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

 

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