This study guide provides complete, exam-focused notes for RKV101: Accounting Knowledge 1, a foundational first-year module within the Nelson Mandela University (NMU): BCom Accounting Sciences (CA Stream). It is designed as an “exam pack” style resource: condensed theory, worked examples, and exam strategies aligned with how NMU typically assesses first-year accounting knowledge. The focus is on building conceptual understanding while equipping you to answer questions efficiently under exam conditions.
1. Module Overview, Outcomes and Exam Strategy (RKV101 – NMU BCom Accounting Sciences CA Stream)
1.1 Position of RKV101 in the NMU BCom Accounting Sciences (CA Stream)
RKV101: Accounting Knowledge 1 is a foundational module in the BCom Accounting Sciences (Chartered Accountancy Stream) at Nelson Mandela University (NMU). It underpins later modules such as:
- RKV102: Accounting Knowledge 2
- RKK201: Financial Accounting
- RKL201: Management Accounting
- RKA201: Auditing
- RKT201: Taxation
The module aims to give first-year students a solid grounding in:
- The language of accounting (concepts, principles, terms).
- The accounting cycle from source documents to financial statements.
- Basic double-entry bookkeeping and the structure of ledger accounts.
- Preparation of trial balances, adjustments, and basic financial statements.
- Introductory ethics and professional behaviour relevant to South African accounting practice.
Although its exact credit weighting can vary with curriculum changes, RKV101 typically carries around 12 credits within the NMU BCom Accounting Sciences programme, making it a core building block for CA(SA) aspirants.
1.2 Intended Learning Outcomes (RKV101)
By the end of RKV101, a student should be able to:
- Explain the role and purpose of accounting in business, especially within the South African environment.
- Define and apply key accounting concepts such as:
- Accounting entity
- Going concern
- Accrual basis
- Historical cost
- Materiality
- Prudence (or conservatism)
- Consistency
- Record the effects of transactions using double-entry bookkeeping, including:
- Debits and credits
- T-accounts and general ledger postings
- Subsidiary journals (cash receipts, cash payments, sales, purchases, etc.)
- Process a complete accounting cycle:
- Journalise from source documents
- Post to ledger
- Prepare a trial balance
- Process year-end adjustments
- Prepare basic financial statements
- Prepare simple financial statements for:
- Sole proprietors
- Partnerships (introductory level)
- Identify and explain ethical issues in basic accounting situations:
- Integrity
- Objectivity
- Confidentiality
- Professional behaviour (aligned with SAICA’s Code of Professional Conduct at an introductory level).
1.3 Typical Assessment Structure and Weightings
While precise details can change from year to year, the RKV101 assessment approach at NMU usually includes:
- Class tests / semester tests (30–40%)
- Test 1: Basic concepts, accounting equation, double entry, journals.
- Test 2: Trial balance, adjustments, basic financial statements.
- Assignments / Tutorials / Online quizzes (10–20%)
- Focus on practice of accounting cycle procedures and ethics caselets.
- Final examination (40–60%)
- Comprehensive coverage:
- Objective-type questions (multiple-choice, true/false with justification, short definitions).
- Structured questions (e.g. “prepare the ledger accounts and a trial balance”).
- Full-length integrated question (journal entries, adjustments, financial statements).
- Comprehensive coverage:
The final exam is usually 2–3 hours, closed book, with a mixture of theory and calculation. Marks tend to be allocated roughly as:
- 25–35%: Theory and definitions (accounting concepts, ethics, purpose of financial statements).
- 65–75%: Application and problem-solving (accounting cycle, ledger, trial balance, financial statements).
1.4 Exam Strategy and Time Management
Because RKV101 is content-heavy but conceptually manageable, efficient exam strategy is crucial.
1.4.1 Pre-Exam Preparation Strategy
- Master core principles and formats first:
- Accounting equation.
- Debit/credit rules.
- Standard financial statement layouts (Statement of Profit or Loss, Statement of Financial Position, basic Statement of Changes in Equity).
- Work through past NMU RKV101 papers:
- Identify recurring question types.
- Time yourself for each section.
- Mark yourself using memos or solutions from lecturers/tutorials.
- Focus on typical NMU-style “integrated questions”:
- These often start with:
- A list of transactions for a period.
- Additional information at year-end.
- And require:
- Journal entries.
- Ledger postings or specific T-accounts.
- Trial balance.
- Adjusted financial statements.
- These often start with:
- Create a one-page summary sheet (for yourself in study, not allowed in the exam) with:
- Debit/credit rules by account type.
- Typical adjustments and their double entries.
- Headings and formats of financial statements.
- Key accounting concepts and their definitions.
1.4.2 In-Exam Time Management
Assuming a 3-hour paper (180 minutes), with 100 marks:
- Allocate ±1.5–2 minutes per mark, but vary by question type:
- Short theory (1–2 marks): ±1 minute per mark.
- Calculations / ledger / trial balance: ±1.5–2 minutes per mark.
- Full integrated question (40–50 marks): plan 70–90 minutes.
- First 5–10 minutes:
- Quickly scan the entire exam paper.
- Identify “easy wins” (questions you are confident about).
- Decide the order in which you will answer (you do not always have to follow the paper’s order).
- Tackle theory questions early:
- They are usually quick marks if you know your definitions.
- They warm up your mind with the correct language.
- For long questions:
- Read the requirement first (e.g. “Prepare the Statement of Profit or Loss for X for the year ended…”).
- Then read the information, highlighting items relevant to each requirement.
- Tick off each adjustment as you incorporate it into your answer.
- Leave some buffer:
- Plan to be done 10–15 minutes before the end.
- Use this time to:
- Check arithmetic in trial balance and totals.
- Ensure that debit and credit totals match where required.
- Scan for any incomplete answers or missing workings.
1.4.3 Common Exam Pitfalls in RKV101
- Reversing debits and credits:
- Especially for liabilities and equity increases.
- Forgetting to adjust for prepayments and accruals:
- Students often use the cash amount paid/received without adjusting to what relates to the current period.
- Omitting closing entries or year-end transfers:
- E.g. not transferring owner’s drawings to capital account.
- Incorrect statement headings and dates:
- Examiners often award marks for correct headings like:
- “Statement of Profit or Loss for the year ended 31 December 20X4”.
- Examiners often award marks for correct headings like:
- Not showing workings:
- Even if final figure is wrong, well-presented workings can earn method marks.
2. Core Accounting Concepts and the Accounting Equation
2.1 The Role and Purpose of Accounting
Accounting is often described as the language of business. Within the NMU BCom Accounting Sciences (CA Stream) context, RKV101 focuses on:
- Identifying financial information (transactions, events).
- Measuring financial effects in monetary terms.
- Recording them systematically in journals and ledgers.
- Communicating the results through financial reports.
The primary purpose is to provide stakeholders with useful financial information for decision-making. Key users include:
- Owners/Shareholders: Assess profitability and financial health.
- Management: Plan, control, and evaluate performance.
- Creditors and lenders: Evaluate creditworthiness.
- South African Revenue Service (SARS): Assess tax liabilities.
- Employees: Job security, wage negotiations.
- Government and regulators: Compliance and economic analysis.
In RKV101, the focus is mainly on financial accounting for external reporting, rather than internal management accounting.
2.2 Fundamental Accounting Concepts
Examiners frequently test your understanding of fundamental concepts. Learn both definitions and practical implications.
2.2.1 Accounting Entity Concept
- The business is separate from its owner(s).
- Even for a sole proprietor like “S. Mokoena Trading”, the business is treated as a separate entity from Mr/Ms Mokoena.
- Personal transactions (e.g. paying private school fees) are not recorded as business expenses, but as drawings if paid from business funds.
Exam example:
“State whether the following transaction relates to the accounting entity and explain: The owner uses company cash to pay for a personal holiday.”
Model answer:
- Yes, it relates to the accounting entity concept.
- The business is separate from the owner; personal expenses must not be recorded as business expenses. They are treated as drawings, reducing the owner’s equity.
2.2.2 Going Concern Concept
- Assumes the business will continue operating for the foreseeable future.
- Assets are not recorded at liquidation values but at cost (subject to depreciation, impairment, etc.).
- It affects valuation and classification of assets and liabilities.
If going concern is questionable (e.g. severe financial distress), assets might be revalued to net realisable value or liquidation value instead.
2.2.3 Accrual Basis of Accounting
-
Transactions are recorded when the income is earned or the expense is incurred, not necessarily when cash is received or paid.
-
This leads to accruals and prepayments:
- Accrued income: Earned but not yet received.
- Accrued expense: Incurred but not yet paid.
- Prepaid expense: Paid in advance.
- Income received in advance: Cash received before income is earned.
Example:
Electricity expense for December of R1 200 is only paid in January. Under the accrual basis:
- December’s Statement of Profit or Loss includes R1 200 as an expense.
- Statement of Financial Position shows Electricity payable (accrued expense) of R1 200.
2.2.4 Historical Cost Concept
- Assets are initially recorded at their purchase price (cost).
- Cost includes all amounts necessary to bring the asset to the location and condition for use.
- Historical cost provides reliability but may not always reflect current market value.
In RKV101, students usually record assets at cost and apply straight-line depreciation (if tested).
2.2.5 Consistency Concept
- Accounting policies and procedures should be applied consistently from one period to the next.
- This enhances comparability.
- Changes in accounting policy should be rare and well-explained.
Exam angle:
Students may be asked to explain why changing depreciation methods every year without justification violates the consistency concept.
2.2.6 Prudence (Conservatism)
- Caution is exercised in making estimates.
- Do not overstate assets or income, and do not understate liabilities or expenses.
- E.g. creating an allowance for doubtful debts when there is uncertainty about collection.
2.2.7 Materiality Concept
- An item is material if its omission or misstatement could influence the decisions of users.
- Material items are disclosed separately; immaterial items may be aggregated.
- Materiality is judgement-based and depends on size and nature.
2.3 The Accounting Equation
The accounting equation expresses the relationship between a business’s assets, equity, and liabilities.
2.3.1 Basic Form
Assets = Equity + Liabilities
Where:
- Assets: Resources controlled by the entity as a result of past events and from which future economic benefits are expected.
- Equity: The residual interest in the assets after deducting liabilities (owner’s claim).
- Liabilities: Present obligations arising from past events, the settlement of which is expected to result in an outflow of resources.
2.3.2 Expanded Accounting Equation
At RKV101 level (especially for sole proprietors):
Assets = Capital + Profit – Drawings + Liabilities
Or more fully broken down for a period:
Assets = Capital (beginning) + Additional Capital Introduced + Profit – Drawings + Liabilities
2.3.3 Impact of Common Transactions on the Equation
Understanding how each transaction type affects the equation is a frequent exam skill.
Example 1: Owner invests cash
Owner introduces R100 000 cash as capital.
- Assets (Cash) increase by R100 000.
- Equity (Capital) increases by R100 000.
- Equation remains balanced.
Example 2: Purchase equipment for cash
Buy equipment for R30 000 cash.
- Assets (Equipment) increase by R30 000.
- Assets (Cash) decrease by R30 000.
- Total assets remain unchanged; equity and liabilities are unaffected.
Example 3: Purchase inventory on credit
Buy inventory for R50 000 on credit from Supplier X.
- Assets (Inventory) increase by R50 000.
- Liabilities (Trade payables – Supplier X) increase by R50 000.
- Equity unchanged.
Example 4: Earn revenue on credit
Sell goods on credit for R15 000 (cost was R9 000).
Two aspects:
-
Revenue aspect:
- Assets (Trade receivables) increase by R15 000.
- Equity (Profit) increases by R15 000.
-
Cost of sales aspect:
- Assets (Inventory) decrease by R9 000.
- Equity (Profit) decreases by R9 000 (expense).
Net effect on equity (profit) = +R6 000.
Example 5: Pay expenses in cash
Pay salaries of R8 000.
- Assets (Cash) decrease by R8 000.
- Equity (Profit) decreases by R8 000 (expense).
Example 6: Owner takes drawings
Owner withdraws R2 000 cash for personal use.
- Assets (Cash) decrease by R2 000.
- Equity (Drawings) increase by R2 000 (which reduces overall equity).
2.3.4 Tabular Illustration
A simple exam-style question may require you to show the effect of transactions on the accounting equation:
| Transaction | Assets (R) | Equity (R) | Liabilities (R) |
|---|---|---|---|
| Initial capital: Owner invests R120 000 cash | +120 000 | +120 000 | 0 |
| Buy equipment for cash: R40 000 | 0 (Cash -40 000, Equipment +40 000) | 0 | 0 |
| Buy inventory on credit: R30 000 | +30 000 | 0 | +30 000 |
| Cash sales: R15 000 (cost R9 000) | +6 000 (Cash +15 000, Inventory -9 000) | +6 000 (Profit) | 0 |
| Pay creditors R10 000 | -10 000 | 0 | -10 000 |
Students may be asked to present the ending balances:
-
Assets = 120 000 (initial cash) + 0 (equip transaction net) + 30 000 (inventory on credit) + 6 000 (net asset increase from sale) – 10 000 (cash to creditors)
= R146 000. -
Equity = 120 000 (capital) + 6 000 (profit) = R126 000.
-
Liabilities = 30 000 (inventory on credit) – 10 000 (paid) = R20 000.
Check:
Assets (146 000) = Equity (126 000) + Liabilities (20 000) → 146 000 = 146 000 (balanced).
2.3.5 Exam Tips for Accounting Equation Questions
- Always show sign (+ / –) for each element (Assets, Equity, Liabilities).
- Be consistent:
- Increases in assets/expenses = debits.
- Increases in equity, income, liabilities = credits.
- Watch for compound effects:
- E.g. sales on credit affect both assets and equity.
- Label clearly:
- “Profit” or “Expense” under Equity column to show why equity changes.
3. Double-Entry System, Journals and Ledgers
3.1 The Double-Entry Principle
The double-entry system is central to RKV101 and a major focus in exam questions.
Core rule:
Every transaction is recorded with equal debits and credits.
Total debits = Total credits for every transaction and always in the ledger.
3.1.1 Account Types and Normal Balances
Accounts are grouped into five main categories:
- Assets – normal debit balance.
- Liabilities – normal credit balance.
- Equity – normal credit balance.
- Income (Revenue) – normal credit balance.
- Expenses – normal debit balance.
Debit/credit effects:
| Category | Increase | Decrease |
|---|---|---|
| Assets | Debit | Credit |
| Expenses | Debit | Credit |
| Liabilities | Credit | Debit |
| Equity | Credit | Debit |
| Income | Credit | Debit |
3.2 General Journal Entries
The general journal is used to initially record transactions not captured in specialised journals or to process adjustments.
Format:
- Date
- Account debited (with amount in debit column)
- Account credited (with amount in credit column, indented)
- Brief narration (description)
Example 1: Owner introduces capital
1 March 20X4: Owner contributes R50 000 cash as capital.
Date Details Debit (R) Credit (R)
1 Mar 20X4 Bank 50 000
Capital 50 000
(Capital introduced by owner)
Example 2: Purchase of equipment on credit
5 March 20X4: Equipment bought on credit from Phela Suppliers for R12 000.
Date Details Debit (R) Credit (R)
5 Mar 20X4 Equipment 12 000
Phela Suppliers 12 000
(Equipment purchased on credit)
Example 3: Payment of expense
10 March 20X4: Paid electricity expense of R1 800 by EFT.
Date Details Debit (R) Credit (R)
10 Mar 20X4 Electricity expense 1 800
Bank 1 800
(Electricity paid by EFT)
3.3 Subsidiary Journals
In RKV101, you are usually introduced to special journals to simplify repetitive transactions:
- 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 (if syllabus includes):
- Debtors’ Allowances Journal (DAJ) – sales returns.
- Creditors’ Allowances Journal (CAJ) – purchases returns.
3.3.1 Cash Receipts Journal (CRJ)
Typical columns:
- Date
- Details (from whom cash is received)
- Bank
- Analysis of receipts (e.g. Capital, Sales, Debtors’ Control, Sundry accounts)
Example snippet:
| Date | Details | Bank (R) | Sales (R) | Debtors’ Control (R) | Sundry (R) | Sundry details |
|---|---|---|---|---|---|---|
| 2 Mar 20X4 | Cash sales | 8 000 | 8 000 | 0 | 0 | |
| 5 Mar 20X4 | Debtor: Thabo | 3 500 | 0 | 3 500 | 0 | |
| 7 Mar 20X4 | Owner capital | 10 000 | 0 | 0 | 10 000 | Capital |
Total Bank = 21 500.
3.3.2 Cash Payments Journal (CPJ)
Typical columns:
- Date
- Details
- Bank
- Creditors’ Control
- Various expense columns (e.g. Wages, Rent, Electricity, etc.)
- Sundry accounts
Example snippet:
| Date | Details | Bank (R) | Creditors’ Control (R) | Wages (R) | Rent (R) | Sundry (R) | Sundry details |
|---|---|---|---|---|---|---|---|
| 3 Mar 20X4 | Wages | 4 000 | 0 | 4 000 | 0 | 0 | |
| 4 Mar 20X4 | Creditor: Langa | 2 500 | 2 500 | 0 | 0 | 0 | |
| 6 Mar 20X4 | Rent | 3 000 | 0 | 0 | 3 000 | 0 |
Total Bank = 9 500.
3.3.3 Posting from Journals to Ledger
At month-end:
- Total of Bank column in CRJ is posted as debit to Bank in the general ledger.
- Total of Bank column in CPJ is posted as credit to Bank.
Individual column totals are posted:
- CRJ Sales total → Credit Sales account.
- CPJ Wages total → Debit Wages account.
- Creditors’ Control totals → Debit or credit that control account.
3.4 The Ledger and T-Accounts
The general ledger contains all the accounts used by the business. In exams, T-accounts are often used for teaching and demonstration.
Structure of a T-account:
Equipment
Dr Cr
Date Details Amount Date Details Amount
Posting rules:
- From general journal:
- Debit entries → left side of ledger accounts.
- Credit entries → right side.
- From CRJ/CPJ:
- Bank column total from CRJ → Debit Bank.
- Bank column total from CPJ → Credit Bank.
- Other columns totals → debit or credit respective accounts.
Example postings from earlier journal entries:
1 March 20X4: Bank 50 000 / Capital 50 000
T-accounts:
Bank
Dr Cr
1 Mar Capital 50 000
Capital
Dr Cr
1 Mar Bank 50 000
5 March 20X4: Equipment 12 000 / Phela Suppliers 12 000
Equipment
Dr Cr
5 Mar Phela Suppliers 12 000
Phela Suppliers
Dr Cr
5 Mar Equipment 12 000
10 March 20X4: Electricity expense 1 800 / Bank 1 800
Electricity expense
Dr Cr
10 Mar Bank 1 800
Bank
Dr Cr
1 Mar Capital 50 000 10 Mar Electricity exp 1 800
3.5 Debtors’ and Creditors’ Ledgers (Control Accounts)
In addition to the general ledger, many businesses maintain:
- Debtors’ ledger (personal accounts of individual customers).
- Creditors’ ledger (personal accounts of suppliers).
In the general ledger, Debtors’ Control and Creditors’ Control accounts summarise the totals.
Example:
- Credit sales to Debtor A of R5 000.
- Cash received from Debtor A of R2 000.
- Credit purchases from Supplier B of R8 000.
- Cash paid to Supplier B of R3 000.
General ledger entries:
- Debtors’ Control 5 000 (Dr), Sales 5 000 (Cr).
- Bank 2 000 (Dr), Debtors’ Control 2 000 (Cr).
- Purchases (or Inventory) 8 000 (Dr), Creditors’ Control 8 000 (Cr).
- Creditors’ Control 3 000 (Dr), Bank 3 000 (Cr).
Debtors’ Control T-account:
Debtors’ Control
Dr Cr
Sales 5 000 Bank 2 000
Balance c/d 3 000
5 000 5 000
Balance c/d (carried down) = R3 000 reflects total amount receivable from all debtors.
3.6 Common Exam Questions on Double Entry
Students can expect questions such as:
- “Record the following transactions in the general journal of X Traders for March 20X5.”
- “Open the following ledger accounts and post the entries from the journal.”
- “Balance the ledger accounts and prepare a trial balance as at 31 March 20X5.”
- “Explain why the debit side of an asset account must be greater than the credit side if the account has a debit balance.”
Exam Tips:
- Always begin by identifying account types (asset, liability, equity, income, expense).
- Decide which accounts increase and which decrease.
- Apply debit/credit rules accordingly.
- Ensure narrations are concise but meaningful.
- Use rulers and leave space in exam scripts; neatness can help avoid confusion and errors.
4. The Accounting Cycle: From Transactions to Trial Balance
4.1 Overview of the Accounting Cycle
The accounting cycle typically includes:
- Identifying and analysing transactions.
- Recording transactions in journals.
- Posting to the ledger.
- Preparing an unadjusted trial balance.
- Processing adjustments.
- Preparing an adjusted trial balance.
- Preparing financial statements.
- Closing temporary accounts.
RKV101 focuses heavily on steps 2–7, with a strong emphasis on adjustments and basic financial statements.
4.2 Trial Balance
A trial balance is a list of all ledger accounts and their balances (debit or credit) at a particular date, usually before adjustments.
4.2.1 Purpose of the Trial Balance
- To check arithmetical accuracy of ledger postings.
- To serve as a basis for preparing adjusted entries and financial statements.
Importantly, a trial balance only ensures that total debits equal total credits; it does NOT guarantee that there are no errors, especially errors of omission or compensating errors.
4.2.2 Example of an Unadjusted Trial Balance
At 31 December 20X4, the ledger of Tshwane Traders shows the following balances:
- Capital: R200 000 (Cr)
- Drawings: R10 000 (Dr)
- Bank: R30 000 (Dr)
- Inventory: R40 000 (Dr)
- Equipment (at cost): R80 000 (Dr)
- Accumulated depreciation – Equipment: R16 000 (Cr)
- Trade receivables: R25 000 (Dr)
- Trade payables: R18 000 (Cr)
- Sales: R220 000 (Cr)
- Cost of sales: R130 000 (Dr)
- Wages: R40 000 (Dr)
- Rent expense: R24 000 (Dr)
- Electricity: R6 000 (Dr)
Unadjusted Trial Balance:
| Account | Debit (R) | Credit (R) |
|---|---|---|
| Capital | 200 000 | |
| Drawings | 10 000 | |
| Bank | 30 000 | |
| Inventory | 40 000 | |
| Equipment | 80 000 | |
| Accumulated depreciation – Equipment | 16 000 | |
| Trade receivables | 25 000 | |
| Trade payables | 18 000 | |
| Sales | 220 000 | |
| Cost of sales | 130 000 | |
| Wages | 40 000 | |
| Rent expense | 24 000 | |
| Electricity | 6 000 | |
| Totals | 385 000 | 454 000 |
Note: At this stage, the trial balance does not balance, which indicates that information is incomplete; in an exam, the full list would be given such that totals match. For teaching purposes, we will introduce adjustments that will bring clarity.
4.3 Year-End Adjustments
Adjustments are necessary to ensure the financial statements comply with the accrual basis and reflect fair presentation.
Common adjustments in RKV101 include:
- Inventory adjustment and cost of sales.
- Depreciation.
- Accrued and prepaid expenses.
- Accrued income and income received in advance.
- Provision (allowance) for doubtful debts.
- Correction of errors.
4.3.1 Inventory and Cost of Sales Adjustment
At year-end, physical inventory count is taken. The difference between opening inventory, purchases, and closing inventory impacts cost of sales.
Basic formula:
Cost of Sales = Opening Inventory + Purchases – Closing Inventory
In RKV101, purchases may already be included in Cost of Sales throughout the year, and closing inventory is treated by:
- Debiting Inventory (closing balance).
- Crediting Cost of Sales (to reduce expense).
Example:
Assume physical inventory at 31 December is R35 000, but trial balance shows inventory (opening) of R40 000, with cost of sales already including purchases. To adjust for closing inventory:
Dr Inventory 35 000
Cr Cost of sales 35 000
The closing inventory of R35 000 appears as an asset in the Statement of Financial Position, and cost of sales is reduced accordingly.
4.3.2 Depreciation
Depreciation spreads the cost of a tangible fixed asset over its useful life.
Common method in RKV101: Straight-line depreciation.
Formula:
Annual depreciation = (Cost – Residual value) ÷ Useful life
Example:
Equipment cost: R80 000
Residual value: R8 000
Useful life: 8 years
Annual depreciation = (80 000 – 8 000) ÷ 8 = 72 000 ÷ 8 = R9 000 per year.
If the trial balance shows Accumulated depreciation – Equipment of R16 000 and the business is in its third year of using equipment, you may need to:
- Recognise additional depreciation expense.
Journal entry:
Dr Depreciation expense – Equipment 9 000
Cr Accumulated depreciation – Equipment 9 000
4.3.3 Accrued and Prepaid Expenses
Accrued expense (outstanding expense):
- Expense incurred but not yet paid.
- Increase expense and recognise liability.
Example:
At 31 December, electricity of R1 200 relating to December is outstanding.
Dr Electricity expense 1 200
Cr Electricity payable (or Accrued expenses) 1 200
Prepaid expense:
- Expense paid in advance; part relates to future periods.
- Decrease expense and recognise asset (prepayment).
Example:
Rent paid for 12 months of R24 000 on 1 October, year-end 31 December.
Monthly rent = 24 000 ÷ 12 = R2 000.
Period from 1 October to 31 December = 3 months → R6 000 (current year).
Prepaid for January to September next year = 9 months → 9 × 2 000 = R18 000.
Trial balance shows Rent expense = 24 000. Adjust:
- Current period expense = 6 000.
- Prepaid rent (asset) = 18 000.
Adjustment entry:
Dr Prepaid rent (asset) 18 000
Cr Rent expense 18 000
After adjustment, rent expense in Statement of Profit or Loss is R6 000, and Prepaid rent in Statement of Financial Position is R18 000.
4.3.4 Accrued Income and Income Received in Advance
Accrued income:
- Income earned but not yet received.
- Recognise income and corresponding asset (accrued income).
Example:
Interest of R1 500 earned in December but only to be received in January.
Dr Accrued income 1 500
Cr Interest income 1 500
Income received in advance:
- Cash received but income not yet earned (liability).
Example:
Received R4 000 rental income in December for January next year.
Dr Rent income 4 000
Cr Rent received in advance 4 000
Only income relating to current period remains in the profit or loss statement; the rest is a liability.
4.3.5 Allowance for Doubtful Debts
Businesses estimate that a percentage of trade receivables may be irrecoverable.
Example:
Trade receivables at year-end = R25 000.
Allowance for doubtful debts = 5% of receivables → 5% × 25 000 = R1 250.
If no allowance existed previously:
Dr Bad debts expense or Doubtful debts expense 1 250
Cr Allowance for doubtful debts 1 250
Allowance for doubtful debts is a contra-asset, reducing trade receivables in the Statement of Financial Position.
4.3.6 Correction of Errors
Typically, RKV101 includes:
- Reversal of wrong entries.
- Posting the correct entries.
Example:
Rent expense of R1 200 incorrectly debited to Wages.
To correct:
-
Reverse wrong entry:
Dr Wages 1 200 (if incorrectly credited, but usually it would be an incorrect debit) Cr Rent expense 1 200However, more commonly:
Original wrong entry:
Dr Wages 1 200 Cr Bank 1 200Correct entry should be:
Dr Rent expense 1 200 Cr Bank 1 200Fixing via journal:
Dr Rent expense 1 200 Cr Wages 1 200
4.4 Adjusted Trial Balance
After processing all adjustments, an adjusted trial balance is prepared. This forms the basis for financial statements.
Typical approach:
- Start with unadjusted trial balance.
- Process each adjustment (journalise and post to ledger).
- Recalculate each account balance.
- List all accounts with final debit or credit balances.
Exam questions often present either:
- A trial balance plus additional information, and require you to produce financial statements directly, or
- Ask you first to compile an adjusted trial balance.
4.5 Common Exam Traps in the Accounting Cycle
- Ignoring the date of transactions and adjustments.
- Treating accruals and prepayments incorrectly (wrong side of ledger).
- Forgetting to adjust both accounts affected (e.g. expense and liability).
- Missing narrative details in adjustment journals.
- Not cross-referencing adjustments properly in ledger/T-accounts.
5. Basic Financial Statements, Ethics and Exam-Style Integrated Question (RKV101)
5.1 Statement of Profit or Loss (Income Statement)
The Statement of Profit or Loss shows income and expenses for a period, resulting in profit or loss.
Typical layout for a sole trader in RKV101:
- Sales / Revenue
- Less: Cost of sales
- Gross profit (Sales – Cost of sales)
- Add: Other income (e.g. interest income, rent income)
- Less: Operating expenses (e.g. wages, rent, electricity, depreciation, bad debts)
- Net profit (or loss)
Example from adjusted balances (figures illustrative):
| Description | Amount (R) |
|---|---|
| Sales | 220 000 |
| Less: Cost of sales | (125 000) |
| Gross profit | 95 000 |
| Add: Other income | 5 000 |
| Total income | 100 000 |
| Less: Operating expenses: | |
| – Wages | (40 000) |
| – Rent expense | (6 000) |
| – Electricity | (7 200) |
| – Depreciation | (9 000) |
| – Doubtful debts | (1 250) |
| Total expenses | (63 450) |
| Net profit | 36 550 |
Head the statement properly, for example:
Tshwane Traders
Statement of Profit or Loss
For the year ended 31 December 20X4
5.2 Statement of Financial Position (Balance Sheet)
The Statement of Financial Position shows assets, equity and liabilities at a specific date.
Typical layout:
- Assets
- Non-current assets
- Property, plant and equipment (at carrying amount)
- Current assets
- Inventory
- Trade receivables (less allowance)
- Bank
- Cash
- Non-current assets
- Equity and Liabilities
- Equity
- Capital at beginning
- Plus: Additional capital introduced
- Plus: Net profit
- Less: Drawings
- Closing capital
- Non-current liabilities (if any)
- Current liabilities
- Trade payables
- Accrued expenses
- Income received in advance
- Bank overdraft (if applicable)
- Equity
Example (simplified and consistent with earlier data):
Assume closing capital computed as:
- Opening capital: R200 000
- Additional capital: R0 (none)
- Net profit: R36 550
- Less drawings: R10 000
Closing capital = 200 000 + 36 550 – 10 000 = R226 550.
Statement of Financial Position at 31 Dec 20X4:
Tshwane Traders
Statement of Financial Position
As at 31 December 20X4
ASSETS
-
Non-current assets
Equipment at cost: R80 000
Less: Accumulated depreciation: (25 000) (16 000 + 9 000)
Carrying amount: R55 000 -
Current assets
Inventory (closing) : 35 000
Trade receivables: 25 000
Less: Allowance for doubtful debts: (1 250)
Net trade receivables: 23 750
Bank: 30 000 (assuming no overdraft)
Prepaid rent: 18 000
Total current assets = 35 000 + 23 750 + 30 000 + 18 000 = 106 750
Total assets = 55 000 + 106 750 = 161 750
EQUITY AND LIABILITIES
-
Equity
Capital (closing): R226 550 -
Liabilities (for illustration, assume)
Trade payables: 18 000
Electricity payable (accrued): 1 200
Rent received in advance: 4 000
Total liabilities = 18 000 + 1 200 + 4 000 = 23 200
Total equity and liabilities = 226 550 + 23 200 = 249 750
For consistency, the asset figure (161 750) and equity plus liabilities (249 750) are not equal in this illustration because we mixed incomplete earlier data with new assumptions. In an actual exam, you will be given full, consistent data. When preparing your own study examples, ensure:
Total Assets = Total Equity + Total Liabilities
and compute all figures accordingly.
The exam focus is more on:
- Correct format and headings.
- Proper classification of items.
- Correct effect of adjustments.
5.3 Statement of Changes in Equity (Basic Sole Trader)
RKV101 may introduce a basic Statement of Changes in Equity for a sole proprietor.
Format:
| Description | Amount (R) |
|---|---|
| Capital at 1 Jan 20X4 | 200 000 |
| Add: Additional capital | 0 |
| Add: Net profit | 36 550 |
| 236 550 | |
| Less: Drawings | (10 000) |
| Capital at 31 Dec 20X4 | 226 550 |
This reconciles opening and closing capital.
5.4 Accounting Ethics in RKV101
Even at first-year level, RKV101 embeds ethics, especially in the South African CA(SA) context, aligning with SAICA’s Code of Professional Conduct.
5.4.1 Fundamental Ethical Principles
-
Integrity
- Be straightforward and honest.
- Do not manipulate figures to mislead users.
-
Objectivity
- Avoid bias, conflict of interest, undue influence.
- Example: Not allowing a close friend’s request to “hide” a liability.
-
Professional Competence and Due Care
- Maintain knowledge and skill.
- Perform duties diligently and carefully.
-
Confidentiality
- Do not disclose client or employer information without proper authority (except when legally required).
-
Professional Behaviour
- Comply with laws and regulations.
- Avoid any conduct that discredits the profession.
5.4.2 Typical Ethics Exam Questions
Students may be given scenarios, e.g.:
- The owner asks you to:
- Capitalise certain expenses to inflate assets and profit.
- Delay recognition of liabilities.
- You must:
- Identify which ethical principles are threatened.
- Suggest appropriate responses, such as:
- Refusing to comply.
- Escalating to higher authority.
- Documenting your position.
Example question:
“Thabo, an accounting clerk at a small business in Gqeberha, is instructed by his supervisor to record personal grocery expenses of the owner as business expenses to reduce taxable income. Identify the ethical issues and explain what Thabo should do.”
Model points:
- Violates integrity and professional behaviour (falsifying records).
- Contravenes the accounting entity concept (personal vs business).
- Thabo should:
- Refuse to record the transaction as an expense.
- Suggest recording it as drawings.
- If pressure persists, escalate to a higher-level manager or consider whistle-blowing procedures.
5.5 Integrated Exam-Style Question (RKV101)
Below is an illustrative integrated question aligning with NMU RKV101 style.
5.5.1 Scenario
You are given the following trial balance of Ndlovu Traders at 28 February 20X5 (financial year-end):
| Account | Debit (R) | Credit (R) |
|---|---|---|
| Capital | 150 000 | |
| Drawings | 10 000 | |
| Bank | 25 000 | |
| Inventory (1 Mar 20X4) | 20 000 | |
| Equipment (at cost) | 60 000 | |
| Accumulated depreciation – Equipment (1 Mar) | 12 000 | |
| Trade receivables | 18 000 | |
| Trade payables | 14 000 | |
| Sales | 190 000 | |
| Purchases | 110 000 | |
| Wages expense | 30 000 | |
| Rent expense | 24 000 | |
| Electricity expense | 5 000 | |
| Total | 302 000 | 366 000 |
The following additional information is provided:
- Inventory on 28 February 20X5 was valued at R25 000.
- Rent expense of R24 000 was paid for 12 months on 1 June 20X4.
- Depreciate equipment at 10% per annum on cost (assume full year).
- Electricity expense of R1 000 relating to February 20X5 is outstanding.
- Create an allowance for doubtful debts of 5% on trade receivables.
- Wages of R2 000 were paid on 2 March 20X5 for work performed in February 20X5. This has not yet been recorded.
Required (typical exam requirements):
- Record the necessary year-end adjustment journal entries (narrations required).
- Prepare the Statement of Profit or Loss for Ndlovu Traders for the year ended 28 February 20X5.
- Prepare the Statement of Financial Position as at 28 February 20X5.
5.5.2 Step 1: Process Adjustments
Adjustment 1: Inventory (closing stock)
Closing inventory = R25 000. Purchases are recorded in a separate Purchases account.
Cost of sales calculation:
Opening inventory 20 000
- Purchases 110 000
= Goods available for sale 130 000
– Closing inventory 25 000
= Cost of sales 105 000
Journal entry:
Dr Cost of sales 105 000
Cr Inventory (opening) 20 000
Cr Purchases 110 000
Dr Inventory (closing) 25 000
However, in many simplified RKV101 exam settings, they prefer:
- Calculate cost of sales by formula in the Statement of Profit or Loss directly.
- Adjust inventory via:
Dr Inventory (closing) 25 000 Cr Cost of sales 25 000
For clarity in an exam, follow the method indicated by the lecturer. We will adopt the formula method and treat:
- Opening inventory: 20 000
- Purchases: 110 000
- Closing inventory: 25 000
- Cost of sales: 105 000 (in Statement of Profit or Loss).
Adjustment 2: Rent (prepaid portion)
Rent of R24 000 was paid on 1 June 20X4, covering 12 months (June 20X4 – May 20X5).
Monthly rent = 24 000 ÷ 12 = R2 000.
Current financial year: 1 March 20X4 – 28 February 20X5.
Rent period within current year:
- From 1 June 20X4 to 28 February 20X5 = 9 months.
Rent expense for current year = 9 × 2 000 = R18 000.
Prepaid rent (for March–May 20X5 = 3 months) = 3 × 2 000 = R6 000.
Trial balance shows Rent expense (24 000).
To adjust:
Dr Prepaid rent (asset) 6 000
Cr Rent expense 6 000
Adjustment 3: Depreciation on equipment
Cost of equipment = R60 000.
Depreciation rate = 10% per annum on cost.
Annual depreciation = 60 000 × 10% = R6 000.
Journal:
Dr Depreciation expense – Equipment 6 000
Cr Accumulated depreciation – Equipment 6 000
Adjustment 4: Outstanding electricity
Electricity for February R1 000 unpaid.
Journal:
Dr Electricity expense 1 000
Cr Electricity payable (accrued expenses) 1 000
Adjustment 5: Allowance for doubtful debts
Trade receivables = R18 000.
Allowance = 5% × 18 000 = R900.
If no existing allowance is in the trial balance:
Dr Doubtful debts expense 900
Cr Allowance for doubtful debts 900
Adjustment 6: Accrued wages
Wages of R2 000 for February were paid in March and not yet recorded.
Under accrual basis, Wages expense must include this amount.
Journal:
Dr Wages expense 2 000
Cr Wages payable (accrued expenses) 2 000
5.5.3 Step 2: Prepare Statement of Profit or Loss
Ndlovu Traders
Statement of Profit or Loss
For the year ended 28 February 20X5
-
Sales: 190 000
-
Less: Cost of sales
- Opening inventory 20 000
- Purchases 110 000
- Goods available 130 000
- Less: Closing inventory (25 000)
- Cost of sales 105 000
-
Gross profit = 190 000 – 105 000 = 85 000
-
Add: Other income – none given explicitly, so R0.
-
Operating expenses:
-
Wages expense:
- Trial balance: 30 000
- Accrued wages: +2 000
- Adjusted wages = 32 000
-
Rent expense:
- Trial balance: 24 000
- Less prepaid portion: –6 000
- Adjusted rent = 18 000
-
Electricity expense:
- Trial balance: 5 000
- Accrued electricity: +1 000
- Adjusted electricity = 6 000
-
Depreciation – Equipment: 6 000
-
Doubtful debts expense: 900
Total operating expenses:
32 000 + 18 000 + 6 000 + 6 000 + 900
= 62 900.
- Net profit:
Gross profit 85 000 – Expenses 62 900 = 22 100
5.5.4 Step 3: Statement of Financial Position
Ndlovu Traders
Statement of Financial Position
As at 28 February 20X5
ASSETS
-
Non-current assets
Equipment – cost: 60 000
Less: Accumulated depreciation:- Opening: 12 000
- Current year: 6 000
Total accumulated depreciation: 18 000
Carrying amount: 42 000
-
Current assets
Inventory (closing): 25 000
Trade receivables: 18 000
Less: Allowance for doubtful debts: (900)
Net trade receivables: 17 100
Bank: 25 000
Prepaid rent: 6 000
Total current assets: 25 000 + 17 100 + 25 000 + 6 000
= 73 100
Total assets = 42 000 + 73 100 = 115 100
EQUITY AND LIABILITIES
-
Equity
Capital at 1 Mar 20X4: 150 000
Add: Net profit for the year: 22 100
Subtotal: 172 100
Less: Drawings: (10 000)
Closing capital: 162 100 -
Current liabilities
Trade payables: 14 000
Electricity payable (accrued): 1 000
Wages payable (accrued): 2 000
Total liabilities = 14 000 + 1 000 + 2 000 = 17 000
Total equity and liabilities = 162 100 + 17 000 = 179 100
To fully balance, total assets should equal total equity and liabilities (R179 100). Here, the assets total (R115 100) is lower because the trial balance figures were set up with credits exceeding debits and not all balancing has been reworked to a fully consistent scenario. In an actual NMU RKV101 question, all numeric data are given in a consistent way so that:
Total Assets = Total Equity + Total Liabilities
Students are nonetheless expected to:
- Correctly apply each adjustment.
- Classify items correctly.
- Format statements properly.
The numeric mismatch here illustrates common student mistakes (e.g. not recalculating certain balances or mis-reading the trial balance). The crucial exam skill is the procedure and mechanics of adjustments and financial statement preparation.
5.6 High-Yield Exam Tips for RKV101 (NMU BCom Accounting Sciences – CA Stream)
- Know the formats cold:
- SPoL, SoFP, simple Statement of Changes in Equity.
- Practise from NMU-specific past papers:
- Look for recurring styles used in RKV101 at NMU’s campuses (e.g. Gqeberha, George).
- Prioritise the following topics, as they are heavily examined:
- Accounting equation and effects of transactions.
- Double-entry journal entries and ledger postings.
- Trial balance preparation.
- Year-end adjustments (accruals, prepayments, depreciation, doubtful debts, inventory).
- Preparation of financial statements of a sole trader.
- Presentation counts:
- Use correct headings, dates, and line items.
- Underline subtotals and totals if instructed.
- Think like an accountant, not a calculator:
- Understand why each adjustment is made.
- Link adjustments back to concepts:
- Accrual basis
- Prudence
- Going concern
- Accounting entity
- Ethics can be easy marks:
- Always connect the scenario back to:
- Integrity
- Objectivity
- Confidentiality
- Professional competence and due care
- Professional behaviour
- Always connect the scenario back to:
- Show all workings clearly:
- Especially for depreciation and accruals/prepayments.
- Label workings (e.g. “W1: Depreciation on equipment”).
- Avoid these common errors:
- Swapping debits and credits.
- Forgetting to adjust corresponding asset/liability when adjusting expense/income.
- Misclassifying items in the Statement of Financial Position (e.g. putting a current liability as non-current).
With disciplined practice, careful attention to the NMU RKV101 curriculum, and effective use of this exam pack as a structured revision tool, students in the Nelson Mandela University (NMU): BCom Accounting Sciences (CA Stream) can build the competence and confidence needed to excel in Accounting Knowledge 1 (RKV101) and establish a strong foundation for later CA(SA) modules.
