1. CDA COLLEGE ACC101: BOOK KEEPING 1 Lecture 6 Lecture 6 Lecturer: Kleanthis Zisimos

2. Chapter Review In Today’s Lecture we Define the double entry principles Define the double entry principles Record transactions in the accounts Record transactions in the accounts

3. Transactions By now we have learn the basic principles underlying the Balance Sheet and Profit & Loss. By now we have learn the basic principles underlying the Balance Sheet and Profit & Loss. We now turn our attention to the process by which a business transaction works its way through the financial statements. We now turn our attention to the process by which a business transaction works its way through the financial statements. A business transaction is shown in a document. Documents maybe invoices, receipts, credit notes etc. A business transaction is shown in a document. Documents maybe invoices, receipts, credit notes etc. A document or a business transaction is recorded in the books of the company in two Ledger accounts. This is called double entry basis A document or a business transaction is recorded in the books of the company in two Ledger accounts. This is called double entry basis

4. Rules of Double Entry 1. Every transaction has 2 entries. A debit entry and a credit entry 2. The total value of debit entries must always be equal with the total value of credit entries 3. An increase in an asset is a debit 4. An increase in a liability or capital is a credit 5. An increase in an income is a credit 6. An increase in an expense is a debit

5. Discussion question 1 Identify the credit and debit entries in each transaction and post them in the ledger accounts. Identify the credit and debit entries in each transaction and post them in the ledger accounts. 1. Bought a machine for 2000 € by cash 2. Cash sales 1000 € 3. Payment of rent 500 € 4. Cash purchases 1300 € 5. The owner put 3000 € in cash to the business

6. Discussion question 2 Identify the credit and debit entries in each transaction and post them in the ledger accounts. Identify the credit and debit entries in each transaction and post them in the ledger accounts. 1. Paid salaries for 5000 € by cash 2. Credit sales 11000 € to Bob 3. Bob paid us 5000 € 4. Credit purchases 4600 € to Dylan 5. The company paid Dylan 2000 €

7. Closing The Ledger a/cs We have seen so far how we record the transactions to the accounts. But what is the exact amount in each account to be transferred in the Balance sheet and Profit & Loss? We have seen so far how we record the transactions to the accounts. But what is the exact amount in each account to be transferred in the Balance sheet and Profit & Loss? We transfer the closing balance of each transaction to the Financial statements. We transfer the closing balance of each transaction to the Financial statements. We will demonstrate this theory with the following example We will demonstrate this theory with the following example

8. Discussion question 3 J Jones started business on 1 March 2010 with 5,000 cash at bank and 1,000 cash in hand. During March the following transactions took place: J Jones started business on 1 March 2010 with 5,000 cash at bank and 1,000 cash in hand. During March the following transactions took place: 1. March 2Bought office furniture 1,500 by cheque. 2. 5Paid cash 500 for the purchase of additional office furniture. 3. 11Received cash 100 from the sale of furniture. 4. 17Sold furniture 300 to S Smith on credit. 5. 22Bought furniture valued £2,000 from A Adams on credit. 6. 25Received 200 by cheque from S Smith. 7. 28Paid 1,600 to A Adams, by cheque. REQUIRED Enter the above transactions in the books of J Jones. Balance the accounts on 31 March 2010. Enter the above transactions in the books of J Jones. Balance the accounts on 31 March 2010. Extract a Balance Sheet at 31 March 2010 Extract a Balance Sheet at 31 March 2010