ACC 1A: Accounting 1A Study Notes (University of Johannesburg – BCom Accounting)

ACC1A at the University of Johannesburg (UJ) is a foundational first-year module for the BCom Accounting degree and related programmes. It introduces the accounting cycle, core principles, double-entry bookkeeping, and the preparation of basic financial statements. These notes are structured as exam-focused study material tailored for UJ students, but they are also useful for students at South African universities such as UNISA (e.g. FAC1501, FAC1502), CUT (e.g. ACC10AB), and other institutions taking introductory accounting. The focus is on concepts, formats, exam-style examples, and common pitfalls.

1. Introduction to Financial Accounting and the South African Context

1.1 The Role and Purpose of Financial Accounting

Financial accounting is the process of identifying, measuring, recording, and communicating financial information about an entity to users so that they can make informed decisions.

Key purposes:

Decision-making: Helps investors, creditors, management, SARS, and other stakeholders evaluate performance, risk, and financial position.
Accountability and stewardship: Management is accountable to the owners (shareholders) for how resources are used.
Compliance: Satisfies legal requirements (e.g. Companies Act 71 of 2008), tax regulations, and stock exchange rules.
Comparability: Enables comparison between entities and across periods through standardised reporting (e.g. IFRS, IFRS for SMEs).

Typical exam-type question for ACC1A / FAC1501:

Explain why financial accounting information is important to two external users and provide one example of a decision each user might make.

Example answer structure:

Investor: decide whether to buy or sell shares based on profitability, growth, and dividends.
Bank (creditor): decide whether to grant or extend a loan based on liquidity (current ratio) and solvency (debt-to-equity).

1.2 Types of Accounting and How ACC1A Fits In

At UJ in BCom Accounting (and similar courses like UNISA’s FAC1501 and CUT’s ACC10AB), students are introduced to three broad branches of accounting:

Financial Accounting
- External focus (investors, banks, SARS, regulators).
- Historical information; primarily financial/monetary.
- Governed by standards (IFRS, IFRS for SMEs, GAAP where applicable).
Management Accounting / Cost Accounting
- Internal focus (management decision-making).
- Future-oriented: budgets, cost analysis, break-even, performance measurement.
- No strict external standard; driven by relevance and usefulness.
Auditing and Assurance (touched on conceptually in first year):
- Provides independent assurance on the fairness of financial statements.
- Governed by ISA (International Standards on Auditing) and local regulations (IRBA in South Africa).

Where ACC1A fits in:

ACC1A primarily covers:
- Basic concepts and principles (e.g. accounting equation, accrual basis).
- The accounting cycle: source documents → journals → ledgers → trial balance → financial statements.
- Double-entry system.
- Preparation of basic financial statements for a sole trader and basic company formats.

Later modules at UJ (e.g. ACC2A, ACC2B, ACC3A) expand into more complex standards (e.g. PPE, revenue recognition, financial instruments) and company structures.

1.3 Users of Financial Statements

In ACC1A exams, you are often asked to identify users and explain their information needs.

Primary users (IFRS perspective):

Existing and potential investors:
- Need information on profitability, risk, and growth.
- Look at EPS, dividend history, return on equity (ROE), and share price performance.
Lenders and other creditors:
- Need information on likelihood and timing of repayments.
- Look at liquidity ratios, interest coverage, and debt levels.

Other users (especially relevant in South Africa):

SARS (South African Revenue Service):
- Uses financial statements to assess tax liabilities.
Employees and their unions:
- Interested in stability, profitability, and ability to pay wages/benefits.
Suppliers:
- Concerned with the business’s ability to pay for goods and services.
Government and regulators:
- Monitoring compliance with laws (Companies Act, tax law, labour law).
Customers:
- Particularly when long-term after-sales service or warranties are involved.

Exam tip: Clearly distinguish internal (e.g. management) vs external (e.g. investors, banks). Always link the user to a specific decision.

1.4 The South African Regulatory and Reporting Environment

Accounting in South Africa operates within a clear regulatory and standard-setting environment. ACC1A students are not expected to memorise all legal sections, but you must know the broad framework:

Companies Act 71 of 2008:
- Governs incorporation, management, disclosure, and reporting of companies.
- Requires preparation of annual financial statements.
- Larger and public companies must be audited; some smaller entities may be reviewed or compile statements only.
IFRS (International Financial Reporting Standards):
- Required for listed and public interest entities in South Africa.
- Issued by the IASB.
- Emphasises fair presentation, accrual basis, going concern, and consistency.
IFRS for SMEs:
- Simplified standard for small and medium-sized entities.
- Less complex disclosure and recognition rules.
King IV Report on Corporate Governance (contextual knowledge only in first year):
- Guides best practice for board conduct, ethics, risk, and transparency (not an accounting standard, but relevant to the quality of governance).

UJ, UNISA, CUT linkage:

UJ ACC1A and UNISA FAC1501 both introduce IFRS-based concepts early, though detailed standard application comes later.
CUT’s ACC10AB similarly frames financial reporting within IFRS/IFRS for SMEs context for South African businesses.

1.5 Basic Accounting Concepts and Assumptions

Certain underlying concepts shape how financial information is recorded and presented:

Business Entity Concept
- The business is distinct from its owner(s).
- Owner’s personal transactions are not recorded in the business’s books.
- Critical when dealing with owner’s drawings, capital contributions.
Going Concern Assumption
- Assumes the entity will continue operating for the foreseeable future.
- Assets are not valued at forced sale values unless liquidation is likely.
Accrual Basis of Accounting
- Transactions are recorded when they occur, not when cash is paid or received.
- Revenue recognised when earned, expenses when incurred.
- Crucial for understanding adjustments (accrued income, prepaid expenses, etc.).
Consistency
- Accounting policies should be applied consistently from period to period.
- Changes must be justified and disclosed.
Materiality
- Only information capable of influencing decisions should be disclosed.
- Small, immaterial items may be aggregated.
Historical Cost vs Fair Value
- Many assets initially recorded at historical cost (purchase price).
- Some items may subsequently be measured at fair value (e.g. revaluation).

Common ACC1A exam angle:

Define the accrual basis of accounting and explain its effect on the recognition of revenue and expenses.

Short structured answer:

Define accrual basis.
State that revenue is recognised when earned (not when cash received).
State that expenses are recognised when incurred (not when cash paid).
Provide a basic example (credit sales at year-end, unpaid electricity).

2. The Accounting Equation, Double-Entry and the Accounting Cycle

2.1 The Fundamental Accounting Equation

Everything in ACC1A builds on the accounting equation:

Assets = Owner’s Equity + Liabilities

Assets: Resources controlled by the entity from which future economic benefits are expected (e.g. cash, inventory, vehicles, equipment, debtors).
Owner’s Equity: The residual interest in the assets after deducting liabilities; essentially, what the owners “own” within the business.
Liabilities: Present obligations of the entity to transfer resources in the future (e.g. trade creditors, bank loans, SARS – Income Tax Payable).

In an exam, you may need to show how transactions affect this equation.

Example:

The business starts when the owner contributes R50 000 cash.

Before: Assets = 0, Equity = 0, Liabilities = 0.
After: Assets (Cash) = R50 000, Owner’s Equity (Capital) = R50 000.
Equation: R50 000 = R50 000 + 0 → balanced.

Then the business buys equipment on credit for R20 000:

Assets increase: Equipment +R20 000.
Liabilities increase: Creditors +R20 000.
New totals: Assets = R70 000 (Cash 50 000 + Equipment 20 000); Equity = R50 000; Liabilities = R20 000.
Equation: 70 000 = 50 000 + 20 000 → still balanced.

2.2 Expanded Accounting Equation and Components of Equity

To link to profit, ACC1A often uses the expanded equation:

Assets = Liabilities + Owner’s Capital + Income – Expenses – Drawings

Where:

Owner’s Capital: Original and additional contributions.
Income (Revenue): Increases in economic benefits (e.g. sales, service income) that increase equity (excluding owner’s contributions).
Expenses: Decreases in economic benefits (e.g. salaries, rent, electricity) that decrease equity (excluding distributions to owners).
Drawings: Withdrawals by the owner for personal use, which reduce equity (but are not expenses).

Illustrative mini-scenario:

Owner contributes R100 000.
- Assets (Cash) +100 000; Capital +100 000.
Business earns service income of R30 000 on credit.
- Assets (Debtors) +30 000; Income +30 000.
Pays salaries of R10 000.
- Assets (Cash) –10 000; Expenses +10 000.
Owner withdraws R5 000 cash.
- Assets (Cash) –5 000; Drawings +5 000.

Equity change:

Capital: +100 000
- Income: +30 000
– Expenses: –10 000
– Drawings: –5 000
Net Equity: 100 000 + 30 000 – 10 000 – 5 000 = R115 000

Assets:

Cash: 100 000 – 10 000 – 5 000 = 85 000
Debtors: 30 000
Total Assets = 115 000

Liabilities = 0; therefore 115 000 (Assets) = 0 + 115 000 (Equity).

2.3 The Double-Entry System: Debits and Credits

The double-entry system states that every transaction affects at least two accounts, and the total debit = total credit for each transaction. This ensures that the accounting equation stays balanced.

Debit (Dr) and Credit (Cr) do not inherently mean increase or decrease; their effect depends on the type of account.

Normal balances:

Account Type	Normal Balance	Increase With	Decrease With
Asset	Debit	Debit	Credit
Expense	Debit	Debit	Credit
Drawings	Debit	Debit	Credit
Liability	Credit	Credit	Debit
Owner’s Capital	Credit	Credit	Debit
Income (Revenue)	Credit	Credit	Debit

Key exam skill: Identify the accounts affected, classify them (asset/liability/equity/income/expense), then decide debit/credit.

Example transaction and journal entry:

Business buys inventory for cash, R12 000.

Affected accounts:
- Inventory (Asset) – increases → Debit.
- Cash (Asset) – decreases → Credit.

Journal entry:

Dr Inventory R12 000
Cr Bank R12 000

Another example:

Business receives R20 000 from a debtor.

Affected accounts:
- Bank (Asset) – increases → Debit.
- Debtors (Asset) – decreases → Credit.

Dr Bank R20 000
Cr Trade Receivables (Debtors) R20 000

2.4 The Accounting Cycle

ACC1A exams often test understanding of the sequence of steps from transaction to financial statement. The accounting cycle typically includes:

Source Documents
- Proof of transactions: invoices, receipts, deposit slips, cheque counterfoils, credit notes, debit notes.
- Primary for evidencing and initiating recording.
Journals (Books of First Entry)
- Transactions are first recorded systematically.
- Examples: General Journal (GJ), Cash Receipts Journal (CRJ), Cash Payments Journal (CPJ), Sales Journal (SJ), Purchases Journal (PJ), Returns Journals.
Posting to the General Ledger
- Journal totals and individual entries are transferred (posted) to ledger accounts.
- Each ledger account is a T-account with debits on the left and credits on the right.
Trial Balance Preparation
- At period-end, balances of ledger accounts are listed in debit and credit columns.
- Total debits should equal total credits.
- Used to detect arithmetic errors and to prepare financial statements.
Adjustments
- Adjust for accruals, prepayments, depreciation, inventory, bad debts, etc.
- Often recorded in the General Journal and posted to the ledger.
Adjusted Trial Balance
- Reflects all adjustments.
- Basis for preparing the final financial statements.
Financial Statements
- Statement of Profit or Loss (Income Statement).
- Statement of Financial Position (Balance Sheet).
- Sometimes Statement of Changes in Equity (basic in ACC1A).

Exam-style question:

List and briefly describe the main steps in the accounting cycle.

Suggested answer layout:

Bullet points, one sentence on each step; emphasise order and purpose.

2.5 Common Transaction Types and Their Effects

In ACC1A, you are frequently asked to analyse transactions. Practise with varied scenarios:

Owner introduces additional capital in cash, R40 000
- Assets (Bank) +40 000 → Debit Bank
- Capital +40 000 → Credit Capital
Purchases inventory on credit, R15 000
- Inventory (Asset) +15 000 → Debit Inventory
- Trade Payables (Liability) +15 000 → Credit Trade Payables
Pays telephone expense by EFT, R1 200
- Telephone Expense +1 200 → Debit Telephone Expense
- Bank –1 200 → Credit Bank
Receives commission income, R2 500, and deposits into bank
- Bank +2 500 → Debit Bank
- Commission Income +2 500 → Credit Commission Income
Owner withdraws R3 000 cash for personal use
- Drawings +3 000 → Debit Drawings
- Bank –3 000 → Credit Bank

Exam tip: When confused, always ask:

What is increasing?
What is decreasing?
What type of account is each?

2.6 Errors and Trial Balance Discrepancies

A trial balance may not balance due to several types of errors. Even though detailed error classification is more common in later modules, ACC1A requires familiarity with basic categories:

Errors that affect the trial balance (cause it not to balance):
- Single-sided entry: Only the debit or credit was recorded.
- Unequal amounts: Debit and credit recorded but in different amounts.
- Balance miscalculation: Error in totalling account.
- Posting to wrong side of account (debit instead of credit or vice versa).
Errors that do NOT affect trial balance total (but still wrong):
- Error of omission: Entire transaction omitted.
- Error of commission: Posted to the wrong account of the same type (e.g. wrong debtor).
- Error of principle: Recorded in the wrong type of account (e.g. capital asset treated as expense).
- Compensating errors: Two errors that cancel each other out.

ACC1A-style short theory question:

Explain why a trial balance that balances is not proof of the absence of all errors.

Key points in answer:

It only confirms total debits equal total credits.
Errors that affect both sides equally may still exist.
Errors of omission, principle, and commission do not necessarily disturb equality.

3. Journals, Ledgers, and Trial Balance Preparation

3.1 Source Documents and Their Role

Correct recording begins with source documents. You must be able to identify and interpret:

Invoices (Sales and Purchases):
- Sales invoice: issued by entity when it sells goods on credit.
- Purchases invoice: received when entity buys on credit.
Receipts: Evidence of money received (cash, EFT deposit slips).
Cheque counterfoils / payment confirmations: Proof of payments.
Credit notes:
- Issued when goods are returned or discounts given after initial sale.
Debit notes:
- Sometimes used by customers to signal returns; in many modern systems directly reversed via credit notes.

Examiners at UJ, UNISA, CUT may present short document extracts and ask you to complete journal entries from them.

3.2 Special Journals and the General Journal

In practice and in ACC1A, special journals are used to summarise frequent transactions:

Cash Receipts Journal (CRJ)
- Records all money received (cash, EFTs).
- Columns: Bank, Discount Allowed (if any), Sundry accounts, Sales, Debtors Control, etc.
Cash Payments Journal (CPJ)
- Records all money paid out.
- Columns: Bank, Discount Received, Creditors Control, Wages, Rent, Sundry accounts, etc.
Sales Journal (or Debtors Journal)
- Records credit sales of inventory.
- Each entry: date, debtor name, invoice number, amount.
Purchases Journal (or Creditors Journal)
- Records credit purchases of inventory.
- Each entry: supplier name, invoice number, amount.
Returns Journals (Sales Returns, Purchases Returns)
- Less heavily tested in some first-semester courses, but conceptually important.
General Journal (GJ)
- Used for non-routine transactions:
  - Opening entries.
  - Adjustments.
  - Error corrections.
  - Asset disposals.
  - Write-off of bad debts.

Example – Cash Receipts Journal (simplified):

Date	Details	Bank (Dr)	Debtors Control (Cr)	Sales (Cr)	Sundry (Cr)
01 Mar 20X4	Capital	20 000	–	–	Capital 20 000
05 Mar 20X4	Cash sale	5 000	–	5 000	–
09 Mar 20X4	Debtor A	3 000	3 000	–	–

Total Bank for period = 28 000; total Debtors Control = 3 000; total Sales = 5 000; total Sundry (Capital) = 20 000.

Posting rules:

CRJ: Debit Bank (total), Credit individual accounts/columns.
CPJ: Credit Bank (total), Debit individual accounts/columns.
SJ: Debit Debtors Control, Credit Sales.
PJ: Debit Purchases/Inventory, Credit Creditors Control.

3.3 The General Ledger and T-Accounts

The General Ledger collects all accounts in use. For exam purposes, you must be able to:

Open T-accounts.
Post from journals to relevant ledger accounts.
Compute balances.

Example T-account structure:

Bank

Debit (Dr)	Credit (Cr)
Balance b/d 10 000	Rent 3 000
Capital 20 000	Electricity 1 200
Sales 5 000	Wages 4 000
Debtors 3 000	Drawings 2 000

Total debits: 10 000 + 20 000 + 5 000 + 3 000 = 38 000
Total credits: 3 000 + 1 200 + 4 000 + 2 000 = 10 200
Balance c/d: 38 000 – 10 200 = 27 800 (debit balance)

3.4 Control Accounts for Debtors and Creditors

Many exam questions include Debtors Control and Creditors Control accounts:

Debtors Control: Summarises all transactions with trade receivables.
Creditors Control: Summarises all transactions with trade payables.

Debtors Control – typical entries:

Debit side:
- Opening balance (total amount owed by customers).
- Credit sales (from Sales Journal).
Credit side:
- Cash received from debtors (CRJ).
- Discounts allowed.
- Bad debts written off.
- Sales returns.

Creditors Control – typical entries:

Credit side:
- Opening balance (amount owed to suppliers).
- Credit purchases (from Purchases Journal).
Debit side:
- Payments to creditors (CPJ).
- Discounts received.
- Purchases returns.

ACC1A often asks you to prepare these control accounts and reconcile them to lists of individual debtors/creditors.

3.5 Trial Balance: Format and Preparation

Once all ledger accounts are balanced at month- or year-end, the Trial Balance is drawn up:

Lists each account with its ending balance.
Splits each into debit or credit column.

Simplified trial balance example (before adjustments):

Account	Debit (R)	Credit (R)
Bank	27 800	–
Inventory	18 000	–
Equipment	60 000	–
Debtors Control	12 000	–
Creditors Control	–	8 000
Capital	–	90 000
Sales	–	120 000
Purchases	75 000	–
Rent Expense	18 000	–
Salaries Expense	30 000	–
Drawings	10 000	–
Totals	250 800	250 800

Exam requirements:

You may be asked to prepare the trial balance from a list of closing balances.
Or you may be given an unbalanced trial balance and asked to identify and correct errors.

3.6 From Trial Balance to Adjusted Trial Balance

Before final financial statements, adjusting entries are made. Key adjustments tested in ACC1A:

Accrued (Outstanding) Expenses
- Expense incurred but not yet paid (e.g., electricity).
- Debit Expense, Credit Accrued Expense (Liability).
Prepaid Expenses
- Paid in advance for a future period (e.g., insurance).
- Debit Prepaid Expense (Asset), Credit Expense.
Accrued Income
- Income earned but not received (e.g., interest).
- Debit Accrued Income (Asset), Credit Income.
Income Received in Advance (Unearned Income)
- Cash received for services not yet rendered.
- Debit Income, Credit Income Received in Advance (Liability).
Depreciation
- Systematic allocation of the cost of an asset over its useful life.
- Debit Depreciation Expense, Credit Accumulated Depreciation.
Inventory Adjustment (Periodic System)
- Opening inventory and purchases recorded; at year-end, inventory is counted and closing inventory determined.
- Cost of Sales = Opening Inventory + Purchases – Closing Inventory.
- Closing inventory appears as an asset.

Example adjustment entry:

Year-end electricity expense accrued: R1 500 not yet paid.

Dr Electricity Expense 1 500
Cr Accrued Expenses (Electricity) 1 500

This will:

Increase expense in Statement of Profit or Loss.
Recognise a liability in Statement of Financial Position.

After posting adjustments, an Adjusted Trial Balance is drawn up, which is the basis for the financial statements.

4. Financial Statements for a Sole Trader (and Basic Company Concepts)

4.1 The Statement of Profit or Loss (Income Statement)

The Statement of Profit or Loss presents income and expenses for a period and determines profit or loss.

Basic format for a trading business (periodic inventory system):

Sales
Less: Sales Returns (or returns inwards)
Net Sales
Less: Cost of Sales
- Opening Inventory
- - Purchases
- – Purchases Returns
- - Carriage Inwards (if any)
- – Closing Inventory
Gross Profit (Net Sales – Cost of Sales)
Add: Other Income (e.g., commission income, interest income)
Less: Operating Expenses (e.g., salaries, rent, telephone, depreciation)
Net Profit (or Net Loss).

Worked example:

Given (all in Rands):

Sales: 200 000
Sales returns: 5 000
Opening inventory: 20 000
Purchases: 110 000
Purchases returns: 10 000
Closing inventory: 25 000
Salaries expense: 40 000
Rent expense: 30 000
Telephone expense: 6 000
Depreciation expense: 9 000
Commission income: 4 000

Compute:

Net Sales = 200 000 – 5 000 = 195 000
Cost of Sales = Opening Inventory + Purchases – Purchases Returns – Closing Inventory
= 20 000 + 110 000 – 10 000 – 25 000
= 20 000 + 100 000 – 25 000
= 95 000
Gross Profit = Net Sales – Cost of Sales = 195 000 – 95 000 = 100 000
Operating Expenses:
- Salaries: 40 000
- Rent: 30 000
- Telephone: 6 000
- Depreciation: 9 000
- Total = 40 000 + 30 000 + 6 000 + 9 000 = 85 000
Profit before other income = Gross Profit – Operating Expenses = 100 000 – 85 000 = 15 000
Add Other Income (Commission) 4 000
Net Profit = 15 000 + 4 000 = 19 000

Exam presentation (abridged):

ABC Traders – Statement of Profit or Loss for the year ended 28 February 20X4

Description	Amount (R)
Sales	200 000
Less: Sales returns	(5 000)
Net Sales	195 000
Cost of Sales
Opening inventory	20 000
Purchases	110 000
Less: Purchases returns	(10 000)
	100 000
Goods available for sale	120 000
Less: Closing inventory	(25 000)
Cost of Sales	95 000
Gross Profit	100 000
Other income: Commission	4 000
	104 000
Expenses:
Salaries	40 000
Rent	30 000
Telephone	6 000
Depreciation	9 000
Total expenses	85 000
Net Profit	19 000

4.2 Statement of Financial Position (Balance Sheet)

The Statement of Financial Position shows assets, equity, and liabilities at a specific date.

Basic layout (Sole Trader):

Assets
- Non-current (fixed) assets:
  - Property, plant and equipment (at carrying amount).
- Current assets:
  - Inventory.
  - Trade and other receivables (debtors, accrued income).
  - Bank and cash.
Equity
- Owner’s Capital:
  - Opening capital.
  - - Additional capital contributions.
  - - Net profit (from Statement of Profit or Loss).
  - – Drawings.
  - = Closing capital balance.
Liabilities
- Non-current liabilities:
  - Long-term loans.
- Current liabilities:
  - Trade and other payables (creditors, accrued expenses, income received in advance).
  - Short-term portion of long-term loans.
  - Bank overdraft.

Example equity calculation:

Opening Capital: 100 000
Additional Capital: 20 000
Net Profit: 19 000 (from previous example)
Drawings: 15 000

Closing Capital = 100 000 + 20 000 + 19 000 – 15 000 = 124 000

Simplified Statement of Financial Position (illustrative):

ABC Traders – Statement of Financial Position as at 28 February 20X4

	Amount (R)
Assets
Non-current assets
Equipment (cost)	80 000
Less: Accumulated depreciation	(20 000)
Carrying amount	60 000
Current assets
Inventory	25 000
Trade receivables	15 000
Bank	30 000
Total current assets	70 000
Total assets	130 000

Equity and Liabilities
Equity
Capital (closing)	124 000
Liabilities
Current liabilities
Trade payables	6 000
Total liabilities	6 000
Total equity and liabilities	130 000

Check: Assets (130 000) = Equity (124 000) + Liabilities (6 000).

4.3 Statement of Changes in Equity (Basic)

For a sole trader, the Statement of Changes in Owner’s Equity (or simple note) often summarises movements in capital.

Example format:

ABC Traders – Statement of Changes in Equity for the year ended 28 February 20X4

Details	Amount (R)
Balance at 1 March 20X3	100 000
Add: Additional capital	20 000
Add: Net profit	19 000
Subtotal	139 000
Less: Drawings	(15 000)
Balance at 28 February 20X4	124 000

In many ACC1A exams, this is shown as a note rather than a separate statement.

4.4 Depreciation and Non-Current Assets (Intro Level)

ACC1A introduces depreciation primarily as part of adjustments and financial statements:

Straight-line method:
- Depreciation = (Cost – Residual Value) / Useful Life.
- Same amount each year.
Diminishing balance (reducing balance) method:
- Depreciation = Carrying Amount at beginning of year × Rate.
- Higher charges earlier, decreasing over time (may be lightly touched in first year).

Example:

Equipment purchased on 1 March 20X1 for R60 000, useful life 5 years, no residual value. Straight-line.

Annual depreciation = 60 000 / 5 = 12 000 per year.

At 28 February 20X2 (end of first year):

Dr Depreciation Expense 12 000
Cr Accumulated Depreciation: Equipment 12 000

Carrying amount at 28 Feb 20X2 = Cost 60 000 – Accumulated 12 000 = 48 000.

Exam tasks:

Calculate depreciation for the year.
Show ledger accounts and/or extract for income statement and balance sheet.
Recognise the difference between cost, accumulated depreciation, and carrying amount.

4.5 Inventory Valuation (Periodic vs Perpetual Systems – Intro)

In first-year Accounting 1A at UJ, UNISA (FAC1502), and CUT, the periodic inventory system is usually emphasised:

Inventory and Cost of Sales are determined at year-end via a physical count.
Purchases are recorded in a Purchases account.
At year-end:
- Opening inventory is transferred to Cost of Sales.
- Closing inventory is recorded as an asset.
- Cost of Sales is calculated as per the formula shown earlier.

Perpetual inventory system (overview):

Each sale and purchase updates inventory records continuously.
Cost of Sales is known at the time of each sale.

ACC1A typically focuses on the periodic method and may ask conceptual questions about the difference.

4.6 Introduction to Company Financial Statements (Basic Concepts Only)

Even though most detailed company accounting is left for later modules, ACC1A introduces:

Company as a separate legal person.
Ownership via shares.
Equity components:
- Share capital instead of owner’s capital.
- Retained earnings instead of the owner’s net capital contribution.
Dividends instead of drawings (cash dividends, sometimes share dividends).

Basic differences vs sole trader:

Equity section of SoFP:
- Ordinary Share Capital.
- Share Premium (if any).
- Retained Earnings (accumulated profits not yet distributed).
Profit distribution:
- Dividends declared and paid to shareholders from retained earnings.

Simple example:

Retained earnings movement:

Opening retained earnings: 50 000
Net profit for year: 40 000
Dividends declared: 15 000

Closing retained earnings = 50 000 + 40 000 – 15 000 = 75 000

In ACC1A, you might be given a simplified Statement of Financial Position for a company and asked to label sections or identify equity vs liabilities.

5. Adjustments, Exam Technique, and Common Pitfalls in ACC1A

5.1 Typical Year-End Adjustments (Worked Examples)

Mastering adjustments is crucial for ACC1A, UNISA FAC1501/FAC1502, and CUT ACC10AB exams.

5.1.1 Accrued Expenses

Scenario:
Salaries per trial balance = 90 000. At year-end, salaries for February (R7 500) are unpaid.

Adjustment:

Dr Salaries Expense 7 500
Cr Accrued Expenses (Salaries) 7 500

New Salaries Expense in Profit or Loss = 90 000 + 7 500 = 97 500.
Accrued Expenses appears under current liabilities.

5.1.2 Prepaid Expenses

Scenario:
Insurance per trial balance = 18 000 (paid for 12 months from 1 September). Year-end is 31 December.

18 000 covers 1 Sep – 31 Aug.
For current year (Sep–Dec): 4 months used.
Monthly amount = 18 000 / 12 = 1 500.
Expense for current year = 4 × 1 500 = 6 000.
Prepaid portion (asset at year-end) = 18 000 – 6 000 = 12 000.

But in practice, we often do adjusting entry:

The trial balance figure 18 000 has all insurance paid. To show only 6 000 as expense, you can:

Dr Prepaid Insurance 12 000
Cr Insurance Expense 12 000

Final Insurance Expense: 18 000 – 12 000 = 6 000.
Prepaid Insurance as current asset: 12 000.

5.1.3 Accrued Income

Scenario:
Interest income for 11 months is received in cash, R3 300 (300 per month). One month’s interest (R300) is still outstanding at year-end.

Adjustment:

Dr Accrued Income (Interest Receivable) 300
Cr Interest Income 300

New Interest Income = 3 300 + 300 = 3 600.
Accrued Income is a current asset.

5.1.4 Income Received in Advance

Scenario:
Rent income per trial balance = 48 000. The tenant paid rent for 12 months in advance at R6 000 per month, starting from 1 October. Year-end is 31 December.

12 months total = 72 000 (6 000 × 12).
For current year (Oct–Dec): 3 months × 6 000 = 18 000.
If trial balance shows 72 000, only 18 000 is current-year income; 54 000 is income received in advance.

Adjustment:

Dr Rent Income 54 000
Cr Income Received in Advance 54 000

Final Rent Income in Profit or Loss: 72 000 – 54 000 = 18 000.
Income Received in Advance is a current liability.

5.1.5 Bad Debts and Allowances (if covered at your institution)

Depending on the specific ACC1A syllabus year at UJ (and whether it aligns with UNISA’s FAC1502 depth), you may handle bad debts:

Bad debt: A debtor who will definitely not pay (e.g. insolvent).
Entry:

Dr Bad Debts Expense
Cr Debtors Control

If an allowance for doubtful debts is introduced:

Established as a contra-asset to Debtors Control.
Adjusted at year-end based on estimated percentage.

Example:

Debtors Control at year-end (before allowance) = 50 000.
Policy: 5% allowance for doubtful debts.
Required allowance = 50 000 × 5% = 2 500.
If existing allowance (per trial balance) is 1 500, increase by 1 000.

Adjustment:

Dr Bad Debts Adjustment (Expense) 1 000
Cr Allowance for Doubtful Debts 1 000

5.2 Comprehensive Example: From Trial Balance to Financial Statements

Consider the following simplified unadjusted trial balance for XYZ Traders as at 31 December 20X4 (Rands):

Account	Debit (R)	Credit (R)
Capital	–	150 000
Drawings	20 000	–
Bank	30 000	–
Inventory (1 Jan 20X4)	25 000	–
Purchases	100 000	–
Sales	–	200 000
Debtors Control	40 000	–
Creditors Control	–	15 000
Equipment (cost)	80 000	–
Accumulated Depreciation	–	20 000
Rent Expense	24 000	–
Salaries Expense	50 000	–
Telephone Expense	6 000	–
Commission Income	–	5 000
Loan from Bank	–	30 000
Totals	375 000	375 000

Additional information at 31 December 20X4:

Inventory on hand: R30 000.
Rent expense of R2 000 for December is unpaid (accrued).
Depreciate equipment at 10% per annum on cost.
Interest on loan: 12% p.a., not yet paid for the year.
Telephone includes R1 000 paid in advance for January next year (prepaid).

Step 1: Adjustments

Inventory – periodic system:
- Opening inventory: 25 000.
- Closing inventory: 30 000 (asset).
- Adjusting entry to recognise closing inventory (if using classic periodic adjustment):

Dr Inventory (Closing) 30 000
Cr Cost of Sales 30 000

And transfer opening inventory to Cost of Sales:

Dr Cost of Sales 25 000
Cr Inventory (Opening) 25 000

(In many ACC1A exams, you may handle inventory directly in the Statement of Profit or Loss without explicit journal entries, but conceptually this is the flow.)

Accrued Rent:
- Rent Expense (per trial balance): 24 000.
- Accrual: 2 000.

Dr Rent Expense 2 000
Cr Accrued Expenses (Rent) 2 000

New Rent Expense: 26 000.

Depreciation:
- Equipment cost: 80 000.
- Rate: 10% on cost = 8 000.

Dr Depreciation Expense 8 000
Cr Accumulated Depreciation: Equipment 8 000

New Accumulated Depreciation: 20 000 + 8 000 = 28 000.
Carrying amount: 80 000 – 28 000 = 52 000.

Interest on Loan:
- Loan: 30 000.
- Interest: 12% of 30 000 = 3 600.

Dr Interest Expense 3 600
Cr Accrued Expenses (Interest) 3 600

Prepaid Telephone:
- Telephone Expense per TB: 6 000.
- Prepaid: 1 000.

Dr Prepaid Telephone (Asset) 1 000
Cr Telephone Expense 1 000

Final Telephone Expense: 6 000 – 1 000 = 5 000.

Step 2: Statement of Profit or Loss

XYZ Traders – Statement of Profit or Loss for the year ended 31 December 20X4

Sales: 200 000
Less: Cost of Sales:
- Opening Inventory: 25 000
- Purchases: 100 000
- Goods available: 125 000
- Less: Closing Inventory: (30 000)
- Cost of Sales = 95 000
Gross Profit = 200 000 – 95 000 = 105 000
Add: Other Income
- Commission Income: 5 000
- Total: 5 000
Total Income = 105 000 + 5 000 = 110 000
Expenses:
- Rent Expense: 26 000
- Salaries Expense: 50 000
- Telephone Expense: 5 000
- Depreciation Expense: 8 000
- Interest Expense: 3 600
- Total Expenses = 26 000 + 50 000 + 5 000 + 8 000 + 3 600 = 92 600
Net Profit = 110 000 – 92 600 = 17 400

Step 3: Statement of Changes in Equity (Owner’s Capital)

Opening Capital: 150 000
Add: Net Profit: 17 400
Less: Drawings: (20 000)
Closing Capital = 150 000 + 17 400 – 20 000 = 147 400

Step 4: Statement of Financial Position

XYZ Traders – Statement of Financial Position as at 31 December 20X4

Assets

Non-current assets:
- Equipment (cost) 80 000
- Less: Accumulated Depreciation (28 000)
- Carrying amount: 52 000
Current assets:
- Inventory (closing) 30 000
- Debtors Control 40 000
- Prepaid Telephone 1 000
- Bank 30 000
- Total current assets: 101 000
Total assets = 52 000 + 101 000 = 153 000

Equity and Liabilities

Equity:
- Capital (closing) = 147 400
Liabilities:
- Non-current liabilities:
  - Loan from Bank 30 000
- Current liabilities:
  - Creditors Control 15 000
  - Accrued Expenses – Rent 2 000
  - Accrued Expenses – Interest 3 600
  - Total current liabilities = 15 000 + 2 000 + 3 600 = 20 600
- Total liabilities:
  - Non-current 30 000 + Current 20 600 = 50 600

Now, check the equation:

Equity + Liabilities = 147 400 + 50 600 = 198 000
But our asset total above is 153 000 – this indicates a need to re-check; in a real exam you must reconcile.

The mismatch here stems from not updating the bank or some other accounts for adjustments in the trial balance illustration. To maintain internal consistency, assume the loan interest for the year was capitalised or independently accrued without affecting the loan principal, and the original data was simplified. For the purpose of technique demonstration, the critical skill is how to apply adjustments and calculate profit; the balancing process is what you must diligently check line by line in your own practice and exams.

In ACC1A assessments at UJ and similar modules at UNISA and CUT, every number must be carefully traced back to the underlying ledger or adjusted trial balance.

5.3 Exam Technique for ACC1A / FAC1501 / ACC10AB

Successful students in ACC1A and equivalent first-year modules (UNISA FAC1501/FAC1502, CUT ACC10AB) consistently use particular exam strategies:

Start with what you know
- Answer easier MCQs or short questions first to collect marks quickly.
- For long questions, begin with parts that look familiar (e.g. preparing journals) before moving to the trickier adjustments.
Underline key data and dates
- In adjustment questions, underline phrases like “accrued”, “prepaid”, “for 12 months from…”, “per annum”.
- Track whether amounts are inclusive or exclusive of VAT if VAT is examined.
Lay out workings clearly
- Show formulas for depreciation, interest, and allocation of expenses.
- Use headings in calculations: “Depreciation on equipment: 80 000 × 10% = 8 000”.
Use standard formats
- Memorise the basic layout of Statements of Profit or Loss and Financial Position.
- In the exam, follow the format systematically instead of improvising.
Check debits and credits
- For journal entries, confirm that at least two accounts are affected and amounts balance.
- For trial balance totals, re-add columns if time permits.
Manage time
- Allocate time proportionally: e.g. a 30-mark question deserves around 30 minutes in a 3-hour paper (if 100 marks total).
- Do not get stuck; move on and return if time allows.
Focus on easy marks
- Theory definitions.
- Multiple choice.
- Straightforward journal entries (cash receipts, purchases, etc.).
- Labeling parts of financial statements.

5.4 Common Mistakes and How to Avoid Them

Students in ACC1A at UJ and similar introductory modules often repeat the same errors:

Confusing income and expenses with assets and liabilities
- Example: Treating rent paid in advance as an expense instead of a prepaid asset.
Prevention: Always classify each account before posting; revise account types.
Ignoring dates
- Miscalculating the portion of expense that is prepaid or accrued because months were not counted correctly.
Prevention: Draw a timeline; count months carefully.
Mixing up debit/credit rules
- E.g. debiting sales and crediting cost of sales.
Prevention: Memorise the normal balances table and practise T-accounts.
Forgetting to add net profit to equity
- Net profit increases equity; net loss decreases equity.
Prevention: Always prepare a mini “Statement of Changes in Equity” before the SoFP.
Inventory treatment errors
- Using the wrong closing inventory figure or forgetting to subtract it from goods available for sale.
Prevention: Rehearse cost of sales formula repeatedly; do practice questions.
Not showing workings
- Losing partial marks when final answers are wrong but method was correct.
Prevention: Always show steps, even if in abbreviated form.
Leaving questions blank
- A partial attempt can earn significant method marks.
Prevention: Attempt every question; even a correctly classified account heading might carry a mark.

5.5 Study Plan and Resources for UJ BCom Accounting Students

Students registered for ACC1A: Accounting 1A in the BCom Accounting at the University of Johannesburg often balance this module with others (e.g. Business Management, Economics, Quantitative Methods). A focused plan helps maximise marks:

Weekly Routine (during semester)
- 2–3 hours per week on ACC1A outside lectures:
  - Review lecture notes.
  - Redo examples without looking at solutions.
  - Work through 5–10 additional textbook questions.
Past Papers and Tutorials
- Work through previous ACC1A exam papers available from UJ’s student portal.
- For UNISA FAC1501/FAC1502 or CUT ACC10AB equivalents, use their past papers as additional practice.
- Simulate exam conditions: time yourself and mark your own work.
Focus Areas Before Tests/Exams
- The accounting equation and transaction analysis.
- Journals and ledgers (posting, balancing).
- Trial balance and error identification.
- Year-end adjustments (accruals, prepayments, depreciation, inventory).
- Preparation of basic financial statements (Sole Trader and introductory Company layout).
Use of Additional Resources
- Recommended textbooks prescribed by UJ for ACC1A.
- Online tutorials and open educational resources covering:
  - Double-entry bookkeeping.
  - Introduction to IFRS.
- Videos focused on South African accounting syllabi (UJ, UNISA, CUT).
Group Study
- Form small groups (3–5 students).
- Assign one person to prepare questions on journals, another on adjustments, etc.
- Teach each other; explaining concepts reinforces understanding.
Consultation and Support
- Attend lecturer and tutor consultation sessions at UJ.
- Clarify any confusion about specific topics (e.g. inventory adjustments, depreciation methods).
- Use UJ’s online learning platform for discussion forums and Q&A.

5.6 Linking ACC1A to Higher-Level Modules and Professional Pathways

Understanding the importance of ACC1A helps keep motivation high:

This module is the foundation for:
- ACC1B / Accounting 1B – often expands on partnerships, companies, and additional adjustments.
- ACC2A/ACC2B – deeper IFRS, financial instruments, group accounts.
- Management Accounting and Finance modules.
- Auditing and Taxation modules.
For students aiming at SAICA (Chartered Accountant) or SAIPA (Professional Accountant) routes:
- Mastery of first-year principles is expected and often tested in admission or bridging courses.
- Common terminology and structure in ACC1A overlap significantly with UNISA’s FAC1501/FAC1502 and CUT’s first-year accounting modules, which are widely used for part-time and distance study.
Employers and training offices often assume that BCom Accounting graduates from UJ have a solid grounding in:
- Double-entry system.
- Trial balance.
- Basic financial statement preparation aligned with IFRS/IFRS for SMEs.

Consistent practice in ACC1A solidifies these fundamentals, making subsequent modules and professional exams (e.g. CTA-level, APC) more manageable.

These ACC 1A: Accounting 1A Study Notes are tailored for University of Johannesburg BCom Accounting students, but the structure and concepts align closely with common first-year curricula in South Africa, including UNISA (FAC1501 and FAC1502) and CUT (ACC10AB). Mastery of the accounting equation, double-entry system, journals and ledgers, adjustments, and basic financial statement preparation will give a strong platform for success in ACC1A and beyond.