Book - Keeping Double entry Book-keeping. Activity - Financial Terms Capital Drawings Asset Liability Capital expense Revenue expense Returns inward Returns.

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Presentation transcript:

Book - Keeping Double entry Book-keeping

Activity - Financial Terms Capital Drawings Asset Liability Capital expense Revenue expense Returns inward Returns outward Discounts allowed Discount received

Accounting Equation Assets = Capital + Liabilities

Accounting Equation Assets = Capital + Liabilities Purchase of a Delivery Van funded by 20% personal capital invested and a bank loan for the balance

Accounting Equation Assets = Capital + Liabilities Van= Owner + Loan

Accounting Equation Assets = Capital + Liabilities Van= Owner + Loan £10,000= £ £8000

A production machine bought for £10,000 on credit Assets=Capital+Liabilities 10,000=2,000+8,000 Continuing from previous slide

Assets=Capital+Liabilities 10,000=2,000+8,000 Q1 20,000=+ Van10,000 Machine10,000 A production machine bought for £10,000 on credit

Assets=Capital+Liabilities 10,000=2,000+8,000 Q1 20,000=2,000+ A production machine bought for £10,000 on credit

Assets=Capital+Liabilities 10,000=2,000+8,000 Q1 20,000=2,000+18,000 A production machine bought for £10,000 on credit

Stock is bought for £1,000 on credit Assets=Capital+Liabilities 10,000=2,000+8,000 Q1 20,000=2,000+18,000

Stock is bought for £1,000 on credit Assets=Capital+Liabilities 10,000=2,000+8,000 Q1 20,000=2,000+18,000 Q2 21,000=+

Stock is bought for £1,000 on credit Assets=Capital+Liabilities 10,000=2,000+8,000 Q1 20,000=2,000+18,000 Q2 21,000=2,000+

Stock is bought for £1,000 on credit Assets=Capital+Liabilities 10,000=2,000+8,000 Q1 20,000=2,000+18,000 Q2 21,000=2,000+19,000

Accouting Equation Card Activity

Accouting Equation Worksheet

Financial Transactions Any event which affects the financial position of the organisation.

Recording Transactions The financial transactions are recorded in: – Ledgers – Books of Prime Entry The transactions are recorded using the Dual Aspect principle.

Ledger accounts The business transactions are entered into Ledger accounts. A separate ledger account is kept for each different type of transaction. Make a list of examples of Ledger Accounts

Double entry principle Double entry book-keeping involves the making of two entries for every transaction in the books of the business ie Ledgers. Double entry involves identifying two ledger accounts & making two entries.

Two Accounts Example: A company buys a digital camera for £200 Which two ledger accounts would be involved in this transaction? 1. Equipment account 2. Bank account

Ledger accounts Activity for each business transaction identify the two ledger accounts that would be used to record the business transaction.

Activity TransactionLedger Account 1Ledger Account 2 Sale of stock, cheque £120 Payment of Wages £1,200 by cheque Purchased goods £3,000 - cheque Received a Bank loan £5,000, paid into bank account

Activity TransactionLedger Account 1Ledger Account 2 Cash Sales, cheque £120 received SalesBank Payment of Wages £1,200 by cheque Purchased goods £3,000 - cheque Received a Bank loan £5,000, paid into bank account

Activity TransactionLedger Account 1Ledger Account 2 Cash Sales, cheque £120 received SalesBank Payment of Wages £1,200 by cheque WagesBank Purchased goods £3,000 - cheque Received a Bank loan £5,000, paid into bank account

Activity TransactionLedger Account 1Ledger Account 2 Cash Sales, cheque £120 received SalesBank Payment of Wages £1,200 by cheque WagesBank Purchased goods £3,000 - cheque PurchasesBank Received a Bank loan £5,000, paid into bank account

Activity TransactionLedger Account 1Ledger Account 2 Cash Sales, cheque £120 received SalesBank Payment of Wages £1,200 by cheque WagesBank Purchased goods £3,000 - cheque PurchasesBank Received a Bank loan £5,000, paid into bank account LoanBank

Ledger Accounts Duel Aspect Each transaction must have a Debit and Credit entry. Debit Entry – the account which gains value or derives benefit – left side of the account Credit entry – the account which looses value – right side of the account

Debits and Credits Drive on the left (DR) Crash on the right (CR) Debit (DR) Credit (CR)

Debits & Credits DRCR DRCR DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100

Debits & Credits DRCR DRCR DR (Money in) CR (Money out) 100 PurchasesBank Sales Materials purchased for £100

Debits & Credits DRCR 100 DRCR DR (Money in) CR (Money out) 100 PurchasesBank Sales Materials purchased for £100

Debits & Credits DRCR 100 DRCR DR (Money in) CR (Money out) 100 PurchasesBank Sales Materials purchased for £100 Sales made for £175

Debits & Credits DRCR 100 DRCR 175 DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175

Debits & Credits DRCR 100 DRCR 175 DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56

Debits & Credits DRCR 100 DRCR 175 DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56

Debits & Credits DRCR DRCR 175 DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56

Debits & Credits DRCR DRCR 175 DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56 Materials purchased for £25

Debits & Credits DRCR DRCR 175 DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56 Materials purchased for £25

Debits & Credits DRCR DRCR 175 PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56 Materials purchased for £25 DR (Money in) CR (Money out)

Debits & Credits DRCR DRCR 175 DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56 Materials purchased for £25 Sales for £500

Debits & Credits DRCR DRCR 175 DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56 Materials purchased for £25 Sales for £500

Debits & Credits DRCR DRCR DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56 Materials purchased for £25 Sales for £500

Debits & Credits DRCR DRCR DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56 Materials purchased for £25 Sales for £500 Sales for £250

Debits & Credits DRCR DRCR DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56 Materials purchased for £25 Sales for £500 Sales for £250

Debits & Credits DRCR DRCR DR (Money in) CR (Money out) PurchasesBank Sales Materials purchased for £100 Sales made for £175 Materials purchased for £56 Materials purchased for £25 Sales for £500 Sales for £250

Debits & Credits DRCR DRCR DR (Money in) CR (Money out) PurchasesBank Sales

DRCR DRCR DR (Money in) CR (Money out) Purchases Bank Sales

DRCR DRCR DR (Money in) CR (Money out) Purchases Bank Sales

DRCR DRCR DR (Money in) CR (Money out) Purchases Bank Sales

Debits and Credits Drive on the left (DR) Crash on the right (CR) Debit (DR) Credit (CR)

Debits and Credits Debit (DR) Credit (CR) P E A R L S Purchases Expenses Assets Reserves (Inc Capital) Liabilities Sales

Digital Camera purchased for £200 Debit (Dr)Credit (Cr) Debit (Dr)Credit (Cr) Camera Equipment Cash/Bank

Debit (Dr)Credit (Cr) 19/9 Cash/Bank 200 Debit (Dr)Credit (Cr) Camera Equipment Cash/Bank Digital Camera purchased for £200

Debit (Dr)Credit (Cr) 19/9 Cash/Bank 200 Debit (Dr)Credit (Cr) 19/9 Camera 200 Camera Equipment Cash/Bank Digital Camera purchased for £200

Purchase of scanner for £120 Debit (Dr)Credit (Cr) Debit (Dr)Credit (Cr) Scanner Equipment Cash/Bank

Purchase of scanner for £120 Debit (Dr)Credit (Cr) Bank 120 Debit (Dr)Credit (Cr) Scanner Equipment Cash/Bank

Purchase of scanner for £120 Debit (Dr)Credit (Cr) Bank 120 Debit (Dr)Credit (Cr) Scanner 120 Scanner Equipment Cash/Bank

Barbaras Butchers (Dr)(Cr) Purchases Account (Dr)(Cr) Cash/Bank Account Sales Account (Dr)(Cr) (Dr)(Cr) (Dr)(Cr) Rent Paid Account Telephone Account Consider the ‘T’ accounts that are available!

Barbaras Butchers (Dr)(Cr) Purchases Account (Dr)(Cr) Cash/Bank Account Sales Account (Dr)(Cr) (Dr)(Cr) (Dr)(Cr) Rent Paid Account Telephone Account Purchase of meat £210 from Scragg & Co paying cash

Barbaras Butchers (Dr)(Cr) Cash/Bank £210 Purchases Account (Dr)(Cr) Cash/Bank Account Sales Account (Dr)(Cr) (Dr)(Cr) (Dr)(Cr) Rent Paid Account Telephone Account Purchase of meat £210 from Scragg & Co paying cash

Barbaras Butchers (Dr)(Cr) Cash/Bank £210 Purchases Account (Dr)(Cr) Purchases £210 Cash/Bank Account Sales Account (Dr)(Cr) (Dr)(Cr) (Dr)(Cr) Rent Paid Account Telephone Account Purchase of meat £210 from Scragg & Co paying cash

Barbaras Butchers (Dr)(Cr) Cash/Bank £210 Purchases Account (Dr)(Cr) Purchases £210 Cash/Bank Account Sales Account (Dr)(Cr) (Dr)(Cr) (Dr)(Cr) Rent Paid Account Telephone Account Cash sales £742

Barbaras Butchers (Dr)(Cr) Cash/Bank £210 Purchases Account (Dr)(Cr) Cash Sales £742Purchases £210 Cash/Bank Account Sales Account (Dr)(Cr) (Dr)(Cr) (Dr)(Cr) Rent Paid Account Telephone Account Cash sales £742

Barbaras Butchers (Dr)(Cr) Cash/Bank £210 Purchases Account (Dr)(Cr) Cash Sales £742Purchases £210 Cash/Bank Account Sales Account (Dr)(Cr) Cash/Bank £742 (Dr)(Cr) (Dr)(Cr) Rent Paid Account Telephone Account Cash sales £742

Barbaras Butchers (Dr)(Cr) Cash/Bank £210 Purchases Account (Dr)(Cr) Cash Sales £742Purchases £210 Cash/Bank Account Sales Account (Dr)(Cr) Cash/Bank £742 (Dr)(Cr) (Dr)(Cr) Rent Paid Account Telephone Account Rent paid £75

Barbaras Butchers (Dr)(Cr) Cash/Bank £210 Purchases Account (Dr)(Cr) Cash Sales £742Purchases £210 Rent £75 Cash/Bank Account Sales Account (Dr)(Cr) Cash/Bank £742 (Dr)(Cr) (Dr)(Cr) Rent Paid Account Telephone Account Rent paid £75

Barbaras Butchers (Dr)(Cr) Cash/Bank £210 Purchases Account (Dr)(Cr) Cash Sales £742Purchases £210 Rent £75 Cash/Bank Account Sales Account (Dr)(Cr) Cash/Bank £742 (Dr)(Cr) Cash/Bank £75 (Dr)(Cr) Rent Paid Account Telephone Account Rent paid £75

Page 9 (Dr)(Cr) Cash/Bank £210 Purchases Account (Dr)(Cr) Cash Sales £742Purchases £210 Rent £75 Cash/Bank Account Sales Account (Dr)(Cr) Cash/Bank £742 (Dr)(Cr) Cash/Bank £75 (Dr)(Cr) Rent Paid Account Telephone Account Telephone bill paid £43

Page 9 (Dr)(Cr) Cash/Bank £210 Purchases Account (Dr)(Cr) Cash Sales £742Purchases £210 Rent £75 Telephone £43 Cash/Bank Account Sales Account (Dr)(Cr) Cash/Bank £742 (Dr)(Cr) Cash/Bank £75 (Dr)(Cr) Rent Paid Account Telephone Account Telephone bill paid £43

Barbaras Butchers (Dr)(Cr) Cash/Bank £210 Purchases Account (Dr)(Cr) Cash Sales £742Purchases £210 Rent £75 Telephone £43 Cash/Bank Account Sales Account (Dr)(Cr) Cash/Bank £742 (Dr)(Cr) Cash/Bank £75 (Dr)(Cr) Cash/Bank £43 Rent Paid Account Telephone Account Telephone bill paid £43

Trevor Smith Top Tip!! Before starting your postings check what T accounts you have been given!

Credit Transactions Sales on credit (Dr)(Cr) Sales (Dr)(Cr) Debtor

Credit Transactions Sales on credit (Dr)(Cr) Sales (Dr)(Cr) Debtor Purchases on credit (Dr)(Cr) (Dr)(Cr) Creditor Purchase

Balancing off ‘T’ accounts Dr Bank AccountCr Mar 1Sales350Mar 6Insurance50 Mar 10 Sales 1,000Mar 12Petty Cash100 Mar 23Sales460Mar 19Drawings150 Enter the balance on the LOWER side of the account Total both columns Mar 31 balance c/d1510 April 1 balance b/d £1510 Bring down the balance to the opposite side of the account ‘Strike’ the balance by totalling both sides of the account Deduct lower total from higher total

Balancing off ‘T’ accounts Dr Bank AccountCr Mar 1Sales350Mar 6Insurance50 Mar 10 Sales 1,000Mar 12Petty Cash100 Mar 23Sales450Mar 19Drawings Mar 31 balance c/d1510 April 1 balance b/d £1510

Balancing off Ledger Accounts Worksheet Secondary Traders Ltd

Balancing Worksheet

Balances transferred to a Trial Balance

Trial Balance

Lewis Blake Activity

Double Entry Bookkeeping Rules If cash is paid out of the business, then the cash account is always credited – therefore some other account must be debited Assets are always recorded as debits Liabilities are always recorded as credits Expenses are always debits Income is always a credit

Debits and Credits Debit (DR) Credit (CR) P E A R L S Purchases Expenses Assets Reserves (Inc Capital) Liabilities Sales Top Tip!!!! – First identify the Account ‘TYPE’

Trial Balance ‘Pearls’ Q1

£PEARLSDrCr Capital14850 Opening Stock1176 Premises10800 Fixtures2850 Trade receivables3450 Trade payables4892 Purchases16748 Sales22391 Bank overdraft1873 Salaries3994 Rent1250 General expenses965 Drawings2773 Totals

Complete PEARLS Questions 2-4

Capital Expenditure Purchase of long term assets for use by the business.

Revenue Expenditure Day to day running costs of the business.

Types of Ledger