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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
Asset

Purpose
Record what the firm owns and what is owed to the firm.
e.g. Vans A/C, Premises A/C, Cash A/C, Debtors A/C

Record what the firm owes.


Liability e.g. Loan A/ Bank Overdraft A/ , Creditors A/
C,
C
C
Record the firms day to day running expenses.
Expense e.g. Wages A/ Insurance A/ Purchases A/
C,,
C,
C
Record day to day income earned by the firm
Revenue e.g. Sales A/ Rent Received A/ Commission A/
C,
C,
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
Selling goods on credit

Credit (Decrease)

Selling asset for cash or on credit


Withdrawing money from bank
Debtors paying what they owe

Debit (Decrease)

Paying off part or all what is owed

Credit (Increase)

Increasing the amount borrowed


Buying goods on credit

Debit (Increase)

Paying an expense
Increasing the amount previously recorded

Credit (Decrease)

Decreasing the amount previously recorded

Debit (Decrease)

Decreasing the amount received previously


recorded

Credit (Increase)

Record revenue received


Increasing the amount received previously
recorded

Asset A/C

Liability A/C

Expense A/C

Revenue A/C

4 Questions to ask
Thus with every transaction you come across you
need to decide:
1.
2.
3.

4.

What are the two accounts involved?


Which type of account is each one?
Does the transaction cause an increase or
decrease in each account?
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 firms profit for
the year.
Asset and Liability Accounts are listed in the
BALANCE SHEET to ascertain the firms 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 /C
A

Smith
Adams

2500
3400

Cranford
Murphy
Smith
Cranford

5640
4260
4700
2600

Purchases 2500
Purchases 4700
Adams A/C
Purchases 3400
Cranford A/C
Purchases 5640
Purchases 2600
Murphy A/C
Purchases 4260

Purchases Book
Date

Details
Smith
Adams
Cranford
Murphy
Smith
Cranford

Inv No

Amount
2500
3400
5640
4260
4700
2600
23100

Smith A/C
Purchases A/C
Creditors 23100

Purchases 2500
Purchases 4700
Adams A/C
Purchases 3400

1 Debit
matching
6 Credits

Cranford A/C
Purchases 5640
Purchases 2600
Murphy A/C
Purchases 4260

Recording Transactions
Stage 1

Stage 2

Stage 3

Stage 4

Source Documents

Subsidiary Books

Ledger
Double Entry

Final Accounts
Balance Sheet

Invoices
[credit purchases and
sales]

Sales Book
Purchases Book

Credit Notes

Sales Returns Book


Purchases Returns
Book

Cheque Payments

Cheque Payments Book

Receipts

Cash Receipts Book

Anything Else

General Journal

Post these
transactions
using
Double Entry
Rules

Transfer
from the
Ledger to
ascertain
Profit for
the Year and
the Net
Worth of the
Company at
a point in
time

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

Use Dr Cr grid

Make out the accounts

Dr

Cr

A
L
E
R

A
L
E
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


understanding of the material and using Dr/Cr
grid work out a possible solution

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


months
9% Investments 1/1/06
Patents (incorporating 3 months
investment income)
Purchase and Sales

5,000
320,000
24,800
1,320,000 1,760,000

Interim dividends for the first 6 months

48,000

Bad Debts Provision


Debtors and Creditors

3,200
100,400

Bank
Salaries and general expenses

86,600
44,000

199,600

8% Debentures

180,000

Issued Share Capital Ordinary Shares


10%Preference Shares

800,000
400,000

Directors fees

48,000

Rent

19,600

Advertising (including Suspense)

14,800
3,284,600 3,284,600

Stock 31/12/06 85200 4000 =


Patents a/c
Bal b/d
Inv Inc

6400

24800 P & L
7200

Investment Income a/c


P & L 28800 Inv Inc

7200

Bal c/d

21600

(24800 + 7200) / 5
= 6400

320,000 X 9% = 28,800
28,800 X =7200

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


months
9% Investments 1/1/06
Patents (incorporating 3 months
investment income)
Purchase and Sales

5,000
320,000
24,800
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


months
9% Investments 1/1/06
Patents (incorporating 3 months
investment income)
Purchase and Sales

5,000
320,000
24,800
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


months
9% Investments 1/1/06
Patents (incorporating 3 months
investment income)
Purchase and Sales

5,000
320,000
24,800
1,320,000 1,760,000

Interim dividends for the first 6 months

48,000

Bad Debts Provision


Debtors and Creditors

3,200
100,400

Bank
Salaries and general expenses

86,600
44,000

199,600

8% Debentures

180,000

Issued Share Capital


Ordinary Shares
10% Preference Shares

800,000
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

Stock 31/12/06 85200 4000 = 81,200


Patents a/c
Bal b/d
Inv Inc

6400

24800 P & L
7200

Investment Income a/c


P & L 28800 Inv Inc

7200

Bal c/d

21600

(24800 + 7200) / 5
= 6400

320,000 X 9% = 28,800
28,800 X =7200

Purchases a/c
Bal b/d

1320000 Disp (3)

46000

Fire (5)

12000

Buildings (5)

51000

Trading
1320000

1211000
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

Enter

Template Accounts

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!!)