ADB Grant No.0133-CAM/Component 1: PFMRD ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1) Day 4: May 07, 2010 Quiz and Case Study Basic Account, May , 2010

ADB Grant No.0133-CAM/Component 1: PFMRD 1.Who need the accounting information what are they ? 2.What is basic accounting equation ? 3.Give definition of Assets ?, Liabilities?, Revenues ?and Expenses? 4.What are they the permanence accounts ( real) ? 5.How many steps for closing entry ? 6.What is bank reconciliation ? 7.What is bank statement ? 8.What is bookkeeping in present of RGC? and how are important for your own entity. 2 Session 4 Quiz

ADB Grant No.0133-CAM/Component 1: PFMRD 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 JanuaryMatthew buys supplies worth $4,000 and pays by cheque 3 JanuaryMatthew buys a delivery van for $2,000 and pays by cheque 4 JanuaryMatthew buys $1,000 of purchases on credit 5 JanuaryMatthew sells goods for $1,500 and receives a cheque of that amount 6 JanuaryMatthew sells all his remaining goods for $5,000 on credit 7 JanuaryMatthew pays $800 to his supplier by cheque. 8 JanuaryMatthew pays rent of $200 by cheque 9 JanuaryMatthew draws $100 for living expenses from the business bank account Required: (a)Complete the relevant ledger accounts. (b)Extract a trial balance (c)Prepare the income statement for the first nine days. (d)Prepare the balance sheet as at 9 January (e)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 5 Assets = Equities Properties (resources) of value owned by a firm Financial claims against the assets Answer 2 Recording transactions in the basic accounting equation.

ADB Grant No.0133-CAM/Component 1: PFMRD 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 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 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 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 10 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 11 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 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.