1. Processing Bookkeeping Transactions

2. Double Entry Bookkeeping
Learning Aim
Understand the double entry bookkeeping system in relation to credit sales & purchases

3. Double Entry Bookkeeping
Learning outcomes
By the end of the session all learners will be able to:
Understand what is meant by the following terminology
Credit Sales & Purchases, Day Books, Ledgers
Understand the role of the Sales Ledger (SL) & Purchase Ledger (PL)
Post the day books to the SL & PL

4. Why set up a business?

5. Cash & Credit Transactions
Timing!

6. Cash Transaction Immediate payment Receipt Cheque Cash Card
Bank Transfer

7. What problem would this cause us?
Credit Transaction
Future payment
What problem would this cause us?

8. Credit Transactions Documentation From your precourse work list the documents and used for credit sales/purchases

9. Financial Transactions
Any event which affects the financial position of the organisation. Example: Bought stock £5,000 Example: Bought Computer £2,500

10. Accounting Terminology (there will more to follow!)
Asset
Something of value the business owns
Liability
Something the business owes

11. Accounting Terminology
Income
Money received into the company for goods and/or services provided to customers
Expenditure
Expenses incurred by the company carrying out its day to day activities.
Examples?

12. Accounting Terminology
Income
Money received into the company for goods and/or services provided to customers
Expenditure
Expenses incurred by the company carrying out its day to day activities.
Difference between the two is ……..
Profit
(Income more than expenses)
Loss
(Expenses are more than income)

13. Profit & Loss Account

14. Calculating profit and loss …
Cost of goods sold
75,000
Heat and Light
3,000
Net Profit
25,500
Administration
4,000
Electricity
2,000
Sales
120,000
Rent
2,500
Wages
8,000
Gross Profit
45,000
ANS

15. Calculating profit and loss …
Cost of goods sold
75,000
Sales
120,000
Heat and Light
3,000
Cost of Goods Sold
Net Profit
25,500
Gross Profit
45,000
Administration
4,000
Heat & Light
Electricity
2,000
Admin
Electricity
Rent
2,500
Rent
Wages
8,000
Wages
19,500
Complete Activity 1 & 2 in your word/excel file

16. Why keep financial records?
Government legislation requires all businesses to keep accurate records of business transactions.
Record Business
Transactions
In a double entry book keeping system
Provide financial statements

17. Why is financial information so important?
Financial information can show:
Where money to set up a business has come from
how this money has been used
how much money is owed to others
what a business is worth
how much cash is available to pay off debts
how much is costs to make a product

18. Who needs financial information?
Owners
Suppliers
HMRC
Investors
Customers
Lenders

19. Where does this information come from?
Financial documents
e.g. Sales & Purchases
Use ‘Documentation’ Word Document

20. Buying/selling goods and services
Buyer
(Customer)
Purchase Order
Remittance Advice
Seller
(Supplier)
Delivery Note
Invoice
Credit Note
Statement

21. VAT
Value added tax

22. Value Added Tax (VAT)
Which is which? Output Tax VAT charged on sales to customers (Outputs) Input Tax VAT charged on purchases from suppliers (Inputs)

23. Value Added Tax An Indirect Tax added to certain goods and services
A VAT registered business must charge VAT on their sales
but can reclaim VAT on purchases
Excluding VAT
Net £1500 (VAT 20%)
VAT £300
Gross £1800
Including VAT
Gross £ ÷ 120 x 20 = £65
Net is Gross £390 – VAT £65 = £325
Rule:
Always round down VAT
Net £21.13 (VAT 20%)
(VAT £4.226)
becomes £4.22
Gross £25.35

24. VAT Questions practice
VAT Calculations
Excluding VAT
£ %
Including VAT
£240 incl 20%
VAT Questions practice
Calculating VAT activity (Excel)

25. Net
 VAT Rate
VAT
Gross
Workings
£250.00
20%
£142.00 5%
£162.43
£1,476.21
£34,511.12 0%
£26.34
£197.59
£341.11
£1,182.72
£2,703.37
£157.65
£303.76

26. VAT Questions - Answers
Net
VAT Rate 
VAT
Gross
Workings
£250.00
20%
£50.00
300.00
£142.00 5%
£7.10
149.10
£135.36
£27.07
162.43
£1,476.21
£73.81
£28,759.27
£5,751.85
£26.34 0%
£0.00
26.34
£197.59
£39.51
237.10
£341.11
£17.05
358.16
£985.60
£197.12
£2,574.64
£128.73
£157.65
£7.88
165.53
£253.14
£50.62
303.76

27. Cash or Settlement Discount
Discounts
Trade Discount
Cash or Settlement Discount
Bulk Discount
Encourages
Prompt
payment
Encourages
Larger orders
Encourages Loyalty

28. £ £ £ £ £ Z215 Cycling Jacket – Female 18 £65.00
W366 Cycling Jacket – Male 23 £75.00
B784 Cycling Jacket – Child 19 £25.00

29. £ £ £ £ £ Z215 Cycling Jacket – Female 18 £65.00 £1170.00
W366 Cycling Jacket – Male 23 £75.00
B784 Cycling Jacket – Child 19 £25.00

30. £ £ £ £ £ Z215 Cycling Jacket – Female 18 £65.00 £1170.00
W366 Cycling Jacket – Male 23 £ £
B784 Cycling Jacket – Child 19 £25.00

31. £ £ £ £ £ Z215 Cycling Jacket – Female 18 £65.00 £1170.00
W366 Cycling Jacket – Male 23 £ £
B784 Cycling Jacket – Child 19 £ £475.00

32. £3370.00 £ £ £ £ Z215 Cycling Jacket – Female 18 £65.00 £1170.00
W366 Cycling Jacket – Male 23 £ £
B784 Cycling Jacket – Child 19 £ £475.00 £

33. £3370.00 £67.40 £ £ £ Z215 Cycling Jacket – Female 18 £65.00 £1170.00
W366 Cycling Jacket – Male 23 £ £
B784 Cycling Jacket – Child 19 £ £475.00 £
£67.40

34. Z215 Cycling Jacket – Female 18 £65.00 £1170.00
W366 Cycling Jacket – Male 23 £ £
B784 Cycling Jacket – Child 19 £ £475.00 £
£67.40
Workings
£ x 2% = £66.05
£ £66.05 = £
VAT = £ x 20% = £647.31 £
647.31

35. Z215 Cycling Jacket – Female 18 £65.00 £1170.00
W366 Cycling Jacket – Male 23 £ £
B784 Cycling Jacket – Child 19 £ £475.00 £
£67.40
Workings
£ x 2% = £66.05
£ £66.05 = £
VAT = £ x 20% = £647.31 £
647.31

36. Z215 Cycling Jacket – Female 18 £65.00 £1170.00
W366 Cycling Jacket – Male 23 £ £
B784 Cycling Jacket – Child 19 £ £475.00 £
£67.40
Workings
£ x 2% = £66.05
£ £66.05 = £
VAT = £ x 20% = £647.31 £
£647.31 £

37. Deduct the Trade Discount
Z215 Cycling Jacket – Female 18 £ £
W366 Cycling Jacket – Male 23 £ £
B784 Cycling Jacket – Child 19 £ £475.00 £
£67.40
Deduct the Trade Discount £
Add the VAT
£647.31 £

38. £ £ £ £ £ Now try this! 9883 Cooking Chocolate – Plain 25kg £3.75
9746 Cooking Chocolate - Milk kg £3.50
1.5% Cash discount for payment
within 14 days of invoice date

39. Answer

40. 9883 Cooking Chocolate – Plain 25kg £3.75 £93.75
9746 Cooking Chocolate - Milk kg £ £49.00
1.5% Cash discount for payment
within 14 days of invoice date
£142.75
£2.86
Workings
£ x 1.5% = £2.10
£ £2.10 = £137.79
VAT = £ x 20% = £27.55
£139.89
£27.55
£167.44

41. £248.38 £24.84 £273.22 £53.00 £326.22 Is this invoice correct?
KL25 A4 Copier paper (box) £ £234.38
KL32 A3 Copier paper (box) £ £11.00
KL47 A5 Copier paper (box) £ £3.00
3% Cash discount for payment
within 10 days of invoice date
£248.38
@ 10%
£24.84
Is this invoice correct?
If not – why not?
£273.22
£53.00
£326.22

42. Documentation

43. Recording Transactions
The financial transactions are recorded in:
Books of Original (Prime) Entry
Sales Day book and Sales Returns book
Purchases Day book and Purchases Returns book.
Cash book – Cash & Bank transactions
Ledgers - separate ledger account is kept for each different type of transaction
The transactions are recorded using the Double entry principle.

44. Double entry book keeping
Genoa
Luca Pacioli – 1494
First text book!

45. Division of the Ledger The ledger is divided into 3 sections:
Sales Ledger – Customer accounts
Purchases Ledger – Suppliers accounts
General Ledger – the other accounts of the business e.g. sales account, purchases account, capital, expenses etc

47. Book of Original (Prime) Entry - Sales Day Book (SDB)

48. Book of Original Entry - Sales Day Book (SDB)

49. Book of Original Entry - Sales Day Book (SDB)

50. Book of Original Entry - Sales Day Book (SDB)

51. Sales Day Book Question
Coleman & Sons sells art supplies to the public and educational organisations establishments. During April the following credit transactions took place:
2nd April
Sold goods to Westland Art College £55 + VAT, invoice no.4578
4th April
Sold goods to Pershore Gallery £65 + VAT, invoice no.4579
7th April
Sold goods to Grainger Art Stores £28 + VAT, invoice no.4580
10th April
Sold goods to Wilsons School of Art & Creative Studies £58 + VAT invoice no.4581
You are to enter the above transactions in Colmans sales day book for April and total the day book