3 Acctg in Action Examining the accounting system with personal & nominal ledger accounts

JAN 2010CIMA C2 YUAN LI2 Learning outcomes  explain the purpose of accounting records and their role in the accounting system;  prepare nominal ledger accounts;  prepare accounts for sales and purchases, including personal accounts

JAN 2010CIMA C2 YUAN LI3 3.2 What is a ledger account?  account a record of the transactions involving a particular item  ledger account a record kept as a page in a book  Nominal ledger (general ledger) the ledger containing all of the accounts necessary to summarise an organisation’s transactions and prepare a statement of financial position and income statement

JAN 2010CIMA C2 YUAN LI4 Double entry 3.3 Double entry General Rules DR Asset/Expense CR Liability/Capital/Revenue

JAN 2010CIMA C2 YUAN LI5 Double entry General Rules DR Liability/Capital/Revenue CR Asset/Expense

JAN 2010CIMA C2 YUAN LI6 Double entry example Double entry example Trade goods- sales Receivables a/c $ Sales X Sales a/c $ $ Receivable X

JAN 2010CIMA C2 YUAN LI7 Definitions  Ledger a/c A record of transactions represented by DR on the left and CR on the right for a single item of expense, revenue, asset, liability or capital also known as a T a/c

JAN 2010CIMA C2 YUAN LI8 Double entry bookkeeping  example 3.A P43

JAN 2010CIMA C2 YUAN LI Bookkeeping entries for purchases and sales  Example 3.B P47

JAN 2010CIMA C2 YUAN LI Balancing the accounts  Purpose to establish a balance at any point in time

JAN 2010CIMA C2 YUAN LI11 calculation  Add the figures on each side  Enter the larger amount in as a total  Balance the opposite side by entering the balancing figure  This represents either a balance carried forward/down (bal c/f bal c/d) to the balance sheet or transfer to the income statement  Bal c/f c/d figures become balance brought forward/down, and are written as the opening balance in the next period, ‘below the line’, and on the opposite side written as bal b/f on the opposite side

JAN 2010CIMA C2 YUAN LI12 Fixtures ledger account 1 JanBal b/d2,0001 JunDisposal1,000 1 JulBank4,00031 DecBal c/d8,000 1 SeptBank3,000 9,000 1 JanBal b/d8,000 $

JAN 2010CIMA C2 YUAN LI13 Practice questions 1.Which TWO of the following statements are correct? (a)Asset and liability ledger accounts normally have credit bal (b)Liability and revenue ledger accounts normally have debit balances (c)Asset and revenue ledger accounts normally have credit balances (d)Asset and expense ledger accounts normally have debit balances (e)Revenue and liability ledger accounts normally have credit balances (f)Revenue and expense ledger accounts normally have debit balances answer: DE

JAN 2010CIMA C2 YUAN LI14 Practice questions 2. On 1 March, a business had a supplier, H Jones, who was owed $550. During March, H Jones supplied goods for $150 and accepted returned goods outwards valued at $75. he was paid $150 in cash towards the outstanding balance. H Jones gave a discount of $50 for prompt settlement of the balance due to him. The balance on H Jones account at 31 March is: (a)$425 debit (b)$425 credit (c)$625 credit (d)$675 credit answer: B

JAN 2010CIMA C2 YUAN LI15 Practice questions 3. Alice had the following assets and liabilities at 1 Jan: Work-in-progress $250 Receivables 650 Payables 300 Bank loan 400 Cash 50 Equipment 1,200 Her capital at 1 Jan was $ answer: $1450

JAN 2010CIMA C2 YUAN LI16 Practice questions 4. The correct entries needed to record the return of a vehicle that had been bought on credit from Classic Motors, and not yet paid for, are: (a)Debit vehicles (b)Credit vehicles (c)Debit Classic Motors (d)Credit Classic Motors (e)Debit purchases (f)Credit bank answer: BC

JAN 2010CIMA C2 YUAN LI17 Practice questions 5. Which of the following is the correct entry to record the purchase on credit of inventories intended for resale? Answer: D DebitCredit AInventoriesReceivable BPayablePurchases CInventoriesPayable DPurchasespayable