Qn 1 – Final Accounts

one approach

Gabrielle Moran
11th September 2010
Prior to Final Accounts
 Double Entry including accruals/prepayments
to simple P&L and Balance Sheet
 Incomplete records
 Control Accounts – Subsidiary Books
 Depreciation and Disposal
 Correction of Errors
 Bank Reconciliations
Double Entry

 Two aspects to all transactions

 Matching of Debits and Credits

 Double Entry

Accounts Purpose
Record what the firm owns and what is owed to the firm.
Asset
e.g. Vans A/C, Premises A/C, Cash A/C, Debtors A/C
Record what the firm owes.
Liability
e.g. Loan A/C, Bank Overdraft A/C, Creditors A/C
Record the firm’s day to day running expenses.
Expense
e.g. Wages A/C,, Insurance A/C, Purchases A/C
Record day to day income earned by the firm
Revenue
e.g. Sales A/C, Rent Received A/C, Commission A/C
Summary of possible entries

Debit Credit

 Asset  Asset

 Liability  Liability

 Expense  Expense

 Revenue  Revenue
 Debit (Increase) Buying asset for cash or on credit
Lodging money to the bank
Asset A/C Selling goods on credit
Credit (Decrease) Selling asset for cash or on credit
Withdrawing money from bank
Debtors paying what they owe
Liability A/C Debit (Decrease) Paying off part or all what is owed
Credit (Increase) Increasing the amount borrowed
Buying goods on credit
Expense A/C Debit (Increase) Paying an expense
Increasing the amount previously recorded
Credit (Decrease) Decreasing the amount previously recorded

Revenue A/C Debit (Decrease) Decreasing the amount received previously

recorded
Credit (Increase) Record revenue received
Increasing the amount received previously
recorded
 4 Questions to ask
Thus with every transaction you come across you
need to decide:

1. What are the two accounts involved?

2. Which type of account is each one?
3. Does the transaction cause an increase or
decrease in each account?
4. Therefore is it a Dr or Cr?
Double Entry
 Assets and Liabilities – cash & credit, capital
 Purchases, Sales and Returns
 Revenue and expenses
 Drawings – cash, stock, expenses, f. assets
 Debtors & Creditors – discount, interest, bad
debts
 Simple final accounts – two sided
Bringing it all together

At the end of the financial year the Revenue and

Expense Accounts are brought together in the
FINAL ACCOUNTS to ascertain the firm’s profit for
the year.

Asset and Liability Accounts are listed in the

BALANCE SHEET to ascertain the firm’s worth on
a particular date (usually the last day of the
financial year).
Transfer to final accounts
Record the following transactions in the appropriate accounts of An
Other, balance the accounts and prepare final accounts and Bal
Sheet,
1. Owner invested €45,000 in a Business Bank alc.
2. Paid rent by cheque €800.
3. Purchased goods on credit from S. Collins €8,400.
4. Sold goods on credit to J. Reilly €9,600.
5. Sold goods for cash €2,500.
6. Purchased goods by cash €2,000.
7. Paid rent by cash €600.
8. Paid S. Collins by cheque €2000.
9. Returned goods to S. Collins €700.
10. Cash sales lodged €5,650.
11. J. Reilly returned goods €200.
12. Paid wages by cheque €650.
13. J. Reilly paid €5,000 by cheque.
14. Received rent €400 cash.
 Final Accounts – D Entry
Trading Profit and Loss a/c for year ended x/x/09
Rent 1400 Sales 17750
Purchases 10400 P Returns 700
S Returns 200 Rent Rec 400
Wages 650
Balance c/d 6200
18550 18550
Balance b/d 6220
Moving towards “normality”

 Split Trading from P & L

 Trial Balance

 Vertical Approach
Subsidiary Books
 Source documents
 List
 Reduce entries in accounts in nominal ledger
 Smith A/C
Purchases 2500
Purchases /C
A
Purchases 4700
Smith 2500
Adams 3400 Adams A/C
Cranford 5640 Purchases 3400
Murphy 4260
Smith 4700 Cranford A/C
Cranford 2600 Purchases 5640
Purchases 2600
Murphy A/C
Purchases 4260
 Purchases Book
Date Details Inv No Amount
Smith 2500
Adams 3400
Cranford 5640
Murphy 4260
Smith 4700
Cranford 2600
23100
 Smith A/C
Purchases A/C Purchases 2500
Creditors 23100 Purchases 4700

Adams A/C
Purchases 3400
Cranford A/C
1 Debit Purchases 5640
Purchases 2600
matching
Murphy A/C
6 Credits Purchases 4260
Recording Transactions

Stage 1 Stage 2 Stage 3 Stage 4

Source Documents Subsidiary Books Ledger Final Accounts
Double Entry Balance Sheet

Invoices
Sales Book Transfer
[credit purchases and
Purchases Book Post these from the
sales]
transactions Ledger to
Sales Returns Book using ascertain
Credit Notes Purchases Returns Double Entry Profit for
Book Rules the Year and
the Net
Cheque Payments Cheque Payments Book
Worth of the
Company at
Receipts Cash Receipts Book
a point in
time
Anything Else General Journal
Sequence
 Prepayments & Accruals
 Bad Debts Provision
 Simple Incomplete – ord level
 Control Accounts – Subsidiary Books
 Depreciation and Disposal
 Bank Reconciliations
 Final Accounts – ord level building
adjustments
Adding adjustments to ord
Qns
 Writing off some closing stock
 Goods on sale or return
 Bad debts recovered
 Adjusting BDP
 Building extension to premises – own labour
and materials
 Built in accruals and prepayments
Adjustments

 Hardest Part is sorting the English

 Read a Little Talk a Little

Dr Cr
 Use Dr Cr grid
A A
 Make out the accounts L L
E E
R R
Read a little, Talk a little
Students put in pairs/triads
Students read an adjustment silently
Then they stop and ask each other questions
such as:
What information have we
got here?
What did you get from
that?
What sense do you make
of it?

Both team-mates share / integrate their

Full Honours Question
 Read carefully – marking anything hidden in
Trial Balance
 Start with adjustment 1 – prepare T a/cs
 Marking off Trial Balance
 Amber Ltd. Qn 1 2007
€ €
Buildings at cost 902,000
Delivery Vans (cost €280,000) 190,000
Discount (Net) 10,800
Profit and Loss Balance 1/1/2006 17,200
Stocks on hand 1/1/2006 75,200
Debenture interest for the first four 5,000
months
9% Investments 1/1/06 320,000
Patents (incorporating 3 months 24,800
investment income)
Purchase and Sales 1,320,000 1,760,000
Interim dividends for the first 6 months 48,000
Bad Debts Provision 3,200
Debtors and Creditors 100,400 86,600
Bank 44,000
Salaries and general expenses 199,600
8% Debentures 180,000
Issued Share Capital – Ordinary Shares 800,000
– 10%Preference Shares 400,000
Directors fees 48,000
Rent 19,600
Advertising (including Suspense) 14,800
3,284,600 3,284,600
1 Stock 31/12/06 85200 – 4000 =

Patents a/c
2
Bal b/d 24800 P & L 6400 (24800 + 7200) / 5
Inv Inc 7200 = 6400

3 Investment Income a/c

320,000 X 9% = 28,800
P & L 28800 Inv Inc 7200 28,800 X ¼ =7200
Bal c/d 21600
4 Purchases a/c
Bal b/d 1320000 Disp (3) 46000
Fire (5) 12000
Buildings (5) 51000
 Amber Ltd. Qn 1 2007
€ €
Buildings at cost 902,000
Delivery Vans (cost €280,000) 190,000
Discount (Net) 10,800
Profit and Loss Balance 1/1/2006 17,200
Stocks on hand 1/1/2006 75,200
Debenture interest for the first four 5,000
months
9% Investments 1/1/06 320,000
Patents (incorporating 3 months 24,800
investment income)
Purchase and Sales 1,320,000 1,760,000
 Amber Ltd. Qn 1 2007
€ €
Buildings at cost 902,000
Delivery Vans (cost €280,000) 190,000
Discount (Net) 10,800
Profit and Loss Balance 1/1/2006 17,200
Stocks on hand 1/1/2006 75,200
Debenture interest for the first four 5,000
months
9% Investments 1/1/06 320,000
Patents (incorporating 3 months 24,800
investment income)
Purchase and Sales 1,320,000 1,760,000
Full Honours Question
 Read carefully – marking anything hidden in
Trial Balance
 Start with adjustment 1 – prepare T a/cs
 Marking off Trial Balance
 When adjustments are done -- Trial Balance
looks like this
 Amber Ltd. Qn 1 2007
€ €
Buildings at cost 902,000
Delivery Vans (cost €280,000) 190,000
Discount (Net) 10,800
Profit and Loss Balance 1/1/2006 17,200
Stocks on hand 1/1/2006 75,200
Debenture interest for the first four 5,000
months
9% Investments 1/1/06 320,000
Patents (incorporating 3 months 24,800
investment income)
Purchase and Sales 1,320,000 1,760,000
Interim dividends for the first 6 months 48,000
Bad Debts Provision 3,200
Debtors and Creditors 100,400 86,600
Bank 44,000
Salaries and general expenses 199,600
8% Debentures 180,000
Issued Share Capital – Ordinary Shares 800,000
– 10% Preference Shares 400,000
Directors fees 48,000
Rent 19,600
Advertising (including Suspense) 14,800
3,284,600 3,284,600
Full Honours Question
 Read carefully – marking anything hidden in
Trial Balance
 Start with adjustment 1 – prepare T a/cs
 Marking off Trial Balance
 Complete each working
Full Honours Question
 Read carefully – marking anything hidden in
Trial Balance
 Start with adjustment 1 – prepare T a/cs
 Marking off Trial Balance
 Complete each working
 Mark figures you will need
P & L figs Bal St figs
1 Stock 31/12/06 85200 – 4000 = 81,200

Patents a/c
2
Bal b/d 24800 P & L 6400 (24800 + 7200) / 5
Inv Inc 7200 = 6400

3 Investment Income a/c

320,000 X 9% = 28,800
P & L 28800 Inv Inc 7200 28,800 X ¼ =7200
Bal c/d 21600
4 Purchases a/c
Bal b/d 1320000 Disp (3) 46000
Fire (5) 12000
Buildings (5) 51000
Trading 1211000
1320000 1320000
Full Honours Question
 Read carefully – marking anything hidden in
Trial Balance
 Start with adjustment 1 – prepare T a/cs
 Mark off Trial Balance
 Complete each working
P & L figs Bal St figs

 Enter figures in accounts calculating as you go

Exam Approach

 Read carefully – marking anything hidden in

Trial Balance
 Start with adjustment 1 – LIST
 Marking off Trial Balance
 Complete each working
P & L figs Bal St figs
Exam Approach contd
 Prepare Template Accounts
Template Trading Profit and Loss a.doc
Exam Approach
 Prepare Template Accounts

 Enter figures from workings in appropriate place

to P & L to Bal St
Exam Approach
 Prepare Template Accounts
 Enter figures from workings in appropriate place
to P & L to Bal St

 Enter remaining figures from Trial Balance

not struck out
Exam Approach
 Prepare Template Accounts
 Enter figures from workings in appropriate place
to P & L to Bal St

 Enter remaining figures from Trial Balance

not struck out
 Perform calculations (or not!!)