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Form 1 Accounting notes and Exercises

Definition of accounting terms

Book-keeping
. Book keeping is the recording of business transactions and information on a day —to— day basis.
. It involves the process of entering financial transactions in the books of original entry (also known as subsidiary
books) ¡n an orderly and systematic way.
. Although many people usually confuse book keeping with accounting, book—keeping forms part of the accounting
process as it provides data useful in accounting.

Accounting
. It is a process of identifying, recording, summarising and reporting business and financial transactions in a
systematic way.

Capital
. These are resources brought into the business by the owner.
. They can be in the form of money or physical assets.
Example 1.1.1
. A. Makanda brought in $20 000 cash into the business and two motor vans valued at $88 000 each for use in the
business.
. From the above example, the total capital will be valued at $196 000. This means that the value of resources
brought to start the business by A. Makanda is $196 000.

Assets
. These are resources owned by an individual or a business.
. They should be expressed in monetary value for accounting purposes.
. Assets can be classified into non—current assets (fixed assets) and current assets.
. Non—current assets are assets acquired by a business for use and not for re—sale and have got a long life span in
the business. Examples of non—current assets include; land and buildings, machinery, furniture, fixtures and fittings
and motor vehicles.

Current Assets
. Current assets are those assets that can be easily converted into cash within a period of one year.
Examples of current assets include; inventory (stock), accounts receivables (debtors), cash in hand and cash at bank.

Liabilities
. These are resources the business owes other people or businesses.
. They arise when a business buys goods and services on credit or from borrowing.
. Liabilities are classified on time basis, into current liabilities and non—current liabilities (long term liabilities).
. Current liabilities are short term borrowings of a business which are supposed to be paid within one trading period.
Examples of current liabilities include, accounts payable (creditors), bank overdrafts, accruals and short term loans.
. Non—current liabilities are long term borrowings of a business which are supposed to be paid within a period
longer than one trading period. Examples of non—current liabilities are long term loans and mortgages.

Expenses
. These are costs incurred in the day — to — day running of a business.

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. Expenses include all payments made on goods or services rendered to the business. Examples of expenses include
wages, rent, and costs on the maintenance of non—current assets, heating, lighting and salaries.

Purchases
. These are goods or merchandise bought for resale. For example, a supermarket will have grocery items such as
cartons of cooking oil, mealie meal and flour as its purchases.

Sales
. Sales refer to goods or services sold which were previously bought with the intention of reselling them.
. Sales are classified into credit and cash sales.
. Credit sales are goods or services sold to customers without paying cash up front or allowing them to pay for the
goods or services at a later date.
. Cash sales are goods sold for cash.

Double entry
. It is a book keeping principle which entails that a transaction must be recorded twice in the books of accounts, one
entry on the debit side and a corresponding entry on the credit side.

Profit
. It is a financial gain or benefit of a business from its trading activities.
. It is obtained when the total income exceeds the total expenses for the same financial peri

Loss
. It is when the total expenses of a business exceed the total income for the same financial period.
Transaction
. A transaction refers to a business event which involves the exchange of goods and services for money.
. These are to be recorded in the books of accounts.
. Transactions are recorded highlighting the date when the transaction occurred, the nature of the transaction and
the value of the transaction.
. Transactions of a similar nature are recorded in a similar book in a chronological order.

Inventory/stock
. Inventory is the value of unsold goods found in the store at the end of a trading period.
. Inventory can be further divided into opening inventory and closing Inventory.
. Closing inventory is the value of unsold goods found in stock at the end of a financial period, whilst that same
inventory, at the beginning of a new financial period, becomes opening inventory.
Accounts receivable/Debtors
. These are customers who buy goods on credit. For example, Chimuti Chitanda sold goods worth $500 on credit to
Chebanga Ziniumbamu. In this case, Chebanga Zimumbamu is regarded as the account receivable by Chimuti
Chitanda as he owes him $500 for the goods sold to him on credit.

Accounts payable/Creditors
. Accounts payables are individuals or businesses who are owed money for goods or services supplied.
. Using the same example given on accounts receivables above, Chimuti Chitanda will be regarded as an account
payable by Chebanga Zimumbamu as he owes $500 for the goods supplied to him on credit.

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Business
. It is an activity or establishment entered into with the main aim of making profit.

Income
. Income refers to money that an individual or business receives in exchange for providing a service or through
investing capital.

Questions
1) Match the correct term to the correct definition.
Group A are definitions and B are the terms.

Group A (Definition of terms)

Money earned after providing goods and services.
Goods acquired for resale.
When total income gained exceeds total expenses.
A systematic way of recording transactions in the books of accounts.
Costs incurred in the day to day running of a business.
Resources invested in a business by the owner.
When total expenses exceed total income.
A business event which involves the exchange of goods or services for money.
Resources owned by a business organisation expressed in monetary value.
Money a business owes other people or businesses.

Group B (accounting terms)

Capital
Loss
Assets
Bookkeeping
Sales
Liabilities
Expenses
Transaction
Purchases
Profit

2)Group the following into Assets liabilities or expenses.

Wages
Heating and Lighting
Bank overdraft
Furniture
Closing inventory
Salaries
Loan
Cash in hand
Land and buildings
Rent and rates
Accounts payables
Definition-of-accounting-terms-Exercise 1

Answer all questions correctly by choosing the most appropriate answer.

1) Amounts which do not need to be repaid within a period of one year are ________.
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current assets
current liabilities
non-current assets
non-current liabilities
2) Which of the following pairs shows examples of current assets?

Inventory and building

Equipment and salaries
Cash in hand and wages
Accounts receivables and cash at bank
3) A business transaction involves the ________.

exchange of services
exchange of goods
exchange of goods or services for money
exchange of goods and services
4) Double entry is ________.

a bookkeeping principle which states that a transaction should be recorded thrice in the ledger
a bookkeeping principle which states that a transaction should be recorded twice in the ledger
a bookkeeping principle which states that a transaction should be recorded once in the ledger
a bookkeeping principle which states that all credit transactions should not be recorded in the cash book
5) Bookkeeping is ________.

a systematic way of measuring a business' ability to meet its financial obligations

a process of recording and analysing business accounts
a systematic way of recording business transactions in the books of accounts
a process of presenting the income and expenses of a business
6) Which of the following is the correct definition of capital?

These are resources owned in a business organisation.

These are resources invested in a business by the owner.
It is the money a business owes other people or businesses.
It is the monetary value of goods and services.
7) Which of the following is not an example of a non-current asset?

Land and buildings.

Cash in hand.
Motor vehicle.
Fixtures and fittings.
8) A business obtains profit when ________.

total expenses are equal to total income

total expenses exceed total income
total income exceeds total expenses
total expenses exceed total cash
9) Purchases are ________.

goods available in a business at the end of a trading period

goods acquired by a business for use in the business
items that can easily be converted into cash within one year
goods bought by a business for resale
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10) Which of the following is an example of an expense?

Wages paid
Accounts payables
Rent received
Accounts receivables

Group as assets, expenses or liabilities

Classification Of Ledger Accounts

The ledger
. It is the main book of accounts.
. It consists of two sides; the debit side and the credit side as shown on Fig 6.1.1 below.

The ledger
. It is the main book of accounts.
. It consists of two sides; the debit side and the credit side as shown below

Debit Side (DR) Credit side (CR)

Date Details (Particulars) Amount Date Details (Particulars) Amount

. The ledger records, classifies and summarises financial information from books of prime entry.
. Contained in the ledger are several ledger accounts.

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. A ledger account is a statement that contains all financial transactions relating to a particular person or thing for a
specific period. For example, a ledger account for rent paid during the year will only contain amounts relating to rent
paid.
. The ledger is used to perform the double entry of transactions from all books of prime entry.

The columns of the ledger

. The ledger comprises of the following columns;
. Date column: It shows the dates when the transactions occurred.
. Particulars or details column: It shows narrations usually the corresponding account where the same particular
transaction will be recorded.
. The folio column is for checking and cross—referencing where a number of books of accounts are in use.
. It makes it easier to refer back to the subsidiary books where the transaction was recorded as well as referring
forward from the books of original entry to the ledger.
. The Amount column is where the monetary value of a transaction is recorded.

Classification of ledger accounts

. This is the sub—dividing or grouping of ledger accounts into different classes, so that accounts of the same class or
type are found under the same heading.
. Ledger Accounts are classified into five categories which are
(a) Assets accounts,
(b) Liabilities accounts
(c) Capital accounts
(d) Revenues or gains accounts and
(e) Expenses or losses accounts.

 Assets —these include all accounts of the possessions of the business such as; cash, vehicles, accounts
receivables, prepayments.

 Liabilities— include all accounts of what the business owes outsiders. Examples of liabilities include; bank
overdraft, accounts payables and loans.

 Expenses— are expenditures incurred in the day to day running of the business or in acquiring goods for re—
sale. For example, purchases, rent, repairs and salaries.

 Income— is the revenue inflows from the business’ day to day activities. Examples of incomes include
amounts received from sales, interest received and discount received.

 Capital — this is the initial money or assets invested in the business by the owner.

Sections of the ledger

. There are three sections that are found in the ledger:
 Sales ledger section,
 Purchases ledger section and the
 General ledger section.

This is done to bring order and for easy reference of transactions in the ledger.

 Accounts can be
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1.Personal Accounts
2.Impersonal Accounts

Classification and divisions of ledger accounts.

. Ledger accounts are classified into; personal and impersonal accounts.

Personal accounts
. Refer to accounts of individuals or businesses.
. These include accounts for accounts receivables and accounts payables.
1. Accounts receivables (Sales Ledger section)
2. Accounts payables (Purchases Ledger section)

Receivables’ accounts
. They refer to accounts of individuals or businesses who owe the business.
. When such transactions are posted to the ledger, they are recorded in the sales ledger section.

Payables’ accounts
.These are accounts of individuals or businesses that the business owes.
. Such transactions are posted to the purchases ledger section when completing the double entry.

The double entry system for assets, liabilities and capital

. Each transaction is entered twice in the ledger (book of accounts.

Assets.
. These are resources in the business or belongings of a business.
. Transactions which increase these are entered on the Debit.
. Transactions which decrease them are entered on the credit side of the ledger account.

Example. On 21 June 2005 we bought a machine for 200 cash.

Answer: Two accounts involved – Machine account and cash account.

The accounts will be drawn as following

Machine a/c
Date Details Amount Date Details Amount
2005
June 21 Cash 200

Cash a/c
Date Details Amount Date Details Amount
2006
June 21 Machine 200

Capital
. These are resources invested by the owner in a business.
. Capital can also be defined as the resources needed to start and run a business.
. Transactions that increase capital are entered on the credit side.

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Example: The business started on 3 August 2011 with $23000 in the bank

Answer: two accounts involved – Capital and Bank

Bank a/c
Date Details Amount Date Details Amount
2011
August 3 Capital 23 000

Capital a/c
Date Details Amount Date Details Amount
2011
Aug 3 Bank 23 000

Liabilities
. These are resources that are borrowed by the business.
. They are also resources the business owe other parties (business or other people)
. Transactions which increase liabilities are entered on credit.
. They can be goods we bought on credit, loan or anything which will make our business pay someone some money.

Example: we bought Fixtures credit from Singano on 3 September 2015 for $450
Answer: two accounts involved Fixtures and Singano
Fixtures a/c
Date Details Amount Date Details Amount
2015
Sept 3 Singano 450

Singano a/c
Date Details Amount Date Details Amount
2015
Sept Fixtures 450
3

Classification-of-Ledger-accounts-Exercise 1

Choose the correct answer from the ones provided for each question.

1) Accounts payables accounts are recorded in which section of the ledger?

Sales ledger

Purchases ledger

General ledger

2) Which of the following is a personal account?

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Rent

Annette Investments

Machinery

3) The ledger is divided into two sides that are the ________ sides.

cash and bank

debit and credit

debtors and creditors

4) The ledger classifies and summarises financial information from ________ .

source documents

books of prime entry

accountants

5) The ledger may be classified under two main headings, Personal and ________ accounts.

Real

Impersonal

Nominal

6) The ledger is also known as the ________ .

cash book

journal

main books of accounts

7) The ledger is used to record the ________ aspect of a transaction.

first

dual

complete

8) Real accounts are used to record items that can be seen or touched such as ________ .

accounts payable
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drawings

premises

9) Nominal accounts are used to record revenue and expenses such as _________ .

commission received

accounts receivables

drawings

Classification-of-Ledger-accounts-Exercise 2

Answer all questions correctly by choosing the most appropriate answer.

1) Entries entered in the sales ledger originate from books of prime entry such as the ________.

sales day book

returns outwards day book

receipts day book

purchases day book

2) Personal accounts of accounts receivable are recorded in the ________.

real ledger

sales ledger

cash book

purchases ledger

3) ________ are examples of personal accounts.

Accounts receivables and accounts payable

Real accounts and accounts receivables

Accounts payable and nominal accounts

Nominal accounts and real accounts

4) Examples of impersonal accounts are ________.

accounts receivables and accounts payable

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real accounts and accounts receivables

accounts payable and nominal accounts

nominal accounts and real accounts

5) Accounts payable are recorded in which ledger?

Accounts receivables

Sales ledger

Purchases ledger

General ledger

6) Business assets such as motor vans, furniture and buildings are classified under ________ accounts.

real

nominal

non-current assets

current assets

7) Intangible items such as income and expenses are classified under ________ accounts.

real

nominal

income

expenses

8) Commission received account and wages account are found in which ledger?

Purchases ledger

Sales ledger

General ledger

Nominal ledger

9) In which ledger will you find the following T-account?

1.PNG (2 KB)

Purchases ledger

Sales ledger
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General ledger

Real ledger

10) The account below is found in which ledger?

2.PNG (7 KB)

Purchases ledger

Sales Ledger

General ledger

Real ledger

11) Answer question 11, 12 and 13 using the following statement:

K. Bere is a motor vehicle dealer he sub-divided his ledger accounts into Purchases ledger, Sales ledger and General
ledger.

In which ledger would the account of V. Kusho a credit customer of K. Bere be found?

The general ledger

The sales ledger

The cash book

The purchases ledger

12) In which ledger would rent account be found?

Sales ledger

Purchases ledger

General ledger

Cash book

13) The drawings account in the books of K. Bere would be found in the ________.

cash book

sales ledger

purchases ledger

general ledger

Classification-of-Ledger-accounts-Exercise 3

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State whether the following statements are True or False.

1) Accounts payables are recorded in the sales ledger section of the ledger.

True

False

2) Purchases returns are found in the accounts receivables section of the ledger.

True

False

3) The cash and bank columns are found in the accounts receivables section of the ledger.

True

False

4) The general ledger section is used to record personal and impersonal accounts.

True

False

5) Impersonal accounts are sub-divided into accounts payables and accounts receivables.

True

False

6) Transactions complete their double entry from books or original entry in the ledger.

True

False

7) The cash book is the main book of accounts.

True

False

8) Premises, Plant and Machinery accounts are examples of real accounts.

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True

False

9) Classification of ledger accounts is done for easy reference of transaction and to maintain order in the ledger.

True

False

10) The sales journal is a good example of a book of prime entry.

True

False

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Importance-of-accounting-Exercise 1

Choose the correct answer from the brackets and fill in the blank spaces.

1) To obtain a loan, financial institutions need accounting records to evaluate the ________ of a company. (credit
worthiness /customers)

2) The performance of a business can also be shown by the use of an ________. (accounting file/income
statement)

3) Fraud can be prevented and discovered by ________. (effective documentation/having many employees)

4) Accounting helps in monitoring a business' ________. (customers /performance)

5) ________ helps the government in the calculation of taxes. (Company files/ Accounting records)

6) Accounting records are stored electronically or manually for ________. (managing employees /future
references)

7) ________ is the interpretion, classification, summarisation, recording and reporting financial information of a
business. (Bookkeeping /Accounting)

8) A systematic way of recording business transactions is known as ________ . (bookkeeping /accounting)

9) Analysing and reporting of financial information of a business is a function of ________. (accountants /

bookkeepers)

10) The analysis of accounting information for different trading periods helps management in ________. (making
decisions /ascertaining information)
Importance-of-accounting-Exercise 2

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Answer all questions correctly by choosing the most appropriate answer.

1) Accounting information is required for the purpose of ascertaining ________.

the number of business documents used in a business

the value of assets in a business
the profit or loss made by a business
the number of competitors of a business
2) Which of the following is not a function of accounting?

Useful in decision making.

Used to prevention and discover fraud.
Primarily concerned with historical data.
Helps in monitoring business performance.
3) Accounting play an important role in the ________ of the business.

management and classification

running and manufacturing
classification and performance
running and management
4) Who is responsible for analysing financial information of a business?

Accountants
Bookkeepers
The company
The government
5) The government requires every business to keep accounting records inorder to ________.

calculate taxes
grant them more employees
advertise on behalf of a business
be time compliant
6) Who is responsible for recording financial information?

Auditors
Bookkeepers
The company
The government
7) Effective documentation of accounting information can be used to ________.

trace employees
discover fraud
satisfy customers
obtain more employees
8) Why do businesses keep accounting records?

To monitor performance of workers.

To calculate profit.
To create more work for the employees.
To Keep a record of the performance of employees.
9) How can accountants assess the performance of a business?

By comparing the previous records with the present records.

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By calculating the total revenue generated by a business.

By checking their bank statements.
By enquiring employees’ opinion on the business’s performance.
10) Accounting information is necessary as it helps businesses to obtain ________.

shares on the stock exchange

more competitors
more employees
funds or loans from the bank
Importance-of-accounting-Exercise 3

Indicate whether the following statements are True or False.

1) The government does not require every business to keep accounting records.

True
False
2) For a financial institution to grant a business a loan, accounting records are not required to evaluate the credit
worthness the business.

True
False
3) A business can prevent and discover fraud when accounting information is properly documented.

True
False
4) Accountants analyse accounting information for the current trading period only, this helps them in coming up
with sound decisions.

True
False
5) Accounting enables stakeholders to trust and be confident of the information they find about the business.

True
False
6) Accounting information is stored in computers, folders and files for future references.

True
False
7) Information concerning a transaction can not be traced easily using the available accounting information.

True
False
8) It is not necessary for a business to keep track of significant amount of information such as customers, sales and
inventory.

True
False
9) The performance of a business can be shown by the use of an accounting sheet which shows the net income or
net loss generated during a particular period.

True
False
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10) Receipts and payments of a business should be properly documented.

True
False

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Types-of-business-organisations-Exercise 1

Choose the most appropriate answer for the following questions.

1) Which of the following is not a feature of a sole trader business?

It has a large pool of capital.

Unlimited liability.

It makes very little profits compared to companies.

It is easy to operate.

2) Which of the following is a feature of private limited companies?

Separate legal existence.

They are listed on the stock exchange.

They are required to publish their accounts at the end of each financial period.

They suffer from unlimited liability.

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3) Which of the following is not an advantage of a sole trader?

Very little capital outlay needed.

Have unlimited liability.

Enjoy all profits.

Easy to operate.

4) Shareholders' liabilities to a company are limited to ________.

the number of shares issued out by the company

the effort and skill each shareholder is contributing to the company

the assets that the company possesses

the number of shares a shareholder subscribed to the company

5) What does unlimited liability mean?

A company's name does not end with the word limited.

Companies can sell shares to both the public and family members.

In case of insolvency or bankruptcy of a business, the owner of the business may lose personal possessions to pay
business debts.

In case of insolvency or bankruptcy of a business, the owner of the business does not lose personal possessions to
pay business debts.

6) What is the name given to institutions that are set to serve the community without being concerned about
making profit?

Company

Profit making organisations

Not-for-profit making organisations

Social clubs

7) What are shareholders?

People who owe the business money.

Owners of a limited company.

Resources owned by the business.

People who lend the business money.

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8) A partnership ________ outlines the rights and obligations of each member.

agreement

form

licence

memo

9) What is a sole trader business?

A business organisation owned by one person.

A business organisation owned by two to twenty people.

A business organisation owned by two to fifty people.

A business that does not have a profit motive.

10) Which of the following is not a characteristic of a sole trader?

Enjoy all profits

Unlimited liability

High set up costs

Easy to operate

Types-of-business-organisations-Exercise 2

Complete the gaps in the questions below by choosing the correct answer from the two given in the brackets after
each question.

1) ________ entity means that a business is regarded by the law as a person on its own and its operations are
separate from its owners. (Separate legal/limited)

2) ________ liability means that the owners of a business are at a risk of losing their personal belongings to pay off
business debts in case the business fails to meet its financial obligation. (Unlimited/limited)

3) Public sector businesses are owned by the ________. (government/public)

4) ________ liability means that business owners cannot lose their personal belongings to pay off debts in case the
company fails to meet its financial obligations. (Unlimited/Limited)

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5) Upon the formation of a partnership there is a legal agreement between the partners called a Partnership
________. (certificate/deed).

6) A person who starts a business on his or her own is known as a ________. (shareholder/sole trader)

7) A sole trader needs to have a ________ before he or she starts trading. (certificate/licence)

8) Public sector businesses are controlled by ________ . (the government/the directors)

9) Guidelines from the________ are used in the formation of public limited companies in Zimbabwe. (stock
exchange/companies act)

10) A partnership is a business owned by a minimum of 2 up to a maximum of ________ people. (20/50)

Types-of-business-organisations-Exercise 3

Indicate whether the following statements are True or False.

1) All limited companies’ shares are legal entities.

True

False

2) A partnership deed is a document that establishes the company’s relationship with the outside world.

True

False

3) Sole proprietorship has less legal formalities as compared to a partnership business.

True

False

4) Private companies are allowed to sell their shares on the stock exchange.

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True

False

5) The owners of a limited company are called stakeholders.

True

False

6) A shareholder’s liability to the company is limited to the number of shares subscribed.

True

False

7) The minimum number of shareholders in a private limited company is twenty.

True

False

8) Private limited companies are owned and run by the shareholders.

True

False

9) Sole proprietorship requires a trading licence only to start operating.

True

False

10) The number of shareholders in a public limited company is not limited.

True

False

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Types-of-business-activities-Exercise 1

Answer all questions correctly by choosing the most appropriate answer.

1) Manufacturing is found in the ________ sector(s) of the economy of a country.

primary

secondary

tertiary

primary and secondary

2) ________ is the exchange of goods or services.

Extraction

Manufacturing

Provision of services

Trade

3) Which business activity deals with the processing of raw materials into finished or semi-finished goods?
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Extraction

Manufacturing

Trading

Provision of services

4) Vendors, general dealers and other retailers are examples of ________.

service providers

traders

consumers

managers

5) Why do traders deal in a number of products?

To increase the number of employees in their organisations.

To increase their profitability level.

To increase their inventory levels.

To create more work for managers.

6) Capital goods are ________.

goods used up by consumers

the most expensive goods in a market

used in the production of other goods

the cheapest goods in a market

7) Accounting and teaching are examples of ________.

consumer goods

capital goods

raw materials

services

8) Which of the following are the three main operating activities of a business?

Manufacturing, processing and accounting.

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Manufacturing, trading and provision of services.

Manufacturing, management and accounting.

Extraction, manufacturing and trading.

9) Services are examples of ________ goods.

intangible

tangible

soft

expensive

10) Which business activity is found in the tertiary sector of the economy?

Provision of services.

Manufacturing

Extraction

None of the above

Types-of-business-activities-Exercise 2

Indicate whether the following statements are True or False.

1) Trading involves buying and selling of goods or services.

2) A business refers to all activities carried out to make profit.

3) Creation of new commodities and value addition is done in the secondary stage of production.

4) Manufacturing is found in the tertiary sector of the economy of a country.

5) Advice, information and access are not examples of services.

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6) Vendors, tuck shop owners and supermarkets are examples of manufacturers.

7) Manufacturing, trading and provision of services are examples of business activities.

8) Transportation, distribution and sale of goods are classified under manufacturing activities of a business.

9) Provision of services involves the transformation of raw materials into finished or semi-finished goods.

10) Ambulance services are classified under types of services.

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Users-of-
accounting-information-Exercise 1

Answer all questions correctly by choosing the most appropriate answer.

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1) ________ use accounting information to analyse the performance of a business and evaluate its
competitiveness.

Managers

Customers

Auditors

Debtors

2) ________ use accounting information to assess an organisation’s profitability and the effects it may have on
their future remuneration and job security.

Employees

Shareholders

Accounts receivables

Creditors

3) Which of the following is not a way of presenting accounting information to its users?

Income statements

Budgets

Maps

Ledger accounts

4) What is the purpose of accounting information to business owners?

To inspect their businesses’ profitability.

To calculate the resources they can withdraw from the business for personal use.

To try and evade paying tax.

To find out the number of creditors they can delay settling their accounts.

5) Creditors are regarded as ________ users of accounting information.

primary

secondary

tertiary

both primary and secondary

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6) Which of the following is an example of external users of accounting information?

Directors

Customers

Employees

Shareholders

7) Tax is calculated from the ________ of an organisation.

total income

total expenses

total profits

total value of account receivables

8) Which of the following is not an example of external users of accounting information?

Suppliers

Shareholders

Investors

Creditors

9) Households use accounting information to ________.

draw up family budgets

assess the credit worthiness of a business

find out if there are employment opportunities in a particular business

inspect a business’s profitability

10) Which department in Zimbabwe is responsible for ensuring that business organisations pay tax to the
government?

The Reserve Bank of Zimbabwe (RBZ).

Zimbabwe Revenue Authority (ZIMRA).

Zimbabwe Aviation Authority (ZAA).

National Social Security Authority (NSSA).

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Users-of-accounting-information-Exercise 2

Choose the correct answer from those in brackets and fill in the blank spaces.

1) ________ use accounting information to make business forecasts. (Customers/Management)

2) ________ determine the credit worthiness of an organisation using the organisation’s accounting information.
(Lenders/Accounts receivables)

3) ________ need financial information to determine the credibility of the tax returns filed on behalf of a company.
(National Social Security Authority/Tax authorities)

4) Accounting information can be presented to users in form of ________. (financial statements/newspaper

articles)

5) Shareholders are an example of ________ users of accounting information. (internal/external)

6) ________ are owners of a company and can be affected by the operations of the company.
(Stakeholders/Shareholders)

7) Potential investors are ________ users of accounting information. (internal/external)

8) ________ use accounting information to manage their bank and credit accounts. (Households/Investors)

9) ________ are responsible for ensuring that companies disclose their accounting information in accordance with
the rules and regulations set in order to protect the interests of the stakeholders who rely on such information in
making their decisions. (Regulatory authorities/Investors)

10) ________ require accounting information to analyse the viability and profitability of their investments and to
determine any future course of action. (Investors/Customers)

Users-of-accounting-information-Test 1

Answer all questions correctly by choosing the most appropriate answer.

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1) An ordinary partnership is made up of ________ people.

two to twenty two to thirty two to fifty two to sixty

2) Managers, employees and shareholders are examples of ________ users of accounting information.

internal external serious international

3) A carpenter can be classified under which of the following business activities?

Manufacturing Trading Provision of services Extraction

4) Limited companies are owned by ________.

the government shareholders partners stakeholders

5) Business transactions should be recorded in ________way.

a systematic a mathematical an alphabetical a vertical

6) The simplest form of business ownership is ________.

sole proprietorship a partnership a private limited company a public limited company

7) A business event which involves the exchange of goods and services for money is ________.

buying business a transaction selling

8) Which of the following forms of business organisations publish their accounts at the end of a financial period?

Private limited company Public limited company Sole trader Partnership

9) Creditors can be known as _________ .

accounts receivables accounts payables suppliers shareholders

10) Which of the following is a liability?

Drawings Accounts receivables Accounts payables Capital

11) Goods acquired for resale are ________.

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purchases revenue sales assets

12) Accounting helps businesses in the following functions except that ________.

it helps in monitoring business performance it provides information useful in decision making it is a source of
conflict and fraud in the business it helps in making sound decisions

13) Mr. Zhawu sold goods on credit to Mrs. Chioma for $560. Who is considered as the accounts receivable in this
case?

Mr. Zhawu Mrs. Chioma Both Noone

14) Which of the following users of accounting information are interested in assessing the credit worthiness of a
business?

Tax authorities Investors Accounts payables Accounts receivables

15) Inventory is an example of a ________.

current asset non-current asset liability non-current liability

16) The secondary stage of production involves ________.

trading provision of services manufacturing. extraction

17) The recording of business transactions and information on a day-to-day basis is known as ________.

accounting bookkeeping record keeping double entry

18) Money taken out of the business for day to day operations is known as ________.

an expense rent paid drawings purchases

19) Accountants, lawyers and teachers are in the ________ sector.

primary secondary tertiary high

20) Wages, rent paid and electricity are examples of ________.

liabilities expenses current assets income

Users-of-accounting-information-Test 2

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Answer the following questions on a sheet of paper and compare your answers with those suggested after clicking
the submit button.

1) State three examples of non-current asset.

2) State three examples of current assets.

3) Give three examples of liabilities.

4) Write down any three users of accounting information.

5) Give any three reasons why businesses carry out the accounting function.

6) Name any three types of business organisations.

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Electronic-methods-of-data-processing-Exercise 1

Answer the following questions on a sheet of paper and compare your answers with those suggested after clicking
the submit button.

1) What are electronic methods of data processing?

2) What is the other name for electronic methods of data processing?

3) What does IT stand for?

4) State five reasons why electronic methods of data processing are mostly adopted in the 21st century.

5) Give five reasons why a business owner may prefer to use manual methods of processing data instead of
electronic methods of data processing.

6) Give three examples of devices used in electronic methods of data processing.

Electronic-methods-of-data-processing-Exercise 2
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Indicate whether the following characteristics fall under electronic or manual data processing methods.

1) They are very expensive to establish.

2) Affected by changes in technology.

3) Associated with high labour costs.

4) Involves limited use of machines.

5) Uses a lot of papers.

6) Do not rely on electric power.

7) Associated with high maintenance and upgrading costs.

8) They are a labour intensive.

9) Files can be protected by the use of passwords.

10) They are very fast in processing data.

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Manual-methods-of-processing-data-Exercise 1

Choose the correct answer from the brackets.

1) When dealing with large figures, ________ and electronic data processing methods can be integrated when
adding figures. (manual/automated)

2) ________ is considered as raw information. (Data/A folder)

3) A ________ is an electronic device that can be integrated in manual data processing. (calculator/computer)

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4) Manual data processing methods usually use ________ when recording data. (pen and paper/computers)

5) When using manual data processing methods, documents are stored in physical ________. (files and folders/
hard drives)

6) When using manual data processing methods calculations and logical operations are done ________.
(manually/electronically)

7) Most government departments and sole traders use manual data processing methods because they are
________. (cheaper/thorough)

8) ________ of data in subsidiary books is part of manual ways of processing data. (Recording/Storing)

9) Manual data processing method is characterised by too much ________. (paper work/corrupt files)

10) Conversion of data into meaningful information is known as ________. (data processing/information capturing)

Indicate whether the following statements are True or False in relation to manual data processing methods.

1) They are cheaper compared to electronic methods of processing data.

2) Require less use of electricity.

3) They are affected by technological advancements.

4) They can be integrated with electronic methods.

5) They provide immediate backup.

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6) They are labour intensive.

7) One person's information can be another person's data.

8) Data is unprocessed information gathered from one or more sources.

9) Information is unfinished data.

10) Data processing involves the transformation of data into usable or meaningful information.

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Accounting-cycle-Exercise 1

Answer all questions correctly by choosing the most appropriate answer.

1) Transactions are first recorded in the ________.

final accounts

ledger

books of prime entry

trial balance

2) A list of debit and credit balances drawn from the ledger is known as the ________.

cash account

statement of financial position

trial balance

income statement

3) The accounting cycle is the process in which data is recorded and processed from source documents to the
________.

final accounts

ledger accounts

trial balance

books of prime entry

4) The last stage in the accounting cycle is for _______.

subsidiary books

the trial balance

financial statements

the ledger

5) What is the purpose of the accounting cycle?

To calculate profit made by the business.

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To show business transactions.

To show the stages involved in reporting financial information.

To calculate loss made by the business.

6) In the accounting cycle the trial balance is drawn from ________accounts.

final

subsidiary

ledger

accounting statement

7) On which stage of the accounting cycle are the books of prime entry found?

First stage

Second stage

Third stage

Fourth stage

8) What is the purpose of source documents in the accounting cycle?

To show the origins of a transaction.

To show the accounting cycle.

To show the credit balance of a transaction.

To show the debit balance of a transaction.

9) The following are examples of source documents except for the ________.

debit note

purchases invoice

receipts for cash paid

cash book invoice

10) According to the accounting cycle, where are transactions recorded after being recorded in the trial balance?

Source documents

Final accounts

Subsidiary books
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Ledger

Accounting-cycle-Exercise 2

Fill-in the blank spaces with the correct answer.

1) The income statement and the statement of financial position are examples of ________.

2) The accounting cycle helps a business to keep its accounting records orderly and it shows the stages involved in
reporting ________.

3) Receipts are useful in recording transactions in the ________.

4) The ________ is useful in checking whether transactions were posted correctly in the ledger.

5) The stages of the accounting cycle include source documents to ________ to ledger to trial balance and to final
accounts.

6) The original information about a transaction is found in ________.

7) The accounting cycle has ________ stages. (Write your answer in words)

8) The dual aspect of a transaction is recorded in the ________.

9) Sales journal and cash book are examples of ________.

10) Accounting cycle is the process in which data is recorded and processed from ________ to financial statements
of the same accounting period.

Accounting-cycle-Test

Write your answers on a separate sheet of paper and compare with the suggested answers after submission.

1) Define the accounting cycle.

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2) Define a subsidiary book.

3) Give one reason why source documents are important in a business.

4) State one source document used in recording transactions in the cash book.

5) Where are transactions posted after recording them in the subsidiary books?

6) Name one use of the trial balance.

7) In a trial balance which two balances should be equal?

8) Give two reasons why final accounts are drawn.

9) Final accounts are drawn from which information

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Source-documents-Exercise 1

Fill-in the blank spaces with the correct answer.

1) When electricity is paid by cheque, it is recorded on the ________ side of the bank column.

2) A ________ is used to acknowledge cash received or cash paid.

3) A ________ is used for recording transactions in the purchases Journal.

4) Goods returned to a supplier are accompanied by a ________.

5) All credit sales are recorded from the ________.

6) A ________ is a document issued by the supplier to give consent for goods returned.

7) A ________ can be used to cancel the original sale of goods or to correct an overcharge on sales.

8) A ________ is used when recording transactions in the sales day book.

9) The receipt is used to enter transactions in the ________.

10) The purchases invoice is used to record all credit _______.

Source-documents-Exercise 2

Answer all questions correctly by choosing the most appropriate answer.

1) The purchases invoice is used to record transactions in the ________.

purchases returns day book

purchases journal
purchases account
sales book
2) Which of these documents is not used when recording transactions in the bank column of the cash book?

Bank statement
Deposit slip
Debit note

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Cheque counterfoil
3) Which subsidiary book is used when recording the following transaction?

Goods sold on credit to Moyo.

Purchases journal
Cash book
Sales journal
Petty cash book
4) Which subsidiary book is used when recording the following transaction?

Paid rent by cheque.

Purchases journal
Cash book
Sales journal
Petty cash book
5) Which of the following documents is used when recording transactions in the cash book?

Statement of account
Purchases invoice
Debit note
Receipt
6) Which one of the following documents is used when recording transactions in the purchases journal?

Petty cash voucher

Receipt
Purchases invoice
Statement of account
7) Which of the following source documents is used when recording transactions in the sales day book?

Debit note
Credit note
Purchases invoice
Sales invoice
8) A ________ is issued to accept goods returned by a customer.

purchases invoice
sales invoice
credit note
cheque counterfoil
9) The debit note is sent by ________ with the returned goods.

a customer to the supplier

a supplier to the customer
a broker to a customer
an employer to the employee
10) A ________ shows the amount owed or paid in advance by a customer.

bank statement
credit note
statement of account
cheque counterfoil
Source-documents-Exercise 3

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Answer the following questions on a sheet of paper and compare your answers with those suggested after clicking
the submit button.

1) Define the following terms:

Receipt
Voucher
Credit note
Invoice
Bank statement
Cheque
Debit note
Bank statement
Statement of account
Sales invoice

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Posting-entries-to-the-ledger-Exercise 1

Choose the correct answer from the bracket and fill it in the space provided.

1) Personal accounts for accounts payable are recorded in the ________. (purchases ledger/sales ledger)

2) The total of the purchases day book is recorded in the ________. (general ledger/purchases ledger)

3) Personal accounts of accounts receivable are recorded in the ________. (purchases ledger/sales ledger)

4) When posting entries from the cash book to the ledger, items on the debit side of the cash book will be posted
to the ________ side of the individual ledger accounts. (debit/credit)

5) Rent paid in cash is posted to the ________. (sales ledger/general ledger)

6) The ________ principle states that the account receiving must be debited while the account giving must be
credited. (book-keeping rule/double entry)
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7) The total of the sales returns day book is recorded in the ________. (general ledger/sales ledger)

8) Transactions are posted from ________ to the ledger. (subsidiary books/source documents)

9) Entries recorded in the sales ledger are taken from the ________. (sales day book/sales account)

10) When posting transactions from day books to the ledger, entries with amounts recorded on the debit column
of the day books are posted to the ________ side of the corresponding accounts in the ledger. (debit/credit)

2 Enter the following in the appropriate creditors’ accounts (i.e. your suppliers’ accounts) only.
Do not write up the other accounts. Then balance off each of these personal accounts at the end
of the month. (Keep your answer; it will be used as the basis for question 5.4.)
20X8
June 1 Purchases on credit from J Saville £240; P Todd £390; J Fry £810.
== 3 Purchases on credit from P Todd £470; J Mehan £1,450.
== 10 We returned goods to J Fry £82; J Saville £65.
== 15 Purchases on credit from J Saville £210.
== 19 We paid J Mehan by cheque £1,450.
== 28 We paid J Saville by cash £300.
== 30 We returned goods to P Todd £39.

3 Enter the following in the personal accounts (i.e. the creditor and debtor accounts) only. Do
not write up the other accounts. Balance off each personal account at the end of the month. After
completing this, state which of the balances represent debtors and which represent creditors.
20X8
Sept 1 Sales on credit to J Bee £520; T Day £630; J Soul £240.
== 2 Purchases on credit D Blue £390; F Rise £510; P Lee £280.
== 8 Sales on credit to T Day £640; L Hope £418.
== 10 Purchases on credit from F Rise £92; R James £870.
== 12 Returns inwards from J Soul £25; T Day £190.
== 17 We returned goods to F Rise £12; R James £84.
== 20 We paid D Blue by cheque £390.
== 24 J Bee paid us by cheque £400.
== 26 We paid R James by cheque £766.
== 28 J Bee paid us by cash £80.
== 30 L Hope pays us by cheque £418.

4 Enter the following transactions in personal accounts only. Bring down the balances at the end of the month. After
completing this, state which of the balances represent debtors and which are creditors.
20X7
May 1 Credit sales G Wood £310; K Hughes £42; F Dunn £1,100; M Lyons £309.
== 2 Credit purchases from T Sim £190; J Leech £63; P Tidy £210; F Rock £190.
== 8 Credit sales to K Hughes £161; F Dunn £224.
== 9 Credit purchases from J Leech £215; F Rock £164.
== 10 Goods returned to us by F Dunn £31; M Lyons £82.
== 12 Cash paid to us by M Lyons £227.
== 15 We returned goods to T Sim £15; F Rock £21.
== 19 We received cheques from F Dunn £750; G Wood £310.
== 21 We sold goods on credit to G Wood £90; K Hughes £430.
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== 28 We paid by cheque the following: T Sim £175; F Rock £100; P Tidy £180.
== 31 We returned goods to F Rock £18.

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Functions-of-the-trial-balance-Exercise 1

Indicate whether the following statements are True or False.

1) Trial balance ensures that all transactions observe the double entry system.

2) Arithmetical accuracy can be proved by drawing up a trial balance.

3) A trial balance is drawn from cash book balances.

4) In a trial balance, accounts with debit and credit balances are clearly distinguished.

5) A trial balance is used to correct errors.

6) Not completing the double entry system will result in the trial balance’s total debits and total credits not
agreeing.

7) In a trial balance different accounts can easily be accessed on the same worksheet within a short space of time.

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8) The trial balance is part of double entry.

9) The trial balance can detect all errors.

10) A trial balance shows a list of debit and credit account balances.
Functions-of-the-trial-balance-Exercise 2

Answer all questions correctly by choosing the most appropriate answer.

1) If the total of the debit side and the credit side are equal the trial balance is said to be ________.

arithmetically correct
failing to complete double entry
completing double entry with different figures
arithmetically incorrect
2) A ________ is an accounting worksheet which shows a list of debit and credit balances from the ledger at a given
date.

balance sheet
trial balance
statement
trading account
3) Which of the following is not a function of a trial balance?

Checking mathematical accuracy.

Detecting errors in posting of transactions.
Source of information for the preparation of financial statements.
Showing the financial position of a business.
4) The trial balance detects the following errors except ________.

error of addition
error of not recording a transaction in any of the books of accounts
error of failing to complete the double entry
error of completing double entry with different figures
5) The trial balance is used to record amounts with ________.

debit balances
credit balances
debit and credit balances
credit transactions
6) The trial balance shows the ________ balance of each account at a glance.

opening
closing
journal
ledger
7) The trial balance acts as a source of information for the preparation of _______.

financial statement
trial balance
ledger
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subsidiary book
8) After preparing ledger accounts it is necessary to check whether accounts are arithmetically accurate by
preparing a ________.

statement of financial position

trial balance
income statement
statement of account
9) A trial balance is prepared from ________ balances.

ledger
subsidiary book
cash book
journal
10) How does a trial balance distinguish accounts?

By showing accounts with similar amounts on their own.

Listing account balances on the debit side.
Listing accounts balances on the credit side.
By showing accounts with debit balances on the debit column and those accounts with credit balances on credit
column.

Extraction-of-the-trial-balance-Exercise 1

Answer the following question on a sheet of paper and compare your answers with those suggested after clicking
the submit button.

Top of Form

1) The following list of balances was extracted from the books of Q. Sibanda:

Cash 300

Sales 1 450

Bank 1 730

Motor van 1 200

Machinery 1 800

Capital 5 000

Purchases 1 900

Office equipment 235

Accounts receivable 255

Accounts payable 850

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Returns inwards 50

Returns outwards 170

Required:

Draw up Q. Sibanda’s trial balance as at 31 August 2016.

Extraction-of-the-trial-balance-Exercise 2

Indicate whether the following items are recorded on the debit or credit column of a trial balance.

1) Capital

2) Goods taken by the owner for personal use.

3) Interest earned

4) Assets

5) Bank overdraft

6) Returns inwards

7) Accounts payable

8) Purchases
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9) Accounts receivable

10) Rent paid

Extraction-of-the-trial-balance-Exercise 3

Answer the following question on a sheet of paper and compare your answers with those suggested after clicking
the submit button.

1) The following list of balances were extracted from the books of T. Mhonde as at 30 June 2015:

Details Amount

Bank overdraft 4 230

Purchases 10 800

Cash 3 500

Sales 8 000

Returns outwards 125

Accounts payable 550

Office equipment 11 750

Accounts receivable 875

Returns inwards 420

Capital 14 440

Required:

Draw up T. Mhonde's trial balance as at 30 June 2015.

Extraction-of-the-trial-balance-Exercise 4

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Answer the following questions on a sheet of paper and compare your answers with those suggested after clicking
the submit button.

1) The following transactions relate to the business of E. Takavarasha for the year ended 31 December 2016.

Date Details Amount

December 01 Started a business with cash 4 000

05 Bought goods for resale in cash 250

08 Bought a delivery van in cash 1 000

11 Cash sales 3 700

12 Sold goods on credit to A. Hoza 490

15 Cash sales 1 925

18 Bought goods for resale on credit from T. Chandalala 975

21 Bought stationery in cash 90

25 Paid rent in cash 540

28 Received cash from A. Hoza for goods sold to him on credit 290

Required:

Draw up the following ledger accounts in E. Takavarasha's ledger:

i. Cash account

ii. Purchases account

iii. Delivery van account

iv. A. Hoza's account

v. Sales account

vi. T.Chandalala's account.

vii. Stationery account

viii. Rent account

ix. Capital account

2) Draw up E. Takavarasha's trial balance as at 31 December 2016.

Extraction-of-the-trial-balance-Exercise 5

Compiled with love for learners………Reference Ruzivo Online learning

Mr Batison
94 | P a g e

Answer the following questions on a sheet of paper and compare your answers with those suggested after clicking
the submit button.

1) The following transactions were taken from the books of Makumbe for the month of April 2018.

Date Details

April 01 Makumbe started her business with $15 000 in the business bank account.

02 Bought goods for resale valued at $2 500 by cheque.

04 Bought office equipment costing $1 456 on credit from Huri.

05 Cash sales totalling $1 780.

07 Bought goods worth $5 000 on credit from Kelvin.

10 Makumbe took goods costing $200 for personal use.

14 Sold goods valued at $980 on credit to Tafadzwa.

16 Returned goods worth $250 to Kelvin.

17 Sent a cheque of $1 400 to Huri as part payment for office furniture bought on credit.

19 Tafadzwa returned goods worth $100 to the business.

23 Received cash amounting to $500 from Tafadzwa.

Required:

Draw up Makumbe's Trial balance as at 30 April 2018.

Extraction-of-the-trial-balance-Test 1

Answer the following questions on a sheet of paper and compare your answers with those suggested after clicking
the submit button.

1) The following balances were extracted from the ledger of Tandi Limited as at 30 November 2016.

Sales 950

Purchases 700

Carriage inwards 50

Carriage outwards 70

Rent 250

Insurance 120

Advertising 80

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Mr Batison
95 | P a g e

Wages 135

Accounts receivables 850

Accounts payable 680

Cash 600

Bank overdraft 370

Inventory 300

Equipment 3 000

Capital 4 155

Compiled with love for learners………Reference Ruzivo Online learning

Mr Batison