Theory

GAAP principles

GAAP is the set of rules that keeps financial statements comparable and honest. The ones used most in Grade 11 are historical cost, prudence, matching, going concern and materiality.

CAPS

Grade 11 · Accounting · Theory

Accounting is a system: document, journal, ledger, then the statement.

The papers
Grade 11 centres on partnerships, reconciliations, fixed assets and VAT, still from source documents through to statements.
The logic
Assets equal owner’s equity plus liabilities. Every entry needs a source. VAT on sales is output VAT. VAT on qualifying purchases is input VAT. Profit is not the same as cash.
How a marker reads it
A common mix-up is to revalue an asset upwards because a friend named a higher price. That breaks historical cost and prudence.

Each paper is 150 marks. A foreign total that does not balance is wrong even if the individual entries look neat. Show the note or the calculation the face of the statement came from.

Worked theory

Worked theory. A panel beater in Welkom bought a compressor for R18 000 three years ago. A friend says it would sell for R25 000 today, so the owner wants to raise the asset and the profit by R7 000. Historical cost leaves the compressor at R18 000 less depreciation. The R7 000 is not a profit yet, because nobody has paid it, so prudence also blocks the increase. The statements stay comparable with last year. A hoped-for price is not a transaction.

More worked examples

Advertising paid in advance
A nursery in George pays R6 000 in December for adverts that will run in January and February. Matching does not call the whole R6 000 a December expense. December did not earn the sales those adverts will bring. R6 000 sits as a prepaid expense, an asset, until those months. The cash left in December. The expense follows the income.
A likely bad debt
A hardware store in Rustenburg is owed R4 000 by a builder who has closed his yard and stopped answering calls. Prudence requires a provision, or a write-off, now. Waiting for the court case before reducing profit would overstate this year's income. The loss is likely, so it is recognised. Hope is not an asset.

In ordinary words

Historical cost records an asset at what was paid, not at a guessed selling price. Prudence means you do not count a profit until it is reasonably certain, and you do count a likely loss. Matching puts an expense in the same period as the income it helped to earn. Going concern means you assume the business will keep operating, so you do not value everything as if it will be sold tomorrow. Materiality means a small item can be treated simply, and a large one must be shown clearly.

In South Africa

A workshop in Welkom, with the original invoice still in the file, is where historical cost is decided.

Part 1 / 4

What it is

GAAP is the set of rules that keeps financial statements comparable and honest. The ones used most in Grade 11 are historical cost, prudence, matching, going concern and materiality.

More worked examples

Board walkthroughs on this topic. Open one, copy the working, then try the next.

Example 1 / 20

Insurance of R24 000 was paid for 12 months from 1 November. The year ends 28 February. Calculate the prepaid amount (matching).

4. Step-by-step working

01
Divide
R24 00012=R2 000 per month.
02
Multiply
Nov–Feb = 4 months → R8 000 expense; 8 months prepaid = R16 000.

How we got there

Read this like a teacher at the board. We go slowly, name every number, and say why we take each step.

Explain in another language · 11

1. What is the question asking?

Read the question twice. Circle the unknown. Underline every number and unit. The paper is asking: Insurance of R24 000 was paid for 12 months from 1 November. The year ends 28 February. Calculate the prepaid amount (matching).

Before any working — hunt first

Given

Numbers and units already in the sentence: R24 · 000 was · 12 months · 1 November · 28 February. Copy each one into a column. A name without a number is not given.

Missing

After you copy the given, the letter that still has no number is missing. The paper is pointing at: the prepaid amount (matching). Circle that word — that is the missing variable.

Find

We are required to find: the prepaid amount (matching). Write that as a symbol on the left, with a question mark, before you touch a formula.

Calculate

What we need to calculate: Only 4 months belong to this year. Then substitute the given, one line at a time, to get the prepaid amount (matching).

In other words — as if you have never seen this before

If you have never seen this before: Only 4 months belong to this year. We will name a method in words, write the formula with no numbers, then substitute one line at a time.

2. What do we already know?

R24 000 for 12 months from 1 Nov.

3. Which method — and why this one?

Only 4 months belong to this year.

4. Step-by-step working

01 / 05
Divide
R24 00012=R2 000 per month.
Why this step: We only do one job per line so a marker can follow the marks — and so you can find a slip without starting over.
02 / 05
Multiply
Nov–Feb = 4 months → R8 000 expense; 8 months prepaid = R16 000.
Why this step: We only do one job per line so a marker can follow the marks — and so you can find a slip without starting over.
03 / 05
Step G — Sense-check the size
Ask: is this the kind of number a Grade 10–12 paper would want? A speed of 3 000 ms for a learner walking, or a probability bigger than 1, means a unit or algebra slip. Estimate first: round the numbers and do the sum in your head.
Why this step: Markers write ‘unrealistic’ in the margin when the method is right but the size is wild. A 10-second head check often finds a missing 10² or a unit that never changed.
04 / 05
Step F — Box the answer with its unit
Expense R8 000; prepaid R16 000.
Why this step: A number without a unit is half a mark on a Physics paper, and a marker can miss a Maths answer that is buried in working.
05 / 05
Step H — What the marker is looking for
On an NSC memo you usually earn: (1) a method mark for naming the right formula or idea in words, (2) an accuracy mark for substituting the given numbers with units, (3) an accuracy mark for the boxed answer with its unit. Write those three lines even if you are unsure of the arithmetic — blank pages score zero.
Why this step: First-timers chase the final number and leave the method blank. The memo still pays out for the idea and the substitution even when the last line is wrong.

5. The answer

Expense R8 000; prepaid R16 000.

Copy onto your answer sheet — in this order

Answer: Expense R8 000; prepaid R16 000.

6. Check it like a marker

Matching principle.

7. A trap first-timers fall into

First-timers often grab the first formula they remember, mix units (cm with m, minutes with seconds), or drop a minus sign. Write the formula in words first: “this equals that, because…”

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