Lecture Three Flashcards
When do u balance each T account
at the end of each period
Main steps for balancing the T accounts
- Add up both sides of the T account
- Determine which of both debit/credit has the highest total
- Write the total on both sides under the transactions
- From the one that has less then the total -> add the missing amount ONTOP of the total (ontop of how its displayed) Ensure that they are balanced
- Of the one that u just added more ontop of the total (the one that was intially less - label it for the 31st of the month and then label it “Balance C/d”
5.For the other side - the one that was already the biggest - need to put the additional amount (the one u added on to make the other side equal) UNDER the total and label it is “Balance b/d) and label it 1st of the next month
What does balance cd mean
Balance carried downw
What does balance bd mean
Balance brought down
What date is the balance bd
Always the 1st of the next monthW
When do we put the balance cd
At the 31st of the month
What if theres a balance bd inside of the t account
Carry as normal and treat it as a normal transaction
What to do if the T account both sides already are equal
Just write the total and leave it - no need for the balance cd/bd because ur not bringing anything down
What are the income/expense accounts
They are profit/loss acounts - they dont need b/d c/d
How to do a profit/loss account differently from the balance c/d account
Same method as the balance c/d account except
-Once u have determined the value needed for both sides to be equal - u dont put balance c/d - u put P&L: the closing balance
-u dont bring down anything. nor do u c/d. just work out the totals and replace c/d with p&L.
When is it a ‘credit balance’
When the total of credit entries > total debit entries
What is the Trial balance
A list of all the account balances and their total - and which side the total is on - which balance they are
Is there a specific order for the trial balance
No just list all of the T accounts in any order
What must the trial balance equate to
Debit balance = credit balance
-both sides MUST BE equal
Is there a specific time in which the trial balance should be made
No
What does the trial balance tell us
If there are any booking errors made:
- entering one side of transaction
-using one figure debit entry for a credit
-errors in adding when balancing off
Does the trial balance tell us all the errors?
no,
* Wont highlight all errors – e.g. if there’s no transaction / same transaction twice (duplicate)
Why is the trial balance good
instant overview of a the balances in the business
-good tool for accountants to check where mistake has been made
-gibes a summery of all balances can be used for a financial statement quick
Is there any exception for the trial balance for determining if its credit/debit
One major exception
- Cash at bank because u can get overdrawn – can get negative
- e.g. spending more then u have – a negative asset
What key mnemonic does the trial balance follow
Deadclic
What is the SPL
Statement of Profit and Loss
What is SPL also known as
Income statement
What does the SPL sum up to?
Incomes earned - Expenses incurred = Profit/loss
What does the SPL show
1- incomes earned in a period, even if money hasnt been received yet
2- the expenses incurred even if it hasnt been paid yet
=accural basis of accounting
What is the accural basis
the matching concept – match all the income earned and the expenses earned
When is the SPL computed
At the end of the year - its the income for the whole year
For what type of business is there no format for spl
sole trader
How to work out gross profit
sales revenue – cost of sales
How to work out Net profit
Gross profit – expenses
What is Returns inward
Goods COME BACK from CUSTOMERS
What is Returns Outward
Goods SENT BACK TO SUPPLIERS
What is the Return inward computed in SPL
It is deducted from the SALES
How is the Returns Outward computed in the SPL
It is deducted from PURCHASES
Is drawings an expense
drawings isn’t an expense – doesn’t affect the profit – only the capital
What is meant by ‘Less’ in: e.g. ‘less cost of goods’ or ‘less returns outward’
-Means minus - minus cost of sales
=not necessary ro write this
What is the main outline of the SPL format
Non current asset
Asset
Total Asset
Current Liabilities
Non Current Liabilities
Total Liabilities
Net Assets
Capital
Opening capital
Net Profit
Drawings
Closing Capital
What does the SPF stand for
Statement of Financial Position
Another name for SPF
Balance sheet
What on the SPF doesnt come from the trial balance
-Closing inventory (post tb adjustment)
-Net profit for the period - comes from the SPL
