Qn 1 – Final Accounts one approach Gabrielle Moran 11th September 2010

Prior to Final Accounts Double Entry including accruals/prepayments to simple P&L and Balance Sheet Incomplete records Control Accounts – Subsidiary Books Depreciation and Disposal Correction of Errors Bank Reconciliations

Double Entry Two aspects to all transactions Matching of Debits and Credits

Double Entry Accounts Purpose Asset Record what the firm owns and what is owed to the firm. e.g. Vans A / C, Premises A / C, Cash A / C, Debtors A / C Liability Record what the firm owes. e.g. Loan A / C, Bank Overdraft A / C, Creditors A / C Expense Record the firm’s day to day running expenses. e.g. Wages A / C,, Insurance A / C, Purchases A / C Revenue Record day to day income earned by the firm e.g. Sales A / C, Rent Received A / C, Commission A / C

Summary of possible entries DebitCredit  Asset  Asset  Liability  Liability  Expense  Expense  Revenue  Revenue

Asset A / C Debit (Increase)Buying asset for cash or on credit Lodging money to the bank Selling goods on credit Credit (Decrease)Selling asset for cash or on credit Withdrawing money from bank Debtors paying what they owe Liability A / C Debit (Decrease)Paying off part or all what is owed Credit (Increase)Increasing the amount borrowed Buying goods on credit Expense A / C Debit (Increase)Paying an expense Increasing the amount previously recorded Credit (Decrease)Decreasing the amount previously recorded Revenue A / C Debit (Decrease)Decreasing the amount received previously recorded Credit (Increase)Record revenue received Increasing the amount received previously recorded

4 Questions to ask Thus with every transaction you come across you need to decide: 1. What are the two accounts involved? 2. Which type of account is each one? 3. Does the transaction cause an increase or decrease in each account? 4. Therefore is it a Dr or Cr?

Double Entry Assets and Liabilities – cash & credit, capital Purchases, Sales and Returns Revenue and expenses Drawings – cash, stock, expenses, f. assets Debtors & Creditors – discount, interest, bad debts Simple final accounts – two sided

Bringing it all together At the end of the financial year the Revenue and Expense Accounts are brought together in the FINAL ACCOUNTS to ascertain the firm’s profit for the year. Asset and Liability Accounts are listed in the BALANCE SHEET to ascertain the firm’s worth on a particular date (usually the last day of the financial year).

Transfer to final accounts Record the following transactions in the appropriate accounts of An Other, balance the accounts and prepare final accounts and Bal Sheet, 1. Owner invested €45,000 in a Business Bank alc. 2. Paid rent by cheque € Purchased goods on credit from S. Collins €8, Sold goods on credit to J. Reilly €9, Sold goods for cash €2, Purchased goods by cash €2, Paid rent by cash € Paid S. Collins by cheque € Returned goods to S. Collins € Cash sales lodged €5, J. Reilly returned goods € Paid wages by cheque € J. Reilly paid €5,000 by cheque. 14. Received rent €400 cash.

Trading Profit and Loss a/c for year ended x/x/09 Rent1400Sales17750 Purchases10400P Returns700 S Returns200Rent Rec400 Wages650 Balance c/d Balance b/d6220 Final Accounts – D Entry

Moving towards “normality” Split Trading from P & L Trial Balance Vertical Approach

Subsidiary Books Source documents List Reduce entries in accounts in nominal ledger

Purchases A / C Smith 2500 Adams 3400 Cranford 5640 Murphy 4260 Smith 4700 Cranford 2600 Adams A / C Purchases 3400 Smith A / C Purchases 2500 Purchases 4700 Cranford A / C Purchases 5640 Purchases 2600 Murphy A / C Purchases 4260

Purchases Book DateDetailsInv NoAmount Smith2500 Adams3400 Cranford5640 Murphy4260 Smith4700 Cranford

Purchases A / C Creditors Adams A / C Purchases 3400 Smith A / C Purchases 2500 Purchases 4700 Cranford A / C Purchases 5640 Purchases 2600 Murphy A / C Purchases Debit matching 6 Credits

Stage 1Stage 2Stage 3Stage 4 Source DocumentsSubsidiary BooksLedger Double Entry Final Accounts Balance Sheet Invoices [credit purchases and sales] Sales Book Purchases Book Post these transactions using Double Entry Rules Transfer from the Ledger to ascertain Profit for the Year and the Net Worth of the Company at a point in time Credit Notes Sales Returns Book Purchases Returns Book Cheque Payments Cheque Payments Book ReceiptsCash Receipts Book Anything ElseGeneral Journal Recording Transactions

Sequence Prepayments & Accruals Bad Debts Provision Simple Incomplete – ord level Control Accounts – Subsidiary Books Depreciation and Disposal Bank Reconciliations Final Accounts – ord level building adjustments

Adding adjustments to ord Qns Writing off some closing stock Goods on sale or return Bad debts recovered Adjusting BDP Building extension to premises – own labour and materials Built in accruals and prepayments

Adjustments Hardest Part is sorting the English Read a Little Talk a Little Use Dr Cr grid Make out the accounts DrCr  A  A  L  L  E  E  R  R

Read a little, Talk a little Students put in pairs/triads Students read an adjustment silently Then they stop and ask each other questions such as: What information have we got here? What did you get from that? What sense do you make of it? Both team-mates share / integrate their understanding of the material and using Dr/Cr grid work out a possible solution

Full Honours Question Read carefully – marking anything hidden in Trial Balance Start with adjustment 1 – prepare T a/cs Marking off Trial Balance

€€ Buildings at cost902,000 Delivery Vans (cost €280,000)190,000 Discount (Net)10,800 Profit and Loss Balance 1/1/200617,200 Stocks on hand 1/1/200675,200 Debenture interest for the first four months 5,000 9% Investments 1/1/06320,000 Patents (incorporating 3 months investment income) 24,800 Purchase and Sales1,320,0001,760,000 Amber Ltd. Qn

Interim dividends for the first 6 months48,000 Bad Debts Provision3,200 Debtors and Creditors100,40086,600 Bank44,000 Salaries and general expenses199,600 8% Debentures180,000 Issued Share Capital– Ordinary Shares – 10%Preference Shares 800, ,000 Directors fees48,000 Rent19,600 Advertising (including Suspense)14,800 3,284,600

1Stock 31/12/ – 4000 = 2 Patents a/c Bal b/d24800 P & L 6400 Inv Inc ,000 X 9% = 28,800 28,800 X ¼ =7200 Investment Income a/c P & L28800 Inv Inc7200 Bal c/d21600 ( ) / 5 = 6400

Purchases a/c Bal b/d Disp (3)46000 Fire (5)12000 Buildings (5)

€€ Buildings at cost902,000 Delivery Vans (cost €280,000)190,000 Discount (Net)10,800 Profit and Loss Balance 1/1/200617,200 Stocks on hand 1/1/200675,200 Debenture interest for the first four months 5,000 9% Investments 1/1/06320,000 Patents (incorporating 3 months investment income) 24,800 Purchase and Sales1,320,0001,760,000 Amber Ltd. Qn

€€ Buildings at cost902,000 Delivery Vans (cost €280,000)190,000 Discount (Net)10,800 Profit and Loss Balance 1/1/200617,200 Stocks on hand 1/1/200675,200 Debenture interest for the first four months 5,000 9% Investments 1/1/06320,000 Patents (incorporating 3 months investment income) 24,800 Purchase and Sales1,320,0001,760,000 Amber Ltd. Qn

Full Honours Question Read carefully – marking anything hidden in Trial Balance Start with adjustment 1 – prepare T a/cs Marking off Trial Balance When adjustments are done -- Trial Balance looks like this

€€ Buildings at cost902,000 Delivery Vans (cost €280,000)190,000 Discount (Net)10,800 Profit and Loss Balance 1/1/200617,200 Stocks on hand 1/1/200675,200 Debenture interest for the first four months 5,000 9% Investments 1/1/06320,000 Patents (incorporating 3 months investment income) 24,800 Purchase and Sales1,320,0001,760,000 Amber Ltd. Qn

Interim dividends for the first 6 months48,000 Bad Debts Provision3,200 Debtors and Creditors100,40086,600 Bank44,000 Salaries and general expenses199,600 8% Debentures180,000 Issued Share Capital – Ordinary Shares – 10% Preference Shares 800, ,000 Directors fees48,000 Rent19,600 Advertising (including Suspense)14,800 3,284,600

Full Honours Question Read carefully – marking anything hidden in Trial Balance Start with adjustment 1 – prepare T a/cs Marking off Trial Balance Complete each working

Full Honours Question Read carefully – marking anything hidden in Trial Balance Start with adjustment 1 – prepare T a/cs Marking off Trial Balance Complete each working Mark figures you will need P & L figsBal St figs

1Stock 31/12/ – 4000 = 81,200 2 Patents a/c Bal b/d24800 P & L 6400 Inv Inc ,000 X 9% = 28,800 28,800 X ¼ =7200 Investment Income a/c P & L28800 Inv Inc7200 Bal c/d21600 ( ) / 5 = 6400

Purchases a/c Bal b/d Disp (3)46000 Fire (5)12000 Buildings (5)51000 Trading

Full Honours Question Read carefully – marking anything hidden in Trial Balance Start with adjustment 1 – prepare T a/cs Mark off Trial Balance Complete each working P & L figsBal St figs Enter figures in accounts calculating as you go

Exam Approach Read carefully – marking anything hidden in Trial Balance Start with adjustment 1 – LISTLIST Marking off Trial Balance Complete each working P & L figsBal St figs

Exam Approach contd Prepare Template Accounts Template Trading Profit and Loss a.doc

Exam Approach Prepare Template Accounts Enter figures from workings in appropriate place to P & Lto Bal St

Exam Approach Prepare Template Accounts Enter figures from workings in appropriate place to P & Lto Bal St Enter remaining figures from Trial Balance not struck out

Exam Approach Prepare Template Accounts Enter figures from workings in appropriate place to P & Lto Bal St Enter remaining figures from Trial Balance not struck out Perform calculations (or not!!)