Study sheet: General Accounting Foundations

📋 Course Outline

1. Enterprise Definition and Resources
2. Enterprise Classification and Operations
3. Accounting Purposes and Processing
4. OHADA Normalization and Principles
5. OHADA Accounts and Financial Systems
6. Financing and Investment Cycles
7. Economic Cycles and Flows
8. Economic Flow Classifications
9. Double-Entry Translation of Flows
10. Accounting Books and Recording Circuit
11. General Trial Balance
12. Balance Sheet Structure and Result
13. Income Statement and Management Balances

📖 1. Enterprise Definition and Resources

🔑 Key Concepts & Definitions

• Enterprise : A financially independent organization that produces goods and/or services for a market in order to make a profit.

★ Must-know

• The four essential aspects are:

  • the market
  • the product
  • the benefit
  • financial independence

• An enterprise has social, financial and economic roles: it distributes money and income, participates in payment flows as both customer and supplier and as borrower and lender, and contributes to producing, distributing and circulating goods and services.

Further detail

• Enterprise resources comprise: material resources such as vehicles and merchandise inventories, intangible resources such as customers, brands and software, financial resources such as payment instruments, bank deposits and cash

💡 Memory Hook

MPBI: Market, Product, Benefit, Independence

📖 2. Enterprise Classification and Operations

★ Must-know

📌 According to legal nature, enterprises are public or parapublic when the State owns all or part of them, or private when they belong to individuals, including individual enterprises and companies such as SA, SNC and SARL.

• The activity sectors are:

  • the primary sector
  • the secondary sector
  • the tertiary sector

• 🔄 A commercial cycle consists of:

  1. buying merchandise
  2. storing it
  3. reselling it as received

Further detail

• The four domestic groups are:
  • enterprises
  • households
  • the Administration or State
  • financial institutions

💡 Memory Hook

Legal nature → size → activity sector

📖 3. Accounting Purposes and Processing

🔑 Key Concepts & Definitions

• Accounting : AUDCIF, 2017 — An information system that captures, classifies and records quantified basic data and presents statements showing an entity's faithful image of its assets, financial position and result at the reporting date.

★ Must-know

• The six main purposes are:

  • measuring and controlling the distribution of wealth
  • providing evidence in business
  • supporting decisions
  • enabling economic and financial diagnosis
  • supporting macroeconomic synthesis and forecasting
  • regulating social and economic relations

• Accounting processing classifies, enters and records source documents such as invoices, checks, payroll sheets and cash documents by category of operation, using computerized work registers.

Further detail

• The evidentiary books are:
  • the journal
  • the general ledger
  • the general trial balance
  • the inventory book

💡 Memory Hook

Source documents → recorded operations → financial statements

📖 4. OHADA Normalization and Principles

🔑 Key Concepts & Definitions

• Accounting normalization : The codification of rules, principles and technical methods for regional, national or international use in order to eliminate unnecessary variations.

★ Must-know

• The revised AUDCIF was adopted on 26 January 2017 in Brazzaville and entered into force on 1 January 2018.

• The continuity principle treats an entity as continuing to operate in the reasonably foreseeable future unless it intends or is required to liquidate. — AUDCIF, Art. 39

• The independence-of-periods principle requires each accounting period to include only the events and transactions that belong to it. — AUDCIF, Art. 59

• The prudence principle recognizes expected expenses and losses while recognizing income and gains only when realized. — AUDCIF

• The non-compensation principle prohibits offsetting asset and liability items or expense and income items unless legally justified. — AUDCIF, Art. 34

Further detail

• The four titles are (AUDCIF, 2017):
  • personal accounts of enterprises
  • consolidated and combined accounts
  • penal provisions
  • final provisions

📌 The permanence-of-methods principle requires accounting measurement and presentation methods to remain consistent between periods unless an exception is justified by better information or imperative circumstances. — AUDCIF

💡 Memory Hook

OCAM → SYSCOA → OHADA → AUDCIF

📖 5. OHADA Accounts and Financial Systems

★ Must-know

• The nine classes cover (AUDCIF, Art. 18):
  • durable resources
  • fixed assets
  • inventories and work in progress
  • third parties
  • financial accounts
  • ordinary expenses
  • ordinary income
  • other expenses and income
  • commitments and management accounting

📌 The three financial reporting systems are the Normal System for medium and large entities, the Abbreviated System for small entities above the SMT thresholds, and the Minimal Treasury System for very small entities below the legal thresholds. — AUDCIF

• The SMT thresholds are:
  • 60,000,000 CFA francs for trading entities
  • 40,000,000 CFA francs for craft and similar entities
  • 30,000,000 CFA francs for service entities

Further detail

• 🔄 Decimal coding proceeds through:
  1. two-digit accounts
  2. three-digit accounts
  3. subaccounts when necessary

📖 6. Financing and Investment Cycles

🔑 Key Concepts & Definitions

• Leasing : A contract for renting movable or immovable, tangible or intangible property that gives the lessee a possibility of purchasing it at specified dates, especially at the end of the contract.

★ Must-know

• The financing sources are:

  • equity capital
  • borrowing
  • subsidies
  • leasing

• Capital contributions may be:

  • in cash
  • in kind
  • mixed

📌 Investment subsidies finance the acquisition or creation of fixed assets, operating subsidies compensate for insufficient selling prices or operating expenses, and balancing subsidies compensate all or part of an overall loss.

• The investment cycle includes:
  • capitalized expenses
  • intangible fixed assets
  • tangible fixed assets
  • financial fixed assets
  • the acquisition or disposal of a business

Further detail

📐 Formula — The bond redemption premium equals the redemption price minus the issue price: $\text{Premium} = \text{redemption price} - \text{issue price}$.

💡 Memory Hook

Equity finances from within, whereas borrowing creates an external debt

📖 7. Economic Cycles and Flows

🔑 Key Concepts & Definitions

• Credit relationship : When payment is deferred, the seller has a receivable from the buyer and the buyer has a debt toward the seller until payment extinguishes the transaction.

★ Must-know

• The other cycles are:
  • sales and customers
  • purchases and suppliers
  • personnel and wages
  • inventories and production
  • treasury

📌 Economic flows are real or physical flows of goods, quasi-real flows of labor, financial services or public services, and financial flows of money, near-money or receivables and debts.

Further detail

📌 External flows connect the enterprise to other economic agents, whereas internal flows result from operations between the enterprise's internal departments without contact with an external partner.

• An operation may combine cycles: buying merchandise in cash involves the operating and treasury cycles, while acquiring transport equipment by bank check involves the investment and treasury cycles.

💡 Memory Hook

Financing → investment → exploitation → financial settlement

📖 8. Economic Flow Classifications

★ Must-know

• Economic flows are movements of goods, services, or means of payment between economic agents.

• Real or physical flows concern goods bought or sold; for the seller they are outgoing sales resources, while for the buyer they are incoming uses such as investments or operating purchases.

• Financial flows consist of money and quasi-money flows, such as cheques, and creditor-debtor flows created by deferred payment.

Further detail

• Quasi-real flows include: labor measured by wages and social contributions, financial services measured by interest payable, public services measured indirectly by taxes payable

💡 Memory Hook

R-Q-F: real, quasi-real, financial flows

📖 9. Double-Entry Translation of Flows

🔑 Key Concepts & Definitions

• Employment : the destination of a flow and represents the use of the element transferred into the enterprise
• Resource : the origin of a flow and represents the means used to satisfy or finance a need, corresponding to what leaves the enterprise

★ Must-know

📌 Under the double-entry principle, every operation records at least two accounts, with one debited and another credited, and total employment equals total resource. — Art. 17, alinéa 2° AUDCIF

📌 Employment is recorded as a debit and resource is recorded as a credit.

Further detail

• For an equipment purchase costing 2,600,000, the transport equipment account is debited 2,600,000, while the bank is credited 1,500,000 and the investment supplier is credited 1,100,000.

💡 Memory Hook

Employment is the destination and debit; resource is the origin and credit

📖 10. Accounting Books and Recording Circuit

🔑 Key Concepts & Definitions

• Journal : the document in which enterprise operations are recorded daily and chronologically with their date, accounts, amounts, description, and source-document reference
• General ledger : the collection of all accounts opened by the enterprise, into which journal operations are transferred account by account

★ Must-know

• 🔄 The accounting circuit proceeds:
  1. from a dated source document
  2. to the input draft
  3. to the journal
  4. to the ledger
  5. to the trial balance

📌 Every accounting entry must be supported by a dated and preserved document, and accounting documents must be retained for ten years. — Art. 16-17 et 24 AUDCIF

Further detail

• The journal must be retained for at least ten years after the last entry and must be numbered continuously, initialled, and paginated by the competent court. — Art. 19, 1er tiret et art. 66 AUDCIF

💡 Memory Hook

Source document → input draft → journal → ledger → trial balance

📖 11. General Trial Balance

🔑 Key Concepts & Definitions

• General trial balance : Art. 19, 3e tiret AUDCIF — an exhaustive table listing all enterprise accounts in chart-of-accounts order at a given date, with their opening balances, debit and credit movements, and closing balances

★ Must-know

📌 A balanced trial balance has equal total debit and credit movements, equal total movements with the journal, and equal total debit and credit balances.

Further detail

• Trial balances may have 2, 4, 6, or 8 columns, with the 8-column form being the most complete because it distinguishes opening balances, period movements, net variations, and closing balances by debit and credit.

• In the DAREL application, total debit movements and total credit movements are each 3,153,000, while total debit and credit balances are each 3,065,000.

📖 12. Balance Sheet Structure and Result

🔑 Key Concepts & Definitions

• Balance sheet : Art. 29-30 AUDCIF — a table presenting the enterprise's assets and liabilities, and therefore its financial position, at a given date

★ Must-know

📌 Assets include fixed assets, current assets, and cash assets, whereas liabilities include stable resources, current liabilities, and cash liabilities.

📌 Asset accounts increase by debit and decrease by credit, whereas liability accounts increase by credit and decrease by debit.

📐 Formula — The balance-sheet result satisfies $\text{Result} = \text{Total assets} - \text{Total liabilities} = \text{Employment} - \text{Resources}$.

📌 The balance-sheet result is a profit when total assets exceed total liabilities, a loss when total assets are lower, and zero when they are equal.

Further detail

• The OHADA functional approach classifies fixed assets as durable uses, current assets as operating stocks and receivables, resources as stable or financial resources, and treasury as active and passive masses.

💡 Memory Hook

Assets show uses; liabilities show sources

📖 13. Income Statement and Management Balances

🔑 Key Concepts & Definitions

• Expense : the consumption of goods and services or the impoverishment of the enterprise
• Product : the creation of internal resources by the enterprise and represents its enrichment
• Intermediate management balances : amounts calculated from management accounts to show the successive stages through which the net result is formed

★ Must-know

📐 Formula — The net result of the financial year satisfies $\text{Net result} = \text{Sum of products} - \text{Sum of expenses}$.

📌 Expense accounts increase by debit and decrease by credit, whereas product accounts increase by credit and decrease by debit.

📐 Formula — Gross operating surplus satisfies $\text{EBE} = \text{Value added} - \text{Personnel expenses}$, ordinary activities result satisfies $\text{RAO} = \text{Operating result} + \text{Financial result}$, and net result satisfies $\text{Net result} = (\text{RAO} + \text{RHAO}) - (\text{Workers' participation} + \text{Income tax})$.

Further detail

• The normal system includes:

  • gross merchandise margin
  • gross materials margin
  • value added
  • gross operating surplus
  • operating result
  • financial result
  • ordinary activities result
  • extraordinary activities result
  • net result

• In the KIKI application, total products of 1,195,060 minus total expenses of 1,075,660 gives a profit of 119,400.

💡 Memory Hook

Gross margin → value added → operating result → ordinary result → net result

📊 Synthesis Tables

OHADA Financial Reporting Systems

System	Eligible entities	Statements
Normal System	Medium and large entities	Balance sheet, income statement, cash-flow statement and notes
Abbreviated System	Small entities above SMT thresholds	Simplified balance sheet and income statement, plus notes
Minimal Treasury System	Very small entities below legal thresholds	Balance sheet and income statement based on cash accounting

Accounting documents and roles

Document	Main role	Organization
Source document	Justifies the operation	Dated and preserved
Journal	Records operations chronologically	One entry per operation
General ledger	Groups movements by account	Account-by-account
Trial balance	Summarizes accounts and checks equality	Chart-of-accounts order