Bookkeeping 1 Lesson 5
Transfer the day books into the double entry system. Lesson 4 Revision You work for Spike’s Ponies, sales are analysed by either tack or clothing and purchases by suppliers. Complete the relevant day books for the following transactions, use today’s date: Goods purchased on credit from SeaSpray Ltd £500 inc. VAT. Goods purchased on credit from Prancers £250 + VAT. Tack goods sold on credit to Majesty £900 + VAT. Clothing goods sold on credit to Ponyland £400 + VAT. Returned goods to Seaspray Ltd £100 + VAT. Sales return from Majesty £15 inc. VAT. Transfer the day books into the double entry system.
Aims of the Session What is a trial balance. How to construct one. How to find and correct errors. Capital versus revenue spending
Initial Trial Balances Mathematical check to ensure that debits equals credits. Simply transfer the balances of the accounts to the trial balance format. The format can be alphabetical, random or set out in the format of final accounts.
This will be a debit entry on the trial balance Debit or Credit? Straight forward transfer of the balances will demonstrate whether a balance is a debit or credit. For example: Bank Bal b/d £2,000 Sales £1,500 Commission £750 £4250 £3,980 Stationery £45 Wages £150 Bal c/d £3,980 4250 This will be a debit entry on the trial balance
Go back to DEAD CLIC, to figure out what goes where. If Given the Figures Go back to DEAD CLIC, to figure out what goes where. DEAD CLIC Debit Credit Expenses Liabilities Assets Income Drawings Capital
Entries That Are Always Debits Purchases account (asset) Sales returns account (expense) Non current assets. Inventory account (asset). Expense accounts (telephone, wages, discount allowed). SLCA (asset). Petty cash account. Cash account.
Entries That Are Always Credits Sales account (income). Purchase returns. Income accounts. Loan account (liability). Capital. PLCA (liability)
Either Ors Bank account. VAT account.
Finding Errors If the trial balance doesn’t balance: Check you’ve transferred the figures correctly. Add it up again. Check all the balances have been included. Check the calculations of the balances in the ledgers. Check that analysis columns have been correctly entered. Halve the amount of the discrepancy, check that this isn’t an entry on the wrong side. Transposed figures.
Trial Balance Exercise
Capital versus Revenue Spending It is important to distinguish to show the true financial position of the business. Capital Revenue Delivery & installation of non- current assets. Improvement, but not repair, of non-current assets. Legal costs of buying a property. Purchases made by the business. Maintenance & repair of non- current assets. Administration of the business. Selling & distribution costs.
Capital versus Revenue Income Sale of non-current assets. Loans from banks or other lenders. Capital, or increases to capital. Sales Rent if premises are let. Commissions. Cash discount for prompt payment.
Capital or Revenue £30,000 cost of building an extension to the factory, including £1,000 repairs to existing building. Plot of land bought for £20,000, legal costs are £750. Businesses own employees used to install new air conditioning system: wages £1,000, materials £1,500 Own employees used to repair and redecorate the premises,: wages £500, materials £750 Purchase of a new machine, £10,000, installation and set up charges £250.
Questions
Lesson Recap Trial balances - an extraction of the ledger accounts to check arithmetic accuracy. Capital expenditure – non-current assets, installation of non-current assets. Not the repair of the non-current assets. Revenue expenditure – day to day running of the business, includes purchases and repair of non-current assets.
Exercises
Look Forward To Mock exam The REAL exam.