1. AAT Level 3 Recap on Debits and Credits and Introduction to Income Statement and Statement of Financial Position

2. Double entry rules “T” accounts Debit on left, credit on right
Debit – gains value, credit – gives value
PEARLS –
Debit side – purchase, expenses, assets
Credit side – revenue, liability, sales
Accounting equations :–
Assets – liabilities = Capital
Income – expenses = Profit or Loss

3. Profit and Loss Account
Income – expenses = profit or loss, these items make up the P & L account
Now known as “ the income statement”

4. Balance Sheet
Assets – liabilities = Capital. These items are found on the Balance Sheet – now known as “the statement of financial position”

5. Example Purchases Expenses Assets Revenue Liability Sales Purchase
Rent, rates, ins
Car, stock, bank
Commission received
Capital, VAT
Sales

6. Example -
If I bought a car for £10000 and paid for it from the bank, the double entry postings would be:
Debit Assets (car account) £10000
Credit Bank £10000

7. Example -
If I invested £50000 into the business as Capital and paid it into the bank, the double entry postings would be:
Debit the Bank £50000
Credit the Capital account £50000

8. Practice
Write the previous two examples into the “T” accounts provided
Car (Asset) – Debit £10000
Bank – Credit £10000
Bank – Debit £50000
Capital – Credit £50000

9. More practice Enter the following into “T” accounts:
Paid a further £10000 into the bank as capital
Paid rent £550
Paid rates £675
Bought a computer and paid from the bank £1500
Paid car insurance £950
Bought some stationery for £150
How much is in the bank?

10. Accounting Equation Assets = £50000 Liabilities = £10000
Capital = £40000
Income = £75500
Expenses = £25500
Profit = £50000

11. Practice Assets = £65000 Liabilities = £5000 Capital = ? Assets = ?
Complete the missing figures

12. Practice Income = £105000 Expenses = £10500 Profit = ? Income = ?
Complete missing figures