The Cash Book

[smokiesue]

:twisted: Hi every one and a very happy new year to you all. My name is Sue I'm trying to learn abit about book keeping and accounts but i'm having trouble understanding these which part of the book these would go in, is there a smart person who could help this thick person understand where to put them,
CORRECT DEBIT A.Cash Book - Cash B. Cash Book - Bank C. Nominal
Leger or D.None of these
Ouestions
1) drew a cheque for cash (i thought B)
2) paid postage by cash ( i thought A)
3) Received cash from sales ( i thought A)
4) paid cheque for wages (i thought B)
5) sold goods on credit ( i thought B)
6) paid supplier by cash (i thought A)
7) received VAT refund cheque (thought B)
8) brought a vehicle on credit ( thought B)
9) customer returned damaged goods ( thought A)
10) paid wages by cash ( thought A)
CORRECT CREDIT A,B,C,D, AS ABOVE
11)draw a cheque for cash (thought B)
12) paid postage by cash (thought A)
13) received cash for sales (thought A)
14) Paid cheque for wages (thought B)
15) sold goods on credit (thought B)
16) paid supplier by cash (thought A)
17) received VAT refund cheque (thought B)
18) brought vehicle on credit (thought B)
19) customer returned damaged goods (thought A)
20) paid wages by cash (thought A)

If theres any one who can give me any pointers or advice on where im going wrong i would be very very grateful i think im a little to thick to be thinking helping my son when he gets his own business i know you can get computer programms but that don't help if the system goes down and you have to do it on books,

Thank you everyone for taking the time to read my posting,
Sue

 

[gj]

Hi Sue

I posted a reply to a similar post before, and you seem to be using the same book with excercises to learn bookkeeping as the lady who posted before.

Firstly, can I suggest that you don't really need to know about debits and credits in order to maintain the bokkkeeping records for a business, but most bookkeeping books try to teach you this.

Keeping basic accounting records - either manual or computerised is really quite simple - and it is not worth complicating the issue with the kind of knowledge on debits and credits that your book is trying to teach you. By all means learn that later, but keep it simple to start with.

Assuming your son has an accountant, ask them what records you should keep - if you want to keep manual records, than tell the accountant that and they will be able to advise on what records to keep.

I will post a separate reply regarding the answers to the questions later, but hope the above helps.

Regards


Graham

 

[gj]

Sue

I think where you are going wrong is where most people new to debits and credits in bookkeeping go wrong. You are used to money going into your bank account being "credited".

However, a credit in bookkeeping terms to your bank account is actually money coming out of you account.

You will probabaly have read or been taught that a debit is either and expense or an asset, whilst a credit is either income or a liability.

Let's look at assets and liabilities. Money sitting in your bank account is an asset, and so is a debit balance, in your records. But the bank tell me it is a credit balance, I hear you say. Well, money in your account is a liability of the bank - they owe you the money. Therefore, in their records, the balance is a credit balance, representing their liability. The reason that you are so used to money in your bank account being a credit balance is because you generally only see a copy of the banks records in the form of a bank statement. Most of us don't keep our own bank records in the form of debits and credits and so we get programmed to using the bank's terms.


If you want to learn double entry bookkeeping and debits and credits, you must first "unlearn" the common use of the term credit balance.

So on the basis that a DEBIT is either an asset or an expense, the answers to your questions are:


1. A (Cash book - cash - you have increased the Cash balance which is an asset)
2. C (The payment of the postage is an expense, debiting the nominal ledger account "Postage")
3. A (The receipt of the money has increased the Cash asset)
4. C (The cheque payment is for an expense, debiting the nominal ledger account "wages")
5. D (Goods sold on credit result in an asset being the money the customer then owes you for the goods. This would normally go through the Sales Day book and into the Sales Ledger)
6. D (The payment reduces a liability being the debt to the supplier - this would go against the Purchase Ledger, where that debt was originally sitting)
7. B (receipt of cheque increases the bank balance asset)
8. C (buying the vehicle means an asset needs to be reflected in the nominal ledger)
9. D (a customer returning damaged goods does not, of itself result in an entry being required to either the Cash Book for cash or bank, since no money changes hands at that point. If the goods were originally purchased on credit, then you would normally expect to issue a credit note to the customer, via the Sales Day Book and thus through the sales ledger
10. C (the debit side of the payment of wages by cash is an expense to the nominal ledger account "Wages" - the same as for 4 above)


NOW FOR THE CREDITS _ REMEMBERING CREDITS ARE EITHER A LIABILITY OR INCOME:

11)draw a cheque for cash - B (reduces the bank account asset)
12) paid postage by cash - A (reduces the Cash asset)
13) received cash for sales - C (the credit side is the Income from the sale)
14) Paid cheque for wages - B (reduces the bank account asset)
15) sold goods on credit - D (Goods sold on credit result in an asset being the money the customer then owes you for the goods. This would normally go through the Sales Day book and into the Sales Ledger)
16) paid supplier by cash - A (reduces the Cash asset)
17) received VAT refund cheque - C (you would normally have an account in the nominal ledger account for the VAT balance payable or receivable. If it were receivable it would be an asset and therefore a debit balance. When the refund cheque is received, it clears this asset
18) brought vehicle on credit - C (the credit side of this transaction is to create the liability, and a nominal ledger account would be set up)
19) customer returned damaged goods - D (as for 19 above, a credit note would normally be issued entered in the records via the sales day book and sales ledger)
20) paid wages by cash - A (reduces the Cash asset)

Hope that all helps - let me know if any of my suggested answers contradict the answers in your book - things are not always worded clearly - for example, I have assumed that the vehicle purchased on credit is via HP or other finance, rather than just bought on 30 day credit terms.

Graham