Managing Finance and Budgets

Seminar 3

Seminar 2 - Activities

During this seminar we will: Review some of the principles of double

entry bookkeeping Review the Cash Book Activity Discuss how the February transactions for

should be recorded in the Cash Book.

Some Starting Points

Explain, and if possible elaborate on the following terms: Assets Claims Credit Debit

Name some of the pages that might be included in a double-entry bookkeeping system.

Explain the duality and balancing principles

Principles

The Duality Principle says that every business transaction will be recorded on two different pages of the book: Once on the Debit Side Once on the Credit side

The Balancing Principle says that every business transaction has precisely two effects: One which serves to increase the wealth of the business One which serves to decrease the wealth of the business

The net result of these effects is zero.

The Cash Book Spreadsheet

This side shows you what money has come into the account, and where it has come from

This side shows you what money has gone out of the account, and where it has gone to.

The Cash Book Spreadsheet

Can you explain (1) what these transactions were, and (2) where their partner entries have been recorded?

The Debit Entries

1-Jan Owner invests £5000 in business.

18-Jan Trade Debtors pay outstanding bill of £800

31-Jan Business loan of £2000 from Loan Company.

1-Jan Capital Page: (Right Hand Side) - Credit Cash by £5000 .

18-Jan Trade Debtors (Right Hand Side) – Credit Cash by £800

31-Jan Loan Creditors (Right Hand Side) – Credit Cash by £2000

The Credit Entries

2-Jan Stock sold for £600.

3 -Jan Rent of £300 paid

11-Jan Office furniture £400 bought.

21-Jan Paid Trade Creditors £500

2-Jan Stock Page: (Left Hand Side) - Debit Cash by £600 .

3-Jan Rent Page (Left Hand Side) – Debit Cash by £300

11-Jan Office Furniture (Left Hand Side) – Debit Cash by £400

21-Jan Trade Creditors (Left Hand Side) – Debit Cash by £500

Cash Book Transactions - February

Feb 2 £1200 of Cash sales. These goods originally cost us £500 Feb 3 £800 of stock bought from warehouse on credit. Feb 4 £400 of shelving fixtures bought for cash.Feb 6 £200 of stock bought on Feb 8 returned to warehouseFeb 8 £600 of stock sold on credit for £900Feb 10 Refund of £100 on unused shelving fixturesFeb 11 £250 cash received from Trade DebtorsFeb 14 Paid £150 to Trade Creditors.Feb 18 Wages bill for the week £400 paid in cash.Feb 19 £1000 repaid to the Commercial Finance CompanyFeb 20 Paid rent of £250 in cash.Feb 21 £500 Cash sales. These goods originally cost £350Feb 22 £100 received from trade DebtorsFeb 23 £100 Cash sales. Goods originally cost £50.Feb 25 Owner withdraws £250 from the day’s takings

Entering Transactions

2nd February Sell goods for £1200 cashThese were originally bought for £500

On the SALES page, we credit CASH with the £1200

On the SALES page, we credit CASH with the £1200

Entering Transactions

2nd February Sell goods for £1200 cashThese were originally bought for £500

On the CASH page we show where this money has come from; we debit £1200 from Sales.

On the CASH page we show where this money has come from; we debit £1200 from Sales.

Entering Transactions

2nd February Sell goods for £1200 cashThese were originally bought for £500

On the STOCK page we show that £500 worth of stock has gone. This goes to Cost of Sales.

On the STOCK page we show that £500 worth of stock has gone. This goes to Cost of Sales.

Entering Transactions

2nd February Sell goods for £1200 cashThese were originally bought for £500

On the COST OF SALES page we show that Stock has now been reduced by £500.

On the COST OF SALES page we show that Stock has now been reduced by £500.

Final Cash page for February

Trial Balance for February

Balance Sheet for February

Balance Sheet for February