Books of Original Entry
1. Cash Book
2. Sales Day Book (Credit Sales)
3. Purchases Day Book (Credit Purchases)
4. Petty Cash Book
5. Journal Book
6.
... [Show More] The Payroll
Statement of Financial Position
SOFP
- Snapshot of assets controlled, liabilities owned and capital at a point in time
Statement of Profit and Loss
Income and expenses over a period of time
The Business entity concept
Business transactions should be kept separate from the personal transaction of the owner
Qualitative characteristics of financial information
Two fundamental concepts
1. Relevance [Assists users in evaluating past and predicting future events + Materiality]
2. Faithful Representation [Neutral; Free from Error; Complete]
Four Enhancing Characteristics
1. Verifiability [Can be proven]
2. Timeliness [In time to influence decisions of users]
3. Understandability [Readily understandable by people with reasonable knowledge]
4. Comparability [Consistency]
Accrual basis of accounting
- Items recognized as assets, liabilities, equity, income and expenses (elements of FS) when they satisfy definitions and recognition criteria for those elements in conceptual framework
- Transactions recognized when they occur
!! Income earned must be matched against the expenditure incurred in earning it
Accrual Concept
Effects of transactions reognized when they occur - not when cash received/paid
IFAC Code of Ethics
1. Integrity
2. Objectivity
3. Professional Competence and Due Care
4. Confidentiality
5. Professional Behavior
Accounting Equation
Assets = Capital + Liabilities
same:
Assets - Liabilities = Capital + Profit - Drawings
ICAEW Code of Ethics
- Demonstrate highest standards of professional conduct and take public interest into consideration
- Maintain reputation of accounting profession
Payroll cost
Total Payroll cost = Gross Pay + Employer NI + Employer Pension
Net Pay by Employer
Gross Pay
- Employees NI
- PAYE
= Net Pay
Trial Balance Definition
A list of balances from each ledger account split into debits and credits
Cost of sales [function]
Opening inventory + Purchases + Carriage Inwards - Closing Inventory
Carriage Inwards vs. Outwards
Carriage inwards: added to cost of purchases therefore included in COS and Gross Profit
Carriage outwards: distribution cost deducted from gross profit in Statement of Profit and Loss
Net Realizable Value
NRV of an item is net selling proceeds after all cost needing to be incurred to sell item have been deducted
Closing and Opening Inventory Entries
Closing:
Dr. Inventory
Cr. Cost of Sales
Opening:
Dr. Cost of Sales
Cr. Inventory
Inventory Drawings Entry
Dr. Drawings
Cr. Purchases
Accrual Definition
Accrued expenses are those charged against the profit for a particular period, even though they have not yet been paid for
- Accruals belong to current liabilities
Accrual Adjustment Entry
Dr. Expense (P/L)
Cr. Accrual (SOFP)
Prepayment Definition
Expenses which have been paid in one accounting period, but are not charged against profit until a later period, because they relate to that later period
- Prepayment belong to current assets
Prepayment Entry
Dr. Prepayment (SOFP)
Cr. Expense (P/L)
Accrued Income
Income earned during accounting period, but not invoiced or received
Dr. Accrued Income (Asset)
Cr. Income
Deferred Income
When income is received in advance of it being earned (e.g. Deposit)
Dr. Income
Cr. Deferred Income (Liability)
Approach to Accrual & Prepayments in next period
1. Reverse opening accrual/prepayment
2. Post cash paid during the year
3. Post closing accrual/prepayment
4. Balance-off the accounts
Depreciation Entry
Dr. Depreciation Expense
Cr. Accumulated Depreciation
Capital Expenditure
Acquisition, Replacement or Improvement of non-current assets
Revenue Expenditure
Trading expenses or the repair, maintenance or servicing of non-current assets
-> Must be directly attributable
Entry Remove Cost of Asset
Dr. Disposal account
Cr. Non-Current Asset
Entry Remove accumulated Depreciation charged to date
Dr. Accumulated Depreciation
Cr. Disposal Account
Entry Account for Sales Proceeds
Dr. Cash
Cr. Disposal Account
Entry Accounting for Cash Discounts
Dr. Discounts Allowed (Expense)
Cr. Trade Receivables
Entry Discount received from suppliers
Dr. Trade Payables
Cr. Discount Received
Entry Writing off irrecoverable debts
Dr. Irrecoverable Debts Expense (P/L)
Cr. Trade Receivables (SOFP)
Entry Irrecoverable debts written off and subsequently paid
Dr. Cash
Cr. Irrecoverable Debts Expense
Entry Accounting for VAT (Purchases)
Dr. Purchases
Dr. VAT Control Account (purchases tax)
Cr. Trade Payables
Entry Accounting for VAT (Sales)
Dr. Trade Receivables
Cr. Sales
Cr. VAT Control Account (sales tax)
Entry Contra
Dr. PLCA
Cr. RLCA
Entry Returns
Dr. Sales
Cr. RLCA
Entry Cash Refund
Dr. RLCA
Cr. Cash
Entry Shares issued at nominal value
Dr. Cash
Cr. Share Capital (Nominal Value)
Entry Shares issued at premium to nominal value
Dr. Cash
Cr. Share capital (nominal value)
Cr. Share premium (Excess over nominal value)
Rights Issue
New shares are offered to existing shareholders in proportion to their existing shareholding, usually at a discount to the current market price
Share premium account
Shares may not be issued at a price below their nominal value
-> If issued above, the excess of issue price above nominal value is added to reserve account
-> Cannot pay dividends out of premium [Show Less]