1.7
CHAPTER 1 What is financial accounting? 1 .2 .2
1.3
P ur ur po po se se s o f a cc cc ou ou nt nt in in g: g: 1. To quantif quantify y items items such such as as sales, es, expense expenses s and prof profit it 2. To present present the accounts accounts in a meaningful ngful way way so as to measur measure e the success success of the the business ness 3. To provide de informat information ion to the the owner owner of the busines business s and to other other stakehold stakeholders ers
•
documents processing of source documents relating to accounting transactions
•
initial recording of transactions recording accounting transactions in subsidiary books (or books of prime entry)
•
double-entry accounts system transfer from subsidiary books into the double-entry book-keeping system of accounts in the ledger
•
trial balance extraction of figures from all the double-entry accounts to check their accuracy
•
final accounts production of an income statement and a balance sheet
2.1
1 .4 .4
1.5
1.6
purchases of goods for resale to date
•
assets owned
•
turnover (cash and credit sales) to date
•
liabilities owed
•
overheads and expenses to date
•
profit during a particular period
•
trade trad e receivables vables – total total amount amount owed owed to the the business, ness, and indivi individual dual trade trade receiv receivable ables s
•
trade trad e payables payables – total total amount amount owed by the busin business, ess, and indivi ndividual dual trade payab payables les
O th th er er st st ak ak eh eh ol ol de de rs rs – a ny ny
asse as sett of of ban bank k incre n creas ases es by £8 £8,0 ,000 00 capital increases by £8,000 asset £8,000 – liability £0 = capital £8,000
•
asse as sett of co comp mput uter er incre n creas ases es by by £4,0 £4,000 00 asset of bank decreases by £4,000 asset £8,000 – liability £0 = capital £8,000
•
asse as sett of of ban bank k incre n creas ases es by £3 £3,0 ,000 00 liability of loan increases by £3,000 asset £11,000 – liability £3,000 = capital £8,000
•
asse as sett of of van van in incr crea ease ses s by by £6, £6,00 000 0 asset of bank decreases by £6,000 asset £11,000 – liability £3,000 = capital £8,000
CHAPTER 2 Double-entry book-keeping: first principles
Information from the accounting system includes: •
•
£
Cr B ank
Computer Account
Dr 20-1 6 Feb
20-1 1 Feb
Bank
£ 2,000
£ 7,500
Cr
20-1
£
four from
•
providers ders of of finance, finance, eg the bank bank manager manager if the busine business ss wants wants to borro borrow w from the bank bank
•
suppliers, iers, who wish wish to asses assess s the likel ikelihood ihood of receivi receiving ng payment payment from from the busin business ess
•
customers,, who wish customers wish to ensure ensure that that the busin business ess has the the financia financiall strength strength to to continue nue selling ling the the goods and services that they buy
•
employees oyees and trade trade unions, ons, who who wish sh to check check on the the financia financiall prospects prospects of the busin business ess
•
the tax author authoritie ities, s, who willll wish wish to see that that tax due by the the business ness on profit profits s and for Value Added Added Tax has been paid
•
competit comp etitors, ors, who wish to assess assess the profitabil tability ity of the the busines business s
•
pote po tent ntia iall inv inves esto tors rs in the the bus busin ines ess s
•
the local local communi community ty and nationa nationall interest interest groups, groups, who who may be seekin seeking g to influence uence busine business ss policy cy
•
government gover nment and and official official bodie bodies, s, eg Compani Companies es House House who need need to see the the final final accounts accounts of limited imited companies
(a)
Business entity – the accounts record and report on the financial transactions of a particular business, and not the owner's personal financial transactions.
(b)
Money measurement – the accounting accounting system uses money as the common denominator in recording and reporting all business transactions; thus the loyalty of a firm's workforce or the quality of a product cannot be recorded because these cannot be reported in money terms.
Rent Paid Account
Dr 20-1 8 Feb
Bank
Dr 20-1 12 Feb 25 Feb
Bank Bank
Dr
•
trade recei receivables vables – individual individuals or businesses nesses who owe owe money in respect respect of goods goods or services services suppli supplied ed by the business; trade payables – individuals or businesses to whom money is owed by the business
Dr
•
purchases – goods purchases goods bought, bought, whethe whetherr on credit credit or for for cash, cash, which ch are intended ntended to be resol resold later; later; sales es – the sale of goods, whether on credit or for cash, in which the business ness trades
20-1 23 Feb
credit purchases purchases – goods goods bought, bought, with with payment payment to to be made at at a later later date; date; cash purcha purchases ses – goods goods bought, with immediate payment made in cash, by cheque, debit card, credit card, or bank transfer
1
Cr
20-1
£
Wages Account
Cr
£ 425 380
£
20-1
assets asset s – items items owned owned by a busines business; s; liabili abilities ties – items items owed owed by a business ness
£ 750
20-1
£
Bank Loan Account
Dr 20-1
•
•
Capital Account
Dr 20-1
£ 2,500
Commission Income Account
Cr
20-1 20 Feb
Drawings Account
Bank
Cr Bank
£
20-1 14 Feb
£ 200
20-1
Bank Ba
£ 145
Cr £
1.7
CHAPTER 1 What is financial accounting? 1 .2 .2
1.3
P ur ur po po se se s o f a cc cc ou ou nt nt in in g: g: 1. To quantif quantify y items items such such as as sales, es, expense expenses s and prof profit it 2. To present present the accounts accounts in a meaningful ngful way way so as to measur measure e the success success of the the business ness 3. To provide de informat information ion to the the owner owner of the busines business s and to other other stakehold stakeholders ers
•
documents processing of source documents relating to accounting transactions
•
initial recording of transactions recording accounting transactions in subsidiary books (or books of prime entry)
•
double-entry accounts system transfer from subsidiary books into the double-entry book-keeping system of accounts in the ledger
•
trial balance extraction of figures from all the double-entry accounts to check their accuracy
•
final accounts production of an income statement and a balance sheet
2.1
1 .4 .4
1.5
1.6
purchases of goods for resale to date
•
assets owned
•
turnover (cash and credit sales) to date
•
liabilities owed
•
overheads and expenses to date
•
profit during a particular period
•
trade trad e receivables vables – total total amount amount owed owed to the the business, ness, and indivi individual dual trade trade receiv receivable ables s
•
trade trad e payables payables – total total amount amount owed by the busin business, ess, and indivi ndividual dual trade payab payables les
O th th er er st st ak ak eh eh ol ol de de rs rs – a ny ny
asse as sett of of ban bank k incre n creas ases es by £8 £8,0 ,000 00 capital increases by £8,000 asset £8,000 – liability £0 = capital £8,000
•
asse as sett of co comp mput uter er incre n creas ases es by by £4,0 £4,000 00 asset of bank decreases by £4,000 asset £8,000 – liability £0 = capital £8,000
•
asse as sett of of ban bank k incre n creas ases es by £3 £3,0 ,000 00 liability of loan increases by £3,000 asset £11,000 – liability £3,000 = capital £8,000
•
asse as sett of of van van in incr crea ease ses s by by £6, £6,00 000 0 asset of bank decreases by £6,000 asset £11,000 – liability £3,000 = capital £8,000
CHAPTER 2 Double-entry book-keeping: first principles
Information from the accounting system includes: •
•
£
Cr B ank
Computer Account
Dr 20-1 6 Feb
20-1 1 Feb
Bank
£ 2,000
£ 7,500
Cr
20-1
£
four from
•
providers ders of of finance, finance, eg the bank bank manager manager if the busine business ss wants wants to borro borrow w from the bank bank
•
suppliers, iers, who wish wish to asses assess s the likel ikelihood ihood of receivi receiving ng payment payment from from the busin business ess
•
customers,, who wish customers wish to ensure ensure that that the busin business ess has the the financia financiall strength strength to to continue nue selling ling the the goods and services that they buy
•
employees oyees and trade trade unions, ons, who who wish sh to check check on the the financia financiall prospects prospects of the busin business ess
•
the tax author authoritie ities, s, who willll wish wish to see that that tax due by the the business ness on profit profits s and for Value Added Added Tax has been paid
•
competit comp etitors, ors, who wish to assess assess the profitabil tability ity of the the busines business s
•
pote po tent ntia iall inv inves esto tors rs in the the bus busin ines ess s
•
the local local communi community ty and nationa nationall interest interest groups, groups, who who may be seekin seeking g to influence uence busine business ss policy cy
•
government gover nment and and official official bodie bodies, s, eg Compani Companies es House House who need need to see the the final final accounts accounts of limited imited companies
(a)
Business entity – the accounts record and report on the financial transactions of a particular business, and not the owner's personal financial transactions.
(b)
Money measurement – the accounting accounting system uses money as the common denominator in recording and reporting all business transactions; thus the loyalty of a firm's workforce or the quality of a product cannot be recorded because these cannot be reported in money terms.
Rent Paid Account
Dr 20-1 8 Feb
Bank
Dr 20-1 12 Feb 25 Feb
Bank Bank
Dr
•
trade recei receivables vables – individual individuals or businesses nesses who owe owe money in respect respect of goods goods or services services suppli supplied ed by the business; trade payables – individuals or businesses to whom money is owed by the business
Dr
•
purchases – goods purchases goods bought, bought, whethe whetherr on credit credit or for for cash, cash, which ch are intended ntended to be resol resold later; later; sales es – the sale of goods, whether on credit or for cash, in which the business ness trades
20-1 23 Feb
credit purchases purchases – goods goods bought, bought, with with payment payment to to be made at at a later later date; date; cash purcha purchases ses – goods goods bought, with immediate payment made in cash, by cheque, debit card, credit card, or bank transfer
1
Cr
20-1
£
Wages Account
Cr
£ 425 380
£
20-1
assets asset s – items items owned owned by a busines business; s; liabili abilities ties – items items owed owed by a business ness
£ 750
20-1
£
Bank Loan Account
Dr 20-1
•
•
Capital Account
Dr 20-1
£ 2,500
Commission Income Account
Cr
20-1 20 Feb
Drawings Account
Bank
Cr Bank
£
20-1 14 Feb
£ 200
20-1
Bank Ba
£ 145
Cr £
Dr 20-1 28 Feb
2.3
Dr 20-5 1 Aug 15 Aug 20 Aug 25 Aug
Cr £
B ank Ba
Van Account £ 20-1 6,000
Capital S Orton: loan Office fittings Commission received
Bank Account £ 20-5 5,000 3 Aug 1,000 7 Aug 250 12 Aug 150 27 Aug
Cr £ 1,800 100 2,000 150
Computer Rent paid Office fittings S Orton: loan
Capital Account £ 20-5 1 Aug Ba B ank
Dr 20-5
2.5
Bank Account
Dr 20-7 1 Nov 7 Nov 23 Nov 25 Nov 28 Nov
Capital Bank loan Cash Office fittings Commission received
20-7
£
Bank
Cr £
20-7
Bank
Computer Account £ 20-5 1,800
Cr £
Bank
Rent Paid Account £ 20-5 100
20-7 10 Nov
Cr £ 200 150
20-7 12 Nov
Bank
Dr 20-5 10 Aug
Dr 20-5 12 Aug
Commission received
Bank
Cash Account £ 20-5 200 17 Aug
Drawings
Office Fittings Account £ 20-5 2,000 20 Aug Ba B ank
Bank
Cr £ 100
Bank
Cr £ 250
Commission received
Bank
Sally Orton: Loan Account £ 20-5 150 15 Aug Ba B ank
Cash
Drawings Account £ 20-5 100
20-7 18 Nov Dr 20-7 20 Nov
2
Bank
Cr
Rates Account
Cr
£ 3,000
20-7
£ 1,500
20-7 25 Nov
£ 300
20-7 18 Nov 23 Nov
20-7 15 Nov 28 Nov
Drawings Account
Cash
£ 70,000
£
Cr £ 1,000
Cr £
Bank
20-7
£
Dr Dr 20-5 17 Aug
Cr
Cr
£
B ank Ba
£ 125
Cr £ 200 Cr
Drawings Bank Ba
Commission Income Account
Dr 20-7
Dr 20-5 27 Aug
£ 130,000
£ 75,000
£
Cash Account
Dr 20-7 15 Nov
Bank
20-7
20-7 7 Nov
£ 2,500 130,000 3,000 1,500 250 Cr
Office Fittings Account
Dr 20-7 14 Nov
20-7 1 Nov
Office Premises Account
Dr Commission Income Account £ 20-5 10 Aug Ca Cash 25 Aug Ba Bank
Dr 20-5
£ 2,500
£
Dr Dr 20-5 7 Aug
Photocopier Office premises Business rates Office fittings Wages
Bank Loan Account
Dr Dr 20-5 3 Aug
Cr
Photocopier Account
Dr 20-7 3 Nov
20-7 3 Nov 10 Nov 12 Nov 14 Nov 20 Nov
Capital Account
Dr
Cr £ 5,000
£ 75,000 70,000 100 200 200
Ca C ash Bank Ba
£ 125 100 Cr £ 300 200 Cr
20-7
£
Wages Account
Cr
£ 250
20-7
£
2.6
Bank Account
20-7 1 Nov 3 Nov 7 Nov 10 Nov 12 Nov 14 Nov 20 Nov 23 Nov 25 Nov 28 Nov 2.7
Debit £ 75,000
Capital Photocopier Bank loan Office premises Rates Office fittings Wages Cash Office fittings Commission received
Credit £ 2,500
70,000 130,000 3,000 1,500 250 100 200 200
Balance £ 75,000 72,500 142,500 12,500 9,500 8,000 7,750 7,850 8,050 8,250
Dr Dr Dr Dr Dr Dr Dr Dr Dr Dr
Dr 20-2 22 Oct
Dr 20-2 25 Oct
Guidance to the trainee to include: • the use of accounts to record dif ferent types of transactions • the principles of double-entry book-keeping whereby one account is debited and one account is credited for every business transaction • the debit entry is made in the account which gains value, or records an asset, or an expense • the credit entry is made in the account which gives value, or records a liability, or an income item • examples can be given using bank account where money in is recorded on the debit side, and money out is recorded on the credit side • an explanatio n of various accounts inclu din g – capital – the amount of money invested in the business by the owner – non-current assets – items purchased by a business for use on a long-term basis (noting the distinction between capital expenditure and revenue expenditure) – expenses – the day-to-day running expenses (revenue expenditure) of the business – income – amounts of income received by the business – owner’s drawings – where the owner takes money in cash or by cheque (or sometimes goods) from the business for personal use – loans – where a business receives a loan, eg from a relative or the bank
3.5
Dr 20-2 1 Oct 4 Oct 8 Oct 12 Oct 18 Oct 30 Oct
Capital Sales Sales K Smithson: loan Sales Sales
Dr 20-2
Purchases P urchases Purchases Delivery van Wages
Capital Account £ 20-2 1 Oct Bank
Dr 20-2 Dr 20-2 2 Oct 6 Oct 14 Oct
Bank Account £ 20-2 2,500 2 Oct 150 6 Oct 125 14 Oct 2,000 22 Oct 155 25 Oct 110
Bank Bank Bank
Purchases Account £ 20-2 200 90 250 Sales Account £ 20-2 4 Oct 8 Oct 18 Oct 30 Oct
Dr 20-2 26 Apr
£
Dr 20-2 5 Apr
Cr £ 2,500
Dr 20-2 7 Apr 12 Apr 22 Apr
Cr £ 150 125 155 110
Dr 20-2
3
20-2 12 Oct
Bank
Delivery Van Account
Bank
£ 4,000
20-2
Wages Account
Bank
£ 375
Wyvern Producers Ltd A Larsen
£ 200 250
Purchases returns Bank
Purchases returns
£ 45
20-2 2 Apr
Purchases
Cr £ 200
Purchases
Cr £ 250
Pershore Patisserie Bank Bank Cash
Cr £ 150 175 110 100
Sales returns Bank
Cr £ 25 125
Wyvern Producers Ltd Amery Scales Ltd
Cr £ 150 250
A Larsen
20-2 4 Apr
Sales Account
£
20-2 5 Apr 7 Apr 12 Apr 28 Apr
Pershore Patisserie
Sales
£ 150
20-2 15 Apr 22 Apr
Bank Account
Sales Sales Pershore Patisserie
£ 175 110 125
20-2 20 Apr 30 Apr
Purchases Returns Account
£
20-2 9 Apr 26 Apr
Cr £
Cr £
20-2
Wyvern Producers Ltd
£ 50 150
Cr £ 2,000
Cr £
20-2
Purchases Account
Dr 20-2
Cr £ 200 90 250 4,000 375
Cr £
Bank Bank Bank Bank
Dr 20-2 2 Apr 4 Apr
Dr 20-2 9 Apr 20 Apr
CHAPTER 3 Double-entry book-keeping: further transactions 3.1
J Smithson: Loan Account
Dr 20-2
Wyvern Producers Ltd A Larsen
Cr £ 50 45
Dr 20-2 15 Apr
Dr 20-2 17 Apr
Dr 20-2 30 Apr
Dr 20-2 28 Apr
Dr 20-2 29 Apr
3.6
Dr 20-3 2 Jun 7 Jun 23 Jun
Dr 20-3 6 Jun 18 Jun
Sales Returns Account
Pershore Patisserie
Dr 20-3 5 Jun 20 Jun
20-2
Weighing Machine Account
Amery Scales Ltd
£ 250
20-2
Amery Scales Ltd
Bank
£ 250
20-2 17 Apr
Weighing machine
Cash Account
Sales
£ 100
20-2 29 Apr
Wages
Wages Account
Cash
£ 90
Designs Ltd Mercia Knitwear Ltd Designs Ltd
£ 350 400 285
Purchases returns Bank
20-3 4 Jun 5 Jun 10 Jun 12 Jun 20 Jun
Bank Cash Wyvern Trade Supplies Bank Cash
Cr £ 220 115 350 175 180
Designs Ltd
Cr £ 250
Bank Account
Sales Sales Wyvern Trade Supplies
£ 220 175 300
20-3 18 Jun
Sales Sales
Dr 20-3 15 Jun
Dr 20-3 26 Jun
3 .8
20-3 6 Jun 17 Jun
Designs Ltd Mercia Knitwear Ltd
Mercia Knitwear Ltd
Purchases returns
£ 80
20-3 7 Jun
Purchases
Wyvern Trade Supplies
Sales
£ 350
20-3 15 Jun 28 Jun
Sales returns Bank
Sales Returns Account
Wyvern Trade Supplies
£ 50
Cash
Transaction (a) (b) (c) (d) (e) (f) (g) (h)
Account debited purchases bank purchases L Harris Teme Traders sales returns bank cash
Cr £ 400
Cr £ 50 300
Cr £
20-3
Rent Paid Account
£ 125
Cr £ 100 80
Cr £
20-3
Account credited bank sales Teme Traders sales purchases returns L Harris D Perkins: loan bank
A nsw er s t o t he tr ai ne e:
•
Separate accounts for purchases and sales enable the business to know the amount of goods bought and sold. A combined account for ‘goods’ would not provide this information so readily.
•
Purchases and sales accounts follow the principles of book-keeping in that the debit side of purchases account gains value when the business buys goods for resale, while the credit side of sales account gives value when the business sells goods.
•
The purchase of a new delivery van for use in the business is the purchase of a non-current asset, which will be used on a long-term basis. As such the purchase of the van – which is an example of capital expenditure – is entered on the debit side of van account.
•
Purchases returns (or returns out) is where we return goods to a trade payable (supplier). The returns transaction is recorded the opposite way round to a purchases transaction. Sales returns (or returns in) is where a trade receivable (customer) returns goods to us. The transaction is recorded the opposite way round to a sales transaction.
Cash Account
£ 115 180
Dr 20-3 10 Jun
Cr £ 90
Purchases Purchases
£
Dr 20-3 17 Jun
Cr £ 250
Cr £ 350 285
Sales Account
£
Cr £
3.7
20-3 2 Jun 23 Jun
Purchases Returns Account
Dr 20-3
Cr £
20-3
Designs Ltd
£ 100 250
Cr £
Cr £
20-2
Purchases Account
Dr 20-3
Dr 20-3 4 Jun 12 Jun 28 Jun
£ 25
20-3 26 Jun
Rent paid
Cr £ 125
•
4
Carriage inwards and carriage outwards are kept in separate accounts because they represent different transactions. Carriage inwards is where we pay the carriage cost of goods purchased to have them delivered to us. Carriage outwards is where we pay the carriage charge for goods we have sold, that is we have sold the goods to our customers as ‘delivery free’.
4.3
CHAPTER 4 Business documents 4.2
INVOICE
INVOICE
DEANSWAY TRADING COMPANY
JANE SMITH, FASHION WHOLESALER
The Model Office, Deansway, Rowcester, RW1 2EJ
Unit 21, Eastern Industrial Estate, Wyvern, Wyvernshire, WY1 3XJ invoice to
invoice to
Excel Fashions 49 Highland Street Longton Mercia LT3 2XL deliver to
invoice no account your reference
2451
date
today
The Card Shop 126 The Cornbow Teamington Spa Wyvernshire WY33 0EG deliver to
as above
p ro du ct code
d es cr ip ti on
Dresses Suits Coats
invoice no account your reference
8234
date
today
as above
q ua nt it y
5 3 4
terms 2.5% cash discount for full settlement within 14 days Net 30 days
u ni t price £
30.00 45.50 51.50
u ni t
each each each
t ot al
t ra de discount %
£
£
150.00 136.50 206.00
0.00 150.00 0.00 136.50 0.00 206.00
TOTAL
p roduct code
ne t
descriptio n
Assorted rubbers Shorthand notebooks Ring Binders
quantity
5 100 250
terms 2.5% cash discount for full settlement within 14 days Net 30 days
492.50
unit price £
5.00 4.00 0.50
unit
total
5
net
£
box 10 each
25.00 40.00 125.00
TOTAL
The Card Shop will pay £185.25 (£190.00 x 97.5%) for settlement in full within 14 days.
Excel Fashions will pay £480.18 (£492.50 x 97.5%, rounded down) for settlement in full within 14 days.
trade discount %
£
0.00 0.00 0.00
25.00 40.00 125.00
190.00
4.4
Dr 20-4 2 Feb 16 Feb
G Lewis G Lewis
Purchases Account £ 20-4 200 160
Sales Account £ 20-4 4 Feb 7 Feb
Dr 20-4
20-4 10 Feb 10 Feb 24 Feb 24 Feb
Bank Discount received Bank Discount received
£ 190 10 152 8 360
20-4 2 Feb 16 Feb
(a)
product code
L Jarvis G Patel
G Lewis
Dr
4.5
Cr £
description
quantity
unit price
unit
total
£
Cr £ 150 240
trade net discount %
£
£
45B
Trend tops (black)
30
12.50
each
375.00
10
337.50
35W
Trend trousers (white)
20
25.00
each
500.00
10
450.00
Cr Purchases Purchases
£ 200 160
360 terms L Jarvis
Dr 20-4 4 Feb
Sales
£ 150
20-4 12 Feb 12 Feb
Bank Discount allowed
150 G Patel
Dr 20-4 7 Feb
Sales
£ 240
20-4 20 Feb 20 Feb
Bank Discount allowed
240 Bank Account
Dr 20-4 12 Feb 20 Feb
L Jarvis G Patel
20-4 10 Feb 24 Feb
20-4
£
20-4 10 Feb 24 Feb
G Lewis G Lewis
G Lewis G Lewis
Discount Allowed Account
Dr L Jarvis G Patel
£ 3 6
20-4
£ 147 3 150
(b)
TOTAL
787.50
Trade discount is given, if prearranged: –
to businesses, often in the same trade (but not to the general public)
Cr
–
for buying in bulk (this discount is also known as bulk discount)
£ 234 6 240
–
by wholesalers, as a discount off list price to retailers
Cash discount (also known as settlement discount) is given, for prompt payment, if prearranged, and indicated on the invoice (c)
Fashion Shop will pay £748.12 (£787.50 x 95%, rounded down) for settlement in full within 7 days.
(a)
A source document is used to update the book-keeping records.
(b)
(i)
An invoice is a source document prepared by the seller and states the value of goods sold and, hence, the amount to be paid by the buyer.
(ii)
A credit note is a source document which shows that the buyer is entitled to a reduction in the amount charged by the seller; it is used if:
Cr
Discount Received Account
Dr
20-4 12 Feb 20 Feb
£ 147 234
5% cash discount for full settlement within 7 days Net 30 days
Cr
£ 190 152
4.7
Cr £ 10 8
Cr
( c)
£
6
–
some of the goods delivered were faulty, or incorrectly supplied
–
the price charged on the invoice was too high
A ny th re e f ro m: –
cheque counterfoils
–
paying-in slip counterfoils
–
cash receipts
–
till rolls
–
information from bank statements, such as standing orders, direct debits, BACS, credit transfers, bank charges
4.8
(a)
•
5 computer desks were ordered (not 10 as shown on the invoice)
•
10 office chairs were ordered (not 5 as shown on the invoic e)
•
the unit price of the computer desks is £65.00 each (not £70.00 as shown on the invoice)
•
the net amount for computer desks is £292.50 (not £350.00 as shown on the invoice)
Dr
•
the net amount for office chairs is £180.00 (not £20.00 as shown on the invoice)
•
the in voice total is £472.50 (not £370.00 as shown on the invoice)
20-9 1 Jan 11 Jan 12 Jan 22 Jan
Capital Sales Sales Sales
1 Feb 4 Feb 10 Feb 12 Feb 19 Feb 25 Feb
Balance b/d Sales Sales Rowcester College Sales Sales
CHAPTER 5 Balancing accounts – the trial balance 5.1 (a) and (c)
(b)
1 Mar
Bank Account
Balance b/d
20-9
1 Mar
£
1 Mar
Bank Bank Balance b/d
1 Feb 24 Feb (c)
Wyvern Products Limited will pay £448.87 (£472.50 x 95%) for settlement in full within 14 days.
1 Mar
7
2 Feb 15 Feb 27 Feb 28 Feb
Rent paid Shop fittings Comp Supplies Ltd Balance c/d
£ 500 500 1,000 1,000
Bank Bank Balance b/d
£ 1,500 850 2,350 2,350
20-9 1 Jan
Cr Bank
20-9 28 Feb
Balance c/d
Balance b/d Comp Supplies Ltd Balance b/d
£ 10,000
Cr £ 1,000 1,000
20-9 28 Feb
Balance c/d
Cr £ 2,350 2,350
Purchases Account
Comp Supplies Ltd Comp Supplies Ltd
£ 500 1,500 5,000 6,700 13,700 500 850 6,350 5,300
13,000
Shop Fittings Account
Dr 20-9 7 Jan 25 Jan
Rent paid Shop fittings Comp Supplies Ltd Balance c/d
Rent Paid Account
Dr 20-9 5 Jan 15 Feb
Cr
20-9 4 Jan 5 Jan 20 Jan 31 Jan
Capital Account
Dr
Dr 20-9 4 Jan 2 Feb
£ 10,000 1,000 1,250 1,450 13,700 6,700 1,550 1,300 750 1,600 1,100 13,000 5,300
£ 5,000 6,500 11,500
20-9 31 Jan
11,500 5,500 17,000 17,000
28 Feb
Cr Balance c/d
£ 11,500 11,500
Balance c/d
17,000 17,000
Dr
Comp Supplies Limited
20-9 20 Jan 31 Jan
Bank Balance c/d
5 Feb 27 Feb 28 Feb
Purchases returns Bank Balance c/d
£ 5,000 6,500 11,500 150 6,350 5,500 12,000
20-9 31 Jan
28 Feb
Purchases Purchases
1 Feb 24 Feb
Balance b/d Purchases
£ 5,000 6,500 11,500 6,500 5,500
1 Mar
Balance b/d
12,000 5,500
Sales Account
Dr Balance c/d
Balance c/d
£ 4,550
4,550 11,150
Cr
20-9 7 Jan 25 Jan
Bank Bank Rowcester College Bank
1 Feb 4 Feb 10 Feb 19 Feb 25 Feb 26 Feb
Balance b/d Bank Bank Bank Bank Rowcester College
11,150 1 Mar
Balance b/d
Dr £ 6,700
Name of Account Bank Capital Rent paid Shop fittings Purchases Comp Supplies Limited Sales Rowcester College Sales returns
Cr
20-9 11 Jan 12 Jan 16 Jan 22 Jan
Trial balance as at 31 January 20-9
(b)
£ 1,000 1,250 850 1,450 4,550 4,550 1,550 1,300 1,600 1,100 1,050 11,150 11,150
Rowcester College
Sales
£ 850
20-9 27 Jan 31 Jan
10,000
6,500 4,550 750 100 21,050
21,050
Dr £ 5,300
Cr £
Trial balance as at 28 February 20-9
(d) Name of Account Bank Capital Rent paid Shop fittings Purchases Comp Supplies Limited Sales Rowcester College Sales returns Purchases returns
Sales returns Balance c/d
850 1 Feb 26 Feb 1 Mar
Balance b/d Sales Balance b/d
Dr 20-9
12 Feb 28 Feb
Bank Balance c/d
Sales Returns Account
Dr 20-9 27 Jan
750 1,050 1,800 1,050
Rowcester College
£ 100
20-9
20-9 5 Feb
5.2
750 1,050 1,800
Cr
Comp Supplies Ltd
Cr
10,000
5,500 11,150 1,050 100 150
8
26,800
Cr £
1,250 850 48 730 144 1,442 2,704 3,200 90 1,174 1,500 6,000 9,566
£ 150
1,000 2,350 17,000
Trial balance of Jane Greenwell as at 28 February 20-1 Dr £ Name of account Bank Purchases Cash Sales Purchases returns Trade payables Equipment Van Sales returns Trade receivables Wages Capital (missing figure)
£
Purchases Returns Account
£
Cr £ 100 750 850
500 1,500 11,500
26,800 Dr 20-9 16 Jan
Cr £
9,566
5.5
PURCHASES LEDGER
Four from:
•
Error of omission
Business transaction completely omitted from the accounting records. For example, cash sale omitted from both cash account and sales account. •
Dr
Softseat Ltd
20-2
£
Reversal of entries
Debit and credit entries on the wrong side of the two accounts concerned. For example, cash sale entered wrongly as debit sales account, credit cash account. •
•
Transaction entered to the wrong person's account. For example, a sale of goods on credit to A T Hughes has been entered as debit A J Hughes' account, credit sales account.
Dr
Error of principle
20-2
Purchases Purchases
£ 320 160
PRK Ltd
£
20-2 2 Feb
Cr Purchases
£ 80
Error of original entry (or transcription)
Amount entered incorrectly in both accounts. For example, sale of £45 entered in both sales account and the trade receivable's account as £54. •
Cr
Mispost/error of commission
Transaction entered in the wrong type of account. For example, cost of petrol for vehicles has been entered as debit motor vehicles account, credit bank account. •
20-2 1 Feb 19 Feb
Quality Furnishings
Dr 20-2
Compensating error
£
Two errors cancel each other out. For example, balance of purchases account calculated wrongly at £10 too much, compensated by the same error in sales account.
20-2 15 Feb
Cr Purchases
£ 160
SALES LEDGER CHAPTER 6 Division of the ledger – the use of subsidiary books 6.2
Date
Details
Invoice
Reference
20-2
20-2 8 Feb 25 Feb
Amount
£
1 Feb
Softseat Ltd
961
2 Feb
High Street Stores
Dr
Purchases Day Book
(a)
Sales Sales
PRK Ltd
068
80
Quality Furnishings
529
160
19 Feb
Softseat Ltd
984
160
28 Feb
Total for month
720
Dr
Peter Lounds Ltd
20-2 14 Feb
£ 120
Sales
20-2 18 Feb
Sales Day Book Details
Invoice
8 Feb
Reference
Sales
001
Cr
20-2
£
£ 320
20-2
Cr £
Amount
£ High Street Stores
£
Carpminster College
Dr
20-2
Cr
20-2
320
15 Feb
Date
£ 440 200
GENERAL LEDGER
440
14 Feb
P eter Lounds Ltd
002
120
Dr
18 Feb
Carpminster College
003
320
25 Feb
High Street Stores
004
200
20-2 28 Feb
28 Feb
Total for month
Purchases Account
Purchases Day Book
£ 720
Cr
20-2
£
Sales Account
Cr
1,080 Dr 20-2
9
£
20-2 28 Feb
Sales Day Book
£ 1,080
6.3 (a) Date
Purchases Day Book Details
GENERAL LEDGER
Invoice
Reference
20-2 2 May
Amount
20-2 31 May
£ M Roper & Sons
562
PL 302
190 200
Purchases Account
Dr
4 May
Wyper Ltd
82
PL 301
10 May
Wyper Ltd
86
PL 301
210
18 May
M Roper & Sons
580
PL 302
180
Dr
21 May
Wyper Ltd
91
PL 301
240
20-2
25 May
M Roper & Sons
589
PL 302
98
31 May
Total for month
Purchases Day Book
£ 1,118.00
Cr
20-2
£
Purchases Returns Account
£
20-2 31 May
Purchases Day Book
Cr £ 108.00
1,118.00
Purchases Returns Day Book Date
Details
Credit Note
Reference
Amount
82
PL 302
30
20-2
6.5
(a)
£
18 May
M Roper & Sons
23 May
Wyper Ltd
28 May
M Roper & Sons
31 May
Total for month
6
PL 301
40
84
PL 302
38
product
quantity
details
unit pric e
unit
X24
96
Trend tops
£8.50 each
each
Y36
20
Jeans
£15 each
each
total amount
c ode
108
(b) and (c)
816.00 300.00
PURCHASES LEDGER
Dr 20-2 23 May 31 May
Purchases Returns Balance c/d
Wyper Ltd (account no 301) £ 20-2 40 1 May Balance b/d 710 4 May Purchases 10 May Purchases 21 May Purchases 750
1 Jun
Dr 20-2 18 May 28 May 31 May
Purchases Returns Purchases Returns Balance c/d
Cr £ 100 200 210 240 750
Balance b/d
710
M Roper & Sons (account no 302) £ 20-2 30 1 May Balance b/d 38 2 May Purchases 485 18 May Purchases 25 May Purchases 553
Cr £ 85 190 180 98 553
1 Jun
Balance b/d
terms
5% cash discount for full settlement within 7 days Net 30 days
485
10
1,116.00 trade discount 20%
223.20
total
892.80
(b)
(i)
Purchases day book
(ii)
Sale s day book
(i)
Trade discount:
CHAPTER 7 The main cash book 7.3 Cash Book
Dr (c)
Date
– given for bulk buying (also known as bulk discount), or for being in the trade, or for regular customers
Details
Ref
20-7
– deducted from the invoice before entry in the books
1 Aug Balances b/d 1 Aug Wild & Sons Ltd 11 Aug Bank
– usually a larger percentage than cash discount (ii) Cash discount (also known as settlement discount): – given for prompt payment
12 Aug A Lewis Ltd
– not deducted until account is paid
21 Aug Harvey & Sons Ltd
– can be disallowed if terms are not met
29 Aug Wild & Sons Ltd
– usually a smaller percentage than trade discount
29 Aug Bank
Disc allwd £
Cash
Bank Date
£
£ 20-7
276 4,928 5 Aug 398 8 Aug 500 11 Aug
C
Subsidiary
Account to
Account to
Document
Book
be debited
be credited
Sales day book
V Singh
Sales
Ref
T Hall Ltd Wages Cash
261 22 Aug
Wages
595 25 Aug
J Jones
27 Aug
Salaries
28 Aug 29 Aug
Telephone Cash
£ 541
31 Aug
Balances c/d
500
F Jarvis
457 436 33
628 2,043 276 275
C
35 1,051 7,937 1 Sep Balances b/d
£
Bank
254
15 275
Cash
C
1,755 18 Aug
C
Disc recd £ 24
20
6.8
Source
Cr
Details
361 1,051
57
3,217 7,937
361 3,217
7.4
Invoice for goods sold on
Dr Date
credit to V Singh
(a)
20-5 1 Mar Balances b/d
Invoice received for goods bought on credit
Purchases day
from Okara Limited
book
Purchases
Cash Book
Details
Okaro Limited
3 Mar Sales*
(c)
Cash
Credit note issued to
Sales returns
Sales returns
S Johnson
S Johnson
day book
13 Mar Sales 22 Mar Bank
Credit note received
Purchases returns
Roper &
Purchases
25 Mar Sales 29 Mar Sales*
from Roper & Company
day book
Company
returns
31 Mar Hobbs Ltd 31 Mar Pratley & Co
Bank Date
100
950 1,680
C
150
C
Details
£ £ 20-5 106 3,214 2 Mar Rent
8 Mar Sales 11 Mar Bank
(b)
Ref Discount allowed £
150
5 Mar Cleaning expenses 9 Mar Purchases 11 Mar Cash
1,800 16 Mar Postages 18 Mar Telephone
2,108 20 Mar Stationery 200 2,000 22 Mar Cash 30 50
10674
Cr Ref Discount Cash Bank received £ £ £ 250 35
10675 10676
1,200 C
150 50
10677
168 128
10678
C
150
720 26 Mar Misc expenses 1,160 2 7 Mar Wages 10679
70 2,000
30 Mar Electricity 10680 31 Mar Evans & Co 10681
45
31 Mar A Bennett
26
10682
31 Mar Balances c/d 80 1 Apr Balances b/d *
11
706 13,632 423 8,259
106 855 494 423 8,259
71
706 13,632
An alternative way of showing the transactions of 3 March and 29 March is to record the full amount of sales in the debit cash column, and then to show the amount banked as a separate transfer, ie debit bank, credit cash.
7.6
DR Supplier/Trade payable
8.2
DR Bank
(a) Dr 20-7 1 Jan 13 Jan
CR Bank
Credit transfer for payment by a customer Amounts paid directly into the bank by a trade receivable, who has the necessary bank code information.
(ii)
7.8
CHAPTER 8 Bank reconciliation statements
Standing order Money paid out of the bank directly, at regular intervals, on the business’s order. Usually for the same fixed amount for goods and services supplied
(i)
1 Feb
CR Customer/Trade receivable
Cash Book (bank columns) £ p 20-7 Balance b/d 415.15 23 Jan Direct debit: Omni Finance BACS credit: T K Supplies 716.50 31 Jan Balance c/d 1,131.65 Balance b/d 923.70
Cr £ p 207.95 923.70 1,131.65
(a) and (b) P GERRARD BANK RECONCILIATION STATEMENT AS AT 31 JANUARY 20-7
(b) Cash Book
Dr
Date 20-6
Details
Disc £
1 Jan Balance b/d
Cash £
Bank £
50
6 Jan R Reed 4
Date 20-6
Details
366
27 Jan Wages
28 Jan Sales
642
20 Jan British Gas 248
C
1,319
3
S/O
1 Feb Balance b/d
1,444
50
2,500
Add: unpresented cheques
Bryant & Sons
cheque no. 001354
312.00
P Reid
cheque no. 001355
176.50 488.50 1,412.20
Less: outstanding lodgement
200
G Shotton Limited
335.75
Balance at bank as per cash book
28 C
20-6 31 Jan
1,076.45
1,319
3
50
422
1,444
2,500
8.3
(a) Cash Book (bank columns)
Dr
422
20-7 1 May 7 May 16 May 23 May 30 May
Balance b/d Cash C Brewster Cash Cash
1 Jun
Balance b/d
£ 300 162 89 60 40
(c)
20-7 2 May 14 May 29 May 16 May 31 May 31 May
Cr
P Stone 867714 Alpha Ltd 867715 E Deakin 867716 Standing order: A-Z Insurance Bank charges Balance c/d
651 Discounts Allowed Account
Dr Cash book
£ 4
20-6
428
Cr £ JANE DOYLE
(b)
BANK RECONCILIATION STATEMENT AS AT 31 MAY 20-7
£ Balance at bank as per cash book Add:
Dr 20-6
Discounts Received Account
£
20-6 31 Jan
Cash book
£ 923.70
450
31 Jan Balances c/d 4
Balance at bank as per cash book
75
21 Jan Bank interest 31 Jan Bank
£
Bank £
164
11 Jan Rent
752
31 Jan Cash
Cash £
1,236
2 Jan Bilton Office Supplies
14 Jan Sales
24 Jan C Denton & Co Ltd C/T
Disc £
1 Jan Balance b/d 567
13 Jan B Brown
Cr
Cr
unpresented cheque E Deakin cheque no. 867716
£ 3
428 110 538
Less:
outstanding lodgement cash banked
Balance at bank as per bank statement
12
40 498
£ 28 50 110 25 10 428 651
8.5
(a)
(i)
8.7
Standing orders
(a)
Credit Regular payments of the same amount made directly from the bank on behalf of the company on the order of the company. (ii)
Direct debits
Credit Payments made from the bank for the customer collected by the payee on the order of the customer usually for changing amounts. (iii)
Cash Book
Dr
Date 2003
Credit transfers
Debit or Credit Receipts from customers paid directly into the bank of the payee. Payments to suppliers or wages into the bank of the payee.
Details
Bank £ p
Credit transfer Balance c/d
Cash Book – Bank Account £ 540 Balance b/d 534 Standing order Direct debit Bank charges 1,074
Cheque number
Bank £ p
2,459.35
1 Nov
Banks Ltd
11346
134.37
√
3 Nov Toys for You
234.00
√
1 Nov
Books & Paints
11347
276.89
√
5 Nov B J Patel
3,219.00
√
10 Nov
Wages
11348
92.50
√
5 Nov Dolls and Things
1,142.00
√
12 Nov
Jones and Son
11349
3,781.95
√
23 Nov J A Smith Ltd
560.00
√
23 Nov
Smith and Son
11350
139.43
√
26 Nov Cash banked
340.00
25 Nov
HGF Finance
11351
256.00
25 Nov
Toy Designs
11352
1,245.98
30 Nov
Balance c/d
2,027.23
7,954.35
Cr £ 378 230 420 46 1,074
Balance b/d
Cr
Details
1 Nov Balance b/d
(b) Dr
Date 2003
30 Nov Balance b/d 9 Nov J Black Ltd
C/T
534
7,954.35
2,027.23
12 Nov
Business rates
S/O
547.90
246.98
18 Nov
Proper Ins Co
S/O
145.65
23 Nov
Bank charges
30 Nov
Balance c/d
45.89 1,534.77
2,274.21
1 Dec Balance b/d
2,274.21
1,534.77
A SMITH AND CO
(c)
BANK RECONCILIATION STATEMENT AS AT 31 MARCH 2001
£ Balance at bank as per cash book
£ (534)
Add:
unpresented cheques
Less:
o ut st an di ng lo dg em en t ( un cl ea re d b an ki ng s)
2 70
cheque query
265
JAMES JOLLY AND CO
(b)
469
BANK RECONCILIATION STATEMENT AS AT 30 NOVEMBER 2003
(65) £ Balance at bank as per cash book 535 Balance at bank as per bank statement
Add:
(600)
£ 1,534.77
unpresented cheques HGF Finance
11351
256.00
Toy Designs
11352
1,245.98
Tutorial note: brackets indicate an overdraft
1,501.98 3,036.75 Less:
outstanding lodgement cash banked
Balance at bank as per bank statement
13
340.00 2,696.75
9.7
CHAPTER 9 Introduction to final accounts
(a)
R MASTERS
(i)
INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2002
9.2
FINAL ACCOUNTS
TRIAL BALANCE
INCOME
£
BALANCE SHEET
STATEMENT Debit
Credit
Debit
(a) Salaries
√
√
(b) Purchases
√
√
(c) Trade receivables
√
(d) Sales returns
√
Credit
√
£ Revenue Opening inventory Purchases
(ii) Dr 2002 31 Mar 31 Mar
£ 144,810
16,010 96,318 112,328 13,735
Less Closing inventory Cost of sales Gross profit Less expenses: Salaries Heating and lighting Rent and rates Sundry expenses Vehicle expenses
Details Drawings Balance c/d
Capital Account £ 2002 12,500 31 Mar 48,341 31 Mar 60,841
98,593 46,217
1 Apr
18,465 1,820 5,647 845 1,684
(b)
28,461 17,756
Profit for the year
BALANCE SHEET AS AT 31 DECEMBER 20-4 £ £ Non-current Assets Vehicles Office equipment
9.9
£
2001 1 Dec 31 Dec
18,600 12,140 5,820 14,375 29,695
2001 1 Dec 31 Dec
2001
14
48,341
£
p
Cr
2001 1 Dec 31 Dec
Details Balance b/d Monthly total
£ p 16,493.27 4,560.30
£ p 1,269.43 236.91
2001
Cr Details
£
Details
£
Purchases Account
Details Balance b/d Monthly total
£ p 10,276.41 2,769.56
2001
Details
£
p
2001 1 Dec 31 Dec
p
Cr
Returns Outwards Account
Dr
25,250 17,756 43,006 13,311 29,695
Balance b/d
Returns Inwards Account
Details Balance b/d Monthly total
Dr
17,960 Net Current Assets or Working Capital NET ASSETS
Details
Dr
13,735
Cr £ 36,790 24,051 60,841
Sales Account
Dr 2001
32,335 Less Current Liabilities Trade payables Bank overdraft
(a)
Details Balance b/d Profit for the year
Two from: – increased by profit – more capital introduced – reduced by losses – reduced by drawings
9,820 5,500 15,320
Current Assets Inventory Trade receivables
Less Drawings
32,530 24,051
Profit for the year
√
CLARE LEWIS INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 20-4
FINANCED BY Capital Opening capital Add Profit for the year
23,980 3,600 4,500 450
√
√
(g) Capital
Less expenses: Wages Carriage outwards Motor expenses Bank charges
√
√
(f) Vehicle
9.5
Debit
√ √
(e) Discount received
Credit
£ 56,231 350 56,581
Gross profit Add Discount received
p
Cr Details Balance b/d Monthly total
£ p 1,039.41 127.50
AMARYLLIS TRADING
(b)
INCOME STATEMENT FOR THE THREE MONTHS ENDED 31 DECEMBER 2001
£
£
Revenue Less Returns inwards Less Cost of sales: Opening inventory Add Purchases Less Returns out
Reason:
Short-term liabilit y – which needs to be paid within the next 12 months
Tutorial note: the accounting treatment for a bill which has not been paid at the balance sheet date – called an accrual of expenses – is covered in detail in Chapter 12
11,879.06 871.26 15,311.19 2,640.96
4.
D ra wi ng s f or t he ye ar Section:
Capital/Financed by/Represented by
Reason:
It is cash or goods taken out of the business by the owner, therefore it reduces the capital invested in the business.
12,670.23 6,877.00
Gross profit
Cost of sales Goods available for sale Net revenue
£12,670.23 £15,311.19 £19,547.23
CHAPTER 10 The general journal and correction of errors 10.2
(a) Date
9.10
Current liabili tie s – an amount owed by the business
13,045.97 1,166.91
Less Closing inventory
(i) (ii) (iii)
Telephone bil l due to be paid in one month’s time Section:
2,560.87
Add Carriage in
(c)
3.
£ 21,053.57 1,506.34 19,547.23
Details
Reference
20-8
MEMORANDUM
31 Dec
Inventory
GL GL
Date
Today
Income statement
To
Mary Arbuthnot, proprietor of Mary’s Doll Shop
Inventory valuation at 31 December 20-8
From
Financial Accounting Student
transferred to income statement
Subject
Balance sheet queries
Dr
Cr
£
£
22,600 22,600
(b) 1.
C os t o f n ew de li ve ry va n
Date
Section:
Non-current assets
20-8
Reason:
An asset purchased for use in the business
31 Dec
Details
Reference
Income statement
GL
– not for resale
Telephone expenses
GL
– used over a long period/more than one year
Transfer to income statement
– will help generate profits
of expenditure for the year
Dr
Cr
£
£
890 890
– will depreciate with use – is a tangible asset 2.
(c)
Inventory of dolls for resale
Date
Section:
Current assets
20-8
Reason:
An asset remaining in the business for the short-term
31 Dec
– less than one year – the business is expected to sell them shortly
Details Drawings
GL
Motoring expenses
GL
Transfer of private motoring to drawings account continued
15
Reference
Dr
Cr
£
£
200 200
(d) Date
(c) Details
Reference
20-8 31 Dec
Drawings
GL
Purchases
GL
Dr
Cr
£
£
Date
175 175
error of principle
Details
Reference
Delivery van
GL
Vehicle expenses
GL
Dr
Cr
£
£
10,000 10,000
Goods taken for own use by the owner
Correction of error – vehicle no ............ invoice no ...............
(e) Date
Details
Reference
20-8 31 Dec
Bad debts written off
GL
N Marshall
SL
Dr
Cr
£
£
(d)
125
Date
reversal of entries
Details
Reference
125 Postages
GL
Account of N Marshall written off as a
Bank
GL
bad debt - see memo dated ...................
Postages
GL
Bank
GL
Dr
Cr
£
£
55 55 55 55 110
110
Dr
Cr
£
£
Correction of reversal of entries on ................... 10.4
(a)
error of omission
(e) Date
Details
Reference
J Rigby
SL
Sales
GL
Dr
Cr
£
£
Date
compensating error
Details
Reference
150 150
Purchases
GL
Purchases returns
GL
100 100
Sales invoice no ............. omitted from the accounts.
Correction of under-cast on purchases account and purchases returns account on .......(date).......
(b) Date
(f)
mispost/error of commission
Details
Reference
H Price Limited
PL
H Prince
PL
Dr
Cr
£
£
Date
125 125
Correction of mispost – cheque no .....:
error of original entry
Details
Reference
L Johnson
SL
Bank
GL
Bank
GL
L Johnson
SL
Dr
Cr
£
£
98 98 89 89 187
to H Price Limited Correction of error – cheque for £89 received on ....(date)....
16
187
10.6
(a)
Two from: – trial balance – bank reconciliation statement – control accounts (see Chapter 11)
(c) Error
An error of principle has occurred.
Account
(1)
Sales
Dr
Cr
£
£
(2)
3
A cheque has been debited in the cash book as £150 but credited in the customer’s account as £105.
3
270
Returns inwards
500
Suspense
500
Returns inwards
10.10
300
Suspense
(3)
3
An invoice has been completely omitted from the books.
270
Suspense
(a)
Suspense
Suspense Account
Dr 300
Date 2004
400
Discount received
30 Apr
400
Details
Balance per T/B
£
Date 2004
450
30 Apr 30 Apr
Cr Details
Sales Rent paid
450 (4)
No
3
The sales account has been totalled incorrectly.
JOURNAL
(b)
Yes
J Jones
£
200 250 450
350
A Jones
350
Tutorial note: The mispost between J Jones and A Jones needs to be corrected in the sales ledger,
but has no effect on suspense account. Tutorial notes: 10.8
(a) and (b) H G PATEL: TRIAL BALANCE AS AT 30 APRIL 2003 Account
Wages Administration costs Capital Property Motor vehicles Motor expenses Purchases Revenue (Sales) Returns outwards Carriage inwards Carriage outwards Discount received Drawings Suspense TOTAL
Dr
Cr
£ 23,890 6,000
£
•
Error (2) is an error of original entry which affects both the debit and credit side of the trial balance by the same amount, and will not be revealed by the trial balance. Such an error is not entered in the suspense account.
•
Error (3) has been entered in the suspense account, above, as the net amount of £250 (ie £650 – £400); as an alternative, it could have been entered as
60,000 65,000 5,000 1,650 38,900
(b) 98,000 3,698
367 450 2,135
(c)
6,900 15,676 163,833
163,833
17
–
debit £400 (to take out the old amount in rent paid account)
–
credit £650 (to enter the correct amount in rent paid account)
Error of commission (or mispost): •
example – payment to A Brown entered to B Brown’s account
•
explanation – although the entry has been misposted to the wrong person’s account, the trial balance will still balance because the entry has been made on the correct side of the account.
Sales ledger control account (see Chapter 11)
10.11
Jonathon Smith Corrected Profit for the year ended 30 November 2004
(b) Dr
Sales Ledger Control Account
20-8
£
Cr
20-8
£ p
Balances b/d
2,012.43
28 Feb
Sales returns
221.67
Credit sales
1,288.76
28 Feb
Cheques received from trade receivables
911.43
280
28 Feb
Cash discount allowed
less
2,500
28 Feb
Set-off: purchases ledger
add
9,500
28 Feb
Bad debts written off
28 Feb
Balances c/d
Profit calculated by Jonathon
1 Feb
£ p
26,790
1.
Sales undercast
add
450
2.
Discount allowed (2 x £140)
less
3.
Wages
4.
Non-current asset
5.
Error of commission – no effect on profit
6.
Closing inventory (reduction in cost of sales)
add
Corrected profit
28 Feb
34,060
1 Mar
Balances b/d
59.28 1,720.76
3,301.19
100
23.37 364.68
3,301.19
1,720.76
CHAPTER 11 Control accounts 11.3
SALES LEDGER
(a)
(c) Dr 20-8 1 Feb 3 Feb
Balance b/d Sales
1 Mar
Balance b/d
Dr 20-8 1 Feb Dr 20-8 1 Feb 3 Feb
Dr 20-8 1 Feb 17 Feb 1 Mar
Balance b/d
Balance b/d Sales
Balance b/d Sales Balance b/d
Dr 20-8 1 Feb 17 Feb
Balance b/d Sales
1 Mar
Balance b/d
Arrow Valley Retailers £ p 20-8 826.40 20 Feb Bank 338.59 20 Feb Discount allowed 28 Feb Balance c/d 1,164.99
Cr £ p 805.74 20.66 338.59 1,164.99
Mereford Manufacturing Company £ p 20-8 293.49 24 Feb Sales returns 127.48 28 Feb Set-off: purchases ledger 420.97 Redgrove Restorations £ p 20-8 724.86 7 Feb Sales returns 394.78 28 Feb Balance c/d 1,119.64
Cr £ p 59.28 Cr £ p 56.29 364.68 420.97
11.5
Cr £ p 165.38 954.26 1,119.64
Purchase Ledger Control Account
Dr 2001 1 Mar 31 Mar
954.26 Wyvern Warehouse Limited £ p 20-8 108.40 15 Feb Bank 427.91 15 Feb Discount allowed 28 Feb Balance c/d 536.31
1 Feb ru ary 20 -8 £ p 826.40 59.28 293.49 724.86 108.40 2,012.43
Arrow Valley Retailers B Brick (Builders) Limited Mereford Manufacturing Company Redgrove Restorations Wyvern Warehouse Limited Sales ledger control account
338.59 B Brick (Builders) Limited £ p 20-8 59.28 28 Feb Bad debts written off
Reconciliation of sales ledger control account with trade receivable balances
Balance b/d Returns Set-off: sales ledger Discounts Cash paid Balance c/d
Balance b/d Cr £ p 105.69 2.71 427.91 536.31
£ 465 4,679 475 3,674 236,498 24,742 270,533 749
2001 1 Mar 31 Mar
Balance b/d Purchases Cash refunds Balance c/d
28 Feb ru ary 20 -8 £ p 338.59 – – 954.26 427.91 1,720.76
Cr £ 23,437 245,897 450 749
270,533 Balance b/d
24,742
Tutorial note: The cash purchases figure of £25,679 is not shown in the control account because it does not involve the accounts of trade payables – it is a cash purchase (ie debit purchases; credit bank/cash)
427.91
18
