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    CH 2 Accouting Records Definitions

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    Tvice Move
    The document discusses accounting records and definitions of key terms like assets, liabilities, capital, expenses and gains. It also covers the purpose of accounting records, the trial balance, final accounts, statutory deductions, accruals and prepayments, and bad debts. The accounting records are used to track financial information about what a business owes, is owed, owns, and profits or losses to inform the owners of the business's financial position.

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    CH 2 Accouting Records Definitions

    Uploaded by

    Tvice Move
    12 views38 pages
    The document discusses accounting records and definitions of key terms like assets, liabilities, capital, expenses and gains. It also covers the purpose of accounting records, the trial balance, final accounts, statutory deductions, accruals and prepayments, and bad debts. The accounting records are used to track financial information about what a business owes, is owed, owns, and profits or losses to inform the owners of the business's financial position.

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    Ch 2 Accouting Records Definitions

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    The document discusses accounting records and definitions of key terms like assets, liabilities, capital, expenses and gains. It also covers the purpose of accounting records, the trial balance, final accounts, statutory deductions, accruals and prepayments, and bad debts. The accounting records are used to track financial information about what a business owes, is owed, owns, and profits or losses to inform the owners of the business's financial position.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    12 views38 pages

    CH 2 Accouting Records Definitions

    Uploaded by

    Tvice Move
    The document discusses accounting records and definitions of key terms like assets, liabilities, capital, expenses and gains. It also covers the purpose of accounting records, the trial balance, final accounts, statutory deductions, accruals and prepayments, and bad debts. The accounting records are used to track financial information about what a business owes, is owed, owns, and profits or losses to inform the owners of the business's financial position.

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    You are on page 1of 38

    Chapter 2

    Accounting records
    Chapter 2
    Accounting records
    Part (a)
    The purpose of
    accounting records
    The purpose of accounting
    records
    The purpose of accounting records is to inform the
    owner(s) of:
    i. How much the business owes
    ii. How much is owed to the business
    iii. The value of the assets of the business
    iv. Whether the business is making a profit or a loss
    Table 2.1 Definitions
    Asset
    • An item that an organisation owns
    Table 2.1 Definitions
    Intangible fixed assets
    • Items that are saleable but have no physical
    presence in the organisation
    • Examples: goodwill, patents
    Table 2.1 Definitions
    Tangible fixed assets
    • Items owned for more than one financial year
    • Examples: premises, vans, machinery, office
    equipment
    Table 2.1 Definitions
    Financial assets
    • Long-term investments made by the organisation
    • Examples: quoted and unquoted investments,
    investment bonds
    Table 2.1 Definitions
    Current assets
    • Items owned for less than one financial year
    • Examples: stock, debtors, prepaid expenses, gains
    due
    Table 2.1 Definitions
    Liability
    • An item that an organisation owes
    Table 2.1 Definitions
    Current liabilities
    • Amounts that are due to be repaid within one
    financial year
    • Examples: creditors, bank overdraft, expenses due,
    gains prepaid
    Table 2.1 Definitions
    Long-term liabilities
    • Amounts that are due to be repaid after one
    financial year
    • Examples: term loans, mortgages, debentures
    Table 2.1 Definitions
    Capital
    • The amount invested into the business by its
    owner(s)
    • Capital is treated as a liability as the amount
    invested is owed back to the owner(s)
    Table 2.1 Definitions
    Expenses
    • The day-to-day running costs of the organisation
    • Examples: wages, advertising, insurance, light and
    heat, cleaning, depreciation
    Table 2.1 Definitions
    Gains
    • The income for the organisation
    • Examples: usually sales of its products or services;
    also commission, rent, interest, discount receivable
    Table 2.1 Definitions
    Debtor
    • An organisation to which the firm has previously
    sold goods or supplied services on credit. These are
    also referred to as trade debtors
    Table 2.1 Definitions
    Creditor
    • An organisation from which the firm previously
    purchased goods/services on credit. These are also
    referred to as trade creditors
    The Trial Balance
    ➢ This is a check on the accuracy of the double entry
    system.
    ➢ It is a list of all debit and credit balances at any
    given moment in time.
    ➢ The total of the debit column must be equal to the
    total of the credit column
    ➢ It is not part of the double entry system itself.
    Final accounts
    Trading account
    • Shows the gross profit or loss on the purchase and
    sale of goods or services that an organisation
    normally trades in
    Final accounts
    Profit and loss account
    • Shows the net profit or loss for the organisation
    after all revenue and expenditure has been
    recorded
    Final accounts
    Balance sheet (Statement of financial position)
    • Sets out the balances in the ledger accounts and
    shows the financial position of the organisation at
    the end of the accounting period
    Final accounts
    Cash flow statement
    • Sets out the cash inflows and outflows for the
    accounting period
    Placement of items from a trial balance in final
    accounts
    Part (b)
    Capital and Revenue ̶
    Income and Expenditure
    Capital
    Income
    • Once-off income (receipts)
    • Examples: sale of fixed assets, further capital
    introduced by the owner(s), loans, EU or
    government grants
    Capital
    Expenditure
    • Money spent on items that will bring benefit to the organisation
    for more than one financial year
    • Examples: purchase of fixed assets and any costs involved in the
    initial setting up of a business
    • It includes all costs incurred in bringing the asset into first use,
    e.g. delivery and installation costs
    Capital
    Placement in final accounts
    • Capital items are entered in the balance sheet
    Revenue
    Income
    • Income (receipts) that arise from day-today
    transactions
    • Examples: sales, rent received, discounts received,
    regular investment income, annual grants
    Revenue
    Expenditure
    • The day-to-day spending on the running of the organisation
    • Examples: purchase of goods for resale, insurance, light and
    heat and wages
    • It includes items that occur almost daily and many times
    throughout the financial year
    Revenue
    Placement in final accounts
    • Revenue items are entered in the trading, profit
    and loss account
    Part (c)
    Statutory Deductions
    Statutory deductions
    PAYE (Pay As You Earn)
    • PAYE is a system of deducting income tax from employees’ wages and
    salaries. The employer is responsible for deducting this tax and passing it
    on to the Revenue Commissioners.
    • The Revenue Commissioners attempted to reduce taxation paperwork
    and increase efficiency by introducing PAYE modernisation from January
    2019.
    • The government uses the money collected to run the country on a day-
    to-day basis – for example, to pay salaries of nurses and teachers.
    • PAYE is recorded in the accounts as follows:
    Statutory deductions
    PRSI and USC
    • PRSI is the amount payable by employees and
    employers to cover the employee’s entitlements to
    social welfare services, for example the state
    pension.
    • USC is a tax paid by employees and is deducted by
    the employer in the same way as PRSI.
    • PRSI/USC are recorded in the accounts as follows:
    Voluntary deductions
    There are also non-statutory (voluntary) deductions that
    employees may choose to pay from their wages and salaries.
    Some of these include:
    ⮚Health insurance – for example, VHI
    ⮚Private pension contributions
    ⮚Trade union subscriptions
    ⮚Saving schemes
    Voluntary deductions are recorded in the accounts as follows:
    Part (d)
    Accruals and Prepayments
    Accruals and prepayments
    Accrual
    • An amount due by or to the organisation at the end
    of the accounting period
    ⮚Expense due – electricity due
    ⮚Gain due – investment income due
    Accruals and prepayments
    Prepayment
    • An amount prepaid to or by the organisation at the
    end of the accounting period
    ⮚Expense prepaid – advertising prepaid
    ⮚Gain prepaid – rent receivable prepaid
    Part (e)
    Bad debts and Provision
    for bad debts
    Bad debt

    An expense to an organisation when a credit customer


    (a debtor) fails to pay the amount due.

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