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.

Up & Down Increase Asset Decrease Asset Increase Claims Decrease Claims Increase Asset Decrease Asset Increase Claims Decrease Claims Which of the actions on the right can balance each of the actions on the left?

Up & Down Increase Asset Decrease Asset Increase Claims Decrease Claims Increase Asset Decrease Asset Increase Claims Decrease Claims Note that each action can be balanced in two different ways.

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 £ Jan Business loan of £2000 from Loan Company. 1-Jan Capital Page: (Right Hand Side) - Credit Cash by £ Jan Trade Debtors (Right Hand Side) – Credit Cash by £ Jan Loan Creditors (Right Hand Side) – Credit Cash by £2000

The Credit Entries 2-Jan Stock sold for £ 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 £ Jan Rent Page (Left Hand Side) – Debit Cash by £ Jan Office Furniture (Left Hand Side) – Debit Cash by £ 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 warehouse Feb 8£600 of stock sold on credit for £900 Feb 10Refund of £100 on unused shelving fixtures Feb 11£250 cash received from Trade Debtors Feb 14Paid £150 to Trade Creditors. Feb 18Wages bill for the week £400 paid in cash. Feb 19£1000 repaid to the Commercial Finance Company Feb 20Paid rent of £250 in cash. Feb 21£500 Cash sales. These goods originally cost £350 Feb 22£100 received from trade Debtors Feb 23£100 Cash sales. Goods originally cost £50. Feb 25Owner withdraws £250 from the day’s takings

Entering Transactions 2 nd February Sell goods for £1200 cash These were originally bought for £500 On the SALES page, we credit CASH with the £1200

Entering Transactions 2 nd February Sell goods for £1200 cash These were originally bought for £500 On the CASH page we show where this money has come from; we debit £1200 from Sales.

Entering Transactions 2 nd February Sell goods for £1200 cash These were originally bought for £500 On the STOCK page we show that £500 worth of stock has gone. This goes to Cost of Sales.

Entering Transactions 2 nd February Sell goods for £1200 cash These were originally bought for £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