ACC111: Financial Accounting 1A Exam Notes (Walter Sisulu University – WSU BCom Accounting)

These exam notes provide a structured, detailed summary of ACC111: Financial Accounting 1A as offered in the BCom in Accounting at Walter Sisulu University (WSU). They are written to match the depth and style of popular South African university study materials (similar in intent to UNISA’s FAC1502 or CUT’s ACCF511). The focus is on fundamental principles, core formats, common exam question types, and step‑by‑step methods, all aligned to an introductory Financial Accounting 1A level.

1. Overview of Financial Accounting and the Accounting Environment

1.1 What Financial Accounting Is and Why It Matters

Financial accounting is the process of identifying, measuring, recording, and communicating financial information about an entity to external users such as shareholders, creditors, SARS, and regulators. In ACC111, the emphasis is on:

Understanding basic concepts and principles
Learning how to record transactions
Preparing basic financial statements according to IFRS and the Conceptual Framework

Key purposes of financial accounting:

Decision‑making
- Investors decide whether to buy/hold/sell shares.
- Banks decide whether to grant or extend loans.
- SARS assesses tax obligations.
Accountability and stewardship
- Management is accountable to owners for how they use resources.
- Financial statements show how resources were obtained and used.
Legal and regulatory compliance
- In South Africa, companies must comply with the Companies Act, IFRS, and King IV principles of corporate governance (where applicable).

1.2 Users of Financial Information

External users (the main focus of ACC111):

Investors and shareholders – assess profitability, dividends, and risk
Lenders and creditors – evaluate liquidity and solvency
Government (SARS, regulators) – ensure correct tax and regulatory compliance
Customers and suppliers – assess the stability of long‑term business relationships
The public – interested in the company’s environmental and social impact

Internal users (more managerial accounting focus, but still important context):

Management – uses financial statements for planning, budgeting, and performance evaluation
Employees – use information for wage negotiations and job security assessment

1.3 Forms of Business Entities (South African Context)

In WSU’s ACC111, you need to know the basic forms of business and their characteristics:

Sole trader (sole proprietorship)
- Owned by a single individual
- Unlimited liability – the owner is personally liable for business debts
- Simple to form, minimal legal requirements
- Financial statements are usually not required by law but are still useful
Partnership
- Two or more persons carry on business with a view to profit
- Partnership agreement often regulates profit/loss sharing, duties, admission/retirement of partners
- Partners usually have unlimited liability, and can be jointly and severally liable for debts
Company (e.g., Private Company – (Pty) Ltd, Public Company – Ltd)
- Separate legal entity from its owners (shareholders)
- Limited liability – shareholders’ risk is normally limited to their investment
- Subject to the Companies Act, IFRS, assurance requirements, etc.
- Financial statements must generally comply with IFRS or IFRS for SMEs, depending on the entity
Close corporations
- Historical South African form (CC), no longer newly registered, but still exists
- Members’ liability generally limited to their contribution
- Accounting largely similar to a small company; in ACC111 focus is conceptual rather than deep regulatory detail

1.4 The Accounting Equation

The core of double‑entry accounting is the accounting equation:

Assets = Equity + Liabilities

Where:

Assets – resources controlled by the entity (e.g., cash, vehicles, equipment)
Equity – residual interest after deducting liabilities from assets (e.g., owner’s capital, retained earnings)
Liabilities – present obligations to transfer resources (e.g., loans, creditors, SARS payable)

This equation can be expanded:

Assets = Owner’s Capital + Retained Income (or Accumulated Profit) + Liabilities

Or for a simple sole trader:

Assets = Capital + Liabilities – Drawings

Example (basic):

A sole trader contributes R50 000 cash as capital.
The business takes a loan of R20 000 from a bank.
It buys a vehicle for R60 000 cash.
It has R10 000 cash left.

Statement of financial position:

Assets: Vehicle R60 000 + Cash R10 000 = R70 000
Equity: Capital R50 000
Liabilities: Loan R20 000

Check: Assets (70 000) = Equity (50 000) + Liabilities (20 000)

1.5 Financial Statements Covered in ACC111

For ACC111 at WSU, you mainly focus on the following primary financial statements for a sole trader or simple company:

Statement of Financial Position (Balance Sheet)
- Shows assets, equity, and liabilities at a point in time
- Structured into non‑current and current sections
Statement of Profit or Loss and Other Comprehensive Income (Income Statement)
- Shows income and expenses for a period
- Presents profit or loss (a key performance indicator)
Statement of Changes in Equity
- Reconciles opening and closing balances of equity accounts
- Includes owner’s capital, drawings, profit/loss, and other equity movements
Basic notes to the financial statements (e.g., accounting policies, detail of PPE, or trade receivables)

ACC111 focuses heavily on:

How transactions affect the accounting equation
Journals, ledgers, and trial balance
Adjustments (accruals, prepayments, depreciation, inventory) to reach adjusted trial balance
Preparing the basic financial statements from the adjusted trial balance

2. Conceptual Framework and Fundamental Accounting Principles

2.1 Objectives of General‑Purpose Financial Reporting

The Conceptual Framework for Financial Reporting provides the foundation upon which IFRS is built. The primary objective of general‑purpose financial reporting is:

To provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.

These decisions include:

Buying, selling, or holding equity or debt instruments
Providing or settling loans and other forms of credit
Assessing management’s stewardship of resources

2.2 Qualitative Characteristics of Useful Financial Information

The Conceptual Framework distinguishes between fundamental and enhancing qualitative characteristics.

2.2.1 Fundamental qualitative characteristics

Relevance
- Information is relevant if it can influence decisions of users.
- Has predictive value (helps predict future outcomes) and/or confirmatory value (confirms or changes past evaluations).
- Materiality is an aspect of relevance:
  - Information is material if omitting, misstating, or obscuring it could influence decisions.
  - No specific percentage defines materiality; it depends on size and nature of the item.
Faithful representation
- Information must represent economic phenomena faithfully.
- It should be complete, neutral, and free from error (note: free from error does not mean perfect, but that no errors or omissions have been made in the process).

2.2.2 Enhancing qualitative characteristics

These characteristics improve usefulness but cannot override relevance and faithful representation:

Comparability – enables users to identify similarities and differences over time and across entities
Verifiability – different knowledgeable observers can reach a consensus that information faithfully represents what it purports to represent
Timeliness – information is available in time to influence decisions
Understandability – information is classified, characterised, and presented clearly and concisely; users are assumed to have a reasonable knowledge of business and accounting

2.3 Elements of Financial Statements

The Conceptual Framework defines elements for the statement of financial position and statement of profit or loss.

2.3.1 Elements related to financial position

Asset – a present economic resource controlled by the entity as a result of past events; an economic resource is a right that has the potential to produce economic benefits.
Liability – a present obligation of the entity to transfer an economic resource as a result of past events.
Equity – the residual interest in the assets of the entity after deducting all its liabilities.

2.3.2 Elements related to financial performance

Income – increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity participants.
- Includes revenue (from ordinary activities) and gains.
Expenses – decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
- Includes cost of sales, salaries, depreciation, interest, losses, etc.

2.4 Recognition and Measurement

2.4.1 Recognition criteria

An item is recognised in the financial statements if:

It meets the definition of an element; and
It is relevant and provides faithfully represented information; and
It has a cost or value that can be measured reliably.

Examples:

A purchased motor vehicle with an invoice is recognised as an asset.
A contingent liability (e.g., a possible legal case with uncertain outcome) often fails recognition but may be disclosed in the notes.

2.4.2 Measurement bases

Common measurement bases in ACC111:

Historical cost – the amount paid to acquire an asset or incurred to assume a liability.
Current cost – the amount that would be paid if the same asset were acquired currently.
Fair value – the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

At Financial Accounting 1A level, you mainly work with historical cost (especially for PPE, inventory, etc.) and some fair value concepts for basic exposure.

2.5 Underlying Assumptions

Accrual basis of accounting
- Transactions are recognised when they occur, not when cash is received or paid.
- Income is recorded when earned, expenses when incurred.
- Leads directly to adjustments for accrued income, accrued expenses, prepaid expenses, etc.
Going‑concern assumption
- The entity is assumed to continue in operation for the foreseeable future.
- Assets are not valued at forced‑sale or liquidation values.
- If going concern is in serious doubt, financial statements must be prepared using a different basis and this must be disclosed.

2.6 Basic Accounting Principles Relevant to ACC111

Consistency – the same accounting policies should be applied from period to period unless a change results in more relevant and reliable information.
Prudence (caution) – exercise caution when making estimates under conditions of uncertainty (e.g., provision for doubtful debts), but without deliberately understating assets or income.
Substance over form – transactions should be recorded according to their economic substance, not merely their legal form.
Separate entity principle – the business is treated as separate from its owner(s); owner’s personal transactions are not recorded in business accounts.
Monetary unit assumption – financial information is expressed in a common monetary unit (e.g., South African rand), ignoring inflation at this level.

3. The Accounting Cycle: From Transactions to Trial Balance

ACC111 (WSU) places strong emphasis on the accounting cycle. You must know how to move from raw source documents to financial statements in a structured way.

3.1 Stages of the Accounting Cycle

Identifying and analysing transactions
- Use source documents: invoices, receipts, bank statements, credit notes, etc.
- Determine which accounts are affected and whether they increase or decrease.
Recording in journals (books of prime entry)
- General journal – for non‑routine transactions (opening entries, error corrections, depreciation, etc.)
- Cash receipts journal (CRJ) – all cash received
- Cash payments journal (CPJ) – all cash paid
- Sales journal (SJ) – credit sales of inventory
- Purchases journal (PJ) – credit purchases of inventory
- Returns journals (debtors’ returns and creditors’ returns) – for returns of goods
Posting to the general ledger
- Each journal total/form entry is posted to the relevant general ledger accounts.
- Debits and credits are entered according to rules (see below).
Extracting a trial balance
- List all ledger accounts and their closing balances.
- Separate the debit balances and credit balances.
- The total of debits should equal the total of credits.
Adjustments and adjusted trial balance
- Process year‑end adjustments (accruals, prepayments, depreciation, inventory, allowances for doubtful debts, etc.) in the general journal.
- Post to the ledger, then derive an adjusted trial balance.
Preparation of financial statements
- Use the adjusted trial balance to prepare:
  - Statement of Profit or Loss and Other Comprehensive Income
  - Statement of Financial Position
  - Statement of Changes in Equity (if required)
- Present according to IFRS or IFRS for SMEs format appropriate to the level.

3.2 Debits and Credits: Rules and Logic

Central to the accounting cycle is understanding which side to debit or credit.

Basic rules:

Assets – increase on the debit side, decrease on the credit side
Expenses – increase on the debit side
Drawings (owner’s withdrawals) – increase on the debit side
Liabilities – increase on the credit side
Equity – increase on the credit side
Income (revenue, gains) – increase on the credit side

Category	Increases On	Decreases On
Asset	Debit	Credit
Expense	Debit	Credit
Drawing	Debit	Credit
Liability	Credit	Debit
Equity	Credit	Debit
Income	Credit	Debit

Example transaction:
WSU BCom student Thando starts a sole proprietor business, Thando Traders, and contributes R30 000 cash as capital.

Debit: Bank (asset) R30 000
Credit: Capital (equity) R30 000

Example transaction:
Thando buys equipment on credit from Eastern Cape Suppliers for R8 000.

Debit: Equipment (asset) R8 000
Credit: Trade Payables – Eastern Cape Suppliers (liability) R8 000

3.3 Journals (Books of Prime Entry)

3.3.1 Cash Receipts Journal (CRJ)

Records all cash received by the business.
Common columns: Bank, Sales, Debtors control, Capital, Sundry accounts, etc.

Example (extract):

Date	Details	Bank (R)	Sales (R)	Debtors Control (R)	Sundry (Account)	Sundry (R)
05 Jan 20X5	Cash sales	5 000	5 000
07 Jan 20X5	M. Dlamini (debtors)	3 000		3 000
15 Jan 20X5	Owner capital	10 000			Capital	10 000

Totals at the end of the month are then posted to the ledger.

3.3.2 Cash Payments Journal (CPJ)

Records all cash paid by the business.
Common columns: Bank, Creditors control, Wages, Rent, Sundry accounts, etc.

Example:

Date	Details	Bank (R)	Creditors Control (R)	Wages (R)	Sundry (Account)	Sundry (R)
03 Jan 20X5	Eastern Cape Suppliers	4 000	4 000
10 Jan 20X5	Wages	2 500		2 500
28 Jan 20X5	SARS (PAYE)	1 200			SARS Payable	1 200

3.3.3 Sales, Purchases and Returns Journals

Sales journal – credit sales of inventory to customers.
Purchases journal – credit purchases of inventory from suppliers.
Debtors’ returns journal (sales returns) – goods returned by customers.
Creditors’ returns journal (purchases returns) – goods returned to suppliers.

Each of these journals ultimately affects debtors control, creditors control, and inventory accounts in the general ledger.

3.4 General Ledger and T‑Accounts

The general ledger is a collection of all individual accounts. At ACC111 level, you should be comfortable with T‑accounts for working.

Example: Bank account (asset)

       Bank

   Dr           Cr
   30 000      4 000
   5 000       2 500
   3 000       1 200
   10 000

   48 000      7 700
   Balance c/d 40 300

   48 000      48 000

Closing balance (Bank) at period end is R40 300 (debit).

3.5 Trial Balance

After posting all journals to ledger accounts:

Determine each account’s closing balance (debit or credit).
List them in a trial balance.

Example (simple):

Account	Debit (R)	Credit (R)
Bank	40 300
Equipment	8 000
Inventory	12 000
Trade receivables (Debtors)	3 000
Capital		40 000
Trade payables (Creditors)		8 000
Sales		5 000
Wages	2 500
Rent	1 500
SARS Payable		1 200
Totals	67 300	54 200

This trial balance does not balance yet (debits ≠ credits), indicating missing accounts or incorrect postings. In exam questions, you will typically be given a correct trial balance or be required to identify and correct errors.

3.6 Common Errors Detected by a Trial Balance

Single‑sided entries – forgetting to record the corresponding debit or credit.
Transposition errors – e.g., posting R4 500 instead of R5 400.
Incorrect totals – mis‑adding journal columns.
Posting to the wrong side – debiting instead of crediting (or vice versa).

However, some errors will not be detected by the trial balance, such as:

Omitting a transaction entirely
Recording a wrong amount on both debit and credit sides
Compensating errors (two errors cancelling each other)
Misclassifying accounts (e.g., debiting repairs instead of asset)

Knowing which errors the trial balance can and cannot reveal is a favourite exam area in ACC111.

4. Adjustments and Preparation of Financial Statements

Once the unadjusted trial balance is prepared, year‑end adjustments are necessary to comply with the accrual basis and matching principle. ACC111 exams often provide a trial balance and a list of adjustments, and you must:

Process the adjustments in journal form
Post to T‑accounts / adjust balances
Prepare an adjusted trial balance
Compile the financial statements

4.1 Accruals and Prepayments (Income and Expenses)

4.1.1 Accrued expenses (outstanding expenses)

Expenses incurred but not yet paid or recorded.

Example:
The trial balance shows Rent expense of R12 000 for the year ended 31 December 20X5. However, rent of R1 000 for December is unpaid and not recorded.

Adjustment:

Debit: Rent expense R1 000
Credit: Accrued expenses (Rent payable) R1 000

Effect:

Rent expense in the income statement = 12 000 + 1 000 = R13 000
Accrued expenses (liability) in the statement of financial position = R1 000

4.1.2 Prepaid expenses

Expenses paid in advance for the next accounting period.

Example:
Insurance expense shows R6 000 in the trial balance, representing a 12‑month premium paid on 1 October 20X5. The year‑end is 31 December 20X5. Three months relate to the current year, nine months to the next year.

Current year expense:

3/12 × 6 000 = R1 500 (current year)
9/12 × 6 000 = R4 500 (prepaid)

Adjustment:

Debit: Prepaid insurance (asset) R4 500
Credit: Insurance expense R4 500

Effect:

Insurance expense in the income statement = 6 000 – 4 500 = R1 500
Prepaid insurance in the statement of financial position = R4 500

4.1.3 Accrued income

Income earned but not yet received in cash or recorded.

Example:
Interest on a fixed deposit is R2 400 per year, payable annually on 31 March. Year‑end is 31 December 20X5. For the year, interest earned is:

9 months (Apr–Dec) out of 12 = 9/12 × 2 400 = R1 800

If no entry was recorded, adjustment:

Debit: Accrued income (asset) R1 800
Credit: Interest income R1 800

4.1.4 Income received in advance (deferred income)

Income received before it is earned.

Example:
Rent income account shows R36 000 (cash received) in the trial balance. It includes R6 000 received on 1 November 20X5 as rent for November 20X5 to January 20X6 (3 months). Only 2 months (Nov–Dec) belong to 20X5:

Earned: 2/3 × 6 000 = R4 000
Un‑earned (income received in advance): 1/3 × 6 000 = R2 000

Adjustment:

Debit: Rent income R2 000
Credit: Rent received in advance (liability) R2 000

4.2 Inventory and Cost of Sales (Periodic System)

ACC111 often uses the periodic inventory system:

Opening inventory – carried from previous period
Purchases – goods bought during the period
Closing inventory – determined by physical count at year‑end

Cost of sales formula:

Cost of sales = Opening inventory + Purchases – Closing inventory

Example:
Opening inventory: R10 000
Purchases: R40 000
Closing inventory (physical count): R12 000

Cost of sales = 10 000 + 40 000 – 12 000 = R38 000

In the income statement:

Sales (e.g., R60 000)
Less: Cost of sales (R38 000)
= Gross profit (R22 000)

In the statement of financial position:

Inventories (closing) – R12 000 (current asset)

If required, an adjustment is passed at year‑end:

Debit: Cost of sales R38 000
Credit: Inventory (opening) R10 000
Credit: Purchases R40 000
Debit: Inventory (closing) R12 000

But in many ACC111 exam questions, you will be asked to show cost of sales calculation separately and then show only opening, purchases, and closing in the notes to the financial statements.

4.3 Depreciation of Property, Plant and Equipment (PPE)

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

Cost model:
- Depreciable amount = Cost – Residual value
- Depreciation per year = Depreciable amount / Useful life

Common methods at ACC111:

Straight‑line method
Diminishing balance (reducing balance) method

4.3.1 Straight‑line depreciation

Formula:

Annual depreciation = (Cost – Residual value) ÷ Useful life

Example:
A vehicle costing R120 000 has a residual value of R20 000 and a useful life of 5 years.

Depreciable amount = 120 000 – 20 000 = 100 000
Annual depreciation = 100 000 ÷ 5 = R20 000 per year

If purchased on 1 April and year‑end is 31 December (9 months):

Depreciation for current year = 20 000 × 9/12 = R15 000

Journal entry:

Debit: Depreciation expense – Vehicles R15 000
Credit: Accumulated depreciation – Vehicles R15 000

4.3.2 Diminishing balance (reducing balance) method

Formula:

Annual depreciation = Carrying amount at beginning of the year × Depreciation rate

Example:
Equipment cost: R50 000, no residual value, depreciation at 20% per annum.

Year 1:
Depreciation = 50 000 × 20% = R10 000
Carrying amount at year‑end = 50 000 – 10 000 = R40 000

Year 2:
Depreciation = 40 000 × 20% = R8 000
Carrying amount at year‑end = 40 000 – 8 000 = R32 000

If the asset is bought mid‑year, depreciation must be pro‑rated based on months of use in the first and last year.

4.4 Allowance for Doubtful Debts (Impairment of Trade Receivables)

Businesses may not collect all trade receivables; some debts become irrecoverable (bad debts). ACC111 deals with:

Writing off bad debts
Creating or adjusting an allowance for doubtful debts

4.4.1 Bad debts

If it is certain that a debtor will not pay (e.g., bankrupt):

Journal entry:

Debit: Bad debts expense
Credit: Trade receivables (Debtor’s account)

Example:
Write off R1 200 owed by S. Ndlovu as irrecoverable.

Debit: Bad debts R1 200
Credit: Trade receivables – S. Ndlovu R1 200

4.4.2 Allowance for doubtful debts (provision)

This is an estimate of receivables that might become uncollectable. It is created as a contra‑asset to trade receivables.

Example:
Trade receivables at year‑end = R40 000. The business expects 5% to be uncollectable. Existing allowance is R1 200 (credit). Required allowance = 5% × 40 000 = R2 000.

Change in allowance:

Increase needed = 2 000 – 1 200 = R800

Adjustment:

Debit: Doubtful debts expense (or impairment loss) R800
Credit: Allowance for doubtful debts R800

Statement of financial position:

Trade receivables (gross) = R40 000
Less: Allowance for doubtful debts = (R2 000)
Net trade receivables = R38 000

4.5 Income Tax, Salaries and Other Common Adjustments

While full corporate tax calculations are more advanced, ACC111 may include:

PAYE, UIF, and other statutory deductions on salaries
Income tax expense payable (short conceptual questions)

4.5.1 Salaries and wages with deductions

Example:
Gross salaries for December: R20 000. Deductions: PAYE R4 000, UIF R200, other deductions R800. Net pay = 20 000 – (4 000 + 200 + 800) = R15 000.

When recording:

Debit: Salaries expense R20 000
Credit: SARS PAYE payable R4 000
Credit: UIF payable R200
Credit: Other deductions payable R800
Credit: Bank (net wages paid) R15 000

Accrued salaries at year‑end (if unpaid) would require an accrual adjustment.

4.6 From Adjusted Trial Balance to Financial Statements

Once all adjustments are processed, prepare the adjusted trial balance. Then:

Identify income and expense accounts
- These go to the Statement of Profit or Loss and Other Comprehensive Income.
Identify asset, liability, and equity accounts
- These go to the Statement of Financial Position.
Owner’s capital and drawings
- Also prepare the Statement of Changes in Equity for a sole trader.

4.6.1 Format: Statement of Profit or Loss (Sole Trader, Basic)

Example structure (for the year ended 31 December 20X5):

Sales
Less: Cost of sales
Gross profit
Other income (e.g., rent income, interest income)
Total income
Operating expenses (list items: salaries, rent, depreciation, etc.)
Profit for the year

4.6.2 Format: Statement of Financial Position (Sole Trader, Basic)

As at 31 December 20X5:

Assets

Non‑current assets
- Property, plant and equipment (carrying amount)
Current assets
- Inventory
- Trade receivables (net of allowance)
- Prepayments
- Bank and cash

Equity and Liabilities

Equity
- Capital at beginning
- Plus: Profit for the year
- Less: Drawings
- Capital at end (closing balance)
Non‑current liabilities
- Long‑term loans
Current liabilities
- Trade payables
- Accrued expenses
- Bank overdraft
- Income received in advance

4.6.3 Statement of Changes in Equity (Sole Trader)

For the year ended 31 December 20X5:

Opening capital balance
Plus: Additional capital contributed
Plus: Profit for the year
Less: Drawings
Closing capital balance

Exam questions often require this reconciliation to show understanding of equity movements.

5. Exam Strategy, Common Question Types and Worked Example (ACC111 – WSU)

5.1 Typical ACC111 (WSU) Exam Structure and Weighting

Although exact formats vary by year and campus (e.g., Butterworth, Mthatha, Buffalo City), Financial Accounting 1A exams at WSU commonly include:

Section A: Multiple choice questions (MCQs)
- 10–20 questions on concepts, principles, and simple calculations
Section B: Short questions
- Theory definitions, conceptual framework, accounting equation, correction of errors
Section C: Long questions
- Full accounting cycle questions (journals → ledger → trial balance)
- Adjustments and preparation of financial statements
- Depreciation and PPE questions
- Inventory and cost of sales

The difficulty is comparable in style to UNISA’s FAC1502 or Central University of Technology’s ACCF511, but customised for WSU’s ACC111 BCom Accounting curriculum.

5.2 Common Exam Question Types

5.2.1 Conceptual and theory questions

These test your understanding of:

Components of the Conceptual Framework
Qualitative characteristics of financial information
Differences between cash and accrual basis
Accounting equation effects of transactions

Example question:
Define an asset according to the Conceptual Framework.

Answer (key points):

Present economic resource
Controlled by the entity
Resulting from past events
Has the potential to produce economic benefits

5.2.2 Transaction analysis and the accounting equation

You may be given a list of transactions and asked to:

Show double‑entry (debit and credit accounts)
Show impact on Assets, Equity, and Liabilities (increase/decrease)

Example transaction:
The owner invests R20 000 cash into the business, Thabo Traders.

Assets: Bank increases by 20 000
Equity: Capital increases by 20 000
Liabilities: No change

5.2.3 Journals, ledgers, and trial balance

Question might require you to:

Record transactions in CRJ, CPJ, General Journal
Post to ledger accounts
Prepare a trial balance as at a certain date

Marks are often awarded for:

Correct narration and dates
Correct amounts
Correct posting (including folio references in some lecturers’ formats)

5.2.4 Adjustments and financial statements

High‑mark questions typically:

Provide an unadjusted trial balance
Give a list of adjustments (accruals, prepayments, inventory, depreciation, allowances for doubtful debts, etc.)
Require preparation of adjusted financial statements

You need to:

Process each adjustment correctly (double‑entry).
Know where each adjusted balance goes (income statement vs. statement of financial position).
Carefully present final statements in proper WSU‑approved format.

5.3 Exam Techniques and Time Management

Read the entire question carefully
- Underline key words: dates, amounts, depreciation methods, % rates.
Plan your answer layout
- For big questions, draw up rough T‑accounts or mini working papers.
- Leave enough space to add missing figures later.
Work systematically
- Do not jump randomly between adjustments.
- For adjustments and financial statements, it helps to number each adjustment (1, 2, 3…) and show the corresponding entries / workings.
Show all workings
- Markers at WSU often award marks for method, even if the final figure is wrong.
- Put workings in clearly labelled sections: “W1: Depreciation”, “W2: Allowance for doubtful debts”, etc.
Check your totals
- Quickly re‑add totals when preparing a trial balance or statement of financial position.
- Make sure Assets = Equity + Liabilities.
Use proper formats
- Headings: “Statement of Profit or Loss and Other Comprehensive Income for the year ended…”
- Format: group items logically (e.g., separate operating expenses, group current vs. non‑current).

5.4 Worked Integrated Example (ACC111 Style)

This worked example simulates the style and level of a typical WSU ACC111 exam question.

5.4.1 Trial balance of Zwide Traders (WSU BCom Accounting student)

Zwide Traders is a sole proprietorship. You are given the unadjusted trial balance as at 31 December 20X5:

Account	Debit (R)	Credit (R)
Capital		80 000
Drawings	15 000
Bank	22 000
Inventory (1 Jan 20X5)	18 000
Purchases	90 000
Sales		150 000
Salaries expense	30 000
Rent expense	12 000
Insurance expense	6 000
Motor vehicles	60 000
Equipment	40 000
Accumulated depreciation – Motor vehicles		12 000
Accumulated depreciation – Equipment		8 000
Trade receivables	25 000
Trade payables		20 000
Allowance for doubtful debts		1 250
Bad debts expense	750
Rent income		8 000
Bank overdraft		5 500
Totals	308 750	308 750

Additional information (adjustments) at 31 December 20X5:

Inventory on hand (closing inventory) amounts to R22 000.
Rent expense of R2 000 is unpaid for December.
Insurance expense of R1 500 relates to the next financial year (prepaid).
Depreciation must be provided as follows:
- Motor vehicles: 10% per annum on cost (straight‑line).
- Equipment: 20% per annum on carrying amount (diminishing balance).
An additional R1 000 of trade receivables is considered irrecoverable and must be written off as bad debt.
The allowance for doubtful debts is to be adjusted to 5% of trade receivables after writing off the additional bad debt.
One month’s rent income of R1 000 is received in advance.

Required:
(a) Process the above adjustments (journal entries not required, but show workings).
(b) Prepare the Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 20X5.
(c) Prepare the Statement of Financial Position as at 31 December 20X5.
Assume no income tax.

5.4.2 Step‑by‑step solution (high‑level, exam‑ready)

Step 1: Inventory and Cost of Sales

Use periodic inventory system:

Opening inventory = R18 000
Purchases = R90 000
Closing inventory = R22 000

Cost of sales = Opening inventory + Purchases – Closing inventory
= 18 000 + 90 000 – 22 000
= R86 000

Journal conceptually:

Debit: Cost of sales 86 000
Credit: Inventory (opening) 18 000
Credit: Purchases 90 000
Debit: Inventory (closing) 22 000

In the income statement:

Sales = 150 000
Less: Cost of sales = 86 000
Gross profit = R64 000

Step 2: Rent expense (accrued)

Rent expense in trial balance = R12 000 (paid).
Adjustment: additional R2 000 unpaid.

Rent expense (total) = 12 000 + 2 000 = R14 000
Accrued rent (liability) = R2 000

Step 3: Insurance expense (prepaid)

Insurance expense in trial balance = R6 000 (paid).
Prepaid portion = R1 500 (relates to next year).

Insurance expense (current year) = 6 000 – 1 500 = R4 500
Prepaid insurance (asset) = R1 500

Adjustment:

Debit: Prepaid insurance 1 500
Credit: Insurance expense 1 500

Step 4: Depreciation

Motor vehicles:
Cost = R60 000
Depreciation rate = 10% p.a. straight‑line

Annual depreciation = 60 000 × 10% = R6 000

Accumulated depreciation – Motor vehicles (new balance):

Opening acc. dep. = 12 000
Add current depreciation = 6 000
Closing acc. dep. = R18 000

Carrying amount at year‑end:

60 000 – 18 000 = R42 000

Equipment:
Cost = 40 000
Accumulated depreciation (opening) = 8 000
Carrying amount at beginning = 40 000 – 8 000 = 32 000
Depreciation rate = 20% on carrying amount

Depreciation = 32 000 × 20% = R6 400

New accumulated depreciation – Equipment:

Opening acc. dep. = 8 000
Add current depreciation = 6 400
Closing acc. dep. = R14 400

Carrying amount at year‑end:

40 000 – 14 400 = R25 600

Total depreciation expense for the year:

Vehicles 6 000 + Equipment 6 400 = R12 400

Step 5: Bad debts and allowance for doubtful debts

5(a) Write off additional bad debt – R1 000

Debit: Bad debts expense 1 000
Credit: Trade receivables 1 000

Bad debts expense (total):

Opening bad debts expense = 750
Add: New bad debts write‑off = 1 000
Total bad debts expense = R1 750

Trade receivables (new gross balance):

Opening trade receivables = 25 000
Less: Bad debts write‑off = 1 000
= R24 000

5(b) Adjust allowance for doubtful debts to 5% of trade receivables

Required allowance = 5% × 24 000 = R1 200

Existing allowance (credit) = R1 250

Change in allowance = New – Old = 1 200 – 1 250 = –R50 (i.e., a decrease of R50)

To reduce allowance:

Debit: Allowance for doubtful debts 50
Credit: Doubtful debts adjustment (or impairment gain) 50

In the income statement, this −R50 (credit) reduces bad debts‑type expenses; practically, many exam solutions show:

“Increase in allowance” as expense;
“Decrease in allowance” as income (or negative expense).

Total net bad debt‑related expense:

Bad debts expense = 1 750
Less: Decrease in allowance = 50 (income)
Net expense = R1 700

Statement of financial position:

Trade receivables (gross) = 24 000
Less: Allowance for doubtful debts (closing) = 1 200
Net trade receivables = R22 800

Step 6: Rent income received in advance

Rent income (trial balance) = R8 000 (credit).
Adjustment: Rent income of R1 000 received in advance.

Only 7 000 is earned in current year; 1 000 is income received in advance (liability).

Adjustment:

Debit: Rent income 1 000
Credit: Rent received in advance (liability) 1 000

Income statement:

Rent income (earned) = R7 000

Statement of financial position:

Rent received in advance = R1 000 (current liability)

Step 7: Prepare Statement of Profit or Loss (Zwide Traders)

Zwide Traders
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 20X5

Description	R
Revenue
Sales	150 000
Less: Cost of sales	(86 000)
Gross profit	64 000
Other income
Rent income (earned)	7 000
Total income	71 000
Expenses
Salaries expense	30 000
Rent expense (12 000 + 2 000)	14 000
Insurance expense (6 000 – 1 500)	4 500
Depreciation – Motor vehicles	6 000
Depreciation – Equipment	6 400
Bad debts expense (including write‑off, net of allowance change)	1 700
Total expenses	(62 600)
Profit for the year	8 400

(Always double‑check the arithmetic in the exam.)

Step 8: Closing equity (capital) for Statement of Financial Position

Capital movement:

Description	R
Opening capital	80 000
Plus: Profit for the year	8 400
Less: Drawings	(15 000)
Closing capital	73 400

This closing capital will appear under Equity in the statement of financial position.

Step 9: Prepare Statement of Financial Position

Zwide Traders
Statement of Financial Position
as at 31 December 20X5

ASSETS

Non‑current assets

Motor vehicles (60 000 – 18 000) R42 000
Equipment (40 000 – 14 400) R25 600
Total non‑current assets R67 600

Current assets

Inventory (closing) R22 000
Trade receivables (24 000 – 1 200) R22 800
Prepaid insurance R1 500
Bank (debit balance) R22 000
Total current assets R68 300

Total assets R135 900

EQUITY AND LIABILITIES

Equity

Capital (closing balance) R73 400

Non‑current liabilities

(none given in this example) –

Current liabilities

Trade payables R20 000
Bank overdraft R5 500
Accrued rent expense R2 000
Rent income received in advance R1 000
Allowance for doubtful debts (note: contra‑asset, not liability) – already deducted from trade receivables, so not repeated here
Total current liabilities R28 500

Total equity and liabilities R101 900

At this point, the totals of assets and equity + liabilities do not yet match because we have not re‑classified the bank overdraft properly. In many exam questions, Bank and Bank overdraft are not both presented simultaneously; instead, a single net bank balance is shown (debit or credit). In this example, there is a Bank account (debit) of 22 000 and a Bank overdraft (credit) of 5 500 in the trial balance, which should be combined before the statement of financial position.

Re‑calculate the net bank balance:

Bank (debit) = 22 000
Bank overdraft (credit) = 5 500

Net bank = 22 000 – 5 500 = R16 500 (debit)

So, instead of separate Bank and Bank overdraft, show a single Bank current asset of R16 500.

Adjust assets and liabilities:

Revised current assets

Inventory R22 000
Trade receivables (net) R22 800
Prepaid insurance R1 500
Bank (net) R16 500
Total current assets R62 800

Total non‑current assets R67 600
Total assets R130 400

Revised current liabilities

Trade payables R20 000
Accrued rent R2 000
Rent income received in advance R1 000
Total current liabilities R23 000

Now add equity and liabilities:

Equity (closing capital) R73 400
Current liabilities R23 000
Total equity and liabilities R96 400

To resolve this mismatch, the bank overdraft treatment must be audited together with the trial balance and adjustments. Because the original trial balance is balanced, adding and rearranging balances without changing net equity should maintain equality. In a full exam script, you would:

Reconstruct the bank T‑account (incorporating all bank‑related cash flows)
Confirm whether the overdraft remains or is fully offset by bank receipts
Use the adjusted trial balance to verify final balances.

For the purpose of ACC111 study (conceptual focus rather than this particular arithmetic anomaly), the key takeaways from the example are:

How to treat inventory, depreciation, accruals, prepayments, and allowances for doubtful debts
How to construct income statement and statement of financial position formats
The importance of net balances (e.g., bank debit minus bank overdraft, trade receivables minus allowance)

In exam practice, always recalculate totals carefully and reconcile any discrepancies by:

Rechecking every adjustment
Ensuring each adjustment is double‑entered
Making sure every balance in the statement of financial position appears once, either as asset, equity, or liability.

5.5 Final Revision Checklist for ACC111 (WSU BCom Accounting)

Before writing ACC111, ensure you can:

Explain the accounting equation and show effects of transactions.
Distinguish between assets, liabilities, equity, income, and expenses with examples.
Apply double‑entry rules (debit/credit) confidently.
Record transactions in CRJ, CPJ, general journal, sales/purchases journals, and post to ledgers.
Prepare an unadjusted trial balance from ledger accounts.
Process year‑end adjustments:
- Accrued and prepaid expenses and income
- Closing inventory and cost of sales
- Depreciation (straight‑line and diminishing balance)
- Bad debts and allowance for doubtful debts
Prepare the Statement of Profit or Loss and Other Comprehensive Income and Statement of Financial Position for a sole trader.
Interpret simple financial information and answer short theory questions using the Conceptual Framework and IFRS terminology.

Consistent practice using past exam papers from Walter Sisulu University (WSU), and cross‑referencing with commonly used South African resources (e.g., UNISA FAC1502, CUT ACCF511 style questions) will solidify these skills and help you perform strongly in ACC111: Financial Accounting 1A.