Transcript ADB Grant 0133-CAM: Public Financial Management in Rural

ADB Grant 0133-CAM: Public Financial
Management in Rural Development
Ministries (Component 1)
Basic Account, May 04 - 07, 2010
Day 4: May 07, 2010
Quiz and Case Study
ADB Grant No.0133-CAM/Component 1:
PFMRD
Session 4
Quiz
1.
2.
3.
4.
5.
6.
7.
8.
Who need the accounting information what are they ?
What is basic accounting equation ?
Give definition of Assets ?, Liabilities?, Revenues ?and Expenses?
What are they the permanence accounts ( real) ?
How many steps for closing entry ?
What is bank reconciliation ?
What is bank statement ?
What is bookkeeping in present of RGC? and how are important
for your own entity.
ADB Grant No.0133-CAM/Component 1:
PFMRD
2
4.T-Account
•
Matthew set up a business and in the first nine days of trading the following transactions
occurred:
1 January Matthew introduces $10,000 capital by cheque.
2 January Matthew buys supplies worth $4,000 and pays by cheque
3 January Matthew buys a delivery van for $2,000 and pays by cheque
4 January Matthew buys $1,000 of purchases on credit
5 January Matthew sells goods for $1,500 and receives a cheque of that amount
6 January Matthew sells all his remaining goods for $5,000 on credit
7 January Matthew pays $800 to his supplier by cheque.
8 January Matthew pays rent of $200 by cheque
9 January Matthew draws $100 for living expenses from the business bank account
•
Required:
(a)
(b)
(c)
(d)
(e)
Complete the relevant ledger accounts.
Extract a trial balance
Prepare the income statement for the first nine days.
Prepare the balance sheet as at 9 January
Closing entries
ADB Grant No.0133-CAM/Component 1:
PFMRD
Solution
A1
- Managers
– Owners
– Investors
– Governmental agencies
A2
ADB Grant No.0133-CAM/Component 1:
PFMRD
Answer 2
Recording transactions in the basic accounting equation.
Assets = Equities
Properties (resources)
of value owned by a firm
Financial claims
against the assets
ADB Grant No.0133-CAM/Component 1:
PFMRD
5
3.1. Assets
Definition
A resource controlled by the enterprise as a
result of past events and from which future
economic benefits are expected to flow to the
enterprise.
Recognition
Recognized when It is probable future economic
benefits will flow in and the asset has a cost or
value that can be measured reliably.
ADB Grant No.0133-CAM/Component 1:
PFMRD
6
3.2. Liabilities
Definition
An entity’s obligations to transfer economic benefits
as a result of past transactions or events.
Recognition
Recognized when it is probable that an outflow of
resources in the form of economic benefits will result
from settlement of an obligation and the amount of
settlement can be measured reliably.
ADB Grant No.0133-CAM/Component 1:
PFMRD
7
3.3. Income
Definition
Income increases in economic benefits during the
accounting period in the form of inflows or
enhancements of assets or decreases in liabilities
that result in increases in equity, other than those
relating to contributions from equity participants.
Recognition
Recognized when there is an increase in future
economic benefits due to an increase in assets or a
decrease in liabilities that can be measured reliably
ADB Grant No.0133-CAM/Component 1:
PFMRD
8
3.4. Expenses
Definition
Expenses are decreases in economic benefits
during the accounting period in the form of outflows
or depletions of assets or incurrences of liabilities
that result in decreases in equity, other than those
relating to distributions to equity participants.
Recognition
Recognized when there is a decrease in future
economic benefits due to a decrease in assets or an
increase in liabilities that can be measured reliably.
ADB Grant No.0133-CAM/Component 1:
PFMRD
9
4.Temporary (Nominal) Accounts
• Account balances are set to zero at the
beginning of the accounting period
– Withdrawals
– Revenues
– Expenses
ADB Grant No.0133-CAM/Component 1:
PFMRD
10
5.Closing Entries – 4 Steps
1. Debit revenue accounts/Credit Income
Summary
2. Debit Income Summary/Credit expense
accounts
3. Debit Income Summary/Credit Capital (if net
income)
4. Debit Capital/Credit Withdrawals
ADB Grant No.0133-CAM/Component 1:
PFMRD
11
6.Bank Reconciliation
The ending balance in the monthly statement compiled
by the bank often does not agree with the ending
balance that appears in the cash book . When this
happens, someone in the business or project must
determine the reason for the difference between the
bank’s records and the agency’s is called a
reconciliation.
Bank reconciliations are an important part of internal
control system. They help us to locate errors in the
record-keeping system and discovering employee
schemes to defraud the company. The bank
reconciliation should always be prepared by an individual
who is not involved with preparing and approving
payments and must be done at least monthly .
ADB Grant No.0133-CAM/Component 1:
PFMRD
7.Bank Statement
It is common practice for banks to send monthly statements
to customers showing the transactions undertaken during
the month. Bank statements can also be requested for a
particular period.
A bank statement is sent by a bank to its customers
detailing:
• The amount of cash (or overdraft) at the beginning of
the month
• Deposit made by the customer and on his behalf by
others (i.e. credit transfers)
• Withdrawals from the account by the customers and
others he has authorized to take money (direct debits),
standing orders given by the bank to pay certain
amounts to specified peoples and bank charges and
interests.
• The amount of cash in the account at the end of the
month.
ADB Grant No.0133-CAM/Component 1:
PFMRD