1. Bookkeeping Transactions Lesson 1

2. Aims of the Session Financial transactions The accounting system
Different types of accounts
The accounting equation
Terminology
Fundamental principles of double entry bookkeeping

3. Financial Transactions
Goods and services can be sold or purchased for immediate payment or payment at a later date. Immediate payment = cash sales Later date = credit sales Generally these are made through the bank.

4. Businesses need to keep track of:
Income
Expenditure
Money owed by individual customers
Total money owed by all customers
Money owing to individual suppliers
Money owing
Why?

5. The Accounting System Has 5 stages Financial transaction takes place
Financial document is generated
Entry into books of prime entry
Transferred to the ledger accounts
Trial balance is produced

6. Financial Transactions
A sale
A purchase
A payment

7. Financial Documentation is Generated
Invoice
Credit note
Receipt
Petty cash voucher

8. Books of Prime Entry Day books: Sales day book Purchases day book
Sales return day book
Purchases return day book
Discounts allowed day book
Discounts received day book
Petty cash book
Cash book
Not necessarily part of the double entry system

9. Ledger Accounts Part of the double entry system.
Involves two entries for each transaction
A debit
A credit

10. Trial Balance Checks accuracy of double entry.
Useful source of information.
Calculate profit.
Monitor expenses and income.

11. Ledger Accounts in the General Ledger
Different types of account: Asset – what is owned Liability – what is owed Expense Income Drawings – what the owner takes out the business Capital – what the business owes back to the owner Where the double entry takes place

12. Exercises on Types of Accounts

13. Terminology

14. Fundamental Principle of Double Entry
For every transaction there is a debit and a credit entry.

15. DEAD CLIC Debit Credit Expenses Liabilities Assets Income Drawings
Capital
A debit entry on these accounts increases their worth.
A credit entry on these accounts increases their worth.
To reduce the value of the account you carry out the reverse entry.

16. In Practise
A new business owner pays £5,000 into the business bank account to start the business.
Bank
money the business owns an asset
Capital Account
money the business owes back to the owner Dr Cr Dr Cr
Capital £5,000
Bank £5,000

17. money the business owns an asset
In Practise
A business buys £30 of stationery using the business bank account.
Bank
money the business owns an asset
Stationery Account
an expense account Dr Cr Dr Cr
Stationery £30
Bank £30

18. T Accounts Basic and simple way of drawing up double entry.
Unlimited amount of accounts – if in doubt draw one up.
Most complicated transactions can be reduced to T account format.

19. A debit entry on these accounts increases their worth.
Credit
Expenses
Assets
Drawings
Liabilities
Income
Capital
A debit entry on these accounts increases their worth.
A credit entry on these accounts increases their worth.

20. Balancing T Accounts Cr Dr Bank Cash sales £150 Cash sales £ 75
Purchases £67
Stationery £10
Balance carried down £148
£225
£225
Balance brought down £148

21. T Account Exercises

22. The Accounting Equation
Assets – Liabilities = Capital

23. Exercises on the accounting equation

24. Questions