LCCI_Accounting_First_Level_笔记

LCCI First Level Revision Notes of 1

LCCI First Level Revision Notes 1. Double Entry, Ledger, P/L Account and B/S Ch 1 The Accounting Equation Ch 2 Transaction through Double Entry Ch 3 Purchases and Sales Ch 4 Expenses : Profit or Loss Ch 5 Balancing Accounts : the Trial Balance Ch 6 Trading and Profit and Loss Accounts Ch 7 The Balance Sheet Ch 8 Final accounts : more features 2. Cash Book and Day Book Ch 9 The Division of the Ledger Ch 10 Bank Facilities Ch 11 Cash Book : two columns Ch 12 Cash Book : three columns – cash discount Ch 13 Day Books : Sales Day Book Ch 14 Returns Day Books Ch 19 Petty Cash Book : Imprest System 3. Adjustments Before Final Accounts Ch 15 Accruals and Prepayments Ch 16 Depreciation of Fixed Assets Ch 17 Bad Debts and Provision for Doubtful Debts Ch 18 Bank Reconciliation Statements Ch 20 Capital and Revenue Expenditure Ch 21 The Journal Ch 22 Errors in the Accounts Ch 23 Final Accounts and Adjustments further considered 4. Miscellaneous Ch 24 Club and Society Accounts


LCCI First Level Revision Notes Ch. 1 The Accounting Equation

A = L + OE Balance Sheet => at a moment in time Format of B/S B/S at 20X3 Purchase 200 Capital 500 Cash 700 Loan 200 Creditor 200 900 900 Ch. 2 Transaction Through Double Entry

Ledger should include date, description and amount Ch. 3 Purchases and Sales Purchase : goods bought with the intention of selling them Purchase on credit A(+)

Purchase on cash

Sales for cash A(-)

Sales on credit

Purchase return (return outward) - Good returns to supplier

Dr Cr A(+) L(-)

OE(-)

A(-) L(+)

OE(+)

Bank May 1 Capital 5000

Purchase John 100

John (Creditor) Purchase 100

Purchase Cash 100

Cash Purchase 100

Sales Cash 420

Cash Sales 420

Sales Tom 420

Tom (Debtor) Sales 420

Returns outward John 420

John (Creditor) Return outward 420


Sales return (return inward)

Ch. 4 Expenses : profit or loss Expense

Drawings - not reduce directly in capital account - drawing is different from expense

Beg. Capital + Profit / Loss = End Capital Ch. 5 Balancing accounts : the Trial Balance Balance off the account Nil balance => 2 sides equal, not enter in TB Trial balance => Total Dr = Total Cr Dr Balance Cr Balance Cash Asset Debtor Purchase Return inward Expense Drawing

Capital Loan Creditor Sales Return outward

Ch. 6 Trading and profit and loss accounts Net Profit = Sales – COGS – Expense Gross Profit COGS = Opening Stock + Purchase – Closing Stock

Trading and P/L account => part of double entry system, B/S is not

Returns inward Tom 100

Tom (Debtor) Return inward 420

Cash Wage 100

Wage Cash 100

Cash Drawing 100

Drawing Cash 100

L. Smith Sales 300 300 Bal b/d 200

Bank 100 Bal. C/d 200 300

Trial Balance of ABC at 31 May 20X3 Cash Capital

Dr 1670

Cr

1670


*** Stock shown in T/B is beginning stock, NOT closing stock Balance off Trading and P/L Account Given :

Step 1) Trading Account

Step 2) P/L Account Step 3) Capital Account

Ch. 7 The balance sheet A, L, OE are closed off (not part of double entry system) => simply listed in B/S

Purchase Sundries 3420

Sales Sundries 4860

Rent Payable Sundries 500

Rent Receivable Sundries 300

Office Expense Sundries 240

Lighting Sundries 370

Advertising Sundries 410

W Trent Trading and P/L Account for the year ended 31 Dec 20X7

Purchase 3420 Gross Profit c/d 2640 6060

Sales 4860 Stock 1200 6060 Gross Profit b/d 2640

Purchase Sundries 3420 P/L 3420

Sales P/L 4860 Sundries 4860

Stock P/L 1200

P/L Account Rent 500 Office Expense 240 Lighting 370 Advertising 410 Net Profit 1420 2940

Gross Profit b/d 2640 Rent Receivable 300 2940

Drawing Sundries 600 Capital 600

Capital Drawing 600 Bal c/d 3820 4420

Bal b/d 3000 Net Profit 1420 4420 Bal b/d 3820


Fixed Asset - relatively long life in business e.g. 2 – 3 yr, primary purpose is not to resell - e.g. land, building, fixture, office equipment, machine, motor Current Asset - trading activity - e.g. stock, debtor, cash, bank Presentation sequence Fixed Asset Current Asset Land and buildings Fixture and fitting Machinery Motor vehicle

Stock Debtor Bank Cash

Long Term Liability - Payable > 1 yr Current Liability - e.g. Creditor, bank overdraft, short – term bank loan Ch. 8 Final accounts : more features (*** IMPORTANT ***) Carriage => expense incurred in the delivery of good Carriage inward - purchase delivery - normally supplier make no separate charge, but has => paid more

Net Purchase = Purchase + Carriage Inward – Purchase Return Carriage outward - deliver to customer - charge as expense in P/L account

Net Sales = Sales – Return Inward Stock

COGS = Opening Stock + Purchase + Carriage Inward – Purchase Return – Closing Stock

*** Stock appeared in TB => opening stock Year End Procedure - Sales, purchase, expense, drawing => close - Capital, stock, cash, debtor, creditor, asset => b/d


*** P/L Account and Balance Sheet

W Trent Trading and P/L Account for the year ended 31 Dec 20X7

Beg. Stock 1200 Purchase 6430 Carriage inward 230 6060 Less : return outward 180 6480 7680 Less : closing stock 2300 COGS 5380 C/d Gross profit 3930 9310 Rent payable 500 Office Expense 390 Lighting 580 Advertisement 610 Carriage outward 270 Net profit 1880 4230

Sales 9620 Less : return inward 310 9310 Net purchase

9310 Gross profit b/d 3930 Rent receivable 300

4230

W Trent B/S at 31 Dec 20X7 Fixed asset Furniture 600 Motor 1300 1900 Current asset Stock 1200 Debtor 630 Bank 930 Cash 30 2790 4690

Capital Bal b/d 3000 Add : Net profit 1420 Less : drawing 600 820 3820 Liability Creditor 870 4690


Ch. 9 The division of the ledger

Division of Ledger Debtor Account Creditor Account Cash / Cheque Other Account

Sales Ledger Purchase Ledger Cash Book General Ledger (Nominal Ledger) e.g. Return In / Out, Expense

Type of account

Personal Account Impersonal Account

Debtors and creditors Account other than people

Sub division of Impersonal Account

Real Account Nominal Account

Asset (motor, stock), Liability and Capital Income, expense

*** Notes : Sales Ledger NOT equal Sales Account (Income Receivable)

Ch. 10 Bank facilities Current account – by cheque Deposit account – money paid Credit transfer – enable a person to pay money into someone else’s bank account Standing order – regular payment Direct debit – credit transfer in reverse Ch. 11 Cash book : two columns Cash book – combine cash and bank account Dr CASH BOOK Cr Date Account Cash Bank Date Account Cash Bank Cash ó Bank Contra : double entry is completed within the cash book e.g. Jul 1 Bal b/d Cash 145, Bank 860 Jul 3 Paid by cheque 134 Jun 17 Banked cash 140

e.g. Dr Cr Purchase good by cheque Purchase good on credit Sales of good for cash Sales on credit Purchase of motor by cheque Payment by cheque to creditor

Purchase (G/L) Purchase (G/L)

Cash (Cash book) Cust. (Sales ledger)

Motor (G/L) Supplier (Pur. Ledger)

Bank (Cash book) Supplier (Pur ledger)

Sales (G/L) Sales (G/L)

Bank (Cash book) Bank (Cash book)


Dr CASH BOOK Cr Date Account Cash Bank Date Account Cash Bank Jul 1 Bal b/d 145 860 Jul 3 Insurance 134 Jul 17 Cash C 140 Jul 17 Bank C 140 C - Contra Bank overdraft - A credit balance on bank account - In B/S => current liability Ch. 12 Cash book : three columns – cash discount Discount allowed - discount for debtor for prompt payment - expense (G/L) => OE(-)

Discount received - An income (G/L) => OE(+)

- To go through G/L is inconvenient, collect discount allowed, received in cash book and transfer periodically total to discount account - Discount column is a temp storage, not part of double entry system - immediate post from cash book to personal account, monthly posting from discount account to G/L - Discount account => as sundries Dr CASH BOOK Cr Account Dist All Cash Bank Account Dist recv Cash Bank A Smith 5 95 L Turn 10 190 - Discount column => not bal., total transfer to G/L as sundries Ch. 13 Day books : sales day book Cash sales – Dr Cash / Bank (in cash book) Cr Sales (in G/L) Credit sales – record in sales day book Invoice => source document

Cash Tom 95

Tom Cash 95

Dist All. 5

Dist All. Tom 5

Cash Tom 95

Tom Cash 95

Dist Rec 5

Dist Recv. Tom 5


Sales invoice (src doc.)

Sales Day Book (Book of prime entry)

Promptly Monthly transfer Sales Ledger G/L (Dr Debtors) (Cr Sales Account) SALES DAY BOOK G/L May 3 E Lyon 656 May 4 John 418 1074 SALES LEDGER

Cash purchase – Dr Purchase (in G/L) Cr Cash / Bank (in cash book) Credit purchase – Purchase day book

Purchase invoice (src doc.)

Purchase Day Book (Book of prime entry)

Monthly transfer Promptly

G/L Purchase Ledger (Dr Purchase) (Cr Creditors) PURCHASE DAY BOOK G/L May 3 E Lyon 656 May 4 John 418 1074 PURCHASE LEDGER

Sales Sundries 1074

E Lyon Sales 656

John Sales 418

Purchase Sundries 1074

E Lyon Purchase 656

John Purchase 418


Ch. 14 Returns day books Return inward day book - return inward journal / sales returns book - issue credit note to debtor

Credit note issued

Return inwards Day Book Monthly transfer Promptly

G/L Sales Ledger (Dr Return inwards) (Cr Debtors) RETURN INWARDS DAY BOOK G/L May 3 E Lyon 656 May 4 John 418 1074 SALES LEDGER

Return outwards day book - return outward journal / purchase return book - credit notes received from creditors

Credit note received

Return outwards Day Book Promptly Monthly transfer Purchase Ledger G/L (Dr Creditor) (Cr Return outwards) RETURN OUTWARDS DAY BOOK G/L May 3 E Lyon 656 May 4 John 418 1074 PURCASE LEDGER

Return inwards Sundries 1074

E Lyon Return in 656

John Return in 418

Return outwards Sundries 1074

E Lyon Return out 656


Ch. 15 Accruals and prepayment Accrual expense - unpaid expense - e.g. Given that rent = 1000 per quarter, payment is made as follows: Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 1000 1000 1000 1000 Total rent = 4 x 1000 = 4000 Year 4

Liability Prepaid expense - payment in advance - e.g. Given insurance fee = 440, 120 paid in advance Year 4 Current Asset Accrual and prepayment in P/L and B/S - Given lighting accrued 70, advertisement prepaid 110 P/L : Lighting + 70, Advertisement – 110 B/S : Under current asset : prepayment : 110 Under current liability : accrual : 70 Stock, Debtor, Prepaid, Cash Creditor, Accrued Other forms of prepayment - Stock purchased for use in business, e.g. office supplies - diff from normal stock

John Return out 418

Rent Bank 1000 Bank 1000 Bank 1000 Bal c/d 1000 4000

P/L 4000 4000 Bal b/d 1000

Insurance Bank 560 560 Bal b/d 120

P/L 440 Bal c/d 120 560

Office Supplies Sundries 3700 3700 Bal b/d 800

P/L 2900 Bal c/d 800 3700

Bal. fig.

Closing stock

Purchase


Income accrual - rent receivable, commission receivable - income not receive should be charged at P/L - current asset (debtor) in B/S - e.g. Given 300 per quarter, 300 not received Income prepayment - income received in advance - current liability in B/S - e.g. 4 x 100 for Year 3, 100 prepaid for Year 4 Ch. 16 Depreciation of fixed assets The need for depreciation - Fixed asset : long life in business => value will fall each year - If no account for fall in value, value in fixed asset and profit will be overstated

Depreciation : the estimate of the fall in value of fixed asset over a period of time

Straight line method (fixed instalment method)

Annual depreciation charge = (Orig. cost – disposal value) / Number of year = depreciation % x (Orig. cost – disposal value)

Net Book Value (NBV) = Cost – Accumulated Depreciation (A.D.)

e.g. 4 year = 25% annually Reducing balance method (diminishing balance method) - much bigger amounts are provided in earlier years e.g. Given orig. cost = 20000, dep. 40% annually

Rent Receivable P/L 1200 1200 Bal b/d 300

Bank 300 Bank 300 Bank 300 Bal c/d 300 1200

Rent Receivable P/L 400 Bal. C/d 100 500

Bank 100 Bank 100 Bank 100 Bank 100 Bank 100 500 Bal b/d 100


Cost 20000 Year 1 dep. (40%) 8000

12000 Year 2 dep. (40% of 12000) 4800 7200 Year 3 dep. (40% of 7200) 2880 4320 Year 4 dep. (40% of 4320) 1728 2592 Book – keeping entries for depreciation - fixed asset at cost price, w/o any adjustment and a separate provision for depreciation account, which accumulate year by year amount of depreciation - e.g. straight line, 9375 p.a.., the fixed asset account will b/d each year

Provision for depreciation (straight line) Year 1 Bal c/d 9375 9375 Year 2 Bal c/d 18750 18750 Year 3 Bal c/d 28125 28125 Year 4

Year 1 31 Dec P/L 9375 9375 Year 2 Bal b/d 9375 31 Dec P/L 9375 18750 Year 3 Bal b/d 18750 31 Dec P/L 9375 28125 Year 4 Bal b/d 28125 31 Dec P/L 9375

Provision for depreciation (Reducing bal) Year 1 Bal c/d 8000 8000 Year 2 Bal c/d 12800 12800 Year 3 Bal c/d 15680 15680 Year 4

Year 1 31 Dec P/L 8000 8000 Year 2 Bal b/d 8000 31 Dec P/L 4800 12800 Year 3 Bal b/d 12800 31 Dec P/L 2880 15680 Year 4 Bal b/d 15680 31 Dec P/L 1728


Depreciation and final accounts - P/L => depreciation charge as expense - B/S => shown NBV Fixed asset: Motor car: Cost 12000 Provision for dep. 2400 NBV 9600 Sale of fixed assets Step 1) Orig. cost of asset Dr Disposal account Cr Fixed asset Step 2) Depreciation Dr Provision for depreciation Cr Disposal account Step 3) Sales proceed Dr Bank / Cash Cr Disposal account Step 4) Loss on sales Profit on sales Dr P/L account Dr Disposal account Cr Disposal account Cr P/L account e.g. Vehicle sales on Year 3

Ch. 17 Bad debts and provision for doubtful debts Bad debts - debtor not pay their account => write off - Step 1) Dr Bad debt

Cr Debtor Step 2) Dr P/L account Cr Bad debt Provision for doubtful debts Gross debtor 18620 Less bad debt write off 620 18000 Less pro. for doubtful debt at 4% 720 Net debtor 17280

Provision for dep. Disposal 28125 28125

Bal b/d 18750 P/L 9375 28125

Vehicle Bal b/d 40000 Disposal 40000

Disposal Vehicle 40000 P/L – profit 1625 41625

Pro. For dep. 28125 Bank 13500 41625

P/L account Year 6 Pro. for bad Debt 720

Provision for doubtful debt P/L 720


Given : At Year 7, 20000 x 4% = 800 to be charged Increase in provision = 800 – 720 = 80

Given : At Year 8, 19000 x 3% = 570 to be charged Decrease in provision = 800 – 570 = 230

- specific provision : specific debtor general provision : estimated % of debtor - B/S representation, bad debt written off is not shown Debtor 18000 Less pro. for bad debt 912 17088 Bad debts recovered Case 1) Recovered within the same financial year as debt was written off Dr Debtor Cr Bad Debt Dr Cash / Bank Cr Debtor Case 2) Recovered after the year of write off Dr Debtor Cr Bad Debt Recovered Dr Cash / Bank Cr Debtor Transfer to P/L : Dr Bad Debt Recovered Cr P/L Account Ch. 18 Bank reconciliation statements Bad debts

- debtor not pay their account => write off Ch. 19 Petty cash book : imprest system - Cash book may be crowded => petty cash book deal with small payment - At certain period, post to cash book, expense acct. in G/L The imprest system

Provision for doubtful debt Bal c/d 800 800

Bal b/d 720 P/L 80 800 Bal b/d 800

P/L account Year 7 Pro. for bad Debt 80

P/L account Year 8 Reduce in

Prov 230

Provision for doubtful debt P/L 230 Bal c/d 570 800

Bal b/d 800 800 Bal b/d 570


- Initially set up the float say 100, spend 83, and then reimburse 83 back to float. - Set up the float: Dr petty cash book 100 Cr cash book 100 - Reimburse: Dr petty cash book 83 Cr cash book 83

PETTY CASH BOOK Receipt 100

Date May 1 May 3 May 5

Detail Bank Postage John

V. No 1 2 3

Total 5.6 10

Postage 5.6

Ledger 10

15.6 5.6 10 May 31 Bal c/d 84.4 100 100 84.4 15.6

Jun 1 Jun 1

Bal b/d Bank

Dr Cr Total is posted to cash book, G/L Ch. 20 Capital and revenue expenditure Capital expenditure Revenue expenditure Defn. Expected to provide benefit over a

period longer than acct. period Short – lived, benefit is within the acct. year

e.g. 1. Purchase of fixed asset that add value to existing fixed asset 2. Extending factory premises 3. Adding fitment to machine that it becomes more productive

1. Buy good to sell 2. Buy raw material 3. Office expense 4. Maintaining fixed asset (not add value)

Final Account

Increase fixed asset in B/S => NOT in P/L

Charge to P/L

Ch. 21 The journal Journal (General journal) - a diary in which the detail of transactions was kept - all day books were part of the journal - any transaction not included in the cash, sales, purchase and return day book is noted in journal - Journal is not part of the double entry, it just supporting the double entry system Main use of journal - purchase and sale of fixed asset on credit - correction of error - opening entry - other transfer (e.g. bad debt write off, depreciation)


Layout of journal John : Journal Year 4 Dr Cr Mar 15 Motor 8600 Tom 8600 Purchase of motor Other transfer - transfer to P/L - accrual and prepayment - provision for depreciation - bad debt write off - create / adjust provision for doubtful debt - adjusting for owner’s drawings Ch. 22 Errors in the accounts 1. Error not discovered in trial balance

Error of omission Cause Transaction completely omitted e.g. A purchase of furniture is not record Adjusting journal

Furniture 215 XYZ 215

Error of commission Cause Transaction entered in a wrong account e.g. Sales on credit to T Fred entered as D Fred Adjusting journal

T Fred 215 D Fred 215

Reversal of entries Cause Record on wrong side of Dr, Cr e.g. Purchase of 360 is entered as Dr Cash, Cr Purchase Adjusting journal

Purchase 720 Cash 720

Error of principle Cause Transaction is entered in the wrong class of account e.g. Payment for 315 to repair the motor is entered as motor account

(Should be revenue expenditure) Adjusting journal

Motor repair 315 Motor 315

Error of original entry Cause Wrong amount e.g. Sales of good of 87 is incorrectly entered as 78


Adjusting journal

F Sharp 9 Sales 9

Compensating error Cause Error cancel out each other e.g. Telephone and sales is overstated by 10 Adjusting journal

Sales 10 Telephone 10

Error of duplication Cause Transaction is entered in the book twice

2. Error affecting trial balance - incorrect posting on one side - error in addition - wrong b/d ð journalize the adjustment

3. Effects of error on profit and B/S Purchase undercast => Gross profit overstated => Capital overstated Closing stock overvalued => Gross profit overstated => Capital overstated Expense overstated => Net profit understated => Capital understated Ch. 23 Final accounts and adjustments further considered (*** IMPORTANT ***) 1. Drawings Owner’s drawing Dr drawing Cr cash/bank Drawing in terms of goods Dr drawing Cr purchase Rent for private use Dr drawing Cr rent 2. Final adjustment - Change in P/L should have corresponding change in B/S

Accrual and Prepayment e.g. Wage accrued 1320 and rate prepaid 160 P/L Wage + 1320, rate – 160 B/S Current liability 1320, current asset 160


Depreciation e.g. Given in T/B, provision for depreciation of motor is 3000, and is

increased by 1500 P/L Charge 1500 as depreciation expense B/S Accumulated depreciation becomes 3000 + 1500 = 4000

Provision for doubtful debt e.g. Given in T/B, provision for doubtful debt is 200, and is increased by 40 P/L Charge 40 as expense (provision for doubtful debt) B/S Current asset less : provision for doubtful debt 240

Drawing e.g. Drawing in terms of goods P/L Deduct purchase B/S Increase drawing => decrease capital

Capital and revenue expenditure e.g. 2500 purchase and 3800 of wage is in fact capital expenditure P/L Purchase – 2500 and wage – 3800 B/S Fixed asset + 6300

3. Closing stock valuation Stock is valued at the lower of : cost price or net realization value (NRV) NRV = selling price - cost of getting the good into a saleable condition e.g. Item 1 cost 210 and is damaged, repair cost = 55, selling price = 220 Cost = 210 NRV = 220 – 55 = 165 ð value as 165

4. Sample P/L and B/S Ch. 24 Club and society accounts

Asset = accumulated fund + liabilities

Business organization Non – profit making organization Trading account Refreshment account

Receipts and payment account Receipts Bal at bank, 1 Jan Yr 6 430 Subscription rec. 6 Dec 2860 7 Dec 320 3180 3610

Payment Purchase of sport 1500 Stationery 1520 9375 Bal at bank, 31 Dec Yr 6 590 3610


P/L account Income and expenditure account Profit Surplus of income over expenditure Loss Deficit / excess of expenditure over income Capital Accumulated fund

Social Club Income and expenditure account for the year ended 31 Dec Yr 5

Expenditure Rent payable 3400 Insurance 380 Telephone 370 General expense 280 Depreciation: Equipment 800 Motor 1200 2000 Surplus of income Over expenditure 350 6780

Income Subscriptions 6320 Less rec in advance 320 6000 add accrued due 240 6240 Rent receivable 540 6780

B/S at 31 Dec Yr 5 Fixed asset Book Agg Net value Rent payable 3400 Insurance 380 Telephone 370 General expense 280 Depreciation: Equipment 800 Motor 1200 2000 Surplus of income Over expenditure 350 6780

Income Subscriptions 6320 Less rec in advance 320 6000 add accrued due 240 6240 Rent receivable 540 6780

LCCI_Accounting_First_Level_笔记

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