Accounting Grade10

FINANCIAL
EDUCATION
DEVELOPED
FOR CAPS
ACCOUNTING IN FET
CLASSROOMS
SUPPORTING
ACCOUNTING
in the FET classroom

Acknowledgements
This project is a consumer education initiative by the South African Insurance Association, in collaboration with the National and Provincial
Departments of Basic Education.
© 2013 South African Insurance Association.
This resource file is a package with the teacher training provided for teachers of Accounting Grade 10–12.
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
financial education for the classroom, a poster and teacher training workshops facilitated by Bright Media.
All rights reserved.
Copies may be made for educational use only with acknowledgement.
Additional copies and information may be acquired at the contact details below:
Contact SAIA
PO Box 5098
Weltevreden Park 1715
www.saia.co.za
Project developed by the South African Insurance Association and funding provided by members of the
South African Insurance Association.
Developed in collaboration with the Department of Basic Education.
Designed, developed and published by Bright Media.
ISBN 978-0-9814322-0-5

Grade
10
Contents
Unit 1: Financial Management.......................................................................................................................3
Unit 2: Accounting and External Reporting..................................................................................................10
Unit 3: Strategy and Risk............................................................................................................................19
Unit 4: Auditing, Assurance and Preparing Final Accounts..........................................................................28
Unit 5: Income and Taxation.......................................................................................................................36
Unit 6: Management Design and Control....................................................................................................45
Answer Sheet............................................................................................................................................54
Welcome to iCount, a financial capability project developed for the CAPS curriculum for Accounting Grade 10.
This project includes this resource for Grade 10, Grade 11 and 12, an entertaining and educational DVD which incudes 26 episodes of
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
Accounting in your classroom, as well as a colourful poster to add to your classroom wall.
We trust that you will find these resources a useful addition to your teaching of Accounting in the FET phase. We hope your learners will
develop the skills knowledge and values for the subject, specifically for the new CAPS focus for the curriculum.
In this booklet, we are merging three content guidelines:
1. SAIA (financial competences) with a focus on broad and lifelong financial literacy and competencies for consumers.
2. The Curriculum—CAPS (school focus) the new, focused school curriculum guidelines for what teachers need to do with learners in
financial subject classrooms.
3. SAICA Competency Framework 2008 (higher competence). We have identified the guidelines of the financial industry with regard to
what they need from industry at tertiary level.
This booklet on the subject of Accounting will provide the opportunity to develop depth of knowledge, skill and change those core
behaviours in students that will provide key intervention in building a knowledgeable consumer base. In addition, each unit contains
integrated and graded activities, deepening from awareness to full implementation of the knowledge gained.
What is Accounting?
Accounting focuses on measuring performance and processing and communicating financial information about economic sectors. The
discipline ensures that principles such as ethical behaviour, transparency and accountability are adhered to. It deals with the logical,
systematic and accurate selection and recording of financial information and transactions, as well as the compilation, analysis, interpretation
and communication of financial statements and managerial reports for use by interested parties.
The subject encompasses accounting knowledge, skills and values that focus on the financial accounting, managerial accounting and
auditing fields. These fields cover a broad spectrum of accounting to prepare learners for a variety of career opportunities.
Accounting learners will be able to:
• Record, analyse and interpret financial and other relevant data in order to make informed decisions
• Present and/or communicate financial information effectively by using generally accepted accounting practice in line with current
developments and legislation
• Develop and demonstrate an understanding of fundamental accounting concepts
• Relate skills, knowledge and values to real-world situations in order to ensure the balance between theory and practice, to enter the
world of work and/or to move to higher education, and to encourage self-development
• Organise and manage own finances and activities responsibly and effectively
• Apply principles to solve problems in a judicious and systematic manner in familiar and unfamiliar situations, thus developing the ability
to identify and solve problems in the context of the various fields of Accounting
• Develop critical, logical, and analytical abilities and thought processes to enable learners to apply skills to current and new situations
• Develop the following characteristics: ethical behaviour, sound judgement, thoroughness, orderliness, accuracy and neatness
• Deal confidently with the demands of an accounting occupation manually and/or electronically
iCount Grade 10
1

Time allocation for Accounting in the curriculum
The teaching time for Accounting is 4 hours per week, per grade on the timetable, that is, for Grade 10, 11 and 12.
Weighting of Curriculum
Financial Accounting
(weighting 50% to 60%)
Managerial Accounting
(weighting 20% to 25%)
Managing Resources
(weighting 20% to 25%)
Topic
1. Accounting concepts
2. GAAP principles
3. Bookkeeping
4. Accounting equation
5. Financial accounts and financial statements
6. Salaries and wages
7. Value-Added Tax
8. Reconciliations
9. Cost accounting
10. Budget
11. Indigenous bookkeeping systems
12. Fixed assets
13. Inventory
14. Ethics
15. Internal control
Requirements to offer Accounting as a subject
Providing the resources to offer Accounting as a subject are the responsibility of the school.
1. Each learner should have a textbook, accounting stationery and a calculator
2. The teacher should have: a) A variety of textbooks for reference; b) Policies, e.g. summary of King Code III; c) Partnership agreement;
d) Legislation, e.g. Companies Act, 71 of 2008; e) Codes of professional bodies, e.g. SAICA and SAIPA Codes; f) SARS brochures;
g) Bank brochures
iCount uses the Adult Financial Capability Framework, developed internationally, that reflects the process model; three broad elements of
financial capability and, in so doing, begins to specify what it is that financial capability enables individuals to do.
• Financial knowledge and understanding: This is the ability to make sense of and manipulate money in its different forms, uses and
functions. Financial knowledge and understanding allows people to acquire the skills they need to deal with everyday financial matters
and make the right choices for their needs.
• Financial skills and competence: This is the ability to apply knowledge and understanding across a range of contexts including both
predictable and unexpected situations. Financial skills and competence makes available to people the necessary skills to allow them to
plan, monitor, manage and resolve any financial problems or opportunities.
• Financial responsibility: This is the ability to appreciate the wider impact of financial decisions on personal circumstances, the family
and the broader community, and to consider the social and ethical issues. Financial responsibility enables people to understand and
appreciate their rights and responsibilities. They understand the need and have the right skills and attitudes to plan, analyse, decide,
evaluate and monitor financial decisions and choices. They understand the various sources of advice and guidance available. The
content we will develop will specify three levels of capability.
• Basic understanding and developing confidence, aimed at those adults who have a low level of understanding and who require
the skills to make informed judgements concerning their finances, and the ability to use appropriate financial services.
• Developing competence and confidence, aimed at those who have a basic understanding and competence in handling financial
services, and who require more knowledge and skills to meet their needs.
• Extending competence and confidence, aimed at those who require the skills and knowledge to understand the wider range of
services and the ability to make informed decisions regarding their own personal and community circumstances.
This booklets aligns to a national need as well as the industry needs for skilled, competent new entrants into the insurance and other
financial sectors. This is a direct boost for the industry, as the skills and knowledge gained by Grades 10–12 are immediately available to
school leavers, who will become critical and knowledgeable consumers who can make better financial choices in their lives. In addition to a
more skilled consumer base, those who move into tertiary studies will be more skilled, and have more access to the required knowledge of
financial subject matter.
iCount provides teachers with a ready-to-use resource containing units of content that provide lessons to use in the Accounting classroom.
Suggestion:
• Use the DVD episodes to introduce your lessons
• Teach using the activities and lessons as part of your Accounting lessons
• Watch the DVD episodes with your learners after you have completed a concept and section, as revision of key concepts.
Best wishes for making iCount part of your Accounting classroom.
2 iCount Grade 10

Financial Management
Unit
1
In this unit
• What is financial management.............................. 4
• Basic accounting concepts.................................. 4
• Transactions......................................................... 4
• Perpetual Inventory System.................................. 5
• Accounting documents........................................ 6
• Bookkeeping formal and informal......................... 7
• Ethics................................................................... 8
iCount Grade 10
3

Unit
1
SEQUENCE OF ACTIVITIES
1. What is financial management? SAICA Specific Competency V
Managing your finances is an important life skill, for your own life, and for your business. In a business, a number of
business functions can be found. Financial management is one of those business functions, also called functional
areas.
The main task of financial management is to
make sure that there is money available to
run the business.
Financial management includes:
• financial planning and budgeting
• financial accounting
• financial analysis
• financial decision-making and action
INFORMATION
TECHNOLOGY
HUMAN
RESOURCES
The accountant in a business has to
understand the whole business, as the
work of the accountant relates to all the
business functions. For example:
• Information Technology—spending
money on the most appropriate
information technology, e.g. computer
software
• Operations / production—the
most cost-effective way of producing
products or providing services
• Research & Development—how
much money is spent on research and
development to help the organisation
stay on top of the latest developments
• Finance—prepare budgets, choose
investment opportunities
• General management—overseeing all functions
• Human resources—how much money is spent on salaries, wages and benefits such as medical aid, housing,
and other deductions
2. Basic accounting concepts CAPS: Term 1, Topic 3 “Financial Accounts of a sole trader”
In Grade 9, you were introduced to a number of terms and concept that relate to accounting. See how many of the
following you can remember (see the poster to check your terminology!).
3. Transactions
FINANCE
OPERATIONS /
PRODUCTION
MARKETING
Many transactions are made in a business—sales, stock purchase, insurance, financial services or salary
payments.
If transactions are not well organised, the information they provide to your business is of no business use.
If transactions are well organised the data, or information, can be very useful to the business.
GENERAL
MANAGEMENT
RESEARCH &
DEVELOPMENT
4
iCount Grade 10

Accounting Terms & Cycles
Unit
1
1. Sarah is the owner of her own small business. She makes and paints T-shirts for people in
different designs. For each of the following accounting concepts, give an example from Sarah’s business
(have fun and make up your own examples!). Write your example in the 2nd column of the table.
Accounting term / concept
Sole trader
Journal
Financial statements
Income/Revenue
Capital
Assets
Liabilities
Equity
Profit
Discounts
Perpetual inventory system
Example from Sarah’s business
2. Remember the work you did in Grade 9?
Draw a picture to illustrate the accounting cycle.
4. Perpetual inventory system
CAPS: Term 1 Topic 5(b): “Bookkeeping of a sole trader”
As you learnt in Grade 9, a business can use one of two methods to account
for the stock (inventory) it holds to sell:
• Perpetual inventory system
• Periodic inventory system
‘stock’ count = ‘inventory’ (verb): the action—to do a stock count / to do an inventory
‘stock’ can also mean ‘inventory’ (noun): the thing—the stock / to count the inventory
The perpetual inventory system updates the inventory quantities continuously, as stock is sold or purchased. In
other words, records are kept of the quantity and usually also of the cost of every item as they are bought or sold.
The Inventory Subsidiary Ledger is updated after each transaction.
The trading stock account in the General Ledger that we use with the perpetual inventory system indicates
the amount of stock that should be available for sale.
• The cost of each item that is bought is recorded in the merchandise inventory account as soon as it is
purchased.
• When merchandise is sold, its cost is transferred from the merchandise inventory account to the cost of goods
sold account.
iCount Grade 10
5

Unit
1
SEQUENCE OF ACTIVITIES
• The balance of the merchandise inventory account is equal to the cost of the goods on hand (that is, the
goods that are available to sell).
• The balance of the cost of goods sold account is equal to the cost of the merchandise that was sold to
customers.
To make sure that the amount that is recorded in the trading account is accurate, we can do a physical stock
count. One of the advantages of using a perpetual inventory system, is that it makes it easier to identify stock
losses or theft.
What does a journal entry for the perpetual inventory system look like?
Cash transaction
On 1 June 2011 Sarah’s T shirts bought 100 units of goods valued at R20 per unit
Under perpetual inventory system
1/6/2011 Debit Credit
Trading Stock 2 000
Creditors 2 000
Credit transaction
On 1 June 2011 Sarah’s T shirts sold 100 units of good at R50 per unit on credit
Under perpetual inventory system
1/6/2011 Debit Credit
Debtors 5 000
Sales 5 000
1/6/2011 Cost of goods sold 2 000
Trading stock 2 000
In Unit 2 we will look in more detail on the effect of cash and credit purchases on the accounting equation.
5. Some important Accounting documents CAPS: Term 1: Topic 5(b) “Bookkeeping of a
sole trader”
Can you still remember what all the main documents are that are used in the accounting process?
What is the difference between a general ledger and a general journal?
Journals are referred to as books of original entry. Accounting entries are recorded in a journal in order by date. A company
might use special journals (sales, purchases, cash disbursements, cash receipts), or its accounting software will generate
entries for routine transactions, but there will always be a general journal in which to record non-routine transactions, such
as depreciation, bad debts, sale of an asset, etc. In the general journal you must enter the account to be debited and the
account to be credited and the amounts.
Once a transaction is recorded in the general journal, the amounts are then posted to the appropriate accounts. Accounts
(such as Cash, Accounts Receivable, Equipment, Accumulated Depreciation, Accounts Payable, Sales, Telephone
Expense, etc.) are contained in the general ledger.
To recap... The general ledger houses the company’s accounts. The general journal is a place to first record
an entry before it gets posted to the appropriate accounts.
(http://blog.accountingcoach.com/general-ledger-general-journal/ )
6
iCount Grade 10

• Source documents are the original records of a transaction. They are used as evidence that a particular
business transaction has occurred. Examples of source documents are cash receipt, customer invoice, etc.
• Journals are records of the day-to-day transactions of a business. Examples of journals are Cash Receipts
Journal, Cash Payments Journal, Petty Cash Journal, Debtors Journal, Creditors Journal, Debtors Allowances
Journal, Creditors Allowances Journal and General Journal.
• A ledger contains summaries of all the financial information that is obtained from the different accounts.
Examples of ledgers are the General Ledger and Subsidiary Ledger.
• The Trial Balance is prepared at the end of an accounting period by adding up all the balances in your
general ledger, debits together and credits together. The debit balances should be equal to the credit
balances. You use the trial balance to check the amounts of the balances of all accounts in the general ledger
to make sure that the accounts are in balance.
• Financial statements use the summarised data contained in the trial balance to prepare the financial reports
of the business. Examples of financial statements are the Income Statement, Balance Sheet, Statement of
Retained Earnings and the Cash Flow Statement.
6. Comparison of the bookkeeping systems of the informal and formal
sectors CAPS: Term1, Topic 1 “Informal or indigenous bookkeeping systems”
Unit
1
Difference between accounting & bookkeeping
Bookkeeping is part of accounting. It is the recording of the day to day transactions of a business.
Indigenous bookkeeping systems refer to the systems that people in informal business use to keep record of
their finances.
Examples of indigenous bookkeeping systems are keeping slips of purchases in a file, making written notes of
transactions in a book, bartering (exchanging services, products for other services and products instead of for
money) rather than formally recording income and expenses.
Accounting builds on the bookkeeping information, interpreting it, compiling reports, year-end accounts, tax
returns, budgeting, carrying out financial analysis and so on.
iCount Grade 10
7

Unit
1
SEQUENCE OF ACTIVITIES
7. Ethics in bookkeeping and accounting CAPS Term 1 Topic 2 “Ethics”
What is ethics?
Explain to the learners that the word ‘Ethics’ is derived from the Ancient Greek word ethikos which means customs
and habits. Ethics deal with peoples values and how people see concepts such as right and wrong and good and
evil.
The AIBP Code of Ethics for Bookkeepers is the code of ethics of the largest bookkeeping body in the world and
offers bookkeeping qualifications, support and networking opportunities.
The South African Institute for Chartered Accountants (SAICA) has a Code of Ethics that certified accountants
must sign. A Code of Ethics is a set of objectives toward which professionals must continually strive. They
represent a way of living a professional life, not simply how you are to behave at work.
The Code of Ethics focuses on values such as:
Honesty and integrity
Honesty and integrity are basic values. All forms of dishonesty and any dishonest conduct, such as fraud or
corruption, are rejected.
Professional excellence
Accountants must do their work in an innovative, creative and professionally excellent manner. They must
always work productively and deliver work of a high quality.
Respect
Employers and employees in the accounting profession recognise each other’s areas of skill, competence
and fields of expertise. Accountants working in the same organisation must share information and resources
and they may not compete with each other if it hurts the organisation.
Fairness that builds trust
Decisions must be made in a fair, consistent and transparent manner to build trust between individuals.
Collaboration
Employers and employees will cooperate to support the lawful interests of the organisation.
Non-discrimination
Accountants must always strive to eliminate discrimination and to promote equal opportunity and affirmative
action in all aspects of their activities.
8
iCount Grade 10

Documents & Ethics
Unit
1
1. You are the accountant of Sarah’s T-shirts. Sarah’s brother-in-law, Peter,
works at the same firm as you. He now advised Sarah to hide some of her
cash income so that she doesn’t pay tax on it. This means that she will not enter it in her
accounting books. What is your opinion on this? CAPS Term 1 Topic 2
2. Describe the ethical duties of an accountant in your own words. CAPS Term 1 Topic 2
3. a) Illustrate the accounting equation. CAPS Term 1 Topic 5 (c)
b) Explain the accounting equation with reference to Sarah’s T-shirts. CAPS Term 1 Topic 5 (c)
4. Interview an informal trader / small business owner and ask them about their bookkeeping system. Write a
short essay in which you explain their system. What do you think are the advantages and disadvantages of
this system? CAPS Term 1 Topic 1
5. In a group of 4/5 learners, collect different types of source documents. Create a list of all the names of the
relevant subsidiary journals. One member of each group presents their findings to the class.
6. Please complete the crossword puzzle below:
1
3
2
4
5
6
7
ACROSS
4 Takes the form of financial statements
6 Records an increase in assets
7 Collection of all balance sheet, income and
expense accounts
DOWN
1 One of the business functions
2 One owner business
3 Shows an amount the business
owes
5 Another word for stock
iCount Grade 10
9

Unit
2
Accounting and
external reporting
In this unit
• GAAP principles................................................. 12
• Internal control.................................................... 13
• Is it only about the money?................................. 13
• The Accounting Equation and the effect of
cash sales, credit purchases............................... 16
• External reporting............................................... 16
• The Accounting Equation................................... 17
10 iCount Grade 10

Unit
2
How do we know about our money, how to make more money, how to spend less money and to be able to
account for the profit or loss?
Explain to the learners that the SAICA Competency Framework (2008) identifies external reporting as one of the
key functions that an accountant should be able to perform:
Entities record the results of transactions (accounting) and measure and report on their performance and
financial position. The reports generated for external use can be financial or non-financial in nature. Entities
report information to their various stakeholders in order to meet their stewardship requirements and to fulfil
stakeholders’ needs.
SEQUENCE OF ACTIVITIES
1. Internal control CAPS Term 1 Topic 4 “Internal control”
Internal control is a process whereby the board of directors, senior management and all levels of personnel are
offered reasonable assurance that an organisation will achieve its objectives. In the case of a sole trader, the sole
trader must put in place these processes.
Reasonable assurance: A statement that it is not possible to say with certainty that something will or will not
happen.
Internal controls are used to:
• protect assets
• make sure that the operations (production, etc) of the business is effective and doesn’t waste costs or
resources
• ensure that the financial information is correct
• comply with laws and regulations
Internal control consists of five elements:
• Control environment—this includes the structure of the business to ensure control, committees such as
auditing committees and human resource committees to control specific functions
• Risk assessment—identifying the risks at all levels of the business, with regard to, for example, assets or
processes
• Control activities—these are the policies and procedures that must ensure that the employees carry out the
orders of the board and management
• Information, accounting and communication systems—these systems must record all the information
that management needs to make decisions
• Monitoring—the business’s performance must be monitored (checked) continuously and external people
should also be asked to monitor systems and process from time to time
Sole traders need to implement internal control measures with regard to credit sales, fixed assets, inventory,
creditors, cash receipts, salaries and wages as well as petty cash.
Let’s briefly look at some of these internal control measures:
(a) Credit sales: Debtors, who owe the business money, must be controlled. Accounts must be sent out in time
so that debtors can pay the amounts they owe on or before the due date. When it becomes clear that a debtor
is not able to repay the debt, the business must have a clear policy about what process to follow and when the
debt will be written off.
iCount Grade 10
11

Unit
2
SEQUENCE OF ACTIVITIES
Due date: The date on which a payment must be made
To write off debt: To accept that you will never be able to recover the money and to take it off your debtors’
books
(b) Fixed assets: Refer to the land, buildings and equipment that is needed to run a business. In Sarah’s T-shirts,
the fixed assets will be the workshop that she works from, the shop she sells from, the sewing machines and
the stands that she uses to display the T-shirts.
(c) Inventory (stock): Make sure that the stock the business receives, corresponds with the stock the business
ordered. Do regular stocktaking and make sure that there is not too much stock at any time—it might become
old before it is sold, which means that the business will suffer a financial loss.
(d) Creditors: Creditors are people/business that the sole trader owes money to. The sole trader must make sure
that all the creditors’ accounts are paid on time, otherwise he/she will have to pay interest. Check the invoices
for all the goods and services purchased to make sure the details and price is correct.
(e) Cash receipts: Often, clients pay sole traders per cheque or in cash. Make sure that there are always two
people present when envelopes from customers that contain cash, are opened. Do not cash cheques from the
cash register rather deposit the cheques and withdraw money from the bank.
(f) Salaries and wages: Any business, big or small, must manage a proper system for salaries and wages.
Detailed records must be kept of payments to employees. There must be strict control over worker hours to
make sure that they work the required number of hours. Workers who work with salaries must be responsible
and honest and the business must check all the references of people who apply for these positions to make
sure that they have the right skills and values.
(g) Petty cash: Petty cash is one of the areas in a business where fraud and theft can happen easiest. There
must be procedures in place to limit theft, for example, making sure that petty cash vouchers are signed
whenever petty cash is removed from the petty cash box. Keep only one petty cash box in the business, and
count the money regularly to check.
Petty cash imprest: This is a fixed amount that is put in the petty cash box every month. At the end of the
month, the petty cashier hands the cash slips of all the items bought from the petty cash to the manager or
accountant. The manager or accountant then refunds the petty cashier the amount that was spent during the
month, which means that the pretty cash imprest is brought back to the original imprest amount.
2. Generally Accepted Accounting Principles CAPS Term 1 Topic 3 Accounting Principles
What is GAAP?
Explain to the learners that GAAP stands for Generally Accepted Accounting Principles. GAAP is a set of rules
that accountants follow. The main objective of this GAAP framework is to make sure that the information that
accountants record and report on, is relevant, reliable and comparable.
Each country has its own GAAP, but generally, there aren’t many differences between countries.
Use the poster, which is part of the iCount resource pack.
Place this on the wall of the classroom.
Ask the learners to select one of the GAAP principles, and teach this to the rest of the class.
Look on your DVD in the iCount file, for more resources, like http://www.investopedia.com/ask/answers/05/
iasvsgaap.asp#ixzz1cw7EVvnt
12 iCount Grade 10

GAAP principles
Certain principles form the basis of the accounting process and are known as the GAAP principles:
• Business entity: The financial issues of the business are kept separate from the financial issues of the owner
and also separate from all other entities with whom it deals.
• Matching principle: This means that expenses and revenues are recognised in the same period. Expenses
are balanced by the income that is generated by those expenses. For example, the expenses that Sarah incurs
to buy fabric, is balanced or matched by the income that she earns from selling the T-shirts.
• Historical cost principle: The historical cost principle means that all the assets and liabilities are recorded in
the financial accounts at their historical cost, in other words, at their original cost they were bought at.
• Going-concern principle: Accountants must assume that the company will continue to exist for the near
future. If the accountants do not work on this basis, many accounting practices would not work, for example,
allocating costs over several years when an asset is being depreciated in the accounts.
Going concern: A business that keeps on functioning and does not plan to close down or is not in danger
of being liquidated.
Unit
2
• Principle of prudence: Prudence means that things are done in a careful manner, for example, when there is
any doubt about anything you should rather record financial information on a conservative basis (not taking any
chances that may be wrong).
• Principle of materiality: If something is material, it means that it is important in that particular situation and
with regard to that specific topic. The accountants should highlight any information that is material to the
reader of the financial statements or reports.
3. But is it only about the money? CAPS Term 1 Topic 2 “Ethics”
For many years, people believed that the only
purpose of business is to make money.
However, that has changed. Nowadays,
businesses know that it is essential to also look
after the environment as well as the people
that the business deals with. This is known as
corporate citizenship.
Although many companies have for a long time
given money away to charities and so on, this
is not the same as corporate citizenship. Giving
money away is known as Corporate Social
Investment, while corporate citizenship is about
the way that the organisation does business.
For example:
• What does the company do with its waste?
• How does it treat its employees?
• Does it employ people from the areas in which
it does business?
• Does it limit the pollution from its operations?
• Is the organisation honest in its marketing and
advertising?
RESPECT
FAIRNESS
HONESTY &
INTEGRITY
ETHICAL
ORGANISATION
COOPERATION
Figure 2. Ethical
PROFESSIONAL
EXCELLENCE
NON-
DISCRIMINATION
iCount Grade 10
13

Unit
2
SEQUENCE OF ACTIVITIES
4. External reporting SAICA Specific Competency II “Accounting and External Reporting
CAPS Term 1 Topic 4 “Internal control”
Types of reports
There are different types of financial reports in a business: departmental reports feed into financial statements
financial reports that are submitted to the Board of a company annual report. Some reports are used by
people inside the organisation and these are called internal reports. Other reports are meant for people outside the
organisation and are called external reports.
Who are the audience / users of these reports?
Any reports that are published externally are meant for external stakeholders. Stakeholders are people and
businesses that affect the organisation, or are affected by the organisation. Examples of stakeholders are
staff members, customers, the community in which the business is located, the local council, as well as other
businesses in the same field.
Standards for external reporting
Most businesses use the International Financial Reporting Standards (IFRS) when preparing their financial reports
for external stakeholders.
International Financial Reporting Standards (IFRS) is a set of accounting standards developed by an
independent, not-for-profit organization called the International Accounting Standards Board (IASB).
The goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial
statements. IFRS provides general guidance for the preparation of financial statements, rather than setting
rules for industry-specific reporting.
Having an international standard is especially important for large companies that have subsidiaries in different
countries. Adopting a single set of world-wide standards will simplify accounting procedures by
allowing a company to use one reporting language throughout. A single standard will also
provide investors and auditors with a cohesive view of finances.
Currently, over 100 countries permit or
require IFRS for public companies, with
more countries expected to transition to
IFRS by 2015. Proponents of IFRS as an
international standard maintain that the cost
of implementing IFRS could be offset by the
potential for compliance to improve credit
ratings.
IFRS is sometimes confused with IAS
(International Accounting Standards), which
are older standards that IFRS has replaced.
http://searchsecurity.techtarget.co.uk/
definition/IFRS-International-Financial-
Reporting-Standards
14 iCount Grade 10

GAAP Principles
Unit
2
1. Who uses GAAP principles? Do you think that Sarah’s T-shirts should follow GAAP?
Why / why not?
2. Should Shoprite Checkers follow GAAP? Why/why not?
3. In your opinion, what are the benefits of using GAAP? Name at least 3.
4. Match the GAAP principle in the first column with the explanation in the second column.
NO GAAP PRINCIPLE EXPLANATION
1. Historical cost [A] Accountants must assume that the company will continue to
exist for the near future.
2. Matching principle [B] Financial issues of the business are kept separate from those
of the owner and also separate from all other entities with whom it
deals.
3. Prudence principle [C] Accountants must use GAAP principles, except when to do so
would be expensive or difficult, and as long as the net income is not
affected.
4. Business entity [D] Expenses and revenues are recognized in the same period.
5. Going concern [E] All the assets and liabilities are recorded in the financial accounts
at the original cost that they were bought at.
6. Materiality [F] Transactions of the business must be recorded in a conventional
way, i.e. record the correct income in the Income Statement rather
than an anticipated amount which may not materialize later.
5. The accounting equation CAPS: Term 1, Topic 5(c) “Accounting equation”
You have dealt with the accounting equation in Grade 9. Let’s recap:
A term often used in accounting is ‘accounting equation’. The accounting equation shows the relationship between
assets (the resources) and the total of the liabilities and the owner’s equity. We can show it like this:
Assets = Owner’s Equity + Liabilities
or
Owner’s Equity = Assets – Liabilities
For example: Sarah’s T-shirts has more liabilities (debts) than assets (buildings, cash, equipment etc). Let’s say
the assets are worth R50 000 and the liabilities are worth R68 000. We want to know what the owner’s equity of
Sarah’s T-shirts is.
Owner’s Equity
= Assets – Liabilities
= R50 000 – R68 000 = (R18 000)
We show the R18 000 in brackets, because it is a negative number (less than 0).
iCount Grade 10
15

Unit
2
SEQUENCE OF ACTIVITIES
6. The accounting equation and the effect of cash sales, credit purchases
CAPS Term 1 Topic 5(c) “Accounting equation”
ASSETS = OWNER’S EQUITY + LIABILITIES
Look at how different transactions affect the accounting equation and treated in the General Ledger
with the Debits and Credits
A = O + L
ASSETS
Can you remember? Define what assets are.
Dr______________________________________Cr
+ –
Increase if debited Decrease if credited
LIABILITIES are the opposite from ASSETS
Can you remember? Define what liabilities are.
Dr______________________________________Cr
– +
Decrease if debited Increase if credited
OWNER’S EQUITY
Can you remember? Define what owner’s equity is.
Works the same as Liabilities
Dr______________________________________Cr
– +
Decrease if debited Increase if credited
16 iCount Grade 10

The Accounting Equation
Unit
2
1. What is the link between GAAP and ethics in accounting?
Illustrate or describe this link by means of either an illustration or words.
CAPS Term 1 Topic 3
2. Read the information provided. In her business, Sarah employs a secretary who comes in twice a week to
do her admin and to pay wages on Fridays to the employees who make the T-shirts. There are three women
who make T-shirts in the workroom at the back of the shop. The petty cash box is kept in the storeroom.
The three employees sometimes use petty cash to buy coffee or milk and sugar for their tea-times.
What kind of internal control measures can Sarah implement to protect her petty cash?
CAPS Term 1 Topic 4, topic 5(b)
3. Illustrate the effect of the following transactions on the accounting equation and give an
example of each transaction from Sarah’s T-shirts:
• Assets are debited
• Liabilities are credited
• Owner’s equity is debited
CAPS Term 1 Topic 5(c)
4. Complete the sentences:
• GAAP stands for .....
• Petty cash imprest refers to ......
• Ethical values are ....
• Going concern stands for ........
• Reasonable assurance is ........
Integrated across CAPS
5. Group Activity:
(Resources: charts and pens). Divide learners in groups of 4-5.
• Ask learners to define assets, owner’s equity and liabilities.
• On a chart, learners must write down the formula for the
accounting equation and give examples for
each concept.
iCount Grade 10
17

Unit
2
6. Group Activity:
Use the same groups as before. Your task is to record the transactions taken from the accounting records
from the business Sarah’s T-shirts.
Note: Assume that the bank balance is favourable at all times.
EXAMPLE: Sarah, the owner of Sarah’s T-shirts contributed R30 000 in the current bank account of the
business.
No
e.g
Source
document
Duplicate
receipt/Deposit
slip
Journal
Account
debited
Account
credited
Amount Asset Owner’s
equity
Liabilities
CRJ Bank Capital 30 000 + + 0
Transactions:
• Purchased material from Fabric Dealer on credit, for the amount of R700.
• Sold T-shirts on credit to F. Funny for R300 ( mark-up 25%)
• Paid R400 to a landlord for rent.
• Drew R100 from petty cash for personal use.
• Issued a cheque to Fabric Dealer for the amount of R560 and received 5% discount.
• Bought stock from Fabric Dealer for R900 and received a trade discount of 5%.
• F. Funny’s account must be written off as irrecoverable debt.
• The bank statement reflected an amount of R30 for internet transactions.
Hint: Learners must be able to answer the following three basic questions for every transaction.
a) Which two accounts are affected?
b) Identify the group/s for each account.
c) Is there an increase or decrease for each?
18 iCount Grade 10

Strategy and Risk
Unit
3
In this unit:
• Strategy and risks in Accounting........................ 20
• Management of resources.................................. 21
• Financial statement of sole traders...................... 22
• Accounting concepts.......................................... 24
• Analysing financial statements............................ 25
iCount Grade 10
19

Unit
3
The management of risk is the process by which the Accounting Officer, Chief Financial Officer and other senior
management of a business will proactively, purposefully and regularly, but at least annually, identify and define
current as well as emerging business, financial and operational risks and identify appropriate, business and cost
effective methods of managing these risks within the business, as well as the risk to the stakeholders.
For more resources, see your DVD in the iCount file
http://www.solplaatje.org.za/downloads/policy/06POLICY_%20RISK%20MANAGEMENT.pdf
SEQUENCE OF ACTIVITIES
1. Strategy and risks with regard to accounting SAICA Specific Competency II
A very important part of an accountant’s job is to manage several types of risk as part of the organisation’s
strategy. An organisation’s strategy is the plan it has to achieve certain objectives for the business.
For example:
The objective is to make 20% more profit than last year.
The strategy is to:
• improve customer service,
• offer a wider variety of products, and
• win over some of the customers of other businesses.
Risks with regard to accounting
The accountant needs to deal with a number of risks that can threaten the organisation’s strategy and cause it to
not reach its objectives. Some examples of these risks are:
• The overstatement of figures, that means, entering an amount that is too high
• The understatement of figures, that means, entering an amount that is too low
• If amounts are wrongly carried over from one journal or account to another
• The wrong capturing of figures—that means, not entering the right numbers
• Salary risks: the risk is that the wrong salary is paid to the wrong person, or that salaries are paid to people
who do not even work for the company. (These people who receive ‘salaries’ even though they don’t exist, are
called ‘ghost workers’).
Tools that can be used to manage risk
It is essential that the sole business owner as well as the accountant has a thorough knowledge of the most
important accounting and cost concepts that are essential in managing risk.
The accountant or business owner can manage risk by using the following tools or instruments:
a) Reconciliation statements
A reconciliation statement is a document on which the business owner can compare his or her personal bank
account records to the bank’s records of his or her account balance and is used to make sure that the two
sets of records are the same.
There is also the risk for a business if no bookkeeping or accounting is done. Can you think of some
risks if Sarah’s T-shirts didn’t perform any accounting or bookkeeping activities?
Write a paragraph on the risks for Sarah’s T-shirts if no accounting or bookkeeping is done.
20 iCount Grade 10

) Internal control
Internal control refers to control measures that are implemented inside departments in the business and is
used to manage and measure the way in which the business uses its resources.
Unit
3
Control activities may also be explained by the type or nature of the activity. These include, but are
not limited to:
• Segregation of duties—Separating authorization, custody, and record keeping roles of fraud or error by
one person.
• Authorization of transactions—Review of particular transactions by an appropriate person.
• Retention of records—Maintaining documentation to substantiate transactions.
• Supervision or monitoring of operations—Observation or review of ongoing operational activity.
• Physical safeguards—Usage of cameras, locks, physical barriers, etc. to protect property, such as
merchandise inventory.
• Top-level reviews—Analysis of actual results versus organizational goals or plans, periodic and regular
operational reviews, metrics, and other key performance indicators (KPIs).
• IT Security—Usage of passwords, access logs, etc. to ensure access restricted to authorized personnel.
• Top level reviews—Management review of reports comparing actual performance versus plans, goals,
and established objectives.
• Controls over information processing—A variety of control activities are used in information processing.
Examples include edit checks of data entered, accounting for transactions in numerical sequences,
comparing file totals with control accounts, and controlling access to data, files and programs.
http://en.wikipedia.org/wiki/Internal_control
c) Ethics as risk management tool
There is a well-known saying that prevention is better than cure. In other words, if you can prevent risks from
happening in the first place, you will not have to manage or solve it.
As we said before, ethics refers to the values of the people who work in the business. If people’s ethics are
based on honesty, integrity and truthfulness, risks of fraud and theft will be significantly reduced.
2. Management of resources CAPS Term 1 Topic 1 Informal or indigenous bookkeeping
systems
Do you still remember what resources are?
Resources can be defined as anything that you use in your business that helps the business to function effectively.
There are different types of resources:
a) Capital resources: These are the equipment, tools and machines that are used to produce products or
services.
b) Stock or inventory: This is the business’ raw materials and unfinished products that have not yet been sold.
c) Human resources: Human resources refer to the employees of the business.
d) Natural resources: These resources are found in nature and include land, energy and water.
Raw materials: The basic materials that are used to make products. The actual material that makes your
product.
iCount Grade 10
21

Unit
3
Managing Resources
1. Make a list of all the resources Sarah uses in her business.
2. Can you think of 5 problems Sarah’s T-shirts might face if Sarah does not manage her
resources properly?
3. In pairs, argue for, and against, this topic “Resources must be ethically and environmentally managed” or
“Business is about money, and resources like water and power are paid for. Its a money issue only”
Why do we need to manage resources?
The way in which the sole trader uses of the resources contributes to the success of the business. If the resources
are not managed properly, the business can suffer great damage.
Ethics in resource management
Managing resources is a highly ethical issue. Think of how the sole business owner should manage human
resources and also its natural resources in an ethical way.
Many business owners are of the opinion that it doesn’t matter if they waste water or electricity. They say that they
pay for it, so it’s their problem.
3. Financial statement of sole traders CAPS Term 3 Topic 1 Financial Accounting of a Sole
trader: Preparation of financial statements
As you know by now, financial statements show the financial activities in a specific accounting period or on a
specific day.
Accounting period: The period for which profit is calculated, which is usually 12 months. These 12 months
do not need to be from January–December. The accounting period is also called book year or financial year.
The two types of financial statements are the Income Statement and the Balance Sheet.
What does each of these show?
Income Statement: shows the result of the business activities in a specific accounting period
Balance Sheet: Shows the financial position of a business on a specific day
Financial statements…
• ...are drawn up in vertical form, and not in horizontal form
• ...are NOT part of the bookkeeping process
• ...do NOT replace the ledger accounts
How often are these Financial Statements drawn up?
Financial statements can be drawn up whenever they are needed, it may be every quarter or every year. It depends
on the people who want to see and use the information in the financial statements.
Who is interested in the financial statements?
Both internal and external stakeholders are interested in the information contained in the financial statements.
Stakeholder: Someone who affects the business or who is affected by it.
22 iCount Grade 10

Unit
3
SEQUENCE OF ACTIVITIES
The stakeholders of a sole trader are divided into internal and
external stakeholders:
• External stakeholders (outside the business): creditors, banks,
financiers, investors, SARS, customers, etc
• Internal stakeholders (inside the business): owner, manager,
unions, employees, etc
• Owner: Sarah wants to see how successful her business
has been and how it is doing at the moment. If the financial
statements show that the business is not healthy, she must take
steps to correct the problems.
• Bank manager: He/she must decide if the business is healthy
enough to grant a loan or an overdraft facility to Sarah if she
wants to expand the business.
• SARS: SARS, or the South African Revenue Service must see
how much income Sarah has earned because she has to pay
tax on it.
• Staff members: they want to know that the business is healthy
enough to carry on into the future, and that they will have work in
future.
Which other stakeholders can you think of who will be interested in the financial statements?
Let’s now have a look at the Financial Statements.
All Income Statements basically look like this (fictitious figures used):
INCOME STATEMENT OF SARAH’S T-SHIRTS
FOR THE YEAR ENDING 28 FEBRUARY 2012
NOTE R
Sales for the year 500 000
Cost of sales (270 000)
GROSS PROFIT 230 000
OTHER OPERATING INCOME 8 200
Bad debts recovered 6 000
Discount received 2 000
Profit on sale of assets 200
etc
GROSS OPERATING INCOME 238 200
OPERATING EXPENSES (145 000)
Salaries & Wages 78 500
Water & Electricity 40 500
Rent expense 26 000
etc
OPERATING PROFIT/(LOSS) 138 200
Interest income 1 3 500
Profit (loss) before interest expense 141 700
Interest expense 2 (28 000)
NET PROFIT FOR THE YEAR 113 700
iCount Grade 10
23

Unit
3
SEQUENCE OF ACTIVITIES
The Balance Sheet is built up based on the “Notes to the Balance Sheet”.
Notes to the balance sheet
The balance sheet reflects information about income from investments or interest earned; expense because of
paying interest, or financing costs, property, plant and equipment, inventory or stock, trade and other receivables
(trade accounts and other accounts that are to be received), trade and other payables (trade accounts and other
accounts that must be paid); cash and cash equivalents and the owner’s equity.
The Balance Sheet looks like this:
SARAH’S T-SHIRTS
BALANCE SHEET AS AT 28 FEBRUARY 2012
NOTE R
ASSETS
NON-CURRENT ASSETS 681 000 00
Tangible (fixed) assets 3
FINANCIAL ASSETS
Fixed deposit
CURRENT ASSETS 358 000 00
Inventory 4
Trade and other receivables 5
Cash and cash equivalents 6
TOTAL ASSETS 1 039 000 00
EQUITY AND LIABILITIES
OWNER’S EQUITY 520 000 00
Capital 7
NON-CURRENT LIABILITIES 100 000 00
Loan: ABC Bank
CURRENT LIABILITIES 465 000 00
Trade and other receivables 8
Bank overdraft
Short-term loan
TOTAL EQUITY AND LIABILITIES 1 085 000 00
4. Some Accounting concepts CAPS Term 3 Topic 2 “Financial accounts of a sole trader—
analysis and interpretation of financial statements”
In the next section we will look at how to analyse financial statements. But before we can do that, we need to
understand a few important concepts:
24 iCount Grade 10

Unit
3
CHECK YOUR KNOWLEDGE OF ACCOUNTING CONCEPTS
Gross profit on sales Gross profit or sales profit is the difference between income earned from selling a product or
providing service, and the cost of making that product or providing a service BEFORE deducting any
costs. This is also called gross income.
Net profit on sales Net profit is the difference between the business’s total expenses and the business’ total revenue for
a specific period. This is also called net income.
Operating expenses Operating expenses are expenses that are paid in the course of performing the business’ activities,
but this does NOT INCLUDE the costs that are directly related to the production of the product or
the delivery of the service. Operating expenses include, for example, salaries, travel costs, factory
rent or taxes.
Operating profit Operating profit measures the business earning potential from its operations, before deduction any
(on sales)
taxes or interest that is payable on loans to the bank.
Current ratio The current ratio shows whether or not the business can pay its financial obligations, such as rent,
salaries etc, in the foreseeable future.
Acid test ratio The acid test ratio gives an answer to the question “Can my business meet its current obligations
from its liquid assets (that is, assets that are immediately available) if suddenly all sales stop?” This is
also called the acid ratio or the quick ratio.
Solvency ratio The solvency ratio measures the ability of the business to pay its financial obligations in the long term.
Return on equity The return on equity measures how well the business uses its income to generate future income, for
example, by investing it.
Further information: look up the meaning of accounting terms: Here are some websites you can use, or check your iCount file;
http://www.businessdictionary.com, http://www.investorwords.com
5. Analysing financial statements CAPS Term 3 Topic 2 “Financial accounts of a sole trader—
analysis and interpretation of financial statements”
It’s all well and good to draw up the financial statements, but how are these statements used? As we said, the
internal and external users of the financial statements will all need certain information from them. The statements
are investigated and processed—in other words, studied in detail to get to the relevant information.
One way to analyse the financial statements is to use the following 4 steps:
1. Show the formulae
The important formulae are for the profit margin, % gross profit on sales, operating expenses on sales; net profit on sales;
net current assets, current ratio, asset test ration, degree of solvency, return on owner’s equity. To analyse the financial
statements, you must use these formulae to calculate various details.
2. Show all the calculations
3. Show the answers or results
4. Comment on the answers or results
Here is an example of how to find the profit margin (gross profit on cost price):
Profit margin / mark-up
Step 1 (formula)
Gross profit x 100
Cost of sale 1
Step 3: (get the result/answer) = x %
Can you work out this % by yourself?
Step 2 (do the calculations)
R500 000 x 100
R200 000 1
Step 4 (comment), for example:
Compare the results with the previous year’s results / Check how efficiently the business is run
iCount Grade 10
25

Unit
3
Managing Risks
1. You are the accountant of Sarah’s T-shirts. Write a paragraph in which you describe what you would do to
manage her business risks. SAICA Specific Competency II
2. Sarah’s T-shirts
Extract of Income statement for the year ended 2010
Turnover/Sales 895 000
Cost of sales 716 000
Gross profit for the year 179 000
Operating income 53 000
Gross operating income 232 000
Operating expenses (174 000)
Operating profit for the year 58 000
Interest income 4 000
Interest expense/Financing costs (13 000)
Net profit for the year 49 000
Learners are to identify ratios which can be calculated from the income statement. Each learner is to
calculate and categorise these individually. When complete, compare your calculations and categories.
Discuss.
Sarah’s T-shirts
Extract of Balance sheet for the year ended 2010
Non-current assets
Tangible assets
Financial assets (NTB: Bank)
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
2011 2010
870 000
800 000
70 000
80 000
30 000
40 000
10 000
850 000
750 000
100 000
79 000
20 000
50 000
9 000
Total assets 950 000 929 000
Owners’ equity 640 000 649 000
Non-current liabilities
Loan: BTN Bank
Current liabilities
Trade and other payables
250 000
250 000
60 000
60 000
240 000
240 000
40 000
40 000
Total equity and liabilities 950 000 929 000
3. Match the terms in the left-hand column with the correct description in the right-hand column:
CAPS Term 3 Topic 1, 2
current ratio
net profit
balance sheet
reconciliation statement
gross profit
compare personal and bank records
difference between income from selling the product
and the expenses to make a product
difference between income from selling the product
and all the business’s expenses
current assets + current liabilities
shows the financial position of a business on a specific
day
26 iCount Grade 10

4. Place learners in groups of five. Allow learners to come up with an income
statement format. A space of three lines must be left under the other operating
income and a space of five spaces under operating expenses.
Unit
3
5. Using the same information as activity 4, learners are required to complete the missing items under other
operating income and operating expenses. They must also give two examples of interest income and
interest expense.
6. Balance sheet activity: In a group of five, learners must draw a structure of a balance sheet including all
possible items which are normally included in the balance sheet.
7. In the same groups, learners must come up with format for the following notes:
• Tangible asset
• Trade and other receivables
• Equity
• Trade and other payables
8. Read the following case study as a group of 4/5 learners and write your comments about ethical
responsibility of companies to manage their resources well.
West Coast community wants diamond mining scars healed CAPS Term 1 Topic 2
West Coast residents living near De Beers diamond mines fear they will be left with the massive scars of 100 years of
diamond mining when the company sells its mines to Trans Hex.
Yesterday the community from the tiny coastal town of Hondeklipbaai called on the Department of Mineral Resources
to postpone its decision to transfer the mining rights from De Beers to Trans Hex, as they fear there will not be
enough money to carry out a proper rehabilitation.
De Beers Consolidated Mines has signed an agreement to sell Namaqualand Mines to a consortium headed by Trans
Hex Diamonds.
All mining companies are obliged by law to draw up a plan, approved by the government, on how the land will be
rehabilitated once the mine reaches the end of its life. De Beers has an approved rehabilitation plan, but has since
changed the plan and submitted it to Mineral Resources for approval.
Communities and environmental groups believe the changes include a significant downgrading of obligations to
rehabilitate the mine, and that once the sale goes through, there will not be enough guaranteed money to carry out
the environmental clean-up.
At a media briefing yesterday, Hondeklipbaai community leader Dawid Markus said the sale should not go ahead
until the community had been assured that the companies would honour their obligations to rehabilitate the area.
Members of the public have asked to see and comment on De Beers’ revised environmental management plan, but
De Beers has said the law does not require them to engage with the public on these changes.
“Too often big mining companies exploit the country’s natural resources without undoing the damage they cause.
We’re not convinced the current plans will not leave the area exposed to more risks. Their budget for this kind of
repair work is wholly inadequate and it is the people of Hondeklipbaai that will end up paying for it, for generations to
come,” Markus said.
The mines are located in vegetation known as the succulent Karoo, described as a “botanical gem” and an
“environmental hot spot”. It is one of 34 places in the world which contain 1 percent of the world’s total plant species.
Melissa Fourie, head of the Centre for Environmental Rights, said: “We’re seeing an increasing trend that when a mine
gets closer to the end of its life, and it’s not so profitable, that it’s sold to smaller operators.”
Bheki Khumalo, spokesman for Mineral Resources, said yesterday the communities should write to the department
to express their concerns. He said mining companies had to make financial provision for rehabilitation in their
environmental management plan.
(http://thepropertytimes.co.za/2011/10/west-coast-community-wants-diamond-mining-scars-healed.html)
9. Collect newspaper articles that contain any discussion or information on any form of corruption and discuss
the role of ethical responsibility.
iCount Grade 10
27

Unit
4
Auditing, Assurance
& the preparation of the Final
Accounts
In this unit:
• Accounting, Auditing and Assurance.................. 29
• Preparation of final accounts.............................. 29
• The Trial Balance................................................ 29
• Make the adjustments........................................ 30
• Post-adjustment trial balance............................. 32
• Closing transfers................................................. 32
• The final Accounts.............................................. 33
• The post-closing Trial Balance............................ 34
• Possible mistakes .............................................. 34
28 iCount Grade 10

Unit
4
SEQUENCE OF ACTIVITIES
1. Accounting, Auditing and Assurance SAICA Specific Competency IV
Many people get confused between the terms accounting, auditing and assurance. So what is the difference?
• Accounting services can be defined as the preparation and analysis of financial information which is
reported to internal and external users via financial statements.
• Auditing services involve evaluating the reliability and credibility of financial information, as well as “the
systems and processes responsible for recording and summarizing that information”.
• Assurance services can be defined as independent professional services that evaluate the reliability,
credibility, relevance, and timeliness of information in order to improve the quality of information for decision
makers. Assurance services may or may not be associated with financial information.
http://www.associatedcontent.com/article/196337/accounting_auditing_and_assurance_services.html?cat=3
2. Preparation of final accounts CAPS Term 1 Topic 5; Term 2 Topic 3 “Financial Accounting of
a Sole Trader”
In Unit 3 we discussed how to analyse the financial statements. In this Unit we look at how to prepare the
business’ final accounts.
The steps that need to be taken to prepare the final accounts are as follows:
Pre-adjustment trial balance Adjustments Post-adjustment trial balance Closing transfers
Final Accounts Post-closing trial balance
The Final Accounts are prepared based on the information in the General Ledger. But before you can start working
from the General Ledger, you must first check if the information in the Nominal Accounts in the General Ledger is
correct. In other words, does it show the actual income and expenses?
Let’s recap quickly:
General Journal = The most basic journal in which all transactions are entered according to the time they
occurred
General Ledger = a collection of all balance sheet, income and expense accounts
Nominal Accounts = temporary accounts that are closed at the end of each accounting period and that are
used to record income, expenses, profits and losses
3. The trial balance CAPS Term 1 Topic 5(b)”Bookkeeping of a Sole Trader”
A trial balance is a list of totals that appear in the General Ledger on any given date. The purpose of a trial balance
is to check that the final accounts are correct and that the debits and credits are in balance (the double-entry
principle!).
iCount Grade 10
29

Unit
4
SEQUENCE OF ACTIVITIES
The trial balance is a listing of all the ledger accounts, with debits in the left-hand column and credits in the righthand
column.
There are 3 types of trial balances, namely the pre-adjustment trial balance, the post-adjustment trial balance and
the post-closing trial balance. The type of trial balance depends on the time at which it is prepared.
Pre- means ‘before’
Post- means ‘after’
Pre-adjustment trial balance
The pre-adjustment trial balance is drawn up at the end of each month, BEFORE any adjustments have been
made.
4. Make the adjustments CAPS Term 1 Topic 5(b) “Bookkeeping of a Sole Trader”
The next step in preparing the final accounts is to make all the necessary adjustments to the General Journal.
An adjustment is an entry that is made in the accounts to show income and expenses that have either not been
recorded yet, or have been recorded wrongly. Once an adjustment has been done, the balance in the relevant
accounts will decrease or increase. One account will be debited and the other one credited. This is because of the
double-entry principle of accounting.
Can you still remember what the double-entry principle is?
The double entry principle refers to the accounting system in terms of which each transaction is recorded as a
credit as well as a debit. For every credit entry, there is also a debit entry.
The following adjustments are necessary:
• Accrued income
• Accrued expenses
• Pre-paid expenses
• Income received in advance
• Consumable stores on hand
• Trading stock deficit
• Depreciation
The adjustments are made in the General Journal and then posted (transferred) to the General Ledger.
We can summarise the adjustments like this
Adjustment Account debit Fol Account credit Fol
Accrued income Accrued income B Income N
Accrued expenses Expense N Accrued expense B
Prepaid expenses Prepaid expenses B Expense N
Income received in advance Income n Income received in advance B
Consumable stores on hand Consumable stores on hand B Expense (eg fabric) N
Trading stock deficit Trading stock deficit N Trading stock B
Depreciation Depreciation N Accumulated depreciation (eg
on sewing machine)
B
30 iCount Grade 10

Unit
4
Deficit: shortage
Depreciation: reduction in value year after year e.g. a car loses value each year and so its total value is
decreased by a percentage, e.g. 10%. So, if it was worth R80 000 this year, it would decrease in value
(depreciate) by R8 000 for this year. Its new value would therefore be R72 000.
EXAMPLE OF ADJUSTMENTS: Consumable stores on hand
Sarah buys a number of consumable items that she uses as part of her T-shirt business, for example stationery,
cleaning material, fuel and packing material for the T-shirts she sends to the shops.
‘Consumable stores on hand’ has two elements:
• Asset account (balance sheet section)
• Expense account (nominal section)
For example: Packing material and printing and stationery
On 28 February 2011 the following totals appeared in the General Ledger of Sarah’s T-shirts.
Packing material R6 300
Printing and stationery R7 400
Adjustment
On 28 February 2011 a stock count was done. The following stock was hand:
Packing material R1 200
Printing and stationery R800
The adjustments are made like this:
GENERAL LEDGER OF SARAH’S T-SHIRTS
Balance sheet accounts section
CONSUMABLE STORES ON HAND
Dr
2011 Feb 28 Packing material GJ 1 200 2011 Feb 28
Printing & GJ 800
Statonery
2000
Nominal accounts section
PACKING MATERIAL
Dr
2011 Feb 28 Total b/d 2011 Feb 28 Consumable stores GJ 1 200
on hand
Profit & Loss 5 100
6 300 6 300
PRINTING AND STATIONERY
Dr
2011 Feb 28 Total b/d 7 400 2011 Feb 28 Consumable stores GJ 1 200
on hand
Profit & Loss 6 200
7 400 7 400
Cr
Cr
Cr
GJ = General Ledger
iCount Grade 10
31

Unit
4
SEQUENCE OF ACTIVITIES
5. The post-adjustment trial balance CAPS Term 1 Topic 5(b) “Bookkeeping of a Sole Trader”
The next step is to draw up a post-adjustment trial balance.
The post-adjustment trial balance is drawn up AFTER the adjustments were made. The purpose of the postadjustment
trial balance is to make sure that all the information entered into the accounts is accurate so far.
6. Closing transfers CAPS Term 2 Topic 3 “Bookkeeping of a Sole Trader”
The purpose of the closing transfers is to close off all the nominal accounts at the end of the accounting period.
Closing transfers are entered into the General Journal and then posted to the General Ledger.
The following closing transfers must be made:
Closing transfer Transferred to … Account debit Account credit
Cost of sales Trading Trading Cost of Sales
Sales Trading Sales Trading
Debtors allowances Sales Sales Debtors Allowances
Gross Profit Profit & Loss Trading Profit & Loss
Net Profit Capital Profit & Loss Capital
Debtor’s Allowances Sales Sales Debtor’s Allowances
Income Accounts Profit & Loss Income Profit & Loss
Expense accounts Profit & Loss Profit & Loss Expense
Drawings Capital Capital Drawings
So what will the accounts in the General Ledger look like after these closing transfers have been made?
Here are two examples, the Sales account and the Wages account.
SALES
Dr
20XX Feb 28 Debtors Allowances GJ 20XX feb 28 Total* b/f –
Trading account GJ
Cr
* Total sales for current accounting period
WAGES
Dr
20XX Feb 28 Total* b/f 20XX feb 28 Profit & Loss b/f –
Cr
* Total wages for current accounting period
32 iCount Grade 10

Unit
4
7. The final accounts CAPS Term 2 Topic 3 “Bookkeeping of a Sole Trader”
There are two types of final accounts: 1) the Trading account; and 2) the Profit and Loss account.
Trading account
The Trading account is one of the final accounts. It shows the income from sales, the cost of those sales and the
gross profit of the business during the accounting period. The Trading account is used to calculate the gross profit
the business has made for the accounting period. Gross profit is Revenue (income) minus the cost of making the
product or service that is sold.
Net sales and cost of sales are both closed off to the Trading account.
Net sales = Sale – Debtors allowances
• If you subtract Cost of Sales from Sales, you get the Gross Profit.
• Gross Profit is then transferred to the Profit and Loss account.
• If you deduct all the expenses from all the income (in the nominal accounts), you get the Net Profit.
TRADING ACCOUNT
Dr
20XX Feb 28 Cost of Sales GJ 20XX feb 28 Sales GJ –
Cr
Profit and Loss account
The Profit and Loss account shows the net profit. Net profit is Total Revenue (income) – Total Costs (expenses).
PROFIT & LOSS ACCOUNT
Dr
20XX Feb 28 All expense accounts GJ 20XX feb 28 Trading account GJ –
(gross profit)
Capital (net profit) GJ All income accounts GJ
Cr
All income accounts are transferred to the CREDIT side in the Profit & Loss account
All expense accounts are transferred to the DEBIT side of the Profit & Loss account
iCount Grade 10
33

Unit
4
SEQUENCE OF ACTIVITIES
8. The Post-Closing Trial Balance CAPS Term 1 Topic 5(b) “Bookkeeping of a Sole Trader”
This Trial Balance is drawn up AFTER all the Nominal accounts have been closed off. It shows the balances in the
General Ledger of the balance sheet accounts.
9. Possible mistakes in Trial Balances and how to deal with them CAPS Term 1
Topic 5(b) “Bookkeeping of a Sole Trader”
Although the ideal is that the debits and credits cancel each other out, this is not always the case.
If there are errors in the Trial Balance, it could be because...
• ...the amounts are incorrectly entered in the journals
• ...an amount was wrongly posted from the journal to the ledger
• ...an addition mistake was made in a ledger account
• ...some balance or total was left out of the Trial Balance
• ...the Trial Balance was added up incorrectly
How to check the Trial Balance
Sarah has completed her Trial Balance, but it does not balance! She can follow these steps to find out where the
problem is:
• Check additions i.e. were the amounts added up correctly?
• Calculate the difference between the debits and credits and see if you can find that amount somewhere in the
General Ledger. Perhaps only one mistake was made, by leaving out that amount.
• Divide the difference in two and see if you can find that amount in the General Ledger. Perhaps the item with
that amount was entered into the wrong side of the Trial Balance.
• Make sure that all balances are included in the Trial Balance.
• Make sure that all balances of all the accounts have been included correctly
in the Trial Balance
• Make sure that the balances of every account in the General Ledger are
correct.
• Make sure that the journal totals have been added up correctly.
34 iCount Grade 10

Final Accounts
Unit
4
1. List the adjustment entries that should be made to the General Journal.
CAPS Term 1 Topic 5(b)
2. Define the following terms:
• Net sales
• Net profit
• Gross profit
CAPS Term 3 Topic 2
3. Complete the following table:
Dr
20XX
Feb
CAPS Term 2 Topic 3
PROFIT & LOSS ACCOUNT
28 All ...... GJ 20XX
Feb
28 Trading account
(gross profit)
Capital (........ profit) GJ All .......... GJ
........ -
Cr
4. Debate
In her business, Sarah has an asset, her sewing machine which is currently depreciating at 20% per annum,
using the cost price method. She was advised to change to 20% per annum, using the diminishing balance
method.
The sewing machine was purchased on the 1 July 2006, for R30 000.
The financial year end for the business, Sarah’s T-shirts, is 30 June every year.
• Divide the class into two groups to debate on these two methods with each group choosing a different
method.
• On a chart, learners will show their calculations for the method they have chosen, using the following
headings:
Date Cost price Depreciation Accumulated
depreciation
30 June 2007 R 30 000
30 June 2008
30 June 2009
30 June 2010
30 June 2011
Book value/
carrying value
• The debate must be on which method is most suitable for Sarah’s t-shirt business. When does her book
value reach R0 in each case?
HINT: The sewing machine cannot carry a zero or a negative balance while Sara’s T-shirt still carry it as
an asset.
iCount Grade 10 35

Unit
5
Income and Taxation
In this unit:
• Tax..................................................................... 37
• Sole traders and Tax........................................... 38
• Ethics and Tax.................................................... 38
• Value Added Tax................................................. 39
• The Sole trader and VAT..................................... 39
• Pay VAT.............................................................. 40
• Input VAT and Output VAT.................................. 40
• VAT and Ethics................................................... 41
• Salaries and wages............................................ 41
• The Salaries Journal........................................... 42
• Internal controls and ethics................................. 42
36 iCount Grade 10

Unit
5
SEQUENCE OF ACTIVITIES
1. Tax SAICA Specific Competency VII “Taxation”
So, what is tax? Tax is an amount that is paid by all citizens of a country who earn an income above a certain
amount. Different percentages of tax is payable depending on the amount you earn. This percentage of tax that
is payable is called the ‘tax rate’. Tax is levied on your gross income, after deducting certain amounts that are
allowed in terms of the Income Tax Act (No 58 of 1962).
To levy = to charge
The South African Revenue Service (SARS) administers all tax issues in South Africa.
Government income comes mainly from taxes. The four biggest sources are:
• Personal income tax (29% of government income). Two main forms of personal tax are PAYE and SITE. Anyone
who earns less than R60 000 per year must pay SITE (Standard Income Tax on Employees). If you earn more
than R60 000 per year, you must pay PAYE, or Pay As You Earn. Employers deduct the tax from employees’
salaries, so employees do not have to make an extra payment to SARS. Employees who pay PAYE, must
however fill in a tax return and send it to SARS.
• Company tax (27% of government income). STC—Secondary Tax on Companies. STC must be paid by
companies in South Africa on the dividends they declare. Dividends are amounts of money that companies pay
to their shareholders out of the profits of the company.
• Value-added tax or VAT (26% of government income)
• Customs and Excise (5% of government income)
Tax rates
1 March 2011 – 28 February 2012
Taxable Income Tax Rate
R0 – R150 000 18%
R150 001 – R235 000 R27 000 + (25% of amount above R150 000)
R235 001 – R325 000 R48 250 + (30% of amount above R235 000)
R325 001 – R455 000 R75 250 + (35% of amount above R325 000)
R455 001 – R580 000 R120 750 + (38% of amount above R455 000)
R580 001 and above R168 250 + (40% of amount above R580 000)
2. Sole traders and tax SACIA Specific Competency VII “Taxation”
Sole traders can calculate the tax they have to pay by taking the income earned from the business and deducting
all the money that was spent on the business. Business expenses are things like:
• the money that was spent on buying items necessary to run the business and maintenance on these items (for
Sarah’s T-shirts: fabric, sewing machines, servicing the machines, etc)
• rent for the place where you run the business (the factory and shop)
• water and electricity
• transport costs (fuel and maintenance of the delivery vehicle to deliver the T-shirts to other shops)
• salaries and wages for employees
• money paid for Compensation for occupational injuries and diseases
• money Sarah pays to someone to help her with the books for the business
• bank charges on the bank account Sarah opened for the business
iCount Grade 10
37

Unit
5
SEQUENCE OF ACTIVITIES
But how does SARS know how much tax everyone needs to pay? Once a year all taxpayers must submit a
form on which they show all their income and expenses for the year. This form is called a tax return. SARS then
calculates the amount of tax that must be paid. This amount is called an assessment.
Sole traders must pay provisional tax. This means that an amount of tax is paid twice a year, even before SARS
issues an assessment. Once SARS issues the assessment, the tax that has been paid as provisional tax is
deducted from the assessment amount. The tax payer must pay the difference to SARS. But, if the provisional
payment was more than the assessment, SARS must refund the taxpayer.
How to register as a taxpayer
Contact the nearest SARS office in your area and ask for form IT77. Fill it in and send it back to the SARS.
Instead of completing the form, you could send the following information to the SARS and they will complete
the form:
• your full name
• income tax reference number, if you have one
• the revenue office you have sent tax returns to before, if you have
• occupation or job
• date when you first started working
• marital status (married, divorced, separated, single, widowed)
• number of children under the age of 18 (including step-children and adopted children)
• type of income: do you earn a salary, a weekly wage, commissions, rental on something you rent out,
interest on money in the bank or investments, etc.
• immigrants should give the date when you arrived in South Africa
www.paralegaladvice.org.za/docs/chap13/05.html
3. Ethics and tax: difference between tax evasion and tax avoidance SACIA
Specific Competency VII “Taxation”; CAPS Term 1 Topic 2 “Ethics”
Of course everyone wants to pay as little tax as possible. And there are many LEGAL ways in which to limit the
amount of tax you have to pay. For example; deduct everything possible, such as maintenance, rent and all costs
paid with regard to the business. This is called tax avoidance.
But the amount of tax paid can also be limited ILLEGALLY, for example, by not declaring all the income of the
business to SARS. This is called tax evasion. This is unethical. If SARS catches you out, you can go to jail, and
you will also have to pay huge penalties to SARS.
4. Value-added Tax CAPS Term 2 Topic 2 “Value-added tax”
Value-added tax (VAT) is a tax that is payable on certain goods and services. It was introduced in South Africa in
1991. VAT replaced General Sales Tax or GST, which used to be levied on all products and services, but was not
included in the selling price. The consumer had to add it to the price.
When do we pay VAT?
When you buy certain products or services, you pay VAT on these products and services.
VAT is payable on products and services on one of three bases:
• The standard VAT rate of 14% applies to so-called ‘taxable supplies’. Most products and services fall in this
category. Examples of taxable supplies are TV sets, textbooks, movie tickets, pizzas, etc.
38 iCount Grade 10

SARS
Unit
5
1. Sarah’s brother, William, offers extra Accounting lessons to Grade 10 learners.
Because no-one really understands the Accounting teacher, many children go to William for
extra lessons. William does not want parents or students to pay him by credit card or electronic transfer. He
accepts only cash, and he doesn’t issue receipts for these payments. Every year he buys a new car. At a
braai last weekend, he told Sarah that she’s stupid to pay tax on her business, as he never pays tax. He just
tells SARS that he doesn’t earn enough money.
You are Sarah. Write a paragraph in which you explain to William exactly what he is doing and what the
consequences could be.
2. Discuss why you think, the government chose to replace the old General Sales Tax with VAT? (2.)
• 0% VAT is payable on some items. These items are called ‘zero-rated’ items. The most basic foodstuffs fall
into this category, for example brown bread, fruit and vegetables and milk. Petrol and diesel are also zero-rated
items.
Can you think of reasons why these items are zero-rated?
• Some products and services are exempt from VAT. This means that VAT does not apply to these products and
services. The following items are VAT exempt: salaries, wages, school fees, banking fees, etc.
* exempt—excluded
Who needs to register for VAT?
Any business owner whose turnover is more than R1 million per year, must register for VAT with SARS. Small
retailers with a turnover of more than R300 000 per annum, must also register.
• turnover = the volume of sales before deducting any discounts or taxes
Any person or business that has to register for VAT, is called a ‘vendor’.
5. The sole trader and VAT CAPS Term 2 Topic 2 “Value-added tax”
Sole traders must do the following to make sure that they comply with VAT legislation:
1. Register for VAT with SARS.
2. Issue VAT invoices for transactions. This means that, for any sale of more than R50, you have to issue a tax
invoice. The tax invoice must have the following information on it:
• The word “Tax Invoice” on it
• The value of the goods/services that you sold, excluding VAT
• The VAT amount
• The value of the goods/services that you sold, including VAT
• The name, address and VAT registration number of the customer
• Your own name, address and VAT registration number
iCount Grade 10
39

Unit
5
SEQUENCE OF ACTIVITIES
6. Pay VAT
You can pay VAT by cash or cheque at any SARS office. You may also make an electronic payment to SARS on
the internet, or pay the amount to SARS at any of the big banks.
VAT IN SARAH’S T-SHIRTS
Transaction
Amount
incl VAT
Amount
excl VAT
Supplier of fabric Sells fabric to Sarah 1 140 1 000 140 140
Sarah
Buys fabric for supplier 1 140 1 000 (140) 70
VAT
Payable to
SARS
Sells T-shirts to wholesaler
1 710
1 500
210
Wholesaler
(e.g. Massmart)
Buys T-shirts from Sarah
Sells T-shirts to retailer
1 710
2 280
1 500
2 000
(210)
280
70
Retailer
(e.g. Edgars)
Buys T-shirts from wholesaler
Sells T-shirts to consumers
2 280
3 420
2 000
3 000
(280)
420
140
Payable to SARS
R420
7. Input VAT and Output VAT CAPS Term 2 Topic 2 “Value-added tax”
Every person in the process of manufacturing a product or delivering a service pays VAT. Two concepts are
important: input VAT and output VAT.
Input VAT
This is the VAT that a registered vendor pays on goods and services he or she buys.
For example:
Sarah’s T-shirts buys fabric from a registered vendor for R980. The price includes VAT of 14%.
Price of fabric, including VAT R980.00
VAT R137.20 (Input VAT for Sarah’s T-shirts)
Purchase price excluding VAT R842.80
VAT-registered vendors pay an amount of VAT over to SARS. The amount is calculated as Output VAT – Input VAT
= Payable to SARS
Output VAT
This is the VAT that is collected from the consumers/customers, based on the final selling price. VAT registered
vendors charge VAT on most of their sales.
For example:
Cost of making a T-shirt: R100.00
Mark-up R50.00
Selling price (excl VAT) R150.00
VAT @ 14% R21.00
Selling price (incl VAT) R171.00
When Sarah’s T-shirts fills in its VAT return, she deducts the input VAT from the output VAT, and pays over the
difference to SARS.
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
transaction. For example, Sarah, as a vendor, pays input VAT on the fabric she buys from suppliers, or on the
bookkeeping services of the company that does her books. This VAT amount will be output VAT in the supplier’s
books.
Unit
5
Further information on VAT: A useful website:
http://southafrica.smetoolkit.org/sa/en/category/2942/Tax-SARS
8. VAT and ethics CAPS Term 2 Topic 2 “Value-added tax”; Term 1 Topic 2 “Ethics”
Sole traders, such as Sarah, whose turnover is more than R300 000 per year must register as a VAT vendor. She
must calculate VAT correctly and disclose all transactions on which VAT is levied. She must complete her VAT
return honestly and pay the VAT over to SARS at the end of each VAT period. She must also never enter into any
illegal transactions to try and avoid paying VAT or any other form of tax.
9. Salaries and wages APS Term 2 Topic 1 “Salaries and Wages Journal”
What is the difference between salaries and wages?
Wages are paid weekly, while salaries are paid monthly. Wages are paid mostly to manual labourers, such as
factory workers, builders, etc. Salaries are more often paid to people in administrative jobs, such as secretaries,
accountants and teachers.
A salary is an amount that the employer pays to the employee every month, for example R8 000 per month. A
wage is an amount per hour or per week, for example, R100 per hour, of R1 000 per week.
Gross salary/wages is the basic salary/wages that the business pays to the employer.
Net salary/wages is the money you get out after various amounts have been deducted.
Deductions can be made for pension fund contributions, Unemployment Insurance Fund contributions, Medical
Aid contributions and income tax contributions.
Net Salary = Gross Salary minus Deductions
Salary notches and scales
When someone starts working for a salary, he or she starts on a certain salary notch. The salary notch is a point on
the salary scale.
For example: Mr Williams, the Accounting teacher, is appointed on a salary scale of R204 500 R220 000
R232 000 R 241 800 R265 700. He starts work on the first notch, R204 500. Every year, he goes up a notch.
Between every notch, there is an incremental increase:
R204 500 R220 000 R232 000
R 241 800 R265 700.
iCount Grade 10
41

Unit
5
SEQUENCE OF ACTIVITIES
10. The Salaries Journal
Salaries are recorded in the Salaries Journal. The Salaries Journal looks like this:
Employees
Basic
Salary
Bonus
Gross
Salary
Pension
Fund
Medical
Aid
PAYE
UIF
A xx x xxx x x x x xx xxxx x1 x x x xx
B xx x xxx x x x x xx xxxx x2 x x x xx
C xx x xxx x x x x xx xxxx x3 x x x xx
Totals xx x xxx x x x x xx xxx x x x xx
TOTAL
Net
Salary
Cheque
No.
Pension
Fund
Medical
Aid
UIF
TOTAL
11. Effect on the Accounting equation CAPS Term 1 topic 5(c) “Accounting Equation”
ASSETS OWNER’S EQUITY LIABILITIES
Debit Credit Debit Credit Debit Credit
+ – – + – +
12. Internal controls and ethics CAPS Term 1 Topic 2 “Ethics”
Staff members who work with salaries and wages must keep proper records, and make sure that there is tight
control over payment of salaries. Where wages are paid on an hourly basis, proper records must be kept of the
number of hours that each worker worked. This staff must display high ethical values, such as honesty, integrity
and responsibility. Management must respect the role of unions in negotiations with management to determine
salaries and salary increases.
42 iCount Grade 10

VAT
Unit
5
1. Calculate the VAT and other amounts asked in the following scenario:
Mr Motsepe manufactures wooden furniture. He buys the wood from Woody Woodpecker, a
partnership that is registered for VAT, for an amount of R2 000 (VAT excluded). VAT on R2 000 is ....
• Amount inc VAT:
• Amount excl VAT:
• VAT amount:
• Payable to SARS:
He then manufactures wooden chairs, which cost him R180,00 each to make. He then sells the
chairs to The Furniture Warehouse, a wholesaler, for R240,00 a chair. What is the mark-up on the
chairs? .......
• Amount inc VAT:
• Amount excl VAT:
• VAT amount:
• Payable to SARS:
The Furniture Warehouse puts a mark-up of 10% on the chairs, and sells it to Game and
Hyperama. What is the amount at which Furniture Warehouse sells the chairs to Game and
Hyperama? ......
• Amount inc VAT:
• Amount excl VAT:
• VAT amount:
• Payable to SARS:
Game and Hyperama add a mark-up of R20 per chair. The final price at which the chair is sold to
the consumer is R.......
• Amount inc VAT:
• Amount excl VAT:
• VAT amount:
• Payable to SARS:
CAPS Term 2 Topic 2 “Value-added tax”
2. Define the following terms: (14)
• SARS
• Input VAT
• PAYE
• STC
• Tax evasion
• Gross salary
• Tax avoidance
CAPS Term 1 Topic 5(c) “Accounting Equation”
CAPS Term 2 Topic 1 “Salaries and Wages Journal”
CAPS Term 2 Topic 2 “Value-added tax”; Term 1 Topic 2 “Ethics”
SAICA Specific Competency VII “Taxation”
iCount Grade 10 43

Unit
5
3. Which TWO of the following are NOT deductions that Sarah’s T-shirts may claim for tax?
• telephone costs
• children’s school fees
• salaries to employees
• rent for the factory where the T-shirts are made
• salaries to Sarah’s domestic worker
• advertising in the local newspaper
• stationery
CAPS Term 2 Topic 2 “Value-added tax”; Term 1 Topic 2 “Ethics”
SAICA Specific Competency VII “Taxation”
4. Group activity: Salaries and Wages:
Learners should work in groups of 4/5, going home and into their communities to collect a few examples
of each of these: salary advice slips / wages advice slips / proof of income. They are to make anonymous
copies of these.
Compare salary notches; basic salaries; gross salaries. Then they are to compare and discuss deductions:
medical aid, pension fund costs, UIF, PAYE, garnishee orders or any other deductions.
Ask groups to prepare a presentation of a salaries journal to the class.
Note: each worker has a cost to company. The employers’ contribution towards UIF and medical aid is
calculated R1 to R1. Pension contribution of the company is calculated as 2% of the gross salary.
44 iCount Grade 10

Management Design
and Control
Unit
6
In this unit:
• Definition and explanation of basic cost concepts.46
• Corporate governance........................................ 46
• Costing............................................................... 47
• Budgets............................................................. 48
• Debtors and Creditors reconciliation................... 50
• Creditors reconciliation....................................... 51
iCount Grade 10
45

Unit
6
Being a business manager means it is your responsibility to manage and control the business in such a way that
its targets and objectives are being met. The accountant will play a very important role in this team by providing
the information needed to make the correct business decisions.
A main and important function of the accountant and the management team is to make sure that the business
runs in an ethical and efficient way and to regularly check all the information in the financial accounts.
SEQUENCE OF ACTIVITIES
1. Definition and explanation of basic cost concepts CAPS Term 3 Topic 3 “Cost
Accounting”
When you are a sole trader, ‘cost’ is a very important issue. You have to determine the cost of the products you
sell, the materials you buy and the cost of the shop or factory you rent.
Costs are deducted from the income or profit of a business, so it makes sense to limit costs as far as possible.
Let’s look at a number of concepts that relate to costs:
• Direct labour costs: Direct labour costs are the salary expenses that are directly related to the manufacturing
of a product, e.g. paying someone to print a T-shirt.
• Indirect labour: Indirect labour is the salary expenses that do not directly relate to the production process,
e.g. the person who makes tea in the office.
• Direct materials (raw materials): Direct materials are the materials that form a basic part of the final product
that is being manufacturer, e.g. paper for the printing of this manual.
• Indirect materials: Indirect materials do not relate directly to the manufacturing process, e.g. the electricity for
the printers.
• Factory overhead costs: Overhead costs include costs such as rent, water and electricity, insurance and so
on but does not relate directly to the production process.
• Variable costs: Variable costs are expenses that change as the activities of the business change. For
example, the more booklets the printing company prints, the higher the cost of the paper—the paper cost is
the variable cost that changes in relation to the production output (booklets).
• Fixed costs: Fixed costs remain the same regardless of how many products are manufactured or sold. For
example, the rent for the printing factory will stay the same, whether 100 booklets are sold, or 1000.
• Prime costs: Prime costs are the total of direct material costs, direct labor costs, and direct expenses.
• Work-in-process: Work that is not yet completed, for example, the booklets that have been printed but not
bound yet.
2. Corporate governance SAICA Specific Competency VII “Management Design and Control”
CAPS Term 1 Topic 2 “Ethics”
The term ‘corporate governance’ is mentioned often in newspaper articles and news bulletins. It is becoming more
and more important in South Africa and in the rest of the world.
Corporate governance refers to the control measures that are in place in governments or organizations that are put
in place to prevent fraud and bad business practice. We all need to run ethical businesses that are corruption free.
The most important document in South Africa that relates to corporate governance is The King Report on
Corporate Governance. The third version of this report was published in 2010.
The King Report III recommends a variety of methods to ensure good corporate governance in companies. It sets
out the role of the Board of Directors and also focuses a lot on corporate sustainability (the Triple Bottom Line
concept, that we referred to in Unit 2).
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
person’s or an organisation’s behavior. Ethics consist of elements such as honesty, integrity and fairness.
For management to exercise good corporate governance, they must have high ethical standards. They must act
responsibly and with integrity and treat all stakeholders in a morally correct way.
The Board of Directors of an organization usually appoints an Audit Committee, which is responsible for corporate
governance issues in the organization.
Unit
6
3. Costing CAPS Term 3 Topic 3 “Cost Accounting”
Costing refers to the process of calculating the cost of doing something. Pricing is a term that is often confused
with costing. Pricing is the process of determining the price of something.
Different kinds of costs are involved when a product is manufactured:
Fixed costs
Fixed costs are the costs that remain the same over the production process. In other words, it does not change
based on the number of products that are produced. Examples of fixed costs are rent and salaries of workers.
See Graph 1 below.
50
40
30
Graph 1: Fixed costs not affected
by the number of units produced
20
10
0
20 40 60 80 100
Variable costs
Variable costs, on the other hand, change according to the number of units that are produced. For example, if
the number of T-shirts that Sarah makes, increases, then the number of meters of fabric that Sarah uses for her
T-shirts will also increase. See Graph 2 below.
60
50
40
30
20
10
0
20 40 60 80 100
variable
costs
fixed costs
Graph 2: Variable costs reflecting an increase in
variable costs due to increased material purchases
(variable line can go down, too)
iCount Grade 10
47

Unit
6
SEQUENCE OF ACTIVITIES
Direct costs
Direct costs relate DIRECTLY to manufacturing the product or delivering a service. There are three types of direct
costs namely direct material costs, direct labour costs and direct expenses.
• Direct material costs: the fabric and sewing machines will be direct costs for Sarah’s T-shirts
• Direct labour costs: e.g. the salaries and wages of the factory workers
• Direct expenses: e.g. delivery costs to transport the T-shirts to the shops
Indirect costs
Indirect costs are the factory costs that relate to the manufacturing process. There are four kinds of indirect costs:
• Indirect raw material expenses: e.g. packing material, cleaning material
• Indirect labour expenses: e.g. maintenance of the sewing machines
• Manufacturing machinery expenses: e.g. maintenance of the sewing machines
• Manufacturing building expenses: e.g. rent, water and electricity
It is important that sole traders take into account all these costs BEFORE they start manufacturing and selling their
products. If the costs *exceed the price at which the product or service can be sold, it doesn’t make business
sense to even start manufacturing the product.
* exceed: be more than
Remember: Price = Cost + Mark-up
Here is an example of how Sarah can calculate the production cost of the finished T-shirts:
Cost of raw materials (fabric, cotton etc) 20 000
PLUS: direct wages 10 000
Prime cost (raw materials + wages) 30 000
PLUS: Factory overheads (eg electricity, etc) 15 000
FINAL COST OF FINISHED T-SHIRTS 45 000
Final costs
Direct costs + indirect costs = final costs, or the total cost of production.
4. Budgets CAPS Term 4 Topic 1 “Budgeting”
What is a budget?
You’ve probably heard of budgets. In February each year the Minister of Finance presents the government’s
budget. The expression to ‘stay within your budget’ is also well-known—it means that you should not spend more
money than what you earn.
The purpose of a budget in a business is to plan and manage the business’s finances.
Why budget?
One of the main advantages of a budget is that it helps the business to plan its activities so that it can achieve a
profit.
Management can also keep an eye on the budget (if they update it regularly) to see when any problems may arise
in future.
Types of budgets
• Cash budget: A cash budget reflects an *estimate of all the money received and spent during a specific
period.
*estimate: guess / number that it more or less correct
48 iCount Grade 10

What does a cash budget look like?
SEPTEMBER OCTOBER NOVEMBER
CASH RECEIPTS
Cash sales xx xx xx xx xx xx
Rent income xx xx xx xx xx xx
Receipts from debtors xx xx xx xx xx xx
Unit
6
TOTAL RECEIPTS xx xx xx xx xx xx
CASH PAYMENT
Cash purchase xx xx xx xx xx xx
Salaries & wages xx xx xx xx xx xx
Water & electricity xx xx xx xx xx xx
Payments to creditors xx xx xx xx xx xx
TOTAL PAYMENTS xxx xx xxx xx xxx xx
Cash surplus (deficit) xx xx xx xx xx xx
Bank (opening balance) xx xx xx xx xx xx
Bank (closing balance) xx xx xx xx xx xx
• Zero-base budget: This type of budget is used when a business prepares a new budget and does not have
any previous budget to compare it with.
• Capital budget: Capital budgets relate more to long-term planning than short-term planning. It deals with
items such as spending on land and buildings.
Budgeting process and timing
Depending on WHO is preparing the budget and WHY, we can distinguish between three types of budgeting
processes:
• Long term budget: WHO: Top Management WHY: To make sure that the business finances run smoothly in
the next few years
• Medium term budget: WHO: Middle Management WHY: To make sure the business finances of a specific
department run smoothly for the next year
WHAT IS THE MEDIUM TERM EXPENDITURE FRAMEWORK?
The Medium Term Expenditure Framework (MTEF) was adopted in 1998 as part of a wide package of budget
reforms which included the Intergovernmental Fiscal Relations Act of 1997 (IGFRA). That year for the first time,
the annual budget included 3-year spending plans. Although only the single upcoming fiscal year is voted on by
Parliament each year, the government presents numbers for the following two years as well.
The MTEF is a tool to encourage cooperation across ministries and planning over a longer horizon than the
immediately upcoming fiscal year.
http://www.idasa.org/media/uploads/outputs/files/intro2.pdf
iCount Grade 10
49

Unit
6
SEQUENCE OF ACTIVITIES
5. Debtors and creditors reconciliation CAPS Term 1 Topic 4 Internal Control; Topic 5(c)
“Bookkeeping of a Sole Trader”
What are debtors?
The debtors of a sole trader are those people and businesses who owe the sole trader money.
What are creditors?
Creditors are those people and businesses that the sole trader owes money to.
What is a ‘reconciliation’?
When you do a reconciliation, you compare the figures in one set of accounts to the figures in another set of
accounts to make sure that they match each other.
Transactions with debtors and creditors
When customers (individuals or other businesses) buy products or services on credit (that is, not cash) the
transaction is recorded in the debtors journal.
There are separate accounts for each debtor in the debtor’s ledger. These accounts contain all the details of all the
transactions between each debtor and the business. It shows the total amount outstanding (the money the debtor
owes to the business).
Every day or month (depending on the business’ policy) the accountant
or bookkeeper posts (transfers) the entries in the journal to each
debtor’s individual account.
When debtors pay the business, it is recorded in the cash receipts
journal. If any customer returns a product for whatever reason, these
returns are recorded in the debtors allowances journal.
Why do we need to control debtors and creditors?
The business must keep an eye on its debtors, because if they do not
repay their debts, the business will lose a lot of money. When debtors
do not pay their debts, these debts are known as ‘bad debts’. The
debtors must also be controlled to make sure that they *comply with
the business’ credit policy.
*comply with: obey, stick to e.g. rules
It is also important to *monitor your creditors. The business must check
its creditors’ accounts to make sure that the information (such as the
amount and the product or service bought) is indeed correct.
*monitor: keep an eye on
One of the ways in which the business controls its debtors, is by doing
an age analysis.
50 iCount Grade 10

Unit
6
6. Creditors reconciliation CAPS Term 1 Topic 4 Internal Control; Topic 5(c) “Bookkeeping of a
Sole Trader”
Creditors send out a statement at the end of the month, showing the transactions that were entered into as well as
the amounts.
For example, Sarah’s T-shirts will receive a statement from Fabric Warehouse that shows details of the fabric that
Sarah bought, as well as the amounts that she owes to Fabric Warehouse:
FABRIC WAREHOUSE
SOLD TO: SARAH MNISI
Account number: 9821662 13 May 2012
DATE UNIT PRICE DEBIT CREDIT
Balance carried over 2012-03-31 2 880.00
15m Floral stretch velour
@60/m 900.00
Code # 762$2
20m Viscose red
@28/m 560.00
Code # 000876
Cotton 100m 50.00
8 bottles Orca Fabric Paint @17.00/each 136.00
Sub-total 1 646.00
VAT @ 14% 230.40
TOTAL 4 756.44
Payment received 2012-04-08 2 000.00
TOTAL DUE 2 756.44
Sarah would have entered the same details into her Creditor’s Ledger Account. She will have a separate account
for Fabric Warehouse in the Creditor’s Ledger.
She must now compare the details on this statement to the details in her Creditor’s Ledger Account.
• Compare the debit column of the statement to the credit column in the Creditor’s Ledger Account.
• Compare the credit column of the statement to the debit column in the Creditor’s Ledger Account.
If there are any differences between the statement received from Fabric Warehouse and Sarah’s Creditor’s Ledger
Account, she must contact Fabric Warehouse and find out why the error occurred. Perhaps the amounts were
not added up correctly, some transactions may have been entered twice, or perhaps not at all. The error can be
in Sarah’s records, or in Fabric Warehouse’s records. These errors will be corrected by entering it in the general
journal.
iCount Grade 10
51

Unit
6
Debtors & Creditors Reconciliation
1. Interview a sole trader and ask him / her to complete the following questionnaire:
a) What is the main product / service that you sell?
b) What are your main expenses?
c) Which raw materials do you use?
d) Do labour costs form a big part of your expenses?
e) How do you determine your selling prices?
f) Do you keep a large inventory?
2. Explain the difference between the following terms:
• Costing vs Pricing
• Ethics vs Corporate governance
• Creditors vs Debtors
• Fixed costs vs variable costs
CAPS Term 1 Topic 4 Internal Control; Topic 5(c) “Bookkeeping of a Sole Trader”; CAPS Term 3
Topic 3 “Cost Accounting”; CAPS Term 1 Topic 2 “Ethics”
3. Give examples of all the following concepts from Sarah’s T-shirts:
• Direct labour in Sarah’s T-shirts will be……..
• Indirect labour in Sarah’s T-shirts will be……...
• Direct materials (raw materials) in Sarah’s T-shirts will be……
• Indirect materials in Sarah’s T-shirts will be…….
• Factory overhead costs in Sarah’s T-shirts will be……..
• Prime cost in Sarah’s T-shirts will be……….
• Variable costs in Sarah’s T-shirts will be………
• Fixed costs in Sarah’s T-shirts will be……….
• Work-in-process in Sarah’s T-shirts will be………..
CAPS Term 1 Topic 3
4. Complete the following sentences: When doing a creditor’s reconciliation, we …
• compare the debit column of the statement to the ………….. column in the Creditor’s Ledger Account.
• compare the credit column of the statement to the debit column in the ………… Account.
CAPS Term 1 Topic 4 Internal Control; Topic 5(c) “Bookkeeping of a Sole Trader”
5. What are the advantages of doing a debtor’s and creditor’s reconciliation?
CAPS Term 1 Topic 4 Internal Control; Topic 5(c) “Bookkeeping of a Sole Trader”
6. What are the advantages of drawing up a budget?
CAPS Term 4 Topic 1 “Budgeting”
7. Draw up a cash budget for Sarah’s T-shirts for the next 3 months. (Use your own figures.)
CAPS Term 4 Topic 1 “Budgeting”
52 iCount Grade 10

8. Manufacturing Scenario:
The business, Sarah’s T-shirts, also produces school-designed T-shirts
developed by learners during Life Orientation periods. The T-shirt is meant to be
comfortable and also stylish to attract learners. Sarah is using a fabric made from cotton and
uses special buttons on the T-shirts. It takes three people to complete one T-shirt. One person cuts the
material; the other worker uses a sewing machine to put together the T-shirt and the last person manually
sews the loose parts together to complete the product. The business has also employed Mr Smith who
supervises the workers and Mr Harris who works as a security guard.
The business rents a building and pays water and electricity service costs. The factory sewing machine
depreciates at a rate of 10% per annum.
• List and define cost concepts.
• Provide examples from the scenario that matches each of the cost concepts.
9. Debtors’ reconciliation:
Provide learners with the following, incorrect, Debtors Control Account and ask them to rearrange the
account correctly in 5 to 8 minutes.
General ledger of Sarah’s T-shirt
Balance sheet section
DEBTORS CONTROL
July 1 Balance b/d 73 080 July 31 Bank CRJ 105 600
31 Discount allowed CRJ 720 Sales DJ 97 400
Debtors allowance DAJ 2 170 Petty Cash PCJ 600
List of Debtors on 31 July 2011
DEBIT
CREDIT
R. Mchunu 12 550 550
P. Ndwanbe 30 170
S. Fubi 20 005
D. Verster 2 200
64 925 550
Adjustments
• The credit balance in R. Mchunu’s account must be used to reduce his debt.
• Transportation for goods, sold to P. Ndwambe was paid from petty cash and correctly recorded in the
Debtors control account but not recorded in the debtors’ ledger.
• Credit sales to S. Fubi of R665 were recorded only in his account but were not posted to the Debtors
control account.
• Debtors allowance column as per debtors allowance journal is R2 260.
• The insolvent estate of debtor D. Verster, who owed R2 200, paid 20 cents in a rand. A cheque for the
amount was received and recorded correctly. No other entry has been made.
Unit
6
iCount Grade 10
53

Unit 1
1.
Accounting term/concept
Sole trader
Journal
Financial Statements
Income/Revenue
Capital
Assets
Liabilities
Equity
Profit
Discounts
Perpetual inventory system
2. The accounting cycle
Example from Sarah’s business
Sarah
A book in which she writes down all her
receipts
Her accounts of income and expenses
The money she receives from customers who
buy the T-shirts
The amount by which Sarah’s income is more
than her expenses / the sewing machines,
fabric etc that she uses to make the T-shirts
Sewing machines, cash register, fabric, cotton
etc
Loans she took from a bank/factory rent
The money Sarah invested in her business plus
all the profits
Because her income is more than her
expenses, she makes a profit
She gives discounts to customers who buy
more than 10 T-shirts ate a time; they pay 10%
less
Every time she sells a T-shirt, her computer
system records it and the inventory numbers
are adjusted to show the new number of items
for sale that is available
1. If Sarah does this, she would act in an unethical manner. She will
basically ‘steal’ the money from the government when she hides it. She
must always show all her income to SARS. (Some learners may feel
that this conduct is indeed acceptable—guide them to see the ethical
implications.)
2. Honesty and integrity: Must be honest and not lie, do their work with
pride; Professional excellence: They must perform their work the best
they can and think of solutions to challenges all the time; Respect: they
must have respect for other accountants’ skills and knowledge and not
badmouth them to clients; Fairness that builds trust: accountants must
make fair decisions so that clients and other accountants know that
they can trust them; Collaboration: they must work together with other
accountants and clients; Non-discrimination: they must be fair to all people
and give them equal opportunities.
3. (a) Assets = Owner’s Equity + Liabilities; or Owner’s Equity = Assets –
Liabilities
(b) For example: Sarah’s T-shirts has more assets than liabilities. Assets =
R80 000 and liabilities are R38 000. What is the equity of Sarah’s T-shirts?
Owner’s Equity = Assets – Liabilities = R80 000 – R38 000 = R42 000
4. Learners’ own work; will differ according to interviews. Teachers
may also arrange for a few small traders to visit the school so that the
learners can interview them there. Make sure that learners state at last 2
advantages and 2 disadvantages and that they motivate their opinions.
5. sales invoice, cheque counterfoil, debit note, credit note, petty cash
voucher, etc
6. Across: 4 financial accounting; 6 credit; 7 general ledger;
Down: 1 human resources; 2 sole trader; 3 debit; 5 inventory
Unit 2
1. Most business worldwide follows GAAP. Yes, she should follow GAAP,
as she can then compare her accounting with that of other businesses; OR
no, it is not necessary, her business is too small.
2. Yes, because it is a big business and they have to compete in
international markets.
3. Learners’ own ideas, e.g. the business can compare its accounts to that
ANSWERS UNITS 1–3
of other businesses; customers and shareholders will see that the business
is serious about its accounting; the business is on the same standard as
other international businesses; the business can keep track of its accounts
by using an international standard, etc.
4. 1. E; 2. D; 3. F; 4. B; 5. A; 6. C
1. The main objective of this GAAP framework is to make sure that the
information that accountants record and report on, is relevant, reliable and
comparable. The principle of prudence also relates to ethical behaviour—in
other words, accountants must report in a way that is reliable, honest,
responsible and matches an international standard (GAAP). Learners may
also draw a picture where the values overlaps, eg
2. There must be procedures in place to limit theft, for example, making
sure that petty cash vouchers are signed whenever any worker removes
petty cash from the petty cash box to buy tea, coffee etc. There must be
only one petty cash box in the business, and Sarah must count the money
regularly to check. At the end of the month, Sarah checks all the cash
slips of all the items bought from the petty cash. She then puts back that
amount that was spent during the month into the petty cash box, which
means that the pretty cash imprest is brought back to the original imprest
amount.
3. Assets are debited:
ASSETS
Dr___________________________________________________Cr
+ -
Dr Increase if debited
Liabilities are credited:
LIABILITIES
Dr___________________________________________________Cr
- +
Increase if credited
Owner’s equity is debited:
OWNER’S EQUITY (Works the same as Liabilities)
Dr___________________________________________________Cr
- +
Decrease if debited
4. • GAAP stands for General Accepted Accounting Practice • Petty cash
imprest refers to a fixed amount that is put in the petty cash box every
month • Ethical values are related to peoples values and how people see
concepts such as right and wrong and good and evil e.g. honesty, integrity,
respect, fairness, etc. • Going concern stands for a business that keeps on
doing functioning and does not plan or is not in the danger to close down
or be liquidated........ • Reasonable assurance is a statement that it is not
possible to say with certainty that something will or will not happen.
5. Assets are the properties or belongings of the business; Owners’ equity
represents the interest of the owner in the business; Liabilities are the
obligations/debts of the business; Accounting equation:
ASSETS OWNERS’ EQUITY LIABILITIES
Land and buildings Capital-(+) Mortgage bond
Equipment Drawings(-) Trade creditors
Vehicles Income (+)
a) Discount received
Fixed deposit
b) Rent income
c) Interest income
Sales
Trading stock
Trade debtors
Bank/Cash
Cash float
Petty Cash
GAAP:
prudence, set
standard that
organisations
can compare
against,
reliability
Ethics:
honesty,
integrity,
responsibility
Expenses(-)
a) Stationery
b) Bad debts
c) Wages/Salaries
d) Repairs
e) Rates etc
Cost of sales
Bank overdraft
Short term loan
54 iCount Grade 10

6.
No
Source
document
1 Original
invoice
2 Duplicate
invoice
3 Cheque
counterfoil
4 Petty cash
voucher
5 Duplicate
receipt
6 Cheque
counterfoil
7 Journal
voucher
8 Bank
statement
Journal
Account
debited
Account
credited
Amount
Asset Owner’s
equity
Liabilities
700 + 0 +
CJ Material
stock
Creditors
control
DJ Debtors Sales 300 + + 0
control
Cost of Trading 240 - - 0
sales stock
CPJ Rent Bank 400 - - 0
expenses
PCJ Drawings Petty 100 - - 0
cash
CPJ Creditors Bank 560 - 0 -
control
CPJ Stockmaterial
Bank 855 +/- 0 0
GJ Bad debts Debtors 300 - - 0
control
CPJ Bank Bank 30 - - 0
charges
CATEGORY RATIO CALCULATIONS
1) Solvency a) Net assets
b) Solvency
2) Liquidity a) Current ratio
3) Return on
equity
b) Acid-test ratio
Total assets-Total liabilities
=950 000-310 000
=640 000
Total assets: Total liabilities
=950 000: 310 000
= 3.06: 1
Current assets :Current
Liabilities
=80 000: 40 000
= 2: 1
Current assets-stock :
Current liabilities
=(80 000-30 000): 40 000
= 1.25: 1
a) Return on equity Net profit/Average
equity*100
= 49 000/644 500 *100/1
=7.6%
Unit 3
1. Human resources: Cleaners, workers who make T-shirts, Capital
resources: sewing machines, factory building, Inventory: stock of
completed T-shirts, fabric in the storeroom, Natural resources: water,
energy (electricity)
2. Learners own ideas, e.g. May run out of natural resources eg water,
electricity may be disconnected if not paid; labour unrest by workers,
workers may resign if not happy; not enough fabric to make T-shirts,
or inventory of T-shirts to sell; sewing machines will not work if not
maintained, which means no production, etc.
1. Learners’ own answers, e.g. Draw up reconciliation statements ;
Internal control measures; segregation of duties; make sure all transactions
are authorised; keep proper records of all transactions; prevent theft by
employees and others e.g. security cameras, ensure proper supervision,
train staff in ethics, IT: make sure computers have passwords.
2.
CATEGORY RATIO CALCULATIONS
1) Profitability a) Gross profit percentage
on sales
b) Gross profit % on cost
of sales
c) Operating expenses on
sales
d) Operating profit on sales
e) Net profit on sales
Gross Profit/Sales*100/1
=179 000/895 000*100
=20%
Gross Profit/Cost of
sales*100/1
=179 000/716 000*100
=25%
Operating expenses/
sales*100/1
=174 000/895 000*100
=17.7%
Operating profit/
sales*100/1
=58 000/895 000*100
=6.5%
Net profit/Sales*100/1
=49 000/895 000*100
=5.5%
3.
current ratio
net profit
balance sheet
reconciliation statement
gross profit
4. Income statement format
INCOME STATEMENT OF ……
FOR THE YEAR ENDING ………….
Sale for the year
Cost of sales
GROSS PROFIT
GROSS OPERATING INCOME
X
X
X
GROSS OPERATING INCOME
OPERATING EXPENSES
X
X
X
X
X
OPERATING PROFIT
Interest Income
PROFIT BEFORE INTEREST
EXPENSE/FINANCE COST
Interest expense / finance cost
NET PROFIT FOR THE YEAR
current assets ÷ current liabilities
difference between income from selling the
product and ALL the business’s expenses
shows the financial position of a business on a
specific day
compare personal and bank records
difference between income from selling the
product and the expenses to make a product
Note R R
xxx
xxx
xxx
xxx
xxx
(xxx)
xxx
xxx
xxx
(xxx)
xxx
xxx
xxx
(xxx)
xxx
5. interest income: income earned on investments, positive balances
in savings accounts at bank, interest paid by debtors on accounts
receivable, etc; interest expense: interest paid on loans from bank, interest
paid on accounts payable to suppliers, etc
iCount Grade 10
55

ANSWERS UNITS 3–6
6. Balance sheet format:
BALANCE SHEET OF ……..
BALANCE SHEET AS AT ……..
Note
ASSETS xxx xx
NON-CURRENT ASSETS
Tangible assets
FINANCIAL ASSETS
Fixed deposit
CURRENT ASSETS xxx xx
Inventory
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS xxx xx
EQUITY AND LIABILITIES
OWNER’S EQUITY xxx xx
Capital
NON-CURRENT LIABILITIES xxx xx
Mortgage loan
CURRENT LIABILITIES xxx xx
Trade and other receivables
Bank overdraft
Short-term loan
TOTAL EQUITY AND LIABILITIES xxx xx
7. Notes to the annual financial statement
Tangible asset
Land and
buildings
R
Vehicle Equipment Total
Cost price xxxxx xxxxx xxxxx xxxxx
Accumulated depreciation (xxxx) (xxxx) (xxxx)
Book value/carrying valuebeginning
of the year
xxxx xxxx xxxx xxxx
Movements
Additions at cost xxxx xxxx xxxx xxxx
Disposal at carrying value (xxx) (xxx) (xxx) (xxx)
Depreciation for the year (xx) (xx) (xx) (xx)
Book value/carrying valueend
of the year
xxxx xxxx xxxx xxxx
Cost price xxxxx xxxxx xxxxx xxxxx
Accumulated depreciation (xxxx) (xxxx) (xxxx) (xxxx)
Trade and other receivable
Trade debtors
Accrued income
Expenses prepaid
xxx
xx
x
xxxxxx
Owner’s Equity
Balance—beginning of the year
Net profit/(loss) for the year
Drawing for the year
Trade and other payables
Trade creditors
Income received in advance
Accrued expenses
xxx
xx
x
xxxxxx
xxx
xx
x
xxxxxx
8. Learners’ own answers, e.g. the company should talk to their
stakeholders; keep their word, act ethically even though the law doesn’t
force them to; spend the necessary money to rehabilitate (restore) the area
where they have mined, etc
Unit 4
1.
Adjustment Account debit Fol Account credit Fol
Accrued income Accrued income B Income N
Accrued expenses Expense N Accrued expense B
Prepaid expenses Prepaid expenses B Expense N
Income received in
advance
Income n Income received in
advance
B
Consumable stores
on hand
Consumable stores
on hand
B Expense (eg fabric) N
Trading stock deficit Trading stock deficit N Trading stock B
Depreciation Depreciation N Accumulated
depreciation
(eg on sewing
machine)
B
2. Net sales = Sales – Debtors Allowances; Net Profit = Income – All
Expenses; Gross Profit = Sales – Cost of Sales
3.
Dr
20XX
feb
28 All expenses
account
Capital (net
profit)
4. Cost price method
GJ
GJ
20XX
feb
28 Trading
account
(gross profit)
All income
accounts
Date Cost price Depreciation Accumulated
depreciation
GJ –
Cr
Book value/
carrying value
30 June 2007 R30 000 R6 000 R6 000 R24 000
30 June 2008 R6 000 R12 000 R18 000
30 June 2009 R6 000 R18 000 R12 000
30 June 2010 R6 000 R24 000 R6 000
30 June 2011 R6 000 R30 000 R 1
Diminishing balance method
Date Cost price Depreciation Accumulated
depreciation
Book value/
carrying value
30 June 2007 R30 000 R6 000 R6 000 R24 000
30 June 2008 R4 800 R10 800 R19 200
30 June 2009 R3 840 R14 640 R15 360
30 June 2010 R3 072 R17 712 R12 288
30 June 2011 R2 457,60 R20 169,60 R 9 830,40
56 iCount Grade 10

Unit 5
1. Learners’ own answers, they must focus on ethical conduct and the fact
that he is committing a criminal offence by evading tax payments.
2. Learners’ own answers e.g. to distribute the tax load more evenly, to
collect more tax
1. R280; • Amount inc VAT: R2 000 + R280 (14% of R2 000) = R2 280
• Amount excl VAT: R2 000 • Vat amount: R280 • Payable to SARS: R280;
R240 – R180 = R60; R242.40; R 262.40; Amount inc VAT: R262.40;
Amount excl VAT: R262.40 – 14% (R36.73) = R225.67; Vat amount:
R36.73
2. South African Revenue Service; The VAT that a registered vendor
pays on goods and services he or she buys; Pay As You Earn, tax that
employers deduct from employees’ salaries; Secondary tax on companies;
Illegal ways to not pay tax that is payable to SARS; Salary before any
deductions are made; Legal ways to pay less tax
3. children’s school fees; salaries to Sarah’s domestic worker
4. Learner’s own answers, check for completeness and that all deductions
are reflected in the salary journals.
Unit 6
1. Learners’ own answers; you may invite a sole trader or two to the class
for a group interview.
2. • Costing = calculating the cost of doing something. Pricing =
determining the price of something. • Ethics = moral principles that
guide a person’s or an organisation’s behavior e.g honesty, integrity and
fairness. Corporate governance = the control measures that are in place in
governments or organizations that are aimed at preventing fraud and bad
business practice • Creditors = people and businesses that the sole trader
owes money to. Debtors = people and businesses who owe the sole
trader money. • Fixed costs remain the same over the production process;
does not change based on the number of products that are produced.
Variable costschange according to the number of units that are produced
3. • Direct labour in Sarah’s T-shirts will be the salaries she pays her
workers who make the T-shirts • Indirect labour in Sarah’s T-shirts will be
the ages of the garden worker • Direct materials (raw materials) in Sarah’s
T-shirts will be costs of the fabric she uses • Indirect materials in Sarah’s
T-shirts will be electricity for the sewing machines • Factory overhead costs
in Sarah’s T-shirts will be rent, water and electricity, etc. • Prime cost in
Sarah’s T-shirts will be total of direct material costs, direct labor costs, and
direct expenses. • Variable costs in Sarah’s T-shirts will be the cost of the
fabric (changes according to number of units produced) • Fixed costs in
Sarah’s T-shirts will be rent for the factory, salaries etc (stays the same no
matter how many units are produced) • Work-in-process in Sarah’s T-shirts
will be T-shirts that have not been completed yet.
4. • compare the debit column of the statement to the CREDIT column
in the Creditor’s Ledger Account. • compare the credit column of the
statement to the debit column in the CREDITOR’S LEDGER Account.
5. Debtors: Keep an eye on your debtors, because if they do not repay
their debts, the business will lose a lot of money, make surev the debtors
accounts are not too long overdue; must also make sure that transactions
with debtors comply with the business’ credit policy. Creditors: Check
creditors’ accounts to make sure that the information (such as the amount
and the product or service bought) is indeed correct and matches the
information on your business bank statements.
6. Helps to plan the business’ activities so that it can achieve a profit; keep
an eye on the budget to see when any problems may arise in future, for
example, if sales are not reaching the targets that the business sets. Also
learners’ own ideas.
7.
MONTH 1 MONTH 2 MONTH 3
CASH RECEIPTS
Cash sales xx xx xx xx xx xx
Rent income xx xx xx xx xx xx
Receipts from debtors xx xx xx xx xx xx
TOTAL RECEIPTS xx xx xx xx xx xx
CASH PAYMENT
Cash purchase xx xx xx xx xx xx
Salaries & wages xx xx xx xx xx xx
Water & electricity xx xx xx xx xx xx
Payments to creditors xx xx xx xx xx xx
TOTAL PAYMENTS xxx xx xxx xx xxx xx
Cash surplus (deficit) xx xx xx xx xx xx
Bank (opening
xx xx xx xx xx xx
balance)
Bank (closing balance) xx xx xx xx xx xx
** Learners must use figures in columns. Make sure that figures used add
up and that transactions balance.
8. • Direct material costs are costs that form a basic part of the final
product that is being manufactured. (fabric) • Indirect material costs are
costs that do not directly relates to the manufacturing process. (buttons)
• Direct labour costs are costs that relates to the remuneration of workers
directly involved in the production. (Three workers) • Indirect labour costs
are costs that relates to the remuneration of those workers not involved
in the production process. (Supervisor and security guards) • Factory
overheads are costs that do relate directly to the production process.
(Supervisor, security guard, rent, water and electricity and depreciation)
• Prime costs consists of direct material costs and direct labour costs.
(fabric and three workers) • Fixed costs are costs that remain the same
regardless of the number of units produced. • Variable costs are costs that
changes as the activities of the business changes.
9. General ledger of Sarah’s T-shirt
Balance sheet section
DEBTORS CONTROL
July 1 Balance b/d 73 080 July 31 Bank CRJ 105 600
31 Sales (97 DJ 98 065 Discount DJ 720
400+665)
Petty
Cash
Sundry
accounts
Aug 1 Balance b/d 62 775
PCJ 600 Debtors
allowance
(1 300 + 2
200)
DAJ 2 080
GJ 2 930 Sundry GJ 1 300
accounts
(1 300 + 2
200)
Balance c/d 62 775
174 675 174 675
List of Debtors on 31 July 2011
DEBIT
R. Mchunu (12 550-550) 12 000
P. Ndwanbe (30 170+ 600 30 770
S. Fubi 20 005
D. Verster (2 200 - 2 200) 0
62 775
CREDIT

iCount
GRADE
SUPPORTING ACCOUNTING
in the FET classroom
10
This is a supplementary resource, developed to
assist teachers and learners in the FET Accounting
classroom. The core concepts are provided in real-life
contexts, and aligned to the CAPS document and the
national curriculum for South African schools.