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.

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.