Bookkeeping Transactions Flashcards
Income Statement
Summarises the effects of trading (buying and selling goods) and shows the financial performance of the business for the accounting year.
Sales
Income generated from trading activities (when goods are sold)
Sales Returns
When SOLD goods are returned by the customer
Purchases
The cost of buying goods for resale (when goods are bought)
Purchase Returns
when goods bought are returned to the supplier
Gross Profit
The profit left in the business after the cost of sales have been deducted from the sales
Expenses
The day to day running costs of the business, e.g. stationery, rents and rates, motor expenses, heat and light
Net Profit (or Loss)
The profit (or loss) left in the business after all expenses have been deducted
Statement of Financial Position
A balance sheet
Assets
Good things which your business wants more of if possible. You wish to own them
Non-Current Assets
Assets held in the business for the long term. 4 types: land and buildings (L&B), plant and machinery (P&M), motor vehicles (MV), fixtures and fittings (F&F)
Current Assets
Short term assets which you hope will quickly convert into cash. 4 types: inventories, receivables, cash (includes cash at till), bank (includes money at thee bank)
Inventories
Goods which have been bought in for resale which remain unsold at the year end
Receivables
Customers who have received credit terms who owe us money at the year end
Liabilities
Bad things - you owe someone for these (likely money). 5 types: payables, loan, mortgage VAT or HMRC Creditor, Overdraft
Payables
suppliers who have supplied us with goods and remain unpaid at the year end - we owe them money
Capital
The amount the owner puts into the business (the amount thee business owes to the owner
Drawings
The amount the owner takes out of the business for personal use
Dual Effect
Every transaction has two financial effects: gain thee asset, lose the cash
Separate Entity
The owner of the business is, for accounting purposes, a completely separate entity from the business itself - why we have a CAPITAL account
Accounting Equation
Assets - Liabilities = Capital + Profit - Drawings
Double Entries - Sale Cycles
Cash sale - DR Cash, CR Sales
Credit sale - DR Debtor A/C, CR Sales
Sales return - DR Sales Returns, CR Debtors A/C
Debtor pays - DR Cash, CR Debtors A/C
Double Entries - Purchase Cycle
Cash purchase - DR Purchases, CR Cash
Credit purchase - DR Purchases, CR Creditors A/C
Return to supplier - DR Creditors A/C, CR Purchase Returns
Pay creditor - DR Creditors A/C, CR Cash
Double Entries - 2 Other Must Know Ones
Capital invested - DR Cash, CR Capital
Money paid to owner - DR Drawings, CR Cash
Sole Trader
Organisations that are owned and operated by one person
Partnership
Organisations owned by two or more persons working in common with a view to making a profit
Company
Organisations recognised in law as ‘persons’ in their own right. May own assets and incur liabilities in its own name. The accounting of these organisations must meet certain minimum obligations imposed by legislation, eg. via company law and other regulations
Management Accounts
usually prepared on a monthly basis to present timely financial and statistical information to business managers. This aids managers to run the business more effectively by making day-to-day and short-term decisions.
Financial Accounts
Prepared annually, mainly for the benefit of people outside the management of the business, such as the owners of the business, HM Revenue and Customs, banks, customers, suppliers and the government
Sales Revenue
income generated from the trading activities of the business
Cost of Sales
the cost of buying or producing the goods for resale
Gross Profit
the profit remaining, after the cost of sales have been deducted from sales revenue
Sundry Income
other types of income that aren’t generated by the primary trading activities of the business
Expenses
the day to day running costs of the business
Net Profit or Loss
the profit or loss remaining after expenses have been deducted
Asset
something owned or controlled by a business, available for use in the business
Non-Current Asset
an asset which is to be used for the long term in the business and not resold as part of the trading activities, such as the purchase of a delivery van
Current Asset
a short-term asset of the business which is to be used in the business in the near future, such as cash or something to be converted to cash
Receivable
An example of a current asset, someone who owes the business money, such as a credit customer
Non-Current Liability
an amount owed by the business and due to be paid in the longer term (after 12 motnhs)
Liability
an amount owed by the business, i.e. an obligation to pay money at some future date
Payable
an example of a liability - someone the business owes money to, such as a credit supplier
Capital
the amount which the owner has invested in the business - owed back to the owner and is therefore a special liability of the business
Drawings
amounts withdrawn by the owner for their own personal use, they may be of cash or items of inventory
Capital Expenditure
the purchase of, or improvement of, non-current assets
Revenue Expenditure
the day to day running costs of the business
Capital Income
income from the sale of capital assets of the business
Revenue Income
income generated from the sale of goods or services
Statement of Profit or Loss
Summarises the effects of trading - income and expenses, shows the financial performance of the business for a given time period, usually the last 12 months
Statement of Financial Position
Presents a snap shot of the financial position of the business at a specific moment in time, summarising the assets and liabilities of a business
Things you Will Find on a Statement of Profit or Loss
Sales revenue Cost of sales Gross profit Sundry income Expenses Net profit or loss
Sales Revenue
Income generated from the trading activities of the business
Cost of Sales
the cost of buying or producing the goods for resale
Sundry Income
Other types of income that are not generated by the primary trading activities of the business
Things you Find on a Statement of Financial Position
Asset Non-current asset Current asset Receivable Liability Non-current liability Current-liability Payable Capital Drawings
What’s Represented on the Debit Side of a Ledger Account
Increases to an asset
Decreases to a liability
Increases to an item of expense
Decreases to an item of income
What’s Represented on the Credit Side of a Ledger Account
Increase to a liability
Decrease to an asset
Increase to an item of income
Decrease to an item of expense
DEAD CLIC
DRs increase Expenses, Assets, Drawings, CRs increase Liabilities, Incomes, Capital
Procedure for Balancing a Ledger Account
1) Total debit and credit sides, make a note of each total
2) Insert the higher total as the total on both sides, leaving a line beneath the final entry on each side
3) Side with smaller total - insert the figure needed to make this column add to the total - Bal c/d
4) On opposite side, below the total insert the same figure, refer to it as Bal b/d
Examples of Assets (DR)
Land and buildings Machinery Fixtures and fittings Motor vehicles Computer equipment Inventory Receivables Cash at bank Cash in hand VAT receivable
Examples of Liabilities (CR)
Payables
Loan
Bank overdraft
VAT payable
Examples of Income (CR)
Sales revenue Rental income Commission received Discounts received Interest received
Expenses (DR)
Purchases Interest paid Rent and rates Telephone Discounts allowed Electricity Travel Stationery Repairs and renewals Motor expenses Wages and salaries
How is VAT Charged?
Charged on the taxable supply of goods and services in the United Kingdom by a taxable person in the course of a business carried on by them
VAT (Sales Tax)
a consumption tax added to a product’s selling price. It represents a tax on the “value added” to the product at each stage of a production or supply process
Output Tax
tax charged on the sale of goods and services
Input Tax
tax paid on the purchase of goods and services
Net of VAT
The total amount, excluding VAT
Gross of VAT
The total amount, including VAT
Trade Discount
a definite amount that is deducted from the list price of the goods for the supplies to some customers, with the intention of encouraging and rewarding customer loyalty
Bulk Discount
deducted from the list price of goods and disclosed on the invoice, but is given by a supplier for sales orders above a certain quantity
Prompt Payment Discount
also known as settlement or cash discounts, offered to customers in order to encourage the early payment of invoices
Double Entry for a Credit Sale including VAT
DR Receivables (gross) CR VAT CR Sales (net)
How VAT is Calculated
calculated on the net amount of the transaction after the deduction of bulk and trade discounts
Double Entry for Payment from Receivable
DR - bank account
CR - receivable account
Double Entry for Discount from Customer
DR - discount allowed account (net amount)
DR - VAT account (VAT amount)
CR - receivable account (gross amount)
Credit Purchases
Goods and/or services are provided along with an invoice that will specify when payment is due. Credit terms can differ and are usually by prior agreement, following credit checks
Double Entry for Credit Purchase including VAT
DR - purchases account (net amount)
DR - VAT account (VAT amount)
CR - payables account (gross amount)
Double Entry for Payment Owed to Credit Supplier
DR - payable account
CR - bank account
Double Entry for Discount Received from Supplier
DR - payables (gross amount)
CR - VAT acc (VAT amount)
CR - discounts received acc (net amount)
Sales Day Book
a list of the sales invoices that are to be processed for a given period (e.g. a week)
Purchases Day Book
a list of the purchase invoices that are to be processed for a given period (e.g. a week)
Cash Receipts Book
the receipts half of the full cash book. All money that is paid into the bank is recorded in the cash receipts book. Receipts may be in the form of cash, cheque, credit/debit card receipts, or receipts automatically paid into the bank
Cash Payments Book
the payments half of the full cash book. It is where you record the payments made out of the bank, perhaps cheques, sent to your suppliers or any other cash expenditure from the bank.
Discounts Allowed Day Book
used to record the discounts that have not been deducted at the point of the invoice being recorded in the sales day book but instead were offered on a conditional basis (i.e. prompt payment discounts allowed to credit customers)
Discounts Received Day Book
used to record the discounts that have not been deducted at the point of the invoice being recorded in the purchases day book but instead were offered on a conditional basis (i.e. prompt payment discounts received from credit suppliers)
Petty Cash Book
records the cash receipts into the petty cash tin (which just replenish the amount in the tin so that cash is always available for small items of expense). It also records the cash payments for expenses that are made from the petty cash tin.
General Ledger
contains all of the ledger accounts for recording transactions occurring within an entity (main or nominal ledger)
Sales Ledger Control Account (SLCA)
contains the total value of all the invoices and credit notes issued to and cash receipts from credit customers for a given period
Purchases Ledger Control Account (PLCA)
contains the total value of all the invoices and credit notes received from and cash payments made to credit suppliers for a given period
Subsidiary Ledger
provides details behind the entries in the general ledger. They are maintained for individual receivables and payables, does not form part of the double entry
Subsidiary Sales Ledger
AKA ‘sales ledger’, a set of accounts for individual receivables; individual entries in the individual receivable accounts
Subsidiary Purchases Ledger
AKA ‘purchases ledger’, a set of accounts for individual payables; individual entries in the individual payable accounts
Double Entry in the General Ledger
Receivables - now SLCA
Payables - now PLCA
Petty Cash
the small amount of cash that most businesses hold in order to make small cash payments
Receivable (Customer) Statement
a statement that shows all the invoices and credit notes that have been sent to a particular credit customer for that month, together with any amounts outstanding from previous months; also details any payments received from credit customers
Payable (Supplier) Statement
a statement that shows all the invoices and credit notes that have been received from a particular credit supplier for that month, together with any amounts outstanding from previous months. The statement also details any payments sent to the credit supplier
Remittance Advice
a blank document that the customer completes when making a payment to the supplier, shows the total payment being made and which invoices (less credit notes) the payment is paying off
Cash Book
a record of cash receipts and payments that conforms to the double entry system
Analysed Cash Book
a cash book with additional columns for analysing principal sources and payments for cash
Petty Cash Voucher
an internal document that details thee business expenditure an employee has incurred out of his own money
Cash Book
a record of cash receipts and payments that conforms to the double entry system
Analysed Cash Book
a cash book with additional columns for analysing principal sources and payments for cash
Imprest System
business decides on a fixed level of petty cash (e.g. £100). Cash is withdrawn from the bank to replenish the amount paid out. Business decides on the fixed amount, good practice for record keeping and keeping track of unauthorised payments
Non-Imprest System
where a round sum amount of cash is withdrawn from the bank to top up the petty cash. the sum taken out is regardless of the value of expenses paid since the last top up
Cash
money in coins or notes
Credit Card
a plastic card that is issued by a bank allowing the holder to purchase goods and services on credit
Debit Card
a plastic card that is issued by a bank allowing the holder to transfer money electronically from their bank account when making a purchase of goods and services
Cheque
an order to a bank written on a specially printed form that states a sum to be paid from the drawer’s (account holder’s) account
BACS
BACS (Bankers’ Automated Clearing Services) is an electronic system to make payments directly from one bank account to another. They’re mainly used for direct debits and direct credits. Transfers usually take three working days
Faster Payment
Faster Payments Services (FPS) is an electronic system which makes payments directly from one bank account to another. Transfers typically take a few seconds
Standing Order
an instruction to a bank by an account holder to make regular fixed payments to a particular person or organisation
Direct Debit
an instruction to a bank by an account holder authorising the organisation the account holder wants to pay, to collect varying amounts from the account. Advanced notice of the amounts and dates of collection must be given
Purchase Order
a buyer generated document that authorises a purchase transaction
Sales Order
a seller generated document that authorises a sale to a customer, issued after the receipt of a purchase order
Delivery Note
a document accompanying goods dispatched to a customer explaining what the delivery contains
How Delivery Notes are Issued
3 copies
1st part to customer
2nd part to supplier
3rd part to delivery organisation
Goods Received Note
an internal document completed by the purchaser that records the details of goods received and contains similar information to a delivery note
Sales Invoice
a document that itemises a transaction between a buyer and a seller. A sales invoice can be simply defined as the request for the buyer to make payment for goods sold or services provided by the seller
VAT (Sales Tax)
a consumption tax added to a product’s selling price. It represents a tax on the ‘value added’ to the product at each stage of a production or supply process
Output Tax
the tax charged on the sale of goods and services
Input Tax
the tax paid on the purchase of goods and services
Net of VAT
the total amount excluding VAT
Gross of VAT
the total amount including VAT
Purchase Invoice
the customer version of a sales invoice - a document that itemises a transaction between a buyer and a seller
Credit Note
document issued by a supplier to a customer cancelling part or all of a sales invoice
Goods Returned Note
document sent to the supplier by the customer detailing the goods returned and reason(s) for the return being made
Code
a system of numbers, letters and symbols designed to be applied to a classified set of items, to give a brief, accurate reference, which helps entry to the accounting records, collation and analysis
Ledger Code
a unique reference given to different types of income, expenses, assets and liabilities. It may also be referred to as a general ledger (GL) or nominal code
Customer Account Code
a unique reference given to each individual customer of an organisation
Supplier Account Code
a unique reference given to each individual supplier of an organisation
Product Code
a unique reference given to each type of product of an organisation
Alphabetical Codes
consist of letters. If ordering alphabetically the order is a system whereby characters are placed in order of their position in the conventional ordering of an alphabet
Numerical Codes
consist of numbers. If ordering numerically it can be ascending or descending
Alphanumerical Codes
a combination of alphabetic and numeric characters
Remittance Advice
a slip returned by the customer when paying an invoice so as to identify what the payment is for
