Management Functions

Produced by Jones Vagi

Contents

1. Introduction

2. Very Basic Double Entry

3. Cash Transactions

4. Books of Prime Entry

5. Soletraders & Partnerships

6. Limited Companies

7. Credit Transactions

8. Accruals & Prepayments

9. Fixed Assets

10. Year-end Procedures

11. Reconciliations

12. Other Entries

1. Introduction

This tutorial is aimed at people keeping the books for a small business. However, the same principles apply, whatever the size of the business.

The concepts are also very relevant to computerised accounting systems such as Sage, which assume such knowledge.

For the very smallest business, simply keeping a cashbook, with all payments & receipts recorded is sufficient. Along with a list of debtors, creditors & closing stock at the year-end, your accountant can produce a set of accounts.

The starting point will be a simple explanation of the concept of double-entry. All the fundamental areas will be covered leading up to the trial balance at the year-end, from which a Profit & Loss Account & Balance Sheet are extracted.

Be warned that most bookkeeping courses last between a day & a full week. Covering the whole tutorial in one attempt is not recommended. A little perseverance & plenty practice are the keys to success.

2. Very Basics of Double-Entry

Double Entry

The concept of double-entry may seem alien at first, but soon becomes second nature with a little practice.

As the name suggests, every transaction involves 2 equal & opposite entries - one Debit (Dr) & one Credit (Cr).

Total Drs should equal Crs, so it provides a built-in error check. Only misclassifications are missed - that is a Dr or Cr in the wrong place - or complete omissions of an entry.

We use "T" accounts to record the entries - imagine them as the 2 opposite pages of a book (as typical in a manual system).

Drs go on the left, Crs on the right. An easy way to remember this (provided you are English or Australian) is the following diagram:

Assets & Liabilities

An asset is something you own (e.g. a car) or the right to receive something in the future (e.g. a trade debtor).

A liability is where you owe something to someone else (e.g. a bank loan or trade creditors).

Assets & liabilities are Balance Sheet items (showing the position you are in), as opposed to income & expenses, which are Profit & Loss (P&L) items.

The effect of Drs & Crs

The significance of each entry is summarised below:

 In the next chapter, we look at the basic cash-transaction entries.

3. Cash Transactions

As cash is an asset, increases in cash (income) are Dr entries, whilst reductions in cash (payments) are Cr entries.

Payments

When a cash payment is made, cash decreases, so we Cr cash with the amount of the payment. The corresponding