Lecture notes

lecture notes for an introduction to double entry bookeeping

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Module
Introduction to Financial accounting

Institution
University Of Leeds (UoL)

A guide into how to make entries for assets, liabilities, capital, income, and expenses within the financial accounts. it also briefly looks into VAT and how to account for it.

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Uploaded on April 2, 2023
Number of pages 2
Written in 2021/2022
Type Lecture notes
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10 items

1. Lecture notes - Financial accounting introduction
2. Lecture notes - Lecture notes to the basic accounting equation
3. Lecture notes - Lecture notes for an introduction to double entry bookeeping
4. Lecture notes - Introduction to the trial balance
5. Lecture notes - Introduction to inventory
6. Lecture notes - Lecture notes for the introduction to irrecoverable and doubtful debts
7. Lecture notes - Lecture notes for the introduction to accruals and prepayments
8. Lecture notes - Lecture notes for an introduction to non-current assets
9. Lecture notes - Lecture notes for an introduction to financial statements
10. Lecture notes - Lecture notes on interpreting the financial statements
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Double entry notes

 Double entry means that every accounting event must be submitted as a debit and a credit
entry.
 Journal entries are used to record transactions that are a one-off or don’t usually happen.
This could be selling non-current assets, or corrections in mistakes. These entries require an
explanation.
 Assets + expense=Capital + liabilities + income, where assets and expense are debit and
capital, liabilities and income is credit.
 The rules for debits and credits are:

Assets increasing= debit, decreasing=credit

Liabilities increasing=credit, decreasing=debit

Capital increasing= credit, decreasing=debit

Income increasing= credit, decreasing=debit

Expense increasing=debit, decreasing =credit

 The nominal ledger is the main accounting record where financial transactions are
recorded.
 The receivables ledger is where individual ledger accounts for credit customers are
recorded. Then the total pay receivables is recorded in the nominal ledger as trade
receivables.
 The payables ledger is where individual ledger accounts for credit suppliers are kept.
Then the total payables account is held in the nominal ledger under trade payables.
These two ledgers are not part of the double entry system.
 Trade discounts are a percentage discount from the list price of goods and are usually
given to regular customers and on bulk purchases. The purchases and sales should be
recorded as the net of the trade discount. In other words, the final price is the one
recorded.
 Early settlement discounts are a percentage discount given to customers if they pay
within a shortened period of time. This is to encourage customers to pay the company
quicker. Sales or purchases should be recorded net of the discount if it is taken.
However, judgment should be made as to whether the company will make the payment
in time and sales, or purchases should be recorded and adjusted accordingly.
 When you have VAT on sales, the debit is receivables and credit is owed to HMRC. On
purchases, VAT is due from HMRC as debit and payables are credit.
 A trader must pay VAT at the appropriate rate on the full sales value, this is known as
output tax. Sales in the statement of profit or loss should exclude output tax. However,
the receivables will include the VAT as it is the amount due from customers.
 A trader is usually entitled to reclaim VAT on goods bought, expenses and non-current
assets or input tax. This is not included in the statement of profit or loss but on the
credit side of the double entry statement will be tax included as it is what will be paid to
the suppliers.
 The overall tax paid to HMRC is the output tax-input tax. If this is a debit balance, a
repayment is due from HMRC.
 In the statement of financial position, the overall tax either from or to HMRC should be
included in other payables or other receivables.

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