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MINISTRY OF EDUCATION
DIPLOMA IN
INFORMATION COMMUNICATION
TECHNOLOGY
KENYA INSTITUTE OF CURRICULUM DEVELOPMENT
STUDY NOTES
Computer Application II
MODULE 2: SUBJECT NO 5
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MINISTRY OF EDUCATION
DIPLOMA IN
INFORMATION COMMUNICATION
TECHNOLOGY
KENYA INSTITUTE OF CURRICULUM DEVELOPMENT
STUDY NOTES
Computer Application II
MODULE 2: SUBJECT NO 5
Contents
- CHAPTER 1: FINANCIAL APPLICATIONS
- Fundamentals of accounting
- Definition of accounting........................................................................................................................
- Basic Accounting Principles...................................................................................................................
- Elements of Accounting
- Accounting Equation
- Double Entry Accounting System
- The Accounting Cycle
- Bookkeeping vs Accounting
- Bookkeeping and Transaction Entry system
- Single-entry system
- Double-entry system
- Ledgers
- Recording Transactions
- Accounting application program – QuickBooks
- Understanding QuickBooks Lists
- Transactions in QuickBooks
- Reporting on Lists
- Fundamentals of accounting
- CHAPTER 2: COMPUTER AIDED DESIGN (CAD)
- Fundamental of technical drawing
- Meaning and importance of computer-aided design
- AutoCAD
- Career and application Information of AutoCAD
- Advantages of a CAD system
- Features of a CAD system
- Typical screen layout of a CAD system
- AutoCAD's Cartesian Workspace
- AutoCAD configuration- Units and Scales
- Basic AutoCAD Commands
- Projection
- CHAPTER 3: GEOGRAPHYCAL INFORMATION SYSTEM (GIS) - What is GIS – Definition? - History of GIS: - Component of GIS: - Area of GIS Applications...................................................................................................................... - GIS Data Models.................................................................................................................................. - GIS Data Types - Sources of Data - Data Input Techniques
- CHAPTER 4: ARTIFICIAL INTELLIGENCE
- What is Artificial Intelligence?
- Goals of AI
- Benefits and Challenges of Artificial Intelligence....................................................................................
- Pros of Artificial Intelligence:
- The Cons of Artificial Intelligence
- What Contributes to AI?
- Applications of AI
- History of AI
- AI - Intelligent Systems
- Meaning of Intelligence
- Types of Intelligence
- Composition of Intelligence
- Difference between Human and Machine Intelligence
- AI – Category Research Areas
- Neural Networks
- Robotics.............................................................................................................................................
- Fuzzy Logic Systems
- AI - Natural Language Processing......................................................................................................
- Expert Systems
- Speech and Voice Recognition
- Task Classification of AI
- AI - Agents & Environments
- Nature of Environments........................................................................................................................
- Breakthroughs Unleashing AI on the World
CHAPTER 1: FINANCIAL APPLICATIONS
Fundamentals of accounting
Definition of accounting It is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. It reveals profit or loss for a given period, and the
value and nature of a firm's assets, liabilities and owners' equity. Accounting provides information on the.
Basic Accounting Principles Accounting assumptions and principles provide the bases in preparing, presenting and interpreting general-purpose financial statements.
The basic principles that accountants follow include:
- Accrual – Income is recognized when earned regardless of when collected, and expenses are recognized when incurred regardless of when paid.
- Going Concern – Also known as continuing concern concept or continuity assumption, it means that a business entity will continue to operate indefinitely.
- Accounting Entity Concept – A specific business enterprise is treated as one accounting entity, separate and distinct from its owners.
- Time Period Assumption – The indefinite life of an enterprise is subdivided into time periods or accounting periods which are usually of equal length for the purpose of preparing financial reports.
- Monetary Unit Assumption – Transactions are recorded in terms of money (quantifiability). The currency used has a stable purchasing power (stability).
Elements of Accounting
The elements of accounting pertain to assets , liabilities , and capital. Assets are resources owned by a company; liabilities are obligations to creditors and lenders; and capital refers to the interest of the owners in the business after deducting all liabilities from all assets (or, what is left for the owners after all company obligations are paid). Assets: Assets can be classified as current or non-current. An asset is considered current if it is for sale, if it can be realized within 12 month from the end of the accounting period or within the company's
normal operating cycle if it exceeds 12 months. In addition, cash is generally considered current asset.
Current assets include: Cash and Cash Equivalents, Marketable Securities, Accounts Receivable, Inventories, and Prepaid Expenses. Assets that do not meet the criteria to be classified as current are, by default, non-current assets. Examples of non-current assets are: Long-term Investments; Property, Plant and Equipment; and Intangibles.
Assets = Liabilities + Capital - Withdrawals + Income - Expenses
or
Assets = Liabilities + (Capital, beginning + Additional Contributions - Withdrawals + Income - Expenses)
Double Entry Accounting System
The double entry accounting system recognizes a two-fold effect in every transaction. Thus, business transactions are recorded in at least two accounts.
Under the double entry accounting system, transactions are recorded through debits and credits. Debit means left. Credit means right. The effect of recording in debit or credit depends upon the normal balance of the account debited or credited.
The general rules are: to increase an asset , you debit it; to decrease an asset , you credit it. The opposite applies to liabilities and capital: to increase a liability or a capital account, you credit it; to decrease a liability or a capital account, you debit it. Expenses are debited when incurred, and income is credited when earned.
The Accounting Cycle
The accounting cycle is a sequence of steps in the collection, processing, and presentation of accounting information. It is made up of the following steps:
- Identifying and analyzing business transactions and events
- Recording transactions in the journals
- Posting journal entries to the ledger
- Preparing an unadjusted trial balance
- Recording and posting adjusting entries
- Preparing an adjusted trial balance
- Preparing the financial statements
- Recording and posting closing entries
- Preparing a post-closing trial balance
Reversing entries may be prepared at the beginning of the new accounting period to enable a smoother recording process. In this step, some adjusting entries are simply reversed. Nevertheless, reversing entries are optional.
Bookkeeping vs Accounting
It is very common for non-accountants to think that bookkeeping and accounting are of the same thing. Although they both involve the process of recording the financial transactions of a business, bookkeeping and accounting are two different topics.
Bookkeeping is the process of recording, in chronological order, the daily transactions of a business entity. It forms part of the accounting information system.
Accounting is an information system – includes the process of recording, classifying, summarizing, reporting, analyzing and interpreting the financial condition and performance of a business – in order to communicate it to stakeholders for business decision making.
Illustration
To provide a clear understanding of the difference between bookkeeping and accounting, take a look at this sample illustration.
Imagine there‘s one piece of apple pie divided into 6 slices. Each slice was given a corresponding name as recording, classifying, summarizing, reporting, analyzing, and interpreting. The whole one piece of apple pie is called the accounting information system which represents accounting. On the other hand, bookkeeping represents one slice of the apple pie which is recording.
The Accounting Process
Bookkeeping and Transaction Entry system
Systematic recording of financial aspects of business transactions in appropriate books of account Bookkeeping is the recording, on a day-today basis of the financial transactions and information pertaining to a business.
Entry systems: Two common bookkeeping systems used by businesses and other organizations are the
single-entry bookkeeping system and the double-entry bookkeeping system. Single-entry bookkeeping uses only income and expense accounts, recorded primarily in a revenue and expense journal. Single-
entry bookkeeping is adequate for many small businesses. Double-entry bookkeeping requires posting (recording) each transaction twice, using debits and credits.
Ledgers
A ledger is a record of accounts. These accounts are recorded separately showing their beginning/ending balance. A journal lists financial transactions in chronological order without showing their balance but showing how much is going to be charged in each account.
A ledger takes each financial transaction from the journal and records it into the corresponding account for every transaction listed. The ledger also sums up the total of every account which is transferred into the balance sheet and income statement. There are 3 different kinds of ledgers that deal with book-keeping. Ledgers include:
Sales ledger, which deals mostly with the accounts receivable account. This ledger consists of the financial transactions made by customers to the business. Purchase ledger is a ledger that goes hand and hand with the Accounts Payable account. This is the purchasing transaction a company does. General ledger representing the original 5 main accounts: assets, liabilities, equity, income, and expenses
The ledger is a special book in which transactions are recorded. In other words, a book in which accounts are kept.
The ledger differs from other books in the way columns are drawn to record transactions as follows:
Dr The Ledger Cr
Date Details Folio Amount Date Details Folio Amount $ $
Types of ledger: In a real business, there are so many accounts to keep and each account may need lots of space to record transactions for the whole accounting year. For this reason, a business usually keeps, not one, but several ledgers. These ledgers are classified into three types:
Sales Ledger The book (or set of books) in which the personal accounts of credit customers are kept.
A credit customer is also called a debtor.
The balance of a customer‘s account shows the amount that the customer owes the business. Therefore, the total of balances in the sales ledger is the total amount the business is owed by its credit customers. This amount is called trade receivables or accounts receivables.
Trade receivables is shown as a current asset in the balance sheet.
Purchases Ledger The book (or set of books) in which the personal accounts of credit suppliers are kept.
A credit supplier is also called a creditor.
The balance of a supplier‘s account shows the amount that the business owes the supplier. Therefore, the total of balances in the purchases ledger is the total amount the business owes by its credit suppliers. This amount is called trade payables or accounts payables.
Trade payables is shown as a current liability in the balance sheet.
General Ledger The book (or set of books) in which all other accounts are kept.
Account categories and debits and credits
The kind of impact (debit or credit) that a transaction makes on each ledger account depends on which of five chart of account categories the accounts belong to.
First, there are the so-called "balance sheet" account categories:
- Asset accounts : Things of value that are owned and used by the business. Example: Cash on hand Example: Accounts receivable
- Liability accounts : Debts that are owed by the business. Example: Accounts payable Example: Salaries payable
- Equity accounts : The owner's claim to business assets. Example: Owner capital Example: Retained earnings
Secondly, there are the so-called "income statement" account categories:
- Revenue accounts : The amounts earned from the sale of goods and services, or investment income, or extraordinary income. Example: Product sales revenues
Recording Transactions
Credit an entry in the right hand column of an account; credits increase liability, income, and equity accounts and decrease asset and expense accounts Debit an entry in the left hand column of an account to record a debt; debits increase asset and expense accounts and decrease liability, income, and equity accounts Account A registry of pecuniary transactions; a written or printed statement of business dealings or debts and credits, and also of other things subjected to a reckoning or review
T Accounts
The simplest ledger account structure is shaped like the letter T. The account title and account number appear above the T. Debits (abbreviated Dr.) always go on the left side of the T, and credits (abbreviated Cr.) always go on the right.
Accountants‘ record increases in asset, expense, and owner's drawing accounts on the debit side, and they record increases in liability, revenue, and owner's capital accounts on the credit side. An account's assigned normal balance is on the side where increases go because the increases in any account are usually greater than the decreases. Therefore, asset, expense, and owner's drawing accounts normally have debit balances. Liability, revenue, and owner's capital accounts normally have credit balances. To determine the correct entry, identify the accounts affected by a transaction, which category each account falls into, and whether the transaction increases or decreases the account's balance. You may find the following chart helpful as a reference.
Occasionally, an account does not have a normal balance. For example, a company's checking account (an asset) has a credit balance if the account is overdrawn.
The way people often use the words debit and credit in everyday speech is not how accountants
use these words. For example, the word credit generally has positive associations when used
conversationally: in school you receive credit for completing a course, a great hockey player may
be a credit to his or her team, and a hopeless romantic may at least deserve credit for trying. Someone who is familiar with these uses for credit but who is new to accounting may not
immediately associate credits with decreases to asset, expense, and owner's drawing accounts. If
a business owner loses $5,000 of the company's cash while gambling, the cash account, which is
an asset, must be credited for $5,000. (The accountant who records this entry may also deserve
credit for realizing that other job offers merit consideration.) For accounting purposes, think of
debit and credit simply in terms of the left‐hand and right‐hand side of a T account.
Working Example of Account transaction
Suppose, for example, that a company acquires assets valued at $100,000. The journal entry for the acquisition will show that an asset account increases $100,000, perhaps asset account "factory manufacturing equipment." Because this is an asset account, its balance increase is called a debit. However, the balance sheet may now be temporarily out of balance until there is an offsetting credit of $100,000 to another account, somewhere in the system. This could be, for instance:
A credit of $100,000 to another asset account, reducing that account value by $100,000. This could be the asset account "cash on hand." If instead of cash, the asset purchase is financed with a bank loan, the offsetting transaction in the journal entry could be a credit to a liability account such as "bank loans payable," increasing that account value by $100,000.
The debit and the credit from the acquisition will be shown together in the journal entry, but when transferred to the ledger, they will each impact a different account summary (see the journal and ledger entry examples below).
When the journal entry is complete, the basic accounting equation holds and the balance sheet stays balanced:
Assets = Liabilities + Equities
And, for the account journal entries that follow from a single transaction:
Debits = Credits
The bookkeeper or accountant dealing with journal and ledger entries faces one complication, however, in that not all accounts work additively with each other on the primary financial accounting reports—especially on the income statement and balance sheet. There are cases where one account offsets the impact of another account in the same category. These are the contra accounts that "work against" other accounts in their own categories. In some cases, the contra accounts reverse the debit and credit rules in Exhibit 3 above.
Example 2: The Company borrowed $8,000 from a bank. Analysis: Since the money will be deposited into the checking account, Cash is debited (the balance increased by $8,000.) The account to receive the credit is a Liability account called Loans Payable (you may create a separate account or sub-account for each loan). Liability accounts are credit accounts, so crediting the Liability account increases its negative balance by $8,000 (move to the left on the number line).
Debit Cash (increases its balance) Credit Loans Payable (increases its balance)
Example 3: Your bank charges you a $14 a month statement fee. Analysis: This transaction is entered via a journal entry each month when the statement fee is identified on the bank statement. Since money was removed from the checking account, Cash must be credited (the balance decreased by $14). The Expense account called Bank Service Charges will receive the debit.
Debit Bank Fees (increases its balance) Credit Cash (decreases its balance)
Example 4: You pay $540, via check, on the $8,000 loan acquired in Example 2. Of this amount, $500 is applied to the principal, and $40 is loan interest. Analysis: Since a check is being written, the Accounting software will automatically credit Cash. In this case the debit is split between two accounts. To reflect the $500 that has been applied to the loan balance, debit the loan account. (Since it is a liability account, a debit will reduce it's balance, which is what you want.) The $40 interest paid is an expense, so debit the expense account called Interest. Remember that even though the debit is split between two accounts, the total debit must always equal the total credit.
Debit Loans Payable $500 (decreases its balance) Debit Interest Expense $40 (increases its balance) Credit Cash $540 (decreases its balance)
Example 5: the Company wrote a check for $8,500 of equipment. Analysis: Since a check was written, QBP will automatically credit Cash. We will debit an Asset account called Equipment or something similar. Note: Remember, if you purchase an item for more than about $500, you should depreciate the item; not expense it. ($500 is a "rule of thumb," but I am not suggesting you use it.) So the Asset account receives the debit instead of an expense account. To record the depreciation, journal entries would be entered for one or more years. Always consult with your Accountant when purchasing company assets.
Debit Equipment (increases its balance) Credit Cash (decreases its balance)
[Remember: A debit adds a positive number and a credit adds a negative number. But you NEVER put a minus sign on a number you enter into QBP.]
Example 6: the Company wrote a check for $318 of office supplies. Analysis: Since a check was written, QBP will automatically credit Cash. We debit the Expense account called Office.
Debit Office (increases its balance) Credit Cash (decreases its balance)
Example 7: the Company purchased $300 of office supplies on credit and you entered a bill into QBP. Analysis: When you enter a bill, QBP automatically credits the Liability account called Accounts Payable. And since you purchased office supplies, the Office expense account is debited.
Debit Office (increase its balance) Credit Accounts Payable (increases its balance)
Example 8: You paid the bill for $300 of office supplies purchased in Example 7. Analysis: When the bill was entered, Office was debited and A/P was credited. Now as we write a check to pay the bill, QBP will automatically credit Cash. And QBP will debit Accounts Payable - in effect, reversing the earlier credit.
Debit Accounts Payable (decreases its balance) Credit Cash (decrease its balance)
Example 9: the Company paid $450 cash for Product A - a COGS part. Analysis: When you write the check, QBP will automatically credit Cash. In the check window, choose the COGS account from the Expenses tab, or choose an Item from the Items tab and then the COGS account associated with the Item will be debited.
Debit COGS (increase its balance) Credit Cash (decrease its balance)
Example 10: the Company sold Product A for $650 cash. Analysis: When you enter the cash sale, QBP automatically debits Cash (or you could choose to deposit to Undeposited Funds - see Example 14). You will have to choose an Item for the sale … it might be ―Prod A income‖ and associated with the Sales account.
Debit Cash (increases its balance) Credit Sales (increases its balance)
Capital A/C Dr Cr Particular Amount Particular Amount Bal c/d 5000 Cash 5000
5000 5000 Bal b/f 5000
Loan A/C Dr Cr Particular Amount Particular Amount Cash Bal c/d
Cash 8000
Bal b/f 7500
Bank A/C Dr Cr Particular Amount Particular Amount Bal c/d^14 Bank charges^14 14 14 Bal b/f 14
Interest Exp A/C Dr Cr Particular Amount Particular Amount Cash 40 Bal c/d 40 40 40
Bal b/f^40
Equipment A/C Dr Cr Particular Amount Particular Amount Cash (^8500) Bal c/d 8500
8500 8500 Bal b/f 8500
Office supply A/C Dr Cr Particular Amount Particular Amount Cash Debtors
Bal c/d 618
Bal b/f 618
Creditor(A/P) A/C Dr Cr Particular Amount Particular Amount Cash Bal c/d
Cash payable 300
Bal b/f 0
Purchases A/C Dr Cr Particular Amount Particular Amount Cash 450 Bal c/d 450 450 450
Bal c/f 450
Sales A/C Dr Cr Particular Amount Particular Amount Bal c/d^1300 Cash Prod A
Bal b/f 1300