Introduction to Principles of Accounts

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Principles of Accounts
Grade 10
Sept.15.2023-October 11.2023
Introduction to POA
Accounting and Users of Accounting Information

Accounting is the process of analysing, summarising,
interpreting and communicating of financial data to foster
good decisions.
Principle of Accounts
These are a set of procedures and rules that govern the
accounting process.
Purpose of accounting
➔ Organizing and keeping accounting records;
transactions
➔ Money management
➔ Required by law
➔ Safety (protect from fraud/ theft)
➔ Decision making
➔ Profitability
➔ Performance (comparison between competitions)
Internal Users are people within a business organization

who use financial information.
Examples: Investor,Manager,Accountant and Employees
External users are people outside of the business entity

who use accounting information. Eg :
Investor ,Customer ,Government, Competitors
Accounting Cycle
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The accounting cycle is a collective process of

identifying,analyzing and recording the accounting events of
a company.
It is a standard 8 step process that begins when a
transaction occurs and ends with its inclusion in the
financial statement and the closing of the books.
The accounting cycle is a methodical set of rules that can
help ensure the accuracy and conformity (compliance with
standards, rules) of financial statements.
1) Identifying and Recording Transactions

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Transaction means the exchange of something of value.So

each transaction is identified and relevant transactions such
as sales and purchases are recorded in the company’s first
book.
2) Record Transactions in a journal

The entries are based on the receipt of an invoice,
recognition of a sale or completion of other economic events
3) Posting in General Ledger

Once a transaction is recorded as a journal entry it should be
posted to account in the General Ledger. The general ledger
provides a breakdown of all accounting activities by account.
4) Unadjusted Trial Balance:
At the end of an accounting period, a trial balance is

prepared which is a list of credit and debit entries to ensure
that the list of credit and debit entries in a general ledger
are equal and mathematically correct.
5) Preparing Worksheet:
A worksheet is an informal working document that helps
accountants organize and summarize the trial balance
information as well as identifying necessary adjusting
entries if there are incorrect entries.
6) Adjusting Journal Entries

At the end of the period adjusting journal entries are made.
These results from corrections made on the worksheet and
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the passage of time for example, an adjusting entry may

involve interest revenue that has been earned over time
7) Financial Statements
Upon posting of adjusting entries, a company papers an
adjusting trial balance followed by the formal financial
statements.
8) Closing the books

An entity finalizes temporary accounts, revenues and
expenses using closing entries. These closing entries include
transferring net income to retained earnings. Finally a
company prepares the post-closing trial balance to ensure
debits and credits match and the cycle can begin anew.
Businesses operate on a 12 month cycle which may be the
same as the calendar year Jan-Dec or the tax year which
runs from April 6 to April 5 of the following year.
Accounting concepts and conventions

Accounting concepts are a set of general conventions that can be
used as guidelines when dealing with accounting situations.
Accounting conventions are guidelines used to help companies
determine how to record certain business transactions that have not
yet been fully addressed by accounting standards.
The role and impact of technology in the accounting process

Technology in Accounting
Technology refers to the use of cloud-based
software,artificial intelligence,machine learning, data
analysis and other innovations to streamline and automate
accounting processes and systems.
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The technology has played a significant role in modern

accounting practices, revolutionising the way financial data
is collected processed and analysed, With the advent of new
technologies accounting processes have become more
efficient, accurate and secure, resulting in better decision
making and improved financial reporting
Impacts
One of the most significant impacts of technology on
accounting practices has been the automation of routine
tasks. Tasks such as data entry, book keeping and
reconciliation can now be automated, freeing up
accountants’ time to focus on more complex tasks such as
financial analysis and strategic planning.
Software:
Cloud computing
Blockchain
Excel
Stage 50
Quick books
Disadvantages
Risk of cyber security threats.
Balance sheet
A financial statement setting out the book values of assets,
liabilities and capital at a particular point in time.
Types of Assets
Fixed/ Non Current Assets : Fixed or non-current assets
are long-term resources that a company expects to use for
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more than one year, such as property, plant, equipment, and

intangible assets like patents or trademarks.
Current Assets: Current assets are assets that a company
expects to convert into cash, sell, or consume either in one
year or within the company's normal operating cycle,
whichever is longer.
Types of financial transactions
SALE
Selling
Customer
Selling : Providing goods and services to
customers with an exchange of money.
Documents used to record sales:

● Ledger
● Cheque
● Invoice
● Receipt
Order of Permanence
This shows the order in which a business takes to sell a
product.
Current Assets
1. Stock
2. Accounts receivable/ debtor
3. Prepaid expenses
4. Bank
5. Cask
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Order of liquidity
This is the presentation of assets and liabilities in the
balance sheet in the order of the amount of time it would
take to sell a product or liquidate (turn into cash);smaller
items sell faster than larger items.
Terms to know
Assets: are resources owned by an individual or organisation
that are expected to provide future value, such as cash,
property, or equipment.
Liabilities: are what a business owes to another entity or a

person.
Capital: assets that businesses use to fund operations, invest

in growth, or acquire assets, typically including both equity
(owner's funds) and debt (borrowed funds).
Equity: represents the ownership value in a company,

calculated as the difference between its total assets and total
liabilities, often referred to as shareholders' equity or net
worth.
Ownership value: refers to the portion of a company's assets

that belongs to its shareholders or owners, after all liabilities
have been deducted.
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Shareholder : is an individual or entity that owns shares in a

company, giving them a stake in the company's ownership
and often entitling them to vote on certain matters and
receive dividends.
Share: is a unit of ownership in a company or financial asset,

representing a claim on part of the company’s assets and
earnings, typically bought and sold on stock exchanges.
Bookkeeping: bookkeeping is the practice of recording and

organising financial transactions to maintain accurate
financial records for a business or individual.
Double entry :is an accounting method where every

transaction affects at least two accounts: one account is
debited, and another is credited, ensuring the accounting
equation (Assets = Liabilities + Equity) stays balanced.
A proprietor: is an individual who owns and operates a

business, particularly a sole proprietorship,who is
responsible for all aspects of the business, including profits,
liabilities, and decision-making.
A stakeholder : is any individual or group that has an

interest or concern in the outcome of a business or
organisation, and can influence or be affected by its actions.
Examples of stakeholders include employees, customers,
shareholders, suppliers, and government agencies.
Suppliers: are businesses or individuals that provide goods

or services to another business, typically in exchange for
payment. They play a key role in the supply chain, ensuring
that companies have the materials or resources needed to
operate and produce their products.
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Creditors: are individuals or businesses that lend money or

provide goods or services on credit, expecting repayment,
often with interest. Examples of creditors include banks,
suppliers, and bondholders.
Revenue: is the total amount of money generated by a

business from its normal business activities, such as sales of
goods/services, before expenses are deducted. It is often
referred to as "sales" or "turnover".
Income: typically refers to the profit a business or individual

earns after all expenses, taxes, and costs have been
subtracted from the revenue. For businesses, it’s often
called net income/profit.
Stock/inventory refers to the goods and materials that a

business keeps on hand to sell or use in production. It
includes raw materials, finished products, and supplies that
are part of the company's operations.
Sales refer to the exchange of goods or services for money,

or the total revenue a business earns from selling its
products or services. It represents the amount of business
activity or transactions made over a specific period.
Purchases refer to the act of buying goods or services for
business use, resale, or production. It can also refer to the
total value of items bought by a company during a specific
period.

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1

Accounting and Users of Accounting Information

Internal Users are people within a business organization

External users are people outside of the business entity

The accounting cycle is a collective process of

1) Identifying and Recording Transactions

Transaction means the exchange of something of value.So

2) Record Transactions in a journal

3) Posting in General Ledger

4) Unadjusted Trial Balance:

At the end of an accounting period, a trial balance is

6) Adjusting Journal Entries

the passage of time for example, an adjusting entry may

8) Closing the books

Accounting concepts and conventions

The role and impact of technology in the accounting process

The technology has played a significant role in modern

more than one year, such as property, plant, equipment, and

Documents used to record sales:

Liabilities: are what a business owes to another entity or a

Capital: assets that businesses use to fund operations, invest

Equity: represents the ownership value in a company,

Ownership value: refers to the portion of a company's assets

Shareholder : is an individual or entity that owns shares in a

Share: is a unit of ownership in a company or financial asset,

Bookkeeping: bookkeeping is the practice of recording and

Double entry :is an accounting method where every

A proprietor: is an individual who owns and operates a

A stakeholder : is any individual or group that has an

Suppliers: are businesses or individuals that provide goods

Creditors: are individuals or businesses that lend money or

Revenue: is the total amount of money generated by a

Income: typically refers to the profit a business or individual

Stock/inventory refers to the goods and materials that a

Sales refer to the exchange of goods or services for money,

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