book - keeping double entry book-keeping. why set up a business?
TRANSCRIPT
Book - Keeping
Double entry Book-keeping
Why set up a business?
Capital Expenditure
Purchase of long term assets for use by the business.
Capital Income
Sale of long term assets for use by the business.
Revenue Expenditure
Day to day running costs of the business.
Revenue Income
Day to day sales made by the business.
Accounting Equation
Assets = Capital + Liabilities
Accounting Equation
Assets = Capital + Liabilities
Purchase of a Delivery Van funded by 20% personal capital invested and a bank loan for the balance
Accounting Equation
Assets = Capital + Liabilities
Van = Owner + Loan
Accounting EquationAssets = Capital +
Liabilities
Van = Owner + Loan
£10,000 = £2000 + £8000
A production machine bought for £10,000 on credit
Assets =Capital + Liabilities
10,000 = 2,000 + 8,000
Continuing from previous slide
Assets =Capital + Liabilities
10,000 = 2,000 + 8,000Q1
20,000 = +Van 10,000Machine10,000
A production machine bought for £10,000 on credit
Assets =Capital + Liabilities
10,000 = 2,000 + 8,000Q1
20,000 = 2,000 +
A production machine bought for £10,000 on credit
Assets =Capital + Liabilities
10,000 = 2,000 + 8,000Q1
20,000 = 2,000 + 18,000
A production machine bought for £10,000 on credit
Stock is bought for £1,000 on credit
Assets =Capital + Liabilities
10,000 = 2,000 + 8,000Q1
20,000 = 2,000 + 18,000
Stock is bought for £1,000 on credit
Assets =Capital + Liabilities
10,000 = 2,000 + 8,000Q1 20,000 = 2,000 + 18,000Q2 21,000 = +
Stock is bought for £1,000 on credit
Assets =Capital + Liabilities
10,000 = 2,000 + 8,000Q1 20,000 = 2,000 + 18,000Q2 21,000 = 2,000 +
Stock is bought for £1,000 on credit
Assets =Capital + Liabilities
10,000 = 2,000 + 8,000Q1 20,000 = 2,000 + 18,000Q2 21,000 = 2,000 + 19,000
Accouting Equation Card Activity
Accounting Equation Worksheet
Financial Transactions
Any event which affects the financial position of the organisation.
Recording TransactionsThe financial transactions are recorded in:
– Ledgers – Books of Prime Entry
The transactions are recorded using the Dual Aspect principle.
Ledger accounts• The business transactions are
entered into Ledger accounts.
• A separate ledger account is kept for each different type of transaction.
• Make a list of examples of Ledger
Accounts
Double entry principle• Double entry book-keeping involves
the making of two entries for every transaction in the books of the business ie Ledgers.
• Double entry involves identifying two ledger accounts & making two entries.
Two Accounts
Example:A company buys a digital camera for £200
Which two ledger accounts would beinvolved in this transaction?
1. Equipment account2. Bank account
Ledger accountsActivity for each business transaction identify the two ledger accounts that would be used to record the business transaction.
ActivityTransaction Ledger Account
1Ledger Account
2
Sale of stock, cheque £120
Payment of Wages £1,200 by cheque
Purchased goods £3,000 - cheque
Received a Bank loan £5,000, paid into bank account
ActivityTransaction Ledger Account
1Ledger Account
2
Cash Sales, cheque £120 received
Sales Bank
Payment of Wages £1,200 by cheque
Purchased goods £3,000 - cheque
Received a Bank loan £5,000, paid into bank account
ActivityTransaction Ledger Account
1Ledger Account
2
Cash Sales, cheque £120 received
Sales Bank
Payment of Wages £1,200 by cheque
Wages Bank
Purchased goods £3,000 - cheque
Received a Bank loan £5,000, paid into bank account
ActivityTransaction Ledger Account
1Ledger Account
2
Cash Sales, cheque £120 received
Sales Bank
Payment of Wages £1,200 by cheque
Wages Bank
Purchased goods £3,000 - cheque
Purchases Bank
Received a Bank loan £5,000, paid into bank account
ActivityTransaction Ledger Account
1Ledger Account
2
Cash Sales, cheque £120 received
Sales Bank
Payment of Wages £1,200 by cheque
Wages Bank
Purchased goods £3,000 - cheque
Purchases Bank
Received a Bank loan £5,000, paid into bank account
Loan Bank
Ledger AccountsDual Aspect
• Each transaction must have a Debit and Credit entry.
• Debit Entry – the account which gains value or derives benefit – left side of the account • Credit entry – the account which looses value – right side of the account
Debits and Credits
Drive on the left (DR) Crash on the right (CR)
Debit (DR) Credit (CR)
Debits & Credits
DR CR
DR CR
DR(Money in)
CR(Money out)
Purchases Bank
SalesMaterials
purchased for £100
Debits & Credits
DR CR
DR CR
DR(Money in)
CR(Money out)
100
Purchases Bank
SalesMaterials
purchased for £100
Debits & Credits
DR CR
100
DR CR
DR(Money in)
CR(Money out)
100
Purchases Bank
SalesMaterials
purchased for £100
Debits & Credits
DR CR
100
DR CR
DR(Money in)
CR(Money out)
100
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Debits & Credits
DR CR
100
DR CR
175
DR(Money in)
CR(Money out)
175 100
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Debits & Credits
DR CR
100
DR CR
175
DR(Money in)
CR(Money out)
175 100
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Debits & Credits
DR CR
100
DR CR
175
DR(Money in)
CR(Money out)
175 100
56
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Debits & Credits
DR CR
100
56
DR CR
175
DR(Money in)
CR(Money out)
175 100
56
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Debits & Credits
DR CR
100
56
DR CR
175
DR(Money in)
CR(Money out)
175 100
56
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Materials purchased for
£25
Debits & Credits
DR CR
100
56
25
DR CR
175
DR(Money in)
CR(Money out)
175 100
56
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Materials purchased for
£25
Debits & Credits
DR CR
100
56
25
DR CR
175
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Materials purchased for
£25
DR(Money in)
CR(Money out)
175 100
56
25
Debits & Credits
DR CR
100
56
25
DR CR
175
DR(Money in)
CR(Money out)
175 100
56
25
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Materials purchased for
£25Sales for £500
Debits & Credits
DR CR
100
56
25
DR CR
175
DR(Money in)
CR(Money out)
175 100
500 56
25
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Materials purchased for
£25Sales for £500
Debits & Credits
DR CR
100
56
25
DR CR
175
500
DR(Money in)
CR(Money out)
175 100
500 56
25
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Materials purchased for
£25Sales for £500
Debits & Credits
DR CR
100
56
25
DR CR
175
500
DR(Money in)
CR(Money out)
175 100
500 56
25
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Materials purchased for
£25Sales for £500Sales for £250
Debits & Credits
DR CR
100
56
25
DR CR
175
500
250
DR(Money in)
CR(Money out)
175 100
500 56
25
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Materials purchased for
£25Sales for £500Sales for £250
Debits & Credits
DR CR
100
56
25
DR CR
175
500
250
DR(Money in)
CR(Money out)
175 100
500 56
25
Purchases Bank
SalesMaterials
purchased for £100
Sales made for £175
Materials purchased for
£56
Materials purchased for
£25Sales for £500Sales for £250
Debits & Credits
DR CR
100
56
25
DR CR
175
500
250
DR(Money in)
CR(Money out)
175 100
500 56
25
Purchases Bank
Sales
DR CR
100
56
25
DR CR
175
500
250
DR(Money in)
CR(Money out)
175 100
500 56
25
Purchases
Bank
Sales
856 1106
DR CR
100
56
25
DR CR
175
500
250
DR(Money in)
CR(Money out)
175 100
500 56
250 25
Purchases
Bank
Sales
856 1106
DR CR
100
56
25
DR CR
175
500
250
DR(Money in)
CR(Money out)
175 100
500 56
250 25
Purchases
Bank
Sales
1106 1106
Debits and Credits
Drive on the left (DR) Crash on the right (CR)
Debit (DR) Credit (CR)
Debits and Credits
Debit (DR) Credit (CR)
P E A R L S PurchasesExpensesAssets
Reserves (Inc Capital)LiabilitiesSales
Digital Camera purchased for £200
Debit (Dr) Credit (Cr)
Debit (Dr) Credit (Cr)
Camera Equipment
Cash/Bank
Debit (Dr) Credit (Cr)
19/9 Cash/Bank 200
Debit (Dr) Credit (Cr)
Camera Equipment
Cash/Bank
Digital Camera purchased for £200
Debit (Dr) Credit (Cr)
19/9 Cash/Bank 200
Debit (Dr) Credit (Cr)
19/9 Camera 200
Camera Equipment
Cash/Bank
Digital Camera purchased for £200
Purchase of scanner for £120
Debit (Dr) Credit (Cr)
Debit (Dr) Credit (Cr)
Scanner Equipment
Cash/Bank
Purchase of scanner for £120
Debit (Dr) Credit (Cr)
Bank 120
Debit (Dr) Credit (Cr)
Scanner Equipment
Cash/Bank
Purchase of scanner for £120
Debit (Dr) Credit (Cr)
Bank 120
Debit (Dr) Credit (Cr)
Scanner 120
Scanner Equipment
Cash/Bank
Question 1
Barbaras Butchers
Barbaras Butchers
(Dr) (Cr)Purchases Account
(Dr) (Cr)Cash/Bank Account
Sales Account(Dr) (Cr)
(Dr) (Cr)
(Dr) (Cr)
Rent Paid Account
Telephone Account
Consider the ‘T’ accounts that are
available!
Barbaras Butchers
(Dr) (Cr)Purchases Account
(Dr) (Cr)Cash/Bank Account
Sales Account(Dr) (Cr)
(Dr) (Cr)
(Dr) (Cr)
Rent Paid Account
Telephone Account
Purchase of meat £210 from Scragg & Co paying
cash
Barbaras Butchers
(Dr) (Cr)
Cash/Bank £210
Purchases Account
(Dr) (Cr)Cash/Bank Account
Sales Account(Dr) (Cr)
(Dr) (Cr)
(Dr) (Cr)
Rent Paid Account
Telephone Account
Purchase of meat £210 from Scragg & Co paying
cash
Barbaras Butchers
(Dr) (Cr)
Cash/Bank £210
Purchases Account
(Dr) (Cr)
Purchases £210
Cash/Bank Account
Sales Account(Dr) (Cr)
(Dr) (Cr)
(Dr) (Cr)
Rent Paid Account
Telephone Account
Purchase of meat £210 from Scragg & Co paying
cash
Barbaras Butchers
(Dr) (Cr)
Cash/Bank £210
Purchases Account
(Dr) (Cr)
Purchases £210
Cash/Bank Account
Sales Account(Dr) (Cr)
(Dr) (Cr)
(Dr) (Cr)
Rent Paid Account
Telephone Account
Cash sales £742
Barbaras Butchers
(Dr) (Cr)
Cash/Bank £210
Purchases Account
(Dr) (Cr)
Cash Sales £742
Purchases £210
Cash/Bank Account
Sales Account(Dr) (Cr)
(Dr) (Cr)
(Dr) (Cr)
Rent Paid Account
Telephone Account
Cash sales £742
Barbaras Butchers
(Dr) (Cr)
Cash/Bank £210
Purchases Account
(Dr) (Cr)
Cash Sales £742
Purchases £210
Cash/Bank Account
Sales Account(Dr) (Cr)
Cash/Bank £742
(Dr) (Cr)
(Dr) (Cr)
Rent Paid Account
Telephone Account
Cash sales £742
Barbaras Butchers
(Dr) (Cr)
Cash/Bank £210
Purchases Account
(Dr) (Cr)
Cash Sales £742
Purchases £210
Cash/Bank Account
Sales Account(Dr) (Cr)
Cash/Bank £742
(Dr) (Cr)
(Dr) (Cr)
Rent Paid Account
Telephone Account
Rent paid £75
Barbaras Butchers
(Dr) (Cr)
Cash/Bank £210
Purchases Account
(Dr) (Cr)
Cash Sales £742
Purchases £210Rent £75
Cash/Bank Account
Sales Account(Dr) (Cr)
Cash/Bank £742
(Dr) (Cr)
(Dr) (Cr)
Rent Paid Account
Telephone Account
Rent paid £75
Barbaras Butchers
(Dr) (Cr)
Cash/Bank £210
Purchases Account
(Dr) (Cr)
Cash Sales £742
Purchases £210Rent £75
Cash/Bank Account
Sales Account(Dr) (Cr)
Cash/Bank £742
(Dr) (Cr)
Cash/Bank £75 (Dr) (Cr)
Rent Paid Account
Telephone Account
Rent paid £75
(Dr) (Cr)
Cash/Bank £210
Purchases Account
(Dr) (Cr)
Cash Sales £742
Purchases £210Rent £75
Cash/Bank Account
Sales Account(Dr) (Cr)
Cash/Bank £742
(Dr) (Cr)
Cash/Bank £75 (Dr) (Cr)
Rent Paid Account
Telephone Account
Telephone bill paid £43
(Dr) (Cr)
Cash/Bank £210
Purchases Account
(Dr) (Cr)
Cash Sales £742
Purchases £210Rent £75Telephone £43
Cash/Bank Account
Sales Account(Dr) (Cr)
Cash/Bank £742
(Dr) (Cr)
Cash/Bank £75 (Dr) (Cr)
Rent Paid Account
Telephone Account
Telephone bill paid £43
(Dr) (Cr)
Cash/Bank £210
Purchases Account
(Dr) (Cr)
Cash Sales £742
Purchases £210Rent £75Telephone £43
Cash/Bank Account
Sales Account(Dr) (Cr)
Cash/Bank £742
(Dr) (Cr)
Cash/Bank £75
(Dr) (Cr)
Cash/Bank £43
Rent Paid Account
Telephone Account
Telephone bill paid £43
Queston 2Trevor Smith
Top Tip!!Before starting your postings check what T accounts you have been given!
Buying & Selling
Cash & Credit Transactions
Timing!
Cash Transaction
Immediate payment
Receipt
Cheque
Cash CardBank
Transfer
Credit Transaction
Future paymentWhat
problem would this cause us?
Cash & Credit Transactions
(Dr) (Cr)Sales
(Dr) (Cr)
Debtor(Dr) (Cr)
Bank/Cash
Purchases(Dr) (Cr)
(Dr) (Cr)Creditor
Question 6
Balancing off T Accounts
Balancing off ‘T’ accounts
Dr Bank Account Cr
Mar 1 Sales 350 Mar 6 Insurance 50
Mar 10 Sales 1,000 Mar 12 Petty Cash 100
Mar 23 Sales 460 Mar 19 Drawings 150
Balancing off ‘T’ accounts
Dr Bank Account Cr
Mar 1 Sales 350 Mar 6 Insurance 50
Mar 10 Sales 1,000 Mar 12 Petty Cash 100
Mar 23 Sales 460 Mar 19 Drawings 150
Enter the balance on the LOWER side of the account
1810 300
1810 1810
Total both columns
Mar 31 balance c/d 1510
April 1 balance b/d £1510
Bring down the balance to the
opposite side of the account
‘Strike’ the balance by totalling both sides of the account
Deduct lower total from higher total
Balancing off ‘T’ accounts
Dr Bank Account Cr
Mar 1 Sales 350 Mar 6 Insurance 50
Mar 10 Sales 1,000 Mar 12 Petty Cash 100
Mar 23 Sales 450 Mar 19 Drawings 150
1810 1810
Mar 31 balance c/d 1510
April 1 balance b/d £1510
Balancing off ‘T’ accounts
Dr Bank Account Cr
Mar 1 Sales 350 Mar 6 Insurance 50
Mar 10 Sales 1,000 Mar 12 Petty Cash 100
Mar 23 Sales 450 Mar 19 Drawings 150
1810 1810
Mar 31 balance c/d 1510
April 1 balance b/d £1510
Balancing off Ledger Accounts
Question 6 - Jake
Balances transferred to a Trial Balance
Trial Balance
It should balance!!!!!
Double Entry Bookkeeping Rules
• If cash is paid out of the business, then the cash account is always credited – therefore some other account must be debited
• Assets are always recorded as debits
• Liabilities are always recorded as credits
• Expenses are always debits
• Income is always a credit
Debits and Credits
Debit (DR) Credit (CR)
P E A R L S PurchasesExpensesAssets
Reserves (Inc Capital)LiabilitiesSalesTop Tip!!!! – First identify the Account
‘TYPE’
Trial Balance ‘Pearls’
£ PEARLS Dr Cr
Capital 14850
Opening Stock 1176
Premises 10800
Fixtures 2850
Trade receivables 3450
Trade payables 4892
Purchases 16748
Sales 22391
Bank overdraft 1873
Salaries 3994
Rent 1250
General expenses 965
Drawings 2773
Totals
Trial Balance Card Game
Types of Ledger
Complete remaining questons
Activity - Financial Terms
Capital
Drawings
Asset
Liability
Capital expense
Revenue expense
Returns inward
Returnsoutward
Returns outward
Homework
Complete all handout questions
Review what we have covered today
Lewis Blake