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POSTING ACCOUNTING

TRANSACTIONS
LECTURE 2

POSTING ACCOUNTING TRANSACTIONS


1. Identify the Elements of Financial Statements (Increase

or Decrease)
Income/Expenses/Assets/Liabilities/Equity
2. Indentify the Balancing Double Entry (Mul-Mantra)

Dr - What and Why


Cr - What and Why
3. Identify the Books of Prime Entries to Post from

Mostly Sales/Purchases Day Book or Cash Books or


Journal
4. Post the Transaction by Providing the Necessary Details

Date, Document Ref., Description of the Transactions,


Amount etc.

RECORDING SALES/INCOME
Recognised only when Sales has occurred i.e. Risk and Rewards has been

transferred
Sales is money earned by the company for itself and it excludes VAT, Principal
Amount when working on commission basis etc.
DR CASH OR DEBTORS
CR SALES VAT OR OURPUT VAT
CR SALES
Note Trade Discount is not generally accounted for and if accounted netted off

against Sales
SETTLEMENT DISCOUNT GIVEN
DR CASH RECEIVED (AFTER DISCOUNT)
DR Discount Given (Loss to the Company)
CR Debtors / Receivables Account (Original Amount as its fully settled)
RECORDING OTHER INCOME
DR Cash/Receivables
CR Interest/Rent/Dividends etc.

Recording PURCHASES & EXPENSES


Dr Purchases/Expenses (E.g. Materials, Rent,
Salary, Advertising etc.)
Dr Input VAT or Purchase Tax
Cr Cash or Creditors
Note Trade/Bulk Discount not Accounted for.

ACCOUNTING FOR SETTLEMENT DISCOUNT


RECEIVED
DR Payables (Original Amount)
CR Discount Received (Gains to the company)
CR Cash/Bank (Original minus the Discount)

Recording Payments and Receipts


Payments
Dr Creditor Account or Purchase/Expense A/C
or Other Relevant Account from Where Money
is Received
Cr Cash/Bank
Receipts
Dr Bank/Cash
Cr Debtors Account or Sales/Income A/C or
Other Relevant Account from Where Money is
Received

Accounting for Fixed Assets


Must Separate CPITAL EXPEDDITURE from REVENUE EXPENDITURE
o Capital Expense Long Term Benefit or Benefits in more than 1 single
year (E.g. Pant and Machinery, Computer Equipment, Furniture, Land and
Building)
o Revenue Expense Directly related to Sales and benefits no more than 1
year (Raw Materials, Admin. Expenses etc.)
Assets Recognised only
Owned or Controlled
Reliable Measured
Probable Future Economic Benefit Arises
Reporting
Matching Concept Used to Match the Benefits derived from the use of
Assets by charging depreciation
Measured at Cost less Depreciation or At Fair Value or Market Value.
Should be consistent. If an Asset Class is switched from Cost Basis to Fair
Value Basis, it cannot be switched back. Assets of same kind should be
measured using Single Method.

Accounting for Fixed Assets


PURCHASE OF FIXED ASSETS
Dr Fixed Assets (Furniture, Car, Building etc)
Cr Cash/Bank or Loan A/C or Finance Company
DEPRECIATION
Dr Depreciation (Expense in Profit and Loss A/C)
Cr Accumulated Depreciation A/C (Offset against the Cost in
Balance Sheet)
Logic of Charging Depreciation Matching Concept What

will happen if all the cost is show Right at the time of


purchase or Only when the Assets becomes Worth Less.
Depreciation Charging Basis Straight Line Basis (% of Cost)

or Reducing Balance Basis (% of Net Book Value (NBV = Cost


Accumulated Depreciation)).

Accounting for Fixed Assets


Disposal of Fixed Assets:
Dr Cash/Bank
Net Book Value (NVB
Dr Accumulated Depreciation
= Cost
Accumulated
Cr Fixed Asset (Cost)
Depreciation)
Dr Loss on Disposal or Cr Gains on Disposal

Accounting for VAT


Output VAT
All Sales Tax or Output VAT is Credited to Output VAT Account.
Output VAT - Its a Credit because we need to pay this the Government in
Future. We only Collected the VAT on Behalf of the Government and it is not a
Sales or Income.
Input VAT
All Purchase Tax or Input VAT is Debited to Input VAT Account.
It is a Debit because we paid the VAT but we can RECLAIM it from the
Government. We reclaim it by Netting it against the Output VAT.
VAT Submission
At each VAT submission Period, both Output VAT and Input VAT are Netted off
and the Balance is Paid or Received from the Inland Revenue (Tax
Department). This leads to Zero Amount left in Output VAT and Input VAT
Account and Cash is Debited (VAT Refund) or Credited (VAT Payment) into the
Cash Book.
VAT Regulations:
VAT Rate 13%
VAT Return Submitted every

Payroll Tax

When Wages are Paid


Dr Wages and Salaries (Total Amount) Expense
Cr Employee Tax Account (Tax on Wages) - Tax
Collected but not paid to Tax Department yet

Cr Cash/Bank (Money Paid to Employees after

deducting Taxes)
When Employee Tax is Paid to Tax Department
Dr Employee Tax Account (Reverses the
Credit)
Cr Cash/Bank
Week 2 Assignment
Posting of the Transactions