#Accn1 Key Things by Matt Smith

Preparing financial statements

2015-03-05 10:04:57 UTC

The financial statements has 2 parts

- the income statement which includes revenue items.

- the balance sheet which includes the capital items.

INCOME STATEMENT

the income statement calculates the profit or loss of the year, this being revenue minus expenditure. It first calculates the gross profit.

Gross PROFIT

A trader makes gross profit by buying goods at a cost price, adding a mark up then charging a higher selling price.

RETURNS AND CARRIAGE INWARDS

when a customer returns purchases ( sales return) , and these must be taken away from sales to show the correct revenue.

Balance Sheet

2015-03-05 10:05:05 UTC

Mob current assets:

● Assets that are for long term use and which remains in the businessfor more than one year. e.g Equipment, Motor Vehicle.

Current Assets:

●Cash itself and assets which will be changed to cash within the year. For resale. e.g Closing Invetories.

Current Liabilities:

●Amounts owing which the business has to pay within a year. e.g Trade Payables, Bank Overdraft.

Non-Current Liabilities:

●Amounts owing repayable in more than one year. e.g Bank Loan.

Cash book

2015-03-05 10:05:34 UTC

Movement of money either cash or bank

Double entry bookkeeping

2015-03-05 10:05:35 UTC

➡ASSESTS > increase > Debit

Decrease> Credit

➡LIABILITIES > Increase > Credit

Decrease > Debit

➡CAPITAL > Increase > Credit

Annual depreciation

2015-03-05 10:05:35 UTC

Cost of sales÷ expected useful life of an asset

CROPOC

2015-03-05 10:06:08 UTC

Commision - an amount is posted to an incorrect account of the correct type.

Reversal - the account that should have been debited is credited and vice versa.

Omission - where a transaction is completely immured from the books of account.

Principle - an amount is posted to an incorrect class of account.

Original Entry - an error is made transferring an amount from the source document into the books of original entry.

Compensating - equal and opposite errors cancel each other out.

DEAD CLIC

2015-03-05 10:06:24 UTC

Debit - Expense Assets Drawings

Credit - Liabilities Income Capital

PUPAT

2015-03-05 10:07:00 UTC

Posting- 2 Drs or 2 Crs

Unequal posting- Dr and Cr are differnt amounts

Partial omission- one side is not posted

Addition- balanced off wrong

Transportation- numbers in wrong order

Source Documents

2015-03-05 10:07:39 UTC

When a transaction takes place between two businesses, a source document starts the accounting system and allows us to put something into the books of original entry.

Transaction - Source Document

Purchase of inventory on credit - Purchase invoice

Sales of goods/services on credit - Sales invoice

Purchase returns (credit) - Credit note (Purchase)

Sales returns (credit) - Credit note (sales)

Payment for goods/services by cash - Receipt

Money paid into business bank account - Bank paying in slip

Cheque sent to pay a supplier - Cheque counterfoil (Stub)

Direct debit or Standing order payment - Bank statement

Credit transfer received - Bank statement

Day books

2015-03-05 10:08:05 UTC

The 6 types of day books are

Sales day book - records all invoices issued to customers for goods on credit

Sales returns day book - records when a customer returns a good back to the business

Purchase day book - records all credit invoices for goods on resale

Purchase returns day book - when a business returns goods to the supplier

Cash book - transaction involving money

Journal - when an asset is brought on credit

2015-03-05 10:08:32 UTC

Assets- increase - debit

- decrease - credit

Bad Debt

2015-03-05 10:08:37 UTC

A bad debt occurs when a Trade Receivable can't pay back an amount that is owed.

Dr - Bad Debt Account

Cr - The customers account

Bank Reconciliation Statement Layout

2015-03-05 10:09:54 UTC

Balance as per updated cashbook

Add unpresented cheques

Less lodgements outstanding

Balance as per bank statemant

Balancing off Accounts

2015-03-05 10:10:09 UTC

Balance Cd is closing balance at the end of the month.(Carried down) to make both sides equal. Balance Bd is opening balance of beginning of the usually brought down on higher side

Bank reconciliation

2015-03-05 10:10:57 UTC

the process through which the business checks the accuracy of the business bank account by comparing it to the bank statement and include entries which are missing

Depreciation- straight line

2015-03-05 10:11:04 UTC

(The assest at cost- residual value)/how many years you expect to keep it

Control Accounts

2015-03-05 10:11:38 UTC

In the sales ledger control account the opening balance will be a DR because it acts as a double check on the sales ledger which records trade receivables.Items which increase the amount receivables owe go on the DR side.Items which reduce what receivables owe go on the CR side.For the purchases ledger control account the opening balance will be a CR.

Control accounts

2015-03-05 10:11:46 UTC

Cr contra on sales

and bal bd on Dr side.

Sales control- receivables going up Dr

Receivables going down is Cr

Purchase control- payables going up is Cr

Payables going down is Dr

2015-03-05 10:13:21 UTC

Bank rec

Double Entry

2015-03-05 10:14:09 UTC

Assets - increase - debit

Assets -decrease- credit

Liabilities-increase-credit

Liabilities-decrease-debit

Capital-increase-credit

Purchases-debit

Purchases returns- credit

Sales-credit

Sales returns-debit

Pupat

2015-03-05 10:14:33 UTC

Straight line depreciation

2015-03-05 10:17:43 UTC

A reduction in the value of an asset over time due to particular wear and tear.

Depreciation is an expense, therefore it would go under the expenses heading.

Cost - Residual Value

-------------------------------------

Expected life of the asset

Cash book

2015-03-05 10:18:51 UTC

Cash balance must always be balance C/D on the CR side

2015-03-05 10:19:11 UTC

Assets= Capital - Liabilities

2015-03-05 10:22:08 UTC

Error of Omission

2015-03-05 10:24:24 UTC

Where a transaction is completely left out of the accounting books

General Journal

anita_chandard — 2016-12-02 21:05:21 UTC

A General Journal could be used to:
1. Record non-regular transactions
2. Record opening entries of a business
3. Transfer amounts to the final accounts
4. Correct errors