1. Chapter 17 Correction of errors

2. Slide 2 notes reference - page 187 2 main uses: Suspense accounts Never appear in the final accounts To account for a Dr or Cr when the accountant is unsure where it should go To make a preliminary trial balance balance

3. Slide 3 notes reference - page 187 Lecture example 1 The double entry would be:Dr Suspense account400 Cr Cash at bank400 Bank400 Suspense 400 Bank

4. Slide 4 notes reference - page 187 Lecture example 1 (cont) The double entry is:Dr Rent expense400 Cr Suspense account400 Bank400 Suspense 400 Rent 400

5. Slide 5 notes reference - page 188 Lecture example 2 (W1)Should Dr SLCA 8,132 Cr Sales 8,132 Have Dr SLCA 8,132 Cr Sales 1,832 Now Dr Suspense 6,300 Cr Sales 6,300 DrSuspense6,300 CrSales6,300 (ii)DrElectricity expense(615-516)99 CrSuspense99 (W2)Should Dr Telephone 70 Cr Accruals 70 Have Dr - Cr Accruals 70 Now Dr Telephone 70 Cr Suspense 70 DrTelephone70 CrSuspense70 (iv)DrPurchases(77,356 – 76,182)1,174 Cr1,174Suspense (i)(W1) (iii)(W2)

6. Slide 6 notes reference - page 189 Lecture example 2 (cont) Suspense account (i) Sales6,300 (ii) Electricity99 (iii) Telephone70 bal b/d4,957 (iv) Purchases1,174 6,300

7. Slide 7 notes reference - page 189 Lecture example 2 (cont)

8. Slide 8 notes reference - page 190 Ledger codes Vital to record all transactions without error – but also be able to retrieve them Need to organise all these transactions by means of individual flags Format can be in a hierarchy e.g. –Assets Non current assets Current assets –Inventories –Receivables –Liabilities –Capital –Expenses –Revenues Audit trail of all items and transactions Time

9. Slide 9 notes reference - page 191 Ledger codes Accounting codes used should be: –Unique –Useful –Compact –Meaningful –Self-checking & of standard size –Expandable

10. Slide 10 notes reference - page 191 Example of how a Ledger stores data for retrieval X Cost centre Time Ledger code All data must be unique to be easily stored and located within the ledger and represent one item in one place at one time Literally, a “cube” of data. How do you find one item out of all transactions in the year so far? At one “slice” of time, you can find an individual transaction e.g. Newcastle Wages on 16/4/05 e.g. 16/4/05 e.g.Newcastle e.g. Wages

11. Chapter 18 Sales tax, PAYE and NI

12. Slide 12 notes reference - page 197 Sales tax An indirect tax Charge sales tax on sales OUTPUT TAX Suffer sales tax on purchases INPUT TAX

13. Slide 13 notes reference - page 197 Lecture example 1 (a) Grow raw materials & NetTaxGross sell for $117.50 (W1) 10017.50117.50 (b) (1) Buy raw materials for $117.50 (2) Sell to wholesaler for $293.75 (W2) 10017.50117.50 25043.75293.75 17.50 26.25 (W1)17.5 117.5 x$117.50=$17.50 17.5 117.5 x$293.75=$43.75 (W2)

14. Slide 14 notes reference - page 197 Lecture example 1 (cont) (c) (1) Wholesaler buys goods for $293.75 NetTaxGross 25043.75293.75 (d) (1) Retailer buys goods for $352.50 (2) Sells to customer for $470 (W4) 30052.50352.50 40070.00470.00 8.75 17.50 (W3)17.5 117.5 x$352.50=$52.50 17.5 117.5 x$470.00=$70.00 (W4) (2) Sells to retailer for $352.50 (W3)30052.50352.50

15. Slide 15 notes reference - page 197 Lecture example 1 (cont) (e) Customer bought goods for $470 NetTaxGross 40070.00470 Tax paid directly to HMRC is: (a) (b) (c) (d) (e) 17.50 26.25 8.75 17.50 0 70.00 Tax suffered by customer

16. Slide 16 notes reference - page 199 Lecture example 2 The double entry to record the purchases is: Purchases1,000 Sales Tax Control175 DrCr Trade Payables1,175 Purchases Tr Pay1,000 Trade PayablesSales Tax Control Tr Pay175Purchases1,175 (incl ST)

17. Slide 17 notes reference - page 200 Lecture example 2 The double entry to record the sales is: Trade Receivables1,762.50 Sales1,500.00 DrCr Sales Tax262.50 Sales Tr Rec1,500 Trade ReceivablesSales Tax b/d175Sales1,762.50 (incl ST) Tr Rec262.50 c/d87.50 b/d87.50

18. Slide 18 notes reference - page 200 Lecture example 3 Sales Tax calculated after accounting for all discounts Settlement discount(10% x 11,000)(1,100) Trade discount(4,000) 11,000 Sales net of all discounts9,900 Sales Tax =9,900x 17.5% = 1,732.50 Sales15,000 $

19. Slide 19 notes reference - page 201 Lecture example 3 part (a) The double entry to record the sale will be: Sales11,000 Receivables12,732.50 DrCr Sales Tax1,732.50

20. Slide 20 notes reference - page 201 Lecture example 3 part (b) Sales tax control account Receivable1,732.50 Receivables Sales12,732.50 Sales Receivable11,000 Cash 12,732.50

21. Slide 21 notes reference - page 201 Lecture example 3 part (c) Sales Receivables11,000 Receivables Sales12,732.50 Sales Tax control account Receivables1,732.50 Cash 11,632.50 Discounts allowed Receivables1,100 Discount allowed 1,100 12,732.50

22. Slide 22 notes reference - page 202 Sales tax on motor cars & business entertaining Sales tax on motor cars can be reclaimed if the car is purchased solely for the use of the business difficult to prove, therefore normally sales tax not reclaimed Sales tax not reclaimed on business entertaining

23. Slide 23 notes reference - page 203 National Insurance and PAYE Employer’s NI paid to employee paid to pension fund paid to HMRC TOTAL EXPENSE Net wage Pension PAYE GROSS WAGE Employee’s NI

24. Slide 24 notes reference - page 203 Lecture example 4 (a) The total cost to the employer is$33,000 33,000 30,000 The double entry would be: Wages & salaries expense Wages control (gross pay) DrCr NIC (employer’s contribution) 3,000 (Gross pay 30,000 + Employer’s NI 3,000) (b) The 3 items deducted from gross pay are (i) Employee’s National Insurance contribution (ii) PAYE (iii) Trade Union deductions

25. Slide 25 notes reference - page 204 Lecture example 4 (cont) 8,100 2,000 6,000 The double entry to reflect the deductions would be: Wages control NIC control DrCr PAYE control Trade union account 100 (c) The net pay received by employees is£21,900 (Gross pay 30,000 - deductions 8,100) 21,900 The double entry would be: Wages control Bank DrCr

26. Slide 26 notes reference - page 204 Lecture example 4 (cont) (d) The total amount paid to the Inland Revenue is$8,900 3,900 8,900 The double entry would be: NIC control Bank DrCr PAYE control 5,000 600 (e) The double entry to reflect payments to the TU would be: Trade union account Bank DrCr

27. Slide 27 notes reference - page 205 Lecture example 4 part (f) NIC control bal b/d4,000 Wages & salaries expense (employer’s NI) 3,000 Wages & salaries control (employee’s NI) 2,000 3,900Bank 5,100bal c/d 9,000 Trade Unions bal b/d500 Wages & salaries control100 600Bank 600

28. Slide 28 notes reference - page 205 Lecture example 4 part (f) Bank Wages & salaries control21,900 NIC control3,900 Trade Union600 31,400bal c/d 31,400 PAYE control bal b/d5,000 Wages & salaries control6,000 5,000Bank PAYE control5,000 bal c/d6,000 11,000

29. Slide 29 notes reference - page 205 Lecture example 4 part (f) Wages & salaries control NIC control (employee’s NI) 2,000 Trade Union100 21,900Bank 30,000 Wages & salaries expense IS33,000 PAYE control6,000 33,000Wages control & NIC control 33,000 Wages & salaries30,000 expense

30. Chapter 19 Incomplete records

31. Slide 31 notes reference - page 211 Lecture example 1 The records that are likely to be kept would include: Bank statements Till rolls Supplier invoices and statements Sales invoices and statements

32. Slide 32 notes reference - page 211 Lecture example 2 The problems likely to arise are Cash sales not recorded Drawings not recorded Thefts of cash or inventory Inventory not counted at year-end

33. Slide 33 notes reference - page 212 Cost structures Margin: gross profit as a % of sales e.g. 25% margin 100% 75% 25% Rule: Set sales to 100% Sales COS Gross Profit Mark-up: gross profit as a % of cost e.g. 25% mark-up 100% 25% Rule: Set COS to 100% Sales COS Gross Profit 125%

34. Slide 34 notes reference - page 212 Lecture example 3 The cost of sales is $285,600 100% 60% 40% Rule (margin): Set sales to 100% Sales COS Gross Profit 476,000 285,600 x 60%

35. Slide 35 notes reference - page 213 Lecture example 4 Credit sales for the year are £290,560 130% 100% 30% Rule (mark-up): Set COS to 100% Sales COS Gross Profit 257,000 334,100 x 130% Total sales Cash sales Credit sales 334,100 (43,540) 290,560

36. Slide 36 notes reference - page 214 Lecture example 5 Purchases for the year are $174,500 130% 100% 30% Rule (mark-up): Set COS to 100% Sales COS Gross Profit 221,000 170,000 x 100/130 170,000 43,000 174,500 Opening inventory Purchases Cost of sales Less: closing inventory (47,500)

37. Slide 37 notes reference - page 215 Lecture example 6 Sales for the year were £276,400 100% 65% 35% Sales COS Gross Profit 179,660 276,400 x 100/65 Opening stock Purchases Cost of sales179,660 0 187,470 Less: closing inventory (7,810)

38. Slide 38 notes reference - page 215 Lecture example 7 (a) Purchases for the year are$173,029 Cash430 Bank167,224 bal c/d43,825 bal b/d38,450 Purchases173,029 211,479 Purchase Ledger Control Account (b) The double entry for the purchases figure is: Purchases173,029 PLCA173,029

39. Slide 39 notes reference - page 216 Lecture example 8 (a)Cash received from trade receivables during the year was $39,204 bal b/d50 Receipts from receivables 39,204 General expenses4,500 Drawings6,250 Bankings28,454 39,254 Cash bal c/d50

40. Slide 40 notes reference - page 216 Lecture example 8 (cont) (b) The sales figure for the year was$39,685 bal b/d1,447 Sales39,685 Cash39,204 bal c/d1,928 41,132 Sales Ledger Control A/C (c) The double entry for the sales figure is: SLCA ( Trade Receivables )39,685 Sales39,685 DrCr

41. Slide 41 notes reference - page 217 Lecture example 9 (a) Purchases for the year were$158,345 Bank157,300 bal c/d15,456 bal b/d14,411 Purchases158,345 172,756 PLCA The double entry for the purchases figure is: Purchases158,345 PLCA158,345 DrCr

42. Slide 42 notes reference - page 217 Lecture example 9 (cont) 130 100 30 (c) Cost of sales for the year was$156,160 Opening inventories Purchases Cost of sales156,160 10,200 158,345 Less: closing inventories(12,385) (b)Sales COS Gross Profit %

43. Slide 43 notes reference - page 217 Lecture example 9 (cont) (d) Sales for the year were$203,008 The double entry for the sales figure is: Trade Receivables203,008 Sales203,008 DrCr Sales COS Gross Profit 130% 100% 30% 156,160 203,008 x 130%

44. Slide 44 notes reference - page 217 Lecture example 9 (cont) (e) Cash received from trade receivables during the year was $200,877 bal b/d19,246 Sales203,008 Receipts from receivables 200,877 bal c/d21,377 222,254 SLCA

45. Slide 45 notes reference - page 217 Lecture example 9 (cont) (f) The amount of cash stolen by the cashier was$36,824 bal b/d100Expenses2,080 ($40 x 52) 200,977 Cash Receipts from200,877 receivables Drawings2,860 ($55 x 52) Bankings159,213 Stolen36,824 bal c/d0

46. Chapter 20 Profit adjustments

47. Slide 47 notes reference - page 221 Proforma Original profit Adjustment (a) over depreciation (b) accrual (c) unrecorded sale DrCr £££ -+ X X (X) X XX XAdjusted profit decrease profitincrease profit

48. Slide 48 notes reference - page 221 Lecture example 1 Draft profit (a) Bad debt recovered (b) Inv written down to NRV (d) Rates prepaid $$$ -+ 43,865 563 990 (1390)1053 Adjusted profit (c) Goods on sale or return treated as a firm sale (W1)400 490 (337) 43,528 (W1)Reverse saleDr Sales (2,000 x 120%)2,400 Cr Receivables2,400 Reinstate stockDr Inventory (B/S)2,000 Cr Inventory (IS)2,000 Net decrease in profit 400

49. Slide 49 End of day 5 - what to do now… 1.Course notes review Course Companion 2. Question practice 3. Study text review Reinforce today’s learning Develop question skills