1. Business Studies/ Accounting Transition Year Module

2. If you owned a business, what areas do you need to keep track of?
Businesses must complete a number of documents before transferring the information to accounts. Can you name some of these documents?
The first question is just to get students talking about accounting in a very broad way.
Things like, profit, sales, light and heat costs, orders from customers, loans, machinery, buildings etc.

3. What is the purpose of each document?
Source Documents
What is the purpose of each document?
Letter of Enquiry
Quotation
Order Form
Invoice
Debit/Credit Note
Delivery Docket
Statement of Account

4. Accounting Cycle BALANCE SHEET INVOICE PROFIT & LOSS ACCOUNT
INVOICE
PROFIT & LOSS ACCOUNT
Credit Note, Cheques
Transaction occurs
Analysis of transaction
TRADING ACCOUNT
Accounting Cycle
Preparation of final accounts
Recording of transactions
TRIAL BALANCE DR CR
Adjustment of balances
Preparation of trial balance
Posting to ledger account

5. Source Documents
Books of First Entry
Sales invoices
Sales Book
Credit notes sent
Sales Returns/
Returns Inwards Book
Purchases invoices
Purchases Book
Credit notes received
Purchases Returns/
Returns Outwards Book
Lodgement slips, cheques, receipts
Cash Book
Petty cash vouchers
Petty cash book
Financial correspondence
General Journal

6. Accounting is recorded in the following sequence
Books of First Entry
Ledger Accounts
Trial Balance
Final Accounts
Trading Account
Profit and Loss Account
Balance Sheet

7. Books of First Entry
The Books of First Entry are the first stage of Accounting for all new businesses.
These books are:
General Journal
Sales Day Book
Sales Returns Day Book
Purchases Day Book
Purchases Returns Day Book
Cash Book (Receipts and Payments)
Petty Cash Book
All transactions are posted twice from the Books of First Entry to the Ledger Accounts. There are 3 Ledgers:
Debtors Ledger
Creditors Ledger
General/Nominal Ledger

8. What does buying on CREDIT mean?
Class/Group Discussion
Goods/items can be bought or sold on credit or by cash?
What does buying on CREDIT mean?

9. KEY TERMS IN DOUBLE ENTRY BOOKKEEPING Share Capital /Ordinary Shares
KEY TERMS IN DOUBLE ENTRY BOOKKEEPING Share Capital /Ordinary Shares Ordinary Share Capital Account Cheque payments Bank Account Purchased Goods Purchases Account Sold Goods Sales Account Cash Cash Account Paid Light and Heat Light and Heat Account Purchased Buildings Buildings Account

10. General Journal
This Book is used to record entries that cannot be entered in any other Book of First Entry for example opening entries of assets and liabilities at the start of the year.
i.e. Purchase of a Fixed Asset
Worked Example
Martin’s Ltd had the following Assets and Liabilities on 1st January 2012;
Premises €350,000, Land €120,000, Stock €50,000, Bank Overdraft €40,000, Share Capital €480, Click to access General Journal questions
2012
General Journal
1Jan
Premises GL
€350,000
Land
€120,000
Stock
€50,000
€520,000
Bank Overdraft CB
€40,000
Share Capital
€480,000
Assets, Liabilities and capital as on this date

11. Sales Day Book
Goods that are sold on credit are entered in a Sales Day Book
There are three money columns, main column is Gross Sales (including VAT)
Analysis columns is divided into VAT and Net Sales
Entries from the Sales Day Book is used to update the Nominal/General Ledger and Debtors Ledger
Worked Example:
1 June Sold goods on credit to J Knox Invoice 1 €5,400
4 June Sold goods on credit to T Reilly Invoice 2 €6,500
Date
Details F
In. No.
Net Sales
23%
Total Sales
1 June
J Knox
DL1 1
€5,400
€1,242
€6,642
4 June
T Reilly
DL2 2
€6,500
€1,495
€7,995
€11,900
€2,737
€14,637

12. Sales Returns Day Book
Businesses will issue credit notes to customers when:
Goods previously sold are returned due to be faulty or damaged
Where prices charged on the original invoices were miscalculated and need to be corrected
Worked Example:
5 June J Knox returned goods Credit note 1 €400
8 June T Reilly returned goods Credit note 2 €200
Date
Details F
Cr. No.
Net Sales
23%
Total Sales
5 June
J Knox
DL1 1
€400
€92
€492
8 June
T Reilly
DL2 2
€200
€46
€246
€600
€138
€738

13. Sales Day Book/Sales Returns Day Book
The figures can be transferred to ledger accounts as follows:
Sales Day Book
Debit side Debtors A/C
Credit side VAT A/C
Credit Side Sales A/C
Sales Returns Day Book
Credit Side Debtors A/C
Debit Side VAT A/C
Debit Side Sales Returns A/C
NET
VAT
TOTAL €

14. Purchases Day Book
This book records credit purchases
Main column is Gross/Total purchases (including VAT)
Analysis columns divided into VAT and Net Purchases
Information from the Purchases Book is used to update both the Nominal/General Ledger and Creditors Ledger on a monthly basis
Worked Example
1 July Purchased goods on credit Invoice No. 34 from J. Clarke €3,000
4 July Purchased goods on credit Invoice No. 35 from T. Jones €2,400
Date
Details F
In. No.
Net Purchases
23%
Total Purchases
1 July
J. Clarke
CL1 34
€3,000
€690
€3,690
4 July
T. Jones
CL2 35
€2,400
€552
€2,952
€5,400
€1,242
€6,642

15. Click here to access Day Books questions
Purchases Returns Day Book
Businesses receive credit notes from suppliers when:
You have returned goods to the supplier due to damage or faulty
When you have been overcharged on an invoice from a supplier
Worked Example:
6 July Returned goods to J. Clarke Credit Note No. 21 €200
9 July Returned goods to T. Jones Credit Note No. 22 €140
Click here to access Day Books questions
Date
Details F
Cr. No.
Net Purchases
23%
Total Purchases
6 July
J. Clarke
CL1 21
€200
€46
€246
9 July
T. Jones
CL2 22
€140
€32.20
€172.20
€340
€78.20
€418.20

16. Purchases Returns Day Book
Debit Side Creditors A/C
Credit Side VAT A/C
Credit Side Purchases Returns A/C

17. Cash Book – Cash Receipts
This book records cash receipts and payments
Main columns are cash received, payments and balance
Analysis columns are Debtors, Cash Sales and more if required
Discount allowed in separate column
Information from Cash Receipts Book is used to update the Nominal/General Ledger and Debtors ledger on monthly basis
Cash Book – Cheque Payments
Records cheque payments and bank debits i.e. direct debits, standing orders
Main column is cheque amount
Analysis columns are Creditors and other payment types
Discount received in separate column
Information from Cash Payments Book is used to update the Nominal/General ledger and Creditors ledger on monthly basis
Cash Book
Cash Receipts
Cheque Payments
Bank Statements
Copy of receipts
Lodgements
Cheque book
Receipts received

18. Cash Receipts and Payments Book
Worked Example
Record the following transactions of Smith Ltd using the following headings:
Debit Side: Debtors, Sales
Credit Side: Creditors, Purchases, Wages
1 April Cash at bank €3,500
1 April Purchased goods by cheque (No. 23) €1,450
3 April Paid wages by cheque (No. 24) €1,230
5 April Paid Clarke Ltd by cheque (No. 25) €1,330
6 April Cash Sales lodged €4,500
9 April Purchased good by cheque (No. 26) €550
10 April Received cheque from Holmes Ltd €800 lodged
Task: Complete the transactions on the next slide.

19. Cash Receipts and Payments Book
Debit Side
Credit Side
Date
Details F
Bank
Debtors
Sales
1 April
Cash
b/d
€3,500
Date
Details F
Bank
Creditors
Purchases
Wages PB
€1,450
€1,230

20. Name some items that belong in a Petty Cash Book?
What is Petty Cash Book used for?
What is a float?
Name some items that belong in a Petty Cash Book?

21. Click here to access Petty Cash Book questions
Petty cash book operates as an Imprest system, it has a float paid in at the beginning of each month.
Records small cash receipts and payments
Main columns are bank/cash, receipts and payments
Analysis columns are used to group similar payments such as stationery, postage etc.
Information from the petty cash book is used to update the Nominal/General Ledger on a monthly basis
Worked example:
Record the following transactions in the Petty Cash book of Martin Ltd for April 2012, following are column headings:
Postage, Canteen, Sundries
1 April Cash on hand (imprest) €200
3 April Stamps Voucher No. 1 €3.00
5 April Coffee Voucher No. 2 €1.50
7 April Charity donation Voucher No. 3 €5.00
8 April Stamps Voucher No. 4 €1.80
Click here to access Petty Cash Book questions

22. Solution
Martin Ltd Petty Cash Book
Petty Cash Book Receipts – Dr Side
Petty Cash Book Payments – Cr Side
Date
Details F
Cash
1 April
Balance
b/d
€200
Date
Details
Voucher No.
Cash
Postage
Canteen
Sundries
3 April
Stamps 1
€3.00
5 April
Coffee 2
€1.50
7 April
Charity 3
€5.00
8 April 4
€1.80
Balance
€184.20
€200.00
€4.80

23. Ledger Accounts
Sales Day Book, Sales Returns Day Book, Purchases Day Book and Purchases Returns Day book entries are transferred to the Ledger accounts:
Debtors Ledger: these are the accounts of debtors or customer i.e. people who owe the business money.
Creditors Ledger: these are the accounts of creditors or suppliers i.e. people the business owe money to.

24. Double-entry Bookkeeping system
In your study of double entry so far, every accounting entry is based on the double-entry principle. There are two aspects to every transaction. The basic rule is:
DEBIT – Assets and Expenses
CREDIT – Liabilities and Revenue
If a business wanted to reduce an asset or an expense – entry on the credit side of asset or expense account.
If a business wanted to reduce a liability or revenue – entry on the debit side of the liability or income account.
It follows that if all the debit and credits are entered correctly in the ledger at the end of the accounting period the totals of the debits will equal the totals of the credits.
These balances are listed in a Trial Balance.

25. Is a Debtor an Asset or a Liability?
A business will have ASSETS. These are something of value for example:
Buildings
Motor Vehicles
Delivery Vans
Equipment
Cash
Stock (items for resale)
Your business will also have LIABILITIES. These are something you owe for example:
Loan
Bank Overdraft
If you sell on credit, you owe money to a Debtor.
If you buy on credit, a Creditor owes you money.
Is a Debtor an Asset or a Liability?
Is a Creditor an Asset or a Liability?

26. Discussion
When a business is starting up it requires Capital and this money is lodged in the Bank.
Which of the underlined words is the ASSET and which is the LIABILITY? Explain why?

27. All transactions can be recorded in 4 different types of accounts: ASSETS – resources owned by a business such as land, buildings, machinery etc. LIABILITIES – these are amounts owed by the business to outsiders such as bank overdraft, long term loans, creditors, capital and owners equity. EXPENSES – these are costs suffered in generating the revenue of a business such as wages, rent, light and heat etc. REVENUE – these are earnings from selling goods and services or other income earned such as bank interest, sales

28. An account is maintained for every Asset, Liability and every category of expense and revenue. Rules of Entry – Recording transactions affecting Assets, Liabilities and Capital Rule 1 To record an increase in an Asset – Debit the Account To record a decrease in an Asset – Credit the account Asset A/C Rule 2 To record an increase in a Liability – Credit the Account To record a decrease in a Liability – Debit the Account Liability A/C
Dr Side
Cr Side
Increase (+)
Decreases (-)
Dr Side
Cr Side
Decreases (-)
Increases (+)

29. Rule 3 To record an increase in Expense – Debit the Account To record a decrease in Expense – Credit the Account Expense A/C Rule 4 To record an increase in revenue – Credit the Account To record a decrease in revenue – Debit the Account Revenue A/C For every Debit entry there must be a Credit entry of equal amount and vice versa
Dr Side
Cr Side
Increases (+)
Decreases (-)
Dr Side
Cr Side
Decreases (-)
Increases (+)

30. Each transaction is entered into an account
Account Name
Debit Side Credit Side
Date: Date of transaction
Details: Other account involved in the transaction
Folio: Reference to where the other account can be found
€: Amount of money involved
See additional notes on T Accounts and Balancing Accounts and Trial Balance.
Layout of Accounts.docx
Date
Details F €

31. Double-entry Bookkeeping
With every transaction there is a debit and credit side entry
Rule: Debit Receiver
Credit Giver
Example:
1st June: Paid insurance by cash €450
See Worksheet for additional Questions
Double entry questions.docx Dr
Insurance Account Cr
1/6
Cash
€450 Dr
Cash Account Cr
1/6
Insurance
€450

32. After all transactions are completed in the ledger accounts, the accounts are balanced off and the closing balances are transferred to a Trial Balance.
Trial Balance
From a Trial Balance the Final Accounts are prepared:
Trading Account
Profit and Loss Account
Balance Sheet
Full questions all accounts.docx
Details F
Debit
Credit
Sales GL
€230,000
Bank CB