# AAT Level 3 Recap on Debits and Credits and Introduction to Income Statement and Statement of Financial Position.

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AAT Level 3 Recap on Debits and Credits and Introduction to Income Statement and Statement of Financial Position

Double entry rules “T” accounts Debit on left, credit on right
Debit – gains value, credit – gives value PEARLS – Debit side – purchase, expenses, assets Credit side – revenue, liability, sales Accounting equations :– Assets – liabilities = Capital Income – expenses = Profit or Loss

Profit and Loss Account
Income – expenses = profit or loss, these items make up the P & L account Now known as “ the income statement”

Balance Sheet Assets – liabilities = Capital. These items are found on the Balance Sheet – now known as “the statement of financial position”

Example Purchases Expenses Assets Revenue Liability Sales Purchase
Rent, rates, ins Car, stock, bank Commission received Capital, VAT Sales

Example - If I bought a car for £10000 and paid for it from the bank, the double entry postings would be: Debit Assets (car account) £10000 Credit Bank £10000

Example - If I invested £50000 into the business as Capital and paid it into the bank, the double entry postings would be: Debit the Bank £50000 Credit the Capital account £50000

Practice Write the previous two examples into the “T” accounts provided Car (Asset) – Debit £10000 Bank – Credit £10000 Bank – Debit £50000 Capital – Credit £50000

More practice Enter the following into “T” accounts:
Paid a further £10000 into the bank as capital Paid rent £550 Paid rates £675 Bought a computer and paid from the bank £1500 Paid car insurance £950 Bought some stationery for £150 How much is in the bank?

Accounting Equation Assets = £50000 Liabilities = £10000
Capital = £40000 Income = £75500 Expenses = £25500 Profit = £50000

Practice Assets = £65000 Liabilities = £5000 Capital = ? Assets = ?
Complete the missing figures

Practice Income = £105000 Expenses = £10500 Profit = ? Income = ?
Complete missing figures

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