Qn 1 – Final Accounts
one approach
Gabrielle Moran
11th September 2010
Prior to Final Accounts
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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
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Two aspects to all transactions
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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/C, Bank Overdraft A/C, Creditors A/C
Record the firm’s day to day running expenses.
Expense
e.g. Wages A/C,, Insurance A/C, Purchases A/C
Record day to day income earned by the firm
Revenue
e.g. Sales A/C, Rent Received A/C, Commission A/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
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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 firm’s profit for
the year.
Asset and Liability Accounts are listed in the
BALANCE SHEET to ascertain the firm’s 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”
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Split Trading from P & L
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Trial Balance
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Vertical Approach
Subsidiary Books
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Source documents
List
Reduce entries in accounts in nominal ledger
Purchases A/C
Smith
Adams
Cranford
Murphy
Smith
Cranford
2500
3400
5640
4260
4700
2600
Smith A/C
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
Purchases A/C
Creditors 23100
Smith A/C
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
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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
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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
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Hardest Part is sorting the English
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Read a Little Talk a Little
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Use Dr Cr grid
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Make out the accounts
Dr
A
L
E
R
Cr
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
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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
Delivery Vans (cost €280,000)
Discount (Net)
Profit and Loss Balance 1/1/2006
Stocks on hand 1/1/2006
Debenture interest for the first four
months
9% Investments 1/1/06
Patents (incorporating 3 months
investment income)
Purchase and Sales
€
902,000
€
190,000
10,800
17,200
75,200
5,000
320,000
24,800
1,320,000 1,760,000
Interim dividends for the first 6 months
Bad Debts Provision
Debtors and Creditors
Bank
Salaries and general expenses
8% Debentures
Issued Share Capital – Ordinary Shares
– 10%Preference Shares
Directors fees
Rent
Advertising (including Suspense)
48,000
100,400
3,200
86,600
44,000
199,600
180,000
800,000
400,000
48,000
19,600
14,800
3,284,600 3,284,600
1
2
Stock 31/12/06 85200 – 4000 =
Bal b/d
Inv Inc
3
Patents a/c
24800 P & L
6400
7200
Investment Income a/c
7200
P & L 28800 Inv Inc
Bal c/d
21600
(24800 + 7200) / 5
= 6400
320,000 X 9% = 28,800
28,800 X ¼ =7200
4
Bal b/d
Purchases a/c
1320000 Disp (3)
Fire (5)
Buildings (5)
46000
12000
51000
Amber Ltd. Qn 1 2007
Buildings at cost
Delivery Vans (cost €280,000)
Discount (Net)
Profit and Loss Balance 1/1/2006
Stocks on hand 1/1/2006
Debenture interest for the first four
months
9% Investments 1/1/06
Patents (incorporating 3 months
investment income)
Purchase and Sales
€
902,000
€
190,000
10,800
17,200
75,200
5,000
320,000
24,800
1,320,000 1,760,000
Amber Ltd. Qn 1 2007
Buildings at cost
Delivery Vans (cost €280,000)
Discount (Net)
Profit and Loss Balance 1/1/2006
Stocks on hand 1/1/2006
Debenture interest for the first four
months
9% Investments 1/1/06
Patents (incorporating 3 months
investment income)
Purchase and Sales
€
902,000
€
190,000
10,800
17,200
75,200
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
Delivery Vans (cost €280,000)
Discount (Net)
Profit and Loss Balance 1/1/2006
Stocks on hand 1/1/2006
Debenture interest for the first four
months
9% Investments 1/1/06
Patents (incorporating 3 months
investment income)
Purchase and Sales
€
902,000
€
190,000
10,800
17,200
75,200
5,000
320,000
24,800
1,320,000 1,760,000
Interim dividends for the first 6 months
Bad Debts Provision
Debtors and Creditors
Bank
Salaries and general expenses
8% Debentures
Issued Share Capital
– Ordinary Shares
– 10% Preference Shares
Directors fees
Rent
Advertising (including Suspense)
48,000
100,400
3,200
86,600
44,000
199,600
180,000
800,000
400,000
48,000
19,600
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
1
2
Stock 31/12/06 85200 – 4000 = 81,200
Bal b/d
Inv Inc
3
Patents a/c
24800 P & L
6400
7200
Investment Income a/c
7200
P & L 28800 Inv Inc
Bal c/d
21600
(24800 + 7200) / 5
= 6400
320,000 X 9% = 28,800
28,800 X ¼ =7200
4
Bal b/d
Purchases a/c
1320000 Disp (3)
Fire (5)
Buildings (5)
Trading
1320000
46000
12000
51000
1211000
1320000
Full Honours Question
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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
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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 Template Accounts

Enter 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!!)