Chapter 17 Correction of errors. Slide 2 notes reference - page 187 2 main uses: Suspense accounts...

Chapter 17

Correction of errors

Slide 2 notes reference - page 187

2 main uses:

Suspense accounts

Never appear in the final accounts

To account for a Dr or Crwhen the accountant isunsure where it should go

To make a preliminary trial balance balance


Lecture example 1

The double entry would be: Dr Suspense account 400

Cr Cash at bank 400

Bank 400

Suspense

Suspense 400

Bank


Lecture example 1 (cont)

The double entry is: Dr Rent expense 400

Cr Suspense account 400

Bank 400

Suspense

Suspense 400

Rent

Rent 400


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

Dr Suspense 6,300Cr Sales 6,300

(ii) Dr Electricity expense (615-516) 99Cr Suspense 99

(W2) Should Dr Telephone 70 Cr Accruals 70 Have Dr - Cr Accruals 70 Now Dr Telephone 70 Cr Suspense 70

Dr Telephone 70Cr Suspense 70

(iv) Dr Purchases (77,356 – 76,182) 1,174Cr 1,174Suspense

(i) (W1)

(iii) (W2)



Suspense account

(i) Sales 6,300

(ii) Electricity 99

(iii) Telephone 70

bal b/d 4,957

(iv) Purchases 1,174

6,3006,300


Dr Cr £ £ Motor van at cost 5,500 Inventories 6,230 Receivables ledger control 19,167 Cash at bank 218 Petty cash 50 Payables ledger control 13,166 Prepayments 490 Accruals 70 Motor van - provision for depreciation 2,000 Sales 100,170 Purchases 77,356 Rent expense 1,200 Wages and salaries expense 12,500 Electricity expense 615 Telephone expense 300 Accountancy expense 500 Van expenses 280 Depreciation expense 1,000 Capital 10,000 125,406 125,406



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


Ledger codes

Accounting codes used should be:– Unique– Useful– Compact– Meaningful– Self-checking & of standard size– Expandable


Example of how a Ledger stores data for retrieval

X

Co

st c

entr

e

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.

New

cast

le

e.g. Wages

Chapter 18

Sales tax, PAYE and NI


Sales tax

An indirect taxAn indirect tax

Charge sales tax on sales

OUTPUT TAXOUTPUT TAX

Suffer sales tax on purchases

INPUT TAXINPUT TAX


Lecture example 1

(a) Grow raw materials &

Net Tax Gross

sell for $117.50 (W1)100 17.50 117.50

(b) (1) Buy raw materials for $117.50

(2) Sell to wholesaler for $293.75 (W2)

100 17.50 117.50

250 43.75 293.75

17.50

26.25

(W1) 17.5

117.5x $117.50 = $17.50

17.5

117.5x $293.75 = $43.75

(W2)



(c) (1) Wholesaler buys goods for $293.75

Net Tax Gross

250 43.75 293.75

(d) (1) Retailer buys goods for $352.50

(2) Sells to customer for $470 (W4)

300 52.50 352.50

400 70.00 470.00

8.75

17.50

(W3) 17.5

117.5x $352.50 = $52.50

17.5

117.5x $470.00 = $70.00

(W4)

(2) Sells to retailer for $352.50 (W3) 300 52.50 352.50



(e) Customer bought goods for $470

Net Tax Gross

400 70.00 470

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


Lecture example 2The double entry to record the purchases is:

Purchases 1,000Sales Tax Control 175

Dr Cr

Trade Payables 1,175

Purchases

Tr Pay 1,000

Trade Payables Sales Tax Control

Tr Pay 175Purchases 1,175(incl ST)


Lecture example 2The double entry to record the sales is:

Trade Receivables 1,762.50Sales 1,500.00

Dr Cr

Sales Tax 262.50

SalesTr Rec 1,500

Trade Receivables Sales Taxb/d 175Sales 1,762.50

(incl ST)Tr Rec 262.50

262.50262.50

c/d 87.50

b/d 87.50


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 discounts 9,900

Sales Tax = 9,900 x 17.5% = 1,732.50

Sales 15,000$


Lecture example 3 part (a)

The double entry to record the sale will be:

Sales 11,000Receivables 12,732.50

Dr Cr

Sales Tax 1,732.50


Lecture example 3 part (b)

Sales tax control account

Receivable 1,732.50

Receivables

Sales 12,732.50

Sales

Receivable 11,000

Cash 12,732.50


Lecture example 3 part (c)

Sales

Receivables 11,000

Receivables

Sales 12,732.50

Sales Tax control account

Receivables 1,732.50

Cash 11,632.50

Discounts allowed

Receivables 1,100

Discount allowed 1,100

12,732.50 12,732.50


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


National Insurance and PAYE

Employer’sNI

paid to employee

paid topension fund

paid to HMRC

TOTAL EXPENSE

Net wage Pension PAYE

GROSS WAGE

Employee’sNI


Lecture example 4

(a) The total cost to the employer is $33,000

33,00030,000

The double entry would be:

Wages & salaries expenseWages control (gross pay)

Dr Cr

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



8,1002,0006,000

The double entry to reflect the deductions would be:

Wages controlNIC control

Dr Cr

PAYE controlTrade union account 100

(c) The net pay received by employees is £21,900(Gross pay 30,000 - deductions 8,100)

21,90021,900


Wages controlBank

Dr Cr



(d) The total amount paid to the Inland Revenue is $8,900

3,900

8,900


NIC control

Bank

Dr Cr

PAYE control 5,000

600600

(e) The double entry to reflect payments to the TU would be:

Trade union accountBank

Dr Cr


Lecture example 4 part (f)

NIC control

bal b/d 4,000Wages & salaries expense(employer’s NI)

3,000

Wages & salaries control(employee’s NI)

2,000

3,900Bank

5,100bal c/d

9,0009,000

Trade Unions

bal b/d 500Wages & salaries control 100

600Bank

600600



Bank

Wages & salaries control 21,900NIC control 3,900

Trade Union 60031,400bal c/d

31,40031,400

PAYE control

bal b/d 5,000Wages & salaries control 6,000

5,000Bank

PAYE control 5,000

bal c/d 6,000

11,00011,000



Wages & salaries control

NIC control(employee’s NI)

2,000

Trade Union 10021,900Bank

30,00030,000

Wages & salaries expense

IS 33,000

PAYE control 6,000

33,000Wages control &NIC control

33,00033,000

Wages & salaries 30,000expense

Chapter 19

Incomplete records


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


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


Cost structures

Margin: gross profit as a % of sales e.g. 25% marginMargin: gross profit as a % of sales e.g. 25% margin

100%75%25%

Rule: Set sales to 100%

SalesCOSGross Profit

Mark-up: gross profit as a % of cost e.g. 25% mark-upMark-up: gross profit as a % of cost e.g. 25% mark-up

100%25%

Rule: Set COS to 100%


125%


Lecture example 3

The cost of sales is $285,600

100%60%40%

Rule (margin): Set sales to 100%


476,000285,600

x 60%


Lecture example 4

Credit sales for the year are £290,560

130%100%30%

Rule (mark-up): Set COS to 100%


257,000334,100

x 130%

Total salesCash salesCredit sales

334,100(43,540)290,560


Lecture example 5Purchases for the year are $174,500

130%100%30%

Rule (mark-up): Set COS to 100%


221,000170,000

x 100/130

170,000

43,000174,500

Opening inventoryPurchases

Cost of sales

Less: closing inventory (47,500)


Lecture example 6Sales for the year were £276,400

100%65%35%


179,660276,400

x 100/65

Opening stockPurchases

Cost of sales 179,660

0187,470

Less: closing inventory (7,810)


Lecture example 7(a) Purchases for the year are $173,029

Cash 430Bank 167,224bal c/d 43,825

bal b/d 38,450Purchases 173,029

211,479 211,479

Purchase Ledger Control Account

(b) The double entry for the purchases figure is:

Purchases 173,029

PLCA 173,029


Lecture example 8

(a) Cash received from trade receivables during the

year was

$39,204

bal b/d 50Receipts from receivables39,204

General expenses 4,500Drawings 6,250Bankings 28,454

39,25439,254

Cash

bal c/d 50



(b) The sales figure for the year was $39,685

bal b/d 1,447Sales 39,685

Cash 39,204bal c/d 1,928

41,13241,132

Sales Ledger Control A/C

(c) The double entry for the sales figure is:

SLCA (Trade Receivables) 39,685Sales 39,685

Dr Cr


Lecture example 9

(a) Purchases for the year were $158,345

Bank 157,300bal c/d 15,456

bal b/d 14,411Purchases 158,345

172,756172,756

PLCA

The double entry for the purchases figure is:

Purchases 158,345PLCA 158,345

Dr Cr



130

100

30

(c) Cost of sales for the year was $156,160

Opening inventories

Purchases

Cost of sales 156,160

10,200

158,345

Less: closing inventories (12,385)

(b) Sales

COS

Gross Profit

%



(d) Sales for the year were $203,008

The double entry for the sales figure is:

Trade Receivables 203,008Sales 203,008

Dr Cr

Sales

COS

Gross Profit

130%

100%

30%

156,160

203,008x 130%



(e) Cash received from trade receivables during the year was $200,877

bal b/d 19,246Sales 203,008

Receipts from receivables 200,877bal c/d 21,377

222,254222,254

SLCA



(f) The amount of cash stolen by the cashier was $36,824

bal b/d 100 Expenses 2,080($40 x 52)

200,977200,977

Cash

Receipts from 200,877receivables Drawings 2,860

($55 x 52)Bankings 159,213

Stolen 36,824

bal c/d 0

Chapter 20

Profit adjustments


Proforma

Original profit

Adjustment(a) over depreciation(b) accrual(c) unrecorded sale

Dr Cr££ £

- +

X

X(X)

X

(X) X X

XAdjusted profit

decrease profit increase profit


Lecture example 1

Draft profit(a) Bad debt recovered(b) Inv written down to NRV

(d) Rates prepaid

$$ $- + 43,865

563990

(1390) 1053

Adjusted profit

(c) Goods on sale or return treated as a firm sale (W1) 400

490

(337)

43,528

(W1) Reverse sale Dr Sales (2,000 x 120%) 2,400Cr Receivables 2,400

Reinstate stock Dr Inventory (B/S) 2,000Cr Inventory (IS) 2,000

Net decreasein profit 400

Slide 49

End of day 5 - what to do now…

1.Course notes review

Course CompanionCourse Companion

2. Question practice

3. Study text review

• Reinforce today’s learning • Develop question skills

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Chapter 17 Correction of errors. Slide 2 notes reference - page 187 2 main uses: Suspense accounts...

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