The double entry model (AS Level) flashcards

Topic 3: The double entry model

Which book of prime entry records a credit note received, and which records a journal voucher?

Credit note received: purchases returns journal. Journal voucher: general journal. Cheque counterfoils, till rolls and bank statement items go to the three column cash book.

List price $5,000, 20% trade discount, 3% cash discount for paying within 7 days. The customer pays in time. Figures?

Invoice 5,000 × 80% = $4,000 (trade discount is not recorded). Discount allowed 4,000 × 3% = $120. Received $3,880.

A customer pays less a cash discount. Double entry?

Debit Bank and debit Discounts allowed; credit the customer. (Paying a supplier less discount: debit the supplier; credit Bank and Discounts received.)

Disposal account: the four steps, and how to read the balancing figure

Debit disposal with cost; credit it with depreciation to date; credit it with proceeds; balance it. A balancing figure on the credit side is a loss; on the debit side it is a profit.

Machine cost $45,000, residual value $5,000, useful life 8 years. Straight line charge?

(45,000 − 5,000) ÷ 8 = $5,000 a year.

Equipment $20,000 at 30% reducing balance. Year 2 charge and carrying amount at the end of year 2?

Year 1: $6,000 (carrying amount $14,000). Year 2: 30% × 14,000 = $4,200; carrying amount $9,800.

Trade receivables $24,000; provision to be 4%; last year's provision $1,100. Income statement entry?

New provision $960: a decrease of $140, shown as income. Calculate the provision after writing off irrecoverable debts.

A van cost $12,000, accumulated depreciation $7,500, sold for $5,100. Result?

Carrying amount $4,500. Profit on disposal $600.

Opening inventory $6,200; purchases $51,000; purchases returns $800; closing inventory $7,400. Cost of sales?

6,200 + 51,000 − 800 − 7,400 = $49,000.

Insurance paid in the year $2,600, of which $400 covers next year. Charge and SOFP entry?

Expense $2,200; other receivable of $400 under current assets.

A service business receives fees of $58,400, of which $900 is for next year; expenses total $33,070. Profit?

Fees 58,400 − 900 = $57,500. Profit 57,500 − 33,070 = $24,430. No cost of sales or gross profit; the $900 is a current liability.

Trade discount vs cash discount

Trade discount reduces the list price and is never recorded. Cash discount rewards prompt payment and is recorded through the cash book discount columns.