Detailed Course Guide for ACC 102 Elements of Bookkeeping II
NATIONAL OPEN UNIVERSITY OF NIGERIA
DEPARTMENT OF FINANCIAL STUDIES
Course Guide for Elements of Bookkeeping II
Course Code: ACC 102
Course Developer/Writer: Dr. (Mrs.) Ofe I. Inua
Course Editor: Prof. ThankGod O. Imo
COURSE CONTENT
National Open University of Nigeria
Introduction
Course Aim
Course Objectives
Study Units
Assignments
Tutor Marked Assignment
Final Examination and Grading
Summary
INTRODUCTION
The ACC 102 course guide entails instructions and details regarding the Elements of Bookkeeping II
designed for B.Sc. Entrepreneurship students at the National Open University of Nigeria. It outlines what
students should expect from course materials and the anticipated learning outcomes at the course's
completion.
COURSE AIM
The primary aim is to impart basic principles of accounting and assist students in understanding how
financial documents link with the accounting record to ascertain the profit or loss and the financial position
of an organization. Moreover, it explores practical accounting transactions through banking and identifies
errors related to trial balance management.
COURSE OBJECTIVES
Upon completing the course, students should be able to:
Differentiate between bookkeeping and accounting.
Describe methods for preparing accounting data utilizing both manual and computerized systems.
Outline key accounting concepts including the accounting equation and its constituents.
Identify essential books of prime entry and their respective purposes.
Outline common inventory valuation techniques and share insights on inventory costings.
Recognize potential errors influencing the trial balance, as well as those which don’t impact it.
Compile a statement of profit or loss alongside a statement of financial position.
Draft an adjusted cash book and a bank reconciliation statement.
Ascertain the break-even point using various mathematical methods.
STUDY UNITS
The study units encompass:
Unit 1: Basic Accounting
Unit 2: Methods of Recording Data: Manual and Computerized
Unit 3: Accounting Concepts
Unit 4: The Accounting Equation and Its Components
Unit 5: Basic Documentation and Prime Books
Unit 6: Prime Books, General Ledgers, and the Journal
Unit 7: Inventory Valuation
Unit 8: Trial Balance
Unit 9: Final Accounts of a Sole Trader: Statement of Profit or Loss
Unit 10: Final Accounts of a Sole Trader: Statement of Financial Position
Unit 11: End of Year Adjustments in Final Accounts
Unit 12: Accounting Treatment of Control Accounts
Unit 13: Bank Reconciliation
Unit 14: Cost Accounting
Unit 15: Elementary Break-Even Analysis
UNIT 1: BASIC ACCOUNTING
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Historical Development of Accounting
3.2 Regulatory Framework
3.3 Bookkeeping and Accounting
3.4 Scope of Accounting
3.5 The Need for Accounting Information
3.6 Qualities of Good Accounting Information
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading
1.0 INTRODUCTION
Accounting primarily involves accountability, aiming to provide financial data to shareholders and other
affected parties periodically. This transparency helps stakeholders decide on their continuing association with
the organization.
2.0 OBJECTIVES
Upon completion of this unit, students should be able to:
Explain the historical evolution of accounting.
Distinguish between bookkeeping and accounting.
Identify qualities of a good accounting information system.
3.0 MAIN CONTENT
3.1 Historical Development of Accounting
The origin of accounting is attributed to the work of Luca Pacioli, an Italian monk, whose book, "Summa
de Arithmetical…" laid out the principles of double-entry accounting in 1494. This evolution was
necessary as businesses grew and required sufficient accountability to owners and stakeholders regarding
their financial activity, profit or loss, and the state of assets and liabilities.
3.2 Regulatory Framework
The evolving business landscape called for regulatory compliance in accounting practices, anchored in both
statutory requirements and industry-specific regulations. Key regulations influencing Nigerian accounting:
Companies and Allied Matters Act 1990 (amended 2004)
Banks and Other Financial Institutions Act 1991
Insurance Act 2003
Statements of Accounting Standards from the Nigerian Accounting Standards Board
International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS)
each periodically issued by the International Accounting Standards Board (IASB).
3.3 Bookkeeping and Accounting
Bookkeeping involves the systematic recording of financial transactions via source documents and individual
account maintenance, while accounting encompasses the overall cycle, including record keeping, analysis,
interpretation, forecasting, and reporting.
Processes of Bookkeeping:
Classification of transactions from source documents.
Recording of transactions into relevant subsidiary books.
Posting transaction entries into the ledger.
Extraction of trial balance.
3.4 Scope of Accounting
Accounting includes various subfields assuming different responsibilities such as:
Financial Accounting
Cost Accounting
Management Accounting
Auditing
Government Accounting
Taxation Accounting
3.5 The Need for Accounting Information
Accounting information is essential for:
Facilitating economic decisions.
Predicting and evaluating earnings potential and financial health.
Analyzing managerial effectiveness in resource utilization.
Informing creditors for cash flow predictions.
Assisting management with operational planning and control.
Supporting government in tax assessment and fiscal policy formulation.
Providing investment decision tools to investors.
3.6 Qualities of Good Accounting Information
To be deemed reliable, accounting information must capture:
Relevance: Align with user needs.
Reliability: Sources must be verifiable.
Comparability: Consistent frameworks enable benchmarking.
Timeliness: Available in a timely manner.
Objectivity: Free from bias; traces to verified evidence.
Comprehensiveness: Contains adequate detail without excess.
4.0 CONCLUSION
Accounting remains dynamic; influenced by economic changes demanding clarity, reliability, and comprehensive regulations governing financial information.
5.0 SUMMARY
Highlights accounting's historical evolution, regulatory landscape, the distinction between bookkeeping and accounting, information needs in a business context, and the principles guiding good accounting practices.
6.0 TUTOR-MARKED ASSIGNMENT
Enumerate four qualities essential for effective accounting information.
Distinguish between bookkeeping and accounting practices.
Describe the broad scope of accounting.
7.0 REFERENCES/FURTHER READING
Aguolu, O. (2010). Financial Accounting. A Practical Approach. Enugu, Institute for Development Studies.
Anao A.R. (2002). Introduction to Financial Accounting. Longman Nigeria Limited, Ikeja, Lagos.
ICAN Study Pack (2006). Fundamentals of Financial Accounting. VIPublishing Limited, Lagos, Nigeria.
Professional Accounting Tutors Limited (2007). Accounting Standards. Vol. 111, Lagos, Nigeria.
Igben, R.O. (2000). Financial Accounting Made Simple. ROI Publishers, Lagos, Nigeria.
Accounting Technicians Scheme West Africa (ATSWA). Basic Accounting Processes and Systems.
UNIT 2: METHODS OF RECORDING ACCOUNTING DATA: MANUAL AND COMPUTERIZED
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Manual Accounting System
3.2 Computerized Accounting System
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
The advancement of the computer age significantly shifted accounting practices. The majority of
Nigerian small businesses still conduct their transaction records manually, while others opt for fully
computerized systems generating accurate invoices.
2.0 OBJECTIVES
Upon completion of this unit, students should be able to:
Define manual accounting systems.
Discuss the attributes of computerized accounting systems.
Describe processes for manual data preparation.
Understand procedures for mechanical data preparation.
3.0 MAIN CONTENT
3.1 Manual Accounting System
Involves hand-written account management without electronic devices. It entails
Efficient installation costs compared to computerized systems.
No need for advanced equipment or software.
Security is enhanced as it is unaffected by automated failures.
Disadvantages include:
Higher error propensity due to manual calculations.
Time-consuming processes for data entry.
Vulnerable to physical destruction through disasters.
Challenges in identifying mistakes since documents necessitate thorough checks.
3.2 Computerized Accounting System
Computer software applications streamline the recording of financial transactions. Variances exist in
software interfaces yet share essential processes:
Data entry from source documents via keyboards.
Classification through predetermined account categories.
Specifying debited and credited accounts during input.
Report generation through databases against user specifications.
Advantages include:
Enhanced speed and efficiency in transaction recording.
On-demand report generation capabilities.
Improved communication through integrated email functionalities.
Secure data management through extensive backup options.
Disadvantages include:
Vulnerabilities to cyber threats.
Software consultation costs may heighten management expenses.
Failure of electrical systems can halt operations.
4.0 CONCLUSION
Accounting data must be documented via written or mechanical means, necessitating businesses to weigh the merits and drawbacks of both methods.
5.0 SUMMARY
Unit discusses parameters of manual vs. computerized systems emphasizing their respective affinities and shortcomings.
6.0 TUTOR-MARKED ASSIGNMENT
Enumerate advantages of the manual accounting system.
Define computerized accounting systems.
State and explain limitations of manual accounting systems.
Construct a chart of accounts for a retail business.
7.0 REFERENCES/FURTHER READINGS
Accounting Technicians Scheme West Africa (2009). Basic Accounting Processes and System Part 1, Study Pack
Published by Abina Publishers.
Oluyombo, Onafowokan (2016) Financial Accounting With Ease (3rd Edition). Magboro: Kings & Queen Associates.
UNIT 3: ACCOUNTING CONCEPTS
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Key Accounting Concepts
3.2 Other Concepts
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
Discussing fundamental concepts and theoretical foundations of financial accounting is vital for preparing
and interpreting financial statements. This unit will clarify these concepts and definitions, highlighting
important frameworks as defined by the International Accounting Standards Committee.
2.0 OBJECTIVES
Students should be capable of:
Defining key accounting concepts and their significance.
Elaborating on additional accounting concepts utilized in practice.
3.0 MAIN CONTENT
3.1 Key Accounting Concepts
Broad definitions underlying financial statements include:
Going Concern Concept: The presupposition that an entity will remain operational indefinitely unless there is evidence for liquidation. This concept requires that assets are presented at historical costs rather than their liquidation values.
Accruals Concept: Pertains to the recognition of income and expenses when they occur rather than when funds are disbursed. It facilitates matching income and expenses within the corresponding accounting period.
Self-Assessment Exercise: Explain the implications of the going concern concept on financial statement preparation.
3.2 Other Concepts
Complementary accounting pillars include:
Matching Principle - Asserts costs should align with related revenue within the same period.
Entity Concept - Delineates the organizational financials from personal financials of owners.
Materiality Concept - Stipulates that only significant items ought to be disclosed in financials to avoid overwhelming users with trivial data.
Time Period Concept - Segmenting an organization’s life into defined accounting periods (typically one year).
Historical Cost/Fair Value Concepts - Illustrates the essentiality of cost over market estimations in determining asset worth.
Money Measurement Concept - Mandates reporting financial performance in monetary terms.
Duality Concept - Underlines the necessity of maintaining equilibrium within the accounting equation through double-entry bookkeeping.
Prudence Concept - Advises caution in financial reporting to ensure users are not misled by optimistic estimates.
Substance Over Form Concept - Stresses the importance of reporting the economic reality of transactions than mere legal forms.
Consistency Concept - Requires the application of the same accounting principles across periods for comparability.
Separate Determination Concept - Ensures all elements like assets and liabilities are distinctly reported.
4.0 CONCLUSION
The conceptual framework of accounting intertwines various assumptions essential for compiling comprehensive and informative financial reports.
5.0 SUMMARY
This unit delineates the importance of accounting principles in ensuring relevant and accurate financial reporting, aiding stakeholders in decision-making.
6.0 TUTOR-MARKED ASSIGNMENT
Explain each of the materiality, time period, historical cost, money measurement, duality, prudence, substance over form, consistency, and separate determination concepts.
7.0 REFERENCES/FURTHER READINGS
Inua, O.I. (2014). Introduction to Accounting. Abuja: NOUN
Thomas, A. and Ward, A.M. (2012). Introduction to Financial Accounting. Berkshire: McGraw-Hill Education.
UNIT 4: THE ACCOUNTING EQUATION AND ITS COMPONENTS
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Accounting Entity
3.2 The Statement of Financial Position as an Accounting Equation
3.3 The Accounting Period and Profit Reporting
3.4 Revenue Expenditure versus Capital Expenditure
4.0 Conclusion
5.0 Summary
6.0 Tutor Marked Assignment
7.0 References/Further Reading
1.0 INTRODUCTION
This unit explores the pivotal aspects of the accounting equation along with its critical components and
transactions.
2.0 OBJECTIVES
Students should be able to:
Define vital terms and contextualize their significance in the accounting equation.
Decode the relevance of the accounting entity concept to accounting.
Elucidate the nature of assets, liabilities, and capital.
Discriminate between revenue and capital expenditures while evaluating their impact on the financial
position.
3.0 MAIN CONTENT
3.1 The Accounting Entity
The entity concept centers on clear demarcation in recording all transactions associated with a business,
separate from those of owners or unrelated parties. This institutional defines the boundaries of
a reporting entity, ensuring accurate accounting and transparency.
Example: A sole proprietor’s personal withdrawals for personal use do not qualify as business incomes.
3.2 The Statement of Financial Position as an Accounting Equation
The accounting equation is framed as:
Owner's Equity = Total Assets - Total Liabilities.
Alternatively, it can be stated as:
Assets = Liabilities + Owner’s Equity.
This relationship underscores financial positioning, emphasizing equal treatment in reporting both assets and
equities while embodying fundamental accounting principles.
3.3 The Accounting Period and Profit Reporting
Accounting partitions an organization’s time into defined periods, facilitating timely performance
reporting. Companies usually settle on annual accounting years, closing books on the anniversary of their
formation unless stipulated otherwise through regulations.
3.4 Revenue Expenditure versus Capital Expenditure
Revenue Expenditure: Relates to costs entirely consumed and expensed in the period incurred,
inclusive of regular operational costs.Capital Expenditure: Represents long-standing business investments expected to bring benefits
beyond immediate reporting periods. This distinction is integral to financial management.
4.0 CONCLUSION
The accounting equation delineates the fundamental accounting principle whereby assets are dictated by
total equity and liabilities, providing an overview of a business’s financial position.
5.0 SUMMARY
This unit examines the accounting equation, its relevance, broader components of the statement of
financial position, ensuring clarity of assets, liabilities, and owner's equity.
6.0 TUTOR-MARKED ASSIGNMENT
Discuss the relevance of the entity concept within financial accounting.
Differentiate between assets and liabilities and between capital and revenue expenditures.
Summarize the accounting equation and elucidate its components.
7.0 REFERENCES/FURTHER READINGS
Inua, O.I. (2014). Introduction to Accounting. Abuja: NOUN
Thomas, A. and Ward, A.M. (2012). Introduction to Financial Accounting. Berkshire: McGraw-Hill Education.
UNIT 5: BASIC DOCUMENTATION AND PRIME BOOKS
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main content
3.1 Basic Documentation for Cash and Credit Transactions
3.2 Source Documents
3.3 Prime Books
4.0 Conclusion
5.0 Summary
6.0 Tutor Marked Assignment
7.0 References/Further Reading
1.0 INTRODUCTION
While businesses’ operations have distinct methodologies of accounting, they often share standard
documentation and prime record-keeping practices to capture financial transactions accurately.
2.0 OBJECTIVES
At the conclusion of this unit, students should be able to:
Differentiate between cash transactions and credit transactions.
Describe trade discounts and cash discounts.
Provide examples of source documents.
Enumerate the purpose of books of prime entry and identify each range of records.
3.0 MAIN CONTENT
3.1 Basic Documentation for Cash and Credit Transactions
Cash Transactions: Involve immediate payments for goods/services upon receipt.
Credit Transactions: Involve deferring cash payment to a later date post-delivery; often coupled
with trade and cash discounts, forming an essential part of the business's operational cost structure.
3.1.1 Trade Discount
A percentage off the stated retail price, deducted before calculating the final charge to the buyer.
Example: A sales invoice reflecting a transaction, post-trade discount application.
3.1.2 Cash Discount
This reduction extends to clients if they settle within a specified timeframe, serving to incentivize timely payments.
3.2 Source Documents
These generate official transactional proof such as invoices, debit notes, and receipts,
directly influencing the company’s financial records.
3.2.1 The Invoice
Expresses owed amounts from buyer to seller.
Contains detailed invoice particulars, including seller and buyer information, quantity, date,
and monetary values.
3.2.2 The Debit Note
Issued whenever a buyer has been undercharged, facilitates correcting discrepancies in pricing.
3.2.3 The Credit Note
Issued when goods previously sold are returned or to adjust overcharges. It includes reasons
for adjustments to accounts.
3.2.4 The Cheque
Common payment form in businesses, necessitating diligent sharing of payment details via
the cheque stub to maintain accurate accounts.
3.2.5 The Receipt
A record of cash transactions requiring data about the payee, amount, and date.
3.3 Prime Books
The accounting ledgers maintain transactions, including detailed formats of records grouped by
transaction type rather than being recorded sequentially. Key books of prime entry include:
Sales Day Book: Records credit sales.
Purchases Day Book: Records credit purchases.
Sales Returns Day Book: Captures goods returned.
Purchases Returns Day Book: Documents goods returned to suppliers.
Petty Cash Book: Manages petty cash inflows and outflows.
Cash Book: Records transactions in the form of cash receipts or payments.
Journal: Engages in events/tasks not listed in other day books, including asset sales/purchases.
4.0 CONCLUSION
Understanding basic documentation and maintaining efficient records is essential to streamline
the accountability processes and ensure compliance during audits or reviews.
5.0 SUMMARY
The need to accurately differentiate and document cash and credit transactions, aided by proper
source documentation and comprehensive bookkeeping practices, is critical in business operations.
6.0 TUTOR MARKED ASSIGNMENT
Define a debit note and explain how it should be accounted.
List four books of prime entry applicable in retail businesses.
Clarify the difference between cash and credit transactions.
7.0 REFERENCES/FURTHER READINGS
Inua, O.I. (2014). Introduction to Accounting. Abuja: NOUN
Thomas, A. and Ward, A.M. (2012). Introduction to Financial Accounting. Berkshire: McGraw-Hill Education.