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ACCOUNTING COURSE

 

 

FOREWORDS

 

As old as trade itself, bookkeeping methods have evolved with history. In 1493 - one year after Columbus discovered America - a Venetian monk by the name of Luca Pacioli systematized the double entry system, which basic principles remain as valid in our computerized era as they were in the time of the Renaissance.

Bookkeeping refers as the daily operations of an accounting system, a skill that an individual might acquire within a few weeks or months. A professional accountant, however must have a far broader range of knowledge and skills than a bookkeeper. He or she must know about financial reporting or tax regulations, be able to design the accounting systems and systems of internal control, interpret and record complex transactions. Most importantly, accountants must be able to exercise professional judgment and, if involved in auditing firms, they have to operate with a high degree of independence.

Accounting is taught in Commercial schools as well as in the Faculties of Economics. Yet the higher education in the field of accounting requires lots of experience and remains largely in the hands of members of the profession. In Switzerland, the title of Certified Federal Accountant is granted by the Swiss Chamber of Commerce.

The present textbook should be regarded as an introduction to accounting.

 

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1. THE BALANCE SHEET
  1.1 What is a balance sheet 1
  1.2 How do transactions affect the balance sheet 1

 

2. THE GENERAL LEDGER AND THE JOURNAL
  2.1 Introduction 5
  2.2 The simple cash in hand accuont 6
  2.3 Debtors' accounts 7
  2.4 Creditors' accounts 7
  2.5 "Continuous balance" Ledger accounts 9
  2.6 Double entry book-keeping 10
  2.7 The Journal, or Day Book 11

 

3. THE PROFIT AND LOSS STATEMENT
  3.1 Introduction 14
  3.2 Revenue accounts 14
  3.3 The Profit and Loss account 15
  3.4 Recapitulation of the various book-keeping phases 17

 

4. THE OWNER'S CURRENT ACCOUNT
  4.1 Introduction 18
  4.2 Closing entries 18
  4.3 Operating result, Owner's overall income, Increase in capital 19

 

5. TRADING ACCOUNT
  5.1 Introduction 21
  5.2 Good in Stock, Purchase and Sales accounts 21
  5.3 Closing entries and the trading account 23
  5.4 Closing adjustment to the Goods in Stock account 24
  5.5 Gross Profit and Net Profit 25
  5.6 Cost related to Sales 25
  5.7 Stock cards 26

 

6. VALUE ADDED TAX (VAT)
  6.1 Introduction 28
  6.2 Input tax output tax 28
  6.3 Relief from VAT 29
  6.4 Recording VAT 30
  6.5 VAT in Switzerland 32

 

7. BAD DEBTS
  7.1 Introduction 34
  7.2 Accounting entries for Bad Debts 34
  7.3 Bad Debts recovered 35
  7.4 Provision for Bad Debts 36
  7.5 Adjusting the Provision for Bad Debts 37

 

8. DEPRECIATION
  8.1 Introdution 38
  8.2 Methods of calculation Depreciation 38
  8.3 Methods of recording Depreciation 39
  8.4 Depreciation and sales of assets 41

 

9. WAGES AND SALARIES
  9.1 Introduction 42
  9.2 The payroll in Great Britain 42
  9.3 The payroll in Switzerland 44
  9.4 Swiss social security rates for 1998 45
  9.5 Accounting entries for payroll 45b

 

10. PREPAYMENT AND ACCRUED EXPENSES AND RECEIPTS
  10.1 Introduction 46
  10.2 Prepaid expenses 46
  10.3 Income received in advance 46
  10.4 Accrued expenses 47
  10.5 Accrued receipts 48
  10.6 Effect of the balance brought down on the next yeat payments and recepts 48

 

11. THE TRIAL BALANCE
  11.1 Introduction 49
  11.2 What to do if a Trial Balance does not agree 49
  11.3 Errors that the Trial Balance does not disclose 50

 

12. THE CALCULATION OF INTEREST
  12.1 Introduction 51
  12.2 Formulas 51

 

13. EXCHANGE RATES AND FOREIGN CURRENCIES
  13.1 Introduction 53
  13.2 Formulas 53

 

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BOOK-KEEPING

   

1. THE BALANCE SHEET
   
1.1 What is a balance sheet
    One of the purposes of book-keeping is to assess the financial situation of a business at a given time.

This can be done by assessing:

- the material possessions (e.g. cash, property, goods in stock) and immaterial possessions
  (e.g. patents) owned by the business

 - the amounts owed to the business by third parties (e.g. customers)

 - the amounts owed by the business to third parties (e.g. suppliers).

The financial situation of a business is assessed at least once a year, for legal and tax purposes.

The situation of a business can be presented as a table composed of two parts, one listing assets, and the other liabilities and owners' equity.

Assets are those resources that a business owns.

Liabilities, strictly speaking, are obligations owed by the business to third parties. Owners' equity is what the business owes to the owners. It is a particular kind of liability.

This table is known as the balance sheet.
     
  1.2 How do transactions affect the balance sheet
     
    When people consider setting up in business, they do so because they feel they have some useful product, or service, to offer to their fellow men. In return for their efforts to satisfy people's wants, they expect to earn a reasonable reward in the form of profits on the enterprise.

Before such profits can be earned, the enterprise must be established. This involves finding a location and purchasing assets such as furniture and equipment. This requires a fund of money, called the proprietors' capital (or owners' equity). Capital is essential to the start of any enterprise. The provision of the initial capital is the first transaction that takes place.

 

 

 

 

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