Introduction to bookkeeping Flashcards
Different types of business documents?
- Invoices - Request for payment
- Credit notes - Returned goods
- Petty cash vouchers
- Remittance advice
- Statement of account
- Bank statement
Different books of prime entry?
- Journal book
- Discounts received day book
- Discounts allowed day book
- Cash book payments
- Cash book receipts
- Purchase day book
- Sales day book
- Purchase return day book
- Sales return day book
- Petty cash book
Three Ledgers and their roles
- General ledger: Contains T-Accounts (Always totals)
(Sometimes referred as Nominal or Main ledger) - Receivables ledger: Individual customer accounts
- Payables ledger: Individual supplier accounts
Purpose of financial statement
Business needs to produce a set of Financial Statements at the end of the year from the year end trail balance.
- Trail balance -
Accounting for sales return
Dr Sales return
Dr VAT
Cr Receivables
Accounting for purchases return
Dr Payables
Cr VAT
Cr Purchase returns
Subsidiary ledger
Shows transactions of individual receivables and payables.
- Individual memorandum accounts
Double-entry bookkeeping
- Basic principles of accounting
- Types of businesses
- Types of accounting
- Financial statements
- Classifications of income and expenditure
- Accounting for profit
General ledger
Summary account - Shows total amounts from subsidiary ledger.
- PLCA - Payable ledger control account
- RLCA - Receivables ledger control account
Types of businesses
1) Sole trader -
* Owned and operated by one person
* Small business
* Owner personally liable for business debt
2) Partnership -
* Owned by two or more people
* Partners are normally person responsible responsible for business debt
* Equal liability for debt
* Can be very big
3) Company -
* Own legal entity - Separate from owners
* Owners know as shareholders
* Accounting preparations must be done in line with international accounting standards
* Own assets and incur debts (Liability)
Types of accounts
1) Management accounts
* Monthly basis and no standards
* Aids managers decision making
* For internal people
2) Financial accounts
* Annually
* External people - Shareholders and HMRC
* Rules
Two key financial statements
1) Statement of profit or loss
* Summarises the affect of trading
* Start with income -> takeaway all expenses -> left with net profit
* Usually past 12 months
2) Statement of financial position (Balance sheet)
* Financial position of the business at specific time.
* Assets - Liability = Capital
Types of Income and Expenditure
Capital Income: (Balance sheet) (Business worth)
* Sale of non-current assets (Long term)
* e.g. Sale of a house
Capital expenditure: (Balance sheet)
* Acquiring or improving non-current assets
* e.g. Buy a house and improving it.
Revenue income: (Profit and Loss) (Profit made)
* Sale of trading activities. (Selling goods - Inventory)
Revenue expenditure: (Profit and Loss)
* Daily running expense of business inlc. repairs and maintenance of non-current assets (Not improving).
Basic principles of double-entry bookkeeping
- Dual effect - (Dr & Cr must balance)
Every transaction has two financial effects. - Separate entity - Separating the owner and the business for accounting purposes.
- Accounting equation -
Assets - Liabilities = Capital
Assets - Liabilities = Capital + Profit - Drawings
(Loss would be subtracted from the capital)
Ledger accounting
- Golden rules of ledger accounting
- Balancing a ledger account
- Trail balance
- Role of digital bookkeeping
Golden rules of ledger accounting
Debit entry:
* Increase: Asset, Expense & Drawings
* Decrease: Liabilities, Income & Capital
Credit entry:
* Increase: Liabilities, Income & Capital
* Decrease: Asset, Expense & Drawings
Balancing ledger account
1) Work out the total of both Dr & Cr
2) Insert the higher of the two amounts in both total columns, leaving a line open above and below the total line.
3) On the side with the smaller total, insert the outstanding balance to make this figure add up to the total. Refer this figure as balance carried down.
4) On the opposite on the ledger account, below the total fill in the same figure referring it as balance brought down.
Trail balance
It’s a list showing the balance brought down on each ledger account to check that every Dr has an opposite Cr entry and should balance.
Entries to always double check:
Discounts allowed - Expense (Dr)
Discounts received - Income (Cr)
Bank interest paid - Expense (Dr)
Bank interest received - Income (Cr)
Loans from bank - Liability (Cr)
VAT (Payable) - Liability (Cr)
Vat (Receivable) - Asset (Dr)
Digital bookkeeping
Advantages vs. Disadvantages
Storing accounting records online via local server or cloud.
Excess remotely
Advantages:
* Simple data entry and efficient
* Automatic generation of reports
* Automation of task
* Reduction of errors
* Integrated with other systems
Disadvantage:
* Cost
* Implementing and support
* Potential errors
* Specialised needs
Statement of account
Receivable statement: Money owed by Customer
* Opening balance -> +Invoices -> -Credit -> Closing balance
Payable statement: Money owed to supplier
* Opening balance -> +Invoices -> -Credit -> Closing balance
Recurring entries
Cash payments and discounts received
Cash payment book:
Discounts received book:
Cash receipts and discounts allowed
Cash receipts book:
Discounts allowed book:
Petty cash
