Accounting Grade10

iCount is a supportive series for Accounting Grades 10, 11 and 12. The series includes 24 episodes for teens, making Accounting exciting, relevant to South African learners

iCount is a supportive series for Accounting Grades 10, 11 and 12. The series includes 24 episodes for teens, making Accounting exciting, relevant to South African learners


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FOR CAPS<br />





in the FET classroom

Acknowledgements<br />

This project is a consumer education initiative by the South African Insurance Association, in collaboration with the National and Provincial<br />

Departments of Basic Education.<br />

© 2013 South African Insurance Association.<br />

This resource file is a package with the teacher training provided for teachers of <strong>Accounting</strong> Grade 10–12.<br />

This resource book for Grade 10 is part of a programme including resources for Grades 11 and 12, a DVD containing 26 episodes of supportive<br />

financial education for the classroom, a poster and teacher training workshops facilitated by Bright Media.<br />

All rights reserved.<br />

Copies may be made for educational use only with acknowledgement.<br />

Additional copies and information may be acquired at the contact details below:<br />

Contact SAIA<br />

PO Box 5098<br />

Weltevreden Park 1715<br />

www.saia.co.za<br />

Project developed by the South African Insurance Association and funding provided by members of the<br />

South African Insurance Association.<br />

Developed in collaboration with the Department of Basic Education.<br />

Designed, developed and published by Bright Media.<br />

ISBN 978-0-9814322-0-5

Grade<br />

10<br />

Contents<br />

Unit 1: Financial Management.......................................................................................................................3<br />

Unit 2: <strong>Accounting</strong> and External Reporting..................................................................................................10<br />

Unit 3: Strategy and Risk............................................................................................................................19<br />

Unit 4: Auditing, Assurance and Preparing Final Accounts..........................................................................28<br />

Unit 5: Income and Taxation.......................................................................................................................36<br />

Unit 6: Management Design and Control....................................................................................................45<br />

Answer Sheet............................................................................................................................................54<br />

Welcome to iCount, a financial capability project developed for the CAPS curriculum for <strong>Accounting</strong> Grade 10.<br />

This project includes this resource for Grade 10, Grade 11 and 12, an entertaining and educational DVD which incudes 26 episodes of<br />

accounting support that can be used directly with your learners in class. You will find other resources on the DVD to assist your teaching of<br />

<strong>Accounting</strong> in your classroom, as well as a colourful poster to add to your classroom wall.<br />

We trust that you will find these resources a useful addition to your teaching of <strong>Accounting</strong> in the FET phase. We hope your learners will<br />

develop the skills knowledge and values for the subject, specifically for the new CAPS focus for the curriculum.<br />

In this booklet, we are merging three content guidelines:<br />

1. SAIA (financial competences) with a focus on broad and lifelong financial literacy and competencies for consumers.<br />

2. The Curriculum—CAPS (school focus) the new, focused school curriculum guidelines for what teachers need to do with learners in<br />

financial subject classrooms.<br />

3. SAICA Competency Framework 2008 (higher competence). We have identified the guidelines of the financial industry with regard to<br />

what they need from industry at tertiary level.<br />

This booklet on the subject of <strong>Accounting</strong> will provide the opportunity to develop depth of knowledge, skill and change those core<br />

behaviours in students that will provide key intervention in building a knowledgeable consumer base. In addition, each unit contains<br />

integrated and graded activities, deepening from awareness to full implementation of the knowledge gained.<br />

What is <strong>Accounting</strong>?<br />

<strong>Accounting</strong> focuses on measuring performance and processing and communicating financial information about economic sectors. The<br />

discipline ensures that principles such as ethical behaviour, transparency and accountability are adhered to. It deals with the logical,<br />

systematic and accurate selection and recording of financial information and transactions, as well as the compilation, analysis, interpretation<br />

and communication of financial statements and managerial reports for use by interested parties.<br />

The subject encompasses accounting knowledge, skills and values that focus on the financial accounting, managerial accounting and<br />

auditing fields. These fields cover a broad spectrum of accounting to prepare learners for a variety of career opportunities.<br />

<strong>Accounting</strong> learners will be able to:<br />

• Record, analyse and interpret financial and other relevant data in order to make informed decisions<br />

• Present and/or communicate financial information effectively by using generally accepted accounting practice in line with current<br />

developments and legislation<br />

• Develop and demonstrate an understanding of fundamental accounting concepts<br />

• Relate skills, knowledge and values to real-world situations in order to ensure the balance between theory and practice, to enter the<br />

world of work and/or to move to higher education, and to encourage self-development<br />

• Organise and manage own finances and activities responsibly and effectively<br />

• Apply principles to solve problems in a judicious and systematic manner in familiar and unfamiliar situations, thus developing the ability<br />

to identify and solve problems in the context of the various fields of <strong>Accounting</strong><br />

• Develop critical, logical, and analytical abilities and thought processes to enable learners to apply skills to current and new situations<br />

• Develop the following characteristics: ethical behaviour, sound judgement, thoroughness, orderliness, accuracy and neatness<br />

• Deal confidently with the demands of an accounting occupation manually and/or electronically<br />

iCount Grade 10<br />


Time allocation for <strong>Accounting</strong> in the curriculum<br />

The teaching time for <strong>Accounting</strong> is 4 hours per week, per grade on the timetable, that is, for Grade 10, 11 and 12.<br />

Weighting of Curriculum<br />

Financial <strong>Accounting</strong><br />

(weighting 50% to 60%)<br />

Managerial <strong>Accounting</strong><br />

(weighting 20% to 25%)<br />

Managing Resources<br />

(weighting 20% to 25%)<br />

Topic<br />

1. <strong>Accounting</strong> concepts<br />

2. GAAP principles<br />

3. Bookkeeping<br />

4. <strong>Accounting</strong> equation<br />

5. Financial accounts and financial statements<br />

6. Salaries and wages<br />

7. Value-Added Tax<br />

8. Reconciliations<br />

9. Cost accounting<br />

10. Budget<br />

11. Indigenous bookkeeping systems<br />

12. Fixed assets<br />

13. Inventory<br />

14. Ethics<br />

15. Internal control<br />

Requirements to offer <strong>Accounting</strong> as a subject<br />

Providing the resources to offer <strong>Accounting</strong> as a subject are the responsibility of the school.<br />

1. Each learner should have a textbook, accounting stationery and a calculator<br />

2. The teacher should have: a) A variety of textbooks for reference; b) Policies, e.g. summary of King Code III; c) Partnership agreement;<br />

d) Legislation, e.g. Companies Act, 71 of 2008; e) Codes of professional bodies, e.g. SAICA and SAIPA Codes; f) SARS brochures;<br />

g) Bank brochures<br />

iCount uses the Adult Financial Capability Framework, developed internationally, that reflects the process model; three broad elements of<br />

financial capability and, in so doing, begins to specify what it is that financial capability enables individuals to do.<br />

• Financial knowledge and understanding: This is the ability to make sense of and manipulate money in its different forms, uses and<br />

functions. Financial knowledge and understanding allows people to acquire the skills they need to deal with everyday financial matters<br />

and make the right choices for their needs.<br />

• Financial skills and competence: This is the ability to apply knowledge and understanding across a range of contexts including both<br />

predictable and unexpected situations. Financial skills and competence makes available to people the necessary skills to allow them to<br />

plan, monitor, manage and resolve any financial problems or opportunities.<br />

• Financial responsibility: This is the ability to appreciate the wider impact of financial decisions on personal circumstances, the family<br />

and the broader community, and to consider the social and ethical issues. Financial responsibility enables people to understand and<br />

appreciate their rights and responsibilities. They understand the need and have the right skills and attitudes to plan, analyse, decide,<br />

evaluate and monitor financial decisions and choices. They understand the various sources of advice and guidance available. The<br />

content we will develop will specify three levels of capability.<br />

• Basic understanding and developing confidence, aimed at those adults who have a low level of understanding and who require<br />

the skills to make informed judgements concerning their finances, and the ability to use appropriate financial services.<br />

• Developing competence and confidence, aimed at those who have a basic understanding and competence in handling financial<br />

services, and who require more knowledge and skills to meet their needs.<br />

• Extending competence and confidence, aimed at those who require the skills and knowledge to understand the wider range of<br />

services and the ability to make informed decisions regarding their own personal and community circumstances.<br />

This booklets aligns to a national need as well as the industry needs for skilled, competent new entrants into the insurance and other<br />

financial sectors. This is a direct boost for the industry, as the skills and knowledge gained by Grades 10–12 are immediately available to<br />

school leavers, who will become critical and knowledgeable consumers who can make better financial choices in their lives. In addition to a<br />

more skilled consumer base, those who move into tertiary studies will be more skilled, and have more access to the required knowledge of<br />

financial subject matter.<br />

iCount provides teachers with a ready-to-use resource containing units of content that provide lessons to use in the <strong>Accounting</strong> classroom.<br />

Suggestion:<br />

• Use the DVD episodes to introduce your lessons<br />

• Teach using the activities and lessons as part of your <strong>Accounting</strong> lessons<br />

• Watch the DVD episodes with your learners after you have completed a concept and section, as revision of key concepts.<br />

Best wishes for making iCount part of your <strong>Accounting</strong> classroom.<br />

2 iCount Grade 10

Financial Management<br />

Unit<br />

1<br />

In this unit<br />

• What is financial management.............................. 4<br />

• Basic accounting concepts.................................. 4<br />

• Transactions......................................................... 4<br />

• Perpetual Inventory System.................................. 5<br />

• <strong>Accounting</strong> documents........................................ 6<br />

• Bookkeeping formal and informal......................... 7<br />

• Ethics................................................................... 8<br />

iCount Grade 10<br />


Unit<br />

1<br />


1. What is financial management? SAICA Specific Competency V<br />

Managing your finances is an important life skill, for your own life, and for your business. In a business, a number of<br />

business functions can be found. Financial management is one of those business functions, also called functional<br />

areas.<br />

The main task of financial management is to<br />

make sure that there is money available to<br />

run the business.<br />

Financial management includes:<br />

• financial planning and budgeting<br />

• financial accounting<br />

• financial analysis<br />

• financial decision-making and action<br />



HUMAN<br />


The accountant in a business has to<br />

understand the whole business, as the<br />

work of the accountant relates to all the<br />

business functions. For example:<br />

• Information Technology—spending<br />

money on the most appropriate<br />

information technology, e.g. computer<br />

software<br />

• Operations / production—the<br />

most cost-effective way of producing<br />

products or providing services<br />

• Research & Development—how<br />

much money is spent on research and<br />

development to help the organisation<br />

stay on top of the latest developments<br />

• Finance—prepare budgets, choose<br />

investment opportunities<br />

• General management—overseeing all functions<br />

• Human resources—how much money is spent on salaries, wages and benefits such as medical aid, housing,<br />

and other deductions<br />

2. Basic accounting concepts CAPS: Term 1, Topic 3 “Financial Accounts of a sole trader”<br />

In Grade 9, you were introduced to a number of terms and concept that relate to accounting. See how many of the<br />

following you can remember (see the poster to check your terminology!).<br />

3. Transactions<br />





Many transactions are made in a business—sales, stock purchase, insurance, financial services or salary<br />

payments.<br />

If transactions are not well organised, the information they provide to your business is of no business use.<br />

If transactions are well organised the data, or information, can be very useful to the business.<br />



RESEARCH &<br />


4<br />

iCount Grade 10

<strong>Accounting</strong> Terms & Cycles<br />

Unit<br />

1<br />

1. Sarah is the owner of her own small business. She makes and paints T-shirts for people in<br />

different designs. For each of the following accounting concepts, give an example from Sarah’s business<br />

(have fun and make up your own examples!). Write your example in the 2nd column of the table.<br />

<strong>Accounting</strong> term / concept<br />

Sole trader<br />

Journal<br />

Financial statements<br />

Income/Revenue<br />

Capital<br />

Assets<br />

Liabilities<br />

Equity<br />

Profit<br />

Discounts<br />

Perpetual inventory system<br />

Example from Sarah’s business<br />

2. Remember the work you did in Grade 9?<br />

Draw a picture to illustrate the accounting cycle.<br />

4. Perpetual inventory system<br />

CAPS: Term 1 Topic 5(b): “Bookkeeping of a sole trader”<br />

As you learnt in Grade 9, a business can use one of two methods to account<br />

for the stock (inventory) it holds to sell:<br />

• Perpetual inventory system<br />

• Periodic inventory system<br />

‘stock’ count = ‘inventory’ (verb): the action—to do a stock count / to do an inventory<br />

‘stock’ can also mean ‘inventory’ (noun): the thing—the stock / to count the inventory<br />

The perpetual inventory system updates the inventory quantities continuously, as stock is sold or purchased. In<br />

other words, records are kept of the quantity and usually also of the cost of every item as they are bought or sold.<br />

The Inventory Subsidiary Ledger is updated after each transaction.<br />

The trading stock account in the General Ledger that we use with the perpetual inventory system indicates<br />

the amount of stock that should be available for sale.<br />

• The cost of each item that is bought is recorded in the merchandise inventory account as soon as it is<br />

purchased.<br />

• When merchandise is sold, its cost is transferred from the merchandise inventory account to the cost of goods<br />

sold account.<br />

iCount Grade 10<br />


Unit<br />

1<br />


• The balance of the merchandise inventory account is equal to the cost of the goods on hand (that is, the<br />

goods that are available to sell).<br />

• The balance of the cost of goods sold account is equal to the cost of the merchandise that was sold to<br />

customers.<br />

To make sure that the amount that is recorded in the trading account is accurate, we can do a physical stock<br />

count. One of the advantages of using a perpetual inventory system, is that it makes it easier to identify stock<br />

losses or theft.<br />

What does a journal entry for the perpetual inventory system look like?<br />

Cash transaction<br />

On 1 June 2011 Sarah’s T shirts bought 100 units of goods valued at R20 per unit<br />

Under perpetual inventory system<br />

1/6/2011 Debit Credit<br />

Trading Stock 2 000<br />

Creditors 2 000<br />

Credit transaction<br />

On 1 June 2011 Sarah’s T shirts sold 100 units of good at R50 per unit on credit<br />

Under perpetual inventory system<br />

1/6/2011 Debit Credit<br />

Debtors 5 000<br />

Sales 5 000<br />

1/6/2011 Cost of goods sold 2 000<br />

Trading stock 2 000<br />

In Unit 2 we will look in more detail on the effect of cash and credit purchases on the accounting equation.<br />

5. Some important <strong>Accounting</strong> documents CAPS: Term 1: Topic 5(b) “Bookkeeping of a<br />

sole trader”<br />

Can you still remember what all the main documents are that are used in the accounting process?<br />

What is the difference between a general ledger and a general journal?<br />

Journals are referred to as books of original entry. <strong>Accounting</strong> entries are recorded in a journal in order by date. A company<br />

might use special journals (sales, purchases, cash disbursements, cash receipts), or its accounting software will generate<br />

entries for routine transactions, but there will always be a general journal in which to record non-routine transactions, such<br />

as depreciation, bad debts, sale of an asset, etc. In the general journal you must enter the account to be debited and the<br />

account to be credited and the amounts.<br />

Once a transaction is recorded in the general journal, the amounts are then posted to the appropriate accounts. Accounts<br />

(such as Cash, Accounts Receivable, Equipment, Accumulated Depreciation, Accounts Payable, Sales, Telephone<br />

Expense, etc.) are contained in the general ledger.<br />

To recap... The general ledger houses the company’s accounts. The general journal is a place to first record<br />

an entry before it gets posted to the appropriate accounts.<br />

(http://blog.accountingcoach.com/general-ledger-general-journal/ )<br />

6<br />

iCount Grade 10

• Source documents are the original records of a transaction. They are used as evidence that a particular<br />

business transaction has occurred. Examples of source documents are cash receipt, customer invoice, etc.<br />

• Journals are records of the day-to-day transactions of a business. Examples of journals are Cash Receipts<br />

Journal, Cash Payments Journal, Petty Cash Journal, Debtors Journal, Creditors Journal, Debtors Allowances<br />

Journal, Creditors Allowances Journal and General Journal.<br />

• A ledger contains summaries of all the financial information that is obtained from the different accounts.<br />

Examples of ledgers are the General Ledger and Subsidiary Ledger.<br />

• The Trial Balance is prepared at the end of an accounting period by adding up all the balances in your<br />

general ledger, debits together and credits together. The debit balances should be equal to the credit<br />

balances. You use the trial balance to check the amounts of the balances of all accounts in the general ledger<br />

to make sure that the accounts are in balance.<br />

• Financial statements use the summarised data contained in the trial balance to prepare the financial reports<br />

of the business. Examples of financial statements are the Income Statement, Balance Sheet, Statement of<br />

Retained Earnings and the Cash Flow Statement.<br />

6. Comparison of the bookkeeping systems of the informal and formal<br />

sectors CAPS: Term1, Topic 1 “Informal or indigenous bookkeeping systems”<br />

Unit<br />

1<br />

Difference between accounting & bookkeeping<br />

Bookkeeping is part of accounting. It is the recording of the day to day transactions of a business.<br />

Indigenous bookkeeping systems refer to the systems that people in informal business use to keep record of<br />

their finances.<br />

Examples of indigenous bookkeeping systems are keeping slips of purchases in a file, making written notes of<br />

transactions in a book, bartering (exchanging services, products for other services and products instead of for<br />

money) rather than formally recording income and expenses.<br />

<strong>Accounting</strong> builds on the bookkeeping information, interpreting it, compiling reports, year-end accounts, tax<br />

returns, budgeting, carrying out financial analysis and so on.<br />

iCount Grade 10<br />


Unit<br />

1<br />


7. Ethics in bookkeeping and accounting CAPS Term 1 Topic 2 “Ethics”<br />

What is ethics?<br />

Explain to the learners that the word ‘Ethics’ is derived from the Ancient Greek word ethikos which means customs<br />

and habits. Ethics deal with peoples values and how people see concepts such as right and wrong and good and<br />

evil.<br />

The AIBP Code of Ethics for Bookkeepers is the code of ethics of the largest bookkeeping body in the world and<br />

offers bookkeeping qualifications, support and networking opportunities.<br />

The South African Institute for Chartered Accountants (SAICA) has a Code of Ethics that certified accountants<br />

must sign. A Code of Ethics is a set of objectives toward which professionals must continually strive. They<br />

represent a way of living a professional life, not simply how you are to behave at work.<br />

The Code of Ethics focuses on values such as:<br />

Honesty and integrity<br />

Honesty and integrity are basic values. All forms of dishonesty and any dishonest conduct, such as fraud or<br />

corruption, are rejected.<br />

Professional excellence<br />

Accountants must do their work in an innovative, creative and professionally excellent manner. They must<br />

always work productively and deliver work of a high quality.<br />

Respect<br />

Employers and employees in the accounting profession recognise each other’s areas of skill, competence<br />

and fields of expertise. Accountants working in the same organisation must share information and resources<br />

and they may not compete with each other if it hurts the organisation.<br />

Fairness that builds trust<br />

Decisions must be made in a fair, consistent and transparent manner to build trust between individuals.<br />

Collaboration<br />

Employers and employees will cooperate to support the lawful interests of the organisation.<br />

Non-discrimination<br />

Accountants must always strive to eliminate discrimination and to promote equal opportunity and affirmative<br />

action in all aspects of their activities.<br />

8<br />

iCount Grade 10

Documents & Ethics<br />

Unit<br />

1<br />

1. You are the accountant of Sarah’s T-shirts. Sarah’s brother-in-law, Peter,<br />

works at the same firm as you. He now advised Sarah to hide some of her<br />

cash income so that she doesn’t pay tax on it. This means that she will not enter it in her<br />

accounting books. What is your opinion on this? CAPS Term 1 Topic 2<br />

2. Describe the ethical duties of an accountant in your own words. CAPS Term 1 Topic 2<br />

3. a) Illustrate the accounting equation. CAPS Term 1 Topic 5 (c)<br />

b) Explain the accounting equation with reference to Sarah’s T-shirts. CAPS Term 1 Topic 5 (c)<br />

4. Interview an informal trader / small business owner and ask them about their bookkeeping system. Write a<br />

short essay in which you explain their system. What do you think are the advantages and disadvantages of<br />

this system? CAPS Term 1 Topic 1<br />

5. In a group of 4/5 learners, collect different types of source documents. Create a list of all the names of the<br />

relevant subsidiary journals. One member of each group presents their findings to the class.<br />

6. Please complete the crossword puzzle below:<br />

1<br />

3<br />

2<br />

4<br />

5<br />

6<br />

7<br />

ACROSS<br />

4 Takes the form of financial statements<br />

6 Records an increase in assets<br />

7 Collection of all balance sheet, income and<br />

expense accounts<br />

DOWN<br />

1 One of the business functions<br />

2 One owner business<br />

3 Shows an amount the business<br />

owes<br />

5 Another word for stock<br />

iCount Grade 10<br />


Unit<br />

2<br />

<strong>Accounting</strong> and<br />

external reporting<br />

In this unit<br />

• GAAP principles................................................. 12<br />

• Internal control.................................................... 13<br />

• Is it only about the money?................................. 13<br />

• The <strong>Accounting</strong> Equation and the effect of<br />

cash sales, credit purchases............................... 16<br />

• External reporting............................................... 16<br />

• The <strong>Accounting</strong> Equation................................... 17<br />

10 iCount Grade 10

Unit<br />

2<br />

How do we know about our money, how to make more money, how to spend less money and to be able to<br />

account for the profit or loss?<br />

Explain to the learners that the SAICA Competency Framework (2008) identifies external reporting as one of the<br />

key functions that an accountant should be able to perform:<br />

Entities record the results of transactions (accounting) and measure and report on their performance and<br />

financial position. The reports generated for external use can be financial or non-financial in nature. Entities<br />

report information to their various stakeholders in order to meet their stewardship requirements and to fulfil<br />

stakeholders’ needs.<br />


1. Internal control CAPS Term 1 Topic 4 “Internal control”<br />

Internal control is a process whereby the board of directors, senior management and all levels of personnel are<br />

offered reasonable assurance that an organisation will achieve its objectives. In the case of a sole trader, the sole<br />

trader must put in place these processes.<br />

Reasonable assurance: A statement that it is not possible to say with certainty that something will or will not<br />

happen.<br />

Internal controls are used to:<br />

• protect assets<br />

• make sure that the operations (production, etc) of the business is effective and doesn’t waste costs or<br />

resources<br />

• ensure that the financial information is correct<br />

• comply with laws and regulations<br />

Internal control consists of five elements:<br />

• Control environment—this includes the structure of the business to ensure control, committees such as<br />

auditing committees and human resource committees to control specific functions<br />

• Risk assessment—identifying the risks at all levels of the business, with regard to, for example, assets or<br />

processes<br />

• Control activities—these are the policies and procedures that must ensure that the employees carry out the<br />

orders of the board and management<br />

• Information, accounting and communication systems—these systems must record all the information<br />

that management needs to make decisions<br />

• Monitoring—the business’s performance must be monitored (checked) continuously and external people<br />

should also be asked to monitor systems and process from time to time<br />

Sole traders need to implement internal control measures with regard to credit sales, fixed assets, inventory,<br />

creditors, cash receipts, salaries and wages as well as petty cash.<br />

Let’s briefly look at some of these internal control measures:<br />

(a) Credit sales: Debtors, who owe the business money, must be controlled. Accounts must be sent out in time<br />

so that debtors can pay the amounts they owe on or before the due date. When it becomes clear that a debtor<br />

is not able to repay the debt, the business must have a clear policy about what process to follow and when the<br />

debt will be written off.<br />

iCount Grade 10<br />


Unit<br />

2<br />


Due date: The date on which a payment must be made<br />

To write off debt: To accept that you will never be able to recover the money and to take it off your debtors’<br />

books<br />

(b) Fixed assets: Refer to the land, buildings and equipment that is needed to run a business. In Sarah’s T-shirts,<br />

the fixed assets will be the workshop that she works from, the shop she sells from, the sewing machines and<br />

the stands that she uses to display the T-shirts.<br />

(c) Inventory (stock): Make sure that the stock the business receives, corresponds with the stock the business<br />

ordered. Do regular stocktaking and make sure that there is not too much stock at any time—it might become<br />

old before it is sold, which means that the business will suffer a financial loss.<br />

(d) Creditors: Creditors are people/business that the sole trader owes money to. The sole trader must make sure<br />

that all the creditors’ accounts are paid on time, otherwise he/she will have to pay interest. Check the invoices<br />

for all the goods and services purchased to make sure the details and price is correct.<br />

(e) Cash receipts: Often, clients pay sole traders per cheque or in cash. Make sure that there are always two<br />

people present when envelopes from customers that contain cash, are opened. Do not cash cheques from the<br />

cash register rather deposit the cheques and withdraw money from the bank.<br />

(f) Salaries and wages: Any business, big or small, must manage a proper system for salaries and wages.<br />

Detailed records must be kept of payments to employees. There must be strict control over worker hours to<br />

make sure that they work the required number of hours. Workers who work with salaries must be responsible<br />

and honest and the business must check all the references of people who apply for these positions to make<br />

sure that they have the right skills and values.<br />

(g) Petty cash: Petty cash is one of the areas in a business where fraud and theft can happen easiest. There<br />

must be procedures in place to limit theft, for example, making sure that petty cash vouchers are signed<br />

whenever petty cash is removed from the petty cash box. Keep only one petty cash box in the business, and<br />

count the money regularly to check.<br />

Petty cash imprest: This is a fixed amount that is put in the petty cash box every month. At the end of the<br />

month, the petty cashier hands the cash slips of all the items bought from the petty cash to the manager or<br />

accountant. The manager or accountant then refunds the petty cashier the amount that was spent during the<br />

month, which means that the pretty cash imprest is brought back to the original imprest amount.<br />

2. Generally Accepted <strong>Accounting</strong> Principles CAPS Term 1 Topic 3 <strong>Accounting</strong> Principles<br />

What is GAAP?<br />

Explain to the learners that GAAP stands for Generally Accepted <strong>Accounting</strong> Principles. GAAP is a set of rules<br />

that accountants follow. The main objective of this GAAP framework is to make sure that the information that<br />

accountants record and report on, is relevant, reliable and comparable.<br />

Each country has its own GAAP, but generally, there aren’t many differences between countries.<br />

Use the poster, which is part of the iCount resource pack.<br />

Place this on the wall of the classroom.<br />

Ask the learners to select one of the GAAP principles, and teach this to the rest of the class.<br />

Look on your DVD in the iCount file, for more resources, like http://www.investopedia.com/ask/answers/05/<br />

iasvsgaap.asp#ixzz1cw7EVvnt<br />

12 iCount Grade 10

GAAP principles<br />

Certain principles form the basis of the accounting process and are known as the GAAP principles:<br />

• Business entity: The financial issues of the business are kept separate from the financial issues of the owner<br />

and also separate from all other entities with whom it deals.<br />

• Matching principle: This means that expenses and revenues are recognised in the same period. Expenses<br />

are balanced by the income that is generated by those expenses. For example, the expenses that Sarah incurs<br />

to buy fabric, is balanced or matched by the income that she earns from selling the T-shirts.<br />

• Historical cost principle: The historical cost principle means that all the assets and liabilities are recorded in<br />

the financial accounts at their historical cost, in other words, at their original cost they were bought at.<br />

• Going-concern principle: Accountants must assume that the company will continue to exist for the near<br />

future. If the accountants do not work on this basis, many accounting practices would not work, for example,<br />

allocating costs over several years when an asset is being depreciated in the accounts.<br />

Going concern: A business that keeps on functioning and does not plan to close down or is not in danger<br />

of being liquidated.<br />

Unit<br />

2<br />

• Principle of prudence: Prudence means that things are done in a careful manner, for example, when there is<br />

any doubt about anything you should rather record financial information on a conservative basis (not taking any<br />

chances that may be wrong).<br />

• Principle of materiality: If something is material, it means that it is important in that particular situation and<br />

with regard to that specific topic. The accountants should highlight any information that is material to the<br />

reader of the financial statements or reports.<br />

3. But is it only about the money? CAPS Term 1 Topic 2 “Ethics”<br />

For many years, people believed that the only<br />

purpose of business is to make money.<br />

However, that has changed. Nowadays,<br />

businesses know that it is essential to also look<br />

after the environment as well as the people<br />

that the business deals with. This is known as<br />

corporate citizenship.<br />

Although many companies have for a long time<br />

given money away to charities and so on, this<br />

is not the same as corporate citizenship. Giving<br />

money away is known as Corporate Social<br />

Investment, while corporate citizenship is about<br />

the way that the organisation does business.<br />

For example:<br />

• What does the company do with its waste?<br />

• How does it treat its employees?<br />

• Does it employ people from the areas in which<br />

it does business?<br />

• Does it limit the pollution from its operations?<br />

• Is the organisation honest in its marketing and<br />

advertising?<br />



<br />

<br />

HONESTY &<br />


<br />




<br />

Figure 2. Ethical<br />



<br />

NON-<br />


iCount Grade 10<br />


Unit<br />

2<br />


4. External reporting SAICA Specific Competency II “<strong>Accounting</strong> and External Reporting<br />

CAPS Term 1 Topic 4 “Internal control”<br />

Types of reports<br />

There are different types of financial reports in a business: departmental reports feed into financial statements<br />

financial reports that are submitted to the Board of a company annual report. Some reports are used by<br />

people inside the organisation and these are called internal reports. Other reports are meant for people outside the<br />

organisation and are called external reports.<br />

Who are the audience / users of these reports?<br />

Any reports that are published externally are meant for external stakeholders. Stakeholders are people and<br />

businesses that affect the organisation, or are affected by the organisation. Examples of stakeholders are<br />

staff members, customers, the community in which the business is located, the local council, as well as other<br />

businesses in the same field.<br />

Standards for external reporting<br />

Most businesses use the International Financial Reporting Standards (IFRS) when preparing their financial reports<br />

for external stakeholders.<br />

International Financial Reporting Standards (IFRS) is a set of accounting standards developed by an<br />

independent, not-for-profit organization called the International <strong>Accounting</strong> Standards Board (IASB).<br />

The goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial<br />

statements. IFRS provides general guidance for the preparation of financial statements, rather than setting<br />

rules for industry-specific reporting.<br />

Having an international standard is especially important for large companies that have subsidiaries in different<br />

countries. Adopting a single set of world-wide standards will simplify accounting procedures by<br />

allowing a company to use one reporting language throughout. A single standard will also<br />

provide investors and auditors with a cohesive view of finances.<br />

Currently, over 100 countries permit or<br />

require IFRS for public companies, with<br />

more countries expected to transition to<br />

IFRS by 2015. Proponents of IFRS as an<br />

international standard maintain that the cost<br />

of implementing IFRS could be offset by the<br />

potential for compliance to improve credit<br />

ratings.<br />

IFRS is sometimes confused with IAS<br />

(International <strong>Accounting</strong> Standards), which<br />

are older standards that IFRS has replaced.<br />

http://searchsecurity.techtarget.co.uk/<br />

definition/IFRS-International-Financial-<br />

Reporting-Standards<br />

14 iCount Grade 10

GAAP Principles<br />

Unit<br />

2<br />

1. Who uses GAAP principles? Do you think that Sarah’s T-shirts should follow GAAP?<br />

Why / why not?<br />

2. Should Shoprite Checkers follow GAAP? Why/why not?<br />

3. In your opinion, what are the benefits of using GAAP? Name at least 3.<br />

4. Match the GAAP principle in the first column with the explanation in the second column.<br />


1. Historical cost [A] Accountants must assume that the company will continue to<br />

exist for the near future.<br />

2. Matching principle [B] Financial issues of the business are kept separate from those<br />

of the owner and also separate from all other entities with whom it<br />

deals.<br />

3. Prudence principle [C] Accountants must use GAAP principles, except when to do so<br />

would be expensive or difficult, and as long as the net income is not<br />

affected.<br />

4. Business entity [D] Expenses and revenues are recognized in the same period.<br />

5. Going concern [E] All the assets and liabilities are recorded in the financial accounts<br />

at the original cost that they were bought at.<br />

6. Materiality [F] Transactions of the business must be recorded in a conventional<br />

way, i.e. record the correct income in the Income Statement rather<br />

than an anticipated amount which may not materialize later.<br />

5. The accounting equation CAPS: Term 1, Topic 5(c) “<strong>Accounting</strong> equation”<br />

You have dealt with the accounting equation in Grade 9. Let’s recap:<br />

A term often used in accounting is ‘accounting equation’. The accounting equation shows the relationship between<br />

assets (the resources) and the total of the liabilities and the owner’s equity. We can show it like this:<br />

Assets = Owner’s Equity + Liabilities<br />

or<br />

Owner’s Equity = Assets – Liabilities<br />

For example: Sarah’s T-shirts has more liabilities (debts) than assets (buildings, cash, equipment etc). Let’s say<br />

the assets are worth R50 000 and the liabilities are worth R68 000. We want to know what the owner’s equity of<br />

Sarah’s T-shirts is.<br />

Owner’s Equity<br />

= Assets – Liabilities<br />

= R50 000 – R68 000 = (R18 000)<br />

We show the R18 000 in brackets, because it is a negative number (less than 0).<br />

iCount Grade 10<br />


Unit<br />

2<br />


6. The accounting equation and the effect of cash sales, credit purchases<br />

CAPS Term 1 Topic 5(c) “<strong>Accounting</strong> equation”<br />


Look at how different transactions affect the accounting equation and treated in the General Ledger<br />

with the Debits and Credits<br />

A = O + L<br />

ASSETS<br />

Can you remember? Define what assets are.<br />

Dr______________________________________Cr<br />

+ –<br />

Increase if debited Decrease if credited<br />

LIABILITIES are the opposite from ASSETS<br />

Can you remember? Define what liabilities are.<br />

Dr______________________________________Cr<br />

– +<br />

Decrease if debited Increase if credited<br />


Can you remember? Define what owner’s equity is.<br />

Works the same as Liabilities<br />

Dr______________________________________Cr<br />

– +<br />

Decrease if debited Increase if credited<br />

16 iCount Grade 10

The <strong>Accounting</strong> Equation<br />

Unit<br />

2<br />

1. What is the link between GAAP and ethics in accounting?<br />

Illustrate or describe this link by means of either an illustration or words.<br />

CAPS Term 1 Topic 3<br />

2. Read the information provided. In her business, Sarah employs a secretary who comes in twice a week to<br />

do her admin and to pay wages on Fridays to the employees who make the T-shirts. There are three women<br />

who make T-shirts in the workroom at the back of the shop. The petty cash box is kept in the storeroom.<br />

The three employees sometimes use petty cash to buy coffee or milk and sugar for their tea-times.<br />

What kind of internal control measures can Sarah implement to protect her petty cash?<br />

CAPS Term 1 Topic 4, topic 5(b)<br />

3. Illustrate the effect of the following transactions on the accounting equation and give an<br />

example of each transaction from Sarah’s T-shirts:<br />

• Assets are debited<br />

• Liabilities are credited<br />

• Owner’s equity is debited<br />

CAPS Term 1 Topic 5(c)<br />

4. Complete the sentences:<br />

• GAAP stands for .....<br />

• Petty cash imprest refers to ......<br />

• Ethical values are ....<br />

• Going concern stands for ........<br />

• Reasonable assurance is ........<br />

Integrated across CAPS<br />

5. Group Activity:<br />

(Resources: charts and pens). Divide learners in groups of 4-5.<br />

• Ask learners to define assets, owner’s equity and liabilities.<br />

• On a chart, learners must write down the formula for the<br />

accounting equation and give examples for<br />

each concept.<br />

iCount Grade 10<br />


Unit<br />

2<br />

6. Group Activity:<br />

Use the same groups as before. Your task is to record the transactions taken from the accounting records<br />

from the business Sarah’s T-shirts.<br />

Note: Assume that the bank balance is favourable at all times.<br />

EXAMPLE: Sarah, the owner of Sarah’s T-shirts contributed R30 000 in the current bank account of the<br />

business.<br />

No<br />

e.g<br />

Source<br />

document<br />

Duplicate<br />

receipt/Deposit<br />

slip<br />

Journal<br />

Account<br />

debited<br />

Account<br />

credited<br />

Amount Asset Owner’s<br />

equity<br />

Liabilities<br />

CRJ Bank Capital 30 000 + + 0<br />

Transactions:<br />

• Purchased material from Fabric Dealer on credit, for the amount of R700.<br />

• Sold T-shirts on credit to F. Funny for R300 ( mark-up 25%)<br />

• Paid R400 to a landlord for rent.<br />

• Drew R100 from petty cash for personal use.<br />

• Issued a cheque to Fabric Dealer for the amount of R560 and received 5% discount.<br />

• Bought stock from Fabric Dealer for R900 and received a trade discount of 5%.<br />

• F. Funny’s account must be written off as irrecoverable debt.<br />

• The bank statement reflected an amount of R30 for internet transactions.<br />

Hint: Learners must be able to answer the following three basic questions for every transaction.<br />

a) Which two accounts are affected?<br />

b) Identify the group/s for each account.<br />

c) Is there an increase or decrease for each?<br />

18 iCount Grade 10

Strategy and Risk<br />

Unit<br />

3<br />

In this unit:<br />

• Strategy and risks in <strong>Accounting</strong>........................ 20<br />

• Management of resources.................................. 21<br />

• Financial statement of sole traders...................... 22<br />

• <strong>Accounting</strong> concepts.......................................... 24<br />

• Analysing financial statements............................ 25<br />

iCount Grade 10<br />


Unit<br />

3<br />

The management of risk is the process by which the <strong>Accounting</strong> Officer, Chief Financial Officer and other senior<br />

management of a business will proactively, purposefully and regularly, but at least annually, identify and define<br />

current as well as emerging business, financial and operational risks and identify appropriate, business and cost<br />

effective methods of managing these risks within the business, as well as the risk to the stakeholders.<br />

For more resources, see your DVD in the iCount file<br />

http://www.solplaatje.org.za/downloads/policy/06POLICY_%20RISK%20MANAGEMENT.pdf<br />


1. Strategy and risks with regard to accounting SAICA Specific Competency II<br />

A very important part of an accountant’s job is to manage several types of risk as part of the organisation’s<br />

strategy. An organisation’s strategy is the plan it has to achieve certain objectives for the business.<br />

For example:<br />

The objective is to make 20% more profit than last year.<br />

The strategy is to:<br />

• improve customer service,<br />

• offer a wider variety of products, and<br />

• win over some of the customers of other businesses.<br />

Risks with regard to accounting<br />

The accountant needs to deal with a number of risks that can threaten the organisation’s strategy and cause it to<br />

not reach its objectives. Some examples of these risks are:<br />

• The overstatement of figures, that means, entering an amount that is too high<br />

• The understatement of figures, that means, entering an amount that is too low<br />

• If amounts are wrongly carried over from one journal or account to another<br />

• The wrong capturing of figures—that means, not entering the right numbers<br />

• Salary risks: the risk is that the wrong salary is paid to the wrong person, or that salaries are paid to people<br />

who do not even work for the company. (These people who receive ‘salaries’ even though they don’t exist, are<br />

called ‘ghost workers’).<br />

Tools that can be used to manage risk<br />

It is essential that the sole business owner as well as the accountant has a thorough knowledge of the most<br />

important accounting and cost concepts that are essential in managing risk.<br />

The accountant or business owner can manage risk by using the following tools or instruments:<br />

a) Reconciliation statements<br />

A reconciliation statement is a document on which the business owner can compare his or her personal bank<br />

account records to the bank’s records of his or her account balance and is used to make sure that the two<br />

sets of records are the same.<br />

There is also the risk for a business if no bookkeeping or accounting is done. Can you think of some<br />

risks if Sarah’s T-shirts didn’t perform any accounting or bookkeeping activities?<br />

Write a paragraph on the risks for Sarah’s T-shirts if no accounting or bookkeeping is done.<br />

20 iCount Grade 10

) Internal control<br />

Internal control refers to control measures that are implemented inside departments in the business and is<br />

used to manage and measure the way in which the business uses its resources.<br />

Unit<br />

3<br />

Control activities may also be explained by the type or nature of the activity. These include, but are<br />

not limited to:<br />

• Segregation of duties—Separating authorization, custody, and record keeping roles of fraud or error by<br />

one person.<br />

• Authorization of transactions—Review of particular transactions by an appropriate person.<br />

• Retention of records—Maintaining documentation to substantiate transactions.<br />

• Supervision or monitoring of operations—Observation or review of ongoing operational activity.<br />

• Physical safeguards—Usage of cameras, locks, physical barriers, etc. to protect property, such as<br />

merchandise inventory.<br />

• Top-level reviews—Analysis of actual results versus organizational goals or plans, periodic and regular<br />

operational reviews, metrics, and other key performance indicators (KPIs).<br />

• IT Security—Usage of passwords, access logs, etc. to ensure access restricted to authorized personnel.<br />

• Top level reviews—Management review of reports comparing actual performance versus plans, goals,<br />

and established objectives.<br />

• Controls over information processing—A variety of control activities are used in information processing.<br />

Examples include edit checks of data entered, accounting for transactions in numerical sequences,<br />

comparing file totals with control accounts, and controlling access to data, files and programs.<br />

http://en.wikipedia.org/wiki/Internal_control<br />

c) Ethics as risk management tool<br />

There is a well-known saying that prevention is better than cure. In other words, if you can prevent risks from<br />

happening in the first place, you will not have to manage or solve it.<br />

As we said before, ethics refers to the values of the people who work in the business. If people’s ethics are<br />

based on honesty, integrity and truthfulness, risks of fraud and theft will be significantly reduced.<br />

2. Management of resources CAPS Term 1 Topic 1 Informal or indigenous bookkeeping<br />

systems<br />

Do you still remember what resources are?<br />

Resources can be defined as anything that you use in your business that helps the business to function effectively.<br />

There are different types of resources:<br />

a) Capital resources: These are the equipment, tools and machines that are used to produce products or<br />

services.<br />

b) Stock or inventory: This is the business’ raw materials and unfinished products that have not yet been sold.<br />

c) Human resources: Human resources refer to the employees of the business.<br />

d) Natural resources: These resources are found in nature and include land, energy and water.<br />

Raw materials: The basic materials that are used to make products. The actual material that makes your<br />

product.<br />

iCount Grade 10<br />


Unit<br />

3<br />

Managing Resources<br />

1. Make a list of all the resources Sarah uses in her business.<br />

2. Can you think of 5 problems Sarah’s T-shirts might face if Sarah does not manage her<br />

resources properly?<br />

3. In pairs, argue for, and against, this topic “Resources must be ethically and environmentally managed” or<br />

“Business is about money, and resources like water and power are paid for. Its a money issue only”<br />

Why do we need to manage resources?<br />

The way in which the sole trader uses of the resources contributes to the success of the business. If the resources<br />

are not managed properly, the business can suffer great damage.<br />

Ethics in resource management<br />

Managing resources is a highly ethical issue. Think of how the sole business owner should manage human<br />

resources and also its natural resources in an ethical way.<br />

Many business owners are of the opinion that it doesn’t matter if they waste water or electricity. They say that they<br />

pay for it, so it’s their problem.<br />

3. Financial statement of sole traders CAPS Term 3 Topic 1 Financial <strong>Accounting</strong> of a Sole<br />

trader: Preparation of financial statements<br />

As you know by now, financial statements show the financial activities in a specific accounting period or on a<br />

specific day.<br />

<strong>Accounting</strong> period: The period for which profit is calculated, which is usually 12 months. These 12 months<br />

do not need to be from January–December. The accounting period is also called book year or financial year.<br />

The two types of financial statements are the Income Statement and the Balance Sheet.<br />

What does each of these show?<br />

Income Statement: shows the result of the business activities in a specific accounting period<br />

Balance Sheet: Shows the financial position of a business on a specific day<br />

Financial statements…<br />

• ...are drawn up in vertical form, and not in horizontal form<br />

• ...are NOT part of the bookkeeping process<br />

• ...do NOT replace the ledger accounts<br />

How often are these Financial Statements drawn up?<br />

Financial statements can be drawn up whenever they are needed, it may be every quarter or every year. It depends<br />

on the people who want to see and use the information in the financial statements.<br />

Who is interested in the financial statements?<br />

Both internal and external stakeholders are interested in the information contained in the financial statements.<br />

Stakeholder: Someone who affects the business or who is affected by it.<br />

22 iCount Grade 10

Unit<br />

3<br />


The stakeholders of a sole trader are divided into internal and<br />

external stakeholders:<br />

• External stakeholders (outside the business): creditors, banks,<br />

financiers, investors, SARS, customers, etc<br />

• Internal stakeholders (inside the business): owner, manager,<br />

unions, employees, etc<br />

• Owner: Sarah wants to see how successful her business<br />

has been and how it is doing at the moment. If the financial<br />

statements show that the business is not healthy, she must take<br />

steps to correct the problems.<br />

• Bank manager: He/she must decide if the business is healthy<br />

enough to grant a loan or an overdraft facility to Sarah if she<br />

wants to expand the business.<br />

• SARS: SARS, or the South African Revenue Service must see<br />

how much income Sarah has earned because she has to pay<br />

tax on it.<br />

• Staff members: they want to know that the business is healthy<br />

enough to carry on into the future, and that they will have work in<br />

future.<br />

Which other stakeholders can you think of who will be interested in the financial statements?<br />

Let’s now have a look at the Financial Statements.<br />

All Income Statements basically look like this (fictitious figures used):<br />



NOTE R<br />

Sales for the year 500 000<br />

Cost of sales (270 000)<br />

GROSS PROFIT 230 000<br />


Bad debts recovered 6 000<br />

Discount received 2 000<br />

Profit on sale of assets 200<br />

etc<br />


OPERATING EXPENSES (145 000)<br />

Salaries & Wages 78 500<br />

Water & Electricity 40 500<br />

Rent expense 26 000<br />

etc<br />


Interest income 1 3 500<br />

Profit (loss) before interest expense 141 700<br />

Interest expense 2 (28 000)<br />


iCount Grade 10<br />


Unit<br />

3<br />


The Balance Sheet is built up based on the “Notes to the Balance Sheet”.<br />

Notes to the balance sheet<br />

The balance sheet reflects information about income from investments or interest earned; expense because of<br />

paying interest, or financing costs, property, plant and equipment, inventory or stock, trade and other receivables<br />

(trade accounts and other accounts that are to be received), trade and other payables (trade accounts and other<br />

accounts that must be paid); cash and cash equivalents and the owner’s equity.<br />

The Balance Sheet looks like this:<br />



NOTE R<br />

ASSETS<br />

NON-CURRENT ASSETS 681 000 00<br />

Tangible (fixed) assets 3<br />


Fixed deposit<br />

CURRENT ASSETS 358 000 00<br />

Inventory 4<br />

Trade and other receivables 5<br />

Cash and cash equivalents 6<br />

TOTAL ASSETS 1 039 000 00<br />


OWNER’S EQUITY 520 000 00<br />

Capital 7<br />


Loan: ABC Bank<br />

CURRENT LIABILITIES 465 000 00<br />

Trade and other receivables 8<br />

Bank overdraft<br />

Short-term loan<br />


4. Some <strong>Accounting</strong> concepts CAPS Term 3 Topic 2 “Financial accounts of a sole trader—<br />

analysis and interpretation of financial statements”<br />

In the next section we will look at how to analyse financial statements. But before we can do that, we need to<br />

understand a few important concepts:<br />

24 iCount Grade 10

Unit<br />

3<br />


Gross profit on sales Gross profit or sales profit is the difference between income earned from selling a product or<br />

providing service, and the cost of making that product or providing a service BEFORE deducting any<br />

costs. This is also called gross income.<br />

Net profit on sales Net profit is the difference between the business’s total expenses and the business’ total revenue for<br />

a specific period. This is also called net income.<br />

Operating expenses Operating expenses are expenses that are paid in the course of performing the business’ activities,<br />

but this does NOT INCLUDE the costs that are directly related to the production of the product or<br />

the delivery of the service. Operating expenses include, for example, salaries, travel costs, factory<br />

rent or taxes.<br />

Operating profit Operating profit measures the business earning potential from its operations, before deduction any<br />

(on sales)<br />

taxes or interest that is payable on loans to the bank.<br />

Current ratio The current ratio shows whether or not the business can pay its financial obligations, such as rent,<br />

salaries etc, in the foreseeable future.<br />

Acid test ratio The acid test ratio gives an answer to the question “Can my business meet its current obligations<br />

from its liquid assets (that is, assets that are immediately available) if suddenly all sales stop?” This is<br />

also called the acid ratio or the quick ratio.<br />

Solvency ratio The solvency ratio measures the ability of the business to pay its financial obligations in the long term.<br />

Return on equity The return on equity measures how well the business uses its income to generate future income, for<br />

example, by investing it.<br />

Further information: look up the meaning of accounting terms: Here are some websites you can use, or check your iCount file;<br />

http://www.businessdictionary.com, http://www.investorwords.com<br />

5. Analysing financial statements CAPS Term 3 Topic 2 “Financial accounts of a sole trader—<br />

analysis and interpretation of financial statements”<br />

It’s all well and good to draw up the financial statements, but how are these statements used? As we said, the<br />

internal and external users of the financial statements will all need certain information from them. The statements<br />

are investigated and processed—in other words, studied in detail to get to the relevant information.<br />

One way to analyse the financial statements is to use the following 4 steps:<br />

1. Show the formulae<br />

The important formulae are for the profit margin, % gross profit on sales, operating expenses on sales; net profit on sales;<br />

net current assets, current ratio, asset test ration, degree of solvency, return on owner’s equity. To analyse the financial<br />

statements, you must use these formulae to calculate various details.<br />

2. Show all the calculations<br />

3. Show the answers or results<br />

4. Comment on the answers or results<br />

Here is an example of how to find the profit margin (gross profit on cost price):<br />

Profit margin / mark-up<br />

Step 1 (formula)<br />

Gross profit x 100 <br />

Cost of sale 1<br />

Step 3: (get the result/answer) = x %<br />

Can you work out this % by yourself?<br />

Step 2 (do the calculations)<br />

R500 000 x 100 <br />

R200 000 1<br />

Step 4 (comment), for example:<br />

Compare the results with the previous year’s results / Check how efficiently the business is run<br />

iCount Grade 10<br />


Unit<br />

3<br />

Managing Risks<br />

1. You are the accountant of Sarah’s T-shirts. Write a paragraph in which you describe what you would do to<br />

manage her business risks. SAICA Specific Competency II<br />

2. Sarah’s T-shirts<br />

Extract of Income statement for the year ended 2010<br />

Turnover/Sales 895 000<br />

Cost of sales 716 000<br />

Gross profit for the year 179 000<br />

Operating income 53 000<br />

Gross operating income 232 000<br />

Operating expenses (174 000)<br />

Operating profit for the year 58 000<br />

Interest income 4 000<br />

Interest expense/Financing costs (13 000)<br />

Net profit for the year 49 000<br />

Learners are to identify ratios which can be calculated from the income statement. Each learner is to<br />

calculate and categorise these individually. When complete, compare your calculations and categories.<br />

Discuss.<br />

Sarah’s T-shirts<br />

Extract of Balance sheet for the year ended 2010<br />

Non-current assets<br />

Tangible assets<br />

Financial assets (NTB: Bank)<br />

Current assets<br />

Inventories<br />

Trade and other receivables<br />

Cash and cash equivalents<br />

2011 2010<br />

870 000<br />

800 000<br />

70 000<br />

80 000<br />

30 000<br />

40 000<br />

10 000<br />

850 000<br />

750 000<br />

100 000<br />

79 000<br />

20 000<br />

50 000<br />

9 000<br />

Total assets 950 000 929 000<br />

Owners’ equity 640 000 649 000<br />

Non-current liabilities<br />

Loan: BTN Bank<br />

Current liabilities<br />

Trade and other payables<br />

250 000<br />

250 000<br />

60 000<br />

60 000<br />

240 000<br />

240 000<br />

40 000<br />

40 000<br />

Total equity and liabilities 950 000 929 000<br />

3. Match the terms in the left-hand column with the correct description in the right-hand column:<br />

CAPS Term 3 Topic 1, 2<br />

current ratio<br />

net profit<br />

balance sheet<br />

reconciliation statement<br />

gross profit<br />

compare personal and bank records<br />

difference between income from selling the product<br />

and the expenses to make a product<br />

difference between income from selling the product<br />

and all the business’s expenses<br />

current assets + current liabilities<br />

shows the financial position of a business on a specific<br />

day<br />

26 iCount Grade 10

4. Place learners in groups of five. Allow learners to come up with an income<br />

statement format. A space of three lines must be left under the other operating<br />

income and a space of five spaces under operating expenses.<br />

Unit<br />

3<br />

5. Using the same information as activity 4, learners are required to complete the missing items under other<br />

operating income and operating expenses. They must also give two examples of interest income and<br />

interest expense.<br />

6. Balance sheet activity: In a group of five, learners must draw a structure of a balance sheet including all<br />

possible items which are normally included in the balance sheet.<br />

7. In the same groups, learners must come up with format for the following notes:<br />

• Tangible asset<br />

• Trade and other receivables<br />

• Equity<br />

• Trade and other payables<br />

8. Read the following case study as a group of 4/5 learners and write your comments about ethical<br />

responsibility of companies to manage their resources well.<br />

West Coast community wants diamond mining scars healed CAPS Term 1 Topic 2<br />

West Coast residents living near De Beers diamond mines fear they will be left with the massive scars of 100 years of<br />

diamond mining when the company sells its mines to Trans Hex.<br />

Yesterday the community from the tiny coastal town of Hondeklipbaai called on the Department of Mineral Resources<br />

to postpone its decision to transfer the mining rights from De Beers to Trans Hex, as they fear there will not be<br />

enough money to carry out a proper rehabilitation.<br />

De Beers Consolidated Mines has signed an agreement to sell Namaqualand Mines to a consortium headed by Trans<br />

Hex Diamonds.<br />

All mining companies are obliged by law to draw up a plan, approved by the government, on how the land will be<br />

rehabilitated once the mine reaches the end of its life. De Beers has an approved rehabilitation plan, but has since<br />

changed the plan and submitted it to Mineral Resources for approval.<br />

Communities and environmental groups believe the changes include a significant downgrading of obligations to<br />

rehabilitate the mine, and that once the sale goes through, there will not be enough guaranteed money to carry out<br />

the environmental clean-up.<br />

At a media briefing yesterday, Hondeklipbaai community leader Dawid Markus said the sale should not go ahead<br />

until the community had been assured that the companies would honour their obligations to rehabilitate the area.<br />

Members of the public have asked to see and comment on De Beers’ revised environmental management plan, but<br />

De Beers has said the law does not require them to engage with the public on these changes.<br />

“Too often big mining companies exploit the country’s natural resources without undoing the damage they cause.<br />

We’re not convinced the current plans will not leave the area exposed to more risks. Their budget for this kind of<br />

repair work is wholly inadequate and it is the people of Hondeklipbaai that will end up paying for it, for generations to<br />

come,” Markus said.<br />

The mines are located in vegetation known as the succulent Karoo, described as a “botanical gem” and an<br />

“environmental hot spot”. It is one of 34 places in the world which contain 1 percent of the world’s total plant species.<br />

Melissa Fourie, head of the Centre for Environmental Rights, said: “We’re seeing an increasing trend that when a mine<br />

gets closer to the end of its life, and it’s not so profitable, that it’s sold to smaller operators.”<br />

Bheki Khumalo, spokesman for Mineral Resources, said yesterday the communities should write to the department<br />

to express their concerns. He said mining companies had to make financial provision for rehabilitation in their<br />

environmental management plan.<br />

(http://thepropertytimes.co.za/2011/10/west-coast-community-wants-diamond-mining-scars-healed.html)<br />

9. Collect newspaper articles that contain any discussion or information on any form of corruption and discuss<br />

the role of ethical responsibility.<br />

iCount Grade 10<br />


Unit<br />

4<br />

Auditing, Assurance<br />

& the preparation of the Final<br />

Accounts<br />

In this unit:<br />

• <strong>Accounting</strong>, Auditing and Assurance.................. 29<br />

• Preparation of final accounts.............................. 29<br />

• The Trial Balance................................................ 29<br />

• Make the adjustments........................................ 30<br />

• Post-adjustment trial balance............................. 32<br />

• Closing transfers................................................. 32<br />

• The final Accounts.............................................. 33<br />

• The post-closing Trial Balance............................ 34<br />

• Possible mistakes .............................................. 34<br />

28 iCount Grade 10

Unit<br />

4<br />


1. <strong>Accounting</strong>, Auditing and Assurance SAICA Specific Competency IV<br />

Many people get confused between the terms accounting, auditing and assurance. So what is the difference?<br />

• <strong>Accounting</strong> services can be defined as the preparation and analysis of financial information which is<br />

reported to internal and external users via financial statements.<br />

• Auditing services involve evaluating the reliability and credibility of financial information, as well as “the<br />

systems and processes responsible for recording and summarizing that information”.<br />

• Assurance services can be defined as independent professional services that evaluate the reliability,<br />

credibility, relevance, and timeliness of information in order to improve the quality of information for decision<br />

makers. Assurance services may or may not be associated with financial information.<br />

http://www.associatedcontent.com/article/196337/accounting_auditing_and_assurance_services.html?cat=3<br />

2. Preparation of final accounts CAPS Term 1 Topic 5; Term 2 Topic 3 “Financial <strong>Accounting</strong> of<br />

a Sole Trader”<br />

In Unit 3 we discussed how to analyse the financial statements. In this Unit we look at how to prepare the<br />

business’ final accounts.<br />

The steps that need to be taken to prepare the final accounts are as follows:<br />

Pre-adjustment trial balance Adjustments Post-adjustment trial balance Closing transfers<br />

Final Accounts Post-closing trial balance<br />

The Final Accounts are prepared based on the information in the General Ledger. But before you can start working<br />

from the General Ledger, you must first check if the information in the Nominal Accounts in the General Ledger is<br />

correct. In other words, does it show the actual income and expenses?<br />

Let’s recap quickly:<br />

General Journal = The most basic journal in which all transactions are entered according to the time they<br />

occurred<br />

General Ledger = a collection of all balance sheet, income and expense accounts<br />

Nominal Accounts = temporary accounts that are closed at the end of each accounting period and that are<br />

used to record income, expenses, profits and losses<br />

3. The trial balance CAPS Term 1 Topic 5(b)”Bookkeeping of a Sole Trader”<br />

A trial balance is a list of totals that appear in the General Ledger on any given date. The purpose of a trial balance<br />

is to check that the final accounts are correct and that the debits and credits are in balance (the double-entry<br />

principle!).<br />

iCount Grade 10<br />


Unit<br />

4<br />


The trial balance is a listing of all the ledger accounts, with debits in the left-hand column and credits in the righthand<br />

column.<br />

There are 3 types of trial balances, namely the pre-adjustment trial balance, the post-adjustment trial balance and<br />

the post-closing trial balance. The type of trial balance depends on the time at which it is prepared.<br />

Pre- means ‘before’<br />

Post- means ‘after’<br />

Pre-adjustment trial balance<br />

The pre-adjustment trial balance is drawn up at the end of each month, BEFORE any adjustments have been<br />

made.<br />

4. Make the adjustments CAPS Term 1 Topic 5(b) “Bookkeeping of a Sole Trader”<br />

The next step in preparing the final accounts is to make all the necessary adjustments to the General Journal.<br />

An adjustment is an entry that is made in the accounts to show income and expenses that have either not been<br />

recorded yet, or have been recorded wrongly. Once an adjustment has been done, the balance in the relevant<br />

accounts will decrease or increase. One account will be debited and the other one credited. This is because of the<br />

double-entry principle of accounting.<br />

Can you still remember what the double-entry principle is?<br />

The double entry principle refers to the accounting system in terms of which each transaction is recorded as a<br />

credit as well as a debit. For every credit entry, there is also a debit entry.<br />

The following adjustments are necessary:<br />

• Accrued income<br />

• Accrued expenses<br />

• Pre-paid expenses<br />

• Income received in advance<br />

• Consumable stores on hand<br />

• Trading stock deficit<br />

• Depreciation<br />

The adjustments are made in the General Journal and then posted (transferred) to the General Ledger.<br />

We can summarise the adjustments like this<br />

Adjustment Account debit Fol Account credit Fol<br />

Accrued income Accrued income B Income N<br />

Accrued expenses Expense N Accrued expense B<br />

Prepaid expenses Prepaid expenses B Expense N<br />

Income received in advance Income n Income received in advance B<br />

Consumable stores on hand Consumable stores on hand B Expense (eg fabric) N<br />

Trading stock deficit Trading stock deficit N Trading stock B<br />

Depreciation Depreciation N Accumulated depreciation (eg<br />

on sewing machine)<br />

B<br />

30 iCount Grade 10

Unit<br />

4<br />

Deficit: shortage<br />

Depreciation: reduction in value year after year e.g. a car loses value each year and so its total value is<br />

decreased by a percentage, e.g. 10%. So, if it was worth R80 000 this year, it would decrease in value<br />

(depreciate) by R8 000 for this year. Its new value would therefore be R72 000.<br />

EXAMPLE OF ADJUSTMENTS: Consumable stores on hand<br />

Sarah buys a number of consumable items that she uses as part of her T-shirt business, for example stationery,<br />

cleaning material, fuel and packing material for the T-shirts she sends to the shops.<br />

‘Consumable stores on hand’ has two elements:<br />

• Asset account (balance sheet section)<br />

• Expense account (nominal section)<br />

For example: Packing material and printing and stationery<br />

On 28 February 2011 the following totals appeared in the General Ledger of Sarah’s T-shirts.<br />

Packing material R6 300<br />

Printing and stationery R7 400<br />

Adjustment<br />

On 28 February 2011 a stock count was done. The following stock was hand:<br />

Packing material R1 200<br />

Printing and stationery R800<br />

The adjustments are made like this:<br />


Balance sheet accounts section<br />


Dr<br />

2011 Feb 28 Packing material GJ 1 200 2011 Feb 28<br />

Printing & GJ 800<br />

Statonery<br />

2000<br />

Nominal accounts section<br />


Dr<br />

2011 Feb 28 Total b/d 2011 Feb 28 Consumable stores GJ 1 200<br />

on hand<br />

Profit & Loss 5 100<br />

6 300 6 300<br />


Dr<br />

2011 Feb 28 Total b/d 7 400 2011 Feb 28 Consumable stores GJ 1 200<br />

on hand<br />

Profit & Loss 6 200<br />

7 400 7 400<br />

Cr<br />

Cr<br />

Cr<br />

GJ = General Ledger<br />

iCount Grade 10<br />


Unit<br />

4<br />


5. The post-adjustment trial balance CAPS Term 1 Topic 5(b) “Bookkeeping of a Sole Trader”<br />

The next step is to draw up a post-adjustment trial balance.<br />

The post-adjustment trial balance is drawn up AFTER the adjustments were made. The purpose of the postadjustment<br />

trial balance is to make sure that all the information entered into the accounts is accurate so far.<br />

6. Closing transfers CAPS Term 2 Topic 3 “Bookkeeping of a Sole Trader”<br />

The purpose of the closing transfers is to close off all the nominal accounts at the end of the accounting period.<br />

Closing transfers are entered into the General Journal and then posted to the General Ledger.<br />

The following closing transfers must be made:<br />

Closing transfer Transferred to … Account debit Account credit<br />

Cost of sales Trading Trading Cost of Sales<br />

Sales Trading Sales Trading<br />

Debtors allowances Sales Sales Debtors Allowances<br />

Gross Profit Profit & Loss Trading Profit & Loss<br />

Net Profit Capital Profit & Loss Capital<br />

Debtor’s Allowances Sales Sales Debtor’s Allowances<br />

Income Accounts Profit & Loss Income Profit & Loss<br />

Expense accounts Profit & Loss Profit & Loss Expense<br />

Drawings Capital Capital Drawings<br />

So what will the accounts in the General Ledger look like after these closing transfers have been made?<br />

Here are two examples, the Sales account and the Wages account.<br />

SALES<br />

Dr<br />

20XX Feb 28 Debtors Allowances GJ 20XX feb 28 Total* b/f –<br />

Trading account GJ<br />

Cr<br />

* Total sales for current accounting period<br />

WAGES<br />

Dr<br />

20XX Feb 28 Total* b/f 20XX feb 28 Profit & Loss b/f –<br />

Cr<br />

* Total wages for current accounting period<br />

32 iCount Grade 10

Unit<br />

4<br />

7. The final accounts CAPS Term 2 Topic 3 “Bookkeeping of a Sole Trader”<br />

There are two types of final accounts: 1) the Trading account; and 2) the Profit and Loss account.<br />

Trading account<br />

The Trading account is one of the final accounts. It shows the income from sales, the cost of those sales and the<br />

gross profit of the business during the accounting period. The Trading account is used to calculate the gross profit<br />

the business has made for the accounting period. Gross profit is Revenue (income) minus the cost of making the<br />

product or service that is sold.<br />

Net sales and cost of sales are both closed off to the Trading account.<br />

Net sales = Sale – Debtors allowances<br />

• If you subtract Cost of Sales from Sales, you get the Gross Profit.<br />

• Gross Profit is then transferred to the Profit and Loss account.<br />

• If you deduct all the expenses from all the income (in the nominal accounts), you get the Net Profit.<br />


Dr<br />

20XX Feb 28 Cost of Sales GJ 20XX feb 28 Sales GJ –<br />

Cr<br />

Profit and Loss account<br />

The Profit and Loss account shows the net profit. Net profit is Total Revenue (income) – Total Costs (expenses).<br />


Dr<br />

20XX Feb 28 All expense accounts GJ 20XX feb 28 Trading account GJ –<br />

(gross profit)<br />

Capital (net profit) GJ All income accounts GJ<br />

Cr<br />

All income accounts are transferred to the CREDIT side in the Profit & Loss account<br />

All expense accounts are transferred to the DEBIT side of the Profit & Loss account<br />

iCount Grade 10<br />


Unit<br />

4<br />


8. The Post-Closing Trial Balance CAPS Term 1 Topic 5(b) “Bookkeeping of a Sole Trader”<br />

This Trial Balance is drawn up AFTER all the Nominal accounts have been closed off. It shows the balances in the<br />

General Ledger of the balance sheet accounts.<br />

9. Possible mistakes in Trial Balances and how to deal with them CAPS Term 1<br />

Topic 5(b) “Bookkeeping of a Sole Trader”<br />

Although the ideal is that the debits and credits cancel each other out, this is not always the case.<br />

If there are errors in the Trial Balance, it could be because...<br />

• ...the amounts are incorrectly entered in the journals<br />

• ...an amount was wrongly posted from the journal to the ledger<br />

• ...an addition mistake was made in a ledger account<br />

• ...some balance or total was left out of the Trial Balance<br />

• ...the Trial Balance was added up incorrectly<br />

How to check the Trial Balance<br />

Sarah has completed her Trial Balance, but it does not balance! She can follow these steps to find out where the<br />

problem is:<br />

• Check additions i.e. were the amounts added up correctly?<br />

• Calculate the difference between the debits and credits and see if you can find that amount somewhere in the<br />

General Ledger. Perhaps only one mistake was made, by leaving out that amount.<br />

• Divide the difference in two and see if you can find that amount in the General Ledger. Perhaps the item with<br />

that amount was entered into the wrong side of the Trial Balance.<br />

• Make sure that all balances are included in the Trial Balance.<br />

• Make sure that all balances of all the accounts have been included correctly<br />

in the Trial Balance<br />

• Make sure that the balances of every account in the General Ledger are<br />

correct.<br />

• Make sure that the journal totals have been added up correctly.<br />

34 iCount Grade 10

Final Accounts<br />

Unit<br />

4<br />

1. List the adjustment entries that should be made to the General Journal.<br />

CAPS Term 1 Topic 5(b)<br />

2. Define the following terms:<br />

• Net sales<br />

• Net profit<br />

• Gross profit<br />

CAPS Term 3 Topic 2<br />

3. Complete the following table:<br />

Dr<br />

20XX<br />

Feb<br />

CAPS Term 2 Topic 3<br />


28 All ...... GJ 20XX<br />

Feb<br />

28 Trading account<br />

(gross profit)<br />

Capital (........ profit) GJ All .......... GJ<br />

........ -<br />

Cr<br />

4. Debate<br />

In her business, Sarah has an asset, her sewing machine which is currently depreciating at 20% per annum,<br />

using the cost price method. She was advised to change to 20% per annum, using the diminishing balance<br />

method.<br />

The sewing machine was purchased on the 1 July 2006, for R30 000.<br />

The financial year end for the business, Sarah’s T-shirts, is 30 June every year.<br />

• Divide the class into two groups to debate on these two methods with each group choosing a different<br />

method.<br />

• On a chart, learners will show their calculations for the method they have chosen, using the following<br />

headings:<br />

Date Cost price Depreciation Accumulated<br />

depreciation<br />

30 June 2007 R 30 000<br />

30 June 2008<br />

30 June 2009<br />

30 June 2010<br />

30 June 2011<br />

Book value/<br />

carrying value<br />

• The debate must be on which method is most suitable for Sarah’s t-shirt business. When does her book<br />

value reach R0 in each case?<br />

HINT: The sewing machine cannot carry a zero or a negative balance while Sara’s T-shirt still carry it as<br />

an asset.<br />

iCount Grade 10 35

Unit<br />

5<br />

Income and Taxation<br />

In this unit:<br />

• Tax..................................................................... 37<br />

• Sole traders and Tax........................................... 38<br />

• Ethics and Tax.................................................... 38<br />

• Value Added Tax................................................. 39<br />

• The Sole trader and VAT..................................... 39<br />

• Pay VAT.............................................................. 40<br />

• Input VAT and Output VAT.................................. 40<br />

• VAT and Ethics................................................... 41<br />

• Salaries and wages............................................ 41<br />

• The Salaries Journal........................................... 42<br />

• Internal controls and ethics................................. 42<br />

36 iCount Grade 10

Unit<br />

5<br />


1. Tax SAICA Specific Competency VII “Taxation”<br />

So, what is tax? Tax is an amount that is paid by all citizens of a country who earn an income above a certain<br />

amount. Different percentages of tax is payable depending on the amount you earn. This percentage of tax that<br />

is payable is called the ‘tax rate’. Tax is levied on your gross income, after deducting certain amounts that are<br />

allowed in terms of the Income Tax Act (No 58 of 1962).<br />

To levy = to charge<br />

The South African Revenue Service (SARS) administers all tax issues in South Africa.<br />

Government income comes mainly from taxes. The four biggest sources are:<br />

• Personal income tax (29% of government income). Two main forms of personal tax are PAYE and SITE. Anyone<br />

who earns less than R60 000 per year must pay SITE (Standard Income Tax on Employees). If you earn more<br />

than R60 000 per year, you must pay PAYE, or Pay As You Earn. Employers deduct the tax from employees’<br />

salaries, so employees do not have to make an extra payment to SARS. Employees who pay PAYE, must<br />

however fill in a tax return and send it to SARS.<br />

• Company tax (27% of government income). STC—Secondary Tax on Companies. STC must be paid by<br />

companies in South Africa on the dividends they declare. Dividends are amounts of money that companies pay<br />

to their shareholders out of the profits of the company.<br />

• Value-added tax or VAT (26% of government income)<br />

• Customs and Excise (5% of government income)<br />

Tax rates<br />

1 March 2011 – 28 February 2012<br />

Taxable Income Tax Rate<br />

R0 – R150 000 18%<br />

R150 001 – R235 000 R27 000 + (25% of amount above R150 000)<br />

R235 001 – R325 000 R48 250 + (30% of amount above R235 000)<br />

R325 001 – R455 000 R75 250 + (35% of amount above R325 000)<br />

R455 001 – R580 000 R120 750 + (38% of amount above R455 000)<br />

R580 001 and above R168 250 + (40% of amount above R580 000)<br />

2. Sole traders and tax SACIA Specific Competency VII “Taxation”<br />

Sole traders can calculate the tax they have to pay by taking the income earned from the business and deducting<br />

all the money that was spent on the business. Business expenses are things like:<br />

• the money that was spent on buying items necessary to run the business and maintenance on these items (for<br />

Sarah’s T-shirts: fabric, sewing machines, servicing the machines, etc)<br />

• rent for the place where you run the business (the factory and shop)<br />

• water and electricity<br />

• transport costs (fuel and maintenance of the delivery vehicle to deliver the T-shirts to other shops)<br />

• salaries and wages for employees<br />

• money paid for Compensation for occupational injuries and diseases<br />

• money Sarah pays to someone to help her with the books for the business<br />

• bank charges on the bank account Sarah opened for the business<br />

iCount Grade 10<br />


Unit<br />

5<br />


But how does SARS know how much tax everyone needs to pay? Once a year all taxpayers must submit a<br />

form on which they show all their income and expenses for the year. This form is called a tax return. SARS then<br />

calculates the amount of tax that must be paid. This amount is called an assessment.<br />

Sole traders must pay provisional tax. This means that an amount of tax is paid twice a year, even before SARS<br />

issues an assessment. Once SARS issues the assessment, the tax that has been paid as provisional tax is<br />

deducted from the assessment amount. The tax payer must pay the difference to SARS. But, if the provisional<br />

payment was more than the assessment, SARS must refund the taxpayer.<br />

How to register as a taxpayer<br />

Contact the nearest SARS office in your area and ask for form IT77. Fill it in and send it back to the SARS.<br />

Instead of completing the form, you could send the following information to the SARS and they will complete<br />

the form:<br />

• your full name<br />

• income tax reference number, if you have one<br />

• the revenue office you have sent tax returns to before, if you have<br />

• occupation or job<br />

• date when you first started working<br />

• marital status (married, divorced, separated, single, widowed)<br />

• number of children under the age of 18 (including step-children and adopted children)<br />

• type of income: do you earn a salary, a weekly wage, commissions, rental on something you rent out,<br />

interest on money in the bank or investments, etc.<br />

• immigrants should give the date when you arrived in South Africa<br />

www.paralegaladvice.org.za/docs/chap13/05.html<br />

3. Ethics and tax: difference between tax evasion and tax avoidance SACIA<br />

Specific Competency VII “Taxation”; CAPS Term 1 Topic 2 “Ethics”<br />

Of course everyone wants to pay as little tax as possible. And there are many LEGAL ways in which to limit the<br />

amount of tax you have to pay. For example; deduct everything possible, such as maintenance, rent and all costs<br />

paid with regard to the business. This is called tax avoidance.<br />

But the amount of tax paid can also be limited ILLEGALLY, for example, by not declaring all the income of the<br />

business to SARS. This is called tax evasion. This is unethical. If SARS catches you out, you can go to jail, and<br />

you will also have to pay huge penalties to SARS.<br />

4. Value-added Tax CAPS Term 2 Topic 2 “Value-added tax”<br />

Value-added tax (VAT) is a tax that is payable on certain goods and services. It was introduced in South Africa in<br />

1991. VAT replaced General Sales Tax or GST, which used to be levied on all products and services, but was not<br />

included in the selling price. The consumer had to add it to the price.<br />

When do we pay VAT?<br />

When you buy certain products or services, you pay VAT on these products and services.<br />

VAT is payable on products and services on one of three bases:<br />

• The standard VAT rate of 14% applies to so-called ‘taxable supplies’. Most products and services fall in this<br />

category. Examples of taxable supplies are TV sets, textbooks, movie tickets, pizzas, etc.<br />

38 iCount Grade 10

SARS<br />

Unit<br />

5<br />

1. Sarah’s brother, William, offers extra <strong>Accounting</strong> lessons to Grade 10 learners.<br />

Because no-one really understands the <strong>Accounting</strong> teacher, many children go to William for<br />

extra lessons. William does not want parents or students to pay him by credit card or electronic transfer. He<br />

accepts only cash, and he doesn’t issue receipts for these payments. Every year he buys a new car. At a<br />

braai last weekend, he told Sarah that she’s stupid to pay tax on her business, as he never pays tax. He just<br />

tells SARS that he doesn’t earn enough money.<br />

You are Sarah. Write a paragraph in which you explain to William exactly what he is doing and what the<br />

consequences could be.<br />

2. Discuss why you think, the government chose to replace the old General Sales Tax with VAT? (2.)<br />

• 0% VAT is payable on some items. These items are called ‘zero-rated’ items. The most basic foodstuffs fall<br />

into this category, for example brown bread, fruit and vegetables and milk. Petrol and diesel are also zero-rated<br />

items.<br />

Can you think of reasons why these items are zero-rated?<br />

• Some products and services are exempt from VAT. This means that VAT does not apply to these products and<br />

services. The following items are VAT exempt: salaries, wages, school fees, banking fees, etc.<br />

* exempt—excluded<br />

Who needs to register for VAT?<br />

Any business owner whose turnover is more than R1 million per year, must register for VAT with SARS. Small<br />

retailers with a turnover of more than R300 000 per annum, must also register.<br />

• turnover = the volume of sales before deducting any discounts or taxes<br />

Any person or business that has to register for VAT, is called a ‘vendor’.<br />

5. The sole trader and VAT CAPS Term 2 Topic 2 “Value-added tax”<br />

Sole traders must do the following to make sure that they comply with VAT legislation:<br />

1. Register for VAT with SARS.<br />

2. Issue VAT invoices for transactions. This means that, for any sale of more than R50, you have to issue a tax<br />

invoice. The tax invoice must have the following information on it:<br />

• The word “Tax Invoice” on it<br />

• The value of the goods/services that you sold, excluding VAT<br />

• The VAT amount<br />

• The value of the goods/services that you sold, including VAT<br />

• The name, address and VAT registration number of the customer<br />

• Your own name, address and VAT registration number<br />

iCount Grade 10<br />


Unit<br />

5<br />


6. Pay VAT<br />

You can pay VAT by cash or cheque at any SARS office. You may also make an electronic payment to SARS on<br />

the internet, or pay the amount to SARS at any of the big banks.<br />


Transaction<br />

Amount<br />

incl VAT<br />

Amount<br />

excl VAT<br />

Supplier of fabric Sells fabric to Sarah 1 140 1 000 140 140<br />

Sarah<br />

Buys fabric for supplier 1 140 1 000 (140) 70<br />

VAT<br />

Payable to<br />

SARS<br />

Sells T-shirts to wholesaler<br />

1 710<br />

1 500<br />

210<br />

Wholesaler<br />

(e.g. Massmart)<br />

Buys T-shirts from Sarah<br />

Sells T-shirts to retailer<br />

1 710<br />

2 280<br />

1 500<br />

2 000<br />

(210)<br />

280<br />

70<br />

Retailer<br />

(e.g. Edgars)<br />

Buys T-shirts from wholesaler<br />

Sells T-shirts to consumers<br />

2 280<br />

3 420<br />

2 000<br />

3 000<br />

(280)<br />

420<br />

140<br />

Payable to SARS<br />

R420<br />

7. Input VAT and Output VAT CAPS Term 2 Topic 2 “Value-added tax”<br />

Every person in the process of manufacturing a product or delivering a service pays VAT. Two concepts are<br />

important: input VAT and output VAT.<br />

Input VAT<br />

This is the VAT that a registered vendor pays on goods and services he or she buys.<br />

For example:<br />

Sarah’s T-shirts buys fabric from a registered vendor for R980. The price includes VAT of 14%.<br />

Price of fabric, including VAT R980.00<br />

VAT R137.20 (Input VAT for Sarah’s T-shirts)<br />

Purchase price excluding VAT R842.80<br />

VAT-registered vendors pay an amount of VAT over to SARS. The amount is calculated as Output VAT – Input VAT<br />

= Payable to SARS<br />

Output VAT<br />

This is the VAT that is collected from the consumers/customers, based on the final selling price. VAT registered<br />

vendors charge VAT on most of their sales.<br />

For example:<br />

Cost of making a T-shirt: R100.00<br />

Mark-up R50.00<br />

Selling price (excl VAT) R150.00<br />

VAT @ 14% R21.00<br />

Selling price (incl VAT) R171.00<br />

When Sarah’s T-shirts fills in its VAT return, she deducts the input VAT from the output VAT, and pays over the<br />

difference to SARS.<br />

40 iCount Grade 10

The same amount will be input VAT for one party to the transaction, and output VAT to another party to that<br />

transaction. For example, Sarah, as a vendor, pays input VAT on the fabric she buys from suppliers, or on the<br />

bookkeeping services of the company that does her books. This VAT amount will be output VAT in the supplier’s<br />

books.<br />

Unit<br />

5<br />

Further information on VAT: A useful website:<br />

http://southafrica.smetoolkit.org/sa/en/category/2942/Tax-SARS<br />

8. VAT and ethics CAPS Term 2 Topic 2 “Value-added tax”; Term 1 Topic 2 “Ethics”<br />

Sole traders, such as Sarah, whose turnover is more than R300 000 per year must register as a VAT vendor. She<br />

must calculate VAT correctly and disclose all transactions on which VAT is levied. She must complete her VAT<br />

return honestly and pay the VAT over to SARS at the end of each VAT period. She must also never enter into any<br />

illegal transactions to try and avoid paying VAT or any other form of tax.<br />

9. Salaries and wages APS Term 2 Topic 1 “Salaries and Wages Journal”<br />

What is the difference between salaries and wages?<br />

Wages are paid weekly, while salaries are paid monthly. Wages are paid mostly to manual labourers, such as<br />

factory workers, builders, etc. Salaries are more often paid to people in administrative jobs, such as secretaries,<br />

accountants and teachers.<br />

A salary is an amount that the employer pays to the employee every month, for example R8 000 per month. A<br />

wage is an amount per hour or per week, for example, R100 per hour, of R1 000 per week.<br />

Gross salary/wages is the basic salary/wages that the business pays to the employer.<br />

Net salary/wages is the money you get out after various amounts have been deducted.<br />

Deductions can be made for pension fund contributions, Unemployment Insurance Fund contributions, Medical<br />

Aid contributions and income tax contributions.<br />

Net Salary = Gross Salary minus Deductions<br />

Salary notches and scales<br />

When someone starts working for a salary, he or she starts on a certain salary notch. The salary notch is a point on<br />

the salary scale.<br />

For example: Mr Williams, the <strong>Accounting</strong> teacher, is appointed on a salary scale of R204 500 R220 000 <br />

R232 000 R 241 800 R265 700. He starts work on the first notch, R204 500. Every year, he goes up a notch.<br />

Between every notch, there is an incremental increase:<br />

R204 500 R220 000 R232 000 <br />

R 241 800 R265 700.<br />

iCount Grade 10<br />


Unit<br />

5<br />


10. The Salaries Journal<br />

Salaries are recorded in the Salaries Journal. The Salaries Journal looks like this:<br />

Employees<br />

Basic<br />

Salary<br />

Bonus<br />

Gross<br />

Salary<br />

Pension<br />

Fund<br />

Medical<br />

Aid<br />

PAYE<br />

UIF<br />

A xx x xxx x x x x xx xxxx x1 x x x xx<br />

B xx x xxx x x x x xx xxxx x2 x x x xx<br />

C xx x xxx x x x x xx xxxx x3 x x x xx<br />

Totals xx x xxx x x x x xx xxx x x x xx<br />

TOTAL<br />

Net<br />

Salary<br />

Cheque<br />

No.<br />

Pension<br />

Fund<br />

Medical<br />

Aid<br />

UIF<br />

TOTAL<br />

11. Effect on the <strong>Accounting</strong> equation CAPS Term 1 topic 5(c) “<strong>Accounting</strong> Equation”<br />


Debit Credit Debit Credit Debit Credit<br />

+ – – + – +<br />

12. Internal controls and ethics CAPS Term 1 Topic 2 “Ethics”<br />

Staff members who work with salaries and wages must keep proper records, and make sure that there is tight<br />

control over payment of salaries. Where wages are paid on an hourly basis, proper records must be kept of the<br />

number of hours that each worker worked. This staff must display high ethical values, such as honesty, integrity<br />

and responsibility. Management must respect the role of unions in negotiations with management to determine<br />

salaries and salary increases.<br />

42 iCount Grade 10

VAT<br />

Unit<br />

5<br />

1. Calculate the VAT and other amounts asked in the following scenario:<br />

Mr Motsepe manufactures wooden furniture. He buys the wood from Woody Woodpecker, a<br />

partnership that is registered for VAT, for an amount of R2 000 (VAT excluded). VAT on R2 000 is ....<br />

• Amount inc VAT:<br />

• Amount excl VAT:<br />

• VAT amount:<br />

• Payable to SARS:<br />

He then manufactures wooden chairs, which cost him R180,00 each to make. He then sells the<br />

chairs to The Furniture Warehouse, a wholesaler, for R240,00 a chair. What is the mark-up on the<br />

chairs? .......<br />

• Amount inc VAT:<br />

• Amount excl VAT:<br />

• VAT amount:<br />

• Payable to SARS:<br />

The Furniture Warehouse puts a mark-up of 10% on the chairs, and sells it to Game and<br />

Hyperama. What is the amount at which Furniture Warehouse sells the chairs to Game and<br />

Hyperama? ......<br />

• Amount inc VAT:<br />

• Amount excl VAT:<br />

• VAT amount:<br />

• Payable to SARS:<br />

Game and Hyperama add a mark-up of R20 per chair. The final price at which the chair is sold to<br />

the consumer is R.......<br />

• Amount inc VAT:<br />

• Amount excl VAT:<br />

• VAT amount:<br />

• Payable to SARS:<br />

CAPS Term 2 Topic 2 “Value-added tax”<br />

2. Define the following terms: (14)<br />

• SARS<br />

• Input VAT<br />

• PAYE<br />

• STC<br />

• Tax evasion<br />

• Gross salary<br />

• Tax avoidance<br />

CAPS Term 1 Topic 5(c) “<strong>Accounting</strong> Equation”<br />

CAPS Term 2 Topic 1 “Salaries and Wages Journal”<br />

CAPS Term 2 Topic 2 “Value-added tax”; Term 1 Topic 2 “Ethics”<br />

SAICA Specific Competency VII “Taxation”<br />

iCount Grade 10 43

Unit<br />

5<br />

3. Which TWO of the following are NOT deductions that Sarah’s T-shirts may claim for tax?<br />

• telephone costs<br />

• children’s school fees<br />

• salaries to employees<br />

• rent for the factory where the T-shirts are made<br />

• salaries to Sarah’s domestic worker<br />

• advertising in the local newspaper<br />

• stationery<br />

CAPS Term 2 Topic 2 “Value-added tax”; Term 1 Topic 2 “Ethics”<br />

SAICA Specific Competency VII “Taxation”<br />

4. Group activity: Salaries and Wages:<br />

Learners should work in groups of 4/5, going home and into their communities to collect a few examples<br />

of each of these: salary advice slips / wages advice slips / proof of income. They are to make anonymous<br />

copies of these.<br />

Compare salary notches; basic salaries; gross salaries. Then they are to compare and discuss deductions:<br />

medical aid, pension fund costs, UIF, PAYE, garnishee orders or any other deductions.<br />

Ask groups to prepare a presentation of a salaries journal to the class.<br />

Note: each worker has a cost to company. The employers’ contribution towards UIF and medical aid is<br />

calculated R1 to R1. Pension contribution of the company is calculated as 2% of the gross salary.<br />

44 iCount Grade 10

Management Design<br />

and Control<br />

Unit<br />

6<br />

In this unit:<br />

• Definition and explanation of basic cost concepts.46<br />

• Corporate governance........................................ 46<br />

• Costing............................................................... 47<br />

• Budgets............................................................. 48<br />

• Debtors and Creditors reconciliation................... 50<br />

• Creditors reconciliation....................................... 51<br />

iCount Grade 10<br />


Unit<br />

6<br />

Being a business manager means it is your responsibility to manage and control the business in such a way that<br />

its targets and objectives are being met. The accountant will play a very important role in this team by providing<br />

the information needed to make the correct business decisions.<br />

A main and important function of the accountant and the management team is to make sure that the business<br />

runs in an ethical and efficient way and to regularly check all the information in the financial accounts.<br />


1. Definition and explanation of basic cost concepts CAPS Term 3 Topic 3 “Cost<br />

<strong>Accounting</strong>”<br />

When you are a sole trader, ‘cost’ is a very important issue. You have to determine the cost of the products you<br />

sell, the materials you buy and the cost of the shop or factory you rent.<br />

Costs are deducted from the income or profit of a business, so it makes sense to limit costs as far as possible.<br />

Let’s look at a number of concepts that relate to costs:<br />

• Direct labour costs: Direct labour costs are the salary expenses that are directly related to the manufacturing<br />

of a product, e.g. paying someone to print a T-shirt.<br />

• Indirect labour: Indirect labour is the salary expenses that do not directly relate to the production process,<br />

e.g. the person who makes tea in the office.<br />

• Direct materials (raw materials): Direct materials are the materials that form a basic part of the final product<br />

that is being manufacturer, e.g. paper for the printing of this manual.<br />

• Indirect materials: Indirect materials do not relate directly to the manufacturing process, e.g. the electricity for<br />

the printers.<br />

• Factory overhead costs: Overhead costs include costs such as rent, water and electricity, insurance and so<br />

on but does not relate directly to the production process.<br />

• Variable costs: Variable costs are expenses that change as the activities of the business change. For<br />

example, the more booklets the printing company prints, the higher the cost of the paper—the paper cost is<br />

the variable cost that changes in relation to the production output (booklets).<br />

• Fixed costs: Fixed costs remain the same regardless of how many products are manufactured or sold. For<br />

example, the rent for the printing factory will stay the same, whether 100 booklets are sold, or 1000.<br />

• Prime costs: Prime costs are the total of direct material costs, direct labor costs, and direct expenses.<br />

• Work-in-process: Work that is not yet completed, for example, the booklets that have been printed but not<br />

bound yet.<br />

2. Corporate governance SAICA Specific Competency VII “Management Design and Control”<br />

CAPS Term 1 Topic 2 “Ethics”<br />

The term ‘corporate governance’ is mentioned often in newspaper articles and news bulletins. It is becoming more<br />

and more important in South Africa and in the rest of the world.<br />

Corporate governance refers to the control measures that are in place in governments or organizations that are put<br />

in place to prevent fraud and bad business practice. We all need to run ethical businesses that are corruption free.<br />

The most important document in South Africa that relates to corporate governance is The King Report on<br />

Corporate Governance. The third version of this report was published in 2010.<br />

The King Report III recommends a variety of methods to ensure good corporate governance in companies. It sets<br />

out the role of the Board of Directors and also focuses a lot on corporate sustainability (the Triple Bottom Line<br />

concept, that we referred to in Unit 2).<br />

46 iCount Grade 10

Corporate governance is related to ethics. As we saw in Unit 1, ethics refer to the moral principles that guide a<br />

person’s or an organisation’s behavior. Ethics consist of elements such as honesty, integrity and fairness.<br />

For management to exercise good corporate governance, they must have high ethical standards. They must act<br />

responsibly and with integrity and treat all stakeholders in a morally correct way.<br />

The Board of Directors of an organization usually appoints an Audit Committee, which is responsible for corporate<br />

governance issues in the organization.<br />

Unit<br />

6<br />

3. Costing CAPS Term 3 Topic 3 “Cost <strong>Accounting</strong>”<br />

Costing refers to the process of calculating the cost of doing something. Pricing is a term that is often confused<br />

with costing. Pricing is the process of determining the price of something.<br />

Different kinds of costs are involved when a product is manufactured:<br />

Fixed costs<br />

Fixed costs are the costs that remain the same over the production process. In other words, it does not change<br />

based on the number of products that are produced. Examples of fixed costs are rent and salaries of workers.<br />

See Graph 1 below.<br />

50<br />

40<br />

30<br />

Graph 1: Fixed costs not affected<br />

by the number of units produced<br />

20<br />

10<br />

0<br />

20 40 60 80 100<br />

Variable costs<br />

Variable costs, on the other hand, change according to the number of units that are produced. For example, if<br />

the number of T-shirts that Sarah makes, increases, then the number of meters of fabric that Sarah uses for her<br />

T-shirts will also increase. See Graph 2 below.<br />

60<br />

50<br />

40<br />

30<br />

20<br />

10<br />

0<br />

20 40 60 80 100<br />

variable<br />

costs<br />

fixed costs<br />

Graph 2: Variable costs reflecting an increase in<br />

variable costs due to increased material purchases<br />

(variable line can go down, too)<br />

iCount Grade 10<br />


Unit<br />

6<br />


Direct costs<br />

Direct costs relate DIRECTLY to manufacturing the product or delivering a service. There are three types of direct<br />

costs namely direct material costs, direct labour costs and direct expenses.<br />

• Direct material costs: the fabric and sewing machines will be direct costs for Sarah’s T-shirts<br />

• Direct labour costs: e.g. the salaries and wages of the factory workers<br />

• Direct expenses: e.g. delivery costs to transport the T-shirts to the shops<br />

Indirect costs<br />

Indirect costs are the factory costs that relate to the manufacturing process. There are four kinds of indirect costs:<br />

• Indirect raw material expenses: e.g. packing material, cleaning material<br />

• Indirect labour expenses: e.g. maintenance of the sewing machines<br />

• Manufacturing machinery expenses: e.g. maintenance of the sewing machines<br />

• Manufacturing building expenses: e.g. rent, water and electricity<br />

It is important that sole traders take into account all these costs BEFORE they start manufacturing and selling their<br />

products. If the costs *exceed the price at which the product or service can be sold, it doesn’t make business<br />

sense to even start manufacturing the product.<br />

* exceed: be more than<br />

Remember: Price = Cost + Mark-up<br />

Here is an example of how Sarah can calculate the production cost of the finished T-shirts:<br />

Cost of raw materials (fabric, cotton etc) 20 000<br />

PLUS: direct wages 10 000<br />

Prime cost (raw materials + wages) 30 000<br />

PLUS: Factory overheads (eg electricity, etc) 15 000<br />


Final costs<br />

Direct costs + indirect costs = final costs, or the total cost of production.<br />

4. Budgets CAPS Term 4 Topic 1 “Budgeting”<br />

What is a budget?<br />

You’ve probably heard of budgets. In February each year the Minister of Finance presents the government’s<br />

budget. The expression to ‘stay within your budget’ is also well-known—it means that you should not spend more<br />

money than what you earn.<br />

The purpose of a budget in a business is to plan and manage the business’s finances.<br />

Why budget?<br />

One of the main advantages of a budget is that it helps the business to plan its activities so that it can achieve a<br />

profit.<br />

Management can also keep an eye on the budget (if they update it regularly) to see when any problems may arise<br />

in future.<br />

Types of budgets<br />

• Cash budget: A cash budget reflects an *estimate of all the money received and spent during a specific<br />

period.<br />

*estimate: guess / number that it more or less correct<br />

48 iCount Grade 10

What does a cash budget look like?<br />



Cash sales xx xx xx xx xx xx<br />

Rent income xx xx xx xx xx xx<br />

Receipts from debtors xx xx xx xx xx xx<br />

Unit<br />

6<br />

TOTAL RECEIPTS xx xx xx xx xx xx<br />


Cash purchase xx xx xx xx xx xx<br />

Salaries & wages xx xx xx xx xx xx<br />

Water & electricity xx xx xx xx xx xx<br />

Payments to creditors xx xx xx xx xx xx<br />

TOTAL PAYMENTS xxx xx xxx xx xxx xx<br />

Cash surplus (deficit) xx xx xx xx xx xx<br />

Bank (opening balance) xx xx xx xx xx xx<br />

Bank (closing balance) xx xx xx xx xx xx<br />

• Zero-base budget: This type of budget is used when a business prepares a new budget and does not have<br />

any previous budget to compare it with.<br />

• Capital budget: Capital budgets relate more to long-term planning than short-term planning. It deals with<br />

items such as spending on land and buildings.<br />

Budgeting process and timing<br />

Depending on WHO is preparing the budget and WHY, we can distinguish between three types of budgeting<br />

processes:<br />

• Long term budget: WHO: Top Management WHY: To make sure that the business finances run smoothly in<br />

the next few years<br />

• Medium term budget: WHO: Middle Management WHY: To make sure the business finances of a specific<br />

department run smoothly for the next year<br />


The Medium Term Expenditure Framework (MTEF) was adopted in 1998 as part of a wide package of budget<br />

reforms which included the Intergovernmental Fiscal Relations Act of 1997 (IGFRA). That year for the first time,<br />

the annual budget included 3-year spending plans. Although only the single upcoming fiscal year is voted on by<br />

Parliament each year, the government presents numbers for the following two years as well.<br />

The MTEF is a tool to encourage cooperation across ministries and planning over a longer horizon than the<br />

immediately upcoming fiscal year.<br />

http://www.idasa.org/media/uploads/outputs/files/intro2.pdf<br />

iCount Grade 10<br />


Unit<br />

6<br />


5. Debtors and creditors reconciliation CAPS Term 1 Topic 4 Internal Control; Topic 5(c)<br />

“Bookkeeping of a Sole Trader”<br />

What are debtors?<br />

The debtors of a sole trader are those people and businesses who owe the sole trader money.<br />

What are creditors?<br />

Creditors are those people and businesses that the sole trader owes money to.<br />

What is a ‘reconciliation’?<br />

When you do a reconciliation, you compare the figures in one set of accounts to the figures in another set of<br />

accounts to make sure that they match each other.<br />

Transactions with debtors and creditors<br />

When customers (individuals or other businesses) buy products or services on credit (that is, not cash) the<br />

transaction is recorded in the debtors journal.<br />

There are separate accounts for each debtor in the debtor’s ledger. These accounts contain all the details of all the<br />

transactions between each debtor and the business. It shows the total amount outstanding (the money the debtor<br />

owes to the business).<br />

Every day or month (depending on the business’ policy) the accountant<br />

or bookkeeper posts (transfers) the entries in the journal to each<br />

debtor’s individual account.<br />

When debtors pay the business, it is recorded in the cash receipts<br />

journal. If any customer returns a product for whatever reason, these<br />

returns are recorded in the debtors allowances journal.<br />

Why do we need to control debtors and creditors?<br />

The business must keep an eye on its debtors, because if they do not<br />

repay their debts, the business will lose a lot of money. When debtors<br />

do not pay their debts, these debts are known as ‘bad debts’. The<br />

debtors must also be controlled to make sure that they *comply with<br />

the business’ credit policy.<br />

*comply with: obey, stick to e.g. rules<br />

It is also important to *monitor your creditors. The business must check<br />

its creditors’ accounts to make sure that the information (such as the<br />

amount and the product or service bought) is indeed correct.<br />

*monitor: keep an eye on<br />

One of the ways in which the business controls its debtors, is by doing<br />

an age analysis.<br />

50 iCount Grade 10

Unit<br />

6<br />

6. Creditors reconciliation CAPS Term 1 Topic 4 Internal Control; Topic 5(c) “Bookkeeping of a<br />

Sole Trader”<br />

Creditors send out a statement at the end of the month, showing the transactions that were entered into as well as<br />

the amounts.<br />

For example, Sarah’s T-shirts will receive a statement from Fabric Warehouse that shows details of the fabric that<br />

Sarah bought, as well as the amounts that she owes to Fabric Warehouse:<br />



Account number: 9821662 13 May 2012<br />


Balance carried over 2012-03-31 2 880.00<br />

15m Floral stretch velour<br />

@60/m 900.00<br />

Code # 762$2<br />

20m Viscose red<br />

@28/m 560.00<br />

Code # 000876<br />

Cotton 100m 50.00<br />

8 bottles Orca Fabric Paint @17.00/each 136.00<br />

Sub-total 1 646.00<br />

VAT @ 14% 230.40<br />

TOTAL 4 756.44<br />

Payment received 2012-04-08 2 000.00<br />

TOTAL DUE 2 756.44<br />

Sarah would have entered the same details into her Creditor’s Ledger Account. She will have a separate account<br />

for Fabric Warehouse in the Creditor’s Ledger.<br />

She must now compare the details on this statement to the details in her Creditor’s Ledger Account.<br />

• Compare the debit column of the statement to the credit column in the Creditor’s Ledger Account.<br />

• Compare the credit column of the statement to the debit column in the Creditor’s Ledger Account.<br />

If there are any differences between the statement received from Fabric Warehouse and Sarah’s Creditor’s Ledger<br />

Account, she must contact Fabric Warehouse and find out why the error occurred. Perhaps the amounts were<br />

not added up correctly, some transactions may have been entered twice, or perhaps not at all. The error can be<br />

in Sarah’s records, or in Fabric Warehouse’s records. These errors will be corrected by entering it in the general<br />

journal.<br />

iCount Grade 10<br />


Unit<br />

6<br />

Debtors & Creditors Reconciliation<br />

1. Interview a sole trader and ask him / her to complete the following questionnaire:<br />

a) What is the main product / service that you sell?<br />

b) What are your main expenses?<br />

c) Which raw materials do you use?<br />

d) Do labour costs form a big part of your expenses?<br />

e) How do you determine your selling prices?<br />

f) Do you keep a large inventory?<br />

2. Explain the difference between the following terms:<br />

• Costing vs Pricing<br />

• Ethics vs Corporate governance<br />

• Creditors vs Debtors<br />

• Fixed costs vs variable costs<br />

CAPS Term 1 Topic 4 Internal Control; Topic 5(c) “Bookkeeping of a Sole Trader”; CAPS Term 3<br />

Topic 3 “Cost <strong>Accounting</strong>”; CAPS Term 1 Topic 2 “Ethics”<br />

3. Give examples of all the following concepts from Sarah’s T-shirts:<br />

• Direct labour in Sarah’s T-shirts will be……..<br />

• Indirect labour in Sarah’s T-shirts will be……...<br />

• Direct materials (raw materials) in Sarah’s T-shirts will be……<br />

• Indirect materials in Sarah’s T-shirts will be…….<br />

• Factory overhead costs in Sarah’s T-shirts will be……..<br />

• Prime cost in Sarah’s T-shirts will be……….<br />

• Variable costs in Sarah’s T-shirts will be………<br />

• Fixed costs in Sarah’s T-shirts will be……….<br />

• Work-in-process in Sarah’s T-shirts will be………..<br />

CAPS Term 1 Topic 3<br />

4. Complete the following sentences: When doing a creditor’s reconciliation, we …<br />

• compare the debit column of the statement to the ………….. column in the Creditor’s Ledger Account.<br />

• compare the credit column of the statement to the debit column in the ………… Account.<br />

CAPS Term 1 Topic 4 Internal Control; Topic 5(c) “Bookkeeping of a Sole Trader”<br />

5. What are the advantages of doing a debtor’s and creditor’s reconciliation?<br />

CAPS Term 1 Topic 4 Internal Control; Topic 5(c) “Bookkeeping of a Sole Trader”<br />

6. What are the advantages of drawing up a budget?<br />

CAPS Term 4 Topic 1 “Budgeting”<br />

7. Draw up a cash budget for Sarah’s T-shirts for the next 3 months. (Use your own figures.)<br />

CAPS Term 4 Topic 1 “Budgeting”<br />

52 iCount Grade 10

8. Manufacturing Scenario:<br />

The business, Sarah’s T-shirts, also produces school-designed T-shirts<br />

developed by learners during Life Orientation periods. The T-shirt is meant to be<br />

comfortable and also stylish to attract learners. Sarah is using a fabric made from cotton and<br />

uses special buttons on the T-shirts. It takes three people to complete one T-shirt. One person cuts the<br />

material; the other worker uses a sewing machine to put together the T-shirt and the last person manually<br />

sews the loose parts together to complete the product. The business has also employed Mr Smith who<br />

supervises the workers and Mr Harris who works as a security guard.<br />

The business rents a building and pays water and electricity service costs. The factory sewing machine<br />

depreciates at a rate of 10% per annum.<br />

• List and define cost concepts.<br />

• Provide examples from the scenario that matches each of the cost concepts.<br />

9. Debtors’ reconciliation:<br />

Provide learners with the following, incorrect, Debtors Control Account and ask them to rearrange the<br />

account correctly in 5 to 8 minutes.<br />

General ledger of Sarah’s T-shirt<br />

Balance sheet section<br />


July 1 Balance b/d 73 080 July 31 Bank CRJ 105 600<br />

31 Discount allowed CRJ 720 Sales DJ 97 400<br />

Debtors allowance DAJ 2 170 Petty Cash PCJ 600<br />

List of Debtors on 31 July 2011<br />

DEBIT<br />

CREDIT<br />

R. Mchunu 12 550 550<br />

P. Ndwanbe 30 170<br />

S. Fubi 20 005<br />

D. Verster 2 200<br />

64 925 550<br />

Adjustments<br />

• The credit balance in R. Mchunu’s account must be used to reduce his debt.<br />

• Transportation for goods, sold to P. Ndwambe was paid from petty cash and correctly recorded in the<br />

Debtors control account but not recorded in the debtors’ ledger.<br />

• Credit sales to S. Fubi of R665 were recorded only in his account but were not posted to the Debtors<br />

control account.<br />

• Debtors allowance column as per debtors allowance journal is R2 260.<br />

• The insolvent estate of debtor D. Verster, who owed R2 200, paid 20 cents in a rand. A cheque for the<br />

amount was received and recorded correctly. No other entry has been made.<br />

Unit<br />

6<br />

iCount Grade 10<br />


Unit 1<br />

1.<br />

<strong>Accounting</strong> term/concept<br />

Sole trader<br />

Journal<br />

Financial Statements<br />

Income/Revenue<br />

Capital<br />

Assets<br />

Liabilities<br />

Equity<br />

Profit<br />

Discounts<br />

Perpetual inventory system<br />

2. The accounting cycle<br />

Example from Sarah’s business<br />

Sarah<br />

A book in which she writes down all her<br />

receipts<br />

Her accounts of income and expenses<br />

The money she receives from customers who<br />

buy the T-shirts<br />

The amount by which Sarah’s income is more<br />

than her expenses / the sewing machines,<br />

fabric etc that she uses to make the T-shirts<br />

Sewing machines, cash register, fabric, cotton<br />

etc<br />

Loans she took from a bank/factory rent<br />

The money Sarah invested in her business plus<br />

all the profits<br />

Because her income is more than her<br />

expenses, she makes a profit<br />

She gives discounts to customers who buy<br />

more than 10 T-shirts ate a time; they pay 10%<br />

less<br />

Every time she sells a T-shirt, her computer<br />

system records it and the inventory numbers<br />

are adjusted to show the new number of items<br />

for sale that is available<br />

1. If Sarah does this, she would act in an unethical manner. She will<br />

basically ‘steal’ the money from the government when she hides it. She<br />

must always show all her income to SARS. (Some learners may feel<br />

that this conduct is indeed acceptable—guide them to see the ethical<br />

implications.)<br />

2. Honesty and integrity: Must be honest and not lie, do their work with<br />

pride; Professional excellence: They must perform their work the best<br />

they can and think of solutions to challenges all the time; Respect: they<br />

must have respect for other accountants’ skills and knowledge and not<br />

badmouth them to clients; Fairness that builds trust: accountants must<br />

make fair decisions so that clients and other accountants know that<br />

they can trust them; Collaboration: they must work together with other<br />

accountants and clients; Non-discrimination: they must be fair to all people<br />

and give them equal opportunities.<br />

3. (a) Assets = Owner’s Equity + Liabilities; or Owner’s Equity = Assets –<br />

Liabilities<br />

(b) For example: Sarah’s T-shirts has more assets than liabilities. Assets =<br />

R80 000 and liabilities are R38 000. What is the equity of Sarah’s T-shirts?<br />

Owner’s Equity = Assets – Liabilities = R80 000 – R38 000 = R42 000<br />

4. Learners’ own work; will differ according to interviews. Teachers<br />

may also arrange for a few small traders to visit the school so that the<br />

learners can interview them there. Make sure that learners state at last 2<br />

advantages and 2 disadvantages and that they motivate their opinions.<br />

5. sales invoice, cheque counterfoil, debit note, credit note, petty cash<br />

voucher, etc<br />

6. Across: 4 financial accounting; 6 credit; 7 general ledger;<br />

Down: 1 human resources; 2 sole trader; 3 debit; 5 inventory<br />

Unit 2<br />

1. Most business worldwide follows GAAP. Yes, she should follow GAAP,<br />

as she can then compare her accounting with that of other businesses; OR<br />

no, it is not necessary, her business is too small.<br />

2. Yes, because it is a big business and they have to compete in<br />

international markets.<br />

3. Learners’ own ideas, e.g. the business can compare its accounts to that<br />


of other businesses; customers and shareholders will see that the business<br />

is serious about its accounting; the business is on the same standard as<br />

other international businesses; the business can keep track of its accounts<br />

by using an international standard, etc.<br />

4. 1. E; 2. D; 3. F; 4. B; 5. A; 6. C<br />

1. The main objective of this GAAP framework is to make sure that the<br />

information that accountants record and report on, is relevant, reliable and<br />

comparable. The principle of prudence also relates to ethical behaviour—in<br />

other words, accountants must report in a way that is reliable, honest,<br />

responsible and matches an international standard (GAAP). Learners may<br />

also draw a picture where the values overlaps, eg<br />

2. There must be procedures in place to limit theft, for example, making<br />

sure that petty cash vouchers are signed whenever any worker removes<br />

petty cash from the petty cash box to buy tea, coffee etc. There must be<br />

only one petty cash box in the business, and Sarah must count the money<br />

regularly to check. At the end of the month, Sarah checks all the cash<br />

slips of all the items bought from the petty cash. She then puts back that<br />

amount that was spent during the month into the petty cash box, which<br />

means that the pretty cash imprest is brought back to the original imprest<br />

amount.<br />

3. Assets are debited:<br />

ASSETS<br />

Dr___________________________________________________Cr<br />

+ -<br />

Dr Increase if debited<br />

Liabilities are credited:<br />


Dr___________________________________________________Cr<br />

- +<br />

Increase if credited<br />

Owner’s equity is debited:<br />

OWNER’S EQUITY (Works the same as Liabilities)<br />

Dr___________________________________________________Cr<br />

- +<br />

Decrease if debited<br />

4. • GAAP stands for General Accepted <strong>Accounting</strong> Practice • Petty cash<br />

imprest refers to a fixed amount that is put in the petty cash box every<br />

month • Ethical values are related to peoples values and how people see<br />

concepts such as right and wrong and good and evil e.g. honesty, integrity,<br />

respect, fairness, etc. • Going concern stands for a business that keeps on<br />

doing functioning and does not plan or is not in the danger to close down<br />

or be liquidated........ • Reasonable assurance is a statement that it is not<br />

possible to say with certainty that something will or will not happen.<br />

5. Assets are the properties or belongings of the business; Owners’ equity<br />

represents the interest of the owner in the business; Liabilities are the<br />

obligations/debts of the business; <strong>Accounting</strong> equation:<br />


Land and buildings Capital-(+) Mortgage bond<br />

Equipment Drawings(-) Trade creditors<br />

Vehicles Income (+)<br />

a) Discount received<br />

Fixed deposit<br />

b) Rent income<br />

c) Interest income<br />

Sales<br />

Trading stock<br />

Trade debtors<br />

Bank/Cash<br />

Cash float<br />

Petty Cash<br />

GAAP:<br />

prudence, set<br />

standard that<br />

organisations<br />

can compare<br />

against,<br />

reliability<br />

Ethics:<br />

honesty,<br />

integrity,<br />

responsibility<br />

Expenses(-)<br />

a) Stationery<br />

b) Bad debts<br />

c) Wages/Salaries<br />

d) Repairs<br />

e) Rates etc<br />

Cost of sales<br />

Bank overdraft<br />

Short term loan<br />

54 iCount Grade 10

6.<br />

No<br />

Source<br />

document<br />

1 Original<br />

invoice<br />

2 Duplicate<br />

invoice<br />

3 Cheque<br />

counterfoil<br />

4 Petty cash<br />

voucher<br />

5 Duplicate<br />

receipt<br />

6 Cheque<br />

counterfoil<br />

7 Journal<br />

voucher<br />

8 Bank<br />

statement<br />

Journal<br />

Account<br />

debited<br />

Account<br />

credited<br />

Amount<br />

Asset Owner’s<br />

equity<br />

Liabilities<br />

700 + 0 +<br />

CJ Material<br />

stock<br />

Creditors<br />

control<br />

DJ Debtors Sales 300 + + 0<br />

control<br />

Cost of Trading 240 - - 0<br />

sales stock<br />

CPJ Rent Bank 400 - - 0<br />

expenses<br />

PCJ Drawings Petty 100 - - 0<br />

cash<br />

CPJ Creditors Bank 560 - 0 -<br />

control<br />

CPJ Stockmaterial<br />

Bank 855 +/- 0 0<br />

GJ Bad debts Debtors 300 - - 0<br />

control<br />

CPJ Bank Bank 30 - - 0<br />

charges<br />


1) Solvency a) Net assets<br />

b) Solvency<br />

2) Liquidity a) Current ratio<br />

3) Return on<br />

equity<br />

b) Acid-test ratio<br />

Total assets-Total liabilities<br />

=950 000-310 000<br />

=640 000<br />

Total assets: Total liabilities<br />

=950 000: 310 000<br />

= 3.06: 1<br />

Current assets :Current<br />

Liabilities<br />

=80 000: 40 000<br />

= 2: 1<br />

Current assets-stock :<br />

Current liabilities<br />

=(80 000-30 000): 40 000<br />

= 1.25: 1<br />

a) Return on equity Net profit/Average<br />

equity*100<br />

= 49 000/644 500 *100/1<br />

=7.6%<br />

Unit 3<br />

1. Human resources: Cleaners, workers who make T-shirts, Capital<br />

resources: sewing machines, factory building, Inventory: stock of<br />

completed T-shirts, fabric in the storeroom, Natural resources: water,<br />

energy (electricity)<br />

2. Learners own ideas, e.g. May run out of natural resources eg water,<br />

electricity may be disconnected if not paid; labour unrest by workers,<br />

workers may resign if not happy; not enough fabric to make T-shirts,<br />

or inventory of T-shirts to sell; sewing machines will not work if not<br />

maintained, which means no production, etc.<br />

1. Learners’ own answers, e.g. Draw up reconciliation statements ;<br />

Internal control measures; segregation of duties; make sure all transactions<br />

are authorised; keep proper records of all transactions; prevent theft by<br />

employees and others e.g. security cameras, ensure proper supervision,<br />

train staff in ethics, IT: make sure computers have passwords.<br />

2.<br />


1) Profitability a) Gross profit percentage<br />

on sales<br />

b) Gross profit % on cost<br />

of sales<br />

c) Operating expenses on<br />

sales<br />

d) Operating profit on sales<br />

e) Net profit on sales<br />

Gross Profit/Sales*100/1<br />

=179 000/895 000*100<br />

=20%<br />

Gross Profit/Cost of<br />

sales*100/1<br />

=179 000/716 000*100<br />

=25%<br />

Operating expenses/<br />

sales*100/1<br />

=174 000/895 000*100<br />

=17.7%<br />

Operating profit/<br />

sales*100/1<br />

=58 000/895 000*100<br />

=6.5%<br />

Net profit/Sales*100/1<br />

=49 000/895 000*100<br />

=5.5%<br />

3.<br />

current ratio<br />

net profit<br />

balance sheet<br />

reconciliation statement<br />

gross profit<br />

4. Income statement format<br />



Sale for the year<br />

Cost of sales<br />



X<br />

X<br />

X<br />



X<br />

X<br />

X<br />

X<br />

X<br />


Interest Income<br />



Interest expense / finance cost<br />


current assets ÷ current liabilities<br />

difference between income from selling the<br />

product and ALL the business’s expenses<br />

shows the financial position of a business on a<br />

specific day<br />

compare personal and bank records<br />

difference between income from selling the<br />

product and the expenses to make a product<br />

Note R R<br />

xxx<br />

xxx<br />

xxx<br />

xxx<br />

xxx<br />

(xxx)<br />

xxx<br />

xxx<br />

xxx<br />

(xxx)<br />

xxx<br />

xxx<br />

xxx<br />

(xxx)<br />

xxx<br />

5. interest income: income earned on investments, positive balances<br />

in savings accounts at bank, interest paid by debtors on accounts<br />

receivable, etc; interest expense: interest paid on loans from bank, interest<br />

paid on accounts payable to suppliers, etc<br />

iCount Grade 10<br />



6. Balance sheet format:<br />



Note<br />

ASSETS xxx xx<br />


Tangible assets<br />


Fixed deposit<br />

CURRENT ASSETS xxx xx<br />

Inventory<br />

Trade and other receivables<br />

Cash and cash equivalents<br />

TOTAL ASSETS xxx xx<br />


OWNER’S EQUITY xxx xx<br />

Capital<br />


Mortgage loan<br />


Trade and other receivables<br />

Bank overdraft<br />

Short-term loan<br />


7. Notes to the annual financial statement<br />

Tangible asset<br />

Land and<br />

buildings<br />

R<br />

Vehicle Equipment Total<br />

Cost price xxxxx xxxxx xxxxx xxxxx<br />

Accumulated depreciation (xxxx) (xxxx) (xxxx)<br />

Book value/carrying valuebeginning<br />

of the year<br />

xxxx xxxx xxxx xxxx<br />

Movements<br />

Additions at cost xxxx xxxx xxxx xxxx<br />

Disposal at carrying value (xxx) (xxx) (xxx) (xxx)<br />

Depreciation for the year (xx) (xx) (xx) (xx)<br />

Book value/carrying valueend<br />

of the year<br />

xxxx xxxx xxxx xxxx<br />

Cost price xxxxx xxxxx xxxxx xxxxx<br />

Accumulated depreciation (xxxx) (xxxx) (xxxx) (xxxx)<br />

Trade and other receivable<br />

Trade debtors<br />

Accrued income<br />

Expenses prepaid<br />

xxx<br />

xx<br />

x<br />

xxxxxx<br />

Owner’s Equity<br />

Balance—beginning of the year<br />

Net profit/(loss) for the year<br />

Drawing for the year<br />

Trade and other payables<br />

Trade creditors<br />

Income received in advance<br />

Accrued expenses<br />

xxx<br />

xx<br />

x<br />

xxxxxx<br />

xxx<br />

xx<br />

x<br />

xxxxxx<br />

8. Learners’ own answers, e.g. the company should talk to their<br />

stakeholders; keep their word, act ethically even though the law doesn’t<br />

force them to; spend the necessary money to rehabilitate (restore) the area<br />

where they have mined, etc<br />

Unit 4<br />

1.<br />

Adjustment Account debit Fol Account credit Fol<br />

Accrued income Accrued income B Income N<br />

Accrued expenses Expense N Accrued expense B<br />

Prepaid expenses Prepaid expenses B Expense N<br />

Income received in<br />

advance<br />

Income n Income received in<br />

advance<br />

B<br />

Consumable stores<br />

on hand<br />

Consumable stores<br />

on hand<br />

B Expense (eg fabric) N<br />

Trading stock deficit Trading stock deficit N Trading stock B<br />

Depreciation Depreciation N Accumulated<br />

depreciation<br />

(eg on sewing<br />

machine)<br />

B<br />

2. Net sales = Sales – Debtors Allowances; Net Profit = Income – All<br />

Expenses; Gross Profit = Sales – Cost of Sales<br />

3.<br />

Dr<br />

20XX<br />

feb<br />

28 All expenses<br />

account<br />

Capital (net<br />

profit)<br />

4. Cost price method<br />

GJ<br />

GJ<br />

20XX<br />

feb<br />

28 Trading<br />

account<br />

(gross profit)<br />

All income<br />

accounts<br />

Date Cost price Depreciation Accumulated<br />

depreciation<br />

GJ –<br />

Cr<br />

Book value/<br />

carrying value<br />

30 June 2007 R30 000 R6 000 R6 000 R24 000<br />

30 June 2008 R6 000 R12 000 R18 000<br />

30 June 2009 R6 000 R18 000 R12 000<br />

30 June 2010 R6 000 R24 000 R6 000<br />

30 June 2011 R6 000 R30 000 R 1<br />

Diminishing balance method<br />

Date Cost price Depreciation Accumulated<br />

depreciation<br />

Book value/<br />

carrying value<br />

30 June 2007 R30 000 R6 000 R6 000 R24 000<br />

30 June 2008 R4 800 R10 800 R19 200<br />

30 June 2009 R3 840 R14 640 R15 360<br />

30 June 2010 R3 072 R17 712 R12 288<br />

30 June 2011 R2 457,60 R20 169,60 R 9 830,40<br />

56 iCount Grade 10

Unit 5<br />

1. Learners’ own answers, they must focus on ethical conduct and the fact<br />

that he is committing a criminal offence by evading tax payments.<br />

2. Learners’ own answers e.g. to distribute the tax load more evenly, to<br />

collect more tax<br />

1. R280; • Amount inc VAT: R2 000 + R280 (14% of R2 000) = R2 280<br />

• Amount excl VAT: R2 000 • Vat amount: R280 • Payable to SARS: R280;<br />

R240 – R180 = R60; R242.40; R 262.40; Amount inc VAT: R262.40;<br />

Amount excl VAT: R262.40 – 14% (R36.73) = R225.67; Vat amount:<br />

R36.73<br />

2. South African Revenue Service; The VAT that a registered vendor<br />

pays on goods and services he or she buys; Pay As You Earn, tax that<br />

employers deduct from employees’ salaries; Secondary tax on companies;<br />

Illegal ways to not pay tax that is payable to SARS; Salary before any<br />

deductions are made; Legal ways to pay less tax<br />

3. children’s school fees; salaries to Sarah’s domestic worker<br />

4. Learner’s own answers, check for completeness and that all deductions<br />

are reflected in the salary journals.<br />

Unit 6<br />

1. Learners’ own answers; you may invite a sole trader or two to the class<br />

for a group interview.<br />

2. • Costing = calculating the cost of doing something. Pricing =<br />

determining the price of something. • Ethics = moral principles that<br />

guide a person’s or an organisation’s behavior e.g honesty, integrity and<br />

fairness. Corporate governance = the control measures that are in place in<br />

governments or organizations that are aimed at preventing fraud and bad<br />

business practice • Creditors = people and businesses that the sole trader<br />

owes money to. Debtors = people and businesses who owe the sole<br />

trader money. • Fixed costs remain the same over the production process;<br />

does not change based on the number of products that are produced.<br />

Variable costschange according to the number of units that are produced<br />

3. • Direct labour in Sarah’s T-shirts will be the salaries she pays her<br />

workers who make the T-shirts • Indirect labour in Sarah’s T-shirts will be<br />

the ages of the garden worker • Direct materials (raw materials) in Sarah’s<br />

T-shirts will be costs of the fabric she uses • Indirect materials in Sarah’s<br />

T-shirts will be electricity for the sewing machines • Factory overhead costs<br />

in Sarah’s T-shirts will be rent, water and electricity, etc. • Prime cost in<br />

Sarah’s T-shirts will be total of direct material costs, direct labor costs, and<br />

direct expenses. • Variable costs in Sarah’s T-shirts will be the cost of the<br />

fabric (changes according to number of units produced) • Fixed costs in<br />

Sarah’s T-shirts will be rent for the factory, salaries etc (stays the same no<br />

matter how many units are produced) • Work-in-process in Sarah’s T-shirts<br />

will be T-shirts that have not been completed yet.<br />

4. • compare the debit column of the statement to the CREDIT column<br />

in the Creditor’s Ledger Account. • compare the credit column of the<br />

statement to the debit column in the CREDITOR’S LEDGER Account.<br />

5. Debtors: Keep an eye on your debtors, because if they do not repay<br />

their debts, the business will lose a lot of money, make surev the debtors<br />

accounts are not too long overdue; must also make sure that transactions<br />

with debtors comply with the business’ credit policy. Creditors: Check<br />

creditors’ accounts to make sure that the information (such as the amount<br />

and the product or service bought) is indeed correct and matches the<br />

information on your business bank statements.<br />

6. Helps to plan the business’ activities so that it can achieve a profit; keep<br />

an eye on the budget to see when any problems may arise in future, for<br />

example, if sales are not reaching the targets that the business sets. Also<br />

learners’ own ideas.<br />

7.<br />



Cash sales xx xx xx xx xx xx<br />

Rent income xx xx xx xx xx xx<br />

Receipts from debtors xx xx xx xx xx xx<br />

TOTAL RECEIPTS xx xx xx xx xx xx<br />


Cash purchase xx xx xx xx xx xx<br />

Salaries & wages xx xx xx xx xx xx<br />

Water & electricity xx xx xx xx xx xx<br />

Payments to creditors xx xx xx xx xx xx<br />

TOTAL PAYMENTS xxx xx xxx xx xxx xx<br />

Cash surplus (deficit) xx xx xx xx xx xx<br />

Bank (opening<br />

xx xx xx xx xx xx<br />

balance)<br />

Bank (closing balance) xx xx xx xx xx xx<br />

** Learners must use figures in columns. Make sure that figures used add<br />

up and that transactions balance.<br />

8. • Direct material costs are costs that form a basic part of the final<br />

product that is being manufactured. (fabric) • Indirect material costs are<br />

costs that do not directly relates to the manufacturing process. (buttons)<br />

• Direct labour costs are costs that relates to the remuneration of workers<br />

directly involved in the production. (Three workers) • Indirect labour costs<br />

are costs that relates to the remuneration of those workers not involved<br />

in the production process. (Supervisor and security guards) • Factory<br />

overheads are costs that do relate directly to the production process.<br />

(Supervisor, security guard, rent, water and electricity and depreciation)<br />

• Prime costs consists of direct material costs and direct labour costs.<br />

(fabric and three workers) • Fixed costs are costs that remain the same<br />

regardless of the number of units produced. • Variable costs are costs that<br />

changes as the activities of the business changes.<br />

9. General ledger of Sarah’s T-shirt<br />

Balance sheet section<br />


July 1 Balance b/d 73 080 July 31 Bank CRJ 105 600<br />

31 Sales (97 DJ 98 065 Discount DJ 720<br />

400+665)<br />

Petty<br />

Cash<br />

Sundry<br />

accounts<br />

Aug 1 Balance b/d 62 775<br />

PCJ 600 Debtors<br />

allowance<br />

(1 300 + 2<br />

200)<br />

DAJ 2 080<br />

GJ 2 930 Sundry GJ 1 300<br />

accounts<br />

(1 300 + 2<br />

200)<br />

Balance c/d 62 775<br />

174 675 174 675<br />

List of Debtors on 31 July 2011<br />

DEBIT<br />

R. Mchunu (12 550-550) 12 000<br />

P. Ndwanbe (30 170+ 600 30 770<br />

S. Fubi 20 005<br />

D. Verster (2 200 - 2 200) 0<br />

62 775<br />


iCount<br />

GRADE<br />


in the FET classroom<br />

10<br />

This is a supplementary resource, developed to<br />

assist teachers and learners in the FET <strong>Accounting</strong><br />

classroom. The core concepts are provided in real-life<br />

contexts, and aligned to the CAPS document and the<br />

national curriculum for South African schools.

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