Topic outline
UNIT1:INTRODUCTION TO ACCOUNTING SOFTWARE
Learning Activity 1.6Key Competences of the Unit: Identify and classify the accounting software
Introductory activity
Companies are adopting innovative enterprise solutions to help
them stay ahead of their competitors. Nevertheless, many still rely on
spreadsheets to perform vital financial functions. It is not a promising
way for companies to remain relevant in this new digital economy.
1. Why does your company need accounting software?
2. What type of accounting software that you can recommend to your
company?
Accounting software is a computer program that maintains account books on
computers, including recording transactions and account balances. Accounting
software describes a type of application software that records and processes
accounting transactions within functional modules such as accounts payable,
accounts receivable, payroll, and trial balance. It functions as an accounting
information system. The software program records and processes business
transactions and keep them in well-designed database.
Software that records and processes accounting transactions within functional
modules such as accounts payable, accounts receivable, payroll, and trial
balance. It functions as an accounting information system. The softwareprogram records and processes business transactions and keep them in welldesigned database
1.1. Classification of accounting software
Learning Activity 1.1
1. What are the classes of accounting software?
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Accounting software is used to collect information about and report on
the financial viability of the business. This software is critical to the proper
administration of an organization. Businesses whether large or small, decide
the type of accounting software depending on the type and the circumstances
under which each type would be used.The accounting software is classified into the following four categories:
a) Spreadsheets
To help with bookkeeping, businesses often use Spreadsheet programs such
as Microsoft Excel or Google Spreadsheets. It can be used to almost any basic
accounting need. For example, it can be used to list expenses, sales or other
relevant financial data, and even to handle more advanced accounting functions.
Generally, only a very simple business should rely solely on Spreadsheets to
handle accounting; for most others, spreadsheets usually complement otheraccounting processes.
b) Commercial Accounting Software
Commercial accounting software such as QuickBooks or Peachtree can handle
most, if not all, of a small- to mid-size business’s accounting needs. Accounting
software work with almost any business, and allow to create customizedfunctions to fit a commercial entity’s specific needs.
c) Enterprise Accounting Software
Larger companies may have enormously complex operations, and enterprise
accounting software helps in managing this complexity. Accounting software
for larger enterprises often integrates accounting with other services provided
by the software, such as workflow management, business intelligence andproject planning.
d) Custom Accounting Software
Sometimes, a business creates its own accounting software. In that case, the
software is called custom accounting software. Most popular accounting software
are QuickBooks, Sage line (50, 100,200, 1000), Tally, Sage Pastel, Best books, Cashflow manager, Xero, Fresh books, SAP and Account Mate
Application activity 1.1
1) Give an example of an Enterprise Accounting software and explainwhat such a software can do
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1.2. Types of application software and examples
Learning Activity 1.2
1) What do you understand by accounting software?
2) Identify any 3 types of accounting software used in computerized
accounting and give at least two examples per each?
An application program (software application, or application, or app for short)
is a computer program designed to carry out a specific task other than
one relating to the operation of the computer itself, typically to be used
by end-users. Word processors, media players, and accounting software are
examples.
The following are the main types of application software:
a. Word Processing Software: Google Docs, Microsoft Word, WordPad
and Notepad
b. Database Software: MySQL, Microsoft SQL Server, Microsoft Access,
Oracle, IBM DB2 and FoxPro
c. Spreadsheet Software: Google Sheets, Apple Numbers and Microsoft
Excel
d. Multimedia Software: Media Player, Winamp, QuickTime and VLC
Media Player
e. Presentation Software: Google Slides, Microsoft Powerpoint, Keynotes,
Prezzy
f. Enterprise Software: customer relationship management (CRM)
software (HubSpot, Microsoft Dynamic 365)), project management
tools (Jira, Monday), marketing automation tools (Marketo, HubSpot),
enterprise resource planning (ERP) software (SAGE, Oracle, Microsoft
Dynamics), treasury management system (TMS) software (SAP
S/4HANA Finance, Oracle Treasury), business intelligence (BI)
software (SAP Business Intelligence, MicroStrategy, Microsoft Power
BI)
g. Information Worker Software: Documentation tools, resource
management tools
h. Communication Software: Zoom, Google Meet, Skypei. Educational Software: Dictionaries – Encarta, Britannica; Mathematical:
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MATLAB; Others: Google Earth, NASA World Wind
j. Simulation Software: Flight and scientific simulators
k. Content Access Software: Accessing content through media players,
web browsers
l. Application Suites: Apache OpenOffice, Microsoft Office365, Apple’siWork, LibreOffice, G-Suite, Oracle E-Business Suite
Application activity 1.2
1) Give at least two examples for each of the following types of software:
a) Word Processing Software
b) Database Softwarec) Spreadsheet Software: Google
1.3. Types of Software Required for Business Activities:
Learning Activity 1.3
In a business, the use of the program is to develop business productivity.
From slight to large-scale companies, computer program needs for
companies can vary depending on conditions.
1) Identify and explain the most 5 types of software required for the
business activities?
In a business, the use of the program is to develop business productivity. From
slight to large-scale companies, computer program needs for companies can
vary depending on conditions.
Here are the most vital tools for business activities, among others:
a) Accounting software
It is undeniable that recording finances in the business is the most sensitive thing
for the company—financial records related to money in and out money services
for daily business and long-term activities. The manual accounting process is
very time-consuming, such as bookkeeping, calculating the depreciation of
assets, and others. The larger the business, even the existence of branches, it
is crucial for a company to have an automated accounting system to reduce thecreation time.
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b) Inventory management software:
Developers develop program stock goods to help the company know how many
items entered, the number of goods that came out, and the remaining stock of goods
stored in the warehouse. HashMicro provides an Inventory Management System
that offers accurate stock control, raw material management, and other advanced
features to ensure you always get a comprehensive view of your inventory. With
inventory apps, there’s no need to guess when and how much inventory you should
repost. Through the use of an easy system, you can control the business more optimally.
c) Software CRM
CRM software can help a company improve its customer satisfaction. With the
CRM system, all corporate affairs related to customer service, marketing, and
sales are carried out more regularly and systematically.
So CRM systems allow upselling for companies that take advantage of
customer’s buying habits and give customers premium products that fall into
their previous purchase category. Furthermore, this system facilitates crossselling by interacting with customers to determine their needs.
d) Software HRM
The more complex the organizational structure of your business, the more
difficult it is to manage human assets. Making hundreds of invoices, pays
lips, taxes, and reimbursements is something that management happens
periodically. Thus, all activities related to human management require a more
practical system. With the complete HRIS Software, automate your company’s
HR and employee administration tasks.
e) Software ERP (Enterprise Resource Planning)
is a package of systems and software companies use to manage their daily businessactivities, such as financial management, procurement, production, projects, HR, etc
Application activity 1.3
a) By doing a research explain in detail ERP by showing what it can do.b) Give examples of ERP software
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1.4. Use of Accounting Software
Learning Activity 1.4
Mr. Kamana is a bookkeeper of Tuzamurane rice processing company located
in Kigali city. He is in charge of recording and keeping various companies’
transactions related to purchases of raw materials and other inputs, sales
revenues, inventory movements, business debtors and creditors, payroll
processing and diversified expenses incurred by the business either by
cash or cheque as well. He uses manual method of keeping and maintaining
those records; i.e recording in handbooks writing with pen. This requires
him to have each book for each particular journal, ledger and for final
reports. Additionally, it becomes difficult for him to meet the deadline for
preparing and submitting end of period reports, since he needs to get data
from many scattered books. One day, he wakes up early morning and went
at work as usual, and he was surprised of finding some of the accounting
books that were kept in shelves were burnt in the office due to fire short
circuit in the administrative building. All data recorded in those books
were lost and he was obliged to review the source documents and ask some
concerned people to try to restore some lost information, but he managed
to get only little information back.
1. Identify the problems that prevented Kamana from assuming his
responsibilities timely and effectively
2. What are the negative impacts of using manual method of keeping
and maintaining accounting records for Tuzamurane rice processing
company?
3. What would Tuzamurane ltd company have helped Kamana to
perform well his duties?
Learning Activity 1.4
1.4.1 General purpose Application software
Application program software is a computer program designed to carry
out a specific task other than one relating to the operation of the computer
itself, typically to be used by end-users. Word processors, media players, and
accounting software are some of examples. Application Software is a program
that does real work for the user. It is mostly created to perform a specific task
for a user. Application Software acts as a mediator between the end-user and
System Software. It is also known as an application package. It is a user-specificand is designed to meet the requirements of the user.
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General purpose application software is software used to perform a broad
variety of tasks and is useful to nearly all computer users such as Word
Processing, Graphics Editing, and Spreadsheets applications. Word-processing
is general purpose software since it makes use of a computer for creating,
modifying, and viewing, storing, retrieving, and printing documents. Similarly,
graphic software is general purpose software since it allows computer systems
for creating, editing, drawings, graphs, etc.
Additionally, accounting software is also classified under general purpose
application software category because it is designed to perform accounting
operations from basic invoicing and billing, to tax calculations and project
management, accounting software is an essential tool for your business’
financial data. It also helps manage clients, reconcile bank accounts, and
generate insightful financial reports that help your business grow smoothly
and continuously.
1.4.2 Special purpose application software
Special purpose application software is a type of software created to execute
one specific task. Special purpose software is typically created to meet a
specific business need and does not need to perform a wide range of other
duties. Because it will only be purchased by users who require the specific
capabilities it provides, special purpose software is frequently more
expensive than general purpose software.
For example, printing tax notices, a camera application on your phone will only
allow you to take and share pictures and a chess game which only allow you to play
chess.
1.4.3 Custom application Software
Is a type of application software made for an individual or business that performs
tasks specific to their needs? For example, if you had a home business, you may hire
someone to create a custom software program to help print and view invoices. By
creating custom software, you can have a program that does exactly what you needand not most of what you need
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Application activity 1.4
Mr. RUKUNDO has recently finished his secondary studies in Tourism
department at JIJUKA secondary school. He knows little on computer
software, except some basic skills about Microsoft Word and Excel, learnt
in computer skills module while at school. Before going to University,
he wants to improve his skills in computer literacy especially in gaining
knowledge about different software used in real world business if he
wants to join the faculty of Accounting.
1. How will you explain him the meaning of application software?
2. What are the types of application software will you recommendhim and how are they differentiated?
1.5 Manual and computerized Accounting Me
Learning Activity 1.5
Many years ago, people used traditional methods of keeping accounting
records, which is keeping hard copies of books like sales day book,
purchase day book, cashbook ledger and others. But today people are using
accounting software installed into their computers to record and keep
accounting information.
1. What is the difference between those two methods?
2. What are the advantages and disadvantages of each of them?
1.5.1 Manual accounting
Accounting is a means of collecting, summarizing, analyzing and reporting in
monetary terms, information about the business transactions.”
It is the analysis and interpretation of book-keeping records. It includes not only
the maintenance of accounting records but also the preparation of financial and
economic information which involves the measurement of transactions and
other events relating to the entity. It is a science of keeping the business records
in a regular and most systematic manner so as to know the business results
with minimum trouble.Accounting is done manually where the accountant keeps different books of
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account or can be computerized where the accounting software is installed into
a computer and the books of account are managed in the computer.
1.5.2 Computerized accounting
Computerized accounting refers to carrying out accounting functions or
processes using computers. It involves recording and analyzing financial
transactions electronically over accounting software. The computerized
accounting uses the concept of databases. For this purpose, an accounting
software is used to implement a computerized accounting system. It does away
the necessity to create and maintain journals, ledgers, etc., which are essential
part of manual accounting.
Summary difference between Manual accounting and Computerized accountingdata
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Accounting framework is the application environment of the computerized accounting
system. A healthy accounting framework in terms of accounting principles, coding
and grouping structure is a pre-condition for any computerized accounting system.
The computerized accounting is one of the database-oriented applications wherein
the transaction data is stored in well- organized database. The user operates on such
database using the required interface and also takes the required reports by suitable
transformations of stored data into information. Therefore, the fundamentals of
computerized accounting include all the basic requirements of any database-orientedapplication in computers
Application activity 1.5
1. What do you understand by manual accounting?
2. Define the term computerized accounting.
3. Give the merits and demerits of both computerized accounting andmanual accounting.
1.6. Characteristics of accounting data
Learning Activity 1.6
1. Basing on the accounting principles, how are accounting data
differentiated from other data
2. What are the characteristics of accounting data?
3. How can they be kept safely and easily found and interpreted?
Accounting data are raw facts, events, numbers and transactions, which have
been collected, recorded, stored but are not yet processed. Accounting data
consist of numbers and characters (i.e. alphabets and special symbols) which
are used to record facts and events about activities occurring in a business.
The following are some characteristics of accounting data:
1.6.1 Uniqueness
Data uniqueness is achieved when information in the dataset only appears once.
This data quality dimension measures the extent of duplication. Uniqueness
points out that there should be no data duplicates reported. Each data record
should be unique; otherwise the risk of accessing outdated informationincreases.
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1.6.2 Codes
This is a system of words, letters, figures, or symbols used to represent others,
especially for the purposes of secrecy. Codification is used to distinguish an
accounting element from another.
1.6.3 Statutory requirements
Statutory requirements are those requirements which are applicable by virtue of law
enacted by the government. These are enacted by passing the law in the legislative
assembly or parliament. A regulatory requirement can be termed as administrative
legislation that constitutes or constraints rights and allocates responsibilities.
1.6.4 Editing restrictions
Editing restrictions are usually used to prevent unwanted changes to a Word document as they allow people to view the contents of the document but not make anychanges. Accounting data must not allow every people to change them
Application activity 1.6
1. Briefly explain the characteristics of accounting data
1.7 Role, strengths and weaknesses of accounting software
Learning Activity 1.7
Betty is an accountant at ABC Agro-processing industry since 2015. Since
she become an employee of that company, she used manual system in
recording and keeping company’s accounting information, until 2020 where
the company adopted computerized accounting method and purchased
Sage line 100 software. Since then she could store the documents in welldesigned database, sharing them easily to the manager of the company, and
prepare income statement, cash flow statement and balance sheet easily.
Nevertheless, she is constrained by the lack of power which stops her work
sometimes, damages of computer operating system which causes her to
lose some data and fear that other people may hack her user name and
password and access her data.
1. What were the benefits of replacing manual accounting with
computerized accounting to Betty and to the ABC industry in
general?
2. What are the challenges faced when using accounting software inbookkeeping?
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1.7.1 Role of accounting software
The role of accounting software in today’s business world is immense and
enormous. As businesses have become larger and expanded their activities,
technology developed, it is almost impossible to run cross-border business
without using accounting software.
The importance of accounting software can be summarized as follow:
a. Large Volume of Transactions
In the present-day business environment, the transactions of a business are
normally large in volume. The accounting software can store and process such
voluminous transactions with speed and accuracy.
b. Scalability
Accounting software is scalable to handle the growing transactions.
c. Security
The accounting data under the computerized environment is safer than the
accounting data under the manual system. The data can be kept secure by using
a password, i.e., allowing only authorized users to access the data.
d. Timely Reporting
Availability of reports on time enables the management to take quick decisions,
which is an important element for the success of an enterprise. Accounting
software makes these reports available as and when required.
e. Lower Cost
The cost of maintaining books of accounts under the computerized process
using accounting software is lower in comparison to the manual process.
f. Less Paper Work
Under the computerized process, there is less paper work as compared to the
paper work in the manual process. Information can be shared digitally without
printing hard copies.
g. Flexible Reporting
Reporting under the computerized process is flexible in comparison to the
manual process. The database can be processed further to obtain the desired
report. For example, data relating to debtors can be analyzed to ascertain the
list of customers to whom sales above certain balance has been made in anaccounting year or of the regular customers of the enterprises and so on
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h. Queries
Replies to queries based on external factors can be obtained easily under a
computerized process. For example, list of debtors who have not paid on time
can be taken out by processing the database.
i. Accurate
Computer statements are far more accurate in comparison to manual statements.
j. Updating:
Updating and treatment of wrong transactions are easily done.
k. Financial Statements
From the day book, the Voucher Posting software can manage the general
ledger, trial balance and balance sheet.
1.7.2 Strengths of accounting software
Accounting software has a wide range of strengths, internal factors that enable
the user of accounting software to perform his/her tasks efficiently. These
include:
• Simple data entry: It is typically fast, straightforward and only required
once
• Fast processes: delays, for example between a sale and invoicing, are
minimal
• Digital record keeping: essential for Making Tax Digital for VAT
• Automation of reports and analysis: eg on profit and loss, debtors and
creditors, customer accounts, inventory counts, sales, forecasting, etc
• Automation of tasks: eg calculating pay, producing payslips, calculating
and submitting VAT, etc
• Reduction of errors: eg transposition of figures, incorrect or incomplete
recording of transactions, etc
• Integration with other systems: such as online banking and e-filing.
Using accounting software can help you save time and money, and offer
you valuable insight into your business. If you choose the package carefully,
investing in a computerized accounting system can be one of the best
decisions you can make for the business.
1.7.3 Weaknesses of accounting software
In spite of its importance in managing both small and larger businesses,
accounting software has also some weaknesses in its use. Some of them includeICT in Accounting | Student Book | Senior Five
cost of installation, cost of training, power failure, data corruption, and high
cost of training software operators, some limitations of the software are selfdecision making and maintenance.
a. Cost of Installation
Computer hardware and software needs to be updated from time to time with
availability of new versions. As a result, heavy cost is incurred to purchase a
new hardware and software from time to time.
b. Cost of Training
To ensure efficient use of computer in accounting, new versions of hardware
and software are introduced. This requires training and cost is incurred to train
the staff personnel.
c. Power failure
Computers cannot work without being connected to electrical power. Therefore,
accounting software cannot be used in areas where there is no electrical line
d. Data Corruption
The data can get corrupted through viruses that may come in through the
internet or the use of external input devices without scanning them for viruses.
e. High cost of training software operators
Untrained computer operators can lead to loss of data.
f. Limitations of Software
The software is developed on the basis of the experiences of the team of developers.
As such, it may not be able to deal with a specific problem that may arise.
g. Self-Decision Making
The computer cannot make a decision like human beings. It is to be guided by the
user.
h. Maintenance
Computer requires to be maintained properly to help maintain its efficiency. It requires a neat, clean and controlled temperature to work efficiently.
i. Dangers for HealthExtensive and wrong use of computer may lead to many health problems such as
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muscular pain, eyestrain, and backache, etc. This affects adversely the workingefficiency and increases medical expenditure.
Application activity 1.7
1. Discuss the role of using accounting software in business
2. Even though accounting software has numerous advantages in
business management, it has some weaknesses. Discuss aboutthose strengths and weaknesses of accounting software.
UNIT:INSTALLING AND UNINSTALLING ACCOUNTING SOFTWARE (SAGE LINE 100)
Key Unit Competence: Install the SAGE LINE 100 (Accounting Software)
2.1: Installing Sage Line 100
Learning Activity 2.1
Assume you are hired as an accountant of a secondary school, which is still
managing its accounting records manually. The school has desktop computers
in the office of Accountant, Secretary, Director of Discipline, Director of Studies
and in the School Manager’s office. Additionally, the school has a computer
lab equipped with 30 computers. No accounting software is installed in any
of those computers owned by the school. The primary task you are given is
to replace the manual accounting with computerized accounting as soon as
possible, using SAGE line 100 software, to be able to start your work and be
confirmed as permanent employee of the school.
1. What are you going to do in order not to lose your job?2. How will you get SAGE line 100 installed into your office computer?
2.1.1 Steps to install Sage line 100
As discussed in the previous section, accounting software like other software can
work only when they are installed in a computer. The following are the steps to befollowed in installing SAGE line 100 in a personal computer:
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Note: You may tick on other options like commercials; enter decentralized cash
register, fixed assets, Serveur Sage Netware, Gestionnaire applications Sage and
manuels electroniques if needed. But here we limit only on Accounting.
4. Click Next to select the destination folder where you want to locate Sage
Line 100 software components and click Next again. By default, SageLine 100 will be installed on local Disk C.
Figure 2.4. Choice of sage line 100 destination location
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5. Enter authenticity keys to ensure that the installed software is an authentic
one.
Those keys are:
Note: The above mentioned keys can be copied from Sage English folder, from
excel file named “CLES SAGE”
6. Click next and then click yes to confirm if you accept the terms and
conditions of utilization of Sage line 100 software. The following
windows appear and you are requested to select the set up type to install.
Select Typical because it is the one recommended for most users, sinceif selected, the program will be installed with the most common options.
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7. Click Next and confirm whether you will use telebanking software to
transfer payment via modem to your bank by clicking Yes or No and thenclick Next and then you fill the information about your company
Figure 2.7. Entering company information
In custcode (customer code), you fill the code of the company which is going
to use Sage line 100(your company), considered as the customer of that sells
Sage line 100 software. After, you fill the company name, address, post code
(like P.O Box), Ctry (Country) where the company’s operations are located),
telephone number through which people may contact company’s owner or
manager, Sales limit in millions of Euros and company’s staff number.
Similarly, you fill status of the company on the on the other side and show its
legal type, i.e if it is sole proprietorship business, partnership, limited liability
company(SARL) and other. You also fill the company name, address 2 if the
company is having another location (branch), town address, Fax number and
NAF (APE) number. Note that the Tab button (on keyboard of your computer)
allows you to move from one field to the next.
NAF: Nomenclature d’ Activité Française
APE: Activité Principale Exercée
After filling all of the mandatory information in the fields reserved, click onnext.
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8. Fill the identification of the manager of the company and the user’sidentification and click next
Figure 2.8. Information about the users of accounting file
9. Click Next, click Yes or No to confirm if you have an auditor or not, click
next to explain whether the product was recommended to you by the
bank or not, and lastly click next and the software start processing the
installation.
10. Open the SAGE line 100 to enter access code before starting to use it
by clicking on start button, then programs (or all programs), click on
SAGE-Accounting 100-Accounting 100 again and the following windowwill appear.
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Click on Access code and enter the following code: 1E0CFABF2F2E2F74
This code can also be viewed from SAGE English folder in CLES Sage excel file.
Note that this code can change from an installation file to another.
After entering access code, the following window appear and you can start usingyour software
2.1.2 Menus of Sage line 100
Sage line 100 has seven menus namely, File, Edit, structure,process, stat,
window and help.
• File menu
Via the file menu the user can create new company, open existing company
(already created company), close the opened company, read database
information (all information concerning the created company) and you can
protect your accounting file through access authorization where you can allow
some users to access your data or prevent some from using the file. You also
exit the sage line 100 interface via file menu.
• Edit menu
Through edit menu, the user can copy or cut the information he/she wishes to transfer to another field and paste it to the destination. There you can also find the sage
calculator scientifically designed to perform calculations required when using SAGEline100 accounting software.
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• Structure menu
In structure menu you can create the chart of account; which is the list of all
accounts held by the company followed in ascending order as per their account
numbers. In structure menu, you can also cost create cost chart which is the
list of cost elements and cost centers. You can also create a reporting plan, S/P
(third parties) chart which is the list of customers, suppliers and employees of
the organization.
It also comprises tax rates section which record different types of taxes to be
recorded, journal codes section where we create the books of prime entry
(journals) namely sales journal, purchase journal, cash journal, sales return
journal, purchase returns journal and general journal. Additionally, the structure
menu contains cost journal codes, banks, models, comments budget elements
and merging where you can copy some information from one accounting file to
another instead of taking time to record the information of new company from
zero.
• Process menu
In the process menu, the user is enabled to make journal entries or entries by
voucher. You can also make bank reconciliation and bank statement.
• Stat menu (or statement menu)
From the stat menu, you can find different reports and final statements of your
business transactions including accounts ledger, trial balance, B-S/ income
statement (balance sheet and income statement), S/P statistics, tax ledgers and
others.
• Window menu
In window menu, we find the way of adding or removing different toolbars
having different short cut tabs useful in sage line 100. You can also enable or
disable the vertical bar and activate and deactivate wizard mode.
• Help menu
In the help menu, you can obtain electronic help concerning Sage line 100,update portal access right if you are the customer of Sage products.
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Application activity 2.1
XYZ is a consultancy company created with a mission of training new
accountants to open window of professionalism, especially in areas of
computerized accounting. Assume the company gives you part time job of
training 20 young accountants on SAGE line 100 software and in 15 days.
The training package includes installing the software in participants’ own
laptops.
1. Explain the steps how you will follow to install SAGE line 100
software in Participant’s laptops
2. Install that software in one computer in your school computer lab.3. Discuss about the 7 menus of sage line 100 and their functions
2.2 Uninstalling accounting software (Sage line 100)
Learning Activity 2.2
1. Once installed into a computer, can Sage line 100 accounting software
be removed? If yes under which circumstances can it be removed?
2. How can Sage Line 100 be removed from a computer?
2.2.1 Steps to uninstall SAGE line 100 accounting software
The user of accounting software may no longer need it in personal computer
and wants to remove (uninstall) it. The following are the steps to uninstall the
accounting software SAGE line 100
1. Click on Start then on Control Panel
The Control Panel features appear and then click on Uninstall a program
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2. After clicking on uninstall a program, you find a list of programs installed
into your computer then you click on Accounting 100, and click onUninstall/Change
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3. After clicking on uninstall a program, you get the message asking to
confirm file deletion and click Yes to accept that you want to completely
remove the selected application and all of its components from yourcomputer
4. Click Ok , then the program start running uninstallation process
Application activity 2.2
Your school manager has a computer laptop where SAGE line 100
accounting software has been installed by a teacher from ICT department.
Currently the school manager no longer needs that software and wants
to remove it and install software which may not be compatible with sage
line 100. Yet he doesn’t know how to uninstall it and ask you a help of
uninstalling it.
1. What are the steps you are going to follow to uninstall that softwarefrom the school manager’s computer?
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End unit assessment
PART I. WRITTEN
1. Contrast computerized accounting from manual accounting
2. What is meant by accounting software?
3. Explain the role of accounting software in business bookkeeping
4. Identify the advantages and disadvantages of using accounting
software
5. Discuss on the types of accounting software
6. There are some companies still using manual accounting in their
business records but they are facing numerous problems. Discuss
some of them. What advice can you give to overcome the stated
problems?
7. Outline the steps taken to install Sage line 100
8. What is the process of uninstalling sage line 100 from computer?
PART II. PRACTICE
You are a hired as an accountant of UBUKIRE manufacturing company
then located in Kigali city, in Kicukiro district, phone +250799999921.
The company’s e-mail is ubukire23@gmail.com and its website is www.
ubukire.com. You are given a CD that has sage line 100 on it and you are
requested to:
1. Install Sage line 100 in your office computer2. You realize you need to remove to be reinstalled later, uninstall it
UNIT3:CREATION OF COMPANY PROFILE
Key Unit competence: Create a company profile using SAGE 100
Introductory activity
You are hired as an accountant of XYZ Company, and the manager of the
company asks you to start using Sage line 100 software in their accounting
records as one of end of year shareholders meeting decisions. The private
IT consultant has installed the software in all staff computers, including
the one reserved for company’s accountant. To be able to record the
company’s day to day transactions, you need to create company’s profile
in your accounting software.
1. Which process are you going to follow to create the profile of XYZ
Company?
2. What is the importance of keeping company’s basic information inyour accounting software?
3.1. Creation of accounting file
Learning Activity 3.1
The accountant of the church near your home place wants to start using
Sage line 100 in making accounting records for the church, including
weekly offerings and tenths from believers, different other contributions
from church members and invited guests, church expenses including water
and electricity bills, taxes and salaries. The software is already installed in
his/her computer, but doesn’t know how to create accounting file make
configurations relating to the type of business and preference of the user.
1. 1Help him/her to know how to configure the software depending on
his/her choice2. What is the importance of configuring accounting software?
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3.1.1. Renaming and saving accounting file
Before starting to use accounting file, you need to create accounting file, which
is a database where all accounting information will be kept. The following are
steps taken to create accounting file:
– Open SAGE line 100 interface by clicking on Start then click on
Programs- then click on SAGE-accounting100, click again on
Accounting 100. The Sage line interface will appear.
– Then click on File then on New, choose the field location of your file
(You may save it on desktop, my documents, local disk C or elsewhere).
– In the file name, delete *mae. and type the file name of your choice,then click Save
Figure 3. 1. Creating the name of accounting file
The file name is “Rwanda” and after clicking Save, the work will be saved on
desktop.
-By clicking Yes, you get the window allowing you create operating period
3.1.2 Operating period
An accounting cycle’s period can vary based on factors unique to each business,
but most business owners choose to start a new accounting cycle annually,
usually from 1st January to 31st December in a given year.
The configuration of operating period and account length is done simultaneously
with the creation of the file name and company’s profile. Below is the processfollowed.
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3.1.3. Account length
Account length is the number of digits used for account numbers whencreating chart of account and cost chart of account. Normally, in Sage line 100,
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the minimum number of digits for account numbers is three (3), whereas the
maximum is thirteen digits (13). The user, depending on his/her choice can use
own prefer number of digits, provided that it ranges from 3 up to 13 digits.
As mentioned in previous section, account length ranges between 3 and 13
digits.
For example, if your accounting year is 2022 and you prefer to use four (4)digits for account length, you will have the following:
After setting operating period and account length of choice, you click Ok and
enter the company profile
3.1.4. Company profile
The creation of company profile in SAGE line 100 is done just after creating
accounting file.
After getting the company profile wizard, the next step is to fill the required
company’s information like company name, activity, address, complement,
Postal code (like PO Box), town, region and country(ctry), comment, SIRET
(système d’identification du répertoire des établissements) identifying
each company in France (Not applicable in Rwanda), NAF (Nomenclature
d’activitéFrançaise), telephone, E-mail and site (website.)
Example: EJOHEZA LTD Company is a manufacturing company located in
Nyamata town Bugesera district, Eastern province. It is located near the main
road from Kigali- Nemba. Po. Box 345 Nyamata, phone number 0788000000,
Fax number: 56728 e-mail: ejoheza123@gmail.com, website: www.ejoheza.com. Enter the information above to create EJOHEZA Ltd Company’s profile.
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Application activity 3.1
1. By using a computer with SAGE, show how to save or rename a file.
3.2. Configuration of accounting software (SAGE line 100
Learning Activity 3.2
KAMANA, a sole trader in RUSIZI town is constrained by the loss he is
used to get due to lack of adequate record keeping in his business. As a
solution, he has purchased a computer and installed sage line 100 and got
some basic information on the use of SAGE line 100 accounting software.
However, he doesn’t know how to make configurations in order to use the
software depending on his preferences.
1. Help him to configure SAGE line 1002. Why is it necessary to configure Accounting software?
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3.2.2 System defaults and Package parameters, VAT and
currency rates; exchange rates
1. System defaults and package parameters
Normally, before recording any information in accounting software it is
necessary, to make some parameters configuration for the ease of using
accounting software and depending on what is needed in the company. Defaults
set in package parameters are found by clicking on file-concerning yourcompany-parameters. The following window is displayed:
a. Voucher number field protection
When a tick is put in front of voucher number field protection, you protect the
voucher number field column heading in journals from being written in, i.e.
the field is disabled. If voucher number field protection is left without a tick,
you allow typing the number of the voucher in the heading of voucher number
column while recording transactions in journal.
b. New operating period
New operating period option allows to configure the journal in which openingbalance is to be recorded, entry type for opening balance where by default
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the software suggests opening balance as entry type, selection of the opening
account and account where profit or loss will be recorded.
c. Maximum customer term
Maximum customer term is meant by maximum payment duration of customers
who purchase goods on credit. In other words, it is the maturity period. The
software sets maximum customer term 90 days by default corresponding to 3
months maximum. Nevertheless, the user may set other period depending on
his choice, like 30 days, or 60 days.
d. Ledger
The ledger option is used to configure audit ledger management and tax ledger
management. If a tick is put on audit ledger management the user allows the
system to enable audit report from the automatic ledger generated from the
books of account. Similarly, when a tick is put on tax ledger management, the
system allows tax ledgers to be updated automatically, or after confirmation.
e. VAT on sums collected
On this option, if a tick is put on utilization of ledgers, the system allows the
option of allocated VAT collected on sums of money gained, but if there is no
tick on utilization of ledgers the allocation mode is disabled, hence it becomes
impossible to allocate VAT on sums collected.
f. Enter account firm
If a tick is put on zeros complement, the system allows the zeros to be added
to the account number of a given account while creating the chart of account
to match with the already set account length. For example the user is creating
capital account and the account length set is four (4) digits, if the user types
only 2 digits (example: 10) in the Ac no field, other 2 zeros are going to be
added automatically to have four digits(1000). Validated by Tabulation or by
Enter keys depends on the user choice. If Tabulation or Enter key is selected, it
means to go to another step or field the user taps on Tabulation or Enter key.
2. VAT and currency rates
a. VAT
To make configurations on VAT
• Click on File
• Click on Concerning your company• Click on Tax
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The following window appear
Figure 3. 9 : VAT setting
In tax return option, the system allows to select CA3 document showing formula
to use when calculating VAT collected, VAT deductible and net VAT payable
over the period of one month or quarterly in France between 19th and 25th of
each month. (CA3 formula is not applicable in Rwanda). The option also shows
revenue field where the user fill the revenue gained over the period, number of
folder where the CA3 document is kept, percentage of deduction as well as the
deadline.
In tax entry update option, the user simply select accounts where tax will be
recorded, these accounts should have been created in chart of account. The
user also selects the type of journal where the tax transactions will be recorded
and kept. Lastly, tax option contains the field where tax office (tax collectionagency office) address is to be written.
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b. Currency rate
Sage line 100 allows the user to create reporting currency. This is normally
the currency of the country where the business is operating, by which most
purchases and sales transactions are performed.
To create the reporting currency, click on Initialization and the followingwindow appear:
Figure 3. 10: Reporting currency configuration
In the Account Currency field, fill the name of the currency you are using in
day to day transactions, let’s say, Rwandan francs in Rwanda. In the unit field fill
the unit of the reporting currency and sub-unit of the reporting currency in the
sub-unit field. In the amount format, if last two zeros are removed, the amount
recorded in journal will have standard format (eg: ten thousand will be 10,000),
but if the last two zeros are not removed, there will be .00 at the end of each
amount figure in the journal entry (for eg. Ten thousand will be 10,000.00). The
same configuration generates similar results on quantity format. In equivalent
currency, select Account Currency, then the filled reporting currency will bereproduced in the field.
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Figure 3. 11: Setting account currency
3. Exchange rates
The exchange rates are configured by creating the foreign currencies and the
rates of their exchanges with the reporting currency. To create exchange rates:
• Click on File
• Click on Concerning your Company
• Click on Option
• Click on Currency
• Press Enter on keyboard to leave space for other currencies to be created
Fill the currency information including currency name, unit, sub-unit, format,
logo and equivalent currency. In the rate field, select “floating”.
For example, if the current exchange rates are:
$1=1042 FRW
1Kenyan Shilling=8.9 FRWThe following results will be obtained:
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Figure 3. 12. Currency exchange rates
Application activity 3.2
1. In parameters option, what happens if you tick on voucher no field
protection?
2. What is the purpose of setting maximum customer term?
3. In sage line 100 already created accounting file, make the required
configurations basing on the information below:
– Reporting currency: Rwandan francs
– Maximum customer terms: 60 days
– Tick on wizard mode
– Set currency rates by using $1=1038 FRW and 1 Ugandan
shilling=0.28 FRW
– Set VAT percentage deduction at 18% and tax office address asKigali, PO Box 2211 Kigali
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3.3 Use of wizard mode to create the capital and income
accounts, expenses accounts and asset accounts
Learning Activity 3.3
When entering data in Sage line 100, there is an option of using Standard
Mode or using Wizard Mode. This starts by creating file name, company
profile, Chart of account and SP chart.
1. How do you get to the Wizard Mode in Sage line 100?
2. Which method do you think is best between standard mode andwizard mode?
3.3.1 Use of wizard mode
First of all, the Wizard mode must be ticked on, then go to File click on New tocreate new company through the Wizard mode:
Figure 3.13. Creation of accounting folder in wizard mode
• Click Next to enter the company data:
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Figure 3. 14: Entering company data in wizard mode
• Click Next to define operating period and account length. Using four digits
for account length and 2021 as operating period, we get the following:
Figure 3. 15: setting operating period through wizard mode
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• Click Next to select account currency, then click Next again to copy
accounting data and click on “Browse” to select where your accountingfile will be located.
Figure 3. 16: Selection of storage directory
Figure 3. 17: Entering file name
To create Chart of Account in Wizard mode, the following steps will be followed:
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• Click on Structure menu
• Right click
• Add new element
The chart of account appears in French with the accounts and account numbers
being set in the system of French chart of account (Plan comptable), since sage
line 100 version of accounting software is set in French system. At this stage it is
possible to add accounts depending on the accounts available in your company.
After the procedures of creating journal codes, recording transactions andproducing the reports are the same as in standard mode
Application activity 3.3
In Wizard mode, create the accounting file and company profile, using the
information below:
• File name: UBUMWE
• Accounting period: Start date 1st July 2020, End date 30th June 2021
• Account length: 4 digits
• Company name: TWITEZIMBERE• Activity: AGRO-PROCESSING
3.4. Use of maintenance tool
Learning Activity 3.4
Your class is in computer lab at school, doing some computerized
accounting practical exercises given by the teacher of accounting software
subject. However, you are interrupted by power outage and all computers
are switched off. After some while, the power is back and all students
switch on the computers to proceed doing their exercises. However, when
they reopen their accounting file created before power outage, they are
not being opened and they receive this notification: “Your file is already
opened, use maintenance tool”
1. What are you going to do in order to sort out this issue?
2. Suppose you fail to solve the problem, what will be the effect of thisfailure?
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The maintenance tool is used when the program has stopped abruptly and
the folders created are no longer opened. When the user opens the folder he
receives the notification stating that the folder is already open, close the folder
or use the Maintenance tool. This happens mostly when the computer is
switched off abruptly especially when the power is off. This may also happen
when the accounting file fails to respond. If it fails to respond you can close it by
using the Task Manager, by using the combination keys Control+Alt+Delete.
Open the Task Manager and click on accounting 100 then click on End Task.
When reopening the file, the user gets the following warning message shown inthe window below:
Figure 3. 18: Notification requesting to use Maintenance Tool
The process of using maintenance tool is the following:
• Click on Start button
• Click on Programs
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• Click on Sage
• Click on Maintenanc
Figure 3. 19: Opening Maintenance Tool in SAGE line 100
Then the Maintenance window is opened
Figure 3. 20. Maintenance tool interface
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To get to the corrupted file that needs to be maintained, click on File menu
of the Maintenance tool-and click on Open, search for accounting file to be
maintained and click Open. The file to be maintained here is RWANDA. Click onit then click Open.
Figure 3. 21. Opening of file to be repaired under maintenance tool
After opening the file in Maintenance Tool, the windows of maintenance
wizard is displayed, and then click End
Figure 3. 22: Repairing the accounting file under maintenance tool
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Finally, at that stage the file is repaired and can work normally.
Application activity 3.4
1. Under which circumstances do we use Maintenance Tool in Sage
line 100?
2. Assume that your accounting file is not responding or close abruptly.
Then when you close it by using Task Manager, it is not being opened
it requires you to use Maintenance Tool, what are the steps are you
going to follow to be able to access your information again by usingthe Maintenance tool?
3.5 Add/Amend records
Learning Activity 3.5
1. After entering records in account software, you may need to make
some changes of some amendments, under which circumstances
would this happen?
2. What is the importance of updating records in an accounting
software?
Once the user has already entered some data in accounting software, he/she
may need to amend or update some information. These amendments are only
possible if no journal entries have been made for that account to be amended.
3.5.1 Customer record
If the user wants to add some information on customer record, the steps
followed are the same as the steps followed when making initial record. For
example, if a new customer is to be added to SP chart, click on Structure then
on SP chart, Right click then click on Add New Element. Then follow the steps
of creating a customer in SP chart.
If some information is to be changed to existing customer, only account number
can’t be changed, but the name, address and other information can be changed.
3.5.2 Supplier record
The procedure of making changes in adding or deleting some information onsupplier is the same as for the customer. The user may need to add or remove
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some information on the supplier name created depending on the changes that
need to be added in the system like the address of the supplier, product/raw
materials to be purchased from that particular supplier etc.
To make these needed amendments,
• Click on Structure menu then click on SP chart,
• Do a right click then click on Add New Element. This is followed when
the user wants to add a new supplier to his SP chart.
When only little information needs to be modified for a particular supplier,
double click on that particular supplier, then some modifications can be made
except the account number. For example, you can change the name and address
of the supplier.
3.5.3 Other third parties accounts
Apart from customers and suppliers, the business may have other third parties
like employees, sundry debtors, and sundry creditors. The same procedures
are followed to make changes for customers and for suppliers are followed forother third parties update.
Application activity 3.5
1. Assume that you are accountant of a given company and you use
Sage line 100 in your records keeping. You have made an error
in recording the debtor SALAMA’s information, where, instead of
recording her proper account type of customer, you saved her assupplier, how can you amend/ update her information
3.6. Check data records using IT tools
Learning Activity 3.6
1. When using accounting software, you may make some errors. Give
three examples of the errors can be discovered by the software
itself?
2. Once an error has been made and the system notify you with a
warning message, about how can you solve the problem?
The recorded data may be checked using the software since there can be someerrors when entering the data in the system. For example, if the account related
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to expenses is given the name of a fixed assets, the system does not recognize
the creation of that account. More exemplary, in journal entries, if for example
the cash transaction is recorded in sales journal the system notifies the user
that the account to be used is not of type credit sales. The user must always
read the warning notification given by the software before proceeding to next
steps. For example, if you typed a letter in Account field, Sage software tells
you that the field contains an invalid character. If the problem is a list entry that
doesn’t exist, the “list name Not Found” dialog box opens (where “list name” is
a list such as Terms) and tells you the value isn’t in the list. In the dialog box,
click Set Up to add the entry to the list. Fix any other errors, and then click Save
Changes again.
Sometimes the user may receive a notification warning about the important
and compulsory step skipped or mandatory field not filled, then the software
notifies and warns about it. For example in the creation of Chart of Account ifyou don’t fill in the account field the following notification is displayed:
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Application activity 3.6
1. Why is it necessary to check data records in accounting software?
2. You have already created company name but you find that you have
recorded wrong accounting period. What are you going to do torecord the appropriate accounting period?
End unit assessment
1. Before recording any data in accounting software, we need to create
file name and company profile. Why is it necessary to create the file
name and company profile?
2. Create company profile and fill the information below:
– File name: UMURIMO
– Company name: UVW
– Activity: Service provision
– Account currency: Rwandan franc
– Tick on voucher number field protection3. Create the currency rates for USA dollar, for $1=1076 FRW
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UNIT 4:CREATION OF CHART OF ACCOUNT
Key Unit competence: Create charts of accounts and S/P charts with the code
in SAGE 100
Introductory activity
STRONG FAMILY is a small sole trade business of purchasing and selling
of Electronic devices. It is located in KINYINYA Sector, Gasabo District in
Kigali city (Tel +250788594143; P.O Box 2023Kigali). STRONG FAMILY
Shop is well known for its excellent services performed in society and this
attracts many customers. Actually it is facing serious problems related to
the use of manual accounting. The decision is taken to hire you knowing
that you are skilled in computerized accounting and expecting that you
will help the Shop in the process of recording financial transaction using
Sage line 100.
1. What do you understand by chart of account? What is meant by
SP Chart?
2. Identify the types of accounts affected by the transactions below
3. Basing on the transactions below extracted from STRONG FAMILY
in January, 2020, create chart of Account and SP chart.
On 1st January, 2020 Starting business with RWF 20,000,000(from the
business owner)
2ndJanuary, 2020 Receiving a loan from bank of RWF 20,000,000
8thJanuary,2020Bought land for RWF 3,500,000 and paying rent for RWF
400,000 (both by cheque)
10thJanuary,2020Bought goods on credit from Emma for RWF 2,600,000
11thJanuary,2020 Selling goods on credit to Minani for RWF 1,500,000 (cost
of goods sold RWF 900,000)12thJanuary,2020 Receiving cash from Minani (paying a half of his debt)
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4.1. Description of chart of account in sage line 100
Learning Activity 4.1
The following are transactions extracted from INYABUTATU Ltd Company
in 2021
1st January started a business with 9,000,000 Frw at bank
2nd January withdrew 3000,000 Frw from bank account
3rd January Bought goods of 700,000 Frw by cash
10th January sold goods worth 350,000 to BERWA for cash
17th January received commission of 130, 000 Frw and was deposited at
bank
21st January bought goods for 400,000 Frw, receiving 5% discounts.
1. What is meant by chart of account
2. Identify the accounts affected by the above transactions and their
types
Learning Activity 4.1
4.1.1 Meaning of chart of account
A Chart of Accounts (COA) is a financial, organizational tool that provides an
index of every account in an accounting system. This provides an insight into all
the financial transactions of the company. Here, an account is a unique record
for each type of asset, liability, equity, revenue and expense. A COA includes
many subcategories for each account.
In practice, the Chart of Account serves as the foundation for a company’s
financial record-keeping system. It provides a logical structure that facilitates
the addition of new accounts and the deletion of old accounts in computerized
accounting system. Similarly, an important purpose of a chart of account is to
segregate expenditures, revenue, assets and liabilities so viewers can quickly
get a sense of a company’s financial health. A well-designed chart of account
not only meets the information needs of management; it also helps a business
to comply with financial reporting standards.
A company has flexibility in creating a chart of account that suits its needs. Within
the categories of operating revenues and operating expenses, for instance,
accounts might be further organized by business function or by companydivisions. They need to be mindful of the Generally Accepted Accounting
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Principles (GAAP) and the Financial Accounting Standards Board, however
companies should also ensure that the chart of account format remains the
same over a period of time. Changes to a chart of account in the short term can
make it challenging to analyze the difference in a company’s financial healthover the long term.
4.1.2. Grouping of account categories and their account
numbers (codes)
While traditional rules revolved around three accounts namely real, personal,
and nominal, the modern version classifies the accounts into six types, making
the transactions split into these categories, affecting the debit and credit sides.
These accounts include asset, liability, revenue, expense, capital, and drawingsaccount.
In SAGE line 100, the groups of accounts and their codes are as follow:
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Note: Some users of SAGE LINE 100 use 56-56999…for bank and 57-57999 for
cash referring chart of account adapted from French ‘’plan comptable’’ used in
Rwanda. It is possible to modify the account numbers range depending on the
user’s preference by following these steps:
• Click on File then on concerning your company-and click on Options• In Options tab, click on Account type
Figure 4. 1: List of account types
• After double clicking each of the account available and changing the range
of account numbers.
For example, for customers you will get the following:
Figure 4. 2:Customer account number range
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Figure 4. 3: Back to Account Type
Find the list of other accounts then you select the type of account to be modified.
4.1.3. Steps to create chart of account in Sage line 100
In Sage line 100, the following are the steps to create Chart of Account:
• Click on Structure menu
• Click on Chart of Account• Do a right click and click on Add New Element. You get the window below:
Figure 4.4.a: Chart of account window using a vertical bar
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Figure 4.4.b: Chart of account window using a Wizzard bar
Application activity 4.1
1. Explain the meaning of chart of account
2. State the grouping categories of accounts when creating chart of
account in Sage line 100
3. Write down the steps followed in creating chart of account in SAGEline 100 software
4.2 The capital, income accounts and their codes
Learning Activity 4.2
The following are transactions extracted from TUZAMURANE Ltd Company
in 2022.
1st January started a business with 15,000,000FRW at Bank and 3000,000
FRW cash in hand
2nd January, withdrew 5000,000 FRW and bought land valued at 4000,000
FRW by cash
3rd January Bought goods worth 300,000FRW on credit5th January received rent for 200,000 FRW by cash
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7th January Interest worth 25,000 FRW received and deposited on saving
account.
10th Jan withdrew 100,000 FRW for personal car maintenance.
15th January sold goods of 600,000 FRW by cash. Cost of sales 450,000
FRW
1. Identify the capital and income accounts affected by the above
transactions
2. Create chart of account for the identified incomes and capital
accounts.
As mentioned earlier, the capital account number ranges from 10 to
1099999999999 depending on the number of digits used for account numbers,
while incomes account number ranges from 7 to 7999999999999 depending
on the number of digits set in the creation of accounting file.
For example, if we use 4 digits’ account number, our sample chart of account forcapital and incomes will look like this:
For example, if we have the transactions such as:
Started a business with 4000,000 Frw at bank
Sold goods worth 600, 000 for cash
Received commission of 50,000 Frw and was deposited on bank account
Received a discount of 25, 000 Frw
Rent received for 100,000 Frw
The chart of account will be made of the following accounts and accountnumbers
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Figure 4. 7: Sample chart of capital and income accounts
You continue in the same process to create other accounts in chart of account
Application activity 4.2
In January, 2019, Jane commenced a hardware store business in Rwamagana
town with 4000,000 Frw at bank and 2,500,000 Frw cash in hand.
On 2nd January, bought 100 sacks of cement for 10,500 Frw each.
On 10th January, sold 40 sacks of cement for 12,000 Frw each.
On 15th January received interest for 50,000Frw and interest was
deposited on bank account.
20th January, received a discount of 28,000 Frw
1. Identify the types of accounts affected by the above transactions
2. Create chart of account for capital and income account identified inthe above transactions
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4.3 Creation of assets account and their codes in chart of
account
Learning Activity 4.3
The following are transactions extracted from URUMURI Ltd Company in
2019
1st January started a business with 15,000,000 Frw at bank and 3000,000
Frw cash in hand
2nd January, withdrew 7000,000 Frw from bank account
5th January, bought land worth 2,500,000 Frw by cash
7th January, bought building valued at 4000,000 Frw by cash
11th January Bought goods of 700,000 Frw by cash
15th January sold goods worth 350,000 Frw to NKINGI on credit
20th January, bought goods valued at 1,200,000 Frw from JIMMY by cheque.
Cost of goods sold 850,000 Frw.
2nd February, Purchased office equipment for 650,000 Frw by cheque
5th February, paid rent with 400,000 Frw by cash
10th February, NKINGI settled his full debt by cash
1. Identify the assets accounts found in the above transactions and
allocate the account numbers (codes) corresponding to each account
2. Create chart of assets account identified from the above transactions
4.3.1Creating fixed assets in chart of account
Fixed assets are company-owned, long-term tangible assets, such as forms
of property or equipment. These assets make up its day-to-day operations to
generate income. Being fixed means they can’t be consumed or converted into
cash within a year. As such, they are subject to depreciation and are considered
illiquid.
Fixed assets can include buildings, computer equipment, software, furniture,
land, machinery, and vehicles. Other fixed assets (or non-current assets) include
long-term investments and intangibles. Intangible assets are those that can lack
physical existence but can still be used over the long term. These types of assets
include goodwill, copyrights, trademarks, and intellectual property. Long-terminvestments can include bonds that won’t be sold or mature within a year.
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The creation of chart of account for fixed assets in SAGE line 100 follows the
same process as capital and incomes, the only difference lies on the account
numbers, where fixed assets accounts range from 20 to 2799999999999.When
it goes to 28, it becomes the code of depreciation of fixed assets.
Using four (4) digits for account numbers, the chart of account will look likethis:
To create the fixed assets in chart of accounts,
• Click on structure menu
• Click on chart of account
• Right click then add new elementThe following window appears:
Figure 4. 8: Chart of account window
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In the Ac no field, enter account number (eg 2001 for land account), in the name
field, type account name and put your cursor in classif field to get the name of
account repeated.Normally on the account type, the software itself will recognize
that account number used is of fixed assets type. Using our sample assets chart ofaccount, the chart of account in Sage line 100 will look like this:
Figure 4. 9: Sample chart of account for fixed assets
For deleting already created fixed asset, right click on that particular asset, then
click on “delete selected element”
You can also delete the selected fixed asset or any other created element of chart
of account by selecting it and clicking on delete icon on navigation toolbar
Figure 4. 10: Location of delete icon on navigation toolbar
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4.3.2 Creating current assets in chart of account
Current assets are either: (a) items owned by the business with the intention of
turning them into cash within one year; or (b) cash, including money in the bank,
owned by the business. These assets are ‘current’ because they are continually
flowing through the business. For example, a trader, Kamegeri, runs a business
selling motor cars and purchases a showroom, which he stocks with cars for
sale. (a) If he sells a car in a cash sale, the goods are immediately converted into
cash. (b) If he sells a car in a credit sale, the car will be given to the customer
who becomes a receivable of the business. Eventually, the receivable will pay
what he owes in cash. The transactions described above could be shown as acash cycle.
Figure 4. 11: Cash cycle
Current assets are listed in descending order of the length of time it might be
before the asset will be converted into cash. Broadly speaking, inventory will
convert into receivables, and receivables will convert into cash. So inventory,
receivables and cash will be listed in that order. Prepayments, because they are
similar to receivables, should be listed after receivables and before cash.
In SAGE line 100, if we use four(digits)current assets would have the followingaccount numbers in chart of account:
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For example, if we have the following current assets in our business,
– Stock of raw materials
– Stock of furniture
– Stock of office supply
– Customers (account receivables)
– Sundry debtors
– Cash
– Bank
The chart of account for the above current assets is:
Figure 4. 12: Chart of account window
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To enter the account number and account names of the aforementioned current
assets, you type the account number in Ac no. field, the account name in name
field, the account type is displayed itself since the software recognizes the
account number used for the particular account type. After creating the chartof account for current assets you will have the following results:
Figure 4. 13: Creation of cash account
Application activity 4.3
The following is the list of the assets owned by UBUMWE agro processing
industry ltd in 2021.
Required: Create chart of account for the above assets owned by UBUMWE agro-processing industry Ltd.
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4.4 Creation of third party accounts in SAGE line 100
Learning Activity 4.4
Corin KARURANGA owns and runs the Aerobic Health Foods Shop in
Muhanga town. He commenced trading on 1 January 202.
Customers are allowed to purchase up to 200,000 Frw of goods on credit
but must repay a certain proportion of their outstanding debt every month.
These customers include Eden Restaurant, Fast food Restaurant and
INEZA Motel. Again, the business has contract with different suppliers like
Modern farms cooperative, Turwanyinzara cooperative, and IGIRE Muhinzi
cooperative.
More importantly, the business is employing workers including 2 watchmen,
cashier, accountant, customer care officer, service providers and sales men.
1. Why is it unavoidable for business to keep customers, suppliers and
employees’ records in books of accounts?
2. Identify the customers (debtors), suppliers (creditors) and
employees of Corin KARURANGA and create S/P chart for them.
Learning Activity 4.4
4.4.1 Creation of S/P chart for debtors
Debtors represent the amount of money owed to the business and can be subdivided into trade debtors and others. The former category relates to customers
who have bought goods on credit terms and represents the amount of money
still outstanding from them at the year end. Other debtors could include
dividends receivable from investments in the shares of other companies.
Before creating individual debtors accounts in S/P chart, you need first to create
their general account in chart of account as debtors(customers)as follow:Click on structure-chart of Account-Right Click-Add new element.
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The following steps will be followed:
Click on structure
• S/P chart
• Right click
• Add new elementThen the following window will be displayed:
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Figure 4. 15: SP chart window
1. Write the account number of the debtor
2. Type the name of the debtor
3. Select the type of account (In customer, supplier, employee, and other),
select cust(customer)
4. Click in classif field for the debtor name to be reproduced
5. Click on controlling account, the chart of account already created appear
and you select debtor(customers)
Additionally, you can fill the full address of the debtor as mentioned in the table.
For example if you have the four debtors in your company, Kalisa, Mukamana,Kanyana, and Uwizeye.
Figure 4. 16: Creation of individual accounts of customers (debtors)in SP chart
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4.4.2 Creation of SP chart for the creditors (Suppliers)
A creditor is an individual or entity that is owed money. Typically, the creditors
of a business are its suppliers, which have provided it with goods and services,
and in exchange expect to be paid by an agreed-upon date. Or, the business
owes money to a lender, which also expects to be repaid at a later date. The
amounts owed should be reported on the firm’s balance sheet as either
accounts payable or loans payable. Accounts payable are usually classified as
current liabilities, while loans may be classified as either current or long-term
liabilities, depending on their scheduled repayment dates.
Examples of creditors are suppliers and lenders. There are several varieties of
creditor, which include the following:
• Secured creditor. This creditor is legally entitled to take certain borrower
property and sell it in the event of a payment default.
• Unsecured creditor. This creditor is not legally entitled to take any
borrower property in the event of a default.
• Senior creditor. This creditor will be paid before junior creditors in the
event of a borrower’s bankruptcy.
• Junior creditor. This creditor will only be paid after senior creditors have
been paid in full, if there is a borrower bankruptcy
Before creating individual creditors accounts in S/P chart, you need first to
create their general account in chart of account as creditors (customers) as
follow:
Click on structure-chart of account-Right click-Add new element.The following window appears:
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Figure 4. 17. Chart of account window
In the account number field, fill 4010(If four digits were used to set account
length). In the name field, fill Creditors or suppliers. Then click on classif to
make the account name be reproduced. Account type will automatically show
as supplier since the software itself recognizes the type of account when the
account number is written in its field. After, the following window will bedisplayed:
Figure 4. 18: Creation of general account for suppliers (creditors)
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Once the general account of creditors has been created, the next step is to create
individual account of creditors in S/P chart.
The sample S/P chart for individual suppliers’ accounts is structured assummarized in the following table:
To find S/P chart,
• Click on structure
• Click on S/P chart
• Right click• Click on Add new element
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The following window is shown:
Figure 4. 19: Display of SP chart account types
• In Ac No field, fill the account number of the creditor
• In the name field, fill the name of creditor
• Click on Cust tab and select supplier
• Click on controlling account, then the chart of account appear and select
suppliers or creditors (depending on the name you have attributed to
creditors in chart of account)
• Lastly, fill full address of the customer, including postal code (PC), town,Region /Ctry and telecom.
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Figure 4. 20: Creation of individual supplier(creditor)’ account
After filling the information above for one creditor, do the same for all creditors
of the company. Considering the sample creditors stated above, S/P chart willbe like this:
Figure 4. 21: Sample SP chart for suppliers(Creditors)
4.4.3 Creation of SP chart for employees
An employee is a person who works for another in return for financial or other
compensation. Under that definition, independent contractors would appear
to be employees. Black’s Law Dictionary defines employee as a person in the
service of another under any contract of hire, express or implied, oral or written,
where the employer has the power or right to control and direct the employeein the material details of how the work is to be performed.
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A payroll journal entry is a record of how much you pay your employees and
your overall payroll expenses. That way, you can look back and see details about
employee compensation, such as when you paid it, how much it was, and where
the money went. Compensation describes the cash rewards paid to employees
in exchange for the services they provide. It may include base salary, wages,
incentives and/or commission. Total compensation includes cash rewards as
well as any other company benefits.
The employees account length ranges from 421 to 42199999999 in the chart
of account.
In Sage line 100, employees are created in the same way as debtors and
suppliers. You just click on Structure-SP chart-Right click-Add New Element.
After getting to S/P chart, the next step is the creation of all employees working
in the business.
If for example a business is employing five employees, let’s say Mukamana,
Kamari, Rwabugiri, Bagabo, Nkurikiyinka, the table summarizing SP chart
for the employees names account numbers and types using four (4) digits foraccount length are as follow:
To create the above employees in the S/P chart, click on structure-SP-chart-Right
click-add new element, then you record the required information concerning
employees.
• In the Ac no field, fill the account number of employee
• In the name field, fill the name of employee
• Click in classif field to get the name of employee reproduced
• Click on controlling account tab to get the previously created chart of
account, then click on employees to connect each employee individual
account to their general account as collected in chart of account.
• Fill other information regarding address and personal information of
employeeBelow is the filled S/P chart for the above employees.
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Figure 4. 22: Sample SP chart for employees
Application activity 4.4
The company MM has the following suppliers and customers; prepare
their chart of account.
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End unit assessment
THOUSAND HILLS Ltd company is a manufacturing company that process
sugar cane into finished sugar. The following are transactions extracted
from THOUSAND HILLS Ltd company in 2020.
1st January, Started a business with 10,000,000 FRW at bank and 4000,000
FRW cash in hand,
3rd January, withdrew 5000,000 FRW and bought building for 7000,000
FRW by cash
5th January, Credit purchases from JUMA for 6000,000 FRW.
10th January, Bought office stationeries for 1,500,000 FRW by cheque
20thJanuary, Credit sales to NDANGA for 7,000,000 FRW. Cost of goods
sold 4,800,000 FRW
31st January, Paid rent on office building for 150,000 FRW by cash
5th February, withdrew 800,000 FRW for buying personal computer.
11th Feb, Paid insurance valued at 300,000 FRW and Fuel for 50,000 FRW
by cheque
25th Feb, Rent received for 100,000 FRW by cash
27th Feb, Earned sales commissions for 35,000 FRW
1. Identify the accounts affected by the above transactions2. Create chart of account and S/P chart for the identified accounts
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UNIT 5:CREATION OF JOURNAL CODES
Key Unit competence: Apply the entry of journal codes in SAGE 100
Introductory activity
You are an intern in AGACIRO ltd Company in the department of
accounting and your direct supervisor is the accountant of that company.
The company has recently started to use accounting software in business
record keeping, but the company’s accountant has not yet got enough
skills to run Sage line 100software especially in creation of books of
prime entry in digital form and use them to record day to day business
transactions by using sage line 100 software. As a student who is studying
computerised accounting:
1. What are the books of prime entry are you going to tell him/her
to create?
2. What are the steps he/she is going to follow in creating thosebooks?
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5.1 Use of data entry form and wizard to create the
purchase journal.
Learning Activity 5.1
The following are credit purchases made by TURWUBAKE ltd Company in
July 2015.
3rd July, bought goods of 450,000 FRW from SHAMI on credit
5th July, purchased office supplies worth 430000 FRW on credit from Jeff
stationery store
8th July, Bookshelves are purchased for 250,000 FRW on credit
11th July, Inventory was purchased for 700,000 FRW by cash
15th July, Credit purchases for 180, 000 FRW from Claude
24th July, bought goods from the vendor RUGAMBA for 300,000 FRW on credit
Required:
1. Identify the types of accounts affected by the transactions above
2. Create purchase journal code in Sage line 100 accounting software
Learning Activity 5.1
5.1.1 Purchase journal asa book of prime entry
The commonly used books of prime entry are sales daybook (or sales journal), Purchases daybook (purchases journal), sales returns daybook/ Returns inwards daybook(or sales returns/returns inwards journal), purchases returns daybook/returns
outwards daybook (purchases returns journal/ returns outwards journal), Cashbook
or cash journal and general journal.
• Sales journal records credit sales made by the business
• Purchase journal records credit purchases made by the business
• Sales returns journal records returns inwards i.e goods returned by the
customer to the business
• Purchases returns journal records returns outwards i.e. goods returned
by the business to the suppliers.
• Cash book records receipts and payments of cash and cheques and
• General journal which records transactions which may not be recordedelsewhere in the previously mentioned types of journals
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5.1.2 Creation of Purchase journal codes in sage line 100
For established businesses that have been operating for some time, it can be
common for their suppliers to allow them to purchase items on credit. That is,
they order and receive the goods now, and pay for them later. When are they
paid for? It could be the end of the week, the end of the month, or a certain
number of days (like 30) after the goods were delivered to the business. The
contract between the business and the supplier will determine the payment
terms.
To create purchase journal codes in Sage line 100, click on structure, journalcodes. The following window appears:
Figure 5. 1 Journal codes window
In the code field, type the code of purchase journal (It may be a numeric,
alphanumeric or label (letter)
In the type field, select “Purch” meaning purchase
In name field write purchase journal
In Number vouchers, there is “cont numb by journal” by default, which means
continuous number by journal. If this option is selected, we allow the voucher
number to change according to the transaction in purchase journal entry. If
voucher number is “1” for the first transaction, it becomes “2” when you record
the second transaction in the same journal and so on.
Other options are cont numb for file and monthly. “Cont numb for file” means
continuous number for file which means that, if selected, the voucher number
will change depending on accounting file created whereas when we select
monthly option, the voucher number will change as the month of transactionchanges
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After doing the above exercise, click “add” icon on navigation bar or Right clickadd new element in order to have space for creating other journal codes.
Application activity 5.1
1. State the types of journals existing in accounting
2. Explain the type of information which is included in each of the
books of prime entry3. Create purchase journal code in Sage line 100
5.2 Create Sales Journal
Learning Activity 5.2
1. What is meant by sales journal
2. Identify the transactions that may be recorded in sales journal from the
following:
– Sale of land for 2000,000 FRW by cheque
– Sold inventory for 600,000 FRW on credit
– Purchased new piece of office equipment for 300,000FRW by cash
– Sold goods worth 150,000 to Kanyana on credit
– Sale of personal car for 5000,000 FRW
– Paid insurance for 200,000 FRW by cheque– A credit sale of 600,000 FRW to Emmy
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5.2.1. Meaning of Sales journal
A sales Journal is a type of journal used to record credit sale transactions of
the company and is used for maintenance and tracking the account receivable
and inventory account. It is the Principal book of Credit Sale Transactions, and
the information recorded in it depends on the nature and requirement of each
business.
A sales journal is a specialized accounting journal and it is also a prime entry
book used in an accounting system to keep track of the sales of items that
customers have purchased on account by charging a receivable on the debit
side of an accounts receivable account and crediting revenue on the credit side.
For example, a company completes a sale on credit for $1,000,000 with an
associated 5% sales tax. The goods sold have a cost of 740,000 FRW. The
sales journal entry is:
Debit Accounts receivable for 1,000,000 FRW
DebitCost of goods sold for 600,000 FRW
CreditRevenue for 1,000,000 FRW
CreditInventory for 650, 000 FRW
CreditSales tax liability for 60,000 FRW
5.2.2. Creating sales journal code in Sage line 100
The creation of sales journal code follows the same procedure as it was done
for purchase journal in previous section. Below are the steps taken to create it:
• Once accounting file is opened, click on structure menu
• Click on journal codes
• Right click-add new element or click on “Add” icon on navigation bar
Since the purchase journal has been already created, the following window willappear:
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Figure 5. 4: Creation of sales journal code
After finishing creating sales journal, clicks on add icon or right click and add
new element to find space for creating another journal code or otherwise, closeit.
Application activity 5.3
1. What is meant by sales journal
2. Identify the steps taken to create sales journal code
3. In already created accounting file, create sales journal code asrequired
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5.3. Create returns inwards and returns outwards journal
Learning Activity 5.3
1. Distinguish between returns inwards and returns outwards
2. In which journals are sales returns and purchase returns are recorded?
3. How can you create returns inwards and returns outwards journal in
Sage line 100 software?
Learning Activity 5.3
5.3.1 Description of returns inwards and returns outwards
Return inwards are goods returned to a business by its customer(s). They are
goods which were once sold to external third parties, however, because of being
unsatisfactory, they were returned by the customer. They are also called “Sales
Returns”. Inward returns reduce the total accounts receivable for the business.
It is a sales return and on the other, it is a purchase return. The transaction
in both cases is reversed and the related sale or purchase is nullified. This
reversal reduces the total sales of a company and the deduction is shown in
the trading account. A subsidiary book called Sales returns book is prepared torecord all such entries.
Purchase returns are also called returns outward and an
appropriate purchase returns/returns outward book is maintained. At times
it may be necessary to return few goods back to a supplier when an order is
received, this may be due to poor quality, inaccurate quantity, untimely delivery
or other reasons.
All returns are primarily recorded in the purchase returns book unless the
returns are not that frequent, in which case they are recorded in the general
journal. After the purchase returns book is properly updated and all transactions
are entered into it, the total of the items is transferred to the ledger in an account
called the “Purchase returns account”.
1. At the end of the day, each entry is posted to the debit side of the
appropriate individual’s account in the creditor’s ledger as this helps the
account to stay up to date.
2. At the end of the month, the total of the “Amount” column is posted tothe general ledger with the help of the below-mentioned journal entry.
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Journal entry for purchase returns
5.3.2 Creation of Returns inwards and Returns Outwards
journals
To create returns inwards and returns outwards journal, the same process
is followed as the other journals like sales and purchase journals. The only
difference lies in the change of account type. Both journals are classified as
type general. As we have done previously for the journals created, first click on
structure menu-journal codes-right click, add new elements.The following window will be displayed:
Figure 4. 5: Display of sales and purchase journal codes
In the code field type 03 and in the name field type returns inwards, in journal
type, select type general then click “add” or close and right click-add newelement create the returns outwards journal. The following will be the results:
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Display of sales, purchase, sales returns and purchase returns journal codes created
Application activity 5.3
1. Distinguish between returns inwards journal and returns outwards
journal
2. In journal code, which type of journal are returns inwards and
returns outwards journal
3. Write down the steps followed to create returns inwards and
returns outwards journal in Sage line 100
4. In Sage line accounting file, create returns inwards and returnsoutwards journal codes
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5.4. Creation of cash Journal
Learning Activity 5.4
1. Define the term cash journal
2. What types of transactions are recorded in cash journal?
3. From the following transactions, indicate which ones may be recorded
in cash journal
– Borrowed 5000,000 FRW from local bank
– Collected 600,000 FRW in cash sale
– Paid salaries of 400,000 FRW by cheque
– Sold old motor vehicle for 5000,000 by cash
– Paid utilities for 120,000 FRW by cash
– Purchased office supplies worth 500,000Frw on credit
4. How can you create cash journal in sage line accounting software?
5.4.1 Description of cash journal
A cash journal is a simple hard copy or electronic document that is used to
make immediate accounting entries of both receipts and expenditures.
Transactions that are entered into this journal are usually recorded daily or
at least in chronological order. Part of the document’s charm is that financial
transactions entered as line items can be reviewed quickly when necessary, and
it provides a quick reference when entering the transactions into other sections
of the accounting books.
Businesses can use a cash journal for keeping up with a broad range of receipts
and payments, or it may be used to track one area of activity. Many businesses
choose to maintain a simple journal as a means of keeping a record of income
and disbursements associated with a petty cash fund. This can allow authorized
employees to handle a transaction out of petty cash and make a quick entry with
the basic information. At a later time, the transaction can be fully documented
in the balance sheet ledger or other appropriate record.
Larger organizations usually divide the cash book into two parts: the cash
disbursement journal, which records all cash payments, and the cash receipts
journal, which records all cash received into the business. Cash receipts are
money received from consumers for the sale of goods or services. In accounting,
a cash disbursement is a payment made by one party to another. Also called cash
payments or disbursements, they can be made by check, e-check, Automated
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Clearing House (ACH), digital payment, and all formats of payments recorded
with an immediate deduction.
Cash disbursements are used to purchase inventory, pay for office supplies,
make business loan payments, pay dividends, cover accounts payables and
salaries, and make any other kind of payout that’s not handled with a credit
account or credit card.
5.4.2 Creation of cash journal code
To create cash journal code, the user goes through the same process as for
other journals. There is a quiet difference especially in the fields to be filled in
the cash journal window.
After clicking structure-journal codes-Right click-Add new element. We findthe following window:
Figure 5. 7: Space to create cash journal
Obviously, the previously created journals are displayed, but there is a space to
create cash journal. Follow these steps
• In the code field, fill the code of “05” (or another code different from the
ones created for other journals before).
• In the name field, type cash journal and in the journal type select cash.After performing the steps above, the following results are displayed:
Once the cash type is selected, “contra for each line” and “cash account”
fields which were inactive before become active and tick on “contra for
each line”, click on cash account then the created chart of account appears
and select cash.
• For reconciliation select cash
Finally, cash journal creation is completed and we can add another journal orclose if there is no other journal to be created
Figure 5. 9: Creation of cash journal codes
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Application activity 5.4
1. What is meant by cash journal?
2. Give the two types of transactions to be recorded in cash journal
5.5. Creation of general journal
Learning Activity 5.5
1. What is meant by general journal in accounting?
2. Give two examples of the transactions that may not be recorded in
subsidiary journals but in general journal only
3. How can you create general journal code in sage line 100?
5.5.1 Description of general journal
A general journal is a journal recording all of the transactions of a business. As
soon as a business transaction takes place, it is recorded in the general journal.
Transactions are recorded in either the general journal or a special journal, but
not in both.
In general journal, the entity (company) also records other non-financial
transactions that occur in the business into this book also. That non-financial
transaction included depreciation, adjustments as well as an accrual. Those
financial transactions including sales transactions purchase transactions, cash
receipts, cash payments, and many other important financial transactions.
5.5.2 Create general journal code
The creation of general journal code involves the steps, similar to the steps
followed in creating other types of journals as seen in previous sections,
especially returns inwards and returns outwards journals, since all of them are
of type general. The small difference lies in journal name and code. Therefore,
you follow the steps below:
• Click on structure menu
• Click on journal code
• Right click• Add new element
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Figure 5. 10: Display of created subsidiary journals
As it is seen, the previously created journals are displayed in the above window,
since they are still kept in the database.
At this stage, the user fills the required information in the fields. In code field,
fill (06) or any other code separate from the one used for the journals created
before. In name field, fill general journal, and select general in journal type.After doing this, the following results will be obtained:
Figure 5. 11: Creation of general journal
After creating all types of journals, the next step is to record transactions in the
created books, this will be viewed in next sections.
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Application activity 5.5
1. What is general journal?2. Identify the steps taken to create general journal code in Sage Line 100
End unit assessment
1. State and explain the types of journals that exist in accounting
2. What is the difference between returns inwards and returns
outwards?
3. Give three examples of credit purchase transactions
4. Give two examples of transactions that may be recorded in sales
journal
5. Explain the meaning of cash disbursement
6. 6Outline the steps followed to create cash and sales journals in
journal codes
Practice
In SAGE line 100, create:
1. File name under your proper names
2. Company profile
– Company name: AMANI Ltd
– Activity: Manufacturing
– Address: Rulindo
– Phone: 9999988899
– Operating period. 2019, account length 4 digits
– Reporting currency: Rwandan francs
3. Journal codes for sales journal, purchase journal, cash journal,returns inwards
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UNIT 6:RECORGING TRANSACTIONS IN JOURNALS
Introductory activity
ISHAMI Ltd is a small sole trade business of purchasing cereals for resale. It
is located in Rwamagana, District in Eastern Province (Tel +250788594143;
P.O Box 1103 Rwamagana).
Assume the company, decides to hire you knowing that you are skilled in
computerized accounting and expecting that you will help the Shop in the
process of recording financial information, producing financial statements
on time. Given the past information below:
On 1st January, 2023 Starting business with 50,000,000 FRW(from the
business owner)
2nd January, 2023 Receiving a loan from Bank of RWF 10,000,000 FRW
8th January 2023 Buying premises for RWF 3,000,000 FRW and paying rent
for 200,000 FRW (both by cheque)
10th January, 2023 Purchasing goods on credit from John for RWF 4,000,000
FRW
11th January, 2023 Selling goods on credit to Mugabe for 5,000,000 FRW
(cost of goods sold RWF 2,800,000 FRW)
12th January, 2023 Receiving cash from Mugabe (full payment of his debt)
25th January, withdrew 80,000 FRW for home expenses
5th February, bought goods of 380,000 FRW from Silas on credit
10th February, bought stationeries for 180, 000 FRW and paid a quarter by
cheque, the remaining balance being on credit.
20th February, paid three quarters of the debt owed to Silas by cash
25th February, paid insurance for 120,000 FRW and communication of 50,000
FRW both by cash.
Basing on the transactions provided above, you are required to:
i) Create your own chart of accounts and S/P Chart
ii) Create the journal codes you need for recording
iii) Indicate in which subsidiary journal should each transaction berecorded
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6.1. Process credit Purchases
Learning Activity 6.1
1. What types of transactions are recorded in purchase journal?
2. What do you understand by creditors?
3. You have bought goods on credit, which account is to be debited and
which account is to be debited
4. We purchased a business delivery van from BAVUGIRIJE has bought
goods on credit, what account to be debited and what account should
be credited?
5. Record the following transactions in purchase journal
– 4th January bought goods of 80,000FRW from Suzan on credit
– 10th January, made credit purchase for 40,000FRW from HABIMANA
– 15th January, Bought goods of 50,000 FRW from GAHUNGU on
credit– 20th January, Credit purchase from AYINKA for 70,000Frw
6.1.1. Getting into credit purchase entry journal
The purchase journal records credit purchase transactions made by the
business in the given period of time.
Any transaction entered into the purchases journal involves a credit to the
accounts payable account and a debit to the expense or asset account to
which a purchase relates. For example, the debit relating to a purchase of
office supplies would be to the supplies expense account. The journal also
includes the recordation date, the name of the supplier being paid, a source
document reference, and the invoice number. Optional additions to this basic
set of information are the payment due date and authorizing purchase order
number.
The following steps are followed when making journal entries in purchases
journal:
1. Click on Process menu
2. Double click on Entry journalYou can also click on Enter journals tab on vertical bar
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Figure 6. 1: Getting to journal entry
The window that contains all the books created appears as follow:
Figure 6. 2 List of journals created in journal code
Each book will appear once per month in every twelve months of operating
period. If we click on period tab and select code, the journals will be arranged
by “code” in ascending order i.e from the smallest journal code to the largestone
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If the user wants to record a given transaction in its respective journal, double
click on that journal depending on the date the transaction occurred and you
get the journal format.
6.1.2 Journal entries in purchase journal
To start making entries in purchase journal, double click on purchase journal
of particular month, depending on the date of credit purchases made by
the business. If we select the purchase journal for the month of January, thepurchase journal format table will be displayed as follow:
Figure 6. 3: Journal entries window
Since we have selected “code” instead of period, the purchase journal having
(01) as code comes first and appears from January to December chronologically,
followed by Sales journal having (02) as code, returns inwards having (03) as
code, returns outwards having (04) as code and lastly, general journal having
(06) as code.
To record the entries in purchase journal, double click on purchase journal of
the month during which the transaction took place. For example, if the business
transactions have occurred in January, double click (or press Enter button on
keyboard) on purchase journal of January, then the following purchase journaltable is displayed:
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igure 6. 4: Purchase journal window display
By default, the purchase journal and all of other journals have 10 columns:
• The first column is the day column which records the date on which the
transaction took place (Note that the month is in the title of the document
on top of screen: Purchase journal/Jan23)
• The second column contains the voucher number where we record the
number of source document used to refer to that transaction
• Column 3 comprises voucher reference which is a unique, sequential
number assigned to each invoice or any other source document
• Column 4 heading is general account number where we find accounts
created in chart of account
• Column 5 heading is S/P account number, where we find individual third
parties accounts as created in S/P chart.
• In column 6 named comments, we write short narration about transactions
recorded,
• In column 7, there is maturity date for customers if we have set maximum
customer term in preferences
• Column 8 is named journal position and shows the status of journal
transactions. If no transaction is not yet recorded in the journal, the
position column is empty• Column 9 is named debit and we record debited amount in this column
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• The last column is named credit and in it we put amount credit to a given
account
To record a transaction, the user follows these steps:
• First record the date of the transaction upper in day column (there is 1st
of the month by default)
• In the voucher number column, record the invoice number, receipt
number or any other source document number (if any)
• In reference number, record the invoice reference number, receipt
reference number or any other source document reference number
• In the general account number, type the account root number or the firstletter starting account number then press tab button
Figure 6. 5: Tab button location on keyboard
• Select the type of account for which you want to record a transaction
as created in chart of account then click ok. The account number of the
selected account is going to be displayed in the general account column.
The user can also type the full account number in that field in case he
remembers it.
• In S/P account number column, the user selects the third party name and
his account is displayed in that field. Note that only suppliers(creditors)
re found in purchase journal.
• In comment column, type short narration explaining the entry that was
made.
• In debit column, enter the amount to be debited and press enter.
• When you press Enter, the date, voucher number, voucher reference are
going to be reproduced and you are only required to find account to be
credited and press Enter on keyboard.
It is also optional to click on balance tab, and search for the account to be
credited, the balance amount will be automatically posted to the credit sidethen press Enter button.
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Referring to the transactions found in activity 6.1, question 5, our purchase
journal will be as follow:
Figure 6. 6:Sample example of purchase journal entries
Application activity 6.1
The following are credit purchases transactions extracted from UBUZIMA
trading company
2nd February, bought office supplies for 120,000 FRW from Louis on credit
6th February, Inventory worth 40,000FRW was purchased from Anna on
credit
15th February, credit purchases for 260,000 FRW from KAGABA on credit
16th February, bought goods worth 76,000 FRW from Anna on credit
Required:
1. Create S/P chart for suppliers identified in the above transactions
2. In journal code, create purchase journal3. Record the above transactions in the purchase journal
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6.2. Process credit sales transactions
Learning Activity 6.2
1. What do you understand bay sales journal?
2. Which main information recorded in sales journal
3. From the following transactions, select the ones that should be
recorded in sales journal
a. Sold goods valued at 320,000 FRW to Manzi on credit
b. Issued share capital for cash
c. Purchased equipment on credit
d. Deposited money at bank
e. Collected cash for repairs completed
f. Paid an invoice from the utilities company for electricity for 60,000
FRW by cheque
Learning Activity 6.2
6.2.1 Meaning of credit sales
The term “credit sales” refers to a transfer of ownership of goods and services to
a customer in which the amount owed will be paid at a later date. In other words,
credit sales are those purchases made by the customers who do not render paymentin full at the time of purchase.
6.2.2 Sales journal entries
Recording transactions in sales journal is the same as the steps of recording
transactions in purchase journal. The only difference is that sales journal deals
with the credit sales transactions made with debtors or customers. Before start
recording, the user must have created customers general account in chart of
account and the customers (debtors) individual accounts in S/P chart.
In the day column, the user records the date as it has been done in purchase
journal, in the voucher number and voucher reference too. In the general
account column, select the sales account to be credited, and in S/P chart select
the individual account of the debtor to be debited, by typing the root number of
the account or the first letter of the account number to be debited and type TABbutton, then click on the debtor’s account and click ok.
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In the comment column, write short narration on the transaction done. In
the debit column, write the amount of money to be debited and press ENTER
button on keyboard.
Before starting recording transactions in sales journal, sales journal code must
be created and the debtors’ individual accounts must have been created in S/P
chart.
Example: Record the following credit sales in sales journal of March
2nd March, sold goods worth 90,000 FRW to MAHORO on credit
5th March, credit sales of goods valued at 300,000 FRW to JIMMY
12th March, the customer TOM purchased goods of 380,000 FRW and paid a half
by cash20th Sold goods to FATUMA for 250,000 FRW on credit.
Figure 6. 7: Sales journal window display
The above figure shows the first debit entry recorded to the debtor Mahoro and
it was done following the steps below:
• In the day column (1), we have written 2nd of March (The month and year
appears on document title on top of screen: Journal: SALES JOURNAL/
March23)
• In S/P account number (2), we have selected Mahoro by writing the first
letter of her name M then press tab button, select Mahoro and click OK, and
her account appeared in the head column. The general account number
of customers(debtors)created in chart of account appears in the general
ac no column since we have connected the customers to that account byusing controlling account tab in S/P chart.
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• In entry comment column (3), we have written “credit sales to Mahoro” as
short narration of the transaction made.
• The maturity date (4) appears since we have set maximum customer terms
in Parameters configuration (see concerning your company-parameters)
• In debit column (5) we have debited 90,000FRW as given in the
transactions we have I practical example, then lastly pressed ENTER
button on key board.
It is also possible to press on balance icon before pressing enter
Figure 5. 8: Location of balance icon
To record first credit of sales account, follow the same procedure, but the date,
voucher number and entry comment are duplicated. The user only search for
sales account in general account number and type the same figures as what was
debited to the debtor (90,000FRW in our case), then press enter.
The same process is going to be followed for other debtors in our transactions.
We will therefore have the following results:
Figure 6. 9: Sample sales journal window display
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Application activity 6.2
Record the following transactions in sales journal
1. Credit sales to SHAMI for 1,200,000 FRW, cost of goods sold
900,000FRW, invoice no 123
2. Sold finished products to MPORE for 600,000 on credit, invoice no
124
3. Sold 700,000 FRW to MUTESI and paid 380, 000 by cash, the
remaining balance to be paid at later date. Invoice no 1254. Credit sales of 200,000FRW to MULISA. Invoice no 126
6.3 Process cash payments and cash receipts
Learning Activity 6.3
1. What is meant by cash journal?
2. Explain the difference between cash payment and cash receipts?3. What are the types of cash book you know?
6.3.1 Meaning of cash journal, cash payments and cash receipts
a. Cash journal
A cash journal is a simple hard copy or electronic document that is used to make
immediate accounting entries of both receipts and expenditures. Transactions
that are entered into this journal are usually recorded daily or at least in
chronological order.
Cash journal is also referred to as cashbook. The cash book is divided into three
categories namely single column cashbook, double column cashbook and three
or triple column cashbook.
A single column cash book records only those transactions that involve exchange
of actual cash in hand while double column cash book records all transactions,
that takes place either through exchange of actual cash or through the bank.
The triple column cash book (also referred to as three column cash book)is the most exhaustive form of cash book which has three money columns on
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both receipt (Dr) and payment (Cr) sides to record transactions involving cash,
bank and discounts. A triple column cash book is usually maintained by large
firms which make and receive payments in cash as well as by bank and which
frequently receive and allow cash discounts.
b. Cash payments
Cash payment refers to any transfer of funds through a transaction originated
by cash, check, or similar paper instrument. This includes electronic payments
to a financial institution or clearing house that subsequently issues cash, check,
or similar paper instrument to the designated payee.
c. Cash receipts
A cash receipt is an accounting entry that documents the collection of cash
from a customer. Cash receipts typically increase (debits) the company’s cash
balance on its balance sheet. Simultaneously, they decrease (credits) either
accounts receivable or another asset account.
Cash receipts appear on a financial summary as an increase to the cash account
or another asset account. This depends upon the nature of the sale. If a business
sells services and those payments were collected in cash, then those payments
would be put toward accounts receivable.
If you sell goods that you have produced through your manufacturing division,
then this would affect inventory. This is opposed to accounts receivable. You
have sold goods that already existed. In this case, a business may record the
collection of cash as an increase to cash or to another asset account.
6.3.2 Cash journal entries
Cash journal entries are done in the same process as the journals previously
done. In this journal, cash payments and cash receipts transactions are recorded.
Example:
Near the end of her secondary studies, Mrs INGABIRE is faced with the decision
of whether to create a saloon business, hardware start a summer dress making
business. INGABIRE has had some experience designing and sewing and
believes it might be the most lucrative of self-employment alternatives. She
starts “Sewing workshop”.
During May, the first month of business, the following occur:
1stMay, INGABIRE deposits 5000,000 FRW of her own money into sewingworkshop checking account.
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3rdMay, The business purchases equipment for 1000,000 FRW by cheque.
5th May,Withdrew 2000,000 FRW
6th May,bought land of 1,500,000 FRW by cheque
10th May,bought sewing supplies and material for 300,000 FRW in cash.
16th May, paid rent of 100,000 FRW and utilities for 150,000 FRW by cash
17th May,Sells twenty dresses during the month. Each dress has a price of 50,000
FRW. Cash is received for twelve of the dresses, with customers owing for the
remaining eight.
25th May, taxes amounting to 150,000 FRW paid in cashRequired: Record the above transactions in cash journal
Figure 6. 10:Sample cash journal entries
Application activity 6.3
Record the following transactions in sales journal
1. 1st February, Cash received from the debtor for 2,500,000 FRW
2. 3rd February, Paid rent for 200,000 FRW, Sold goods by cheque
3. 7th February received interest on saving account for 38,000 FRW
4. Banked 300,000 FRW5. Purchased building for 60,000FRW
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6.4 Processing returns inwards and returns outwards
journal
Learning Activity 6.4
Record the following sales returns and purchase returns in their respective
journals
1. The customer Peter returned goods of 25000 FRW to business
2. Returned goods valued at 40000 FRW, to supplier John
3. Goods bought for 30,000 FRW on credit were returned to supplier
Kamali
4. Purchased goods worth 500,000 FRW, but a half the goods were
returned to supplier5. The customer KAMANA returned goods of 60,000 FRW
6.4.1 Meaning of returns inwards and returns outwards
Return outwards are goods returned by a businesses to the suppliers.
They are goods that were once purchased from external parties, however,
because of being unsatisfactory they were returned back to them, they are
also called Purchase returns. Outward returns reduce the total accounts
payable for a business.. The transaction in both cases is reversed and the related
sale or purchase is nullified. Purchase returns reduce the total purchases/
accounts payable of a company and the deduction is shown in the trading
account. A subsidiary book called Purchase returns book is prepared to record
all such entries.
6.4.2 Returns inwards and returns outwards journal entries
As we have seen previously for other types of journal, the process of recoding
transactions in returns inwards and returns outwards journal is the same. For
returns inwards, the returns inwards account is debited, the debtor’s account is
credited. For the returns outwards, the creditor’s account is debited to reduce
the account payables and returns outwards account is credited.
Briefly, when customers return merchandise sold for cash, the sales returns and
allowances account is debited and the accounts payable account is credited.
This entry is made when a customer notifies the business that they will return
the merchandise. Afterward, another journal entry may be required in which
ICT in Accounting | Student Book | Senior Fivethe accounts payable account is debited and the cash account is credited. This
journal entry is made when a cash refund is given to the customer for the goods
they returned.
The journal entry for returns outwards is as follow:
1. Returns inwards transaction
On 1stJanuary 2023, the Modern Trading Company sold merchandise for
2,400,000FRW. KIMENYI received the delivery on the same day and found the
merchandise costing 400,000 FRW did not meet the order specification. These
merchandises were returned to the Modern Trading Company on the same day.
Record the above transaction in Modern trading company returns inwardsjournal.
Figure 6. 11: Sample Returns inwards journal
As shown by the above journal table, the returns inwards account was debited
for 400,000 FRW to reduce income, and the debtor KIMENYI was credited, to
reduce accounts payable amount for 400,000 FRW.
2. Returns outwards transaction
On 2nd February 2023, John Enterprise sold merchandise for 1,500,000 FRW
to Sam Enterprise on credit. On the same date, merchandise amounting to300,000 FRW was returned to John Enterprise because they failed to meet the
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required quality standards.
Record the above return outwards transaction in Sam Enterprise books of
account.
Figure 6. 12: Sample returns outwards journal
As shown by the above journal table, John Enterprise account was debited
for 300,000 FRW to accounts payable, and returns outwards was credited toreduce expenses for 300,000 FRW.
Application activity 6.4
1. Contrast returns inwards and returns outwards
2. Under which circumstances may goods be returned?
3. Record the following transactions in returns outwards or returns
outwards journal depending on the type of journal in which they
are supposed to be recorded
a. 1st March, sold goods to MUSONI for 4000,000 FRW but the same
dated MUSONI returned the goods valued at 250,000 FRW because
they were not of ordered quality
b. Bought goods from MUTIMA for 1000,000 FRW but returned
goods worth 150,000 FRW the following day because they weredefected.
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6.5 Recording transactions in general journal
Learning Activity 6.5
1. What is general journal?
2. Give three examples of transactions that may not be recorded in
special journals but in general journal only3. What are the columns of general journal?
6.5.1 Description of general journal
A general journal is a daybook or subsidiary journal in which transactions
relating to adjustment entries, opening stock, depreciation, accounting errors
etc. are recorded. The transactions recorded in a general journal are those that
do not qualify for entry in any special journal used by the organisation, such as
non-routine or adjusting entries (Wikipedia).
The general journal is the company’s journal in which initial record keeping
of all the transactions is done which are not recorded in any of the specialty
journals maintained by the company like purchase journal, sales journal, Cash
journal, etc. Whenever an event or transaction occurs, it is recorded in a journal.
Journal can be of two types a specialty journal and a general journal.
A special journal records special events or transactions related to the
particular journal. There are mainly four kinds of special journals namely sales
journal, cash receipts journal, purchases journal, and cash disbursements
journal. The company can have more specialty journals depending on its
needs and type of transactions, but the above four journals contain the bulk of
accounting activities.
All other transactions not entered in a special journal account for in a General
Journal. It can have the following types of transactions: accounts receivables,
accounts payable, equipment, credit sale of fixed assets, accumulated
depreciation, expenses, Interest income and expenses, etc
Examples of transactions recorded in general journal only include:
• Sale and purchase of fixed assets
These are assets a firm purchases and retains to help carry on the business. It
is not intended to sell fixed assets in the ordinary course of business and it is
expected that the bulk of their value will be used up as the result of contributingto trading activities. Examples of fixed assets are premises, plant, machinery,
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furniture and motor vehicles. A characteristic of fixed assets is that they usually
remain in the business for long periods of time and will only be sold or scrapped
when they are of no further use.
• Entries for Sale or purchase of fixed asset on credit
In business, the company may need to purchase the fixed asset on credit to
use in day-to-day operations. Likewise, the company needs to make the journal
entry for the purchase of the fixed asset on credit in order to account for the
new capitalization of the cost of the fixed asset as well as to account for the
liability that exists at the time of the purchase.
Usually, the assets may be sold in current value, or more/less than at a current
value. When the assets are sold for then its written down value, the profits
arising from it will be treated as profits for the company. These profits can
be allocated as Revenue Profit and Capital profits for tax purposes. When the
assets are sold less than their written down value, it will incur the loss of the
company. Both loss and profit on the sale of fixed assets are to be shown on the
Income Statement.
Additionally, as the cost of the fixed asset will be depreciation from the day
that it is ready to use, the company will also need to make the depreciation
journal entry for the purchased fixed asset at end of the accounting period. This
depreciation of the fixed asset is necessary to spread the cost of the purchased
asset over the accounting periods that such asset provides benefits to the
business.
The company can make the journal entry for the purchase of fixed asset on
credit by debiting the fixed asset account with the capitalization cost of thepurchased fixed asset and crediting the accounts payable.
This journal entry will increase the total non-current assets as a result of the
capitalization of the new fixed asset on the balance sheet. At the same time,
it will also increase the total liabilities on the balance sheet as a result of the
purchase of fixed asset on the credit.
Later, when the company makes the cash payment for the credit purchase of
the fixed asset that it has made previously, it can make the journal entry for the
payment of the fixed asset purchase on credit by debiting the accounts payableand crediting the cash account
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Accumulated depreciation is the total depreciation for a fixed asset that is
assigned as an expense since the asset was obtained and made available for use.
Accumulated depreciation accounts are asset accounts with a credit balance
(known as a contra asset account). It appears on the balance sheet as a reduction
from the gross amount of fixed assets reported.
For example, on January 1, the company ABC purchases new office equipment
that costs $50,000 on credit from one of its vendors. The company ABC receives
the office equipment and it is ready to use on the same day of the purchase.
On February 1, the company ABC makes this $50,000 payment to its vendor
to settle the credit purchase of the fixed asset that it made on January 1. This
$50,000 office equipment is expected to have a useful life of 10 years. And the
company ABC uses the straight-line depreciation method for all of its equipment
type of fixed asset.
In this case, the company ABC can make the journal entry for the credit
purchase of the $50,000 office equipment by debiting this $50,000 amount to
the equipment account and crediting the same amount to the accounts payableas below
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This journal entry for the credit purchase of the fixed asset, which is the $50,000
office equipment, will increase both total assets and total liabilities on the balance
sheet by $50,000 as of January 1.
Later, on February 1, when the company ABC makes the cash payment of
$50,000 to its vendor for the credit purchase of this $50,000 office equipment,it can make the journal entry to settle the payable as below:
This journal entry of the $5,000 depreciation of the fixed asset will increase the
total expenses on the income statement by $5,000 while decreasing the total
assets on the balance sheet by the same amount at the end of the year.
6.5.2 General journal entries
The procedure of recording general journal entries in Sage line 100 is the same
as other types of journals.
Click on process-entry journals-double click on general journal of the month in
which the transaction occurred then start recording transactions
Example: 2nd April bought equipment for 1800,000 FRW on credit,The entry in general journal would be:
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Figure 6. 13:Journal entries for credit sale of a fixed asset
Equipment account was debited to record the new capitalization of the cost of
equipment assets accounts payable accounts payable was recorded to record
an increase in accounts payable amount.
If the equipment is expected to have useful life of 20 years, after one year,
the depreciation expense will be recorded. Using straight-line method, the
depreciation of the equipment purchased is 180000/2=90,000 FRW
We will therefore debit depreciation expense for 90,000 FRW, and credit
accumulated depreciation for equipment for the same amount (90,000 FRW).
Before entering the above transactions in general journal, the affected accounts
need to be created in chart of account. We will therefore have the followingjournal entries:
Figure 6. 14:Journal entries for depreciation of a fixed asset
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Application activity 6.5
1. Define the term general journal
2. What are the types of transactions recorded in general journal?
3. Give the journal entries for:
a) When depreciation of equipment of 5000 FRW is to be recordedb) Credit sales of machinery for 2000,000 FRW
End unit assessment
1. What are the types of journals you know in accounting?
2. Clearly, explain the meaning of double entry system
3. The following information was extracted from the books of John
enterprises on the month of January, 2023 in Frw
i) April 1st: Started business: cash at hand 4,800,000Frw, Cash at bank
6,500,000
ii) iBought goods on credit from: Alice 2,600,000Frw; Eric: 4,400,000Frw
iii) 1st sold goods on credit to: Rachelle 2,800,000Frw; Ineza
1,200,000Frw
iv)April 2: Ineza cleared his account by cheque
v) April 8: Withdrew cash for business use worth 1,400,000
vi)April 14: Received cash from Rachelle in full settlement of her account
vii) April 20: Paid cash for wages worth 1,300,000Frw
viii)April 28: Deposited cash into bank worth 1,000,000 Frw
ix)April 30: Paid Eric by cashx) Required: Show the journal entries
UNIT 7:THE TRIAL BALANCE
Key Unit competence: Present and interpret the trial balance.
Introductory activity
The following are essential tasks of accountant as advertised by a
company that want to hire an accountant:
• Research financial information for audit purposes and financial
reporting.
• Analyze financial records and reports and make adjustments as
needed.
• Assist bookkeepers, coordinators, principals, and administrators
on day-to-day financial matters, reports and questions.
• Assist auditors in analysis work.
• Prepare and enter journal entries which include correcting entries,
allocating expenditures, grant related entries, etc.
• Assist in year-end closing and audits.
• Assist on monthly interim financial statements, Superintendent's
Annual School Report, and Comprehensive Financial Report.
• Perform the financial administration and reporting of assigned
federal and state grants which includes establishing grant in
financial system, preparing budget and any adjustments, monitoring
spending and assisting in accurate and timely reimbursements.
You will need to prepare the trial balance as a prerequisite to prepare the
financial reports.
1. What do you understand by trial balance?2. Explain the main columns of a trial balance
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Trial balance also known as List of accounts balances is a simple report that
shows the list of account balances classified as per the debits and credits after
accounts have been balanced. It is an accounting or bookkeeping report that
lists balances from a company’s general ledger accounts.
The purpose of the trial balance is to show the accuracy of the double entry
made and to facilitate the preparation of final accounts, that is the income
statement (or trading, profit & loss account) and a balance sheet. The total of
debits of the list of accounts balances should be the same as the total of credits;
if not then there is an error in one or more of the accounts.7.1 Analysis of debit and credit balances
Learning Activity 7.1
You are an accountant of a company that still uses manual accounting
system, at the end of a financial period; you have to prepare financial
reports. As usual, before preparing income and balance sheet, you will
prepare the trial balance to check on the accuracy of your arithmetic.
1. Explain the debit and credit columns of a trial balance.
2. Which accounts do you have in mind that must always have debit
balances?
3. Which accounts should appear credit column of the trial balance?
Learning Activity 7.1
A. Debit column: Debit column of the trial balance is the column in which the
amounts of the ledger accounts’ debit balances are recorded.When we balance
off accounts, the assets and expenses have debit balances, so they are shown on
the debit side of the trial balance.
B. The credit column: The credit column of the trial balance is column in which
we record all ledger accounts with credit balances.As we balance off accounts,
Capital, liabilities and incomes normally have credit balances so shown on the
credit side.
The capital account shows the net worth of a business at a specific point in time.
It is also known as owner’s equity for a sole proprietorship or shareholders’
equity for a corporation. It always has a credit balance and so, on the credit
column of the trial balance. Other accounts that always have credit balanceinclude sales, sundry creditors, gains and reserves.
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Application activity 7.1
1. Explain the debit column of the trial balance
2. List down the four accounts appearing on the debit column.3. List down the accounts with credit balances.
7.2 Errors in accounting
Learning Activity 7.2
MUTESI is an accountant of ABC Ltd and still use manual accounting. At
the end of financial period, she prepares a trial balance and finds that two
totals do not agree, which implies that some errors have been committed
while recording the transactions in the books of accounts.
1. Helps her identify the errors not affecting the trial balance2. Helps her identify the errors affecting the trial balance.
7.2.1 Errors not disclosed by a trial balance
In recording of accounting transactions, some errors made may not be
detected by the trial balance. This means that for every debit entry, there is
the corresponding credit entry. But this does not justify that an accountant has
not committed mistakes. In this regard, an accountant must be aware of those
errors that are not disclosed by a trial balance.
The following errors are not detected by the trial balance:
1. Clerical Errors:
• Errors of Omission: If a transaction is not recorded at all, the amount of
the transaction will not be recorded in the relevant ledger account, and/or
if the transaction is not transferred from journal to ledger, both columns of
the trial balance will be valued by an equal sum lower amount of money.
For example, goods sold to Green but not recorded in the sales book. Because
an equal amount of debit and credit has been omitted from the record, the trial
balance will agree.
• Errors of Commission: If a transaction is recorded in the primary books
of accounts by a lower or higher amount of money, that lower or higher
amount will also be recorded in the ledger in question, and thus the trialbalance will agree.
ICT in Accounting | Student Book | Senior Five
As an example, consider the $3000 in goods sold to Green. If it is recorded as
$30000, both Sales A/C and Green A/C will be valued at $27000 more. In this
case, too, the trial balance will agree.
• Errors of Miss-posting: Such errors occur as a result of employees’
carelessness. Assume Green has given you $3000 in cash. The cash book
is properly debited with $3000, but when posted to the ledger, the Yellow
account is credited instead of the Green account.
The trial balance will agree because the total of credits has been the same,
despite the fact that the amount has been credited to the incorrect account.
• Compensating Errors: Compensating errors occur when one mistake is
compensated for by another.
Even if there are two errors, in this case, the total of both sides of the trial
balance will agree. Because both sides will be reduced by the same amount,
$1800.
2. Errors of Principle
Errors committed due to a lack of proper accounting knowledge and/or
violations of recognized accounting principles are referred to as errors of
principles. An example of such an error is when capital expenditure is recorded
as revenue expenditure and vice versa. Another example is when a purchase
of assets is recorded in the purchases book. It is an error of principle, because
the purchases book is meant for recording credit purchases of goods meant for
resale and not fixed assets. A trial balance will not disclose errors of principle.
7.2.2 Errors disclosed by a trial balance
When errors do not affect the trial balance, this means that the debit side is not
equal to the credit side and means that the trial balance does not balance. There
are various types of such errors that are revealed in the trial balance.
Note that these errors cannot happen in accounting software like Sage line 100,
since the user receive the notification in recording transaction warning that
the journal is not balanced and cannot close Sage line window. The user should
therefore balance the journal to be allowed to close it.
Some of these are discussed below:
1. Wrong Totaling of Subsidiary Books:
If the total of any subsidiary book is wrongly cast, it would cause a disagreementin the Trial Balance. For instance, Sales book has been under cast by Frw 100.
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From the Sales book, all the personal accounts have been debited correctly but
mistake occurred only in Sales Account, to the extent of Frw 100 (Less). Thus,
the Trial Balance disagrees to the extent of Frw 100; credit side falls short of
the amount.
2. Posting of the Wrong Amount:
If a wrong amount is posted in one of the two accounts, the Trial Balance
disagrees. For instance sales made to Rugero for Frw 570, wrongly debited to
Tuza’s Account with Frw 750, instead of Frw 570. Tuza’s account has been over
debited by Frw 180. Thus, the debit side of the Trial Balance will exceed by Frw
180. i.e., 750 – 570 = 180.
3. Posting an Amount on the Wrong side of the Account:
For instance, a credit sales made to a customer for Frw 500 has been credited to
the customer account, instead of debit. As a result of this error, the credit side
of the Trial Balance will exceed by Frw 1,000 (double the amount of the error)
because there are two credits one in Sales Account and another in Personal
Account and no debit for the transaction.
4. Posting Twice to a Ledger:
For instance, salary of Frw 500 paid has been debited to Salary Account twice
by mistake. This will cause disagreement of Trial Balance in debit side by excess
of Frw 500.
Apart from the above, the following are some of the common errors, by which
Trial balance totals disagree:
5. Omission of an account from the Trial Balance (Cash, Bank etc.):
this error happens if an account is completely omitted while preparing
a trial balance.
6. Wrong additions or balancing of ledger accounts: these are errors
committed by the accountant while adding up the transactions made in
an account during the time of balancing off accounts.
7. Balance of account written to the wrong side of the Trial Balance:
this happens if the accountant mistakenly writes the total of one side
to the opposite side. For instance, the total debits written under totalcredits and vice versa.
ICT in Accounting | Student Book | Senior Five
8. Errors made in preparing the list of Debtors and Creditors: this
error may occur when a debtor is wrongly considered as creditor, and
vice versa.
9. Errors made in carrying forward the total from one page to another
page. The balance from one page may be modified when it is brought
forward.
10. There may be some items to which double entry is incomplete: this
error originates from the violation of double entry principle and occurs
if for a transaction, one account has been debited/credited without the
corresponding account being credited/debited respectively.
11. Wrong totals of the Trial Balance: these are errors of addition an
accountant may commit when s/he is adding up the trial balance figures.
Application activity 7.2
Cyusa A/C is supposed to be debited with $2000 but has only been debited
with $200. On another occasion, Teta A/C was mistakenly credited with
$200 rather than $2000.
1. What kind of error is it?
2. Will the error affect the trial balance?3. Give an example of an error that will cause the trial balance not to agree.
7.3. Assets and expenses accounts of trial balance
Learning Activity 7.3
Using the knowledge from senior four, identify the accounts that mustappear on the debit side of the trial balance
7.3.1 Assets
When we prepare a trial balance assets appear in the debit column. This is
because generally assets have a debit balance in time of balancing off accounts.Exception may be to bank account which may have a credit balance in case of
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bank overdraft. Basically, an overdraft means that the bank allows customers
to withdraw more money than s/he has on his/her account. This makes a bank
account balance negative.
The typical asset accounts with debit balances are Cash, Marketable securities,
Accounts receivable, Inventory, Prepaid expenses, Buildings and Equipment.
7.3.2 Expense accounts
Expenses accounts normally carry debit balances on the left side of the
T-a7.5. Debits increase the balance in an expense account. They are entered
on the debit side of the trial balance. Examples of these accounts are Salaries,
Rent, Supplies, Interest, Insurance, Licenses, Advertising, and so many others.
Application activity 7.3
1. Complete the table below by ticking in the appropriate column:
2. Differentiate between assets and liabilities
7.4. Liabilities accounts of trial balance
Learning Activity 7.4
ISHIMWE wants to start a business. Her savings is not enough to cover the
startup and operating capital. Advise her on how she can get funds to start
and run her business.
A liability is something a person or company owes, usually a sum of money.Liabilities are settled over time through the transfer of economic benefits
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including money, goods, or services. In accounting, liability accounts have
credit balance, and hence, they appear in the credit column of the trial balance.
Businesses sort their liabilities into two categories: current and longterm.
Current liabilities are debts payable within one year, while long-term
liabilities are debts payable over a longer period. Below are the types of
liabilities:
7.4.1 Current (Near-Term) Liabilities
Ideally, analysts want to see that a company can pay current liabilities, which
are due within a year, with cash. Some examples of short-term liabilities
include payroll expenses and accounts payable, which include money owed to
vendors, monthly utilities, and similar expenses. Other examples include:
1. Wages Payable: The total amount of accrued income employees have
earned but not yet received.
2. Interest Payable: Companies, just like individuals, often use credit to
purchase goods and services to finance over short time periods. This
represents the interest on those short-term credit purchases to be paid.
3. Dividends Payable: For companies that have issued stock to investors
and pay a dividend. This represents the amount owed to shareholders
after the dividend was declared.
4. Unearned Revenues: This is a company’s liability to deliver goods and/
or services at a future date after being paid in advance.
7.4.2 Non-Current (Long-Term) Liabilities
Long-term liabilities, also called long-term debts, are debts a company owes
third-party creditors that are payable beyond 12 months. Considering the
name, it’s quite obvious that any liability that is not near-term falls under non
current liabilities, expected to be paid in 12 months or more.
Examples of long-term liabilities include long-term loans, bonds payable, post-re
tirement healthcare liabilities, pension liabilities, deferred compensation, deferred
revenues, etc.Both short-term and long-term liabilities always have credit balance;therefore, they appear on the credit column of the trial balance.
ICT in Accounting | Student Book | Senior Five
Application activity 7.4
1. With examples, distinguish between current and non-current liabilities.
2. Explain how liabilities are treated in the trial balance.7.5. Income/Revenues account of trial balance
Learning Activity 7.5
A newly recruited account needs advice on how to prepare a trial balance
especially how to treat revenues of the business. As a fresh school leaver
accountant, advise her on whether revenues are debits or credits in the
trial balance and explain why.
7.5.1 Incomes/revenues
Revenues and gains are recorded in accounts such as Sales, Service
Revenues, Interest Revenues (or Interest Income), and Gain on Sale of
Assets. These accounts normally have credit balances that are increased with a
credit entry. In a T-account, their balances will be on the right side. In the trial
balance they are credits.
The exceptions to this rule are the accounts sales returns, Sales Allowances, and
Sales Discounts these accounts have debit balances because they are reductions
to sales. The following are some of the revenue accounts.
– Sales account: This revenue account that reports the sales of
merchandise.
– Service revenues: these are revenues from a work accomplished by a
company.
– Interest income: these are interests earned by a company during a
given time period.
– Gain on sale of assets: this is income earned from the sale of an asset
(other than stock/inventory) for more amount than the amount shown
in the company’s records. It is the difference between the proceeds
from the sale and carrying amount shown on the company’s book.
Note the following:
• The trial balance is of crucial importance in the business since it ensures
mathematical accuracy, ensures accurate recording, assists in quicklydetermining the current financial situation, aids in the correction of
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accounting errors and ensures proper use of the double-entry system.
• The assets and expenses have debit balances so shown on the debit side
( it includes accounts like assets, drawings accounts, expense accounts,
cash balance, bank balance, losses, purchases, and sundry debtors, among
others), While Capital, liabilities and incomes normally have credit
balances so shown on the credit side (it includes capital accounts, income
accounts, sales, sundry creditors, gains and reserves).
• In a trial balance statement, where the debit and credit side of it is equal,
it is considered balanced. Additionally, it ensures that there are no errors
in the ledger. However, this does not qualify that it is free of mistakes.
For instance, improper entries and missing entries from ledgers are still
considered accounting errors that are not detected by a trial balance; this
means that an accountant may commit some errors which cannot affect
the trial balance.
7.5.2 The process of generating a trial balance in sage line
100
Now that the previous steps should have been followed, that is, creating a
company profile, creating charts of accounts, creating s/p charts creating the
journal codes and record the transactions in the appropriate journals. The user
can generate the trial balance of the business.
Taking an example of ABCD Company operating from 1/1/2023 to 31/12/12023
with the following transactions taking place on January 1st 2023:
Started business with cash 5,000,0000FRW and bank 10,000,000FRW
Drawings in kind.....................................................................400,000FRW
Land bought on credit for Kimenyi.................................2,000,000 FRW
Purchase by bank....................................................................5,000,000 FRW
Purchase by cash.....................................................................4,000,000 FRW
Credit purchases from Kimenyi.........................................1,000,000 FRW
Credit purchases from Agnes..............................................500,000 FRW
Credit sales to Kalisa ..............................................................7,000,000 FRW
Credit sales to Jane...................................................................13,000,0000 FRW
Goods returned to Jane...........................................................50,000,000 FRW
Agnes returned goods to ABCD company.......................25,000 FRW
Machinery bought by cash.....................................................400,000 FRW
Rent received by cash................................................................150,000FRW
Discount received by cheque............................................80,000,000 FRW
Paid salaries......................................................................700,000 FRW
Paid rent by check.............................................................200,000 FRW
Cash deposited...................................................................4,000,000 FRWThe chart of accounts is as follows:
Figure 7. 2:SP chart
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The journal codes created are as follows:
Figure 7. 3: Journal codes
Entries in every journal are shown below:
a. Purchase journal:
Figure 7. 4: Journalizing credit purchases transactions
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Figure 7. 5: Journalizing credit sales transactions
c. Cash journal:
Figure 7. 6: Journalizing cash transactions (Payments and receipts by cash or
cheque)
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d. General journal:
Figure 7. 7: Entries in general journal
e. Returns inwards journal:
Figure 7. 8: Entries in returns inwards
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f. Returns outwards journal:
Figure 7. 10: Selection of trial balance
-Click on trial balance: The window that appears and the user click on trial
balance to print it or view its print preview and click ok (here we selectcomplete):
ICT in Accounting | Student Book | Senior Five
ICT in Accounting | Student Book | Senior Five
In Sage 100, the trial balance is composed of four main columns:
1. Account number which shows the numbers as per charts of accounts
2. Account names as per charts of accounts
3. Transactions: this part shows the total amount of transactions made in
each side of an account and the grand total of debits and credits.
4. Balances: this column shows the balance brought down for everyaccount. It corresponds to the manual trial balance
Application activity 7.5
1. What are revenue accounts?
2. How are revenues treated in the trial balance?
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End unit assessment
The following are information extracted from BIRASHOBOKA ltd Company
in 2022. You are required to record these transactions into their respective
journals and extract a trial balance.
1st January: Started a business with :
- Cash 500,000 FRW
- Building 800,000 FRW
- Cash at bank 1,500,000 FRW
2nd January bought land valued at 600,000 FRW by cheque.
10th January bought goods from Gloria for 350,000 FRW on credit.
15th January Gloria returned goods amounted 10,000FRW
25th January sold goods valued at 250,000 FRW to Emma on credit.
10th March paid for rent 50,000FRW, communication 200,000FRW and
transport 40,000FRW all paid by cash.
Additional information:
Activity: Construction
Account length: 4 digits
File name: Your proper namesSave you work on desktop.
UNIT 8:PROCESS THE INCOME STATEMENT
Key Unit competence: Process and present the income statement.
Introductory activity
The following information was extracted from the books of accounts of
Nelly relating to the financial year ended December 31st, 2022:
1. Which financial statement to be used in order to get the business
financial performance?
2. Which formula used to get the financial performance of a business?
8.1. Formulas of income statement
Learning Activity 8.1
1. What is meant by income statement?
2. State the formula to calculate gross profit in income statement
3. How is net profit calculated?
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8.1.1. Meaning of income statement
Income statement is a financial statement prepared to provide information
about financial performance of a business. It shows a company’s revenues,
expenses and profitability over a period of time.
It is also sometimes called a profit-and-loss (P&L) statement. It shows your
revenue from selling products or services, expenses to generate the revenue
and manage your business. In other words, it compares all the incomes and
expenses of the period to get the profit or loss for the period.
8.1.2 Sections of the income statement
a. The trading account
The trading account is the part of income statement that summarizes the
trading activities (sale and purchase of goods/stocks) of the business and tries
to determine the gross profit for the relevant financial period. Gross profit
equals net sales (sales minus sales returns) minus the cost of goods sold.
The gross profit is then taken up in the second part of income statement, the
profit and loss account as part of the income.
b. The profit and loss account
The profit and loss account shows the net profit or net loss that the business
has made from all the activities during a financial period. The net profit (or
loss) is determined by deducting all the expenses from all the incomes of the
same financial period.
Income statement contains at least two major sections: revenues and expenses.
– Revenues are inflows of assets from providing goods and services to
customers. Newton’s income statement contains one type of revenue:
sales to customers. This includes sales made for cash and sales made
on credit.
– Expenses are the costs incurred to generate revenues such as salaries,
rent, insurance, transport, water and electricity and other items.
The income statement has two parts: The first part (previously known as
trading account) shows the gross profit. The second part (previously known
as the profit and loss account) shows the net profit for the period.
8.1.3. Formats of income statement
There are two formats of preparing the income statement, the Horizontal or
T-account format and the Vertical or narrative format.
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A. Horizontal format or conventional format Income statement
Name of the business
Income statement for the year ended …../……/…….
B. Vertical format
Name of the business:………………………
Income statement for the year ended: date/month/year
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Note: The use of brackets on the amounts means deduction of the amount. The
other option would be to use the word ‘Less’ before the item concerned.
Application activity 8.1
1. Give the two main sections of income statement
2. What is the formula to calculate cost of goods sold?
3. How is net profit calculated in income statement?
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8.2. Configuration of income statement
Learning Activity 8.2
Mr MBOGO is an accountant at Vision Company and uses computerized
accounting software in his day to day business transactions records. He
has entered all the transactions in a SAGE line accounting file in the year
2022. However, when he wants to present the income statement to see if
the business has made profit or loss, the income statement is not displaying
the results because it is not yet configured.
1. Basing on the steps followed, guide him how to make income
statement configuration.
2. What is the importance of configuring income statement?
Learning Activity 8.2
In sage line 100, once the journal entries were made, trial balance, accounts
ledger, income statement and balance sheet are done automatically. However,
for the income statement and balance sheet, the user needs to make some
configurations in order to customize the company’s transactions with the
software.
The following are steps taken to open income statements
Step 1. Click on stat(statement)menu on menu bar
Step 2. Click on BS/Income statement
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In (1), click on stat, and then click on BS/Income statement (2)
Step 3. Remove ticks on details of account, on print BS and on print int. balances.
Only print income statement option must have a tick.
Figure. 8.3. Selection of income statement print preview
Step 5: Remove a tick on day book quality, print preview and
print once per document, leave a tick on “Print preview” only. After, click Ok
Figure 8. 4: Income statement print preview before configuration
Income statement appears to be in French because it originates from French company
and the balances are not found, hence need to be configured
In order to get to the configuration of income statement, instead of clicking Ok,
click on BS/Income statement user defined icon
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Figure 8. 5: Path to Income statement configuration
Application activity 8.2
1. Why is it necessary to make income statement configuration in Sage
line 100?
2. Outline the steps followed when configuring income statement?
8.3. Creation of elements of income statement
Learning Activity 8.3
1. What are the elements of income statements?
2. Give three examples of expenses a business can have
3. What is the formula to calculate gross profit?
8.3.1. Net sales
Net sales refer to the total amount of sales made by a business within a specific
period after sales returns, discounts, and sales allowances are deducted. Net
sales may be referred to as “net revenue” or simply “sales” when listed on an
income statement. In income statement, net sales are obtained by deducting
sales returns from total sales incurred by the business, i.e net sales=Sales-sales
returns
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ICT in Accounting | Student Book | Senior Five
In (2), in the name field, type sales for the sales account and sales returns or returns
outwards
In (3), select both for each account of them when configuring and in (4)Press ENTER button on keyboard to save the configuration of an account. When saved, it
moves up and leaves space for the configuration of another account.
8.3.2. Cost of goods sold
Cost of goods sold is the total of all costs used to create a product or service,
which has been sold. These costs fall into the general sub-categories of direct
labor, materials, and overhead. Direct labor and direct materials are variable
costs, while overhead is comprised of fixed costs (such as utilities, rent, and
supervisory salaries). In a service business, the cost of goods sold is considered
to be the labor, payroll taxes, and benefits of those people who generate billable
hours (though the term may be changed to “cost of services”). In a retail or
wholesale business, the cost of goods sold is likely to be merchandise that
was bought from a manufacturer. It does not include any general, selling, or
administrative costs of running a business.
Normally, cost of goods sold is calculated by this formula: Beginning inventory
(opening stock) + Purchases (minus purchase returns) - Ending inventory =
Cost of goods sold
In sage line 100 income statement configuration, cost of goods sold is created
as header and will be created as follow:
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The elements of cost of goods sold are created as header type. In sage line 100
it is difficult to determine opening stock, since no option of entering opening
balance like it is in Sage line 50, QuickBooks and some other accounting
software. Therefore, cost of goods sold will be equal to net purchases minus
ending inventory (closing stock). If no closing stock is found, cost of goods sold
will be equal to purchases minus purchases returns.
In sage line 100, the configuration of purchase and purchase returns will be
looking as follow:
Figure 8. 9: Purchases and purchases returns configuration
8.3.3. Gross profit
The balance of profit, which is arrived at by matching sales proceeds with the
actual cost of the goods sold, is called gross profit. The gross profit of a company
is the total sales of the firm minus the total cost of the goods sold. The total
sales are all the goods sold by the company. The total cost of the goods sold is
the sum of all the variable costs involved in sales.Gross profit is configured as subtotal in income statement configuration
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Figure 8.10: Gross profit configuration
8.3.4. Other incomes
The term income refers to earnings of the business over a given period. Examples of
incomes a business may receive include rent received, commission received, interest receivable, discount received and others. For example, if we have rent income, it
may be created as follow
Figure 8. 11: Income configuration
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The total of incomes earned by the business added to gross profit is called grossincome and is given a total type
Figure 8. 12: Gross income configuration
8.3.5. Expenses
In accounting terms, expense is the operational cost that is paid to earn business
revenues. It means the outflow of cash in return for goods or services. Expenses
can also be written as the sum of all the operations that usually bring profit.
Examples of the expenses include rent expenses, wages and salaries, transport,
utilities, maintenance, office supplies, depreciation and insurance, telephone
costs and stationery.
The expenses take the type of header while specific expenses take the balancelimit type.
Figure 8. 13: Expenses configuration
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A particular account of expense is of balance limit type. After setting balance
limit type, select both and press Enter button on key board to save that particular
expense account. For example, if we configure transport expense, the output isas follow:
Figure 8. 14: Particular expense type configuration
8.3.5. Net profit
Net profit is the amount of money your business earns after deducting all
operating, interest, and tax expenses over a given period of time. To arrive at
this value, you need to know a company’s gross profit. If the value of net profit
is negative, then it is called net loss.
To configure the net profit in income statement configuration, the same
procedure is to be followed as the configuration of other accounts configured
before. The only difference is that the net profit is saved as total type. It willtherefore be configured as follow:
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Figure 8. 15: Net profit configuration
Application activity 8.3
1. What are the elements of income statement?
2. Write down the steps that may be follow to make configuration ofgross profit in income statement
8.4. Presentation and interpretation of income statement
Learning Activity 8.4
From the following transactions, make journal entries and prepare the
balance sheet and income statement and show their configurations.
1st January, started a business with 9,000,000FRW cash in hand
2nd, January bought machinery for 2000,000 FRW by cash
4th January, bought goods worth 80,000 FRW from Suzan on credit6th January, received a loan of 3000,000 FRW
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10th January, credit purchase from Habimana for 40,000FRW
13th January, bought building for 2,500,000 FRW by cheque
15th January, credit purchase from Gahungu, for 50,000 FRW
20th January, Credit sales to Mahoro for 90,000 FRW,
5th February, withdrew business cash of 200,000 FRW for personal use
10th February, credit purchase from Ayinka for 70000 FRW
11th February, returned goods of 30000 FRW to Ayinka
15th February, bought land for 1,500,000 FRW by cash
20th February, bought goods of 300,000 FRW on credit from John Enterprise
6th March, credit sales to Jimmy for 200,000 FRW,
7th March, Jimmy returned goods costing 40,000 FRW
12th March, sold goods to TOM for 190,000 FRW on credit
10th April, Paid transport of 50,000 by cash
12th April, Rent paid for 80,000 FRW by cheque
3rd May, Bought equipment for 1000,000 FRW cash
4th May, commission valuing at 60,000 FRW was received
10th May, Rent worth 120,000FRW was received by cheque
31st May, recorded depreciation of fixed assets for 90,000 FRW
Additional information:
File name: AFRICA
Operating period: 2023
Company name: TWITEZIMBERE Ltd Company
Activity: Manufacturing
After creating chart of account for the affected accounts, S/P chart and journal
codes, and recording related transactions as required, the next step is to makeconfigurations as required
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The chart of account will look like this:
Figure 8. 16: Chart of account worked example
S/P chart for the third parties will be as follow:
Figure 8. 17: SP chart worked example
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After creating third party account, the next step is to create journal codes. Thecreated journal codes are presented below:
Figure 8. 18: Journal codes worked example
After creating the required chart of account, the next step is recording
transactions in different journals depending on the type and nature of the
accounts affected by the transaction and the month in which the transaction has
taken place. Moreover, the journal entries may be made in the general journal.After journal entries were made the trial balance is presented as follow:
ICT in Accounting | Student Book | Senior Five
Figure 8. 19: Trial balance worked example presentation
After the presentation of trial balance, the next step is the configuration of
income statement, which is done by following the steps below:
Step 1: Click on Stat-B/S income statement
Step 2. Remove a tick from detail of account, Print BS, and on print interimbalances. Only tick on Print income statement. Then click on BS/IS user defined.
ICT in Accounting | Student Book | Senior Five
Figure 8. 20: Path to income statement configuration
Step 3. Right click and select all-Right click and delete selected elements or
click on delete icon on navigation toolbar. At this step, it is now possible to startthe real configuration.
Figure 8.21: Deleting unconfigured income statement elements
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Step 4. After all elements have been deleted, the user can start real configuration byRight click-Add new element, and the following window appears:
Figure 8. 22: Income statement blank window for configuration
In header field, click to add the accounts of income statement and their headings.
For the header, type the title of each section or part of the income statement
which is to be calculated like net sales, cost of goods sold, other incomes and
expenses.
For balance limit and transaction limit, use the accounts created in chart of
account that appear in income statement and for which entries have been done.
Make gross profit as sub-total and the net profit as total. For example, salesaccount may be created as follow:
Figure 8. 23: Sales account configuration
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• In the type field, we have selected balance limit for sales account,
• In the name field we have type the name of account we want to make
configuration for. In our case it is sales account.
• In the code field, the use may use any code of the choice. It can be numeric
or character. Leaving the field empty does not affect your work at all.
• In both, the user can either select both, debit or credit, depending on
whether an account can have debit balance or credit balance.
• Click on the field in the left side of both field, to find out the chart of
account created and select the account to be configured. Then the account
number of the selected account is displayed and tap ENTER button on
keyboard.
For example, net sales must be header type while gross profit will be subtotal
type.
Figure 8.24: Net sales and gross profit configuration
Follow the same procedure for all accounts that appear in income statement.
After they were all configured, the user arranges them following vertical formatof income statement by using shift up and shift down buttons.
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Figure 8. 25: Use of shift up and shift down tabs to arrange accounts
Only net profit will be of type total and will be created as follow:
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Figure 8.27: configured income statement accounts organized in vertical format
After configuring and arranging the accounts of income statement, the user can
now view and present income statement results
, by clicking on the stat menu SB/income statement
- Tick on income statement only and click Ok. The resultsbelow will therefore be presented:
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Figure 8.28: Presentation of income statement results
According to the above results, it is clear that the company has made a net profit
of 50,000 FRW that resulted from net sales of 600,000 FRW minus cost of
goods sold of 510,000 FRW which gave the gross profit of 90,000 FRW. Other
income totaled 180,000FRW and when added to gross profit, we obtained a
gross income of 270,000 FRW. To obtain net profit, the total expenses of 220,
000 FRW were deducted from the gross income and the net profit of 50000
FRW was obtained. This will be transferred to balance sheet to increase thecapital and owner’s equity in general.
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1. What is meant by income statement?
2. Differentiate between gross profit and net profit
3. What is the formula to calculate cost of goods sold?
4. The following list of accounts for ABC Company Ltd. is available at
the end of 2022. You are required to prepare income statement
Advertising expenses 15,000 FRW
Beginning inventory 80000 FRW
Sales 2,500,000 FRW
Sales returns 150000 FRW
Discount for volume of sale 150,000 FRW
Insurance expense 14,500 FRW
Intangible assets depreciation expense 10,800 FRW
Purchases for goods for sale 1,500,000 FRW
Purchases returns of goods for sale 60,000 FRW
Rent revenue 80, 0000 FRW
Ending inventory 500,000 FRW
Commissions received 60000 FRWWages and salaries 300,000 FRW
UNIT 9:PROCESS THE BALANCE SHEET
Introductory activity
1. What is meant by balance sheet?
2. Outline the elements of balance sheet
3. From the following particulars, prepare a balance sheet of Mr.
Mugabo as at 31st March, 2022FRW)
Capital ………………………………..5,500,000
Drawings…………………………………100,000
Sundry debtors…………….……………1,000,000
Sundry creditors…………………………..800,000
Bank loan…………………………………200,000
Net profit………………………………….1, 600,000
Closing stock………………………………500,000
Plant and machinery………………………..1,500,000
Building …………………………………….1, 200,000
Land …………………………………………..3,000,000
Goodwill ………………………………………500,000Furniture and fixtures…………………………300,000
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9.1 Configuration of balance sheet accounts
Learning Activity 9.1
1. Referring to accounting equation, explain the elements of balance
sheet
2. Differentiate current assets from current liabilities
3. Classify the following accounts in either assets or liabilities
a. Stock
b. Loan payable
c. Bank Overdraft
d. Trade creditors
e. Accounts receivable
f. Premises
g. Owner’s drawings
h. Fixtures and fittings
i. Machinery
j.Buildingk. Prepaid expenses
9.1.1. Description of balance sheet
The term balance sheet refers to a financial statement that reports a company’s
assets, liabilities, and shareholder equity at a specific point in time.
The Balance Sheet lists the assets, liabilities, and equity accounts of the company.
The Balance Sheet is prepared ‘‘as on’’ a particular day, and the accounts reflect
the balances that existed at the close of business on that day.
The Balance Sheet isprepared on the last day that the Income Statement covers,
soif the Income Statement is for the period ending December 31,2002, the
Balance Sheet would be as on December 31, 2003.You can state the date in avariety of formats. All of the followingare acceptable:
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As on, December 31, 2022
December 31, 2022
On December 31, 2022
9.1.2. Elements of balance sheet
1. Assets
Business assets may be defined as resources owned by an entity that have the
potential for providing it with future economic benefits in the sense that they
help to generate future cash inflows or reduce future cash outflows.
Assets reported in the balance sheet are divided into two categories:
a. Current assets
These are defined as short-term assets that are held for resale, conversion into cash
or are cash itself. There are three main types of current assets: stock-in-trade, trade
debtors and cash. A temporary investment of funds in the shares of, say, a quoted
company or government securities should also be classified as a current asset. A
characteristic of current assets is that the balances are constantly changing as the
result of business operations.
• Stock-in-trade
represents the value of items purchased for resale that are still in stock at the year
end. They are regarded as a current asset becausethere is a high chance of the items
being converted into cash within the next 12 months.
• Debtors
Debtors represent the amount of money owed to the business and can be sub-divided
into trade debtors and others. The former category relates to customers who have
bought goods on credit terms and represents the amount of money still outstanding
from them at the year end. Other debtors could include dividends receivable from
investments in the shares of other companies.
• Cash
Cash is the amount of funds readily usable by the business and can eitherbe in
the form of cash or a balance in the business bank account.
b. Fixed assetsThese are assets a firm purchases and retains to help carry on the business. It is not
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intended to sell fixed assets in the ordinary course of business and it is expected that
the bulk of their value will be used up as the result of contributing to trading activities. Examples of fixed assets are premises, plant, machinery, furniture and motor
vehicles. A characteristic of fixed assets is that they usually remain in the business
for long periods of time and will only be sold or scrapped when they are of no further use.
3. Liabilities
Liability is a term in accounting that is used to describe any kind of financial
obligation that a business has to pay at the end of an accounting period to a
person or a business. Liabilities are settled by transferring economic benefits
such as money, goods or services. Liabilities are recorded on the right hand
side of the balance sheet, which includes different types of loan, creditors,
lender and suppliers. Liabilities can be of short term and long term. Short term
liabilities are due within an accounting period (12 months) and long term
liabilities become due within duration of more than 12 months.
a. Capital
This is the amount of money invested in the business by the owner(s). The
amount can increase through further investment of funds by the owner(s) or by
the business making a profit and can decrease when money is withdrawn from
the business for personal use or where a business loss is suffered (drawings).
Capital is regarded as a permanent source of finance since it is only repayable
in full when the business ceases. Until such time the amount is regarded as a
liability of the business as the amount is owed to the owner.
b. Current liabilities
These liabilities are defined as amounts repayable within12 months of the
balance sheet date. Typical examples include bank overdrafts and creditors.
Any loans repayable within the following year are also listed under current
liabilities.
Creditors can be divided into trade and other creditors. Trade creditors
represent the amount owing to suppliers of stock items that have been
purchased on credit terms. Other creditors could include amounts outstanding
for miscellaneous services.
c. Long-term liabilities
These represent the amounts payable after more than12 months. They include suchitems as bank loans and mortgages.
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Balance sheet formats
The balance sheet has two formats, horizontal format and vertical format.
1. Horizontal format
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2. vertical format
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9.1.3. Configuration of balance sheet in Sage line 100
As stated in previous sections, the balance sheet is generated after the journal
entries records were completed and well done. However, if not configured,
the balance sheet is displayed in French and no balances corresponding to
the entries made are shown. The configuration is therefore of paramount
importance to have a well displayed and balanced balance sheet corresponding
to entries made.
To get to the balance sheet we follow the steps below:
1. Click on ‘‘Start” menu2. Click on BS/Income statement
Figure 9. 1: Getting started with balance sheet configuration
In (1), click on stat, and then click on BS/Income statement (2)
Step 3. Remove ticks on details of account, print income statement and onprint int. balances. Only on print BS option must have a tick.
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Figure 9.2: Selecting balance sheet to be printed out
Step 4. After this, click OK and the following window is displayed:
Figure 9. 3: Selection of balance sheet print preview
Step 5: Remove a tick on day book quality, print preview and print once perdocument, leave a tick on “Print preview” only. After, click Ok.
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Then you get the balance sheet with accounts written in French “plan
comptable” because it was not configured before to math it with the accounts
we have in the company’s transactions
To configure the balance sheet, skip the step 3, and instead of clicking Ok, clickon “BS/Income statement user defined”.
Figure 9. 4: Selection of BS/ income statement user defined
Then you get the balance sheet which is in French. Delete all those accounts by:
• Right click-select all• Right click again then click on deleted selected elements
Figure 9.5: Selection all balance sheet accounts
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Figure 9.6: Deletion of non-configured balance sheet accounts
After deleting the selected elements, you get an empty window, then you can
configure the balance sheets element depending on the accounts you created inchart of account that appear in balance sheet.
Figure 9. 7: Blank window of balance sheet before its configuration
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Application activity 9.1
1. Define the term balance sheet
2. What is the difference between assets and liabilities?
3. Write down the layout of horizontal format of balance sheet.
4. Write down the steps followed to get to the configuration of balancesheet in Sage line 100
9.2. Assets configuration
Learning Activity 9.2
1. Contrast the current assets from non-current assets
2. Distinguish between intangible assets and tangible assets with 2
examples on each
3. Why is it necessary to make configurations of assets of the company
in sage line 100?
9.2.1. Fixed assets configuration
To make configurations on the elements of balance sheet, we shall use the
figures found in
learning activity 8.4 so as to have the net profit obtained in income statement
and transmit it in balance sheet to find total owner’s equity.
When configuring the fixed assets in balance sheet, first of all, the user must
have created those assets in chart of account and there must be transactions
that affected those assets in order to have the balances, the user follows the
following steps:
1. After deleting the accounts set in balance sheet by default and have a
blank window, Right click-add new element or click on “add” icon foundon navigation toolbar. The following window appears
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Figure 9. 8: Balance sheet configuration window
When we click in the header field, we find different options to select from
including header, transaction limit, balance limit, sub-total, total and
formula. In the header we put the type of asset to be configured, for example
“fixed assets”. In the transaction and balance limit, we put the account that
appears in chart of account of the company whose balance sheet is configured;
in subtotal we put the total assets or total liabilities and owner’s equity.
In code column, put any code either numeric or character. The field is not a
required option, i.e. it is possible to leave it empty.In this step, the header type will be fixed assets and it is created as follow:
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Figure 9. 9: Fixed assets header configuration
After creating fixed assets header, the next step is to create each fixed asset
available in chart of account of the company being dealt with. They will be of
balance limit type.
If balance limit is selected, the field of both, debit and credit becomes active,then the user is required to select “Both
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Figure 9.10: Configuration of a particular fixed asset account
1. Click where it was initially written header, and select balance limit
2. After typing account name (LAND in our case) and Code (not compulsory),
select land account in chart of account then its account number is
displayed.
3. Select both to mean that the account can both either be debited or
credited
4. Press “Enter” button to confirm the account.
Then proceed in the same way for other fixed assets comprised in the chart of
account. If we have land, building, equipment and machinery, the configurationresults for fixed assets will be as follow:
Figure 9. 11: Sample list of configured fixed assets
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9.2.2. Current assets configuration
The configuration of current assets follows the same steps as the one of fixed
assets, except only the difference in names and code. Current assets become the
header type, whereas the specific current assets created in the chart of account
are of balance limit type.
Current assets are created in the following steps.
1. Right click-add new element or click on add icon on navigation toolbar2. In the name field, type current assets and put the code of your choice
Figure 9. 12: Creation of current assets header
3. Click on add, to have free field to be able to create the current assets
as found in the chart of account. And create the first current asset. If
we have for example inventory (stock), debtors, bank and cash. Start bycreating stock as follow:
Figure 9. 13: Configuration of stock as element of current assets
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Then proceed in the same way to create other current assets and the
following output will be displayed:
Figure 9. 15: Creation of total assets sub-total
Note: The accounts are arranged in descending order, from the last created
to the first created. The user can therefore move the account upwards or
downwards to arrange the account according to the vertical format by clickingon shift up or shift down buttons.
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Figure 9. 16:Arranging balance sheet assets accounts using shift up and down tabs
Application activity 9.2
1. With two examples on each, distinguish between current assets and
no-current assets
2. What are the steps followed to create fixed assets in balance sheetconfiguration?
9.3 Owner’s equity configuration
Learning Activity 9.3
1. What is meant by owner’s equity?
2. Explain the elements of owner’s equity?3. In which side of balance sheet do we find owner’s equity?
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9.3.1 Meaning and elements of owner’s equity
Owner’s equity represents the owner’s investment in the business minus
the owner’s draws or withdrawals from the business plus the net income (or
minus the net loss) since the business began.
Owner’s equity is essentially the owner’s rights to the assets of the business. It’s
what’s left over for the owner after you’ve subtracted all the liabilities from the
assets. If you look at your company’s balance sheet, it follows a basic accounting
equation: Assets – Liabilities = Owner’s Equity.
Owner’s equity is found by
a. Capital
Capital means that amount or asset which is invested in business by businessman
or owner of business. When a person starts any business or profession, he
brings some money in cash and some other assets like building, furniture and
machinery. These will be his capital.
b. Drawings
A drawing in accounting terms includes any money that is taken from the
business account for personal use. It normally reduces the capital of the
business.
A journal entry to the drawing account consists of a debit to the drawing account
and a credit to the cash account. A journal entry closing the drawing account
of a sole proprietorship includes a debit to the owner’s capital account and a
credit to the drawing account.
c. Profit
Profit describes the financial benefit realized when revenue generated from a
business activity exceeds the expenses, costs, and taxes involved in sustaining
the activity in question.Any profits earned funnel back to business owners, who
choose to pocket the cash, distribute it to shareholders as dividends, or reinvest
it back into the business.
d. Loss
A loss is an excess of expenses over revenues, either for a single business
transaction or in reference to the sum of all transactions for an accounting
period. The presence of a loss for an accounting period is closely watched by
investors and creditors, since it can signal a decline in the creditworthiness
of a business. This is particularly the case when the loss is derived fromjust the operational activities of a business. Losses may also result from the
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sale of an asset (other than inventory) for less than the amount shown on the
company’s books.
9.3.2 Configuration of owner’s equity
The configuration of owner’s equity is done in the same process as the
configuration of other accounts of balance sheet. First the users creates the
account of owner’s equity and names it as header type, then create capital,
drawings and profit or loss as balance limit.
To create owner’s equity header, right click and click on add new element. Then
leave the header in header field, and in the name field type owner’s equity, and
code field fill in the code of choice. By doing so, you will have the followingoutput:
Figure 9. 17: Owner’s equity header configuration
After writing the owner’s equity header, the following step is to configure,
capital, drawings and profit account. The configuration of capital will have thefollowing output:
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Figure 9. 18: Configuration of capital account
After configuring capital account, follow the same steps to configure profit anddrawing, therefore the following output will be displayed:
Figure 9. 19: Configured owner’s equity accounts
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Application activity 9.3
1. What is meant by owner’s equity?
2. Distinguish between profit and loss
3. What are the journal entries on drawing account?
4. In balance sheet, make journal entries for owner’s equity (capital,profit (or loss) and drawings.
9.4. Long term and current liabilities configuration
Learning Activity 9.4
1. Differentiate long term liabilities from current ones
2. Give three examples of business current liabilities and three
examples of long term (non-current liabilities)
9.4.1. Long term (Non-current) liabilities configuration
These represent the amounts payable after more than 12 months. They include
such items as bank loans and mortgages. Noncurrent liabilities are grouped by
type (loans payable, bonds payable, notes payable and so on).
To configure noncurrent liabilities in balance sheet, Right click-add new element
or click on add icon on navigation toolbar.Start by noncurrent liabilities with header type
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Figure 9.20: Non-current liabilities header creation
After setting configuration for noncurrent liabilities, right click then click on
add new element. Then add the specific noncurrent liabilities accounts withbalance limit as type. Thus, we will have the following:
Figure 9.21: Creation of loan account as non-current liability account type
9.4.2. Current liabilities configuration
These liabilities are defined as amounts repayable within 12 months of the
balance sheet date. Typical examples include bank overdrafts and creditors.
Any loans repayable within the following year are also listed under current
liabilities. Current liabilities are listed in the order in which they are expected
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to be satisfied. The ones that will be paid first are listed first.
To make configurations of current liabilities, follow the same procedures as one
followed in configuring noncurrent liabilities. Thus, start by creating current
liabilities as header type, and then after, configure individual accounts forcurrent liabilities with balance limit type.
Figure 9. 22: Current liabilities header creation
After this, you can create the current liabilities accounts with balance limit type. If
we have creditors (accounts payables) in the chart of account, the configuration willbe as follow
Figure 9.23: Creation of creditor’s account
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To find the results of configured balance sheet,
• Click on Stat menu-BS income statement
• Tick on print BS only and click ok
• Select print preview
• Click OkThe following balance sheet will therefore be displayed:
Figure 9. 24: Balance sheet presentation
As shown in the balance sheet above, the total assets are equal to total liabilities
with 12,390,000 FRW on both sides. Initially, there was a shortage of 50,000
FRW, because the net profit amount of 50,000 FRW realized by the business in
income statement was not yet transferred to balance sheet. After transferring
it, both assets and liability sides were equalized.
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Application activity 9.4
1. Give the steps followed to show balance sheet results in Sage line
100
2. What is the process of configuring assets in balance sheet
configuration?9.5 Equality of assets and liabilities
Learning Activity 9.5
1. State the accounting equation
2. Why should assets side of balance sheet always be equal to its
liability side?
Assets, liabilities and equity are the three largest classifications in your
accounting spreadsheet. Assets are everything your business owns. Liabilities
and equity are what your business owes to third parties and owners. To balance
your books, the golden rule in accounting is that assets equal liabilities plus
equity.
The main accounting equation is: Assets = Liabilities + Equity. Together, they
make up a company’s balance sheet. The concept behind it is that everything
the business has come from somewhere either a third party, such as a lender,
or an owner, such as a stockholder. Every unit of franc that a business holds is
attributed to a third party or an owner. This means that each thing a business
has is classified as both an asset and a liability or an asset and equity. Here are
two examples:
An asset that is a liability: If a business has 100,000 FRW, but you borrowed
it from George. The $10 is both an asset (cash) and a liability (a loan that you
need to pay back).
An asset that is equity: You invested 2000,000 FRW in your business buying
equipment. The 2000,000 FRW is both an asset (equipment) and equity
(owner’s equity that you should get back eventually).
Say your business earns a 500,000 FRW profit that you put into a checkingaccount. That profit is both an asset (cash) and equity (business profit held for
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future use). If your business collapsed tomorrow, the equity would be split
between the owners.
Taking an example of the balance sheet presented in the lesson 9.4
Figure 9.25: Equality of balance sheet assets and liabilities
As presented in balance sheet above, total assets were 12,480,000 FRW minus
90,000 FRW depreciation, which made the total of 12,390,000 FRW. These
assets are equal to liabilities obtained added to owner’s equity with 1,239,000
FRW. In SAGE line 100, the total liabilities and total owner’s equity have negative
signs to mean that they have credit balance.
The profit of 50,000 FRW found in the income statement in unit 7.4 is the one
that was transferred to profit owner’s equity to increase the capital in balance
sheet balance sheet and drawings were deducted from the total to get the total
of the owner’s equity. Hence the balance sheet total assets have become equalto total liabilities plus owner’s equity.
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Application activity 9.5
1. What is owner’s equity?
2. What is the fundamental relationship between basic accounting
equation elements?3. What is the impact of an asset on the accounting equation?
End unit assessment
1. What is meant by balance sheet?
2. State the two types liabilities
3. State the elements of accounting equation
4. Explain owner’s equity?
5. You are given the following information extracted from XYZcompany Ltd in 2022
Required: a. Prepare balance sheet for the above information
b. Make configuration for the above balance sheet accounts
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REFERENCES
1. Sage France (2016), Manuel pédagogique Version 16, France
2. SaoudJayed MASHKOUR (2019), Accounting in English, Iraq
3. Elizabeth A. MINBIOLE (2000), Accounting principles II, NEW YORK
4. PRU MARRIOTT, J.R EDWARDS AND H.J MELLETT 2002), Introduction to
accounting, 3rd edition, London
5. Kate MOONEY (2008), The essentials of accounting dictionary, Canada
6. Jeffry R. HABER (2004), Accounting demystified, USA
7. BPP Learning media Ltd (2006), Fundamentals of accounting, UK
8. https://www.wallstreetmojo.com/accounting-rules 23/01/2023
9. https://www.techtarget.com 23/01/2023
10. https://www.myaccountingcourse.com/accounting-dictionary/salesjournal 25/01/2023
11. https://www.wikipedia.org 01/02/2023
12. https://www.wikipedia.org 01/02/202313. https://www.investopedia.com/terms/t/trial_balance.asp 04/02/2023