Accounting

Revision
ACCN1
 Double-Ent
ry
Book-Keepi
ng:
First Princip
l es
 Debits & Credits
0 DEAD – DEBTOR EXPENSES ASSETS DRAWINGS
0 CLIC – CREDITOR LIABILITIES INCOME CAPITAL
0 Debit entry: the account which gains value, or records an
asset or expense.
0 Credit entry: the account which gives value, or records a
liability or income item.
Dr Cr
 Bank & Cash Accounts
0 For both the bank and cash accounts the rules for debit and
credit are different:
0 Money in is recorded on the debit side
0 Money out is recorded on the credit side

Dr Bank/Cash Account Cr

Money in Money out

 Running Balance
0 A running balance is different from a T account as it gives
the balance and whether it is debit or credit. If the balance
is debit then there is money in that account whilst if it is a
credit then it means that the account is in debt.
Date Debit Credit Balance

20-1 £ £ £
1 Sep Capital 5,000 5,000 Dr
4 Sep Office Equipment 2,500 2,500 Dr
7 Sep Rent paid 500 2,000 Dr
10 Sep Commission 100 2,100 Dr
12 Sep Drawings 250 1,850 Dr
16 Sep J Henderson: Loan 1,000 2,850 Dr
 Double-Ent
ry
Book-Keepi
ng:
Further
Transaction
s
 Credit Purchases
0 Credit purchases are goods or services from a supplier,
with payment to be made later. They are known as a trade
payable. The entries are:
0 Debit purchases account (or non-current asset account)
0 Credit trade payable’s account
0 When a payment is made to the trade payable the entries
are:
0 Debit trade payable’s account
0 Credit bank or cash account
 Credit Sales
0 Credit sales are goods or services sold to a customer who is
allowed to pay at a later date. They are known as a trade
receivable. The entries are:
0 Debit trade receivable’s account
0 Credit sales account
0 When the trade receivable pays the outstanding amount,
the entries are:
0 Debit bank or cash account
0 Credit trade receivable’s account
 Purchase & Sales Returns
0 A purchase return is where goods are returned to the
supplier (trade payable), e.g. faulty. The entries for this are:
0 Debit trade payable’s account
0 Credit purchase returns account

0 A sales return is where a customer (trade receivable)

returns goods. The entries for this are:
0 Debit sales returns account
0 Credit trade receivable’s account
Carriage Inwards & Outwards
0 Carriage is the cost of transporting goods when they are
bought and sold.

0 Carriage inwards is where the buyer pays the carriage.

0 Carriage outwards is where the seller pays the carriage, e.g.
free delivery for the buyer.

0 Both carriage inwards and outwards are expenses and

should be placed in their accounts respectively.
General Principles Of Debits
0 Debits include:
0 Purchase of goods for resale,
0 Sales returns,
0 Purchases of non-current assets,
0 Expenses and overheads incurred by the business,
0 Trade receivables where money is owed to the business,
0 Money received through the cash or bank accounts,
0 Drawings made by the owner of the business,
0 Liability repayment
General Principles Of Credits
0 Credits include:
0 Sale of goods,
0 Purchase returns,
0 Sale of non-current assets,
0 Income received,
0 Trade payables where money is owed by the business,
0 Money paid out through cash or bank accounts,
0 Capital introduced by the owner,
0 Liabilities received by the business
 Types Of Account
Ledger accounts

Impersonal Personal
Accounts of people and
businesses e.g. trade
receivables and trade
payables
Real Nominal
Accounts of ‘things’ e.g. Accounts recording
cash, bank, computers income and expenses
e.g. sales, purchases
 Source
Documents
 Purchase Order
0 A purchase order is prepared by the buyer and is sent to
the seller. Information normally found on a purchase order
are:
0 Reference number of purchase order,
0 Name and address of buyer,
0 Name and address of seller,
0 Full description of goods, reference numbers, quantity and
unit price,
0 Date of issue,
0 Signature of person authorising order
 Delivery Note
0 When a business sells goods and delivers them to the
buyer, a delivery note is prepared and sent with the goods,
it gives details of what is being delivered. When the goods
are received by the buyer, they can check to ensure that the
correct goods have been delivered.
 Invoice
0 An invoice is prepared by the seller and is sent to the buyer,
who then uses it for book-keeping transactions. The invoice
is basically a demand for payment and usually includes:
0 Invoice number,
0 Name and address of seller,
0 Name and address of buyer,
0 Date of sale,
0 Date that goods are supplied, quantity and unit price,
0 Details of trade discount,
0 Total amount of money due,
0 Terms of trade
 Invoice
INVOICE
TREND FASHION DESIGNS LIMITED
Unit 45 Elgar Estate, Broadfield, BR74ER
Tel 01927 765314 Fax 01908 765951

Invoice to
Zing Fashions Invoice no 787923
4 Friar Street Account 3993
Broadfield Reference 47609
BR1 3RF

Deliver to
As above Date 01 10-5

Product Description Quantity Unit Unit Total Trade Net

code Price £ discount £
£ %

45B Trend tops 40 12.50 each 500.00 10 450.00

(black)

TOTAL 450.00
Terms
Net 30 days
Carriage paid
E & OE
 Credit Note
0 If the buyer returns goods to the seller for any reason e.g.
faulty, or a reduction in the amount owed is required then a
credit note is prepared and sent. It records the amount of
the allowance made to the buyer.

0 A credit note can be issued (sales credit note) or received

(purchase credit note).
 Credit Note
CREDIT NOTE
TREND FASHION DESIGNS LIMITED
Unit 45 Elgar Estate, Broadfield, BR74ER
Tel 01927 765314 Fax 01908 765951

To
Zing Fashions Credit note no 12157
4 Friar Street Account 3993
Broadfield Reference 47609
BR1 3RF Our invoice 787923
Date 10 10-5

Product Description Quantity Unit Unit Total Trade Net

code Price £ discount £
£ %

45B Trend tops 2 12.50 each 25.00 10 22.50

(black)

TOTAL 22.50
Reason for credit
2 tops received damaged
(Your returns note no. R/N 2384)
 Statement Of Account
0 Often at the end of each month, the seller sends a statement
of account to every trade receivable. A statement of account
is a list of transactions between the buyer and the seller.
Information likely to be found on a statement of account is:
0 Name and address of seller,
0 Name and address of trade receivable,
0 Date of statement,
0 Details of transactions, e.g. invoices, credit notes, payments,
0 Balance currently due
 Statement Of Account STATEMENT OF ACCOUNT
TREND FASHION DESIGNS LIMITED
Unit 45 Elgar Estate, Broadfield, BR74ER
Tel 01927 765314 Fax 01908 765951

To
Zing Fashions
4 Friar Street Account 3993
Broadfield
BR1 3RF Date 31 10-5

Date Details Debit Credit Balance

£ £ £
01 10-5 Invoice 787923 450.00 450.00
10 10-5 Credit note 12157 22.50 427.50

AMOUNT NOW DUE 427.50

 Cash Receipts
0 When a payment is made to the trade payable (seller), a
receipt is given. This can either be a machine-produced
receipt or a handwritten receipt.

0 Although being called ‘cash receipts’, they are issued

whatever payment method is used – cash, cheque, card.
 Cash Receipts
Everest Sports ENIGMA MUSIC LIMITED Receipt 958
15 High St Mereford 13 High Street, Mereford, MR1 2TF
08 10-5 15.05

R V Williams
Customer ……………………………………………………. 3 Oct 20-5
Date…………………………..
Salesperson: Tina

Tennis balls 5.99 ‘Golden Oldies’ by J Moore £20.00

Shin guards 8.99
TOTAL 14.98
CASH 20.00
CHANGE 5.02

£20.00
Thank you for your custom Total

Please retain this receipt in

case of any query

A till receipt A hand-written receipt

 Paying-in Slip Counterfoils
0 For businesses a paying-in book is usually issued, which has two
parts. It has two identical halves which are both filled in with
the correct information, when paid in the bank tear off one half
and stamp it and keep, whilst they stamp the other half and the
business keeps it. The retained half can then be used to cross
reference the amount paid in to the bank statement.

0 A paying-in slip counterfoil can contain cash and cheques,

however when entering cash amounts on a paying-in slip, it
must be broken down into its notes and coins e.g. £50s, £20s,
£10s, £5s, £1/2s, 50ps, 20ps, 10ps, 5ps etc.
 Paying-in Slip Counterfoils
Date 2 . 4 . -3 Date 2 . 4 . -3 bank giro credit £50 notes
Credit Wyvern Ltd Cashier’s stamp £20 notes 40 00
and initials
£50 notes £10 notes
National Bank 50 00
£20 notes £5 notes
40 00 Mereford 25 00
£10 notes £1/£2
50 00 4 00
£5 notes Credit: Wyvern (Office Products)
25 00 50p 1 50
Limited
£1/£2 20p
4 00 80
50p 1 50 Code: 60-24-48 Account: 01099124 10p, 5p 25
20p 80 Bronze 17
Paid in by T. Johnson
10p, 5p 25 Total Cash
Number of 121 72
Bronze cheques Cheques etc. 363 32
17
Total Cash 485 04
121 72 3 £
Cheques etc. 363 32 Do not write below this line

485 04 60-24-48 01099124 77

£

Counterfoil Paying-in slip (front)

 Paying-in Slip Counterfoils
Counterfoil Cheques

158 97 158 97
CAMTEC LTD
104 35 104 35
BRUSON & CO
100 00 100 00
J LEWIS

£ 363 32 Carried over £ 363 32

Counterfoil Paying-in slip (back)

 Cheque Counterfoils
0 In a cheque book there are two parts, a ‘stub’ (counterfoil)
and the cheque. The cheque is filled in with: the payee,
amount (written in words and numbers), date and also the
signature of the person authorising the cheque (a signatory
on the bank account). The counterfoil is then retained by
the business and this contains: the date, the payee and also
the amount, it also contains the cheque number so it can be
cross referenced with the bank account.
 Cheque Counterfoils
Date 31/10/-5 Albion Bank PLC Date 31 October 20-5 90 47 17
12 The Avenue
Broadfield BR1 2AJ
Pay

Cool Socks Limited

Pay Cool Socks Limited
£ 249.57
Two hundred and forty nine pounds and fifty seven

pence only
£ 249.57 V Williams
238628 238628 90 47 17 11719512
Cash Discou
nt
 Cash Discount
0 Cash discount (or settlement discount) is an allowance
deducted from the invoice amount for a quick settlement,
e.g. 2% cash discount for full settlement within 7 days.

0 A business can be involved with cash discount in 2 ways:

0 Discount allowed to trade receivables
0 Discount received from trade payables
 Discount Allowed
0 The amount of payment received from the trade receivable
is entered in the bank account.
0 The amount of discount allowed is entered in both the
trade receivable’s account and the discount allowed
account:
0 Debit discount allowed account
0 Credit trade receivable’s account

0 Discount allowed is an expense of the business because it

represents the cost of collecting payment more speedily.
 Discount Received
0 A business can receive discount from trade payables and
the amount is entered as:
0 Debit trade payable’s account
0 Credit discount received account

0 Discount received account is an income account.

 Balancing
Accounts:
The Trial Ba
lance
 Method Of Balancing
0 Step 1:
0 Entries in the debit and credit columns are sub-totalled and
is recorded on a separate piece of paper.
0 Step 2:
0 The difference between the two totals is the balance of the
account and this is entered on the account:
0 On the side with the smaller total,
0 With the date of balancing (often end of month),
0 With the description ‘balance c/d’ (balance carried down)
 Method Of Balancing
0 Step 3:
0 Both sides are now totalled, including the balance just
entered, and both totals are double underlined. The double
underline shows that the account has been balanced at that
point using the figures above.
0 Step 4:
0 As it is double-entry book-keeping, there must be an
opposite entry to ‘balance c/d’. On the opposite side of the
‘T’ account an entry is made with the next date after
‘balance c/d’ and a description of ‘balance b/d’ is entered.
 Extracting A Trial Balance
0 The book-keeper extracts a trial balance from the
accounting records so they can check the arithmetical
accuracy of the double-entry book-keeping.
Trial Balance of A-Z Suppliers as at 31 January 20-1
Dr Cr
Name of account £ £
Purchases 750
Sales 1,600
Sales returns 25
Purchase returns 50
J Brown (trade receivable) 155
T Sweet (trade payable) 110
Rent 100
Wages 150
Heating and lighting 125
Office equipment 500
Machinery 1,000
Cash 50
Bank 455
J Williams – loan 800
Capital 1,000
Drawings 250

3,560 3,560
If The Trial Balance Doesn’t
Balance . . .
0 If the trial balance fails to balance, then there is an error
(or errors):
0 Either in the addition of the trial balance,
0 And/or in the double-entry book-keeping
0 To find the error(s):
0 Check the addition of the trial balance,
0 Check the balance of each account has been entered
correctly and under the correct heading – debit or credit,
0 Check the balance of each account has been included
 Errors Not Shown By Trial
Balance
0 Error of omission: a business transaction has been
completely missed off.
0 Reversal of entries: debit and credit entries have been
made in the accounts, but on the wrong side of the two
accounts concerned. E.g. a cash sale has been entered debit
of sales and credit of cash, when it should have been credit
of sales and debit of cash.
0 Error of commission: a transaction is entered to the
wrong account e.g. A J Hughes rather than J A Hughes.
 Errors Not Shown By Trial
Balance
0 Error of principle: a transaction has been entered to the
wrong type of account. E.g. petrol to the van account,
rather than to the petrol account as it isn’t an asset.
0 Error of original entry: the correct accounts have been
used but the amount is wrong. E.g. £54 is entered as £45.
0 Compensating error: where 2 errors cancel out. E.g. £10
too much in the purchases account but also £10 too little in
the sales account.
 Importance Of The Trial
Balance
0 The trial balance is used as a starting point for the
production of the final accounts of a business. These final
accounts are:
0 Income statement,
0 Balance sheet

0 The final accounts show the owner how profitable a

business has been, what the business owns and also how
the business is financed.
 Division Of
Th e
Ledger:
The Use Of
Subsidiary B
ooks
Use Of The Divisions Of The
Ledger
0 Purchase of goods on credit:
0 General ledger – debit purchases account
0 Purchases ledger – credit trade payable’s account
0 Purchase of goods by cheque:
0 General ledger – debit purchases account
0 General ledger – credit bank account
0 Sale of goods on credit:
0 Sales ledger – debit trade receivable’s account
0 General ledger – credit sales account
0 Sale of goods for cash:
0 General ledger – debit cash account
0 General ledger – credit sales account
 Sales Day Book
0 A sales day book is used by a business that has a lot of sale
transactions on credit. It is a list of transactions, which is
totalled – daily, weekly, monthly etc. The total is then
transferred to the sales account as a single transaction, e.g.
31 Jan, Sales day book, £300.
Sales Day Book
Date Details Invoice Reference Amount
20-1 £
3 Jan E Doyle 901 SL 58 80
8 Jan A Sparkes 902 SL 127 200
12 Jan T Young 903 SL 179 80
18 Jan A Sparkes 904 SL 127 120

31 Jan Total for month 480

 Sales Day Book
Goods sold on credit

Sales day book

Sales ledger General ledger

Debit to trade receivable’s Credit to sales account

account
 Purchases Day Book
0 A purchases day book is used by a business that a lot of
purchase transactions on credit. It is a list of transactions,
which is totalled – daily, weekly, monthly etc. The total is
then transferred to the purchases account as a single
transaction, e.g. 31 Jan, Purchases day book, £250.
Purchases Day Book
Date Details Invoice Reference Amount
20-1 £
2 Jan P Bond 1234 PL 525 80
11 Jan D Webster A373 PL 730 120
16 Jan P Bond 1247 PL 525 160

31 Jan Total for month 360

 Purchases Day Book
Goods bought on credit

Purchases day book

General ledger Purchases ledger

Debit to purchases account Credit to trade payable’s

account
 Sales Returns Day Book
0 The sales returns day book is used for goods previously
sold on credit and are now being returned.

Sales Returns Day Book

Date Details Credit Note Reference Amount
20-1 £
15 Jan T Young CN702 SL 179 40
25 Jan A Sparkes CN703 SL 127 120

31 Jan Total for month 160

Sales Returns Day Book
Goods sold on credit returned

Sales returns day book

General ledger Sales ledger

Debit to sales returns Credit to trade receivable’s

account account
Purchase Returns Day Book
0 The purchase returns day book is used for goods
previously bought on credit and are now being returned.

Purchase Returns Day Book

Date Details Credit Note Reference Amount
20-1 £
6 Jan P Bond 406 PL 525 40
20 Jan D Webster 123 PL 730 40

31 Jan Total for month 80

Purchase Returns Day Book
Goods bought on credit returned

Purchase returns day

book

Purchases ledger General ledger

Debit to trade payable’s Credit to purchase returns

account account
 Analysed Day Books
0 An analysed day book is used when a business needs to
split its purchases, sales or returns between different
products, departments, or between different geographical
areas.
Analysed Purchases Day Book
Date Details Invoice Reference Paint Wallpaper Total

20-1 £ £ £
8 Jan DIY Wholesalers Ltd 5478 PL 210 75 125 200
12 Jan Luxor Paints Ltd A869 PL 360 120 - 120
16 Jan Bond Supplies 9740 PL 150 180 100 280
22 Jan Southern Manufacturing Co 2162 PL 450 60 100 160

31 Jan Total for month 435 325 760

The Main Ca
sh
Book
Uses In The Accounting System
0 For most businesses, control of cash takes place in the main
cash book which records receipts or payments in cash/by
cheque/or bank transfer.
0 The main cash book is:
0 A subsidiary book for cash and bank transactions,
0 The double-entry accounts for cash and bank.
Uses Of The Main Cash Book
0 Cash transactions:
0 Receipts in cash
0 Payments in cash (except for low-value expense payments)
0 Bank transactions:
0 Receipts by cheque and bank transfers (cash payment into
the bank)
0 Payments by cheque and bank transfers (cash withdrawal
from the bank)
 Layout Of The Main Cash Book
Date Details Ref Discount Cash Bank Date Details Ref Discount Cash Bank
allowed received
£ £ £ £ £ £
Checking The Main Cash Book
0 Cash
0 To check the cash columns, it is a matter of counting the
cash in the cash tin or till and checking it against the
balance shown in the cash book.
0 Bank
0 To check the bank balance, the balance in the cash book
could be checked against the balance on a bank statement
or against the bank’s online system.
 Bank Receipts & Payments
0 Standing Orders
0 These are regular payments made from the bank account on the
same date and for the same amount each time.
0 Direct Debits
0 These are payments made from the bank account and direct
debits are used when the amount or payment date varies.
0 Credit Transfers
0 These can be receipts or payments, which are paid or received
through banks electronically (BACS).
0 Bank Charges & Interest
0 Bank charges are made by the bank for services provided and
interest is charged on loans and overdrafts provided by the bank.
 Bank
Reconciliati
on
Statements
Need For Bank Reconciliation
Statements
0 The need for bank reconciliation statements is because of
timing differences between the cash book and the bank
statement.
0 Unpresented cheques: cheques that have been issued to
trade payables but have not been ‘cashed’ into the bank at
the time of the bank statement being printed.
0 Outstanding lodgements: monies paid into the bank, e.g.
cheques, but have not appeared on the bank statement at
the time of printing.
 Updating The Cash Book
0 There can be other reasons for differences between the
cash book and the bank statement and that may be because
of payments or receipts recorded on the bank statement
but not in the cash book and so these need to be entered.
0 Receipts: credit transfers received and interest credited by
the bank.
0 Payments: standing orders and direct debit payments, bank
charges and interest and unpaid cheques that have been
returned.
 The Bank Reconciliation
Statement
0 Reconciliation of the two different balances is done as:
1. Tick off items that appear in the cash book and bank
statement
2. Unticked items on the bank statement are entered into
the cash book
3. The cash book is balanced again to find a new balance
4. The unticked items on the cash book will be the timing
differences
5. The timing differences will be used to create the bank
reconciliation statement
 Creating A Bank
Reconciliation Statement
1. Start the statement with the balance brought down figure
shown in the cash book
2. Add the unticked payments in the cash book – these will
be unpresented cheques
3. Less the unticked receipts in the cash book – these will
be outstanding lodgements
4. The resultant amount on the statement should be the
balance shown on the bank statement
A Bank Reconciliation Statement
XYZ TRADING LTD
Bank Reconciliation Statement as at 31 October 20-1

£ £

Balance at bank as per cash book 525

Add: unpresented cheques

J Lewis cheque no. 0012378 60

ABC Ltd cheque no. 0012392 100

Eastern Oil Company cheque no. 0012407 80

240

765

Less: outstanding lodgements 220

300

520

Balance at bank as per bank statement 245

Dealing With Unusual Items
On Bank Statements
0 Out-of-date cheques: these are cheques that are more than
six months old. The bank will not pay these cheques and so
can be debited on the bank account.
0 Returned cheques: these are cheques that have been
returned by the trade receivable’s bank as they have
insufficient funds or the bank has been instructed to ‘stop’
the cheque.
0 Bank errors: bank errors could be anything that the
business does not know about or was expecting and so
should be queried with the bank and not entered into the
cash book.
 Importance Of Bank
Reconciliation Statements
0 Any errors in either the cash book or the bank statement
can be found and corrected.
0 The bank statement is an independent document, and so
will help to reduce the risk of fraud.
0 By keeping the cash book up-to-date, there is a bank
balance that can be used in a trial balance.
0 Out-of-date cheques can be identified and written back in
the cash book.
Introductio
n To
Final Accou
nts
 Final Accounts & The Trial
Balance
0 The trial balance is used to extract the figures for the final
accounts that a business may prepare at the end of the year
for tax reasons, stakeholders and government agencies
who require annual accounts, e.g. Companies House.
 Income Statement
0 The income statement is used to find out net profit for a
business over a year. It is worked out as:
0 Revenue – sales returns = net revenue
0 Opening inventory + purchases + carriage in – purchase
returns = net purchases
0 Net purchases – closing inventory = cost of sales
0 Net revenue – cost of sales = gross profit
0 Gross profit + other income – expenses = net profit
 Income Statement
INCOME STATEMENT FOR WYVERN WHOLESALERS
FOR THE YEAR ENDED 31 DECEMBER 20-1

£ £

Sales Revenue 250,000

Less sales returns 5,400

Net revenue 244,600

Opening inventory 12,350

Purchases 156,000

Carriage in -

Less purchase returns 7,200

Net purchases 148,800

Less closing inventory 16,300

Cost of sales 144,850

Gross profit 99,750

 Income Statement
INCOME STATEMENT FOR WYVERN WHOLESALERS
FOR THE YEAR ENDED 31 DECEMBER 20-1

£ £

Gross profit 99,750

Add discount received 2,500

102,250

Less expenses:

Discount allowed 3,700

Salaries 46,000

Electricity and gas 3,000

Rent and rates 2,000

Sundry expenses 4,700

59,400

Profit for year 42,850

 Balance Sheet
0 The balance sheet is used to show how ‘liquid’ a business is
and can be taken at any point.
0 It is worked out as non-current assets – (current assets –
current liabilities = working capital) – non-current
liabilities = net assets
0 It is then worked out how it has been financed which is:
capital + profit for the year – drawings.

0 Both figures should equal each other when complete.

 Balance Sheet
BALANCE SHEET FOR WYVERN WHOLESALERS
AS AT 31 DECEMBER 20-1

£ £
Non-current assets
Property 100,000

Equipment 30,000

130,000

Current assets
Inventory 16,300

Trade receivables 23,850

Cash 125

40,275

Less current liabilities

Trade payables 12,041

Bank overdraft 851

12,892

Working capital 27,383

 Balance Sheet
BALANCE SHEET FOR WYVERN WHOLESALERS
AS AT 31 DECEMBER 20-1

£ £
Working Capital 27,383
157,383

Less non-current liabilities

Loan 11,500

NET ASSETS 145,883

FINANCED BY

Capital 113,475

Profit for year 42,850

156,325
Less drawings 10,442

145,883
 Assets & Liabilities
0 Assets are items or amounts owned or owed to the
business. Non-current assets are long-term and will be
used over a long period (more than 12 months). Current
assets are short-term and will be used within 12 months.

0 Liabilities are items or amounts owed by a business. Non-

current liabilities are where repayment is due in more than
12 months, whilst current liabilities are due to be repaid
within 12 months.
Double-Entry Book-Keeping &
The Final Accounts
0 When balances are taken to form the income statement, the
individual accounts need to be balanced to have a ‘nil’
balance ready for a new year, so in the individual accounts
if they have a debit balance then a credit entry is made with
income statement as the details and the amount
transferred to the income statement.
 The Genera
l
Journal &
Correction O
f
Errors
Uses Of The General Journal
0 The general journal can be used to record non-regular
transaction such as:
0 Opening entries at the start of a business
0 Purchase and sale of non-current assets
0 Correction of errors
0 Year end ledger transfers
 Opening Entries
0 If a business starts with £100 cash, £5,000 bank, £1,000
inventory, £2,500 machinery, £850 trade payables and
£7,750 capital then the general journal would look like:
Date Details Reference Debit Credit
20-2
1 Feb Cash GL 100
Bank GL 5,000
Inventory GL 1,000
Machinery GL 2,500
Trade payables PL 850
Capital GL 7,750
8,600 8,600
 Purchase Of Non-current
Assets On Credit
0 If a business bought a machine on credit for £1,000 from
Machinery Supplies Ltd then the journal entry would look
like:
Date Details Reference Debit Credit
20-3
15 Apr Machinery GL 1,000
Machinery Supplies Ltd PL 1,000
Sale Of Non-current Assets On
Credit
0 If a business sold a car on credit for £2,500 to Wyvern
Motors Ltd then the journal entry would look like:

Date Details Reference Debit Credit

20-3
20 May Wyvern Motors Ltd SL 2,500
Disposals GL 2,500
 Correction Of Errors
0 To avoid errors occurring ways to do this are:
0 Using independent people to check accounts
0 Extraction of a trial balance at regular intervals
0 Bank reconciliation statements at regular intervals
0 Using control accounts
0 Using a computer accounting system
 Errors Not Shown By The
Trial Balance
0 There are six errors not shown by the trial balance and can
be remembered by:
0 Commission
0 Omission
0 Principle
0 Compensating
0 Original entry
0 Reversal of entries
 Error Of Omission
0 If a credit sale for £200 to H Jarvis was omitted from the
accounts then it would be corrected in the ledger as:
Date Details Reference Debit Credit
20-8
12 May H Jarvis SL 200
Sales GL 200
 Reversal Of Entries
0 If a payment made by cheque to S Wright had been debited
in the cash book and credited to S Wright’s account then it
would be corrected in the ledger as:
Date Details Reference Debit Credit
20-8
12 May S Wright PL 50
Bank GL 50
S Wright PL 50
Bank GL 50
100 100
 Error Of Commission
0 If a credit sale for £47 have been debited to J Adams,
instead of J Adams Ltd so it would be corrected in the
ledger as:
Date Details Reference Debit Credit
20-8
15 May J Adams Ltd SL 47
J Adams SL 47
 Error Of Principle
0 If a payment for £30 of diesel has been debited to the
vehicles account instead of the vehicle expenses account it
would be corrected in the ledger as:
Date Details Reference Debit Credit
20-8
20 May Vehicle expenses GL 30
Vehicles GL 30
 Error Of Original Entry
0 If a payment for postages of £45 have been entered into the
accounts as £54 then the error would be corrected in the
ledger as:
Date Details Reference Debit Credit
20-8
27 May Bank GL 54
Postages GL 54
Postages GL 45
Bank GL 45
99 99
 Compensating Error
0 If rates are added up £100 more than they should be and
sales is also added up £100 too much then the error would
be corrected in the ledger as:
Date Details Reference Debit Credit
20-8
31 May Sales GL 100
Rates GL 100
 Use Of A Suspense Account
0 There are errors revealed by a trial balance and these
include:
0 Omission of one part of the double-entry transaction
0 Recording two debits or two credits for a transaction
0 Recording different amounts on the debit and credit sides
0 Errors in the calculations
0 Error in the transfer from the accounts to the trial balance
0 Error of addition in the trial balance
0 When these errors are shown, the trial balance is balanced
and the difference is recorded in a suspense account.
 Suspense Accounts
0 If a trial balance has a credit difference of £150 it is
recorded in a suspense account on the credit side.
0 If errors are then found in the accounts of:
0 Sales being undercast by £100
0 Payment to A Wilson of £65 being recorded as £56
0 Telephone expenses of £55 not being entered
0 Stationery expenses of £48 being debited to the stationery
and bank account
0 These errors are corrected by entering them into the
general journal.
 Suspense Accounts
Date Details Reference Debit Credit
20-2 £ £
15 Jan Suspense GL 100
Sales GL 100
15 Jan Bank GL 56
Suspense GL 56
Suspense GL 65
Bank GL 65
121 121
15 Jan Telephone expenses GL 55
Suspense GL 55
15 Jan Suspense GL 48
Bank GL 48
Suspense GL 48
Bank GL 48
96 96
 Suspense Accounts
0 The suspense account below will show how it balances after the
£150 credit balance from the trial balance and the errors that
were recorded in the general journal.
Dr Cr
Suspense Account
20-2 £ 20-1 £
15 Jan Sales 100 31 Dec Trial balance difference 150
15 Jan Bank 65 20-2
15 Jan Bank 48 15 Jan Bank 56
15 Jan Bank 48 15 Jan Telephone expenses 55
261 261

0 Now all the errors have been found and corrected, the suspense
account has a ‘nil’ balance and can be closed.
 Corrected Profit
0 Some errors can affect profit for a business and so a
statement of corrected profit may need to be drawn up.
0 To create a statement of corrected profit you take the profit
for year and add any errors which gives the business
revenue and the less any errors which is an expense for the
business to give you the ‘adjusted profit for year’.
 Corrected Profit
Statement of corrected profit for the year ended 31 December 20-1

Profit for the year (unadjusted) 10,000

Add sales undercast 100

10,100

Less additional telephone expenses 55

Adjusted profit for the year 10,045

 Year End Ledger Transfers
0 Other non-regular transactions that need to be recorded,
usually take place at the end of the business’ financial year
and include:
0 Transfers to the income statement
0 Expenses charged to the owner’s drawings
0 Goods for the owner’s use
0 Bad debts written off
Revenue & Expenses Year End
Ledger Transfers
Date Details Reference Debit Credit

20-1 £ £
31 Dec Sales GL 155,000
Income statement GL 155,000

Date Details Reference Debit Credit

20-1 £ £
31 Dec Income statement GL 105,000
Purchases GL 105,000
Expenses & Goods Charged To
The Owner
Date Details Reference Debit Credit

20-1 £ £
31 Dec Drawings GL 150
Telephone GL 150

Date Details Reference Debit Credit

20-1 £ £
31 Dec Drawings GL 105
Purchases GL 105
 Bad Debts Written Off
Date Details Reference Debit Credit

20-1 £ £
31 Dec Bad debts written off GL 25
T Hughes SL 25
Control Acc
ounts
Sales Ledger Control Account
0 The sales ledger control account is a ‘T’ account that takes
the same form as an individual account, but it takes all
figures and adds them together to check arithmetical
accuracy of the accounts.
0 The sales ledger control account is set out as:
Dr Cr
Sales Ledger Control Account
£ £
Balance b/d Cash/cheques received
Credit sales Cash discount allowed
Returned cheques Sales returns
Interest charged to trade Bad debts written off
receivables Contra entries
Balance c/d
 Purchases Ledger Control
Account
0 The purchases ledger control account is a ‘T’ account that
takes the same form as an individual account, but it takes
all figures and adds them together to check arithmetical
accuracy of the accounts.
0 The purchases ledger control account is set out as:
Dr Cr
Purchases Ledger Control Account
£ £
Cash/cheques paid Balance b/d
Cash discount received Credit purchases
Purchase returns Interest charged by trade
Contra entries payables
Balance c/d
 Contra Entries
0 Contra entries are used if a person has an account in the
sales ledger and the purchases ledger. To save on sending
payments to each other, the accounts can be settled by one
account setting-off the opposite account. Entries should be
made as:
Dr Cr
A Smith (Sales Ledger)
£ £
Balance b/d 200 Contra: purchases ledger 200

Dr Cr
A Smith (Purchases Ledger)
£ £
Contra: sales ledger 200 Balance b/d 300
 Sources Of Information For
Sales Control Accounts
0 Total credit sales- from the sales day book
0 Total sales returns – from the sales returns day book
0 Total cash/cheques received – from the main cash book
0 Returned cheques – from the main cash book
0 Total discount allowed – from either the main cash book or
from the discount allowed account
0 Bad debts – from the general journal or the bad debts
written off account
0 Contra entries – from the general journal
Sources Of Information For
Purchases Control Accounts
0 Total credit purchases – from the purchases day book
0 Total purchases returns – from the purchase returns day
book
0 Total cash/cheques paid – from the main cash book
0 Total discount received – from the cash book or the
discount allowed account
0 Contra entries – from the general journal
Control Accounts As An Aid
To Management
0 Instant information: a control account can give instant
information of figures for trade receivables or trade payables,
without having to add up the individual accounts.
0 Prevention of fraud: all transactions must be placed into the
control account, so fraudulent transactions will be spotted.
0 Location of errors: control accounts can indicate that there is
an error in the ledger, but can’t pinpoint the error.
0 Preparation of the final accounts: the figures for the totals for
the trade receivables or trade payables can be transferred to
a trial balance for the final accounts.
0 Limitation of control accounts: control accounts do not reveal
errors of omission, commission, original entry or
compensating error.
 Control Accounts & Book-
keeping
0 Control accounts can be used as memorandum records,
which means that they don’t form part of the double-entry
system but are used as separate documents.
0 They are used to check the totals of the trade receivables
and trade payables accounts against the double-entry
records.
Adjustment
s To
Final Accou
nts
 Accrual Of Expenses
0 An accrual of expenses is something that the business has
had the economic advantage of but hasn’t yet paid for it.
0 To enter accruals into the final accounts they need to be
dealt with as being added as an expense in the income
statement and being a current liability in the balance sheet.
 Prepayments Of Expenses
0 A prepayment of expenses is something that the business
has paid for but has not yet had the full economic
advantage of it.
0 To enter prepayments into the final accounts they need to
be dealt with as being deducted from expenses in the
income statement and being a current asset in the balance
sheet.
Depreciation Of Non-current
Assets
0 Depreciation is the fall in value of an item over a period of
time.
0 To calculate depreciation using the straight line method,
the equation is:
cost of asset – estimated scrap sale proceeds
number of years’ expected use of asset

0 Depreciation of non-current assets is recorded as an

expense in the income statement, but is recorded as
provision for depreciation in the balance sheet, which is
the year’s depreciation plus any other previous years’
worth. The balance sheet should show cost – provision for
depreciation = net book value.
 Bad Debts
0 A bed debt is a debt owing to the business, which it thinks
will never be paid.
0 Bad debts is recorded as an expense in the income
statement, whilst in the balance sheet it is trade receivables
– bad debt = figure entered into the balance sheet.
Private Expenses & Goods For
Own Use
0 If business expenses are to be shared between the business
and the owner, the business expense is entered into
expenses on the income statement and the private expense
is to be debited to the owner’s drawings and is entered
onto the balance sheet under drawings.
0 If the owner of a business takes goods for their personal
use, then the purchases account is credited and a lesser
amount is entered onto the income statement, the amount
that the goods cost which the owner used are debited to
the drawings account and are entered into the balance
sheet under drawings.
 Insurance Claims
0 If a business loses inventory as a result of causes they could
not control, then a claim may be made to the insurance
company for the cost of the inventory lost.
0 If a claim is made then the adjustments are:
0 Reduce the figure for purchases by the amount of the claim
0 Show the amount of the agreed claim as a current asset in
the balance sheet