Processing Bookkeeping Transactions

Double Entry Bookkeeping Learning Aim Understand the double entry bookkeeping system in relation to credit sales & purchases

Double Entry Bookkeeping Learning outcomes By the end of the session all learners will be able to: Understand what is meant by the following terminology Credit Sales & Purchases, Day Books, Ledgers Understand the role of the Sales Ledger (SL) & Purchase Ledger (PL) Post the day books to the SL & PL

Why set up a business?

Cash & Credit Transactions Timing!

Cash Transaction Immediate payment Receipt Cheque Cash Card Bank Transfer

What problem would this cause us? Credit Transaction Future payment What problem would this cause us?

Credit Transactions Documentation From your precourse work list the documents and used for credit sales/purchases

Financial Transactions Any event which affects the financial position of the organisation. Example: Bought stock £5,000 Example: Bought Computer £2,500

Accounting Terminology (there will more to follow!) Asset Something of value the business owns Liability Something the business owes

Accounting Terminology Income Money received into the company for goods and/or services provided to customers Expenditure Expenses incurred by the company carrying out its day to day activities. Examples?

Accounting Terminology Income Money received into the company for goods and/or services provided to customers Expenditure Expenses incurred by the company carrying out its day to day activities. Difference between the two is …….. Profit (Income more than expenses) Loss (Expenses are more than income)

Profit & Loss Account

Calculating profit and loss …   £ Cost of goods sold 75,000 Heat and Light 3,000 Net Profit 25,500 Administration 4,000 Electricity 2,000 Sales 120,000 Rent 2,500 Wages 8,000 Gross Profit 45,000 ANS

Calculating profit and loss …   £ Cost of goods sold 75,000 Sales 120,000 Heat and Light 3,000 Cost of Goods Sold Net Profit 25,500 Gross Profit 45,000 Administration 4,000 Heat & Light 3000 Electricity 2,000 Admin 4000 Electricity 2000 Rent 2,500 Rent 2500 Wages 8,000 Wages 8000 19,500 Complete Activity 1 & 2 in your word/excel file

Why keep financial records? Government legislation requires all businesses to keep accurate records of business transactions. Record Business Transactions In a double entry book keeping system Provide financial statements

Why is financial information so important? Financial information can show: Where money to set up a business has come from how this money has been used how much money is owed to others what a business is worth how much cash is available to pay off debts how much is costs to make a product

Who needs financial information? Owners Suppliers HMRC Investors Customers Lenders

Where does this information come from? Financial documents e.g. Sales & Purchases Use ‘Documentation’ Word Document

Buying/selling goods and services Buyer (Customer) Purchase Order Remittance Advice Seller (Supplier) Delivery Note Invoice Credit Note Statement

VAT Value added tax

Value Added Tax (VAT) Which is which? Output Tax VAT charged on sales to customers (Outputs) Input Tax VAT charged on purchases from suppliers (Inputs)

Value Added Tax An Indirect Tax added to certain goods and services A VAT registered business must charge VAT on their sales but can reclaim VAT on purchases Excluding VAT Net £1500 (VAT 20%) VAT £300 Gross £1800 Including VAT Gross £390 390 ÷ 120 x 20 = £65 Net is Gross £390 – VAT £65 = £325 Rule: Always round down VAT Net £21.13 (VAT 20%) (VAT £4.226) becomes £4.22 Gross £25.35 http://www.hmrc.gov.uk/vat/start/schemes/index.htm

VAT Questions practice VAT Calculations Excluding VAT £150 + VAT @ 20% Including VAT £240 incl VAT @ 20% VAT Questions practice Calculating VAT activity (Excel)

Net £  VAT Rate VAT Gross Workings £250.00 20%   £142.00 5% £162.43 £1,476.21 £34,511.12 0% £26.34 £197.59 £341.11 £1,182.72 £2,703.37 £157.65 £303.76

VAT Questions - Answers Net VAT Rate  VAT Gross Workings £250.00 20% £50.00 300.00 £142.00 5% £7.10 149.10 £135.36 £27.07 162.43 £1,476.21 £73.81 1550.02 £28,759.27 £5,751.85 34511.12 £26.34 0% £0.00 26.34 £197.59 £39.51 237.10 £341.11 £17.05 358.16 £985.60 £197.12 1182.72 £2,574.64 £128.73 2703.37 £157.65 £7.88 165.53 £253.14 £50.62 303.76

Cash or Settlement Discount Discounts Trade Discount Cash or Settlement Discount Bulk Discount Encourages Prompt payment Encourages Larger orders Encourages Loyalty

£ £ £ £ £ Z215 Cycling Jacket – Female 18 £65.00 W366 Cycling Jacket – Male 23 £75.00 B784 Cycling Jacket – Child 19 £25.00 £ £ £ £ £

£ £ £ £ £ Z215 Cycling Jacket – Female 18 £65.00 £1170.00 W366 Cycling Jacket – Male 23 £75.00 B784 Cycling Jacket – Child 19 £25.00 £ £ £ £ £

£ £ £ £ £ Z215 Cycling Jacket – Female 18 £65.00 £1170.00 W366 Cycling Jacket – Male 23 £75.00 £1725.00 B784 Cycling Jacket – Child 19 £25.00 £ £ £ £ £

£ £ £ £ £ Z215 Cycling Jacket – Female 18 £65.00 £1170.00 W366 Cycling Jacket – Male 23 £75.00 £1725.00 B784 Cycling Jacket – Child 19 £25.00 £475.00 £ £ £ £ £

£3370.00 £ £ £ £ Z215 Cycling Jacket – Female 18 £65.00 £1170.00 W366 Cycling Jacket – Male 23 £75.00 £1725.00 B784 Cycling Jacket – Child 19 £25.00 £475.00 £3370.00 £ £ £ £

£3370.00 £67.40 £ £ £ Z215 Cycling Jacket – Female 18 £65.00 £1170.00 W366 Cycling Jacket – Male 23 £75.00 £1725.00 B784 Cycling Jacket – Child 19 £25.00 £475.00 £3370.00 £67.40 £ £ £

Z215 Cycling Jacket – Female 18 £65.00 £1170.00 W366 Cycling Jacket – Male 23 £75.00 £1725.00 B784 Cycling Jacket – Child 19 £25.00 £475.00 £3370.00 £67.40 Workings £3302.60 x 2% = £66.05 £3302.60 - £66.05 = £3236.55 VAT = £3236.55 x 20% = £647.31 £3302.60 £ 647.31 £

Z215 Cycling Jacket – Female 18 £65.00 £1170.00 W366 Cycling Jacket – Male 23 £75.00 £1725.00 B784 Cycling Jacket – Child 19 £25.00 £475.00 £3370.00 £67.40 Workings £3302.60 x 2% = £66.05 £3302.60 - £66.05 = £3236.55 VAT = £3236.55 x 20% = £647.31 £3302.60 £ 647.31 £

Z215 Cycling Jacket – Female 18 £65.00 £1170.00 W366 Cycling Jacket – Male 23 £75.00 £1725.00 B784 Cycling Jacket – Child 19 £25.00 £475.00 £3370.00 £67.40 Workings £3302.60 x 2% = £66.05 £3302.60 - £66.05 = £3236.55 VAT = £3236.55 x 20% = £647.31 £3302.60 £647.31 £3949.91

Deduct the Trade Discount Z215 Cycling Jacket – Female 18 £65.00 £1170.00 W366 Cycling Jacket – Male 23 £75.00 £1725.00 B784 Cycling Jacket – Child 19 £25.00 £475.00 £3370.00 £67.40 Deduct the Trade Discount £3302.60 Add the VAT £647.31 £3949.91

£ £ £ £ £ Now try this! 9883 Cooking Chocolate – Plain 25kg £3.75 9746 Cooking Chocolate - Milk 14kg £3.50 1.5% Cash discount for payment within 14 days of invoice date £ £ £ £ £

Answer

9883 Cooking Chocolate – Plain 25kg £3.75 £93.75 9746 Cooking Chocolate - Milk 14kg £3.50 £49.00 1.5% Cash discount for payment within 14 days of invoice date £142.75 £2.86 Workings £139.89 x 1.5% = £2.10 £139.89 - £2.10 = £137.79 VAT = £1137.79 x 20% = £27.55 £139.89 £27.55 £167.44

£248.38 £24.84 £273.22 £53.00 £326.22 Is this invoice correct? KL25 A4 Copier paper (box) 6 £2.50 £234.38 KL32 A3 Copier paper (box) 4 £2.75 £11.00 KL47 A5 Copier paper (box) 2 £1.50 £3.00 3% Cash discount for payment within 10 days of invoice date £248.38 @ 10% £24.84 Is this invoice correct? If not – why not? £273.22 £53.00 £326.22

Documentation

Recording Transactions The financial transactions are recorded in: Books of Original (Prime) Entry Sales Day book and Sales Returns book Purchases Day book and Purchases Returns book. Cash book – Cash & Bank transactions Ledgers - separate ledger account is kept for each different type of transaction The transactions are recorded using the Double entry principle.

Double entry book keeping Genoa - 1340 Luca Pacioli – 1494 First text book!

Division of the Ledger The ledger is divided into 3 sections: Sales Ledger – Customer accounts Purchases Ledger – Suppliers accounts General Ledger – the other accounts of the business e.g. sales account, purchases account, capital, expenses etc

Book of Original (Prime) Entry - Sales Day Book (SDB)

Book of Original Entry - Sales Day Book (SDB)

Book of Original Entry - Sales Day Book (SDB)

Book of Original Entry - Sales Day Book (SDB)

Sales Day Book Question Coleman & Sons sells art supplies to the public and educational organisations establishments. During April the following credit transactions took place: 2nd April Sold goods to Westland Art College £55 + VAT, invoice no.4578 4th April Sold goods to Pershore Gallery £65 + VAT, invoice no.4579 7th April Sold goods to Grainger Art Stores £28 + VAT, invoice no.4580 10th April Sold goods to Wilsons School of Art & Creative Studies £58 + VAT invoice no.4581 You are to enter the above transactions in Colmans sales day book for April and total the day book