Friday, 26 February 2021

Movement of money in the cash book

 

Lets talk some more on 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. J

 

Simple hey!!!

 

Lets see how you get on with this simple scenario:

 

·         Where there is an opening debit bank balance of £12,030 and the totals recorded in the cash book for the year ended 30 April 20X5 were:

 

Receipts

£106,950

Payments

£121,490

 

Assuming there were no year-end adjustments, what will be the opening balance in the cash book as at 1 May 20X5?

 

£­­­­­­­­­­­­­­­­­­­­­_________ debit / credit

 

 

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

 

 

£2,510 credit since the cash book balance does not have money left in it, so it will have a credit balance.

Monday, 15 February 2021

Bad/Irrecoverable debt

 

BAD/ IRRECOVERBLE DEBT

 

Bad debt is an amount owed to a business which may not likely be paid by the debtor, having exhausted all possible means of chasing for the payment. Hence, such amounts need to be written off the books of accounts and should not continue to be presented within the debtors amounts as a current asset.

 

A bad debt is a loss to the business as it is a cost the business has to bear and so should be written off as expenditure.

 

 

Question:

This is a customer’s account in the sales ledger:

 

Andrew Smith

Date

Details

Amount (£)

Date

Details

Amount (£)

01/06/XX

Bal b/d

  3,460

12/06/XX

Credit Note 33XC

     454

16/06/XX

Sales

10,200

 

 

 

 

The customer has now ceased trading owing the outstanding amount which includes VAT.

 

Balance outstanding= £(3,460+10,200-454)= £13,206

 

£13206/6= £2201                 OR      £13206/120*20= £2201

£13206/6*5=£11005            OR      £13206/120*100= £11005

 

 

Record the journal entries needed in the general ledger to write off Andrew Smith’s debt.

 

Account name

Amount (£)

Debit

Credit

Irrecoverable debt/ Bad debt

11,005

ü   

 

VAT

  2,201

ü   

 

SLCA/ Debtors control acc

13,206

 

ü   

 

 

 

Question:

John Western, a credit customer has been owing an invoice amount of £1,446 and the company has now decided that this invoice should be written off as bad debt.

 

i. What will be the general ledger entries to write off this debt, where there was no VAT charge on the invoice?

 

Dr- Irrecoverable debt         £1,446

Cr- SLCA                               £1,446

 

ii. What will be the general ledger entries to write off this debt, where there was VAT charged at 20% on the invoice?

 

Dr- Irrecoverable debt         £1,205

Dr- VAT                                  £241

Cr- SLCA                               £1,446

Friday, 12 February 2021

What does an Accountant say when boarding a train?

 

What does an Accountant say when boarding a train?

Mind the GAAP!!!

GAAP is Generally Accepted Accounting Principles which are the rules and standards set within each country that govern how company accounts are to be prepared.


In studying accounts, you need to learn this and be aware of these!!!

Monday, 1 February 2021

Michael Jordan and Absorption Costing

 


Michael Jordan, former American professional basketball player is deemed to be the greatest basketball player of all time as declared on the official NBA website.  

Jordan joined the Bulls in 1984 as the third overall draft pick, and quickly emerged as a league star, entertaining crowds with his prolific scoring while gaining a reputation as one of the game's best defensive players. Jordan won his first NBA championship with the Bulls in 1991, and followed that achievement with titles in 1992 and 1993 but suddenly retired before 1993-94 NBA season to play Minor League Baseball but returned to the Bulls in March 1995 and led them to three more championships in 1996, 1997 and 1998, as well as a then-record 72 regular-season wins in the 1995–96 NBA season. He played 15 seasons in the NBA, winning six championships with the Chicago Bulls earning NBA Finals Most Valuable Player (MVP) Awards. 

In 2014, Jordan became the first billionaire player in NBA history. With a net worth of $2.1 billion, he is the fourth-richest African American and the richest former professional athlete in the world. 

His leaping ability, demonstrated by performing slum dunks from the free throw line in Slam Dunk contests, earned him the nicknames "Air Jordan" and "His Airness". 

In 1984, Michael Jordan signed an initial contract with Nike worth $500,000 annually and this helped transform Nike and led to an earning of over $1 billion for Michael as he fuelled the success of Nike’sAir Jordan sneakers becoming the biggest endorsement bargain in sports. 

 

Can we imagine the costing system which may be applicable to keeping the records of the sales of the Air Jordan sneakers? 

 

Absorption costing OR Marginal costing OR any other costing system? 

 

Exercise: 


The following budgeted figures relate to a Nike factory that produces the Air Jordan sneakers 

 

Overheads are absorbed on a budget production basis and inventory is valued on a FIFO basis. 


 

Month 1 

Selling price per pair of sneakers (£) 

   160 

Production (units) 

6,000 

Sales (units) 

5,500 

Direct materials per unit (£) 

    22 

Direct labour per unit (£) 

    20 

Other variable production costs (£) 

126,000 

Fixed production costs (£) 

186,000 

Absorption Cost/ Unit: 

Direct materials per unit (£) 

    22 

Direct labour per unit (£) 

    20 

Other variable production costs (£) 

   21 

Fixed production costs (£) 

   31 

Absorption cost / unit 

  94