Book - Keeping

Double entry Book-keeping

Why set up a business?

Capital Expenditure

Purchase of long term assets for use by the business.

Capital Income

Sale of long term assets for use by the business.

Revenue Expenditure

Day to day running costs of the business.

Revenue Income

Day to day sales made by the business.

Accounting Equation

Assets = Capital + Liabilities

Accounting Equation

Assets = Capital + Liabilities

Purchase of a Delivery Van funded by 20% personal capital invested and a bank loan for the balance

Accounting Equation

Assets = Capital + Liabilities

Van = Owner + Loan

Accounting EquationAssets = Capital +

Liabilities

Van = Owner + Loan

£10,000 = £2000 + £8000

A production machine bought for £10,000 on credit

Assets =Capital + Liabilities

10,000 = 2,000 + 8,000

Continuing from previous slide

Assets =Capital + Liabilities

10,000 = 2,000 + 8,000Q1

20,000 = +Van 10,000Machine10,000

A production machine bought for £10,000 on credit

Assets =Capital + Liabilities

10,000 = 2,000 + 8,000Q1

20,000 = 2,000 +

A production machine bought for £10,000 on credit

Assets =Capital + Liabilities

10,000 = 2,000 + 8,000Q1

20,000 = 2,000 + 18,000

A production machine bought for £10,000 on credit

Stock is bought for £1,000 on credit

Assets =Capital + Liabilities

10,000 = 2,000 + 8,000Q1

20,000 = 2,000 + 18,000

Stock is bought for £1,000 on credit

Assets =Capital + Liabilities

10,000 = 2,000 + 8,000Q1 20,000 = 2,000 + 18,000Q2 21,000 = +

Stock is bought for £1,000 on credit

Assets =Capital + Liabilities

10,000 = 2,000 + 8,000Q1 20,000 = 2,000 + 18,000Q2 21,000 = 2,000 +

Stock is bought for £1,000 on credit

Assets =Capital + Liabilities

10,000 = 2,000 + 8,000Q1 20,000 = 2,000 + 18,000Q2 21,000 = 2,000 + 19,000

Accouting Equation Card Activity

Accounting Equation Worksheet

Financial Transactions

Any event which affects the financial position of the organisation.

Recording TransactionsThe financial transactions are recorded in:

– Ledgers – Books of Prime Entry

The transactions are recorded using the Dual Aspect principle.

Ledger accounts• The business transactions are

entered into Ledger accounts.

• A separate ledger account is kept for each different type of transaction.

• Make a list of examples of Ledger

Accounts

Double entry principle• Double entry book-keeping involves

the making of two entries for every transaction in the books of the business ie Ledgers.

• Double entry involves identifying two ledger accounts & making two entries.

Two Accounts

Example:A company buys a digital camera for £200

Which two ledger accounts would beinvolved in this transaction?

1. Equipment account2. Bank account

Ledger accountsActivity for each business transaction identify the two ledger accounts that would be used to record the business transaction.

ActivityTransaction Ledger Account

1Ledger Account

2

Sale of stock, cheque £120

Payment of Wages £1,200 by cheque

Purchased goods £3,000 - cheque

Received a Bank loan £5,000, paid into bank account

ActivityTransaction Ledger Account

1Ledger Account

2

Cash Sales, cheque £120 received

Sales Bank

Payment of Wages £1,200 by cheque

Purchased goods £3,000 - cheque

Received a Bank loan £5,000, paid into bank account

ActivityTransaction Ledger Account

1Ledger Account

2

Cash Sales, cheque £120 received

Sales Bank

Payment of Wages £1,200 by cheque

Wages Bank

Purchased goods £3,000 - cheque

Received a Bank loan £5,000, paid into bank account

ActivityTransaction Ledger Account

1Ledger Account

2

Cash Sales, cheque £120 received

Sales Bank

Payment of Wages £1,200 by cheque

Wages Bank

Purchased goods £3,000 - cheque

Purchases Bank

Received a Bank loan £5,000, paid into bank account

ActivityTransaction Ledger Account

1Ledger Account

2

Cash Sales, cheque £120 received

Sales Bank

Payment of Wages £1,200 by cheque

Wages Bank

Purchased goods £3,000 - cheque

Purchases Bank

Received a Bank loan £5,000, paid into bank account

Loan Bank

Ledger AccountsDual Aspect

• Each transaction must have a Debit and Credit entry.

• Debit Entry – the account which gains value or derives benefit – left side of the account • Credit entry – the account which looses value – right side of the account

Debits and Credits

Drive on the left (DR) Crash on the right (CR)

Debit (DR) Credit (CR)

Debits & Credits

DR CR

DR CR

DR(Money in)

CR(Money out)

Purchases Bank

SalesMaterials

purchased for £100

Debits & Credits

DR CR

DR CR

DR(Money in)

CR(Money out)

100

Purchases Bank

SalesMaterials

purchased for £100

Debits & Credits

DR CR

100

DR CR

DR(Money in)

CR(Money out)

100

Purchases Bank

SalesMaterials

purchased for £100

Debits & Credits

DR CR

100

DR CR

DR(Money in)

CR(Money out)

100

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Debits & Credits

DR CR

100

DR CR

175

DR(Money in)

CR(Money out)

175 100

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Debits & Credits

DR CR

100

DR CR

175

DR(Money in)

CR(Money out)

175 100

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Debits & Credits

DR CR

100

DR CR

175

DR(Money in)

CR(Money out)

175 100

56

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Debits & Credits

DR CR

100

56

DR CR

175

DR(Money in)

CR(Money out)

175 100

56

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Debits & Credits

DR CR

100

56

DR CR

175

DR(Money in)

CR(Money out)

175 100

56

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Materials purchased for

£25

Debits & Credits

DR CR

100

56

25

DR CR

175

DR(Money in)

CR(Money out)

175 100

56

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Materials purchased for

£25

Debits & Credits

DR CR

100

56

25

DR CR

175

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Materials purchased for

£25

DR(Money in)

CR(Money out)

175 100

56

25

Debits & Credits

DR CR

100

56

25

DR CR

175

DR(Money in)

CR(Money out)

175 100

56

25

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Materials purchased for

£25Sales for £500

Debits & Credits

DR CR

100

56

25

DR CR

175

DR(Money in)

CR(Money out)

175 100

500 56

25

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Materials purchased for

£25Sales for £500

Debits & Credits

DR CR

100

56

25

DR CR

175

500

DR(Money in)

CR(Money out)

175 100

500 56

25

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Materials purchased for

£25Sales for £500

Debits & Credits

DR CR

100

56

25

DR CR

175

500

DR(Money in)

CR(Money out)

175 100

500 56

25

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Materials purchased for

£25Sales for £500Sales for £250

Debits & Credits

DR CR

100

56

25

DR CR

175

500

250

DR(Money in)

CR(Money out)

175 100

500 56

25

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Materials purchased for

£25Sales for £500Sales for £250

Debits & Credits

DR CR

100

56

25

DR CR

175

500

250

DR(Money in)

CR(Money out)

175 100

500 56

25

Purchases Bank

SalesMaterials

purchased for £100

Sales made for £175

Materials purchased for

£56

Materials purchased for

£25Sales for £500Sales for £250

Debits & Credits

DR CR

100

56

25

DR CR

175

500

250

DR(Money in)

CR(Money out)

175 100

500 56

25

Purchases Bank

Sales

DR CR

100

56

25

DR CR

175

500

250

DR(Money in)

CR(Money out)

175 100

500 56

25

Purchases

Bank

Sales

856 1106

DR CR

100

56

25

DR CR

175

500

250

DR(Money in)

CR(Money out)

175 100

500 56

250 25

Purchases

Bank

Sales

856 1106

DR CR

100

56

25

DR CR

175

500

250

DR(Money in)

CR(Money out)

175 100

500 56

250 25

Purchases

Bank

Sales

1106 1106

Debits and Credits

Drive on the left (DR) Crash on the right (CR)

Debit (DR) Credit (CR)

Debits and Credits

Debit (DR) Credit (CR)

P E A R L S PurchasesExpensesAssets

Reserves (Inc Capital)LiabilitiesSales

Digital Camera purchased for £200

Debit (Dr) Credit (Cr)

Debit (Dr) Credit (Cr)

Camera Equipment

Cash/Bank

Debit (Dr) Credit (Cr)

19/9 Cash/Bank 200

Debit (Dr) Credit (Cr)

Camera Equipment

Cash/Bank

Digital Camera purchased for £200

Debit (Dr) Credit (Cr)

19/9 Cash/Bank 200

Debit (Dr) Credit (Cr)

19/9 Camera 200

Camera Equipment

Cash/Bank

Digital Camera purchased for £200

Purchase of scanner for £120

Debit (Dr) Credit (Cr)

Debit (Dr) Credit (Cr)

Scanner Equipment

Cash/Bank

Purchase of scanner for £120

Debit (Dr) Credit (Cr)

Bank 120

Debit (Dr) Credit (Cr)

Scanner Equipment

Cash/Bank

Purchase of scanner for £120

Debit (Dr) Credit (Cr)

Bank 120

Debit (Dr) Credit (Cr)

Scanner 120

Scanner Equipment

Cash/Bank

Question 1

Barbaras Butchers

Barbaras Butchers

(Dr) (Cr)Purchases Account

(Dr) (Cr)Cash/Bank Account

Sales Account(Dr) (Cr)

(Dr) (Cr)

(Dr) (Cr)

Rent Paid Account

Telephone Account

Consider the ‘T’ accounts that are

available!

Barbaras Butchers

(Dr) (Cr)Purchases Account

(Dr) (Cr)Cash/Bank Account

Sales Account(Dr) (Cr)

(Dr) (Cr)

(Dr) (Cr)

Rent Paid Account

Telephone Account

Purchase of meat £210 from Scragg & Co paying

cash

Barbaras Butchers

(Dr) (Cr)

Cash/Bank £210

Purchases Account

(Dr) (Cr)Cash/Bank Account

Sales Account(Dr) (Cr)

(Dr) (Cr)

(Dr) (Cr)

Rent Paid Account

Telephone Account

Purchase of meat £210 from Scragg & Co paying

cash

Barbaras Butchers

(Dr) (Cr)

Cash/Bank £210

Purchases Account

(Dr) (Cr)

Purchases £210

Cash/Bank Account

Sales Account(Dr) (Cr)

(Dr) (Cr)

(Dr) (Cr)

Rent Paid Account

Telephone Account

Purchase of meat £210 from Scragg & Co paying

cash

Barbaras Butchers

(Dr) (Cr)

Cash/Bank £210

Purchases Account

(Dr) (Cr)

Purchases £210

Cash/Bank Account

Sales Account(Dr) (Cr)

(Dr) (Cr)

(Dr) (Cr)

Rent Paid Account

Telephone Account

Cash sales £742

Barbaras Butchers

(Dr) (Cr)

Cash/Bank £210

Purchases Account

(Dr) (Cr)

Cash Sales £742

Purchases £210

Cash/Bank Account

Sales Account(Dr) (Cr)

(Dr) (Cr)

(Dr) (Cr)

Rent Paid Account

Telephone Account

Cash sales £742

Barbaras Butchers

(Dr) (Cr)

Cash/Bank £210

Purchases Account

(Dr) (Cr)

Cash Sales £742

Purchases £210

Cash/Bank Account

Sales Account(Dr) (Cr)

Cash/Bank £742

(Dr) (Cr)

(Dr) (Cr)

Rent Paid Account

Telephone Account

Cash sales £742

Barbaras Butchers

(Dr) (Cr)

Cash/Bank £210

Purchases Account

(Dr) (Cr)

Cash Sales £742

Purchases £210

Cash/Bank Account

Sales Account(Dr) (Cr)

Cash/Bank £742

(Dr) (Cr)

(Dr) (Cr)

Rent Paid Account

Telephone Account

Rent paid £75

Barbaras Butchers

(Dr) (Cr)

Cash/Bank £210

Purchases Account

(Dr) (Cr)

Cash Sales £742

Purchases £210Rent £75

Cash/Bank Account

Sales Account(Dr) (Cr)

Cash/Bank £742

(Dr) (Cr)

(Dr) (Cr)

Rent Paid Account

Telephone Account

Rent paid £75

Barbaras Butchers

(Dr) (Cr)

Cash/Bank £210

Purchases Account

(Dr) (Cr)

Cash Sales £742

Purchases £210Rent £75

Cash/Bank Account

Sales Account(Dr) (Cr)

Cash/Bank £742

(Dr) (Cr)

Cash/Bank £75 (Dr) (Cr)

Rent Paid Account

Telephone Account

Rent paid £75

(Dr) (Cr)

Cash/Bank £210

Purchases Account

(Dr) (Cr)

Cash Sales £742

Purchases £210Rent £75

Cash/Bank Account

Sales Account(Dr) (Cr)

Cash/Bank £742

(Dr) (Cr)

Cash/Bank £75 (Dr) (Cr)

Rent Paid Account

Telephone Account

Telephone bill paid £43

(Dr) (Cr)

Cash/Bank £210

Purchases Account

(Dr) (Cr)

Cash Sales £742

Purchases £210Rent £75Telephone £43

Cash/Bank Account

Sales Account(Dr) (Cr)

Cash/Bank £742

(Dr) (Cr)

Cash/Bank £75 (Dr) (Cr)

Rent Paid Account

Telephone Account

Telephone bill paid £43

(Dr) (Cr)

Cash/Bank £210

Purchases Account

(Dr) (Cr)

Cash Sales £742

Purchases £210Rent £75Telephone £43

Cash/Bank Account

Sales Account(Dr) (Cr)

Cash/Bank £742

(Dr) (Cr)

Cash/Bank £75

(Dr) (Cr)

Cash/Bank £43

Rent Paid Account

Telephone Account

Telephone bill paid £43

Queston 2Trevor Smith

Top Tip!!Before starting your postings check what T accounts you have been given!

Buying & Selling

Cash & Credit Transactions

Timing!

Cash Transaction

Immediate payment

Receipt

Cheque

Cash CardBank

Transfer

Credit Transaction

Future paymentWhat

problem would this cause us?

Cash & Credit Transactions

(Dr) (Cr)Sales

(Dr) (Cr)

Debtor(Dr) (Cr)

Bank/Cash

Purchases(Dr) (Cr)

(Dr) (Cr)Creditor

Question 6

Balancing off T Accounts

Balancing off ‘T’ accounts

Dr Bank Account Cr

Mar 1 Sales 350 Mar 6 Insurance 50

Mar 10 Sales 1,000 Mar 12 Petty Cash 100

Mar 23 Sales 460 Mar 19 Drawings 150

Balancing off ‘T’ accounts

Dr Bank Account Cr

Mar 1 Sales 350 Mar 6 Insurance 50

Mar 10 Sales 1,000 Mar 12 Petty Cash 100

Mar 23 Sales 460 Mar 19 Drawings 150

Enter the balance on the LOWER side of the account

1810 300

1810 1810

Total both columns

Mar 31 balance c/d 1510

April 1 balance b/d £1510

Bring down the balance to the

opposite side of the account

‘Strike’ the balance by totalling both sides of the account

Deduct lower total from higher total

Balancing off ‘T’ accounts

Dr Bank Account Cr

Mar 1 Sales 350 Mar 6 Insurance 50

Mar 10 Sales 1,000 Mar 12 Petty Cash 100

Mar 23 Sales 450 Mar 19 Drawings 150

1810 1810

Mar 31 balance c/d 1510

April 1 balance b/d £1510

Balancing off ‘T’ accounts

Dr Bank Account Cr

Mar 1 Sales 350 Mar 6 Insurance 50

Mar 10 Sales 1,000 Mar 12 Petty Cash 100

Mar 23 Sales 450 Mar 19 Drawings 150

1810 1810

Mar 31 balance c/d 1510

April 1 balance b/d £1510

Balancing off Ledger Accounts

Question 6 - Jake

Balances transferred to a Trial Balance

Trial Balance

It should balance!!!!!

Double Entry Bookkeeping Rules

• If cash is paid out of the business, then the cash account is always credited – therefore some other account must be debited

• Assets are always recorded as debits

• Liabilities are always recorded as credits

• Expenses are always debits

• Income is always a credit

Debits and Credits

Debit (DR) Credit (CR)

P E A R L S PurchasesExpensesAssets

Reserves (Inc Capital)LiabilitiesSalesTop Tip!!!! – First identify the Account

‘TYPE’

Trial Balance ‘Pearls’

£ PEARLS Dr Cr

Capital 14850

Opening Stock 1176

Premises 10800

Fixtures 2850

Trade receivables 3450

Trade payables 4892

Purchases 16748

Sales 22391

Bank overdraft 1873

Salaries 3994

Rent 1250

General expenses 965

Drawings 2773

Totals

Trial Balance Card Game

Types of Ledger

Complete remaining questons

Activity - Financial Terms

Capital

Drawings

Asset

Liability

Capital expense

Revenue expense

Returns inward

Returnsoutward

Returns outward

Homework

Complete all handout questions

Review what we have covered today

Lewis Blake