The double entry model flashcards

Topic 3: The double entry model

The six books of prime entry in 7127

The three column cash book, the general journal, and the sales, purchases, sales returns and purchases returns journals.

A customer's cheque for £310 is returned unpaid by the bank. Entry?

Debit the receivable's account £310, credit bank £310: the debt is owed again.

Goods listed at £640 less 25% trade discount. Invoice price, and is the discount recorded?

£480. Trade discount is not recorded in the books; the invoice shows the net price.

Discount allowed vs discount received

Discount allowed (to customers for early payment) is an expense. Discount received (from suppliers) is income. Both are totalled from the cash book discount columns.

A customer who owes £900 is also owed £650 as a supplier. Contra entry and result?

Debit the payables ledger account £650, credit the receivables ledger account £650. They now owe £250.

Recovery of a debt written off in an earlier year: entries

Reinstate it: debit the receivable, credit irrecoverable debts recovered. Then record the cash: debit bank, credit the receivable.

Machine cost £12,000, accumulated depreciation £7,200, sold for £5,500. Result on disposal?

Net book value £4,800. Profit on disposal £5,500 − £4,800 = £700, taken to the income statement.

Electricity: £120 owing at the start, £1,560 paid, £180 owing at the end. Charge?

1,560 + 180 − 120 = £1,620.

Cost £15,000 depreciated at 40% reducing balance. Year 2 charge?

Year 1: £6,000 (net book value £9,000). Year 2: 40% × £9,000 = £3,600.

Opening provision for doubtful debts £400; receivables £12,000; provision 5%. Income statement entry?

Required provision £600, so the increase of £200 is an expense. Only the change goes to the income statement.

Revenue income vs capital income

Revenue income: day-to-day trading income such as sales, fees, rent receivable, commission. Capital income: proceeds of selling a non-current asset, and money paid in by the owner.

Bank statement items: standing order paid, credit transfer received. Cash book entries?

Standing order: credit bank, debit the expense or liability. Credit transfer: debit bank, credit the receivable or income.