Friday, 27 November 2020

Joe Biden's transitional fund challenge and budget!

 














Joe Biden, 2020 US President Elect twitted “here’s the deal: because President Trump refuses to concede and is delaying the transition, we have to fund it ourselves and need your help. If you’re able, chip in to help fund the Biden-Harris transition.”

Emily Murphy, Administrator of General Services Administration (GSA) refused to sign a letter allowing Biden’s transition team to formally begin transition work and this has prevented their access to about $6bn transition fund which is normally funded by the federal government.

These funds are used for obtaining office space, performing background checks on prospective Cabinet nominees, working with the Office of Government Ethics on required financial disclosure and conflict-of-interest forms for incoming nominees, salaries, establishing government email addresses, accessing classified information which might be needed to respond to emergencies that the administration confronts when in office.

Accountants, can we then imagine setting out a working budget for $6bn!?

Of course, just set in a lot of zeros and make sure the expenses for the items listed above add up to $6bn!!

Tuesday, 13 October 2020

Do you understand the movement of money in the cash book?

 Do you understand the movement of money in the cash book?

 

Dr- Receipts

Cr- Payments

 

When money is received the bank balance increases and when money is paid out, the bank balance reduces.

 

Simple hey!!!

 

Lets see how you get on with this simple scenario:

 

·         Where there is an opening debit bank balance of £8,200 and the totals recorded in the cash book for the year ended 30 June 20X3 were:

 

Receipts

£29,298

Payments

£26,698

 

Assuming there were no year-end adjustments, what will be the opening balance in the cash book as at 1 July 20X3?

 

£­­­­­­­­­­­­­­­­­­­­­_________ debit / credit

 

 

I’m sure you would have got this correct and known that it will be……..

 

 

£10,800 debit since the cash book balance will still have some money left in it, so it will have a debit balance.

Friday, 9 October 2020

Allowance for Doubtful Debt

 ALLOWANCE FOR DOUBTFUL DEBT:

 

Scenario:

You work for Mandels Ltd and the debtors balance at the end of the year is £48,100 and the company makes a general allowance for doubtful debt of 2%. Where there is an existing allowance for doubtful debt of £1,406 at the beginning of the year, what will be the journal entry posting in the accounts for this year-end adjustment.

 

 

Double entry posting:

DR: Allowance for doubtful debt account           (Balance sheet)                   £444

CR: Allowance for doubtful debt adjustment account (Profit & loss) £444

 

(2% x £48,100) = £962

This means there is a reduction in allowance for doubtful debt of

£1,406 - £962 = £444

 

 

Reason:

The allowance for doubtful debt is set up to ensure that the profits of a business are not overstated in case some of the credit customers don’t pay up their debts; so there has to be an estimated amount set in the expenses. This is not an actual expense, and if the amount calculated for the current year is less than the amount charged in the accounts to date, then there is a reduction in expense (which is what is happen in this scenario).

 

The allowance is also an amount set against the Debtors Control Account and this will be a debit into the balance sheet account.

Thursday, 24 September 2020

DOUBLE ENTRY FOR BEGINNERS - PART 3

 

DOUBLE ENTRY FOR BEGINNERS

 

SALES SCENARIOS- PART 3

 

Financial Accounts are built on the double entry principle which states that:

 

FOR EVERY DEBIT ENTRY, THERE MUST BE A CORRESPONDING CREDIT ENTRY;

 

So, in posting any transaction into your accounts, you always need to identify which account needs to be debited and which account needs to be credited.

 

A common acronym used to learn the double entry is DEAD/ CLIC

 


DEAD                                                                    CLIC

Debit: Expenses, Assets, Drawings                  Credit: Liabilities, Income, Capital

 

DEBIT TRANSACTIONS                                      CREDIT TRANSACTIONS

 

If any of these are increasing,                             If any of these are increasing,

you will need to debit the account                     you will need to credit the account

and vice versa, if it is decreasing                       and vice versa, if it is decreasing

 

 

Let’s test ourselves:

 

Please go through the sales scenarios Part 1 and Part 2 teachings and now test yourself; what will be the double entry posting for each of these, where VAT is charged at 20%:

 

1. If you sell £340 net worth of products to a customer and payment was made immediately into the bank account.

 

 

2. If you sell £90 net worth of products and payment was not made immediately.

 

 

3. If you sell £245 net worth of products and payment was made in 30days.

 

 

4. If you sell £370 net worth of products and payment was not made immediately.

 

 

5. If you sell £150 net worth of products and payment was made immediately in cash.

 

 

Answers:

 

Dr- Bank (asset)                                           £408

Cr- VAT (liability)                                          £68

Cr- Sales (income)                                       £340

 

 

Dr- Debtors (asset)                                       £108

Cr- VAT (liability)                                          £18

Cr- Sales (income)                                       £90

 

 

Dr- Debtors (asset)                                       £294

Cr- VAT (liability)                                          £49

Cr- Sales (income)                                       £245

 

 

Dr- Debtors (asset)                                       £444

Cr- VAT (liability)                                          £74

Cr- Sales (income)                                       £370

 

 

Dr- Cash (asset)                                           £180

Cr- VAT (liability)                                          £30

Cr- Sales (income)                                       £150

 

Monday, 14 September 2020

DOUBLE ENTRY FOR BEGINNERS - PART 2

 DOUBLE ENTRY FOR BEGINNERS - PART 2 

SALES SCENARIOS- PART 2

 

Financial Accounts are built on the double entry principle which states that:

 

FOR EVERY DEBIT ENTRY, THERE MUST BE A CORRESPONDING CREDIT ENTRY;

 

So, in posting any transaction into your accounts, you always need to identify which account needs to be debited and which account needs to be credited.

 

A common acronym used to learn the double entry is DEAD/ CLIC

 

DEAD                                                                    CLIC

Debit: Expenses, Assets, Drawings                  Credit: Liabilities, Income, Capital

 

DEBIT TRANSACTIONS                                      CREDIT TRANSACTIONS

 

If any of these are increasing,                             If any of these are increasing,

you will need to debit the account                     you will need to credit the account

and vice versa, if it is decreasing                       and vice versa, if it is decreasing

 

 

Let’s introduce VAT to the previous scenarios:

 

VAT is tax on commodities and the VAT on sales is a liability to companies, because it is collected from customers and paid to the government and VAT on purchases is an asset because it can be claimed back by VAT registered businesses. This means that a VAT registered business must charge VAT on its sales and this is payable to the government and it can reduce this liability by any VAT it may have paid, i.e. VAT on purchases. VAT is currently charged at 20% standardly. (Please note that this statement has been kept to the simple basics).

 

 

1. If a customer buys products worth £230 net from you and doesn’t pay immediately, i.e. credit sale. In such situation, a sale has taken place, you will have to pay VAT on the sale and a debtor has been established since the customer owes you the full amount. Invariably, sales have increased, as you have sold products; VAT liability has increased, as you owe the government; and debtors (asset) has also increased.

 

 

Net amount                                                   £230.00

VAT amount (20% x £230)                            £46.00

Gross amount (total amount owed)              £276.00

 

 

 

                                                Accounts affected


 


                            Sales                      VAT                  Debtors

 


Double entry posting will then be:

 

Dr- Debtors (asset)                                       £276

Cr- VAT (liability)                                           £46

Cr- Sales (income)                                        £230

 

 

In this case, you have sold products worth £230, and you will charge 20% for VAT, which amounts to £46. The customer doesn’t have a choice but to pay the full amount of £276 and then you have to pay the government the £46 of VAT, so, £230 will be your income and not £276. Hence, the VAT on sales is a liability which is payable to the government if the business is VAT registered. VAT is always accounted for in the Balance Sheet as an asset or a liability and not in the Profit & Loss account.

 

 

 

2. If a customer buys products worth £230 net from you and pays immediately, i.e. cash sale. In such situation, a sale has taken place, you will have to pay VAT on the sale and cash has increased since the customer has paid you money. Invariably, sales have increased, as you have sold products; VAT liability has increased, as you owe HMRC; and cash (asset) has also increased.

                                   

 

                                                Accounts affected


 


                            Sales                      VAT                      Cash

                       

 

Double entry posting will then be:

 

Dr- Cash (asset)                                           £276

Cr- VAT (liability)                                           £46

Cr- Sales (income)                                        £230

 

 

In every business, there are always financial transactions which lead to financial documents which need to be posted into the accounts.

 

 

When a sale is generated, there should always be the question as to what type of income was generated and was this paid immediately or not. The sales should be credited with the net amount, the VAT should be credited with the VAT amount and the debtors should be debited if payment hasn’t been made or the cash/ bank will be debited if payment has been made immediately.

 

 

For credit sales, when payment is later made, the double entry posting will be;

Dr- Cash/ Bank

Cr- Debtors

 

 

In this case, debtors account (which is an asset under DEAD) is reducing, so it is credited and cash (which is also an asset under DEAD) is increasing, so it is debited.

Wednesday, 9 September 2020

DOUBLE ENTRY FOR BEGINNERS - PART 1

 DOUBLE ENTRY FOR BEGINNERS - PART 1

SALES SCENARIOS- PART 1

 

Financial Accounts are built on the double entry principle which states that:

 

FOR EVERY DEBIT ENTRY, THERE MUST BE A CORRESPONDING CREDIT ENTRY;

 

So, in posting any transaction into your accounts, you always need to identify which account needs to be debited and which account needs to be credited.

 

A common acronym used to learn the double entry is DEAD/ CLIC

 

DEAD                                                                    CLIC

Debit: Expenses, Assets, Drawings                  Credit: Liabilities, Income, Capital

 

DEBIT TRANSACTIONS                                      CREDIT TRANSACTIONS

 

If any of these are increasing,                             If any of these are increasing,

you will need to debit the account                     you will need to credit the account

and vice versa, if it is decreasing                       and vice versa, if it is decreasing

 

 Let’s imagine some scenarios:

 1. If a customer buys products worth £230 from you and doesn’t pay immediately, i.e. credit sale. In such situation, a sale has taken place and a debtor has been established since the customer owes you. Invariably, sales have increased, as you have sold products and debtors (asset) has also increased.

 

 

                                                Accounts affected


 


                                        Sales                         Debtors

 

 

Double entry posting will be:

 

Dr- Debtors (assets)             £230

Cr- Sales (income)               £230

 


2. If a customer buys products worth £230 from you and pays immediately, i.e. cash sale. In such situation, a sale has taken place and cash has increased since the customer has paid you money. Invariably, sales have increased, as you have sold products and cash (asset) has also increased.

 

 

Accounts affected



                                        Sales                            Cash

 

 

Double entry posting will be:

 

Dr- Cash (asset)                               £230

Cr- Sales (income)                           £230