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Maintaining Financial Records FA 2

Maintaining Financial Records FA 2. B Amrith Thilan B.B.A, ACCA Passed Finalist. ACCA - Maintaining Financial Records (FA 2). Recording Business Transactions within the Accounting and Double Entry System. ACCA - Maintaining Financial Records (FA 2). Recording Transactions.

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Maintaining Financial Records FA 2

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  1. Maintaining Financial RecordsFA 2 B Amrith Thilan B.B.A, ACCA Passed Finalist

  2. ACCA - Maintaining Financial Records (FA 2) Recording Business Transactions within the Accounting and Double Entry System

  3. ACCA - Maintaining Financial Records (FA 2) RecordingTransactions Transactions are first recorded in the books of prime entry and then recorded on the ledger system. A Book of prime entry is where a transaction is first recorded. Books of Prime Entry serve to capture transactions as soon as possible.

  4. ACCA - Maintaining Financial Records (FA 2) Books of Prime Entry • The Sales Day Book • The Purchase Day Book • Sales Return Day Book • Purchase Return Day Book • The Cash Book • The Petty Cash Book • The Journal

  5. ACCA - Maintaining Financial Records (FA 2) The Accounting Equation and the Principles and Practice of Double Entry Book-keeping

  6. ACCA - Maintaining Financial Records (FA 2) Bookkeeping Principles • The transaction of the business are separate from its owners. • Every transaction gives rise to two entries. One entry is known as a credit entry and the other a debit entry. • Things owned by the business equals things owed by the business. (Asset = Capital + Liabilities)

  7. ACCA - Maintaining Financial Records (FA 2) Double Entry

  8. ACCA - Maintaining Financial Records (FA 2) Double Entry Examples • Purchase of Office Stationary for Cash : Debit Office Stationary (increase in an expense) Credit Cash (decrease in an asset) • A Cash Sale : Debit Cash (increase in an asset) Credit Sales (increase in income) • Purchase on Credit : Debit Purchases (increase in an expense) Credit Payables (increase in liability)

  9. ACCA - Maintaining Financial Records (FA 2) Double Entry Examples • The owner starts up the business 1/1/2013 by putting $10,000 of cash in as capital. • The double entry would be :

  10. ACCA - Maintaining Financial Records (FA 2) Test Your Understanding 1 What would be the double entry for the payment of wages to employees ? • Dr Employees Cr Wages • Dr Wages Cr Cash • Dr Cash Cr Wages • Dr Cash Cr Employees

  11. ACCA - Maintaining Financial Records (FA 2) Balancing off Accounts At the end of an accounting period, typically at the end of a month or year, it is necessary to find the balance on each ledger account in order that a trial balance can be extracted as part of the accounting cycle. The process is referred to as ‘Balancing off accounts’. In bookkeeping the term balance means the net difference between the debits and credits on each account. If the debits are greater than the credits the balance will be a debit balance. If the credits are greater than the debits the balance will be a credit balance.

  12. ACCA - Maintaining Financial Records (FA 2) Balancing off Accounts Process • Total both the debit and credit sides of the ledger account. • Calculate the balance. (the difference between the total debits and total credits) • Add a one sided entry to make the totals on both sides of the account equal. This is referred to as the balance carried down or balance c/d. • Complete the double entry with an equal and opposite entry underneath the totals. This is referred to as the balance brought down or balance b/d.

  13. ACCA - Maintaining Financial Records (FA 2) Balancing off Accounts - Example

  14. ACCA - Maintaining Financial Records (FA 2) Carrying Down Balances - Example

  15. ACCA - Maintaining Financial Records (FA 2) The Accounting Equation and Profit Net Asset = Net Liability + Capital Increase in Net Assets = Capital Introduced + Profit - Drawings

  16. ACCA - Maintaining Financial Records (FA 2) Test Your Understanding 2 On 1 January 2013 a business had net assets of $ 15,000. On January 2013, net assets amounted to $19,000. Additional capital of $1,000 had been introduced in January, but the owner had made drawings of $400. What profits were made in January ? • $3,400 • $4,000 • $4,600 • $5,400

  17. ACCA - Maintaining Financial Records (FA 2) Test Your Understanding 3 On 1 January 2013 a business had net assets of $25,000. On 31 January 2013, net assets amounted to $23,000. A loss of $7,000 had been made and the owner withdrew $1,000 to live on. What additional capital was introduced to the business in January ? • $8,000 • $6,000 • $7,000 • $10,000

  18. Maintaining Financial RecordsFA 2 B Amrith Thilan B.B.A, ACCA Passed Finalist

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