Joan Martin

This module is revision for students who are studying Junior Certificate
Business Studies and have an interest in studying Accounting for Leaving
Certificate as part of their Transition Year course.

The student is introduced to and understand:

•Purpose of accounting records

•Steps in Accounting
•Source documents and day books
•Double-entry bookkeeping and the trial balance
•Assets, Liabilities, Expenses and Revenue
•The function of each day book
•Interpret ledger entries and balances
If you owned a business, what areas do you need to keep track of?

Businesses must complete a number of documents before transferring the

information to accounts. Can you name some of these documents?
Source Documents

What is the purpose of each document?

 BALANCE
SHEET INVOICE

PROFIT & Credit

LOSS Transaction Note,
ACCOUNT occurs Cheques
Analysis of
TRADING
transaction
ACCOUNT
Accounting Cycle
Preparation of final
accounts

Recording of
TRIAL BALANCE transactions

DR CR

Adjustment of
balances Posting to ledger
Preparation of trial
balance account
Source Documents Books of First Entry

Sales invoices Sales Book

Credit notes sent Sales Returns/

Returns Inwards Book

Purchases invoices Purchases Book

Credit notes received Purchases Returns/

Returns Outwards Book

Lodgement slips, cheques, receipts Cash Book

Petty cash vouchers Petty cash book

Financial correspondence General Journal

Accounting is recorded in the following sequence

1.Books of First Entry

2.Ledger Accounts
3.Trial Balance
4.Final Accounts
a. Trading Account
b. Profit and Loss Account
c. Balance Sheet
Books of First Entry

The Books of First Entry are the first stage of Accounting for all new
businesses.

These books are:

•General Journal
•Sales Day Book
• Sales Returns Day Book
• Purchases Day Book
• Purchases Returns Day Book
• Cash Book (Receipts and Payments)
• Petty Cash Book

All transactions are posted twice from the Books of First Entry
to the Ledger Accounts. There are 3 Ledgers:

• Debtors Ledger
• Creditors Ledger
• General/Nominal Ledger
Class/Group Discussion

Goods/items can be bought or sold on credit or by cash?

What does buying on CREDIT mean?

General Journal

This Book is used to record entries that cannot be entered in any other Book
of First Entry for example opening entries of assets and liabilities at the start
of the year.
i.e. Purchase of a Fixed Asset

Worked Example
Martin’s Ltd had the following Assets and Liabilities on 1 st January 2012;
Premises €350,000, Land €120,000, Stock €50,000, Bank Overdraft €40,000,
Share Capital €480,000 Click to access General Journal questions
2012 General Journal
1Jan Premises GL €350,000
Land GL €120,000
Stock GL €50,000 €520,000

Bank Overdraft CB €40,000

Share Capital GL €480,000 €520,000
Assets, Liabilities
and capital as on
this date
Sales Day Book

•Goods that are sold on credit are entered in a Sales Day Book
•There are three money columns, main column is Gross Sales (including VAT)
•Analysis columns is divided into VAT and Net Sales
•Entries from the Sales Day Book is used to update the Nominal/General
Ledger and Debtors Ledger

Worked Example:
1 June Sold goods on credit to J Knox Invoice 1 €5,400
4 June Sold goods on credit to T Reilly Invoice 2 €6,500

Sales Day Book

Date Details F In. No. Net VAT @ Total
Sales 23% Sales
1 June J Knox DL1 1 €5,400 €1,242 €6,642
4 June T Reilly DL2 2 €6,500 €1,495 €7,995
€11,900 €2,737 €14,637
Sales Returns Day Book

Businesses will issue credit notes to customers when:

1. Goods previously sold are returned due to be faulty or damaged
2.Where prices charged on the original invoices were miscalculated and need to
be corrected

Worked Example:
5 June J Knox returned goods Credit note 1 €400
8 June T Reilly returned goods Credit note 2 €200

Sales Returns Day Book

Date Details F Cr. No. Net VAT @ Total
Sales 23% Sales
5 June J Knox DL1 1 €400 €92 €492
8 June T Reilly DL2 2 €200 €46 €246
€600 €138 €738
Sales Day Book/Sales Returns Day Book

The figures can be transferred to ledger accounts as follows:

Sales Day Book

NET VAT TOTAL
€ € €

Debit side Debtors A/C

Credit side VAT A/C

Credit Side Sales A/C

Sales Returns Day Book

Credit Side Debtors A/C

Debit Side VAT A/C

Debit Side Sales Returns A/C

Purchases Day Book

•This book records credit purchases

•Main column is Gross/Total purchases (including VAT)
•Analysis columns divided into VAT and Net Purchases
•Information from the Purchases Book is used to update both the
Nominal/General Ledger and Creditors Ledger on a monthly basis

Worked Example

1 July Purchased goods on credit Invoice No. 34 from J. Clarke €3,000

4 July Purchased goods on credit Invoice No. 35 from T. Jones €2,400

Date Details F In. No. Net VAT @ Total

Purchases 23% Purchases

1 July J. Clarke CL1 34 €3,000 €690 €3,690

4 July T. Jones CL2 35 €2,400 €552 €2,952
€5,400 €1,242 €6,642
Purchases Returns Day Book

Businesses receive credit notes from suppliers when:

1. You have returned goods to the supplier due to damage or faulty

2. When you have been overcharged on an invoice from a supplier

Worked Example:

6 July Returned goods to J. Clarke Credit Note No. 21 €200

9 July Returned goods to T. Jones Credit Note No. 22 €140

Purchases Returns Day Book

Date Details F Cr. Net VAT @ Total
No. Purchases 23% Purchases
6 July J. Clarke CL1 21 €200 €46 €246
9 July T. Jones CL2 22 €140 €32.20 €172.20
€340 €78.20 €418.20

Click here to access Day Books questions

 Purchases Returns Day Book

Debit Side Creditors A/C

Credit Side VAT A/C

Credit Side Purchases Returns A/C

Cash Receipts Cheque Payments
Bank Statements Cheque book
Copy of receipts Bank Statements
Lodgements Receipts received
Cash Receipts and Payments Book

Worked Example

Record the following transactions of Smith Ltd using the following

headings:
Debit Side: Debtors, Sales
Credit Side: Creditors, Purchases, Wages

1 April Cash at bank €3,500

1 April Purchased goods by cheque (No. 23) €1,450
3 April Paid wages by cheque (No. 24) €1,230
5 April Paid Clarke Ltd by cheque (No. 25) €1,330
6 April Cash Sales lodged €4,500
9 April Purchased good by cheque (No. 26) €550
10 April Received cheque from Holmes Ltd €800 lodged

Task: Complete the transactions on the next slide.

Cash Receipts and Payments Book

Debit Side
Date Details F Bank Debtors Sales

1 April Cash b/d €3,500

Credit Side

Date Details F Bank Creditors Purchas Wages

es
Purchases PB €1,450 €1,450
Wages €1,230 €1,230
PETTY CASH BOOK

What is Petty Cash Book used for?

What is a float?

Name some items that belong in a Petty

Cash Book?
Petty Cash Book
•Petty cash book operates as an Imprest system, it has a float paid in at the
beginning of each month.
•Records small cash receipts and payments
•Main columns are bank/cash, receipts and payments
•Analysis columns are used to group similar payments such as stationery,
postage etc.
•Information from the petty cash book is used to update the Nominal/General
Ledger on a monthly basis

Worked example:
Record the following transactions in the Petty Cash book of Martin Ltd for April
2012, following are column headings:
Postage, Canteen, Sundries

1 April Cash on hand (imprest) €200

3 April Stamps Voucher No. 1 €3.00
5 April Coffee Voucher No. 2 €1.50
7 April Charity donation Voucher No. 3 €5.00
8 April Stamps Voucher No. 4 €1.80

Click here to access Petty Cash Book questions

Solution

Martin Ltd Petty Cash Book

Petty Cash Book Receipts – Dr Side

Date Details F Cash
1 April Balance b/d €200

Petty Cash Book Payments – Cr Side

Date Details Voucher Cash Postage Canteen Sundries
No.
3 April Stamps 1 €3.00 €3.00
5 April Coffee 2 €1.50 €1.50
7 April Charity 3 €5.00 €5.00
8 April Stamps 4 €1.80 €1.80
Balance €184.20
€200.00 €4.80 €1.50 €5.00
Ledger Accounts

Sales Day Book, Sales Returns Day Book, Purchases Day Book and Purchases
Returns Day book entries are transferred to the Ledger accounts:

Debtors Ledger: these are the accounts of debtors or customer i.e. people
who owe the business money.

Creditors Ledger: these are the accounts of creditors or suppliers i.e. people
the business owe money to.
Double-entry Bookkeeping system

•In your study of double entry so far, every accounting entry is based on the
double-entry principle. There are two aspects to every transaction. The basic
rule is:

•DEBIT – Assets and Expenses

•CREDIT – Liabilities and Revenue

If a business wanted to reduce an asset or an expense – entry on the credit

side of asset or expense account.

If a business wanted to reduce a liability or revenue – entry on the debit side

of the liability or income account.

It follows that if all the debit and credits are entered correctly in the ledger
at the end of the accounting period the totals of the debits will equal the
totals of the credits.

These balances are listed in a Trial Balance.

A business will have ASSETS. These are something of value for example:
•Buildings
•Motor Vehicles
•Delivery Vans
•Equipment
•Cash
•Stock (items for resale)

Your business will also have LIABILITIES. These are something you owe
for example:
•Loan
•Bank Overdraft

If you sell on credit, you owe money to a Debtor.

If you buy on credit, a Creditor owes you money.

Is a Debtor an Asset or a Liability?

Is a Creditor an Asset or a Liability?

Discussion

When a business is starting up it requires Capital and this money is lodged

in the Bank.

Which of the underlined words is the ASSET and which is the LIABILITY?
Explain why?
All transactions can be recorded in 4 different types of
accounts:
ASSETS – resources owned by a business such as land,
buildings, machinery etc.

LIABILITIES – these are amounts owed by the business to

outsiders such as bank overdraft, long term loans, creditors,
capital and owners equity.

EXPENSES – these are costs suffered in generating the

revenue of a business such as wages, rent, light and heat etc.

REVENUE – these are earnings from selling goods and services

or other income earned such as bank interest, sales
An account is maintained for every Asset, Liability and every
category of expense and revenue.
Rules of Entry – Recording transactions affecting Assets,
Liabilities and Capital
Rule 1
To record an increase in an Asset – Debit the Account
To record a decrease in an Asset – Credit the account
Asset A/C
Dr Side Cr Side

Rule 2 Increase (+) Decreases (-)

To record an increase in a Liability – Credit the Account

To record a decrease in a Liability – Debit the Account
Liability A/C
Dr Side Cr Side
Decreases (-) Increases (+)
Rule 3
To record an increase in Expense – Debit the Account
To record a decrease in Expense – Credit the Account
Expense A/C
Dr Side Cr Side
Increases (+) Decreases (-)
Rule 4
To record an increase in revenue – Credit the Account
To record a decrease in revenue – Debit the Account
Revenue A/C
Dr Side Cr Side
Decreases (-) Increases (+)

For every Debit entry there must be a Credit entry of equal

amount and vice versa
Class Questions/Activities

Click to access the Double Entry Quiz

Day Books questions

Double Entry questions
Double Entry worksheet
Full questions, all accounts
General Journal questions
Petty Cash Book questions
Layout of Accounts
Accounting Worksheets
Each transaction is entered into an account

Account Name
Debit Side Credit Side
Date Details F € Date Details F €

Date: Date of transaction

Details: Other account involved in the transaction
Folio: Reference to where the other account can be found
€: Amount of money involved

See additional notes on T Accounts and Balancing Accounts and Trial Balance.

Layout of Accounts.docx
Double-entry Bookkeeping

With every transaction there is a debit and credit side entry

Rule: Debit Receiver

Credit Giver

Example:

1st June: Paid insurance by cash €450

Dr Insurance Account Cr
1/6 Cash €450

Dr Cash Account Cr
1/6 Insurance €450

See Worksheet for additional Questions

Double entry questions.docx
After all transactions are completed in the ledger accounts, the accounts are
balanced off and the closing balances are transferred to a Trial Balance.

Trial Balance

Details F Debit Credit

Sales GL €230,000
Bank CB €230,000
€230,000 €230,000

From a Trial Balance the Final Accounts are prepared:

•Trading Account
•Profit and Loss Account
•Balance Sheet

Full questions all accounts.docx

Summary: An Overview