1. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning

2. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Returns Discounts –Trade discounts –Financial discounts Delivery charges

3. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Example: John & Imran Imran buys 30 easels at £45 each: £1350 5 are faulty and are returned to John Effect: Reduce John’s sales by £225 (5 x £45) Reduce Imran’s purchases by £225

4. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Trade discounts: given via reduced prices so no especial effect on profit and loss account Financial discounts Discounts for early payment - see example

5. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Example: Fernando Customers who pay within 30 days are entitled to discount of 0.5% Value of sale: £3000 Customer pays within 30 days so discount = £3000 x 0.5% = £15 Effect: include £15 as expense in profit and loss account. Sale remains at value of £3000

6. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Example: Brooklyn Each carton of footballs costs £52 Also payable: import duty of £15 per carton Brooklyn orders 16 cartons Effect:

7. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning

8. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Recognition When should items be recognised in the accounts? Realisation When are items (e.g. sales) recognised? Matching (accruals) Set off against sales all expenses that have contributed to making those sales

9. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Example: Gregory Warehouse rental paid quarterly in advance 20X6 calendar year: total rental £12 000 20X7 calendar year: total rental £14 400 What is the total of Gregory’s rental expense for his accounting year ended 30 June 20X7?

10. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Example: Gregory (continued)

11. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Example: Gregory (continued) Rental expense for year ended 30 June 20X7: 6/12 x £12 000 =£6 000 6/12 x £14 400 = £7 200 Total £13 200

12. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Value of stock = Number of items in stock x value Stock is valued at the lower of cost and net realisable value

13. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Debtors = value of unpaid sales invoices What happens if debtors can’t/won’t pay? Bad debts: debts that will almost certainly not be paid Doubtful debts: debts that may not be paid

14. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Bad and doubtful debts Example: Hilda Total debtors = £38 384 Bad debt (cannot be recovered) = £1200 Doubtful debt (may be recovered) = £3985

15. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Bad and doubtful debts Example: Hilda (continued) Both items are recognised as a loss of profit

16. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Specific: provision relates to a certain specific debt General: a provision based on experience, but not related to specific debts

17. Use with Business Accounting and Finance Second Edition by Catherine Gowthorpe ISBN 1-84480-200-0 © 2005 Thomson Learning Example: Walter Estimates about 1.5% of the value of debtors will not be paid Total of debtor balances: £52 250 Provision required: £52 250 x 1.5% = £784 Effect: