asset (formal definition)?
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An asset is a present economic resource that is controlled by the business as a
result of past events. An economic resource is a right that has the potential to
produce economic benefits. In other words, if the business buys a car on hire
purchase, the bank holds the registration documents for the car and therefore is
the effective owner, but the business controls the car and treats it as an asset in
its books. Interestingly in the case of a hire-purchase transaction, the business
will also have a corresponding liability being the money it owes on the car to the
bank or finance house.
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(P
Assets are classified as long term or non-current assets (will be owned/controlled for
longer than a year before it is disposed of) and short term or current assets (will be
owned for less than a year).
An individual’s personal assets would include things like their house, car, investments
and money in the bank.
Ed
uc
A business’s assets would include non-current assets, intangible assets and current
assets.
Non-current assets:
ED
G
E
• Land and buildings (i.e. property controlled by the business)
• Plant and machinery (a collective name used for machinery and equipment,
including movables assets, used for a specific purpose such as for a long-term
capital investment project)
• Equipment (this includes computer equipment, and office equipment such as printers)
• Financial assets (these are investments such as a money market account or shares
on a stock exchange or unit trusts)
• Motor vehicles
©
Intangible assets is a term used to refer to long-term assets that are not physical in
nature. They can neither be seen nor touched. Examples of intangible assets include
trademarks, copyrights, patents and goodwill.
Note: In this book we focus on tangible assets rather than intangible assets.
Current assets:
• Trading inventory on hand (‘Trading inventory’ is a term used for the goods that a
business buys and sells. The trading inventory for a car dealership is the cars that it
buys and sells. Other terms for trading inventory are trading goods or merchandise.
27
The accounting equation and double entry system
at
io
n
Question 2.1
(P
ty
)
Lt
d
• Debtors (This is the word or term used for customers that owe the business money.
When a business sells trading inventory, it can sell it for cash or it can sell it on
credit. A customer that buys trading inventory on credit is a debtor, as they owe the
business money. This term ‘debtor’ is not to be confused with the term ‘debit’ or
‘debt’ – more about these definitions later.)
• Cash in the bank
• Petty cash in the office (money used to purchase small items)
• Cash float (money in the cash register from which change is given to customers)
• Input VAT (This is the VAT paid by the business, to the suppliers, on goods and
services purchased by the business. As a registered VAT vendor, the business is
allowed to claim this VAT back from SARS. It is, thus, expected that cash will flow
into the business when SARS pays the business back.)
The owner of Panda Motors has decided to buy five vehicles, four of which are for resale
purposes. The fifth vehicle will be used to deliver spare parts to customers.
Ed
uc
Do you think the bookkeeper of Panda Motors should treat the fifth vehicle differently to the
other four? Give reasons for your answer.
Question 2.2
From the list below, identify the items that will be regarded as assets. Explain
why these items should be regarded as assets, and why the others should not be
regarded as assets by the bookkeeper.
G
E
(i)
Office equipment
Advertising costs
Traffic fines
A favourable bank balance
Trading inventory
A fixed deposit
Vehicles
Packing materials
Fuel
Office consumables
©
ED
•
•
•
•
•
•
•
•
•
•
(ii)
28
Briefly explain the accounting cycle.
Learning Unit 2
2.1.2 Liabilities
Lt
d
Earlier, we explained that an asset is essentially something that you own. A liability is
exactly the opposite of an asset – it is something that you owe. However, once again
the true technical definition is wider to include other obligations.
ty
)
Definition: What is a liability?
at
io
n
(P
Liabilities are debts. They represent the business’s present obligation to transfer
economic resources due to past events. Thus, whereas assets can be converted
into cash in the future or used to produce economic benefits (potential cash
inflows), liabilities must be paid back in the future (potential cash outflows).
Ed
uc
Liabilities are classed as long-term or non-current liabilities (they will be owed for longer
than a year, they are longer-term debts, and they are often referred to as interestbearing liabilities) and short-term or current liabilities (they can be owed for less than a
year, are shorter-term debts, and will be paid back in less than a year).
An individual’s personal liabilities would include things like a clothing account or a bank
overdraft or the bond on their house.
A business’s liabilities would include non-current liabilities and current liabilities.
E
Non-current liabilities:
ED
G
• Mortgage loan (This is a bond on a property. A mortgage is raised when an entity
buys a property and takes out a loan from the bank to pay the property using the
property as collateral or security on the loan.)
• Bank loans with a maturity greater than one year (Typically bank loans which are not
secured by a property can be secured by another asset or can be unsecured.)
Current liabilities:
©
• Bank overdraft (What is a bank overdraft? This is when an entity’s current bank
account balance goes into negative. The bank gives it the facility to spend money it
does not have.)
• Creditors (Who is a creditor? A creditor is a supplier of the business. The business
owes a supplier money for purchases made on credit).
• SARS (Money owed to SARS for VAT and/or other taxes).
29
The accounting equation and double entry system
Definition: What is a supplier?
(P
Question 2.3
ty
)
Lt
d
A supplier is a business or person that supplies goods or services to a business.
If a business buys boxes from Nampak and sells them in a shop, then Nampak
is their supplier. A business could purchase boxes from Nampak for cash or on
account. If the purchase is made on account then Nampak (the supplier) is a
creditor.
at
io
n
On 1 January 20.7 Peter Mkhonza bought a vehicle on hire purchase for R 260 000. This
is not the cash price, but the hire-purchase price. (This means that interest for the whole
financing period has been added to the cash price to arrive at the R 260 000.)
Ed
uc
His vehicle is fully financed through Best Finance CC. The terms are: R 20 000 deposit, and
repayments of R 2 000 per month for a period of ten years (R 2 000 × 12 × 10 = R 240 000),
starting with the first premium on 31 January 20.7. Assume that Peter is a sole trader and
that his business’s financial year runs from 1 January to 31 December.
Required:
©
ED
G
E
You are Peter Mkhonza’s bookkeeper, and have been asked to classify the business’s
liabilities into current liabilities and non-current liabilities on 31 December 20.7. (Assume
that all the premiums due to Best Finance CC for the year have been paid by 31 December
20.7 – including the premium due on 31 December).
30
Learning Unit 2
Question 2.4
The following list of assets and liabilities appeared in the books of Kiara Enterprises on
28 February 20.7, the last day of the financial year:
Lt
d
R
120 000
24 000
4 000
2 000
180 000
30 000
400 000
250 000
1 000
15 000
124 000
at
io
n
(P
ty
)
Equipment
Debtors control
Petty cash
Bank (unfavourable)
Vehicles
Creditors control
Land and buildings
Mortgage loan
Cash float
Trading inventory
Loan from Plewman’s Bank
(R 24 000 redeemable by 28/02/20.8)
Required:
(i) Calculate the following values of
Kiara Enterprises as at 28 February 20.7:
the total of the non-current assets
the total of the current assets
the total of the non-current liabilities
the total of the current liabilities
the owner’s wealth (equity)
Ed
uc
•
•
•
•
•
(ii) Define the following concepts:
•
•
•
•
•
Assets
Owner’s equity
Liabilities
Income
Expenses
E
Example 2.1 (The proverbial ‘accounting equation’)
ED
G
Now, it is easy to understand that for an individual W = A – L. However, the system
has evolved over time to be phrased in a different way. Journey through the logic that
follows and you will see how we end up with the final accounting equation.
©
In business, accountants give ‘Worth’ a formal name – they call it Owner’s equity, which
simply means the owner’s worth, or equity. Owner’s equity means the ‘owner’s wealth
within the business’. Thus:
Worth = Owner’s equity
31
The accounting equation and double entry system
Therefore:
Owner’s equity = Assets – Liabilities
ty
)
Lt
d
Nowadays, accountants prefer the equation to start with Assets. Thus, from basic
algebra, to make Assets the subject of the formula, we must add Liabilities to both
sides (what you do to one side of the equation you do to the other). Alternatively you
can use the mathematical logic of bringing the liabilities over to the ‘other side’, in
which case the sign changes from a negative (–) to a positive (+).
Therefore:
Owner’s equity + Liabilities = Assets
at
io
n
Or:
(P
Owner’s equity + Liabilities = Assets – Liabilities + Liabilities
Assets = Owner’s equity + Liabilities
Or:
Ed
uc
A=O+L
Thus:
The proverbial ‘accounting equation’ is:
E
A=O+L
ED
G
The system for recording the financial transactions of a business is known as
accounting and this system is based on the accounting equation which is a simple fact
of life that is:
©
The fact that the system for accounting for business financial transactions is based on
an equation means that for every transaction that is recorded the equation must always
balance, because this is the nature of an equation – it must always balance.
For every business transaction, the accounting equation must balance because it is
its nature for the left-hand side of an equation to always equal the right-hand side,
otherwise it is not ‘equal’.
32
Learning Unit 2
2.2
The business entity rule
Lt
d
At this point it is very important to highlight an accounting principle known as the
business entity rule. According to this principle, the books of account should not reflect
the personal affairs of wealth of the owner(s) outside of the business. It assumes that
the books of the business are drawn up to reflect the wealth (or equity) of the owner
inside their business only.
(P
ty
)
Our examples dealing with Andrew were useful in understanding the concepts of worth,
assets and liabilities, but it is important to realise that accountants analyse the financial
results of a business without taking into account the owner’s personal assets and
liabilities – only the assets and liabilities of the business are considered.
at
io
n
Example 2.2 (Capital contributions)
Let’s test and build our system of accounting for business financial transactions.
Ed
uc
Transaction 1:
Andrew starts a business and opens up a bank account as Super Surfboard Centre
(SSC) and transfers R 50 000 out of his personal bank account into the business’s bank
account.
E
SSC thus has cash of R 50 000 and is thus worth R 50 000.
The business’s worth increases by R 50 000
ED
G
Cash coming into the business
Tr:
©
1
Assets
=
+ R 50 000
R 50 000
=
Owner’s equity
+
Liabilities
+
R0
+ R 50 000
R 50 000
The business has assets of R 50 000
The business is now worth R 50 000
33
The accounting equation and double entry system
Now ask yourself the question: Does the accounting equation balance?
Well the left-hand side of the equation has increased by R 50 000 and the right-hand
side of the equation has increased by R 50 000.
Lt
d
Yes, the accounting equation balances!
ty
)
The worth of the business has increased from R 0 to R 50 000.
(P
Example 2.3 (Cash purchase of merchandise)
Let’s try another transaction.
at
io
n
Transaction 2:
SSC now takes R 20 000 of the business’s money in the bank account and purchases
surfboards which Andrew intends to sell to his new clients.
Ed
uc
Thus, the business has R 20 000 less cash but now has R 20 000 worth of surfboards
which it intends to sell. (The surfboards are the trading inventory of the business and
are an asset.)
Assets
=
R 50 000
=
+ R 50 000
+ R 20 000
- R 20 000
©
Owner’s equity
+
Liabilities
+
R0
+ R 50 000
ED
1
2
G
Tr:
E
Trading inventory coming into the business
R 50 000
The business is still worth R 50 000
Cash going out of the business
34
Learning Unit 2
Now ask yourself the question: Does the accounting equation balance?
Lt
d
Well the left-hand side of the equation has increased by R 20 000 and decreased by
R 20 000. Thus the net effect on the left-hand of the equation is zero and the right-hand
side of the equation is unchanged.
Yes, the accounting equation balances!
ty
)
The worth of the business is unchanged.
(P
Example 2.4 (Credit purchase of merchandise)
at
io
n
Let’s try another transaction.
Transaction 3:
Ed
uc
SSC purchases surfboards for R 70 000 from a new supplier, Magic Boards, that
allows them to purchase the surfboards on credit. Thus the business has an additional
R 70 000 worth of surfboards which it intends to sell. But, with this transaction, a debt
owing to the supplier of R 70 000 is created.
Trading inventory coming into the business
Assets (R)
1
2
+ R
+ R
- R
+ R
G
50 000
20 000
20 000
70 000
ED
3
=
E
Tr:
Owner’s equity (R)
+
Liabilities (R)
+ R 50 000
+ R 70 000
©
R 120 000
=
R 50 000
+
R 70 000
The business now has a debt of R 70 000
The business is still worth R 50 000
35
The accounting equation and double entry system
Now ask yourself the question: Does the accounting equation balance?
Well the left-hand side of the equation has increased by R 70 000 and the right-hand
side of the equation has increased by R 70 000.
Lt
d
Yes, the accounting equation balances!
ty
)
The worth of the business has remained unchanged.
(P
Example 2.5 (Credit sales of merchandise)
Let’s try another transaction.
at
io
n
Transaction 4:
SSC sells R 60 000 worth of surfboards they have on credit for R 100 000. (Note:
inventory levels before the sale is R 20 000 + R 70 000 = R 90 000.)
Ed
uc
Thus, SSC is departing with R 60 000 worth of surfboards and is now owed R 100 000
by a debtor.
R 100 000 owed to the business
Assets (R)
1
2
+ R 50 000
+ R 20 000
- R 20 000
+ R 70 000
+ R 100 000
- R 60 000
Owner’s equity (R)
+R
The net effect on the
owner's equity of the
business is an increase
of R 40 000
(R 100 000 - R 60 000)
+ R 100 000
- R 60 000
=
R
90 000
Trading inventory leaving the business
36
Liabilities (R)
+ R 70 000
©
R 160 000
+
50 000
G
ED
3
4
=
E
Tr:
+ R 70 000
The owner’s equity of the business has
increased from R 50 000 to R 90 000
Learning Unit 2
Now ask yourself the question: Does the accounting equation balance?
Yes, the accounting equation balances!
ty
)
Example 2.6 (Expenses paid for in cash)
Lt
d
Well, the left-hand side of the equation has increased by R 40 000 and the right-hand
side of the equation has increased by R 40 000.
(P
Let’s try another transaction.
Transaction 5:
at
io
n
The business pays R 2 000 in cash for electricity.
Thus, SSC is paying R 2 000 in cash for electricity which is being used up and hence
decreases the worth of the business.
Assets (R)
1
2
+ R 50 000
+ R 50 000
+ R 20 000
- R 20 000
+ R 70 000
+ R 100 000
+ R 100 000
- R 60 000
- R 60 000
-R
2 000
- R 2 000
Owner’s equity (R)
+
Liabilities (R)
The business has
consumed electricity
and has to pay for it;
therefore the owner’s
equity has decreased
+ R 70 000
by R 2 000
E
5
G
3
4
=
Ed
uc
Tr:
R 88 000 +
R 70 000
The owner’s equity of the business has
decreased from R 90 000 to R 88 000
©
ED
R 158 000
=
Cash leaving the business
Now ask yourself the question: Does the accounting equation balance?
Well the left-hand side of the equation has decreased by R 2 000 and the right-hand
side of the equation has decreased by R 2 000.
Yes, the accounting equation balances!
37
The accounting equation and double entry system
Question 2.5
Transaction
2
7
21
31
Cashed a cheque from R 2 000, being for petty cash
Purchased merchandise (trading inventory) by cheque, R 11 000
Purchased office equipment on credit, R 12 000
Redeemed (paid off) R 3 000 on the bank loan
ty
)
Date
Lt
d
Roger Pierce commenced business as a sole trader on 1 August 20.7. At this point he only
had R 40 000 in the bank, being R 10 000 from his personal funds and R 30 000 from the
bank in the form of a loan. Rodger performed the following transactions during August 20.7:
(P
Required:
2.2.1 Proprietary accounts
at
io
n
Calculate Roger’s equity in his business on 31 August 20.7. Show the effect of each
transaction on the accounting equation, and explain your findings.
Ed
uc
We can see that for the all of Rodger’s transactions and indeed for all transactions, the
accounting equation A = O + L must always balance.
G
E
What we have here is therefore a system for recording the transactions of a business.
You could quite easily create a spreadsheet with three columns and use this as your
accounting system. Of course, in today’s corporate environment, most businesses
make use of a computerised accounting package.
ED
Definition: What is meant by ‘proprietary accounts’?
©
Proprietary accounts are the owner’s accounts used to record transactions that
take place between the business and its owner(s). Capital is the account used
when the sole proprietor makes additional contributions to the business and
drawings is used when the sole proprietor makes withdrawals from the business.
Capital
We have seen that if the owner makes a contribution to the business, this increases the
owner’s equity of the business. These contributions by the sole proprietor are called
38
Learning Unit 2
capital contributions. The owner may contribute cash or other valuables to the business.
All contributions made by the owner are recorded in the capital account, as well as in
the contra accounts that represent the particular resources that are being contributed.
Lt
d
Drawings
From time to time the owner may wish to take money or other assets out of the
business. We could decrease the capital account if this happened, but accountants
prefer to record these withdrawals in a separate account, entitled ‘drawings’.
Note: This would be the accounting
equation in the absence of income and
expenses – i.e. in the absence of general trade taking place.
at
io
n
Owner’s net contributions = Capital – Drawings
(P
ty
)
Thus, suppose for a moment, a business has just commenced, and that no income
or expenditure have been created as yet. The business has basically transacted with
the bank and the owner and has purchased its assets. Under such a scenario, the
accounting equation would be presented as follows:
Therefore:
2.2.2 Profit
Ed
uc
Assets = Capital – Drawings + Liabilities
We have seen that capital contributions by the owner increase the business’s owner’s
equity.
E
We have also seen that buying trading inventory and selling it at a price higher than
what you purchased it for increases the business owner’s equity.
G
Definition: What is profit?
©
ED
This is probably the most important concept a business should ever come to
terms with. This is the word or term used when a business makes money. When
a business buys trading inventory for R 60 000 and sells it for R 100 000 it has
made a profit of R 40 000. Thus, profit is income less expenditure.
There are two types of profit that we refer to in accounting: gross profit and net profit.
Gross profit is the profit that is made from trading – i.e. sales less cost of sales. This is
what the example used in the definition of profit illustrated. In other words, the R 40 000
is the gross profit. Net profit is the profit that is earned after all of the other expenses
and other income have been taken into account. Let’s assume that the business has
repairs and maintenance costs of R 10 000 in the way of expenses, and that it has
earned R 5 000 in interest income. The net profit of the business is therefore R 35 000.
This is calculated as R 40 000 (gross profit) + R 5 000 – R 10 000.
39
The accounting equation and double entry system
Note: This is the full accounting
equation taking into account trade –
i.e. inclusive of income and expenses
So:
Assets = Capital – Drawings + Profit + Liabilities
Lt
d
Income
Definition: What is income?
(P
ty
)
Income refers to increases in assets or decreases in liabilities that result in
increases in equity, other than those relating to contributions from owners.
Examples of income accounts:
at
io
n
Sales
Services rendered (current income)
Rent income
Interest income
Interest on fixed deposit
Interest on current account
Commission received
etc.
Ed
uc
•
•
•
•
•
•
•
•
Definition: What are expenses?
ED
G
E
Expenses refer to decreases in assets or increases in liabilities that result in
decreases in equity, other than those relating to distributions to owners.
Expenses
Examples of expense accounts:
Cost of sales
Rent expense
Interest expense
Interest on mortgage loan
Interest on overdraft
Rates and taxes
Telephone
Advertising
Repairs and maintenance
©
•
•
•
•
•
•
•
•
•
40
Learning Unit 2
Lt
d
• Stationery
• Office refreshments
• Packing materials
Definition: What is cost of sales?
at
io
n
(P
ty
)
Cost of sales is the expense incurred when trading inventory previously
purchased is sold. When the business initially purchases the trading inventory,
assets increase. When this trading inventory is sold the asset is expensed. This
is very important because whenever a business purchases an item it is either an
asset or an expense, and the bookkeeper needs to allocate the purchase to the
correct account category.
Ed
uc
Expenses thus include amounts paid for trading inventory sold (cost of sales),
rent expense, electricity, telephone and Internet expenses, interest expense, travel
expenses etc. How do we determine whether something being bought is an asset
or an expense? How do you know? Well, sometimes it is obvious, but there is a very
important question you want to ask yourself:
Is it likely to be converted into cash?
Yes  Then it is an asset
E
No  Then it is an expense
ED
G
Trading inventory is likely to be converted into cash by the business, and will therefore
be classified as an asset when bought. When sold, the value is expensed through the
cost of sales account.
©
Sometimes it is a little ‘grey’ though; for example when stationery is acquired. Can it
be converted into cash? Well, it could possibly be sold, but in all likelihood it will be
consumed. The same applies to boxes and other ‘assets’ that are likely to be consumed
or are likely to have no value in the near future. The general rule is to expense valuables
that are likely to be consumed within the business within one year. Such valuables are
expensed from the word go – i.e. as from the date they are purchased.
41
The accounting equation and double entry system
Thus:
Profit = Income – Expenses
Assets = Capital – Drawings + (Income – Expenses) + Liabilities
Lt
d
Therefore:
(ii)
Owner’s equity = Capital + Profit – Drawings
(P
Owner’s equity = Assets – Liabilities
at
io
n
(i)
ty
)
Note: From this illustration, you can clearly see that there are two ways to calculate
owner’s equity:
This is the new and expanded accounting equation and this is how it came about:
Ed
uc
Worth = Assets – Liabilities
Owner’s equity = Assets – Liabilities
E
Assets = Owner’s equity + Liabilities
ED
G
Assets = Capital – Drawings + Profit + Liabilities
©
Assets = Capital – Drawings + Income – Expenses + Liabilities
Hint: Attempt Revision questions 1 to 5 in Annexure B at the end of this textbook.
42
??
?
Learning Unit 2
Example 2.7 (Summary under expanded equation)
Let us now record our five transactions under our new and expanded accounting
equation:
– Drawings
Lt
d
+ Income
–
1
2
+ R 50 000
+ R 50 000
+ R 20 000
- R 20 000
+ R 70 000
+ R 100 000
+ R 100 000
- R 60 000
- R 2 000
Expenses + Liabilities
Ed
uc
at
io
n
(P
Assets (R)
5
Capital
The R 60 000 cost of
sales in the expenses
column
Tr:
3
4
=
The R 100 000 sales
in the income column
ty
)
The R 50 000 capital
contributions falls
under the capital
column
R0
- R 60 000
- R 2 000
+ R 100 000 – R 62 000 + R 70 000
The R 2 000 electricity is in the
expenses column
G
E
R 158 000 = R 50 000 –
+ R 70 000
ED
Now ask yourself the question: Does the accounting equation balance?
Well the left-hand side of the equation = R 158 000;
and the right-hand side of the equation = R 50 000 – R 0 + R 100 000 – R 62 000 +
R 70 000 = R 158 000
©
Yes, the accounting equation balances!
43
The accounting equation and double entry system
Example 2.8 (Sundry transactions)
Let us now add some more transactions to our business.
Lt
d
Transaction 6:
The owner took R 5 000 cash out of the business bank account using the ATM card.
ty
)
Transaction 7:
(P
The owner received the bank statement from the bank which showed interest on the
current account of R 105.
Transaction 8:
at
io
n
The owner paid back a portion of the amount owing to Magic Surfboards, R 5 000 cash.
3
4
Capital
-
Drawings
+
Income
- Expenses
+ Liabilities
+ R 50 000
+ R 50 000
+ R 20 000
- R 20 000
+ R 70 000
+ R 70 000
+ R 100 000
+ R 100 000
- R 60 000
- R 60 000
- R 2 000
- R 2 000
- R 5 000
- R 5 000
+R
105
+R
105
- R 5 000 - R 5 000
©
ED
5
6
7
8
=
E
1
2
Assets (R)
The business has paid
back some of the money
that it owes
G
Tr:
The business has
earned income
(interest received)
Ed
uc
The bank balance has
increased by
R 105
R 148 105
=
R 50 000 -
R 5 000 cash leaving the business on two occasions: once for
owner's drawings and then again
for the payment to the creditor.
44
R 5 000 +
R 100 105 -
R 62 000 +
R 65 000
Notice how in our accounting equation, drawings is
subtracted on the right-hand side. Therefore, the
owner is taking cash from the business and drawings
is increasing, thus the right-hand side of the equation
is decreasing.
Learning Unit 2
Now ask yourself the question: Does the accounting equation balance?
Well the left-hand side of the equation = R 148 105
Lt
d
and the right-hand side of the equation = R 50 000 – R 5 000 + R 100 105 – R 62 000
+ R 65 000 = R 148 105.
Yes, the accounting equation balances!
The General ledger – the system of bookkeeping
ty
)
2.3
at
io
n
(P
In Example 2.8, we illustrated a set of books being a system for recording business financial
transactions. The example has six different columns, but it is lacking in that particularly in
the Assets column, we cannot see which asset has increased and/or decreased.
Transaction 1 shows an increase in assets of R 50 000, but which asset has increased?
Transaction 2 shows an increase in assets of R 20 000, and a decrease in assets of
R 20 000, but which asset has decreased and which asset has increased?
Ed
uc
Moreover, the system places both increases and decreases of assets in one column.
We need a system to show the individual assets that have increased or decreased.
2.3.1 The T-account in the General ledger
Dr
Cr
Assets
©
ED
G
E
Our system needs a little refinement. So instead of recording both increases and
decreases of a particular component of the accounting equation in one, let’s create two
columns; one for increases and one for decreases. Furthermore let us give the left-hand
column a name – ‘Debit’ or ‘Dr – and let us give the right-hand column a name – ‘Credit’
or ‘Cr’. This is known as a T-account.
45
The accounting equation and double entry system
Definition: What is ‘debit’?
Lt
d
Debit quite simply means ‘left’, and is the name given to the left-hand side of an
account.
ty
)
Definition: What is ‘credit’?
at
io
n
(P
Credit quite simply means ‘right’, and is the name given to the right-hand side of
an account.
2.3.1.1 The infamous rules of double entry
Ed
uc
Now that we have two sides to each of our account type columns, a left or debit side
and a right or credit side, the question now arises: on which side are we going to record
the increases and on which aside are we going to record the decreases?
We already know that for every transaction, the accounting equation must always
balance, and for an equation to balance, what you do to one side you must always do
to the other. Thus, there is always two sides to a transaction.
E
From all the transactions that a business can conclude, we can see that every rand
spent in a business, whether paid for now or at a later date (for credit purchases), is
spent on either assets or expenses. This is known as the application of funds.
ED
G
For every rand spend spent on an asset or an expense, this rand must have come from
somewhere. This is known as the source of funds. Every rand that is applied must have
had a source.
A business has the following possible sources of funds:
©
• Capital
• Loans
• Sales and other income
A business has the following possible applications for funds:
• Assets
• Expenses
46
Learning Unit 2
The double-entry system specifies that accounts that represent sources of funds
increase on the credit side and accounts that represent applications of funds increase
on the debit side such that for every transaction the accounting must always balance
and the total debits must always equal the total credits (in monetary value).
Cr
-
Dr
-
Dr
+
Capital
Source
Cr
-
Dr
-
Drawings
Cr
+
Income
Application
Source
Dr
+
Cr
-
Expenses
Dr
-
Cr
+
Liabilities
at
io
n
Assets
Cr
+
Application
ty
)
Dr
+
Source
(P
Application
Lt
d
The following illustration outlines a useful mind map for double entries using T-accounts:
Ed
uc
As you can see, we have six different account types, each with a debit and a credit
side.
So how do we remember which account type increases which side of the account?
G
Capital
- +
Drawings
+ -
Income
- +
Expenses
+ -
Liabilities
- +
ED
Assets
+-
E
Consider the sequence as shown previously:
©
Plus – Minus – Minus – Plus –>
Plus – Minus – Minus – Plus –>
Plus – Minus – Minus – Plus
47
The accounting equation and double entry system
Thus all you need to remember is:
A=C–D+I–E+L
Lt
d
and
ty
)
Plus – Minus – Minus – Plus –>
Plus – Minus – Minus – Plus –>
Plus – Minus – Minus – Plus
at
io
n
Example 2.9
(P
Write this down whenever you are doing the accounting equation.
Let’s continue with SSC, Andrew’s business.
Ed
uc
Let us look at how the Asset account type would now have been recorded (refer back
to Example 2.8):
Dr
+
G
E
R 50 000 Transaction 1
R 20 000 Transaction 2
R 70 000 Transaction 3
R 100 000 Transaction 4
R
105 Transaction 7
ED
R 240 105
Cr
Assets
-
R 20 000 Transaction 2
R 60 000 Transaction 4
R 2 000 Transaction 5
R 5 000 Transaction 6
R 5 000 Transaction 8
R
92 000
The total therefore of the asset account types is the debit side minus the credit side:
©
R 240 105 – R 92 000 = R 148 105
48
Learning Unit 2
We have the increases and decreases recorded in separate columns. We still have one
more problem. The Asset account we looked at actually comprises different assets.
When the owner contributed R 50 000 to the business in Transaction 1, the bank
account (asset) increased.
Dr
+
Bank
Cr
Dr
-
+
R 20 000 Transaction 2
R
R
R
R
105 Transaction 7
2 000 Transaction 5
5 000 Transaction 6
5 000 Transaction 8
R 32 000
Cr
-
R 20 000 Transaction 2
R 70 000 Transaction 3
R 60 000 Transaction 4
R 90 000
R 60 000
Ed
uc
R 50 105
Trading inventory
at
io
n
R 50 000 Transaction 1
(P
ty
)
Lt
d
When SSC purchased R 20 000 of surfboards for cash, the trading inventory account
(asset) increased by R 20 000 and the bank account decreased by R 20 000. The
problem with having both movements in the bank and trading inventory recorded in
one account is that we cannot see how much cash we have and how much trading
inventory we have. So surely we should have individual assets accounts.
Dr
Cr
Debtors
-
E
+
ED
G
R 100 000 Transaction 4
R 100 000
©
How much trading inventory do we have? R 90 000 – R 60 000 = R 30 000.
How much money do we have in the bank? R 50 105 – R 32 000 = R 18 105.
How much money are we owed? R 100 000.
What is the value of our assets? R 30 000 + R 18 105 + R 100 000 = R 148 105.
49
The accounting equation and double entry system
Lt
d
So let’s add the capital account – there is only one capital account.
Let’s add the drawings account – there is only one drawings account.
Let’s add the income accounts – so far we have two income accounts: sales and
interest received.
Let’s add the expense accounts – so far we have two expense accounts: cost of sales
and electricity.
Let’s add the liability accounts – so far we only have one liability account: creditors.
ty
)
Our General ledger (being a set of accounts forming the system of accounting in which
we record business financial transactions) would now look as follows:
+
Bank
Cr
Dr
-
+
R 50 000 Transaction 1
R 20 000 Transaction 2
R
R
R
R
R 50 105
R 32 000
Dr
Debtors
E
+
2 000 Transaction 5
5 000 Transaction 6
5 000 Transaction 8
R 20 000 Transaction 2
R 70 000 Transaction 3
Ed
uc
105 Transaction 7
R 90 000
Cr
Dr
-
-
G
ED
©
50
Cr
-
R 60 000 Transaction 4
R 60 000
Cr
Capital
+
R 50 000 Transaction 1
R 100 000 Transaction 4
R 100 000
Trading inventory
at
io
n
Dr
(P
General ledger of SSC:
R 50 000
Learning Unit 2
Dr
+
Drawings
Cr
Dr
-
-
Cr
Creditors
+
R 5 000 Transaction 8
R 70 000 Transaction 3
R 5 000
R 5 000
R 70 000
Sales
Dr
+
-
R 100 000
Dr
+
Cost of sales
+
Cr
Dr
-
+
R
105
Cr
Electricity
-
R 2 000 Transaction 5
R 2 000
©
ED
G
R 60 000
E
R 60 000 Transaction 4
Interest received
R 105 Transaction 7
Ed
uc
Cr
at
io
n
R 100 000 Transaction 4
ty
)
-
Cr
(P
Dr
Lt
d
R 5 000 Transaction 6
51
The accounting equation and double entry system
So, we know the following:
Bookkeeping is the language of business and is the system for recording business
transactions.
Lt
d
There are different types of transactions.
Bookkeeping is based on the accounting equation:
ty
)
A=O+L
at
io
n
• All asset accounts
• All expense accounts
• The owner’s drawings account
(P
We know that the following accounts increase on the left or debit side and decrease
on the right or credit side:
We know that the following accounts decrease on the left or debit side and increase
on the right or credit side:
Ed
uc
• All liability accounts
• All income accounts
• The owner’s capital account
Therefore:
Credits
All liability accounts
All income accounts
The owner’s capital account
ED
G
E
Debits
All asset accounts
All expense accounts
The owner’s drawings account
Example 2.10 (Chart of accounts)
©
From Example 2.9 we can see that the General ledger is made up of the different
account types. The following table clearly outlines a structure of the General ledger.
52
=
Interest expense
Credit losses
Salaries and wages
Insurance
Equipment
Furniture
Vehicles
Long-term investments
Rates and taxes
Telephone
Fuel
Packing materials
Stationery
Debtors
Bank
Petty cash
Cash float
Input VAT
Office consumables
Postage
Trading inventory
Advertising
Repairs and maintenance
Rent expense
Current assets
Cost of sales
Machinery
Expenses
+
ty
)
(P
Commission received
Credit losses recovered
Interest income
Rent income
Sales/services rendered
Income
at
io
n
Ed
uc
Capital
Owner’s equity
Drawings
Land and buildings
E
G
Assets
ED
Non-current assets
©
Lt
d
Output VAT
Bank overdraft
Creditors
Short-term loans
Current liabilities
Mortgage loan
Long-term loan
Non-current liabilities
Liabilities
Learning Unit 2
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Figure 2.2: Chart of accounts
53
The accounting equation and double entry system
2.3.2 Cross references
ty
)
Lt
d
It is general practice to include a cross reference in every T-account. When an account
is debited, we write the name of the contra account (the account that is credited) as a
cross reference. When an account is credited, we write the name of the contra account
(the account that is debited) as a cross reference. This helps to create a proper audit
trail. In layman’s terms: we have two accounts, namely bank and wages. To cross-refer,
we will write ‘bank’ in wages and ‘wages’ in bank!
(P
Example 2.11 (Cross-referencing)
at
io
n
Let us now review our eight transactions using what we know, and incorporating the
appropriate cross references.
Transaction 1:
The owner contributed R 50 000 cash to the business.
=
50 000
©
ED
Capital
Bank
G
+
54
+
Liabilities
+ R 50 000
E
+ R 50 000
Dr
Owner’s equity
Ed
uc
Assets
Cr
Dr
-
-
Cr
Capital
Bank
+
50 000
Learning Unit 2
Transaction 2:
The owner purchased trading inventory for cash, R 20 000.
Owner’s equity
+
Liabilities
Lt
d
=
Assets
Capital
50 000
Transaction 3:
Trading
inventory
-
+
Cr
Trading inventory
-
(P
Bank
Dr
Bank
20 000
R 20 000
Ed
uc
+
Cr
at
io
n
Dr
ty
)
+ R 20 000
- R 20 000
The owner purchased trading inventory R 70 000 on credit from Magic Boards.
=
+
Liabilities
+ R 70 000
ED
G
+ R 70 000
Owner’s equity
E
Assets
Dr
©
+
Bank
Creditors
Trading inventory
20 000
70 000
Cr
Dr
-
Cr
Creditors
Trading
inventory
+
70 000
55
The accounting equation and double entry system
Transaction 4:
The owner sold trading inventory with a cost of R 60 000 on credit for R 100 000.
Owner’s equity
+
Debtors control
Sales
100 000
Dr
-
-
Sales
Debtors
at
io
n
+
Trading inventory
Bank
Creditors
20 000
70 000
Dr
-
+
Cost of sales
Trading
inventory
60 000
E
Cost of sales 60 000
G
ED
Cr
Ed
uc
Dr
©
Cr
ty
)
+ R 100 000
- R 60 000
Dr
56
Liabilities
(P
+ R 100 000
- R 60 000
+
Lt
d
=
Assets
Cr
+
100 000
Cr
-
Learning Unit 2
Transaction 5:
The owner paid R 2 000 in cash for electricity.
Owner’s equity
Liabilities
Dr
+
Bank
Trading
inventory
Electricity
Dr
-
+
Electricity
Bank
20 000
2 000
Cr
-
2 000
at
io
n
Capital
50 000
Cr
ty
)
- R 2 000
(P
- R 2 000
+
Lt
d
=
Assets
Transaction 6:
Ed
uc
The owner took R 5 000 cash out of the business bank account.
Assets
=
ED
+
G
Dr
+
Liabilities
- R 5 000
E
- R 5 000
Owner’s equity
Bank
Trading
inventory
Electricity
Drawings
Dr
-
+
Bank
Cr
Drawings
-
5 000
20 000
2 000
5 000
©
Capital
50 000
Cr
57
The accounting equation and double entry system
Transaction 7:
The owner earned interest of R 105 on the business current bank account.
Owner’s equity
Liabilities
Dr
Dr
-
-
Bank
Capital
50 000
Interest
received
105
Bank
+
105
20 000
2 000
5 000
Ed
uc
Transaction 8:
Trading
inventory
Electricity
Drawings
Interest received
Cr
at
io
n
+
Cr
ty
)
+ R 105
(P
+ R 105
+
Lt
d
=
Assets
The owner paid back Magic Boards, R 5 000 cash.
=
+
Liabilities
- R 5 000
ED
G
- R 5 000
Owner’s equity
E
Assets
Dr
+
Bank
©
Capital
50 000
Interest
received
105
58
Trading
inventory
Electricity
Drawings
Creditors
Cr
Dr
-
-
20 000
2 000
5 000
5 000
Cr
Creditors control
Bank
5 000
Trading
inventory
+
70 000
Learning Unit 2
Question1.12
2.6
Question
Complete
Complete the
the following
following table,
table, by
by marking
marking the
the appropriate
appropriate column
column with
with an
an X.
X.
Type of account
E.g. Equipment
Current
asset
Noncurrent
liability
Bank overdraft
Fuel and vehicle
maintenance
at
io
n
Interest on favourable
bank balance
Interest on overdraft
Capital
Petty cash
Drawings
E
Savings account
Ed
uc
Mortgage loan
Debtors control
Proprietary
account
(P
Interest income
Cost of sales
Expense
ty
)
Trading inventory
Rent income
Income
X
Wages and salaries
Creditors control
Current
liability
Lt
d
Noncurrent
asset
Name of account
G
Land and buildings
ED
Office consumables
Stationery
Staff refreshments
Advertising
©
Credit card account
(unfavourable)
Rates and taxes
Commission received
Machinery
Traffic fines
Long-term loan
59
The accounting equation and double entry system
Question 2.7
Putin Wholesalers trades in office furniture. On 1 September 20.7, the accounting equation
of the business was as follows:
=
Owner’s equity (R)
83 415
+
Liabilities (R)
150 000
Lt
d
Assets (R)
233 415
Putin Wholesalers entered into the following transactions during September 20.7 (ignore
VAT):
Details
1
The owner, Mrs Helena Putin, made a capital contribution of R 75 000 to her
business. This was done by means of an electronic transfer from her personal
account into the business’s account.
Purchased trading inventory on credit for R 34 275.
Sold merchandise on credit for R 9 000. The goods were originally bought for
R 6 000.
Paid casual wages from petty cash, R 600.
Paid for repairs and maintenance by cheque, R 2 538.
Issued a cheque for R 1 845 to pay for water and electricity.
Purchased a computer for the office on credit for R 21 930.
Purchased office refreshments by cheque for R 4 500.
Purchased packing materials on credit for R 1 365.
Purchased fuel for the delivery vehicle from petty cash, R 450.
Sold trading goods for R 4 500 cash. The goods were originally bought for
R 3 000.
Mrs Putin took a couch from trading inventory for her personal use. This set was
originally bought for R 12 000.
Received a cheque for R 3 000 from a debtor in part payment of her account.
(P
ty
)
Date
5
6
26
30
Ed
uc
at
io
n
7
8
13
16
17
19
24
25
Required:
©
ED
G
(ii)
Calculate Mrs Putin’s equity in her business on 30 September 20.7, by showing the
effect of each individual transaction on the accounting equation.
Capital and drawings are referred to as proprietary accounts. These transactions
are included in the calculation of owner’s equity, but not in the calculation of profits.
Taking this fact into consideration, calculate the profit or loss derived by Putin
Wholesalers during September 20.7.
E
(i)
Question 2.8
Let’s assess your general knowledge!
Explain the difference between the following three terms:
•
•
•
60
Debtor
Debt
Debit
Learning Unit 2
Question 2.9
Tristan Traders trades in clothing. The business started trading on 1 September 20.7, and
by 1 October 20.7, only the following balances appeared in their books:
Bank
Capital
Bank loan
R 425 000
R 325 000
R 100 000
Lt
d
Debit balances:
Credit balances:
Assets (R)
425 000
=
Owner’s equity (R)
325 000
+
Liabilities (R)
100 000
(P
ty
)
The financial position on 1 October 20.7 could thus be shown as follows under the
accounting equation:
Tristan Traders entered into the following transactions during October 20.7 (ignore VAT):
Details
1
The owner, Mr Tristan Davies, made another capital contribution of R 100 000 to
his business, by drawing a cheque in favour of his own business from his personal
chequebook. He also contributed a vehicle to the value of R 300 000.
The business paid back R 5 000 on the bank loan.
Paid the bookkeeper’s salary by cheque, R 9 000.
Purchased trading goods on credit for R 25 000.
Sold merchandise with a cost price of R 2 000 on credit for R 4 500.
Rendered services to a client for R 10 000. The client paid R 4 000 upfront, and
will pay the balance off in six equal monthly instalments, starting on 1 November
20.7 (no interest will accrue to the client’s account).
The owner took two pairs of shoes with a cost price of R 340 each from trading
inventory for personal use.
Ed
uc
31
Calculate Mr Davies equity in his business on 31 October 20.7, by showing the effect
of each individual transaction on the accounting equation.
Complete the basic double entries in their respective T-accounts.
ED
(i)
G
Required:
E
7
8
10
13
25
at
io
n
Date
©
(ii)
61
The accounting equation and double entry system
Question 2.10
When accountants speak of profits, they often differentiate between gross profit and net
profit.
Accountants also speak of markup percentages and gross margins.
Lt
d
Do you know what the difference is between gross profit and net profit? Refer to Question
2.9. Calculate the gross profit and net profit derived by Tristan Traders during October 20.7.
ty
)
Explain what is meant by these concepts, and motivate your opinion by referring to actual
figures and percentages. In this respect use the results obtained from Question 2.9.
(P
Sometimes we will not speak of profits and losses, but rather of surpluses or deficits.
at
io
n
Can you think of a good example where these alternative terminologies would be used?
Explain briefly.
Example 2.12 (Analysis under the accounting equation)
Ed
uc
The following are miscellaneous transactions for Top Traders for January 20.11. Ignore
VAT. The business uses the perpetual inventory method with a markup of 60% on cost.
Details
Transaction
©
ED
5
G
3
4
62
Received a capital contribution of R 205 000 in the form of cash.
The owner took clothing from trading inventoy for personal use,
selling price = R 850.
Paid SA Distributors by EFT for trading inventory purchased, R 7 000.
Purchased an office printer (equipment) on credit from Offer (Pty) Ltd,
R 7 200.
Cash sales of trading inventory, selling price = R 7 950.
E
1
2
Learning Unit 2
We shall now analyse the transactions under the accounting equation presented as
follows:
= Owner’s equity (R)
+
205 000
+
205 000
Dr
Bank
Cr
Capital
+ Liabilities (R)
(P
1
Assets (R)
ty
)
Date
Lt
d
Transaction: 1
+
Owner's equity is
increasing
at
io
n
R 205 000 cash coming
into the business
205 000
+
Assets are increasing
Dr
Therefore we Dr Assets
Cr
Bank
Which Asset account?
Bank
Capital
By R 205 000
Therefore we Cr
Owner's equity
Which Owner's equity
account?
Capital
©
ED
G
E
Ed
uc
205 000
63
The accounting equation and double entry system
Transaction: 2
-
-
531.25
Dr
Drawings
531.25
Cr Trading inventory
R 850 ÷ 1.6 = 531.25 trading
inventory leaving the business
531.25
Assets are decreasing
Cr
Therefore we Cr Assets
Trading inventory
Which Asset account?
Trading inventory
Ed
uc
E
G
ED
©
-
531.25
at
io
n
-
64
+ Liabilities (R)
Lt
d
= Owner’s equity (R)
ty
)
1
Assets (R)
Owner’s equity is
decreasing
(P
Date
Dr
Drawings
By R 850 ÷ 1.6 = 531.25
Therefore we Dr
Owner’s equity
Which Owner’s equity
account?
Drawings
Learning Unit 2
Transaction: 3
Assets (R)
+
7 000
Dr
Trading inventory
-
7 000
Cr
Bank
+ Liabilities (R)
R 7 000 trading inventory
coming into the business
Assets are increasing
Dr
Therefore we Dr Assets
Which Asset account?
Trading inventory
R 7 000 is leaving the
business
-
Assets are decreasing
Cr
Therefore we Cr Assets
Bank
Which Asset account?
Bank
©
ED
G
E
Trading inventory
Ed
uc
+
7 000
at
io
n
7 000
(P
ty
)
1
= Owner’s equity (R)
Lt
d
Date
65
The accounting equation and double entry system
Transaction: 4
Assets (R)
7 200
+
7 200
Dr
Equipment
Cr
Creditors control
We owe a supplier
R 7 200
+
Liabilities are increasing
Therefore we Dr Assets
Cr
Therefore we Cr Liabilities
Which Asset account?
Equipment
Creditors control
Which Liability account?
Creditors control
Assets are increasing
Dr
Equipment
ED
G
E
Ed
uc
+
©
7 200
ty
)
R 7 200 equipment coming
into the business
Lt
d
+
7 200
66
+ Liabilities (R)
(P
1
= Owner’s equity (R)
at
io
n
Date
Learning Unit 2
Transaction: 5
R 7 950 cash coming into
the business
R 7 950 income earned
7 950
Owner’s equity is
increasing
Therefore we Cr Owner’s
equity
Dr
Therefore we Dr Assets
Cr
Bank
Which Asset account?
Bank
Sales
= Owner’s equity (R)
+
7 950
Dr
Bank
-
4 968.75
-
4 968.75
Cr
Trading inventory
Dr
Cost of sales
7 950
Cr
Sales
R 4 968.75 trading
inventory leaving the
business
4 968.75
ED
G
4 968.75
+
Assets are decreasing
Cr
Therefore we Cr Assets
©
-
Trading inventory
+ Liabilities (R)
Ed
uc
1
at
io
n
Assets (R)
E
Date
Which Owner’s equity
account?
Sales
(P
+
Lt
d
+
Assets are increasing
ty
)
7 950
Which Asset account?
Trading inventory
R 4 968.75 trading
inventory being expensed:
R 7 950 ÷ 1.6 = R 4 968.75
-
Owner’s equity is
decreasing
Dr
Therefore we Dr Owner’s
equity
Cost of sales
Which Owner’s equity
account?
Cost of
sales
67
The accounting equation and double entry system
Question 2.11
Date
Lt
d
The following are miscellaneous transactions for Redgrave Traders for January 20.11.
Ignore VAT. The business uses the perpetual inventory method with a markup of 50% on
cost.
Transaction details
1
The owner took clothing from trading inventory for personal use, selling price =
R 1 500.
Paid SA Prop by EFT for trading inventory purchased, R 10 000.
Purchased an office computer (computer equipment) on credit from Incredible
Computers, R 5 200.
Credit sales of trading inventory, selling price = R 4 470.
Cash sales of trading inventory, selling price = R 6 950.
Returned some of the goods (R 1 000) purchased from SA Prop on 8 January
20.11 and received a cash refund.
Received dividend income of R 800.
ty
)
8
10
29
at
io
n
(P
15
27
28
Required:
Ed
uc
Show how the mentioned transactions will affect the accounting equation and enter how
the accounts in the General ledger will be affected. Example: Received a capital contribution of R 100 000.00 in the form of cash:
Assets (R)
= Owner’s equity (R)
e.g.
+ 100 000
+ 100 000
Dr Bank
Cr Capital
+ Liabilities (R)
ED
G
E
Date
©
Hint: Attempt Revision questions 7 to 11 in Annexure B at the end of this textbook.
68
??
?
Learning Unit 2
Question 2.12
Lt
d
The following are miscellaneous transactions for Super Suppliers for January 20.11. Ignore
VAT. The business uses the perpetual inventory method with a markup of 30% on selling
price. (Note: the markup is not quoted as a percentage on cost.) Refer back to Question
2.10 for more information.
Transaction details
1
The owner contributed a desk (office equipment) to the business valued at
R 2 000.
The owner took trading inventory for personal use, selling price = R 3 000.
Purchased trading inventory on credit, R 10 000.
Purchased an office computer (computer equipment) for R 6 000 cash.
Credit sales of trading inventory, selling price = R 11 500.
Cash sales of trading inventory, selling price = R 9 750.
Paid the telephone bill for R 2 300 cash.
Received rent income of R 3 000.
ty
)
Date
at
io
n
(P
1
8
10
15
27
28
29
Required:
Ed
uc
Show how the mentioned transactions will affect the accounting equation and enter
how the accounts in the General ledger will be affected. Example: Received a capital
contribution of R 50 000 in the form of cash:
Assets (R)
= Owner’s equity (R)
e.g.
+ 50 000
+ 50 000
Dr Bank
Cr Capital
+ Liabilities (R)
An introduction to inventory systems
ED
2.4
G
E
Date
©
The proper recording and control of trading inventory is extremely important in any
business. Over the years, many developments have taken place to assist with the
management of inventory. In this learning unit we have seen how a perpetual inventory
system of recording assists with this process.
The one thing about trading inventory you must have realised thus far is that it is
destined to end up as an expense in the books. When the merchandise is purchased
(and a perpetual inventory system is in use), equity will remain unaffected. When it is
sold (at a higher price), equity increases with the sales revenue, but decreases with
the cost of sales. Therefore, the trading inventory (an asset) is turned into an expense
known as cost of sales.
69
The accounting equation and double entry system
Lt
d
Of course, there are the laymen that would like to ‘jump the gun’ and expense the
trading inventory on the purchase date already (their argument would be that the
trading inventory ends up as an expense anyway). If merchandise is expensed on the
purchase date, this is known as a periodic inventory system. The periodic system is
discussed in much more detail in Learning Unit 6, but for the purposes of this learning
unit, the following should be known.
Perpetual inventory system
Periodic inventory system
When inventory is
purchased:
The inventory account (an
asset) is debited; owner’s
equity remains unaffected.
The purchases account
(an expense) is debited;
owner’s equity reduces.
2.
When inventory is sold:
Two double entries are
recorded; one for the sales
revenue, and the other for
the cost of sales.
Only one double entry is
recorded, being the double
entry to record the sales
revenue.
3.
Additional costs incurred
to get the trading
inventory onto the
shelves, ready for sale,
are:
Debited to the trading
inventory account.
Debited to separate
expense accounts, such
as carriage on purchases,
import tariffs, customs
duties, etc.
4.
The trading inventory
account:
Is worked in throughout the
year, and the balance of the
account at year end must
reflect the value of trading
inventory that should be on
hand (in principle).
Remain untouched
throughout the year, as all
purchases are recorded
in the purchases account,
and cost of sales is not
recorded at the point of
sale.
5.
Cost of sales:
Is recorded at the point of
sale, thus the total in the
cost of sales account at
year end reflects the cost of
sales for the year.
Is not recorded at the
point of sale, but rather
determined at year end
when the stocktake is done.
ED
G
E
Ed
uc
at
io
n
(P
ty
)
1.
(Source: EDGE Learning Media (Pty) Ltd, 2018)
©
Table 2.1: Inventory systems
Example 2.13 (Perpetual vs. periodic inventory systems)
In this example, we will make a comparison between the two inventory systems, with
particular reference to the analysis under the accounting equation, and the related
double entries. Note: VAT has been ignored.
70
Learning Unit 2
Transaction 1: Purchased inventory for R 10 000 and paid by cheque.
These are the entries to be made under a perpetual inventory system:
Assets (R)
1
+
= Owner's equity (R)
+ Liabilities (R)
Lt
d
No.
10 000
Dr Trading inventory
10 000
ty
)
-
(P
Cr Bank
These are the entries to be made under a periodic inventory system:
Assets (R)
1
-
= Owner's equity (R)
10 000
Cr Bank
at
io
n
No.
-
+ Liabilities (R)
10 000
Dr Purchases
Ed
uc
Transaction 2: Paid R 1 000 from petty cash for carriage on purchases on the inventory
purchased in transaction 1.
These are the entries to be made under a perpetual inventory system:
Assets (R)
2
+
= Owner's equity (R)
+ Liabilities (R)
E
No.
1 000
G
Dr Trading inventory
1 000
ED
-
Cr Petty cash
©
These are the entries to be made under a periodic inventory system:
No.
Assets (R)
= Owner's equity (R)
2
-
-
1 000
Cr Petty cash
+ Liabilities (R)
1 000
Dr Carriage on
purchases
71
The accounting equation and double entry system
Transaction 3: Sold all the inventory purchased in transaction 1, on credit for
R 16 000.
No.
Assets (R)
= Owner's equity (R)
3
+
+
16 000
Dr Debtors
Cr Sales
-
-
11 000
11 000
Dr Cost of sales
(P
Cr Trading inventory
+ Liabilities (R)
ty
)
16 000
Lt
d
These are the entries to be made under a perpetual inventory system:
at
io
n
(Note: The cost of the inventory now includes the carriage on purchases of R 1 000.)
These are the entries to be made under a periodic inventory system:
No.
Assets (R)
3
+
= Owner's equity (R)
16 000
+ 16 000
Cr Sales
Ed
uc
Dr Debtors
+ Liabilities (R)
G
E
(Note: No double entry is passed for the cost of sales. Cost of sales will be calculated
at year end.)
Question 2.13
ED
The following transactions (among others) appeared in the books of Georgian Traders during March 20.7:
©
Date
13
14
22
72
Transaction details
Purchased inventory on credit for R 18 000.
Paid R 2 000 from petty cash for railage on purchases on the inventory
purchased on the 13th.
Sold all the inventory purchased on the 13th for R 27 000 cash.
Learning Unit 2
Required:
= Owner’s equity (R)
e.g.
+ 110 000
+ 110 000
Dr Bank
Cr Capital
+ Liabilities (R)
ty
)
Assets (R)
(P
Date
Lt
d
Show how the mentioned transactions will affect the accounting equation and enter how
the accounts in the General ledger will be affected under a (i) perpetual inventory system,
and then (ii) under a periodic inventory system. Example: Received a capital contribution of
R 110 000 in the form of cash:
at
io
n
Question 2.14
From the work covered in this learning unit, it is clear that there are two ways by which a
sole proprietor can calculate his or her wealth (equity) in the business:
Owner’s equity = Assets – Liabilities
Ed
uc
Or
Owner’s equity = Capital + Net profit – Drawings
We have also seen that profit is determined by subtracting expenses from income.
E
Later in this course, we shall see how the books of account culminate in a trial balance at
month end. You might already know more about a trial balance than you think, though! Have
a look at the trial balance of Letsema Furnishers on page 164 – 165.
The proprietary accounts are listed in this trial balance. The capital account has a credit
balance and the drawings account has a debit balance (have a quick look again at the
rules of double entry and see if these balances make sense).
There are seven asset accounts, and they all have debit balances.
There are three liability accounts, and they all have credit balances.
There are four income accounts, and they all have credit balances.
There are 15 expense accounts, and they all have debit balances.
ED
•
G
Do you notice the following?
©
•
•
•
•
Required:
(i)
(ii)
Calculate the total value of assets of Letsema Furnishers as at 31 January 20.9.
Calculate the total value of liabilities of Letsema Furnishers as at 31 January 20.9.
73
The accounting equation and double entry system
(iii)
(iv)
Lt
d
(v)
Calculate the total income earned by Letsema Furnishers during the period ended
31 January 20.9.
Calculate the total expenses incurred by Letsema Furnishers during the period
ending 31 January 20.9.
Calculate the owner’s equity of Letsema Furnishers on 31 January 20.9 using the
two ways of calculating owners equity as discussed.
ty
)
Question 2.15
COMPANY A
COMPANY B
ASSETS
R 5 million
Non-current assets
R 4 million
Current assets
R 3 million
Current assets
R 4 million
R 8 million
Total assets
R 8 million
R 1 million
OWNER’S EQUITY
R 1 million
R 7 million
LIABILITIES
R 7 million
Non-current liabilities
R 3 million
Non-current liabilities
R 4 million
Current liabilities
R 4 million
Current liabilities
R 3 million
R 8 million
Total assets
OWNER’S EQUITY
G
E
LIABILITIES
Ed
uc
Non-current assets
ED
ASSETS
at
io
n
(P
You might wonder why it is necessary for businesses to separate assets and liabilities into
current and non-current components. The following example might make the importance
of this distinction clear. A statement of financial position is essentially a statement of assets
and liabilities, and discloses these accounting elements along with their net effect (i.e. the
owner’s equity). Have a close look at the abbreviated statements of financial position of the
following two companies in the same industry:
R 8 million
Required:
©
Assume you are an investor contemplating a possible investment in one of these two
companies. Based on the information provided, which company would you regard as the
best investment? Write a few notes on the importance of disclosure of relevant information
in the financial statements.
74
Learning Unit 2
Question 2.16
Lt
d
The following are miscellaneous transactions for Duncan Suppliers for March 20.9. Ignore
VAT. The business uses the perpetual inventory method with a markup of 40% on selling
price (i.e. the gross margin / gross profit percentage is 40%) unless otherwise specified.
Note: A gross margin / gross profit percentage of 40% equates to a markup percentage of
66 2/3% on cost.
Transaction details
1
6
11
16
28
The owner took trading inventory for personal use, selling price = R 8 875.
Received rent income in cash, R 4 000.
Received a credit invoice for office stationery purchased, R 1 500.
Credit sales of trading inventory, selling price = R 11 790.
Cash sales of trading inventory, selling price = R 8 710 (marked up by 50% on cost
price).
Trading inventory previously sold on credit for R 685 was returned and a credit note
was issued.
30
at
io
n
(P
ty
)
Date
Required:
Date
e.g.
+
Ed
uc
Show how the mentioned transactions will affect the accounting equation and enter how the
accounts in the General ledger will be affected. Example: Received a capital contribution of
R 110 000.00 in the form of cash:
Assets (R)
=
Owner’s equity (R)
110 000
+
110 000
Liabilities (R)
Cr Capital
©
ED
G
E
Dr Bank
+
75
Value-added tax and source documents
3
Lt
d
Value-added tax and source
documents
What is Value-added tax? ................................................................................. 77
3.2
How does the VAT system work? ...................................................................... 77
3.3
VAT supply categories ....................................................................................... 81
3.5
3.6
(P
Standard-rated supplies ..................................................................... 81
3.3.2
Zero-rated supplies ............................................................................ 81
3.3.3
Exempt supplies ................................................................................. 82
3.3.4
Non-allowable items ........................................................................... 82
at
io
n
3.3.1
Payments vs. invoice basis ................................................................................84
3.4.1
Payments (cash) basis ........................................................................84
3.4.2
Invoice basis ....................................................................................... 84
Ed
uc
3.4
ty
)
3.1
Source documents .............................................................................................85
3.5.1
Tax invoices and credit notes ............................................................. 85
3.5.2
Other source documents ....................................................................89
VAT calculations ................................................................................................. 93
3.6.2
©
76
The markup, the gross margin and VAT ........................................... 95
G
The VAT201 return ............................................................................................100
ED
3.7
VAT-exclusive and VAT-inclusive amounts ......................................... 93
E
3.6.1
Learning Unit 3
3.1
What is value-added tax (VAT)?
Lt
d
Value-added tax (VAT) was introduced in South Africa on 30 September 1991. The
initial rate was set at 10%, then was raised to 14%, and now currently stands at 15%
as of 1 April 2018. The VAT system replaced the general sales tax (GST) system. It is
administered by the South African Revenue Services (SARS).
ty
)
VAT is a tax that is levied on almost all goods and services provided. A few goods and
services are VAT-exempt (or zero-rated), though. This means that no VAT is levied on
these particular goods and services.
(P
A person or a business that is registered for VAT is called a VAT vendor. If an enterprise
has (or is expected to have) an annual turnover of taxable supplies of over R 1 million,
it is compulsory to register as a VAT vendor. If the annual turnover is between R 50 000
and R 1 million, registration is voluntary.
G
How does the VAT system work?
ED
3.2
E
Ed
uc
at
io
n
A VAT vendor will be required, by law, to keep accurate records of all transactions on
which VAT is applicable and to report to SARS on a regular basis. At registration, most
businesses are registered for a two-month VAT tax period and are required to submit
returns on or before the 25th of every second month. Voluntary submission periods of
every four months have been introduced for certain businesses (as of August 2005).
Businesses with an annual turnover of more than R 30 million must submit a monthly
return. Six-monthly and annual returns are also possible in certain instances. The VAT
return is a summary of all the VAT transactions which took place in a business during
a specified period of time, and will show the amount of input VAT paid, the amount
of output VAT received and the difference between the two amounts. If the business
received more VAT (output VAT) than it paid (input VAT), it will owe the difference to
SARS. If the input VAT exceeds output VAT, SARS will refund the difference to the
business.
©
SARS allows the business to claim back the VAT portion on invoices received. This
is called input VAT, and is an asset to the business (in essence SARS becomes a
temporary debtor of the business). VAT vendors must then charge output VAT on their
selling prices. Output VAT is due to SARS and is regarded as a liability by the business.
Example 3.1 (The value-added chain)
Look at the following, very simple example: the collection of VAT on a product – a
2 kg container of butter.
77
Value-added tax and source documents
A farmer produces cream and sells it to a manufacturer, who makes butter. The butter is
then sold to the wholesaler, and resold to the retailer, who finally sells it to the consumer.
Farmer
Manufacturer
Wholesaler
Retailer
Consumer
Cost price
R5
R 10
R 15
R 20
R 25
Mark-up
R5
R5
R5
R5
-
Selling price
R 10
R 15
R 20
R 25
-
Profit
R5
R5
R5
R5
-
Lt
d
First let’s look at the situation where there is no VAT:
(P
ty
)
Each participant makes a profit of R 5. Note that the selling price of the farmer becomes
the cost price of the manufacturer: the selling price of the manufacturer becomes the
cost price of the wholesaler, and so on. Notice that although each participant makes a
profit of R 5 per unit their markup percentages are all different.
at
io
n
Now, let’s look at the same example, but with VAT of 15% added.
Assume that all participants are registered VAT vendors and that the product is a
standard rated supply at each stage of its development:
The farmer:
Ed
uc
The farmer ensures that the cows are milked. Mother earth cannot provide the farmer
with a VAT invoice, so the farmer will not be able to claim input VAT on the cream per
se. However, SARS will allow the farmer to claim on most of the inputs needed to feed
the cows (seeds for planting grass, inoculations, etc.)
G
E
Let’s assume that the average cost of the inputs needed to produce enough cream to
eventually make the 2 kg container of butter, is R 5. The farmer’s VAT scenario can be
set out as follows:
R 5.00
R 0.75
Farmer adds a markup of:
Sells product for VAT inclusive price of (R 5.00 + R 5.00) + (15% × R 10.00):
Thus output VAT payable (R 11.50 – R 10.00):
R 5.00
R 11.50
R 1.50
Net amount payable to SARS (R 1.50 – R 0.75):
R 0.75
©
ED
The farmer ensures collection of cream from the cows;
total cost per container of cream needed to produce 2 kg of butter =
Thus input VAT claimable (R 5.00 × 15%)
78
Learning Unit 3
The manufacturer:
(P
ty
)
Lt
d
The manufacturer buys the cream needed to make one 2 kg container of butter at
R 11.50 (including VAT) from the farmer. Since the cream is now the input the
manufacturer needs to produce his/her product, SARS will allow the manufacturer to
claim back the R 1.50 in VAT on this invoice received from the farmer. Now, it must
be mentioned from the outset that the manufacturer would have claimed input VAT
on the machinery purchased for use in the production process. This would have been
done when the machinery was acquired. We will now assume that the only additional
input for the manufacturer is wages for the factory workers. No VAT can be claimed on
wages. There are several reasons for this, but the easiest one to remember is that the
factory worker does not provide the employer with a VAT invoice when receiving his/her
wages. VAT cannot be claimed if no tax invoice has been received. The manufacturer’s
scenario can now be set out as follows:
R 10.00
R 1.50
Manufacturer adds a markup of:
Sells product for VAT inclusive price of (R 10.00 + R 5.00) + (15% × R 15.00)
Thus: output VAT payable (R 17.25 – R 15.00):
R 5.00
R 17.25
R 2.25
Ed
uc
at
io
n
The manufacturer buys the cream from the farmer and produces butter,
total cost (R 11.50 ÷ 1.15) =
Thus input VAT claimable (R 11.50 – R 10.00):
Net amount payable to SARS (R 2.25 – R 1.50):
The wholesaler:
R 0.75
G
E
The wholesaler buys a large number of 2 kg containers of butter, which is then sold
piecemeal to a variety of retailers at a profit. If the wholesaler intends to make a profit
of R 5 per unit sold, the following would apply:
R 15.00
R 2.25
Wholesaler adds a markup of:
Sells product for VAT inclusive price of (R 15.00 + R 5.00) + (15% × R 20.00):
Thus: output VAT payable (R 23.00 – R 20.00):
R 5.00
R 23.00
R 3.00
Net amount payable to SARS (R 3.00 – R 2.25):
R 0.75
©
ED
The wholesaler buys the butter from the manufacturer in bulk, total unit cost
(R 17.25 ÷ 1.15) =
Thus input VAT claimable (R 17.25 – R 15.00):
The retailer:
The retailer purchases the butter from the wholesaler and may then claim back input
VAT on the purchase.
79
Value-added tax and source documents
Let’s assume the retailer also adds R 5 in profit to his/her purchase price before selling
it to the final consumer.
R 20.00
R 3.00
Lt
d
The retailer buys the butter from the wholesaler in bulk, total unit cost
(R 23.00 ÷ 1.15) =
Thus input VAT claimable (R 23.00 – R 20.00):
ty
)
Retailer adds a markup of:R 5.00
Sells product for VAT inclusive price of (R 20.00 + R 5.00) + (15% × R 25.00): R 28.75
Thus: output VAT payable (R 28.75 – R 25.00):
R 3.75
R 0.75
(P
Net amount payable to SARS (R 3.75 – R 3.00):
The consumer:
Ed
uc
at
io
n
The final consumer is often not registered as a VAT vendor and may therefore not claim
back any of the VAT that appears on the invoice received from the retailer. Certain
products may be consumed by a VAT vendor. If stationery is consumed by a particular
VAT vendor, then (although the VAT vendor is the final consumer of that particular
product) they may claim that input VAT back from SARS, because it will be used in the
production of their income.
Question 3.1
(i)
The value-added tax (VAT) system replaced the general sales tax (GST) system in
1991.
E
From the perspective of the South African Revenue Service, do you think the VAT
system has been more successful than the GST system (which was in use prior to
1991)?
G
(ii) VAT is collected from different vendors that form part of the ‘value chain’ of the product
or service.
©
ED
Many people feel that it is the final consumer that pays the VAT at the end of the day.
Do you agree or not?
Computerised Accounting Fact
On most computerised accounting systems
it is possible, and likely, that the input VAT
and output VAT accounts will be merged
into one account entitled 'VAT control'.
If the VAT control account has a credit
80
balance, then the business owes SARS. A
debit balance on the VAT control account
indicates money owing by SARS to the
business.
Learning Unit 3
3.3
VAT supply categories
Lt
d
As a general rule, the supply of all goods and services attract VAT (standard rated
supplies) unless the goods or services are zero-rated or VAT exempt. Certain goods and
services attract VAT, but the purchaser is not allowed to claim the input VAT.
3.3.1 Standard rated supplies
ty
)
How does a VAT vendor know if he/she can claim input VAT on a purchase? The following
questions should be asked (assume we are a registered VAT vendor):


E

Does the item paid for constitute an essential input to our business to create
outputs on which output VAT will be charged? A business cannot run properly
without water and electricity, telephone, advertising and equipment. SARS will
therefore generally allow a business to claim input VAT on such items. A business
can run without gym membership, refreshments and entertainment for all staff
members. SARS will therefore disallow any VAT claims on such items.
Is the item exempt per definition?
Is the item regarded as zero-rated?
Does the item open itself up for potential misuse of the Value-Added Tax Act
89 of 1991 (VAT Act) by vendors? In such instances, SARS would normally not
endorse a VAT claim.
Ed
uc

at
io
n
(P
• Is the supplier we made the purchase from a registered VAT vendor and did we
receive a valid VAT invoice? If not, we may not claim any input VAT.
• Does the item or service paid for constitute a zero-rated or VAT exempt supply, or is
the item a non-allowable item? No input VAT can be claimed if an item is zero-rated,
exempt or non-allowable. In order for us to determine whether it is one of these
special cases or not, we need to ask the following:
G
3.3.2 Zero-rated supplies
ED
Certain supplies are zero-rated. This means that VAT is charged on the supply of these
goods and services at a rate of 0%. Two of the main reasons for zero-rated goods are
so that basic foodstuffs can be made less costly, to alleviate poverty; and to boost
exports by keeping their prices lower.
©
Some of the most important zero-rated supplies are as follows:
• Petrol, diesel and illuminating paraffin
• Certain foodstuffs; for example brown bread, milk, fruit and vegetables, canned
pilchards, samp, white bread flour, cake flour etc.
• Sanitary pads
• Exports (only exports where your business is liable for the delivery costs of the
goods to the foreign country qualify as zero-rated)
• The sale of a business as a going concern
• Any service rendered by a welfare society
81
Value-added tax and source documents
3.3.3 Exempt supplies
Certain supplies of goods and services are VAT exempt. Although the bookkeeping
entries in this case are similar to zero-rated items, there is a difference:
Lt
d
• Vendors of zero-rated supplies may still register for VAT, in which case input VAT may
be claimed on certain purchases.
• Vendors of exempt supplies may not register for VAT at all, so no input VAT may be
claimed on their purchases.
ty
)
Some of the most important exempt supplies are as follows:
at
io
n
(P
• Life assurance
• Interest received and interest paid
• Renting a dwelling for use as a private residence (this does not apply to holiday
accommodation)
• Passenger transport in South Africa by bus, taxi or train (transport by air as well as
aircraft fuel is standard rated)
• Donated goods or services sold by non-profit organisations (think of the traditional
church bazaars)
Question 3.2
Ed
uc
If you are the bookkeeper of a business that buys zero-rated and exempt supplies in its
capacity as a final consumer, the business can claim input VAT at 0% on the zero-rated
items and it cannot claim input VAT on the exempt items. However, if the business is not
the final consumer, it is a different story altogether.
Required:
E
Discuss this statement and use a scenario to illustrate.
G
3.3.4 Non-allowable items
ED
Sometimes, although the vendor charged output VAT, the subsequent acquirer of the
goods or service may not claim input VAT on them.
Some of these products/services include the following:
©
• Entertainment expenditure. Entertainment expenditure includes staff refreshments
and other goods bought for the purposes of entertainment. SARS does not regard
such items as necessities in producing VAT-leviable outputs, thus no input VAT claim
will be allowed. There are exceptions to this rule, though: If the owner or an employee
of a business is away on a business trip, then input VAT may be claimed on the hotel
bill – provided that the person stays over at the hotel for at least one night.
• Passenger vehicles. However if a business makes use of sedan vehicles and can
prove that this type of vehicle is crucial to the nature of its business, it may apply for
a special concession. If adequate proof is supplied, the business may be granted a
proportional claim by SARS.
82
Learning Unit 3
• Club fees and subscriptions (with the exception of professional subscription fees in
the case where a licence is needed to trade).
Question 3.3
X
Nonallowable
item
ty
)
X
Exempt
supply
(P
Zerorated
supply
X
X
©
ED
G
E
Ed
uc
E.g. Trading inventory
E.g. Petrol
E.g. Life assurance
E.g. White bread for staff lunches
Brown bread purchased by a
restaurant with the purpose of
making sandwiches for resale
White bread purchased by a
restaurant with the purpose of
making burgers for resale
Diesel for use in the delivery
vehicle
Illuminating paraffin for use in a
business’s factory
Water and electricity bill
Telephone bill
Doctor’s subscriptions to the
Medical Council
Business’s subscription to the
local golf club
Stationery
Equipment for the office
A kettle for the office kitchen (for
use by staff)
A kettle purchased by a restaurant
for use in their primary business
activity
Staff lunches
Interest on bank overdraft
Short-term insurance premiums
Advertising
Sale of a business as a going
concern
A ‘double-cab’ vehicle
A delivery vehicle that does not
fit the description of a passenger
vehicle
Electricity portion of rates and
taxes bill
Rates portion of rates and taxes
bill
Standard
rated
supply
at
io
n
Consideration
Lt
d
Complete the following table, by marking the correct block at each supply listed. Assume
that a business
acquires
the by
following
Where
applicable,
assume
that that
all
Complete
the following
table,
markingconsiderations.
the correct block
at each
supply listed.
Assume
dealt
with arethe
registered
vendors andWhere
that the
VAT Act assume
has been
adhered
to
aparties
business
acquires
followingVAT
considerations.
applicable,
that
all parties
in all with
instances.
dealt
are registered VAT vendors and that the VAT Act has been adhered to in all instances.
83
Value-added tax and source documents
3.4
Payments vs. invoice basis
There are two bases upon which a business can register for VAT, namely the payments
(cash) or the invoice basis.
Lt
d
3.4.1 Payments (cash) basis
(P
ty
)
If a business is registered on the payments basis, the following will apply: when a
credit sale is made to a debtor, the business need only record the VAT on the sale as
owing once the money is received from the debtor. This means that the output VAT
is not recorded in the tax period of the sale, but rather in the tax period during which
the money is received. The same applies to creditors – the VAT is only recorded as
refundable at the time the creditor is paid.
The payments basis may only be used by the following entities:
Ed
uc
at
io
n
• Sole traders and partnerships (all partners must be natural persons), whose turnover
does not exceed R 2.5 million per year.
• Associations not for gain and local authorities may use the payments basis regardless
of turnover.
• Vendors who wish to use the payments basis must apply in writing to SARS to
receive permission to do so.
G
E
Please note that if a potential vendor wishes to be registered on the payments basis,
such a business would need to justify why they do not want to be registered on the
invoice basis. A vendor that is already applying the invoice basis must apply in writing
to SARS before being allowed to apply the payments basis. If approved, the payments
basis will only apply from a future tax period as specified by the commissioner. Most
businesses in South Africa today are registered on the invoice basis. For the purposes
of this course, we will therefore assume that all businesses are registered on the invoice
basis.
ED
3.4.2 Invoice basis
©
Using the invoice basis, when a credit sale is made to a debtor, the business must record
the VAT as owing from the time of the sale (as an invoice is issued at this point). The
vendor must record the output VAT in the tax period the sale took place and pay over
the VAT on the return submitted for this period. This essentially means that a vendor will
often pay over the VAT on a sale before receiving the money from the debtor. Therefore
administering VAT on an invoice basis can have important cash flow implications.
Of course, an advantage of this basis is that input VAT is recorded as refundable from
the time of invoice. This means in the case of purchases from creditors, the VAT on the
full buying price may be claimed back once an invoice has been received, even though
the items may only be paid for in full over a series of months.
84
Learning Unit 3
3.5
Source documents
3.5.1 Tax invoices and credit notes
ty
)
Lt
d
An invoice is a document that records that a sale of goods or services has taken
place, either for cash or on credit. It documents the parties involved, the goods sold or
services rendered, the date of the transaction and the amount charged. A credit invoice
indicates that the sale has taken place but that the money owed for the transaction is
still outstanding. A cash invoice indicates that the sale has taken place and has been
paid for immediately.
(P
VAT vendors are required to issue invoices to their customers whenever they sell
products or services on credit or for cash. These invoices must be valid tax invoices. A
tax invoice is simply a credit or cash invoice that contains specific details required by
SARS for VAT purposes.
Ed
uc
at
io
n
A full tax invoice is required whenever a supply total exceeds R 5 000. If a supply is less
than R 50 a tax invoice is not required, however another source document (petty cash
voucher, cash register slip etc.) will be required to verify the VAT amount. If a supply
total is greater than R 50 but does not exceed R 5 000 then an abridged tax invoice is
acceptable. On an abridged tax invoice all of the information of a full tax invoice must
appear, except the name, address and VAT registration number of the buyer may be left
out.
E
Computerised Accounting Fact
down button) to choose whether the item is
standard rated, zero-rated, exempt, and/or
non-allowable. Making the correct choice
is essential as this often makes it possible
for the system to generate accurate VAT
returns automatically.
©
ED
G
When a transaction is recorded from a
source document into a computerised
accounting system, a good working
knowledge of the different VAT supply
categories is still required. With every entry
made in the books of the account, the user
will be prompted (usually via a coded drop-
3.5.1.1 The credit invoice
The following example of a credit invoice will outline the statutory requirements for a
tax invoice:
85
©
ED
G
E
Ed
uc
at
io
n
(P
ty
)
Lt
d
Value-added tax and source documents
86
Learning Unit 3
3.5.1.2 The credit note
Lt
d
A tax credit note is a document that records the cancellation of a sale, or part thereof
(i.e. it records the reduction or return of sales). Because a credit note will affect the net
VAT payable/refundable by a registered vendor, a credit note must contain the same
information as appears on a valid tax invoice.
G
E
Ed
uc
at
io
n
(P
ty
)
The following is an example of a valid credit note:
ED
3.5.1.3 The cash invoice
©
The cash invoice is very similar in layout to the credit invoice. The only real difference
is that there must be an indication that the customer paid for the goods or services at
the point of sale. Notice how there are no terms mentioned at the bottom of the invoice.
Should you wish to include terms, then the term C.O.D. (cash on delivery) should be
used. If a registered VAT vendor wishes to sell goods for cash, it needs to issue a cash
invoice. This invoice needs to be a valid tax invoice. We know a transaction can be
classified as a cash transaction when payment is made by credit card, cheque or in
cash.
87
Value-added tax and source documents
Ed
uc
3.5.1.4 The cash slip
at
io
n
(P
ty
)
Lt
d
The following is an example of a valid cash invoice:
Instead of a cash invoice, a cash slip can be issued. The cash slip is an abridged tax
invoice and may be used for sales that do not exceed R 5 000.
©
ED
G
E
The following is an example of a cash slip:
88
Learning Unit 3
Question 3.4
(i)
The cash slip shown in section 3.5.1.4 does not qualify as a full tax invoice.
Lt
d
Explain why this is so with reference to the requirements for a full and an abridged
tax invoice.
(ii) Assume a customer buys goods or services amounting to more than R 5 000 from a
business that uses only traditional cash registers.
(iii)
With reference to the previous discussion point:
ty
)
Would a cash slip with the same information as the one shown in section 3.5.1.4 be
appropriate?
at
io
n
(P
What advice would you offer the merchant in such a case to ensure that they comply
with the VAT Act?
3.5.2 Other source documents
3.5.2.1 The cash receipt
Ed
uc
A cash receipt is a source document used to record the receipt of cash in cases where
no VAT should be charged. Cash receipts are not valid tax invoices. In fact, neither the
issuer nor the receiver’s VAT number should appear on a cash receipt. We make use
of a receipt when the owner makes a capital contribution, when we receive a cash
donation or when a debtor makes a payment on his/her account. Remember, the VAT
was accounted for when the credit sale was initially made to the debtor (invoice basis).
When the debtor pays his/her account, we do not account for the VAT again.
©
ED
G
E
The following is an example of a valid cash receipt:
89
Value-added tax and source documents
3.5.2.2 The cheque and its counterfoil
Ed
uc
at
io
n
(P
ty
)
The following is an example of a cheque and cheque counterfoil:
Lt
d
Most businesses have a current bank account, which normally allows for a business
to issue cheques. When purchases or payments are made by cheque, the drawer will
retain the counterfoil with the relevant details, and will make the relevant bookkeeping
entries from this cheque ‘stub’.
Cheque counterfoil
to be kept by the person/
business paying the amount (the drawer) Cheque to be torn off
and given to the person/
business being paid (the payee)
E
3.5.2.3 The electronic funds transfer (EFT) confirmation slip
ED
G
Electronic funds transfers (EFTs) are becoming a very popular means of payment.
Clearance of payment by the bank is guaranteed, since an EFT transfer can only be
made if there happens to be enough funds available in the account from which the
transfer is made. Most suppliers will prefer to be paid by means of an electronic transfer
as opposed to a cheque, because cheques can still be returned by the bank as unpaid.
©
The EFT confirmation slip appears on the computer screen upon completion of each
transaction. The account holder can then usually request online that the confirmation
slip be faxed or sent by e mail to the relevant beneficiary or creditor. This is done by the
click of a button. The account holder can then print out the confirmation slip as well,
which means that both parties now have a copy of the slip.
90
Learning Unit 3
The EFT confirmation slip will usually display the following:
ty
)
Lt
d
• The name and account details of the beneficiary.
• The name and account details of the payer.
• A ‘comment box’ in which the payer can stipulate what he/she would like the
recipient’s bank to display on the recipient’s bank statement. An invoice or reference
number is generally a good idea.
• A ‘comment box’ in which the payer can stipulate what he/she would like to have
displayed on their own bank statement.
• The amount that was paid, the date and the time of the transfer.
• A contact number of the payer – a number on which the beneficiary can contact
them.
3.5.2.4 The petty cash voucher
at
io
n
(P
Please note that an EFT confirmation slip is not a valid document for VAT purposes. This
is why it is always advisable to have the tax invoice in your hands first, before affecting
payment via EFT. The EFT transfer is nothing more than a cheque ‘stub’ or a receipt for
either of the two parties involved.
Ed
uc
The petty cash voucher is an internal source document used to record payments out
of the petty cash box. The petty cash box is an on-site store of cash from which petty
or small payments can be made. As with all source documents there will be supporting
source documents for these petty cash transactions, such as cash register slips
received.
©
ED
G
E
The following is an example of a petty cash voucher:
91
Value-added tax and source documents
3.5.2.5 The journal voucher
The journal voucher is the internal source document from which transactions are
recorded in the General journal.
G
E
Ed
uc
at
io
n
(P
ty
)
Lt
d
The following is an example of a journal voucher:
©
ED
Computerised Accounting Fact
92
As you know by now, most businesses of
today make use of electronic accounting
systems. Some companies have policies
where written journal vouchers are created,
which would then be filed after entering
them into the electronic system. The
manual journal voucher number would be
used as reference. Other companies create
the entire audit-trail electronically. This
means that the annual narration is entered
electronically, and doubles as the source
document.
Learning Unit 3
Question 3.5
(i) A credit card slip does not fall into any of the mentioned categories of source
documents.
Lt
d
Discuss the role of the Speedpoint (credit card) slip in recording purchases made on
a business’s credit card.
3.6
Discuss how the bank will transact with the vendor.
VAT calculations
(P
ty
)
(ii) A particular business has a Speedpoint machine and accepts credit cards as
payment for goods and services.
at
io
n
3.6.1 VAT exclusive and VAT inclusive amounts
Where a transaction attracts VAT, there are three important amounts that need to be
recorded:
The VAT exclusive amount
The VAT amount
The VAT inclusive amount
Ed
uc
1.
2.
3.
The easiest way to derive a VAT inclusive amount if the VAT exclusive amount is given,
is as follows:
E
Exclusive amount × 1.15 = Inclusive amount
ED
G
To derive a VAT exclusive amount from a VAT inclusive amount, we do the calculation
in reverse, thus:
Inclusive amount ÷ 1.15 = Exclusive amount
©
To derive a VAT amount, either one of the following two methods can be used:
Method 1: Deduct the VAT exclusive amount from the VAT inclusive amount
Method 2: VAT exclusive amount × 15/100 = VAT amount
VAT inclusive amount × 15/115 = VAT amount
93
Value-added tax and source documents
It is a bit harder when only the VAT amount is known and we need to find the other two
amounts:
Use this logic: If R 115 × 15 ÷ 115 = R 15
Lt
d
Then: 15 × 115 ÷ 15 = R 115
ty
)
Thus: VAT inclusive price = VAT amount × 115 ÷ 15
VAT exclusive price = VAT amount × 100 ÷ 15
Complete
Completethe
thefollowing
followingtable:
table:
(P
Question 3.6
Practice exercise
VAT amount (R)
439.45
?
?
?
9 003.15
?
?
?
2 150.00
21.00
?
680.75
?
?
?
?
14 222.69
?
59.06
?
300.00
?
?
?
3 482.12
?
?
120.50
?
VAT inclusive price (R)
G
E
Ed
uc
?
at
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n
VAT exclusive price (R)
ED
3.6.2 The markup, the gross margin and VAT
©
It is every entrepreneur’s priority to make as much profit as possible without losing
any clientele due to excessive markups. The markup is the amount added to the cost
price of a product to arrive at its selling price. The terms ‘markup’ and ‘gross profit’
are different terms for the same amount. This profit amount may be expressed as a
percentage of either the cost price or the selling price of the product. When the profit
amount is expressed as a percentage of the cost price, then this percentage is referred
to as the markup percentage (loosely referred to as the ‘markup’ or the ‘markup on
cost’). If the profit amount is expressed as a percentage of the selling price then this
percentage is known as the gross profit percentage (gross margin).
94
Learning Unit 3
Lt
d
The markup is used to determine the cost price of a product if the selling price is known
(and vice versa), and the gross margin is used to determine the ability of gross profit to
cover overheads. These percentages create a lot of confusion in practice, so with the
next example we will try to make it a bit more understandable for you.
Example 3.2 (VAT calculations, markups and margins)
Cost price
(Excl. VAT)
ty
)
The following costing formula is very important in the quest to ascertain a business’s
markup percentage and/or gross margin:
Gross profit amount
(Excl. VAT)
=
(P
+
Selling price
(Excl. VAT)
at
io
n
When dealing with markup percentages or gross margins, we always work with the
VAT-exclusive prices.
Illustration 1
Ed
uc
Assume it costs a manufacturer R 200 (excluding VAT) to produce one unit of their
product, called Hypo X. The manufacturer would like to add a markup of 50% to their
product before selling it to the wholesaler. The manufacturer’s costing ratio will be as
follows:
Cost price
Gross profit amount
Selling price
+
=
(Excl. VAT)
(Excl. VAT)
(Excl. VAT)
E
Cost price R 200
+
(Excl. VAT)
G
R 200
Gross +
profit amount
R 100
=
(Excl. VAT)
+
R 100
=
Selling
= price
(Excl. VAT)
R 300
R 300
©
ED
The markup percentage (the profit amount as a percentage of the cost price) is
determined as follows:
R 100
×
R 200
R 100
×
100/1
R 200
R 100
R 300
OR:
50
150
R 100
×
R×300 100/1
100/1
=
=
50%
50%
= 100/1
33 1/3%=
33 1/3%
OR:
×50 100/1
×
=100/1
33 1/3% = 33 1/3%
95
R 100
×
100/1
R 200documents
Value-added tax and source
=
50%
The gross margin (the profit amount as a percentage of the selling price) is determined
as follows:
Gross profit amount
(Excl. VAT)
+
R 100 +
×
R 300
R 200
=
Selling price
(Excl. VAT)
R 100 = 33 1/=3%
100/1
R 300
OR:
50
150
Illustration
2 1/3%
100/1 = 33
ty
)
×
Lt
d
Cost price
(Excl. VAT)
+
(Excl. VAT)
(Excl. VAT)
(P
The selling price of the manufacturer now becomes the cost price of the wholesaler (in
R 100
terms of VAT
exclusive
further assume that the wholesaler wishes to add
× prices).
100/1 Let’s
=
50%
R 200
a markup ofCost
25%price
to their product.
The
wholesaler’s
willprice
be as follows:
Gross profit
amount costing ratio
Selling
=
(Excl. VAT)
150
R 75
Ed
uc
at
io
n
R 200price
+ + Gross
R 100profit amount
=
Cost
= R 300Selling price
(Excl.
VAT)
(Excl.
VAT)
(Excl. VAT)
Cost
price
+ Gross
amount
= SellingSelling
Cost
price
+ Gross
profitprofit
amount
=
price price
(Excl.
VAT)
(Excl. VAT)
(Excl.
VAT)
(Excl.(Excl.
VAT) VAT)
(Excl. VAT)
R 300
+
R 75
=
R 375
R 300
+ +
R 75 R 75
=
R 375 R 375
R 300
=
OR:
R 100
×
100/1 = 33 1/3%
OR:
OR:R 300
100
+
25
=
125
R 100
OR:
100
+
25
=
125
The markup
percentage
(the profit
amount
of the 125
cost price) is
100/1
=
50%
100×
+
25as a percentage
=
R 200
determined50
as follows:
1
×
100/1
×
= 33 /3%
100/1
R 75
=
R 75
300 × × 100/1
R
100/1
R 300
=
25%
25%
=
25%
G
E
R 300
OR:
OR:
25
× profit
100/1
=as a25%
= 25%
The gross25
amount
percentage of the selling price) is determined
Rmargin
100 ×(the 100/1
1 3%
100
×
100/1
=
33
100
×
100/1 = /25%
R 25
300
as follows:
100
OR:
ED
OR:
50
×
100/1 = 33 1/3%
150
R 75
=
20% 20%
R 75 × ×100/1
100/1
=
R 375
R 375
©
R 75
×
100/1 =
20%
R
375
OR:OR:
OR:
25 25 × ×100/1
= 20%
3
100/1
=Illustration
20%
125125
25
×
100/1 = 20%
Other useful
formulas that could be used in solving markup-related problems involve
125
the calculation of the cost price, if only the selling price and the markup percentage or
gross margin are known.
96
Learning Unit 3
When the markup on cost (markup percentage) is given
+
Gross profit amount
(Excl. VAT)
=
Selling price
(Excl. VAT)
=
Selling price
=
Selling price
Lt
d
Cost price
(Excl. VAT)
Cost price + Mark-up % × Cost price
Cost price × (1 + Mark-up %)
=
Selling price
(1 + Mark-up %)
(P
Cost price
ty
)
Therefore, to calculate the cost price:
at
io
n
To illustrate:
If the markup is 20% on cost, CP = Selling price ÷ 1.2
If the markup is 30% on cost, CP = Selling price ÷ 1.3
If the markup is 99% on cost, CP = Selling price ÷ 1.99
Ed
uc
If the markup is 100% on cost, CP = Selling price ÷ 2.0
When the markup on selling price (gross margin) is given
+
Gross profit amount
(Excl. VAT)
=
Selling price
(Excl. VAT)
E
Cost price
(Excl. VAT)
G
Therefore, to calculate the cost price:
ED
Cost price + Gross margin × Selling price = Selling price
Cost price
= Selling price – Gross margin × Selling price
Cost price
= Selling price (1 – Gross margin)
©
To illustrate:
If the markup is 20% on selling price, CP = Selling price (1 – 0.2)
If the markup is 30% on selling price, CP = Selling price (1 – 0.3)
If the is markup is 99% on selling price, CP = Selling price (1 – 0.99)
If the markup is 100% on selling price, CP = Selling price (1 – 1)
(This proves that it is not possible to have a markup of more than 100% on selling price.
In fact, a 100% gross margin means the seller acquired the product at zero cost.)
97
Value-added tax and source documents
Question 3.7
Consider the following two independent scenarios:
Complete
the following
table:
3.1.
Complete
the following
table:
Profit
(Excl. VAT)
Selling price
(Excl. VAT)
?
?
?
?
R 500.00
?
R 750.00
?
?
?
R 4 000.00
R 8 000.00
120%
?
?
R 2 200.00
10%
R 100.00
25%
50%
3.2.
now been
included. (ignore
Assume VAT):
that all parties involved are registered VAT vendors,
SolveVAT
thehas
following
problems
that the product involved is standard-rated throughout, and that the VAT rate is 14%.
Complete the following table:
(P
(ii)
Cost price
(Excl. VAT)
Lt
d
Mark-up on
cost
ty
)
(i)
If the gross margin on a product is 25%, what is the corresponding markup
percentage?
(b)
If the gross margin on a product is 50%, what is the corresponding markup
Cost of the Selling price of Gross profit
percentage?
Gross margin
the product in earned per
product in
Mark-up %
attained
(c)
If the markup
percentage
a product
issold
50%, what
is the corresponding
Randon
value
Rand value
product
attained
(as a %)
(Including VAT) (Including VAT) in Rand value
gross margin?
(d)
If the markup percentage on a product is 300%, what is the corresponding
gross margin?
Manufacturer
2 508.00
3 511.20
(a)
(b)
(c)
(e)
A
product
with
a
cost
price
of
R
100
is
selling
for
R
160.
What
is
the
markup
Wholesaler
(d)
(e)
1 026.67
(f)
(g)
percentage and the gross margin respectively?
2
(h)
(i)
Ed
uc
Retailer
at
io
n
(a)
(j)
(k)
16 /3 %
Question 3.8
ED
G
E
Westbrook Manufacturers produces a single, homogeneous product, called a Pesto. The
materials used to manufacture a Pesto cost R 570, including VAT. Wages to factory workers
amounted to R 10 000 during March 20.9. Westbrook Manufacturers manufactured and
sold 1 000 Pestos at R 1 710 each (including VAT) during this period. All 1 000 of these
Pestos were sold to a wholesaler, Pienaar Dealers. Pienaar Dealers added 50% to the cost
price of all these Pestos, before selling them to Montague Traders, a retailer. All parties
involved are registered VAT vendors, and all Pestos are a standard-rated supply. VAT is
levied at 15%.
Required:
©
Calculate the following (assume a VAT rate of 15%):
(i)
(ii)
(iii)
(iv)
98
The cost of sales incurred by Westbrook Manufacturers during March 20.9.
The sales revenue earned by Westbrook Manufacturers during March 20.9.
The cost of sales incurred by Pienaar Dealers during March 20.9.
The sales revenue earned by Pienaar Dealers during March 20.9.
Learning Unit 3
(v)
(vi)
(vii)
(viii)
Question 3.9
(a)
(b)
(c)
(d)
(ii)
Cost price
Selling price
Gross profit
VAT
(P
Define the following terms:
at
io
n
(i)
ty
)
Lt
d
(ix)
(x)
The gross profit made by Westbrook Manufacturers during March 20.9.
The gross profit made by Pienaar Dealers during March 20.9.
The input VAT claimable on Pestos by Westbrook Manufacturers for the period in
question.
The output VAT payable to SARS by Westbrook Manufacturers for the period in
question.
The input VAT claimable on Pestos by Pienaar Dealers for the period in question.
The output VAT payable to SARS by Pienaar Dealers for the period in question.
Study the following cash slip carefully and answer the questions that follow:
Ed
uc
HILLCREST
TAX INVOICE
VAT NO: 4420106888
R 0.35
R 9.20
R 32.95
R 24.59
R 13.00
R 7.25 *
R 4.78 *
R 8.25
R 15.95
R 17.95
R 23.95
R 18.50
R 18.95
R 46.95
R 9.95 *
Balance due:
Amount tendered
Change
R 252.57
R 260.00
R 7.43
Rate
15.00 %
* 0.00 %
TOTAL
R 230.59
R 21.98
©
ED
G
E
Government BAG 24 L
Sunday Tribune
Liqui Fruit
Bovril 125G
Butter
Tomatoes: 0.500 @ R14.50
Cucumbers
White bread
Coca Cola
Five Roses tea 100 bags
Sandwiches
Cream
Oros Squash 1 LT
Instant coffee 500g
Banana POLY BAG
VAT
R 30.08
R 0.00
Unique No. 52430799
C0020 #0017 9:19:14 160409 S42703 R16
99
Value-added tax and source documents
What is the total amount due according to the cash slip?
What is the total amount charged for zero-rated items?
Name one product on the slip that is zero-rated.
(d)
(e)
The R 30.08 is 15% of the taxable amount. What is the taxable amount?
Identify the VAT registration number of Hillcrest.
Lt
d
(a)
(b)
(c)
(iii)You are a partner in Delightful Bakeries. A client, Gordon Miles, has purchased the
following from you:
ty
)
12 dozen white hamburger rolls @ R 12.60 + VAT per dozen
7 loaves of white bread @ R 9.20 per loaf (including VAT)
5 dozen doughnuts @ R 24 + VAT per dozen
6 loaves of brown bread @ R 7.80 per loaf (no VAT; zero rated)
(P
Required:
3.7
Ed
uc
at
io
n
(a)
Complete the cash invoice that appears in your workbook.
(b)If Delightful Bakeries marks all their products up at 30% above cost, calculate
the total cost incurred by the business when they bought these products they
are now selling (i.e. calculate the ‘cost of sales’).
(c)With reference to question (b) above, calculate the gross profit earned by
Delightful Bakeries on this sale.
The VAT201 return
G
E
There are several ways in which you can pay your VAT. One way is to post a cheque
made out to SARS in the reply envelope provided. Another way is to pay over the
counter in cash. Finally, one can also submit returns and make payments electronically.
For more information you may contact your nearest SARS office or visit their website:
www.sars.gov.za.
©
ED
The VAT201 return is the business’s VAT return for remittance. In Question 3.10, which
follows later, you will be required to complete the VAT201 return, based on the given
information, as prepared in Example 3.3.
100
Learning Unit 3
©
ED
G
E
Ed
uc
at
io
n
(P
ty
)
Lt
d
The following is an extract of a VAT201 return:
101
©
ED
G
E
Ed
uc
at
io
n
(P
ty
)
Lt
d
Value-added tax and source documents
(Source: SARS, 2019)
102
Learning Unit 3
Example 3.3 (Preparing a VAT return)
R 151 284.00
91 860.00
10 000.00
160 000.00
48 000.00
80 000.00
6 320.00
(P
ty
)
Credit sales invoices numbers 115–128 issued
Cash sales
Redundant computer sold
Insurance payout on electrical equipment damaged by lightning
New computer purchased
Inventory purchased
Credit notes issued
Lt
d
Guenice Enterprises is registered for VAT on the invoice basis. At the end of October
20.9 the transactions are summarised for September and October 20.9 as follows and
handed over to the accountant, Miss Bhuda. All figures include VAT where applicable:
Miss Bhuda’s calculations for the two-month period ending 31 October 20.9 are as follows:
at
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Output VAT:
Ed
uc
Total sales (Block 1) – (151 284 + 91 860)
Output tax (Block 4: Block 1 × 15/115)
Computer (Block 1A)
Output tax (Block 4A: Block 1A × 15/115)
Insurance (Block 12: R 160 000 × 15/115)
Total output tax (Block 4 + Block 4A + Block 12)
Input VAT:
R 6 260.87
10 434.78
824.35
17 520.00
G
E
Computer (Block 14: R 48 000 × 15/115)
Purchases (Block 15: R 80 000 × 15/115)
Credit notes (Block 18: R 6 320 × 15/115)
Total input tax (Block 14 + Block 15 + Block 18)
R 243 144.00
31 714.43
10 000.00
1 304.35
20 869.57
53 888.35
VAT payable to SARS: R 53 888.35 – 17 520.00 = R 36 368.35
©
ED
Miss Bhuda completes the figures in the relevant blocks on the VAT201 return, signs
the document, and submits it on behalf of the owner of Guenice Enterprises to SARS
before the 25th of November 20.9 as required (assume it was submitted on the 24th of
November 20.9 and paid in cash over the counter).
103
Value-added tax and source documents
Question 3.10
Lt
d
Refer back to the information provided in Example 3.3 and attempt to complete the VAT
return that appears on pages 101 and 102.
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Question 3.11
(P
Consider the following statement:
VAT is a fair way of taxation as it taxes all people at the same rate. The government should
rather increase VAT and decrease personal taxation
at
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Required:
Ed
uc
Analyse this statement, and summarise the main arguments for and against it.
Question 3.12
(i)
Complete the following table as it appears in your answer book. The scenarios
listed should be interpreted from the point of view of Boston Suppliers, a cell phone
supplier. Assume a standard VAT rate of 15%.
E
VAT exclusive cost of 2-Time Cell Phone
R 3 245.89
G
VAT on the cost of 2-Time Cell Phone
VAT inclusive cost of 2-Time Cell Phone
ED
Markup % on cost price
60%
VAT exclusive selling price of 2-Time Cell Phone
VAT on the selling price of 2-Time Cell Phone
©
VAT inclusive selling price of 2-Time Cell Phone
(ii)
104
Gross profit earned per 2-Time Cell Phone sold (amount in rands)
Complete the following table as it appears in your answer book, by marking the correct
block at each supply listed. Assume that a business acquires the considerations
listed and that the business itself was invoiced in all instances. Where applicable,
assume that all parties dealt with are registered VAT vendors and that the VAT Act
has been adhered to in all instances.
Learning Unit 3
Standard
rated
supply
Consideration
E.g. Operating equipment
Zero-rated
supply
Exempt
supply
X
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Membership fees to the local golf club
paid on behalf of staff members
Brown bread purchased for use in the
staffroom
(P
Interest on credit balance on current
bank account
Single-cab vehicle (bakkie)
at
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Petrol
Machinery
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)
Couch purchased for the staffroom
Bona fide exports
Nonallowable
item
A donation to the Animal Welfare Society
Ed
uc
Short-term all-risk insurance
??
?
©
ED
G
E
Hint: Attempt Revision question 6 in Annexure B at the end of this textbook.
105
Recording cash transactions
4
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Recording cash transactions
Cash flow and your business............................................................................107
4.2
Introducing journals...........................................................................................107
4.3
The cash journals.............................................................................................. 111
(P
4.3.2
The Cashbook receipts......................................................................112
4.3.3
The Cashbook payments...................................................................114
4.3.4
The Petty cash journal....................................................................... 115
at
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Defining cash transactions................................................................ 112
Posting to the General ledger............................................................................123
4.4.1
The structure of the General ledger and the rules of posting........... 124
4.4.2
The rules for balancing an account................................................... 125
Listing of General ledger account balances on a trial balance.........................130
©
ED
G
E
4.5
4.3.1
Ed
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4.4
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4.1
106
Learning Unit 4
4.1
Cash flow and your business
Introducing journals
(P
4.2
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The main purpose of a business is to make a profit, and to increase the level of the
owner’s equity in the process. Albeit that the profitability of a business should be
monitored very closely, the monitoring of cash movements to and from the enterprise
is equally important. The importance of adequate, effective and efficient cash flow in
a business cannot be overemphasised. Many businesses have failed due to a lack of
cash management; falling into the dreaded ‘liquidity trap’ has become a world-wide
phenomenon.
Cashbook receipts
Abbr.
Type of transaction
Ed
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Name of journal
at
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As mentioned before, transactions are entered onto source documents, which in turn
are summarised in journals. In the hand system of accounting, we make use of eight
journals. Journals are used to pool similar transactions together so that the bookkeeper
(in a hand system) or computer (in a computerised system) can post similar transaction
batches to the General ledger. These journals, the type of transaction that they
summarise, and the corresponding source documents that are used are outlined in the
following table.
Source document used to
make an entry into the
particular journal
CBR Any transaction that causes
the balance of the current
bank account to increase
Duplicate cash slip (cash
register roll); duplicate cash
invoice; duplicate receipt;
supporting document:
duplicate bank deposit slip
CBP Any transaction that causes
the balance of the current
bank account to decrease
Cheque counterfoil;
electronic funds transfer
(EFT) confirmation slip;
supporting document:
original invoice, cash slip or
receipt from supplier
PCJ
Purchases from the petty
cash box
Petty cash voucher;
supporting document :
original invoice, cash slip or
receipt from supplier
Creditors journal
CJ
Credit purchases of any
product or service
Original credit invoice (a ta x
invoice with payment terms)
Creditors allowances journal
CAJ Returns/rebates with regard
to transactions previously
entered into the CJ
Original credit note
Debtors journal
DJ
Credit sales of trading
inventory only
Duplicate credit invoice (a tax
invoice with payment terms)
Debtors allowances journal
DAJ
Returns/rebates with regard
to transactions previously
entered into the DJ
Duplicate credit note
General journal
GJ
Sundry transactions that
cannot be recorded in any of
Journal voucher
ED
G
E
Cashbook payments
©
Petty cash journal
107
CJ
5. Creditors allowances journal
CAJ Returns/rebates with regard
to transactions previously
entered into the CJ.
Original credit note.
6. Debtors journal
DJ
Credit sales of trading/stock
inventory only.
Duplicate credit invoice (A tax
invoice with payment terms).
• Debtors allowances journal
DAJ
Returns/rebates with regard
to transactions previously
entered into the DJ
Duplicate credit note
• General journal
GJ
Sundry transactions that
cannot be recorded in any of
the other journals
Journal voucher
Recording cash transactions
Credit purchases of any
product or service.
Original credit invoice (A tax
invoice with payment terms).
(Source: EDGE Learning Media (Pty) Ltd, 2018)
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Table 4.1: Summary of transactions, source documents and journals
Petty cash
Cashbook receipts
cash register roll
cash invoice
duplicate credit invoice
duplicate cash invoice
Required:
•
•
•
•
•
Debtors
Debtors allowances
Petty cash voucher
Creditors allowances
receipt
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•
•
•
•
•
•
(P
Question 4.1
The following inserts are presented to you:
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4. Creditors journal
•
•
•
•
•
General
receipts
credit
credit note
Creditors journal
(iii)
ED
(iv)
E
(ii)
A client enters our store and purchases merchandise which she pays for in cash at
the counter. Our bookkeeper must record this transaction in the cashbook ..........
from a .......... or a ..........
A client enters our store and purchases merchandise on account. Our bookkeeper
must record this transaction in the .......... journal from a ..........
A tenant pays his rent in cash. The tenant is a registered VAT vendor, and uses our
building for business purposes. Our business needs to issue a .......... and record the
transaction in the ......... from the duplicate.
Our business buys goods and services on credit from a supplier. We will receive an
original tax invoice from the supplier which our bookkeeper must record in the ..........
We are unhappy with the goods purchased from the supplier in (iv), and return the
goods together with a complaint (goods returned note). The supplier agrees to credit
our account, and issues a .......... note. Our bookkeeper records this transaction in the
.......... journal.
The debtor in (ii) is unhappy with the price charged on the transaction, and requests
a rebate of 50%. We grant this discount and issue a .......... to the customer. Our
bookkeeper records this entry in the .......... journal. Later that day, the client settles
the rest of the amount due in cash, and we issue a .......... to confirm that the money
has been received.
Any purchase made from money in the petty cash box will be recorded in the ..........
journal after completing a ..........
Any transaction that cannot be entered into one of the conventional journals must be
recorded in the .......... journal.
G
(i)
Ed
uc
Complete the following statements by inserting the most appropriate term from the list
provided above in each open space (assume all parties are registered VAT vendors).
(v)
©
(vi)
(vii)
(viii)
108
Learning Unit 4
Question 4.2
Lt
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oan Porter started her retail business in 20.6 with R 1 million in cash which she inherited
J
from her deceased uncle’s estate. The total operating income from the business exceeded
the total operating expenses by R 500 000 in the first year. Against all expectations, Joan
found herself with a major cash flow dilemma at the start of the second financial year. Her
bank account was in overdraft, and within six months her business was sequestrated.
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)
How is it possible that Joan’s business could be bankrupt, given the large profit she made
in the first year? Provide four possible causes for her dilemma. What should prospective
entrepreneurs learn from this?
at
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(P
In this learning unit our main focus will fall on the preparation of the cash journals.
However, a basic understanding of all subsidiary journals needs to be embedded and
assessed first, before we can proceed with the intricacies of each individual journal. The
purpose of Question 4.3 is to provide a comprehensive introduction on the entire range
of subsidiary journals and related source documents.
Question 4.3
Date
Ed
uc
Omega Traders, a computer retailer, entered into the following transactions during June
20.9. The business is a registered VAT vendor and trades only with other registered
vendors. They use a perpetual inventory system, and all goods are marked up at 60%
above cost, before taking into account any trade discounts.
Transaction details
E
3Purchased 8 Nabello colour deskjet printers (DJ450L) @ R 4 000 each (excluding
VAT) as well as 4 Nabello colour printer cartridges (VX56) @ R 80 each (excluding
VAT) on credit from Troy’s Toys and received invoice number CI622. These were
all purchased for resale purposes. Omega Traders has not yet reached their credit
limit and this purchase has been authorised.
G
4Returned one faulty VX56 cartridge bought from Troy’s Toys and received their
credit note. The necessary authorisations were obtained for this credit note.
Purchased the following from petty cash (PCV17 was issued):
•
•
©
ED
9
4 paper reams @ R 22 each (unit price excludes VAT)
3 lever arch files @ R 21 each (unit price excludes VAT)
12Sold 8 colour laser printers to Peter’s Goodies (Model 3X200) on credit @ R 5 750
each, including VAT. Invoice T130 was issued for this purpose.
13Received a request from Peter’s Goodies requesting a rebate of 10% on invoice
T130 since the goods were of inferior quality. The rebate was authorised and
credit note RX3 was issued to grant the request.
14Purchased 2 pens (Bics L) @ R 20 each, 4 reams of paper (Cutting Edge) @ R 30
each and 10 pencils (HB) @ R 3 each on credit from Stationery Galore to be used
in the office (prices quoted are all exclusive of VAT). Invoice OU12 is received from
the supplier.
109
Recording cash transactions
15There was an advertised discount of 25% on the paper reams bought from
Stationery Galore on 14 June that was never taken into account. Omega Traders
sent a complaint about this, and they received credit note OC4 to confirm that
the discount had now been accounted for.
harged interest on the overdue account of Josslyn Peters @ 18.5% p.a. for
C
30 days (assume a 365-day year). The debtor owed us R 30 000 before the
interest was charged. Journal voucher GJ13 was completed.
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16
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17Sold four Furton Class II laptops marked at R 9 120 (inclusive of VAT) each on
credit to Tevron Dealers and issued invoice T131. The business gave a 5% trade
discount on the marked price.
(P
19
Tevron Dealers returned one Furton Class II laptop purchased on 17 June
20.8, along with a goods returned note for the return of the faulty computer. In
response, Omega Traders issued a credit note to document the return of the
computer, after all authorisations were documented.
at
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20Purchased trading inventory by cheque no. 216 for R 5 750 (including VAT) from
Rustow’s Equipment.
22Received R 3 000 in cash from a debtor, Lucia Thambo, as part payment of her
account.
Ed
uc
24Sold two Apple Mac laptops @ R 13 933.33 (VAT inclusive) each less a 10%
trade discount for cash to Sarah Chetty. Cash invoice 27 was issued.
25The owner took merchandise with a VAT inclusive cost price of R 1 150 for
personal use. General journal voucher GJ14 was completed.
26Sarah Chetty returns one of the Apple Mac laptops she purchased from us on
24 June 20.9. RCS 5 was issued. The computer was faulty and Omega Traders
requested a replacement from the manufacturer, which was granted.
E
27Sold three Furton Class II laptops at R 7 800 each plus VAT on account to Hluwe
Hluwe. The total cost price of these goods was R 14 625, exclusive of VAT.
©
ED
G
28The bookkeeper realised that the VAT exclusive price of the Furton Class II
laptops sold to Hluwe Hluwe on 27 June 20.9 should have been R 8 000 each.
The customer was therefore undercharged. After a gentleman’s agreement
Hluwe Hluwe decided to meet Omega Traders halfway and to accept a debit
note to be issued for R 300 plus VAT.
29Corrected an error that had been made in the books during May 20.9. The office
equipment account was debited with the R 500 (exclusive of VAT) as part of the
R 575 that was used to purchase stationery by cheque no. 201. Journal voucher
GJ15 was completed to correct the error.
Required:
This question is a real challenge and is best attempted by putting many heads together.
Find as much of the missing information as possible. Once you have discovered how
transactions are recorded on source documents, we shall introduce you to the books of
prime entry.
110
Learning Unit 4
You are provided with a set of source documents in your workbook. Find the
matching source document for each transaction provided in the narrative form. Fill
in the missing figures, words or descriptions. Shaded documents indicate duplicate
versions that were retained after the particular transaction.
(ii)Indicate the source document numbers that are recorded in the respective subsidiary
journals.
(iii)Complete the following table in date order. The first transaction has been completed
for you.
Doc.
no.
3
CI622
Original/
duplicate
Original
JNL
CJ
Account(s)
debited
Trading
inventory
Account(s)
credited
Creditors
control
O
+ 32 320.00
+
L
+ 37 168.00
+ 4 848.00
at
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The cash journals
=
(P
Input VAT
4.3
A
ty
)
Day
Lt
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(i)
Ed
uc
The Cashbook receipts, Cashbook payments and Petty cash journal are the three
journals bookkeepers and accountants use to record cash flows. Whereas the Cashbook
receipts records cash inflows, the Cashbook payments and Petty cash journal record
cash outflows.
G
E
It is essential for every business to record all inflows and outflows of cash via their
business bank account (usually a current account). The details of such transactions
will be recorded in the cashbook. The cashbook is a journal, and as such a book of
prime entry (i.e. a book into which source documents are recorded/summarised). The
cashbook is nothing other than a detailed version of the bank account in the General
ledger of the business. Traditionally the cashbook is divided into two sides or two
separate sub-journals:
ED
• The Cashbook receipts (also called the Cash receipts journal)
• The Cashbook payments (also called the Cash payments journal)
©
Since ‘bank’ is an asset account, the balance of this account will increase on the debit
side (business cash receipts) and decrease on the credit side (business cash payments):
Bank account
+
Total cash receipts
–
Total cash payments
First recorded in the cashbook receipts
First recorded in the cashbook payments
111
Recording cash transactions
4.3.1 Defining cash transactions
A cash transaction is a transaction which is settled at the point of sale – i.e. neither
party owes the other after the transaction has taken place. Cash transactions can be
classified into two main categories:
Lt
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• Cash receipts transactions, which refer to those transactions that bring about an
increase in the balance of the current bank account. All cash receipts transactions
will be recorded in the Cashbook receipts.
(P
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)
• Cash payments transactions, which refer to those transactions that bring about a
decrease in the balance of the current bank account or a decrease in the amount of
petty cash on hand. Transactions that cause the current bank account’s balance to
decrease are recorded in the Cashbook payments, and transactions that cause the
petty cash balance to decrease are recorded in the Petty cash journal.
at
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4.3.2 The Cashbook receipts
A cash receipts transaction is defined as any transaction that causes an increase in the
bank account balance. Examples of such transactions include the following:
Ed
uc
• The owner making a capital contribution by depositing money in the business’s bank
account
• The business receiving money from customers for cash sales
• The business receiving money from clients for services rendered
• The business receiving rental monies from a tenant
• The business receiving interest on the bank account
• Money received from a debtor making a payment on his/her account
E
The Cashbook receipts is also known as the Cash receipts journal.
G
The structure of the Cashbook receipts
ED
Cashbook receipts of .......... for the month of .............
Doc.
no. Day
©
1
2
CBR...
Details
Fol.
Analysis of
receipts
Bank
Output VAT
Services
rendered
Sales
3
4
5
6
7
8
9
Debit
Credit
Credit
Credit
Sundry accounts
Amount
Fol.
Details
Cost of
sales
10
11
12
13
Credit individual accounts
Debit and credit
Notes on the journal heading:
Every journal has a heading outlining the journal name, the applicable month and the
journal reference number.
112
Learning Unit 4
Notes on columns 1–13:
Column:
2The day on which the transaction took place is entered here.
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1This column is used to record the number of the source document: duplicate
receipt, duplicate cash invoice or cash register roll.
The person whom the money was received from in the event of a contractual
receipt. When cash is received for sales or services rendered, no reference needs
to be made to the name of such a customer or client, since there is no possibility
of subsequent contractual recourse.
4
This column is only used when a debtor pays their account. This column will not
be discussed in this learning unit; transactions with debtors and creditors are only
discussed later in the course.
5
This column is also known as the ‘till’ column. Cash amounts that pass through
the cash register will be recorded in this column first, so that the total amounts as
per the bank deposit slips can be shown in the bank column.
6
The bank column is the main column of this journal. The VAT inclusive amount
of the cash receipts transaction must be recorded in this column. At month-end,
the total of this column will be posted to the debit side of the bank account in the
General ledger.
Ed
uc
at
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(P
ty
)
3
E
7–9 The columns in between the main column and the sundries columns can differ
from one business to another. These columns are created for the accounts
credited with regular cash receipts transactions. Lump sum postings can then be
made to the credit side of these accounts in the General ledger at month-end. If a
business is not a VAT vendor, then there will be no output VAT column.
ED
G
10 The amount entered into the account to be credited is entered into this column.
Sundry accounts in the Cash receipts journal are only used when there is no
specific column for the account to be credited.
11 The folio number of the General ledger account, entered in the details of sundries
column, is entered into this column. The folio number is only entered at the time
when the actual posting is done.
©
12 This column is used to record the name of the General ledger account to be
credited. Sundry columns in the CBR are only used when there is no specific
column for the account to be credited.
13 This column is used to record the value of trading inventory forfeited (at cost price)
with every cash sale that has taken place. The total of this column will be debited
to the cost of sales account at month-end, and it will be credited to the trading
inventory account.
113
Recording cash transactions
4.3.3 The Cashbook payments
A cash payments transaction is defined as any transaction that causes a decrease in
the bank account balance. Examples of such transactions include the following:
The owner making a withdrawal from the bank account for personal use
The business purchasing assets by cheque or by means of an EFT
The business paying for expenses by cheque or by means of an EFT
Money paid to a creditor in part payment or settlement of our account
Lt
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•
•
•
•
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)
The Cashbook payments is also called the Cash payments journal.
(P
The structure of the Cashbook payments
Cashbook payments of .......... for the month of .............
Cashbook payments of ...... for the month of .......
1
2
Name of payee
Fol.
3
4
Notes on the journal heading:
Bank
Input
VAT
5
Credit
Sundry accounts
Trading
inventory
Amount
Fol.
Details
6
7
8
9
10
Debit
Debit
Debit individual accounts
at
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Doc.
no. Day
CBP...
CBP ......
Ed
uc
Every journal has a heading outlining the journal name, the applicable month and the
journal reference number.
Notes on columns 1–10:
Column:
This column is used to record the number of the source document: proof of EFT,
cheque counterfoil, bank statement.
2
The day on which the transaction took place is entered here.
ED
G
E
1
The person to whom the money was paid, or the payee on the cheque, is entered
here. In the event of a cash cheque being issued, the payee is ‘cash’.
4
This column is only used when we make a payment to a creditor. This column will
not be discussed in this learning unit; transactions with debtors and creditors are
only discussed later in the course.
5
The bank column is the main column of this journal. The VAT inclusive amount of
the cash payments transaction must be recorded in this column. At month-end,
the total of this column will be posted to the credit side of the bank account in
the General ledger.
©
3
114
Learning Unit 4
6–7 The columns between the main column and the sundries columns can differ from
one business to another. These columns are created for the accounts debited
regularly with cash payments transactions. Lump sum postings can then be
made to the debit side of these accounts in the General ledger at month-end.
There will only be an input VAT column if the business is a VAT vendor.
The amount entered into the account to be debited is entered into this column.
Sundry accounts in the Cash payments journal are used when there is no specific
column for the account to be debited.
9
The folio number of the General ledger account, entered in the details of sundries
column, is entered into this column. The folio number is only entered at the time
when the actual posting is done.
10
This column is used to record the name of the General ledger account to be
debited. Sundry columns in the CBP are only used when there is no specific
column for the account to be debited.
at
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n
(P
ty
)
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8
4.3.4 The Petty cash journal
Ed
uc
A petty cash transaction is defined as any transaction that causes a decrease in the
cash on hand in the petty cash box. The Petty cash journal is used to summarise the
payments for those items or services for which the business does not want to issue
a cheque or make an EFT. The examples of transactions that would be entered into
the Petty cash journal will be similar to those that can be entered into the Cashbook
payments. The only difference is that instead of crediting bank, we credit the petty cash
account.
E
The structure of the Petty cash journal
Petty cash journal of .......... for the month of .............
PCJ...
Fol.
Petty cash
Postage &
stationery
Staff
refreshments
Input VAT
2
4
5
6
7
8
Credit
Debit
Debit
Debit
Day
Details
ED
Doc.
no.
1
PCJ .....
G
Petty cash journal of ........ for the month of ...........
3
Sundry accounts
Amount
Fol.
Details
9
10
11
Debit individual accounts
©
Notes on the journal heading:
Every journal has a heading outlining the journal name, the applicable month and the
journal reference number.
Notes on columns 1–11:
Column:
1
This column is used to record the number of the petty cash voucher.
115
Recording cash transactions
The day on which the transaction took place is entered here.
3
The precise details of what was purchased / to whom payment was made is
entered here. Only when there is a possibility of recourse with a supplier should
a name be mentioned here.
4
This column is only used when we make a payment to a creditor. This column
will not be discussed here, since transactions with debtors and creditors are only
discussed later in the course.
5
The petty cash column is the main column of this journal. The VAT inclusive
amount of the petty cash payments transaction must be recorded in this column.
At month-end, the total of this column will be posted to the credit side of the
petty cash account in the General ledger.
6–8
The columns in between the main column and the sundries columns can differ
from one business to another. These columns are created for the accounts
debited with regular petty cash transactions. Lump sum postings can then be
made to the debit side of these accounts in the General ledger at month-end.
There will only be an input VAT column if the business is a VAT vendor.
9
The amount entered into the account to be debited is entered into this column.
Sundry accounts in the Petty cash journal are used when there is no specific
column for the account to be debited.
10
The folio number of the General ledger account, entered in the details of sundries
column, is entered into this column. The folio number is only entered at the time
when the actual posting is done.
11
This column is used to record the name of the General ledger account to be
debited. Sundry columns in the PCJ are only used when there is no specific
column for the account to be debited.
©
ED
G
E
Ed
uc
at
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n
(P
ty
)
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2
Computerised Accounting Fact
By selecting the appropriate journal on a
computerised accounting system, the user
has effectively selected the one leg of every
double entry that will be recorded in that
particular journal. All that then needs to be
116
done is the contra account needs to be
selected manually and the VAT implication
needs to be indicated. The electronic
system will do the rest!
Learning Unit 4
Question 4.4
Lt
d
Traditionally ‘petty’ meant ‘small’ and this usually meant that payments for small (cheap)
items had to be entered into the Petty cash journal. Nowadays we find that some companies
choose to keep large amounts of petty cash, often thousands of rands, on their premises,
despite the possible security risks of such practices.
ty
)
Can you think of reasons why some businesses would want to keep such large amounts of
petty cash on hand given these risks? List some of your ideas.
(P
Example 4.1 (Drafting the cash journals)
at
io
n
Example 4.1 and Question 4.5 go hand in hand. You will in effect be referring to
Example 4.1 when working through Question 4.5. Make as many notes on Example 4.1
as possible. You are then required to work through Question 4.5 in your own time. This
will ensure that the intricacies of the journal entries are embedded before we continue
with the rest of the learning unit.
Ed
uc
Leroy Ungaretti officially started trading as a sole trader on 1 March 20.9. He trades as
Letsema Furnishers, a furniture retailer and is a registered VAT vendor. The business
marks all their goods up at a constant markup of 50% on cost, before allowing any
trade discounts. The business trades only with other registered VAT vendors that can
provide valid tax invoices (unless otherwise stipulated).
E
Leroy decided to trade on a cash-only basis to start with, and to introduce a credit line
only at a later stage. Therefore the only journals his bookkeeper needed to set up for
March 20.9 were the cashbook (receipts and payments) and the Petty cash journal.
Note: All amounts include VAT unless VAT is not applicable.
Details of transactions
ED
Date
G
The following transactions took place during March 20.9:
©
1
2
Leroy issued a personal cheque for R 100 000 as a capital contribution.
Receipt RC01 was issued and the duplicate was retained.
Cashed the first business cheque, no. 01, for petty cash, R 2 000. This was
regarded as the imprest amount.
The business received R 150 000 in the form of a loan from AAA Bank to be
used as additional funds to buy trading inventory. The money was transferred
directly into the bank account of the business.
Purchased furniture for resale purposes from Pecan Nut Wholesalers and paid
by cheque no. 02, R 80 000.
117
Recording cash transactions
4
Services rendered (installation fee only for 10 sets of kitchen cupboards
in a townhouse complex). Issued cash invoice CV1 for this purpose for
R 11 500 (inclusive of VAT) on receipt of the cheque from the customer,
ED Developments.
Purchased stamps from petty cash, R 48.50 (inclusive of VAT). Petty cash
voucher PV1 was issued.
ty
)
5
Lt
d
Made an EFT for R 1 240 in favour of Belkom for the installation of the business
ADSL line.
Debit the equipment account with R 7 652.13, debit input VAT with R 1 147.82
and credit bank with R 8 799.95 for a cheque purchase made from Future
Computing (cheque no. 03).
at
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8
(P
Cash sales according to cash register roll (CRR), R 45 472 (inclusive of VAT).
The CRR total includes the sale of the kitchen cupboards (materials only) to
ED Developments on day 4.
Purchased cooldrinks for R 42.34 (inclusive of VAT) and two paper reams
totalling R 48.60 (exclusive of VAT) from Star Supermarket from petty cash.
Cashed a cheque to pay the storekeeper’s wages for the week, R 500.
11
Cash sales according to cash register roll, R 7 695 (inclusive of VAT).
12
Purchased a delivery vehicle (non-passenger) by cheque from Elite Motors,
R 80 000.
Ed
uc
9
Cash sales according to cash register roll, R 12 825 (inclusive of VAT).
G
17
E
Paid for diesel for the delivery vehicle from petty cash, R 320.
ED
Services rendered for R 5 000 (exclusive of VAT). Issued a cash invoice to
R. Rogers in this regard.
©
18
Purchased a cell phone for business use (pay-as-you-go) from petty cash,
R 584.95 (inclusive of VAT).
20Purchased trading inventory by cheque from Oberson Dealers, R 11 482.61
(inclusive of VAT). Paid for the delivery costs (via SA Couriers) for the trading
inventory from petty cash, R 176.23 (inclusive of VAT).
21
118
Issued a cheque in favour of the Germiston Primary School for the enrolment
fees of the owner’s son, R 1 000.
Learning Unit 4
22
Paid Thomas Pule (the cleaner) his wages from petty cash R 100.
Lt
d
24The owner took R 200 from petty cash. R 143.50 of this amount was used to
purchase snacks for a staff function. The owner kept the change for personal
use.
Sent a parcel to a client (D. Knox) via courier, and paid with petty cash,
R 91.20.
31
Paid the business rent via debit order for the first month of trading to The
Rental Experts, R 5 000 (including VAT).
ty
)
27
(P
Drew a cash cheque to restore the petty cash imprest amount.
Cash sales according to cash register roll, R 30 472.20 (inclusive of VAT).
•
•
•
•
Assessment rates, R 277.95
Electricity, R 345.45
Refuse removal, R 50.52
Water services, R 482.63
Ed
uc
at
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Paid the rates and taxes bill as received from Ekurhuleni by cheque. The
following cost components were shown on the bill (all amounts are inclusive of
VAT where applicable):
The bank statement (from AAA Bank) showed the following credits:
•
Interest, R 94.17
ED
G
E
The bank statement (from AAA Bank) showed the following debits:
•Debit order to SA Insurance Corporation for short-term insurance on the
vehicle, R 625
•Bank charges, R 242.60, including VAT and a government levy of R 2.50
Duplicates of bank deposit slips for March 20.9
©
•
•
•
•
1 March 20.9 – R 100 000.00
5 March 20.9 – R 56 872.00
17 March 20.9 – R 26 220.00
31 March 20.9 – R 30 472.20
Step 1 in the bookkeeping cycle involves recording the details of the transaction on the
source document. Step 2 now follows with the source documents being recorded in the
subsidiary journals. Remember that at this stage we are only recording cash transactions.
119
Recording cash transactions
Cashbook receipts of Letsema Furnishers – March 20.9
CBR1
Cashbook receipts of Letsema Furnishers - March 20.9
RC01 1
Leroy Ungaretti
B/S
2
AAA bank
CV1
4
Services rendered
11 500
00
CRR
5
Cash sales
45 472
00
Analysis of
receipts
Fol.
100 000
00
Bank
Output VAT
Services
rendered
Sales
Amount
Fol.
100 000 00
100 000 00
B1
Capital
150 000 00
150 000 00
B3
Loan: AAA Bank
1 500 00
56 972
00
10 000
00
5 931 13
39 540 87
CRR
11 Cash sales
7 695
00
1 003 70
6 691
CRR
17 Cash sales
12 825
00
1 672 83
11 152 17
Services rendered
B/S
AAA bank
5 750
00
26 270
00
750
00
30 472
20
30 472 20
3 974
63
30
5 000 00
26 497 57
94 17
94 17
363 808 37
14 832 29
15 000 00
83 881 91
N4
Debit
Credit
Credit
Credit
B4
B5
N1
N2
4 460
87
7 434
78
17 665
05
Credit individual accounts
55 921
28
Debit & Credit
N3 & B6
Note: You will notice that folio numbers are provided in this journal. These numbers are
actually only inserted as reference once the completed journal is posted to the General
ledger in step 3.
Ed
uc
Cashbook
payments
of Letsema
Furnishers
March 20.9
Cashbook payments
of Letsema
Furnishers
- March –20.7
Doc.
no. Day
Name of payee
Fol.
CBP1
CBP1
Sundry accounts
Input
VAT
Trading
inventory
10 434 78
69 565 22
Bank
Amount
Fol.
Details
01
1
Cash
02
2
Pecan Nut Wholesalers
80 000 00
EFT
4
Belkom
1 240 00
161 74
1 078 26 N5 Telephone
03
8
Future Computing
8 799 95
1 147 82
7 652 13 B9 Equipment
04
9
Cash
05
12
Elite Motors
80 000 00
10 434 78
69 565 22 B10 Vehicles
06
20
Oberson Dealers
11 482 61
1 497 73
2 000 00 B8 Petty cash
500 00
500 00 N6 Wages & salaries
9 984
07
21
Germiston Primary School
1 000 00
B/S
31
The Rental Experts
5 000 00
08
Cash
1 619 11
09
Ekurhuleni
1 156 55
©
ED
G
E
2 000 00
B/S
SA Insurance Corporation
625 00
B/S
AAA Bank
242 60
81 52
b 31 32
193 665 82
24 556 46
Credit
Debit
Debit
B4
B7
B6
120
88
1 000 00 B2 Drawings
652 17
4 347 83 N7 Rent expense
1 619 11 B8 Petty cash
a
114 60
1 041 95 N8 Rates and taxes
543 48 N9 Insurance
211 28 N10 Bank charges
79 550
10
58
Int. on current a/c
250 094 17
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31 Cash sales
26 360
(P
CV2
CRR
Cost of
sales
Details
Lt
d
Details
ty
)
Doc.
no. Day
CBR1
Sundry accounts
89 559 26
Debit individual accounts
Learning Unit 4
b No VAT on levy of R 2.50
Thus: R 1 156.25 – 277.95 = R 878.60
VAT included in R 878.60 = R 114.60
i.e. R 878.60 × 15/115 = R 114.60
Thus: R 242.60 – 2.50 = R 240.10
VAT included in R 240.10 = R 31.32
i.e. R 240.10 × 15/115 = R 31.32
Petty cash journal of Letsema Furnishers – March 20.9
Doc.
no. Day
Postage &
stationery
48 50
42 17
PV2 8 Paper reams and cooldrinks
98 23
48 60
PV3 12 Fuel for delivery vehicle
320 00
PV4 18 Mobile handset (pay-as-you-go)
584 95
PV5 20 Delivery costs
(see cheque no.06)
176 23
PV6 22 Thomas Pule’s wages
100 00
PV7 24 Drawings by L. Ungaretti
200 00
PV8 27 Parcel to D. Knox
91 20
6 33
42 34
7 29
Sundry accounts
Amount
Fol.
Details
320 00 N13 Fuel
76 30
508 65
B9
Equipment
22 99
153 24
B6
Trading inventory
100 00
N6 Wages & salaries
56 50
B2
143 50
79 30
170 07
Ed
uc
1 619 11
Input VAT
at
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PV1 5 Stamps
Staff
refreshments
(P
Petty cash
Details
PCJ1
PCJ1
ty
)
Petty cash journal of Letsema Furnishers – March 20.9
Lt
d
Notes:
a No VAT on assessment rates
Drawings
11 90
185 84
124 81
Credit
Debit
Debit
Debit
B8
N11
N12
B7
1 138 39
Debit individual accounts
Question 4.5
G
Explain how the analysis of receipts column works.
Why do we need to have an analysis of receipts column if we have a bank column
already?
Why was the R 150 000 on day 2 not entered into the analysis of receipts column?
Which column is the ‘main’ column in the Cashbook receipts, and does it represent
a basic debit or a basic credit? Also explain why you think the cost of sales column
was separated from the journal as a stand-alone column in this regard.
Why do you think a receipt instead of a cash invoice was issued for the capital
contribution on 1 March 20.9?
Letsema Furnishers makes use of cash invoices to record services rendered and
cash slips to record cash sales. Do you think it is necessary for the business to have
both types of documents to record these transactions? Is it not possible for them
to only use cash invoices or only cash slips for both sales and services rendered?
Can you think of a scenario where an in-store cash sale would not be recorded
using the cash register, but rather on a cash invoice? Explain.
ED
(i)
(ii)
E
Answer the following questions pertaining to the Cashbook receipts completed in Example
4.1:
(iii)
(iv)
©
(v)
(vi)
(vii)
121
Recording cash transactions
(viii)
Why do you think the customer or client’s name is not written down in the Cashbook
receipts when services are rendered or goods are sold for cash?
Answer the following questions pertaining to the Cashbook payments completed in
Example 4.1:
(v)
(vi)
(vii)
(viii)
Lt
d
ty
)
(iv)
(P
(iii)
at
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n
(ii)
Why did we debit trading inventory instead of the furniture account in recording
cheque no. 02 on day 2?
What proof does a business have that it made an EFT? (Refer to the payment made
on day 4.)
An office computer was bought by cheque on day 8. One would assume that a
printer cartridge was included with the actual equipment purchased. As shown,
the full exclusive amount was debited to equipment. This is general practice, since
the value of the cartridge itself is usually not stipulated on the supplier’s invoice.
However, when the business buys a replacement cartridge in future, do you think
they will debit the equipment account again? Explain.
Input VAT was claimed on the delivery vehicle purchased on day 12. Under what
circumstances would input VAT not be claimable on the purchase of a delivery
vehicle?
On day 21, why is the name of payee ‘Germiston Primary School’ and not ‘Leroy
Ungaretti’? It is drawings after all!
With regard to the rent expense on day 31, would this entry have looked any
different had the owner been running his business from his home (which he rents)?
The petty cash ‘imprest’ amount is restored on day 31. Briefly explain how this
system works by referring to this particular transaction.
The cheque issued to Ekurhuleni on the 31st of March 20.9 was for rates and taxes.
As can be seen from the transaction, a rates and taxes bill usually consists of four
parts. One of the four parts is VAT exempt. Which one is it? Explain how the amount
credited to bank was calculated.
Ed
uc
(i)
Answer the following questions pertaining to the Petty cash journal completed in Example
4.1:
E
ED
(v)
What is the purpose of the details column in the PCJ? Explain.
Can the business claim input VAT based on PV1 (see day 5)? Explain.
Why may the business not claim input VAT on the cooldrinks purchased on day 8?
On day 12 diesel was purchased for the delivery vehicle. No VAT was claimed
because diesel is a zero-rated supply. Would the same rule apply if a 5 litre container
of oil was purchased instead?
On day 18 a cell phone was purchased. The equipment account was debited, not
the telephone account. Explain why.
The delivery costs incurred on day 20 were debited to trading inventory, not carriage
on purchases or delivery costs on purchases. Explain why.
G
(i)
(ii)
(iii)
(iv)
(vi)
©
Answer the following general questions pertaining to Example 4.1:
(i)
(ii)
(iii)
(iv)
122
When will the source document, which is used to record a transaction, be in
duplicate form and when will it be in original form?
When will an entry be made in the sundries columns of the Cashbook receipts?
When will an entry be made in the sundries columns of the Petty cash journal?
What are the markup and gross profit percentages of the business? Show your
calculations.
Learning Unit 4
3c
Question 4.6
Practice exercise
Refer
backtotothe
the
transactions
given
in Example
4.1.3Analyse
each
transaction
Refer back
transactions
given
in Learning
example
A. Analyse
each
transactionunder
the
headings
given given
in theintable
below.
Group
the the
transactions
into
those
relating
under
the headings
the table
below.
Group
transactions
into
those
relatingto the
to the cashbook
receipts,
the cashbook
payments
thecash
pettyjournal:
cash journal:
Cashbook
receipts,
the Cashbook
payments
as wellas
aswell
the as
Petty
Account(s)
credited
A
=
O
+
L
Lt
d
Account(s)
debited
(P
ty
)
Day
Posting to the General ledger
Ed
uc
4.4
??
?
at
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n
Hint: Attempt Revision question 12 in Annexure B at the end of this textbook.
E
In the hand system of accounting, journals are only totalled at month-end, and are
then posted to the General ledger. In a computerised system, posting automatically
takes place when the transaction is recorded in the journal. There is no need for the
bookkeeper to do the General ledger – it is done by the computer.
Question 4.7
ED
G
In a computerised system, the recording of transactions need only be done in the journals.
The computer does the posting of the journal to the ledger for us. However, it is still necessary
for us to learn how the manual system of bookkeeping works, even if the computer does
all this work for us.
©
Scrutinise the above statement with reference to the continued importance of accounting
theory.
The bookkeeping cycle, after summarising the source documents in the subsidiary
journals, follows on by posting these journals to the General ledger. The General ledger
summarises the subsidiary journals.The General ledger is a collection of accounts. A
set of accounts forms the basis of the accounting/bookkeeping system. Each account
has a debit (left) and a credit (right) side. The capital account, liability and income
accounts all record increases on the credit side, and decreases on the debit side, whilst
the drawings, asset and expense accounts all record increases on the debit side and
decreases on the credit side. Thus in summary: drawings, assets and expense accounts
are basic debits, and capital, liability and income accounts are basic credits.
123
Recording cash transactions
4.4.1 The structure of the General ledger and the rules of posting
General ledger of …………………………….
Statement of financial position section
2
Fol.
Amount
3
4
5
Date
1
Notes on the General ledger heading:
2
Details
Fol.
Amount
3
4
5
Lt
d
1
Details
ty
)
Date
at
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n
(P
The General ledger heading is different to that of a journal in that there is only one
General ledger that is continually updated from month to month. It is the ‘books of
the business’. There is no new General ledger for each month. The General ledger
is divided into two sections. The statement of financial position section groups the
proprietary accounts, assets and liabilities, whilst the nominal accounts section groups
all income and expense accounts.
Ed
uc
Each account will have its name (capital, equipment, sales etc.) centred above the ‘T’.
Each account must have its reference (B1, B6, N1) centred above the folio column.
Structurally, the debit side of the account is a mirror image of the credit side.
Notes on columns 1–5:
This column is used to record the year and the month of the posting. It is only
necessary to enter the year and month of the posting if the new posting is for
a different year/month from the preceding posting.
2
E
1
G
Column:
©
ED
This column is used to record the day on which the posting took place.
Remember that journals are used to tabulate similar transactions so as to
facilitate lump sum postings of the column totals to the General ledger. Thus
when posting a journal column, the bookkeeper must enter the last day of the
month as the day for which the posting was made. The exception to this rule
applies when posting the sundries column. Remember, the sundries column in
a subsidiary journal is used when there is no specific column for that particular
transaction. In the case of sundries items, the amount must be posted to the
appropriate account individually. In this instance, the date entered must be the
actual date on which the transaction occurred.
3
124
This column is used for the name of the contra account/s. The contra account
is the opposite account that is debited/credited as the opposite double entry.
For example, when posting the credit to the sales account from the total of the
Learning Unit 4
sales column in the Cashbook receipts, the narration appearing in the details
column on the credit side of the sales account is ‘Bank’. This is because for a
cash sale, we credit the sales account and debit the bank account.
(P
ty
)
Lt
d
The debit posting for a cash sale will be the bank account, and this posting will
be the bank column total from the Cashbook receipts and thus will comprise
not only the cash sale but all other cash receipts. The rule is as follows: In the
posting where the opposite double entry is greater than two accounts, you
must use a collective term. Following our example of a cash sale, the entry
in the details column on the debit side of the bank account, as the posting
from the bank column in the Cashbook receipts, must read ‘Total receipts’, a
collective term for all the contra credit postings. Where two or more accounts
contribute to the contra double entry, you must list those two or multiple
account names in the details column.
Just as the folio column in a subsidiary journal is used to enter the reference
of the ledger to which the posting must be made, so the folio column in the
ledger is used for the reference of the journal from which the posting was
made. Following our previous example, the entry in the folio column in the
sales account for the posting from the sales column in the Cashbook receipts
will be ‘CBR …..’.
5
The amount column will be the journal column total, the specific sundries
amount or the actual instructed amount posted from the General journal.
Ed
uc
at
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4
4.4.2 The rules for balancing an account
G
E
Balancing of accounts refers to the month-end process of ‘totalling’ the accounts.
The month-end process of posting to the ledger is followed by the preparation of the
trial balance, which is nothing more than a list of all the General ledger accounts and
their respective ‘totals’. Thus, to arrive at the account totals, such accounts need to be
balanced.
ED
The mechanism of balancing accounts differs depending on the number of postings
and, for the sake of simplicity, can be categorised into one of three classes:
©
1.
Where an account has only one entry on either the debit or the credit side, it is
quite simple to see the total of the account at a glance. No balancing is therefore
required.
Vehicles
Date
Details
Fol.
Amount
CBP1
69 565
B10
Date
Details
Fol.
Amount
20.9
Mar.
12
Bank
22
125
Recording cash transactions
2.
Where the account has multiple postings on one side only, that side of the
account can simply be summed by placing a bold line under the last posting in
the account and calculating the sum below.
Equipment
Date
Details
Fol.
Amount
7 652
B9
Date
Details
Fol.
8
Bank
CBP1
18
Petty cash
PCJ1
13
508
65
8 160
78
ty
)
Mar.
Lt
d
20.9
Amount
Where the account has multiple entries on both the debit and the credit side
the process is more complicated. The side of the account that is expected to
be the greatest is summed first. For example, the following trading inventory
account will be expected to always have a debit balance. Thus the debit side of
the account is totalled first. This total is then transposed as the total of the credit
side of the trading inventory account. The balance carried down on the last day
of the month is now calculated as being the difference between the total and the
entries on the credit side. This balance carried down is then brought down to the
debit side on the first day of the following month. The same principle applies if
the account is a basic credit.
at
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(P
3.
Details
20.9
Amount
PCJ1
153
24
CBP1
79 550
10
79 703
34
23 782
06
Date
B6
Details
Fol.
Amount
Cost of sales
CBR1
55 921
28
Balance
c/d
23 782
06
79 703
34
20.9
20
Petty cash
31
Bank
20.9
1
Balance
b/d
Mar.
31
G
Apr.
Fol.
E
Mar.
Ed
uc
Trading inventory
Date
©
ED
Example 4.2 now follows to illustrate the rules and mechanisms of posting to the
General ledger.
Example 4.2 (Posting the cash journals)
The completed cash journals of Letsema Furnishers for March 20.9 will be posted to the
General ledger as follows:
126
Learning Unit 4
General ledger of Letsema Furnishers
Statement of financial position section
Capital
Date
Details
Fol.
Amount
B1
Date
Details
Fol.
1
Lt
d
20.9
Mar.
Bank
CBR1
Details
Fol.
Amount
Date
Details
CBP1
1 000
00
PCJ1
56
50
1 056
50
Loan: AAA Bank
Date
Fol.
Details
Fol.
Amount
(P
Bank
Petty cash
at
io
n
21
24
00
B2
20.9
Mar.
100 000
ty
)
Drawings
Date
Amount
Amount
Date
Details
B3
Fol.
Amount
CBR1
150 000
20.9
Ed
uc
Mar.
2
Bank
Bank
Date
20.9
1
Balance
ED
Apr.
Total receipts
©
Date
CBR1
363 808
37
363 808
37
170 142
55
E
20.9
Amount
B4
Date
Details
Fol.
Amount
Total payments
CBP1
193 665
82
Balance
c/d
170 142
55
363 808
37
20.9
31
G
Mar.
Fol.
Details
00
b/d
Mar.
31
Output VAT
Details
Fol.
Amount
B5
Date
Details
Fol.
Amount
CBR1
14 832
20.9
Mar.
31
Bank
29
127
Recording cash transactions
Trading inventory
Date
Details
Fol.
Amount
B6
Date
Fol.
Amount
Cost of sales
CBR1
55 921
28
Balance
c/d
23 782
06
79 703
34
20.9
Mar.
20
Petty cash
PCJ1
153
24
31
Bank
CBP1
79 550
10
79 703
34
b/d
23 782
06
Fol.
Amount
Bank
CBP1
24 556
46
Petty cash
PCJ1
124
81
24 681
27
Mar.
31
20.9
Apr.
1
Balance
Details
B7
Date
Details
31
at
io
n
Mar.
Petty cash
Date
Details
Fol.
Amount
20.9
Fol.
Amount
(P
20.9
ty
)
Input VAT
Date
Lt
d
20.9
Details
Date
B8
Details
Fol.
Amount
Sundry payments
PCJ1
1 619
Balance
c/d
2 000
00
3 619
11
20.9
1
Bank
CBP1
2 000
00
31
Bank
CBP1
1 619
11
3 619
11
2 000
00
20.9
Apr.
1
Mar.
Ed
uc
Mar.
Balance
b/d
31
Equipment
Date
Details
Amount
8
Bank
CBP1
7 652
13
18
Petty cash
PCJ1
508
65
8 160
78
ED
G
Mar.
Fol.
E
20.9
Date
Details
B9
Date
Details
Date
Details
Vehicles
Fol.
Amount
CBP1
69 565
11
Fol.
Amount
B10
Fol.
Amount
©
20.9
Mar.
12
Bank
22
Nominal accounts section
Services rendered
Date
Details
Fol.
Amount
N1
Date
Details
Fol.
Amount
CBR1
15 000
20.9
Mar.
128
31
Bank
00
Learning Unit 4
Sales
Date
Details
Fol.
N2
Amount
Date
Details
Fol.
Amount
CBR1
83 881
20.9
31
Bank
Cost of sales
Date
Details
Fol.
Amount
Trading inventory
CBR1
55 921
N3
Date
Details
Fol.
20.9
31
28
Fol.
Details
Amount
Date
Details
20.9
31
Bank
at
io
n
Mar.
N4
(P
Interest on current account
Date
Telephone
Date
Details
Fol.
Amount
CBP1
1 078
Fol.
Amount
CBP1
500
00
100
00
600
00
20.9
4
Bank
Details
20.9
Bank
22
Petty cash
E
9
PCJ1
ED
G
Mar.
Date
CBR1
94
17
N5
Fol.
Date
Details
Fol.
Details
Fol.
Amount
N6
Rent expense
Details
Amount
Details
Wages and salaries
Date
Fol.
26
Ed
uc
Mar.
Date
Amount
ty
)
Mar.
91
Lt
d
Mar.
Fol.
Amount
CBP1
4 347
Date
Amount
N7
Amount
20.9
31
Bank
83
©
Mar.
Rates and taxes
Date
Details
Fol.
Amount
CBP1
1 041
Date
N8
Details
Fol.
Amount
20.9
Mar.
31
Bank
95
129
Recording cash transactions
Insurance
Date
Fol.
Amount
CBP1
543
Details
N9
Date
Details
Fol.
Details
Fol.
Details
Fol.
Amount
20.9
Mar.
31
Bank
48
Date
Details
Fol.
Amount
CBP1
211
Fol.
Amount
PCJ1
170
Fol.
Amount
PCJ1
185
Fol.
Amount
Date
N10
20.9
Mar.
31
Bank
28
Details
Date
N11
20.9
31
Petty cash
07
Details
20.9
Mar.
31
Petty cash
Date
N12
Details
Fol.
at
io
n
Staff refreshments
Date
(P
Mar.
Details
N13
Mar.
12
Petty cash
Date
Details
Fol.
Amount
Ed
uc
20.9
Amount
84
Fuel
Date
Amount
ty
)
Postage and stationery
Date
Amount
Lt
d
Bank charges
PCJ1
320
00
Computerised Accounting Fact
ED
G
E
Posting to the General ledger is timeconsuming, isn't it? Well, the fact is that
in the modern business world, very few
bookkeepers do manual posting. They
do the journal entries, and the electronic
system does the posting automatically. The
problem with the electronic system is that
it has made financial executives lazy and
uninformed. You will find that only those
candidates with sound knowledge of the
manual system can assist with strategic
decisions.
©
4.5 Listing of General ledger account balances on a trial
balance
A trial balance is an index of accounts used to reflect the debit or credit balance for
every account. When referring to Pacioli’s rules of double entry, everything seems to
come together at this point. Most of the time, the balance of an account will be on the
side on which the account increases. Therefore, one would expect all asset accounts,
expense accounts, as well as the drawings account to have a debit balance on the trial
130
Learning Unit 4
Example 4.3 (Drafting the trial balance)
Lt
d
balance. One would also expect all liability accounts, income accounts as well as the
capital account to reflect credit balances. The only possible ‘exception’ to the rule is
the bank account. Since many businesses have overdraft facilities, it is quite possible to
see a credit balance against the bank account on a trial balance. This does not violate
the rules of double entry, though, since the bank account now becomes a liability, which
increases on the credit side.
Trial balance of Letsema Furnishers on 31 March 20.9
Debit (R)
Credit (R)
Statement of financial position section
100 000
00
Drawings
B2
Loan: AAA
B3
150 000
00
14 832
29
N1
15 000
00
N2
83 881
91
94
17
363 808
37
1 056
Bank
B4
Output VAT
B5
Trading inventory
B6
Input VAT
B7
Petty cash
B8
Equipment
Vehicles
Nominal accounts section
Services rendered
Cost of sales
E
Sales
50
at
io
n
B1
Ed
uc
Capital
170 142
55
23 782
06
24 681
27
2 000
00
B9
8 160
78
B10
69 565
22
N3
55 921
28
N4
N5
1 078
26
Wages and salaries
N6
600
00
Rent expense
N7
4 347
83
Rates and taxes
N8
1 041
95
Insurance
N9
543
48
Bank charges
N10
211
28
Postage & stationery
N11
170
07
Staff refreshments
N12
185
84
Fuel
N13
320
00
363 808
37
ED
G
Interest on current account
Telephone
©
(P
Folio
ty
)
The trial balance of Letsema Furnishers as at 31 March 20.9 is presented as follows:
Note: The statement of financial position section of a trial balance includes all the
asset and liability account balances as well as the balances of the proprietary accounts
(i.e. the accounts that will ‘end up’ in the statement of financial position). The nominal
131
Recording cash transactions
accounts section displays the income and expense accounts. If one deducts the debit
balances in the nominal section from the credit balances in the nominal section, one
would arrive at the net profit/loss made since the start of the current financial year up
until the date of the trial balance.
Lt
d
Question 4.8
May 20.9: List of duplicate receipts and cash invoices issued
Details
Details
77
Cash
Cash sales
sales
10
10
Frank
Frank Frescan
Frescan
Day
Reason/additional
Reason/additionalinformation
information
Doc.
Doc.no.
no.
101
101
Details
Doc. no.
Original
OriginalVAT
VATexclusive
exclusivecost
costofofgoods
goods==R R4 4877.42
877.42
Reason/additional information
RC01
RC01 Capital
Capitalcontribution
contributionbybythe
theowner
owner
Total
received
Totalamount
amount
received
(P
Day
Day
ty
)
Frescan Traders buys and sells sports equipment on a cash basis only. The business is a
registered VAT vendor, and it is the policy of the business to buy only from other vendors
who are able to provide tax invoices. All purchases are made on a cash basis. May 20.9 is
the business’s first month of trading. The bookkeeper has the following source documents
on file for the month.
RR
7 440
7 440 0000
Total amount received
5555
000
000 0000
7
Cash sales
101
Original VAT exclusive cost of goods = R 4 877.42
R 7 440
00
10
Frank Frescan
RC01
Capital contribution by the owner
55 000
00
Cash sales
102
31
31
22
Cash sales
All-Sure Bank
103
All-Sure
Cash
salesBank
B/S Mark-up
Interest
bank statement
1/3%
104
onreceived
cost = 33on
31
All-Sure Bank
B/S
19
102
102
All-Sure
All-Sure Bank
Bank
Cash
sales
Cash sales
All-Sure Bank
Cash
Cash sales
sales
Mark-up
Mark-upon
oncost
cost==25%
25%
at
io
n
16
16
13
19
19
16
22
22
Cash
Cash sales
sales
B/S
B/S Direct
Directdeposit
deposit––Bank
Bankloan
loan
Mark-up on cost = 25%
103
Original
VAT
exclusive
cost
103
Original VAT exclusive costofofgoods
goods==R R3 3312.49
312.49
B/S
Direct deposit – Bank loan
1
104
Mark-up
on
cost
=
33
/
3%
1
104
Mark-up on cost = 33 /3%
B/S
Original VAT exclusive cost of goods = R 3 312.49
Interest received on bank statement
Interest received on bank statement
Ed
uc
13
13
Duplicates of bank deposit slips for May 20.9
Dated
Dated
10 May 20.9
10 May 20.9
13
20.9
10 May
May 20.9
13
May
20.9
22
20.9
13 May 20.9
22 May 20.9
Dated
6060
000
000 0000
00
5 310
5 310 0000
22 100
60 000
00
7 250
250 0000
5 310 700
17
7 250
0017
17
50
5050
Amount
Amount
RAmount
62 440 00
R 62 440 00
100 00
R 62 22
440
22 10000 00
22 12
100560 00 00
12 560 00
12 560
E
22 May 20.9
2222
100
100 0000
00
May 20.9: List of cheque counterfoils, EFTs and bank statement debits
Reason/additional instructions
Total amount paid
Reason/additional instructions
Total amount paid
Total amount
paid 00
Cash for Reason/additional
the petty cash boxinstructions
R 1 800
CF1 Cash for the petty cash box
R 1 800
00
CF1 Cash for the petty cash box
R 1 800
00
CF2 Trading inventory bought for cash – the amount includes
CF2 an
Trading
inventory
bought being
for cash
the amount
amount
of Rbought
1 100.00,
for –railage
inwardsincludes
34 100
00
Lordum Dealers
CF2 Trading
inventory
for cash
– the
an amount
of R 1 100.00,
being
foramount
railageincludes
inwards
34 100
00
an amount of R 1 100.00, being for railage inwards
34 100
00
Lucia’s Utensils
CF3 Kettle purchased for staff use
487
95
Lucia’sUtensils
Utensils
CF3 Kettle
Kettle
purchased
for staff
487
95
Lucia’s
CF3
purchased
for staff
use use
487
95
Red Cross
EFT Donation to the Red Cross Society
500
00
Red
Cross
EFT
Donation
to
the
Red
Cross
Society
500
00
Red Cross
EFT Donation to the Red Cross Society
500
00
Buhle’s Diner
CF4 Lunch with clients
672
00
Buhle’sDiner
Diner
CF4 Lunch
Lunch
clients
672
00
Buhle’s
CF4
withwith
clients
672
00
Toby’s Wholesalers
CF5 Merchandise bought
4 350
00
Toby’s
CF5
bought
4 350 4 00
Toby’sWholesalers
Wholesalers
CF5 Merchandise
Merchandise
bought
350
00
Joyce Bhembe
CF6 Bookkeeper’s monthly salary
7 200
00
Joyce
CF6
monthly
salarysalary
7 200 7 00
JoyceBhembe
Bhembe
CF6 Bookkeeper’s
Bookkeeper’s
monthly
200
00
Plewman’s Stationers
CF7 Stationery (postage & stationery a/c)
560
80
Plewman’s
(postage
& stationery
a/c) a/c)
560
80
Plewman’sStationers
Stationers CF7
CF7 Stationery
Stationery
(postage
& stationery
560
80
Springs’ Metro Council EFT Monthly rates and taxes (the assessment rates portion
Springs’
Metro
Council
EFT
Monthly
rates
and
taxes
(the
assessment
rates
portion
R 425.89)
941
23
Springs’ Metro Council EFT =Monthly
rates and taxes (the assessment rates portion
= R 425.89)
941
23
= R 425.89)
941
23
Toto’s
Estate
Agents
B/S
Debit
order
for
monthly
business
rent
on
bank
statement
3
850
00
Toto’s Estate Agents
B/S Debit order for monthly business rent on bank statement
3 850
00
Toto’s Estate Agents
B/S Debit order for monthly business rent on bank statement
3 850
00
All-Sure Bank
Bank
B/S Bank
Bank
charges
statement
government
All-Sure
B/S
charges
on on
statement
(no (no
government
levieslevies
included
in this
amount) (no government levies
All-Sure Bank
B/S areare
Bank
charges
onamount)
statement
included
in this
113 113
00 00
are included in this amount)
113
00
G
Details
Details
Details
Cash cheque
Cash cheque
Cash cheque
Lordum Dealers
Lordum Dealers
ED
Day
Day
Day
1
1
31
3
©
3
17
17
17
19
19
19
20
20
22
22
25
25
29
29
29
30
30
30
31
31
31
31
31
31
132
Doc. no.
Doc. no.
Doc.CF1
no.
Learning Unit 4
May 20.9: List of petty cash vouchers
5
10
20
26
29
31
Day Details DetailsDoc. no.
Tutu’s Stationers
PV1
2
Tutu’s Stationers
Umanga Garage
PV2
5
Umanga Garage
Greener Groceries
PV3
10
Greener Groceries
Tutu’s Stationers
PV4
20
Tutu’s Stationers
Umanga Garage
PV5
26
Umanga Garage
Heidi Thambo
PV6
29
Heidi Thambo
Sports Warehouse
PV7
31
Sports Warehouse
Reason
Reason
Doc. no.
Postage stamps
PV1
Postage stamps
Petrol for the Frank Frescan’s private vehicle
PV2
Petrol for the Frank Frescan’s private vehicle
Tea & coffee for staff room
PV3
Tea & coffee for staff room
2 paper reams of equal price bought – one
PV4
2 paper
for the owner’s
ownreams
use of equal price bought – one
for the owner’s own use
Petrol for the delivery van
PV5
Petrol for the delivery van
Casual wages
PV6
Casual wages
Cricket balls for re-sale purposes
PV7
Cricket balls for re-sale purposes
Total amountTotal
paidamount paid
112
00
220
00
71
22
112
00
220
00
71
22
Lt
d
2
50
00
300
00
500
00
485
00
50
00
300
00
500
00
485
00
ty
)
Day
Required:
(P
Prepare the following for Frescan Traders for May 20.9:
*
Ed
uc
at
io
n
(i)
The Cashbook receipts with additional columns for sales, VAT and cost of sales.
(ii)
The Cashbook payments with additional columns for VAT and trading inventory.
(iii)
The Petty cash journal with additional columns for postage and stationery, staff
refreshments and VAT.
(iv)
Post the completed journals to the General ledger at month-end. Balance all the
accounts where necessary.
(v)
Draft a trial balance as at 31 May 20.9.
(vi)From the trial balance, determine the gross profit and the net profit for the first month
of trading.
(vii)
Calculate the weighted average markup percentage for May 20.9 (Answer to the
nearest two decimal places.)
(viii) Calculate the weighted average gross margin (gross profit percentage) for May 20.9
(Answer to the nearest two decimal places.)
(ix)
Refer back to the transactions you have just completed in the three cash journals.
Analyse each transaction under the headings given in the following table. Group the
transactions into those relating to the Cashbook receipts, the Cashbook payments as
well as the Petty cash journal:
E
Account(s)
Account(s)
A
debitedAccount(s) creditedAccount(s)
Day
debited
credited
=
A
O
=
+
O
L
+
L
ED
G
Day
*Note: With ‘additional columns’ we mean those columns in between the main column and
©
the sundry accounts columns of the journal.
Question 4.9
Assume that all ledger account balances have been indexed in the trial balance and that the
total of the debit column equals the total of the credit column.
In your opinion, can the bookkeeper now assume that all transactions have been recorded
accurately? Explain briefly.
133
Recording cash transactions
Question 4.10
Although conventional banking is still widely used, the advent of electronic banking has
made it possible for businesses to do most of their banking online.
Lt
d
Required:
Question 4.11
ty
)
Find out more about Internet banking and write a report about how electronic banking has
changed the way in which businesses operate with their money.
(P
The following are examples of source/supporting documents used when dealing with cash
and/or cash transactions.
Required:
©
ED
G
E
Ed
uc
at
io
n
Find appropriate narrations for each of the blank notes on the petty cash voucher and on
the bank deposit slip.
134
Ed
uc
at
io
n
(P
ty
)
Lt
d
Learning Unit 4
Question 4.12
ED
G
E
You are the bookkeeper of Maxies Suppliers. The business is a registered VAT vendor and
trades only with registered VAT vendors. The business charges 15% VAT on all its sales.
All amounts are inclusive of VAT unless VAT is not applicable. As the bookkeeper you have
been provided with only the source documents for the month of April 20.9 necessary for
the preparation of the journals specified. The business uses the perpetual inventory system
and trading inventory is marked up by 60% on cost price (before any given trade discounts)
unless otherwise specified. ‘CC’ is the source document code for cheque counterfoils.
©
Source documents of Maxies Suppliers for the month of April 20.9:
Date
Details
Source
document no.
4
Office
Supplies CC
CC680
Payment for business printing consumables
(printer paper).
1 039.31
8
Cash
CC681
Drew a cash cheque for petty cash.
3 012.51
CC682
Payment on account to Alfie Suppliers. No
settlement discount was received because the
account was not paid in full. (Balance owing at
the beginning of the month: R 3 073.00.)
21 099.60
9
Alfie Suppliers
Description
Amount (R)
135
Recording cash transactions
11
Antarctic
Suppliers
CC683
Trading inventory purchased.
13
Keelan CC
CC684
Trading inventory purchased: R 37 154.24 less
a 10% trade discount.
14
Office
Stationers
CC685
Cash purchase of pens (postage and
stationery).
18
Incredible
Connection
CC686
Purchased a PlayStation 3 (computer
equipment).
36 782.70
?
Lt
d
451.88
37 505.71
Devon Traders
CC687
21
Cash
CC688
Drawings by the owner.
25
IT Land
CC689
Cash purchase of a server (computer
equipment).
7 727.08
26
Arctic Traders
CC690
Trading inventory purchased.
41 120.71
30
The Cafe
CC691
Payment for business office refreshments.
4 729.64
30
Cash
CC692
Drew a cash cheque to pay the monthly
salaries.
7 712.02
(P
at
io
n
Ed
uc
Required:
ty
)
20
Settlement of account with Devon Traders,
less a 5% settlement discount. (Balance owing
at the beginning of the month: R 6 374.00,
trading inventory purchased during the month,
R 27 715.06, and trading inventory returned to
the supplier during the month, R 2 771.51.)
?
3 615.01
E
Use the relevant transactions from those provided to complete the Cashbook payments of
Maxies Suppliers for the month of April 20.9.
G
Make use of column headings for document no. day, name of payee, bank, creditors
control, input VAT, trading inventory and sundries.
ED
Note:
©
•
•
136
Clearly specify whether the VAT column is VAT input or output.
All amounts are inclusive of VAT, unless VAT is not applicable.
Learning Unit 5
5
Lt
d
Recording credit and sundry
transactions
The benefits of credit........................................................................................ 138
5.2
Subsidiary journals for credit and sundry transactions.................................... 138
Defining credit transactions............................................................... 139
5.2.2
The Creditors and Creditors allowances journals............................. 140
5.2.3
The Debtors and Debtors allowances journals................................. 142
5.2.4
The General journal........................................................................... 144
at
io
n
(P
5.2.1
The General ledger reconciliation statement.................................................... 176
©
ED
G
E
Ed
uc
5.3
ty
)
5.1
137
Recording credit and sundry transactions
5.1
The benefits of credit
Lt
d
Most businesses today do not trade on a cash-only basis as was the case with
the examples we used in Learning Unit 4. The benefits of extending a credit line to
customers should never be overlooked. By allowing customers to buy products on a
‘buy-now-pay-later’ basis, a business can achieve the following:
at
io
n
Question 5.1
(P
ty
)
• More sales revenue. A much larger customer base can be reached, which can
significantly enhance the turnover of a business.
• Repeat business. We often find that by offering customers a revolving credit line,
a business is able to retain those customers for repeat purchases. When the client
visits the store to settle their account, the temptation of an ever-increasing credit
limit often encourages them to make repeat purchases.
(i) Although offering a credit line to customers can be a lucrative alternative, it comes
at a risk.
Think of possible risks involved with offering a credit facility to your customers.
Ed
uc
(ii) When a credit invoice is issued to a customer by a VAT vendor, output VAT becomes
payable to to the South African Revenue Service (SARS).
What would be a fair practice for SARS to follow with regards to the payment of
VAT, should the debtor’s debt become irrecoverable; and do you know what the
prerequisites are for a VAT vendor to be granted VAT relief in the event of such a
credit loss occurring?
G
E
(iii) If a business sells on credit then the amount owed will be an asset for the business.
Should the debtor’s debt then become irrecoverable, the business will have to write
the debt off.
ED
Explain by means of T-accounts how you think a VAT vendor would record a credit
sale, and then how the vendor would record a credit loss.
©
5.2 Subsidiary journals for credit and sundry transactions
In Learning Unit 4 we dealt with cash transactions and the recording of such
transactions in the Cashbook receipts, Cashbook payments and the Petty cash journal.
In this learning unit we will introduce the concept of credit journals and the General
journal, and complete the entire process of recording transactions in a complete set of
subsidiary journals.
138
Learning Unit 5
In Example 5.1, we will explore transactions with debtors and creditors. The following
new journals will be discussed:
(P
5.2.1 Defining credit transactions
ty
)
Lt
d
• Credit sales will be recorded in the Debtors journal from duplicate credit invoices.
• Returns of / rebates on goods or services previously sold to debtors will be recorded
in the Debtors allowances journal from duplicate credit notes.
• Credit purchases will be recorded in the Creditors journal from original credit invoices.
• Returns to / rebates on goods or services previously purchased from creditors will
be recorded in the Creditors allowances journal from original credit notes.
• Sundry transactions with debtors and creditors (like interest on overdue accounts,
credit losses, and settlement discounts) will be recorded in the General journal.
Let’s define the concepts of debtors and creditors once again:
at
io
n
A debtor is a person or a business that owes our business money. In other words,
if Business X sells goods or services on credit to Business Y, then Business Y is a
debtor of Business X. Debtors are often referred to as accounts receivable (Dempsey
and Pieters, 1999).
Ed
uc
A creditor is a person or business to whom our business owes money. It is the opposite of
a debtor. In our example mentioned, Business X will be a creditor of Business Y. Creditors
are often referred to as accounts payable (Dempsey and Pieters, 1999).
G
E
We sometimes find that a business can be both a debtor and creditor in the books of
another business at the same time. Business X could sell a certain product or service
to Business Y, but purchase a completely different product or service from the same
trading partner. There would then be a debtors account as well as a creditors account
for Business Y in the books of Business X. The same would apply to the books of
Business Y. As you will see a bit later, it is common practice to ‘net’ such account
balances off against each other.
ED
The General journal is not reserved only for transactions with debtors and creditors.
Other ‘sundry transactions’ that will be recorded in the General journal include capital
contributions and withdrawals by the owner of goods other than cash, correction of
errors and year-end adjustments.
©
We must remember that transactions with debtors and creditors will also be recorded
in the cash journals, which we have already discussed. For example, should a debtor
make a payment on their account, this constitutes a debit to our bank account, and
should therefore be entered into the Cashbook receipts. Should we issue a cheque as
payment to a creditor, this should be recorded in the Cashbook payments.
139
Recording credit and sundry transactions
Question 5.2
(i) Debit notes and credit notes are source documents used when transacting with
debtors or creditors.
Lt
d
Explain how these documents are utilised in the accounting system.
(ii) Transactions with debtors are recorded in the Debtors, Debtors allowances,
General and Cash receipts journals and transactions with creditors are recorded in
the Creditors, Creditors allowances, General and Cash payments journals.
ty
)
Do you think certain transactions with debtors or creditors can be recorded in the
Petty cash journal? Explain.
(P
(iii) In bookkeeping there are two main types of discounts – cash/trade discounts and
settlement discounts.
at
io
n
What is the difference between a trade discount and a settlement discount, and
how will the bookkeeper account for these two different types of discount in the
books of account? Make reference to applicable accounting standards.
Ed
uc
5.2.2 The Creditors and Creditors allowances journals
As mentioned, the Creditors journal is used for summarising credit purchases of goods
or services from original credit invoices. Examples of such transactions include the
following:
E
Credit purchases of trading inventory
Credit purchases of various non-current assets (e.g. equipment)
Credit purchases of consumables (e.g. stationery, cleaning and packing materials)
The recording of expenses incurred on credit but not yet paid for
G
•
•
•
•
ED
The Creditors allowances journal is used for summarising those returns to / rebates on
goods or services previously recorded in the Creditors journal. The transactions are
recorded from original credit notes. Examples of such transactions include the following:
©
• Returns of / rebates on damaged inventory, consumables or non-current assets
• Rebates on expenses previously incurred on credit
It is important to note that the original credit notes recorded in the Creditors allowances
journal will have a directly opposite effect in the General ledger from the original credit
invoices recorded in the Creditors journal. Thus the structure of the creditors and its
allowances journal is almost identical. The only differences are the VAT column and the
postings to the General ledger (i.e. the debits and credits are reversed).
140
Learning Unit 5
The structure of the creditors and Creditors allowances journals
Creditors / Creditors allowances journal of ...... for the month ......
CJ .... / CAJ ....
Creditors/creditors allowances journal of ...... for the month ......
1
Details
Fol.
Creditors
control
Input/output
VAT
Trading
inventory
Amount
Fol.
Details
3
4
5
6
7
8
9
10
2
Lt
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Doc. Day
no.
CJ ..../CAJ ....
Sundry accounts
Creditors journal
Credit
Debit
Debit
Debit individual accounts
Creditors allowances journal
Debit
Credit
Credit
Credit individual accounts
ty
)
Notes on the journal heading:
(P
Once again, every journal has a heading outlining the journal name, the applicable
month and the journal reference number.
at
io
n
Notes on columns 1–10:
Column:
This column is used to record the number of the source document. This is the
original credit invoice for the Creditors journal and the original credit note for
the Creditors allowances journal. It is important to note that different original
credit invoices/notes are received from different suppliers and will thus have
completely different numbering structures. However it is permissible for original
credit invoices/notes to be renumbered and recoded.
2
The day on which the transaction took place is entered here.
3
The name of the person or business with which the transaction took place (i.e.
the name of the supplier).
4
This column is used to record the reference of the individual creditor’s account
in another type of ledger called the Accounts payable ledger. This ledger is
used to record individual transactions with creditors. This can be ignored for
now but will be discussed in detail in Learning Unit 7.
ED
G
E
Ed
uc
1
©
5
The creditors control column is the main column in both these journals. The
VAT inclusive amount of the purchases / return or rebate must be recorded
in this column. At month-end, the total of this column in the Creditors journal
will be credited to the Creditors control account, and the total of the creditors
control column in the Creditors allowances journal will be debited to the
Creditors control account in the General ledger.
141
Recording credit and sundry transactions
The columns in between the main column and the sundries columns can differ
from one business to another. These columns are created for the accounts
debited with regular credit purchases and credited with purchase returns
or rebates. Lump sum postings can then be made to these General ledger
accounts at month-end. Note that if a business is a VAT vendor, the VAT
column in the Creditors journal is the input VAT column but it will be output VAT
in the Creditors allowances journal. If a business is not a VAT vendor then there
will not be a VAT column.
8
The amount to be entered into the account for which no specific column
exists is entered into this column. Sundry accounts in the Creditors journal are
used when there is no specific column for the account to be debited. Sundry
accounts in the Creditors allowances journal are used when there is no specific
column for the account to be credited.
9
The folio number of the General ledger account, entered in the details of
sundries column, is entered into this column. The folio number is only entered
at the time when the actual posting is done.
10
This column is used to record the name of the General ledger account for
which there is no designated column. Each individual account in the sundries
column is debited in the Creditors journal, and it is credited in the Creditors
allowances journal. You will notice that the double entry in the CJ essentially
comprises a credit to the Creditors control account as well as a series of debits
to the other accounts. Conversely, the double entry in the CAJ essentially
comprises a debit to the Creditors control account and a series of credits to
the other accounts.
Ed
uc
at
io
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(P
ty
)
Lt
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6–7
E
5.2.3 The Debtors and Debtors allowances journals
G
As mentioned, the Debtors journal is used for summarising credit sales of goods from
duplicate credit invoices. The Debtors journal is reserved for recording credit sales only.
ED
The Debtors allowances journal is used for summarising those returns/rebates on
goods or services previously recorded in the Debtors journal. The transactions are
recorded from duplicate credit notes. Only returns/rebates on credit sales will be
recorded in the Debtors allowances journal.
©
As with the relationship between the Creditors journal and the Creditors allowances
journal, the duplicate credit notes, recorded in the Debtors allowances journal, will
have a directly opposite effect in the General ledger to the duplicate credit invoices
recorded in the Debtors journal. Thus, the structure of the debtors and its allowances
journal is almost identical. The only differences are the VAT column and the postings to
the General ledger (i.e. the debits and credits are reversed).
142
Learning Unit 5
The structure of the debtors and Debtors allowances journals
Debtors / Debtors allowances journal of …… for the month of ……
Debtors/debtors allowances journal of …… for the month of ……
DJ…. / DAJ….
DJ…. /DAJ….
Day
Details
Fol.
Debtors
control
Output / input
VAT
Sales / sales
returns
Cost of sales
1
2
3
4
5
6
7
8
Debtors journal
Debit
Credit
Credit
Debtors allowances journal
Credit
Debit
Debit
Lt
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Doc.
no.
Debit and credit
ty
)
Credit and debit
Notes on the journal heading:
(P
Once again, every journal has a heading outlining the journal name, the applicable
month and the journal reference number.
at
io
n
Notes on columns 1–8:
This column is used to record the number of the source document. This is
the duplicate credit invoice for the Debtors journal and the duplicate credit
note for the Debtors allowances journal. It is important to note that duplicate
credit invoices and credit notes are the duplicates of the source documents
issued by us. They will therefore run in numerical order and will not need to be
renumbered.
2
The day on which the transaction took place is entered here.
3
The name of the person or business with which the transaction took place (i.e.
the name of the debtor).
4
E
Ed
uc
1
G
Column:
ED
This column is used to record the reference of the individual debtor’s account
in another type of ledger called the Accounts receivable ledger, which is used
to record individual transactions with debtors. This can be ignored for now but
will be discussed in detail in Learning Unit 7.
©
5
The debtors control column is the main column in both these journals. The
VAT inclusive amount of the sales / return or rebate must be recorded in this
column. At month-end, the total of this column in the Debtors journal will be
debited to the Debtors control account, and the total of the debtors control
column in the Debtors allowances journal will be credited to the Debtors
control account in the General ledger.
143
Recording credit and sundry transactions
This column will always be the output VAT and input VAT columns for the
Debtors and Debtors allowances journals respectively. The Debtors journal as
we know is reserved for credit sales only, hence the Debtors allowances journal
is reserved for credit sales returns/rebates only.
7
As with the VAT columns, this column will always be sales and sales returns
respectively.
8
This column is used to record the value of trading inventory forfeited (at cost
price) with every credit sale that has taken place. With credit sales, the total
of this column will be debited to the cost of sales account and credited to the
trading inventory account at month-end. Conversely, with credit sales returns/
rebates, the total of this column will be credited to the cost of sales account
and debited to the trading inventory account at month-end.
(P
ty
)
Lt
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6
5.2.4 The General journal
Ed
uc
at
io
n
The General journal will be used to record any transaction that is not recorded in any of
the three cash journals described in Learning Unit 4 or the four credit journals described
in this learning unit. The General journal is completely different in structure to any of
the journals discussed before. There are no specific columns for collecting similar
transaction amounts. There is simply a debit column and a credit column for amounts
to be posted.
The structure of the General journal
General journal of …………….. for the month of ……
GJ ….
General journal of …………….. for the month of ……
1
2
Details
Fol.
Debit
Credit
3
4
5
6
E
Day
G
Doc. no.
GJ ….
Notes on the journal heading:
ED
Once again, every journal has a heading outlining the journal name, the applicable
month and the journal reference number.
©
Notes on columns 1–6:
Column:
1
This column is used to record the number of the source document. The
document for transactions to be recorded in the General journal is the journal
voucher. Journal vouchers are internal documents and are issued in numerical
order.
2
The day on which the transaction took place is entered here.
144
Learning Unit 5
This column is a little more complex. It is reserved for recording the account
names to be debited and credited. We know that for every transaction the
debits will equal the credits in monetary value. By convention, for every
transaction we first enter the name of the account/s to be debited. We then
follow with the account/s to be credited. We indent the names of the accounts
to be credited so as to differentiate them from those being debited. We will see
in Learning Unit 7 that when the debit or credit is to the Debtors or Creditors
control accounts, then we must follow the control account name with the name
of the specific debtor or creditor in brackets. Once all the account names have
been entered, we then transcribe a short narration in the line below to elaborate
on the details of the transaction. Once completed, the entire transaction is
underlined, to separate it from subsequent transactions.
4
The folio column is a reference column for the account reference in the General
ledger to which the posting will be made. If the transaction involves the Debtors
or Creditors control accounts, the folio reference for the specific debtor or
creditor’s account in the subsidiary ledger must also be inserted.
5–6
These columns are used to enter the specific amount that is to be debited or
credited to the corresponding ledger account listed in the details column.
at
io
n
(P
ty
)
Lt
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3
Ed
uc
Example 5.1 (The eight subsidiary journals)
ED
G
E
In Learning Unit 4 we discussed the first month of trading for Letsema Furnishers,
a business that was started by Leroy Ungaretti on 1 March 20.9. Let’s assume that,
after this first month of trading, Leroy decided to extend a credit line to customers and
that he incorporated a Debtors control account and a Creditors control account into
the books of account with effect from 1 April 20.9. Also accept, for the purposes of
this example, that Letsema Furnishers decided to discontinue their services rendered
department with effect from 1 April 20.9. Remember: the business marks all their goods
up at a constant markup of 50% on the cost of all sales before any relevant cash/trade
discounts. All amounts are inclusive of VAT unless otherwise stipulated or unless VAT
is not applicable. The business does not expect to award any settlement discounts
nor qualify for any settlement discounts. All occurrences of settlement discounts are
therefore incidental in nature.
©
The bookkeeper now had to set up all eight of the subsidiary journals as of 1 April
20.9, namely the Cashbook receipts, Cashbook payments, Petty cash journal, Debtors
journal, Debtors allowances journal, Creditors journal, Creditors allowances journal and
the General journal. Notice how some of the columns have changed in the journals
to facilitate the latest changes. The Cashbook receipts now has a debtors column,
and there is no services rendered column anymore, since the servicing department
has been discontinued. The Cashbook payments now has an additional column for
creditors control.
145
Recording credit and sundry transactions
The following transactions took place during April 20.9:
Transaction details
1
Leroy Ungaretti made the following additional capital contributions:
Lt
d
Date
(P
ty
)
•A personal computer to the value of R 3 000. SARS has allowed Leroy
to claim back the full VAT amount on the value of this computer. Journal
voucher JV1 was issued and the cash invoice he initially received in his
personal capacity as well as the SARS depreciation schedules were used
as supporting documents to justify the fair value of R 3 000.
•A personal cheque was drawn in favour of the business, R 20 000. The
amount was deposited directly into the business’s bank account.
The loan statement from AAA Bank shows a debit for R 1 849.32, being for
interest on the loan taken out on 2 March 20.9 (the loan accrues interest at
15% per annum). It also reflects a credit for R 2 420.02, which constitutes the
first instalment on this loan. The bank statement for the current bank account
reflects the debit order for this instalment.
5
Purchased merchandise on credit from Geronimo’s, and received their credit
invoice no. TX5 for R 84 102.04 less a 2% trade discount for bulk purchases.
Ed
uc
at
io
n
2
Purchased trading inventory by cheque no. 10 from Hi-Low Traders, R 17 000.
Returned goods of inferior quality to Geronimo’s and received their credit note
no. RE2 for R 6 900.
8
Sold goods on credit to Runway Dealers and issued credit invoice D1. The VAT
exclusive price on the invoice was R 4 000.
E
7
ED
G
Sold two ‘Type F’ couches to Jane Noxa for cash @ R 7 000 each less a 2.5%
trade discount. Cash invoice CV3 was issued to the customer.
Runway Dealers requested a 20% rebate on invoice D1 (see day 8). The goods
were not according to order. Issued credit note DA1 to grant their request.
10
Purchased a NTM recharge voucher of R 800 for the pay-as-you-go cell phone
from petty cash. Petty cash voucher no. PV9 was issued.
©
9
11
Cash sales according to cash register roll, R 15 236.58.
The owner took a table and chair from trading inventory for his own use. These
goods would have been sold for R 750 (including VAT) had it been sold to the
public.
Sold merchandise on credit to Iso Venter for R 29 070 less a 7.5% trade discount.
146
Learning Unit 5
Issued receipt RC02 to Runway Dealers for R 3 500 in full settlement of their
account. A prompt settlement discount was granted and JV4 was completed.
Sold merchandise on credit to Lebo Tathe for R 7 682.95.
13
The owner took R 250 from petty cash to purchase 100 postage stamps @
R 2.50 each from SA Post Office. The owner kept 20 of these stamps for
personal use, the rest were retained for business use.
Lt
d
12
Made an electronic funds transfer (EFT) to Geronimo’s in full settlement of the
amount due, less a 5% early settlement discount (JV5 was completed).
(P
14
ty
)
Lebo Tathe returned goods of inferior quality. Issued credit note DA2 for
R 825.
15
at
io
n
Paid for diesel for the delivery vehicle from petty cash, R 350.
Purchased a new printer cartridge and printing paper for the office on credit
from Smart Offices, and received their credit invoice no. F17 for R 886.40.
Cash sales according to cash register roll, R 11 217.75.
Sold trading inventory on credit to Sunil Govender for R 4 332.
Ed
uc
17
Sent the consignment to Sunil Govender and paid for the courier fees from
petty cash, but debited the cost of R 224.50 to the debtor’s account.
Purchased a microwave oven for the staff kitchen by cheque from Future
Kitchen Supplies, R 2 800.
19
Purchased four coffee tables on credit @ R 840.75 each from Tudor Enterprises
and received their invoice no. E495. Three of these tables are for resale
purposes, whilst the other will be used in the reception area of the business.
ED
G
E
18
©
20
Received a letter from Iso Venter’s attorneys, stating that he has gone into
liquidation and that his personal estate has been wound up. A cheque
constituting 40 cents in the rand from his insolvent estate was enclosed. The
business issued receipt no. RC03 to acknowledge receipt of this part settlement.
The remainder of the outstanding debt was written off as irrecoverable.
Purchased a computer slide projector for use in future board meetings.
The projector was purchased on credit from Western Frontiers for R 59 280
(received credit invoice TI12), but a 10% deposit was paid by cheque. The
balance was to be settled over six months in accordance with a zero-interest
agreement, starting on 31 May 20.9.
147
Recording credit and sundry transactions
Requested a rebate of 25% on one of the coffee tables purchased from Tudor
Enterprises on 19 April 20.9. The table was damaged. Credit note CN31 was
received to grant the request.
22
It was found that the slide projector purchased on the 20th was an older model
than the one advertised, but the invoice received was based on the purchase
price of the newer model. The price difference between the two models is
R 5 000 (excluding VAT). This was discussed with Western Frontiers and credit
note no. CI4 was received to account for this discrepancy.
23
Sold trading inventory on credit to Owens Enterprises for R 9 690.
25
Cash sales according to cash register roll, R 15 390.
(P
ty
)
Lt
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21
Owens Enterprises returned goods and a credit note was issued for R 3 420.
Purchased cooldrinks for R 44.24 and two paper reams for R 29.19 each from
Star Supermarket from petty cash.
27
The owner took R 100 from petty cash for personal use.
at
io
n
26
Ed
uc
Drew a cash cheque to pay wages, R 750.
Drew a cheque in favour of Smart Offices for the following:
•
•
•
E
Paid the business rent via a debit order to The Rental Experts, R 5 000
(including VAT).
©
ED
30
It was realised that stationery purchased for R 8 799.95 on 8 March 20.9 was
recorded in the equipment account (refer to day 8 of Example 4.1). Correct the
error.
G
29
Settlement of account (no discount)
Purchase of stationery, R 482
Purchase of trading inventory, R 1 000
148
Learning Unit 5
Drew a cash cheque to restore the petty cash imprest amount.
Cash sales according to cash register roll, R 20 142.80 (inclusive of VAT).
Assessment rates, R 277.95
Electricity, R 411.67
Refuse removal, R 50.52
Water services, R 397.46
ty
)
•
•
•
•
Lt
d
Paid the rates and taxes bill as received from Ekurhuleni by cheque. The
following cost components were shown on the bill (all amounts are inclusive of
VAT where applicable):
The bank statement (from AAA Bank) showed the following credits:
•
The bank statement (from AAA Bank) showed the following debits:
•Debit order to SA Insurance Corporation for short-term insurance on the
vehicle, R 625
•Bank charges, R 312.60, including VAT and a government levy of R 2.50
Duplicates of bank deposit slips for April 20.9
•
•
•
•
•
(P
Ed
uc
at
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n
Interest, R 345.28
E
8 April 20.7 – R 13 650.00
11 April 20.7 – R 18 736.58
21 April 20.7 – R 21 973.65
25 April 20.7 – R 15 390.00
30 April 20.7 – R 20 142.80
ED
G
As we know, step 1 in the bookkeeping cycle involves recording the details of the
transaction on the source document. Step 2 then follows with the source documents
being summarised in the subsidiary journals.
©
The subsidiary journals for April 20.9 were completed as follows:
149
Recording credit and sundry transactions
Cashbook
receipts
of Letsema
Furnishers
– April 20.9
Cashbook
receipts
of Letsema
Furnishers
- April 20.7
Bank
Cash sales
13 650 00
13 650 00
Fol.
1 Leroy Ungaretti
CV3 8
Debtors
control
Output VAT
Sundry accounts
Sales
Amount
20 000 00
CRR 10 Cash sales
15 236 58
RC02 11 Runway Dealers
3 500 00
CRR 15 Cash sales
11 217 75
18 736 58
20 000 00 B1 Capital
1 987 38
13 249 20
1 463 18
9 754 57
10 755 90
21 973 65
15 390 00
2 007 39
13 382 61
CRR 30 Cash sales
20 142 80
20 142 80
2 627 32
17 515 48
AAA Bank
6 503 05
10 755 90
345 28
8 115 94
8 832 79
8 921 74
44 050 51
Credit individual accounts
Debit & Credit
11 676 99
345 28 N4 Int. on current a/c.
110 238 31
14 255 90
9 865 70
65 771 43
Debit
Credit
Credit
Credit
B4
B11
B5
N2
20 345 28
(P
B/S
(a)
3 500 00
15 390 00
(c)
Cost of
sales
Details
1 780 43 (b)11 869 57
CRR 25 Cash sales
RC03 20 Iso Venter
Fol.
Lt
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B/S
Analysis of
receipts
Details
ty
)
Doc.
no. Day
CBR2
CBR2
N3 & B6
at
io
n
(a) Note: The fact that there was a trade discount does not change the original cost of
the items. At the beginning of the example it states that all goods are marked up at a
constant markup of 50% on cost before any trade discounts. To calculate cost of sales,
work with the price that would have been charged had there been no discount – i.e.
R 14 000.00 ÷ 1.15 ÷ 1.50 = R 8 115.94.
(b) ([R 7 000 × 2] – 2.5%) ÷ 1.15 = R 11 869.57
Ed
uc
(c) Although the deposit was on the 21st and not on the 20th, the dark line to be drawn
in the analysis of receipts column implies that a visit was paid to the bank between the
20th and the 25th of April 20.9.
Cashbook
payments
of Letsema
Furnishers
– April 20.9
Cashbook
payments
of Letsema
Furnishers
- April 20.7
B/S
2
Name of payee
Fol.
E
Day
Bank
AAA Bank
2 420 02
G
Doc.
no.
71 744 00
5
14 Geronimo’s
Hi-Low Traders
11
18 Future Kitchen Supplies
2 800 00
12
20 Western Frontiers
5 928 00
13
27 Cash
ED
10
EFT
Input
VAT
Trading
inventory
2 217 39
Smart Offices
2 368 40
30 The Rental Experts
5 000 00
Fol.
Details
02 B3 Loan: AAA Bank
14 782 61
71 744 00
2 800 00 B9 Equipment
773 22
5 154 78 B9 Equipment
750 00
14
Sundry accounts
Amount
2 420
17 000 00
B/S
©
Creditors
control
CBP2
CBP2
750 00 N6 Wages & salaries
886 40
193 30
869 57
419 13 N11 Postage & stationery
652 17
4 347 83 N7 Rent expense
1 025 47 N8 Rates and taxes
15
Cash
1 827 12
16
Ekurhuleni
1 137 60
112 13
B/S
SA Insurance Corp.
625 00
81 52
543 48 N9 Insurance
B/S
AAA Bank
312 60
40 45
272 15 N10 Bank charges
150
1 827 12 B8 Petty cash
111 912 74
72 630 40
4 070 18
15 652 18
Credit
Debit
Debit
Debit
B4
B12
B7
B6
19 559 98
Debit individual accounts
Learning Unit 5
Creditorsjournal
journal
of Letsema
Furnishers
– April 20.9
Creditors
of Letsema
Furnishers
– April 20.7
5
Creditors
control
Input VAT
82 420
00
10 750
43
Fol.
Geronimo’s
Sundry accounts
Trading inventory
F17 15
Smart Offices
886
40
115
62
E495 19
Tudor Enterprises
3 363
00
438
65
T112 20
Western Frontiers
53 352
00
6 958
96
140 021
40
18 263
66
71 669
57
2 193
26
73 862
Credit
Debit
Debit
B12
B7
B6
Amount
83
Fol.
Details
770
78 N11 Postage & stationery
731
09 B9 Equipment
46 393
04
47 894
91
Lt
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TX5
Details
B9 Equipment
Debit individual accounts
ty
)
Doc.
no. Day
CJ1
CJ1
Creditors allowances journal of Letsema Furnishers – April 20.9
Day
Details
Fol.
Creditors
control
Output VAT
Trading
inventory
7
Geronimo’s
6 900
00
900
00
6 000
21
Tudor Enterprises
210
19
27
42
182
CI14
22
Western Frontiers
5 750
00
750
00
19
1 677
42
12 860
Debit
B12
Amount
Details
77
6 182
Credit
B5
Fol.
00
at
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RE2
CN31
Sundry accounts
(P
Doc.
no.
CAJ1
77
5 000
00
5 000
00
Credit
B6
B9
Equipment
Credit individual accounts
DJ1
DJ1
Doc.
no.
Day
D1
8
Runway Dealers
4 600
00
600
00
4 000
00
2 666
67
D2
11
Iso Venter
26 889
75
3 507
36
23 382
39
16 852
17
D3
12
Lebo Tathe
7 682
95
1 002
12
6 680
83
4 453
89
D4
17
Sunil Govender
4 332
00
565
04
3 766
96
2 511
31
D5
23
Owens Enterprises
9 690
00
1 263
91
8 426
09
5 617
39
G
Ed
uc
Debtors
journal
of Letsema
Furnishers
April 20.9
Debtors journal
of Letsema
Furnishers
– April –
20.9
53 194
70
6 938
43
46 256
27
32 101
43
Fol.
ED
E
Details
Debtors
control
Output VAT
Sales
Cost of sales
Debit
Credit
Credit
Debit & Credit
B11
B5
N2
N3 & B6
Doc.
no.
Day
©
Debtorsallowances
allowances
journal
of Letsema
Furnishers
– April 20.9
Debtors
journal
of Letsema
Furnishers
– April 20.7
DA1
9
Runway Dealers
DA2
13
Lebo Tathe
DA3
25
Owens Enterprises
Details
Fol.
Debtors
control
Input VAT
DAJ1
DAJ1
Sales returns
920
00
120
00
Cost of sales
800
00
(e)
825
00
107
61
717
39
478
26
3 420
00
446
09
2 973
91
1 982
61
5 165
00
673
70
4 491
30
2 460
87
Credit
Debit
Debit
Debit & Credit
B11
B7
N16
B6 & N3
(e) As no goods were returned, no entry is made here.
151
Recording credit and sundry transactions
Pettycash
cash
journal
of Letsema
Furnishers
– April 20.9
Petty
journal
of Letsema
Furnishers
– April 20.9
Staff
refreshments
800 00
PV10 13 Postage stamps – SA Post Office
250
00
PV11 14 Diesel for delivery van
350
00
PV12 17 Courier fees – Sunil Govender
224 50
PV13 26 Cooldrinks and paper reams
102 62
173
91
1
104 35
695
65
N5
Telephone
26
50
00
B2
Drawings
350
00 N13
Fuel
224
50 B11
Debtors control
100
00
Drawings
09
44 24
7
61
1 827 12
224
68
44 24
138
05
Credit
Debit
Debit
Debit
B8
N11
N12
B7
100 00
Details
Equipment
Input VAT
Capital
Fol.
Details
B2
1 420 15
Debit individual accounts
Debit (R)
GJ1
GJ1
Credit (R)
B9
2 608
70
B7
391
30
at
io
n
JV1
Fol.
77
General
of of
Letsema
Furnishers
– April–20.7
Generaljournal
journal
Letsema
Furnishers
April 20.9
Day
Amount
50
PV14 27 Drawings by Leroy Ungaretti
Doc. no.
Sundry accounts
Input VAT
Lt
d
10 NTM recharge voucher
Postage &
stationery
ty
)
PV9
Petty cash
Details
(P
Doc.
no. Day
PCJ2
PCJ2
B1
3 000
00
1 849
32
(Capital contribution by Leroy Ungaretti)
JV2
2
Interest on loan
Ed
uc
Loan: AAA Bank
N14
1 849
32
B3
(Interest on loan for March 20.7)
JV3
11
Drawings
B2
500
00
Trading inventory
B6
434
78
Output VAT
B5
65
22
180
00
11
N2
156
52
Input VAT
B7
23
48
B11
E
Sales
G
(Leroy Ungaretti took goods for own use)
JV4
Debtors control (Runway Dealers)
(g)
ED
(Prompt settlement discount granted)
©
JV5
JV6
14
Creditors control (Geronimo’s)
B12
3 776
00
Output VAT
B5
492
52
Trading inventory
B6
3 283
48
16 133
85
7 652
13
(Prompt settlement discount received)
20
Credit losses
N15
14 029
43
Input VAT
B7
2 104
42
Debtors control (Iso Venter)
(h)
B11
(Debtors account written off as irrecoverable
after receiving 40c/R1)
JV7
29
Postage and stationery
Equipment
(Correction of error)
152
N11
B9
7 652
13
Learning Unit 5
(g) (R 4 600.00 – R 920.00) – R 3 500.00 = R 180.00
(h) R 26 889.75 × 60% = R 16 133.85
Lt
d
As we know, step 3 in the bookkeeping process involves posting the subsidiary journals
to the General ledger, and balancing the accounts at month-end. The rules of posting
were discussed in Learning Unit 4. You are advised to revise the mechanisms and rules
for posting subsidiary journals and how to balance the accounts at month-end.
The completed subsidiary journals of Letsema Furnishers for April 20.9 will be posted
to the General ledger as follows:
ty
)
Note: The respective opening balances/
totals for each of the following T-accounts
can be found in the trial balance of
Letsema Furnishers on 31 March 20.9
(see Example 4.3).
(P
General ledger of Letsema Furnishers
Statement of financial position section
Date
Details
Fol.
at
io
n
Capital
Amount
Date
Details
B1
Fol.
Amount
b/d
100 000
00
20.9
Ed
uc
Apr.
1
Balance
Equipment & VAT
GJ1
3 000
00
Bank
CBR2
20 000
00
123 000
00
Fol.
Amount
b/d
1 056
50
G
Drawings
Date
Details
& VAT
GJ1
500
00
Petty cash
PCJ2
50
00
27
PCJ2
100
00
1 706
50
20.9
1
Balance
11
Trading inventory
©
ED
13
E
Apr.
Petty cash
Date
Details
Loan: AAA Bank
Details
Fol.
Amount
Date
20.9
Apr.
B2
Date
Fol.
Amount
B3
Details
Fol.
Amount
20.9
2
Bank
CBP2
2 420
02
30
Balance
c/d
149 429
30
151 849
32
Apr.
1
Balance
b/d
150 000
00
2
Interest on loan
GJ1
1 849
32
151 849
32
149 429
30
20.9
May
1
Balance
b/d
153
Recording credit and sundry transactions
Bank
Date
Details
Fol.
Amount
Date
Details
Fol.
Amount
Total payments
CBP2
111 912
74
Balance
c/d
168 468
12
280 380
86
20.9
1
Balance
b/d
170 142
55
30
Total receipts
CBR2
110 238
31
280 380
86
168 468
12
Apr.
30
Lt
d
20.9
Apr.
B4
May.
1
Balance
b/d
Output VAT
Details
Fol.
Amount
B5
Date
Details
20.9
Balance
11
Drawings
GJ1
65
22
14
Creditors control
GJ1
492
52
30
Bank
CBR2
9 865
70
Creditors control
CAJ1
1 677
42
Debtors control
DJ1
6 938
43
33 871
58
Ed
uc
Trading inventory
Date
20.9
Amount
1
Balance
30
Bank
B6
Date
Details
Fol.
Amount
b/d
23 782
06
11
Drawings
GJ1
434
78
15 652
18
14
Creditors control
GJ1
3 283
48
30
Cost of sales
CBR2
44 050
51
Creditors control
CAJ1
6 182
77
Cost of sales
DJ1
32 101
43
Balance
c/d
29 704
97
115 757
94
Creditors control
CJ1
73 862
83
Cost of sales
DAJ1
2 460
87
G
ED
©
154
29
CBP2
115 757
94
29 704
97
20.9
May
14 832
20.9
E
Apr.
Fol.
Details
b/d
Amount
1
at
io
n
Apr.
Fol.
(P
Date
ty
)
20.9
1
Balance
b/d
Apr.
Learning Unit 5
Input VAT
Date
Details
Fol.
Amount
Balance
b/d
24 681
27
B7
Date
Details
Fol.
Amount
Capital
GJ1
391
30
11
Debtors control
GJ1
23
48
20
Debtors control
GJ1
2 104
42
30
Bank
CBP2
4 070
18
Creditors control
CJ1
18 263
66
Debtors control
DAJ1
673
70
Petty cash
PCJ2
138
05
50 346
06
ty
)
1
(P
Apr.
Lt
d
20.9
Petty cash
Date
Details
Fol.
Amount
2 000
Details
B8
Fol.
Amount
Sundry payments
PCJ2
1 827
Balance
c/d
20.9
Apr.
1
Balance
b/d
30
Bank
CBP2
20.9
1
Balance
b/d
00
1 827
12
3 827
12
2 000
00
Apr.
Ed
uc
May
at
io
n
20.9
Date
30
Equipment
Date
Details
20.9
Fol.
Amount
12
2 000
00
3 827
12
B9
Date
Details
Fol.
Amount
20.9
b/d
8 160
78
22
Creditors control
CAJ1
5 000
00
Capital
Balance
GJ1
2 608
70
29
Postage & stationery
GJ1
7 652
13
18
Bank
CBP2
2 800
00
30
Balance
c/d
53 196
26
19
Creditors control
CJ1
731
09
20
Bank
CBP2
5 154
78
CJ1
46 393
04
65 848
39
65 848
39
53 196
26
E
1
ED
G
Apr.
Creditors control
Apr.
20.9
1
Balance
b/d
©
May
Vehicles
Date
Details
Fol.
Amount
b/d
69 565
B10
Date
Details
Fol.
Amount
20.9
Apr.
1
Balance
22
155
Recording credit and sundry transactions
Debtors control
Date
Details
Fol.
Amount
B11
Date
Details
Fol.
17
Petty cash
PCJ2
224
50
30
Sales & VAT
DJ1
53 194
70
53 419
20
b/d
17 684
45
Fol.
Amount
Apr.
11
Sales & VAT
GJ1
180
00
20
Credit losses & VAT
GJ1
16 133
85
30
Bank
CBR1
14 255
90
Sales returns & VAT
DAJ1
5 165
00
Balance
c/d
17 684
45
53 419
20
1
Balance
(P
20.9
May
Creditors control
Date
Details
B12
Date
Details
Fol.
Amount
CJ1
140 021
40
140 021
40
50 754
81
20.9
at
io
n
20.9
Lt
d
Apr.
14
Trading inventory
& VAT
GJ1
3 776
00
30
Bank
CBP2
72 630
40
Sundry returns
CAJ1
12 860
19
Balance
c/d
50 754
Apr.
30
140 021
Sundry purchases
81
Ed
uc
Apr.
Amount
20.9
ty
)
20.9
40
20.9
May
1
Balance
b/d
E
* The term ‘sundry discount’ is also an acceptable cross reference in this instance.
ED
G
Nominal accounts section
©
Date
156
Details
Services rendered
Fol.
Amount
N1
Date
Details
Fol.
Amount
Total/Balance
b/d
15 000
20.9
Apr.
1
00
Learning Unit 5
Sales
Date
Details
Fol.
Amount
N2
Date
Fol.
Amount
1
Total/Balance
b/d
83 881
30
Bank
CBR2
65 771
43
Debtors control
DJ1
46 256
27
195 909
61
195 753
09
20.9
Apr.
11
Debtors control
GJ1
156
52
30
Total/Balance
c/d
195 753
09
195 909
Apr.
61
20.9
1
Total/Balance
Cost of sales
Details
Fol.
Amount
Date
20.9
20.9
1
Total/Balance
b/d
55 921
28
30
Trading inventory
CBR2
44 050
51
Trading inventory
DJ1
32 101
43
132 073
22
129 612
35
20.9
1
Total/Balance
b/d
Apr.
Ed
uc
May
Details
30
Fol.
Details
Amount
Amount
Trading inventory
DAJ1
2 460
87
Balance
c/d
129 612
35
132 073
22
Interest on current account
Date
Fol.
at
io
n
Apr.
N3
(P
Date
b/d
ty
)
May
91
Lt
d
20.9
Details
N4
Date
Details
Fol.
Amount
1
Total/Balance
b/d
94
17
30
Bank
CBR2
345
28
439
45
20.9
E
Apr.
20.9
G
Telephone
Fol.
Apr.
1
Total/Balance
b/d
10
Petty cash
PCJ2
Details
©
ED
Date
Amount
Date
1 078
26
695
65
1 773
91
N5
Details
Wages and salaries
Date
Details
Fol.
Amount
Date
Fol.
Amount
N6
Details
Fol.
Amount
20.9
Apr.
1
Total/Balance
b/d
600
00
27
Bank
CBP2
750
00
1 350
00
157
Recording credit and sundry transactions
Rent expense
Date
Details
Fol.
Amount
Date
N7
Details
Fol.
Amount
Apr.
1
Total/Balance
b/d
4 347
83
30
Bank
CBP2
4 347
83
8 695
66
Lt
d
20.9
Details
Fol.
Amount
Date
N8
ty
)
Rates and taxes
Date
Details
1
Total/Balance
b/d
1 041
95
30
Bank
CBP2
1 025
47
2 067
42
at
io
n
Apr.
Insurance
Date
Details
Fol.
Amount
b/d
543
Apr.
1
Total/Balance
30
Bank
Date
CBP2
Details
543
48
1 086
96
Date
Details
Amount
Apr.
Total/Balance
b/d
211
28
CBP2
272
15
483
43
1
Bank
ED
30
E
Fol.
G
Bank charges
20.9
Date
Details
Amount
©
158
Date
Date
20.9
Apr.
Fol.
Amount
N10
Details
Postage and stationery
Fol.
N9
48
Ed
uc
20.9
Amount
(P
20.9
Fol.
1
Total/Balance
b/d
170
07
15
Creditors control
CJ1
770
78
27
Bank
CBP2
419
13
29
Equipment
GJ1
7 652
13
30
Petty cash
PCJ2
224
68
9 236
79
Fol.
Amount
N11
Details
Fol.
Amount
Learning Unit 5
Staff refreshments
Date
Details
Fol.
Amount
185
84
44
24
230
08
N12
Date
Details
Date
Details
Fol.
Amount
Apr.
1
Total/Balance
b/d
30
Petty cash
PCJ2
Lt
d
20.9
Details
Fol.
Amount
N13
Total/Balance
b/d
320
00
Petty cash
PCJ2
350
00
670
00
at
io
n
1
14
Interest on loan
Details
Fol.
Amount
Loan: AAA Bank
GJ1
1 849
Date
20.9
2
Date
Details
Credit losses
Date
Details
20.9
20
Amount
GJ1
14 029
Fol.
Amount
DAJ1
4 491
Debtors control
Fol.
Amount
Date
N15
Details
Fol.
Details
Fol.
Amount
43
ED
G
E
Apr.
Fol.
N14
32
Ed
uc
Apr.
Amount
(P
20.9
Apr.
Fol.
ty
)
Fuel
Date
Date
Details
Sales returns
Date
N16
Amount
20.9
30
Debtors control
30
©
Apr.
159
Recording credit and sundry transactions
Trial balance of Letsema Furnishers on 30 April 20.9
Folio
Debit (R)
Credit (R)
Statement of financial position section
B1
Drawings
B2
Loan: AAA Bank
B3
Bank
B4
Output VAT
B5
Trading inventory
B6
29 704
97
Input VAT
B7
50 346
06
Petty cash
B8
2 000
00
Equipment
B9
53 196
26
Debtors control
Creditors control
69 565
22
B11
17 684
45
50 754
81
N1
15 000
00
N2
195 753
09
439
45
568 248
23
N3
129 612
35
Telephone
N5
1 773
91
Wages and salaries
N6
1 350
00
Rent expense
N7
8 695
66
Rates and taxes
N8
2 067
42
Insurance
N9
1 086
96
Bank charges
N10
483
43
Postage & stationery
N11
9 236
79
Staff refreshments
N12
230
08
Fuel
N13
670
00
Interest on loan
N14
1 849
32
Credit losses
N15
14 029
43
Sales returns
N16
4 491
30
568 248
23
G
E
N4
©
58
(P
B10
Interest on current account
160
ty
)
12
ED
Cost of sales
30
33 871
Ed
uc
Sales
149 429
50
B12
Nominal accounts section
Services rendered
168 468
00
at
io
n
Vehicles
1 706
123 000
Lt
d
Capital
Learning Unit 5
Question 5.3
Answer the following questions pertaining to Example 5.1.
Questions regarding the Cashbook receipts:
Questions regarding the Cashbook payments:
(P
ty
)
Lt
d
(i)
Why was no amount entered into the analysis of receipts column on day 1?
(ii)How was the cost of sales amount of R 8 115.94 according to CV3 on day 8
calculated?
(iii)
Why is there no VAT calculated for RC02 on day 11?
(iv)How was the amount of R 10 755.90 entered into the debtors control column on
20 April calculated? Explain.
(v)On day 30 there is reference to a credit for interest on the bank statement (refer to
the given information). Why would one then enter the interest into the Cashbook
receipts (the CBR represents the debit side of the bank account)?
at
io
n
(i)How was the amount entered into the creditors control column on day 14 calculated?
(ii)
Explain why no input VAT was claimed on cheque 11 issued on day 18.
(iii)Explain in detail how the bookkeeper recorded the purchase of the slide projector on
the 20th of April.
(iv)Explain in detail how the transaction according to cheque no. 14 on day 27 was
recorded.
Ed
uc
Questions regarding the Petty cash journal:
E
(i)With regards to PV10 on day 13, explain how the amounts shown in each of the
analysis columns for this transaction were calculated.
(ii)
Explain why no VAT was claimed on PV12 as recorded on day 17.
(iii)In which journal would one restore the petty cash imprest amount? Explain how the
whole petty cash system works with regard to the imprest amount, purchases and
security.
Questions regarding the Creditors journal:
ED
G
(i)The equipment account was debited on day 19 when invoice E495 was recorded.
Many people will regard a coffee table as furniture, though. Would it have been
acceptable to open a furniture account instead of debiting the existing equipment
account? What would you recommend under such a scenario?
(ii)Why were there no entries made for the instalments mentioned in the transaction on
day 20?
©
Questions regarding the Creditors allowances journal:
(i)How was the amount entered into the creditors control column on 21 April 20.9
calculated?
(ii)Regarding the transaction on day 22, why was an amount of R 5 000 entered into the
sundries columns, and not in the creditors control column?
161
Recording credit and sundry transactions
Questions regarding the Debtors journal:
Lt
d
(i)How was the cost of sales amount of R 16 852.17 according to document D2 on day
11 calculated?
(ii)When one divides the total of the cost of sales column into the total of the sales
column, one arrives at a factor of 1.44. Given a constant markup of 50% applied by
Letsema Furnishers, one would expect this factor to be 1.5. Provide a good reason
for this discrepancy.
Questions regarding the Debtors allowances journal:
No entry was made in the cost of sales column on day 9 (invoice D1). Explain why.
Questions regarding the General journal:
ty
)
(i)
Ed
uc
at
io
n
(P
(i)With regards to the transaction on day 2, the interest on loan has been recorded in
the General journal, not in the Cashbook payments. Briefly explain why.
(ii)The amount that has been debited to interest on loan is R 1 849.32. How do you
think this amount was calculated? Show your workings.
(iii)
How was the amount debited to the drawings account on day 11 calculated?
(iv)
How was the amount debited to creditors control on day 14 calculated?
(v)
How was the amount credited to debtors control on day 20 calculated?
(vi)Why was the amount of R 8 799.95 not used for the double entry that was passed
on day 29?
Question 5.4
Transaction details
ED
Date
G
E
August 20.9 was the fourth month of trading for Oribi Dealers, a registered VAT vendor
that trades only with other registered vendors that are able to supply them with valid tax
invoices. The business uses the perpetual inventory system. The following information
relates to all the transactions that Oribi Dealers entered into during August 20.9 which
affected the General journal. The most recent journal voucher number was JV18, issued
on 31 July 20.9. The business does not expect to award any settlement discounts nor to
qualify for any settlement discounts. All occurrences of settlement discounts are therefore
incidental in nature.
©
1The owner, George Oribi, made a capital contribution in the form of furniture with
a fair value of R 15 000. Since the furniture was purchased more than six months
ago, no notional input VAT was allowed by SARS.
5The owner took trading inventory that would have been sold to the public for
R 4 731, including VAT, for personal use. The markup on cost was 331/3%.
6
The owner took trading inventory that would have been sold to the public for
R 5 928, including VAT. The markup on the selling price was 40%.
8The owner took office stationery for use by his daughter, since it is the start of the new
school year. The stationery was brand new, and was purchased a few days ago for
R 365.54 including VAT.
162
Learning Unit 5
9Received a cheque for R 885 from a debtor, Derold Selepe, in full settlement of his
account of R 900.
Lt
d
11Received a cheque for R 3 800 from a debtor, Beauty Masilela, in full settlement of her
account. Beauty owed R 1 130.67 on 1 August 20.9. On 3 August 20.9 she purchased
trading goods from Oribi Dealers for R 3 455.20, including VAT. Some of these goods
were returned by Beauty on 4 August and Oribi Dealers issued a credit note for
R 722.80 (including VAT) to settle the issue.
ty
)
13Received a fax from a debtor’s bank informing us that an EFT was made into our
current bank account. The amount of the transfer was R 22 087.50, which constituted
a full settlement of Thembi Mahlangu’s account after a discount of 5% was allowed.
14Received a cheque (issued by Beauty Masilela – see 11 August 20.9) back from the
bank marked ‘Refer to Drawer’. Show the entry to cancel the discount.
(P
16Issued a cheque for R 12 000 in full settlement of the amount of R 12 250 owing to
Munro Enterprises, a supplier from which Oribi Dealers acquires trading inventory.
at
io
n
17Settled our account with Donnay Dealers, and received a 6% settlement discount.
The amount owing to this creditor on 1 August 20.9 was R 4 800. Goods purchased
on credit from Donnay Dealers during August 20.9 totalled R 6 400 (including VAT).
Credit notes received from this creditor during the same period amounted to R 3 000
(including VAT).
Ed
uc
19Paid R 7 259 to Garries Limited in full settlement of the amount owing to this trade
creditor, after receiving a 15% settlement discount.
24A debtor, Fred Couples, owed Oribi Dealers R 10 000 on 1 August 20.9. Of this
amount, R 5 000 was outstanding for 61 days by 24 August 20.9. Oribi Dealer’s terms
are as follows: all accounts must be settled within 60 days. As soon as this period is
exceeded, interest will accrue from the date of purchase at an interest rate of prime
plus 3%. The prime lending rate as at 24 August was 12%. Show the double entry that
was made in the books of Oribi Dealers to record this interest (assume a 365-day year).
G
E
25Received a statement of account from a creditor (Dave Martin) showing a debit for
interest amounting to R 32.50, since our account has been overdue for 30 days longer
than the agreed terms. Show the double entry that was made in the books of Oribi
Dealers at the time of receipt of this statement.
ED
27
It was realised that packing materials purchased on credit during July 20.9 for
R 14 000 (including VAT) was debited to the office consumables account in error. Show
the necessary entry that had to be made to correct this error.
©
31It was realised that Fred Couples made an EFT into our bank account for the full
amount due as at 24 August. Correct the error in charging his account with interest on
day 24.
Required:
Interpret the information provided and make the necessary entries in the General journal of
Oribi Dealers for August 20.9.
163
Recording credit and sundry transactions
Question 5.5
Lt
d
You are the bookkeeper of Letsema Furnishers. The business is a registered VAT vendor
and trades only with registered VAT vendors that can provide tax invoices. The business
charges 15% VAT on all its sales. All amounts are inclusive of VAT unless VAT is not
applicable. As the bookkeeper you have been provided with the trial balance and the
debtors and creditors lists as at 31 January 20.9, as well as all the business’s source
documents collected for the month of February 20.9. The business does not expect to
award any settlement discounts, or to qualify for any settlement discounts. All occurrences
of settlement discounts are therefore incidental in nature.
at
io
n
Trial balance of Letsema Furnishers on 31 January 20.9
Folio
Statement of financial position
Capital
B2
Bank
B4
VAT output
3 259
13 895
VAT input
E
Petty cash
B6
34 125
70
B7
32 901
96
B8
2 000
00
B9
155 800
00
199 006
27
B11
19 475
00
Creditors control
B12
G
B10
Debtors control
ED
123 000
00
190 000
00
43 826
05
5 842
00
14
B4
Trading inventory
Credit (R)
50
B3
Ed
uc
Loan: AAA Bank
Vehicles
Debit (R)
B1
Drawings
Equipment
(P
ty
)
You are required to use all the given information to complete the subsidiary journals for
Letsema Furnishers for February 20.9. Thereafter you are required to post the completed
journals to the General ledger, balance the ledger accounts and draft a trial balance as at
28 February 20.9. The business uses the perpetual inventory system, and marks all their
merchandise up at a constant markup of 50% on cost.
©
Nominal accounts section
Services rendered
N1
40 785
66
Sales
N2
476 912
67
Cost of sales
N3
Interest on current account
N4
574
50
Telephone
N5
13 228
65
Wages and salaries
N6
9 366
45
Rent expense
N7
34 638
85
Rates and taxes
N8
4 059
00
Insurance
N9
12 956
00
Bank charges
N10
3 804
80
164
306 993
41
Postage and stationery
N11
1 824
50
Staff refreshments
N12
2 009
00
Fuel
N13
5 303
35
Interest on loan
N14
9 225
00
Credit losses
N15
1 742
50
Sales returns
N16
14 956
80
Interest received
N17
Interest and overdraft
N18
635
50
Interest paid/charged
N19
2 337
00
883 544
38
Lt
d
Learning Unit 5
50
ty
)
2 603
38
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883 544
Note: The business uses the following coding system in their Creditors ledger:
©
ED
G
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01 – Credit purchases
02 – Creditors allowances (returns/rebates)
03 – Cash payments to creditors
04 – Discount received on prompt settlement
05 – Interest
The collection of source documents are given to you.
165
Recording credit and sundry transactions
©
ED
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)
Lt
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Source documents of Letsema Furnishers for February 20.8.
166
©
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Learning Unit 5
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Recording credit and sundry transactions
168
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Learning Unit 5
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©
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Recording credit and sundry transactions
170
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Recording credit and sundry transactions
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Recording credit and sundry transactions
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Learning Unit 5
Ed
uc
As stipulated in the given information at the
beginning of the question, all settlement
discounts are deemed to be incidental in nature.
Additional information:
©
ED
G
E
The following debits appeared on the bank
statement received from AAA Bank on
28 February 20.9 (but not in the Cashbook
payments for February):
•
•
Bank charges, R 1 164.58
Interest on overdraft, R 150.62
The following credit appeared on the bank
statement received from AAA Bank on
28 February 20.9 (but not in the Cashbook
receipts for February):
•
Direct EFT from Runway Dealers, R 8 570.07
Hint: Attempt Revision questions 13 and 14 in Annexure B at the end of this textbook.
??
?
175
Recording credit and sundry transactions
5.3
The General ledger reconciliation statement
Lt
d
The manual bookkeeping system is often characterised by a magnitude of possible
discrepancies and errors that can creep in. This necessitates the bookkeeper to verify
applicable transactions, as well as identify and correct discrepancies, errors, incorrect
double entries, misallocations, missing entries or incorrect calculations.
(P
ty
)
In practice, these errors will usually be corrected in the General journal, but a basic
General ledger reconciliation statement can also be used to summarise this process
of reconciliation.
Example 5.2 (A basic General ledger reconciliation statement)
at
io
n
The following incorrect trial balance appeared in the books of Naledi Stores on
31 December 20.9. The business makes use of a manual bookkeeping system, is a
registered VAT vendor and deals only with other registered VAT vendors. A standard
VAT rate of 15% applies.
Ed
uc
Trial balance
balanceofof
Naledi
Stores
onDecember
31 December
Trial
Naledi
Stores
on 31
20.7 20.9
Folio
Debit (R)
Credit (R)
Statement of financial position section
Capital
B1
Drawings
Vehicles
Trading inventory
23 000
00
B3
279 400
00
B4
41 460
00
B5
11 460
00
B6
15 700
00
00
8 480
00
Creditors control
B7
ED
G
Debtors control
E
Equipment
B2
470 460
B8
92 327
00
Petty cash (standard imprest)
B9
2 500
00
* VAT control
B10
4 567
00
Sales
N1
181 000
00
Cost of sales
N2
104 500
00
Rent expense
N3
26 000
00
Wages and salaries
N4
36 300
00
Fuel
N5
870
00
Bank charges
N6
210
00
Postage & stationery
N7
330
00
Credit losses recovered
N8
1 490
00
Insurance
N9
Interest on current account
N10
9 520
00
Staff refreshments
N11
Bank
©
Nominal accounts section
176
1 520
4 810
00
00
N2
104 500
00
Rent expense
N3
26 000
00
Wages and salaries
N4
36 300
00
Fuel
N5
870
00
Bank charges
N6
210
00
Postage & stationery
N7
330
00
Credit losses recovered
N8
Insurance
N9
Interest on current account
N10
Staff refreshments
1 520
00
N11
4 810
00
Municipal rates and taxes
N12
31 950
00
Credit losses
N13
1 000
00
N14
N15
1 490
00
9 520
00
690
00
676 207
00
130 00
673 467
00
(P
The following errors and omissions were depicted:
ty
)
Interest income
Interest expense
Learning Unit 5
Lt
d
Cost of sales
A municipal rates and services account amounting to R 2 000 (excluding VAT)
was incorrectly debited to the rent expense account. Both the rates and services
bill and rent expense attracted VAT in full and the VAT was accounted for
correctly.
2.
The creditors control column in the Cash payments journal was not posted to the
General ledger, R 2 840.
3.
The cost of sales column in the Debtors journal was posted twice to both
accounts concerned, R 14 000.
4.
When balancing the bank account in the General ledger, the credit side of the
account was undercast by R 100, and this mistake was carried forward when the
account was balanced.
5.
A computer was bought on credit from a VAT vendor during the year for
R 11 500, including VAT. The following double entry was made in the books to
record the transaction:
G
E
Ed
uc
at
io
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1.
ED
Dr Vehicles R 11 500
Cr Bank
R 11 500
©
6.
No double entry has been passed in the books for bank charges, R 115. The
bank charges include an amount of R 15 for VAT and do not include any interest
charges.
* In many account configurations it is customary to ‘merge’ the input VAT and output
VAT accounts into one T-account, called ‘VAT control’. In some cases, entries are
debited to input VAT and credited to output VAT respectively, and the balances of
the two accounts are transferred to the VAT control account when the VAT return
is submitted. In other cases, VAT control doubles as the merged account when the
source document is recorded already. In such cases, there will be no separate input
and output accounts.
177
Recording credit and sundry transactions
The basic General ledger reconciliation statement can be constructed as follows:
Trial balance of Naledi Stores on 31 December 20.9
Trial balance of Naledi Stores on 31 December 20.9
Incorrect trial
balance
Recommended
adjustments
Corrected trial
balance
Debit
Debit
Debit
Credit
Credit
Statement of financial position section
Capital
B1
Drawings
B2
23 000
Vehicles
B3
279 400
Equipment
B4
41 460
10 000
Trading inventory
B5
11 460
14 000
Debtors control
B6
15 700
Creditors control
B7
Bank
B8
92 327
Petty cash (standard imprest)
B9
2 500
VAT control
B10
Sales
Cost of sales
ty
)
23 000
11 500 267 900
(P
51 460
25 460
15 700
2 840
11 500
at
io
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8 480
11 500
17 140
100 + 115 103 612
2 500
4 567 1 500 + 15
N1
3 052
181 000
181 000
N2
104 500
14 000
90 500
N3
26 000
2 000
24 000
N4
36 300
36 300
N5
870
870
N6
210
Postage & stationery
N7
330
Credit losses recovered
N8
Insurance
N9
Interest on current account
N10
Staff refreshments
N11
4 810
Municipal rates and services
N12
31 950
Credit losses
N13
1 000
Interest income
N14
Interest expense
N15
Rent expense
Wages and salaries
©
ED
G
Bank charges
E
Fuel
178
100
310
330
1 490
1 490
1 520
1 520
9 520
9 520
4 810
2 000
33 950
1 000
690
690
130
673 467
Credit
470 460
Ed
uc
Nominal accounts section
470 460
Lt
d
Fol.
130
676 207
41 955
38 215
683 352 683 352
Learning Unit 5
Practice exercise
Question 5.6
Lt
d
The following incorrect trial balance appeared in the books of Mapulane Dealers on
31 May 20.9. The business makes use of the manual bookkeeping system, is a registered
The vendor
following
trial
balance
appearedVAT
in the
booksAofstandard
Malupane
on 31 May
VAT
andincorrect
deals only
with
other registered
vendors.
VATDealers
rate of 15%
20.8. The business makes use of a manual bookkeeping system, is a registered VAT vendor
applies.
and deals only with other registered VAT vendors. A standard VAT rate of 14 % applies.
Trial
Dealers
on 31
20.920.8
Trial balance
balanceofofMapulane
Malupane
Dealers
on May
31 May
Folio
Debit (R)
Credit (R)
ty
)
Statement of financial position section
B1
Drawings
B2
118 062
00
Machinery
B3
178 000
00
Furniture and equipment
B4
40 500
00
Trading inventory
B5
40 000
00
Debtors control
B6
23 550
00
Creditors control
B7
16 006
00
Bank
B8
10 128
00
Petty cash (standard imprest)
B9
B10
230
00
N1
413 020
00
760
00
900
00
818 124
00
at
io
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2 030
Ed
uc
VAT control
377 080
00
(P
Capital
00
Nominal accounts section
Sales
Cost of sales
N2
275 030
00
N3
18 350
00
Repairs and maintenance
N4
20 030
00
Wages and salaries
N5
87 100
00
Stationery
N6
3 280
00
Advertising
N7
7 210
00
Credit losses recovered
N8
Courier fees
N9
470
00
Interest on bank overdraft
N10
30
00
Staff refreshments
N11
442
00
Rates and taxes
N12
840
00
Credit losses
N13
2 400
00
Interest income
N14
Interest expense
N15
©
ED
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Insurance
80
00
817 404
00
The following errors and omissions were depicted:
1.
179
Drawings by the owner amounting to R 1 700 (cost price, excluding VAT) was recorded
as follows:
8d
Recording credit and sundry transactions
The following errors and omissions were depicted:
Drawings by the owner amounting to R 1 700 (cost price, excluding VAT) was
recorded as follows:
Dr Cost of sales
R 1 700
Cr Trading inventory
R 1 700
Lt
d
1.
Refreshments were bought for R 230 from petty cash, but input VAT was erroneously
claimed on the purchase. The transaction was also recorded in the Cash payments
journal instead of the Petty cash journal.
3.
The owner made a capital contribution in the form of a personal cheque for R 6 000
drawn in favour of the business, but this transaction has not been recorded as of yet.
4.
The stationery column in the Petty cash journal was undercast by R 720, and posted
as such.
5.
A new computer purchased for R 4 500 plus VAT was erroneously recorded in the
repairs and maintenance account. No VAT was claimed on the transaction.
6.
Machinery purchased for R 11 400 (including VAT) was recorded as a purchase of
trading inventory. The input VAT was correctly claimed on the purchase.
7.
The outstanding debt of a debtor must be written off as irrecoverable, R 684. Input
VAT may be claimed back from SARS on this credit loss.
Ed
uc
at
io
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(P
ty
)
2.
E
Required:
©
ED
G
Prepare a basic General ledger reconciliation statement for Mapulane Dealers as at 31 May
20.9.
180
Learning Unit 5
Question 5.7
This exercise is aimed at providing you with a real challenge. Do this activity on completion
of this learning unit.
Lt
d
Problem scenario:
Debtor: Jonathan Leeming
20.9
Jan
Feb
Mar
Details
1
Sales (including
VAT)
3 Sales (including
VAT)
15 Interest
Amount
Date
Details
20 000 00
20.9
Jan
31
11 400 00
Feb
5
at
io
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Date
(P
ty
)
The following T-account reflects the account history of Jonathan Leeming, a debtor of ABC
Traders. You will notice how Jonathan made two credit purchases from ABC Traders – on
1 January 20.9 and 3 February 20.9 respectively. You will also notice how Jonathan made a
payment on his account on 31 January. On 5 February, he returned goods of inferior quality,
and a credit note was passed. He missed his account payment on 28 February, and hence
interest of R 303.78 was charged on 15 March 20.9.
Bank (account
payment)
Sales returns (credit
note)
Amount
5 000 00
5 700 00
303 78
Ed
uc
Subsequent transactions on 31 March 20.9:
Required:
ED
(ii)
Calculate the amount outstanding by Jonathan Leeming to ABC Traders on
16 March 20.9.
Indicate what double entry needs to be passed in the books of ABC Traders on
31 March to record the R 15 000 received from Jonathan’s attorneys.
Calculate the remaining balance in Jonathan’s account (i.e. the amount that needs
to be written off as irrecoverable).
The problem with the outstanding balance in (iii) is that it still includes an amount of
R 303.78 relating to interest (note that the R 15 000 payment does not cover any of
the interest, as the ‘oldest debt’ is always paid first). Our dilemma is that this interest
now forms part of an amount that is claimable for VAT purposes (you can claim VAT
on credit losses), but you cannot claim VAT on interest, as it is an exempt supply.
What is the amount of input VAT claimable on 31 March 20.9?
What should ABC’s accountant do now? How will he/she record the double entry
for the credit loss? (Although individual debtors’ accounts are not usually done
in T-form, you may do so for this activity, as it is a very useful way by which the
principles can be illustrated.) Motivate your answer.
G
(i)
E
On 31 March 20.9, ABC Traders received a letter from Jonathan Leeming’s attorneys,
stating that he had gone into liquidation, and that his entire estate was being sequestrated.
Enclosed was a cheque for R 15 000 which was a dividend in full and final payment of his
outstanding amount to ABC Traders.
(iii)
©
(iv)
(v)
181
Recording credit and sundry transactions
Question 5.8
You are the bookkeeper of Milano Traders. The business is a registered VAT vendor and
trades only with registered VAT vendors. The business charges 15% VAT on all its sales. All
amounts are inclusive of VAT unless VAT is not applicable.
(P
ty
)
Lt
d
As the bookkeeper you have been provided with only the source documents for the
month of October 20.9 necessary for the preparation of the journals specified as follows.
The business uses the perpetual inventory system and trading inventory is marked up
by 40% on selling price before any given trade discounts – i.e. the gross margin is 40%
unless otherwise specified. ‘IV’, ‘OCT’, ‘CC’ and ‘JR’ are the source document codes for
renumbered original invoices, renumbered original credit notes, cheque counterfoils and
journal vouchers respectively. Milano Traders does not expect to award any settlement
discounts, nor does it expect to qualify for any settlement discounts. All settlement
discounts are therefore deemed to be incidental in nature.
Source documents of Milano Traders for the month of October 20.9:
Details
Source
document no.
1
Igloo (Pty) Ltd
IV201
4
Leak City
CC435
5
Igloo (Pty) Ltd
OCT173
8
Cash
Amount (R)
Trading inventory purchased.
31 875.00
CC436
Drew a cash cheque for petty cash.
24 375.00
27 030.00
656.25
Trading inventory returned to the supplier.
2 868.75
Ed
uc
Payment for business plumbing services
(repairs and maintenance).
Igloo (Pty) Ltd
CC437
11
Maxi Suppliers
CC438
Trading inventory purchased.
45 787.50
11
Gorton CC
IV202
Trading inventory purchased.
34 500.00
B. Moodley contributed furniture and fittings
to the business. (All legislative requirements
have been met for the full VAT amount to be
claimed.)
22 500.00
G
E
9
JR254
13
Trent Traders
CC439
Trading inventory purchased: R 46 250.00
less a 10% trade discount.
13
BURTON
IV203
Purchase of packing materials.
1 275.00
14
The Paper Port
CC440
Cash purchase of printing paper (postage and
stationery).
1 350.00
16
Gorton CC
OCT174
Trading inventory returned to the supplier.
3 450.00
16
Sony
IV204
Purchased a staffroom coffee machine for the
purposes of staff entertainment.
7 012.50
B. Moodley
ED
©
Description
Payment on account to Igloo (Pty) Ltd. No
settlement discount was received because the
account was not paid in full. (Balance owing
at the beginning of the month: R 4 781.00.)
12
182
at
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Date
?
Learning Unit 5
16
Sony
IV205
Purchased a laptop for sales representative.
5 362.50
18
Southern
Motors
CC441
Purchased a sedan vehicle for sales
representative (motor vehicles).
78 750.00
20
Gorton CC
CC442
Settlement of account with Gorton CC, less a
10% settlement discount. (Balance owing at
the beginning of the month: R 4 140.00.)
20
Gorton CC
JR255
10% settlement discount received from Gorton
CC for settlement of the account.
(Refer to cheque no. CC442.)
21
Cash
CC443
Drawings by the owner.
?
179.52
Lt
d
?
?
4 500.00
ty
)
B. Moodley
JR256
21
Sony
OCT175
A rebate was granted on the laptop that was
purchased on 16 October 20.9.
21
Samuraai
Traders
IV206
Trading inventory: R 5 911.76 less a 15% trade
discount.
24
EWC
IV207
25
Southern
Motors
CC444
26
Durb Traders
CC445
27
BURTON
28
Samuraai
Traders
28
FG Motors
31
at
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(P
21
Drawings of trading inventory with a selling
price including VAT of R 1 875.00.
Delivery expenses charged on account.
?
930.00
28 125.00
Trading inventory purchased.
51 187.50
Defective packing materials returned to the
supplier.
280.50
OCT177
Received for trading inventory returned to the
supplier.
577.88
IV208
Petrol charged on account.
DAFAR
CC446
Payment for business office refreshments.
562.50
31
K. Minaar
CC447
Paid K. Minaar his monthly salary by cheque.
9 600.00
31
JR257
Interest charged by Samuraai Traders on the
overdue account of Milano Traders.
375.00
JR258
It was realised that equipment purchased
for R841.50 during September 20.9 was
erroneously debited to the packing materials
account. Correct the error.
?
E
OCT176
G
Ed
uc
Cash purchase of a delivery motorcycle used
in the production of taxable supplies (motor
vehicles).
ED
Samuraai
Traders
N/ A
©
31
1 537.50
183
Recording credit and sundry transactions
Required:
Use the relevant transactions from those provided in order to complete the following
questions for the month of October 20.9.
Creditors journal (CJ10) with analysis columns for creditors control, VAT, trading
inventory and sundries. Mark clearly how the different amounts or totals will be
posted to the General ledger at month-end.
Creditors allowances journal (CAJ10) with analysis columns for creditors, VAT,
trading inventory and sundries. Mark clearly how the different amounts or totals will
be posted to the General ledger at month-end.
Cashbook payments (CBP10) with analysis columns for bank, creditors control, VAT,
trading inventory and sundries. Mark clearly how the different amounts or totals will
be posted to the General ledger at month-end. Settlement discounts are recorded in
the General journal.
General journal (GJ10).
Lt
d
(i)
(ii)
(iv)
(P
ty
)
(iii)
Clearly specify whether the VAT column is input or output VAT.
Original invoices and original credit notes have been renumbered.
All amounts are inclusive of VAT, unless VAT is not applicable.
©
ED
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Ed
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•
•
•
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Note:
184
Learning Unit 6
6
Lt
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Inventory systems
Inventory defined.............................................................................................. 186
6.2
Initial measurement of trading inventory ......................................................... 187
Initial measurement vs. reporting requirements...................................188
(P
6.2.1
ty
)
6.1
Perpetual for some, periodic for others........................................................... 189
6.4
Which system is best – perpetual or periodic?................................................ 204
©
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6.3
185
Inventory systems
6.1
Inventory defined
Trading inventory can be defined as assets:
Lt
d
• held for sale in the ordinary course of business;
• in the process of production for such sale; or
•in the form of material or supplies to be consumed in the production process or in
the rendering of services.
ty
)
An item of trading inventory is therefore an asset that the business intends to:
■
if purchased ‘as is’ (for example merchandise bought and sold by a retailer); or
if manufactured by the business (for example a product produced and sold as a
finished product by a manufacturer);
at
io
n
■
(P
• sell in the normal course of business:
• process and then sell in the normal course of business:
■
if not yet processed, for example raw materials; or
if partly processed, for example unfinished goods (also called ‘work-in-progress’);
and
Ed
uc
■
•consume in the process of producing assets to be sold in the normal course of
business (for example nails and glue used in the production of furniture).
Trade inventories are assets in that they are:
G
E
• resources controlled by the entity;
• as a result of past events; and
•from which future economic benefits are expected to flow to the entity.
©
ED
Trading inventory is a significant line item for retailers and manufacturers in particular,
and comprises a large asset on the statement of financial position of such enterprises.
When trading inventory is sold, this leads to a large expense on the statement of profit
or loss and other comprehensive income. Similarly, payments to suppliers of trading
inventory represent a large cash outflow on the statement of cash flows of the business.
Question 6.1
Research IAS 2 using the Internet and answer the questions that follow.
(i)A second-hand car dealership buys a Toyota bakkie to use as a delivery vehicle,
and a BMW sedan to sell to the public. How should the dealership report these two
assets in its statement of financial position? What conclusion can we draw from this?
186
Learning Unit 6
(ii)
Trading inventory is recognised on the date that it meets the asset definition and
recognition criteria of the Conceptual Framework. Explain by way of example.
(iii)The date on which the risks and rewards are transferred depends on the terms of
the contract between the buyer and the seller. Such a contract could stipulate three
possible alternatives:
Consignment
Free on Board (FOB) shipping point
Free on Board (FOB) destination
Lt
d
•
•
•
6.2
(P
ty
)
Provide examples to explain how the date on which risks and rewards are
transferred from the seller to the buyer can be influenced by each of the three types
of agreements listed.
Initial measurement of trading inventory
Ed
uc
at
io
n
Trading inventory should initially be recognised at cost, which includes all costs incurred
to bring the trading inventory to its location and condition for sale. This means that
when we purchase a product and are liable for transport costs from the supplier to our
premises, this additional cost has to be included in the cost of the trading inventory
purchased. Other items that may affect the cost of trading inventory include bulk and
trade discounts (this will reduce the cost of trading inventory) as well as transport
inwards, import tariffs, insurance costs and customs duties. Note that the cost of
trading inventory includes only the costs incurred to get the trading inventory ready for
sale, not the costs incurred after the trading inventory has left the shelf.
E
Example 6.1 (Calculating the cost of trading inventory)
ED
G
Gentile Furnishers imports an expensive lounge suite from Canada to be sold to a client
in South Africa. The regular purchase price of the lounge suite is R 30 000, before a
trade discount of 5%. Other costs include transport inwards of R 3 000 and import
duties of R 1 500. The cost of trading inventory can be calculated as follows (VAT has
been ignored):
R
30 000
00
Less: Trade discount
(1 500)
00
Net purchase price
28 500
00
Transport inwards
3 000
00
Import duties
1 500
00
Total cost of trading inventory
33 000
00
©
Normal purchase price
187
Inventory systems
Question 6.2
For each of the following independent scenarios, indicate whether or not the item will be
included in the cost of trading inventory for the vendor selling the goods in question:
Salaries of office staff
at
io
n
Salaries of sales staff
(P
The fuel for the motorcycle which a pizza delivery
man uses to deliver our pizzas to customers
ty
)
The costs of transporting merchandise purchased
for eventual resale purposes from our supplier to
our premises
Wage workers who assemble the parts of a vehicle
at a vehicle manufacturer
No
Lt
d
Yes
The costs of storing our product before it gets sold
Ed
uc
Import tariffs paid on the imported raw material
used in the manufacturing of our product
6.2.1 Initial measurement vs. reporting requirements
ED
G
E
Note that there is a difference between the initial measurement of trading inventory on
the date of purchase, and its eventual measurement on the reporting date. The reporting
date is the date on which the statement of financial position and the statement of profit
or loss and other comprehensive income are prepared. Disclosure requirements will be
discussed in more depth when we deal with reporting requirements for different entities.
©
Particular note should be taken of the treatment of settlement discounts granted.
We refer you back to Question 5.2 in this regard. For the purposes of this learning
unit, we continue making the assumption that the business does not expect to award
any settlement discounts or qualify for any settlement discounts. Instead of crediting
trading inventory when eventually receiving such an incidental settlement discount,
the bookkeeper should credit purchases. This is due to the fact that, under a periodic
inventory system, the purchases account would have been debited when the trading
inventory was purchased on credit. The account debited to record the cost of the initial
purchase is the same account that needs to be credited when the incidental settlement
discount is subsequently realised.
188
Learning Unit 6
6.3
Perpetual for some, periodic for others
Lt
d
So far, we have done all our accounting entries assuming the trader uses the perpetual
inventory system. Dealers that use this system do so because the system allows for the
continual updating of balances for items of trading inventory (this is why it is sometimes
referred to as the continuous inventory system). It also allows dealers the opportunity
to determine gross margins at all times, since cost of sales is always known (remember,
sales less cost of sales = gross profit).
at
io
n
(P
ty
)
Nowadays we find that more and more businesses use a perpetual inventory system.
Technology has made it easier to update trading inventory levels in real time. If one
walks into a supermarket today, one will find that most till points are equipped with
what we call the ‘magic eye’, an infrared light scanning system that reads the barcode
of a product with a single swipe. In doing this, it is now possible for the computer to
update the balances of all trading inventory items as they leave the store. The effect of
this technology is that cost of sales can be determined at the point of sale. It also has
the advantage that the computer can prompt the user when trading inventory levels are
low, so that new trading inventory can be ordered from suppliers.
Ed
uc
However, sometimes it is impossible for a dealer to show all movements of trading
inventory from the store. For example, if a customer buys a few loose sweets from a
corner café, the dealer will surely not credit the trading inventory account manually
every time. In many cases it cannot be done electronically either, because many of
these small and medium-sized businesses do not have the convenience of the infrared
scanner.
ED
G
E
Many of these businesses make use of a periodic inventory system to control their
trading inventory flows and update their cost of sales. According to this system, the
outflows of trading inventory are not recorded at the point of sale. Instead, the value
of the items sold (at cost) will be determined when stocktakes are done. Cost of sales
is thus determined at the end of the financial period/year. When trading inventory is
purchased, we debit an expense account called ‘purchases’. Trading inventory is
therefore effectively expensed at the point of purchase. Railage, carriage and freight
on purchases as well as import tariffs and customs duties are debited to individual
expense accounts. At year-end, cost of sales will then be determined as follows:
©
Cost of sales equals:
Opening trading inventory
Plus:
Plus:
Plus:
Plus:
Less:
Purchases (less purchases returns)
Carriage/railage/freight on purchases
Import tariffs
Customs duties
Closing trading inventory
189
Inventory systems
Example 6.2 (Trading inventory bookkeeping entries)
Lt
d
Making sense of the two different trading inventory systems can be made easier by
comparing their basic bookkeeping entries. This example serves as a refresher of all the
bookkeeping entries made when a perpetual inventory system is in use, and shows the
entries that would be made if a periodic system were used.
ty
)
Assume that Hewitt Enterprises drafts financial statements monthly (instead of annually).
The business buys their single product at R 1 plus VAT and sells it at a constant markup
of 50% on cost.
Illustration 1
(P
Assume the business had 18 000 units @ R 1.00 per unit of their single, homogeneous
product on hand on 1 April 20.9 (verified by a stocktake on 31 March 20.9).
Using a perpetual inventory system:
at
io
n
The opening balance of trading inventory on 1 April 20.9 would be reflected in the
General ledger as follows.
Trading inventory
Details
20.9
Apr.
1
Balance
Fol.
Amount
b/d
18 000
Ed
uc
Date
Date
B#
Details
Fol.
Details
Fol.
Amount
00
20.9
1
Balance
ED
Apr.
Details
G
Date
E
Using a periodic inventory system:
Trading inventory
Fol.
Amount
b/d
18 000
Date
B#
Amount
00
©
Note: At this stage the procedures for the periodic inventory system are the same as for
the perpetual system.
190
Learning Unit 6
Illustration 2
Date
Transaction details
4
18
4 200 units from Kiara Suppliers (cheque number 024).
1 000 units from Jubber Dealers (cheque number 026).
Lt
d
Assume the business made the following purchases of the homogeneous product by
cheque from two different suppliers during April 20.9:
ty
)
These transactions would be recorded as follows in the Cashbook payments.
Using a perpetual inventory system:
(P
An asset
Cashbook payments
EnterprisesApril
20.920.9
Cashbook
paymentsofofHewitt
Hewitt
Enterprises
– April
Name of payee
Fol.
Bank
Input
VAT
Trading
inventory
Sundry accounts
at
io
n
Doc.
no. Day
4
Kiara Suppliers
4 830
00
630
00
XX
XX
XXXXXXXXXX
XX
XX
XX
XX
026
18
Jubber Dealers
1 150
00
150
00
1 000
00
X XXX
XX
XXX
XX
5 200
00
Ed
uc
024
Credit
Debit
4 200
CBP4
CBP4
Amount
Fol.
Details
00
Debit
XX
XX
XX
XX
XXXXXXX
Debit individual accounts
Using a periodic inventory system:
An expense
Cashbookpayments
paymentsofofHewitt
Hewitt
Enterprises
– April
Cashbook
EnterprisesApril
20.920.9
XX
026
Fol.
Input
VAT
Bank
Purchases
Kiara Suppliers
4 830
00
630
00
XX
XXXXXXXXXX
XX
XX
XX
XX
18
Jubber Dealers
G
4
ED
024
Name of payee
E
Doc.
no. Day
4 200
1 150
00
150
00
1 000
00
XX
XXX
XX
5 200
00
Debit
Debit
Sundry accounts
Amount
Fol.
Details
00
X XXX
Credit
CBP4
CBP4
XX
XX
XX
XX
XXXXXXXX
Debit individual accounts
©
Note: Under the periodic inventory system, we debit an expense account called
purchases when inventory is acquired. Thus, the traditional trading inventory column
now becomes the purchases column under the periodic system. All the other columns
are the same.
191
Inventory systems
Illustration 3
Date
Transaction details
3
24
8 800 units from Green Traders (invoice no. H101).
3 220 units from Isle Dealers (invoice no. G328).
Lt
d
Assume the business purchased goods on credit from two different suppliers during
April 20.9:
ty
)
These transactions would hence be recorded as follows in the Creditors journal.
(P
Using a perpetual inventory system:
Creditors journal
- April
20.920.9
Creditors
journalofofHewitt
HewittEnterprises
Enterprises
– April
Details
Fol.
Input
VAT
Creditors
control
Trading
inventory
Sundry accounts
Amount
at
io
n
Doc.
no. Day
H101
3
Green Traders
10 120
00
1 320
00
XX
XX
XXXXXXXXXX
XX
XX
XX
XX
G328 24
Isle Dealers
3 703
00
483
00
XX XXX
XX
X XXX
00
XX 12 020
00
Debit
Fol.
Details
00
3 220
Ed
uc
Credit
8 800
CJ4
CJ4
Debit
XX
XX
XX
XX
XXXXXXX
Debit individual accounts
Using a periodic inventory system:
Creditors
- April
20.920.9
Creditorsjournal
journalofofHewitt
HewittEnterprises
Enterprises
– April
Details
Fol.
E
Doc.
no. Day
3
Green Traders
XX
XX
G328 24
Input
VAT
10 120
00
1 320
00
XXXXXXXXX
XX
XX
XX
XX
Isle Dealers
3 703
00
483
00
XX XXX
XX
X XXX
ED
G
H101
Creditors
control
Credit
Debit
CJ4
CJ4
Purchases
8 800
Fol.
Details
00
3 220
00
XX 12 020
00
Debit
Sundry accounts
Amount
XX
XX
XX
XX
XXXXXXX
Debit individual accounts
©
Note: As with the Cashbook payments, we debit the expense account called purchases
when trading inventory is acquired. Thus, the traditional trading inventory column now
becomes the purchases column under the periodic system. All the other columns are
the same.
192
Learning Unit 6
Illustration 4
Assume that Hewitt Enterprises made the following returns to suppliers during April
20.9:
Transaction details
4
26
2 200 units to Green Traders (received credit note CR2).
1 602 units to Isle Dealers (received credit note GY3).
Lt
d
Date
ty
)
These transactions would hence be recorded as follows in the Creditors allowances
journal.
(P
Using a perpetual inventory system:
Creditors allowances
of of
Hewitt
Enterprises
- April
20.9 20.9
Creditors
allowancesjournal
journal
Hewitt
Enterprises
– April
Details
Fol.
Creditors
control
Output
VAT
Trading
inventory
Sundry accounts
at
io
n
Doc.
no. Day
4
Green Traders
2 530
00
330
00
XX
XX
XXXXXXXX
XX
XX
XX
XX
GY3
26
Isle Dealers
1 842
30
240
30
1 602
00
X XXX
XX
XXX
XX
3 802
00
Ed
uc
CR2
Debit
Credit
2 200
CAJ4
CAJ4
Amount
Fol.
Details
00
Credit
XX
XX
XX
XX
XXXXXXXX
Credit individual accounts
Using a periodic inventory system:
Details
Fol.
Creditors
control
Output
VAT
Purchases
returns
4
Green Traders
2 530
00
330
00
XX
XX
XXXXXXXX
XX
XX
XX
XX
1 842
30
240
30
1 602
00
X XXX
XX
XXX
XX
3 802
00
26
Isle Dealers
Debit
Credit
2 200
Credit
CAJ4
CAJ4
Sundry accounts
Amount
Fol.
Details
00
XX
XX
XX
XX
XXXXXXXX
Credit individual accounts
©
GY3
G
CR2
ED
Doc.
no. Day
E
Creditors
allowancesjournal
journal
Hewitt
Enterprises
– April
Creditors allowances
of of
Hewitt
Enterprises
- April
20.9 20.9
193
Inventory systems
Illustration 5
Assume that the business made the following payments from petty cash during April
20.9:
Transaction details
Lt
d
Date
(P
ty
)
3
Purchased 240 units of trading inventory (petty cash voucher P108).
21Paid R 1 240 plus VAT to FR Transport for carriage on purchases (petty cash
voucher P111).
28 Paid R 604 plus VAT in customs duties relating to the purchase of trading
inventory from abroad (petty cash voucher P112).
30Paid R 1 012 plus VAT for import tariffs relating to the purchase of trading
inventory from abroad (petty cash voucher P113).
Using a perpetual inventory system:
at
io
n
These transactions would hence be recorded as follows in the Petty cash journal.
Petty
cashjournal
journal
of Hewitt
Enterprises
– April 20.9
Petty cash
of Hewitt
Enterprises
– April 20.9
Doc.
no. Day
Details
3
Products for resale
XX
XX XXXXXXXX
XX
XX XXXXXXXX
P111 21 FR Transport – carriage
P112 28 Customs duties
Input VAT
Trading
inventory
276 00
36 00
240 00
XX XX
XX XX
XX XX
XX XX
1 426 00
186 00
1 240 00
694 60
90 60
604 00
Sundry accounts
Amount
Fol.
Details
XX XX
XXXXXXXX
XX XX
XXXXXXXX
1 163 80
151 80
1 012 00
X XXX XX
XXX XX
3 096 00
XX XX
Credit
Debit
Debit
Debit individual accounts
G
E
P113 30 Import tariffs
Petty cash
Ed
uc
P108
Fol.
PCJ4
PCJ4
Using a periodic inventory system:
ED
Pettycash
cash
journal
of Hewitt
Enterprises
– April 20.9
Petty
journal
of Hewitt
Enterprises
– April 20.9
Doc.
no. Day
©
P108
3
Details
Products for resale
XX
XX XXXXXXXX
XX
XX XXXXXXXX
P111 21 FR Transport – carriage
Fol.
PCJ4
PCJ4
Petty cash
Input VAT
Purchases
276 00
36 00
240 00
XX XX
XX XX
Sundry accounts
Amount
Fol.
Details
XX XX
XXXXXXXX
XX XX
XX XX
XX XX
XXXXXXXX
1 426 00
186 00
1 240 00
Carriage on
Purchases
P112 28 Customs duties
694 60
90 60
604 00
Customs duties
P113 30 Import tariffs
1 163 80
151 80
1 012 00
Import tariffs
X XXX XX
XXX XX
240 00
XX XX
Credit
Debit
Debit
Debit individual accounts
194
Learning Unit 6
Note: Under the periodic inventory system, we debit an expense account called
purchases when trading inventory is acquired. Thus the trading inventory column is
now the purchases column. Carriage on purchases, customs duties and import tariffs
are debited to separate and individual accounts.
Lt
d
Illustration 6
Assume the following sundry transactions took place with regards to trading inventory
during April 20.9:
Transaction details
ty
)
Date
at
io
n
(P
6The owner, Mr Hewitt, took merchandise with a VAT exclusive cost price of
R 300 for own use. JV11 was issued.
27Mr Hewitt returned goods with a VAT exclusive cost price of R 160, which he
withdrew on the 6th of April 20.9.
These transactions would hence be recorded as follows in the General journal.
Using a perpetual inventory system:
General journal of Hewitt Enterprises – April 20.9
GJ4
Doc. no.
Day
JV11
6
Ed
uc
General journal of Hewitt Enterprises – April 20.9
Details
Drawings
Fol.
GJ4
Debit
345
Credit
00
Output VAT
45
00
Trading inventory
300
00
184
00
(Owner takes goods for own use)
Trading inventory
160
00
Input VAT
24
00
E
27
G
JV12
Drawings
©
ED
(Owner returns goods previously taken for personal use)
195
Inventory systems
Using a periodic inventory system:
General journal of Hewitt Enterprises – April 20.9
GJ4
General journal of Hewitt Enterprises – April 20.9
Day
JV11
6
Details
Fol.
Debit
Drawings
345
Credit
00
Output VAT
Purchases
(Owner takes goods for own use)
27
Purchases
160
00
24
00
45
00
300
00
ty
)
JV12
Lt
d
Doc. no.
GJ4
Input VAT
184
00
(P
Drawings
(Owner returns goods previously taken for personal use)
at
io
n
Note: In a periodic system, when the business purchased the trading inventory, the
purchases account was debited. Therefore, if the owner takes merchandise for own
use, for example, then purchases should be credited, not trading inventory.
Illustration 7
Ed
uc
Assume the following cash sales of trading inventory took place during April 20.9
(remember: all goods are sold at a markup of 50% on cost):
Transaction details
2
11
2 000 units were sold according to the cash register roll.
7 000 units were sold according to the cash register roll.
E
Date
G
These transactions would hence be recorded as follows in the Cashbook receipts.
ED
Using a perpetual inventory system:
Cashbook
receipts
of Hewitt
Enterprises
– April 20.9
Cashbook
receipts
of Hewitt
Enterprises
- April 20.9
Doc.
no. Day
Details
Fol.
Bank
Output VAT
Sales
3 000
2
Cash sale
3 450 00
450 00
XX
XX XXXXXXXX
XX XX
XX XX
©
CRR
CRR 11 Cash sale
196
CBR4
CBR4
Sundry accounts
Amount
Fol.
Details
00
12 075 00
1 575 00
10 500
00
XX XXX XX
X XXX XX
13 500
00
Debit
Credit
Credit
Cost of
sales
2 000 00
XX
XX
XX
XX
XXXXXXXX
7 000 00
Credit individual accounts
9 000 00
Debit & Credit
Learning Unit 6
Using a periodic inventory system:
Cashbook
receipts
of Hewitt
Enterprises
– April 20.9
Cashbook
receipts
of Hewitt
Enterprises
- April 20.9
2
Cash sale
XX
XX XXXXXXXX
XX
CRR 11 Cash sale
Sundry accounts
Bank
Output VAT
Sales
3 450 00
450 00
3 000
XX XX
XX XX
12 075 00
1 575 00
10 500
00
XX XXX XX
X XXX XX
13 500
00
Debit
Credit
Credit
Amount
Fol.
Details
00
XX
XX
XX
XX
XX
XXXXXXXX
Lt
d
CRR
Fol.
Note: No cost of sales column
Details
ty
)
Doc.
no. Day
CBR4
CBR4
Credit individual accounts
(P
Note: Under the periodic inventory system, we do not record the double entry for cost
of sales, thus there will be no cost of sales column in the Cashbook receipts.
at
io
n
Illustration 8
Assume the following credit sales of trading inventory took place during April 20.9:
Transaction details
9
14
5 000 units were sold to B. Brent according to invoice U25.
10 200 units were sold to O. Ozz according to invoice U26.
Ed
uc
Date
(Remember, all goods are sold at a markup of 50% on cost.)
E
These transactions would hence be recorded as follows in the Debtors journal.
G
Using a perpetual inventory system:
Debtors journal of Hewitt Enterprises – April 20.9
DJ4
DJ4
ED
Debtors journal of Hewitt Enterprises – April 20.9
Doc.
no.
Day
Details
Fol.
Debtors
control
Output VAT
Sales
Cost of sales
9
B. Brent
8 625
00
1 125
00
7 500
00
5 000
00
U26
14
O. Ozz
17 595
00
2 295
00
15 300
00
10 200
00
26 220
00
3 420
00
22 800
00
15 200
00
©
U25
Debit
Credit
Credit
Debit & Credit
197
Inventory systems
Using a periodic inventory system:
Debtorsjournal
journal
Hewitt
Enterprises
April 20.9
Debtors
of of
Hewitt
Enterprises
– April– 20.9
Day
Details
Debtors
control
Fol.
Output VAT
Sales
9
B. Brent
8 625
00
1 125
00
7 500
00
U26
14
O. Ozz
17 595
00
2 295
00
15 300
00
26 220
00
3 420
00
22 800
00
Credit
Credit
ty
)
Debit
Lt
d
U25
Note: No cost of
sales column
Doc.
no.
DJ4
DJ4
at
io
n
Illustration 9
(P
Note: Under the periodic inventory system only the sales revenue will be recorded. The
cost of sales will not be determined at the point of sale, and hence there will be no cost
of sales column in the Debtors journal.
Assume the following returns of trading inventory to Hewitt Enterprises took place
during April 20.9:
Transaction details
9
14
1 000 units were returned by B. Brent (credit note N1).
1 020 units were returned by O. Ozz (credit note N2).
Ed
uc
Date
These transactions would hence be recorded as follows in the Debtors allowances
journal.
E
Using a perpetual inventory system:
G
Debtorsallowances
allowances
journal
of Hewitt
Enterprises
– April 20.9
Debtors
journal
of Hewitt
Enterprises
– April 20.9
Doc.
no.
Day
N1
9
B. Brent
N2
14
O. Ozz
©
ED
Details
198
Fol.
Debtors
control
1 725
Sales
returns
Input VAT
00
225
DAJ4
DAJ4
00
1 500
Cost of sales
00
1 000
00
1 759
50
229
50
1 530
00
1 020
00
3 484
50
454
50
3 030
00
2 020
00
Credit
Debit
Debit
Debit & Credit
Learning Unit 6
Using a periodic inventory system:
Debtors allowances journal of Hewitt Enterprises – April 20.9
Debtors allowances journal of Hewitt Enterprises – April 20.9
Details
Fol.
Debtors
control
Sales
returns
Input VAT
N1
9
B. Brent
1 725
00
225
00
1 500
00
N2
14
O. Ozz
1 759
50
229
50
1 530
00
3 484
50
454
50
3 030
00
Debit
Debit
ty
)
Credit
Note: No cost of
sales column
Day
Lt
d
Doc.
no.
DAJ4
DAJ4
Illustration 10
(P
Note: Under the periodic inventory system only the sales revenue will be recorded. The
cost of sales will not be determined at the point of sale, and hence there will be no cost
of sales column in the Debtors allowances journal.
Ed
uc
at
io
n
Remember that Hewitt Enterprises drafts financial statements monthly, which means
they do a stocktake at the end of every month. If all went well, there should have been
9 338 units of trading inventory at R 1 each on hand as at 30 April 20.9 (refer to all the
transactions that took place during the month). Remember, though, that all the carriage
on purchases, customs duties and import tariffs (R 2 856 in total) should be added to
the value of the trading inventory account, which means the closing trading inventory
should amount to R 12 194.
We will now demonstrate how all the relevant information in the journals is posted to the
General ledger, under each of the two inventory systems.
Using a perpetual inventory system:
E
General ledger of Hewitt Enterprises
ED
G
Statement of financial position section
Date
Details
Trading inventory
Fol.
Amount
20.9
©
Apr.
Details
Fol.
Amount
20.9
1
Balance
b/d
18 000
00
27
Drawings
GJ4
160
00
Bank
CBP4
5 200
Creditors control
CJ4
12 020
30
B#
Date
6
Drawings
GJ4
300
00
30
Creditors control
CAJ4
3 802
00
00
Cost of sales
CBR4
9 000
00
00
Cost of sales
DJ4
15 200
00
Balance
c/d
12 194
00
40 496
00
Petty cash
PCJ4
3 096
00
Cost of sales
DAJ4
2 020
00
40 496
00
12 194
00
Apr.
20.9
May
1
Balance
b/d
199
Inventory systems
Nominal accounts section
Sales
Date
Details
Fol.
N#
Amount
Date
Details
Apr.
30
Fol.
Bank
CBR2
13 500
00
DJ4
22 800
00
36 300
00
at
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(P
Debtors control
Sales returns
Date
Details
Fol.
Amount
DAJ4
3 030
20.9
30
Debtors control
Details
Cost of sales
Date
Details
Fol.
Amount
Trading inventory
CBR4
9 000
00
Trading inventory
DJ4
15 200
00
24 200
00
22 180
00
20.9
1
Total/Balance
©
ED
May
E
20.9
200
Amount
N#
Date
Details
Fol.
Amount
Trading inventory
DAJ4
2 020
00
Balance
c/d
22 180
00
24 200
00
20.9
30
G
Apr.
N#
Fol.
00
Ed
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Apr.
Date
Amount
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)
20.9
Lt
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Note: None of the accounts in the nominal accounts section have an opening balance,
because these accounts were closed off at the end of March 20.9 in order to calculate
the net profit for that month – remember, Hewitt Enterprises drafts financial statements
monthly.
b/d
Apr.
30
Learning Unit 6
Using a periodic inventory system:
General ledger of Hewitt Enterprises
Statement of financial position section
Details
Fol.
Amount
b/d
18 000
B#
Date
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Trading inventory
Date
Details
Fol.
20.9
1
Balance
00
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)
Apr.
Amount
(P
Note: No entries are made in the trading inventory account when the periodic system
is in use.
at
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Nominal accounts section
Fol.
Amount
Bank
CBR2
13 500
00
Debtors control
DJ4
22 800
00
36 300
00
Sales
Date
Details
Fol.
Amount
Date
Details
N#
20.9
Ed
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Apr.
30
Sales returns
Details
G
20.9
Amount
30
Debtors control
DAJ4
3 030
Date
N#
Details
Fol.
Amount
00
©
ED
Apr.
Fol.
E
Date
201
Inventory systems
Purchases
Date
Details
Fol.
Amount
Details
Fol.
20.9
27
Drawings
GJ4
160
00
30
Bank
CBP4
5 200
00
Creditors control
CJ4
12 020
00
Petty cash
PCJ4
240
00
17 620
00
17 320
00
Apr.
6
Drawings
GJ4
300
00
30
Total/Balance
b/d
17 320
00
17 620
Total/Balance
b/d
Date
Details
Fol.
Amount
PCJ4
1 240
Date
Details
Fol.
N#
20.9
Apr.
21
Petty cash
N#
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Carriage on purchases
(P
1
Details
Fol.
Apr.
28
Petty cash
Amount
Date
Ed
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20.9
PCJ4
604
Details
Details
30
Petty cash
PCJ4
1 012
Fol.
Amount
Amount
N#
Date
Details
Fol.
Amount
00
ED
G
Apr.
Amount
E
20.9
Fol.
Fol.
00
Import tariffs
Date
Amount
00
Customs duties
Date
00
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20.9
May
Amount
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20.9
Apr.
N#
Date
©
Date
202
Details
Purchases returns
N#
Date
Details
Fol.
Amount
Creditors control
CAJ4
3 802
20.9
Apr.
30
00
Learning Unit 6
Please note that the cost of sales can now be determined as follows:
Less: Closing trading inventory
Refer to the total
of the cost of sales
account as per the
perpetual inventory
system.
Question 6.3
(P
ty
)
R 17 320 – R 3 802 = R 13 518
R 18 000
13 518
1 240
604
1 012
34 374
12 194
22 180
Lt
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Opening trading inventory
Plus: Purchases (less purchases returns)
Plus: Carriage on purchases
Plus: Customs duties
Plus: Import tariffs
Ed
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at
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Refer back to the comprehensive Examples 4.1, 4.2 and 4.3 in Learning Unit 4. In Learning
Unit 4 it was assumed that Letsema Furnishers uses the perpetual inventory system to keep
their books. You are now requested to redo the entire example (i.e. the journals, General
ledger and trial balance), but assume that Letsema Furnishers uses the periodic inventory
system instead. Remember that the CBR will have no cost of sales column, and that the
CBP and PCJ will have a purchases column instead of a trading inventory column. Also
remember that carriage on purchases will be debited to a separate carriage on purchases
account, instead of the trading inventory account, as is the case under a perpetual system.
You are also requested to refer back to Question 4.6 in Learning Unit 4. Redo the analyses
under the accounting equation, but assume a periodic inventory system this time round.
ED
G
E
Use Example 6.2 as your reference.
Question 6.4
©
Refer back to the comprehensive Example 5.1 in Learning Unit 5. Example 5.1 was a
continuation of the books of Letsema Furnishers completed in Learning Unit 4 (Examples
4.1, 4.2 and 4.3). You are now requested to redo the books for their second month of
trading, but to assume that Letsema Furnishers uses the periodic inventory system instead.
Remember that the CBR, DJ and DAJ will have no cost of sales column, and that the CBP,
CJ, CAJ and PCJ will have a purchases column instead of a trading inventory column.
203
Inventory systems
6.4
Which system is best – perpetual or periodic?
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Lt
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Both the perpetual and periodic inventory systems offer distinct advantages as well as
disadvantages. Whereas the periodic system takes the continual and arduous recording
of cost of sales out of the bookkeeping process, it creates some other dilemmas.
Question 6.5
(P
Some experts are of the opinion that the perpetual inventory system offers more advantages
to a business than the periodic system.
at
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Do you agree with these experts or not? Substantiate your claim.
Ed
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Computerised Accounting Fact
for the perpetual system, as continuous
updating of trading inventory levels and
cost of sales is no problem for a computer.
©
ED
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E
Most electronic accounting systems allow
the user to choose between a perpetual
and a periodic system at the set-up stage.
However, the vast majority of users will opt
204
Hint: Attempt Revision questions 15 and 16 in Annexure B at the end of this textbook.
??
?
Learning Unit 6
Question 6.6
Lt
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Working with inventory can be a daunting task for accountants. You will read about inventory
control and how cost of sales can be determined at the ‘point’ of sale or during a stocktake.
To calculate cost of sales during a stocktake (this is when a periodic system is in use), the
accountant will need a value for the inventory on hand.
ty
)
The problem is, how does the accountant make that valuation? Inventory purchases were
made at different intervals and at different prices during the year. This means that the closing
inventory for a period will in all likelihood include inventory items that were purchased at
different prices.
Required:
First-in-first-out (FIFO)
Weighted average cost
Specific identification method
at
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•
•
•
(P
Research the following concepts relating to inventory valuation and make short notes about
how they are applied in practice:
Question 6.7
E
Ed
uc
You are the bookkeeper of Siyard Books. The business is a registered VAT vendor and
trades only with registered VAT vendors. The business charges 15% VAT on all its sales.
All amounts are inclusive of VAT unless VAT is not applicable. As the bookkeeper you have
been provided with only the source documents for the month of August 20.9 necessary
for the preparation of the journals specified as follows. The business uses the periodic
inventory system. ‘DC’, ‘DCT’, ‘DCS’, ‘RT’, ‘JR’ and ‘PV’ are the source document codes
used for duplicate invoices, duplicate credit notes, duplicate cash slips, duplicate receipts,
journal vouchers and petty cash vouchers respectively. The business does not expect to
award any settlement discounts or to qualify for any settlement discounts. All occurrences
of settlement discounts are therefore incidental in nature.
ED
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Source documents of Siyard Books for the month of August 20.9:
Date
©
1
Details
2
8
12
Bob Siyard (the
owner)
J. Lomu
P. Spies
M. Burke
12
Bob Siyard
Source
Description
document no.
RT586
Additional capital contribution in cash.
DC466
DCS320
DC467
JR251
Sale of trading inventory.
Sale of trading inventory.
Sale of trading inventory: R 27 956.99 less a
7% trade discount.
Bob Siyard contributed a delivery vehicle to
the business. (All legislative requirements
have been met for the full VAT amount to be
claimed.)
Amount (R)
96 000.00
95 200.00
88 600.00
?
101 800.00
205
Bob Siyard
JR252
22
24
PV110
DCS323
25
25
26
26
The Tea House
Katmandoo
Bookshop
JP Peterson
Point Stationers
JP Peterson
M. Burke
27
27
28
30
D. Campesi
Bob Siyard
J. Wilkonson
J. Wilkonson
DCS324
PV112
DCT220
RT588
31
J. Lomu
31
JP Peterson
31
J. Wilkonson
JR255
31
JR256
©
206
Ed
uc
E
ED
N/A
DC469
PV111
DCT219
RT587
JR253
JR254
1 300.00
10 400.00
3 424.00
78 600.00
?
Lt
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21
Trading inventory returned.
Received a dividend from Anglo African Ltd.
Petty cash payment for boxes.
Sale of trading inventory.
Sale of trading inventory: R 24 640.00 less a
15% trade discount.
Drawings of trading inventory with a selling
price including VAT of R 2 000.00. The markup
on cost was 20%.
Petty cash payment for staff tea.
Received delivery income from Katmandoo
Bookshop.
Sale of trading inventory.
Petty cash payment for stamps.
Trading inventory returned.
Received a cheque from M. Burke (no discount)
– payment on account. (Balance owing at the
beginning of the month: R 3 355.00.)
Sale of trading inventory.
Drawings from petty cash by the owner.
Trading inventory returned.
Received from J. Wilkonson less a 6% settlement
discount. (Balance owing at the beginning of the
month: R 17 292.00.)
Credit loss – amount owing by J. Lomu written
off as irrecoverable. (Balance owing at the
beginning of the month: R 14 280.00.)
Interest charged by Siyard Books on the overdue
account of JP Peterson.
6% settlement discount allowed to J. Wilkonson
for settlement of the account. (Refer to duplicate
receipt no. RT588.)
It was realised that computer equipment
purchased for R 8 976.00 during July 20.7 was
erroneously debited to the office consumables
account. Correct the error.
?
496.00
980.00
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DCT218
DCS321
PV109
DC468
DCS322
(P
M. Burke
Anglo African Ltd
Gort World
J. Wilkonson
S. Motlock
at
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13
15
18
19
21
G
Inventory systems
75 000.00
180.00
4 875.00
8 135.90
98 600.00
8 000.00
3 144.00
?
?
880.00
?
?
Learning Unit 6
Required:
Use the relevant transactions from those provided in order to complete the following
journals for the month of August 20.9.
Debtors journal (DJ8) with analysis columns for debtors control, VAT and sales.
Debtors allowances journal (DAJ8) with analysis columns for debtors control, VAT
and sales returns.
Cashbook receipts (CBR8) with analysis columns for bank, debtors control, VAT,
sales and sundries. Cash is banked on a daily basis.
Petty cash journal (PCJ8) with analysis columns for petty cash, postage and
stationery, staff refreshments, VAT and sundries.
General journal (GJ8).
(iii)
(iv)
(v)
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(i)
(ii)
Clearly specify whether the VAT column is input VAT or output VAT in each of the journals.
All amounts are inclusive of VAT, unless VAT is not applicable.
©
ED
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Ed
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at
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•
•
(P
Note:
207
Debtors (accounts receivable) and creditors (accounts payable)
7
Lt
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The need for individual accounts..................................................................... 209
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7.1
Debtors (accounts receivable)
and creditors (accounts payable)
7.2The structure of the subsidiary ledgers for debtors and creditors ................. 209
Individual debtors’ accounts............................................................. 210
7.2.2
Individual creditors’ accounts.......................................................... 215
©
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(P
7.2.1
208
Learning Unit 7
7.1
The need for individual accounts
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Lt
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We have almost dealt with the entire bookkeeping cycle up to trial balance. We have
shown how transactions are summarised on source documents and how source documents are summarised in journals. The posting of a completed set of journals to the
General ledger and the subsequent drafting of a trial balance have also been discussed
in detail. There is only one important link in the cycle that we have not yet discussed:
individual debtors’ and creditors’ accounts. In this learning unit we will deal specifically
with the individual accounts receivable and accounts payable.
The structure of the subsidiary ledgers for debtors
and creditors
E
7.2
Ed
uc
at
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(P
When transacting with a customer that has an account with a business, the bookkeeper
needs to update the customer’s account in real time – i.e. accurate records must be
kept of every transaction pertaining to the customer so that the total amount owing
is readily identifiable. So far, we have shown how all transactions relating to debtors
culminate in lump sum postings to the Debtors control account in the General ledger
and how all transactions relating to creditors eventually end up in the Creditors control
account in the General ledger. The Debtors control account provides us with an
exact figure of how much all debtors owe us in total. Similarly, the Creditors control
account gives a value of how much we owe all creditors in total. Albeit the balances
of these two control accounts are useful in making strategic business decisions, it is
necessary to compile a detailed account of each individual debtor and creditor so that
the outstanding amounts on these accounts are readily available. These collections
of accounts summarising the transactions pertaining to all individual debtors and
creditors are called the Debtors and Creditors ledgers respectively. Collectively they
are known as the subsidiary ledgers.
ED
G
Thus far we have referred to an account as being the ‘T-account’ in the General ledger
– a structure with a debit and credit side. The subsidiary ledger structure is different
to allow the business to identify the account balance in real time. Remember that the
bookkeeper can only determine the ‘total’ on an account in the General ledger when
the account is balanced, and this process is completed monthly.
©
The subsidiary ledgers do not have a debit and credit side but are constructed with
a ‘statement’ structure with amount columns for the debits, credits and the ‘running’
balance.
209
Debtors (accounts receivable) and creditors (accounts payable)
7.2.1 Individual debtors’ accounts
Lt
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The Debtors ledger consists of a series of individual debtors’ accounts with a completely
different structure to the accounts in the General ledger. The following recommended
account structure can be used to record transactions with individual debtors.
The structure of the Debtors ledger
……………… (Debtors account no.)
Code
Document no.
Fol.
Debit
1
2
3
4
5
Balance
6
7
at
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Notes on the Debtors ledger heading:
Credit
(P
Date
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)
Debtors ledger of ……………………..
The Debtors ledger – although structured differently to the conventional ‘T-account’
approach – is still a ledger. The bookkeeper will continue balancing the same account
after each and every transaction – month after month, year after year. There is no date
indication in the heading.
Ed
uc
Each account will have the name of the debtor left-aligned above with the account
reference clearly indicated in brackets.
Notes on columns 1–7:
This column is used to record the day, month and year of the transaction.
2
E
1
G
Column:
ED
It is customary to create a coding system to represent the various types of
transactions pertaining to debtors. An example of such a coding system is as
follows:
©
Code no. 1:
Code no. 2:
Code no. 3:
Code no. 4:
Code no. 5:
Code no. 6:
Code no. 7:
Code no. 8:
Code no. 9:
210
Credit sales according to duplicate credit invoices
Increases in a previously issued credit invoice by means of a
debit note
Returns/rebates according to duplicate credit notes
Cash receipts from debtors (duplicate receipts)
Discounts granted on prompt settlements
R/D cheques (when cheques received from debtors are
dishonoured by the bank)
Settlement discounts cancelled on R/D cheques
Interest charged on overdue accounts
Credit losses
Learning Unit 7
The document number for the transaction is entered into this column.
4
The journal reference is entered into this column, for example DJ8.
5
The debit column is used to enter the amount of the transaction in cases where
the particular transaction increases the amount owing to our business by the
debtor.
6
The credit column is used to enter the amount of the transaction in cases
where the particular transaction decreases the amount owing to our business
by the debtor.
7
The balance column shows the amount owing by the particular debtor as
updated after each individual transaction being the preceding balance plus/
(less) the amount in the debit/(credit) column.
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(P
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3
Example 7.1 (The Debtors ledger)
Ed
uc
The following transactions relate to Jousuf Sulliman, a debtor (debtor no. D3) of
Hawkes Enterprises, for the period 1 August 20.8 to 31 August 20.8.
The following coding system is used by Hawkes Enterprises in their Debtors ledger:
Code no. 1:
Code no. 2:
G
E
Code no. 3:
Code no. 4:
Code no. 5:
Code no. 6:
Credit sales according to duplicate credit invoices
Increases in a previously issued credit invoice by means of a
debit note
Returns/rebates according to duplicate credit notes
Cash receipts from debtors (duplicate receipts)
Discounts granted on prompt settlements
R/D cheques (when cheques received from debtors are
dishonoured by the bank)
Settlement discounts cancelled on R/D cheques
Interest charged on overdue accounts
Credit losses
ED
Code no. 7:
Code no. 8:
Code no. 9:
©
Balance on 1 August 20.8: R 24 348.73 (note: no interest is included in this balance).
211
Debtors (accounts receivable) and creditors (accounts payable)
Subsequent transactions recorded in subsidiary journals for August 20.8 (reference
no. 8):
Details of transactions
2
Sold goods to Jousuf Sulliman for R 4 000 plus VAT. Issued invoice no. Inv 47.
4
Sulliman returned goods purchased on the 2nd and credit note no. CN12
totalling R 1 150 (including VAT) was issued to him.
5
It was realised that invoice number Inv. 47 was ‘undercast’ by R 400 (including
VAT). Mr Sulliman was contacted in this regard and he accepted the debit note
(no. DN04) for this amount.
14
Received a cheque from Mr Sulliman in full settlement of the amount owing,
less a 7 ½% settlement discount. Receipt no. RC423 and journal voucher JV11
were issued.
18
Received the bank statement showing that the cheque received from Mr
Sulliman on 14 August 20.8 was dishonoured due to insufficient funds. Make
the necessary entries (JV13 was issued to cancel the discount).
24
The amount of R 24 348.73 as owing by Mr Sulliman on 1 August 20.8 was now
overdue by 30 days. Charged interest @ 14% p.a. for the period the account
had been outstanding. Issued JV18 to record the interest. Assume a 365-day
year.
31
Received a letter from Mr Sulliman’s attorneys stating that his entire estate has
been sequestrated, along with a cheque constituting a dividend of 35 cents
in the rand from his insolvent estate (issued receipt no. RC441). The payment
was based on the amount owing as at 25 August 20.8. The rest of his debt was
subsequently written off as irrecoverable (JV20).
G
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Ed
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(P
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Date
©
ED
Jousuf Sulliman’s account in the Debtors ledger of Hawkes Enterprises will look as
follows:
212
Learning Unit 7
Debtors ledger of Hawkes Enterprises
Jousuf Sulliman (D3)
Code
Document no.
Debit
Credit
Balance
Balance brought forward
24 348
2 Aug. 20.8
1
Invoice INV.47
DJ8
4 Aug. 20.8
3
Credit note CN12
DAJ8
4 600
5 Aug. 20.8
2
Debit note DN04
DJ8
14 Aug. 20.8
4
Receipt RC423
CBR8
5
Journal voucher JV11 (discount)
GJ8
18 Aug. 20.8
6
Bank statement (R/D cheque)
CBP8
26 083
83
7
Journal voucher JV13 (discount cancelled)
GJ8
2 114
90
24 Aug. 20.8
8
Journal voucher JV18 (interest)
GJ8
* 280
18
31 Aug. 20.8
4
Receipt RC441
CBR8
9
Journal voucher JV20 (irrecoverable debt)
GJ8
400
00
1 150
00
26 083
83
00
at
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(P
2 114
73
Lt
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1 Aug. 20.8
Fol.
28 948
73
27 798
73
28 198
73
2 114
90
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)
Date
90
0
00
26 083
83
28 198
73
28 478
91
9 967
62
18 511
29
18 511
29
0
00
* 24 348.73 × 14% × 30/365 = 280.18
Ed
uc
Question 7.1
Refer back to Example 7.1. The Value-Added Tax Act 89 of 1991 (VAT Act) states that input
VAT may be claimed on credit losses. The Act also clearly states that interest is a VAT
exempt supply.
©
ED
G
E
Keeping the above in mind, explain how you think the General journal entry would have
been passed by Hawkes Enterprises to record the credit loss on 31 August 20.8. Show
your workings.
213
Debtors (accounts receivable) and creditors (accounts payable)
Question 7.2
Lt
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Thembi Thambo has been a regular customer at Tucson Arizona’s (otherwise known as
TA’s). She opened an account at the store on 1 July 20.8 (debtor account number D311),
and received a discount of R 300 on her first purchase which amounted to R 1 325.95 (this
was the total VAT inclusive amount of the purchase before the discount voucher was taken
into account). Invoice no. G1321 was issued.
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)
The following subsequent transactions affecting Thembi’s account took place (journal
reference no. 7 for July 20.8):
TA’s realised that Thembi was undercharged by R 100 (excluding VAT) on 1 July 20.8.
Debit note R06 was issued and accepted on 5 July 20.8 to rectify the error.
•
On 3 August 20.8, Thembi purchased goods from TA’s to the amount of R 6 312.50
(including VAT) less a 2% trade discount. Invoice no. G1387 was issued.
•
On 7 August, Thembi returned 25% of the goods purchased on 3 August 20.8 because
they were of inferior quality. Credit note C67 was issued.
•
Thembi made a payment of R 2 000 on her account at TA’s on 31 August 20.8. No
settlement discount was received because the account was not paid in full. TA’s issued
receipt number RCT78.
•
On 1 September 20.8 R 45 was charged to Thembi’s account for her quarterly TA’s club
subscription. As per the agreement, the amount was directly charged to her account
balance.
•
On 15 October 20.8, TA’s sold merchandise to Thembi for R 2 500 (invoice no. G1477).
She offered a discount voucher (no. D987) for R 600 in part payment of the amount due.
The discount voucher was recorded in the General journal. The gross income amount
and the discount were charged to her account.
•
Received a cheque from Thembi on 1 November 20.8 in full settlement of her account.
A prompt settlement discount of R 120 was granted to her. Receipt RCT101 and journal
voucher JV33 were issued.
•
The bank statement that TA’s received on 7 November 20.8 shows that Thembi’s
cheque received on 1 November 20.8 was dishonoured due to insufficient funds. Make
the necessary entries in her account (journal voucher JV35 was issued to cancel the
discount).
•
By 1 December 20.8, a significant part of Thembi’s account was long overdue, and TA’s
decided to charge interest amounting to R 53.81 to her account. Journal voucher JV36
was issued.
©
ED
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•
•
214
On 9 February 20.9, TA’s received a letter from Thembi’s attorneys informing them that
she had gone into liquidation, along with a cheque constituting 25 cents in the rand
from her insolvent estate. This dividend was based on the amount outstanding as at
1 January 20.9, and receipt no. RCT143 was issued upon receipt. The rest of her debt
was subsequently written off as irrecoverable. Journal voucher JV38 was issued in this
regard.
Learning Unit 7
Required:
Show Thembi Thambo’s individual account as it would appear in the Debtors ledgerr of
Tucson Arizona’s from 1 July 20.8 until 9 February 20.9.
ty
)
Code no. 03:
Code no. 04:
Code no. 05:
Code no. 06:
Code no. 07:
Code no. 08:
Code no. 09:
Code no. 010:
Code no. 011:
Credit sales according to duplicate credit invoices
Increases in a previously issued credit invoice by means of a
debit note
Returns/rebates according to duplicate credit notes
Cash receipts from debtors (duplicate receipts)
Discounts granted on prompt settlements
R/D cheques (when cheques received from debtors are
dishonoured by the bank)
Settlement discounts cancelled on R/D cheques
Interest charge on overdue accounts
Credit losses
Club membership subscription charges
Discount vouchers
(P
Code no. 01:
Code no. 02:
Lt
d
The following transaction codes are used by Tucson Arizona’s:
at
io
n
Note:
Ed
uc
Question 7.3
Refer back to Question 7.2. Assume that Thembi Thambo unexpectedly turned up with the
outstanding amount of R 4 334.59 in cash on the 3rd of March 20.9. TA’s had of course
already written her account off as irrecoverable.
E
Keeping the above in mind, explain how TA’s would deal with such a scenario and what
entries they would make in the books.
G
7.2.2 Individual creditors’ accounts
©
ED
As with the Debtors ledger, the Creditors ledger consists of a series of individual
creditors’ accounts with a completely different structure to the accounts in the General
ledger. The following recommended account structure can be used to keep record
transactions with individual creditors.
The structure of the Creditors ledger
Creditors ledger of ……………………..
……………… (Creditors account no.)
Date
Code
Document no.
Fol.
Debit
Credit
Balance
1
2
3
4
5
6
7
215
Debtors (accounts receivable) and creditors (accounts payable)
Notes on the Creditors ledger heading:
Lt
d
As with debtors, there is only one Creditors ledger which is also continually updated
from month to month. The bookkeeper will continue balancing the same account after
each and every transaction – month after month, year after year. There is no date
indication in the heading.
ty
)
Each account will have the name of the creditor left-aligned above with the account
reference clearly indicated in brackets.
Notes on columns 1–7:
(P
Column:
This column is used to record the day, month and year of the transaction.
2
As with debtors, a coding system may be used. An example of such a coding
system to represent the various types of transactions pertaining to creditors
could be as follows:
Credit purchases according to original credit invoices
Increases in a previously received credit invoice by means of
an original debit note received
Returns/rebates according to original credit notes
Cash payments to creditors (cheque counterfoils)
Discounts received on prompt settlements
Interest charged by creditors on an overdue account
Ed
uc
Code no. 1:
Code no. 2:
Code no. 3:
Code no. 4:
Code no. 5:
Code no. 6:
at
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n
1
The document number for the transaction is entered into this column.
4
The journal reference is entered into this column, for example CJ8.
G
The debit column is used to enter the amount of the transaction in cases
where the particular transaction decreases the amount owing by a business to
a particular creditor.
ED
5
E
3
©
6
7
216
The credit column is used to enter the amount of the transaction in cases
where the particular transaction increases the amount owing by a business to
a particular creditor.
The balance column shows the amount owing to the particular creditor after
each individual transaction.
Learning Unit 7
Example 7.2 (The Creditors ledger)
Veritas Enterprises entered into the following transactions with Desmond Wholesalers
(DW) (C112), a supplier, during June 20.8. All amounts include VAT where applicable.
ty
)
Code no. 3:
Code no. 4:
Code no. 5:
Code no. 6:
Credit purchases according to original credit invoices
Increases in a previously received credit invoice by means of
an original debit note received
Returns/rebates according to original credit notes
Cash payments to creditors (cheque counterfoils)
Discounts received on prompt settlements
Interest charged by creditors on our overdue account
(P
Code no. 1:
Code no. 2:
Lt
d
The following coding system is used by Veritas Enterprises in their Creditors ledger:
at
io
n
Balance owing to Desmond Wholesalers on 1 June 20.8: R 67 321.80
The following subsequent transactions affecting Desmond Wholesalers’ account took
place (journal reference no. 6 for June 20.8):
Details of transactions
3
Received an account statement from DW which shows that the outstanding
balance is now R 67 392.44 due to interest charged. Issued journal voucher
no. V30 to record the interest.
4
Purchased merchandise on credit from DW for R 13 412.95 less a 15% bulk
trade discount. Received invoice PR17 from DW.
6
Received debit note D21 from DW, being for an undercharge of R 400 (including
VAT) on invoice PR17.
E
G
Returned goods valued at R 500 (excluding VAT) to DW and received their
credit note Y43 in this respect.
ED
9
Ed
uc
Date
Issued a cheque (no. 89) for R 78 000 to DW in full settlement of our account.
Journal voucher V35 was issued to account for the discount.
©
24
Desmond Wholesalers in the Creditors ledger of Veritas Enterprises will look as follows:
217
Debtors (accounts receivable) and creditors (accounts payable)
Creditors ledger of Veritas Enterprises
Desmond Wholesalers (C112)
Code
3 Jun. 20.8
Document no.
Fol.
Debit
Credit
Balance brought forward
6
Journal voucher V30 (interest)
GJ6
70
Balance
67 321
80
64
67 392
44
Lt
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Date
1 Jun. 20.8
4 Jun. 20.8
1
Credit invoice PR17
CJ6
11 401
01
78 793
45
6 Jun. 20.8
2
Debit note D21
CJ6
400
00
79 193
45
9 Jun. 20.8
3
Credit note Y43
CAJ6
575
00
24 Jun. 20.8
4
Cheque 89
CBP8
78 000
00
5
Journal voucher V35 (discount)
GJ6
618
45
45
0
00
(P
ty
)
45
618
at
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Question 7.4
78 618
Lovettica Dealers entered into the following transactions with Brunton Traders (creditor
number C10) during 20.8. All amounts include VAT where applicable.
Balance owing to Brunton Traders on 1 January 20.8: R 115 240.75.
Ed
uc
The following subsequent transactions affecting Brunton Traders’ account took place:
Details of transactions
7 Jan. 20.8
Brunton Traders charged us interest @ 12% p.a. for 30 days, based
on an overdue portion of R 12 031.82 included in the balance of
R 115 240.75. 20.8 was a leap year, so 366 days must be used as the
denominator for the interest calculation. Journal voucher JH28 was
completed.
E
Date
Issued cheque no. 100 to Brunton Traders for R 115 000 in full settlement
of the amount owing. JH31 was issued to account for the discount.
ED
G
21 Jan. 20.8
Purchased equipment on credit from Brunton Traders for R 21 000 less
a 5% trade discount. Received their invoice no. JJ957.
17 Apr. 20.8
Requested a rebate of 10% on invoice no. JJ957, because the goods
purchased were of inferior quality. Received credit note no. NT14 from
Brunton Traders.
©
14 Apr. 20.8
30 May 20.8
Transferred R 5 000 to Brunton Traders’ account via EFT as a part
payment on the account.
Required:
Use the information provided and prepare the individual account of Brunton Traders as
it would appear in the books of Lovettica Dealers from 1 January 20.8 until 30 May 20.8.
218
Learning Unit 7
Note: The following coding system is used by Lovettica Dealers in their Creditors ledger:
at
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Question 7.5
(P
ty
)
Code no. 03:
Code no. 04:
Code no. 05:
Code no. 06:
Code no. 07:
Credit purchases according to original credit invoices
Increases in a previously received credit invoice by means of an
original debit note
Returns/rebates according to original credit notes
Cash payments to creditors (cheque counterfoils)
Discount received on prompt settlements
Interest charged by creditors on our overdue account
Electronic funds transfers
Lt
d
Code no. 01:
Code no. 02:
Genieve Dealers, a registered VAT vendor, has one debtor, A. Adam, and one creditor,
Hollard Enterprises. Hollard Enterprises is also a registered VAT vendor dealing in standard
rated supplies. VAT is charged at 15%. The following balances appeared in the books of
Genieve Dealers on 1 March 20.9:
Dr Balance on 1 March 20.9:
Cr Balance on 1 March 20.9:
Ed
uc
A. Adam (D1):
Hollard Enterprises (C1):
R 33 457.50
R 89 472.20
Transactions entered into with the two above-mentioned parties during March 20.9:
Details of transactions
4
5
Sold goods to A. Adam for R 6 200, including VAT. Issued invoice no. IN22.
Purchased merchandise from Hollard Enterprises for R 30 000 plus VAT. Received
invoice H138.
It was realised that invoice number IN22 was undercast by R 600 (including VAT).
A. Adam was contacted in this regard and he accepted the debit note (no. DN12)
for this amount.
Returned half of the goods purchased from Hollard Enterprises on the 5th of March
20.9, and received their credit note, HC15, for the relevant amount.
Received a cheque from A. Adam in full settlement of his account, less a 5%
settlement discount. Receipt no. R81 was issued for the cash received, and journal
voucher J10 for the settlement discount granted.
The amount of R 89 472.20 owing to Hollard Enterprises has been outstanding for
some time now. Received an account statement showing a debit entry for interest of
R 312.83 against our account. The interest is to be accounted for with the issue of
journal voucher J11.
G
ED
7
E
Date
8
©
14
25
219
Debtors (accounts receivable) and creditors (accounts payable)
Required:
(ii)
Prepare the individual account of A. Adam in the Debtors ledgerr of Genieve Dealers
from the information provided.
Prepare the individual account of Hollard Enterprises in the Creditors ledger of
Genieve Dealers from the information provided.
Lt
d
(i)
The following coding system is in use by Genieve Dealers:
For the Creditors ledger
Code no. 2:
Code no. 3:
Code no. 4:
Credit purchases according to original
credit invoices
Increases in a previously received credit
invoice by means of an original debit
note
Returns/rebates according to original
credit notes
Cash payments to creditors (cheque
counterfoils)
Settlement discount received on prompt
settlements
Interest charged by creditors on our
overdue account
ty
)
Code no. 1:
at
io
n
Code no. 01: Credit sales according to duplicate credit
invoices
Code no. 02: Increases in a previously issued credit
invoice by means of a debit note
Code no. 03: Returns/rebates according to duplicate
credit notes
Code no. 04: Cash receipts from debtors (duplicate
receipts)
Code no. 05: Settlement discount granted on prompt
settlements
Code no. 06: R/D cheques (when cheques received
from debtors are dishonoured by the
bank)
Code no. 07: Discount cancelled on R/D cheques
Code no. 08: Interest charged on overdue accounts
Code no. 09: Credit losses
Code no. 010: Club membership subscription charges
Code no. 011: Discount vouchers
(P
For the Debtors ledger
Code no. 5:
G
E
Ed
uc
Code no. 6:
Question 7.6
ED
Refer back to Question 5.5. In the question, you were provided with a debtors list and
creditors list, as well as a series of source documents filed by Letsema Furnishers during
February 20.9.
©
Required:
Revisit the information in Question 5.5, and complete the following for Letsema Furnishers
for February 20.9:
(i)
(ii)
220
The Debtors ledger and debtors list
The Creditors ledger and creditors list
Learning Unit 7
??
?
Lt
d
Hint: Attempt Revision questions 17 and 18 in Annexure B at the end of this textbook.
ty
)
Question 7.7
(P
Extending a credit line to customers can be a risky affair. One needs to carefully consider
the implications of implementing such a policy, and determine whether the business is not
doing ‘too much too soon’ – a notion often referred to as ‘overtrading’.
at
io
n
Consider the following two scenarios.
Scenario 1 – Constant sales
March 20.8
May 20.8
June 20.8
Ed
uc
Abbreviated statement of
profit or loss and other
comprehensive income
April 20.8
00
R 200 000
00
R 200 000
00
R 200 000
00
(120 000 00)
(120 000
00)
(120 000 00)
(120 000
00)
80 000
00
80 000
00
80 000
00
80 000
00
Expenses paid in cash
(40 000 00)
(40 000
00)
(40 000 00)
(40 000
00)
Net profit
40 000
00
40 000
00
40 000
00
40 000
00
200 000
00
160 000
00
0
00
40 000
00
Movement during the
month
(40 000 00)
(160 000
00)
40 000
00
40 000
00
Expenses paid in cash
(40 000 00)
(40 000
00)
(40 000 00)
(40 000
00)
(120 000
00)
(120 000 00)
(120 000
00)
200 000
00
200 000
00
40 000
00
80 000
00
Sales (all on credit)
Cost of sales
G
E
Gross profit
R 200 000
Bank balance
©
ED
Opening balance for the
month
Creditors settled in cash
Cash receipts from debtors
Closing balance for the
month
160 000
00
0
00
221
Debtors (accounts receivable) and creditors (accounts payable)
Scenario 2 – Rising sales
March 20.8
April 20.8
May 20.8
June 20.8
Sales (all on credit)
R 200 000
Cost of sales
(120 000 00)
(144 000 00)
Gross profit
80 000
96 000
Expenses paid in cash
(40 000 00)
(40 000 00)
(40 000 00)
(40 000 00)
Net profit
40 000
56 000
104 000
144 000
00
00
00
00
00
00
Opening balance for the
month
200 000
Movement during the
month
Expenses paid in cash
R 460 000
144 000
00
(276 000 00)
00
184 000
00
00
00
0
00
16 000
(40 000 00)
(160 000 00)
16 000
00
(16 000 00)
(40 000 00)
(40 000 00)
(40 000 00)
(40 000 00)
(120 000 00)
(144 000 00)
(216 000 00)
200 000
00
240 000
00
16 000
00
0
00
00
160 000
Ed
uc
Creditors settled in cash
Cash receipts from debtors
E
Closing balance for the
month
00
0
00
PROBLEM
G
160 000
The balance of the bank account on 1 March 20.8 was R 200 000.
All sales are on credit.
There were no outstanding amounts from debtors on 1 March 20.8.
The gross margin is 40%.
All merchandise is purchased on credit and sold within the same month (i.e. cost of
sales represents credit purchases).
All expenses are paid in cash.
It is company policy to settle all creditors after 30 days.
Debts were all collected after 60 days.
ED
•
•
•
•
•
00
(216 000 00)
at
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Bank balance
Notes:
R 360 000
(P
00
R 240 000
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)
00
Lt
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Abbreviated statement of
profit or loss and other
comprehensive income
©
•
•
•
Required:
(i)
(ii)
222
In your opinion, what is the main difference between scenario 1 and scenario 2?
What do you think caused this difference?
Research the concept of ‘overtrading’. Explain what it means and the implications
thereof by referring to this case study.
Learning Unit 7
Question 7.8
Lt
d
Sometimes it is possible for a business to have a debtor to which it is a debtor in their
own capacity. In this scenario it is permissible to set off your debtors account against the
amount that you owe the business in your Creditors ledger, or vice versa.
Required:
(P
Question 7.9
ty
)
Discuss the concept of ‘set-offs’ and illustrate how the accounting entries should be done.
at
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n
Newlands Traders uses the periodic inventory system. The business is a registered VAT
vendor, and it is the policy of the business to buy only from other vendors who are able to
provide tax invoices. April 20.9 is the business’s third month of trading and the following list
of balances appeared on their books on 31 March 20.9:
List of balances in the Debtors ledger of Newlands Traders on 31 March 20.9
Debtors
Ed
uc
A. Milan
D. London
R. Yotk
K. Sydney
Fol.
Amount
D1
14 860.86
D2
17 337.67
D3
28 896.11
D4
21 465.68
82 560.32
E
Additional information:
The following transaction codes are used by Newlands Traders:
G
Codes used in the debtor’s ledger:
©
ED
Code no. 01:
Code no. 02:
Code no. 03:
Code no. 04:
Code no. 05:
Code no. 06:
Code no. 07:
Code no. 08:
Code no. 09:
Code no. 010:
Code no. 011:
Code no. 012:
Code no. 013:
Credit sales according to duplicate credit invoices
Increases in a previously issued credit invoice by means of a debit note
Returns/rebates according to duplicate credit notes
Cash receipts from debtors
Settlement discounts granted on prompt settlements
R/D cheques (when cheques received from debtors are dishonoured by
the bank)
Settlement discounts granted cancelled on R/D cheques
Interest charge on overdue accounts
Credit losses
Set-off of accounts to and from the creditors ledger
Discount vouchers
Petty cash vouchers
Reversal of interest on overdue accounts
223
Debtors (accounts receivable) and creditors (accounts payable)
Debtors journal of Newlands Traders – April 20.9
INV650
INV651
INV652
INV653
INV654
1
6
11
16
21
Details
Fol.
A. Milan
D. London
R. Yotk
K. Sydney
L. Fourie
D1
D2
D3
D4
D5
Debtors
control
18 163.27
36 326.54
45 408.17
49 536.19
59 443.42
208 877.59
Debtors allowances journal of Newlands Traders – April 20.9
CNT394
CNT395
CNT396
CNT397
CNT398
5
10
15
20
25
Details
A. Milan
D. London
R. Yotk
K. Sydney
L. Fourie
Fol.
D1
D2
D3
D4
D5
Debtors
control
3 087.76
6 538.78
5 903.06
5 944.34
10 699.82
32 173.76
2 369.12
4 738.24
5 922.80
6 461.24
7 753.49
27 244.89
15 794.15
31 588.30
39 485.37
43 074.95
51 689.93
181 632.70
DAJ4
Input VAT
(P
Date
Sales
at
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n
Doc. no.
Output VAT
Lt
d
Date
ty
)
Doc. no.
DJ4
Sales returns
402.75
852.88
769.96
775.35
1 395.63
4 196.57
GJ4
Date
JV330
10
Ed
uc
General journal of Newlands Traders – April 20.9
Doc. no.
Details
Fol.
Debit
Sales
1 561.90
Input VAT
234.28
Debtors control (A. Milan)
2 685.01
5685.90
5 133.10
5 168.99
9 304.19
27 977.19
D1
Credit
1 796.18
22
Creditors control (D. London)
C6
Debtors control (D. London)
D2
G
JV331
E
(Settlement discount)
43 492.78
43 492.78
(Balance transferred)
©
ED
JV332
30
Credit losses
59 479.32
Input VAT
8 921.90
Debtors control (R. Yotk)
D2
68 401.22
(Amount written off as irrecoverable)
JV333
30
Debtors control (K. Sydney)
D4
759.00
Interest received
759.00
(Interest on overdue account at 14% per annum)
JV334
30
Interest received
Debtors control (K. Sydney)
(Reversal of interest received)
224
759.00
D4
759.00
Learning Unit 7
Cashbook receipts of Newlands Traders – April 20.9
Fol.
Analysis of
receipts
F. Wale
CI676
5
M. Fish
RC426
10
A. Milan
CI677
20
K. Wave
RC427
22
D. London
CI678
25
CASH
B/ S
30
K. Sydney
825.60
D1
Bank
Debtors
control
Output
VAT
9 081.63
9 081.63
28 140.19
1 184.56
7 897.07
Rent received
2 369.12
15 794.15
28 140.19
18 163.27
18 163.27
D2
3 632.65
3 632.65
10 732.84
10 732.84
D4
65 057.53
65 057.53
65 057.53
135 633.71
96 830.37
3 632.65
1 399.94
9 332.90
4 953.62
9 332.90 24 516.82
Service income
The cheque received from A. Milan was returned by the bank marked R/D on 30 April
20.9. This transaction was not recorded.
K. Sydney had deposited the amount owing directly into the bank account on 30 April
20.9.
Required:
Draft the Debtors ledger of Newlands Traders.
Draft the debtors list of Newlands Traders as at 30 April 20.9.
©
ED
G
E
Ed
uc
(i)
(ii)
Details
825.60
825.60
28 140.19
Fol.
at
io
n
•
Amount
Interest received
on fixed deposit
The bank statement at month-end revealed the following:
•
Sundries
Sales
Lt
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1
Details
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)
CI675
Date
(P
Doc.
no.
CBR4
225
Salaries and wages
8
Lt
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Salaries and wages
Introduction ...................................................................................................... 227
8.2
Essential facts about salaries and wages ....................................................... 228
ty
)
8.1
Setting fair remuneration scales/packages for different
(P
8.2.1
8.2.2
Different components of remuneration .............................................231
8.2.3
Gross earnings and deductions ....................................................... 232
at
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n
8.3
professions ....................................................................................... 228
Gross earnings vs. taxable earnings ............................................................... 234
8.3.1
Principles governing the calculation of taxation for individual
8.4.1
The Unemployment Insurance Fund (UIF) ....................................... 235
8.4.2
The Skills Development Levy (SDL) ..................................................237
8.4.3
Retirement funds .............................................................................. 238
Accounting for salaries .................................................................................... 239
8.5.1
Payroll for salaries ............................................................................ 239
8.5.2
Posting to the General ledger .......................................................... 241
Cashbook payments journal ............................................................ 244
G
8.5.3
Accounting for wages ...................................................................................... 247
ED
8.6
Ed
uc
8.5
Statutory and voluntary deductions ................................................................ 235
E
8.4
employees ........................................................................................ 234
8.6.1
Payroll for wages .............................................................................. 248
8.6.2
Posting to the General ledger .......................................................... 249
8.6.3
Cashbook payments journal ............................................................ 252
Completing the EMP201 return ....................................................................... 254
8.8
Comprehensive example (salaries) ................................................................. 259
8.9
Comprehensive example (wages) ................................................................... 265
©
8.7
226
Learning Unit 8
8.1
Introduction
Lt
d
When an entrepreneur starts their own business, they may be able to initially handle
all the different aspects of running a business themselves, depending on what type of
business it is. New owners also prefer to do this, because of the lack of working capital
to employ other people. As the business grows, however, the owner may want or need
to appoint employees to help them with some of the work. This can be because the
work is specialised, or simply because they cannot do everything themselves.
at
io
n
(P
ty
)
When the owner starts appointing employees for their business, the biggest
consideration is the cost to company – i.e. how much it will cost the business to employ
this person. Things that employers will keep in mind are compulsory deductions, such
as taxes and the Unemployment Insurance Fund (UIF), as these will affect how much
money the employee will receive in their pocket (i.e. their net salary or wage) at the end
of the day.
Ed
uc
In this learning unit, we will look at the theory and practical implications of salaries
and wages for a business. The learning unit has been divided into two sections. The
first section will look at the theory behind salaries and wages. This will consist of
a discussion on the different considerations in setting fair remuneration packages,
including gross earnings and other benefits and deductions. The second section will
show you how to record transactions for salaries and wages in a business’s accounting
records.
The following key terms are important in this learning unit:
Deductions
Compulsory or voluntary deductions from an employee’s salary or
wage, before the net salary or wage is paid.
The Employment Tax Incentive (ETI) reduces the cost of hiring young
people through a cost-sharing mechanism with government, in
which it allows the employer to reduce the amount of Pay-As-YouEarn (PAYE) payable while leaving the net remuneration paid to the
employee unchanged.
ED
G
E
Employment Tax
Incentive Act 26 of 2013
Employment benefits that are in addition to the employee’s
basic salary or wage; for example, pension fund and medical aid
contributions made by the employer on behalf of its employees.
Gross salary
Basic salary plus fringe benefits per month, before any deductions.
Gross wage
Basic wage (usually per week) plus fringe benefits, before any
deductions.
Income Tax Act 58 of
1962
Provides for the deduction by employers of amounts from the
remuneration of employees, in respect of certain tax liabilities of
employees.
Net salary
Gross salary minus deductions.
Net wage
Gross wage minus deductions.
©
Fringe benefits
227
Salaries and wages
Compulsory deduction for income tax, which is then paid to SARS.
Skills Development
Levies Act 9 of 1999
Provides for a compulsory contribution made by the employer and
paid to the South African Revenue Service (SARS). The money is
used to develop and improve skills of employees.
Unemployment
Insurance Act 63 of 2001
Provides for a compulsory deduction for the employee’s own
benefit. When the employee loses their job, they will be able to
claim a portion of their salary or wage from the UIF. In addition it also
provides for payments made from the Unemployment Insurance
Fund to certain employees; for example, illness, adoption, maternity
and dependant benefits related to the unemployment of such an
employee.
Unemployment
Insurance Contributions
Act 4 of 2002
Provides for the imposition and collection of contributions for the
benefit of the Unemployment Insurance Fund and provides for
matters connected therewith.
Basic Conditions of
Employment Act 75 of
1997
Regulates the right to fair labour practices as set out in the
Constitution of the Republic of South Africa, 1996.
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PAYE (Pay-As-You-Earn)
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Table 8.1: Key terms and definitions
Essential facts about salaries and wages
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8.2
8.2.1 Setting fair remuneration scales/packages for different
professions
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Employers have certain ethical and statutory responsibilities regarding employment
and the payment of employees. Employment contracts stipulate the basic conditions
of employment, which include the employees’ responsibilities, working hours and
remuneration. Other conditions, such as overtime, sick leave and annual leave, are
determined by law (i.e. according to the Basic Conditions of Employment Act).
©
Employers have an ethical responsibility to ensure that all employees have a valid
employment contract, and that all employees understand the conditions in their contracts. The employer also needs to ensure that remuneration of employees is fair and
based on working hours, responsibilities and qualifications. Moreover, this amount may
not be less than the statutory minimum, and must be in line with industry standards.
Employees may choose to belong to a trade union, to protect themselves against unfair
labour practices. Trade unions are organisations that represent employees, and they
help to protect employees against unethical and immoral labour practices. They also
try to help members to resolve disputes and to improve working conditions. In addition,
they ensure that the working environment complies with safety regulations.
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When setting fair remuneration packages for employees, a variety of factors need to be
taken into account. One of the largest considerations is ‘supply and demand’. Certain
jobs do not require specialised skills or training, which means that there are a lot of
people who will be able to do the job – usually an oversupply – causing salaries and
wages for these types of positions to be lower. Positions that require specialised skills
or training (for example, accountants or doctors) usually have higher remuneration
packages, since there are not as many people that are qualified for these positions (i.e.
there is an undersupply, yet at the same time, a high demand).
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Another factor affecting remuneration packages relating to supply and demand is rural versus urban areas. Salaries and wages in urban areas are usually a bit higher, as
employees have a larger variety of employers to choose from; whereas in rural areas,
employers may try to exploit employees, as there are more people looking for jobs than
there are jobs. This oversupply of, and low demand for, labour forces employees to
work for less remuneration.
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Except for supply and demand, there are also other factors that will be considered
when setting a fair remuneration package. For example:
©
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• Working hours: According to the Basic Conditions of Employment Act, a normal
working day is nine hours long. If you work less than this, maybe only half-days, or
for only two to three days a week, your salary or wage will of course be much less
than someone working a full day or a full working week. If you work more hours than
this, especially over weekends or public holidays, as required by your employer, you
must be paid overtime, and thus a bigger salary or wage.
• Specialised skills: As mentioned, if you apply for a position that can be done by
anyone and does not require a specific skill, you can expect a smaller remuneration
package. Specialised skills usually mean a higher salary or wage. The type of skill
will also determine the salary or wage; for example, doctors who are only general
practitioners (GPs) will be offered a smaller remuneration package than a doctor who
specialises in neurology.
• Training: Not all qualifications have the same weighting. Generally, the type of qualification will make a difference regarding salaries and wages. Typically, a person with
a diploma will be paid more than a person with a certificate, and a person with a
degree will be paid more than a person with a diploma; however, this is not always
the case.
• Experience: A person with ten years’ working experience will most likely be offered
a higher salary or wage than someone who is just entering the workforce. Experienced employees do not need training and mentors, which means they usually start
delivering good-quality work from the outset. Inexperienced employees need to be
trained and guided, which means it usually takes a few months before they can be
left to work on their own without supervision.
• Other benefits: More employers are realising the benefits of letting employees work
from home ((full-time or only certain days of the week). It costs the business less in
some instances, such as when an employee works from home on a full-time basis,
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as they do not have to provide office space for the employee; also, the employee
cannot be late for work, as they do not have to travel to work. Some employers will
see this as an added benefit to the employee, and may consequently offer a smaller
remuneration package.
Previous remuneration package: Sometimes, to get the best employee for the job,
an employer may ‘headhunt’ an employee from a competitor or another business.
In order to persuade the employee to work for their business, these employers will
look at the employee’s current remuneration package, and then offer them a higher
package, with increased benefits.
Risk: Some positions require employees to travel to high-risk countries (for example,
countries that are plagued by war and terrorism). Because of the increased risk to
employees, employers will offer a higher remuneration package, to persuade employees to take on the job.
Labour law: According to the Basic Conditions of Employment Act, employers have
to pay their employees at least the minimum wage. The amount increases from time
to time, as announced by government. The latest minimum wage was announced in
February 2020, at R 20.76 per hour.
Trade unions: Often, trade unions negotiate specific salaries and wages for employees. This means that the employer cannot offer to pay a new employee less than the
agreed amount. An employer also has to be careful not to offer the new employee a
higher salary or wage than what the current employees are getting, as this will send
a message to the trade union that the employer can actually afford higher salaries
and wages. The trade union would therefore want to renegotiate all employees’
salaries and wages, so that they all receive the new, higher salary or wage.
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The relationship between employer and employee is cooperative in nature, as the
employee and employer rely on each other to flourish. The ideal is for the relationship to
be mutually advantageous; but unfortunately this relationship is often abused through
unethical and immoral behaviour. In some cases, unscrupulous employers try to exploit
employees, by forcing them to work long hours for little pay. In other cases, employees
without any work ethic perform their duties with the minimum effort and do just enough
to avoid getting dismissed/fired.
©
ED
The most important thing for an employer to remember is to make their employees
feel valued. All the aforementioned factors must be taken into account when setting
fair remuneration packages, but sometimes it may be wise for the employer to take
a step back and ask themselves what they can do to make their employees happy. A
lot of research has been done on why certain businesses and organisations are more
successful than others, and the findings always point toward the same reason: happy
employees. Setting fair remuneration packages is definitely the first and most important
step in making your employees happy, but other factors (that you will not necessarily
see written in contracts) could further contribute to an employee’s happiness, and could
therefore help a business or an organisation to become very successful. These factors
can even include something as small as giving employees free coffee or tea in the break
room, or giving them a morning off (without deducting it from their annual leave) to
watch their child’s school play.
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8.2.2 Different components of remuneration
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Earlier in this learning unit, the term ‘cost to company’ was mentioned. This is a very
important term, as it will determine exactly how much employing workers will cost the
business. This term is not necessarily as simple as the employee’s basic salary or wage,
since an employer can offer a lot of other benefits to the employee that will increase
the employee’s cost to company. These are called ‘fringe benefits’. Fringe benefits are
more common for employees earning salaries, but are sometimes paid to employees
earning wages as well. Fringe benefits are taxed in many different ways; however, the
calculation of the value of fringe benefits falls outside the scope of this course. Moreover, because of its complexity, the taxation of fringe benefits will not be discussed in
detail either.
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Let’s take a look at the different components of remuneration that will affect the
employee’s cost to company:
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Basic salary/wage: If an employee earns a monthly salary, this represents their ‘basic
salary’. Any other earnings will be added to the basic salary, which will comprise
the ‘gross salary’. If an employee earns a wage (which is usually paid on a weekly
basis), their wage will be calculated by taking the number of hours worked during
the particular week, and multiplying it by their rate per hour. This will be discussed
in more detail in the next section.
Overtime: An employee’s contract may provide for them to work overtime. This overtime will be added to their basic salary or wage, which will increase the cost to
company and the employee’s gross salary or wage.
Yearly bonus: If the employee is entitled to a yearly bonus (which is not performance-related) it will be stated in their contract. This will be added to their basic
remuneration, which will increase their gross remuneration.
Pension fund: The employer can offer to pay an amount toward the employee’s
pension fund each month. For example, for every R 2 that the employee contributes,
the employer may contribute R 1. The amount that the employer pays toward the
employee’s pension fund will increase the cost to company. Note that the amount
that the employee contributes (i.e. the deduction) does not increase the cost to
company, as this will be deducted from the employee’s gross remuneration.
Provident fund: The same principle applies here as with a pension fund. The amount
that the employer contributes toward the employee’s provident fund will increase
the cost to company.
Medical aid: Sometimes an employer has an agreement with a medical aid that all
its employees will belong to that specific medical aid. Membership to this medical
aid can be compulsory or voluntary for employees. For example, the employer may
offer to pay one third of the employee’s premium, and then the employee has to
pay the rest. The employers’ contribution to the medical aid will increase the cost to
company.
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Travel allowance: If an employee has to travel in the course of performing their duties
(for example, to attend a conference in another city), the employer will usually give
them a ‘travel allowance’ to cover the cost of travelling. These can include costs like
transport, accommodation or meals etc. The travel allowance will increase the cost
to company and the employee’s gross remuneration.
Car allowance: Some employees do not work from an office or from home. Their job
entails that they travel to meet with different clients every day. For example, medical reps travel to different doctors every day to market new drugs. Because they
travel for work every day, their employer will give them a car allowance to be able to
purchase a reliable car to perform their duties. Other employees may receive a car
allowance for different reasons; for example, due to their level of employment (e.g.
employees in management positions). This car allowance will increase the cost to
company and the employee’s gross remuneration.
Housing allowance: An employer may pay an employee a housing allowance to help
them rent or purchase a house. This housing allowance will increase the cost to
company and the employee’s gross remuneration.
Performance bonuses: It may be written in the employee’s contract that they will be
assessed yearly, according to a performance management system. If the employee
shows that they improved their quality of work, they may qualify for a performance
bonus. Performance bonuses can also be paid to all employees, in cases where the
company did exceptionally well during the year. These performance bonuses will
increase the cost to company and the employee’s gross remuneration.
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8.2.3 Gross earnings and deductions
The gross earnings of an employee earning a salary are calculated by taking their
basic salary and adding all overtime, bonuses and other fringe benefits (as previously
discussed).
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However, calculating the gross earnings of an employee earning a wage is a bit more
complicated, as they do not receive a set amount each week. They only get paid for the
hours worked. Sometimes their wage can be quite a significant amount, and sometimes
it can be less.
©
When calculating the gross earnings of an employee earning a wage, you need to start
with the employee’s hours worked at the normal rate. Thereafter, you need to add the
hours worked at the overtime rate, whereupon all other fringe benefits will be added.
Let’s take a look at the following simple example.
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Learning Unit 8
Example 8.1 (Calculating the gross earnings of an employee
earning a wage)
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John Maphu’s normal working hours per week is 40 hours, at a rate of R 250 per hour.
His overtime rate is one and a half times the normal hourly rate. In the current week,
John worked 47 hours. Calculate John’s gross earnings for the week.
Solution:
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Normal working hours:
40 hours, at a rate of R 250 per hour
40 × 250 = R 10 000.00
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Overtime:
7 hours (47 total hours – 40 normal hours), at a rate of R 375 (R 250 × 1.5) per hour
7 × 375 = R 2 625.00
Gross earnings = Normal working hours + Overtime
= R 10 000 + R 2 625
= R 12 625.00
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John’s gross earnings for the week is therefore R 12 625.00.
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It is important to note that the gross earnings of an employee is not the ‘take-home pay’
or their net remuneration. Before the remuneration can be paid to the employee, certain
deductions must first be made. These include compulsory deductions like PAYE and
UIF, as well as voluntary deductions like a pension fund or medical aid. These deductions will be discussed in more detail later in this learning unit.
Question 8.1
Sarah Kroese’s normal working hours per week is 40 hours, at a rate of R 160 per hour.
Her overtime rate is one and a half times her normal hourly rate. In the current week, Sarah
worked 53 hours.
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Required:
Calculate Sarah’s gross earnings for the week.
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Salaries and wages
8.3
Gross earnings vs. taxable earnings
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The Income Tax Act requires that the correct amount of tax be deducted from each
employee’s remuneration and benefits each month and paid over to SARS in the
form of PAYE. SARS regards nearly everything that an employee earns as taxable.
Employees can be paid a basic remuneration plus commission, bonuses, allowances
and fringe benefits. The basic remuneration will be a fixed amount, while overtime is
considered ‘additional remuneration’ for time worked over and above the normal hours
stipulated in the employment contract.
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8.3.1 Principles governing the calculation of taxation for individual
employees
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Employees are taxed on all their earnings, net of deductions, and not just on their basic
remuneration. As discussed, the gross earnings will include the basic remuneration,
overtime, bonuses and fringe benefits. The calculation of PAYE remuneration is very
complex, and falls outside the scope of this course; therefore, in each instance in this
learning unit, PAYE will be given to you.
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The rates used to calculate employees’ tax change annually, while the principles
used in the determination of employees’ tax change less frequently. The changes are
announced by the minister of finance in his budget speech every year at the end of
February. The budget speech is available online on the SARS website. South Africa
has a progressive tax system. As such, the income tax of individuals is calculated
according to a sliding scale that works on the principle of ‘the more you earn, the more
tax you have to pay’.
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Furthermore, SARS also publishes tax deduction tables for ease of administrating
the tax payable on salaries and wages. These can be found on the SARS website, or
obtained free of charge from any SARS office. Small differences may occur between
the deduction tables and computerised tax programmes; however, all of these methods
are acceptable in terms of the Income Tax Act, as long as the results are within the
rules provided for in the Act. Thus, the method you use to arrive at the taxable income
and, ultimately, the tax payable by employees is not prescribed by SARS, as long as
the results are the same as the statutory rates of tax – negligible differences set aside.
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The deduction tables and guidelines for employers include weekly, fortnightly, monthly
and annual deduction tables. The tax rebates (discounts that ensure that individuals
with a taxable income below a certain level do not pay tax) have already been taken
into account in the compilation of these tables; therefore, no further calculations
are necessary. The Income Tax Act provides for various tax rebates for individuals,
depending on their age. They include the primary rebate allowed to taxpayers younger
than 65 years, an additional secondary rebate allowed to taxpayers 65 years and older,
as well as a further tertiary rebate allowed to taxpayers 75 years and older. These
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rebates change on a yearly basis. As indicated earlier, the calculation of employees’
tax (PAYE) falls outside the scope of this course. These amounts will be given to you
and, in all instances, the applicable rebate(s) will have already been taken into account
in arriving at these amounts. Therefore, no further calculations will be required in this
regard.
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Part-time employees and contract workers are usually dealt with in a different manner
than full-time employees. This is because, with part-time employees and contract
workers, an employer usually has to deduct 25% of earnings as tax, or deduct a fixed
percentage based on a tax directive obtained from SARS.
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Computerised Accounting Fact
Statutory and voluntary deductions
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8.4
programs usually integrate nicely with the
online eFiling system introduced by SARS,
and makes annual IRP501 reconciliation
less of a headache to administrators.
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There are a number of software packages
on the market that make ‘easy work’ of the
arduous process of completing payslips
and calculating the monthly PAYE amounts
to be deducted for the employees of
a business. As part of the deal, such
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Certain deductions have to be made from an employee’s gross remuneration, before
the net remuneration is paid. Some deductions and contributions are voluntary (for
example, pension fund or medical aid), while others are compulsory (for example, UIF).
These deductions and contributions are governed by law, and the employer has no
choice in paying over these amounts to SARS.
8.4.1 The Unemployment Insurance Fund (UIF)
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The Unemployment Insurance Fund provides short-term relief to workers when they
become unemployed or are unable to work, because of maternity, adoption leave or
illness. It also provides relief to the dependants of a deceased contributor.
According to the Unemployment Insurance Act, it is compulsory for employers to
register all employees that work for more than 24 hours per month, for UIF. They are
also obliged to deduct 1% of the employees’ remuneration for UIF, and contribute an
additional 1% out of their own funds (thus also increasing the cost to company) to the
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UIF. The employer and employee contributions are capped to a maximum threshold.
For the purposes of this learning unit, both the employer and employee contributions
are capped at R 148.72 per month (each).
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An employee’s UIF contribution (i.e. deduction) is calculated based on their ‘UIF
remuneration’. The calculation of the employee’s UIF remuneration falls outside the
scope of this course; so in each instance, the UIF remuneration amount will be given.
One per cent (1%) of the UIF remuneration equals the UIF contribution of an employee.
In other words, if Marlo’s UIF remuneration is given as R 10 000.00 per month, his UIF
contribution (i.e. deduction) will be R 100.00 (R 10 000 × 1%).
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However, since the UIF contribution is capped at R 148.72 per month, this means that
an employee’s UIF remuneration cannot be more than R 14 872.00 per month. In other
words, if Marlo now earns R 20 000.00 per month, his UIF remuneration can only be a
maximum of R 14 872.00, meaning his UIF contribution (i.e. deduction) will be R 148.72
(R 14 872 × 1% = R 148.72).
Let’s take a look at an example of two different employees’ UIF contributions.
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Example 8.2 (Calculating employees’ UIF contributions)
Thandi and Katlego both work for the same company, but in different positions. Thandi
earns R 12 000.00 per month, and Katlego earns R 16 000.00 per month. Calculate
each employee’s UIF deduction, as well as the employer’s contribution in each case.
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Solution:
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Thandi:
UIF remuneration: R 12 000.00
UIF contribution: R 12 000 × 1% = R 120.00
Thandi will contribute R 120.00 toward UIF, and her employer will also contribute
R 120.00; so in total, R 240.00 will be contributed toward Thandi’s UIF per month.
©
Katlego:
Gross salary: R 16 000.00
However, UIF remuneration is capped at R 14 872.00, thus:
UIF remuneration: R 14 872.00
UIF contribution: R 14 872 × 1% = R 148.72
One per cent (1%) of Katlego’s salary is R 160.00; however, the UIF contribution is
capped at R 148.72 per month. This means that Katlego will contribute R 148.72
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Learning Unit 8
toward UIF, and his employer will also contribute R 148.72, which makes the total
contribution toward UIF R 297.44 for Katlego.
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Question 8.2
Mercia and Dietrech both work for Giant Arms (Pty) Ltd, but in different positions. Mercia
earns R 9 500.00 per month, whereas Dietrech earns R 22 000.00 per month.
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Required:
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Calculate each employee’s UIF deduction. In each case, calculate the employer’s
contribution.
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8.4.2 The Skills Development Levy (SDL)
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The Skills Development Levy is a levy imposed to encourage learning and development
in South Africa. It is determined by using a company’s total for salaries and wages for
the month. Where an employer expects that the total salaries and wages will be more
than R 500 000 over the next 12 months, that employer becomes liable to pay SDL.
The funds are to be used to develop and improve employees’ skills. The calculation
of this amount falls outside the scope of this course; so in each instance, the SDL
remuneration amount will be given.
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The employer is obliged to pay over to SARS 1% of the total taxable amount paid in
salaries and wages to employees (including overtime payments, leave pay, bonuses,
commissions and lump sum payments). The payment needs to be made to SARS on
a monthly basis. Note that this is only an employer contribution, and not a deduction
from an employee’s remuneration.
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As with UIF, when calculating SDL, we will refer to SDL remuneration. This amount will
be used to calculate the employer’s SDL contribution.
The general SDL contribution formula is:
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SDL contribution = SDL remuneration × 1%
There is no maximum amount that applies to SDL (as with UIF).
Note: The UIF and SDL percentages could change but, for the purposes of this learning
unit, 1% will be used.
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Salaries and wages
8.4.3 Retirement funds
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There are different forms of retirement funds; for example, pension funds, provident
funds and retirement annuity funds. They are all forms of funding, and their main
objective is to save money now in order to provide a secure and comfortable lifestyle
later on in life.
A ‘pension fund’ can be set up by an employer for the benefit of their employees. The
objective is to provide pensions to the members (i.e. employees) upon their retirement.
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The employer makes contributions to the fund by way of periodic payments before
retirement. The members (i.e. employees) may also contribute to the fund (i.e. via
deductions). Both contributions are defined in the rules of the fund and are tax
deductible. The pension fund invests the contributions made, until the individual’s
(i.e. employee’s) retirement or withdrawal from the fund. The accumulated amount is
then used to pay the individual a regular pension amount, or a combination of regular
pension and a cash lump sum. The regular pension amounts paid may or may not
be increased to cushion the effects of rising prices on the purchasing power of the
pension.
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When the payment of benefits commences, up to one third of the value of the fund
benefit may be taken in cash. The balance is then taken as regular pension payments.
A ‘provident fund’ can also be set up by an employer for the benefit of their employees.
Previously, the objective of this fund was to provide a cash lump sum benefit to its
members (i.e. employees) upon their retirement. There have recently been changes to
the treatment of provident funds, so as to bring it in line with other retirement products.
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The employer contributes to the fund, and the members may choose to contribute
(via deductions). Previously, contributions by the employer were tax deductible, but
member contributions were not. Nowadays, these funds are also deductible for the
employee, and are subject to the same rules as for pension and retirement annuity
funds. Furthermore, the rules relating to provident lump sums have also changed: as
from 1 March 2018, lump sums from provident funds will be subject to annuitisation
and apportioned, to ensure that the contributions made prior to 1 March 2018, and the
resultant growth, may be paid out as a lump sum. In addition, where the employee will
be at least 55 years old on 1 March 2018, the lump sum from the provident fund will
not be subject to the annuitisation rules.
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A ‘retirement annuity fund’ is set up by an administrator, asset manager or insurer,
for the benefit of individual investors. The objective is to provide regular income to
members upon their retirement, or to provide lump sum benefits to dependants of such
members upon the death of the members. Members of a retirement annuity fund cannot
receive benefits before the age of 55. However, benefits can be transferred from one
retirement annuity fund to another. Retirement annuities are often used as a retirement
savings vehicle by self-employed people, those wishing to make additional provision
for retirement, and those employees that do not receive a pension or provident fund
fringe benefit from their employer.
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The individual makes contributions to the retirement annuity, by way of periodic or ad
hoc payments before retirement. These contributions are tax deductible up to a limit,
as announced by the minister of finance from time to time. The retirement annuity fund
invests the contributions made, up until the individual’s retirement. The accumulated
amount is then used to pay the individual regular annuity amounts, or a combination of
regular amounts and a cash lump sum. The individual can only take up to a maximum
of one third of their retirement benefits as a lump sum – it is compulsory to buy an
annuity with the remaining benefit.
8.5.1 Payroll for salaries
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Accounting for salaries
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Note: The taxation of the retirement fund contributions falls outside the scope of this
course. In this learning unit we will focus on how the retirement fund contributions are
recorded in the salaries and Wages journals as well as in the General ledger.
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The process of recording salaries in a business’s accounting records can be quite timeconsuming. Changing legislation, changing employees, pay increases, overtime etc. all
add to this fact. It is thus extremely important for the person recording the salaries to
work accurately and quickly.
The process of recording salaries in a business’s accounting records is as follows:
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Complete all information in
Salaries journal
Post Salaries journal to the
General ledger
Make payments and
record in Cashbook
Post payments to General
ledger
Complete and submit
EMP201 return
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Figure 8.1: The process of recording salaries in a business’s accounting records
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Salaries and wages
Let’s take a look at the first step in the process: Record all information in the Salaries
journal.
The Salaries journal layout will typically look like this:
Enter the
basic
monthly
salary of
employee
Enter the
number, initials
and surname of
employee
Gross
salary
PAYE
Calculate by
adding fringe
benefits to
basic salary
Enter the travel
allowance (or
any other fringe
benefits that
will increase
employee’s
gross salary)
UIF
Medical
aid
Pension
fund
Staff social
fund
Calculate:
1% of
employee UIF
remuneration
Enter PAYE
for employee
calculated
according to
tax tables
Net
salary
Total
deductions
Employer contributions
UIF
SDL
Pension
fund
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Travel
allowance
Basic
Deductions
Enter
Calculate
employer
employer
contribution
contribution
for UIF: 1% of to employee’s
employee UIF pension fund
remuneration
Calculate
Calculate by
employer
deducting all
contribution
deductions
to SDL: 1% of
from gross
employee SDL
salary
remuneration
Calculate by
adding all
deductions
together
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Calculation of gross salary
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no. & name
of employee
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Salaries journal of Free Time Traders – January 20.9
Enter all other
deductions
(employee
contributions)
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The following example will illustrate how to complete the Salaries journal.
Example 8.3 (Completing a Salaries journal)
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Peter Jones earns a monthly basic salary of R 34 560.00. During the month of January,
Peter receives a travel allowance of R 2 950.00. His PAYE for the month amounts to
R 5 967.00. He also pays R 4 500.00 per month toward his medical aid (i.e. GoodMed
medical aid) and R 3 150.00 toward his pension fund (i.e. ABC pension fund). The
employer contributes to his pension fund on a rand-for-rand basis. Peter also has to
pay R 50.00 per month for the staff social fund. Furthermore, Peter’s UIF remuneration
is R 14 872.00, and his SDL remuneration is R 33 770.00.
©
Complete Peter’s salary in the Salaries journal of FreeTime Traders for January 20.9.
Note: Round all figures to the nearest whole number. In addition, amounts given are
for illustrative purposes only.
240
Learning Unit 8
Solution:
P. Jones
Calculation of gross salary
Basic
34 560
00
Deductions
Travel
allowance
Gross salary
2 950
37 510
00
00
PAYE
5 967
UIF
00
*149
Medical aid
00
4 500
00
Employer contributions
Pension
fund
3 150
00
Staff
social
fund
Total
deductions
50
13 816
00
00
Net salary
UIF
23 694
00
Note:
00
**338
00
3 150
ty
)
*UIF: R 14 872 × 1% = R 148.72 per month, thus R 149.00 (rounded)
**SDL: R 33 770 × 1% = R 337.70 per month, thus R 338.00 (rounded)
*149
Pension
fund
SDL
(P
From the example, you can see that Peter Jones’s take-home salary (i.e. net salary),
which will be paid to him, is R 23 694.00.
at
io
n
Question 8.3
Ed
uc
Damien Julies earns a monthly basic salary of R 28 980.00. During the month of May 20.8,
Damien received a travel allowance of R 1 345.00. His PAYE for the month amounts to
R 4 663.00. He also pays R 2 300.00 per month toward his medical aid (i.e. WMC medical
aid) and R 3 280.00 toward his pension fund (i.e. Future pension fund). The employer
contributes to his pension fund on a rand-for-rand basis. Damien also has to pay R 65.00
per month for the staff social fund. Furthermore, Damien’s UIF remuneration is R 14 872.00,
and his SDL remuneration is R 26 776.00.
Required:
00
Lt
d
Employee
no. &
name of
employee
Complete Damien’s salary in the Salaries journal (SJ4) of GoFast Traders for May 20.8.
G
E
Note: Round all figures to the nearest whole number. In addition, amounts given are for
illustrative purposes only.
ED
8.5.2 Posting to the General ledger
©
The next step in recording salaries in the business’s accounting records is to post the
information from the Salaries journal to the General ledger. When posting to the General
ledger, you will be working with quite a few accounts. Note that, just like with any other
expenses in a business, the accounts will change for each business, depending on
what type of salary expenses the business has.
When dealing with General ledger accounts regarding salaries, you will work with two
main types of accounts: expenses and liabilities. The expenses accounts represent
the cost to company. In other words, the salary expense (i.e. gross salaries) and all
other contributions (not deductions); for example, the pension fund contribution and
SDL etc. The liability accounts represent all the amounts that the business still has to
241
Salaries and wages
pay. In other words, creditors for salaries (i.e. net salaries), all deductions, as well as all
contributions; for example, the pension fund, medical aid and SARS (PAYE) etc.
ty
)
Lt
d
Note that all deductions and contributions need to be paid over to the relevant parties.
The medical aid and pension fund need to be paid over to the relevant institutions;
and PAYE, UIF and SDL all need to be paid over to SARS. To simplify payments, only
a single payment per month is to be paid to SARS; but in order for SARS to allocate
the correct amount to each section, an EMP201 form needs to be completed and
submitted to SARS. Details of this form will be discussed later in this learning unit;
but note that this is why you will be making use of an EMP201 control account when
posting PAYE, UIF and SDL to the General ledger.
(P
When posting to the General ledger, you will be posting the following columns to the
following accounts:
at
io
n
Salaries journal of Free Time Traders – January 20.9
Employee
no. &
name of
employee
Basic
Travel
allowance
Gross
salary
PAYE
UIF
Medical
aid
Pension
fund
Staff social
fund
Total
deductions
P. Jones
34 560
2 950
37 510
5 967
149
4 500
3 150
50
13 816
Calculation of gross salary
Deductions
Credit
medical
aid
scheme
Credit
staff social
fund
Ed
uc
Debit
salaries
expense
Credit
EMP201
control
23 694
Credit
creditors
for salaries
Credit
pension
fund
Employer contributions
UIF
Pension
fund
SDL
149
338
3 150
Debit SDL
contributions
and credit
EMP201
control
Debit UIF
contributions
and credit
EMP201
control
Debit
pension fund
contributions
and credit
pension fund
G
E
Credit
EMP201
control
Net
salary
SJ11
ED
Example 8.4 (Posting information from the Salaries journal to the
General ledger)
Post the Salaries journal from Example 8.3 to the General ledger.
©
Solution:
Creditors for salaries
Date
Details
Fol.
Amount
Date
20.9
Jan.
242
B12
Details
Salaries
31 expense
Fol.
SJ11
Amount
23 694
00
Learning Unit 8
EMP201 control
Details
Fol.
Amount
Date
20.9
Fol.
Amount
Salaries
31 expense (PAYE)
SJ11
5 967
Salaries
expense (UIF)
SJ11
149
00
UIF contributions SJ11
149
00
SDL
contributions
338
00
6 603
00
SJ11
GoodMed medical aid
Date
Details
Fol.
Amount
Date
Details
at
io
n
20.9
(P
ty
)
Jan.
Details
Jan.
Salaries
31 expense
ABC pension fund
Details
Fol.
Amount
Ed
uc
Date
Date
20.9
Jan.
Details
Salaries
31 expense
B14
Fol.
Amount
SJ11
4 500
00
B15
Fol.
Amount
SJ11
3 150
00
SJ11
3 150
00
6 300
00
G
E
Pension fund
contributions
00
Lt
d
Date
B13
Details
Fol.
Amount
Date
20.9
Jan.
©
ED
Date
Staff social fund
B16
Details
Salaries
31 expense
Salaries expense
Date
Details
Fol.
Gross salaries
SJ11
Amount
Date
Fol.
Amount
SJ11
50
00
N4
Details
Fol.
Amount
20.9
Jan
31
37 510
00
243
Salaries and wages
UIF contributions
Date
Details
Fol.
Amount
EMP201 control
SJ11
149
Date
N19
Details
Fol.
Amount
20.9
31
00
SDL contributions
Date
Details
Fol.
Amount
EMP201 control
SJ11
338
Date
N20
Details
00
Pension fund contributions
20.9
31
Fol.
Amount
ABC pension
fund
SJ11
3 150
Date
Details
N21
Fol.
Amount
00
Ed
uc
Jan
Details
Amount
at
io
n
Date
(P
31
Fol.
ty
)
20.9
Jan
Lt
d
Jan
Question 8.4
G
E
Post the Salaries journal from question 8.3 to the General ledger.
ED
8.5.3 Cashbook payments journal
©
Now that everything has been posted to the General ledger, the business knows how
much money is owed to whom. The important thing to do now is to make payments to
all the relevant parties. It will depend on the business’s policy regarding payments when
each payment will be made. For example, it may be the policy of the business to pay
salaries on the 25th of each month, but pension fund contributions only on the last day
of each month, whereas PAYE payments are made before the 7th of the next month.
Whatever the case may be, all payments must be recorded in the Cashbook payments
journal, and then posted to the General ledger.
244
Learning Unit 8
Lt
d
Companies usually pay employees by doing individual electronic fund transfers (EFTS).
In larger companies, doing payments via EFT can be time-consuming. These companies
usually follow a streamlined approach, involving a magnetic tape (M/T) facility. If multiple
employees are paid on the same day, the name of the payee will be ‘sundry employees’,
instead of referring to each individual employee’s name.
Example 8.5 (Posting salary transactions to the General ledger)
ty
)
Make all outstanding payments from Example 8.4 on the last day of the month, and
post the transactions to the General ledger.
(P
Solution:
Creditors
control
Doc.
no.
Day
Name of payee
EFT
31
P. Jones
23 694
00
EFT
SARS
6 603
00
EFT
ABC pension fund
6 300
EFT
GoodMed medical
aid
EFT
Staff social fund
Fol.
at
io
n
Cashbook payments journal of FreeTime Traders – January 20.9
Bank
VAT input
CBP11
Sundry accounts
Trading
inventory
Amount
Fol.
Details
00
Creditors for
salaries
6 603
00
EMP201 control
account
00
6 300
00
ABC pension fund
4 500
00
4 500
00
GoodMed
medical aid
50
00
50
00
Staff social fund
E
Ed
uc
23 694
ED
G
General ledger of Free Time Traders
Date
Details
Creditors for salaries
Fol.
Amount
Date
20.9
31
Bank
Details
20.9
CBP11
23 694
00
Jan
31
Salaries
expense
Fol.
SJ11
Amount
23 694
00
©
Jan
B12
245
Salaries and wages
EMP201 control
Fol.
Amount
Date
20.9
Jan.
31 Bank
CBP11
6 603 00
6 603
Jan.
Fol.
Amount
Salaries
31 expense (PAYE)
SJ11
5 967
Salaries
expense (UIF)
SJ11
149
00
UIF contributions SJ11
149
00
SDL
contributions
338
00
6 603
00
00
GoodMed medical aid
Date
Details
Fol.
Amount
Date
20.9
Jan.
31 Bank
CBP11
Details
Salaries
31 expense
at
io
n
20.9
4 500
00
Jan.
ABC pension fund
Details
20.9
Fol.
Amount
20.9
Jan.
31 Bank
CBP11
6 300
E
6 300
G
31 Bank
CBP11
ED
Details
Jan.
00
Jan.
Details
Salaries
31 expense
Pension fund
contributions
Amount
50
Fol.
Amount
SJ11
4 500
00
Jan.
00
B15
Fol.
Amount
SJ11
3 150
00
SJ11
3 150
00
6 300
00
B16
Date
20.9
00
B14
00
Staff social fund
Fol.
Date
20.9
Date
Ed
uc
Date
SJ11
ty
)
20.9
Details
Lt
d
Details
(P
Date
B13
Details
Salaries
31 expense
Fol.
Amount
SJ11
50
00
©
It is clear, when looking at the General ledger liability accounts, that all money owed has
been paid to the relevant parties.
Question 8.5
(i)
(ii)
246
Make all outstanding payments from Question 8.4 on the last day of the month.
Post the transactions to the General ledger.
Learning Unit 8
8.6
Accounting for wages
Lt
d
In principle, salary and wages do not differ that much. The main difference is that
salaries are paid on a monthly basis, whereas wages are paid on a weekly, or more
regular, basis. This means that the business will only have one Salaries journal per
month, but five or less Wages journals per month. The other big difference is that the
amount for wages changes weekly, according to hours worked; whereas basic salaries
stay the same from month to month.
(P
ty
)
Similarly, the process for recording wages in a business’s accounting records is basically
the same as with salaries. The biggest difference is that net wages are paid weekly, but
all other payments are held until the end of the month.
at
io
n
Complete all information in
Wages journal (weekly)
Post Wages journal to the
General ledger (weekly)
Ed
uc
Make net wage payments
and record in Cashbook
(weekly)
©
ED
G
E
Post net wage payments
to General ledger (weekly)
At end of the month:
Make all other payments
and record in Cashbook
Post payments to General
ledger
Complete and submit
EMP201 return
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Figure 8.2: The process for recording wages in a business’s accounting records
247
Salaries and wages
8.6.1 Payroll for wages
A Wages journal will typically look like this:
Overtime
Gross
wage
Enter the
amount for
normal time
worked during
the week
Enter
initials and
surname of
employee
PAYE
Pension
fund
UIF
Enter PAYE
for employee,
calculated
according to tax
tables
Total
deductions
Pension
fund
SDL
Enter
employer
contribution
to employee’s
pension fund
Calculate
employer
contribution
for UIF: 1% of
employee UIF
remuneration
Calculate by
adding all
deductions
together
Enter all other
deductions
(employee
contributions)
Calculate
employee’s
deduction for
UIF: 1% of
employee UIF
remuneration
UIF
Calculate
employer
contribution
to SDL: 1% of
employee SDL
remuneration
Calculate by
deducting all
deductions
from gross
wage
Ed
uc
Enter amount Calculate
for overtime by adding
overtime to
worked
during the normal time
week
Employer contributions
Net
wage
(P
Normal
time
Deductions
ty
)
Calculation of gross wage
at
io
n
Name of
employee
WJ46
Lt
d
Wages journal of DoubleTime Traders for the week ending 31 January 20.9
In Example 8.1 we looked at how to calculate a worker’s wages. For the following
example, we are going to make use of the same information.
Example 8.6 (Completing a Wages journal)
ED
G
E
In Example 8.1, we calculated that John earned R 10 000.00 in normal working hours
and R 2 625.00 for overtime. John’s weekly PAYE is R 3 631.00. John also contributes
R 750.00 per week toward his pension fund (ByE pension fund), and his employer
contributes R 1.50 for every R 1.00 that John contributes toward his pension fund.
John’s UIF remuneration is R 13 750.00, and his SDL remuneration is R 11 875.00.
Complete this information for John in the Wages journal.
©
Note: Round all figures to the nearest whole number. In addition, amounts given are for
illustrative purposes only.
Solution:
Name of
employee
J. Maphu
248
Calculation of gross wage
Deductions
Normal time
Overtime
Gross wage
10 000
2 625
12 625
00
00
00
PAYE
3 631
UIF
00
138
00
Employer contributions
Pension
fund
Total
deductions
750
4 519
00
00
Net wage
UIF
8 106
00
138
Pension
fund
SDL
00
119
00
1 125
00
Learning Unit 8
Question 8.6
In Question 8.1, we calculated Sarah’s gross wages. Use your answers from Question 8.1
to complete this question.
Lt
d
Sarah’s weekly PAYE is R 2 541.00. Sarah also contributes R 630.00 per week toward her
pension fund (FBI pension fund), and her employer contributes R 1.50 for every R 1 that
Sarah contributes toward her pension fund. Sarah’s UIF remuneration is R 10 500.00, and
her SDL remuneration is R 9 120.00.
ty
)
Required:
(P
Complete the information for Sarah in the Wages journal of BeThere Traders, for the week
ending 30 June 20.18 (WJ25).
at
io
n
Note: Round all figures to the nearest whole number. In addition, amounts given are for
illustrative purposes only.
8.6.2 Posting to the General ledger
Ed
uc
Once again, accounting for wages does not differ that much from accounting for
salaries. The only thing that will change is the names of the accounts (wages, instead of
salaries) – all other recording principles apply exactly as with salaries. You will also have
two sets of accounts (i.e. expenses and liabilities).
Wages journal of DoubleTime Traders for the week ending 31 January 20.9
Normal
time
Overtime
10 000
2 625
ED
©
Deductions
Gross
wage
PAYE
UIF
Pension
fund
Total
deductions
12 625
3 631
138
750
4 519
G
J. Maphu
Calculation of gross wage
E
Name of
employee
Debit wage
expense
Credit
EMP201
control
Credit
pension
fund
Credit
EMP201
control
WJ46
Employer contributions
Net
wage
UIF
8 106
138
Credit
creditors
for wages
Pension
fund
SDL
119
1 125
Debit SDL
contributions
and credit
EMP201
control
Debit UIF
contributions
and credit
EMP201
control
Debit
pension fund
contributions
and credit
pension fund
249
Salaries and wages
Example 8.7 (Posting information from the Wages journal to the
General ledger)
Lt
d
Following on from Example 8.6., the following opening totals/balances on 24 January
(the end of the previous week) apply.
Note: Amounts given are for illustrative purposes only.
Debit
Credit
12 000
00
ByE pension fund
4 500
00
35 500
00
UIF contributions
414
00
SDL contributions
357
00
3 000
00
at
io
n
Pension fund contributions
(P
Wages expense
ty
)
EMP201 control
The General ledger will be completed as follows:
Ed
uc
General ledger of DoubleTime Traders
Creditors for wages
Date
Details
Fol.
Amount
Date
B12
Details
Fol.
Amount
WJ46
8 106
20.9
Details
©
ED
G
Date
E
Jan.
250
31 Wages expense
EMP201 control
Fol.
Amount
Date
00
B13
Details
Fol.
Amount
20.9
Jan.
24 Balance
b/d
12 000
00
31 Wages expense
(PAYE)
WJ46
3 631
00
Wages expense
(UIF)
WJ46
138
00
UIF
contributions
WJ46
138
00
SDL
contributions
WJ46
119
00
16 026
00
Learning Unit 8
ByE pension fund
Date
Details
Fol.
Amount
Date
B14
Details
Fol.
Amount
24 Balance
b/d
4 500
00
31 Wages expense
WJ46
750
00
Pension fund
contributions
WJ46
1 125
00
6 375
00
Date
Details
Fol.
Amount
Date
20.9
24 Total/balance
b/d
35 500
00
31 Gross wages
WJ46
12 625
00
48 125
00
N4
Details
at
io
n
Jan.
ty
)
Wages expense
(P
Jan.
Details
Fol.
Amount
24 Total/balance
b/d
414
00
31 EMP201
control
WJ46
138
00
552
00
20.9
ED
G
E
Jan.
Ed
uc
UIF contributions
Date
Date
Details
Date
Details
SDL contributions
Fol.
Amount
Date
24 Total/balance
b/d
357
00
31 EMP201
control
WJ46
119
00
476
00
Lt
d
20.9
Fol.
Amount
N19
Fol.
Amount
N20
Details
Fol.
Amount
20.9
©
Jan.
251
Salaries and wages
Pension fund contributions
Date
Details
Fol.
Amount
Date
24 Total/balance
b/d
3 000
00
31 ByE pension
fund
WJ46
1 125
00
4 125
00
N21
Details
Fol.
Amount
Jan.
Lt
d
20.9
at
io
n
(P
ty
)
The EMP201 control and the ByE pension fund accounts (both liabilities) have credit
balances. These amounts represent the deductions from wages and employer
contributions made during the first three weeks of January. These payments have not
yet been made to SARS and the pension fund, as the business will only make payments
once, at the end of the month. The creditors for wages account does not have an
opening balance, since the net wages are paid weekly.
Question 8.7
Post the Wages journal from Question 8.6 to the General ledger. Use the following opening
totals/balances on 23 June (the end of the previous week).
Ed
uc
Note: Amounts given are for illustrative purposes only.
Debit
EMP201 control
FBI pension fund
28 750
00
UIF contributions
315
00
SDL contributions
273
00
2 835
00
G
E
Wages expense
10 000
00
4 725
00
ED
Pension fund contributions
Credit
©
8.6.3 Cashbook payments journal
The biggest difference between salaries and wages here is that wage payments will
of course occur weekly, and not monthly, as with salaries. The business will, however,
hold off on all other payments (for example, PAYE and pension fund) until the end of the
month, to simplify the accounting process.
Wages are usually paid in cash. The business will issue a cash cheque, and then pay
each employee; whereas other payments are usually done via EFT.
252
Learning Unit 8
Example 8.8 (Posting wages transactions to the General ledger)
Lt
d
Let’s assume that all the necessary payments regarding wages at the end of the month
are made. Cheque CC803 was cashed for wages, and the rest of the payments were
made via EFT. It will be recorded in the General ledger as follows:
Cashbook payments journal of DoubleTime Traders – January 20.9
CC803
31
Name of
payee
Fol.
Creditors
control
Bank
8 106
00
EFT
SARS
16 026
00
EFT
ByE pension
fund
6 375
00
Sundry accounts
Trading
inventory
Amount
Fol.
Details
8 106
00
Creditors for
wages
16 026
00
EMP201 control
account
6 375
at
io
n
Cash
VAT input
ty
)
Day
(P
Doc.
no.
CBP11
ByE pension
fund
00
General ledger of DoubleTime Traders
Creditors for wages
Details
20.9
Fol.
Amount
Date
Ed
uc
Date
Details
31 Bank
CBP11
8 106
00
Jan.
31 Wages expense
EMP201 control
E
Details
G
Date
31 Bank
Fol.
Amount
Date
Amount
WJ46
8 106
00
B13
Details
Fol.
Amount
20.9
CBP11 16 026
00
©
ED
Jan.
Fol.
20.9
Jan.
20.9
B12
16 026
00
Jan.
24 Balance
b/d
12 000
00
31 Wages expense
(PAYE)
WJ46
3 631
00
Wages expense
(UIF)
WJ46
138
00
UIF
contributions
WJ46
138
00
SDL
contributions
WJ46
119
00
16 026
00
253
Salaries and wages
ByE pension fund
Date
Details
Fol.
Amount
Date
Details
Fol.
Amount
24 Balance
b/d
4 500
00
31 Wages expense
WJ46
750
00
Pension fund
contributions
WJ46
1 125
00
6 375
00
20.9
31 Bank
CBP11
6 375 00
00
Question 8.8
8.7
at
io
n
(ii)
Using the information in Question 8.7, record all the payments regarding wages at
the end of the month in the Cashbook payments journal. (Note: Cheque CC031 was
cashed for wages, and the rest of the payments were made via EFT.)
Post the Cashbook payments journal to the General ledger.
Completing the EMP201 return
Ed
uc
(i)
(P
ty
)
6 375
Jan.
Lt
d
20.9
Jan.
B14
G
E
As discussed earlier, PAYE, UIF and SDL need to be paid over to SARS. Previously,
an employer had to make three different payments into three different SARS bank
accounts. However, with effect from 1 July 2010, the three accounts were consolidated
into one account. Since three different amounts were combined into one, completing
the Monthly Employer Declaration (EMP201) became compulsory and must therefore
accompany all payments.
©
ED
Because of many mistakes made on the EMP201 forms, and amounts therefore not
balancing, employers can only submit their EMP201 through e@syFile PAYE, e@syFile
Tax Practitioner or eFiling; alternatively, they can visit a SARS branch, where someone
will assist them to fill in the form electronically. Payment of these amounts, accompanied
by the form, must reach SARS before the 7th of each month.
Once a company is registered, completing the EMP201 is a fairly simple process. The
following is a copy of an EMP201 return form.
254
©
ED
G
E
Ed
uc
at
io
n
(P
ty
)
Lt
d
Learning Unit 8
(Source: SARS, 2019)
Figure 8.3: Example of an EMP201 return
255
Salaries and wages
Lt
d
When completing an EMP201, you will notice that there is also a section for ETI. ETI
stands for Employment Tax Incentive. The ETI is an incentive aimed at encouraging
employers to hire young work seekers. It was implemented with effect from 1 January
2014. The Employment Tax Incentive legislation encourages employers to hire young
people, by reducing the amount of PAYE payable to SARS. This reduces the cost of
employment to the employer, while leaving the employee’s earnings unaffected.
(P
ty
)
This incentive was created because of the millions of young South Africans that
are excluded from participating in economic activity (many times because of a
lack of experience), and as a result, suffer disproportionately from unemployment,
discouragement and economic marginalisation. Moreover, high youth unemployment
means young people are not gaining the skills or experience needed to drive the
economy forward, which can have long-term, adverse effects on the economy.
at
io
n
In South Africa, the current lack of skills and experience, as well as the perceptions
regarding the restrictiveness of labour regulations, make some prospective employers
reluctant to hire young people. However, with this tax incentive in place, South African
employers are more motivated to boost the employment of young job seekers.
Ed
uc
The calculation of ETI, however, falls beyond the scope of this course and will not be
discussed any further.
Example 8.9 (Completing the EMP201 form)
Do the necessary calculations, and complete the information on the EMP201 for
January 20.9.
Gross salary
PAYE deduction
UIF
remuneration
001
25 000
00
4 118
00
14 872 00
25 000
00
002
12 400
00
1 096
00
12 400 00
12 400
00
003
34 800
00
7 183
00
14 872 00
34 800
00
©
Staff number
ED
G
E
Note: Amounts given are for illustrative purposes only.
256
SDL
remuneration
Learning Unit 8
Solution:
PAYE:
Lt
d
Total: R 4 118.00 + R 1 096.00 + R 7 183.00 = R 12 397.00
001: R 14 872 × 1% = R 148.72
002: R 12 400 × 1% = R 124.00
003: R 14 872 × 1% = R 148.72
(P
Total: (R 148.72 + R 124.00 + R 148.72) × 2* = R 842.88
ty
)
UIF:
SDL:
Ed
uc
001: R 25 000 × 1% = R 250.00
002: R 12 400 × 1% = R 124.00
003: R 34 800 × 1% = R 348.00
at
io
n
*The amount is multiplied by 2, because the employee contributes 1% and the employer
also contributes 1%.
Total: R 250 + R 124 + R 348 = R 722.00
This amount is not multiplied by 2, as only the employer contributes to SDL.
Grand total:
©
ED
G
E
R 12 397.00 + R 842.88 + R 722.00 = R 13 961.88
257
©
ED
G
E
Ed
uc
at
io
n
(P
ty
)
Lt
d
Salaries and wages
(Source: EDGE Learning Media (Pty) Ltd, 2019; adapted from SARS, 2019)
Figure 8.4: EMP201
258
Learning Unit 8
8.8
Comprehensive example (salaries)
The following information was taken from the books of BlueSky Ltd for November 20.8.
Basic salary
Travel
allowance
Commission
Pension fund
fringe benefit
Pension fund
deductions
PAYE/SDL
remuneration
A. Basson
100
11 000
00
3 000
00
1 050
00
2 100
00
12 950
00
B. Coetzee
101
4 000
00
2 000
00
450
00
900
00
5 550
00
C. De Klerk
102
12 650
00
00
2 800
00
16 650
00
103
3 600
00
104
42 000
00
00
3 000
00
1 400
270
00
540
00
6 000
00
11 300
00
4 450
00
8 900
00
PAYE payable
12 050
00
851
00
4 450
00
0
00
14 872
00
1 227
00
3 330
00
3 330
00
0
00
53 650
00
14 872
00
12 346
00
(P
D. Els
E. Fourie
3 000
UIF
remuneration
Lt
d
Employee
no.
ty
)
Name
at
io
n
BlueSky Ltd runs their payroll on the 25th of every month, and employees are paid via
magnetic tape. The EMP201 is submitted on the 30th. Assume that cheque CC104 was
issued for this purpose.
The employees are responsible for the entire medical aid premium, which is paid to
FeelBetter medical aid on the 27th of each month.
Ed
uc
The staff members make the following medical aid contributions during the month:
Name
Medical aid contributions
A. Basson
B. Coetzee
C. de Klerk
00
1 200
00
2 030
00
1 240
00
3 800
00
G
E. Fourie
E
D. Els
500
ED
All employees belong to LongLife pension fund, and the employer pays the premiums
over to the pension fund on the 30th of each month. The pension fund fringe benefit in
the table represents the employer’s contribution toward the employees’ pension funds.
The pension fund deduction is the total of both the employer and the employees’ contributions.
©
Note: Amounts given are for illustrative purposes only.
The entries in the Salaries journal will reflect as follows:
259
Deductions
Total
Employer contributions
00
148
44
120
72
50
50
1 400
450
1 050
00
00
00
2 030
1 200
500
00
00
00
4 805
1 694
2 521
72
50
50
13 844
4 305
11 478
28
50
50
148
44
120
72
50
50
166
55
129
50
50
50
1 400
450
1 050
00
00
00
ty
)
00
3 600
00
00
at
io
n
00
14 424
12 346
0
00
00
00
495
148
33
74
72
30
7 620
4 450
270
00
00
00
8 770
3 800
1 240
00
00
00
31 309
20 744
1 543
74
72
30
70 240
38 555
2 056
26
28
70
495
148
33
74
72
30
921
536
33
30
50
30
7 620
4 450
270
00
00
00
101 550
59 300
(P
851
00
Net salary
0
fund
Pension
00
1 227
SDL
00
UIF
14 000
00
deductions
6 000
Medical aid
00
18 650
fund
Pension
00
UIF
3 000
00
PAYE
2 000
Gross salary
3 000
Commission
Lt
d
Calculation of gross salary
Travel
00
allowance
3 000
00
Ed
uc
00
11 300
E
11 000
00
00
G
4 000
6 000
ED
Employee no. &
(100) A. Basson
12 650
Basic
(101) B. Coetzee
00
name
(102) C. de Klerk
3 600
00
00
(103) D. Els
42 000
260
(104) E. Fourie
©
Salaries and wages
Learning Unit 8
Cashbook payments journal of BlueSky Ltd – November 20.8
Day
M/T
25
Sundry
employees
70 240
26
70 240
26
EFT
27
FeelBetter
medical aid
8 770
00
8 770
00
EFT
30
LongLife
pension fund
15 240
00
15 240
00
SARS
16 336
78
16 336
78
General ledger of BlueSky Ltd
Details
Fol.
20.8
Date
CBP9
Details
20.8
Fol.
FeelBetter
medical aid
LongLife
pension fund
EMP201 control
account
B12
B13
70 240 26
Nov.
Amount
Date
Details
Salaries
25 expense
Details
Fol.
Fol.
Amount
70 240
26
Amount
20.8
30 Bank
CBP9
16 336
78
Nov.
ED
G
E
Nov
©
16 336
25 Salaries
expense (PAYE)
SJ9
14 424
00
Salaries
expense (UIF)
SJ9
495
74
UIF
contributions
SJ9
495
74
SDL
contributions
SJ9
921
30
16 336
78
78
FeelBetter medical aid
Date
Details
Fol.
Amount
20.8
Nov.
Details
Creditors for
salaries
EMP201 control
Date
Ed
uc
25 Bank
Fol.
SJ9
Amount
20.8
Nov.
Amount
at
io
n
Creditors for salaries
Date
Trading
inventory
Lt
d
VAT input
ty
)
Bank
(P
Fol.
Creditors
control
Sundry accounts
Doc.
no.
CC104
Name of
payee
CBP9
Date
20.8
27 Bank
CBP9
8 770 00
Nov.
B14
Details
Salaries
25 expense
Fol.
Amount
SJ9
8 770
00
261
Salaries and wages
LongLife pension fund
Date
Details
Fol.
Amount
B15
Date
30 Bank
CBP9
15 240
00
Nov.
25 Salaries
expense
Pension fund
contributions
Salaries expense
Date
Details
Fol.
Amount
SJ9
101 550 00
Date
Nov.
25 Gross salaries
Details
UIF contributions
20.8
Details
EMP201
25 control
Nov.
Fol.
Amount
Ed
uc
Date
SJ9
Date
Details
Date
20.8
Details
E
EMP201
25 control
Fol.
SJ9
ED
G
Nov.
Date
Details
LongLife
25 pension fund
00
SJ9
7 620
00
15 240
00
Fol.
Amount
N19
Fol.
Amount
495 74
SDL contributions
©
7 620
N4
at
io
n
20.8
262
SJ9
ty
)
00
(P
15 240
Nov.
Amount
20.8
Nov
20.8
Fol.
Lt
d
20.8
Details
Amount
Date
N20
Details
Fol.
Amount
921 30
Pension fund contributions
Fol.
Amount
SJ9
7 620 00
Date
N21
Details
Fol.
Amount
Learning Unit 8
©
ED
G
E
Ed
uc
at
io
n
(P
ty
)
Lt
d
Completing the EMP201:
(Source: EDGE Learning Media (Pty) Ltd, 2019; adapted from SARS, 2019)
Figure 8.5: EMP201
263
Salaries and wages
Question 8.9
The following information was taken from the books of PeterPan Ltd for December 20.18
J. Killian
001
Basic salary
35 000
Commission
00
1 500
Travel
allowance
00
4 250
00
Pension
fund fringe
benefit
Pension fund
deductions
PAYE/SDL
remuneration
UIF
remuneration
PAYE payable
Lt
d
Employee
no.
Name
3 500
00
5 250
00
38 150
00
14 872
00
7 600
00
002
7 800
00
3 800
00
3 100
00
892
00
1 338
00
13 634
00
11 172
00
660
00
003
7 900
00
900
00
0
00
854
00
1 281
00
8 373
00
8 754
00
25
00
M. Ngcobano
004
2 400
00
450
00
0
00
183
00
275
00
2 759
00
2 583
00
0
00
N. Otto
005
23 000
00
7 500
00
3 500
00
1 870
00
2 805
00
32 365
00
14 872
00
5 653
00
ty
)
K. Long
L. Mphisi
(P
PeterPan Ltd runs their payroll on the 25th of every month, and employees are paid via
magnetic tape transfer. The EMP201 is submitted on the 31st. Assume that cheque CC205
was issued for this purpose.
at
io
n
The employees make the following medical aid contributions during the month:
Name
Medical aid contributions
2 600
00
K. Long
2 000
00
L. Mphisi
1 950
00
800
00
2 150
00
M. Ngcobano
N. Otto
Ed
uc
J. Killian
Complete the Salaries journal for PeterPan Ltd for December 20.18 (SJ10).
Show the related entries in the Cashbook payments journal for PeterPan Ltd, for
December 20.18 (CBP10).
Post the Salaries journal and the Cashbook payments journal to the General ledger
of PeterPan Ltd.
Complete the EMP201 for PeterPan Ltd, for December 20.18.
ED
(i)
(ii)
G
Required:
E
The pension fund fringe benefit in the table represents the employer’s contribution toward
the employees’ pension funds. The pension fund deduction is the total of both the employer
and the employees’ contributions. All employees belong to BetterLife pension fund, and the
employer pays the premiums over to the pension fund on the 28th of each month.
(iii)
©
(iv)
Note: Round all figures to the nearest rand value. In addition, amounts given are for
illustrative purposes only.
264
Learning Unit 8
8.9
Comprehensive example (wages)
Lt
d
During the week ending 30 November 20.8, the following hourly paid persons were
employed by GreenGrass Ltd for a workweek of 40 hours:
Wages per hour
Pension fund
PAYE/SDL
UIF
(employee’s
remuneration remuneration
contribution)
Overtime
F. Goosen
62
30
00
45
00
106
00
2 084
G. Hansen
65
36
00
54
00
117
00
2 673
H. Jackson
23
40
00
60
00
46
00
874
I. Jones
45
42
00
63
00
95
00
00
2 402
00
104
00
00
3 024
00
210
00
00
0
00
0
00
00
2 185
00
72
00
at
io
n
1 900
PAYE
ty
)
Normal
time
(P
Employee
No. of
hours
worked
Additional information:
Ed
uc
• All employees are paid by issuing a cash cheque (CC109). All other payments are
made on the last day of each month, via EFT.
• All employees belong to XYZ pension fund, and the employer contributes double
what the employees pay to their pension fund.
• Total PAYE on 23 November (the end of the previous week) amounted to R 1 419.00.
Note: Amounts given are for illustrative purposes only.
G
Calculation of gross wages
Normal
time
Overtime
ED
Name of
employee
E
Wages journal of GreenGrass Ltd for the week ending 30 November 20.8
Gross wage
WJ32
Deductions
PAYE
UIF
Employer contributions
Pension
fund
Total
deductions
Net wage
UIF
SDL
Pension
fund
1 200
00
990
00
2 190
00
104
00
24
00
106
00
234
00
1 956
00
24
00
21
00
212
00
G. Hansen
1 440
00
1 350
00
2 790
00
210
00
30
00
117
00
357
00
2 433
00
30
00
27
00
234
00
H. Jackson
920
00
0
00
920
00
0
00
0
00
46
00
46
00
874
00
0
00
9
00
92
00
I. Jones
1 680
00
315
00
1 995
00
72
00
22
00
95
00
189
00
1 806
00
22
00
19
00
190
00
©
F. Goosen
5 240
00
2 655
00
7 895
00
386
00
76
00
364
00
826
00
7 069
00
76
00
76
00
728
00
265
Salaries and wages
Use the following opening totals/balances on 23 November:
Debit
Credit
2 100
00
XYZ pension fund
3 276
00
23 600
00
UIF contributions
228
00
SDL contributions
225
00
2 184
00
Pension fund contributions
ty
)
Wages expense
Lt
d
EMP201 control
Day
CC109
31
Name of
payee
Fol.
Creditors
control
Bank
Employees/
cash
7 069
00
EFT
SARS
2 714
00
EFT
XYZ pension
fund
4 368
00
Ed
uc
General ledger of GreenGrass Ltd
VAT input
Trading
inventory
at
io
n
Doc.
no.
(P
Cashbook payments journal of GreenGrass Ltd – November 20.8
Sundry accounts
Amount
Details
20.8
Fol.
CBP9
E
Bank
Creditors for
wages
2 714
00
EMP201
control account
4 368
00
G
Bank
CBP9
ED
Details
7 069 00
Amount
Details
Fol.
Amount
Nov.
30 Wages expense
WJ32
7 069
Date
00
B13
Details
Fol.
Amount
b/d
2 100
00
Wages expense
(PAYE)
WJ32
386
00
Wages expense
(UIF)
WJ32
76
00
UIF
contributions
WJ32
76
00
SDL
contributions
WJ32
76
00
2 714
00
20.8
©
2 714 00
2 714
266
XYZ pension
fund
B12
EMP201 control
Fol.
Date
Nov.
Date
Details
00
20.8
Nov.
20.8
Amount
Fol.
7 069
Creditors for wages
Date
CBP9
00
Nov.
30 Balance
Learning Unit 8
XYZ pension fund
Date
Details
Fol.
Amount
CBP9
4 368 00
B14
Date
Fol.
Amount
b/d
3 276
00
Wages expense
WJ32
364
00
Pension fund
contributions
WJ32
728
00
4 368
00
20.8
Bank
4 368
Nov.
30 Balance
00
Wages expense
Date
Details
Fol.
Amount
Date
30 Total/balance
b/d
Gross wage
WJ32
23 600
00
7 895
00
Details
at
io
n
Nov.
N4
31 495
Details
Fol.
20.8
b/d
228
00
EMP201
control
WJ32
76
00
304
00
Fol.
Amount
b/d
225
00
WJ32
76
00
301
00
30 Total/balance
EMP201
control
©
Details
SDL contributions
Details
ED
Nov.
30 Total/balance
E
Date
Date
G
Nov.
Amount
Ed
uc
20.8
Date
Details
Fol.
Amount
Date
30 Total/balance
b/d
2 184
00
XYZ pension
fund
WJ32
728
00
2 912
00
N19
Fol.
Amount
N20
Details
Pension fund contributions
Date
Amount
00
UIF contributions
Date
Fol.
(P
20.8
ty
)
Nov.
Lt
d
20.8
Details
Fol.
Amount
N20
Details
Fol.
Amount
20.8
Nov.
267
©
ED
G
E
Ed
uc
at
io
n
(P
ty
)
Lt
d
Salaries and wages
(Source: EDGE Learning Media (Pty) Ltd, 2019; adapted from SARS, 2019)
Figure 8.6: EMP201
268
Learning Unit 8
Question 8.10
Overtime
Pension fund
(employee’s
contribution)
PAYE/SDL
remuneration
UIF
remuneration
00
78
00
200
00
2 972
00
3 572
00
40
00
60
00
80
00
1 480
00
1 720
56
00
84
00
180
00
2 228
00
2 768
48
00
72
00
110
00
(P
Wages per hour
Normal time
O. Petersen
54
52
P. Richards
39
Q. Romano
42
R. Simons
40
Additional information:
265
00
00
0
00
00
130
00
00
2 140
00
56
00
All employees are paid by issuing a cash cheque (CC109). All other payments are made
on the last day of each month, via EFT.
All employees belong to XYZ pension fund. The employer contributes double what the
employees pay to their pension fund.
All employees are obliged to contribute R 10 per week to their staff association.
Total PAYE on 24 July (the end of the previous week) amounted to R 1428.00.
at
io
n
•
1 810
PAYE
ty
)
No. of
hours
worked
Employee
Lt
d
During the week ending 31 July 20.18, the following hourly paid persons were employed by
DreamWitch Ltd for a workweek of 40 hours:
•
•
•
Ed
uc
The following opening totals/balances on 24 July are applicable:
Debit
EMP201 control
XYZ pension fund
E
Staff association
27 200
00
UIF contributions
306
00
SDL contributions
255
00
3 420
00
G
Wages expense
ED
Pension fund contributions
Credit
2 295
00
5 130
00
120
00
Required:
©
(i)
(ii)
(iii)
(iv)
Complete the Wages journal for DreamWitch Ltd for the week ending 31 July 20.18
(WJ21).
Show the related entries in the Cashbook payments journal for DreamWitch Ltd, for
July 20.18 (CBP6).
Post the Wages journal and the Cashbook payments journal to the General ledger of
DreamWitch Ltd.
Complete the EMP201 return for DreamWitch Ltd, for July 20.18.
Note: Round all figures to the nearest rand value. In addition, amounts given are for
illustrative purposes only.
269
Salaries and wages
??
?
Lt
d
Hint: Attempt Revision question 19 in Annexure B at the end of this textbook.
ty
)
Question 8.11
The information that follows relates to the salaried employees of Dormicum CC for the
month of May 20.8. Assume that all payroll creditors were paid in full by EFT on 30 May 20.8.
(P
(Note that the amounts used are for illustrative purposes only.)
Salaries register of Dormicum CC – May 20.8
(324)
Justin
7 872.00
22 545.00
(327)
Deawalt
24 536.00
(328)
Nkosi
7 413.00
(329)
Ndlovu
6 832.00
PAYE
69.34
142.00
ED
Total/
balance
386.17
597.51
Net
salary
7 274.49
Employers contributions
Medical
aid
Pension
fund
UIF
SDL
712.92
386.17
69.34
72.91
148.72
6 384.00 2 123.81
8 656.53 24 017.47
3 920.88 2 123.81 148.72
327.21
148.72
2 947.00 1 158.43
4 254.15 18 290.85
1 960.42 1 158.43 148.72
208.52
148.72
3 557.00 1 351.55
5 057.27 19 478.73
3 326.88 1 351.55 148.72
231.93
107.79
794.00
444.08
1 345.87
6 067.13
819.84
n/ a
1 708.00
-
1 708.00
5 124.00
74.26
1 856.50
-
1 930.76
5 495.24
G
7 426.00
109 298.00
Pension
fund
Ed
uc
32 674.00
(326) Cool
UIF
E
(325)
Vencat
(330)
Pillay
Deductions
Gross
salary
at
io
n
Employee
no. and
name
SR 5
444.08 107.79
109.16
-
-
n/ a
68.32
-
-
74.26
74.26
697.55 17 389.00 5 464.04 23 550.09 85 747.91 10 740.94 5 464.04 697.55 1 092.31
Required:
Open, post to and balance the following accounts in the General ledger of Dormicum CC:
©
•
•
•
•
•
•
•
•
•
270
EMP201 control (B7)
Creditors for salaries (B8)
Plong Pension Fund (B9)
Fit Health Scheme (B10)
Salaries expense (N8)
Medical aid contributions (N9)
UIF contributions (N10)
SDL contributions (N11)
Pension contributions (N12)
Learning Unit 9
9
Lt
d
ty
)
Year-end accounting entries ........................................................................... 272
©
ED
G
E
Ed
uc
at
io
n
(P
9.1
Year-end procedures
271
Year-end procedures
Year-end accounting entries
at
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9.1
(P
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Lt
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In Learning Units 4 to 8 we explored the intricacies of accounting and the recording
of transactions in the books of a business. Some business owners will choose to
handle the accounting function themselves. Others might outsource this function
or appoint an internal bookkeeper to do it for them. Irrespective of the route, basic
knowledge of bookkeeping and accounting is paramount to the successful running
of a business. Knowledge of source documents and what they tell us, subsidiary
journals and their purpose and the General and the subsidiary ledgers are essential
if an entrepreneur wishes to engage in financial conversation with stakeholders. It is
very important to realise that these financial records are not merely a legal requirement – they are strategic tools. Most of the strategic accounting tools can be found
in the ‘post-trial balance’ set of records. This is precisely what this learning unit is
about: post-trial balance events in the books of a business. We will look at what
happens in the books at the end of a financial year. We will demonstrate how the
bookkeeper makes use of the information accumulated in the journals, ledgers, and
trial balance to determine the financial performance and position of the enterprise.
Ed
uc
Every business has an assigned financial year. This financial year is chosen by the
business owner at the time of registration of the business. Most small businesses
in South Africa use a financial year that starts on 1 March and ends annually on
28 February. The reason for choosing this period is usually to align it with the
tax year for an individual, which is assessed over the period ending annually on
28 February. This is understandable in a sole proprietorship and partnership since
the business and the owner are seen as the same legal entity.
ED
G
E
Bookkeepers will typically run the monthly bookkeeping cycle for 12 consecutive
months. In every month, source documents are summarised in the subsidiary
journals, the journals are posted to the General ledger, the accounts in the General
ledger are balanced at month-end and a monthly trial balance is drawn up. The
same cycle will be repeated the next month, and the next until we reach the
12th month in the financial year. In this 12th month, the normal monthly cycle is
completed first, ending with a trial balance as at the last day of the financial year.
At this point in time, the bookkeeper will run what is known in accounting jargon as
a ‘year-end’. We will now demonstrate how a ‘year-end’ is run.
©
The purpose of running a year-end is twofold:
1.
272
To determine the financial performance of the business for the past
financial year. Financial performance can be measured by looking at the
profit derived by the business for the period in question.
Learning Unit 9
The calculation of profits takes place in two distinct stages:
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•
During stage one, the gross profit for the year is calculated. The gross
profit is purely the trading profit – i.e. the difference between net sales
and cost of sales. The gross profit is therefore the difference between the
value earned when selling products and the value foregone due to the
trading inventory that left the business during such sales. The bookkeeper
makes use of a temporary ‘final account’ to calculate gross profit. This
account is called the trading account.
•
During stage two, the net profit for the year is calculated. ‘Gross’ means
before deductions, whilst ‘net’ means after deductions. The net profit is
therefore the profit earned during the financial year after all overheads
have been deducted. Many business people will refer to the net profit as
‘the bottom line’ or the ‘profit which the owner puts in his/her pocket’.
This is not entirely true, since the business or owner must still pay tax
on the net profit. Nevertheless, these phrases are used colloquially in the
business environment. The bookkeeper makes use of a temporary ‘final
account’ to calculate net profit. This account is called the profit and loss
account.
To determine the financial position of the business as at the last day of
the financial year. The financial position is reflected by the state of the
accounting equation. The statement of financial position is a statement form
of the accounting equation and is drawn up to disclose the financial position
of the business to all the stakeholders of the business. The statement of
financial position will thus show that all assets are equal to the owner’s equity
plus all liabilities.
©
ED
G
2.
E
Ed
uc
When ‘running a year-end’ the nominal section accounts in the trial balance
are closed off against the trading and profit and loss accounts. This essentially
means that the balances/totals of the income and expense accounts become
nil at the start of every subsequent financial year. Since many business owners
and decision-makers find the working of T-accounts hard to understand, it
is also customary to draw up the information contained in these two final
accounts in the form of a statement that is easily understood by parties that
are not familiar with the rules of accounting. This statement is called the
statement of profit or loss and other comprehensive income.
273
Year-end procedures
Question 9.1
Column B (accumulated profit)
Statement of profit or loss and
other comprehensive income
Statement of financial position
ty
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Column A (profit for the year)
R 1 000 000
R 1 000 000
R 1 000 000
(R 500 000)
R 1 000 000
R 2 000 000
R 3 000 000
?
(P
28 February 20.5
28 February 20.6
28 February 20.7
28 February 20.8
Required:
What is the value of the missing amount in column B?
The statement of profit or loss and other comprehensive income measures
financial performance, whilst the statement of financial position measures financial
position. Explain why stakeholders need to peruse the statement of profit or loss
and other comprehensive income and the statement of financial position to make
an informed decision about the well-being of a business.
The business made R 1 000 000 profit per year (refer to 20.5 to 20.7). Is this a lot
of money (i.e. has the business performed well)?
at
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(i)
(ii)
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The following profits/losses were earned by a sole proprietorship for the four years in
question. For the purposes of this exercise we are assuming that no capital contributions
or drawings were made by the owner during any of the four years. The owner’s equity is
therefore represented by the accumulated profit figures.
Ed
uc
(iii)
Example 9.1 (Year-end procedures)
G
E
The following trial balance of Tuscany Dealers was drawn up on the last day of their
financial year:
ED
Trial
balanceofofTuscany
Tuscany
Dealers
28 February
Trial balance
Dealers
on on
28 February
20.8 20.8
Folio
Debit (R)
Credit (R)
Statement of financial position section
B1
163 270
00
Drawings
B2
42 000
00
Land and buildings
B3
540 000
00
Equipment
B4
60 000
00
Fixed deposit: ABOO Bank
B5
50 000
00
Trading inventory
B6
70 000
00
Bank
B7
15 200
00
Debtors control
B8
47 730
00
Creditors control
B9
67 100
00
Mortgage loan: BZN Bank
B10
482 400
00
Sales
N1
848 000
00
Sales returns
N2
©
Capital
274
Nominal accounts section
16 000
00
Land and buildings
B3
540 000
00
Equipment
B4
60 000
00
Fixed deposit: ABOO Bank
B5
50 000
00
Trading inventory
B6
70 000
00
Bank
B7
15 200
00
Debtors control
B8
47 730
00
Creditors control
B9
67 100
00
Mortgage loan: BZN Bank
B10
482 400
00
Sales
N1
848 000
00
Sales returns
N2
16 000
00
Cost of sales
N3
520 000
00
Rent income
N4
45 500
00
Interest on fixed deposit
N5
6 000
00
Insurance
N6
14 700
00
Interest on mortgage loan
N7
72 130
00
Wages and salaries
N8
125 680
00
Telephone
N9
17 750
00
Office consumables
N10
3 000
00
Advertising
N11
9 200
00
General expenses
N12
8 880
00
1 612 270
00
Learning Unit 9
at
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Nominal accounts section
1 612 270
00
E
A few handy tips:
Ed
uc
When running the ‘year-end’ all the balances/totals appearing in the nominal
accounts section need to become nil. We have to remember, though, that the bookkeeping and accounting rules cannot be violated in the process. Although we will
not be recording transactions when running this ‘year-end’, we will still be making
double entries. We will now demonstrate how these double entries, which are generally referred to as closing transfers, are done.
©
ED
G
• When we calculate a profit/loss in an account, we will always credit the account
(that is used to calculate this profit/loss) with the earnings, and debit the account
with the costs. If the credit side exceeds the debit side, we have made a profit.
If the debit side exceeds the credit side, we have made a loss.
• Focus on the trading account and profit and loss account when doing these
closing transfers. If you understand the structure of these two final accounts, the
double entries will become clear.
• The following steps must be followed to ensure that all the closing transfers are
done (refer to the example on Tuscany Dealers that follows):
1.
Close off the sales returns account against the sales account – i.e. credit
sales returns and debit sales. The balance in the sales account will now
reflect the net sales.
275
Year-end procedures
6.
7.
8.
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5.
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4.
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3.
Close off the sales account against the trading account – i.e. debit sales
and credit the trading account.
Close off the cost of sales account against the trading account – i.e.
credit cost of sales and debit the trading account.
The gross profit can now be calculated by ‘balancing’ the trading account.
This is done by closing off the trading account against the profit and loss
account with this balancing figure (i.e. the gross profit). Debit the trading
account and credit the profit and loss account.
Continue with the calculation of net profit by closing off the additional
income accounts (all the accounts with credit balances in the nominal
section of the trial balance, except for sales which was closed off to the
trading account) against the profit and loss account, one by one. Debit
each of the income accounts and credit the profit and loss account.
Now, close off each of the additional expense accounts (the accounts
with debit balances in the nominal accounts section of the trial balance,
except for sales returns which was closed off to the sales account and
the cost of sales account that was closed off to the trading account)
against the profit and loss account. Credit each of the individual expense
accounts and debit the profit and loss account. All income and expense
accounts will now have nil balances.
The profit and loss account is now closed off against the capital account.
If the credits in the profit and loss accounts exceed the debits, then the
profit and loss account will be debited and the capital account will be
credited, and vice versa.
Lastly, the drawings account is closed off against the capital account.
The balance of the capital account now represents the owner’s equity at
year-end since:
Ed
uc
2.
G
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Owner’s equity = Capital + Net profit – Drawings
©
ED
Note: The primary reason for doing the closing transfers is to calculate the profit for
the year. This can actually be done manually by deducting the debit balances from
the credit balances in the nominal accounts section of the trial balance (i.e. ignore
the statement of financial position section). The net profit of Tuscany Dealers for
the year ended 28 February 20.8 was therefore R 112 160. Now, have a look at the
entry on the credit side of the capital account of Tuscany Dealers, and the entry
on the debit side of the profit and loss account. Do you recognise the amount? It
is very important that you realise we are working toward this specific double entry
when doing the closing transfers. Keeping this ‘end result’ in mind, it will be easier
to understand all the double entries that have to be done in order to arrive at the
double entry which closes the net profit for the year off against the capital account.
276
Learning Unit 9
General ledger of Tuscany Dealers
Statement of financial position section
Capital
Date
Details
Fol.
Amount
B1
Date
Details
Fol.
Feb.
28
Drawings
GJ12
42 000
00
Balance
c/d
233 430
00
275 430
00
Feb.
28
Balance
Profit and loss
20.8
1
163 270
00
112 160
00
275 430
00
b/d
233 430
00
Balance
at
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Mar.
b/d
Drawings
Date
Details
Fol.
Amount
b/d
42 000
20.8
Date
Amount
ty
)
20.8
GJ12
(P
20.8
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(excerpts only)
Details
B2
Fol.
Amount
GJ12
42 000
20.8
28
Total/Balance
00
Feb.
Ed
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Feb.
28
Capital
00
Nominal accounts section
Sales
Date
Details
20.8
Fol.
Amount
N1
Date
Details
Fol.
Amount
Total/Balance
b/d
848 000
00
848 000
00
20.8
Sales returns
GJ12
16 000
00
Trading account
GJ12
832 000
00
848 000
00
E
28
ED
G
Feb.
Date
©
28
28
Sales returns
Details
Fol.
Amount
N2
Date
20.8
Feb.
Feb.
Details
Total/Balance
b/d
16 000
Fol.
Amount
b/d
520 000
00
Feb.
28
Sales
Cost of sales
Date
Details
Amount
GJ12
16 000
00
N3
Date
20.8
Feb.
Fol.
20.8
Details
Fol.
Amount
Trading account
GJ12
520 000
20.8
28
Total/Balance
00
Feb.
28
00
277
Year-end procedures
Rent income
Date
Details
Fol.
Amount
GJ12
45 500
N4
Date
Fol.
Amount
Total/Balance
b/d
45 500
20.8
Feb.
28
Profit and loss
00
Feb.
28
Interest on fixed deposit
Date
Details
Fol.
Amount
Date
Details
Fol.
Total/Balance
b/d
6 000
Feb.
28
Profit and loss
GJ12
6 000
00
Feb.
28
Insurance
Date
Details
Fol.
Date
20.8
28
Total/Balance
b/d
14 700
00
Fol.
Amount
Feb.
28
Profit and loss
GJ12
14 700
at
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Feb.
Details
Interest on mortgage loan
Date
Details
Fol.
Amount
Date
Feb.
28
Total/Balance
Date
Details
20.8
Fol.
Amount
b/d
72 130
00
Feb.
28
Profit and loss
GJ12
72 130
Fol.
Amount
00
N8
Date
Details
Fol.
Amount
Profit and loss
GJ12
125 680
Details
Fol.
Amount
Profit and loss
GJ12
17 750
20.8
Total/Balance
E
28
b/d
125 680
Fol.
Amount
b/d
17 750
ED
G
Feb.
Date
Details
00
28
28
N9
Date
00
Feb.
28
Office consumables
Date
00
20.8
Total/Balance
©
Feb.
Feb.
Telephone
20.8
Details
Fol.
Amount
00
N10
Date
20.8
278
N7
Details
Wages and salaries
Feb.
00
20.8
Ed
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20.8
00
N6
Amount
20.8
Amount
ty
)
20.8
(P
20.8
N5
00
Lt
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20.8
Details
Details
Fol.
Amount
Profit and loss
GJ12
3 000
20.8
28
Total/Balance
b/d
3 000
00
Feb.
28
00
Learning Unit 9
Advertising
Date
Details
Fol.
Amount
b/d
9 200
Fol.
Amount
b/d
8 880
Fol.
Amount
Cost of sales
GJ12
520 000
00
Profit and loss
GJ12
312 000
00
832 000
00
N11
Date
Fol.
Amount
Profit and loss
GJ12
9 200
20.8
Feb.
28
Total/Balance
00
Feb.
28
General expenses
Date
Details
N12
Date
Details
Fol.
Profit and loss
GJ12
20.8
28
Total/Balance
00
Feb.
28
Final accounts section
Details
Date
Details
Fol.
Amount
GJ12
832 000
00
832 000
00
20.8
Feb.
28
Feb.
Ed
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20.8
28
Sales
Profit and loss account
Date
Details
20.8
Feb.
00
F1
at
io
n
Trading account
Date
8 880
(P
Feb.
Amount
ty
)
20.8
00
Lt
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20.8
Details
Date
F2
Fol.
Amount
Details
Fol.
Amount
GJ12
14 700
00
GJ12
72 130
00
Trading account
GJ12
312 000
00
Rent income
GJ12
45 500
00
Interest on fixed deposit
GJ12
6 000
00
363 500
00
20.8
28
Insurance
Wages and salaries
125 680
00
Telephone
GJ12
17 750
00
Office consumables
GJ12
3 000
00
Advertising
GJ12
9 200
00
General expenses
GJ12
8 880
00
Capital (net profit)
GJ12
112 160
00
363 500
00
28
©
ED
GJ12
G
E
Interest on mortgage loan
Feb.
279
Year-end procedures
Question 9.2
©
ED
G
E
Ed
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at
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(iii)
Lt
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(ii)
Before any entries can be made in the General ledger, transactions must first
be entered into subsidiary journals. Closing transfers are always entered into
the General journal. Refer back to Example 9.1. How do you think the closing
transfers would have been journalised in the General journal of Tuscany Dealers?
Demonstrate.
After the closing entries have been done, the bookkeeper can draw up a ‘postclosing’ trial balance. What do you think this post-closing trial balance of Tuscany
Dealers would have looked like on 28 February 20.8? Try to construct this postclosing trial balance.
We have seen that the balances of the nominal accounts all become zero when
doing the closing transfers at year-end. Why do you think it is necessary for these
balances to become nil?
ty
)
(i)
280
Learning Unit 9
Question 9.3
Refer back to Question 5.5 where we completed the bookkeeping cycle of Letsema
Furnishers and ended up with the following trial balance at 28 February 20.9:
Folio
Debit (R)
Credit (R)
Statement of financial position section
Capital
B1
B2
B3
190 000
00
Bank
B4
9 428
07
Output VAT
B5
48 629
21
Trading inventory
B6
33 842
Input VAT
B7
43 983
99
Petty cash
B8
3 040
56
Creditors control
Cost of sales
(P
169 135
225 509
10
B11
10 508
33
30
12 939
26
N1
46 689
92
N2
499 431
87
574
50
2 672
27
946 616
35
Ed
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Sales
B9
B10
B12
Nominal accounts section
Services rendered
07
at
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Debtors control
60
ty
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Drawings
Equipment
4 918
25
Loan: AAA Bank
Vehicles
N3
322 031
12
N5
13 228
65
Interest on current account
N4
Telephone
N9
10 116
45
Rent expense
N7
39 497
63
Rates and taxes
N8
4 975
20
Insurance
N9
15 291
16
G
E
Wages and salaries
Bank charges
N10
4 817
48
Postage & stationery
N11
2 111
18
Staff refreshments
N12
2 382
44
Fuel
N13
5 450
50
Interest on loan
N14
9 225
00
ED
©
136 251
Credit losses
N15
7 025
97
Sales returns
N16
16 291
59
786
12
2 447
91
946 616
35
Interest received
N17
Interest on overdraft
N18
Interest paid/charged
N19
Lt
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Trial
balanceofofLetsema
Letsema
Furnishers
28 February
Trial balance
Furnishers
on on
28 February
20.820.9
281
Year-end procedures
Required:
(i)
Use your calculator and determine the net profit earned for the year ended
28 February 20.9, purely by looking at the trial balance provided.
Open all the nominal accounts in the General ledger with their respective totals
as per the provided trial balance. Open a trading account and a profit and loss
account, and show all the closing transfers. Also show the capital and drawings
accounts in the statement of financial position section. Close drawings off
against capital, and balance the capital account to determine the correct amount
for owner’s equity at year-end.
Draft a post-closing trial balance as at 28 February 20.9.
Question 9.4
Activity (Level: Intermediate)
(P
(iii)
ty
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Lt
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(ii)
The following information was taken from the books of Dama Enterprises on 28 February
The following
information
was takenyear
fromofthe
of Dama Enterprises on 28 February 20.9,
20.9,
the last day
of the financial
thebooks
business:
at
io
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the last day of the financial year of the business:
Trial
February20.9
20.9
Trialbalance
balance of
of Dama
Dama Enterprises
Enterprises on
on 28
28 February
Folio
B1
204 087
50
B10
83 875
00
Mortgage loan: BZN Bank
B11
583 000
00
Output VAT
B12
20 000
00
Input VAT
B13
1 060 000
00
B2
52 500
00
B3
675 000
00
B4
75 000
00
Fixed deposit: ABOO Bank
B5
62 500
00
Trading inventory
B6
87 500
00
B7
17 500
00
B8
1 500
00
Debtors control
B9
49 662
50
Creditors control
ED
Drawings
Ed
uc
Capital
Credit (R)
G
Statement of financial position section
Debit (R)
Land and buildings
Bank
©
Petty cash
282
E
Equipment
10 000
00
Nominal accounts section
Sales
N1
Sales returns
N2
20 000
00
Cost of sales
N3
650 000
00
Rent income
N4
56 875
00
Interest on fixed deposit
N5
7 500
00
Rates and taxes
N6
Interest on mortgage loan
Wages and salaries
18 375
00
N7
90 162
50
N8
157 100
00
Telephone
N9
22 187
50
Stationery
N10
3 750
00
Packing materials
N11
11 500
00
4b
Petty cash
B8
1 500
00
Debtors control
B9
49 662
50
Creditors control
B10
83 875
00
Mortgage loan: BZN Bank
B11
583 000
00
Output VAT
B12
20 000
00
Input VAT
B13
1 060 000
00
56 875
00
7 500
00
10 000
00
Learning Unit 9
20 000
00
Cost of sales
N3
650 000
00
Rent income
N4
N5
N6
18 375
00
Interest on mortgage loan
N7
90 162
50
Wages and salaries
N8
157 100
00
Telephone
N9
22 187
50
Stationery
N10
3 750
00
Packing materials
N11
11 500
00
General expenses
N12
11 100
00
2 015 337
50
Required:
Required:
(i)
(i)
(ii)
2 015 337
50
at
io
n
Interest on fixed deposit
Rates and taxes
ty
)
N1
N2
(P
Sales
Sales returns
Lt
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Nominal accounts section
Journalise
thethe
closing
transfers.
Journalise
closing
transfers.
(ii)
Draft a post-closing trial balance as at 28 February 20.9.
Ed
uc
(ii)
Post all the journal entries passed to the closing transfers to the General ledger on
Post
the journal
entries
passed the
to affect
the closing
transfers
theaccounts,
general ledger
on
28 all
February
20.9.
Including
trading
and profit
and to
loss
clearly
28 February 20.9. Include the trading and profit and loss accounts, clearly showing the
showing the gross profit and net profit/loss respectively.
gross profit and net profit/loss respectively.
Draft a post-closing trial balance as at 28 February 20.9.
(iv)
Prepare an income statement for the year ended 28 February 20.9.
(v)
Draft a statement of financial position as at 28 February 20.9.
E
(iii)
G
Computerised Accounting Fact
©
ED
Running a year-end of a computerised
accounting system is simple, but you
must be careful. Once you press the
button, your nominal account balances
will disappear! Most computerised
packages make it possible to view
the statement of profit or loss and
other comprehensive income and the
statement of financial position at any point
in time during the year. Let’s assume your
net profit according to the statement of
profit or loss and other comprehensive
income is R 100 000 at a particular point
in time, and you subsequently record the
payment of weekly wages of R 10 000. If
you view your statement of profit or loss
and other comprehensive income after
this transaction, a net profit of R 90 000
should be reflected. This is a very useful
decision-making tool.
283
Year-end procedures
Question 9.5
Have you noticed how, in the manual bookkeeping system, statement of financial
position account balances are described as ‘Balance b/d’, but nominal accounts are
described as ‘Total b/d’ (refer to the ‘details’ column in the T-accounts)?
Lt
d
Required:
Question 9.6
ty
)
Do you think there is an explanation for this difference from an academic perspective?
Think about this topical issue and write down some of your thoughts/ideas.
(P
You have been provided with a list of the accounts in the nominal accounts section of the
trial balance of Mersian Trading for the year ending 31 January 20.9. The business uses
the perpetual inventory method.
Account
Nominal accounts section
Sales returns
Cost of sales
Rent received
150 000.00
3 525.00
120 878
7 005.00
Interest received
1 170.00
11 850.00
Water and electricity
4 815.00
G
E
3 210.00
Rates
6 840.00
Telephone
2 850.00
Insurance
1 965.00
Armed response
1 620.00
Stationery
1 005.00
Bookkeeping fees
1 455.00
Advertising
1 740.00
Postage
345.00
ED
©
Balance (R)
Commission received
Rent paid
284
Ed
uc
Sales
at
io
n
List of accounts of Mersian Trading for the year ended 31 January 20.9
Learning Unit 9
You have recorded the closing transfers correctly and you have drafted the following
trading and profit and loss accounts in the General ledger as follows:
(Note: Selected information has been omitted.)
Trading account
Date
Details
Fol.
Amount
Jan.
N30
Date
Details
2009
31 Cost of sales
GJ1
120 878.40
Profit and loss
GJ1
B
Jan.
31 Sales
Fol.
2009
A
Amount
Date
N31
Details
Fol.
Amount
D
GJ1
C
4 815.00
Rent received
GJ1
7 005.00
6 840.00
Commission
received
GJ1
F
Interest
received
GJ1
1 170.00
at
io
n
Details
Amount
146 475.00
Profit and loss
Date
GJ1
(P
146 475.00
2009
GJ1
Water and
electricity
GJ1
Rates
GJ1
11 850.00
Ed
uc
31 Rent paid
Telephone
GJ1
Insurance
GJ1
1 965.00
Armed response
GJ1
1 620.00
Stationery
GJ1
1 005.00
Bookkeeping
fees
GJ1
1 455.00
Advertising
GJ1
1 740.00
Postage
GJ1
345.00
Capital
GJ1
G
ED
G
E
Jan.
Fol.
ty
)
2009
Lt
d
General ledger of Mersian Trading
E
I
Jan.
31
H
©
Required:
Find the answers for the missing pieces of information denoted by the letters A – H.
Show your calculations where applicable.
285
Bibliography
Bibliography
Lt
d
Learning Unit 1
Hamel, G. and Prahalad, C. K. (1994), ‘Competing for the Future’. Harvard Business
Review [website] <https://hbr.org/1994/07/competing-for-the-future> accessed
15 December 2020.
ty
)
Pacioli, L. (1494), Summary of arithmetic, geometry, proportions and proportionality.
Venice: Paganini.
(P
Register of statutes
Business Names Act 27 of 1960.
Close Corporations Act 69 of 1984.
Companies Act 61 of 1973.
Ed
uc
Companies Act 71 of 2008.
at
io
n
Attorneys Act 53 of 1979.
Insolvency Act 24 of 1936.
Learning Unit 3
E
Register of statutes
G
Value-Added Tax Act 89 of 1991.
ED
Image credits
South African Revenue Service (SARS)
©
Learning Unit 5
Dempsey, A. and Pieters, H. N. (1999), Introduction to Financial Accounting.
Johannesburg: Butterworths.
286
Annexure
Learning Unit 7
Register of statutes
Lt
d
Value-Added Tax Act 89 of 1991.
Learning Unit 8
ty
)
Register of statutes
Constitution of the Republic of South Africa, 1996.
Income Tax Act 58 of 1962.
at
io
n
Employment Tax Incentive Act 26 of 2013.
(P
Basic Conditions of Employment Act 75 of 1997.
Skills Development Levies Act 9 of 1999.
Ed
uc
Unemployment Insurance Act 63 of 2001.
Unemployment Insurance Contributions Act 4 of 2002.
Image credits
EDGE Learning Media (Pty) Ltd
©
ED
G
E
South African Revenue Service (SARS)
287
Annexure A
Annexure A
(P
ty
)
Learning Unit 1
An introduction to business,
bookkeeping and accounting
Lt
d
Question solutions
Question 1.1
at
io
n
The main limitations of financial accounting information are the following.
Differences in standards and valuation methods
Ed
uc
Financial accounting permits alternative approaches. In some cases there exists
more than one principle for the treatment of any one item. This permits alternative
treatments. For example, the closing inventory of a business may be valued by any
one of the following methods: first-in-first-out (FIFO), or weighted average cost, but
the results are not comparable.
Information is not timely
©
ED
G
E
Financial accounting does not provide timely information – it provides an after-thefact analysis. Financial accounting is designed to supply information in the form
of statements (statement of financial position and statement of profit or loss and
other comprehensive income) for a period, normally one year. So the information
is, at best, of historical interest and only ‘post-mortem’ analysis of the past can be
conducted. The business requires timely information at frequent intervals to enable
the management to plan and take corrective action. For example, if a business has
budgeted that during the current year sales should be R 12 000 000, then it requires
information as to whether or not the sales in the first month of the year amounted to
R 1 000 000 and reasons for any shortfall or excess.
Having said this, most computerised accounting packages have largely overcome
this limitation, by making internal reporting to management at shorter intervals a
reality.
288
Question solutions
Subjectivity does play a role
ty
)
Financial accounting ignores important non-monetary information
Lt
d
There is always some element of subjectivity in financial accounting. Although
modern accounting standards are geared towards making financial information as
objective as possible, certain events estimates have to be made which requires
personal judgement. For example, in order to determine the amount of depreciation
to be charged every year for the use of a fixed asset it requires estimation, and the
income disclosed by accounting is not authoritative but a mere ‘approximation’.
at
io
n
(P
Financial accounting does not consider those transactions that are not monetary
in nature. For example, extent of competition faced by the business, technical
innovations possessed by the business, loyalty and efficiency of the employees,
changes in the value of money etc. are the important matters in which management
of the business is highly interested, but accounting is not tailored to take note of
such matters. Thus, any user of financial information is naturally deprived of vital
information which is of non-monetary character.
Financial accounting does not provide detailed analysis
Ed
uc
The information supplied by financial accounting is in reality aggregates of the
financial transactions during the course of the year. Of course, it enables users
to study the overall results of the business, but it lacks detailed analysis of cost,
revenue and profit of each product.
The effects of inflation are ignored
ED
G
E
Accounting information is provided in monetary terms, but does not take into
account the buying power of the stated figures at the time they were incurred. For
example, the financial records for 20.10 may show a net profit of R 1 000 000, and
the records for 20.11 a net profit of R 1 200 000, but the 20% ‘growth’ may well be
offset by an equal (but unrecorded) inflation rate.
Question 1.2
©
(i)
Managers must often make decisions on short notice. In order to make such
decisions, it is more important for the manager to receive a fair estimate now
rather than to wait a week for a precise answer. Providing data that is precise
is costly in terms of both time and resources, and managerial accounting
places less emphasis on precision than financial accounting. Data needed
for management decision-making can often not be expressed in monetary
form. For example, data about customer satisfaction is very important to
management, but is difficult to express in monetary form.
289
Annexure A
Financial reports are drawn up for an organisation as a whole. It will reflect
the financial performance of the organisation as a unit without making any
mention of the profitability of individual segments, departments, products,
etc. In managerial accounting the performance of individual segments,
departments or products is of utmost importance. Managers must make
decisions relating to the future of individual departments or product ranges
and will need detailed information in order to support their decisions.
Strengths and weaknesses can be identified if this approach is followed.
(iii)
The South African body of accountants have adopted the International
Financial Reporting Standards (IFRS) – a set of reporting standards that are
continually updated to ensure that all member countries speak the same
language of business. The idea of a single global accounting language is
nothing new. It all began with the International Accounting Standards
Committee (IASC) in 1973.
(P
ty
)
Lt
d
(ii)
at
io
n
Over the years, this committee developed 41 global accounting standards,
referred to as International Accounting Standards (IAS). This committee was
then replaced by the International Accounting Standards Board (IASB) in
2001.
25 IASs (produced by the old committee); and
17 IFRSs (produced by the new board).
E
•
•
Ed
uc
The new board adopted all 41 of these standards, and started developing
additional standards for global use. However, over the years, a number of
these 41 IASs have been either fully withdrawn or replaced by new IFRS.
The IASB has developed 17 additional global accounting standards thus far.
Currently, the total number of global accounting standards amount to 42.
These standards include:
ED
G
It is important to note that these standards are reporting standards, not
recording standards. IFRS is aimed at harmonising different accounting
statements from the various countries.
©
Note that IFRS only applies to the field of financial accounting. In the field of
managerial accounting, internally set standards need to be met.
290
Question solutions
Question 1.3
(i)
Provides information mainly for external users
X
Generates ‘general purpose’ financial statements
X
X
Future-orientated reports
X
X
Provides information mainly for internal users
Must conform with standards that are externally set
Not subject to externally set standards
at
io
n
Generates ‘specific purpose’ financial statements
(P
Emphasises objective data
Reports on financial events of the past
ty
)
Makes more use of subjective data
Managerial
accounting
Lt
d
Financial
accounting
X
X
X
X
X
(Source: EDGE Learning Media (Pty) Ltd, 2018)
(ii)
Ed
uc
Table 1.1: Comparing financial accounting and managerial accounting
A cost centre can be defined as a segment that has control over the incurrence
of cost.
E
A cost centre has no control over generating revenue or the use of investment
funds.
D.
ED
(i)
G
Question 1.4
M.
(iii)
F.
(iv)
E.
(v)
I.
(vi)
A.
(vii)
L.
(viii)
C.
(ix)
B.
(x)
H.
©
(ii)
291
Annexure A
Question 1.5
Lt
d
The first well-known publication on the double-entry system, using a T-account
approach, was done in 1494, by a Venetian monk, Luca Pacioli (this publication was
known as the ‘Summa’).
Area of application
ty
)
The reason Luca Pacioli developed this system was because the books of the
church were in disarray. They needed a system that could control how the church
applied their funds. Pacioli indicated that where money is concerned, there are
always two sides to a transaction – the source of funds and the application thereof:
Source of funds for the church
Purchases of assets
•
Tithes (contributions from the members
of the congregation)
•
Running expenses
•
External contributions in the form of
loans
•
Donations, grants to the poor/needy
•
Income generated through functions
held by the church (think of today’s
church bazaars)
•
Etc.
•
Etc.
Ed
uc
at
io
n
(P
•
ASSETS and EXPENSES
LIABILITIES and INCOME
E
In today’s business environment, Lucia Pacioli’s traditional system is still used! The
provided list of sources and application can be modernised as follows:
Source of funds for the business
•
Purchases of assets
•
Capital contributions by the owner(s)
•
Running expenses
•
External financing in the form of loans
•
Drawings by the owner(s)
•
Income generated through sales,
services rendered or any other means
•
Etc.
•
Etc.
©
ED
G
Area of application
ASSETS and EXPENSES
(and DRAWINGS)
292
LIABILITIES and INCOME
(and CAPITAL)
Question solutions
The following rules of double entry apply to the books of account:
All asset accounts
All liability accounts
–
–
+
(Increase)
(Decrease)
(Decrease)
(Increase)
All income accounts
+
–
–
(Increase)
(Decrease)
(Decrease)
–
(Increase)
(Decrease)
–
+
(Decrease)
(Increase)
at
io
n
+
(Increase)
The owner’s capital account
(P
The owner’s drawings account
+
ty
)
All expense accounts
Lt
d
+
Question 1.6
Accounting is the science of recording the monetary values of financial
transactions of individuals or businesses, and collecting the results with the
aim of supplying financial information by submitting reports as a basis for
decision-making.
(ii)
Bookkeeping is only one part of the practice of accounting. It is like a piece
of a much larger pie:
G
E
Ed
uc
(i)
THE BOOKKEEPING PROCESS
ED
ACCOUNTING
©
BOOKKEEPING
Use source documents
to draw up journals
Use journals
to post to ledgers
Use General ledger balances
to draw up the trial balance
Traditionally, the bookkeeper’s responsibilities involved taking the transactions
recorded on source documents and using them to draw up the journals, ledgers
293
Annexure A
and trial balance. Thereafter the accountant takes over and draws up the financial
statements and performs other important financial tasks and duties.
Lt
d
Question 1.7
Formal bookkeeping system
Indigenous bookkeeping system
at
io
n
(P
ty
)
Governed by International Financial
Tailored to the needs of the owner
Reporting Standards (IFRS)
Compiled by a qualified person – usually on Done manually by the owner of the business
a computerised system
Supported by source documents
Mostly cash transactions – i.e. no source
documents
All cash transactions done through a current Transactions done using hard cash – no
bank account
bank account is involved
Annual financial statements are prepared
No statements are drawn up
Extensive control measures in place to
Often only one person involved – no control
manage resources effectively
measures except for self-management
Does planning and draws up budgets at
Plans business on a day-to-day basis
least once a year
Ed
uc
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Table 1.2: Comparing a formal bookkeeping system and an indigenous bookkeeping
system
Question 1.8
G
An easy and inexpensive way to start a business
Relatively low start-up costs
Owner directly controls the decision-making
Lowest burden in terms of legal regulations
Not a lot of working capital required to start up
There are many tax advantages for the owner if the business is not doing so well,
such as lower tax bracket when profits are low
• The profits belong to the owner alone
©
ED
•
•
•
•
•
•
E
Advantages of sole proprietorships:
Disadvantages of sole proprietorships:
• Unlimited liability, which means that if the business incurs debts that it cannot
repay, then the owner’s personal assets will be used to pay off the debts
294
Question solutions
• Income taxed at the owner’s personal tax rate which is bad if the business is very
profitable
• Difficulty raising capital
• In the case of absence by the owner the business may suffer
Lt
d
Advantages of companies:
Ed
uc
Long and complicated process of starting up
High burden in terms of legal regulations
Large amounts of capital required to start up
Decision-making may be shared
Profits to be shared
Taxed at a flat rate (e.g. 28%) on profits even if company is performing badly
©
ED
G
E
•
•
•
•
•
•
at
io
n
Disadvantages of companies:
(P
ty
)
• Limited liability of members, so shareholders cannot be held personally liable
for debts of the company during the course of doing business or should the
business fail
• Taxed at a flat rate (e.g. 28%) which can be an advantage if profits are very high
• Wide range of skills and expertise of members
• In the event of business failure, a member only loses the value of their share in
the business
• Easier to raise capital
295
Annexure A
Lt
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Learning Unit 2
The accounting equation and double-entry system
ty
)
Question 2.1
(P
Yes, the fifth vehicle is a resource that is expected to be controlled for longer than
a year. It will be added to the balance of the vehicles account, which is classified as
a non-current asset.
at
io
n
The other four vehicles are expected to be sold within one year. They will thus be
added to the balance of the trading inventory account, which is classified as a
current asset.
Question 2.2
Bank, fixed deposits, vehicles, trading inventory and office equipment are
all items possessed by the business, from which future economic benefits
are likely to be derived. They also represent either cash or items that can be
converted into cash. As such they are all considered assets.
Ed
uc
(i)
ED
G
E
Advertising and traffic fines are expenses. They do not have a retained value.
They represent ‘past’ resources used by the business in generating its income.
The difference between income generated and expenses incurred will equal
the profit made by the business. Strictly speaking packing materials, fuel
and office consumables are assets until used up. However since they will be
used up within a relatively short period of time, it is accounting convention to
record them as expenses from the moment they are bought.
©
(ii)
296
The accounting cycle can be summarised as follows:
Transactions are summarised on source documents. Source documents are
entered into, and summarised by, subsidiary journals. Subsidiary journals are
posted to, and summarised in, the general ledger. The accounts in the general
ledger are listed and summarised in a trial balance. At year-end, financial
statements are drawn up to summarise the financial performance for the year,
as well as the financial position as at the last day of the financial year.
Question solutions
Question 2.3
2.
(P
3.
How much does Peter still owe Best Finance CC? Since he has paid a R 20 000
deposit as well as 12 instalments, we could say that he still owes R 216 000.
Now look into the future (from 31 December 20.7). How many instalments are
payable within one year? The answer is 12. There is thus a current portion of
R 24 000 tied up in the debt of R 216 000.
How much of the R 216 000 in debt will only be settled after 12 months from
now? If R 24 000 of the R 216 000 is payable within one year, the balance will
constitute the non-current portion, which is R 192 000.
ty
)
1.
Lt
d
The important aspect to remember in this example is that when listing assets
and liabilities, one should be forward-looking. In other words, one should ask the
following three questions on 31 December 20.7:
at
io
n
The most appropriate list of liabilities will thus be as follows.
LIABILITIES OF PETER MKHONZA AS AT 31 DECEMBER 20.7:
Non-current liabilities
R
192 000
Current liabilities
24 000
Ed
uc
Long-term borrowing: HP loan: Best Finance CC
Short-term portion of long-term borrowing
Question 2.4
E
(i)
R
120 000
Vehicles
180 000
Land and buildings
400 000
©
Equipment
ED
G
Non-current assets
216 000
700 000
Current assets
R
Debtors control
24 000
Petty cash
4 000
Cash float
1 000
Trading inventory
15 000
44 000
297
Annexure A
(Note: The bank balance is not included with current assets, since it is in overdraft.
It will thus be included with current liabilities.)
R
Mortgage loan
250 000
Lt
d
Non-current liabilities
Loan from Plewman’s Bank
* 100 000
350 000
R
Bank overdraft (balance unfavourable)
Creditors control
Owner’s equity
Total assets (R 700 000 + 44 000)
(ii)
Ed
uc
Total liabilities (R 350 000 + 56 000)
at
io
n
Short-term portion of long-term loan
(P
Current liabilities
ty
)
* R 124 000 – R 24 000 = R 100 000
2 000
30 000
24 000
56 000
R
744 000
(406 000)
338 000
Assets are present economic resources controlled by the entity as a result of
past events.
G
E
Owner’s equity refers to the net results after deducting the liabilities from the
assets. It refers to the wealth of the owner(s) in the business.
ED
Liabilities are present obligations of the entity to transfer an economic
resource as a result of past events.
©
Income referes to increases in assets or decreases in liabilities that result in
increases in equity, other than those relating to contributions from owners.
298
Expenses refer to decreases in assets or increases in liabilities that result in
decreases in equity, other than those relating to distributions to owners.
Question solutions
Question 2.5
Day
Assets (R)
=
Owner’s equity (R)
+
Liabilities (R)
40 000
10 000
30 000
2
+ 2 000
0
0
Lt
d
1
- 2 000
7
+ 11 000
0
0
+ 12 000
0
31
- 3 000
0
Total:
49 000
10 000
+ 12 000
- 3 000
(P
21
ty
)
- 11 000
39 000
at
io
n
There has been no change in owner’s equity during August 20.7
Findings:
Type of account
E
Question 2.6
Ed
uc
When only assets and/or liabilities are involved in a transaction, there will be no
effect on owner’s equity. In this example, none of the transactions had an effect on
owner’s equity. If a business buys an asset, takes out a loan, or pays off a loan, it
does not alter the owner’s wealth.
ED
G
Name of account
E.g. Equipment
Noncurrent
asset
Current
asset
Noncurrent
liability
Current
liability
Income
©
Bank overdraft
Interest income
X
X
X
X
Fuel and vehicle
maintenance
Interest on favourable
bank balance
Interest on overdraft
Proprietary
account
X
Wages and salaries
Trading inventory
Expense
X
X
X
299
Annexure A
Capital
X
Mortgage loan
X
Creditors control
X
X
Cost of sales
X
X
Savings account
X
Petty cash
X
ty
)
Debtors control
Lt
d
Rent income
Drawings
X
Land and buildings
X
X
(P
Office consumable
Stationery
X
X
at
io
n
Staff refreshments
Advertising
Credit card account
(unfavourable)
X
Rates and taxes
X
X
Ed
uc
Commission received
Machinery
X
X
Traffic fines
Long-term loan
X
X
(Source: EDGE Learning Media (Pty) Ltd, 2018)
G
E
Table 2.1: Determining the different types of accounts
ED
Question 2.7
(i)
Day
Assets (R)
=
Owner’s equity (R)
+
Liabilities (R)
233 415
83 415
1
+ 75 000
+ 75 000
0
5
+ 34 275
0
+ 34 275
6 (a)
+ 9 000
+ 9 000
0
6 (b)
– 6 000
– 6 000
0
7
– 600
– 600
0
©
1
300
150 000
Question solutions
– 2 538
0
13
– 1 845
– 1 845
0
16
+ 21 930
0
+ 21 930
17
– 4 500
– 4 500
0
19
0
– 1 365
+ 1 365
24
– 450
– 450
25 (a)
+ 4 500
+ 4 500
25 (b)
– 3 000
– 3 000
26
– 12 000
– 12 000
30
+ 3 000
– 3 000
0
Total:
347 187
0
0
(P
ty
)
0
139 617
0
0
207 570
When calculating profit, capital and drawings should be excluded. In other
words, deduct the negatives from the positives in the owner’s equity column,
but exclude the + R 75 000 on day 1, as well as the R 12 000 on day 26. The
profit made during September 20.7 can be calculated as follows:
Profit (R)
Ed
uc
Day
1
Not included
1
Not included
5
0
+ 9 000
6 (a)
7
G
8
– 6 000
E
6 (b)
ED
13
©
Lt
d
– 2 538
at
io
n
(ii)
8
– 600
– 2 538
– 1 845
16
0
17
– 4 500
19
– 1 365
24
– 450
25 (a)
+ 4 500
25 (b)
– 3 000
26
Not included
30
0
Total:
- 6 798
301
Annexure A
Question 2.8
A debtor is a person or entity that owes the business money. It is treated as a
current asset.
Lt
d
A debt refers to a current obligation, or a liability. It is in essence the opposite of a
debtor, but could refer to both current and non-current liabilities.
ty
)
Debit is a Latin word that means ‘left-hand side’. Please note that it does not mean
‘increasing’ or ‘decreasing’.
Question 2.9
Day
Assets (R)
1
Ed
uc
(i)
at
io
n
(P
People often find accounting terminologies confusing, because many of the
accounting terminologies are not derived from the English language, but are from
Franciscan or Latin origin. To the ’man on the street’ it may seem as if ‘debit’ was
derived from ‘debtor’ or from ‘debt’. As we know, this is not the case.
=
Owner’s equity (R)
+
Liabilities (R)
425 000
325 000
100 000
+ 100 000
+ 100 000
0
+ 300 000
+ 300 000
0
– 5 000
0
– 5 000
– 9 000
– 9 000
0
+ 25 000
0
+ 25 000
+ 4 500
+ 4 500
0
13 (b)
– 2 000
– 2 000
0
25
* + 10 000
+ 10 000
31
– 680
– 680
0
Total:
847 820
727 820
120 000
1
7
10
ED
G
13 (a)
E
8
©
* This could also be shown in two separate entries of + 6 000 and + 4 000 respectively.
302
Question solutions
(ii)
The relevant double entries can be shown in the following simplified manner:
Capital
Details
Amount
Details
Amount
325 000
100 000
00
300 000
00
5 000
ty
)
00
9 000
00
Bank
Vehicles
Bank
Details
Amount
Details
425 000
00
Bank loan
Capital
100 000
00
Salaries and wages
4 000
00
at
io
n
(P
Balance
Services rendered / current
income
00
Lt
d
Balance
Amount
Bank loan
Details
Amount
5 000
00
Balance
Ed
uc
Bank
Details
Amount
100 000
00
Vehicles
Details
Amount
300 000
Capital
Details
Amount
Details
Amount
Details
Amount
00
Salaries and wages
ED
G
E
Details
Bank
Details
Amount
9 000
00
Creditors control*
Amount
Trading inventory
25 000
00
©
*The reason why this account is called ‘creditors control’ and not just ‘creditors’ will
become clear when creditors’ individual accounts are discussed later.
Trading inventory
Details
Creditors control
Amount
25 000
Details
00
Amount
Cost of sales
2 000
00
Drawings
680
00
303
Annexure A
Debtors control*
Details
Amount
Details
4 500
00
Services rendered / current
income
6 000
00
Lt
d
Sales
Amount
Sales
Amount
Details
4 500
Details
Amount
Debtors control
Cost of sales
Amount
at
io
n
Details
2 000
Trading inventory
Amount
(P
Details
ty
)
* The reason this account is called ‘debtors control’ and not just ‘debtors’ will
become clear when debtors’ individual accounts are discussed later.
00
00
Services rendered / current income
Details
Amount
Details
Ed
uc
Bank and debtors control
(4 000 + 6 000)
Amount
* 10 000
00
Drawings
Details
680
Details
Amount
00
E
Trading inventory
Amount
ED
G
* An alternative method to record the transaction on day 25 would have been as
follows:
Details
©
Services rendered / current
income
Debtors control
Amount
10 000
Details
00
Bank
4 000
00
Services rendered / current income
Details
Amount
Details
Debtors control
304
Amount
Amount
10 000
00
Question solutions
Bank
Details
Amount
4 000
Debtors control
Details
Amount
00
Lt
d
Question 2.10
at
io
n
(P
ty
)
‘Gross’ means ‘before deductions’. When we speak of ‘gross profit’, we refer to the
profit before the deduction of overheads / operating expenses. Net profit refers to the
‘bottom line’ or the profit ‘after the deduction of overheads / operating expenses’.
Gross profit is the difference between the sales revenue and the cost of sales. There
was only one sales transaction in Question 2.9, being the transaction on day 13,
during which a gross profit of R 2 500 was made (R 4 500 – R 2 000). Note that the
net profit is higher than the gross profit. This is due to the services rendered on day
25. In a trading concern, gross profit is bound to be higher than net profit.
Example 1:
Ed
uc
There is a difference between a gross margin (gross profit percentage) and a markup percentage. A gross margin is the profit expressed as a percentage of the selling
price (excluding VAT). A mark-up percentage is the profit expressed as a percentage
of the cost price.
Cost price
Profit
Selling price
R 20
R5
+ R 25
+
=
G
E
The gross margin is R 5/R 25 × 100 = 20%
The mark-up percentage is R 5/R 20 × 100 = 25%
(This tells us that a gross margin of 20% is the same thing as a mark-up percentage
of 25%.)
ED
Example 2:
Suppose the mark-up percentage is 50%, what is the corresponding gross margin?
©
Cost price
100 +
Profit
Selling price
50
150
=
Note: 50/100 × 100 = 50%
Then the gross margin is 50/150 × 100 = 331/3%
305
Annexure A
Example 3:
A product with a cost price of R 100 is selling for R 160. What are the mark-up
percentage and the gross margin respectively?
+
Profit
=
Selling price
Lt
d
Cost price
R 100+R 60=
R 160
ty
)
The gross margin is R 60/R 160 × 100 = 37.5%
(P
The mark-up percentage is R 60/ R 100 × 100 = 60%
(This tells us that a gross margin of 37.5% is the same thing as a mark-up percentage
of 60%.)
Profit (R)
1
Not included
1
Not included
7
0
8
– 9 000
10
0
13 (a)
+ 4 500
13 (b)
– 2 000
25
+ 10 000
G
E
Ed
uc
Day
at
io
n
When calculating the net profit, capital and drawings should be excluded. In other
words, deduct the negatives from the positives in the owner’s equity column, but
exclude the + R 400 000 on day 1, as well as the R 680 on day 31. The profit made
during October 20.7 can be calculated as follows:
ED
3 500
We can explain a mark-up percentage as follows:
©
A dealer buys a product for R 100 and ‘marks it up’ by 50%, thus adding 50% of
R 100 to the R 100 to arrive at R 150.
When working with a mark-up percentage, use the following equation:
Cost price
+
Profit
=
R 100+R 50=
306
Selling price
R 150
Question solutions
The mark-up percentage can be calculated as follows:
50
100
× 100 = 50%
ty
)
Lt
d
The gross margin is a bit harder to explain. In board meetings, directors often speak
of gross margins. This is easier to use in strategic decision-making than markup percentages. A gross margin of 25% basically means that 25 cents of each
R 1 in sales revenue becomes available to cover overheads with. The reason why
directors and managers use this ratio is that it now becomes relatively easy to
calculate break-even points.
Cost price
+
Profit
(P
When explaining a gross margin, use the following equation:
=
at
io
n
R 100+R 50=
Selling price
R 150
The gross margin can be calculated as follows:
150
× 100 = 331/3%
Ed
uc
50
With reference to Question 2.9, the mark-up percentage can be calculated as
follows (refer to the transaction on day 13):
2 000
× 100 = 125%
E
2 500
ED
G
With reference to Question 2.9, the gross margin can be calculated as follows (refer
to the transaction on day 13):
2 500
4 500
× 100 = 55.56%
©
Accountants often speak of surpluses and deficits when referring to nonprofit organisations. Examples of non-profit organisations include sports clubs,
government hospitals, and charity organisations.
307
Annexure A
Question 2.11
15
27
28
–
1 000.00
Cr
Trading inventory
Dr
Drawings
–
10 000.00
Cr
Bank
+
10 000.00
Dr
Trading inventory
+
5 200.00
Dr
Computer equipment
+
4 470.00
+
Dr
Debtors control
Cr
Sales
–
2 980.00
–
2 980.00
Cr
Trading inventory
Dr
Cost of sales
+
6 950.00
+
6 950.00
Dr
Bank
Cr
Sales
–
4 633.33
–
4 633.33
Cr
Trading inventory
Dr
Cost of sales
+
1 000.00
Dr
Bank
–
+
800.00
Cr
Dividend income
Trading inventory
+
800.00
©
ED
29
308
Dr
4 470.00
1 000.00
G
Cr
Bank
Lt
d
1 000.00
Liabilities (R)
ty
)
–
+
+
5 200.00
Cr
Creditors control
(P
10
Owner’s equity (R)
at
io
n
8
=
Ed
uc
1
Assets (R)
E
Date
Question solutions
Question 2.12
15
27
28
+
2 000.00
Dr
Office equipment
Cr
Capital
–
2 100.00
–
2 100.00
Cr
Trading inventory
Dr
Drawings
+
10 000.00
+
10 000.00
Dr
Trading inventory
Cr
Creditors control
+
6 000.00
Dr
Computer equipment
–
6 000.00
Cr
Bank
+
11 500.00
+
11 500.00
Dr
Debtors control
Cr
Sales
–
8 050.00
–
8 050.00
Cr
Trading inventory
Dr
Cost of sales
+
9 750.00
+
9 750.00
Dr
Bank
Cr
Sales
–
6 825.00
–
6 825.00
Cr
Trading inventory
Dr
Cost of sales
–
2 300.00
–
2 300.00
Bank
Dr
Telephone expense
3 000.00
+
3 000.00
Cr
Rent income
Cr
+
Bank
ty
)
©
Dr
Lt
d
2 000.00
ED
29
Liabilities (R)
(P
10
+
at
io
n
8
Owner’s equity (R)
Ed
uc
1
=
+
G
1
Assets (R)
E
Date
309
Annexure A
Question 2.13
Transaction day 13: Purchased trading inventory on credit for R 18 000.
No.
=
Owner’s equity (R)
+
Liabilities (R)
+
18 000
+
18 000
Dr
Trading inventory
Cr
Creditors
ty
)
13
Assets (R)
Lt
d
These are the entries to be made under a perpetual inventory system:
No.
Assets (R)
–
18 000
+
18 000
Dr
Purchases
Cr
Creditors
=
Owner’s equity (R)
+
at
io
n
13
(P
These are the entries to be made under a periodic inventory system:
Liabilities (R)
Transaction day 14: Paid R 2 000 from petty cash for railage on purchases on the
trading inventory purchased in the previous transaction.
No.
Assets (R)
+
2 000
Dr
Trading inventory
–
2 000
Owner’s equity (R)
+
Liabilities (R)
Petty cash
G
Cr
=
E
14
Ed
uc
These are the entries to be made under a perpetual inventory system:
ED
These are the entries to be made under a periodic inventory system:
No.
©
14
310
Assets (R)
=
Owner’s equity (R)
–
2 000
–
2 000
Cr
Petty cash
Dr
Railage on purchases
+
Liabilities (R)
Question solutions
Transaction day 22: Sold all the trading inventory purchased on day 13 for R 27 000
cash.
These are the entries to be made under a perpetual inventory system:
=
Owner’s equity (R)
+
27 000
+
27 000
Dr
Bank
Cr
Sales
–
20 000
–
20 000
Cr
Trading inventory
Dr
Cost of sales
+
Liabilities (R)
Lt
d
22
Assets (R)
ty
)
No.
(P
(Note: The cost of the trading inventory now includes the railage on purchases of
R 2 000.)
No.
=
Owner’s equity (R)
+
27 000
+
27 000
Dr
Bank
Cr
Sales
+
Liabilities (R)
Ed
uc
22
Assets (R)
at
io
n
These are the entries to be made under a periodic inventory system:
(Note: No double entry is passed for the cost of sales. Cost of sales will be calculated
at year-end.)
Question 2.14
G
E
The total value of the assets can be calculated as follows:
Bank
13 895
14
Trading inventory
34 125
70
VAT input
32 901
96
©
ED
(i)
Petty cash
2 000
00
Equipment
155 800
00
Vehicles
199 006
27
Debtors control
19 475
00
Total assets:
457 204
07
311
Annexure A
The total value of the liabilities can be calculated as follows:
Loan: AAA Bank
190 000
00
VAT output
43 826
05
5 842
00
Creditors control
(iii)
The total income for the period can be calculated as follows:
476 912
67
50
50
520 876
33
306 993
41
13 228
65
9 366
45
34 638
85
Rates and taxes
4 059
00
Insurance
12 956
00
3 804
80
Postage and stationery
1 824
50
Staff refreshments
2 009
00
Fuel
5 303
35
Interest on loan
9 225
00
Credit losses
1 742
50
Sales returns
14 956
80
Interest on overdraft
635
50
Interest paid/charged
2 337
00
423 080
81
Telephone
Rent expense
ED
E
Bank charges
Ed
uc
Wages and salaries
at
io
n
The total expenses for the period can be calculated as follows:
Cost of sales
©
66
574
Interest received
The owner’s wealth in Letsema Furnishers on 30 April 20.9 can be calculated
as follows:
Owner’s equity = Assets – Liabilities
Owner’s equity = 457 204.07 – 239 668.05
Owner’s equity = R 217 536.02
312
40 785
2 603
(P
Interest on current account
(v)
05
G
Sales
(iv)
239 668
ty
)
Services rendered
Lt
d
(ii)
Question solutions
The owner’s wealth in Letsema Furnishers on 30 April 20.9 can also be
calculated as follows:
Lt
d
Owner’s equity = Capital + Net profit – Drawings
Owner’s equity = 123 000 + (520 876.33 – 423 080.81) – 3 259.50
Owner’s equity = R 217 536.02
ty
)
Both methods will yield the same answer – provided that the trial balance is
in balance.
Question 2.15
Ed
uc
at
io
n
(P
This is a very important task. It explains, to a large extent, why there is an accounting
framework and why IFRS exists. If one looks at the two statements of financial
positions given, it becomes clear that the total assets and total liabilities (and
subsequently the total owner’s equity) of the two companies are equal in value. Both
companies are therefore equally solvent. However, as an investment opportunity,
the one company offers much less risk than the other. The key to this realisation
lies in the relative weighting of the current versus the non-current components of
the assets and liabilities. Company B is preferred above company A as a possible
investment, because company A has a current liquidity crisis. Current liabilities for
company A amount to R 4 million.
©
ED
G
E
These current liabilities need to be settled within one year, and this will surely be
done by disposing of assets that are liquid, which can be turned into cash within
a year. Company A’s current assets amount to R 3 million, which means they have
insufficient liquid assets to cover their short-term obligations. This essentially
means that company A will have to start selling off their fixed assets soon to pay
off their current debts, unless their liquidity position was to improve. If a company
needs to dispose of fixed assets to cover short-term debts, it could lead to eventual
sequestration.
313
Annexure A
Question 2.16
–
5 325.00
–
5 325.00
Cr
Trading inventory
Dr
Drawings
4 000.00
+
4 000.00
Bank
Cr
Rent income
–
1 500.00
+
1 500.00
Cr
Creditors control
Office stationery
11 790.00
+
11 790.00
Dr
Debtors control
Cr
Sales
–
7 074.00
–
7 074.00
Cr
Trading inventory
Dr
Cost of sales
8 710.00
+
8 710.00
+
Dr
Bank
–
5 806.67
Cr
–
Cr
Debtors control
+
411.00
at
io
n
Dr
+
Dr
Trading inventory
Cr
Sales
–
5 806.67
Trading inventory
Dr
Cost of sales
685.00
–
685.00
Dr
Sales returns
+
411.00
Cr
Cost of sales
©
ED
G
E
28
314
Liabilities (R)
+
Ed
uc
27
+
Dr
11
16
Owner’s equity (R)
ty
)
6
=
(P
1
Assets (R)
Lt
d
Date
Question solutions
Lt
d
Learning Unit 3
Value-added tax and source documents
ty
)
Question 3.1
The VAT system has indeed been much more beneficial to SARS than the
GST system. The main reason for this is that the VAT system has numerous
collection points making it much harder to commit VAT fraud than the GST
system, which has only one collection point (at the retailer). The reasons for
this is that a recipient of an original tax invoice might get audited by SARS,
and during such an audit, cross-checking can be done. If one VAT vendor has
claimed input VAT on a purchase, SARS could check whether the supplier has
declared the output VAT for the same transaction. By auditing one vendor,
another can be indirectly audited since each document has an original and a
duplicate version.
(ii)
There is definitely some truth in this rumour. Let’s say a supplier bought a
product for R 50 and sold the same product for R 100. If there happened to
be no VAT in the system, the profit earned for this supplier would have been
R 50. Now, let’s assume VAT is introduced at 15%. The invoice received by
this vendor from his supplier would thus be R 57.50, of which he would claim
back R 7.50. It will be human nature for this vendor to add 15% to his selling
price, effectively passing the additional tax on to the next vendor in line. On
the invoice issued for R 115, R 15 would be due to SARS as output VAT –
effectively leaving income earned on R 100. In this way the profit earned is still
R 50, but the tax costs have been passed on to the next supplier in line. The
manufacturer passes the tax on to the wholesaler, the wholesaler passes it on
to the retailer, and the retailer passes it on to the consumer. The unfortunate
fact is that many final consumers are not registered for VAT (especially the
‘man on the street’), so there is nobody else to carry the burden of sales
taxes.
©
ED
G
E
Ed
uc
at
io
n
(P
(i)
Question 3.2
Businesses that sell zero-rated supplies to the final consumer of such supplies may
claim input VAT, at 0%, on the purchases of these goods. The same cannot be
said of exempt supplies – these supplies do not attract VAT at any point in the VAT
collection cycle.
315
Annexure A
Question 3.3
E.g. Trading inventory
Standard
rated supply
Zero-rated
supply
X
X
E.g. Life assurance
E.g. White bread for staff lunches
White bread purchased by a restaurant
with the purpose of making burgers for
resale
X
Illuminating paraffin for use in a
business’s factory
X
X
Telephone bill
X
Doctor’s subscriptions to the Medical
Council
X
G
E
Water and electricity bill
ED
X
X
X
Diesel for use in the delivery vehicle
Business’s subscription to the local golf
club
X
X
Equipment for the office
X
©
Stationery
A kettle for the office kitchen (for use
by staff)
A kettle purchased by a restaurant for
use in their primary business activity
X
X
Staff lunches
Interest on bank overdraft
316
No claiming of
input VAT
X
Ed
uc
Brown bread purchased by a restaurant
with the purpose of making sandwiches
for resale
at
io
n
E.g. Petrol
Exempt supply
(P
Consideration
ty
)
Lt
d
Furthermore, prospective bookkeepers might end up working for a business that
sells zero-rated or exempt supplies. For example, they might end up as a bookkeeper
working for a supermarket. They will need to have knowledge about which items
need to be coded as zero-rated (for example brown bread but not white bread,
etc.). It would also then be important for such a bookkeeper to know that, although
these items are zero-rated when they are marked and sold, they include VAT, at 0%,
when purchased from the wholesaler, and input VAT can be claimed back on these
purchases, also at 0%.
X
X
Question solutions
Standard
rated supply
Short-term insurance premiums
X
Advertising
X
Sale of a business as a going concern
Zero-rated
supply
Exempt supply
X
No claiming of
input VAT
Lt
d
Consideration
X
A delivery vehicle that does not fit the
description of a passenger vehicle
X
Electricity portion of rates and taxes bill
X
X
(Source: EDGE Learning Media (Pty) Ltd, 2018)
at
io
n
Table 3.1: Determining the different types of supply
(P
Rates portion of rates and taxes bill
ty
)
A ‘double-cab’ vehicle
Question 3.4
The cash slip in question does not display the name of the buyer, their address
or their VAT number.
(ii)
No, the VAT Act clearly states that for any sale above R 5 000, the vendor
needs to issue a full tax invoice, showing their name, address and VAT number
as well as the name, address and VAT number of the buyer.
(iii)
The cash slip shown does not qualify as full tax invoice, because it does not give
the name, address and VAT number of the buyer. Some businesses overcome
this difficulty by including a few lines at the bottom of the cash slip, where the
cashier can fill in (write) the buyer’s details if the invoice is above R 5 000. Some
large wholesalers that require a buyer to have a trading card (such as Makro)
are able to produce full tax invoices from their cash registers. This is because
the buyer’s details are included on the magnetic strip of the trading cards and
are therefore automatically included on the till slip generated.
ED
G
E
Ed
uc
(i)
©
Question 3.5
(i)
A credit card has become a very useful tool to conclude routine transactions.
It is the first step in creating a ‘cashless society’ which one reads so much
about in the press. When a business makes a purchase and pays by credit
card, there are actually two transactions involved. The business is buying the
goods from the vendor, and the vendor needs to supply a slip or an invoice
as proof of purchase. This source document remains the main document for
tax purposes, and must be retained by both parties for VAT purposes. If the
317
Annexure A
purchaser decides to pay by cheque, the seller takes a risk. The reason for
this is that a cheque cannot be cleared electronically through a Speedpoint
system, since there is no magnetic strip on a cheque. The seller will retain the
cheque and deposit it into their banking account.
The risks and disadvantages of using cheques as means of payment are
largely reduced when using a credit card instead. With a credit card, the seller
can determine at the point of sale whether or not the transaction is approved
by the bank. Via the Speedpoint system, the cardholder’s bank is contacted
electronically, and the transaction is either approved or declined immediately.
Very often you will find that, albeit the original cash slip is received by the
customer, this same customer retains the duplicate of his/her credit card slip
and gives the original to the seller. The reason for this is simple: there are two
transactions here. The first is where the customer purchases the goods from
the vendor, and therefore receives the best copy of the cash slip or invoice.
at
io
n
(P
ty
)
(ii)
Lt
d
The cheque will then be placed on ‘hold’ for up to ten days (seven working
days). This is the risk period for the seller, since the cheque may come back
from the bank unpaid (due to insufficient funds).
E
Question 3.6
Ed
uc
The second transaction is where the buyer ‘sells’ his/her credit to the vendor.
In effect, the vendor now becomes the customer in this second transaction
– and they should therefore receive the original (best copy) of the credit card
slip. Accepting credit cards as means of payment can be a costly exercise for
a vendor. Most banks charge vendors a flat fee of 5% of the total amount of
the purchase in order to accept payment this way.
©
ED
G
VAT exclusive price (R)
VAT amount (R)
439.45
7 828.83
120.50
1 869.57
140.00
680.75
12 367.56
393.73
300.00
23 214.13
VAT inclusive price (R)
65.92
1 174.32
18.08
280.43
21.00
102.11
1 855.13
59.06
45.00
3 482.12
505.37
9 003.15
138.58
2 150.00
161.00
782.86
14 222.69
452.79
345.00
26 696.25
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Table 3.2: Calculating the VAT-exclusive price, VAT amount and VAT-inclusive price
318
Question solutions
Question 3.7
(i)
Profit
(Excl. VAT)
Selling price
(Excl. VAT)
Lt
d
Cost price
(Excl. VAT)
Mark-up on cost
10%
100.00
10.00
25%
400.00
100.00
50%
1 500.00
750.00
100%
4 000.00
4 000.00
8 000.00
120%
1 000.00
1 200.00
2 200.00
500.00
ty
)
2 250.00
(P
(Source: EDGE Learning Media (Pty) Ltd, 2018)
110.00
at
io
n
Table 3.3: Calculating the markup percentage, cost price, profit and selling price
(ii)
CP+Profit=
75+25=
Thus: Gross profit percentage: 25/100 × 100/1
=
Mark-up percentage: 25/75 × 100/1=
SP
100
25%
331/3%
(b)
CP+Profit=
50+50=
Thus: Gross profit percentage: 50/100 × 100/1
=
Mark-up percentage: 50/50 × 100/1
=
SP
100
50%
100%
(c)
CP+Profit=
100+50=
Thus: Mark-up percentage: 50/100 × 100/1 =
Gross profit percentage: 50/150 × 100/1=
SP
150
50%
331/3%
CP+Profit=
100+300=
Thus: Mark-up percentage: 300/100 × 100/1
=
Gross profit percentage: 300/400 × 100/1 =
SP
400
300%
75%
CP+Profit=
R 100+R 60=
Thus: Mark-up percentage: 60/100 × 100/1 =
Gross profit percentage: 60/160 × 100/1=
SP
R 160
60 %
371/2%
ED
G
E
Ed
uc
(a)
©
(d)
(e)
319
Annexure A
Question 3.8
(x)
Lt
d
ty
)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
([R 570 ÷ 1.15] × 1 000) + 10 000 = R 505 652
(1 710 ÷ 1.15) × 1 000 = R 1 486 957
Cost of sales of Pienaar Dealers = Sales revenue of Westbrook Manufacturers
= R 1 486 957
R 1 486 957 + (50% × R 1 486 957) = R 2 230 436
R 1 486 957 – R 505 652 = R 981 305
R 2 230 436 – R 1 486 957 = R 743 479
R 495 652 × 15% = R 74 348 (no VAT may be claimed on wages)
R 1 486 957 × 15% = R 223 044
Input VAT claimable by Pienaar Dealers = Output VAT payable by Westbrook
Manufacturers = R 223 044.
R 2 230 436 × 15% = R 334 565
(P
(i)
(ii)
(iii)
at
io
n
Question 3.9
(i)
(c)
(d)
Cost price is the amount it costs a business to purchase an item.
Selling price is the amount charged to the buyer for goods and services.
Cost price plus profit will give you the selling price. Selling price should
always be greater than cost price so that profit can be reflected. A
selling price can be expressed exclusive or inclusive of VAT.
Gross profit is the difference between selling price and cost price.
VAT is a sales tax paid on most goods and services that you buy from
a VAT vendor, and is currently charged at 15%.
Ed
uc
(a)
(b)
(ii)
E
R 252.57
R 21.98
Tomatoes, cucumbers or bananas (name one)
R 30.08 ÷ 15% = R 200.53
4420106888
©
ED
G
(a)
(b)
(c)
(d)
(e)
320
Question solutions
(iii)
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(P
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(a)
Product
Calculation of VAT exclusive cost
G
E
(b)
12 × R 12.60 = R 151.20
7 × (R 9.20 ÷ 1.15) = R 56.00
5 × R 24 = R 120.00
6 × R 7.80 = R 46.80
ED
Hamburger rolls
White bread
Doughnuts
Brown bread
Calculation of cost
R 151.20 ÷ 1.3
R 56.00 ÷ 1.3
R 120.00 ÷ 1.3
R 46.80 ÷ 1.3
Cost of sales
R 116.31
R 43.08
R 92.31
R 36.00
R 287.70
©
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Table 3.4: Calculating the cost of sales
Thus: The total cost must have been R 287.70.
(c)
The gross profit is the difference between the VAT exclusive selling price and
the VAT exclusive cost price. The VAT exclusive cost price = R 287.70 (see
answer for [b]).
321
Annexure A
The VAT exclusive selling price is R 374.00 (from [a]).
Therefore the gross profit = R 374.00 – R 287.70 = R 86.30.
©
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Question 3.10
(Source: SARS, 2019)
Figure 3.1: VAT201 output tax section
322
©
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Question solutions
(Source: SARS, 2019)
Figure 3.2: VAT201 input tax and VAT payable/refundable section
323
Annexure A
Question 3.11
There is no correct or incorrect answer to this question. Consider the following:
Question 3.12
(i)
Ed
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VAT exclusive cost of 2-Time Cell Phone
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(P
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• VAT is paid by everybody who purchases any product which is not exempted
or zero-rated. This implies that foreigners as well as South African citizens who
purchase goods in South Africa will pay VAT on their purchases. This increases
the total contributors towards the money needed by government.
• Although some items are exempted from VAT in order to help the poor, even the
very poor need to buy essentials such as clothes and blankets from time to time.
These items do carry VAT.
• 15% is a relatively high percentage for VAT if measured against international
standards. VAT was initially only 10%, then was increased by 4% in April 1993
and currently stands at 15% as of 1 April 2018.
• It is one of the maxims of a good tax system to collect more tax from those who
have more to give. VAT ignores this maxim.
R 3 245.89
R 486.88
VAT inclusive cost of 2-Time Cell Phone
R 3 732.77
Mark-up % on cost price
60%
VAT exclusive selling price of 2-Time Cell Phone
R 5 193.42
VAT on the selling price of 2-Time Cell Phone
R 779.01
VAT inclusive selling price of 2-Time Cell Phone
R 5 972.43
G
E
VAT on the cost of 2-Time Cell Phone
Gross profit earned per 2-Time Cell Phone sold (amount in rands)
ED
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Table 3.5: Calculating VAT
©
Gross margin attained = (R 1 947.53 / R 5 193.42) × 100%
= 37.5%
324
R 1 947.53
Question solutions
(ii)
E.g. Operating equipment
Standard
rated supply
Zero-rated
supply
Exempt
supply
X
Membership fees to the local golf club
paid on behalf of staff members
X
X
Brown bread purchased for use in the
staffroom
X
Interest on credit balance on current
bank account
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Couch purchased for the staffroom
X
X
X
Bona fide exports
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Petrol
(P
Single-cab vehicle (bakkie)
Nonallowable
item
Lt
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Consideration
X
Machinery
X
A donation to the Animal Welfare Society
X
Ed
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Short-term all-risk insurance
X
(Source: EDGE Learning Media (Pty) Ltd, 2018)
©
ED
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Table 3.6: Determining the different types of supply
325
Annexure A
Lt
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Learning Unit 4
Recording cash transactions
ty
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Question 4.1
A client enters our store and purchases merchandise which she pays for
in cash at the counter. Our bookkeeper must record this transaction in the
cashbook receipts from a duplicate cash invoice or a cash register roll.
(ii)
A client enters our store and purchases merchandise on account. Our
bookkeeper must record this transaction in the Debtors journal from a
duplicate credit invoice.
(iii)
A tenant pays his rent in cash. The tenant is a registered VAT vendor, and
uses our building for business purposes. Our business needs to issue a
cash invoice and record the transaction in the Cashbook receipts from the
duplicate.
(iv)
Our business buys goods and services on credit from a supplier. We will
receive an original tax invoice from the supplier which our bookkeeper must
record in the Creditors journal.
(v)
We are unhappy with the goods purchased from the supplier in (iv), and return
the goods together with a complaint (goods returned note). The supplier
agrees to credit our account, and issues a credit note. Our bookkeeper
records this transaction in the Creditor’s allowances journal.
The debtor in (ii) is unhappy with the price charged on the transaction, and
requests a rebate of 50%. We grant this discount and issue a credit note to
the customer. Our bookkeeper records this entry in the Debtors allowances
journal. Later that day, the client settles the rest of the amount due in cash,
and we issue a receipt to confirm that the money has been received.
©
ED
(vi)
G
E
Ed
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(P
(i)
(vii)
Any purchase made from money in the petty cash box will be recorded in the
Petty cash journal after completing a petty cash voucher.
(viii)
Any transaction that cannot be entered into one of the conventional journals
must be recorded in the General journal.
326
Question solutions
Question 4.2
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A very important aspect about accounting that you will have to learn right from
the start is: profit is an opinion, but cash is a fact. Most of Joan’s income could
have been on credit, while most of the expenses might have been paid in cash.
Perhaps the debts from credit sales were not collected timeously and lots of credit
losses resulted from the business’s inability to collect this money from debtors.
Prospective entrepreneurs need to realise that they need cash flow to make their
businesses succeed. It is wise to plough as much of your cash receipts back into
the business during the first year or two, or until the business has turned most of its
first ‘round’ of profits into cash.
(P
Question 4.3
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(i) & (ii) involves collecting, completing and sorting similar source documents that
can be summarised in the appropriate subsidiary journal.
©
ED
G
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Ed
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The following documents should have been batched together and entered in the
cashbook receipts:
327
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Annexure A
©
ED
G
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Ed
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The following documents should have been batched together and entered in the
cashbook payments:
Note: With respect RCS 5, the reversal for cost of sales will be done in the general
journal once the replacement computer has been received from the manufacturer.
328
Question solutions
©
ED
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Ed
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(P
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The following documents should have been batched together and entered into the
debtors journal:
329
©
E
G
ED
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Ed
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(P
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Annexure A
330
Question solutions
©
ED
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Ed
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(P
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Lt
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The following documents should have been batched together and entered into the
debtors allowances journal:
331
Annexure A
©
ED
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Ed
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The following documents should have been batched together and entered into the
creditors journal:
332
Question solutions
©
ED
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Ed
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(P
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Lt
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The following documents should have been batched together and entered into the
creditors allowances journal:
333
Annexure A
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(P
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Lt
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The following documents should have been batched together and entered into the
petty cash journal:
©
ED
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Ed
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The following documents should have been batched together and entered into the
general journal:
334
(iii)
Original/
duplicate
3
Original
CI622
Journal
Account(s)
debited
Account(s)
credited
Ed
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Day Doc. no.
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(P
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Question solutions
CJ
Trading
inventory
Creditors
control
Input VAT
4
CN22
Original
CAJ
Creditors
control
Trading
inventory
A
=
O
+ 32 320.00
©
12 (b)
* 13
E
Original
G
T130
ED
12 (a)
PCV17
Duplicate
PCJ
Stationery
Petty cash
Input VAT
DJ
Debtors
control
+ 4 848.00
– 80.00
– 92.00
+ 12.00
– 173.65
– 151.00
+ 22.65
Sales
+ 46 000.00 + 40 000.00
Output VAT
+ 6 000.00
T130
Duplicate
DJ
Cost of sales
Trading
inventory
– 25 000.00 – 25 000.00
RX3
Duplicate
DAJ
Sales returns
Debtors
control
– 4 600.00 – 4 000.00
Input VAT
14
OU12
Original
CJ
Stationery
Input VAT
L
+ 37 168.00
Output VAT
9
+
+ 600.00
Creditors
control
– 190.00
+ 218.50
+ 28.50
335
Annexure A
Day Doc. no.
Original/
duplicate
Journal
15
Original
CAJ
OC4
Account(s)
debited
Creditors
control
Account(s)
credited
A
=
Stationery
O
+
+ 30.00
+ 4.50
16
GJ13
Original
GJ
Debtors
control
Interest
income
(a) + 456.16
17 (a)
T131
Duplicate
DJ
Debtors
control
Sales
+ 34 656.00 + 30 135.65
T131
Duplicate
DJ
Cost of sales
Trading
inventory
19 (a)
RX4
Duplicate
DAJ
Sales returns
Debtors
control
+ 4 520.35
– 19 826.09 – 19 826.09
– 8 664.00 – 7 533.91
+ 1 130.09
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Input VAT
19 (b)
RX4
Duplicate
DAJ
Trading
inventory
Cost of sales
+ 4 956.52 + 4 956.52
20
216
Counterfoil
CBP
Trading
inventory
Bank
+ 5 000.00
and
– 5 750.00
Ed
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Input VAT
+ 750.00
22
R246
Duplicate
CBR
Bank
Debtors
control
+/– 3 000.00
24 (a)
27
Duplicate
CBR
Bank
Sales
+ 25 079.99 + 21 808.69
Output VAT
27
25
GJ14
CBR
Cost of sales
Trading
inventory
– 15 144.92 – 15 144.92
Original
GJ
Drawings
Trading
inventory
– 1 000.00 – 1 150.00
G
ED
26 (a) RC 55
+ 3 271.30
Duplicate
E
24 (b)
Duplicate
Output VAT
CBP
+ 150.00
Sales returns Bank
– 12 540.00 – 10 904.35
Input VAT
+ 1 635.65
“
“
GJ
Trading
inventory
Cost of sales
+ 7 572.46 + 7 572.46
27 (a)
T132
Duplicate
DJ
Debtors
control
Sales
+ 26 910.00 + 23 400.00
DJ
Trading
Cost of sales
inventory
©
26 (b)
Output VAT
27 (b)
336
T132
Duplicate
0.00
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17 (b)
+ 456.16
(P
Output VAT
– 34.50
Lt
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Output VAT
L
+ 3 510.00
– 14 625.00 – 14 625.00
Question solutions
Day Doc. no.
Original/
duplicate
Journal
28
Duplicate
DJ
D001
Account(s)
debited
Debtors
control
Account(s)
credited
A
=
O
Sales
+ 345.00
+ 300.00
+
29
GJ15
Original
GJ
Stationery
Office
equipment
+ 45.00
– 500.00
Lt
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Output VAT
L
– 500.00
R 30 000 × 18.5% × 30/365 = R 456.16
(P
(a)
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There will be no entry involving cost of sales on day 13, since there was no movement
of trading inventory.
Ed
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Question 4.4
at
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Note: In practice, interest is always charged to the nearest day, using the number
of days in the year as a denominator (note that a leap year has 366 days). However,
during examinations, you may not be provided with the exact number of days. For
example, you may be provided with information that reads as follows: ‘charged
interest on the overdue account of Josslyn Peters @ 18½% p.a. for one month’. The
calculations would then be done as follows: R 30 000 × 18.5% × 1/12 = R 462.50.
ED
G
E
There could be a number of reasons why a company would keep large amounts
of petty cash on hand. Some reasons are legitimate, others are questionable.
One should realise that the questionable reasons could quite easily outweigh the
legitimate ones. Many suppliers prefer to be paid in hard cash, rather than by means
of EFT or cheque, since the latter leaves an audit trail via a current bank account.
In simple terms, if a supplier receives hard cash and uses the cash to buy assets or
pay for expenses (instead of depositing the money in the bank account) then SARS
will have no record of the cash being received. Such suppliers often offer a cash
discount for paying in hard cash (their argument is that it is better to forfeit 10% of
income by means of a trade discount, rather than to pay 28% in taxes).
©
Such businesses often choose not to declare income received from sales when
hard cash is offered as payment. Unfortunately this could be a futile exercise, since
the buyer will normally request a valid tax invoice from the supplier (on which input
VAT may be claimed). SARS can check whether the supplier has declared the
corresponding output VAT by referring to the original tax invoice retained by the
buyer.
There are legitimate reasons too. Bank charges on cheques can be astronomical.
A cheque payment is also not an immediate means of payment. At most banks a
‘hold’ of seven working days applies to any cheque banked by the payee. One has
337
Annexure A
to wonder if the security risks involved in keeping large amounts of cash outweigh
the perceived benefits.
Lt
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Question 4.5
Solutions pertaining to the cashbook receipts
In layman’s terms the analysis of receipts column can be defined as the ‘till’
or ‘cash register’ column. The purpose of this column is to show that various
forms of cash (i.e. hard cash and cheques) are collected in the cash register
first, before these funds are periodically (sometimes daily) deposited into the
bank account. We will, therefore, refer to the dates and amounts provided on
the bank deposit slips (refer to the end of the given information in Example
4.1). The date will tell us when the money was deposited. The amount will tell
us how much was deposited on this day.
(ii)
The reason why we need an analysis of receipts column is quite simply
to make bank reconciliation possible. Refer to the duplicate bank deposit
slip on 5 March 20.9. The R 56 972.00 is made up of cash and cheques
received on days 4 and 5, including the cheque for R 11 500 received on
day 4. Remember that all cash and cheques will be shown on one deposit
slip at the bank, and the bank will only record the total deposit of R 56 972.00
on day 5. The individual amount of R 11 500 for the transaction on day 4 will,
therefore, not be displayed separately on the bank statement. When doing a
bank reconciliation (this will be discussed later in the course) we will compare
the amounts in the bank column (not the amounts in the analysis of receipts
column) with the deposits displayed on the bank statement.
(iii)
For reasons stated in (ii), the amount will not be entered into the analysis of
receipts column. The money did not pass through the cash register first before
it was banked – the funds were deposited directly into the bank account of
the business, so there is no duplicate deposit slip, and there would be a
separate bank deposit slip solely for this deposit (see duplicates of bank
deposit slips).
©
ED
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Ed
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(P
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(i)
338
Question solutions
The main column of the cashbook receipts is the bank column. The main
column of any journal is the column into which the VAT inclusive price of the
transaction will be entered. The main column also represents either all the
debits or all the credits of the particular journal. In the cashbook receipts, the
bank column represents all the debits, because with every transaction that
causes an increase in the balance of the bank account, we will debit the bank
account, and credit one or more other accounts. The accounts to be credited
can be numerous, but there will always just be the one account to be debited:
bank – this is why we call it the ‘main’ column.
Lt
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(iv)
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When using a perpetual inventory system, we will make use of a cost of sales
account every time trading inventory is sold.
at
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(P
The reason why this column has been separated from the rest of the journal
is so that you do not get confused with the double entry as displayed in the
CBR. Each column in the cashbook receipts represents a single entry, not
a double entry – i.e. bank is debited, services rendered is credited, sales
is credited and output VAT is credited. The individual accounts listed in the
details of sundries will also be credited. The cost of sales column works
differently, though. This column in itself represents a double entry. Cost of
sales is debited and trading inventory is credited with the total of this column.
A receipt is not a valid tax invoice – i.e. it does not display VAT. Invoices are
only issued when goods are sold or services are rendered, on which output
VAT must be charged. Capital contributions, in the form of cash, do not attract
VAT. A business would issue a receipt to show the receipt of cash in cases
where there are no VAT implications.
(vi)
Yes, it would be possible for the business to use only cash invoices or cash
slips. It might not be that feasible, though. On day 4, for example, the business
went to the customer’s premises to install cupboards. It would not be feasible
to take a cash register along; they would rather take an invoice book along
to the designated site. Likewise, for in-store sales it might be easier to record
cash sales by means of a cash register.
ED
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Ed
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(v)
©
(vii)
(viii)
Yes, in cases where cash sales of amounts over R 5 000 take place, a full VAT
invoice is required. In such instances it might be best to issue a cash invoice
which displays the VAT number and address of the recipient of the invoice as
well.
Since the customer has already paid in full we need not keep a record of
whom the customer is.
339
Annexure A
Solutions pertaining to the cashbook payments
Letsema Furnishers is a furniture retailer. It was clearly stated that the furniture
purchased was for resale purposes. As soon as an item is purchased with the
intention of reselling it as a regular part of the business, it must be treated
as trading inventory. Had the business purchased the furniture to use it in its
reception area, they would have debited furniture, not trading inventory. The
account that will be used depends on the purpose of the items bought in the
particular business.
(ii)
After an EFT has been made via Internet banking, there will be a prompt on
the website that will provide the opportunity to print out a slip as proof of
payment. It is important to note that such a document is not a VAT invoice.
The original invoice is needed from the supplier to validate an input VAT claim.
Best practice is to attach the proof of payment to the original invoice and to
file these documents, preferably according to supplier name.
(iii)
No, the printer cartridge will generally be used up within the business within
one year. In essence, it is therefore not an asset, but an expense. The business
should debit stationery instead with future purchases of printer cartridges.
(iv)
No input VAT will be claimable if the delivery vehicle is a double cab or a
passenger vehicle.
(v)
The name of payee is the person or entity the cheque was issued to. Albeit
the cheque was for drawings, the cheque was not issued in favour of the
owner. It was issued in favour of the entity the owner wanted to pay in his
personal capacity.
(vi)
VAT is not levied on the rent charged by a lessor to a lessee for the supply of a
dwelling under a lease agreement. This rule also applies to employee housing
supplied by an employer, whether a rental is charged or not. A ‘dwelling’
is basically defined as a building or a part of a building which is used, or
intended to be used, as the residence of a natural person, and includes any
fixtures and fittings enjoyed with the supply of the dwelling. The definition
excludes the supply of ‘commercial accommodation’. Where a number of
residential dwelling units are let to a person who in turn sublets them to
other persons, as long as the nature of the supply under both the main lease
and the subleases constitutes the supply of a ‘dwelling’ (or dwellings), the
exemption in terms of section 12(c) of the VAT Act will apply. However, if the
nature of the supply under the sublease is different from the main lease, for
example if one of the dwellings is let as office premises, the exemption will
not apply and VAT must be levied in respect of the office premises.
©
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(P
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(i)
340
Question solutions
Let’s say the total floor space of the house = 400 m2
Further, let’s assume the total floor space of the study = 40 m2
Lt
d
This answer is therefore not that clear-cut. Theoretically speaking, the entry
would have been different. SARS would only allow a proportional claim for
input VAT – relative to the floor space which is used for business purposes.
Assume the rental amounted to R 5 000, but that the owner used only his
study in his primary residence from which to run his business. To calculate
the input VAT that may be claimed, the following will be done:
ty
)
Then, SARS would only allow an input VAT claim on 10% of R 5 000 – i.e. the
input VAT attributable to this rental payment can be calculated as follows:
(P
R 500 × 15/115 = R 65.22
at
io
n
Under this scenario, the required entry in the cashbook payments will be:
Dr Input VAT R 65.22
Dr Rent expense with R 434.78
Dr Drawings with R 4 500 (R 5 000 – 10%)
Cr Bank with R 5 000
Ed
uc
Of course, the problem is that the owner will probably have been charged
no VAT in the first place, since the landlord may have been informed that the
house was rented for private use only. According to the stipulations of the
VAT Act, the owner should actually inform the landlord to charge VAT on the
commercial portion of the rental charge, which should result in the entry as
shown.
E
The petty cash imprest amount is the start-up amount for the petty cash
box. In this example the business uses an imprest amount of R 2 000.
During March 20.9 a total of R 1 619.11 was taken from the petty cash
box to buy small or ‘petty’ items. To start April with the same amount of
R 2 000, the ‘imprest’ had to be restored by drawing a cheque equal to the
total petty cash outflows for the month of March. To restore the imprest
amount, we basically put back into the box what has been taken out – i.e.
R 1 619.11.
©
ED
G
(vii)
(viii)
Assessment rates are VAT exempt because they are a tax already. The same
applies to the government levy (see bank charges). The amount debited to
rates and taxes would have been calculated as follows:
Option 1:
Calculate the input VAT amount: (R 345.45 + R 50.52 + R 482.63) × 15/115
= R 114.60.
341
Annexure A
Then: Bank – Input VAT = Rates and taxes (R 1 156.55 – R 114.60) = R 1 041.95
Option 2:
Lt
d
Add together VAT exclusive amounts:
R 277.95 + 345.45/1.15 + 50.52/1.15 + 482.63/1.15 = R 1 041.95
Solutions pertaining to the petty cash journal
The details column of the PCJ is used to record exactly what was bought.
The reason why the exact details are required is to prevent petty cash fraud
from taking place. If you are responsible for petty cash, and you take cash
from petty cash and pay Thomas Pule’s wages (see day 22), rather write
down his name, so that no recourse can be taken against you should the
transaction ever be queried.
(ii)
No. The petty cash voucher itself is not a valid VAT invoice. The cash slip
(the supporting document) that displays the supplier’s VAT number should be
attached to the petty cash voucher. General practice is to staple these two
documents together. When SARS does a VAT audit, the petty cash voucher
will not be accepted as proof that input VAT could be claimed. They will
request the actual cash slip.
(iii)
The cooldrinks have been bought for entertainment purposes, and according
to the VAT Act, no input VAT may be claimed on such purchases.
(iv)
No, albeit petrol, diesel and illuminating paraffin are all zero-rated, oil is a
standard-rated supply.
(v)
The cell phone itself can be sold for cash. It is not used up within the business
within a year and has a retained value. The pay-as-you-go recharge vouchers
that will be purchased will be debited to the telephone account (an expense)
though, since these charges are costs that cannot be recovered. When a
cell phone is purchased on a contract basis, it is slightly more complicated,
since the cost of the actual handset is recovered over a set period (normally
two years). Theoretically speaking, the cash price of the handset should be
debited to the equipment account and a credit should be passed against
creditors. As the monthly subscription is paid, the creditors account should
be written off over the two-year period. However, since the cost implications
of such an arduous process are negligible, most businesses will merely debit
telephone and credit bank with the monthly payment (which includes the
subscription and the call charges). This is the recommended process to be
followed in this course when cell phone charges are paid, irrespective of
whether it is a pay-as-you-go or a contract phone (i.e. only the handset in a
©
ED
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Ed
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at
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(P
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(i)
342
Question solutions
One of the stipulations of the cost concept in accounting is that all costs
incurred in getting an asset into the state ready for what it was intended must
be included in the amount debited to the asset account. For example, should
a business purchase a machine for R 50 000 but incur a further R 2 000 to
install and prime this machine to make it ready for use, then the machinery
account will be debited with R 52 000 not R 50 000. The same applies to
trading inventory.
at
io
n
(P
ty
)
(vi)
Lt
d
pay-as-you-go scenario must be debited to the equipment account). When
year-end reporting takes place, management will have to assess whether
the exclusion of any handsets from assets were material to the disclosure of
the business’s fair asset value. If the exclusion was material, the handsets
would have to be disclosed as assets, and any required impairments or
depreciation would have to be entered into the books. This is one of the
express requirements of International Financial Reporting Standards and will
be discussed in more detail later on.
Ed
uc
The purchase price, carriage/railage inwards, import tariffs, customs duties,
etc. will all be added to the debit side of the trading inventory account, and
these costs will all end up as cost of sales when the trading inventory is
sold. However, there will be a different treatment when the periodic inventory
system is in use. This will be discussed in Learning Unit 6.
Solutions pertaining to general questions:
The customer is ‘king’ and should always receive the best copy. The customer
should therefore always receive the original copy of any source document.
The vendor/supplier will issue the original and retain the duplicate, from
which entries will be made. Sometimes a bookkeeper will make entries from
a duplicate source document and sometimes he/she will make the entries
from an original – it all depends on whether the business is the vendor or the
customer for the particular transaction.
When there is no column for the account to be credited.
ED
(ii)
G
E
(i)
When there is no column for the account to be debited.
(iv)
The mark-up percentage was given at the start of the question, namely 50%
(mark-up on cost). This can be verified by comparing the total of the cost of
sales column with the total of the sales column in the CBR – i.e. R 55 921.28
+ 50% = R 83 881.91. The difference of R 0.01 is due to a rounding difference.
The gross margin is the gross profit divided by the sales revenue. Thus
(83 881.92 – 55 921.28) / 83 881.92 × 100/1 = 331/3%. Or: 50/150 × 100/1 =
33 1/3%
©
(iii)
343
Annexure A
Question 4.6
Transactions relating to the cashbook receipts:
A
=
O
L
1
Bank
Capital
+ 100 000.00
2
Bank
Loan: AAA Bank
+ 150 000.00
4
Bank
Services rendered
+ 11 500.00
+ 10 000.00
+ 45 472.00
Output VAT
5 (a)
Bank
+ 100 000.00
+
ty
)
Account(s) credited
Lt
d
Account (s)
debited
Day
+ 150 000.00
+ 1 500.00
Sales
+ 39 540.87
(P
Output VAT
Cost of sales
Trading inventory
– 26 360.58
– 26 360.58
11 (a)
Bank
Sales
+ 7 695.00
+ 6 691.30
Output VAT
at
io
n
5 (b)
z
+ 1 003.70
11 (b)
Cost of sales
Trading inventory
– 4 460.87
– 4 460.87
17 (a)
Bank
Sales
+ 12 825.00
+ 11 152.17
Output VAT
Cost of sales
17
Bank
+ 1 672.83
Trading inventory
– 7 434.78
– 7 434.78
Services rendered
+ 5 750.00
+ 5 000.00
Ed
uc
17 (b)
+ 5 931.13
Output VAT
31 (a)
Bank
Sales
+ 750.00
+ 30 472.20
+ 26 497.57
Output VAT
Cost of sales
31
Bank
Trading inventory
– 17 665.05
– 17 665.05
Interest on current
a/c
+ 94.17
+ 94.17
G
E
31 (b)
+ 3 974.63
ED
(Source: EDGE Learning Media (Pty) Ltd, 2018)
©
Transactions relating to the cashbook payments:
Day
Account (s)
debited
Account(s) credited
A
=
1
Petty cash
Bank
+/– 2 000.00
2
Trading
inventory
Bank
+ 69 565.22
and
– 80 000.00
Input VAT
344
+ 10 434.78
O
+
L
Question solutions
Telephone
Bank
– 1 240.00
Input VAT
+ 161.74
Equipment
Bank
Input VAT
+ 1 147.82
Wages and
salaries
Bank
– 500.00
12
Vehicles
Bank
+ 69 565.22
and
– 80 000.00
+ 10 434.78
Trading
inventory
Bank
Input VAT
+ 1 497.73
Drawings
Bank
31
Rent expense
Ed
uc
21
Input VAT
Petty cash
31
Rates and taxes
Bank
G
ED
Bank charges
Input VAT
– 5 000.00
– 4 347.83
+ 652.17
Bank
– 1 156.55
Bank
Input VAT
31
– 1 000.00
+/– 1 619.11
Input VAT
Insurance
– 1 000.00
Bank
E
31
31
+ 9 984.88
and
– 11 482.61
at
io
n
20
– 500.00
(P
9
Input VAT
©
+ 7 652.13
and
– 8 799.95
Lt
d
8
– 1 078.26
ty
)
4
– 1 041.95
+ 114.60
– 625.00
– 543.48
+ 81.52
Bank
– 242.60
– 211.28
+ 31.32
(Source: EDGE Learning Media (Pty) Ltd, 2018)
345
Annexure A
Transactions relating to the petty cash journal:
Account (s)
debited
5
Postage and
stationery
Account(s) credited
A
Petty cash
=
– 48.50
Input VAT
– 42.17
+ 6.33
Staff
refreshments
Petty cash
– 98.23
Postage and
stationery
– 42.34
Fuel
Petty cash
– 320.00
18
Equipment
Petty cash
+ 508.65
and – 584.95
Petty cash
at
io
n
(P
+ 7.29
12
Input VAT
24
Drawings
+ 153.24
and – 176.23
+ 22.99
Ed
uc
Input VAT
Wages and
salaries
Petty cash
– 100.00
– 100.00
Petty cash
– 200.00
– 56.50
Staff
refreshments
Postage and
stationery
Petty cash
E
27
G
Input VAT
– 320.00
+ 76.30
Trading
inventory
22
L
– 48.60
Input VAT
20
+
ty
)
8
O
Lt
d
Day
– 143.50
– 91.20
– 79.30
+ 11.90
ED
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Question 4.7
©
This is a very good opportunity to think about the working of a computerised
accounting system. When working on an accounting package, all that is really
required is the entry in the journal – the computer does the posting for the
bookkeeper. The trial balance is updated with every single transaction.
There are many different computerised bookkeeping systems, but they all have
one thing in common: they simplify the manual system of bookkeeping, in that they
perform the postings of the journals to the ledger automatically.
346
Question solutions
Cashbook
payments
(CBP)
Debtors
journal
(DJ)
Creditors
journal
(CJ)
Creditors
allowances
journal
(CAJ)
Petty cash
journal
(PCJ)
Debtors
allowances
journal
(DAJ)
General
journal
(GJ)
Ed
uc
at
io
n
(P
ty
)
Cashbook
receipts
(CBR)
Lt
d
On the ‘home page’ of a bookkeeping system, there will be ‘icons’, ‘windows’ or
‘menu’ items representing the different subsidiary journals:
Since many of the computerised systems are of American origin, alternative
terminologies are generally used, for example:
E
• The Debtors journal could be referred to as ‘accounts receivable’, ‘customers’,
or ‘duplicate invoices’. In many cases there would then be an additional sub-link
that refers to ‘credit notes’ or ‘returns’, which, in essence, is representative of the
debtors allowances journal.
ED
G
• The Creditors journal could be referred to as ‘accounts payable’, ‘suppliers’, or
‘original invoices’. In many cases there would then be an additional sub-link that
refers to ‘credit notes’ or ‘returns’, which, in essence, is representative of the
Creditors allowances journal.
©
• Very often there is one main link that refers to cash transactions. When entering
via this icon, one could be presented with two or three sub-accounts for cash.
Sub-account 1 could, for instance, refer to the current bank account, subaccount 2 to petty cash, and sub-account 3 to the business’s savings account.
Although the computerised system allows us to process transactions faster
and more accurately, it has a few drawbacks too. One such drawback is that
the bookkeeper seldomly needs to ‘think’ in terms of double entries in order
to make journal entries. For example, assume we want to record the payment
of salaries and wages by cheque. The bookkeeper now only needs to choose
347
Annexure A
Lt
d
the correct icon from the menu, which would of course be the ‘cashbook
payments’ icon. By choosing this icon, all transactions that will be made
in this journal will, by default, involve a credit to the bank account. All the
bookkeeper needs to mention to the computer, is the other leg of the double
entry, which we often refer to as the contra-account(s) (in this case ‘wages
and salaries’). This is usually done by inserting the account number used in
the configuration (set-up) of the list of ledger accounts, instead of the actual
account name. Let’s say ‘012’ is the account number for wages and salaries.
Following this approach, only ‘012’ needs to be selected as the contra-account.
at
io
n
(P
ty
)
The computerised system makes it easier to complete the accounting cycle,
in that it effectively excludes steps 4, 5 and most parts of step 6 of the manual
system. In other words, the bookkeeper only needs to complete and file source
documents, and enter these into the correct subsidiary journals. The computer
will post the journal entries to the general ledger and update the trial balance
automatically. By ‘running a year-end’ the computer could extract the financial
statements (statement of profit or loss and other comprehensive income and
statement of financial position) too. The only additional entries that need to
be made by the accountant are the adjustments to the financial statements.
©
ED
G
E
Ed
uc
It all sounds great, but there are drawbacks too. The final outcome of all
transactions is listed in a trial balance in terms of debits and credits. Although all
journal entries involve an actual double entry, the bookkeeper will not physically
‘see’ the double entry, since he/she only needs to record the contra-account.
Following this routine makes bookkeepers get into a ‘rut’ and very often we find
that bookkeepers without formal training on the manual system of accounting
find it difficult to interpret the trial balance, and hence find it hard to help with
strategic business decisions.
348
E
G
ED
Day
7
10
13
16
19
22
31
Doc.
no.
101
RC01
102
B/S
103
104
B/S
22 100 00
22 100 00
All-Sure
Bank
Cash sales
Cash sales
All-Sure
Bank
945 65
5 491 30
Credit
B5
157 117 50
Debit
B4
17 50
12 560 00
7 250 00
N1
Credit
36 608 70
6 304 35
4 617 39
19 217 39
6 469 57
Sales
at
io
n
692 61
2 882 61
970 43
5 310 00
60 000 00
62 440 00
55 000 00
Cash sales
Output VAT
Ed
uc
Bank
Frank
Frescan
Analysis of
receipts
7 440 00
Fol.
Cash sales
Details
Cashbook receipts of Frescan Traders – May 20.9
(i)
Question 4.8
©
N3
B3
B1
Interest
on current
a/c
Loan: AllSure Bank
Capital
Details
Lt
d
Credit individual accounts
ty
)
(P
115 017 50
17 50
60 000 00
55 000 00
Fol.
Sundry accounts
N2 and B6
Debit and
credit
28 292 08
4 728 26
3 312 49
15 373 91
4 877 42
Cost of
sales
CBR1
Question solutions
349
Bank
Input VAT
Trading inventory
Amount
Sundry accounts
Fol.
Details
CBP1
Ed
uc
3 347
26
83
N10
N9
Bank charges
Rent expense
E
17
98
G
ty
)
(P
Lt
d
at
io
n
Petty cash
74
78
70
33 434
Debit individual accounts
15 467
50
Debit
B6
ED
(ii)
Fol.
Cashbook payments of Frescan Traders – May 20.9
Name of payee
B8
Day
00
Doc.
No.
1 800
Cash
00
1
17
1 800
CF1
29 652
Equipment
83
00
B9
4 447
34 100
95
Lordum Dealers
487
3
95
Donations
CF2
487
N4
Lucia’s Utensils
00
17
500
CF3
00
Red Cross Society
500
19
Entertainment
EFT
N5
672
Debit
567
61
00
Buhle’s Diner
CF5
25
3 782
672
20
CF6
39
00
CF4
00
Wages and salaries
4 350
N6
Toby’s Wholesalers
00
22
7 200
Rates and taxes
Postage and stationery
00
N8
N7
7 200
01
65
Joyce Bhembe
874
487
67
73
22
23
80
15
941
560
502
Springs’ Metro Council
31
Plewman’s Stationers
00
14
30
B/S
B/S
All-Sure Bank
29
3 850
00
5 672
EFT
113
98
CF7
Toto’s Estate Agents
54 574
Credit
B7
350
B4
©
Annexure A
G
ED
Day
2
5
10
20
26
29
31
Doc.
no.
PV1
PV2
PV3
PV4
PV5
PV6
PV7
Sports Warehouse
Heidi Thambo’s wages
Fuel for delivery van
00
Postage
and
stationery
N7
B8
13
71
71
22
22
Staff
refreshments
N12
Debit
81
63
3
14
74
74
00
00
00
00
ty
)
1 466
421
500
300
25
220
Amount
(P
B7
Debit
13
26
26
61
Input VAT
at
io
n
74
39
Debit
119
21
97
Credit
22
1 738
00
00
00
22
00
00
500
300
50
71
220
112
Ed
uc
Petty
cash
485
E
2 paper reams (1 for business use)
Tea and coffee
Fuel for Frank Frescan
Postage stamps
Details
Petty cash journal of Frescan Traders – May 20.9
(iii)
©
Details
Debit individual a/c’s
Trading inventory
Wages and salaries
Fuel
Drawings
Drawings
Lt
d
B6
N6
N11
B2
B2
Fol.
Sundry accounts
PCJ1
Question solutions
351
Annexure A
(iv)
General ledger of Frescan Traders
Capital
Date
Details
Fol.
Amount
B1
Date
Details
Fol.
20.9
10 Bank
Date
Details
Fol.
Amount
Date
Petty cash
PCJ1
220 00
20 Petty cash
PCJ1
25 00
Details
5
at
io
n
20.9
May
55 000 00
B2
(P
Drawings
CBR1
Amount
ty
)
May
Lt
d
Statement of financial position section
Fol.
Amount
245 00
Loan: All-Sure Bank
Details
Fol.
Amount
Ed
uc
Date
Date
Details
B3
Fol.
Amount
CBR1
60 000 00
20.9
May
16 Bank
Bank
Details
Total
receipts
G
20.9
31
ED
May
Fol.
Amount
E
Date
CBR1
B4
Date
Details
Fol.
Amount
Total
payments
CBP1
54 574 98
Balance
c/d
102 542 52
20.9
157 117 50
May
31
157 117 50
157 117 50
20.9
1
Balance
b/d
102 542 52
©
Jun.
Output VAT
Date
Details
Fol.
Amount
Date
B5
Details
Fol.
Amount
CBR1
5 491 30
20.9
May
352
31 Bank
Question solutions
Trading inventory
Date
Details
Fol.
Amount
Date
Details
Fol.
Amount
31 Cost of sales
CBR1
28 292 08
Balance
c/d
5 564 44
20.9
May
31 Bank
CBP1
33 434 78
31 Petty cash
PCJ1
421 74
May
33 856 52
33 856 52
20.9
1
Balance
b/d
5 564 44
ty
)
Jun.
Input VAT
Details
Fol.
Amount
CBP1
5 672 50
PCJ1
81 13
B7
Date
Details
31 Bank
Petty cash
at
io
n
20.9
May
Fol.
(P
Date
Lt
d
20.9
B6
Amount
5 753 63
Petty cash
Details
20.9
Fol.
Amount
Date
Ed
uc
Date
B8
Details
Fol.
Amount
Total
payments
PCJ1
1 738 22
Balance
c/d
61 78
20.9
May
1
Bank
CBP1
1 800 00
May
31
1 800 00
1
Balance
b/d
ED
G
Jun.
E
20.9
Date
Details
1 800 00
61 78
Equipment
Fol.
Amount
CBP1
487 95
Date
B9
Details
Fol.
Amount
20.9
17 Bank
©
May
353
Annexure A
Nominal accounts section
Sales
Date
Details
Fol.
Amount
N1
Date
Details
Fol.
Amount
May
31 Bank
CBR1
Cost of sales
May
Fol.
Amount
Date
Trading
31 inventory
CBR1
28 292 08
Details
Interest on current account
Details
Fol.
Amount
Date
Amount
N3
Details
at
io
n
Date
Fol.
36 608 70
ty
)
20.9
Details
N2
(P
Date
Lt
d
20.9
Fol.
Amount
20.9
May
31 Bank
Donations
Details
20.9
May
19 Bank
Fol.
Amount
CBP1
500 00
Ed
uc
Date
Date
Details
Date
Amount
CBP1
672 00
Bank
ED
May
Fol.
G
20.9
Details
E
Entertainment
Date
Details
Fol.
Amount
25 Bank
CPJ1
7 200 00
29 Petty cash
PCJ1
©
354
500 00
7 700 00
Date
17 50
N4
Fol.
Amount
N5
Details
Wages and salaries
20.9
May
Date
CBR1
Fol.
Amount
N6
Details
Fol.
Amount
Question solutions
Postage and stationery
Date
Details
Fol.
Amount
Date
29 Bank
CBP1
487 65
31 Petty cash
PCJ1
119 13
N7
Details
Fol.
Amount
May
606 78
Rates and taxes
Fol.
Amount
Date
CBP1
874 01
20.9
May
30 Bank
Rent expense
Details
Fol.
Amount
CBP1
3 347 83
20.9
May
31 Bank
Date
Details
Bank charges
Details
20.9
May
31 Bank
Fol.
Amount
Ed
uc
Date
CBP1
Date
Details
E
Amount
300 00
PCJ1
Date
Details
Fol.
31 Petty cash
PCJ1
ED
26 Petty cash
Fol.
G
20.9
May
Details
Amount
Fol.
Amount
N10
Fol.
Amount
98 26
Fuel
Date
Fol.
N9
at
io
n
Date
Details
ty
)
Details
(P
Date
N8
Lt
d
20.9
N11
Date
Details
Staff refreshments
Amount
Date
Fol.
Amount
N12
Details
Fol.
Amount
©
20.9
May
71 22
355
Annexure A
(v)
Trial balance of Frescan Traders on 31 May 20.9
Debit (R)
Credit (R)
Statement of financial position section
Capital
B1
Drawings
B2
Loan: All-Sure Bank
B3
Bank
B4
Output VAT
B5
Trading inventory
B6
5 564
44
Input VAT
B7
5 753
63
Petty cash
B8
61
78
B9
487
95
00
Nominal accounts section
Sales
Cost of sales
N2
Ed
uc
Interest on current account
28 292
N3
500
00
N5
672
00
N6
7 700
00
Postage and stationery
N7
606
78
Rates and taxes
N8
874
01
Rent expense
N9
3 347
83
Bank charges
N10
98
26
Fuel
N11
300
00
N12
71
22
157 117
50
E
G
ED
Staff refreshments
©
(vi)
00
5 491
30
36 608
70
17
50
157 117
50
08
N4
Wages and salaries
60 000
52
N1
Entertainment
00
(P
102 542
at
io
n
Equipment
Donations
55 000
ty
)
245
Lt
d
Fol.
The gross profit can be determined by subtracting cost of sales from sales:
R 36 608.70 – R 28 292.08 = R 8 316.62
The net profit/loss can be determined by subtracting all the debit balances
under the nominal accounts section from all the credit balances in the nominal
account section:
356
Question solutions
R 36 608.70 + R 17.50 – R 28 292.08 – R 500.00 – R 672.00 – R 7 700.00 –
R 606.78 – R 874.01 – R 3 347.83 – R 98.26 – R 300.00 – R 71.22 =
– R 5 835.98. It is therefore a loss.
Use the totals of the sales and cost of sales accounts to calculate the
weighted average mark-up percentage:
Lt
d
(vii)
(36 608.70 – 28 292.08) / 28 292.08 × 100/1 = 29.40%
(36 608.70 – 28 292.08) / 36 608.70 × 100/1 = 22.72% OR: 29.40 / 129.40 ×
100/1 = 22.72%
ty
)
(viii)
(P
(ix)
Transactions relating to the cashbook receipts:
7 (a)
Account debited
Bank
Account credited
Sales
A
=
at
io
n
Day
+ 7 440.00
O
+
+ 6 469.57
Output VAT
+ 970.43
Cost of sales
Trading inventory
– 4 877.42
– 4 877.42
10
Bank
Capital
+ 55 000.00
+ 55 000.00
13 (a)
Bank
+ 22 100.00
+ 19 217.39
Ed
uc
7 (b)
Sales
Output VAT
+ 2 882.61
Cost of sales
Trading inventory
– 15 373.91
16
Bank
Loan: All–Sure Bank
+ 60 000.00
19 (a)
Bank
Sales
+ 5 310.00
E
13 (b)
– 15 373.91
+ 60 000.00
+ 4 617.39
Output VAT
+ 692.61
Cost of sales
Trading inventory
– 3 312.49
– 3 312.49
22 (a)
Bank
Sales
+ 7 250.00
+ 6 304.35
G
19 (b)
ED
L
Output VAT
+ 945.65
Cost of sales
Trading inventory
– 4 728.26
– 4 728.26
31
Bank
Interest on current
a/c
+ 17.50
+ 17.50
©
22 (b)
(Source: EDGE Learning Media (Pty) Ltd, 2018)
357
Annexure A
Transactions relating to the cashbook payments:
Account credited
A
=
1
Petty cash
Bank
+/– 1 800.00
3
Trading inventory
Bank
+ 29 652.17
and
– 34 100.00
Input VAT
Bank
+/– 487.95
19
Donations
Bank
– 500.00
20
Entertainment
Bank
– 672.00
22
Trading inventory
Bank
+ 3 782.61
and
– 4 350.00
25
Wages and salaries
Bank
29
Postage and
stationery
Bank
Input VAT
Rates and taxes
Rent expense
Input VAT
31
Bank charges
Bank
– 7 200.00
– 7 200.00
– 560.80
– 487.65
– 941.23
– 874.01
+ 67.22
– 3 850.00
Bank
– 3 347.83
+ 502.17
Bank
– 113.00
– 98.26
+ 14.74
E
Input VAT
– 672.00
+ 73.15
Ed
uc
31
– 500.00
+ 567.39
at
io
n
Input VAT
L
(P
Equipment
Input VAT
+
+ 4 447.83
17
30
O
Lt
d
Account debited
ty
)
Day
G
(Source: EDGE Learning Media (Pty) Ltd, 2018)
ED
Transactions relating to the petty cash journal:
Day
©
2
Account debited
Postage and
stationery
Account credited
Petty cash
Input VAT
A
=
– 112.00
O
+
– 97.39
+ 14.61
5
Drawings
Petty cash
– 220.00
– 220.00
10
Staff refreshments
Petty cash
– 71.22
– 71.22
20
Drawings
Petty cash
– 50.00
– 25.00
Postage and
stationery
Input VAT
358
– 21.74
+ 3.26
L
Question solutions
Fuel
Petty cash
– 300.00
– 300.00
29
Wages and salaries
Petty cash
– 500.00
– 500.00
31
Trading inventory
Petty cash
+ 421.74
and
– 485.00
Input VAT
Lt
d
26
+ 63.26
ty
)
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Question 4.9
Question 4.10
Ed
uc
at
io
n
(P
No, one cannot merely assume that all transactions have been recorded accurately.
It only proves that the total debits equal the total credits (in numerical value). It
does not prove that the correct amounts were recorded, nor does it prove that
the correct accounts were debited and credited. For example, say the business
purchased a computer, but debits the stationery account instead of the equipment
account. Albeit the transaction was not accurately recorded, the trial balance would
still balance. Say the bookkeeper records a transaction with an inclusive price of
R 1 000 instead of R 100, but the debits equal the credits – then the trial balance will
still balance, even though an error was made.
(This exchange is formulated to educate you on the way in which internet banking
works and its usefulness in a very busy and modern age.)
ED
G
E
Electronic banking refers to banking through the use of an electronic medium such
as a computer or a cellphone, using the internet. Internet banking allows you to
have instant and convenient access to your account – 24 hours a day. Gone are the
days of long queues. Internet banking is very secure if you keep your pin number
secure, and ensure that the pin number is not easy to trace by hackers.
Here are some of the transactions that can be performed using internet banking:
©
•
•
•
•
•
•
•
•
•
Balance enquiries.
Statement enquiries.
Once-off payments.
Transfer of funds between personal accounts.
Payments to third parties, including municipal accounts such as rates and taxes.
Automated payment notifications via fax, e-mail or SMS.
Viewing of cheques and deposit slip images.
Ordering of cheque books.
Account maintenance.
359
Annexure A
Question 4.11
ty
)
The following are recommended narrations for the various labels:
Lt
d
• Additional functions such as the purchase of prepaid airtime and SMS/data
bundles.
• Online application for banking products.
(P
Name of the
business holding
the petty cash
©
ED
Ed
uc
G
E
Description of
items purchased
(as specific as
possible)
at
io
n
Date of
transaction
360
Voucher number;
will be sequential
VAT-exclusive
cost of
purchase
VAT amount
VAT-inclusive cost
of purchase
O. Pule made the
purchase;
Janette Mayne
authorised it
Accounts to be debited in the
books of account; the account
credits is ‘petty cash’
Print first name
and surname
Name or reference
number: a reference
number could be the
account number or
employee number
Number of the account
where the money must be
deposited; always make
sure that the account
number is correct – you
would not want to give
someone else the money
Where account
is held
Signature of
Name and surname person making
of person making
the deposit
the deposit
Contact number
of person making
the deposit
ty
)
(P
Date of deposit
Name of the
person or
company who
issued the
cheque
at
io
n
Ed
uc
Branch where
account is
opened
E
G
Name of account holder:
could be a company or an
individual person
ED
(e.g. policy no.,
etc.)
©
Lt
d
Total value of
both cash and
cheques being
deposited
Value of the
cheque(s)
Total amount
of cash being
deposited
Question solutions
361
Annexure A
Question 4.12
Cashbook payments for Maxies Suppliers – April 20.9
Name of payee
Fol.
Bank
CC680
4
Office Supplies CC
1 039.31
CC681
8
Cash
3 012.51
Creditors
control
Input
VAT
Trading
inventory
CC682
9
Alfie Suppliers
21 099.60 21 099.60
11
Antarctic Suppliers
36 782.70
4 797.74
31 984.96
29 077.23
13
Keelan CC
33 438.82
4 361.59
14
Office Stationers
451.88
58.94
CC686
18
Incredible Connection
37 505.71
29 751.67 29 751.67
Devon Traders
Cash
3 615.01
CC689
25
IT Land
7 727.08
CC690
26
Arctic Traders
41 120.71
CC691
30
The Cafe
4 729.64
CC692
30
Cash
7 712.02
5 363.57
15 725.28
Ed
uc
E
G
ED
©
Printer paper
Petty cash
37 505.71
227 986.66 50 851.27
362
903.75
392.94
1 007.88
Details
3 012.51
at
io
n
20
21
Fol.
(P
CC684
CC685
CC687
Amount
135.56
CC683
CC688
Sundries
Lt
d
Date
ty
)
Doc.
no.
CBP4
Postage and stationery
Computer equipment
3 615.01
Drawings
6 719.20
Computer equipment
35 757.14
4 729.64
Office refreshments
7 712.02
Wages and salaries
96 819.33 64 590.78
Question solutions
Lt
d
Learning Unit 5
Recording credit and sundry transactions
ty
)
Question 5.1
The largest risk of a credit facility is that the customer might not make the
required payments. We call this expense ‘credit losses’. Credit losses have
been the downfall of many businesses in South Africa and have become a
worldwide phenomenon. Some companies go so far as to outsource their
debt collection department. This is called ‘factoring’.
(ii)
It would be fair practice for SARS to allow the VAT vendor to claim back input
VAT on the actual amount written off as irrecoverable.
at
io
n
(P
(i)
Ed
uc
A debt will be regarded as irrecoverable if both the following two requirements
have been complied with:
• The vendor must have done all the necessary entries in the accounting
system to record that the account has been written off.
• The vendor must have ceased any recovery action taken by himself/
herself by either:
deciding not to take any further recovery action; or
handing the debt over to an attorney or debt collector.
■■
E
■■
ED
G
Should a vendor receive payment from the debtor after his/her account
has been written off, then the business must account for output VAT on the
payment received in the period when the credit loss was recovered.
©
(iii)
Assume the goods were sold for R 1 150 including VAT:
Debtors control
Details
Fol.
Amount
Sales and output VAT
DJ#
1 150 00
B#
Details
Sales
Details
Fol.
Amount
Fol.
Amount
N#
Details
Fol.
Amount
Debtors control
DJ#
1 000 00
363
Annexure A
Output VAT
Details
Fol.
Amount
B#
Details
Fol.
Debtors control
DJ#
Amount
150 00
Fol.
GJ#
Amount
Details
500 00
Amount
Details
Fol.
Debtors control
GJ#
75 00
Details
Fol.
Debtors control
Question 5.2
Amount
B#
Details
Fol.
Credit losses and input
VAT
GJ#
Amount
575 00
A debit note is a valid document for tax purposes (and therefore displays
a VAT registration number), issued by a supplier to a debtor in the event
of the supplier having to debit the debtor’s account in their books because
the consideration (amount charged) on the original invoice was too low. For
example, a supplier issued a credit invoice for R 500, instead of the correct
amount of R 550, and needs to increase the amount charged to the debtor on
this specific transaction. A debit note will be issued for R 50.
©
ED
G
E
(i)
Amount
Fol.
Ed
uc
Details
Amount
B#
at
io
n
Input VAT
Fol.
(P
Details
Debtors control
N#
ty
)
Credit losses
Lt
d
Assume the debtor owes us R 575 and that whole amount is to be written off as
irrecoverable.
(ii)
364
A credit note is also a valid document for tax purposes (and therefore displays
a VAT registration number), issued by a supplier to a debtor in the event of
the supplier having to credit the debtor’s account because the consideration
(amount charged) on the original invoice was too high. For example, a debtor
returns goods of inferior quality to the supplier or requests a rebate on the
invoice received from the supplier due to some irregularity.
It is possible that a business might make a payment to a creditor from petty
cash. It is also possible that certain transactions with debtors can be recorded
in the petty cash journal. Say for example the business makes a credit sale
to a customer and needs to make a payment to a courier company to have
Question solutions
A trade discount is negotiated before the customer leaves the store. It is
bookkeeping convention not to record a trade discount per se, but to record
the selling or purchases price net of the discount instead.
A settlement discount is slightly more complex.
ty
)
(iii)
Lt
d
the goods delivered to the debtor. Such a payment could be recorded in the
petty cash journal if:
• the debtor is responsible for the delivery costs; but
• the company makes the payment from petty cash on behalf of the debtor;
and
• the debtor's account is debited with the costs incurred.
Ed
uc
at
io
n
(P
The accounting treatment of a settlement discount has evolved over the years.
When an entity offers a settlement discount, there is always the possibility
that some customers might take advantage of the discount while some might
not be able to. As such, the entity is required (in terms of the IFRS dealing
with the recognition of revenue; IFRS 15 – Revenue from Contracts with
Customers) to make a reliable estimate, based on its past experience, of the
amount of the settlement discount it expects its customers to take advantage
of and, thus, recognise the revenue arising from such a transaction net of this
estimated discount. By the same token, the buyer will recognise the cost of
the acquired goods and/or services at the purchase price, net of the discount.
G
E
Unlike trade discount, the estimated settlement discount is recorded in the
books of the buyer and the seller as an ‘allowance for settlement discount’.
This is a fundamental difference between the accounting treatment of the
trade discount and the settlement discount. However, such an allowance will
only be created if the business is confident that the debtor will meet the
requirements to qualify for the settlement discount – based on the particular
debtor’s risk profile and credit history.
©
ED
In the event that, at the date of the sale, an entity has reasonable grounds
to believe that the settlement discount it has offered will not be taken by
the customers, the entity will recognise the revenue arising from such a
transaction at the full amount. The buyer will also recognise the cost of the
acquired goods and/or services at the full amount. However, should such a
customer subsequently settle his/her account early (in contrast to the entity’s
initial expectation), thereby qualifying for the settlement discount, the entity
will have to adjust the revenue (in the books of the seller) or the cost of the
goods acquired (in the books of the buyer) by the amount of the discount
granted.
Normal VAT rules and calculations, as covered in Learning Unit 3, apply.
365
Annexure A
Question 5.3
at
io
n
Questions regarding the cashbook receipts:
(P
ty
)
Lt
d
Please note that throughout Accounting 1A (for transactions involving
settlement discounts) it is assumed that, at the point of sale, the seller is not
expecting to grant any early settlement discounts, nor is the buyer expected
to qualify for such discounts. No ‘allowance for settlement discount’ account
would therefore need to be created. If the debtor then incidentally meets the
requirements for settlement subsequent to the transaction date, the sales
account and VAT should be debited with the discount granted in the books of
the seller; and the trading inventory account and VAT should be credited with
the discount received in the books of the buyer. Keep in mind that, under a
periodic inventory system, the credit would be passed against the purchases
account, instead of the trading inventory account.
The amount contributed by Leroy was deposited directly into the bank
account, which meant the amount would have been reflected as a standalone on the bank statement. The analysis of receipts column is only used
when separate transactional receipts need to be added together to obtain the
total amount that appears on the bank deposit slip.
(ii)
What needs to be considered when calculating cost of sales is that a trade
discount does not affect the price a business initially paid for the products
sold! In the given information it is clearly stipulated that all goods are sold at
a constant mark-up of 50% on cost, before any trade discounts. The initial
marked price of the Type F couches sold were R 7 000 each (before the 2.5%
trade discount).
E
Ed
uc
(i)
ED
G
Therefore, had the goods been sold at the original marked price, the cash
amount received would have been R 14 000, the sales revenue would have
been (R 14 000 ÷ 1.15) = R 12 173.91 and the cost of sales would have been
(R 12 173.91 ÷ 1.50) = R 8 115.94; and this amount would still be the same
irrespective of whether there happened to be a trade discount.
©
(iii)
(iv)
366
Since Letsema Furnishers is registered for VAT on the invoice basis, the VAT
was accounted for when credit invoice D1 was issued to Runway Dealers on
8 April 20.9 in the debtors journal. The VAT was accounted for when the sale
was made, and cannot be accounted for again when the account is settled.
Before Iso Venter’s account was written off as irrecoverable (see JV6 on
day 20 in the general journal), an amount of 40 cents in the rand from his
insolvent estate was received by cheque settlement. Since this was a cash
receipt, an entry needed to be made into the cashbook receipts. To calculate
the amount, we need to determine what his outstanding balance was at the
Question solutions
The bank statement is not a part of Letsema Furnishers’ books; it is a printout
from the books of AAA Bank. From AAA Bank’s point of view, Letsema
Furnishers is a creditor, not an asset. Creditors increase on the credit side.
This is the reason for the interest being reflected as a credit by the bank.
However, from the business’s point of view, the interest has been received
and should be added to Letsema Furnisher’s asset balance – and assets
increase on the debit side!
at
io
n
(P
(v)
ty
)
Lt
d
time. One would go about this by firstly determining whether any amount was
due by Iso Venter on 1 April 20.9. Since Letsema Furnishers only introduced
transactions with debtors on 1 April 20.9, there would be no opening balance.
Subsequently one would search for Iso Venter’s name in all the journals
leading up to the 20th. The only transaction with this debtor between 1 April
and 20 April was the credit sale for R 26 889.75 in the debtors journal on day
11. The debtor thus owed this amount on 20 April. Forty cents in the rand
essentially means 40% of the amount owing. The amount received from the
debtor is therefore 40% of R 26 889.75 or R 10 755.90. The amount to be
written off in the general journal is therefore 60% of the outstanding amount
(i.e. 60% of R 26 889.75 or R 16 133.85).
Questions regarding the cashbook payments:
We need to calculate the amount that was owed to Geronimo’s on the 14th,
just before this settlement took place. The first step is to ascertain whether
there was any amount due at the beginning of the month. Since Letsema
Furnishers only started dealing with debtors and creditors on the 1st of
April, there would therefore not be any balance for creditors at that date.
Transactions with Geronimo’s took place on days 5 (CJ) and 7 (CAJ).
Ed
uc
(i)
G
E
The amount due just before settlement on day 14 can therefore be calculated
as follows:
ED
R 82 420.00 – R 6 900.00 = R 75 520.00
©
Since there was a settlement discount of 5% involved, this amount can now
be split into two:
(The amount on the cheque must be entered into the CBP)
R 75 520.00 – 5%
= R 71 744.00
R 75 520.00 – R 71 744.00 = R 3 776.00
R 75 520.00
(ii)
(This is the discount
amount and must be
entered into the GJ)
The VAT Act clearly states that no input VAT may be claimed on any operating
or capital expenditure for in-house staff entertainment. If a restaurant were
367
Annexure A
to purchase a kettle for use in the business kitchen, input VAT would be
claimable since the kettle is used for business purposes.
The easiest way to explain this is to make use of a T-account for the creditor,
Western Frontiers.
Lt
d
(iii)
There are two possible ways in which this transaction could have been
recorded.
(P
ty
)
Method 1: Credit the creditor with the full invoice amount (i.e. credit creditors
with R 59 280, debit equipment with R 51 547.83 and debit input VAT with
R 7 732.17. This entry is made in the creditors journal. Thereafter, debit the
creditor, and credit bank (in the CBP) with the deposit amount.
at
io
n
The corresponding credit for the debit entry of R 5 928 would be entered into
the bank account. This transaction was therefore recorded in the cashbook
payments. The credit entry for R 59 280 would also be credited to creditors
control. The corresponding debit entry would have been made in the equipment
account. This double entry was therefore recorded in the creditors journal.
The T-accounts would be affected as follows:
Date
Ed
uc
Western Frontiers (creditors)
Details
20.9
Fol.
Amount
Date
20.9
Apr.
20 Bank
5 928 00
c/d
53 352 00
Apr.
Equipment and
20 VAT
Fol.
Amount
CJ1
59 280 00
59 280 00
59 280 00
20.9
May
G
E
Balance
CBP1
Details
1
Balance
b/d
53 352 00
©
ED
Method 2: Credit the creditor with the portion of the invoice that was done
on credit (i.e. R 53 352) and debit equipment with R 46 393.04 and input VAT
with R 6 958.96. This entry is made in the Creditors journal. Thereafter bank
is credited with R 5 928, equipment is debited with R 5 154.78 and input VAT
is debited with R 773.22. This entry is made in the cashbook payments. The
creditor’s accounts would be affected as follows:
Western Frontiers (creditors)
Date
Details
Fol.
Amount
Date
20.9
Apr.
368
Details
Equipment and
20 VAT
Fol.
Amount
CJ1
53 352 00
Question solutions
Firstly, one would have to calculate how much was owed to Smart Offices just
before this transaction took place. This would help us determine what portion
of the cheque amount was allocated to the settlement of the account. There
was only one transaction with Smart Offices prior to this transaction, namely
the credit purchase of R 886.40 on day 15 (in the CJ). The next portion of the
cheque was the R 482 spent on stationery. The final portion was for trading
inventory purchased for R 1 000.
Lt
d
(iv)
(P
ty
)
The total amount of the cheque was therefore R 886.40 + R 482 +
R 1 000 = R 2 368.40. This amount was entered into the bank column. The
R 886.40 would be entered into the creditors control column, and there
would be no VAT amount linked to this entry. Since output VAT would
only be claimable on the stationery and trading inventory purchased,
one could calculate the amount entered into the VAT column as follows:
at
io
n
(R 1 000 + 482) × 15/115 = R 193.30. The amount entered into the trading
inventory column was calculated as follows: R 1 000 ÷ 1.15 = R 869.57. The
balancing figure can now be entered into the sundry columns as a debit to
postage and stationery – i.e. R 2 368.40 – 886.40 – 193.30 – 869.57 = R 419.13
Questions regarding the petty cash journal:
Ed
uc
The amount of R 250 must be inserted in the petty cash column, since it
represents the VAT inclusive amount for the entire transaction – and this was
the amount that was taken from the petty cash box. The R 50 in the sundries
column represents the 20 stamps × R 2.50 which the owner took for personal
use. Drawings of cash does not attract VAT so the R 50 will not be divided by
1.15. The amount in the VAT column represents the 80 stamps for business
uses 15/115. Thus R 200 × 15/115 = R 26.09 will be entered into the VAT
column. The balance of the R 250 will be entered into postage and stationery.
Thus: R 250 – 50 – 26.09 = R 173.91 is to be entered into the postage and
stationery column.
The easiest way to explain why there was no VAT claimed on this transaction
is to assume that Jasper’s Paradise paid for the courier fees and then received
the income back from the debtor. In other words:
©
ED
(ii)
G
E
(i)
Petty cash
Courier fees
195 22
VAT control
Petty cash
N#
B#
29 28 Debtors control
Petty cash
Courier fees and VAT
29 28
B#
224 50
369
Annexure A
Debtors control
Courier fees recovered and VAT
B#
224 50
Courier fees recovered
N#
195 22
Lt
d
Courier fees
(P
ty
)
Note the following: The VAT control account was debited and credited with
the same amount (they cancel each other out). Courier fees expense has
been debited with R 195.22 while courier fees recovered income has been
credited with the same amount. Therefore, these two entries cancel each
other out as well. This leaves us with a debit to debtors control and a credit
to petty cash – exactly what was done in the petty cash journal. There is
no need to make all the entries as shown. Only the net effect needs to be
recorded – i.e. debit debtors control and credit petty cash.
at
io
n
The petty cash imprest amount is usually restored by cashing in a cheque
for the amount needed. Therefore the entry will be made in the cashbook
payments. The amount of petty cash float as required by the business for a
standard month is called an imprest amount. To restore the imprest amount
on a monthly basis, a cheque needs to be drawn for the particular amount
spent from petty cash during the month. This amount will be the total of the
petty cash column in the petty cash journal.
Ed
uc
(iii)
ED
G
E
The amount required from the bank is requested according to required notes
and coins. Notes and coins received are counted and placed in the petty
cash box. The bookkeeper must adhere to control procedures for petty cash.
One of these control procedures is to ensure the safekeeping of cash in a
security safe, to which only authorised personnel have the access code. The
petty cash float should regularly be reconciled with the petty cash journal.
Discrepancies must be investigated and corrected within a reasonable period
of time. Discrepancies arising from the reconciliation of petty cash are either
resolved or referred to the appropriate person.
Questions regarding the creditor’s journal:
©
(i)
(ii)
370
This issue does indeed create confusion in practice. Yes, it would not have
been a mistake had the business decided to open a separate ‘office furniture’
account for the coffee table purchased. A solution to this ‘grouping’ dilemma
is to use an account called ‘office furniture and equipment’ and to debit office
chairs, computers, coffee tables, office kitchen appliances, etc. to this allinclusive account.
The instalments were only due to start on 31 May 20.9, and would therefore
not be included in the journals for April. Had the first premium been due on
30 April, for example, then an entry would have had to be made in the
cashbook payments for April.
Question solutions
Questions regarding the creditors allowances journal:
R 840.75 × 25% = R 210.19.
(ii)
The amount given was the exclusive amount, and the inclusive amount should
be entered into the creditors control column.
Lt
d
(i)
Questions regarding the debtor’s journal:
A trade discount does not affect the price a business initially paid for the
products sold. In the given information it is clearly stipulated that all goods
are sold at a constant mark-up of 50% on cost, before any trade discounts.
The initial marked price of the merchandise sold on day 11 was R 29 070. The
cost of sales is thus R 29 070 ÷ 1.15 ÷ 1.50 = R 16 852.17.
(ii)
The ratio was distorted due to the trade discount granted on the transaction
on day 11. Refer to the explanation provided in (i). Had there been no trade
discount, the amounts entered into the debtors control account would have
been R 29 070 and the amount entered into the sales column would have
been R 25 278.26. The total of the sales column would then have been
R 48 152.14, and 48 152.14 ÷ 32 101.43 = 1.5!
at
io
n
(P
ty
)
(i)
Remember the following golden rule: One would only make an entry in the
cost of sales account if one made an entry into the trading inventory account.
Since there was no actual movement of trading inventory in this instance, no
entry was made in trading inventory. Therefore no entry would be made in
cost of sales. Therefore, no entry will ever be made in a cost of sales column
if there is no actual movement in trading inventory.
E
(i)
Ed
uc
Questions regarding the debtors allowances journal:
The interest was credited to the loan account, not the current bank account.
One can only make an entry in the CBP if the bank account is credited.
ED
(i)
G
Questions regarding the general journal:
©
(ii)
Refer back to Example 4.1. The loan of R 150 000 was received on 2 March
20.9. The interest was calculated as follows: R 150 000 × 30/365 × 15% =
R 1 849.32.
(iii)
R 750 ÷ 1.50 = R 500
(iv)
Refer to the discussion under the cashbook payments (the solution to
question [i]).
(v)
Refer to the discussion under cashbook receipts (the solution to question
[iv]).
371
Annexure A
This is a bit of a technical issue. At the start of this practice exercise, it was
clearly stated that all amounts quoted are inclusive of VAT, unless otherwise
stipulated. The mistake made during March was not the R 8 799.95 credit to
bank, but rather the R 7 652.13 (VAT excl.) debited to equipment instead of
postage and stationery. To correct the error, the amount debited to equipment
must be ‘taken out’ of the account (i.e. equipment must be credited) and ‘put
into’ the correct account (i.e. debited to postage and stationery).
Lt
d
(vi)
ty
)
Question 5.4
Doc.
no.
Day
JV19
1
(P
General journal of Oribi Dealers – August 20.9
Details
Fol.
15 000
at
io
n
Furniture
Capital
Debit
GJ4
Credit
00
15 000
00
462
82
3 085
43
463
93
3 092
87
47
68
317
86
15
00
63
07
(Capital contribution by George Oribi)
JV20
5
Drawings
Output VAT
Ed
uc
Trading inventory
a 3 548
25
(Owner took merchandise for own use)
JV21
6
Drawings
b 3 556
80
Output VAT
Trading inventory
(Owner took merchandise for own use)
8
Drawings
E
JV22
365
54
G
Output VAT
ED
Stationery
©
JV23
9
(Owner took stationery for own use)
Sales
13
04
Input VAT
1
96
Debtors control (Derold Selepe)
(Settlement discount granted)
JV24
11
Sales
54
84
Input VAT
8
23
Debtors control (Beauty Masilela)
(Settlement discount granted)
372
Question solutions
JV25
13
Details
Fol.
Debit
Credit
Sales
1 010 87
Input VAT
151 63
c 1 162
50
8
23
54
84
32
61
217
39
64
17
427
83
167
09
1 113
91
125
34
32
50
12 173
91
125
34
Debtors control (Thembi Mahlangu)
(5% settlement discount granted)
JV26
14
Debtors control (Beauty Masilela)
63 07
* Output VAT
(Cancellation of discount on R/D cheque)
JV27
16
Creditors control (Munro Enterprises)
Output VAT
Trading inventory
250 00
(P
Sales
Lt
d
Day
ty
)
Doc.
no.
JV28
17
at
io
n
(Settlement discount received on full
settlement)
Creditors control (Donnay Dealers)
Output VAT
Trading inventory
492 00
JV29
Ed
uc
(Settlement discount received on full
settlement)
19
Creditors control (Gorries Limited)
d 1 281 00
Output VAT
Trading inventory
24
Debtors control (Fred Couples)
G
JV30
E
(Settlement discount received on full
settlement)
e 125
34
ED
Interest income
©
JV31
25
(Interest charged on debtor’s outstanding
account @ 15.0% p.a. for 61/365)
Interest expense
32 50
Creditors control (Dave Martin)
(Interest charged by creditor on our overdue
account)
JV32
27
Packing materials
f 12 173
91
Office consumables
(Correction of error)
JV33
31
Interest income
Debtors control (Fred Couples)
125
34
(Reversal of interest charged on 24/8)
373
Annexure A
Calculations:
Lt
d
* In this particular instance, it would not have been incorrect to credit input VAT.
However, SARS will accept a credit to output VAT. For the sake of consistency in
always debiting input VAT and always crediting output VAT, we will credit output VAT
in this instance.
R 4 731 ÷ 1.33333333… = R 3 548.25
(b)
R 5 928 – 40% = R 3 556.80 OR: R 5 928 × 60% = R 3 556.80
(c)
The amount owed by the debtor must have been R 22 087.50 ÷ 0.95 =
R 23 250. Thus, the amount of the discount (including VAT) must have been
(R 23 250 – R 22 087.50) = R 1 162.50.
(d)
The amount owed to the creditor must have been R 7 259 ÷ 0.85 = R8 540.
Thus, the amount of the discount (including VAT) must have been (R 8 540 –
R 7 259) = R 1 281.
at
io
n
(P
ty
)
(a)
(e)
R 5 000 × 15.0% (prime of 12% + 3%) × 61/365 = R 125.34
(f)
R 14 000 ÷ 1.15 = R 12 173.91
Ed
uc
Question 5.5
Creditors journal of Letsema Furnishers – February 20.9
Doc.
Date
no.
Fol.
Creditors
control
Input VAT
Trading
inventory
1 Tudor Enterprises
C3
8 413 20 1 097 37
O43
7 Geronimo’s
C1
3 136 99
409 17
2 727 82
IV145
16 Western Frontiers
C4
8 487 00 1 107 00
7 380 00
E34
27 Ekurhuleni *
C2
1 003 05
©
ED
G
V65
E
Details
CJ12
Sundries
Amount
Fol.
Details
7 315 83 B9 Equipment
86 85
916 20 N8 Rates and
taxes
21 040 24 2 700 39 10 107 82 8 232 03
Credit
Debit
Debit
B12
B7
B6
Debit individual accounts
*Note: Since rates and taxes are a recurrent expense, businesses often opt to settle
these invoices immediately upon receipt, in which instance an entry would be made
directly into the cashbook payments from the EFT confirmation slip or cheque stub,
effectively crediting bank, and debiting rates and taxes.
374
Question solutions
Creditors allowances journal of Letsema Furnishers – February 20.9
Details
Fol.
Creditors
control
Output
VAT
Tudor Enterprises
C3
954 90
124 55
Sundries
Trading
inventory
Amount
CN43
1
NT39
13 Geronimo’s
C1
359 19
46 85
312 34
NE76
23 Western Frontiers
C4
720 19
93 94
626 25
2 034 28
265 34
938 59
Debit
Credit
Credit
B12
B5
B6
ty
)
830 35
Credit individual accounts
(P
Fol.
D396
2
Runway Dealers
D1
D397
12 Lebo Tathe
D3
D398
21 Iso Venter
D2
D399
24 Sunil Govender
D4
D400
26 Owens Enterprises
Debtors
control
DJ12
Sales
Cost of sales
3 773 19
492 16
3 281 03
2 187 35
3 331 29
434 52
2 896 77
*2 032 82
4 147 11
540 93
3 606 18
2 404 12
3 023 37
394 35
2 629 02
1 752 68
3 331 29
434 52
2 896 77
1 931 18
17 606 25
2 296 48
15 309 77
10 308 15
Debit
Credit
Credit
Debit and
credit
B11
B5
N2
N3 and B6
E
D5
Output VAT
at
io
n
Details
Ed
uc
Date
Details
830 35 B9 Equipment
Debtors journal of Letsema Furnishers – February 20.9
Doc.
no.
Fol.
Lt
d
Doc.
Date
no.
CAJ12
©
ED
G
*R 3 506.62 ÷ 1.15 ÷ 1.50 = R 2 032.82
375
Annexure A
Debtors allowances journal of Letsema Furnishers – February 20.9
Date
Details
Fol.
Debtors
control
DA121
8
Runway Dealers
D1
469 73
DA122
17 Lebo Tathe
D3
DA123
26 Sunil Govender
DA124
27 Owens Enterprises
Sales returns
Cost of sales
61 27
408 46
1 158 37
404 75
52 79
351 96
2 112 82
D4
334 73
43 66
291 07
D5
325 80
42 50
283 30
Lt
d
Doc.
no.
1 535 01
200 22
1 334 79
434 44
Credit
Debit
B11
B7
3 0 00
4 163 25
ty
)
Input VAT
DAJ12
(P
Debit
N18
Debit and
credit
B6 and N3
1 Refer back to invoice D396: R 273.19 ÷ 1.15 ÷ 1.50 = R 158.37 (only the stand-
Ed
uc
at
io
n
alone light was physically returned)
2 R 194.62 ÷ 1.15 ÷ 1.50 = R 112.82 (The Africa office chair was not physically
returned)
3 The gas heaters were not returned (only rebates were given), hence no change in
cost of sales
4 R 281.61 ÷ 1.15 ÷ 1.50 = R 163.25
Date
Details
Fol. Petty cash
PV121
8
Cool drinks
190 80
PV122
18 Envelopes
141 77
PV123
25
Petrol for
motorcycle
147 15
©
ED
G
Doc.
no.
E
Petty cash journal of Letsema Furnishers – February 20.9
376
PCJ12
Postage
Sundry accounts
Staff
and
Input VAT
refreshments
Amount Fol. Details
stationery
190 80
123 28
18 49
147 15
N13 Fuel
479 72
123 28
190 80
18 49
147 15
Credit
Debit
Debit
Debit
Debit individual accounts
B8
N11
N12
B7
ED
G
2 603 99
Runway Dealers
28 Cash
D1
D4
2 603 99
Debtors
control
8 570 07
18 653 37
Credit
B11
39 111 42
Debit
B4
4 113 12
4 113 12
8 570 07
7 479 31
7 479 31
Sales
536 49 3 576 63
885 64
594 13 3 960 90
Output
VAT
B5
Credit
N2
Credit
Fol.
Sundries
Details
ty
)
Lt
d
Credit individual accounts
10 904 26
5 904 26 N1 Services rendered
5 000 00 B1 Capital
Amount
(P
2 016 26 7 537 53
at
io
n
Ed
uc
2 603 99
6 789 90
5 000 00
4 555 03
Bank
7 479 31
* R 4 794.77 ÷ 1.15 ÷ 1.50 = R 2 779.58
B/S
CV47
RC144 26 Sunil Govender
D2
Iso Venter (Brand &
Son Attorneys)
RC143 22
6 789 90
14 Services rendered
5 000 00
CV46
Leroy Ungaretti
8
4 555 03
E
Analysis of
receipts
RC142
Cash
Fol.
3
Details
CV45
Doc.
Date
no.
Cashbook receipts of Letsema Furnishers – February 20.9
©
00
42
N3 and B6
Debit and
credit
5 164
2 384
* 2 779 58
Cost of sales
CBR12
Question solutions
377
1
Star Supermarket
Elite Motors
Input VAT
Trading
inventory
Amount
CBP12
Details
Sundry accounts
Fol.
26 502 83 B10 Vehicles
E
Ed
uc
at
io
n
(P
182 64 N12 Staff refreshments
3 975 42
182 64
N9 Insurance
Postage and
stationery
2 335 16
N7 Rent expense
N6 Wages and salaries
B8 Petty cash
4 858 78
750 00
1 520 28
279 50 N11
B2 Drawings
307 50
3 743 28
2 900 77
307 50
561 49
728 82
435 11
1 012 68 N10 Bank charges
150 62 N20 Interest on overdraft
Debit individual accounts
37 899 99
G
Lt
d
325
5
Cash
4 304 77
41 93
5 587 60
350 27
321 43
The Rental Experts
3 335 88
2 670 53
334
Peacon Nut
Wholesalers
8 975 12
6 644 05
151 90
6 244 94
Debit
ED
ty
)
326
10
Smart Offices
2 670 53
Creditors
control
Cashbook payments of Letsema Furnishers – February 20.9
327
11
SA Post Office
2 685 43
Bank
328
13
SA Insurance Corp.
1 520 28
Fol.
329
15
Cash
750 00
Name of payee
330
25
Cash
Doc.
Date
no.
331
25
Western Frontiers
30 478 25
332
28
335
Tudor Enterprises
1 164 58
C4
333
336
AAA Bank
150 62
8 975 12
B/S
AAA Bank
C3
B/S
Debit
B6
11 645 65
Debit
B7
62 434 63
Credit
B12
378
B4
©
Annexure A
Bank reconciliation
Question solutions
General journal of Letsema Furnishers – February 20.9
Day
JV56
11
Details
Drawings
Fol.
Debit (R)
B2
133
Output VAT
B5
Postage and stationery
N11
Credit (R)
52
17
116
(Owner took postage and stationery for
his own use)
B9
7 175
Input VAT
B7
1 076
Capital
B1
Drawings
B2
00
ty
)
21
Equipment
1 218
10
25
8 251
25
08
(P
JV58
13
Output VAT
B5
158
88
Trading inventory
B6
1 059
20
6 075
99
377
32
at
io
n
JV57
42
Lt
d
Doc. no.
GJ12
(Owner took trading inventory for his own
use)
JV59
22
Credit losses
Input VAT
Ed
uc
Debtors control (Iso Venter)
N17
5 283
47
B7
792
52
B11 (D2)
(Amount written off as irrecoverable –
received 30 cents in the rand)
JV60
28
Sales
N2
328
10
Input VAT
B7
49
22
Debtors control (Runway Dealers)
B11 (D1)
Creditors control (Tudor Enterprises)
ED
G
JV61
E
(Settlement discount granted)
©
JV62
B12 (C3)
373
96
Output VAT
B5
48
78
Equipment
B9
325
18
68
77
110
91
(Settlement discount of 4%)
Debtors control (Lebo Tathe)
Interest received
B11 (D3)
68
77
N17
(Interest on overdue account)
JV63
Interest paid/charged
Creditors control (Geronimo's)
N19
B12 (C1)
110
91
(Interest on overdue account)
379
Annexure A
General ledger of Letsema Furnishers
Statement of financial position section
Details
Fol.
B1
Amount
Date
Details
Fol.
20.9
b/d
8 Bank
CBR12
5 000 00
GJ2
8 251 25
Drawings
Fol.
Amount
b/d
3 259
50
CBP12
307
50
20.9
Feb.
1
Balance
10 Bank
Date
Details
GJ12
133
52
Trading
21 inventory and
VAT
GJ12
1 218
08
4 918
60
Fol.
Amount
Details
Loan: AAA Bank
Fol.
Amount
©
Date
Details
Date
Feb.
Details
1 Balance
Bank
Fol.
Amount
Fol.
Amount
b/d
190 000 00
B4
Date
Details
Fol.
Amount
CBP12
62 434 63
20.9
20.9
Feb.
B3
20.9
ED
G
Date
E
Ed
uc
Postage and
11 stationery and
VAT
136 251 25
B2
at
io
n
Details
Equipment and
VAT
(P
13
Date
123 000 00
1 Balance
ty
)
Feb.
Amount
Lt
d
Capital
Date
1 Balance
b/d
28 Total receipts
CBR12 39 111 42
Balance
c/d
13 895 14 Feb.
28 Total payments
9 428 07
62 434 63
62 434 63
20.9
Mar.
380
1
Balance
b/d
9 428 07
Question solutions
Output VAT
Date
Details
Fol.
Amount
B5
Date
Details
Fol.
Amount
Balance
b/d
43 826 05
11 Drawings
GJ12
17 42
21 Drawings
GJ12
158 88
28 Creditors control
GJ12
48 78
Creditors control
CAJ12
265 34
Trading inventory
Details
Fol.
Amount
Debtors control
DJ12
2 296 48
Bank
CBR12
2 016 26
Date
Details
Fol.
Amount
20.9
20.9
Feb.
1 Balance
b/d
34 125 70 Feb. 21 Drawings
GJ12
1 059 20
28 Creditors control
CJ12
10 107 82
28 Creditors control
CAJ12
938 59
434 44
Cost of sales
DJ12
10 308 15
Cost of sales
CBR12
5 164 00
Balance
c/d
33 842 07
Bank
DAJ12
Ed
uc
Cost of sales
CBP12
6 644 05
51 312 01
20.9
1 Balance
b/d
33 842 07
Fol.
Amount
Balance
b/d
32 901 96
13 Capital
GJ12
1 076 25
22 Debtors control
GJ12
792 52
28 Debtors control
GJ12
49 22
Creditors control
CJ12
2 700 39
Debtors control DAJ12
200 22
Petty cash
PCJ12
18 49
Bank
CBP12
6 244 94
G
E
Mar.
Date
Details
ED
20.9
©
Feb.
48 629 21
B6
at
io
n
Date
ty
)
1
(P
Feb.
Lt
d
20.9
1
51 312 01
Input VAT
B7
Date
Details
Fol.
Amount
43 983 99
381
Annexure A
Petty cash
Date
Details
Fol.
Amount
B8
Date
Details
Fol.
Amount
PCJ12
479 72
c/d
3 040 56
Feb.
1
Balance
25 Bank
b/d
2 000 00 Feb.
CBP12
1 520 28
28 Sundry payments
Balance
3 520 28
3 520 28
20.9
1
Balance
b/d
3 040 56
ty
)
Mar.
Equipment
Details
Fol.
Amount
B9
Date
Details
Fol.
Amount
Creditors control
CAJ12
830 35
28 Creditors control
GJ12
325 18
Balance
c/d
169 135 30
20.9
20.9
1
Balance
b/d
Creditors
control
CJ12
7 315 83
GJ12
7 175 00
13 Capital
155 800 00 Feb.
1
at
io
n
Feb.
(P
Date
Mar.
1
Balance
Ed
uc
170 290 83
20.9
b/d
169 135 30
Fol.
Amount
Vehicles
Date
Details
1
Balance
b/d
199 006 27
Bank
CBP12
26 502 83
©
ED
G
Feb.
E
20.9
382
225 509 10
Lt
d
20.9
20.9
Date
170 290 83
B10
Details
Fol.
Amount
Question solutions
Debtors control
Fol.
Amount
Date
20.9
20.9
Feb.
1
Balance
b/d
28 Interest received GJ12
Sales and VAT
DJ12
Details
Credit losses and
22 VAT
GJ12
6 075 99
68 77
28 Sales and VAT
GJ12
377 32
Sales returns and
VAT
DAJ12
1 535 01
Bank
CBR12
18 653 37
Balance
c/d
10 508 33
17 606 25
37 150 02
37 150 02
Balance
b/d
(P
1
10 508 33
Feb.
Equipment and
28 VAT
Fol.
Amount
Date
Details
Fol.
Amount
GJ12
373 96
Feb.
1
Balance
b/d
5 842 00
GJ12
110 91
CJ12
21 040 24
Sundry returns
and VAT
CAJ12
2 034 28
Interest paid/
charged
Bank
CBP12
11 645 65
28 Sundry purchases
c/d
12 939 26
Balance
B12
20.9
Ed
uc
20.9
Details
at
io
n
Creditors control
Date
Amount
19 475 00 Feb.
20.9
Mar.
Fol.
Lt
d
Details
ty
)
Date
B11
26 993 15
26 993 15
20.9
1
Balance
b/d
12 939 26
G
E
Mar.
ED
Nominal accounts section
©
Date
Details
Services rendered
Fol.
Amount
N1
Date
Details
Fol.
Amount
Total/Balance
b/d
40 785 66
CBR12
5 904 26
20.9
Feb.
1
14 Bank
46 689 92
383
Annexure A
Sales
Date
Details
Fol.
Amount
Date
Details
Fol.
Amount
Total/Balance
b/d
476 912 67
28 Debtors control
DJ12
15 309 77
CBR12
7 537 53
20.9
28 Debtors control GJ12
Feb.
Total/Balance
c/d
328 10
Feb.
1
499 431 87
Bank
Lt
d
20.9
N2
499 759 97
499 759 97
Mar.
1
Details
Fol.
Amount
20.9
Details
28
Total/Balance
Trading
inventory
Trading
inventory
b/d
306 993 41
DJ12
10 308 15
CBR12
5 164 00
Feb.
Amount
28 Trading inventory
DAJ12
434 44
Total/Balance
c/d
322 031 12
Ed
uc
322 465 56
20.9
Mar.
1
Total/Balance
b/d
Fol.
Amount
G
ED
Date
Details
Date
N4
Details
Fol.
1 Total/Balance
b/d
Amount
20.9
E
Details
322 465 56
322 031 12
Interest on current account
Date
499 431 87
Fol.
at
io
n
1
b/d
N3
Date
20.9
Feb.
Total/Balance
(P
Cost of sales
Date
ty
)
20.9
Feb.
Telephone
Fol.
Amount
b/d
13 228 65
574 50
N5
Date
Details
Fol.
Amount
20.9
©
Feb.
1 Total/Balance
Wages and salaries
Date
Details
Fol.
Amount
Total/Balance
b/d
9 366 45
CBP12
750 00
20.9
Feb.
1
25 Bank
10 116 45
384
Date
N6
Details
Fol.
Amount
Question solutions
Rent expense
Date
Details
Fol.
Amount
1 Total/Balance
b/d
34 638 85
28 Bank
CBP12
4 858 78
N7
Date
Details
Fol.
Amount
Feb.
39 497 63
Rates and taxes
Details
Fol.
Amount
1
Total/Balance
b/d
4 059 00
27
Creditors
control
CJ12
916 20
Date
Details
Amount
(P
20.9
Feb.
Fol.
ty
)
Date
N8
Lt
d
20.9
at
io
n
4 975 20
Insurance
Date
Details
Fol.
Amount
Total/Balance
b/d
12 956 00
CBP12
2 335 16
Feb.
1
15 Bank
Details
Ed
uc
20.9
Date
N9
Fol.
Amount
15 291 16
Bank charges
Details
20.9
1
Total/Balance
G
Feb.
ED
28 Bank
©
Date
Fol.
E
Date
Amount
b/d
3 804 80
CBP12
1 012 68
Date
Details
Postage and stationery
Details
Fol.
Amount
4 817 48
Fol.
Amount
20.9
Feb.
N10
Date
N11
Details
Fol.
Amount
20.9
1 Total/Balance
b/d
1 824 50
13 Bank
CBP12
279 50
28 Petty cash
PCJ12
123 28
2 227 28
Feb.
1 Drawings
GJ12
116 10
28 Total/Balance
c/d
2 111 18
2 227 28
20.9
Mar.
1 Total/Balance
b/d
2 111 18
385
Annexure A
Staff refreshments
Date
Details
Fol.
Amount
Date
1
Total/Balance
b/d
2 009 00
5
Bank
CBP12
182 64
28 Petty cash
PCJ12
190 80
N12
Details
Fol.
Amount
Feb.
Lt
d
20.9
2 382 44
Date
Details
Fol.
Amount
Total/Balance
b/d
5 303 35
PCJ12
147 15
N13
Date
Feb.
1
25 Petty cash
Details
Fol.
Amount
(P
20.9
ty
)
Fuel
at
io
n
5 450 50
Interest on loan
Date
Details
Fol.
Feb.
1
Date
Ed
uc
20.9
Amount
Total/Balance
b/d
Details
Details
Fol.
Amount
1 Total/Balance
b/d
1 742 50
22 Debtors control
GJ12
5 283 47
20.9
ED
Date
Details
Fol.
Amount
Total/Balance
b/d
14 956 80
28 Debtors control
DAJ12
1 334 79
©
386
1
Date
N15
Details
Sales returns
20.9
Feb.
Amount
Fol.
Amount
7 025 97
G
E
Feb.
Fol.
9 225 00
Credit losses
Date
N14
16 291 59
Date
N16
Details
Fol.
Amount
Question solutions
Interest received
Date
Details
Fol.
Amount
N17
Date
Details
Fol.
Amount
Total/Balance
b/d
2 603 50
28 Debtors control
GJ12
68 77
Feb.
1
Lt
d
20.9
2 672 27
Interest on overdraft
Details
Fol.
Amount
Total/Balance
b/d
635 50
CBP12
150 62
Date
Feb.
1
28 Bank
at
io
n
786 12
Interest paid/charged
Date
Details
Fol.
Amount
1 Total/Balance
b/d
2 337 00
20.9
Amount
Date
Details
N19
Fol.
Amount
Ed
uc
Feb.
Fol.
(P
20.9
Details
ty
)
Date
N18
28 Creditors control GJ12
110 91
©
ED
G
E
2 447 91
387
Annexure A
Trial balance of Letsema Furnishers on 28 February 20.9
Fol.
Debit (R)
Credit (R)
B1
B2
Loan: AAA Bank
B3
Bank
B4
Output VAT
B5
Trading inventory
B6
33 842
07
Input VAT
B7
43 983
99
Petty cash
B8
Equipment
B9
Vehicles
Creditors control
Nominal accounts section
Sales
Cost of sales
Ed
uc
Services rendered
60
9 428
07
48 629
21
B12
12 939
26
N1
46 689
92
N2
499 431
87
574
50
2 672
27
946 616
35
ty
)
00
3 040
56
169 135
30
B10
225 509
10
B11
10 508
33
N3
322 031
12
Interest on current account
N4
Telephone
N5
13 228
65
N6
10 116
45
N7
39 497
63
N8
4 975
20
Wages and salaries
E
Rent expense
G
N9
15 291
16
N10
4 817
48
ED
Rates and taxes
Insurance
Postage and stationery
N11
2 111
18
Staff refreshments
N12
2 382
44
Fuel
N13
5 450
50
Interest on loan
N14
9 225
00
Credit losses
N15
7 025
97
Sales returns
N16
16 291
59
Interest received
N17
Interest on overdraft
N18
786
12
Interest paid/charged
N19
2 447
91
946 616
35
©
Bank charges
388
25
190 000
at
io
n
Debtors control
136 251
4 918
Lt
d
Capital
Drawings
(P
Statement of financial position section
Question solutions
Question 5.6
Trial balance of Mapulane Dealers on 31 May 20.9
Debit
Credit
Recommended
adjustments
Debit
Corrected trial balance
Credit
Lt
d
Incorrect trial balance
Debit
Statement of financial
position section
383 080
B1
Drawings
B2
118 062
1 955
Machinery
B3
178 000
9 913
ty
)
6 000
Capital
Furniture and equipment
B4
40 500
4 500
45 000
Trading inventory
B5
40 000
(P
377 080
Credit
9 913
30 087
Debtors control
B6
23 550
684
22 866
Creditors control
B7
Bank
B8
Petty cash (standard
imprest)
B9
at
io
n
187 913
16 006
10 128
B10
230
N1
413 020
16 006
230
+ 6 000
2 030
Ed
uc
VAT control
120 017
675
+ 89
3 898
230
1 800
255
+ 30
249
Nominal accounts section
N2
275 030
N3
18 350
Repairs and maintenance
N4
20 030
Wages and salaries
N5
87 100
Stationery
N6
3 280
Advertising
N7
7 210
Credit losses recovered
N8
Courier fees
N9
470
470
Interest on bank overdraft
N10
30
30
Staff refreshments
N11
442
Rates and taxes
N12
840
Credit losses
N13
2 400
Interest income
N14
Interest expense
N15
©
ED
Insurance
E
Cost of sales
413 020
G
Sales
1 700
273 330
18 350
5 175
14 855
87 100
720
4 000
7 210
760
760
30
472
840
595
2 995
900
900
80
817 404
80
818 124
24 707
23 987
817 664
817 664
389
Annexure A
Question 5.7
(i)
The balance outstanding at 16 March 20.9 is R 21 003.78. This is calculated
as: R 20 000 + R 11 400 + R 303.78 – R 5 000 – R 5 700
Before this account is written off as irrecoverable, we need to record the
receipt of the payout of R 15 000 from the insolvent’s estate, credit debtors,
and debit bank with R 15 000.
The debtor’s outstanding balance is now R 6 003.78.
This is the amount to be written off as irrecoverable.
Remember that input VAT cannot be claimed on interest, as it is an exempt
supply. Had there been no interest, the input VAT claimable on this credit
loss would have been R 6 003.78 × 15/115. But, since there is an amount of
R 303.78 included in the balance of R 6 003.78, the outstanding balance on
which the Input VAT claim can be claimed is now R 6 003.78 – R 303.78. Input
VAT claimable: (6 003.78 – 303.78) × 15/115 = 743.48.
The balance of R 5 260.30 (i.e. 6 003.78 – 743.48) must be debited to credit
losses.
Lt
d
(ii)
(iii)
(v)
at
io
n
(P
ty
)
(iv)
Debtor: Jonathan Leeming
Date
Details
Fol.
20.9
Amount
Date
20.9
Fol.
Bank (account
payment)
Amount
1 Sales (including VAT)
20 000 00
Jan.
1
Feb.
3 Sales (including VAT)
11 400 00
Feb.
3
303 78
Mar.
31 Bank (dividend
from insolvent
estate)
15 000 00
Input VAT
743 48
Credit losses
5 260 30
ED
G
E
Ed
uc
Jan.
Mar. 15 Interest
Date
20.9
©
Details
Jan.
390
5 000 00
Sales returns
(credit note)
5 700 00
31 703 78
31 703 78
Input VAT (an asset)
Details
Debtors
(6 003.78 –
1 303.78) × 15/115
Fol.
Amount
743 48
Date
Details
Fol.
Amount
Question solutions
Credit losses (an expense)
20.9
Details
Fol.
Debtors
1 (6 003.78 – 743.48)
Mar.
Amount
Date
Details
Fol.
5 260 30
Question 5.8
Creditors journal of Milano Traders – October 20.9
Creditors
control
Input VAT
Trading
inventory
IV201
1
Igloo (Pty) Ltd
31 875.00
4 157.61
27 717.39
IV202
11 Gorton CC
34 500.00
4 500.00
30 000.00
IV203
13 BURTON
1 275.00
IV204
16 Sony
7 012.50
IV205
16 Sony
5 362.50
699.46
IV206
Samuraai
21
Traders
5 025.00
655.43
IV207
24 EWC
930.00
121.30
IV208
28 FG Motors
Fol.
Sundries
Amount
166.30
Details
1 108.70
Packing
materials
7 012.50
Equipment
4 663.04
Equipment
808.70
Delivery
expenses
1 537.50
Petrol
4 369.57
1 537.50
87 517.50 10 300.10
Fol.
(P
Details
at
io
n
Date
Ed
uc
Doc.
no.
CJ10
ty
)
(i)
Amount
Lt
d
Date
62 086.96 15 130.44
G
E
(ii) Creditors allowances journal of Milano Traders – October 20.9
Details
ED
Doc. no. Date
5
OCT174
16 Gorton CC
OCT175
21 Sony
OCT176
27 BURTON
OCT177
28
©
OCT173
Igloo (Pty) Ltd
Samuraai
Traders
Fol.
CAJ10
Sundries
Creditors
control
Input VAT
Trading
inventory
2 868.75
374.18
2 494.57
3 450.00
450.00
3 000.00
179.52
23.42
156.10
Equipment
280.50
36.59
243.91
Packing
materials
577.88
75.38
502.50
7 356.65
959.57
5 997.07
Amount
Fol.
Details
400.01
391
Annexure A
Cashbook payments for Milano Traders – October 20.9
Date
CC435
4
Leak City
CC436
8
Cash
24 375.00
CC437
9
Igloo (Pty) Ltd
27 030.00
CC438
11 Maxi
Suppliers
45 787.50
5 972.28
39 815.22
CC439
13 Trent Traders
41 625.00
5 429.35
36 195.65
CC440
14 The Paper
Port
18 Southern
Motors
1 350.00
176.09
656.25
31 671.00
CC443
21 Cash
4 500.00
CC444
25 Southern
Motors
28 125.00
CC445
26 Durb Traders
51 187.50
CC446
31 DAFAR
CC447
31 K. Minaar
E
G
ED
©
570.65
24 375.00
27 030.00
1 173.91
78 750.00
31 671.00
3 668.48
6 676.63
Ed
uc
562.50
Amount
at
io
n
20 Gorton CC
Trading
inventory
85.60
78 750.00
CC442
392
Input VAT
Fol.
Details
Repairs and
maintenance
Petty cash
ty
)
Bank
(P
Fol.
Creditors
control
Sundries
Doc.
no.
CC441
Name of
payee
CBP10
Lt
d
(iii)
Postage and
stationery
Motor
vehicles
4 500.00
Drawings
24 456.52
Motor
vehicles
44 510.87
562.50
9 600.00
9 600.00
345 219.75
58 701.00 22 008.43 120 521.74 143 988.58
Office
refreshments
Wages and
salaries
Question solutions
General journal of Milano Traders – October 20.9
Doc.
no.
Date
JR254
12
Details
GJ10
Fol.
Debit
Furniture and fittings
19 565.22
Input VAT
2 934.78
Capital
22 500.00
(Owner contributed furniture and fittings)
Creditors control (Gorton CC)
Output VAT
459.00
Trading inventory
3 060.00
(Settlement discount of 10%)
JR256
21
Drawings
1 125.00
at
io
n
Output VAT
Trading inventory
3 519.00
ty
)
20
(P
JR255
Credit
Lt
d
(iv)
146.74
978.26
(Owner took goods for own use)
JR257
31
Interest expense
375.00
Creditors control (Samuraai Traders)
375.00
JR258
31
Ed
uc
(Interest on overdue account)
Equipment
Packing materials
731.74
731.74
©
ED
G
E
(Correction of error)
393
Annexure A
Lt
d
Learning Unit 6
Inventory systems
The Toyota bakkie is a resource controlled by the business (usually for longer
than one year before it is sold) and from which future economic benefits are
likely to flow to the entity. It therefore conforms to the definition of a noncurrent asset. It will be listed in the statement of financial position as part
of the vehicles account under the category ‘non-current assets’. When it
is eventually sold, the resultant profit or loss with disposal will be recorded
in the statement of profit or loss and other comprehensive income (as an
income or expense).
at
io
n
(P
(i)
ty
)
Question 6.1
Ed
uc
The BMW sedan was bought with the purpose of reselling it to the public. It is
therefore an item of trading inventory, which will be recorded in the statement
of financial position as a current asset. When it is sold, the resultant cost of
sales expense will be reported in the statement of profit or loss and other
comprehensive income.
G
Trading inventory is only recognised on the date that it meets the asset
definition (i.e. the trading inventory is a present economic resource that is
controlled by the business as a result of past events) and the recognition
criteria (i.e recognising the trading inventory will result in relevant information
and faithful representation of the trading inventory).
ED
(ii)
E
From this scenario it becomes clear that whether or not an asset must be
regarded as trading inventory depends on what the business intends to do
with it and what the normal course of business actually entails.
©
(iii)
394
Consignment inventory
Consignment inventory is trading inventory that a business sends to an
agent to sell on its behalf. The agent never accepts the risks and rewards of
ownership.
Question solutions
Example:
Lt
d
On 1 June, Ronald’s Cleaning, a business based in Johannesburg, sent 100
vacuum cleaners on consignment to Speed Clean, a retailer in Worcester.
The vacuum cleaners arrived on the same day. The consignment contract
included the following terms:
ty
)
• The selling price of each vacuum cleaner must be R 900.
• Speed Clean will receive a 20% commission on sales price.
• If Speed Clean cannot sell the vacuum cleaners, Ronald’s Cleaning must
take them back.
at
io
n
(P
On 2 June, which business would record the vacuum cleaners as an asset
in their books? Answer: Ronald’s Cleaning! If the vacuum cleaners are
damaged, stolen or not sold, Ronald’s Cleaning carries the risk. If the vacuum
cleaners are sold, Ronald’s Cleaning will benefit from the rewards. Therefore,
the vacuum cleaners continue to be included in Ronald’s Cleaning’s trading
inventory.
No journal entries are therefore required on 1 June.
Ed
uc
Suppose that, on day 5, a vacuum cleaner is sold by Speed Clean to a client
in Worcester, assuming the vacuum cleaners cost Ronald’s Cleaning R 450.
The consignee (Speed Clean) will pass the following journal entry in their
books on day 5:
E
Dr. Bank900
Cr. Accounts payable (Ronald’s Cleaning)
720
Cr. Commission income 180
ED
G
The consignor (Ronald’s Cleaning) will pass the following entries in their
books:
©
Dr. Accounts receivable (Speed Clean)
720
Dr. Commission expense180
Cr. Sales income900
Dr. Cost of sales450
Cr. Trading inventory 450
395
Annexure A
FOB shipping point/destination
Lt
d
FOB. is the abbreviation for ‘Free on Board’. FOB. shipping point implies that
the risks and rewards of ownership transfer when the goods are shipped.
FOB destination implies that the risks and rewards of ownership transfer
when the goods reach their destination.
Example:
ty
)
Ronald’s Cleaning sold 10 vacuum cleaners at R 270 each on credit to
Speed Clean in Worcester. The trading inventory was sent by train: it left
Johannesburg on 1 June and arrived in Worcester on 5 June.
(P
When will the sale be recorded by Ronald’s Cleaning?
at
io
n
This depends on the terms of the sale contract between the buyer and seller.
If the contract states:
• FOB. shipping point, then the sale will be recorded on 1 June.
• FOB. destination, then the sale will be recorded on 5 June.
Question 6.2
Ed
uc
Speed Clean will record the purchase on the same day that Ronald’s Cleaning
records the sale.
Yes
X
Wage workers who assemble the parts of a vehicle at a vehicle manufacturer
X
G
E
The costs of transporting merchandise purchased for eventual resale purposes from our
supplier to our premises
No
X
Salaries of sales staff
X
Salaries of office staff
X
The costs of storing our product before it gets sold
X
©
ED
The fuel for the motorcycle which a pizza delivery man uses to deliver our pizzas to
customers
Import tariffs paid on the imported raw material used in the manufacturing of our product
(Source: EDGE Learning Media (Pty) Ltd, 2018)
Table 6.1: Items included in the cost of trading inventory
396
X
G
ED
B/S
AAA Bank
14 832 29
Credit
B5
Debit
B4
3 974 63
363 808 37
94 17
30 472 20
30 472 20
Cash sales
31
CRR
750 00
26 270 00
Cash sales
10 000 00
Services
rendered
N1
Credit
15 000 00
5 000 00
at
io
n
5 931 13
5 750 00
56 972 00
Services
rendered
17
CRR
45 472 00
1 500 00
CV2
11
CRR
Cash sales
11 500 00
150 000 00
100 000 00
1 672 83
5
CRR
Services
rendered
Output VAT
Ed
uc
Bank
12 825 00
4
CV1
AAA Bank
E
100 000 00
Analysis of
receipts
Cash sales
2
B/S
Leroy
Ungaretti
Fol.
1 003 70
1
RC01
Details
7 695 00
Day
Doc.
no.
Cashbook receipts of Letsema Furnishers – March 20.9
Question 6.3
©
N2
Lt
d
N4
B3
B1
Interest
on current
account
Loan: AAA
Bank
Capital
Details
Credit individual accounts
250 094 17
94 17
150 000 00
100 000 00
Fol.
Sundry accounts
Amount
ty
)
Credit
83 881 91
(P
26 497 57
11 152 17
6 691 30
39 540 87
Sales
CBR1
Question solutions
397
Note: No cost of sales column
Sundry accounts
Fol.
Details
Amount
Petty cash
Purchases
B8
Equipment
Telephone
Input VAT
2 000 00
B9
N5
Bank
10 434 78
7 652 13
1 078 26
E
at
io
n
2 000 00
161 74
Ed
uc
652 17
G
ty
)
(P
Lt
d
Day
Cash
80 000 00
1 147 82
69 565 22
1 240 00
B10 Vehicles
CBP1
Wages and salaries
Drawings
N6
69 565 22
B2
Rent expense
500 00
8 799 95
500 00
1 000 00
N7
Petty cash
10 434 78
4 347 83
B8
Rates and taxes
80 000 00
1 619 11
N8
Insurance
9 984 88
1 041 95
N9
1 497 73
114 60
543 48
11 482 61
1 000 00
5 000 00
81 52
N10 Bank charges
89 559 26
211 28
31 32
79 550 10
Debit individual accounts
ED
Doc.
no.
1
Pecan Nut Wholesalers
Fol.
Cashbook payments of Letsema Furnishers – March 20.9
01
2
Name of payee
02
Belkom
Cash
Future Computing
9
Elite Motors
4
04
12
Oberson Dealers
8
05
20
Germiston Primary School
03
06
21
EFT
07
The Rental Experts
Cash
31
08
Ekurhuleni
625 00
B/S
09
SA Insurance Corporation
242 60
1 619 11
B/S
AAA Bank
24 556 46
Debit
1 156 55
B/S
Debit
N3
193 665 82
Credit
B7
398
B4
©
Annexure A
Day
5
8
12
18
20
22
24
27
Doc.
no.
ED
PV1
PV2
PV3
PV4
PV5
PV6
PV7
PV8
Parcel to D. Knox
Drawings by L. Ungaretti
Thomas Pule’s wages
Delivery costs (see cheque
no. 06)
Cellphone handset (pay-asyou-go)
Fuel for delivery vehicle
Paper reams and cooldrinks
Stamps
Details
G
Debit
N11
Credit
B8
170 07
1 619 11
N12
Debit
185 84
143 50
42 34
Staff
refreshments
at
io
n
79 30
200 00
100 00
176 23
48 60
42 17
Ed
uc
584 95
320 00
98 23
48 50
Postage and
stationery
91 20
E
Fol.
Petty
cash
Petty cash journal of Letsema Furnishers – March 20.9
©
B2
N6
N14
B9
Details
Drawings
Wages and salaries
Carriage on
purchases
Equipment
N13 Fuel
Fol.
Sundry accounts
Lt
d
Debit individual accounts
1 138 39
56 50
100 00
153 24
508 65
320 00
Amount
ty
)
(P
B7
Debit
124 81
11 90
22 99
76 30
7 29
6 33
Input VAT
PCJ1
Question solutions
399
Annexure A
General ledger of Letsema Furnishers
Statement of financial position section
Details
Fol.
Amount
B1
Date
Details
Fol.
20.9
1
Bank
Drawings
Date
Details
Fol.
Amount
21 Bank
CBP1
1 000 00
24 Petty cash
PCJ1
56 50
100 000 00
B2
Date
Details
Fol.
Amount
at
io
n
(P
20.9
Mar.
CBR1
ty
)
Mar.
Amount
Lt
d
Capital
Date
1 056 50
Loan: AAA Bank
Date
Details
Fol.
Amount
Date
Details
B3
Fol.
Amount
CBR1
150 000 00
Ed
uc
20.9
Mar.
2
Bank
Bank
Date
Details
20.9
CBR1
ED
G
E
31 Total receipts
Apr.
©
Amount
Date
20.9
Mar.
20.9
Fol.
B4
Date
1
Balance
363 808 37
Mar.
Fol.
Amount
Total
31 payments
CBP1
193 665 82
Balance
c/d
170 142 55
363 808 37
b/d
363 808 37
170 142 55
Output VAT
Details
Fol.
Amount
B5
Date
Details
Fol.
Amount
CBR1
14 832 29
20.9
Mar.
400
Details
31 Bank
Question solutions
Trading inventory
Date
Details
Fol.
Amount
B6
Date
Details
Fol.
Amount
20.9
1
Balance
b/d
0 00
Lt
d
Mar.
ty
)
Note: It was not necessary to open a trading inventory account, since a periodic
inventory system is in use. However, the business will have to open this account
as soon as a stocktake is done and a statement of financial position needs to
be drafted. The account was therefore opened with a nil balance for illustrative
purposes only.
Date
Details
Fol.
Amount
CBP1
24 556 46
PCJ1
124 81
B7
(P
Input VAT
Date
Details
Mar.
31 Bank
Petty cash
at
io
n
20.9
Fol.
Amount
24 681 27
Petty cash
Details
20.9
Fol.
Amount
Ed
uc
Date
Date
B8
Details
Fol.
Amount
Total
payments
PCJ1
1 619 11
Balance
c/d
2 000 00
20.9
Mar.
1
Bank
31 Bank
CBP1
2 000 00
CBP1
1 619 11
Mar.
31
20.9
Balance
G
1
ED
Apr.
E
3 619 11
Date
Details
b/d
3 619 11
2 000 00
Equipment
Fol.
Amount
Bank
CBP1
7 652 13
18 Petty cash
PCJ1
508 65
B9
Date
Details
Fol.
Amount
20.9
©
Mar.
8
8 160 78
401
Annexure A
Vehicles
Date
Details
Fol.
Amount
CBP1
69 565 22
B10
Date
Details
Fol.
Amount
Mar.
12 Bank
Nominal accounts section
Services rendered
Details
Fol.
Amount
Date
Details
20.9
31 Bank
Sales
Details
Fol.
CBR1
15 000 00
N2
Amount
Date
Details
at
io
n
Date
Amount
(P
Mar.
Fol.
ty
)
Date
N1
Lt
d
20.9
Fol.
Amount
CBR1
83 881
20.9
Mar.
31
Bank
Purchases
Details
Mar.
31
Bank
Fol.
Amount
Ed
uc
Date
20.9
CBP1
79 550
Date
Details
Fol.
Amount
G
ED
Date
Details
Fol.
Amount
Date
N4
Details
Fol.
Amount
20.9
E
Details
N3
10
Interest on current account
Date
Mar.
31 Bank
Telephone
Fol.
Amount
CBP1
1 078 26
CBR1
94 17
N5
Date
Details
Fol.
Amount
20.9
4
Bank
©
Mar.
Wages and salaries
Date
Details
Fol.
Amount
20.9
Mar.
9
Bank
CBP1
500 00
22 Petty cash
PCJ1
100 00
600 00
402
91
Date
N6
Details
Fol.
Amount
Question solutions
Rent expense
Date
Details
Fol.
Amount
Date
CBP1
4 347 83
Details
Fol.
Amount
Mar.
31 Bank
Rates and taxes
Date
Details
Fol.
Amount
Date
CBP1
1 041 95
N8
Details
Fol.
31 Bank
Insurance
Date
Details
Fol.
Amount
N9
Date
20.9
31 Bank
CBP1
Details
Bank charges
Date
Details
Fol.
20.9
31 Bank
CBP1
Amount
Date
Details
Postage and stationery
Date
Details
Fol.
31 Petty cash
PCJ1
20.9
31 Petty cash
PCJ1
185 84
Details
Fol.
Amount
12 Petty cash
PCJ1
ED
©
Date
Fol.
Amount
Date
N11
Details
Staff refreshments
Fol.
Mar.
N10
Fol.
Amount
170 07
Details
Date
20.9
Amount
G
E
Mar.
Amount
211 28
Ed
uc
Mar.
Fol.
543 48
at
io
n
Mar.
(P
Mar.
Amount
ty
)
20.9
Lt
d
20.9
Amount
N12
Date
Details
Date
Details
Fuel
Fol.
Amount
N13
Fol.
Amount
20.9
Mar.
320 00
403
Annexure A
Carriage on purchases
Date
Details
Fol.
20 Petty cash
PCJ1
Amount
N14
Date
Details
Fol.
Amount
20.9
154 59
Lt
d
Mar.
Trial balance of Letsema Furnishers on 31 March 20.9
Fol.
Debit
Capital
B1
Drawings
B2
Loan: AAA Bank
B3
Bank
B4
Output VAT
B5
100 000
00
150 000
00
14 832
29
N1
15 000
00
N2
83 881
91
94
17
363 808
37
Input VAT
Petty cash
Ed
uc
Equipment
50
(P
1 056
170 142
at
io
n
* Trading inventory
Vehicles
ty
)
Statement of financial position section
Credit
55
B6
00
00
B7
24 681
27
B8
2 000
00
B9
8 160
78
B10
69 565
22
Nominal accounts section
Services rendered
Sales
* Purchases
N3
79 550
10
N4
Telephone
N5
1 078
26
Wages and salaries
N6
600
00
Rent expense
N7
4 347
83
Rates and taxes
N8
1 041
95
Insurance
N9
543
48
Bank charges
N10
211
28
Postage and stationery
N11
170
07
Staff refreshments
N12
185
84
Fuel
N13
320
00
* Carriage on purchases
N14
153
24
363 808
37
©
ED
G
E
Interest on current account
404
Question solutions
* Note the following:
ty
)
Lt
d
• There is no balance in the trading inventory account, because all purchases of
trading inventory are debited to the purchases account.
• There is no cost of sales account under the nominal accounts section.
• Carriage on purchases is not debited against trading inventory, but against a
separate expense account called ‘carriage on purchases’.
• The balances shown in the trial balance provided will be used as opening
balances in the general ledger on 1 April 20.9. Refer to Question 6.4 in this
regard.
Transactions relating to the cashbook receipts:
Account debited
Account credited
1
Bank
Capital
2
Bank
Loan: AAA Bank
4
Bank
Services rendered
Output VAT
Bank
Sales
Ed
uc
5
A
=
at
io
n
Day
(P
Analysis under the accounting equation (compared with Question 4.6 in Learning
Unit 4):
+ 100 000.00
O
+
+ 100 000.00
+ 150 000.00
+ 11 500.00
+ 45 472.00
L
+ 150 000.00
+ 10 000.00
+ 1 500.00
+ 39 540.87
Output VAT
+ 5 931.13
Note: No entry for cost of sales!
11
Bank
Sales
+ 7 695.00
+ 6 691.30
Output VAT
+ 1 003.70
Bank
G
17
E
Note: No entry for cost of sales!
Sales
+ 12 825.00
+ 11 152.17
Output VAT
+ 1 672.83
ED
Note: No entry for cost of sales!
17
31
Bank
Bank
Services rendered
+ 5 750.00
+ 5 000.00
Output VAT
Sales
+ 750.00
+ 30 472.20
+ 26 497.57
©
Output VAT
+ 3 974.63
Note: No entry for cost of sales!
31
Bank
Interest on current a/c
+ 94.17
+ 94.17
405
Annexure A
Transactions relating to the cashbook payments:
Account credited
A
=
1
Petty cash
Bank
+/– 2 000.00
2
Purchases
Bank
– 80 000.00
Input VAT
4
Telephone
Bank
+ 7 652.13
and – 8 799.95
(P
+ 1 147.82
Wages and salaries
Bank
– 500.00
12
Vehicles
Bank
+ 69 565.22
and
– 80 000.00
Input VAT
Bank
Input VAT
31
Petty cash
31
Rates and taxes
31
Bank
Insurance
G
ED
Bank charges
©
Input VAT
406
– 1 000.00
– 5 000.00
– 4 347.83
+ 652.17
+/– 1 619.11
Bank
– 1 156.55
Bank
Input VAT
31
– 9 984.88
– 1 000.00
Bank
E
Input VAT
Bank
Ed
uc
Rent expense
– 11 482.61
+ 1 497.73
Input VAT
Drawings
– 500.00
+ 10 434.78
Purchases
31
at
io
n
9
21
– 1 078.26
+ 161.74
Equipment
Bank
– 1 041.95
+ 114.60
– 625.00
– 543.48
+ 81.52
– 242.60
+ 31.32
L
– 69 565.22
– 1 240.00
Bank
Input VAT
20
+
+ 10 434.78
Input VAT
8
O
Lt
d
Account debited
ty
)
Day
– 211.28
Question solutions
Transactions relating to the petty cash journal:
5
Account debited
Postage and
stationery
Account credited
A
Petty cash
O
– 48.50
Input VAT
8
=
+ 6.33
Staff refreshments
Petty cash
– 98.23
– 42.34
+ 7.29
Fuel
Petty cash
– 320.00
18
Equipment
Petty cash
+ 508.65
and – 584.95
+ 76.30
Carriage on
purchases
Petty cash
Input VAT
– 176.23
at
io
n
Input VAT
– 153.24
+ 22.99
22
Wages and salaries
Petty cash
24
Drawings
Petty cash
27
Postage and
stationery
Ed
uc
Staff refreshments
Petty cash
– 100.00
– 100.00
– 200.00
– 56.50
– 91.20
– 143.50
– 79.30
+ 11.90
©
ED
G
E
Input VAT
– 320.00
(P
12
ty
)
– 48.60
Input VAT
L
– 42.17
Postage and
stationery
20
+
Lt
d
Day
407
Debtors
control
Lt
d
(P
at
io
n
13 650 00
43
13 249
11 869
57
20
57
Sales
1 780
38
9 754
VAT
output
1 987
18
Ed
uc
ty
)
Details
3 500 00
1 463
61
E
Day
Leroy
Ungaretti
13 650
58
18 736 58
10 755 90
13 382
43
48
39
32
65 771
17 515
2 007
2 627
70
Credit
G
Doc.
no.
1
Cash sales
15 236
00
20 142 80
9 865
Credit
N2
Fol.
B1
N4
CBR2
Details
Interest
on current
account
Capital
Sundry accounts
Amount
28
00
345
28
20 000
20 345
Credit individual accounts
ED
Question 6.4
Cashbook receipts of Letsema Furnishers – April 20.9
B/S
8
Cash sales
3 500
75
21 973 65
Bank
CV3
10
Runway
Dealers
11 217
90
Analysis of
receipts
CRR
11
Cash sales
10 755
Fol.
RC02
15
Iso Venter
15 390 00
80
14 255 90
345 28
110 238 31
Credit
B5
Note: No cost of sales column
20 000 00
CRR
20
00
00
RC03
15 390
20 142
Cash sales
AAA Bank
Cash sales
25
30
CRR
CRR
B/S
Debit
B11
408
B4
©
Annexure A
ED
B12
B4
72 630
Debit
74
111 912
886
Credit
60
AAA Bank
B/S
00
312
625
SA Insurance
Corporation
B/S
60
1 137
Ekurhuleni
16
12
1 827
Cash
15
40
00
00
Cash
750
00
5 928
Western Frontiers
5 000
27
13
00
2 800
Future Kitchen
Supplies
71 744
Creditors
control
00
40
40
B7
Debit
4 070
40
81
112
652
193
773
2 217
18
45
52
13
17
30
22
39
Input VAT
N3
Debit
15 652
18
57
19 559
272
543
1 025
1 827
4 347
419
750
5 154
2 800
2 420
98
15
48
47
12
83
13
00
78
00
02
N10
N9
N8
B8
N7
N11
N6
B9
B9
B3
Fol.
Details
CBP2
Debit individual accounts
Bank charges
Insurance
Rates and taxes
Petty cash
Rent expense
Postage and
stationery
Wages and
salaries
Equipment
Equipment
Loan: AAA Bank
Sundry accounts
Lt
d
Amount
ty
)
(P
869
61
Purchases
14 782
at
io
n
Ed
uc
00
71 744
Geronimo’s
Hi-Low Traders
The Rental
Experts
20
12
30
18
11
00
17 000
E
02
2 420
AAA Bank
B/S
14
EFT
Bank
2 368
5
10
G
Fol.
Smart Offices
2
B/S
Name of payee
14
Day
Doc.
no.
Cashbook payments of Letsema Furnishers – April 20.9
©
Question solutions
409
Annexure A
Creditors journal of Letsema Furnishers – April 20.9
Sundry accounts
Creditors
control
Input
VAT
Purchases
71 669 57
Amount
TX5
5 Geronimo’s
82 420 00
10 750 43
F17
15 Smart Offices
886 40
115 62
E495 19
Tudor
Enterprises
3 363 00
438 65
TI12 20
Western
Frontiers
53 352 00
6 958 96
140 021 40
18 263 66
73 862 83
Credit
Debit
Debit
B12
B7
N3
Fol.
Details
Postage and
stationery
Lt
d
Fol.
770 78 N11
2 193 26
731 09 B9 Equipment
46 393 04 B9 Equipment
(P
47 894 91
Debit individual accounts
RE2
Output
VAT
Purchases
returns
900 00
6 000 00
Ed
uc
Doc.
Day
no.
182 77
Details
Creditors
control
at
io
n
Creditors allowances journal of Letsema Furnishers – April 20.9
Fol.
Sundry accounts
Amount
Fol.
B9 Equipment
7 Geronimo’s
6 900 00
CN31 21
Tudor
Enterprises
210 19
27 42
CI4
Western
Frontiers
5 750 00
750 00
5 000 00
12 860 19
1 677 42
6 182 77 5 000 00
Debit
Credit
Credit
B12
B7
N20
E
22
CAJ1
Details
Credit individual accounts
Day
Details
D1
8
Runway Dealers
4 600 00
600 00
4 000 00
D2
11
Iso Venter
26 889 75
3 507 36
23 382 39
D3
12
Lebo Tathe
7 682 95
1 002 12
6 680 83
D4
17
Sunil Govender
4 332 00
565 04
3 766 96
D5
23
Owens Enterprises
9 690 00
1 263 91
8 426 09
53 194 70
6 938 43
46 256 27
Debit
Credit
Credit
B11
B5
N2
©
Debtors control
Output
VAT
Doc. no.
410
Fol.
DJ1
ED
G
Debtors journal of Letsema Furnishers – April 20.9
Sales
Note: No cost of sales column
Details
ty
)
Doc.
Day
no.
CJ1
Question solutions
Debtors allowances journal of Letsema Furnishers – April 20.9
DA1
9
Runway Dealers
Fol.
DA2
13
Lebo Tathe
DA3
25
Owens Enterprises
Input
VAT
Debtors control
920 00
120 00
825 00
107 61
3 420 00
446 09
5 165 00
673 70
Credit
Debit
B11
B7
Petty
cash
10 NTM recharge
voucher
800 00
PV10
13 Postage
stamps – SA
Post Office
250 00
PV11
14 Diesel for
delivery van
350 00
PV12
17 Courier
fees – Sunil
Govender
224 50
PV13
26 Cooldrinks
and paper
reams
102 62
PV14
27 Drawings
by Leroy
Ungaretti
100 00
Postage and
Staff
Input VAT
stationery refreshments
173 91
Ed
uc
PV9
Debit
N19
50 77
Sundry accounts
Amount
Fol.
Details
104 35
695 65 N5 Telephone
26 09
50 00 B2 Drawings
350 00 N13 Fuel
224 50 B11 Debtors
control
44 24
7 61
E
G
4 491 30
100 00 B2 Drawings
1 827 12
224 68
44 24 138 05 1 420 15
Credit
Debit
Debit
Debit
B8
N11
N12
B7
Debit individual accounts
©
ED
717 39
2 973 91
PCJ2
at
io
n
Details
800 00
(P
Petty cash journal of Letsema Furnishers – April 20.9
Doc.
Day
no.
Sales
returns
Note: No cost of sales column
Details
Lt
d
Day
ty
)
Doc.
no.
DAJ1
411
Annexure A
General journal of Letsema Furnishers – April 20.9
Day
JV1
1
Details
Fol.
Debit
Equipment
B9
2 608 70
Input VAT
B7
391 30
Capital
B1
3 000 00
2
Interest on loan
Loan: AAA Bank
N15
1 849 32
B3
ty
)
(Capital contribution by Leroy Ungaretti)
JV2
(Interest on loan for March 20.7)
11
Drawings
B2
1 849 32
500 00
(P
JV3
Purchases
Output VAT
Credit
Lt
d
Doc.
no.
GJ1
B6
434 78
B5
65 22
JV4
11
Sales
Input VAT
at
io
n
(Leroy Ungaretti took goods for own use)
Debtors control (Runway Dealers)
N2
156 52
B7
23 48
B11
180 00
JV5
14
Ed
uc
(Prompt settlement discount allowed)
Creditors control (Geronimo’s)
B12
3 776 00
Output VAT
B5
492 52
Purchases
N3
3 283 48
(Prompt settlement discount received)
20
Credit losses
N18
14 029 43
Input VAT
B7
2 104 42
E
JV6
ED
G
Debtors control (Iso Venter)
©
JV7
412
29
B11
16 133 85
(Debtors account written off as irrecoverable
after receiving 40 c / R 1)
Postage and stationery
Equipment
(Correction of error)
N11
B9
7 652 13
7 652 13
Question solutions
General ledger of Letsema Furnishers
Statement of financial position section
Details
Fol.
Amount
Date
B1
Details
Fol.
20.9
Apr. 1 Balance
Details
Fol.
Amount
20.9
1
Balance
b/d
1 056 50
11
Purchases and
VAT
GJ1
500 00
13 Petty cash
PCJ2
50 00
27 Petty cash
PCJ2
Ed
uc
Apr.
Date
3 000 00
Bank
CBR2
20 000 00
ty
)
GJ1
123 000 00
B2
Details
at
io
n
Date
100 000 00
Equipment and
VAT
(P
Drawings
b/d
Amount
Lt
d
Capital
Date
Fol.
Amount
100 00
1 706 50
Loan: AAA Bank
Details
20.9
Fol.
Amount
CBP2
2 420 02
30 Balance
c/d
149 429 30
G
Date
Details
Fol.
Amount
1 Balance
b/d
150 000 00
2 Interest on loan
GJ1
1 849 32
20.9
Bank
2
Apr.
151 849 32
151 849 32
20.9
May
1 Balance
b/d
149 429 30
©
ED
Apr.
E
Date
B3
413
Annexure A
Bank
Date
Details
Fol.
Amount
Date
Details
Fol.
20.9
Apr.
1
Balance
b/d
30 Total receipts
170 142 55
Apr. 30 Total payments
CBR2 110 238 31
Balance
CBP2 111 912 74
c/d
280 380 86
1
Balance
b/d
168 468 12
ty
)
May
Output VAT
Details
Fol.
Amount
B5
Date
Fol.
Amount
1 Balance
b/d
14 832 29
11 Drawings
GJ1
65 22
14 Creditors control
GJ1
492 52
30 Bank
CBR2
9 865 70
Creditors control
CAJ
1 677 42
Debtors control
DJ1
20.9
Ed
uc
at
io
n
Apr.
Details
(P
Date
Details
20.9
Balance
E
1
Fol.
b/d
Amount
Date
6 938 43
33 871 58
Trading inventory
Date
168 468 12
280 380 86
20.9
Apr.
Amount
Lt
d
20.9
B4
B6
Details
Fol.
Amount
0 00
©
ED
G
Note: The fact that a periodic inventory system is in use does not mean that there
will be no trading inventory account in the books. There will indeed be a trading
inventory account, but we will not work in this account during the year. As soon
as the first stocktake is done, the value as per stocktake will replace the R 0 value
that currently appears in this account. With subsequent stocktakes, the balance for
trading inventory will be updated.
414
Question solutions
Input VAT
Date
Details
Fol.
Amount
Balance
b/d
24 681 27
Capital
GJ1
391 30
11 Debtors control
GJ1
23 48
20 Debtors control
GJ1
2 104 42
30 Bank
CBP2
4 070 18
Creditors control CJ1
18 263 66
B7
Date
Details
Fol.
Amount
Debtors control
DAJ1
Petty cash
PCJ2
ty
)
1
673 70
138 05
(P
Apr.
Lt
d
20.9
50 346 06
Date
Details
Fol.
20.9
at
io
n
Petty cash
Amount
Date
20.9
Apr.
1
Balance
2 000 00
CBP2
1 827 12
Apr.
Fol.
Amount
Sundry
30 payments
PCJ2
1 827 12
Balance
c/d
2 000 00
Ed
uc
30 Bank
b/d
Details
B8
3 827 12
20.9
May
1
Balance
b/d
3 827 12
2 000 00
Fol.
Amount
1 Balance
b/d
8 160 78
Capital
GJ1
2 608 70
29
18 Bank
CBP2
2 800 00
30 Balance
19 Creditors control
CJ1
731 09
20 Bank
CBP2
5 154 78
CJ1
46 393 04
20.9
©
Apr.
E
Details
G
Date
B9
ED
Equipment
Creditors control
Date
Details
Fol.
Amount
20.9
65 848 39
Apr.
22 Creditors control CAJ1
Postage and
stationery
5 000 00
GJ1
7 652 13
c/d
53 196 26
65 848 39
20.9
May
1 Balance
b/d
53 196 26
415
Annexure A
Vehicles
Date
Details
Fol.
Amount
b/d
69 565 22
B10
Date
Details
Fol.
Amount
Apr.
1
Balance
Debtors control
Date
Details
Fol.
Amount
Date
Details
Fol.
20.9
30 Sales and VAT
DJ1
53 194 70
Petty cash
PCJ2
224 50
Apr.
11 Sales and VAT
GJ1
180 00
Credit losses
and VAT
GJ
16 133 85
CBR1
14 255 90
DAJ1
5 165 00
c/d
17 684 45
20
(P
Apr.
30 Bank
at
io
n
Sales returns
and VAT
Balance
53 419 20
20.9
1
Balance
b/d
20.9
Apr.
Fol.
Amount
Purchases and
14 VAT
GJ1
3 776 00
30 Bank
CBP2
72 630 40
E
Creditors control
Date
Details
CAJ1
12 860 19
Balance
c/d
50 754 81
Date
20.9
Apr.
B12
Details
Fol.
Amount
Sundry
30 purchases
CJ1
140 021 40
140 021 40
ED
G
Sundry returns
and VAT
53 419 20
17 684 45
Ed
uc
May
Amount
ty
)
20.9
B11
Lt
d
20.9
140 021 40
20.9
May
1 Balance
b/d
50 754 81
©
Nominal accounts section
Services rendered
Date
Details
Fol.
Amount
Date
N1
Details
Fol.
Amount
1 Total/Balance
b/d
15 000 00
20.9
Apr.
416
Question solutions
Sales
Date
Details
Fol.
Amount
Date
Details
Fol.
Amount
1 Total/Balance
b/d
83 881 91
30 Bank
CBR2
20.9
Apr.
11 Debtors control
GJ1
30 Total/Balance
c/d
156 52
Apr.
195 753 09
Debtors control
DJ1
195 909 61
Purchases
Fol.
Amount
b/d
Date
Details
Fol.
Amount
11 Drawings
GJ1
434 78
14 Creditors control
GJ2
3 283 48
30 Total/Balance
c/d
165 346 85
20.9
Apr.
1
Total/Balance
30 Bank
b/d
79 550 10
CBP2
15 652 18
CJ1
73 862 83
Creditors
control
Apr.
Ed
uc
169 065 11
20.9
May
1
Total/Balance
b/d
Details
Fol.
Amount
E
Date
Date
N4
Details
Fol.
Amount
20.9
Apr.
G
ED
Date
169 065 11
165 346 85
Interest on current account
©
195 753 09
N3
at
io
n
20.9
46 256 27
ty
)
1 Total/Balance
(P
May
Details
65 771 43
195 909 61
20.9
Date
Lt
d
20.9
N2
1 Total/ Balance
b/d
94 17
30 Bank
CBR2
345 28
439 45
Telephone
Details
Fol.
Amount
Total/Balance
b/d
1 078 26
PCJ2
695 65
N5
Date
Details
Fol.
Amount
20.9
Apr.
1
10 Petty cash
1 773 91
417
Annexure A
Wages and salaries
Date
Details
Fol.
Amount
Total/Balance
b/d
600 00
CBP2
750 00
Date
N6
Details
Fol.
Amount
Apr.
1
27 Bank
1 350 00
Rent expense
Details
Fol.
Amount
Total/Balance
b/d
4 347 83
CBP2
4 347 83
Date
Apr.
1
30 Bank
at
io
n
8 695 66
Rates and taxes
Date
Details
Fol.
Amount
Total/Balance
b/d
1 041 95
Apr.
1
30 Bank
Ed
uc
20.9
CBP2
Fol.
Amount
(P
20.9
Details
ty
)
Date
N7
Lt
d
20.9
Date
Details
N8
Fol.
Amount
1 025 47
2 067 42
Date
20.9
Apr.
1
Details
Fol.
Amount
E
Insurance
b/d
543 48
CBP2
543 48
Total/Balance
ED
G
30 Bank
©
Date
1
Fol.
Amount
Total/Balance
b/d
211 28
CBP2
272 15
483 43
418
Details
Bank charges
Details
30 Bank
Date
Fol.
Amount
1 086 96
20.9
Apr.
N9
Date
N10
Details
Fol.
Amount
Question solutions
Fol.
Total/Balance
b/d
Creditors control CJ1
Bank
CBP2
Equipment
GJ1
Petty cash
PCJ2
Postage and stationery
Amount
Date
170
770
419
7 652
224
9 236
Fol.
Amount
Date
Total/Balance
b/d
185 84
PCJ2
44 24
30 Petty cash
N12
Details
at
io
n
1
Amount
Fol.
Amount
(P
Details
20.9
Apr.
N11
Fol.
07
78
13
13
68
79
Staff refreshments
Date
Details
Lt
d
Details
ty
)
Date
20.9
Apr.
1
15
27
29
30
230 08
Fuel
Date
Details
Apr.
1
Amount
Date
Details
Ed
uc
20.9
Fol.
Total/Balance
14 Petty cash
b/d
320 00
PCJ2
350 00
N13
Fol.
Amount
670 00
Fol.
Amount
Total/ Balance
b/d
153 24
1
ED
Apr.
E
Date
20.9
Details
G
Carriage on purchases
Date
Date
N14
Details
Interest on loan
Details
Fol.
Amount
Loan: AAA Bank
GJ1
1 849 32
Details
Fol.
Amount
GJ1
14 029 43
Date
Fol.
Amount
N15
Details
Fol.
Amount
©
20.9
Apr.
2
Credit losses
Date
Date
N16
Details
Fol.
Amount
20.9
Apr.
20 Debtors control
419
Annexure A
Date
20.9
Details
Debtors
30 control
Apr.
Fol.
Amount
DAJ1
4 491 30
N17
Date
Details
Purchases returns
Fol.
Amount
Date
20.9
Apr.
Details
Fol.
Creditors
30 control
CAJ1
Trial balance of Letsema Furnishers on 30 April 20.9
Statement of financial position section
Capital
Debit
at
io
n
Fol.
B1
Drawings
B2
Bank
Output VAT
Trading inventory
1 706
B4
Amount
6 182 77
168 468
Credit
123 000
00
149 429
30
33 871
58
50
B3
Ed
uc
Loan: AAA Bank
Amount
ty
)
Details
N18
(P
Date
Fol.
Lt
d
Sales returns
12
B5
B6
0
00
B7
50 346
06
B8
2 000
00
B9
53 196
26
B10
69 565
22
Debtors control
B11
17 684
45
Creditors control
B12
50 754
81
Services rendered
N1
15 000
00
Sales
N2
195 753
09
439
45
Input VAT
Equipment
ED
G
Vehicles
E
Petty cash
©
Nominal accounts section
Purchases
N3
Interest on current account
N4
Telephone
N5
1 773
91
Wages and salaries
N6
1 350
00
Rent expense
N7
8 695
66
420
165 346
85
N8
2 067
42
Insurance
N9
1 086
96
Bank charges
N10
483
43
Postage and stationery
N11
9 236
79
Staff refreshments
N12
230
08
Fuel
N13
670
00
Carriage on purchases
N14
153
24
Interest on loan
N15
1 849
32
Credit losses
N16
14 029
43
Sales returns
N17
4 491
30
Purchases returns
N18
(P
ty
)
Rates and taxes
Lt
d
Question solutions
00
77
574 431
00
at
io
n
574 431
6 182
Question 6.5
ED
G
E
Ed
uc
The experts certainly have a valid argument. In a perfect world, where all businesses
have access to modern technology, the perpetual system should be best for control
purposes. The reason is that, under a perpetual system, the balance of the trading
inventory account reflects the value one should find at the stocktake if there were
no inventory losses, theft or obsolete inventory. The difference between the balance
of the trading inventory account and the value as per the stocktake can then be
passed as an adjustment called ‘trading inventory deficits’. Under the periodic
inventory system there is no suggested value for trading inventory, and theft,
inventory losses and obsolete inventory will not be detected with the stocktake,
and will thus default to cost of sales. The gross profit would thus be understated,
albeit the net profit would still be the same. The implication is that trading inventory
deficits are only prevalent when the perpetual system is used. The perpetual system
makes it possible for a business to detect problems of theft, obsolete inventory and
inventory losses, and this helps with strategic decision-making.
©
Question 6.6
Trading inventory represents goods the company plans to sell to its customers.
Depending on the nature of the firm’s operations, inventories can include raw
production materials, work in process, finished goods, and/or trading inventory.
The balance in this account is also affected by accounting decisions.
Accounting standards permit various acceptable trading inventory measurement
methods, including first-in-first-out (FIFO), weighted average cost and specific
421
Annexure A
Lt
d
identification. Specific identification has been used most frequently for inventories
in which the separate items are distinct and have a high cost, such as fine jewellery,
because the benefit to be gained from tracking these individual items is high. For
lower-cost items in trading inventory, the value of such specific tracking is low
unless a company is using powerful digital databases that allow detailed trading
inventory tracking to be readily and cheaply accomplished.
Question 6.7
(i)
at
io
n
(P
ty
)
Even if a company uses sophisticated technology to control trading inventory, the
accounting measures do not have to reflect precise physical flows, as would occur
using specific identification. Rather, the FIFO and weighted average cost methods
refer to assumptions that are made about the flow of trading inventory through the
company. Using FIFO, the company assumes that the first goods sold are the oldest
and the most recently acquired items remain in trading inventory on the statement
of financial position. The weighted average cost method uses average costs over
the reporting period to calculate the trading inventory balance.
Debtors journal of Siyard Books – August 20.9
DJ8
Debtors
control
Output VAT
Sales
J. Lomu
95 200.00
12 417.39
82 782.61
12
M. Burke
26 000.00
3 391.30
22 608.70
DC468
19
J. Wilkonson
78 600.00
10 252.17
68 347.83
DC469
25
JP Peterson
75 000.00
9 782.61
65 217.39
274 800.00
35 843.47
238 956.53
DC466
2
DC467
Details
Fol.
Ed
uc
Date
E
Doc. no.
Output VAT
Sales
Date
DCT218
13
M. Burke
1 300.00
169.57
1 130.43
DCT219
26
JP Peterson
4 875.00
635.87
4 239.13
DCT220
28
J. Wilkonson
3 144.00
410.09
2 733.91
9 319.00
1 215.53
8 103.47
©
Fol.
Debtors
control
Doc. no.
422
Details
DAJ8
ED
G
(ii) Debtors allowances journal of Siyard Books – August 20.9
ED
Date
1
8
15
21
24
26
27
30
RT586
DCS320
DCS321
DCS322
DCS323
RT587
DCS324
RT588
J. Wilkonson
D. Campesi / cash sales
M. Burke
Katmandoo Bookshop
Fol.
E
G
S. Motlock / cash sales
Anglo African Ltd
P. Spies / cash sales
Bob Siyard
Details
96 000.00
Bank
87 183.12
98 600.00
8 135.90
980.00
20 944.00
10 400.00
88 600.00
8 135.90
Debtors
control
87 183.12
95 319.02
87 183.12
410 843.02
98 600.00
12 860.87
127.83
2 731.83
11 556.52
Output VAT
ty
)
180 994.78
85 739.13
18 212.17
77 043.48
Sales
(P
27 277.05
at
io
n
8 135.90
980.00
20 944.00
10 400.00
88 600.00
Ed
uc
96 000.00
Analysis of
receipts
Cashbook receipts for Siyard Books – August 20.9
Doc. no.
(iii)
©
Fol.
Lt
d
107 252.17
852.17
10 400.00
96 000.00
Amount
Details
Delivery income
Dividends received
Capital
Sundries
CBR8
Question solutions
423
Annexure A
Petty cash journal of Siyard Books – August 20.9
PV109
18
Boxes
3 424.00
PV110
22
Staff tea
496.00
PV111
25
Stamps
180.00
PV112
27
Cash
8 000.00
Details
Fol.
Petty cash
12 100.00
Postage
and
stationery
Staff
refreshments
Date
JR251
12
156.52
23.48
8 000.00
156.52
Details
Vehicles
Input VAT
Capital
2 977.39
496.00
496.00
470.09
Fol.
at
io
n
Doc. no.
Amount
446.61
General journal of Siyard Books – August 20.9
(v)
Sundries
Input
VAT
Fol.
Details
Packing
materials
Lt
d
Date
Drawings
ty
)
Doc.
no.
PCJ8
10 977.39
(P
(iv)
Debit
GJ8
Credit
88 521.74
13 278.26
101 800.00
(Owner contributed delivery vehicle)
JR252
21
Drawings
Ed
uc
Output VAT
1 666.67
217.39
Purchases
1 449.28
(Owner took goods for own use)
JR253
31
Credit losses
95 200.00
Input VAT
14 280.00
E
Debtors control (J. Lomu)
109 480.00
(Amount written off as irrecoverable)
31
Debtors control (JP Peterson)
ED
G
JR254
©
JR255
31
880.00
Interest income
880.00
(Interest on overdue account)
Sales
4 839.03
Input VAT
725.85
Debtors control (J. Wilkonson)
5 564.88
(Settlement discount of 6%)
JR256
31
Computer equipment
Office consumables
(Correction of error)
424
7 805.22
7 805.22
Question solutions
Lt
d
Learning Unit 7
Debtors (accounts receivable) and
creditors (accounts payable)
ty
)
Question 7.1
(P
(Extract only)
General journal of Hawkes Enterprises – August 20.8
Day
JV20
31
Details
Credit losses
Input VAT
Fol.
Debit
N#
16 113
82
B#
2 377
97
at
io
n
Doc.
no.
Debtors control (J. Sulliman)
B#(D3)
GJ8
Credit
18 511
29
Ed
uc
(J. Sulliman’s account written off as
irrecoverable)
Note:
ED
G
E
Start with the amount credited to debtors control. As can be derived from Sulliman’s
account, the amount to be credited against debtors control is R 18 511.29. Now, it
must be considered that the amount owing by this debtor (R 18 511.29) includes an
amount of R 280.18 for interest charged on 24 August 20.8. One may not include
this interest in the amount on which input VAT claimable will be calculated, since it is
an exempt supply. The easiest way to complete this double entry is to first calculate
the VAT amount claimable as follows:
(R 18 511.29 – R 280.18) × 15/115 = R 2 377.97.
©
The balancing figure (i.e. R1 8 491.79 – R 2 377.97 = R 16 113.82) must then be
debited to credit losses.
It must be noted that the VAT implications of interest often do not come into play
when a dividend is received from a debtor’s insolvent estate. The reason for this is
that many of these dividends are declared net of interest anyway, which means that
the full interest ends up as part of the credit loss expense in any case.
425
Annexure A
Question 7.2
Debtors ledger of Tucson Arizona’s
(Excerpt only)
Date
Code
Document no.
Fol.
Debit
1 July 20.8
01
Credit invoice G1321
DJ7
1 325 95
011
Discount voucher
GJ7
5 July 20.8
02
Debit note R06
DJ7
115 00
3 Aug. 20.8
01
Credit invoice G1387
DJ8
6 186 25
7 Aug. 20.8
03
Credit note C67
DAJ8
31 Aug. 20.8
04
Receipt RCT78
CBR8
1 Sept. 20.8
010
Account statement
GJ9
15 Oct. 20.8
01
Credit invoice G1477
DJ10
011
Discount voucher D987
GJ10
600
04
Receipt RCT101
CBR11
05
Journal voucherJV33
(discount)
GJ11
Bank statement (R/D
cheque)
CBP11
Journal voucher JV35
(discount cancelled)
Journal voucher JV36
(interest charged)
06
07
04
1 025
95
1 140
95
7 327
20
ty
)
95
5 780
64
2 000
00
3 780
64
45 00
3 825
64
2 500 00
6 325
64
00
5 725
64
5 605
64
120
00
120
00
0
00
5 605 64
5 605
64
GJ11
120 00
5 725
64
GJ12
53 81
5 779
45
at
io
n
56
CBR2
1 444
86
4 334
59
Journal voucher JV38
(irrecoverable debt)
GJ2
4 334
59
0
00
ED
09
00
1 325
Receipt RCT143
G
9 Feb. 20.9
08
E
1 Dec. 20.8
300
Balance
(P
7 Nov. 20.8
Credit
1 546
Ed
uc
1 Nov. 20.8
Lt
d
Thembi Thambo (D311)
Question 7.3
©
A new account, called ‘credit losses recovered’, would have to be created. The
credit loss recovered account is an income account, and could be compared with
a ‘donations received’ account – i.e. an income that was totally unexpected. A
very important fact to remember is that credit losses recovered would attract VAT,
since it is essentially a reversal of the credit losses account on which input VAT
was claimed. Since the money was received in cash, the entry would be made (on
3 March 20.9) in the cashbook receipts as follows:
• R 4 334.59 would be entered into the analysis of receipts column.
426
Question solutions
Lt
d
• R 558.36 ([R 4 334.59 – R 53.81] × 15/115) would be entered into the output VAT
column, since this was the amount that was claimed as input VAT in the general
journal when the credit loss was written off on 9 February 20.9. Remember: no
VAT would have been claimed on interest since it is an exempt supply.
• The balance of R 4 334.59 and R 558.36 (i.e. R 3 776.23) would have been
entered into the sundry accounts columns, and the account description would
have been ‘credit losses recovered’).
ty
)
In short, the double entry to record the credit losses recovered is therefore debit
bank, credit output VAT and credit losses recovered.
(P
Question 7.4
Brunton Traders (C10)
Date
Code
Document no.
Balance brought
forward
1 Jan. 20.8
06
21 Jan. 20.8
04
Fol.
Debit
Credit
Balance
115 240 75
Journal voucher JH28
(interest)
GJ1
Cheque 100
CBP1
115 000
00
359 10
Journal voucher JH31
(discount)
GJ1
359
10
0 00
Credit invoice JJ957
CJ4
118 35
115 359 10
14 Apr. 20.8
01
17 Apr. 20.8
03
Ed
uc
7 Jan. 20.8
at
io
n
Creditors ledger of Lovettica Dealers
Credit note NT14
CAJ4
1 995
00
17 955 00
30 May 20.8
07
EFT
CBP5
5 000
00
12 955 00
Fol.
Debit
19 950 00
19 950 00
G
E
05
ED
Question 7.5
Debtors ledger of Genieve Dealers
©
A. Adam (D1)
Date
Code
Document no.
Credit
Balance
Balance brought
forward
1 Mar. 20.9
33 457
50
4 Mar. 20.9
01
Invoice IN22
DJ3
6 200
00
39 657
50
7 Mar. 20.9
02
Debit note DN12
DJ3
600
00
40 257
50
14 Mar 20.9
04
Receipt R81
CBR3
38 244
63
2 012
87
05
Journal voucher J10
GJ3
2 012
87
0
00
427
Annexure A
Creditors ledger of Genieve Dealers
Hollard Enterprises (C1)
Code
Document no.
Fol.
Debit
Balance
Balance brought
forward
5 Mar. 20.9
1
Invoice H138
CJ3
8 Mar. 20.9
3
Credit note HC15
CAJ3
25 Mar. 20.9
6
Journal voucher J11
GJ3
34 500
17 250
Code
Document no.
01
02
03
Balance brought
forward
Invoice D396
Credit note DA121
Bank statement
Journal voucher
JV60
2 Feb. 20.9
8 Feb. 20.9
28 Feb. 20.9
04
E
Iso Venter (D2)
Code
Document no.
DJ12
DAJ12
CBR12
Fol.
Code
Document no.
Fol.
12 Feb. 20.9
17 Feb. 20.9
01
02
28 Feb. 20.9
05
Balance brought
forward
Invoice D397
Credit note DA122
Journal voucher
JV62
G
DJ12
CBR12
ED
21 Feb. 20.9
22 Feb. 20.9
01
03
08
Debit
3 773
Debit
4 147
Credit
123 972
20
106 722
20
107 035
03
Balance
19
GJ12
Balance brought
forward
Invoice D398
Receipt RC143
Journal voucher
JV59
1 Feb. 20.9
83
20
(P
Fol.
Ed
uc
1 Feb. 20.9
at
io
n
Debtors ledger of Letsema Furnishers
Date
00
312
Question 7.6
Runway Dealers (D1)
00
89 472
ty
)
1 Mar. 20.9
Date
Credit
Lt
d
Date
93
469
8 570
73
07
9 417
8 947
377
12
39
32
377
32
0
00
Credit
Balance
11
GJ12
5 643
4 532
87
98
99
00
2 603
99
8 679
6 075
6 075
99
0
©
Lebo Tathe (D3)
Date
1 Feb. 20.9
428
Debit
DJ12
DAJ12
3 331
GJ12
68
Credit
Balance
29
404
77
75
1 456
98
4 788
4 383
27
52
4 452
29
Question solutions
Sunil Govender (D4)
Code
Document no.
Fol.
Debit
Credit
Balance
Balance brought
forward
1 Feb. 20.9
24 Feb. 20.9
01
Invoice D399
DJ12
3 023
37
26 Feb. 20.9
02
Credit note DA123
DAJ12
334
73
03
Receipt RC144
CBR12
7 479
31
Code
Document no.
Fol.
Debit
Balance brought
forward
1 Feb. 20.9
01
Invoice D400
DJ12
27 Feb. 20.9
02
Credit note DA124
DAJ12
3 331
7 814
04
7 479
31
0
00
Balance
29
at
io
n
26 Feb. 20.9
Credit
(P
Date
67
ty
)
Owens Enterprises (D5)
4 790
Lt
d
Date
325
80
3 050
55
6 381
84
6 056
04
Debtors list of Letsema Furnishers as at 28 February 20.9
Runway Dealers
Iso Venter
Lebo Tathe
Sunil Govender
Fol.
Amount
D1
R 0
00
D2
0
00
D3
4 452
29
D4
0
00
D5
6 056
04
10 508
33
G
E
Owens Enterprises
Ed
uc
Debtor
ED
Creditors ledger of Letsema Furnishers
Geronimo’s (C1)
©
Date
Code
Document no.
Fol.
Debit
Credit
Balance
Balance brought
forward
1 Feb. 20.9
7 Feb. 20.9
01
Invoice O43
CJ12
13 Feb. 20.9
02
Credit note NT39
CAJ12
28 Feb. 20.9
05
Journal voucher JV63
GJ12
3 136
359
99
19
110
91
1 287
80
4 424
79
4 065
60
4 176
51
429
Annexure A
Ekurhuleni (C2)
Code
Document no.
Fol.
Debit
Credit
Balance
Balance brought
forward
1 Feb. 20.9
27 Feb. 20.9
01
Invoice E34
1 003
CJ12
05
Tudor Enterprises (C3)
Document no.
Credit
Invoice V65
CJ12
8 413
02
Credit note CN43
CAJ12
954
03
Cheque 336
CBP12
8 975
Journal voucher JV61
GJ12
373
Document no.
Fol.
Debit
Western Frontiers (C4)
Code
16 Feb. 20.9
01
23 Feb. 20.9
02
28 Feb. 20.9
03
Ed
uc
Balance brought
forward
1 Feb. 20.9
1 003
05
Balance
20
(P
01
Date
Debit
Balance brought
forward
1 Feb. 20.9
28 Feb. 20.9
Fol.
00
ty
)
Code
1 890
78
10 303
98
90
9 349
08
12
373
96
96
0
00
at
io
n
Date
0
Lt
d
Date
Credit
Balance
2 663
42
11 150
42
Invoice IV145
CJ12
Credit note NE76
CAJ12
720
19
10 430
23
Cheque 333
CBP12
2 670
53
7 759
70
8 487
00
E
Creditors list of Letsema Furnishers as at 28 February 20.9
Amount
Geronimo’s
C1
R 4 176
51
Ekurhuleni
C2
1 003
05
Tudor Enterprises
C3
0
00
Western Frontiers
C4
7 759
70
12 939
26
ED
G
Fol.
©
Creditor
Question 7.7
(i)
430
The only difference between the two scenarios is the movement in sales
revenue. The first scenario shows sales and net profit remaining constant
every month. The second scenario shows rapidly increasing sales and
Question solutions
Undertaking more creditors to purchase inventory for re-sale with a resultant
increase in turnover and hence profit incurs additional risk for the firm, as it
has to convert the acquired inventory to cash promptly to settle the increased
creditors. If this cash is not generated in time, then the business runs the risk of
being illiquid. Thus this activity highlights the need for effective management
of working capital, and stresses the risks of overtrading. A business should
only take on more debt if it will be able to settle these debts timeously.
(P
ty
)
(ii)
Lt
d
profits. However, when we consider the cash flow in the business, a totally
different picture emerges. Under the first scenario, the bank balance ends
‘in the black’ at the amount of R 80 000 at the end of June 20.8. Under the
second scenario, the bank balance ends up virtually ‘in the red’ – i.e. the bank
balance is zero!
at
io
n
Question 7.8
Ed
uc
Let us assume that Tyre World is a business operating in the retail tyre supply
industry. Let us further assume that Tyre World purchases its stationery from Super
Stationers. Now say that Tyre World receives a statement from Super Stationers
showing an amount payable of R 990.00 for stationery purchased in February
20.8, and this amount is payable in 30 days. Further assume that Super Stationers
purchased tyres from Tyre World (also in February 20.8) for R 4 890.00.
E
Upon receipt of the statement from Super Stationers, the bookkeeper would not
pay them but would rather set the amount off against what Super Stationers owes
them in the Debtors ledger. The bookkeeper would thus debit the creditors control
account and credit the debtors control account. Super Stationers’ account in the
Debtors ledger would thus show an outstanding amount of R 3 900.00.
ED
G
Let us now assume that the amounts owing were reversed – i.e. Tyre World owed
more to Super Stationers. What would the business do upon receipt of the statement
from Super Stationers? Tyre World would now transfer Super Stationers’ account in
its Debtors ledger to their account in the Creditors ledger. The double entry would be
a debit to the creditors control account and a credit to the debtors control account.
©
Note that these ‘set-offs’ result in a debit to Creditors control and a credit to Debtors
control irrespective of whether the amount is being transferred into or out of the
Debtors or creditors control account.
431
Annexure A
Another example:
Assume Gerard Traders has the following accounts in their Debtors and Creditors
ledgers:
Date
Details
Fol.
Amount
b/d
1 000 00
Date
Details
Lt
d
Debtor: Peter Pan
Fol.
Jan.
1 Balance
ty
)
20.8
Details
Fol.
Amount
Date
20.8
Fol.
Amount
1
Balance
b/d
850 00
at
io
n
Jan.
Details
(P
Creditor: Peter Pan
Date
Amount
The rule of thumb is to close the account with the smaller balance off against the
account with the larger balance. In this instance, we will close off the creditor’s
individual account against his account in the Debtors ledger as follows:
Date
Ed
uc
Debtor: Peter Pan
Details
20.8
Fol.
Amount
Date
Details
Fol.
Amount
Balance
b/d
850 00
Balance
c/d
150 00
20.8
Jan.
1
Balance
b/d
1 000 00
Jan.
1
1 000 00
b/d
G
E
Balance
ED
Date
20.8
©
Jan.
432
1
Details
Debtor: Peter
Pan
1 000 00
150 00
Creditor: Peter Pan
Fol.
Amount
Date
Details
Fol.
Amount
Balance
b/d
850 00
20.8
GJ
850 00
Jan.
1
Question solutions
Question 7.9
Debtors ledger of Newlands Traders
A. Milan (D1)
Date
Code:
Document no.
1 Apr. 20.9
Fol.
Debit
Credit
Balance brought forward
Lt
d
(i)
Balance
14 860.86
Invoice INV650
DJ4
5 Apr. 20.9
02
Credit note CNT394
DAJ4
10 Apr. 20.9
03
Receipt RC426
CBR4
04
Journal voucher JV330
GJ4
06
Bank statement
CBP4
28 140.19
28 140.19
07
Journal voucher JV335
GJ4
1 796.18
29 936.37
D. London (D2)
Date
Code:
Document no.
01
10 Apr. 20.9
02
22 Apr. 20.9
03
10
Invoice INV651
28 140.19
1 796.18
1 796.18
0.00
(P
29 936.37
Debit
Credit
DJ4
17 337.67
36 326.54
53 664.21
DAJ4
6 538.78
47 125.43
Receipt RC427
CBR4
3 632.65
43 492.78
Journal voucher JV331
GJ4
43 492.78
0.00
Document no.
Fol.
Debit
Credit
Balance brought forward
Balance
28 896.11
01
Invoice INV652
DJ4
45 408.17
74 304.28
15 Apr. 20.9
02
Credit note CNT396
DAJ4
5 903.06
68 401.22
30 Apr. 20.9
09
Journal voucher JV332
GJ4
68 401.22
0.00
©
11 Apr. 20.9
ED
G
Code:
Balance
Credit note CNT395
E
R. Yotk (D3)
1 Apr. 20.9
3 087.76
Balance brought forward
6 Apr. 20.9
Date
Fol.
Ed
uc
1 Apr. 20.9
33 024.13
at
io
n
30 Apr. 20.9
18 163.27
ty
)
01
433
Annexure A
K. Sydney (D4)
Date
Code:
Document no.
1 Apr. 20.9
Fol.
Debit
Credit
Balance
Balance brought forward
21 465.68
16 Apr. 20.9
01
Invoice INV653
DJ4
49 536.19
20 Apr. 20.9
02
Credit note CNT397
DAJ4
30 Apr. 20.9
08
Journal voucher JV333
GJ4
03
Bank statement
CBR4
65 057.53
759.00
13
Journal voucher JV334
GJ4
759.00
0.00
01
25 Apr. 20.9
02
(ii)
Fol.
Debit
Invoice INV654
DJ4
59 443.42
Credit note CNT398
DAJ4
Ed
uc
A. Milan
D. London
R. Yotk
K. Sydney
ED
G
E
L. Fourie
©
10 699.82
Balance
59 443.42
48 743.60
Debtors list of Newlands Traders on 30 April 20.9
Debtor
434
Credit
(P
21 Apr. 20.9
Document no.
65 816.53
ty
)
759.00
at
io
n
Code:
65 057.53
Lt
d
5 944.34
L. Fourie (D5)
Date
71 001.87
Fol.
Amount
D1
29 936.37
D2
0.00
D3
0.00
D4
0.00
D5
48 743.60
78 679.97
Question solutions
Lt
d
Learning Unit 8
Salaries and wages
ty
)
Question 8.1
40 hours, at a rate of R 160 per hour
40 × R 160 = R 6 400.00
at
io
n
Overtime:
(P
Normal working hours:
13 hours (53 total hours – 40 normal hours), at a rate of R 240 (R 160 × 1.5) per hour
13 × R 240 = R 3 120.00
Ed
uc
Gross earnings = Normal working hours + Overtime
= R 6 400 + R 3 120
= R 9 520.00
Sarah’s gross earnings for the week total R 9 520.00.
G
Mercia:
E
Question 8.2
ED
UIF remuneration: R 9 500.00
UIF contribution: R 9 500 × 1% = R 95.00
©
Mercia will contribute R 95.00 toward UIF, and her employer will also contribute
R 95.00; so in total, R 190.00 will be contributed toward Mercia’s UIF per month.
Dietrech:
Gross salary: R 22 000.00
But UIF remuneration is capped at R 14 872.00, thus:
UIF remuneration: R 14 872.00
UIF contribution: R 14 872 × 1% = R 148.72
435
Annexure A
Lt
d
One per cent of Dietrech’s salary is R 220.00, but the UIF contribution is capped at
R 148.72 per month. This means that Dietrech will contribute R 148.72 to UIF, and
his employer will contribute R 148.72, as well; so the total contribution is R 297.44
for Dietrech.
Question 8.3
Salaries journal of GoFast Traders for May 20.18
Employer contributions
Medical aid
Pension
fund
Staff
Total
social deducfund
tions
28 980 1 345 30 325 4 663 * 149 2 300
3 280
65
UIF
Net
salary
UIF
(P
D. Julies
Deductions
ty
)
Calculation of gross salary
Employee no.
Travel
& name of
Gross
Basic allowPAYE
employee
salary
ance
SJ4
SDL
Pension
fund
10 457 19 868 * 149 ** 268 3 280
Question 8.4
Ed
uc
General ledger of GoFast Traders
at
io
n
* UIF: R 14 872 × 1% = R 148.72 per month, thus R 148 (rounded)
** SDL: R 26 776 × 1% = R 267.76 per month, thus R 268 (rounded)
Creditors for salaries
Date
Details
Fol.
Amount
B12
Date
Details
G
E
20.18
May 31 Salaries expense
Details
Fol.
Amount
©
19 868
00
31
Details
Fol.
Amount
Salaries expense
(PAYE)
SJ4
4 663 00
Salaries expense
(UIF)
SJ4
149 00
UIF contributions
SJ4
149 00
SDL contributions
SJ4
268 00
5 229 00
WMC medical aid
Date
Details
Fol.
Amount
Date
20.18
May
436
SJ4
Amount
B13
Date
20.18
May
ED
Date
EMP201 control
Fol.
B14
Details
31 Salaries expense
Fol.
Amount
SJ4
2 300 00
Question solutions
Future pension fund
Details
Fol.
Amount
Date
20.18
May
31
Details
Fol.
Amount
Salaries expense
SJ4
3 280 00
Pension fund
contributions
SJ4
Lt
d
Date
B15
3 280 00
6 560 00
Date
Details
Fol.
Amount
Date
B16
ty
)
Staff social fund
Details
Salaries expense
20.18
May
Details
31
Gross
salaries
Fol.
SJ4
Amount
Date
30 325
Details
31
Fol.
Amount
EMP201
control
SJ4
149
Date
Ed
uc
20.18
May
Details
Details
EMP201
control
SJ4
E
31
Fol.
ED
G
20.18
May
Details
Date
Future
31 pension fund
Amount
Amount
268
Amount
SJ4
3 280
Fol.
Amount
Date
N20
Details
Fol.
Amount
00
Pension fund contributions
Fol.
N19
Date
N21
Details
Fol.
Amount
00
©
20.18
May
Details
Fol.
00
SDL contributions
Date
65 00
00
UIF contributions
Date
Amount
N4
at
io
n
Date
SJ4
(P
20.18
May 31 Salaries expense
Fol.
437
Annexure A
Question 8.5
Cashbook payments journal of GoFast Traders for May 20.18
Name of
payee
Fol.
Trade
payables
Bank
Input VAT
Sundry accounts
Trading
inventory
Amount
Fol.
Details
Lt
d
Doc
Day
no.
CBP4
Creditors for
salaries
31 D. Julies
19 868
19 868
EFT
SARS
5 229
5 229
EMP201
control
account
EFT
Future
pension
fund
6 560
6 560
Future
pension fund
EFT
WMC
medical
aid
2 300
2 300
WMC
medical
aid
EFT
Staff social
fund
65
65
Staff social
fund
Ed
uc
General ledger of GoFast Traders
at
io
n
(P
ty
)
EFT
Creditors for salaries
Date
31 Bank
Fol.
Amount
CBP4
19 868 00
Date
20.18
May
Details
31 Salaries expense
Fol.
Amount
SJ4
19 868 00
G
E
20.18
May
Details
B12
ED
Date
31 Bank
EMP201 control
Fol.
Amount
CBP4
5 229 00
©
20.18
May
Details
5 229 00
438
B13
Date
20.18
May
31
Details
Fol.
Amount
Salaries expense
(PAYE)
SJ4
4 663 00
Salaries expense
(UIF)
SJ4
149 00
UIF contributions
SJ4
149 00
SDL contributions
SJ4
268 00
5 229 00
Question solutions
WMC medical aid
20.18
May
Details
31
Bank
Fol.
Amount
CBP4
2 300
00
Date
20.18
May
31
Details
Fol.
Amount
Salaries expense
SJ4
2 300
Future pension fund
31 Bank
Fol.
Amount
CBP4
6 560
6 560
00
Date
20.18
May
31
00
Staff social fund
00
Pension fund
contributions
SJ4
3 280
00
6 560
00
B16
65 00
Wages journal of BeThere Traders for the week ending 30 June 20.18
WJ25
20.18
May
31
Ed
uc
00
Amount
Deductions
Employer contributions
Normal
time
Net
Total
Pension
wage
UIF
deducfund
tions
UIF
SDL
Pension
fund
105
91
945
Overtime
6 400
3 120
Gross
wage
PAYE
9 520 2 541 105
630
3 276 6 244
G
S. Kroese
Date
Calculation of gross wage
E
Name of
employee
65
3 280
SJ4
Question 8.6
CBP4
SJ4
Salaries expense
Bank
Amount
Salaries expense
Fol.
31
Fol.
Amount
Details
20.18
May
Details
Fol.
at
io
n
Date
Details
ty
)
20.18
May
Details
B15
(P
Date
00
Lt
d
Date
B14
ED
Question 8.7
©
General ledger of BeThere Traders
Creditors for wages
Date
Details
Fol.
Amount
B12
Date
20.18
June
30
Details
Fol.
Amount
Wages expense
WJ25
6 244 00
439
Annexure A
EMP201 control
Details
Fol.
Amount
Date
Fol.
Amount
10 000 00
23
Balance
b/d
30
Wages expense
(PAYE)
WJ25
2 541 00
Wages expense
(UIF)
WJ25
105 00
UIF contributions
WJ25
105 00
SDL contributions WJ25
91 00
ty
)
20.18
June
Details
Lt
d
Date
B13
(P
12 842 00
FBI pension fund
Details
Fol.
Amount
Date
Details
at
io
n
Date
B14
Ed
uc
20.18
June
Amount
23
Total/Balance
b/d
28 750 00
30
Gross wages
WJ25
9 520 00
E
Fol.
Balance
b/d
4 725 00
30
Wages expense
WJ25
630 00
Pension fund
contributions
WJ25
945 00
ED
Date
©
20.18
June
440
Date
6 300 00
N4
Details
Fol.
Amount
38 270 00
G
20.18
June
Details
Amount
23
Wages expense
Date
Fol.
UIF contributions
Details
Fol.
Amount
23
Total/Balance
b/d
315 00
30
EMP201
control
WJ25
105 00
420 00
Date
N19
Details
Fol.
Amount
Question solutions
SDL contributions
20.18
June
Details
Fol.
Amount
25
Total/Balance
b/d
273 00
30
EMP201
control
WJ25
91 00
Date
Details
Fol.
364 00
Fol.
Amount
25 Total/Balance
b/d
2 835 00
30 FBI pension
fund
WJ25
945 00
Date
Details
Fol.
Amount
(P
20.18
June
Details
N21
ty
)
Pension fund contributions
Date
Amount
Lt
d
Date
N20
at
io
n
3 780 00
Question 8.8
Cashbook payments journal of BeThere Traders for June 20.18
Ed
uc
(i)
Name of
payee
Doc no. Day
30 Cash
EFT
SARS
Bank
Creditors
control
Input
VAT
Trading
inventory
Sundry accounts
Amount Fol.
Details
6 244
6 244
Creditors
for wages
12 842
12 842
EMP201
control
account
6 300
6 300
FBI pension
fund
G
E
CC031
Fol.
FBI pension
fund
ED
EFT
CBP4
©
(ii)
General ledger of BeThere Traders
Creditors for wages
Date
20.18
June
Details
30 Bank
Fol.
CPB4
Amount
6 244 00
Date
20.18
June
B12
Details
30 Wages expense
Fol.
Amount
WJ25
6 244
00
441
Annexure A
EMP201 control
30 Bank
Fol.
Amount
CPB4
12 842 00
Date
Details
20.18
June 23 Balance
30 Bank
2 541 00
Wages expense
(UIF)
WJ25
105 00
UIF contributions
WJ25
105 00
SDL contributions
WJ25
91 00
CPB4
Amount
Date
6 300 00
20.18
June
©
ED
G
E
Ed
uc
6 300 00
442
(P
Fol.
10 000 00
WJ25
B14
Details
Fol.
Amount
23 Balance
b/d
4 725 00
30 Wages expense
WJ25
630 00
Pension fund
contributions
WJ25
945 00
at
io
n
Details
b/d
12 842 00
FBI pension fund
Date
Amount
30 Wages expense
(PAYE)
12 842 00
20.18
June
Fol.
Lt
d
20.18
June
Details
ty
)
Date
B13
6 300 00
G
ED
7 500
14 150
35 000
7 800
7 900
2 400
23 000
76 100
(001) J. Killian
(002) K. Long
(003) L. Mphisi
(004) M.
Ngcobano
(005) N. Otto
450
900
3 800
1 500
Commission
Basic
E
UIF
34 000
2 850
8 800
14 700
40 750
5 653
0
25
660
7 600
3 650
935
92
427
446
1 750
Pension
fund
SJ10
524
149
26
88
112
149
UIF
954
324
28
84
136
382
SDL
7 299
1 870
183
854
892
3 500
Pension
fund
Employer contributions
Lt
d
73 488
25 113
1 932
6 310
11 482
28 651
Net
salary
ty
)
27 612
8 887
918
2 490
3 218
12 099
Total
deductions
(P
9 500
2 150
800
1 950
2 000
2 600
Medical
aid
Deductions
at
io
n
524
149
26
88
112
149
Ed
uc
PAYE
10 850 101 100 13 938
3 500
0
0
3 100
4 250
Travel
allowance
Calculation of gross salary
Gross
salary
Salaries journal of PeterPan Ltd for December 20.18
Employee no.
& name of
employee
(i)
Question 8.9
©
Question solutions
443
Annexure A
Cashbook payments journal of PeterPan Ltd for December 20.18
M/T
25
Sundry
employees
73 488
73 488
EFT
28
ABC medical
aid
9 500
9 500
EFT
28
BetterLife
pension fund
10 949
10 949
CC205
31
SARS
15 940
Bank
Input
VAT
Creditors for
salaries
ABC medical
aid
BetterLife
pension fund
ty
)
Day
Fol.
Creditors
control
Sundry accounts
Trading
inventory Amount Fol.
Details
Doc
no.
15 940
(P
Name of
payee
General ledger of PeterPan Ltd.
fol
Amount
SJ10
73 488 00
EMP201 control
B13
Creditors for salaries
20.18
Dec
Details
25 Bank
Date
Amount
CBP10
73 488 00
Details
31 Bank
Date
20.18
Dec
Fol.
Amount
CBP10 15 940 00
Details
Salaries
25 expense
Date
20.18
Dec
Details
Amount
25 Salaries
expense (PAYE)
SJ10
13 938 00
Salaries
expense (UIF)
SJ10
524 00
UIF contributions
SJ10
524 00
SDL contributions
SJ10
954 00
G
ED
©
15 940 00
15 940 00
ABC medical aid
Date
20.18
Dec
B12
Fol.
E
20.18
Dec
fol
Ed
uc
Date
444
EMP201
control
account
at
io
n
(iii)
CBP10
Lt
d
(ii)
Details
28 Bank
Fol.
Amount
CBP10
9 500
00
B14
Date
20.18
Dec
Details
25
Salaries
expense
Fol.
Amount
SJ10
9 500
00
Question solutions
BetterLife pension fund
20.18
Dec
Details
28 Bank
Fol.
Amount
CBP10
10 949 00
Date
20.18
Dec
Details
25
Fol.
Amount
Salaries
expense
SJ10
3 650 00
Pension fund
contributions
SJ10
Lt
d
Date
B15
10 949 00
10 949 00
25
Gross
salaries
Fol.
Amount
SJ10
101 100 00
Date
UIF contributions
20.18
Dec
Details
Fol.
Amount
EMP201
25 control
SJ10
524 00
Date
Details
Details
SDL contributions
20.18
Dec
25
Details
Fol.
Amount
EMP201
control
SJ10
954 00
Ed
uc
Date
Date
Details
Pension fund contributions
Date
E
BetterLife
25 pension fund
Fol.
SJ10
Amount
Date
Amount
Fol.
Amount
N20
Fol.
Amount
N21
Details
Fol.
Amount
7 299 00
©
ED
G
20.18
Dec
Details
Fol.
N19
at
io
n
Date
ty
)
20.18
Dec
Details
N4
(P
Salaries expense
Date
7 299 00
445
Annexure A
©
ED
G
E
Ed
uc
at
io
n
(P
ty
)
Lt
d
(iv)
(Source: EDGE Learning Media (Pty) Ltd, 2019; adapted from SARS, 2019)
Figure 8.1: Peter Pan Ltd EMP201
446
E
G
ED
1 260
1 920
7 800
R. Simons
168
9 060
1 920
2 408
1 560
3 172
Gross
wage
451
56
130
0
265
21
28
17
36
102
UIF
XYZ pension fund
Staff association
EFT
EFT
Employees/cash
SARS
31
CC109
Name of payee
EFT
Day
Doc no.
Fol.
160
6 840
3 035
7 897
Bank
Creditors
control
VAT input
40
10
10
10
10
Staff
association
at
io
n
570
110
180
80
200
Pension
fund
Ed
uc
PAYE
Deductions
Cashbook payments journal of DreamWitch Ltd – July 20.18
(ii)
0
2 240
Q. Romano
0
1 560
P. Richards
1 092
Overtime
2 080
Normal
time
Calculation of gross wage
O. Petersen
Name of
employee
Wages journal of DreamWitch Ltd for the week ending 30 July 20.18
(i)
Question 8.10
©
Fol.
Details
CBP6
1 140
220
360
160
400
EMP201 control
account
Creditors for wages
Staff association
XYZ pension fund
Lt
d
160
6 840
3 035
85
18
22
15
30
Pension fund
Sundry accounts
102
21
28
17
36
SDL
Employer contributions
UIF
7 897
Amount
7 897
1 723
2 060
1 453
2 661
ty
)
(P
Trading
inventory
1 163
197
348
107
511
Total
deductions
Net
wage
WJ21
Question solutions
447
Annexure A
(iii)
General ledger of DreamWitch Ltd
20.18
July
Details
31
Bank
Fol.
Amount
CBP6
7 897 00
B12
Date
Details
20.18
July 31 Wages expense
Details
31 Bank
Fol.
Amount
CBP6
20.18
3 035 00 July
WJ21
7 897 00
B13
Date
Details
Fol.
(P
Date
20.18
July
Amount
ty
)
EMP201 control
Fol.
Lt
d
Creditors for wages
Date
31 Balance
b/d
2 295 00
WJ21
451 00
Wages expense
(UIF)
WJ21
102 00
UIF contributions
WJ21
102 00
SDL contributions
WJ21
85 00
at
io
n
Wages expense
(PAYE)
Ed
uc
3 035 00
XYZ pension fund
Date
31 Bank
Fol.
Amount
CBP6
6 840 00
Date
20.18
July
G
ED
©
Date
Details
20.18
July
Amount
b/d
5 130 00
Wages expense
WJ21
570 00
Pension fund
contributions
WJ21
1 140 00
31 Balance
6 840 00
31 Bank
Fol.
Amount
CBP6
160 00
160 00
448
Fol.
6 840 00
Staff association
Details
3 035 00
B14
E
20.18
July
Details
Amount
B15
Date
20.18
July
Details
31
Fol.
Amount
Balance
b/d
120 00
Wages expense
WJ21
40 00
160 00
Question solutions
Wages expense
Fol.
Amount
31 Total/balance
b/d
27 200
00
Creditors for
wages
WJ21
9 060
00
36 260
00
Date
UIF contributions
20.18
July
Details
Fol.
Amount
31 Total/balance
b/d
306 00
EMP201
control
WJ21
102 00
Fol.
Amount
Date
N19
Details
Fol.
Amount
(P
Date
Details
Lt
d
20.18
July
Details
ty
)
Date
N4
at
io
n
408 00
SDL contributions
20.18
July
Details
Fol.
Amount
31 Total/balance
b/d
255 00
EMP201
control
WJ21
85 00
Date
Details
Ed
uc
Date
N20
Fol.
Amount
340 00
Details
E
Fol.
Amount
G
Pension fund contributions
Date
Total/balance
b/d
3 420 00
XYZ pension
fund
WJ21
1 140 00
31
Details
Fol.
Amount
4 560 00
©
ED
20.18
July
Date
N21
449
Annexure A
©
ED
G
E
Ed
uc
at
io
n
(P
ty
)
Lt
d
(iv)
(Source: EDGE Learning Media (Pty) Ltd, 2019; adapted from SARS, 2019)
Figure 8.2: DreamWitch Ltd EMP201
450
Question solutions
Question 8.11
General ledger of Dormicum CC
EMP201 control
Details
Fol.
Amount
20.8
Date
20.8
31 Bank
CBP5
19 876.41
May
Fol.
Amount
Salaries expense
31 (UIF)
SR5
Salaries expense
(PAYE)
SR5
17 389.00
UIF contributions
SR5
697.55
SDL
contributions
SR5
697.55
(P
ty
)
May
Details
Lt
d
Date
B7
at
io
n
19 876.41
Creditors for salaries
Date
Details
Fol.
20.8
Amount
Date
Details
1 092.31
19 876.41
B8
Fol.
Amount
SR5
85 747.91
20.8
31 Bank
CBP5
85 747.91
May
Ed
uc
May
31 Salaries expense
Plong Pension Fund
Date
Details
20.8
Fol.
Amount
Date
B9
Details
Fol.
Amount
31 Salaries expense
SR5
5 464.04
Pension
contributions
SR5
5 464.04
20.8
31 Bank
CBP5
E
May
Details
10 928.08
Fit Health Scheme
Fol.
Amount
20.8
Date
20.8
31 Bank
CBP5
©
May
May
10 928.08
G
ED
Date
10 928.08
10 740.94
May
B10
Details
Fol.
Amount
Medical aid
31 contributions
SR5
10 740.94
Salaries expense
Date
Details
Fol.
Amount
SR5
109 298.00
Date
N8
Details
Fol.
Amount
20.8
May
31 Gross salaries
451
Annexure A
Medical aid contributions
20.8
May
Details
Fol.
Amount
Fit Health
31 Scheme
SR5
10 740.94
Date
Details
UIF contributions
EMP201
31 control
May
Fol.
SR5
Amount
Date
697.55
SDL contributions
20.8
Details
EMP201
31 control
May
Fol.
Amount
SR5
1 092.31
Date
Pension contributions
Date
Plong Pension
31 Fund
©
ED
G
E
May
452
Fol.
Amount
Ed
uc
20.8
Details
SR5
5 464.04
Date
Fol.
Amount
N11
Details
at
io
n
Date
Details
ty
)
20.8
Details
Amount
N10
(P
Date
Fol.
Lt
d
Date
N9
Details
Fol.
Amount
N12
Fol.
Amount
Question solutions
Lt
d
Learning Unit 9
Year-end procedures
ty
)
Question 9.1
R 2 500 000.
(ii)
One can see that the performance of the business for each of the first three
years was similar, but that the performance during the fourth year was pretty
poor. However, stakeholders must not look at the statement of profit or loss
and other comprehensive income in isolation. According to the statement
of financial position, the business is still solvent. It is therefore possible that
the statement of profit or loss and other comprehensive income can paint a
very different picture of the well-being of a business than the statement of
financial position. Stakeholders need to know about the accumulated wealth
as well as the relative performance for a financial period in order to make
informed decisions about their stake in the business.
(iii)
It is impossible to say at face value whether R 1 million profit a year is a
good return or not. A rand value on its own is no indication of good or poor
performance. It has to be compared with something else. For example: If
you started your business with R 100, then a R 1 million return per annum is
phenomenal. If, however, your initial capital contribution was R 100 million,
then a R 1 million return is pretty bad!
©
ED
G
E
Ed
uc
at
io
n
(P
(i)
453
Annexure A
Question 9.2
(i)
Day
N/ A
28
Details
Sales
Sales returns
Fol.
Debit (R)
N1
16 000
N2
(Closing transfer)
Sales
N1
F1
(Closing transfer)
(Closing transfer)
Trading account
Profit and loss account
832 000
F1
520 000
at
io
n
Trading account
Cost of sales
00
00
832 000
00
520 000
00
312 000
00
51 500
00
00
N2
F1
16 000
00
(P
Trading account
Credit (R)
ty
)
Doc.
no.
GJ12
Lt
d
General journal of Tuscany Dealers – February 20.8
312 000
00
F2
Ed
uc
(Closing transfer – gross profit)
Rent income
N4
45 500
00
Interest on fixed deposit
N5
6 000
00
Profit and loss account
F2
(Closing transfers)
E
Profit and loss account
251 340
00
Insurance
N6
14 700
00
Interest on mortgage loan
N7
72 130
00
Wages and salaries
N8
125 680
00
Telephone
N9
17 750
00
Office consumables
N10
3 000
00
Advertising
N11
9 200
00
General expenses
N12
8 880
00
112 160
00
42 000
00
G
ED
©
F2
(Closing transfers)
Profit and loss account
Capital
F2
112 160
00
B1
(Closing transfer – net profit)
Capital
Drawings
(Closing transfer)
454
B1
B2
42 000
00
Question solutions
(ii)
There is no nominal accounts section in the post-closing trial balance.
This section has been closed off against capital. There would also not be a
drawings account present in the statement of financial position section. The
post-closing trial balance is therefore done as follows:
Folio
Lt
d
Post-closing trial balance of Tuscany Dealers on 28 February 20.8
Debit (R)
Credit (R)
B1
Land and buildings
B3
540 000
00
Equipment
B4
60 000
00
Fixed deposit: ABOO Bank
B5
Trading inventory
B6
Bank
Creditors control
Mortgage loan: BZN Bank
00
B8
67 100
00
B9
482 400
00
782 930
00
50 000
00
70 000
00
B6
15 200
00
B7
47 730
00
at
io
n
Debtors control
233 430
ty
)
Capital
(P
Statement of financial position section
The balances of the nominal accounts will all become nil at year-end. The
reason for this is that management needs a net profit figure for the current
year only. A profit amount on its own is rather insignificant. It only becomes
useful as a measuring tool when it can be compared with something else:
sales, capital invested or actual profits earned during previous years. In order
to compare profits earned during the current year with those earned during
previous years, the starting point for each subsequent year will have to be
zero (i.e. last year’s profits cannot be included with this year’s – this will distort
the picture).
ED
G
E
(iii)
00
Ed
uc
782 930
Question 9.3
©
(i)
If one deducts the total debit entries from the total credit entries (nominal
accounts section only), the net profit can easily be calculated as follows:
Total of income accounts (credits) = R 549 368.56
Total of expense accounts (debits) = R 455 678.40
Therefore, net profit = R 93 690.16
455
Annexure A
(ii)
General ledger of Letsema Furnishers
(Extract only)
Details
Fol.
Amount
Date
20.9
Feb.
Details
Fol.
Amount
b/d
136 251 25
93 690 16
ty
)
Date
B1
(P
Capital
20.9
28 Drawings
GJ12
4 918 60
Balance
c/d
225 022 81
Feb.
Lt
d
Statement of financial position section
28 Balance
Profit and
loss
at
io
n
229 941 41
GJ12
229 941 41
20.9
Mar.
1
Balance
Drawings
20.9
Feb.
Details
Fol.
Amount
Date
Ed
uc
Date
Total/
28 Balance
Details
b/d
225 022 81
B2
Fol.
Amount
GJ12
4 918 60
20.9
b/d
4 918 60
Feb.
28 Capital
Details
G
Date
E
Nominal accounts section
20.9
ED
Feb.
Profit and
28 loss
©
Date
Fol.
Services rendered
Amount
Date
20.9
GJ12
46 689 92
Details
Fol.
Amount
Total/
28 Balance
b/d
46 689 92
Fol.
Amount
N2
Date
20.9
28 Sales returns GJ12
Trading
account
GJ12
16 291 59
Feb.
Details
Fol.
Amount
Total/
28 Balance
b/d
499 431 87
483 140 28
499 431 87
456
Details
Sales
20.9
Feb.
Feb.
N1
499 431 87
Question solutions
Date
20.9
Feb.
Details
Total/
28 Balance
Fol.
Amount
Date
20.9
b/d
322 031 12
N3
Feb.
Details
Trading
28 account
Interest on current account
Feb.
Profit and
28 loss
Fol.
Amount
Date
20.9
GJ12
574 50
Feb.
Telephone
20.9
Feb.
Details
Total/
28 Balance
Fol.
Amount
13 228 65
Details
Total/
28 Balance
Date
Feb.
Feb.
Total/
28 Balance
Fol.
Amount
Date
20.9
b/d
10 116 45
Feb.
Ed
uc
20.9
Details
20.9
Total/
28 Balance
Fol.
G
Date
Details
Amount
b/d
Fol.
39 497 63
Amount
Profit and
28 loss
GJ12
13 228 65
ED
©
Date
20.9
Feb.
28 Total/Balance
Feb.
Amount
Date
20.9
b/d
4 975 20
Fol.
Amount
Feb.
Fol.
Amount
Profit and
28 loss
GJ12
10 116 45
N7
Details
Fol.
Amount
Profit and
28 loss
GJ12
39 497 63
N8
Details
Fol.
Amount
Profit and
28 loss
GJ12
4 975 20
Details
Fol.
Amount
Profit and
28 loss
GJ12
15 291 16
Insurance
Details
Total/
28 Balance
N9
Date
20.9
b/d
15 291 16
N6
Details
Rates and taxes
20.9
Feb.
Date
20.9
E
Feb.
Details
574 50
Fol.
Rent expense
Date
b/d
Amount
Details
Wages and salaries
Date
Fol.
N5
20.9
b/d
322 031 12
N4
at
io
n
Date
GJ12
ty
)
20.9
Details
Amount
(P
Date
Fol.
Lt
d
Cost of sales
Feb.
457
Annexure A
Bank charges
Details
20.9
Feb.
28
Total/Balance
Fol.
Amount
Date
20.9
b/d
4 817 48
Feb.
Details
Fol.
Amount
Profit and
28 loss
GJ12
4 817 48
Postage and stationery
Fol.
Amount
20.9
Feb.
Date
20.9
28 Total/Balance
b/d
2 111 18
Feb.
Staff refreshments
Date
Details
Fol.
Amount
20.9
20.9
28 Total/Balance
b/d
2 382 44
Feb.
Fol.
Profit and
28 loss
GJ12
Details
Fol.
20.9
Date
20.9
28 Total/Balance
b/d
5 450 50
Feb.
Ed
uc
Feb.
Amount
Fol.
Amount
Profit and
28 loss
GJ12
2 382 44
Details
20.9
28 Total/Balance
G
Date
Details
ED
20.9
©
Feb.
Date
20.9
Feb.
458
Amount
Date
20.9
b/d
E
Feb.
Fol.
Total/
28 Balance
Fol.
9 225 00
Feb.
Fol.
Amount
Profit and
28 loss
GJ12
5 450 50
N14
Details
Fol.
Amount
Profit and
28 loss
GJ12
9 225 00
Credit losses
Amount
N15
Date
20.9
b/d
7 025 97
Fol.
Amount
Feb.
Details
Fol.
Amount
Profit and
28 loss
GJ12
7 025 97
Sales returns
Details
Total/
28 Balance
N13
Details
Interest on loan
Date
2 111 18
Details
Fuel
Date
Amount
N12
at
io
n
Feb.
Date
Details
ty
)
Details
(P
Date
N11
Lt
d
Date
N10
N16
Date
Details
Fol.
Amount
GJ12
16 291 59
20.9
b/d
16 291 59
Feb.
28 Sales
Question solutions
Date
20.9
Feb.
Details
Profit and
28 loss
Fol.
Amount
N17
Date
Details
20.9
GJ12
2 672 27
Feb.
28
Total/Balance
Interest on overdraft
Fol.
Amount
20.9
Feb.
Date
20.9
28 Total/Balance
b/d
786 12
Feb.
Interest paid/charged
Date
Details
Fol.
Amount
20.9
20.9
28 Total/Balance
b/d
Final accounts section
2 447 91
Feb.
Details
Fol.
Profit and
28 loss
GJ12
Ed
uc
Details
20.9
Feb.
Fol.
Amount
Date
Amount
786 12
Details
Fol.
Amount
Profit and
28 loss
GJ12
2 447 91
Trading account
Date
2 672 27
N18
at
io
n
Feb.
Date
b/d
ty
)
Details
Amount
(P
Date
Fol.
Lt
d
Interest received
Details
F1
Fol.
Amount
GJ12
483 140 28
20.9
28 Cost of sales GJ12
GJ12
Feb.
28 Sales
161 109 16
483 140 28
483 140 28
©
ED
G
E
Profit and
loss
322 031 12
459
Annexure A
Fol.
Amount
20.9
20.9
GJ12
13 228 65
Wages and
salaries
GJ12
10 116 45
Rent expense
GJ12
39 497 63
Rates and taxes
GJ12
4 975 20
Insurance
GJ12
15 291 16
Bank charges
GJ12
4 817 48
Postage and
stationery
GJ12
2 111 18
Staff
refreshments
GJ12
2 382 44
Fuel
GJ12
5 450 50
Interest on loan
GJ12
9 225 00
Credit losses
GJ12
7 025 97
Interest on
overdraft
GJ12
786 12
Interest paid/
charged
GJ12
2 447 91
Capital (net profit) GJ12
93 690 16
©
ED
G
E
211 045 85
460
Feb.
Details
Trading
28 account
Services
rendered
Interest on
current a/c
Fol.
Amount
GJ12
161 109 16
GJ12
GJ12
46 689 92
574 50
Interest
received
GJ12
2 672 27
at
io
n
28 Telephone
Ed
uc
Feb.
Date
ty
)
Details
(P
Date
F2
Lt
d
Profit and loss account
211 045 85
Question solutions
(iii)
Post-closing trial balance of Letsema Furnishers on 28 February 20.9
Fol.
Debit (R)
Credit (R)
B1
Loan: AAA Bank
B3
Bank
B4
Output VAT
B5
Trading inventory
B6
33 842
07
Input VAT
B7
43 983
99
3 040
56
169 135
30
B8
B9
190 000
00
9 428
07
48 629
21
12 939
26
486 019
35
at
io
n
Petty cash
81
(P
Capital
Equipment
225 022
ty
)
Lt
d
Statement of financial position section
Vehicles
Debtors control
Creditors control
B10
225 509
10
B11
10 508
33
B12
Question 9.4
(i)
35
Ed
uc
486 019
28
Details
Sales
ED
N/ A
Day
G
Doc.
no.
E
General journal of Dama Enterprises – February 20.9
Sales returns
GJ12
Fol.
Debit (R)
N1
20 000
Credit (R)
00
N2
20 000
00
1 040 000
00
650 000
00
390 000
00
(Closing transfer)
©
Sales
Trading account
N1
1 040 000
00
F1
(Closing transfer)
Trading account
F1
Cost of sales
N3
650 000
00
(Closing transfer)
Trading account
Profit and loss account
F1
F2
390 000
00
(Closing transfer – gross profit)
461
Annexure A
Day
Details
Fol.
Debit (R)
Credit (R)
Rent income
N4
56 875
00
Interest on fixed deposit
N5
7 500
00
Profit and loss account
F2
64 375
(Closing transfers)
Rates and taxes
N6
Interest on mortgage loan
N7
Wages and salaries
N8
N9
Stationery
N10
Packing materials
N11
General expenses
N12
(Closing transfers)
Profit and loss account
Capital
at
io
n
Telephone
314 175
F2
00
140 200
Capital
B1
52 500
50
157 100
00
22 187
50
3 750
00
11 500
00
11 100
00
140 200
00
52 500
00
00
B2
Ed
uc
Drawings
00
90 162
00
B1
(Closing transfer
18 375
ty
)
F2
(P
Profit and loss account
00
Lt
d
Doc.
no.
(Closing transfer)
(ii)
General ledger of Dama Enterprises
E
Statement of financial position section
ED
G
(Extract only)
Date
Capital
Details
Fol.
Amount
©
20.9
Feb.
B1
Date
Details
Fol.
Amount
28 Balance
b/d
204 087 50
Profit and
loss
GJ12
140 200 00
20.9
28 Drawings
GJ12
52 500 00
Balance
c/d
291 787 50
Feb.
344 287 50
344 287 50
20.9
Mar.
462
1
Balance
b/d
291 787 50
Question solutions
Drawings
20.9
Feb.
Details
Total/
28 Balance
Fol.
Amount
Date
Details
Fol.
Amount
GJ12
52 500 00
20.8
b/d
52 500 00
Feb.
28 Capital
Nominal accounts section
Feb.
Fol.
N1
Amount
Date
20.9
Sales
28 returns
GJ12
20 000 00
Trading
account
GJ12
1 040 000 00
Feb.
Details
Fol.
Amount
Total/
28 Balance
b/d
1 060 000 00
(P
20.9
Details
ty
)
Sales
Date
at
io
n
1 060 000 00
Sales returns
Date
Feb.
Total/
28 Balance
Fol.
Amount
Date
Details
b/d
20 000 00
Feb.
28 Sales
Cost of sales
Date
ED
Date
20.9
©
Feb.
Details
Profit and
28 loss
Amount
Date
20.9
Feb.
Fol.
Amount
GJ12
20 000 00
b/d
650 000 00
Feb.
Details
Fol.
Amount
Trading
28 account
GJ12
650 000 00
650 000 00
650 000 00
Rent income
Fol.
Amount
N4
Date
20.9
GJ12
56 875 00
Feb.
Details
Fol.
Amount
Total/
28 Balance
b/d
56 875 00
Interest on fixed deposit
Date
N2
N3
20.9
G
Feb.
Total/
28 Balance
Fol.
E
20.9
Details
1 060 000 00
20.9
Ed
uc
20.9
Details
Lt
d
Date
B2
Details
Fol.
Amount
Profit and
28 loss
GJ12
7 500 00
Date
20.9
Feb.
N5
Details
Total/
28 Balance
Fol.
Amount
b/d
7 500 00
463
Annexure A
Rates and taxes
20.9
Feb.
Details
Total/
28 Balance
Fol.
Amount
Date
20.9
b/d
18 375 00
Feb.
Details
Fol.
Amount
Profit and
28 loss
GJ12
18 375 00
Interest on mortgage loan
Feb.
Total/
28 Balance
Fol.
Amount
Date
20.9
b/d
90 162 50
Feb.
Wages and salaries
20.9
Feb.
Details
Total/
28 Balance
Fol.
Amount
Date
20.9
b/d
157 100 00
Feb.
Fol.
Profit and
28 loss
GJ12
Feb.
Total/
28 Balance
Fol.
Amount
Date
20.9
b/d
22 187 50
Feb.
Ed
uc
20.9
Details
Fol.
Amount
Profit and
28 loss
GJ12
157 100 00
20.9
Total/
28 Balance
Fol.
Fol.
Amount
Profit and
28 loss
GJ12
22 187 50
G
Date
ED
20.9
Details
©
Feb.
Date
20.9
Feb.
464
Amount
N10
Date
20.9
b/d
E
Feb.
Details
fol
3 750 00
Feb.
Details
Fol.
Amount
Profit and
28 loss
GJ12
3 750 00
Packing materials
Amount
Date
20.9
Total/
28 Balance
b/d
11 500 00
Details
Fol.
Amount
Feb.
N11
Details
fol
Amount
Profit and
28 loss
GJ12
11 500 00
General expenses
Total/
28 Balance
Date
20.9
b/d
11 100 00
N9
Details
Stationery
Date
90 162 50
Details
Telephone
Date
Amount
N8
at
io
n
Date
Details
ty
)
20.9
Details
(P
Date
N7
Lt
d
Date
N6
Feb.
N12
Details
Fol.
Amount
Profit and
28 loss
GJ12
11 100 00
Question solutions
Final accounts section
Trading account
Date
Details
Fol.
Amount
Details
28 Cost of sales GJ12
Profit and
loss
GJ12
650 000 00
Feb.
390 000 00
ty
)
1 040 000 00
Profit and loss account
Rates and
28 taxes
Fol.
Amount
Date
20.9
GJ12
18 375 00
Feb.
Details
Fol.
Amount
Trading
28 account
GJ12
390 000 00
Rent income GJ12
56 875 00
Interest
on fixed
deposit
7 500 00
(P
Details
F2
at
io
n
Date
GJ12 1 040 000 00
28 Sales
1 040 000 00
Interest on
mortgage
loan
GJ12
90 162 50
Wages and
salaries
GJ12
157 100 00
Telephone
GJ12
22 187 50
Stationery
GJ12
3 750 00
Packing
materials
GJ12
11 500 00
General
expenses
GJ12
11 100 00
Capital (net
profit)
GJ12
GJ12
140 200 00
454 375 00
454 375 00
There is no nominal accounts section in the post-closing trial balance (i.e.
these account balances are all nil). This section has been closed off against
capital. There would also not be a drawings account present in the statement
of financial position section (since the account has been closed off against
capital). The post-closing trial balance is therefore done as follows:
©
ED
(iii)
G
E
Ed
uc
Feb.
Amount
20.9
Feb.
20.9
Fol.
Lt
d
20.9
Date
F1
465
Annexure A
Post-closing trial balance of Dama Enterprises on 28 February 20.9
Fol.
Debit (R)
Credit (R)
Statement of financial position section
00
Equipment
B4
75 000
00
Fixed deposit: ABOO Bank
B5
62 500
00
Trading inventory
B6
87 500
00
Bank
B7
17 500
00
Petty cash
B8
1 500
00
Debtors control
B9
Creditors control
B10
Mortgage loan: BZN Bank
Input VAT
49 662
50
83 875
00
B11
583 000
00
B12
20 000
00
978 662
50
at
io
n
Output VAT
50
Lt
d
675 000
ty
)
B1
B3
(P
* 291 787
Capital
Land and buildings
B13
10 000
00
978 662
50
Question 9.5
Ed
uc
* This amount has changed, since the nominal accounts as well as the drawings
account have been closed off against capital.
G
E
From a practical perspective, it does not really matter whether you write ‘balance’
or ‘total’, as most bookkeeping systems are run electronically, and a standard term
such as 'balance' is usually applied throughout.
©
ED
However, if you consider the manual accounting system, one could understand
why the distinction is made. The term ‘balance’ implies continuity, whilst the term
‘total’ implies saturation – i.e. a point is reached where we go no further. That is
exactly what happens to the nominal accounts, as they all close off against the final
accounts at year-end. In other words, their balances ‘total up’, whereafter we start
at R nil again. Statement of financial position account balances carry forward to the
next financial period, hence the term ‘balance’ is more appropriate.
One could take the debate a step further in providing some criticism to the fact
that the drawings account (a statement of financial position account) also closes of
at year-end, but the term ‘balance’ is still used here. This contradicts the previous
reasoning, but one could also argue that the term ‘total’ is not used in this account,
as it does not form part of the calculation of profits and losses.
466
Question solutions
Question 9.6
Calculation/notes
Answer
A
Sales less sales returns (R 150 000 – R 3 525)
R 146 475.00
B
This is the balancing figure transferred to the Profit and loss account
(R 146 475.00 – R 120 878.40).
R 25 596.60
C
This is the gross profit transferred from the Trading account.
D
This is the contra account reference.
E
This is the balance transferred from the telephone account. The closing
transfer would have been: Dr Profit and loss and Cr Telephone.
R 2 850.00
F
This is the balance transferred from the Commission received account.
The closing transfer would have been: Dr Commission received and Cr
Profit and loss.
R 3 210.00
G
This is the net profit transferred to the Capital account. This is the gross
profit plus other income less other expenses.
R 2 496.60
H
This is the total of the Cr side of the account and is the first step in
balancing the account.
R 36 981.60
I
The Dr side of the account must equal the credit side of the account.
R 36 981.60
Lt
d
No.
R 25 596.60
©
ED
G
E
Ed
uc
at
io
n
(P
ty
)
Trading account
467
Annexure B
Annexure B
ty
)
Lt
d
Revision questions
(P
Revision question 1 (Learning Unit 2)
Capital – 1 February 20.6
Land and buildings
Motor vehicles
Equipment
Ed
uc
Drawings
at
io
n
The following balances appeared in the books of Saxby Plastics as at 31 January 20.7,
the last day of the financial year of the business:
R
260 450.00
1 302.25
390 675.00
208 360.00
315 144.50
31 254.00
Bank
6 771.70
Debtors control
11 720.25
1 432.48
7 162.38
Mortgage loan
531 812.88
Creditors control
13 803.85
Cash float
3 516.08
Credit card account
37 374.58
SARS (UIF/SDL/PAYE)
9 506.43
©
Trading inventory
ED
G
Petty cash
E
Financial asset: Fixed deposit (matures on 31 December 20.9)
Sales
390 675.00
Sales returns
31 254.00
Cost of sales
156 270.00
468
Revision questions
31 254.00
Dividend income
14 585.20
Rent income
91 157.50
Telephone and fax
23 180.05
Lt
d
Service income
Credit losses
3 177.49
Delivery expense
8 464.63
Packing materials
5 573.63
6 276.85
ty
)
Postage and stationery
Insurance
6 094.53
(P
Repairs and maintenance
Advertising
at
io
n
Bank charges
Rates and amenities
Wages and salaries
3 151.45
6 146.62
140 643.00
E
Calculate the total for current assets as at 31 January 20.7.
(2 ½)
Calculate the total for non-current assets as at 31 January 20.7.
(2)
Calculate the total for current liabilities as at 31 January 20.7. (1 ½)
Calculate the total for non-current liabilities as at 31 January 20.7.
(1)
Calculate the net profit for the year ended 31 January 20.7.
(11)
There are two methods by which owner’s equity can be calculated.
Explain this by referring to this question. Show the calculation of owner’s equity
using both accepted methods, and make sure both answers are the same. (7)
ED
G
1.1
1.2
1.3
1.4
1.5
1.6
6 667.52
Ed
uc
Required:
6 381.03
[25]
Proposed solutions:
©
1.1
1.2
1.3
1.4
R 6 771.70 ^ + R 11 720.25 ^ + R 1 432.48 ^ + R 7 162.38 ^ + R 3 516.08 ^ =
R 30 602.89
R 390 675.00 ^ + R 208 360.00 ^ + R 315 144.50 ^ + R 31 254.00 ^ = R 945 433.50
R 13 803.85 ^ + R 37 374.58 ^ + R 9 506.43 ^ = R 60 684.86
R 531 812.88 
469
Annexure B
1.5
^ R 390 675.00
Sales returns
^ R 31 254.00
Cost of sales
^ R 156 270.00
^ R 31 254.00
Dividend income
^ R 14 585.20
Rent income
^ R 91 157.50
Credit losses
^ R 3 177.49
Delivery expense
^ R 8 464.63
Packing material
^ R 5 573.63
Postage and stationery
^ R 6 276.85
Insurance
^ R 6 094.53
Repairs and maintenance
Advertising
(P
^ R 23 180.05
at
io
n
Telephone and fax
ty
)
Service income
^ R 6 381.03
^ R 6 667.52
Bank charges
^ R 3 151.45
Rates and amenities
^ R 6 146.62
^ R 140 643.00
Ed
uc
Wages and salaries
R 403 280.80
Total income
Total expenses
() R 527 671.70
() (R 403 280.80)
(^) R 124 390.90
Method 1: By using the accounting equation
G
1.6
R 527 671.70
E
Net profit
Lt
d
Sales
ED
Owner’s equity = Assets – Liabilities
©
Owner’s equity = (R 30 602.89 + R 945 433.50) () – (R 60 684.86 + R 531 812.88) ()
= R 383 538.65 ()
Method 2: By using equity accounts
Capital
 R 260 450.00
Add: Net profit
() R 124 390.90
Less: Drawings

Owner’s equity
() R 383 538.65
(R 1 302.25)
[25]
470
Revision questions
Revision question 2 (Learning Unit 2)
Lt
d
The following balances appeared in the books of Ebony Traders as at 31 January 20.7,
the last day of the financial year of the business:
R
325 562.50
Capital – 1 February 20.6
1 627.81
ty
)
Drawings
488 343.75
Motor vehicles
Equipment
at
io
n
Financial asset: Fixed deposit (matures on 31 December 20.9)
Bank
Debtors control
Petty cash
Creditors control
Cash float
Credit card account
Sales
G
Sales returns
E
SARS (UIF/SDL/PAYE)
Ed
uc
Trading inventory
Mortgage loan
(P
Land and buildings
260 450.00
393 930.63
39 067.50
8 464.63
14 650.31
1 790.60
8 952.98
664 766.10
17 254.81
4 395.10
46 718.23
11 883.04
488 343.75
39 067.50
195 337.50
Service income
39 067.50
Dividend income
18 231.50
Rent income
113 946.88
©
ED
Cost of sales
Telephone and fax
28 975.06
Credit losses
3 971.86
Delivery expense
10 580.79
Packing material
6 967.04
Postage and stationery
7 846.06
471
Annexure B
7 618.16
Repairs and maintenance
7 976.29
Advertising
8 334.40
Bank charges
3 939.31
Rates and amenities
7 683.28
Lt
d
Insurance
Wages and salaries
175 803.75
at
io
n
(P
Calculate the total for current assets as at 31 January 20.7.
(2 ½)
Calculate the total for non-current assets as at 31 January 20.7.
(2)
Calculate the total for current liabilities as at 31 January 20.7.
(1 ½)
Calculate the total for non-current liabilities as at 31 January 20.7.
(1)
Calculate the net profit for the year ended 31 January 20.7.
(11)
There are two methods by which owner’s equity can be calculated.
Explain this by referring to this question. Show the calculation of owner’s equity
using both accepted methods, and make sure both answers are the same. (7)
Ed
uc
2.1
2.2
2.3
2.4
2.5
2.6
ty
)
Required:
[25]
Proposed solutions:
©
ED
G
2.2
2.3
2.4
R 8 464.63 ^ + R 14 650.31 ^ + R 1 790.60 ^ + R 8 952.98 ^ + R 4 395.10 ^ =
R 38 253.62
R 488 343.75 ^ + R 260 450 ^ + R 393 930.63 ^ + R 39 067.50 ^ = R 1 181 791.88
R 17 254.81 ^ + R 46 718.23 ^ + R 11 883.04 ^ = R 75 856.08
R 664 766.10 
E
2.1
472
Revision questions
2.5
^ R 488 343.75
Sales returns
^ R 39 067.50
Cost of sales
^ R 195 337.50
^ R 39 067.50
Dividend income
^ R 18 231.50
Rent income
^ R 113 946.88
Credit losses
^ R 3 971.86
Delivery expense
^ R 10 580.79
Packing material
^ R 6 967.04
Postage and stationery
^ R 7 846.06
Insurance
^ R 7 618.16
Repairs and maintenance
Advertising
(P
^ R 28 975.06
at
io
n
Telephone and fax
ty
)
Service income
^ R 7 976.29
^ R 8 334.40
Bank charges
^ R 3 939.31
Rates and amenities
^ R 7 683.28
^ R 175 803.75
Ed
uc
Wages and salaries
R 504 101.00
Total income
Total expenses
() R 659 589.63
() (R 504 101.00)
(^) R 155 488.63
Method 1: By using the accounting equation
G
2.6
R 659 589.63
E
Net profit
Lt
d
Sales
ED
Owner’s equity = Assets – Liabilities
©
Owner’s equity = (R 38 253.62 + R 1 181 791.88) () – (R 75 856.08 + R 664 766.10) ()
= R 479 423.32 ()
Method 2: By using equity accounts
Capital
 R 325 562.50
Add: Net profit
() R 155 488.63
Less: Drawings

Owner’s equity
() R 479 423.32
(R 1 627.81)
[25]
473
Annexure B
Revision question 3 (Learning Unit 2)
Lt
d
The following list of balances relates to Papa’s Products as at 28 February 20.9, the last
day of the financial year of the business:
R
Capital – 1 March 20.8
251 100
ty
)
Drawings
558 000
Equipment
Motor vehicles
at
io
n
Investment: 6% preference shares in Unathi Ltd
Bank
Debtors control
Petty cash
Creditors control
Cash float
SARS (VAT payable)
Sales
G
Sales returns
E
SARS (taxes payable)
Ed
uc
Trading inventory
Mortgage loan
(P
Land and buildings
24 800
37 200
99 200
124 000
14 880
43 400
6 200
17 360
186 000
64 480
3 720
1 240
620
925 040
32 240
406 720
Rent income
33 480
Dividend income
7 440
Services rendered
76 880
©
ED
Cost of sales
Telephone and fax
26 660
Credit losses
4 960
Rates and taxes
8 680
Office consumables
1 240
Packing materials
7 440
474
Revision questions
13 640
Fuel
11 160
Advertising
2 480
Repairs and maintenance
5 580
Lt
d
Agent membership fees
Rent expense
44 640
52 080
ty
)
Wages and salaries
Required:
(P
Calculate the total for current assets as at 28 February 20.9.
Calculate the total for non-current assets as at 28 February 20.9.
Calculate the total for current liabilities as at 28 February 20.9.
Calculate the total for non-current liabilities as at 28 February 20.9.
Calculate the net profit for the year ended 28 February 20.9.
There are two methods by which owner’s equity can be calculated.
Show the calculation of owner’s equity using both accepted methods.
at
io
n
3.1
3.2
3.3
3.4
3.5
3.6
(2 ½)
(2)
(1 ½)
(1)
(11)
(7)
Ed
uc
[25]
Proposed solutions:
E
R 14 880 ^ + R 43 400 ^ + R 6 200 ^ + R 17 360 ^ + R 3 720 ^ = R 85 560
R 558 000 ^ + R 37 200 ^ + R 99 200 ^ + R 124 000 ^ = R 818 400
R 64 480 ^ + R 1 240 ^ + R 620 ^ = R 66 340
R 186 000 
©
ED
G
3.1
3.2
3.3
3.4
475
Annexure B
3.5
^ R 925 040
Sales returns
^ R 32 240
Cost of sales
^ R 406 720
^ R 33 480
Dividend income
^ R 7 440
Services rendered
^ R 76 880
Credit losses
^ R 4 960
Rates and taxes
^ R 8 680
Office consumables
^ R 1 240
Packing materials
^ R 7 440
Agent membership fees
^ R 13 640
Fuel
^ R 11 160
Advertising
^ R 2 480
Repairs and maintenance
Rent expense
^ R 5 580
^ R 44 640
^ R 52 080
Ed
uc
Wages and salaries
R 617 520
Total income
Total expenses
R 1 042 840
() R 1 042 840
() (R 617 520)
(^) R 425 320
E
Net profit
Method 1: By using the accounting equation
G
3.6
(P
^ R 26 660
at
io
n
Telephone and fax
ty
)
Rent income
Lt
d
Sales
ED
Owner’s equity = Assets – Liabilities
©
Owner’s equity = (R 85 560 + R 818 400) () – (R 66 340 + R 186 000) ()
= R 651 620 ()
Method 2: By using equity accounts
Capital
 R 251 100
Add: Net profit
() R 425 320
Less: Drawings

Owner’s equity
() R 651 620
(24 800)
[25]
476
Revision questions
Revision question 4 (Learning Unit 2)
Lt
d
The following list of balances relates to Berg Traders as at 31 January 20.9, the last day
of the financial year of the business:
R
355 600
ty
)
Capital – 1 February 20.8
Drawings
533 400
(P
Land and buildings
Motor vehicles
Financial asset: Old Mutual Trusts
Bank
Debtors control
Mortgage loan
Creditors control
Cash float
Credit card account
Ed
uc
Petty cash
at
io
n
Computer equipment
Trading inventory
1 778
284 480
430 276
42 672
9 246
16 002
1 955
9 779
606 725
18 847
4 801
51 028
12 979
Sales
533 400
42 672
Cost of sales
213 360
Rent income
42 672
Dividend income
19 914
Service income
124 460
Rent expense
31 648
Credit losses
4 338
Wages and salaries
80 010
Packing materials
7 610
Stationery
8 570
©
Sales returns
ED
G
E
SARS (taxes payable)
477
Annexure B
8 321
Electricity
8 712
Rates and services
9 104
Delivery expense
4 303
Lt
d
Telephone and communication
Bank charges
3 485
Interest expense
9 103
(P
Calculate the total for current assets as at 31 January 20.9.
(2 ½)
Calculate the total for non-current assets as at 31 January 20.9.
(2)
Calculate the total for current liabilities as at 31 January 20.9.
(1 ½)
Calculate the total for non-current liabilities as at 31 January 20.9.
(1)
Calculate the net profit for the year ended 31 January 20.9.
(11)
There are two methods by which owner’s equity can be calculated. Show
the calculation of owner’s equity using both accepted methods.
(7)
at
io
n
4.1
4.2
4.3
4.4
4.5
4.6
ty
)
Required:
[25]
R 9 246 ^ + R 16 002 ^ + R 1 955 ^ + R 9 779 ^ + R 4 801 ^ = R 41 783
R 533 400 ^ + R 284 480 ^ + R 430 276 ^ + R 42 672 ^ = R 1 290 828
R 18 847 ^ + R 51 028 ^ + R 12 979 ^ = R 82 854
R 606 725 
E
4.1
4.2
4.3
4.4
Ed
uc
Proposed solutions:
G
4.5
Sales
Sales returns
^ R 42 672
Cost of sales
^ R 213 360
ED
©
478
^ R 533 400
Rent income
^ R 42 672
Dividend income
^ R 19 914
Service income
^ R 124 460
Rent expense
^ R 31 648
Credit losses
^ R 4 338
Wages and salaries
^ R 80 010
Packing materials
^ R 7 610
Stationery
^ R 8 570
Telephone and communication
^ R 8 321
Electricity
^ R 8 712
Rates and services
^ R 9 104
Delivery expense
^ R 4 303
Bank charges
^ R 3 485
Interest expense
^ R 9 103
() R 720 446
Total expenses
() (R 431 236)
(P
Total income
Net profit
(^) R 289 210
Method 1: By using the accounting equation
at
io
n
4.6
R 720 446
ty
)
R 431 236
Lt
d
Revision questions
Owner’s equity = Assets – Liabilities
Ed
uc
Owner’s equity = (R 41 783 + R 1 290 828) () – (R 82 854 + R 606 725) ()
= R 643 032 ()
Method 2: By using equity accounts
Capital
Add: Net profit
 R 355 600
() R 289 210

Owner’s equity
() R 643 032
(1 778)
[25]
©
ED
G
E
Less: Drawings
479
Annexure B
Revision question 5 (Learning Unit 2)
Lt
d
The following list of balances relates to Shimano Products as at 31 January 20.7, the
last day of the financial year of the business:
R
Capital – 1 February 20.6
284 650
ty
)
Drawings
426 975
Motor vehicles
Equipment
at
io
n
Financial asset: Fixed deposit (matures on 1 June 20.9)
Bank
Debtors control
Petty cash
Creditors control
Cash float
Credit card account
E
SARS (taxes payable)
Ed
uc
Trading inventory
Mortgage loan
G
Sales
(P
Land and buildings
1 424
227 720
344 426
34 158
7 401
12 809
1 565
7 828
485 670
15 086
3 843
40 847
10 390
426 975
34 158
Cost of sales
170 790
Rent income
34 158
Interest income
15 940
Service income
99 627
Rent expense
25 334
Credit losses
3 473
Wages and salaries
64 046
Cleaning materials
6 091
Stationery
6 860
©
ED
Sales returns
480
Revision questions
6 660
Electricity
6 974
Rates and services
7 287
Delivery expense
3 444
Lt
d
Internet service expense
Bank charges
2 790
7 287
ty
)
Telephone and fax
Required:
(P
Calculate the total for current assets as at 31 January 20.7.
Calculate the total for non-current assets as at 31 January 20.7.
Calculate the total for current liabilities as at 31 January 20.7.
Calculate the total for non-current liabilities as at 31 January 20.7.
Calculate the net profit for the year ended 31 January 20.7.
There are two methods by which owner’s equity can be calculated.
Show the calculation of owner’s equity using both accepted methods.
at
io
n
5.1
5.2
5.3
5.4
5.5
5.6
(2 ½)
(2)
(1 ½)
(1)
(11)
(7)
Ed
uc
[25]
Proposed solutions:
E
5.5
R 7 401 ^ + R 12 809 ^ + R 1 565 ^ + R 7 828 ^ + R 3 843 ^ = R 33 446
R 426 975 ^ + R 227 720 ^ + R 344 426 ^ + R 34 158 ^ = R 1 033 279
R 15 086 ^ + R 40 847 ^ + R 10 390 ^ = R 66 323
R 485 670 
G
5.1
5.2
5.3
5.4
©
ED
Sales
^ R 426 975
Sales returns
^ R 34 158
Cost of sales
^ R 170 790
Rent income
^ R 34 158
Interest income
^ R 15 940
Service income
^ R 99 627
Rent expense
^ R 25 334
Credit losses
^ R 3 473
Wages and salaries
^ R 64 046
Cleaning materials
^ R 6 091
481
Stationery
^ R 6 860
Internet service expense
^ R 6 660
Electricity
^ R 6 974
Rates and services
^ R 7 287
Delivery expense
^ R 3 444
Bank charges
^ R 2 790
Telephone and fax
^ R 7 287
() R 576 700
Total expenses
() (R 345 194)
(P
Total income
Net profit
(^) R 231 506
Method 1: By using the accounting equation
at
io
n
5.6
R 576 700
ty
)
R 345 194
Lt
d
Annexure B
Owner’s equity = Assets – Liabilities
Ed
uc
Owner’s equity = (R 33 446 + R 1 033 279) () – (R 66 323 + R 485 670) ()
= R 514 732 ()
Method 2: By using equity accounts
Capital
Add: Net profit
E
Less: Drawings
©
ED
G
Owner’s equity
482
 R 284 650
() R 231 506

(1 424)
() R 514 732
[25]
Revision questions
Revision question 6 (Learning Unit 3)
Note: Where applicable, assume a standard VAT rate of 15%.
C
D
E
6.2
(P
at
io
n
B
If the consideration for the supply is more than R 5 000 (including tax) a
full tax invoice must be issued.
If the consideration for the supply is more than R 50 but does not exceed
R 5 000 (including VAT), an abridged tax invoice may be issued, except
when that supply is a zero-rated supply.
If the consideration for the supply is less than R 50, a tax invoice does
not have to be issued.
If the commissioner is satisfied that it is impractical to issue a full tax
invoice in respect of a particular transaction and that there are sufficient
other records available, the commissioner may not need a tax invoice to
be issued or certain particulars need not be reflected on the tax invoice.
All of the above statements are correct.
Ed
uc
A
ty
)
The VAT Act identifies different transactions that each requires different types
of tax invoices. Which of the following statements is/are true?
By erroneously debiting the cost of an office computer to postage and
stationery (instead of the asset account), the accountant will effectively _____.
be understating the net profit of the business
be overstating the net profit of the business
be overstating the gross profit of the business
be understating the gross profit of the business
ED
G
A
B
C
D
E
6.1
Lt
d
Choose the most appropriate alternative from the options provided for each of the
following questions. Write down only the letter of your choice next to the corresponding
number. For example 6.1 E.
©
6.3
Which one of the following statements with respect to VAT is false?
A
B
C
D
The buyer of zero-rated supplies will not get any refund from SARS for
buying such an item.
If a vendor sells only VAT exempt supplies, it may not register for VAT.
There is no indication of a VAT charge next to a zero-rated item listed on
an invoice.
In general, no input VAT claim is allowed by SARS on the purchase of a
‘double-cab’ delivery vehicle.
483
Annexure B
The following accounts are classified as proprietary accounts in the books of
a sole proprietorship:
A
B
C
D
6.6
his equity in the business has increased.
his equity in the business has decreased.
his equity in the business has remained unchanged.
the profit of the business has increased.
A non-VAT vendor sells an item that cost them R 570, for R 1 140. The sales
transaction causes owner’s equity to _____
decrease by R 500.
increase by R 500.
decrease by R 570.
increase by R 570.
E
A
B
C
D
A registered VAT vendor sells an item that cost them R 575, for R 1 150. The
sales transaction causes owner’s equity to _____
G
6.7
(P
ty
)
A sole trader transfers R 50 000 from his private bank account to his business’s
bank account. The business entity principle states that, although the owner
is not any richer or poorer as a person, the bookkeeper or accountant must
make an entry in the books showing that _____
at
io
n
6.5
‘Sales’ and ‘Cost of sales’
‘Bank’ and ‘Capital’
‘Capital’ and ‘Drawings’
‘Input VAT’ and ‘Output VAT’
Lt
d
A
B
C
D
Ed
uc
6.4
decrease by R 500.
increase by R 500.
decrease by R 570.
increase by R 570.
©
ED
A
B
C
D
6.8
The VAT amount (charged at 15%) included in R 342, amounts to _____
A
B
C
D
484
R 342.
R 300.
R 44.61.
R 47.88.
Revision questions
Which one of the following transactions will not cause a decrease in the
business’s bank balance?
6.11
(P
The proper name for a ‘cheque stub’ is a _____
A
B
C
D
6.12
Rent income
Rent expense
Capital contributions in cash by the owner
Cash sales
at
io
n
A
B
C
D
ty
)
Which one of the following transactions will not cause an increase in the
business’s bank balance?
receipt.
payee.
drawer document.
cheque counterfoil.
Ed
uc
6.10
Drawings of stationery by the owner
Interest on bank overdraft
A cash cheque drawn for wages
An EFT made from the current bank account
Lt
d
A
B
C
D
Most suppliers will prefer payment via EFT transfer from their debtors to
payment by cheque, because _____
cheques can still be dishonoured by the bank after being deposited.
once the EFT deposit appears on the bank statement, the funds are
cleared.
There is a security risk of holding a cheque.
All of the above.
G
A
B
E
6.9
ED
C
D
©
6.13
A business with an expected turnover of R 600 000 for the coming year _____
A
B
C
D
may voluntarily register as a VAT vendor.
is obliged to register as a VAT vendor.
will automatically be deregistered for VAT once the actual amount
exceeds R 600 000.
may not register as a VAT vendor at all.
485
Annexure B
If a business’s output VAT exceeds input VAT for a specific period _____
A
B
C
D
A manufacturer sells his final product for R 100 plus VAT (@ 15%) to a
wholesaler. The wholesaler sells the product at a mark-up of 50% above
cost to the manufacturer. If the retailer’s mark-up on cost is 25%, the final
consumer will pay _____ (including VAT).
R 215.63
R 187.50
R 243.68
R 171.00
©
486
E















G
E
A
C
C
A
D
B
C
A
B
D
D
A
C
A
ED
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
6.10
6.11
6.12
6.13
6.14
6.15
Ed
uc
Proposed solutions:
at
io
n
A
B
C
D
(P
ty
)
6.15
the business owes SARS the output VAT amount.
the business owes SARS the input VAT amount.
the business owes SARS the difference.
SARS owes the business the difference.
Lt
d
6.14
Revision questions
Revision question 7 (Learning Units 2 and 3)
Lt
d
The following are miscellaneous transactions for Morrorex Suppliers for January 20.9.
Ignore VAT. The business uses the perpetual inventory method with a mark-up of 55%
on cost.
Transaction details
1
The owner took clothing from trading inventory for personal use, selling price =
R 1 254.00.
Credit sales of trading inventory, selling price = R 17 450.00.
A debtor returned some of the goods purchased from Morrorex Suppliers on
27 January 20.9. The selling price of the goods in question was R 700.00.
27
28
(P
ty
)
Date
at
io
n
Required:
Show how the transactions will affect the accounting equation and enter how the
accounts in the general ledger will be affected. Example: Received a capital contribution
of R 110 000.00 in the form of cash:
e.g.
Assets (R)
+
110 000.00
Dr Bank
= Owner’s equity (R)
+
Liabilities (R)
Ed
uc
Date
+ 110 000.00
Cr Capital
[20]
–
809.03 
ED
1
Assets (R)
G
Date
E
Proposed solution:
©
27
28
=
Owner’s equity (R)
-
809.03 (^)
Cr
Trading inventory 
Dr
Drawings 
+
17 450.00 ^
+
17 450.00 ^
Dr
Debtors control 
Cr
Sales 
–
11 258.06 
-
11 258.06 (^)
Cr
Trading inventory 
Dr
Cost of sales 
–
700.00 ^
-
700.00 ^
Cr
Debtors control 
Dr
Sales returns 
+
451.61
+
451.61 ()
Dr
Trading inventory 
Cr
Cost of sales 
+
Liabilities (R)
[20]
487
Annexure B
Revision question 8 (Learning Unit 2)
Lt
d
The following are miscellaneous transactions for Thembi’s Stores for June 20.9. Ignore
VAT. The business uses the perpetual inventory method with a mark-up of 40% on cost.
Transaction details
1
The owner took clothing from trading inventory for personal use, selling price =
R 750.00.
Paid the short-term insurance premium by debit order, R 4 000.00.
Purchased an office computer on credit from Hammer-Land (Pty) Ltd,
R 12 200.00.
Cash sales of trading inventory, selling price = R 21 470.00.
7
12
15
(P
ty
)
Date
Assets (R)
at
io
n
Required:
=
Owner’s equity (R)
110 000.00
+
110 000.00
Date
e.g.
+
Dr Bank
Ed
uc
Show how the transactions will affect the accounting equation and enter how the
accounts in the general ledger will be affected. Example: Received a capital contribution
of R 110 000.00 in the form of cash:
+
Liabilities (R)
Cr Capital
[20]
Date
Assets (R)
©
7
12
15
488
=
Owner’s equity (R)
–
535.71 
–
535.71 
Cr
Trading inventory 
Dr
Drawings 
ED
1
G
E
Proposed solution:
+
Liabilities (R)
–
4 000.00 
–
4 000.00 
Cr
Bank 
Dr
Insurance 
+
12 200.00 
+
12 200.00 
Dr
Equipment 
Cr
Creditors control 
+
21 470.00 
+
21 470.00 
Dr
Bank 
Cr
Sales 
–
15 335.71 
–
15 335.71 
Cr
Trading inventory 
Dr
Cost of sales 
[20]
Revision questions
Revision question 9 (Learning Unit 2)
Lt
d
The following are miscellaneous transactions for Venture Stores for September 20.9.
Ignore VAT. The business uses the perpetual inventory method with a mark-up of 40%
on cost.
Transaction details
1
The owner took clothing from trading inventory for personal use, selling price =
R 616.00.
Credit sales of trading inventory, selling price = R 19 950.00.
A debtor returned some of the goods purchased from Venture Stores on
27 August 20.9. The cost price of the goods in question was R 1 200.00.
7
28
(P
ty
)
Date
at
io
n
Required:
Show how the transactions will affect the accounting equation and enter how the
accounts in the general ledger will be affected. Example: Received a capital contribution
of R 205 000.00 in the form of cash:
e.g.
Assets (R)
+
205 000.00
Dr Bank
=
Owner’s equity (R)
+ Liabilities (R)
Ed
uc
Date
+
205 000.00
Cr Capital
[20]
–
440.00 
–
440.00 ^
Cr
Trading inventory 
Dr
Drawings 
+
19 950.00 
+
19 950.00 
Dr
Debtors control 
Cr
Sales 
–
14 250.00 
–
14 250.00 
Cr
Trading inventory 
Dr
Cost of sales 
–
1 680.00 ^
–
1 680.00 ^
Cr
Debtors control 
Dr
Sales returns 
+
1 200.00 
+
1 200.00 ()
Dr
Trading inventory 
Cr
Cost of sales 
ED
1
=
Assets (R)
G
Date
E
Proposed solution:
©
7
28
Owner’s equity (R)
+
Liabilities (R)
[20]
489
Annexure B
Revision question 10 (Learning Units 2 and 3)
Lt
d
The following are miscellaneous transactions for Thembi’s Stores for June 20.9. Ignore
VAT. The business uses the periodic inventory method.
Transaction details
1
The owner took clothing from trading inventory for personal use, cost price =
R 504.00.
Paid the short-term insurance premium by debit order, R 3 500.00.
Purchased an office computer on credit from Hammer-Land (Pty) Ltd,
R 12 900.00.
Cash sales of trading inventory, selling price = R 19 830.00.
(P
15
at
io
n
7
12
ty
)
Date
Required:
Date
e.g.
+
Ed
uc
Show how the transactions will affect the accounting equation and enter how the
accounts in the general ledger will be affected. Example: Received a capital contribution
of R 110 000.00 in the form of cash:
Assets (R)
=
Owner’s equity (R)
110 000.00
+
110 000.00
E
Dr Bank
+ Liabilities (R)
Cr Capital
©
ED
G
[20]
490
Revision questions
Proposed solution:
Date
Assets (R)
–
504.00 
–
504.00 
Cr
Purchases 
Dr
Drawings 
–
3 500.00 
–
3 500.00 
Cr
Bank 
Dr
Insurance 
+
12 900.00 
+
12 900.00 
Dr
Equipment 
Cr
Creditors control 
+
19 830.00 
+
19 830.00 
Dr
Bank 
Cr
Sales 
[20]
at
io
n
15
Liabilities (R)
Lt
d
12
+
ty
)
7
Owner’s equity (R)
(P
1
=
Revision question 11 (Learning Units 2 and 3)
Ed
uc
The following are miscellaneous transactions for Thandi’s Stores for June 20.9. Ignore
VAT. The business uses the perpetual inventory method with a mark-up of 40% on cost.
Transaction details
1
The owner took clothing from trading inventory for personal use, selling price =
R 1 350.00.
Paid the short-term insurance premium by debit order, R 2 900.00.
Purchased an office computer on credit from Hammer-Land (Pty) Ltd,
R 9 750.00.
Cash sales of trading inventory, selling price = R 25 390.00.
ED
15
G
7
12
E
Date
Required:
©
Show how the transactions will affect the accounting equation and enter how the
accounts in the general ledger will be affected. Example: Received a capital contribution
of R 110 000.00 in the form of cash:
491
Annexure B
Date
e.g.
+
Assets (R)
=
Owner’s equity (R)
110 000.00
+
110 000.00
Dr Bank
+
Liabilities (R)
Cr Capital
Lt
d
[20]
15
–
964.29 
–
964.29 
Cr
Trading inventory 
Dr
Drawings 
–
2 900.00 
–
2 900.00 
Cr
Bank 
Dr
Insurance 
+
9 750.00 
Dr
Equipment 
+
25 390.00 
+
25 390.00 
Dr
Bank 
Cr
Sales 
–
18 135.71 
–
18 135.71 
Cr
Trading inventory 
Dr
Cost of sales 
Liabilities (R)
+
9 750.00 
Cr
Creditors control 
[20]
Revision question 12 (Learning Unit 4)
ED
G
12
+
at
io
n
12
Owner’s equity (R)
Ed
uc
7
=
E
1
Assets (R)
(P
Date
ty
)
Proposed solution:
©
You are the bookkeeper of Burtons Traders. The business is a registered VAT vendor
and trades only with registered VAT vendors. The business charges 15% VAT on all
its sales. All amounts are inclusive of VAT unless VAT is not applicable. The business
uses the periodic inventory system. ‘CINV’, ‘DCR’, ‘DS’, ‘DR’, ’JV’ and ‘PCV’ are the
source document codes for duplicate invoices, duplicate credit notes, duplicate cash
slips, duplicate receipts, journal vouchers and petty cash vouchers respectively. The
business does not expect​​to award any settlement discounts or qualify for any settlement
discounts. All​o
​ ccurrences of settlement discounts are therefore incidental in nature.
492
Revision questions
Source documents of Burtons Traders for the month of April 20.9
Date
Details
Source
document
no.
1
J. Jock (the owner)
DR510
Additional capital contribution in cash.
2
A. Lad
CINV432
Sale of trading inventory.
8
J. Jed
DS325
Sale of trading inventory.
12
S. Norm
CINV433
12
J. Jock
JV310
13
S. Norm
DCR230
Trading inventory returned.
15
Share-City
DS326
Received a dividend from Share-City.
906.30
18
Pack Land
PCV134
Petty cash payment for tape and boxes.
295.66
19
F. Tedd
CINV434
Sale of trading inventory.
21
R. Tedd
DS327
21
J. Jock
JV312
22
Ross’s Cafe
24
Fish Suppliers
25
G. Gosh
25
ALL Save Stationers
26
G. Gosh
26
S. Norm
Description
Amount (R)
Lt
d
81 396.00
75 753.00
?
at
io
n
(P
ty
)
Sale of trading inventory: R 23 648.94 less a 6%
trade discount.
J. Jock contributed a motor vehicle to the business.
(All legislative requirements have been met for the
full VAT amount to be claimed.)
Ed
uc
Sale of trading inventory: R 18 653.25 less a 4%
trade discount.
Drawings of trading inventory with a selling price
including VAT of R 1 710.00. The mark-up on the
cost of these goods was 50%.
126 027.00
1 111.50
67 203.00
?
?
Petty cash payment for tea and coffee.
DS328
Received the rent income from Fish Suppliers.
8 406.36
CINV435
Sale of trading inventory.
64 125.00
PCV136
Petty cash payment for stamps.
DCR231
Trading inventory returned.
4 168.13
Received a cheque from S. Norm (no discount)
– payment on account. (Balance owing at the
beginning of the month: R 2 838.00.)
6 947.35
84 303.00
G
27
R. Belt
DS329
Sale of trading inventory.
27
J. Jock
PCV137
Drawings from petty cash by the owner.
©
E
PCV135
DR511
28
F. Tedd
DCR232
Trading inventory returned.
30
F. Tedd
DR512
30
A. Lad
JV313
30
G. Gosh
JV315
ED
82 080.00
Received from F. Tedd less a 4% settlement
discount. (Balance owing at the beginning of the
month: R 14 785.00.)
Credit loss – amount owing by A. Lad written off as
irrecoverable. (Balance owing at the beginning of
the month: R 12 209.00.)
Interest charged by Burtons Traders on the overdue
account of G. Gosh.
270.01
153.90
803.70
2 688.12
?
?
752.40
493
Annexure B
F. Tedd
JV316
30
N/A
JV317
4% settlement discount allowed to F. Tedd for
settlement of the account.
(Refer to duplicate receipt no. DR512.)
It was realised that furniture and fittings
purchased for R 10 534.97 during March 2009
was erroneously debited to the cleaning materials
account. Correct the error.
?
?
Lt
d
30
ty
)
Required:
(P
The following cash journals for April 20.9 are the result of the aforementioned
transactions. Find the missing amounts and/or descriptions / account names denoted
by the variables A – L:
Cashbook receipts of Burtons Traders – April 20.9
1
DS325
8
DS326
15
21
DS328
24
DR511
26
DS329
27
DR512
30
J. Jock
J. Jed / Cash
sales
Share-City
R. Tedd /
Cash sales
Fish
Suppliers
S. Norm
R. Belt /
Cash sales
ED
©
494
Analysis of
receipts
Debtors
Bank
VAT output
control
82 080.00
82 080.00
75 753.00
75 753.00
9 880.83
906.30
906.30
17 907.12
17 907.12
2 335.71
8 406.36
8 406.36
A
6 947.35
6 947.35
84 303.00
84 303.00
F. Tedd
G
DS327
Fol.
at
io
n
DR510
Details
Ed
uc
no.
Date
E
Doc.
?
Sundries
Sales
Amount
82 080.00
Fol.
Details
Capital
65 872.17
906.30
Dividend
received
15 571.41
B
C
6 947.35
10 996.04
73 306.96
E
154 750.54
90 296.18
Credit VAT
Credit sales
Credit the individual a/c’s in the
output a/c
a/c
sundries column
D
352 431.01
?
Credit
F
CBR4
debtors
control a/c
Revision questions
Petty cash journal of Burtons Traders – April 20.9
Petty cash
Tea and
refreshments
Sundries
VAT input
Amount
25
Stamps
153.90
27
Cash
803.70
1 523.27
Credit petty
Proposed solutions:
133.83
20.07
K
133.83
270.01
Debit postage
Debit office
& stationery
refreshments
a/c
a/c
58.63
Fol.
Details
Packing
materials
L
1 060.80
Debit VAT
Debit the individual a/c’s in the
input a/c
sundries column
at
io
n
cash a/c
257.10
J
270.01
coffee
PCV136
R 1 096.48
B
R 7 309.88
C
Rent income / Rent received
D
R 76 127.88
E
R 24 309.06
F
Debit ‘Bank’ account
G
Tape and boxes
H
R 295.66
I
PCV135
G
E
Ed
uc
A
R 270.01
R 803.70
ED
K
Staff
stationery
38.56
PCV137
J
Postage and
H
G
18
22
Fol.
Lt
d
I
Details
ty
)
PCV134
Date
(P
Doc. no.
PCJ4
Drawings
©
L
495
Annexure B
13
Revision question 13 (Learning Unit 5)
at
io
n
(P
ty
)
Lt
d
You are the bookkeeper of The Plant Supplier. The business is a registered VAT vendor
and trades only with registered VAT vendors. The business charges 15% VAT on all its
sales. All amounts are inclusive of VAT unless VAT is not applicable. As the bookkeeper
you have been provided with only the source documents for the month of October
20.9 necessary for the preparation of the journals specified. The business uses the
perpetual inventory system and uses different mark-ups for different products that
they sell. ‘DIN’, ‘DCN’, ‘DCS’, ‘RT’, ‘JV’ and ‘PC’ are the source document codes for
duplicate invoices, duplicate credit notes, duplicate cash slips, duplicate receipts,
journal vouchers and petty cash vouchers respectively. The business does not expect to
award any settlement discounts or qualify for any settlement discounts. All occurrences
of settlement discounts are therefore incidental in nature.
Source documents of The Plant Supplier for the month of October 20.9
Date
Source
document no.
Details
Description
Amount
(R)
1
T. Murphy
(the owner)
2
A. Fourie
8
R. Moore
12
H. Howard
12
T. Murphy
JV320
H. Howard
DCN65
Trading inventory returned (refer to DIN591).
15
DOL
DCS188
Received an SDL rebate from DOL.
4 570.80
19
G. Goodman
DIN592
Sale of trading inventory. The mark-up on this
trading inventory was 30% on cost.
34 544.70
21
F. Todd
DCS189
21
T. Murphy
JV321
©
496
Additional capital contribution in cash.
Ed
uc
E
G
ED
13
RT453
DIN590
DCS187
DIN591
Sale of trading inventory. The mark up on this
trading inventory was 60% on selling price (i.e. the
gross margin was 60%).
Sale of trading inventory. The mark-up on this
trading inventory was 20% on cost.
Sale of trading inventory: R 11 903.13 less a 4%
trade discount. The mark-up on cost before the
discount was 40%.
T. Murphy contributed equipment to the business.
(All legislative requirements have been met for the
full VAT amount to be claimed.)
Sale of trading inventory: R 39 097.19 less a 4%
trade discount. The goods were marked up by 25%
on cost before the trade discount was allowed.
Drawings of trading inventory with a selling price
including VAT of R 879.00. The mark-up on cost
was 30%.
175 800.00
41 840.40
38 939.70
?
10 548.00
571.35
?
?
Revision questions
Description
Amount
(R)
Kurkam Traders
DCS190
Received the business rent from Kurkam Traders.
3 748.06
25
L. Rob
DIN593
Sale of trading inventory. The mark-up on this
trading inventory was 60% on selling price (i.e. the
gross margin was 60%).
32 962.50
26
L. Rob
DCN66
Trading inventory returned (refer to DIN593).
2 142.56
26
H. Howard
RT454
27
S. Sugarray
DCS191
28
G. Goodman
DCN67
30
G. Goodman
RT455
31
A. Fourie
JV322
31
L. Rob
JV323
31
G. Goodman
31
N/A
JV324
(P
Trading inventory returned (refer to DIN592).
Received from G. Goodman less a 3% settlement
discount. (Balance owing at the beginning of the
month: R 3 800.00.)
Credit loss – amount owing by A. Fourie written off
as irrecoverable. (Balance owing at the beginning
of the month: R 2 510.42.)
Interest charged by The Plant Supplier on the
overdue account of L. Rob.
3% settlement discount allowed to G. Goodman
for settlement of the account. (Refer to duplicate
receipt no. RT455.)
It was realised that furniture purchased for
R 1 338.54 during September 20.9 was erroneously
debited to the packing materials account. Correct
the error.
43 334.70
1 381.79
?
?
386.76
?
?
E
JV325
3 493.33
ty
)
Received a cheque from H. Howard (no discount)
– payment on account. (Balance owing at the
beginning of the month: R 1 190.00.)
Sale of trading inventory. The inventory was marked
up by 30% on selling price (i.e. the gross margin
was 30%).
at
io
n
24
Ed
uc
Details
Lt
d
Source
document no.
Date
ED
G
You have recorded the transactions correctly in the debtors journal, debtors allowances
journal, cashbook receipts journal and general journal for the business for the month of
October 20.9 as follows:
©
(Note: Selected information has been omitted.)
497
Annexure B
Debtors journal of The Plant Supplier – October 20.9
DJ10
Cost of
sales
5 457.44
A
B
11 427.00
1 490.48
9 936.52
C
G. Goodman
34 544.70
4 505.83
30 038.87
L. Rob
32 962.50
E
28 663.04
120 774.60
15 753.21
105 021.39
56 518.47
Credit output
VAT a/c
Credit sales a/c
Debit cost of sales
a/c and credit trading
inventory a/c
Details
Folio
DIN590
2
A. Fourie
41 840.40
DIN591
12
H. Howard
IN592
19
DIN593
25
Output
VAT
Debtors control
(P
Debit debtors
control a/c
D
11 465.22
ty
)
Date
Lt
d
Sales
Inv. no.
Doc. no.
Day
Details
DCN65
13
H. Howard
DCN66
26
DCN67
28
Folio
at
io
n
Debtors allowances journal of The Plant Supplier – October 20.9
Debtors
control
Cost of
Sales
496.83
F
L. Rob
2 142.56
279.46
1 863.10
G
H
1 381.79
180.23
1 201.56
924.27
I
534.21
3 561.49
2 039.17
Ed
uc
74.52
E
G
ED
©
Sales
returns
571.35
Credit debtors
control a/c
498
Input
VAT
DAJ10
Debit input VAT
a/c
Debit sales
returns a/c
Credit cost of
sales a/c and debit
trading inventory a/c
Revision questions
Cashbook receipts for The Plant Supplier – October 20.9
1
DCS187
Bank
T. Murphy
175 800.00
175 800.00
8
R. Moore
38 939.70
38 939.70
DCS188
15
DOL
4 570.80
4 570.80
DCS189
21
F. Todd
37 533.30
37 533.30
4 895.65
DCS190
24
Kurkam
Traders
3 748.06
3 748.06
488.88
RT454
26
H. Howard
3 493.33
3 493.33
DCS191
27
S. Sugarray
43 334.70
43 334.70
RT455
30
O
35 854.02
35 854.02 35 854.02
Debtors
control
Output
VAT
Sundries
Amount
Fol.
175 800.00
5 079.09
33 860.61
Details
K
L
4 570.80
32 637.65
SDL rebate
(i) 27 198.05
3 259.18
3 493.33
5 652.35
Cost of
sales
Sales
M
N
at
io
n
Fol.
Lt
d
J
Analysis of
receipts
Details
ty
)
Day
(P
Doc
no.
CBR10
(ii) 26 377.64
343 273.91 39 347.35 16 115.97 104 180.61 183 629.98
Credit
Debtors
control
a/c
Credit
output
VAT a/c
Credit
sales a/c
Debit cost
of sales a/c
and credit
trading
inventory
a/c
Credit the individual a/c’s in
the sundries column
Ed
uc
Not posted
Debit bank
to the
a/c
General
ledger
81 792.87
Calculations (only shown for illustrative purposes):
(i)
(ii)
R 39 097.19 ÷ 1.15 ÷ 1.25 = R 27 198.05.
R 43 334.70 ÷ 1.15 = R 37 682.35. Then: R 37 682.35 – 30% = R 26 377.64
12
Details
Equipment
ED
JV320
Date
G
Doc.
no.
E
General journal of The Plant Supplier – October 20.9
GJ10
Fol.
Debit
Credit
9 172.17
P
1 375.83
Capital
10 548.00
©
(Owner contributed equipment)
JV321
21
Drawings
(i) 676.15
Output VAT
Trading inventory
88.19
Q
(Owner took goods for own use)
499
Annexure B
JV322
R
31
38 565.93
Input VAT
5 784.89
Debtors control (A. Fourie)
44 350.82
JV323
31
Lt
d
(Amount written off as irrecoverable)
Debtors control (L. Rob)
386.76
Interest income
386.76
JV324
ty
)
(Interest on overdue account)
S
31
964.25
T
Debtors control (G. Goodman)
JV325
31
Furniture
V
W
R 879.00 ÷ 1.30 = R 676.15.
U
1 163.95
1 163.95
Ed
uc
(i)
at
io
n
(Settlement discount of 3%)
(P
144.64
Required:
Find the answers for the missing pieces of information denoted by the letters A – W.
Show your calculations where applicable.
G
E
[50]
ED
Proposed solutions:
No.
A
Calculation/notes
R 41 840.40 ÷ 1.15 OR:
Answer
R 36 382.96 
©
R 41 840.40 – R 5 457.44 OR:
R 105 021.39 – 9 936.52 – 30 038.87 – 28 663.04
B
500
Since the mark-up is expressed as a gross margin
(i.e. a mark-up on selling price), the cost of sales
can be calculated as follows: R 36 382.96 – 60% =
R 14 553.18.
R 14 553.18 
Revision questions
The mark-up is given as 40% on cost before trade
discounts. The cost of sales can therefore be calculated
as follows: R 11 903.13 ÷ 1.15 ÷ 1.40 = R 7 393.25.
In other words, calculate what the amount in the sales
column would have been had there been no trade
discount. Then, calculate the cost of sales amount from
this hypothetical figure.
R 7 393.25 
D
R 30 038.87 ÷ 1.30 = R 23 106.82. This can also be
calculated as follows: R 34 544.70 ÷ 1.15 ÷ 1.30 =
R 23 106.82. Both answers will therefore be accepted.
R 23 106.82 
E
R 32 962.50 × 15 ÷ 115 OR: R 32 962.50 – R 28 663.04
OR: R 28 914.47 × 15%
F
Remember that the R 571.35 given is the VAT inclusive
amount of the credit note.
ty
)
Lt
d
C
R 4 299.46 
(P
R 369.66 
Ed
uc
at
io
n
The credit note links back to DIN591, which means it
is an inclusive amount that has been discounted by
4% already. If the amount before the discount was x,
then 1x – 0.04 = 571.35. Thus: 0.96x = 571.35; thus:
x = 571.35 ÷ 0.96 = R 595.16. Remember to calculate
the cost price of an invoice or credit note, we need to
have the marked selling price before discount first.
This amount was R 595.16 in this particular instance.
What this means is that the inclusive amount of the
credit note would have been R 595.16 had there
been no discount. Now, to calculate the cost of sales:
R 595.16 ÷ 1.15 ÷ 1.40 = R 369.66.
R 1 863.10 – 60% OR R 1 863.10 × 40%
H
Name of debtor is entered under ‘Details’
I
R 3 561.49 + R 534.21 OR:
G
E
G
R 745.24 
G. Goodman 
R 4 095.70 
R 571.35 + R 2 142.56 + R 1 381.79
Source document number goes in here
RT453 
K
Name of account to be credited goes in here. Owner
made a capital contribution.
Capital 
L
The mark-up is on cost price. Cost of sales can
therefore be calculated as follows:
R 28 217.18 
©
ED
J
R 33 860.61 ÷ 1.20 = R 28 217.18.
M
Name of account to be credited is entered under
‘Details of sundries’.
N
R 43 334.70 ÷ 1.15
Rent received 
OR
Rent income
R 37 682.35 
501
Annexure B
Name of entity from which the money was received
goes in here
G. Goodman 
P
Account to be debited. According to the information
provided, a VAT claim was allowed by SARS.
Input VAT 
Q
R 676.15 ÷ 1.15 OR:
R 587.96 
Lt
d
O
R 676.15 – R 88.19
R
n/a
Credit losses 
S
Name of account to be debited
T
n/a
U
R 964.25 × 1.15 OR:
Sales 
ty
)
Input VAT 
R 1 108.89 
(P
R 964.25 + R 144.64
OR: (R 3 800.00 [opening balance] + 34 544.70 [day 19]
– 1 381.79 [day 28]) × 3%
Account to be credited
W
Narration for the transaction
Packing material 
at
io
n
V
Correction of 
error
[50]
E
Revision question 14 (Learning Unit 5)
G
14
Ed
uc
(Note to marker: No marks are given for calculations. These are merely provided
as feedback to the learner.)
©
ED
You are the bookkeeper of Jericco Suppliers. The business is a registered VAT vendor
and trades only with registered VAT vendors. The business charges 15% VAT on all its
sales. All amounts are inclusive of VAT unless VAT is not applicable. As the bookkeeper
you have been provided with only the source documents for the month of March
necessary for the preparation of the journals specified. The business uses the perpetual
inventory system and trading inventory is marked up by 52% on cost price (before any
given trade discounts) unless otherwise specified. ‘DINV’, ‘DCRN’, ‘DCS’, ‘DR’, and ‘JV’
are the source document codes for duplicate invoices, duplicate credit notes, duplicate
cash slips, duplicate receipts, and journal vouchers respectively. The business does not
expect to award any settlement discounts or qualify for any settlement discounts. All
occurrences of settlement discounts are therefore incidental in nature.
502
Revision questions
Source documents of Jericco Suppliers for the month of March 20.9:
Date
Source
document no.
Details
Description
Amount (R)
K. Ndlovu
DR805
Additional capital contribution in cash.
73 677.60
2
R. Sulley
DINV727
Sale of trading inventory. The mark up on this trading
inventory was 55% on cost price.
73 063.62
8
K. Lund
DCS620
Sale of trading inventory.
67 998.29
12
W. Warren
DINV728
12
K. Ndlovu
JV605
13
W. Warren
DCRN525
Trading inventory returned.
997.72
15
D. Fourie
DCS621
Interest received on fixed deposit from D. Fourie.
813.52
19
U. Long
DINV729
Sale of trading inventory.
Lt
d
1
?
at
io
n
(P
ty
)
Sale of trading inventory: R 21 689.51 less a 8%
trade discount.
K. Ndlovu contributed a motor vehicle to the business.
(All legislative requirements have been met for the
full VAT amount to be claimed.)
Sale of trading inventory: R 17 100.00 less a 6%
trade discount.
Drawings of trading inventory with a selling price
including VAT of R 1 534.95.
113 125.82
60 323.54
?
R. Tall
DCS622
21
K. Ndlovu
JV607
24
A. Hood
DCS623
Received the rent income from A. Hood.
7 545.81
25
L. Gotcha
DINV730
Sale of trading inventory. The mark up on goods
was 58% on selling price (i.e. the gross margin was
58%).
57 560.63
26
L. Gotcha
DCRN526
Trading inventory returned.
3 741.44
26
W. Warren
DR806
27
W. Yale
DCS624
28
U. Long
DCRN527
30
U. Long
DR807
31
R. Sulley
JV608
31
L. Gotcha
JV610
©
ED
G
E
Ed
uc
21
Received a cheque from W. Warren (no discount)
– payment on account. (Balance owing at the
beginning of the month: R 2 603.00.)
Sale of trading inventory. The inventory was marked
up by 40% on selling price (i.e. the gross margin
was 40%).
Trading inventory returned.
Received from U. Long less a 5% settlement discount.
(Balance owing at the beginning of the month:
R 13 271.00.)
Credit loss – amount owing by R. Sulley written off
as irrecoverable. (Balance owing at the beginning of
the month: R 10 960.00.)
Interest charged by Jericco Suppliers on the overdue
account of L. Gotcha.
?
6 252.22
75 673.04
2 412.94
?
?
675.38
503
Annexure B
U. Long
JV611
31
N/A
JV612
5% settlement discount granted to U. Long for
settlement of the account. (Refer to duplicate receipt
no. DR807.)
It was realised that furniture and fittings purchased
for R 9 456.52 during February 20.9 was erroneously
debited to the office consumables account. Correct
the error.
?
?
Lt
d
31
ty
)
Required:
(P
Use the relevant transactions from those given to complete only the Debtors journal and
the General journal of Jericco Suppliers for the month of March 20.9.
Note:
Although the source documents relating to the Debtors journal, Debtors allowances
journal, and Cashbook receipts have been provided, you are not required to
complete these journals. However, you need to take the transactions that relate
to these journals into account (where applicable) when drawing up the Debtors
journal and General journal (thus, although you are not required to show how these
transactions should be recorded, you still need to assume that they existed in
determining your entries for the General journal, in particular).
All amounts are inclusive of VAT, unless VAT is not applicable.
Ed
uc
at
io
n
•
•
[50]
E
Proposed solution:
DJ3
ED
G
Debtors journal of Jericco Suppliers – March 20.9
Debtors
control
Output VAT
R. Sulley ^
73 063.62 ^
9 530.04 ^ 63 533.58 ^
40 989.41 
12
W. Warren ^
19 954.35 ^
2 602.74 ^ 17 351.61 ^
12 408.19 
DINV729 ^
19
U. Long ^
60 323.54 ^
7 868.29 ^ 52 455.25 ^
34 510.03 
DINV730 ^
25
L. Gotcha ^
57 560.63 ^
7 507.91 ^ 50 052.72 ^
21 022.14 
210 902.14
27 508.98
Date
Details
DINV727 ^
2
DINV728 ^
©
Doc. no.
Fol.
Sales
183 393.16
Cost of sales
108 929.77 ()
(20)
504
Revision questions
General journal of Jericco Suppliers – March 20.9
Date
JV605
12
Details
Fol.
Debit
Credit
Vehicles 
98 370.28 
Input VAT 
14 755.54 
Capital 
113 125.82 
(Owner contributed motor vehicle) 
JV607
21
Drawings 
1 009.84 
131.72 ()
Trading inventory 
878.12 
(Owner took goods for own use) 
31
Credit losses 
73 064.02 
Input VAT 
(P
JV608
ty
)
Output VAT 
Lt
d
Doc. no.
GJ3
10 959.60 ()
Debtors control (R. Sulley) 
84 023.62 
JV610
31
at
io
n
(Amount written off as irrecoverable) 
Debtors control (L. Gotcha) 
Interest income 
675.38 ^
675.38 ^
(Interest on overdue account) 
31
Sales 
Ed
uc
JV611
Input VAT 
3 094.85 
464.23 ()
Debtors control (U. Long) 
3 559.08 
(Settlement discount granted of 5%) 
JV612
31
Furniture and fittings 
Office consumables 
8 223.06 
8 223.06 
G
E
(Correction of error) 
(30)
[50]
©
ED
(Note to marker: No marks are given for calculations. These are merely provided
as feedback to the learner.)
505
Annexure B
Revision question 15 (Learning Unit 6)
15
(P
ty
)
Lt
d
You are the bookkeeper of Delvie Suppliers. The business is a registered VAT vendor
and trades only with registered VAT vendors. The business charges 15% VAT on all its
sales. All amounts are inclusive of VAT unless VAT is not applicable. As the bookkeeper
you have been provided with only the source documents for the month of January 20.9
necessary for the preparation of the journals specified. The business uses the periodic
inventory system and trading inventory is marked up by 55% on cost price unless
otherwise specified. ‘DC’, ‘DCT’, ‘DCS’, ‘RT’, ’JR’ and ‘PV’ are the source document
codes for duplicate invoices, duplicate credit notes, duplicate cash slips, duplicate
receipts, journal vouchers and petty cash vouchers respectively. The business does not
expect to award any settlement discounts or qualify for any settlement discounts. All
occurrences of settlement discounts are therefore incidental in nature.
at
io
n
Source documents of Delvie Suppliers for the month of January 20.9.
Date
Details
Source
document
no.
1
A. Zack (the owner)
RT584
2
E. Tobias
8
J. Lomu
12
F. Pienaar
12
A. Zack
JR247
13
F. Pienaar
DCT199
Trading inventory returned.
1 316.25
GORT Ltd
DCS188
Received a dividend from GORT Ltd.
10 530.00
Amount
(R)
Additional capital contribution in cash.
97 200.00
DC465
Sale of trading inventory. The mark up on this
trading inventory was 70% on selling price (i.e. the
gross margin was 70%).
96 390.00
DCS187
Sale of trading inventory.
89 707.50
Ed
uc
E
G
ED
15
Description
DC466
Sale of trading inventory: R 27 710.53 less a 5%
trade discount.
A. Zack contributed office furniture to the business.
(All legislative requirements have been met for the
full VAT amount to be claimed.)
?
24 300.00
Cartridge Factory
PV85
19
T. Honniball
DC467
Sale of trading inventory.
21
T. Fitzpatrick
DCS189
21
A. Zack
JR248
22
HOT Stuff
PV86
Petty cash payment for cooldrinks.
24
AGAS Ltd
DCS190
Received the commission income from AGAS Ltd.
8 634.60
25
P. Olivier
DC468
Sale of trading inventory.
75 937.50
©
18
Petty cash payment for printer cartridges (office
consumables).
506
Sale of trading inventory: R 92 975.81 less a 7%
trade discount.
Drawings of trading inventory with a selling price
including VAT of R 2 025.00.
546.75
79 582.50
?
?
502.20
Revision questions
Streetwise Stationers
PV87
Petty cash payment for stamps.
182.25
26
P. Olivier
DCT200
Trading inventory returned.
4 935.94
26
F. Pienaar
RT585
Received a cheque from F. Pienaar (no discount)
– payment on account. (Balance owing at the
beginning of the month: R 3 325.00.)
8 216.86
27
I. Zuma
DCS191
Sale of trading inventory.
27
A. Zack
PV88
Drawings from petty cash by the owner.
28
T. Honniball
DCT201
Trading inventory returned.
30
T. Honniball
RT586
30
E. Tobias
JR249
30
P. Olivier
JR250
30
T. Honniball
JR251
30
N/A
JR252
99 832.50
8 100.00
3 183.30
at
io
n
(P
ty
)
Received from T. Honniball less a 5% settlement
discount. (Balance owing at the beginning of the
month: R 17 508.00.)
Credit loss – amount owing by E. Tobias written off
as irrecoverable. (Balance owing at the beginning of
the month: R 14 459.00.)
Interest charged by Delvie Suppliers on the overdue
account of P. Olivier.
5% settlement discount granted to T. Honniball
for settlement of the account. (Refer to duplicate
receipt no. RT586.)
It was realised that equipment purchased for
R 908.82 during December 20.8 was erroneously
debited to the cleaning materials account. Correct
the error.
Ed
uc
Required:
Lt
d
25
?
?
891.00
?
?
ED
Note:
G
E
Use the relevant transactions from those given to record only transactions from source
documents JR247 − JR252 (shown by the shaded areas in the list of transactions) in the
General journal of Delvie Suppliers for January 20.9.
•
•
All amounts are inclusive of VAT, unless VAT is not applicable.
Settlement discounts are recorded in the General journal.
©
[20]
507
Annexure B
Proposed solution:
General journal of Delvie Suppliers – January 20.9
Date
JR247
12
Details
Fol.
Debit
Office furniture
 21 130.43
VAT input
 3 169.57
Capital
 24 300.00
Drawings
 1 306.45
VAT output

Purchases
(Owner took goods for own use) ^
30
Credit losses
VAT input
170.41
 1 136.04
 96 390.43
at
io
n
JR249
(P
21
ty
)
(Owner contributed office furniture) ^
JR248
Credit
Lt
d
Doc. no.
GJ1
 14 458.57
Debtors control (E. Tobias)
 110 849.00
(Amount written off as irrecoverable) ^
JR250
30
Debtors control (P. Olivier)
Ed
uc
Interest income

891.00

891.00
(Interest on overdue account) ^
JR251
30
Sales
 4 082.92
VAT input

612.44
Debtors control (T. Honniball)
 4 695.36
(Settlement discount of 5%) ^
30
Equipment
E
JR252
 790.28
G
Cleaning materials

790.28
©
ED
(Correction of error) ^
16
[20]
Revision question 16 (Learning Unit 6)
You are the bookkeeper of Vestec Distributors. The business is a registered VAT vendor
and trades only with registered VAT vendors. The business charges 15% VAT on all its
sales. All amounts are inclusive of VAT unless VAT is not applicable. As the bookkeeper
you have been provided with the source documents for the month of May 20.9 necessary
for the preparation of the journals specified. The business uses the periodic inventory
508
Revision questions
Date
Details
Source
document
no.
1
Revtown Traders
INV279
Trading inventory purchased.
4
Plumb Right
CC534
Payment for business plumbing services (repairs
and maintenance).
1 538.25
5
Revtown Traders
CRN182
Trading inventory returned to the supplier.
6 724.35
8
Cash
CC535
at
io
n
Source documents of Vestec Distributors for the month of May 20.9:
Lt
d
system and trading inventory is marked up by 50% on cost price, if applicable, (before
any given trade discounts) unless otherwise specified. ‘INV’, ‘CRN’, ‘CC’ and ‘JV’ are
the source document codes for re-numbered original invoices, re-numbered original
credit notes, cheque counterfoils and journal vouchers respectively. The business does
not expect​​to award any settlement discounts or qualify for any settlement discounts.
All​​occurrences of settlement discounts are therefore incidental in nature.
Drew a cash cheque for petty cash.
8 790.00
63 358.32
107 325.90
Trading inventory purchased.
80 868.00
Amount (R)
ty
)
(P
Description
74 715.00
Revtown Traders
CC536
11
Upton (Pty) Ltd
CC537
Trading inventory purchased.
11
Kirsten Suppliers
12
H. Jobe (the owner)
JV289
13
Wagtown CC
CC538
13
Cartridge Land
INV281
Purchase of printer consumables.
2 988.60
14
RGH Stationers
CC539
Cash purchase of pens and highlighters (postage
and stationery).
1 318.50
16
Kirsten Suppliers
CRN183
Trading inventory returned to the supplier.
8 086.80
16
Jelly Suppliers
INV282
Purchased a staff coffee table.
5 791.73
16
Jelly Suppliers
INV283
Purchased a boardroom table.
25 965.66
18
Party Land
CC540
Purchased a staff pool table (equipment).
10 855.65
Kirsten Suppliers
CC541
Settlement of account with Kirsten Suppliers, less
a 5% settlement discount. (Balance owing at the
beginning of the month: R 14 556.00.)
E
G
ED
©
20
Ed
uc
9
Payment on account to Revtown Traders. No
settlement discount was received because the
account was not paid in full. (Balance owing at the
beginning of the month: R 11 207.00.)
INV280
H. Jobe contributed a motor vehicle to the business.
(All legislative requirements have been met for the
full VAT amount to be claimed.)
Trading inventory purchased: R 103 796.81 less a
6% trade discount.
110 288.13
?
?
509
Annexure B
20
Kirsten Suppliers
JV290
5% settlement discount received from Kirsten
Suppliers for settlement of the account. (Refer to
cheque no. CC541.)
21
Cash
CC542
Drawings by the owner.
21
H. Jobe
JV291
21
Jelly Suppliers
CRN184
21
Holsten Traders
INV284
24
Game
INV285
Cleaning materials charged on account.
1 895.12
25
Computer World
CC543
Cash purchase of a desktop computers (computer
equipment).
22 546.35
26
Bennie Suppliers
CC544
Trading inventory purchased.
119 983.50
?
10 548.00
Drawings of trading inventory with a selling price
including VAT of R 4 395.00.
A rebate was granted on the staff coffee table
purchased on 16 May 20.9.
Trading inventory: R 12 665.16 less a 7% trade
discount.
Lt
d
?
148.27
(P
ty
)
?
Defective printer consumables returned to the
supplier.
Received for trading inventory returned to the
supplier.
Cartridge Land
CRN185
28
Holsten Traders
CRN186
28
L. Jack (non-VAT vendor)
INV286
Delivery expenses charged on account.
3 603.90
31
The Café
CC545
Payment for business office refreshments.
1 378.27
31
Cash
CC546
Drew a cash cheque to pay the monthly salaries
22 502.40
31
Holsten Traders
31
N/A
Ed
uc
JV292
1 354.54
879.00
?
E
JV293
Interest charged by Holsten Traders on the overdue
account of Vestec Distributors.
It was realised that furniture and fittings purchased
for R 6 950.08 during April 20.9 was erroneously
debited to the printer consumables account. Correct
the error.
657.49
G
Required:
at
io
n
27
ED
Use the relevant transactions from those given to record only transactions from source
documents JR247 − JR252 (shown by the shaded areas in the list of transactions) in the
General journal of Vestec Distributors for May 20.9.
Note:
©
•
•
All amounts are inclusive of VAT, unless VAT is not applicable.
Settlement discounts are recorded in the General journal.
[35]
510
Revision questions
Proposed solution:
General journal of Vestec Distributors – May 20.9 
Date
JV289
12
Details
Fol.
Debit
Vehicles 
() 95 902.72
VAT input 
 14 385.41
Capital 
 110 288.13
Creditors control (Kirsten Suppliers) 
VAT output 
 569.59
Purchases 
(Settlement discount of 5%) 
21
Drawings 
VAT output 
Purchases 
() 3 797.27
 2 930.00
at
io
n
JV291
 4 366.86
(P
20
ty
)
(Owner contributed delivery vehicle) 
JV290
Credit
Lt
d
Doc. no.
GJ5
 382.17
() 2 547.83
(Owner took goods for own use) 
JV292
31
Interest expense 
 879.00
Ed
uc
Creditors control (Holsten Traders) 
 879.00
(Interest on overdue account) 
JV293
31
Furniture and fittings 
Printer consumables 
 6 043.55
() 6 043.55
(Correction of error) 
[35]
©
ED
G
E

511
Annexure B
17 Revision question 17 (Learning Unit 7)
Lt
d
The following information was taken from the books of The Perfect Distributor for April
and May 20.9:
List of balances in the creditors ledger of The Perfect Distributor on 30 April 20.9
Fol.
Amount
ty
)
Creditor
Tissot
13 715.44
C2
13 092.01
(P
Rolex
C1
JACKRO
at
io
n
Casio
C3
14 338.87
C4
22 998.30
Creditors journal of The Perfect Distributor – May 20.9
Details
1
Tissot
VC791
5
Rolex
VC792
9
VC793
Trading
inventory
4 879.01
32 526.73
C2
34 288.60
4 472.43
29 816.17
JACKRO
C3
617.19
80.50
13
Casio
C4
28 054.31
3 659.26
17
Hardware
City
C5
6 153.24
802.60
106 519.08
13 893.80
ED
©
512
Input VAT
37 405.74
G
VC794
Creditors
control
C1
E
VC790
Fol.
Ed
uc
Doc. no. Date
CJ10
Sundries
Amount
Fol.
Details
536.69
Office
consumables
5 350.64
Equipment
24 395.05
86 737.95
5 887.33
Revision questions
Creditors allowances journal of The Perfect Distributor – May 20.9
Date
NT55
6
Tissot
C1
6 358.98
829.43
5 529.55
NT56
10
Rolex
C2
6 171.95
805.04
5 366.91
NT57
14
JACKRO
C3
80.23
10.46
NT58
18
Casio
C4
3 366.52
439.11
NT59
22
Hardware
City
C5
1 107.58
144.47
17 085.26
2 228.51
963.11
13 823.87
CE770
1
Cash
7 830.27
CE771
5
Province
Municipality
1 471.29
CE772
11
Tissot
CE773
20
Robcom
CE774
26
Rolex
CE775
27
Divex
Fol.
Bank
Creditors
control
Input VAT
Trading
inventory
Amount
7 830.27
28 334.85
3 695.85
24 639.00
4 060.15
24 639.00 10 258.93
41 628.85
82 644.25
CBP10
1 279.38
172.39
1 149.28
Fol.
Details
Wages and
salaries
Electricity
and
amenities
Telephone
2 057.32
43 686.17
©
ED
G
E
2 057.32
Equipment
41 628.85
1 321.67
C2
Office
consumables
Sundries
191.91
C1
Details
1 032.88
Ed
uc
Name of
payee
Fol.
ty
)
2 927.41
at
io
n
Date
Amount
69.77
Cash book payments of The Perfect Distributor – May 20.9
Doc.
no.
Sundries
Trading
inventory
Output VAT
(P
Fol.
Lt
d
Doc.
no.
Details
Creditors
control
CAJ10
513
Annexure B
General journal of The Perfect Distributor for May 20.9
Doc.
no.
Date
VCH121
11
Details
Creditors control (Tissot)
GJ10
Fol.
Debit
C1
Credit
3 133.35
408.70
Lt
d
Output VAT
Trading inventory
2 724.65
(Settlement discount of 7%)
26
Creditors control (Rolex)
C2
Debtors control (Rolex)
D7
VCH123
31
Interest paid
476.86
Creditors control (Casio)
C4
476.86
at
io
n
(Interest on overdue account at 12% per
annum)
Additional information:
39 151.34
(P
(Balance transferred)
39 151.34
ty
)
VCH122
Ed
uc
The following transaction codes are used by The Perfect Distributor:
Codes used in the creditors ledger:
Credit purchases according to original credit invoices
Returns/rebates according to original credit notes
Cash payments to creditors (cheque counterfoils)
Discounts received on prompt settlements
Interest charged by creditors on our overdue account
Electronic funds transfer
Set-off to debtors ledger
Set-off from debtors ledger
ED
G
E
Code no. 01:
Code no. 02:
Code no. 03:
Code no. 04:
Code no. 05:
Code no. 06:
Code no. 07:
Code no. 08:
Required:
©
Draft the creditors ledger of The Perfect Distributor for May 20.9. You are not required
to draw up a creditors list.
[17]
514
Revision questions
Proposed solution:
Creditors ledger of The Perfect Distributor
Tissot (C1)
1 May 20.9
Document number
Fol.
Debit
01
Invoice VC790 ü
CJ10
6 May 20.9
02
Credit note NT55 ü
CAJ10
ü 6 358.98
Cheque CE772 ü
CBP10
ü 41 628.85
Journal voucher VCH121 ü
GJ10
ü 3 133.35
Code
Document number
at
io
n
01
Invoice VC791 ü
10 May 20.9
02
Credit note NT56 ü
26 May 20.9
03
Cheque CE774 ü
JACKRO (C3)
Code
3 133.35
Debit
Credit
0.00
CJ10
Balance
ü 13 092.01
ü 34 288.60
47 380.61
CAJ10
ü 6 171.95
41 208.66
CBP10
ü 2 057.32
39 151.34
Journal voucher VCH122 ü
GJ10
ü 39 151.34
0.00
Document number
Fol.
Debit
Credit
E
01
Invoice VC792 ü
CJ10
02
Credit note NT57 ü
CAJ10
ü 80.23
Fol.
Debit
G
Balance
ü 14 338.87
Balance brought forward
ED
14 May 20.9
Fol.
Ed
uc
07
9 May 20.9
44 762.20
Balance brought forward
5 May 20.9
1 May 20.9
51 121.18
(P
03
1 May 20.9
Date
ü 37 405.74
04
Rolex (C2)
Date
Balance
ü 13 715.44
Balance brought forward
1 May 20.9
11 May 20.9
Credit
Lt
d
Code
ty
)
Date
ü 617.19
14 956.06
14 875.83
Casio (C4)
©
Date
Code
1 May 20.9
Document number
Credit
Balance
ü 22 998.30
Balance brought forward
13 May 20.9
01
Invoice VC793 ü
CJ10
18 May 20.9
02
Credit note NT58 ü
CAJ10
31 May 20.9
05
Journal voucher VCH123 ü
GJ10
ü 28 054.31
ü 3 366.52
51 052.61
47 686.09
ü 476.86
48 162.95
515
Annexure B
Hardware City (C5)
Code
Document number
Fol.
17 May 20.9
01
Invoice VC794 ü
CJ10
22 May 20.9
02
Credit note NT59 ü
CAJ10
Debit
Credit
Balance
ü 6 153.24
ü 1 107.58
6 153.24
5 045.66
Lt
d
Date
ty
)
[17]
Revision question 18 (Learning Unit 7)
(P
18
at
io
n
Putick Suppliers uses the perpetual inventory system. The business is a registered VAT
vendor, and it is the policy of the business to buy only from other vendors who are able
to provide tax invoices. March 20.9 is the business’s third month of trading and the
following list of balances appeared on their books on 28 February 20.9:
List of balances in the debtors ledger of Putick Suppliers on 28 February 20.9
Debtors
Ed
uc
A. Sew
D. Box
N. Might
Amount
D1
14 641.36
D2
17 081.58
D3
28 469.30
D4
21 148.63
81 340.87
E
K. Little
Fol.
G
Additional information:
ED
The following transaction codes are used by Putick Suppliers:
Codes used in the debtors ledger:
©
Code no. 01:
Code no. 02:
Code no. 03:
Code no. 04:
Code no. 05:
Code no. 06:
516
Credit sales according to duplicate credit invoices
Returns/rebates according to duplicate credit notes
Cash receipts from debtors
Discounts allowed on prompt settlements
R/D cheques (when cheques received from debtors are dishonoured
by the bank)
Discounts cancelled on R/D cheques
Code no. 07:
Code no. 08:
Code no. 09:
Code no. 010:
Code no. 011:
Code no. 012:
Interest charged on overdue accounts.
Credit losses.
Set-off of accounts to and from the creditors ledger.
Discount vouchers.
Petty cash vouchers.
Reversal of interest on overdue accounts.
Debtors journal of Putick Suppliers – March 20.9
Fol.
Debtors control
Output VAT
1
A. Sew
D1
17 894.99
2 334.13
INV676
6
D. Box
D2
35 789.98
4 668.26
INV677
11
N. Might
D3
44 737.48
INV678
16
K. Little
D4
INV679
21
L. Pint
D5
7 063.81
31 121.72
14 127.62
5 835.32
38 902.16
17 659.53
48 804.52
6 365.81
42 438.71
19 264.94
58 565.43
7 638.97
50 926.46
23 117.93
205 792.40
26 842.49
178 949.91
81 233.83
Ed
uc
Debtors allowances journal of Putick Suppliers – March 20.9
Details
Fol.
Debtors control
Input VAT
DAJ3
Sales
Cost of sales
5
A. Sew
D1
3 042.15
396.80
2 645.35
1 200.85
CNT420
10
D. Box
D2
6 442.20
840.29
5 601.91
2 542.97
CNT421
15
N. Might
D3
5 815.87
758.59
5 057.28
2 295.74
CNT422
20
K. Little
D4
5 856.54
763.90
5 092.64
2 311.79
D5
10 541.78
1 375.01
9 166.77
4 161.23
31 698.54
4 134.59
27 563.95
12 512.58
25
L. Pint
©
ED
CNT423
E
CNT419
G
Doc. no. Date
Cost of sales
15 560.86
at
io
n
INV675
Sales
ty
)
Details
DJ3
(P
Doc. no. Date
Lt
d
Revision questions
517
Analysis of
receipts
Bank
Debtors
control
Output
VAT
813.41
Sales
Amount
813.41
Sundries
Fol.
Details
Interest received on
fixed deposit
Rent received
813.41
ty
)
Lt
d
Date
F. Farm
7 780.43
8 947.50
1 167.07
8 947.50
28 314.43
28 314.43
28 314.43
(P
Doc. No.
1
H. Herman
D1
at
io
n
CI700
5
A. Sew
Service income
9 195.05
15 560.86
17 894.99
1 379.26
2 334.13
17 894.99
3 579.00
3 579.00
3 579.00
10 574.31
64 096.61
Ed
uc
CI701
10
P. Tiddle
D2
10 574.31
64 096.61
E
RC451
20
D. Box
64 096.61
24 154.70
G
CI702
22
Cash
D4
9 195.05
ED
RC452
25
K. Little
Fol.
Cashbook receipts of Putick Suppliers – March 20.9
CI703
31
Details
B/S
95 990.04 4 880.46
CBR3
Cost of
sales
4 174.07
4 174.07
518
134 220.25
©
Annexure B
Revision questions
General journal of Putick Suppliers – March 20.9
Date
JV355
10
Details
Fol.
Debit
Sales
1 025.89
Input VAT
153.88
Debtors control (A. Sew)
D1
1 179.77
22
Creditors control (D. Box)
C6
(Balance transferred)
31
Credit losses
Input VAT
Debtors control (N. Might)
42 850.36
58 600.79
at
io
n
JV357
D2
42 850.36
(P
Debtors control (D. Box)
ty
)
(Settlement discount of 4%)
JV356
Credit
Lt
d
Doc. no.
GJ3
8 790.12
D2
67 390.91
(Amount written off as irrecoverable)
31
Debtors control (K. Little)
Ed
uc
JV358
D4
801.21
Interest received
801.21
(Interest on overdue account at 15% per annum)
JV359
31
Interest received
Debtors control (K. Little)
801.21
D4
801.21
G
E
(Reversal of interest received)
ED
The bank statement at the month end revealed the following:
©
• The cheque received from A. Sew was returned by the bank marked R/D on
31 March 20.9. This transaction was not recorded.
• K. Little had deposited the amount owing directly into the bank account on
31 March 20.9.
Required:
Draft the debtors ledger of Putick Suppliers March 20.9. You are not required to draw
up a debtors list.
[50]
519
Annexure B
Proposed solution:
Debtors ledger of Puttick Suppliers
Date
Code:
1 Mar. 20.9
Document no.
Fol.
Debit
Credit
Balance brought forward
Lt
d
A. Sew (D1)
Balance
 14 641.36
01
Invoice INV675 
DJ3
5 Mar. 20.9
02
Credit note CNT419 
DAJ3
10 Mar. 20.9
03
Receipt RC451 
CBR3
04
Journal voucher JV355 
GJ3
06
Bank statement 
CBP3
 28 314.43
() 28 314.43
07
Journal voucher JV360 
GJ3
 1 179.77
() 29 494.20

Code:
Document no.
Fol.
 28 314.43
() 1 179.77
 1 179.77
() 0.00
(P
ty
)
() 29 494.20
Debit
Credit
Balance brought forward
Ed
uc
1 Mar. 20.9
 3 042.15

D. Box (D2)
Date
() 32 536.35
at
io
n
31 Mar. 20.9
 17 894.99
6 Mar. 20.9
01
Invoice INV676 
DJ3
10 Mar. 20.9
02
Credit note CNT420 
DAJ3
22 Mar. 20.9
03
Receipt RC452 
09
Journal voucher JV356 
 17 081.58
 35 789.98
() 52 871.56
 6 442.20
() 46 429.36
CBR3
 3 579.00
() 42 850.36
GJ3
 42 850.36
() 0.00

G
E

Balance
N. Might (D3)
Code:
Document no.
Fol.
Debit
 44 737.48
Credit
Balance
ED
Date
Balance brought forward
11 Mar. 20.9
01
Invoice INV677 
DJ3
15 Mar. 20.9
02
Credit note CNT421 
DAJ3
 5 815.87
() 67 390.91
31 Mar. 20.9
08
Journal voucher JV357 
GJ3
 67 390.91
() 0.00
©
1 Mar. 20.9
520

 28 469.30

() 73 206.78
Revision questions
K. Little (D4)
Date
Code:
1 Mar. 20.9
Document no.
Fol.
Debit
Credit
Balance
Balance brought forward
 21 148.63
16 Mar. 20.9
01
Invoice INV678 
DJ3
20 Mar. 20.9
02
Credit note CNT422 
DAJ3
31 Mar. 20.9
07
Journal voucher JV358 
GJ3
05
Bank statement 
CBR3
 64 096.61
() 801.21
06
Journal voucher JV359 
GJ3
 801.21
() 0.00
Code:
Document no.
21 Mar. 20.9
01
Invoice INV679
25 Mar. 20.9
02
Credit note CNT423 ^
Debit
DJ3
DAJ3
Credit
 58 565.43
Balance
58 565.43
 10 541.78
() 48 023.65
[50]
Ed
uc

Fol.
() 64 897.82
ty
)
 801.21
at
io
n
Date
() 64 096.61
Lt
d
 5 856.54

L. Pint (D5)
() 69 953.15
(P

 48 804.52
19
Revision question 19 (Learning Unit 8)
©
ED
G
E
The information that follows relates to the salaried employees of Jordans CC for the
month of March 20.9. Assume a maximum UIF funding salary of R 14 872.00. Ignore
voluntary deductions. Assume that all payroll creditors were paid in full by EFT on
30 March 20.9. Note: The given amounts in the salaries journal are for illustrative
purposes only and are not based on the tax legislation pertaining to any given tax year.
521
Annexure B
Salaries journal of Jordans CC – March 20.9
SJ3
Deductions
Employee
Gross salary
no. & name
UIF
PAYE
Total/
fund
balance
386 17
475 88
Net salary
Pension
aid
fund
712 92
UIF
SDL
386 17
89 71
81 99
89 71
(325) Burtram
32 674 00
148 72
6 317 00 2 123 81
8 589 53 24 084 47
3 920 88 2 123 81
148 72
344 71
(326) Cool
22 545 00
148 72
2 977 00 1 158 43
4 284 15 18 260 85
1 960 42 1 158 43
148 72
233 47
(327) Deawalt
24 536 00
148 72
3 851 00 1 351 55
5 351 27 19 184 73
3 326 88 1 351 55
148 72
265 11
(328) Nkosi
7 413 00
86 77
(329) Ndlovu
6 832 00
(330) Pillay
7 426 00
Lt
d
7 872 00
ty
)
7 396 12
Medical
(324) Andrews
444 08
530 85
6 882 15
819 84
444 08
n/a
1 708 00
-
1 708 00
5 124 00
-
-
74 26
1 856 50
-
1 930 76
5 495 24
696 90 16 709 50 5 464 04
Required:
(P
-
-
-
22 870 44 86 427 56 10 740 94 5 464 04
86 77
77 89
n/a
68 32
74 26
74 26
696 90 1 145 75
at
io
n
109 298 00
0 00
Employers contributions
Pension
Open, post to and balance the following accounts in the general ledger of Jordans CC:
E
Ed
uc
EMP201 control (B7)
Creditors for salaries (B8)
Plong Pension Fund (B9)
Fit Health Scheme (B10)
Salaries expense (N8)
Medical aid contributions (N9)
UIF contributions (N10)
SDL contributions (N11)
Pension contributions (N12)
G
•
•
•
•
•
•
•
•
•
©
ED
[28]
522
Revision questions
Proposed solution:
General ledger of Jordans CC ü
EMP201 control
Details
Fol.
Amount
Date
Details
Fol.
Amount
Salaries expense (UIF) 
SJ3
 696.90
Salaries expense (PAYE) 
SJ3
 16 709.50
20.9
31
Bank 
CBP3
()19 249.05
March
31
ty
)
March
UIF contributions 
SJ3
 696.90
SDL contributions 
SJ3
 1 145.75
Fol.
20.9
at
io
n
Creditors for salaries
Details
Amount
() 19 249.05
(P
19 249.05
Date
Lt
d
Date
20.9
B7
Date
Details
B8
Fol.
Amount
SJ3
 86 427.56
20.9
31
Bank 
CBP3
86 427.56
March
Ed
uc
March
31
Salaries expense 
Plong Pension Fund
Date
Details
20.9
Fol.
Amount
B9
Date
Details
Fol.
Amount
Salaries expense 
SJ3
 5 464.04
Pension contributions 
SJ3
 5 464.04
20.9
31
Bank 
CBP3
G
ED
Date
Details
()10 928.08
Fol.
() 10 928.08
Amount
B10
Date
Details
Bank 
CBP3
10 740.94
March
31
Salaries expense ^
Salaries expense
Date
Fol.
Amount
SJ3
 10 740.94
20.9
©
31
31
Fit Health Scheme
20.9
March
March
10 928.08
E
March
Details
Fol.
Amount
Gross salaries 
SJ3
109 298.00
Date
N8
Details
Fol.
Amount
20.9
March
31
523
Annexure B
Medical aid contributions
Date
Details
Fol.
Amount
Fit Health Scheme 
SJ3
10 740.94
Date
N9
Details
Fol.
Amount
March
31
UIF contributions
Details
Fol.
Amount
EMP201 control 
SJ3
 696.90
Date
March
31
SDL contributions
Details
Fol.
Amount
March
31
EMP201 control 
SJ3
 1 145.75
Date
Details
at
io
n
Date
20.9
Details
Pension contributions
Details
Fol.
Amount
Plong Pension Fund 
SJ3
 5 464.04
Ed
uc
Date
20.9
31
©
ED
G
E
March
524
Fol.
Amount
ty
)
20.9
N10
(P
Date
Lt
d
20.9
Date
Details
N11
Fol.
Amount
N12
Fol.
Amount
Revision questions
20
Revision question 20 (Learning Unit 9)
Pre-adjustment trial balance of Westbrook Traders on 30 April 20.9
Fol.
Debit
Credit
R
c
279 703
70
48 600
00
3 612
60
B10
5 726
70
B11
301 320
00
N1
600 580
00
Capital
B1
Drawings
B2
Land and buildings
B3
(P
Statement of financial position section
c
ty
)
R
Vehicles
B4
Fixed deposit: Jades Investments
Trading inventory
Bank
6 480
00
445 500
00
194 400
00
at
io
n
Accumulated depreciation: Vehicles
B5
B6
34 708
50
B7
17 309
70
B8
B9
Creditors control
Ed
uc
Debtors control
Mortgage loan: New Bank
Lt
d
The following pre-adjustment trial balance appeared in the books of Westbrook Traders
at the end of their second financial year.
11 267
10
Nominal accounts section
Sales returns
G
Cost of sales
E
Sales
N2
14 580
00
N3
395 280
00
N4
21 060
00
Interest on fixed deposit
N5
3 175
20
Telephone
N6
30 812
40
Interest on mortgage loan
N7
48 211
20
Wages and salaries
N8
17 544
60
Repairs and maintenance
N9
7 290
00
Postage and stationery
N10
3 847
50
Advertising
N11
32 400
00
Credit losses
N12
4 147
20
1 263 778
20
1 263 778
20
©
ED
Rent income
525
Annexure B
Required:
Lt
d
Find the missing cross references or amounts denoted by 20.1 − 20.13 in the T-accounts
shown in the General ledger of Westbrook Traders. You need not provide the missing
information denoted by a question mark (?).
General ledger of Westbrook Traders
ty
)
Statement of financial position section (extract only)
Date
Details
Fol.
Amount
B1
Date
20.9
Details
Fol.
Amount
(P
Capital
30 Balance
b/f
279 703.70
20.2
GJ12
20.9
30
20.1
GJ12
Balance
c/d
6 480.00
Sept.
?
20.3
at
io
n
Sept.
b/d
Amount
Fol.
Amount
GJ12
6 480.00
350 406.00
350 406.00
20.9
Oct.
1
Balance
Ed
uc
Drawings
Date
Details
20.9
Fol.
Date
Details
20.4
B2
20.9
Sept.
30
Total/Balance
b/f
6 480.00
Sept.
30
20.5
G
E
Final accounts section
ED
Date
Details
Trading account
Fol.
Amount
Date
20.9
©
Sept.
526
30
N1
Details
Fol.
Amount
20.9
Cost of sales
GJ12
395 280.00
Profit and loss (GP)
GJ12
20.7
?
Sept.
30 Sales
GJ12
20.6
?
Revision questions
Profit and loss account
Date
Details
Fol.
Amount
Date
Telephone
GJ12
30 812.40
Interest on mortgage
loan
GJ12
48 211.20
20.9
20.8
GJ12
17 544.60
Repairs and
maintenance
GJ12
7 290.00
Postage and stationery
GJ12
3 847.50
Advertising
GJ12
20.11
20.12
GJ12
4 147.20
Capital
GJ12
20.13
Details
Fol.
Amount
30 Trading account
GJ12
?
GJ12
21 060.00
Interest on fixed deposit GJ12
20.10
?
ty
)
Sept.
Lt
d
20.9
30
(P
20.9
Sept.
N2
?
Proposed solutions:
G
E
Ed
uc
Drawings 
Profit and loss 
R 70 702.30 
R 343 926.00 
Capital 
R 586 000 
R 190 720 
Wages and salaries 
Rent income 
R 3 175.20 
R 32 400 
Credit losses 
R 70 702.30 () – same amount as 20.3
[15]
©
ED
20.1
20.2
20.3
20.4
20.5
20.6
20.7
20.8
20.9
20.10
20.11
20.12
20.13
at
io
n
[15]
527
Annexure B
21
Revision question 21 (Learning Unit 3)
Lt
d
Solve the following independent problems relating to mark-ups, margins and VAT.
Assume that all parties are registered VAT vendors, that the product in question is
standard rated and that a VAT rate of 15% applies in all instances.
ty
)
21.1 A dealer marked his merchandise up at 50% above cost. After a trade discount
had been granted, he made a profit of only 25% on cost. Calculate the percentage
discount allowed.
(P
21.2 Calculate the VAT exclusive cost price and original mark-up percentage on cost
of an article that was marked for R 1 600 plus VAT and on which a profit of 25%
on sales was made after a trade discount of 2.5% had been allowed.
at
io
n
21.3 A wholesaler sold an article to a retailer at a profit of 20% on sales revenue. After
a trade discount of 8% had been granted, the retailer sold the same product at
a profit of 15% on his cost price. The final consumer paid R 2 587.50 (including
VAT) more for the article than it had cost the wholesaler.
(a)
(b)
Ed
uc
Calculate the following:
The VAT exclusive cost price of the wholesaler
The rand value of the discount granted by the retailer
[30]
E
Proposed solutions:
Cost
+
Gross profit
=
Selling price
ED
G
21.1 Use the following analysis:
100
+
50
=
150
Ratio before discount
100
+
25
=
125
Ratio after discount
©
The percentage discount allowed can be calculated as follows:
(150 – 125)
150
528
× 100 = 16.67%
Revision questions
21.2 Use the following analysis (using VAT exclusive prices):
Cost
(v)R 1 170
Gross profit
=
Selling price
+
(vi)R 430
=
(i)R 1 600
Ratio before discount
+
(iii)R 390
=
(ii)R 1 560
Ratio after discount
Lt
d
(iv)R 1 170
+
Note: (i) – (vi) denote the sequence in which the calculations are done:
(vi)
ty
)
(P
(iv)
(v)
430
1 170
at
io
n
(iii)
This is the VAT exclusive marked price as given.
The VAT exclusive selling price after a 2.5% discount = R 1 600 – (2.5% ×
R 1 600) = R 1 560.
The gross profit (after discount) as a percentage of the selling price is given
as 25%. Thus 25% of R 1 560 = R 390.
The cost price = R 1 560 – R 390 = R 1 170.
The cost price is always the same amount before and after discount, as the
discount affects the selling price, not the cost.
The gross profit amount before discount can then be calculated as follows:
R 1 600 – R 1 170 = R 430.
Thus: the VAT exclusive cost price was R 1 170 and the original mark-up
percentage on cost can be calculated as follows:
Ed
uc
(i)
(ii)
× 100 = 36.75%
G
E
21.3 The final consumer paid R 2 587.50 more for the article than it had cost the
wholesaler. As the final consumer pays the VAT inclusive amount, the given
information can be rephrased to read as follows: ‘The final consumer paid an
amount equivalent to R 2 250 (exclusive of VAT) more for the article than it had
cost the wholesaler.’
ED
Then use the following ratios:
Cost
+
Gross profit
=
Selling price
80
+
20
=
(i) 100
Wholesaler’s ratio
+
(iii) 15
=
(iv) 115
Retailer’s ratio after discount
(v) 125
Retailer’s ratio before discount
©
(ii) 100
(vi) 100
(vii) 25
Note: (i) – (vii) denote the sequence in which the calculations are done:
(i)
This wholesaler’s mark-up is given as 20% on selling price. Since the
mark-up given is a gross margin, not a mark-up, ‘100’ falls under Selling
price, not Cost. The cost is then 100 – 20 = 80.
529
Annexure B
The retailer’s cost is the same as the wholesaler’s selling price = 100
The retailer’s mark-up is 15% of his cost. 15% of 100 = 15.
100 + 15 = 115
115 ÷ (1 - 0.08) = 125 (this is the selling price before discount)
The retailer’s cost is unaffected by the discount, so will remain at 100.
125 – 100 = 25
Lt
d
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(P
ty
)
Now notice the two numbers that have been circled. These are the two numbers
that relate to the given amount of R 2 250, which is the difference between the
actual VAT exclusive price that the final consumer pays and the VAT exclusive
cost of the wholesaler. In the given ratios, the difference between the two circled
numbers is 45. You can now use this factor to convert all the numbers in the
ratios to actual amounts:
+
Gross profit
=
Selling price
R 3 600
+
R 900
=
R 4 500
R 4 500
+
R 675
R 1 125
R 4 500
Wholesaler’s ratio
at
io
n
Cost
=
R 5 175
Retailer’s ratio after discount
R 5 625
Retailer’s ratio before discount
The VAT exclusive cost price of the wholesaler = R 3 600
The rand value of the discount granted by the retailer = R 5 625 – 5 175 =
R 450
©
ED
G
E
(a)
(b)
Ed
uc
The answers can then be read directly from this table:
530