Professional, Practical, Proven

Academy 2019/2020

Financial AccountingLecture 22

Journal Entries and Double-entry revision

- Each transaction that a business enters into affects the financial statements in two ways (Duality)

Examples:1) Purchase a Machine for €6,000 cash

- Increase in Machinery- Decrease in Bank

2) Payment of €3,000 Wages- Increase in Wages- Decrease in Bank

Double entry book-keeping ****

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Increase DecreaseDebit Credit

lAsset lExpenses lDrawings lPurchases l

T account rules – Asset Account ***

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Decrease IncreaseDebit Credit

ll Liabilityl Gainsl Capitall Sales

T account rules – Liability Account ***

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1) Identify the two items that are affected

2) Are they being increased or decreased

3) Decide whether each account should be debited or credited

4) Check that a Debit entry and a Credit entry have been made for the same amount

Steps for every transaction ***

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- The journal is a Book of prime entry which records transactions which are not routine.

- Examples: - Closing inventory- Expenses paid and Accruals/Prepayments- Depreciation charge- Irrecoverable debt write-off- Change in Allowance for Receivables- Buying and Disposal of Assets- Correction of errors

Journal entry

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Journal entry presentation

- The transaction should be presented as followsDr. Cr.

Dr Account1 XCR Account 2 X

A brief narrative explain the entry

Example: Purchase of a Machine for 8,000 cash.Dr. Cr.

Dr. Machinery a/c 8,000Cr. Bank a/c 8,000

Being the purchase of Machinery by cash

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Common Journal entries

(1)Closing inventory (pg 103)(2)Credit Sales, Receivables and VAT (pg 75)(3)Credit Purchases, Payables and VAT (pg 75)(4) Accruals and Prepayments pg 238)(5) Irrecoverable debt written off (pg 239)(6) Irrecoverable debt recovered (pg 238)(7) Disposal of Asset (pg 196)

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(1) Closing inventory

example: closing inventory at 31/12/19 was 42,000

Dr. Cr.Dr. Inventory a/c (SFP) 42,000Cr. Cost of Sales (Inc St) 42,000

Being Closing Inventory at year end

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(2) Credit Sales, Receivables and Vat

Example: Credit Sales of 20,000 (exclusive of 10% Vat)Dr. Cr.

Dr. Receivables a/c 22,000Cr. Sales a/c 20,000Cr. Vat a/c 2,000

Being Credit Sales and Vat transaction

* If Cash Sales, then just replace Receivables a/c with Bank a/c

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(3) Credit Purchases, Payables and Vat

Example: Credit Purchases of 12,000 (inclusive of 20% Vat)

Dr. Cr.Cr. Payables a/c 12,000Dr. Purchases a/c 10,000Dr. Vat a/c 2,000

Being Credit Purchases and Vat transaction.

*If Cash purchases, just replace Payables with Bank a/c

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(4) Expenses paid and Accrual

Example: Paid wages of 4,000. At year end 1,000 was due

Dr. Cr.Dr. Wages a/c 4,000Cr. Bank a/c 4,000

Dr. Wages a/c 1,000Cr. Wages due a/c 1,000

Being Wages due at end of year.

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(4) Expenses paid and Prepayment

Example: Paid Rent of 9,000. At year end 2,000 was prepaid.

Dr. Cr.Dr. Rent a/c 9,000Cr. Bank a/c 9,000

Dr. Rent prepaid a/c 2,000Cr. Rent a/c 2,000

Being Rent prepaid at end of year.

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(5) Irrecoverable debt

Example: Additional Irrecoverable debt 31/12/2019 6,000

Dr. Cr.Dr. Irrecoverable debt a/c 6,000Cr. Receivables a/c 6,000

Being new bad debts

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(5) Irrecoverable debt recovered

Example: Irrecoverable debt of 4,000 previously written off in 2017 will now be received in June 2020.

Dr. Cr.Dr. Receivables a/c 4,000Cr. Irrecoverable debts recovered a/c 4,000

Being Irrecoverable debt recovered

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(6) Disposal of Asset (2019 Accounts)Example: Vehicle that was bought in 2017 for 20,000 sold in December 2019 for 15,000 cash. Depreciation was 10% straight line method (Full years depreciation in year of Purchase, none in year of Sale)

Dr. Cr.Cr. Vehicle (cost) a/c 20,000Dr. Acc. Depreciation a/c 4,000Dr. Bank a/c 15,000Dr. Loss on Disposal (Inc St) 1,000Disposal of Vehicle

* Profit would be credit entry

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Past exam questions

May 19 Q2Oct 19 Q6May 18 Q6Oct 18 Q6

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