The CSEC Principles of Accounts paper tests both bookkeeping and Accounts (preparation of financial statements from the books of accounts or ledgers).
Bookkeeping is the art of recording transactions in day books or journals and posting each transaction to ledgers using the double entry rule. What is this rule? Simply stated, it says debit the account or accounts that receive value from the transaction and credit the account or accounts that give value. For example, if the business made cash sales of $50,000, the cash or bank account should be debited with $50,000 because it received money, and the sales account should be credited with $50,000 since it gave that amount to the cash or bank account; debits should equal credits do the books will always be balanced.
The task of preparing financial statements begins with preparing a trial balance, which is a list of all of the accounts and their debit or credit balances. Next, each account should be classified as either a revenue or expenditure account, in which case it should be used in preparing the Income statement or Profit and loss account, or it should be classified as an asset, liability or equity account, in which case it should be used to prepare the balance sheet.
Once you learn the format preparing the final accounts of a sole trader it is relatively easy to prepare financial statements for partnerships, companies, and other organizations since the main difference lies in the contents of the appropriation accounts. Once net profit is calculated in the income statement all of the profits belong to the sole trader and are placed in the appropriation account after which drawings are deducted and the balance is added to capital or equity in the balance sheet.
In the case of partnerships, the net profit is transferred or carried down to the appropriation account after which interest on drawings is added to compute the amount available for appropriation by the partners. The amount that is appropriated or allocated to each partner consists of interest on capital, salary, and share of profits less drawings. These amounts are then posted to the current accounts of the partners in the balance sheet.
In the case of companies, the salaries of directors, audit fees, and debenture interest must be deducted from gross profit before arriving at the net profit figure. Once the net profit figure is transferred to the appropriation account dividends and transfers to reserves are deducted to calculate retained earnings for the period.
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