1. Bookkeeping 1 Lesson 5

2. 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.

3. Aims of the Session What is a trial balance. How to construct one.
How to find and correct errors.
Capital versus revenue spending

4. 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.

5. 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

6. 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

7. 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.

8. Entries That Are Always Credits
Sales account (income).
Purchase returns.
Income accounts.
Loan account (liability).
Capital.
PLCA (liability)

9. Either Ors
Bank account.
VAT account.

10. 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.

11. Trial Balance Exercise

12. 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.

13. 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.

14. 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.

15. Questions

16. 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.

17. Exercises

18. Look Forward To
Mock exam
The REAL exam.