Page 1
BookkeepingExtended Trial Balance
Self Study Manual – Online Version – 0013858
Contents Page
Introduction 3
Chapter 1 Trial Balance Errors 7
Chapter 2 Journals and the ETB 53
Chapter 3 Limited Records and the ETB 123
Pre-assessment
To check whether you need to study this unit you can use the quick links below to
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Chapter 1 – Learning Check Chapter 2 – Learning Check
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Page 2
Produced by Enforcement & Compliance Learning Learning & Leadership Development
© Crown Copyright Version 2.1
February 2014
Unless they are referred to as a formal tax case in the public domain, all public names used within this training are intended to be fictional
and solely for the purposes of assisting activities, exercises or scenarios.
Any similarity to any real person or corporate body is entirely coincidental.
This document is the property of the Commissioners for HMRC.
It is supplied in confidence for official use only.
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Bookkeeping – Extended Trial Balance Introduction
23-Jan-14 3
About this Manual
This introduction is designed to help you get the most out of
the self-study manual (SSM) on Bookkeeping – Extended
Trial Balance. It includes notes on the content and some
suggestions on how you can maximise your learning from
the material.
Prior learning
This manual assumes that you have completed, or have
knowledge equivalent to, the learning in Bookkeeping –
Introduction to Bookkeeping, Bookkeeping – Accounting
Standards and Year-end Adjustments, and Bookkeeping –
Reconciliations and Controls.
Assessment
All of the material in this manual is assessable. You can
assume material outside this manual, or only given as a
margin note or in an appendix, is not assessable unless we
say otherwise.
You can find more details on the particular criteria you'll be
assessed on in the catalogue entry for the product.
You may have some prior knowledge and experience, which
means that some topics covered are already familiar to you.
If you think you can already meet the chapter's objectives
you can assess yourself by working through the
learning check at the end of the chapter. If you get any of
the answers wrong, or are unsure about any points, we
strongly advise you to study the chapter. If you get all the
answers correct and feel you can meet the assessment
criteria you may go straight to the assessment.
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Introduction Bookkeeping – Extended Trial Balance
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Content of this manual
In this manual, you'll look at the following.
Chapter 1 – Trial Balance Errors
Explains how suspense accounts are used as part of the
double entry system.
You will consider what errors can cause an imbalance in a
trial balance and how a suspense account is used to deal
with the imbalance.
You will also consider the types of errors which do not cause
an imbalance in the trial balance and how such errors are
corrected.
Knowing what types of errors may occur, and how the
accountant will go about correcting them, will help your
understanding if you are reviewing the underlying records of
a business as part of a compliance check.
Chapter 2 – Journals and the ETB
Shows how year end adjustments or journals (such as
accruals or prepayments, depreciation and indeed errors)
would be processed using an extended trial balance (ETB).
You need to understand the construction of an ETB as it can
be crucial to your understanding of how the figures in the
financial accounts have been arrived at. It is also possible
that the accountant may respond to any request for
information on how figures have been arrived at by
providing an ETB.
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Bookkeeping – Extended Trial Balance Introduction
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Chapter 3 – Limited Records and the ETB
You will look at how an ETB can be used to construct
financial accounts where a business has limited accounting
records.
Where a business does not maintain a full double entry
system the accountant will use an ETB as the 'vehicle' to
transform single entry records into financial accounts
(in other words the full double entry system). This then
allows the accountant to produce balanced financial
accounts.
Time to complete
We estimate it should take you between 8 and 10 hours to
read the manual, including completing all the activities and
learning checks. However, make sure you take the time you
need to achieve the objectives for each chapter. This timing
doesn't include any additional time you may take to revise
for the assessment or complete the assessment-standard
questions.
Known issues
Whilst we try to ensure that all our products are free from
errors, mistakes can creep in from time to time.
Before you start studying this manual, please look at the
entry for the module in the TPLP catalogue and click on the
'known issues' link. This will give you a list of any known
errors so you can make the necessary corrections yourself.
Please continue to feed back any other errors you spot to
the Maintenance team mailbox.
Page 6
Introduction Bookkeeping – Extended Trial Balance
6 23-Jan-14
Feedback
We value your feedback. The TPQ Maintenance team would
like to hear from you if you have any comments to make
about the manual you have just studied, or can suggest how
it could be improved. Please send your feedback to the
dedicated Maintenance team mailbox address:
TPQ, Maintenance Team (E&C HR – Learning)
Page 7
Bookkeeping – Extended Trial Balance Chapter 1 – Trial Balance Errors
23-Jan-14 7
Contents
Page
Introduction 9
Learning outcomes and study objectives 9
Study advice 10
1.1 Suspense Accounts 11
1.1.1 What is a suspense account? 11
1.1.2 Equal and opposite entry can't be located or is unknown 11
1.1.3 Debits don't equal credits 15
1.2 Errors That Cause Imbalances in the Trial Balance 21
1.2.1 Types of errors that cause imbalances in a
trial balance 21
1.2.2 Locating errors 22
1.2.3 Using a suspense account to correct discrepancies 25
1.3 Errors That Don't Cause Imbalances in the Trial Balance 34
1.3.1 Types of errors 34
1.3.2 Correcting the errors 35
Review 41
Learning check 43
Learning check – answers 47
Before moving on 51
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Chapter 1 – Trial Balance Errors Bookkeeping – Extended Trial Balance
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Bookkeeping – Extended Trial Balance Chapter 1 – Trial Balance Errors
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Introduction
In this chapter you'll look at how you can put right errors in
a trial balance.
You will look at how to use a suspense account as part of
the double entry bookkeeping system.
You will then consider what errors can cause an imbalance
in a trial balance and see how to use a suspense account to
deal with the imbalance.
Finally, in this chapter you will also discover the types of
error which will not cause an imbalance in the trial balance
and how you can correct these errors.
Learning outcomes and study objectives
The following table sets out what you will be able to achieve
after you have successfully studied this chapter.
Learning outcomes Study objectives
You will To achieve this you need to be
able to
know how to correct the
errors in a trial balance.
describe why you need to
open a suspense account
describe the errors that
cause an imbalance in a
trial balance and how you
can correct them using a
suspense account
describe the errors that
don't cause an imbalance in
a trial balance and how you
can correct them.
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Study advice
We think it will take you approximately 3 to 3½ hours to
finish this chapter. This is only a guide. The important
thing is for you to make sure you understand all the
material in the chapter.
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1.1 Suspense Accounts
In this subchapter you'll look at what a suspense account is,
why you may prepare one and what you do with the
year end balances on the suspense account when preparing
financial accounts.
1.1.1 What is a suspense account?
If you have an imbalance in a trial balance and you can't
immediately spot the cause, you may temporarily record the
shortfall in a suspense account whilst you find out what
caused it. You may also draw up a suspense account
whenever you're not sure about something in the books and
records.
Once you know what's caused the imbalance, you clear the
entry from the suspense account and record it in the correct
account. A suspense account acts as a temporary 'holding'
account and it follows double entry bookkeeping principles
in the same way as any other account.
So there are two main situations when it would be
appropriate to open up a suspense account.
1. When the equal and opposite entry can't be located or is
unknown.
2. When the debits don't equal credits so there's an
imbalance in the trial balance.
1.1.2 Equal and opposite entry can't be located or is unknown
F & V Suppliers Ltd receives a cheque payment for £495
from an unknown source. The company debits the receipt
to the bank account and makes a credit entry in the
suspense account whilst it traces the payer.
Example
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Chapter 1 – Trial Balance Errors Bookkeeping – Extended Trial Balance
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Bank
Dr Cr
£ £
Suspense account 495
Suspense
Dr Cr
£ £
Bank 495
Enquiries reveal that the payment was from the proprietor
of the Del Vecchio restaurant. F & V Suppliers Ltd can now
clear the suspense account and post the payment in the
correct account.
Debtor – Del Vecchio
Dr Cr
£ £
Balance b/d 495 Suspense
account (1)
495
Suspense
Dr Cr
£ £
Del Vecchio (1) 495 Bank 495
Del Vecchio's account is now clear, as is the suspense
account. The end result is exactly the same as it would
have been if the company had debited the payment to bank
and credited to Del Vecchio's debtor account in the first
place.
Now try the activity that follows.
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Activity one a) At the end of the month, Tony reviews his bank
statements. He notices that the bank has cleared a
cheque for £126. He can't remember what this payment
was for and he can't locate his cheque book to find out.
He decides to record the payment in a suspense account
until he identifies where the payment should go.
Record the relevant entries in the suspense account.
b) After several phone calls and a letter, his bank finally
confirms that Tony made the cheque out to the local
garage. Tony remembers he had some repairs carried
out on the business van.
Prepare the necessary bookkeeping entries to clear the
suspense account.
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Response a) At this stage, the only entry required in the suspense
account is a debit entry of £126.
Suspense
Dr Cr
£ £
Bank 126
The corresponding credit entry of £126 will be recorded in
the bank 'T' account.
b) Once Tony has identified what the payment was for he
needs to clear the suspense account as follows.
Suspense
Dr Cr
£ £
Bank 126 Motor
expenses (1)
126
Motor Expenses
Dr Cr
£ £
Suspense (1)
126
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1.1.3 Debits don't equal credits
When you extract a trial balance, you check that it balances
– that the total debit balances are the same as the total
credit balances. If they're not, the first thing you need to do
is check that there are no errors in the way the trial balance
has been drawn up. For example, figures may have been
put on the wrong side of the trial balance, such as the
Sales 'T' account included in the debit column.
Once you've corrected any errors like this, if there's still an
imbalance you need to check the individual entries, starting
with the cash and bank accounts and you should consider
opening a suspense account.
Have a go at this activity.
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Activity two Nitin has drawn up his trial balance for the year ending 31 March
but there's an imbalance. Check Nitin's trial balance to identify
the errors and correct the trial balance.
Trial balance at 31 March
Dr Cr
Cash 50
Bank 2,240
Equipment 2,300
Trade creditors 700
Capital 2,980
Drawings 22,000
Sales 35,750
Purchases 4,620
Opening stock 485
Light and heat 1,135
Rent and rates 6,600
39,595 39,265
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Response The corrected trial balance is shown below.
Corrected trial balance at 31 March
Dr Cr
Cash 50
Bank 2,240
Equipment 2,300
Trade creditors 700
Capital 2,980
Drawings 22,000
Sales 35,750
Purchases 4,620
Opening stock 485
Light and heat 1,135
Rent and rates 6,600
39,430 39,430
In this case the errors were in the way the trial balance had
been drawn up and it now balances. If there was still an
imbalance you would need to consider drawing up a
suspense account.
After you have checked that there are no errors in the way
that the trial balance was prepared, there may still be an
imbalance between debits and credits. If so, then you will
have to look further at the reasons for the imbalance.
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Suppose that the total on the credit side of a trial balance is
£140 more than on the debit side, the trial balance would
look like this.
Trial balance as at 31 December
Dr Cr
£ £
Totals from the 'T' accounts 50,000 50,140
In this situation, you haven't complied with the dual effect
because the debit entries in the 'T' accounts don't equal the
same amounts as the credit entries.
A shortfall on the debit column is recorded as a debit entry
in the suspense account and a shortfall on the credit column
is recorded as a credit entry in the suspense account. The
trial balance would look as follows.
Trial balance as at 31 December
Dr Cr
£ £
Totals from the 'T' accounts 50,000 50,140
Suspense account 140
50,140 50,140
If the shortfall in the trial balance is in the credit column,
the suspense account entry in the trial balance has to be in
the credit column to make up the deficit.
Simply making an entry in the trial balance is not enough.
All entries in the trial balance relate to balances in
'T' accounts so you have to open up a 'T' account for the
suspense account. In the example above, the debit entry of
£140 will appear in the suspense 'T' account as follows.
Suspense
Dr Cr
£ £
31 Dec Trial balance
difference
140
It might look as if this debit entry doesn't have an equal and
opposite credit entry. But this isn't the case. There is a
credit entry but you don't know where it is.
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Treatment in financial accounts
This isn't the end of the matter. The suspense account
simply allows you to balance the trial balance whilst you
continue to try to discover the cause of the discrepancy.
You'll look at how to identify the errors and how you clear
the suspense account in subchapter 1.2.
If you don't find the reasons for the imbalance before you
prepare the financial accounts, or it's not cost effective to
continue looking for explanations, then you need to consider
how you should reflect the suspense account balance in the
final accounts.
In smaller businesses, you might treat the balance as
drawings or capital introduced, depending upon whether the
amount in suspense is a debit or credit balance.
In larger businesses, you might include the suspense
account in the balance sheet as a current asset or liability in
its own right depending on whether the suspense account
has a debit or credit balance.
You may also debit or credit unexplained suspense account
balances to the trading and profit and loss account.
Whilst this may be acceptable for accountancy purposes,
there may be tax implications arising from this.
For example, if the suspense account balance is debited to
the trading and profit and loss account, this reduces the
overall profits assessable for income or corporation tax
purposes.
HMRC would require evidence that the amount in question
relates to genuine business expenditure.
If the suspense account balance is credited to the trading
and profit and loss account, this increases the overall profits
assessable for income or corporation tax purposes.
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1.2 Errors That Cause Imbalances in the Trial Balance
In this subchapter you'll look at the main errors that cause
imbalances in a trial balance and some ways in which you
may identify them. You'll also consider how to correct these
discrepancies using a suspense account.
1.2.1 Types of errors that cause imbalances in a trial balance
The purpose of the trial balance is to check whether you
have complied with the dual effect. That is, that for every
debit entry you have made an equal and opposite credit
entry. If the sum of all of the debit entries doesn't equal
the sum of all of the credit entries, then there's an
imbalance in the trial balance.
An imbalance in a trial balance won't tell you what or where
the problem is, but at least you know that there may be
mistakes in the 'T' account entries. You will also know the
net size of any errors.
However, you need to be aware that there are some errors
which don't cause an imbalance in the trial balance. They
are impossible to detect from a review of the trial balance.
You'll consider these errors in subchapter 1.3.
For now, let's start by looking at the type of errors that do
affect the trial balance.
There are many types of error that cause the trial balance
not to balance. The most common are as follows.
1. Posting two debits instead of one debit and one credit, or
two credits instead of one credit and one debit.
2. Posting a different amount to the debit and credit.
3. Omitting one part of the double entry altogether.
4. Posting one leg of the double entry more than once.
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1.2.2 Locating errors
Any of the errors listed above will mean that the trial
balance won't balance. They all create unequal debit and
credit entries. But the imbalance won't identify what the
error was. What's more, the imbalance can be due to more
than one error, meaning that the discrepancy in the trial
balance is the result of a number of errors.
Accountants are aware of this and may spend hours looking
for the mistake(s) that caused a small difference of, say, £2.
This is because they know that this could be due to more
than one major error, perhaps one of £5,000 and one of
£5,002.
In principle, a search involves checking every entry made
since the last successful trial balance. Fortunately, over the
years, accountants have developed some short cuts.
People often inadvertently transpose numbers. When
this happens you will find that the difference is always
divisible by 9. Whenever the difference you have found
can be divided by 9, it's worth checking for transposition
errors.
If the credit column exceeds the debit column, it's worth
checking every credit entry that's the same amount as
the discrepancy, to see if there's a corresponding debit
entry.
Similarly, if the debit column exceeds the credit column
it's worth checking every debit entry that's the same
amount as the discrepancy, to see if there's a
corresponding credit entry.
It is also worth dividing any discrepancy by two and
checking that an entry for that amount hasn't been made
twice.
Have a go at the next activity.
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Activity three Imagine that you are faced with a trial balance in which the
total of the debit column is £36 more than the credit
column. The problem may arise in recording transactions in
the 'T' accounts.
List three possible causes of this. For each cause suggest a
way of locating the difference.
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Response You may have listed the following possibilities.
1. You could look for a £36 transaction entered on the debit
side, but not the credit side, by checking the debit
entries for £36 and checking that there's a credit entry in
each case. This could be quicker than checking every
double entry of any amount.
2. There may be two entries for a transaction of £18 on the
debit side. You should be looking for half the difference
of £36, checking that each £18 debit is matched by a
credit.
3. The discrepancy is divisible by 9 so one side of the entry
may have been correct, but the other side entered as a
different figure. For example, you could have entered a
transaction of £95 correctly on the debit side, but as £59
on the credit side.
Unfortunately if you don't successfully locate the error, then
you will have to start checking every entry.
All the errors you've looked at so far result in a difference in
the trial balance. It may take time to find them, but at least
you'll be aware that one or more differences must exist. An
imbalance may also indicate that you can't rely on the
accounting records until you've found and corrected the
reason for the difference.
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1.2.3 Using a suspense account to correct discrepancies
If there's an imbalance in the trial balance, you usually open
a suspense account whilst you investigate the cause of the
imbalance. If you do, there are four simple steps to follow.
1. Open a suspense account with the amount of the
imbalance and investigate the cause of the discrepancy.
2. Once you've found it, identify the accounting entries
actually made.
3. Identify the accounting entries that should have been
made.
4. Identify the accounting entries needed to correct the
error.
We will illustrate these steps using an example.
Ranjit prepares his trial balance at the end of the accounting
period. He identifies that the sum of the credit entries
exceeds the sum of the debit entries by £1,000.
1. Open a suspense account and investigate the cause of
the discrepancy
The credit entries exceed the debit entries by £1,000 so
there's a shortfall on the debit side. Ranjit needs to include
a suspense account balance of £1,000 on the debit side of
the trial balance to make it balance.
He should also include a debit entry in a suspense
'T' account as shown below.
Suspense account
Dr Cr
£ £
Year
end
TB
difference
1,000
Example
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Identifying the cause of the imbalance can be a laborious
task. However, in practice, experience will help you decide
where to start looking.
Ranjit identifies that, when he took drawings of £1,000 from
the business bank account, he made the correct entry in the
bank 'T' account but he didn't make an entry in the
drawings account.
2. Identify the accounting entries actually made
Now that Ranjit has identified the cause of the discrepancy,
he knows that the only accounting entry made to account
for this transaction was
Credit Bank £1,000
There was no corresponding debit entry. He makes a debit
entry of £1,000 against suspense account to balance the
trial balance.
Trial balance Dr Cr
Bank 1,000 Drawings 0 1,000 Suspense 1,000 1,000 1,000
3. Identify the accounting entries that should have been
made
The correct accounting entries for drawings of £1,000 from
the bank should have been
Debit Drawings £1,000
Credit Bank £1,000
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4. Identify the accounting entries needed to correct the
error
The entries to correct the error are
Debit Drawings £1,000
Credit Suspense £1,000
The transaction is now recorded correctly. This is reflected
in the 'T' accounts below.
Suspense account
Dr Cr
£ £
Year
end
TB
difference
1,000 Year
End
Drawings 1,000
Drawings
Dr Cr
£ £
Year
end
Suspense 1,000
As you can see the suspense account has now been cleared
and there's a debit entry in the drawings account.
You can now adjust the trial balance to include the corrected
figures.
Try the following activity.
You will need a separate piece of paper for this
activity.
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Activity four Read the information below and
a) draw up a suspense account to reflect the initial
imbalance in the trial balance
b) identify the accounting entries required to correct the
errors listed above and clear the suspense account as
appropriate.
Susan's end of year trial balance doesn't balance because
the credits exceed debits by £21,487. Her accountant can't
locate the reason for the discrepancy, so they transfer the
balance to a suspense account.
Susan has made the following bookkeeping errors.
1. She has correctly shown a sale on credit as £7,100 in the
sales account, but has recorded it as £1,700 in the
debtors account.
2. An advertising company lost a cheque payment for
advertising of £2,492 so Susan sent a replacement.
When reconciling the bank statements to the bank
'T' account, the accountant noticed that Susan's
accounting records showed both cheques as payments in
the bank 'T' account, even though only one cheque had
been cashed. Susan had recorded the amount correctly
in the advertising account.
3. Susan had purchased a new computer system during the
period costing £7,195. Although she had correctly
shown the purchase in the bank 'T' account, she had not
opened an account to record the asset.
4. Susan paid her accountants' bill for £3,950 and entered
it as a credit in the bank account, but also as a credit in
the professional expenses account.
5. Susan had received a £1,500 cheque for rental income.
This was entered as a debit in the bank 'T' account but
no rental income 'T' account was opened.
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Response Suspense account
Dr Cr
£ £
End of
year
Trial
balance
21,487 End of
year
Debtor (1) 5,400
End of
year
Rental
inc (5)
1,500 End of
year
Bank (2) 2,492
End of
year
Computer
(3)
7,195
End of
year
Prof exp
(4)
7,900
22,987 22,987
As the credits on the trial balance exceeded the debits by
£21,487, then an entry of £21,487 needs to be made on the
debit side of the suspense account to achieve a balance.
1. Debtor
The accounting entries made were
Dr Debtors £1,700
Cr Sales £7,100
Dr Suspense £5,400 (included within £21,487)
As the original entries made didn't result in debits equalling
credits, the missing leg of the entry was included within the
suspense account entry to achieve the balance in the trial
balance above.
The correct accounting entries should have been
Dr Debtors £7,100
Cr Sales £7,100
The entries required to correct the error should
therefore be
Dr Debtors £5,400
Cr Suspense £5,400
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Response (cont) 2. Advertising
The accounting entries made were
Dr Advertising £2,492
Cr Bank £4,984
Dr Suspense £2,492 (in £21,487)
As the original entries made didn't result in debits equalling
credits, the missing leg of the entry was included within the
suspense account entry to achieve the balance in the trial
balance above.
The correct accounting entries should have been
Dr Advertising £2,492
Cr Bank £2,492
The entries required to correct the error should
therefore be
Dr Bank £2,492
Cr Suspense £2,492
3. Computer system
The accounting entries made were
Dr Suspense £7,195 (in £21,487)
Cr Bank £7,195
As the original entries made didn't result in debits equalling
credits, the missing leg of the entry was included within the
suspense account entry to achieve the balance in the
trial balance above.
The correct accounting entries should have been
Dr Fixed assets £7,195
Cr Bank £7,195
The entries required to correct the error should
therefore be
Dr Fixed assets £7,195
Cr Suspense £7,195
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Response (cont) 4. Accountants' bill
The accounting entries made were
Dr Suspense £7,900 (in £21,487)
Cr Bank £3,950
Cr Professional expenses £3,950
As the original entries made didn't result in debits equalling
credits, the missing leg of the entry was included within the
suspense account entry to achieve the balance in the trial
balance above.
The correct accounting entries should have been
Dr Professional expenses £3,950
Cr Bank £3,950
The entries required to correct the error should
therefore be
Dr Professional expenses £7,900
Cr Suspense £7,900
Be careful here. The professional expenses account should
have shown a debit entry of £3,950. However, Susan made
a credit entry of £3,950 to this account. To correct this
error the entries required will be double the amount of the
balance and you need a total debit entry of £7,900; firstly to
remove the credit of £3,950 and secondly to record the
actual debit entry of £3,950.
5. Rental income.
The accounting entries made were
Dr Bank £1,500
Cr Suspense £1,500
As the original entries made didn't result in debits equalling
credits, the missing leg of the entry was included within the
suspense account entry to achieve the balance in the trial
balance above.
The correct accounting entries should have been
Dr Bank £1,500
Cr Rental income £1,500
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There is now no balance remaining on the suspense account
as the errors identified have cleared the trial balance
discrepancy. However, that doesn't mean there aren't other
errors in the bookkeeping that the trial balance hasn't
highlighted.
You'll go on to consider these types of errors in more detail
in the next subchapter.
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1.3 Errors That Don't Cause Imbalances in the Trial Balance
You're now going to look at the main errors that don't
cause an imbalance in a trial balance. You'll find that these
are more difficult to detect.
What these errors have in common is that the debits and
credits still equal each other. As there's no discrepancy in
the total of the debits and credits, the trial balance won't
detect these errors.
1.3.1 Types of errors
The following is a list of accounting terms used to describe
the types of errors where the bookkeeping entries are wrong
but the debits in the trial balance still equal the credits.
Error of omission – a completely omitted transaction, so
neither the debit or the credit entry appears in the accounts.
Duplication of entry – a transaction entered twice. The
total of debits and credits will still be equal.
Error of original entry – both debit and credit entries made
incorrectly. For example, the business records include credit
sales of £500 in both the debtors account and the sales
account, but the correct amount is £400.
Compensation error – two errors cancel each other out.
Reversal of entry – occurs when the business records
show the debit posted to the account that should have been
credited and the other way around.
Error of commission – the inclusion of the debit or credit
in an incorrect account.
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The business records correctly show cash paid for rent of
£1,000 on the credit side of the cash account but record the
corresponding debit entry as £1,000 on the debit side of the
motor expenses account. This is an error of commission.
Error of principle – similar to an error of commission,
except that the business has recorded the error in the wrong
class of account.
The records show that cash paid for a van to use in the
business has been credited to the cash account, but the
debit entry has been incorrectly posted to motor expenses
in the trading and profit and loss account instead of fixed
assets in the balance sheet. In other words, it's been
debited to an expense account rather than an asset account.
This is an error of principle.
As none of these errors result in an imbalance in the trial
balance, there's no need to open up a suspense account.
However, you still need to correct the errors.
1.3.2 Correcting the errors
The process of correcting the errors is the same as you saw
earlier in subchapter 1.2.
1. Investigate the cause of the discrepancy.
2. Once you've found it, identify the accounting entries
actually made.
3. Identify the accounting entries that should have been
made.
4. Identify the accounting entries needed to correct the
error.
The only difference is that there's no suspense account.
Now try the following activity.
Example
Example
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Page 37
Bookkeeping – Extended Trial Balance Chapter 1 – Trial Balance Errors
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Activity five Jennifer is preparing her financial accounts and has
extracted a trial balance. Although the trial balance does
balance, she discovers that she has made the following
errors.
1. She has failed to record cash sales of £1,000 in the
accounts.
2. She has debited a bank loan received of £5,000 to the
loan account and credited it to the bank 'T' account.
3. She has correctly posted cash paid for insurance of £200
to the cash account, but has debited it to the general
expenses account.
4. She has recorded credit purchases of £900 as £90.
5. She has correctly posted a cheque payment for £3,500
for a business vehicle in the bank 'T' account, but has
debited it to the stationery account.
Identify the accounting entries which will correct the errors
listed above.
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Response 1. Cash Sales
There are no accounting entries for this transaction.
The correct accounting entries should have been
Dr Cash £1,000
Cr Sales £1,000
The entries required to correct the error should
therefore be
Dr Cash £1,000
Cr Sales £1,000
This is an error of omission.
2. Bank loan
The accounting entries made were
Dr Bank loan £5,000
Cr Bank £5,000
The correct accounting entries should have been
Dr Bank £5,000
Cr Bank loan £5,000
The entries required to correct the error should
therefore be
Dr Bank £10,000
Cr Bank loan £10,000
This is a reversal of entry error.
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Response (cont) 3. Insurance
The accounting entries made were
Dr General expenses £200
Cr Cash £200
The correct accounting entries should have been
Dr Insurance £200
Cr Cash £200
The entries required to correct the error should
therefore be
Dr Insurance £200
Cr General expenses £200
This is an error of commission.
4. Purchases
The accounting entries made were
Dr Purchases £90
Cr Trade creditors £90
The correct accounting entries should have been
Dr Purchases £900
Cr Trade creditors £900
The entries required to correct the error should
therefore be
Dr Purchases £810
Cr Trade creditors £810
This is an error of original entry.
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Response (cont) 5. Vehicle
The accounting entries made were
Dr Stationery £3,500
Cr Bank £3,500
The correct accounting entries should have been
Dr Motor vehicles £3,500
Cr Bank £3,500
The entries required to correct the error should
therefore be
Dr Motor vehicles £3,500
Cr Stationery £3,500
This is an error of principle.
That's the end of the material in this chapter. Now read the
review and try the learning check that follows it.
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Review
A suspense account is an account in which entries are
temporarily recorded whilst you find out where the entries
should have been recorded.
There are two main situations when it would be appropriate
to open up a suspense account
when you can't locate the equal and opposite entry or it's
unknown
when the debits don't equal the credits so there's an
imbalance in the trial balance.
If debits exceed credits on the trial balance, you create a
credit balance in a suspense account. If credits exceed
debits, you create a debit balance in a suspense account.
When there's an imbalance in the trial balance, an
accountant will try to identify all the errors so that there will
be no balance left in the suspense account. This process
involves four simple steps.
1. Open up a suspense account with the amount of the
imbalance and investigate the cause of the discrepancy.
2. Once you've found it, identify the accounting entries
actually made.
3. Identify the accounting entries that should have been
made.
4. Identify the accounting entries needed to correct the
error.
If you can't identify the cause of the discrepancies, then you
can include the suspense account balance on the balance
sheet as a current asset or liability as appropriate, or in the
trading and profit and loss account as an expense or income
as appropriate, although this may have tax implications.
In smaller businesses, you may decide to treat any balance
remaining on the suspense account as either drawings or
capital introduced. This will clear the balance on the
suspense account.
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There are four main bookkeeping errors that lead to
imbalances in a trial balance. These are
posting two debits or credits instead of one of each
posting different amounts of debit and credit
omitting one part of the double entry
posting one leg of the double entry more than once.
Some bookkeeping errors don't cause an imbalance in a trial
balance. These are
errors of omission
duplication of an entry
error of original entry
compensation error
reversal of an entry
error of commission
error of principle.
As these errors don't cause an imbalance in the trial
balance, there's no need to open up a suspense account.
However, the errors still need to be corrected once the
cause has been identified.
Now try the learning check that follows.
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Learning check
1. What is the purpose of a suspense account?
2. Describe the two main situations when it would be
appropriate to open up a suspense account.
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3. List four bookkeeping errors that would cause an imbalance
in a trial balance.
4. You have opened a suspense account because of an
imbalance in the trial balance. You identify the cause of the
imbalance. What should you do next?
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5. The suspense account has a debit balance of £984. You
discover an entry for cash purchases of £492 on the credit
side of the cash account and on the credit side of the
purchases account. Will the correction of this error clear the
balance on the suspense account? Give the reason for your
answer.
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6. List five bookkeeping errors that would not cause an
imbalance in a trial balance.
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Learning check – answers
1. What is the purpose of a suspense account?
A suspense account is an account in which entries are
temporarily recorded whilst you find out what the entries
should be.
Once you know the nature of the transaction, you clear the
entry from the suspense account and record it in the correct
account. So a suspense account acts as a temporary
'holding' account and it follows double entry bookkeeping
principles in the same way as any other account.
This was covered in subchapter 1.1.
2. Describe the two main situations when it would be
appropriate to open up a suspense account.
There are two main situations when it would be appropriate
to open up a suspense account.
a) When you can't locate the equal and opposite entry or it's
unknown.
b) When the debits do not equal credits so there's an
imbalance in the trial balance.
This was covered in subchapter 1.1.
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3. List four bookkeeping errors that would cause an imbalance
in a trial balance.
Posting two debits or two credits instead of one debit
and one credit.
Posting a different amount to the debit and credit.
Omitting one part of the double entry altogether.
Posting one leg of the double entry more than once.
Basically the trial balance will highlight errors which haven't
resulted in equal and opposite debit and credit entries.
This was covered in subchapter 1.2.
4. You have opened a suspense account because of an
imbalance in the trial balance. You identify the cause of the
imbalance. What should you do next?
1. Once you've found it, identify the accounting entries
actually made.
2. Identify the accounting entries that should have been
made.
3. Identify the accounting entries needed to correct the
error.
This was covered in subchapter 1.2.
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5. The suspense account has a debit balance of £984. You
discover an entry for cash purchases of £492 on the credit
side of the cash account and on the credit side of the
purchases account. Will the correction of this error clear the
balance on the suspense account? Give the reason for your
answer.
Yes this clears the balance on the suspense account. The
initial accounting entries were
Cr Purchases £492
Cr Cash £492
As the initial entries made would have resulted in an
imbalance in the trial balance, you would have made a debit
entry of £984 to suspense in order to balance the trial
balance.
Dr Suspense £984
The correct accounting entries should have been
Dr Purchases £492
Cr Cash £492
So, in order to correct this situation, you need to make the
following accounting entries.
Dr Purchases £984
Cr Suspense £984
The debit entry of £984 represents £492 to cancel out the
original incorrect credit entry and a further debit of £492 to
record the correct purchase.
The double-entry above therefore clears the debit balance of
£984 on the suspense account.
This was covered in subchapter 1.2.
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6. List five bookkeeping errors that would not cause an
imbalance in a trial balance.
You could have chosen any five from the following.
Error of omission.
Duplication of entry.
Error of original entry.
Compensation error.
Reversal of entry.
Error of commission.
Error of principle.
This was covered in subchapter 1.3.
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Before moving on
If you have answered the learning check correctly, you will
have successfully completed the learning outcomes and
study objectives for this chapter, which you can see in the
table below.
Learning outcomes Study objectives
You will To achieve this you need to be
able to
know how to correct the
errors in a trial balance.
describe why you need to
open a suspense account
describe the errors that
cause an imbalance in a
trial balance and how you
can correct them using a
suspense account
describe the errors that
don't cause an imbalance in
a trial balance and how you
can correct them.
If you had difficulty in achieving any of these objectives,
have another look at the relevant part(s) of the chapter and
try the learning check again. You should be confident that
you have achieved them before moving on. There is also a
space for you to note any points you might want to discuss
with your line manager or tutor.
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Notes
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Bookkeeping – Extended Trial Balance Chapter 2 – Journals and the ETB
17-Feb-14 53
Contents
Page
Introduction 55
Learning outcomes and study objectives 56
Study advice 56
2.1 The Journal 57
2.2 Extended Trial Balance 59
2.3 Preparing ETBs in Subsequent Periods of Account 77
2.3.1 Capital account 77
2.3.2 Adjustments for stock 81
2.3.3 Accruals and prepayments 85
2.3.4 Adjustments for depreciation 93
2.3.5 Adjustments for bad and doubtful debts 97
Review 109
Learning check 111
Learning check – answers 115
Before moving on 121
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Introduction
In this chapter you'll learn that after you've extracted the
initial trial balance, you may need to make some
adjustments before you can prepare the final accounts.
These may include adjustments for accruals, prepayments,
bad debts, depreciation and also errors.
You know about the bookkeeping for these adjustments and
how to account for them in the relevant 'T' accounts.
However, in practice, it's more usual to make these
adjustments directly to the trial balance. This chapter
shows you to how to make these adjustments using an
extended trial balance (ETB).
These adjustments are commonly referred to as 'journals' or
'journal entries'. You'll look at how to make journal entries.
You'll also see how to make the adjustments using the
relevant balances from the previous year's accounts.
You need to understand the construction of an ETB because
it can be crucial to your understanding of how the figures in
the financial accounts are arrived at. Also, if you ask an
accountant how they have arrived at figures in the financial
accounts, they may send you the ETB.
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Learning outcomes and study objectives
The following table sets out what you will be able to achieve
after you have successfully studied this chapter.
Learning outcomes Study objectives
You will To achieve this you need to be
able to
know how to make account
adjustments using an
extended trial balance.
explain the purpose of a
journal and how to prepare
journal entries
prepare an extended trial
balance by extending the
initial trial balance to show
any adjustments
prepare an extended trial
balance for subsequent
years.
Study advice
We think it will take you approximately 2½ to 3½ hours to
finish this chapter. This is only a guide. The important
thing is for you to make sure you understand all the
material in the chapter.
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2.1 The Journal
In this subchapter you'll look at the purpose of a journal and
how to make journal entries.
You're already familiar with a number of year end
adjustments and how they're recorded in the relevant
'T' accounts.
However, this isn't the only way of dealing with year end
adjustments or correcting errors. In fact, most accountants
process the adjustments through the trial balance as part of
the double entry system and create an extended trial
balance (ETB).
These adjustments are commonly referred to as 'journals' or
'journal entries'. Accountants usually record the journals in
a book or file so that there's a record of all adjustments
made. A journal shows the actual double entries made,
along with an explanation as to what each double entry
represents. An example of a journal book is shown below.
Date Reference Dr
£
Cr
£
31/12/13 J/E 1
Account to be debited Prepayments (Balance sheet) 165
Account to be credited Motor expenses (P & L) 165
Narrative description Prepayment of vehicle insurance at year
end
31/12/13 J/E 2
Account to be debited Stock (Balance sheet) 150
Account to be credited Trading account 150
Narrative description Year end adjustment for closing stock
31/12/13 J/E 3
Account to be debited Depreciation expense (P & L) 2,500
Account to be credited Motor vehicles – Acc dep'n (Balance sheet) 2,500
Narrative description Annual depreciation charge
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The references given to the entries, such as J/E 1, are
important as they enable you to follow the adjustments
through the trial balance. This referencing and tracking of
adjustments is known as an audit trail. If you want an
accountant to send you this information, you should ask for
the 'link papers' or journal adjustments.
You can't ask for any documents or working papers on audit
work or tax advice as these are the property of the
accountant. But anything that links (or reconciles) the
figures in the accounting records to the figures in the
financial accounts is part of the books and records of the
business. So, you can ask for this information, even if an
accountant has prepared it.
The journal on the previous page is a manual paper journal.
These are becoming rarer as many businesses and most
accountants use computer software to prepare accounts. It
is likely that a computer generated journal entry will contain
the same information and look very similar to the example
of the paper journal entry above. Whether the journal is on
computer or on paper, the principles and accounting entries
are exactly the same.
Once an accountant has prepared the journal entries, the
next step is to process these adjustments (or journals)
using the trial balance. This is why you call it an
extended trial balance (ETB). You will look at this next.
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2.2 Extended Trial Balance
In this subchapter you'll look at how to start preparing an
extended trial balance (ETB).
An ETB is created by extending the initial trial balance to
show any adjustments. It will usually look like this.
Extended trial balance as at 31 December 2013
Initial TB Adjustments Adjusted TB
1 2 3 4 5 6
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Capital 2,000 2,000
Purchases 18,200 18,200
Bank overdraft 325 325
Sales 34,265 34,265
Motor vehicles (cost) 15,000 15,000
Equipment (cost) 1,000 1,000
Debtors 260 260
Motor expenses 1,080 75 1,005
Telephone 50 35 85
Drawings 1,000 1,000
Prov'n for dep'n – MV 2,500 2,500
Prov'n for dep'n – Equip't 200 200
Accruals 35 35
Prepayments 75 75
Closing stock (BS) 1,500 1,500
Closing stock ( T P & L) 1,500 1,500
Depreciation – MV 2,500 2,500
Depreciation – Equipment 200 200
36,590 36,590 4,310 4,310 40,825 40,825
The adjusted trial balance figures in columns 5 and 6 are
then used to prepare the financial accounts.
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The process can be split into the following stages.
1. Extract the initial trial balance (from 'T' accounts) –
columns 1 and 2.
2. Record the year end adjustments in the journal book.
3. Post the adjustments (journals) onto the ETB –
columns 3 and 4.
4. Add the figures across and down to give the adjusted
trial balance – columns 5 and 6.
5. Draw up the trading and profit and loss account and
balance sheet – using the figures from columns 5 and 6.
You will now follow this process using an example.
Stage 1 – Extract the initial trial balance
You looked at Lance's trial balance for his first year of
trading in chapter 5 of Bookkeeping – Introduction to
Bookkeeping. His trial balance balanced. But let's see what
would happen if his trial balance didn't balance and it looked
like this, including an entry from a suspense account.
Dr Cr
£ £
Capital 5,000
Bank 2,075
Van 2,700
Equipment 500
Cash 25
Purchases 1,750
Sales 5,200
Cash & Carry Ltd 300
Readstone FC 750
Advertising 250
Motor expenses 80
Insurance 120
Drawings 1,000
Suspense 1,250
10,500 10,500
Example
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Stage 2 – Record the year end adjustments in the journal book
After extracting the trial balance, Lance identifies that the
following year end adjustments (journals) are required.
1. The annual depreciation charge is £540 for the van and
£40 for the equipment.
2. Lance thinks Readstone FC are unlikely to pay £50 that they
owe him. As this is a bad debt, he wants to write it off.
3. Lance has prepaid £20 of the insurance payment as it
relates to the following financial year.
4. He needs to make an accrual of £15 for motor expenses.
5. Closing stock is £250.
6. The initial trial balance didn't balance so Lance had
created a suspense account. He discovers that he failed
to record purchases of £1,250 paid for by cheque. The
cheque payment had been correctly recorded in the bank
account but it wasn't recorded in Purchases.
Lance would record these items in the journal book using
double entry bookkeeping principles. The journal book
would look as follows.
Date Ref Dr
£
Cr
£
30 April J/E 1
Account to be debited Depreciation expense (P & L) 540
Account to be credited Van – Acc dep'n (Balance sheet) 540
Narrative description Annual depreciation charge for van
Account to be debited Depreciation expense (P & L) 40
Account to be credited Equipment – Acc dep'n (Balance sheet) 40
Narrative description Annual depreciation charge for equipment
30 April J/E 2
Account to be debited Bad debt expense (P & L) 50
Account to be credited Readstone FC – Debtor (Balance sheet) 50
Narrative description Bad debt write off
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Date Ref Dr
£
Cr
£
30 April J/E 3
Account to be debited Prepayments (Balance sheet) 20
Account to be credited Insurance (P & L) 20
Narrative description Prepayment of insurance at year end
30 April J/E 4
Account to be debited Motor expenses (P & L) 15
Account to be credited Accruals 15
Narrative description Accrual for motor expenses at year end
30 April J/E 5
Account to be debited Stock (Balance sheet) 250
Account to be credited Trading account 250
Narrative description Year end adjustment for closing stock
30 April J/E 6
Account to be debited Purchases 1,250
Account to be credited Suspense 1,250
Narrative description Adjustment to clear suspense account
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Stage 3 – Post the adjustments (journals) onto the ETB
Once the journals are posted to columns 3 and 4, the ETB
will look as follows.
Extended trial balance for Lance as at 30 April
Trial balance Adjustments Reference
1 2 3 4
Dr
£
Cr
£
Dr
£
Cr
£
Capital 5,000
Bank 2,075
Van – cost 2,700
Equipment – cost 500
Cash 25
Purchases 1,750 1,250 J/E 6
Sales 5,200
Cash and Carry Ltd 300
Readstone FC 750 50 J/E 2
Advertising 250
Motor expenses 80 15 J/E 4
Insurance 120 20 J/E 3
Drawings 1,000
Suspense 1,250 1,250 J/E 6
Acc dep'n – Van 540 J/E 1
Acc dep'n – Equipment 40 J/E 1
Accruals 15 J/E 4
Prepayments 20 J/E 3
Closing stock (BS) 250 J/E 5
Closing stock ( T P & L) 250 J/E 5
Depreciation – Van 540 J/E 1
Depreciation – Equipment 40 J/E 1
Bad debt expense 50 J/E 2
10,500 10,500 2,165 2,165
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Stage 4 – Add the figures across and down to give the adjusted trial balance
The completed ETB will now look as follows.
Extended trial balance for Lance as at 30 April
Trial balance Adjustments Adjusted TB
1 2 3 4 5 6
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Capital 5,000 5,000
Bank 2,075 2,075
Van – cost 2,700 2,700
Equipment – cost 500 500
Cash 25 25
Purchases 1,750 1,250 3,000
Sales 5,200 5,200
Cash and Carry Ltd 300 300
Readstone FC 750 50 700
Advertising 250 250
Motor expenses 80 15 95
Insurance 120 20 100
Drawings 1,000 1,000
Suspense 1,250 1,250
Acc dep'n – Van 540 540
Acc dep'n – Equipment 40 40
Accruals 15 15
Prepayments 20 20
Closing stock (BS) 250 250
Closing stock ( T P & L) 250 250
Depreciation – Van 540 540
Depreciation – Equipment 40 40
Bad debt expense 50 50
10,500 10,500 2,165 2,165 11,345 11,345
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You should note that the entries in columns 1 and 2 balance,
as do those in columns 3 and 4 and columns 5 and 6. This is
very important. If they don't agree then the dual effect
hasn't been complied with and the final accounts won't
balance.
Stage 5 – Prepare the financial accounts
The final stage is to prepare the trading and profit and loss
account and balance sheet using the figures from the ETB.
You should already know how to produce financial accounts
from financial information. (This is covered in
Bookkeeping – Introduction to Bookkeeping.)
Now try the next activity.
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Activity one Prepare the trading and profit and loss account and balance
sheet for Lance as at 30 April using the adjusted figures
from the ETB above.
You will need a separate piece of paper for this
activity.
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Response Lance's completed trading and profit and loss account should
look like this.
Trading and profit and loss account
£ £
Sales 5,200
Less Cost of sales
Opening stock 0
Add Purchases 3,000
3,000
Less Closing stock (250)
(2,750)
Gross profit 2,450
Advertising 250
Motor expenses 95
Insurance 100
Depreciation (540 + 40) 580
Bad debt expense 50
(1,075)
Net profit 1,375
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Response (Cont) Lance's completed balance sheet should look as follows.
Balance sheet
£ £
Fixed assets
Van (2,700 – 540) 2,160
Equipment (500 – 40) 460
2,620
Current assets
Stock 250
Debtor (Readstone FC) 700
Prepayments 20
Bank 2,075
Cash 25
3,070
Less Current liabilities
Creditors (Cash & Carry Ltd) (300)
Accruals (15)
Net current assets 2,755
Net assets 5,375
Capital account
Balance b/f 0
Add Net profit for the period 1,375
Add Capital introduced 5,000
6,375
Less Drawings (1,000)
Closing capital 5,375
As this is Lance's first period of trading, you know that the
balance on the capital account of £5,000 must all relate to
capital introduced in the period.
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There is an alternative way of presenting the extended trial
balance so that it is easier to prepare the trading and
profit and loss accounts and balance sheet. To do this you
split the adjusted trial balance between items that would
appear in the trading and profit and loss account and items
that would appear in the balance sheet.
Using Lance's extended trial balance, the figures would look
like this.
Trial balance Adjustments T&P&L a/c Balance sheet
1 2 3 4 5 6 7 8
Dr Cr Dr Cr Dr Cr Dr Cr
Capital 5,000 5,000
Bank 2,075 2,075
Van – cost 2,700 2,700
Equipment – cost 500 500
Cash 25 25
Purchases 1,750 1,250 3,000
Sales 5,200 5,200
Cash and Carry Ltd 300 300
Readstone FC 750 50 700
Advertising 250 250
Motor expenses 80 15 95
Insurance 120 20 100
Drawings 1,000 1,000
Suspense 1,250 1,250
Acc dep'n – Van 540 540
Acc dep'n – Equip't 40 40
Accruals 15 15
Prepayments 20 20
Clsg stock (BS) 250 250
Clsg stock (T P & L) 250 250
Dep'n – Van 540 540
Dep'n – Equipment 40 40
Bad debt expense 50 50
Net profit 1,375 1,375
10,500 10,500 2,165 2,165 5,450 5,450 7,270 7,270
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Using this method, you can prepare the trading and profit
and loss accounts and the balance sheet directly using the
figures in columns 5, 6, 7 and 8. You can see that the only
additional line needed is for 'net profit' (or 'net loss'). You
calculate this by putting a balancing figure into either
column 5 (net profit) or column 6 (net loss) so that
columns 5 and 6 are equal. You maintain the dual entry
effect by putting the corresponding debit or credit in either
column 7 or 8.
Now try the next activity.
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Activity two Raj has just started a motor vehicle repair business. This is
his initial trial balance for the year ended 31 December 2013.
Dr Cr
£ £
Capital 5,000
Bank 2,570
Cash 3,050
Van 2,500
Tools and equipment 3,760
Purchases 33,345
Sales 41,015
Creditors 3,215
Rent 1,650
Rates 1,205
Insurance 650
Drawings 1,500
Suspense 1,000
50,230 50,230
Raj makes all of the end of year adjustments through an ETB
and he identifies that he needs the following adjustments.
Stock on hand at the year end was £3,750.
He had prepaid £350 of the rental expenditure as it
relates to 2013.
He needs to make an accrual of £200 for insurance.
He needs to provide for annual depreciation of £500 for
the van and £470 for tools and equipment.
He failed to record a sale of £1,000 although the correct
entry had been made in the bank 'T' account.
Use the ETB on the following page to show the year end
adjustments, and then prepare the trading and profit and
loss account and balance sheet. (You will need a
separate piece of paper for this part of the activity.)
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Bookkeeping – Extended Trial Balance Chapter 2 – Journals and the ETB
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Extended trial balance as at 31 December 2013
Trial balance Adjustments T&P&L Balance sheet
Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £
Capital 5,000
Bank 2,570
Cash 3,050
Van 2,500
Tools and Equip't 3,760
Purchases 33,345
Sales 41,015
Creditors 3,215
Rent 1,650
Rates 1,205
Insurance 650
Drawings 1,500
Suspense 1,000
50,230 50,230
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Chapter 2 – Journals and the ETB Bookkeeping – Extended Trial Balance
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Response
Extended trial balance as at 31 December 2013
Trial balance Adjustments T&P&L Balance sheet
Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £
Capital 5,000 5,000
Bank 2,570 2,570
Cash 3,050 3,050
Van 2,500 2,500
Tools and Equip't 3,760 3,760
Purchases 33,345 33,345
Sales 41,015 1,000 42,015
Creditors 3,215 3,215
Rent 1,650 350 1,300
Rates 1,205 1,205
Insurance 650 200 850
Drawings 1,500 1,500
Suspense 1,000 1,000
Clsg stock (BS) 3,750 3,750
Clsg stock (TP&L) 3,750 3,750
Prepayments 350 350
Accruals 200 200
Dep'n exp – Van 500 500
Dep'n exp – Tools 470 470
Acc dep'n – Van 500 500
Acc dep'n – Tools 470 470
Net profit 8,095 8,095
50,230 50,230 6,270 6,270 45,765 45,765 17,480 17,480
Page 75
Bookkeeping – Extended Trial Balance Chapter 2 – Journals and the ETB
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Response (Cont) Raj's completed trading and profit and loss account should
look like this.
Trading and profit and loss account
Year ended 31 December 2013
£ £
Sales 42,015
Less Cost of sales
Opening stock 0
Add Purchases 33,345
33,345
Less Closing stock (3,750) (29,595)
Gross profit 12,420
Rent 1,300
Rates 1,205
Insurance 850
Depreciation (500 + 470) 970
(4,325)
Net profit 8,095
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Response (Cont) Raj's completed balance sheet should look as follows.
Balance sheet
as at 31 December 2013
£ £
Fixed assets
Van (2,500 – 500) 2,000
Tools & Equipment (3,760 – 470) 3,290
5,290
Current assets
Stock 3,750
Prepayments 350
Bank 2,570
Cash 3,050
9,720
Less Current liabilities
Trade creditors (3,215)
Accruals (200)
Net current assets 6,305
Net assets 11,595
Capital account
Balance b/f 0
Add Capital introduced 5,000
Add Net profit for the period 8,095
13,095
Less Drawings (1,500)
Closing capital 11,595
Now you'll look at preparing the ETB in subsequent
accounting periods.
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Bookkeeping – Extended Trial Balance Chapter 2 – Journals and the ETB
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2.3 Preparing ETBs in Subsequent Periods of Account
So far all of the examples you have seen are in the first year
of trading so there are no opening balances to consider
relating to year end adjustments.
In this subchapter you'll look at how to prepare ETBs in
subsequent periods of account and how you deal with
opening balances for the year end adjustments using the
ETB.
2.3.1 Capital account
Accumulated profits
The trading and profit and loss account is a summary of the
trading transactions over a period of time. At the end of the
period, you transfer the profit or loss for the year from the
trading and profit and loss account to the capital account.
The accounting entries are as follows.
If a profit is made the accounting entries are
debit trading and profit and loss account
credit capital.
If a loss is made the accounting entries are
credit trading and profit and loss account
debit capital.
Drawings
At the end of the period, you transfer any balance on the
drawings account from the drawings account to the
capital account. The accounting entries are
debit capital
credit drawings.
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We have used Lance's ETB from subchapter 2.2 to show
Let's see how this would be reflected in Lance's trial balance
as at 1 May. (We have removed all of the income and
expenditure categories from the ETB you prepared in
subchapter 2.2.)
Lance's trial balance as at 1 May
Dr Cr
£ £
Capital 5,375
Bank 2,075
Van – cost 2,700
Equipment – cost 500
Cash 25
Cash & Carry Ltd 300
Readstone FC 700
Acc dep'n – Van 1 May 540
Acc dep'n – Equipment 1 May 40
Accruals 1 May 15
Prepayments 1 May 20
Stock (BS) 1 May 250
6,270 6,270
Lance made a net profit of £1,375 for the first trading period
to 30 April. The overall accounting entries to close off the
trading and profit and loss account in order to start the next
accounting period are
Debit Trading and profit and loss account £1,375
Credit Capital account £1,375
We have removed the drawings account from the ETB you
prepared at subchapter 2.2.
Lance took drawings of £1,000 in the period to 30 April.
Example
Page 79
Bookkeeping – Extended Trial Balance Chapter 2 – Journals and the ETB
17-Feb-14 79
The overall accounting entries to close off the drawings
account in order to commence the next accounting period are
Debit Capital £1,000
Credit Drawings £1,000
As we have complied with the dual effect, then the
trial balance will still balance. The capital account now
shows a balance of £5,375 which represents the capital
figure of £5,000 plus the profit of £1,375 for the period to
30 April less the drawings of £1,000.
You may see this presented slightly differently in practice.
However, the principles you have just learned are the same
whichever method an accountant uses.
Lance is now ready to start recording his transactions for
the period 1 May onwards.
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Lance prepares his next accounts for the 6 month period to
31 October. He registered for VAT on 1 May as he expected
his sales to exceed the VAT threshold in the second year of
trading. He extracts an initial trial balance as at 31 October
which shows the following.
Trial balance as at 31 October
Dr Cr
£ £
Capital 5,375
Bank 5,100
Van – cost 2,700
Equipment – cost 500
Cash 75
Purchases 32,308
Sales 47,426
VAT 1,350
Debtors 6,547
Creditors 3,654
Advertising 3,000
Motor expenses 960
Insurance 1,440
Drawings 5,500
Acc dep'n – Van 1 May 540
Acc dep'n – Eqp't 1 May 40
Accruals 1 May 15
Prepayments 1 May 20
Stock (BS) 1 May 250
58,400 58,400
Example
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Bookkeeping – Extended Trial Balance Chapter 2 – Journals and the ETB
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2.3.2 Adjustments for stock
Closing stock appears both in the balance sheet and the
trading account. The closing stock on hand at the end of
period 1 will become the opening stock at the beginning of
period 2.
There are two ways of dealing with adjustments on an ETB
for opening and closing stock.
Method 1
Opening stock
Debit Trading account (opening stock)
Credit Balance sheet entry (stock).
Closing stock
Debit Balance sheet entry (stock)
Credit Trading account (closing stock).
Method 2
Alternatively, the amounts may have been netted off
purchases on the ETB to give the cost of goods sold figure.
Opening stock
Debit Purchases
Credit Balance sheet entry (stock).
Closing stock
Debit Balance sheet entry (stock)
Credit Purchases.
You'll see both of these methods in your work so we use
both in this manual and also in the resource pack that goes
with it.
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Lance carries out a stock take at 31 October and values his
stock on hand at £2,350.
Lance removes the opening stock of £250 from the
balance sheet and transfers it to the trading account. The
closing stock figure of £2,350 needs to be recorded in both
the balance sheet and the trading account.
Using method 1, these adjustments would be shown in the
ETB as follows.
Example
Page 83
Bookkeeping – Extended Trial Balance Chapter 2 – Journals and the ETB
17-Feb-14 83
Extended trial balance for Lance as at 31 October Trial balance Adjustments TP&L account Balance sheet
1 2 3 4 5 6 7 8
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Capital 5,375 Bank 5,100
Van – cost 2,700
Equipment – cost 500
Cash 75
Purchases/CoGs 32,308
Sales 47,426
VAT 1,350
Debtors 6,547
Creditors 3,654
Advertising 3,000
Motor expenses 960
Insurance 1,440
Drawings 5,500
Acc. dep'n – Van 1 May 09 540
Acc. dep'n – Equip 1 May 09 40
Accruals 1 May 15
Prepayments 1 May 20
Stock (BS) 1 May 250 2,350 250
Closing stock ( T P & L) 2,350 2,350 2,350
Opening stock (T P & L) 250 250
58,400 58,400 2,600 2,600
The adjusted TP&L account and balance sheet columns now
show closing stock of £2,350 in both the balance sheet and
the trading, profit and loss account. Lance has transferred
the opening stock figure of £250 to the trading, profit and
loss account.
It may appear at this stage that the figures in the adjusted
columns don't balance. This is because Lance hasn't yet
added/subtracted all of the account balances across each
row.
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Let's now look at Lance's ETB using method 2.
Closing stock is £2,350.
Trial balance Adjustments TP&L account Balance sheet
1 2 3 4 5 6 7 8
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Capital 5,375
Bank 5,100
Van – Cost 2,700
Equipment – cost 500
Cash 75
Purchases/CoGs 32,308 250 2,350 30,208
Sales 47,426
VAT 1,350
Debtors 6,547
Creditors 3,654
Advertising 3,000
Motor expenses 960
Insurance 1,440
Drawings 5,500
Acc. dep'n – Van 1 May 09 540
Acc. dep'n – Equip 1 May 09 40
Accruals 1 May 15
Prepayments 1 May 20
Stock (BS) 1 May 250 2,350 250 2,350
58,400 58,400 2,600 2,600
Page 85
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2.3.3 Accruals and prepayments
You may need to make further adjustments to the ETB for
accruals and prepayments.
The double entry to create an accrual is
Debit expense
Credit accruals.
The double entry to create a prepayment is
Debit prepayments
Credit expense.
(Accruals and prepayments are considered in detail in
Bookkeeping – Accounting Standards and Year End
Adjustments.)
The next stage for Lance is to establish whether he needs to
make any further adjustments to these figures before
completing the ETB.
Lance identifies that the following accruals and prepayments
are required as at 31 October.
Advertising accrual £170 (net of VAT).
Motor expenses accrual £25 (net of VAT).
Insurance prepayment £150 (no VAT payable).
The first step is to reverse any balances for opening
accruals and prepayments.
There are no opening accruals or prepayments for
advertising expenditure so Lance doesn't need to make any
adjustments.
There is, however, an opening accrual for motor expenses of
£15.
Example
Page 86
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The accounting entries to reverse this accrual are the
opposite of the accounting entries required to create an
accrual. Therefore, the accounting entries would be
Debit accruals £15
Credit motor expenses £15.
There is also an opening prepayment for insurance of £20.
Again, the accounting entries to reverse the prepayment are
the opposite of the accounting entries required to create a
prepayment. Therefore, the accounting entries would be
Debit insurance £20
Credit prepayments £20.
The next step would be to adjust for the
closing accruals and prepayments.
These are processed in exactly the same way as you saw in
subchapter 2.2. You always adjust the figures net of VAT.
For accruals, as VAT is not payable until the actual expense
is paid, the correct method is to adjust for the accrual net of
VAT. For prepayments, any VAT will have been due when
the expense was met so you need only adjust for the
prepayment net of VAT.
The ETB would look as shown on the following page.
(Stock adjustments are shown using method 1.)
Page 87
Bookkeeping – Extended Trial Balance Chapter 2 – Journals and the ETB
17-Feb-14 87
Extended trial balance for Lance as at 31 Oct 2013
Trial balance Adjustments TP&L account Balance sheet
1 2 3 4 5 6 7 8
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Capital 5,375
Bank 5,100
Van – cost 2,700
Equipment – cost 500
Cash 75
Purchases/CoGs 32,308
Sales 47,426
VAT 1,350
Debtors 6,547
Creditors 3,654
Advertising 3,000 170 3,170
Motor expenses 960 25 15 970
Insurance 1,440 20 150 1,310
Drawings 5,500
Acc. dep'n – Van 1 May 09 540
Acc. dep'n – Equip 1 May 09 40
Accruals 1 May 15 15 170 195
25
Prepayments 1 May 20 150 20 150
Stock (BS) 1 May 250 2,350 250
Closing stock ( T P & L) 2,350 2,350 2,350
Opening stock (T P & L) 250 250
58,400 58,400 2,980 2,980
Again, at this stage, it appears that the figures in the
adjusted columns don't balance. This is because all of the
account balances have not been added/subtracted across
the rows.
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Chapter 2 – Journals and the ETB Bookkeeping – Extended Trial Balance
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This debits and credits for accruals and prepayments are the
same as in a 'T' account. The relevant 'T' account for
insurance would have looked as follows.
Insurance
Dr Cr
£ £
Opening prepay b/d 20
Bank 1,440 Profit and loss (bal) 1,310
Closing prepay c/d 150
1,460 1,460
b/d 150
The closing prepayment of £150 and the profit and loss
charge of £1,310 are both shown in the adjusted
ETB columns.
Now try the following activity.
Page 89
Bookkeeping – Extended Trial Balance Chapter 2 – Journals and the ETB
17-Feb-14 89
Activity three Jenny trades as a surveyor. This is her initial trial balance
for the year ended 30 September 2013.
Dr Cr
£ £
Capital 20,000
Fee income 77,831
VAT 3,659
Subcontractors' fees 19,388
Motor expenses 5,211
Subscriptions 1,119
Rent 14,400
Electricity 1,235
Telephone 1,765
Insurance 1,498
Equipment 6,000
Car 14,999
Prepayments 1 Oct 2012 4,050
Bank 10,086
Debtors 7,339
Acc dep'n 1 Oct 2012 2,500
Drawings 17,000
Accruals 1 Oct 2012 100
104,090 104,090
Jenny's accountant makes all of the end of year adjustments
through an ETB.
The opening prepayment of £4,050 in the trial balance
relates to rent £3,300, insurance £500 and subscriptions
£250. The opening accrual of £100 relates to the telephone.
Prepaid expenses (net of VAT) at 30 September 2013 are
£
Rent 3,600
Insurance 650
Subscriptions 275
Telephone 25
There are no accruals required as at 30 September 2013.
Use the following template to draw up the extended
trial balance to reflect the end-of-year adjustments.
Page 90
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Page 91
Bookkeeping – Extended Trial Balance Chapter 2 – Journals and the ETB
17-Feb-14 91
Extended trial balance as at 30 September 2013
Trial balance Adjustments TP&L account Balance sheet
Dr Cr Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £ £ £
Capital 20,000
Fee income 77,831
VAT 3,659
S/Con fees 19,388
Motor exps 5,211
Subs 1,119
Rent 14,400
Electricity 1,235
Telephone 1,765
Insurance 1,498
Equipment 6,000
Car 14,999
Prepayments 4,050
Bank 10,086
Debtors 7,339
Acc dep'n 01/10/12 2,500
Drawings 17,000
Accruals 100
Net profit
Total 104,090 104,090
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Response
Extended trial balance as at 30 September 2013
Trial balance Adjustments TP&L account Balance sheet
Dr Cr Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £ £ £
Capital 20,000 20,000
Fee income 77,831 77,831
VAT 3,659 3,659
S/Con fees 19,388 19,388
Motor exps 5,211 5,211
Subs 1,119 250 275 1,094
Rent 14,400 3,300 3,600 14,100
Electricity 1,235 1,235
Telephone 1,765 25 1,640
100
Insurance 1,498 500 650 1,348
Equipment 6,000 6,000
Car 14,999 14,999
Prepayments 4,050 3,600 3,300 4,550
650 500
275 250
25
Bank 10,086 10,086
Debtors 7,339 7,339
Acc dep'n 01/10/12 2,500 2,500
Drawings 17,000 17,000
Accruals 100 100
Net profit 33,815 33,815
Total 104,090 104,090 8,700 8,700 77,831 77,831 59,974 59,974
Page 93
Bookkeeping – Extended Trial Balance Chapter 2 – Journals and the ETB
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2.3.4 Adjustments for depreciation
The dual effect for depreciation is to
Increase Expenses
Decrease Fixed assets.
You can present fixed assets and depreciation in two
different ways. The first is using the net book value (NBV)
approach. With this approach, you include both the cost of
the asset and any accumulated depreciation in the same
account. The accounting entries are
Debit Depreciation expense
Credit Fixed assets – NBV.
The second way is to use the cost and provision approach.
With this approach, there are two separate accounts – one
for the asset cost and one for the accumulated depreciation.
You may see this described as the 'provision for
depreciation' or 'accumulated provision for depreciation'
account. In this instance the accounting entries would be
Debit Depreciation expense
Credit Accumulated provision for depreciation.
The double entry principles are exactly the same whichever
approach is used. The only difference is in presentation.
As the name suggests, the accumulated provision for
depreciation accumulates in the balance sheet year on year,
so that the value of the asset in the balance sheet will be
the net amount (cost less depreciation accumulated to
date).
(Bookkeeping – Accounting Standards and Year End
Adjustments considers fixed assets and depreciation in
detail.)
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Lance depreciates his assets on a reducing balance basis.
He calculates that the depreciation charge for the 6 month
period ended 31 October is £430 for the van and £37 for the
equipment. Once this has been processed, there are no
further adjustments to make and so the ETB can be
finalised. The ETB will now look as follows.
Extended trial balance for Lance as at 31 Oct
Trial balance Adjustments TP&L account Balance sheet
1 2 3 4 5 6 7 8
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Capital 5,375 5,375
Bank 5,100 5,100
Van – cost 2,700 2,700
Equipment – cost 500 500
Cash 75 75
Purchases/CoGs 32,308 32,308
Sales 47,426 47,426
VAT 1,350 1,350
Debtors 6,547 6,547
Creditors 3,654 3,654
Advertising 3,000 170 3,170
Motor expenses 960 25 15 970
Insurance 1,440 20 150 1,310
Drawings 5,500 5,500
Acc. dep'n – Van 540 430 970
Acc. dep'n – Equip 40 37 77
Accruals 1 May 15 15 170 195
25
Prepay'ts 1 May 20 150 20 150
Stock (BS) 1 May 250 2,350 250 2,350
Clg stock ( TP& L) 2,350 2,350
Opg stock (TP& L) 250 250
Dep'n exp – Van 430 430
Dep'n exp – Equip 37 37
Net profit 11,301 11,301
58,400 58,400 3,447 3,447 50,243 49,776 22,922 22,922
Example
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Note that the accumulated provision for depreciation for the
van totals £970 credit. This represents the accumulated
depreciation of £540 for the period to 30 April and of £430
for the period to 31 October. This will be deducted from the
cost of the van in the balance sheet, so that it is recorded at
its net book value, which is £1,730 (£2,700 cost less £970
accumulated depreciation).
Now try the following activity.
Activity four Jenny's accountant establishes that depreciation for the year
is £1,500 for the car and £1,000 for equipment.
Update the ETB, from your response to activity three, to
reflect the annual depreciation charge for the car and the
equipment.
Page 96
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Response
Extended trial balance as at 30 September 2013
Trial balance Adjustments TP&L account Balance sheet
Dr Cr Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £ £ £
Capital 20,000 20,000
Fee income 77,831 77,831
VAT 3,659 3,659
S/Con fees 19,388 19,388
Motor exps 5,211 5,211
Subs 1,119 250 275 1,094
Rent 14,400 3,300 3,600 14,100
Electricity 1,235 1,235
Telephone 1,765 25 1,640
100
Insurance 1,498 500 650 1,348
Equipment 6,000 6,000
Car 14,999 14,999
Prepayments 4,050 3,600 3,300 4,550
650 500
275 250
25
Bank 10,086 10,086
Debtors 7,339 7,339
Acc dep'n 01/10/12 2,500 2,500 5,000
Drawings 17,000 17,000
Accruals 100 100
Dep'n exp 2,500 2,500
Net profit 31,315 31,315
Total 104,090 104,090 11,200 11,200 77,831 77,831 59,974 59,974
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2.3.5 Adjustments for bad and doubtful debts
The dual effect for bad and doubtful debts is
Increase Expenses
Decrease Current assets.
The double entry to create a bad debt is to
Debit Bad debts expense
Credit Trade debtors.
The double entry to create a provision for a doubtful debt is
Debit Bad debts expense
Credit Bad debts provision.
You clear the opening balances on the bad debt provision
account by reversing the above entries
Debit Bad debts provision
Credit Bad debts expense.
In practice, it is likely that the accounts for a business will
show a net figure for trade debts after deduction of any bad
debts provision. You may also see the a bad debts provision
described as a bad debts reserve.
VAT
If a business is registered for VAT, you need to ensure that
both the bad debt expense and the trade debtors accurately
reflect the VAT position.
Maria sells goods on credit terms for £480, comprising net
cost £400 + VAT (at 20 per cent) £80. The debtor is unable
to pay and Maria decides to write off the whole debt. The
usual accounting entries will be
Debit Bad debts expense £400
Debit VAT £80
Credit Trade debtors £480
Example
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The method of dealing with provisions for doubtful debts is
the same except that you need to make VAT adjustments to
both the opening and closing provisions.
Maria has another customer who has been struggling
financially for some time. The original debt was £2,400
(£2,000 + VAT £400). At the end of the previous financial
year, Maria thought that she would probably recover £1,800
of the debt so she made a provision for £600. This year she
thinks that she should increase the provision to £900. The
accounting entries for this will be as follows.
Reversal of opening provision
Debit Bad debts provision £600
Credit Bad debts expense £500
Credit VAT £100
Creation of closing provision
Debit Bad debts expense £750
Debit VAT £150
Credit Bad debts provision £900
(Bad and doubtful debts are in Bookkeeping – Accounting
Standards and Year End Adjustments.)
Lance reviews his debtors at 31 October and decides to
write off a debt of £240 (including VAT at 20 per cent). He
also decides to make a general provision of 5 per cent
against his remaining debts. He calculates the provision as
Debtors £6,547
Written off £240
Net debtors £6,307
5 per cent provision £315 (including VAT £53).
Example
Example
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The finalised ETB will look like this.
Extended trial balance for Lance as at 31 Oct Trial balance Adjustments TP&L account Balance sheet
1 2 3 4 5 6 7 8
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Capital 5,375 5,375
Bank 5,100 5,100
Van – cost 2,700 2,700
Eqp't – cost 500 500
Cash 75 75
Purchases/CoGs 32,308 32,308
Sales 47,426 47,426
VAT 1,350 40 1,257
53
Debtors 6,547 240 5,992
315
Creditors 3,654 3,654
Advertising 3,000 170 3,170
Motor expenses 960 25 15 970
Insurance 1,440 20 150 1,310
Bad debts 200 462
262
Drawings 5,500 5,500
Acc. dep'n – Van 540 430 970
Acc. dep'n – Equip 40 37 77
Accruals 1 May 15 15 170 195
25
Prepay'ts 1 May 20 150 20 150
Stock (BS) 1 May 250 2,350 250 2,350
Clg stock ( TP& L) 2,350 2,350
Opg stock (TP& L) 250 250
Dep'n exp – Van 430 430
Dep'n exp – Equip 37 37
Net profit 10,839 10,839
58,400 58,400 3,447 3,447 50,243 49,776 22,367 22,367
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The trading and profit and loss account and balance sheet for
Lance, for the 6 month period ended 31 October, can now be
prepared using the adjusted figures from the ETB.
The trading and profit and loss account looks as follows.
Trading and profit and loss account for Lance 6 month period ending 31 October
£ £ Sales 47,426 Less Cost of Sales Opening stock 250 Purchases 32,308 Closing stock (2,350) (20,208) Gross profit 17,218 Less Expenses Advertising 3,170 Motor expenses 970 Insurance 1,310 Bad debts 462 Depreciation – Van 430 Depreciation – Equipment 37 (6,379) Net profit 10,839
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The balance sheet looks as follows.
Balance sheet for Lance as at 31 October
£ £ £ Fixed assets Van 2,700 (970) 1,730 Equipment 500 (77) 423 2,153 Current assets Stock 2,350 Debtors 5,992 Prepayments 150 Cash at bank 5,100 Cash in hand 75 13,667 Current liabilities Trade creditors 3,654 VAT 1,257 Accruals 195 (5,106) Net current assets 8,561 Net assets 10,714 Represented by Capital 5,375 Profit 10,839 Drawings (5,500) 10,714
(Note that £10,714 is the closing capital.)
Now try the following activity.
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Activity five Jenny made a provision of £600 (including VAT of £100) in
the previous year relating to a trade debt of £1,200
(including VAT of £200). She now decides to write off the
debt in full.
Update the ETB, from your response to activity four, to
reflect the write off of the debt.
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Response
Extended trial balance as at 30 September 2013
Trial balance Adjustments TP&L account Balance sheet
Dr Cr Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £ £ £
Capital 20,000 20,000
Fee income 77,831 77,831
VAT 3,659 200 100 3,559
S/Con fees 19,388 19,388
Motor exps 5,211 5,211
Subs 1,119 250 275 1,094
Rent 14,400 3,300 3,600 14,100
Electricity 1,235 1,235
Telephone 1,765 25 1,640
100
Insurance 1,498 500 650 1,348
Bad debt exp 1,000 500 500
Equipment 6,000 6,000
Car 14,999 14,999
Prepayments 4,050 3,600 3,300 4,550
650 500
275 250
25
Bank 10,086 10,086
Debtors 7,339 600 1,200 6,739
Acc dep'n 01/10/12 2,500 2,500 5,000
Drawings 17,000 17,000
Accruals 100 100
Dep'n exp 2,500 2,500
Net profit 30,815 30,815
Total 104,090 104,09 11,200 11,200 77,831 77,831 59,374 59,374
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Activity six Use the results of Jenny's final ETB in activity five to prepare
her trading and profit and loss account and balance sheet as
at 30 September 2013.
You will need a separate piece of paper for this activity.
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Response Trading and profit & loss account
for the year ended 30 September 2013
£ £
Fee income 77,831
Less
Subcontractor fees 19,388 (19,388)
Gross profit 58,443
Overheads
Motor expenses 5,211
Subscriptions 1,094
Rent 14,100
Electricity 1,235
Telephone 1,640
Insurance 1,348
Bad debts 500
Depreciation 2,500 (27,628)
Net profit 30,815
Balance sheet as at 30 September 2013
£ £
Fixed assets
Motor car 14,999
Equipment 6,000
Accumulated depreciation (5,000)
15,999
Current assets
Prepayments 4,550
Bank 10,086
Debtors 6,739 21,375
Current liabilities
VAT 3,559 3,559
Net current assets 17,816
Net assets 33,815
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Represented by
Capital b/f 20,000
Add Net profit 30,815
Less Drawings (17,000) 33,815
(Note that £33,815 is the closing capital.)
You have now looked at the basic application of the
extended trial balance. For larger businesses, accountants
usually prepare an ETB that contains more than the
two adjustment columns demonstrated in this chapter.
However, the principles you have just learned are exactly
the same.
This is the end of the material in this chapter. Now read the
review and try the learning check that follows.
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Review
Some accounting entries are only identified at the end of the
business's financial year. These can require adjustments to
the initial trial balance. An accepted method of making
these adjustments is by using an extended trial balance
(ETB). You then use the final figures shown by the ETB to
prepare the financial accounts.
The first step is to record, and explain, all of the required
accounting entries in a journal. This can be a manual
journal but, nowadays, it's more often a computerised
version.
You then make the journal entry debits and credits in the
extended trial balance so that you adjust the initial trial
balance amounts to arrive at the figures used in the
financial accounts.
The ETB, journals and any other supporting notes are
commonly referred to as link documents.
Now try the learning check that follows.
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Learning check
1. What is the purpose of a journal?
2. Joe's trial balance at 31 March 2013 is shown on the
template below.
Prepare the journal entries, extended trial balance and the
financial accounts to that date based on the information
provided below.
Required year end adjustments
£
Depreciation for the year
Computers 500
Plant 1,000
Prepayments
Insurance 1,050
Telephone rental 30
Accruals
Rent 2,500
Telephone calls 110
Electricity 340
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Joe also wants to make a provision of £600 (including VAT
at 20 per cent) for a debt of £1,200 (including VAT of
20 per cent) outstanding at the end of the year.
The figures for telephone, rent and electricity are net of
VAT. Insurance is an exempt supply. The accruals and
prepayments are to be shown net of VAT in the financial
accounts. Closing stock is £1,750.
On investigation, Joe discovered that the suspense account
balance arose because he had recorded a cheque receipt of
£7,500 as a sale of £5,700 (sale £4,750, VAT £950).
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Journal
Date Ref Dr Cr
£ £
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Extended trial balance as at 31 March 2013 Trial balance Adjustments TP&L account Balance sheet
1 2 3 4 5 6 7 8
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Plant – NBV 6,750
Computers - NBV 2,500
Stock 1 April 2012 1,250
Cash 125
Bank 1,200
Long term loan 10,000
Capital 2,375
Trade debtors 12,500
Trade creditors 2,500
Sales 130,000
Purchases 65,000
Bad debts 6,250
Insurance 1,800
Other expenses 12,320
Telephone 540
Electricity 640
VAT 3,175
Drawings 41,375
Suspense 1,800
Depreciation
Rent
Prepayments
Accruals
Op stock (TP&L)
Cl stock (TP&L)
Net profit
Totals 151,050 151,050
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Learning check – answers
1. What is the purpose of a journal?
Most accountants process adjustments through a trial
balance as part of the double entry system and create an
extended trial balance (ETB).
These adjustments are commonly referred to as 'journals' or
'journal entries'. Accountants usually record the journals in
a book or file so that there's a record of all adjustments
made. A journal shows the actual double entries made,
along with an explanation as to what each double entry
represents.
This is covered in subchapter 2.1.
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2. The required journal entries are as follows.
Date Ref Dr Cr
£ £
31/3/13 J/E 1
Name of account to be debited Annual depreciation Computer Plant
500
1,000
Name of account to be credited Computer – NBV Plant – NBV
500 1,000
Narrative description Depreciation on fixed assets J/E 2 Name of account to be debited Insurance prepayment 1,050
Name of account to be credited Insurance 1,050
Narrative description Prepayment of insurance J/E 3 Name of account to be debited Telephone rental prepayment 30
Name of account to be credited Telephone rental 30
Narrative description Prepayment of telephone rental J/E 4 Name of account to be debited Rent 2,500
Name of account to be credited Accrued rent 2,500
Narrative description Rent accrued J/E 5 Name of account to be debited Telephone 110
Name of account to be credited Accrued telephone 110
Narrative description Telephone accrued J/E 6 Name of account to be debited Electricity 340
Name of account to be credited Accrued electricity 340
Narrative description Electricity accrued
J/E 7
Name of account to be debited Bad debts 500
Name of account to be credited Debtors 500 Narrative description Doubtful debt provision J/E 8 Name of account to be debited VAT 100 Name of account to be credited Debtors 100 Narrative description VAT on doubtful debt
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J/E 9 Name of account to be debited Trading a/c (opening stock) 1,250
Name of account to be credited Stock (BS) 1,250
Narrative description Transfer of opening stock J/E 10 Name of account to be debited Stock (BS) 1,750
Name of account to be credited Trading a/c (closing stock) 1,750
Narrative description Inclusion of closing stock
J/E 11
Name of account to be debited Suspense 1,500
Name of account to be credited Sales 1,500
Narrative description Clear suspense account
J/E 12
Name of account to be debited Suspense 300
Name of account to be credited VAT 300
Narrative description Clear suspense account
This is in subchapter 2.1.
2. The extended trial balance at 31 March 2013 is shown on
the following page.
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Trial balance Adjustments TP&L account Balance sheet
1 2 3 4 5 6 7 8
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Dr
£
Cr
£
Plant – NBV 6,750 1,000 5,750
Computers – NBV 2,500 500 2,000
Stock 1 April 2012 1,250 1,750 1,250 1,750
Cash 125 125
Bank 1,200 1,200
Long term loan 10,000 10,000
Capital 2,375 2,375
Trade debtors 12,500 600 11,900
Trade creditors 2,500 2,500
Sales 130,000 1,500 131,500
Purchases 65,000 65,000
Bad debts 6,250 500 6,750
Insurance 1,800 1,050 750
Other expenses 12,320 12,320
Telephone 540 110 30 620
Electricity 640 340 980
VAT 3,175 100 300 3,375
Drawings 41,375 41,375
Suspense 1,800 1,500
300
Depreciation 1,500 1,500
Rent 2,500 2,500
Prepayments 1,050 1,080
30
Accruals 2,500 2,950
110
340
Op stock (TP&L) 1,250 1,250
Cl stock (TP&L) 1,750 1,750
Net profit 41,580 41,580
Totals 151,050 151,050 10,930 10,930 133,250 133,250 63,980 63,980
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The financial accounts are as follows.
Trading and profit & loss account
for the period ending 31 March 2013
£ £
Turnover 131,500
Less Cost of sales
Opening stock 1,250
Purchases 65,000
66,250
Less Closing stock (1,750) (64,500)
Gross profit 67,000
Less Overheads
Bad debts 6,750
Insurance 750
Loan interest 1,250
General expenses 3,570
Telephone 620
Motor expenses 7,500
Depreciation 1,500
Rent 2,500
Electricity 980 (25,420)
Net profit 41,580
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Balance sheet
as at 31 March 2013
£ £
Fixed assets
Motor van 1,750
Machinery 3,500
Fixtures 500
Computer 2,000 7,750
Current assets
Stock 1,750
Trade debtors 11,900
Prepayments 1,080
Cash 125
14,855
Current liabilities
Bank overdraft (1,200)
Trade creditors (2,500)
Accruals (2,950)
VAT (3,375)
(10,025)
Net current assets 4,830
Total assets less current liabilities 12,580
Liabilities due after more than one year
Long-term loan (10,000)
Net assets 2,580
Capital brought forward 2,375
Add Net profit 41,580
43,955
Less Drawings (41,375)
Closing capital 2,580
This is in subchapters 2.2 and 2.3.
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Before moving on
If you have answered the learning check correctly, you will
have successfully completed the learning outcomes and
study objectives for this chapter, which you can see in the
table below.
Learning outcomes Study objectives
You will To achieve this you need to be
able to
know how to make account
adjustments using an
extended trial balance.
explain the purpose of a
journal and how to prepare
journal entries
prepare an extended trial
balance by extending the
initial trial balance to show
any adjustments
prepare an extended trial
balance for subsequent
years.
If you had difficulty in achieving any of these objectives,
have another look at the relevant part(s) of the chapter and
try the learning check again. You should be confident that
you have achieved them before moving on. There is also a
space for you to note any points you might want to discuss
with your line manager or tutor.
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Notes
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10-Feb-14 123
Contents
Page
Introduction 125
Learning outcomes and study objectives 125
Study advice 125
3.1 Limited Accounting Records 127
3.1.1 Record the opening balances on the ETB 128
3.1.2 Recording cash and bank transactions 129
3.1.3 Year end adjustments 145
3.1.4 Adjustments for transactions made on credit 149
3.1.5 Finalising the ETB from limited records 155
Review 169
Learning check 171
Learning check – answers 175
Before moving on 178
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Introduction
In this chapter you will see that when a business has only
limited accounting records, the ETB becomes even more
important. It's the main way you can transform the limited
accounting records into a double entry system to produce
balanced financial accounts.
Learning outcomes and study objectives
The following table sets out what you will be able to achieve
after you have successfully studied this chapter.
Learning outcomes Study objectives
You will To achieve this you need to be
able to
understand how to prepare
an ETB in order to produce
financial accounts for a
business with limited
accounting records.
prepare an ETB from limited
accounting records in order
to produce financial
accounts.
Study advice
We think it will take you approximately 2½ to 3 hours to
finish this chapter. This is only a guide. The important
thing is for you to make sure you understand all the
material in the chapter.
You will need paper to complete the activities in this self-
study manual.
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3.1 Limited Accounting Records
In this subchapter you’ll look at how to prepare an extended
trial balance when there are only limited accounting records.
In chapter 2 you learnt that you can use the information
from the business's records to create journals, and then
make adjustments directly to the trial balance. This allows
accurate financial accounts to be created.
However, when there are limited accounting records, you
may not even have enough information to extract an initial
trial balance.
This chapter explains how you can use an ETB to build up
the figures to include in the final accounts when a business
has limited accounting records.
You can split the process into the following stages.
1. Record the figures from the previous year's balance
sheet on the ETB – columns 1 and 2.
2. Record all cash and bank transactions onto the ETB –
columns 3 and 4.
3. Post any adjustments (journals) onto the ETB –
columns 5 and 6.
4. Record transactions made on credit – columns 7 and 8.
5. Add the figures across and down to give the trading and
profit and loss account entries – columns 9 and 10.
6. Add the figures across and down to give the balance
sheet entries – columns 11 and 12.
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3.1.1 Record the opening balances on the ETB
When there are limited accounting records available you
complete the first two columns using information from the
previous year's balance sheet.
In this chapter, you'll prepare an ETB for a business with
limited accounting records for the year to 31 March 2013.
Take the opening figures in the ETB from the balance sheet
as at 31 March 2012.
Extended trial balance as at 31 March 2013
Description 1 2 3 4 5 6
Balance sheet
as at 31/3/2012
Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £
Capital 18,700
Trade creditors 21,450
VAT 900
Accruals 500
Bank 12,000
Motor car 35,000
Equipment 12,000
Stock 1 April 12 15,000
Cash on hand 100
Trade debtors 10,000
Acc dep'n - Car 15,300
Acc dep'n - Equip 3,250
72,100 72,100
As you start the ETB based on the previous balance sheet
it's no surprise that the only entries made so far are balance
sheet items. You will also need to create rows to record the
entries that will eventually go into the trading and profit and
loss account, such as sales and purchases.
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3.1.2 Recording cash and bank transactions
Columns 3 and 4 of the ETB deal with the money
transactions of the business – the payments in and out. You
enter cash and cheque sales and purchases, the payment of
expenses, the acquisition of new assets and the repayment
of liabilities such as loans in these columns. Don't record
any transactions made on credit in these columns.
Bank statements provide independent and accurate
information on business activities. Therefore, as the next
step in completing the ETB you will, generally, transfer
information from the bank statements and cash records.
However, you can only do this once you have prepared the
bank reconciliation, bank control account and
cash control account.
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Activity one Using the following information, prepare the bank
reconciliation as at 31 March 2013.
£
Balance from bank statement (5,430)
Unpresented cheques 9,800
Bank lodgements not yet recorded 6,300
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Response Bank reconciliation as at 31 March 2013
£
Balance from bank statement as at
31/3/2013
(5,430)
Less Unpresented cheques (9,800)
(15,230)
Add Uncleared lodgements 6,300
Reconciled bank balance (overdraft) (8,930)
This figure will appear in the balance sheet as a liability of
£8,930. So it will be in column 4 of the ETB.
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The next step is to prepare a bank control account. To do
this you have to establish all bank transactions by
comparing the entries in the bank statements with those in
the cash book. Remember that the cash book contains cash
and bank entries. The completed bank control account
looks like this. The resulting balance should be the same as
the bank reconciliation figure.
Bank control account
Dr Cr
£ £
Sales 221,250 Balance at
1/4/2012
12,000
Closing balance
at 31/3/2013
8,930 Purchases 161,405
Car expenses 1,970
Wages 1,800
Rent 6,000
Telephone 1,080
Electricity 3,300
Insurance 1,700
General 6,640
VAT 8,505
Drawings 12,000
Cash 10,380
Bank charges 3,400
230,180 230,180
Bal b/d 8,930
You then prepare a cash control account. This will include
all known cash expenditure and receipts and looks like this.
Cash control account
Dr Cr
£ £
Balance at 1/4/2012 100 Car expenses 680
Bank 10,380 General expenses 390
Wages 9,200
Closing balance at
31/3/2013
210
10,480 10,480
Bal b/d 210
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You have now reviewed the cash and bank information.
Transfer the details to columns 3 and 4 of the ETB using
double entry principles.
Within the cash and bank columns, every debit entry must
have an equal and opposite credit entry. So for purchases
paid for from the bank, you will make the following entries.
Dr Purchases (col 3)
Cr Bank (col 4)
Similarly for sales received in the bank, you will make the
following entries.
Dr Bank (col 3)
Cr Sales (col 4)
You treat cash transactions in exactly the same way, except
the entry will be made against the cash account rather than
the bank account.
Due to the volume of transactions, make the individual debit
entries against the relevant accounts, but total all the credit
entries for the payments made so that only one figure is
shown as a credit entry for the bank on the ETB. You can
also total the cheque and cash purchases and just show a
single figure for purchases.
The totals of columns 3 and 4 should balance if, for every
debit entry made, you post an equal and opposite credit
entry. All subsequent pairs of columns must also balance
with each other. This ensures that, for every adjustment
made, there is an equal and opposite debit and credit entry.
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Activity two
Transfer the information from the Bank and Cash control 'T' accounts to columns 3
and 4 of the ETB below. Remember that each debit entry in column 3 must have a
corresponding credit entry in column 4.
Extended trial balance as at 31 March 2013
Description 1 2 3 4 5 6
Balance sheet
as at 31/3/2012
Cash and bank
Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £
Capital 18,700
Trade creditors 21,450
VAT 900
Accruals 500
Bank 12,000
Motor car 35,000
Equipment 12,000
Stock 15,000
Cash on hand 100
Trade debtors 10,000
Acc dep'n - Car 15,300
Acc dep'n – Eq’t 3,250
72,100 72,100
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Response
Extended trial balance as at 31 March 2013
Description 1 2 3 4 5 6
Balance sheet
as at 31/3/2012
Cash and bank
Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £
Capital 18,700
Trade creditors 21,450
VAT 900 8,505
Accruals 500
Bank 12,000 221,250 218,180
Motor car 35,000
Equipment 12,000
Stock 15,000
Cash on hand 100 10,380 10,270
Trade debtors 10,000
Acc dep'n - Car 15,300
Acc dep'n - Equip 3,250
Purchases 161,405
Motor car exps 1,970
680
Wages 1,800
9,200
Rent 6,000
Telephone 1,080
Electricity 3,300
Insurance 1,700
General expenses 6,640
390
Drawings 12,000
Bank charges 3,400
Sales 221,250
72,100 72,100 449,700 449,700
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As you can see the credit entries for payments out of the
bank have been added together and shown as one figure in
column 4 against Bank. This includes the entry for cash
drawn out of the bank of £10,380. The credit entry to bank
of £218,180 corresponds to the sum of the debit entries to
the following accounts.
£
Purchases 161,405
Car expenses 1,970
Wages 1,800
Rent 6,000
Telephone 1,080
Electricity 3,300
Insurance 1,700
General expenses 6,640
VAT 8,505
Drawings 12,000
Cash 10,380
Bank charges 3,400
218,180
The credit entries for cash payments of £10,270 correspond
to the sum of the debit entries to the following accounts.
£
Car expenses 680
General expenses 390
Wages 9,200
10,270
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VAT and the ETB
In activity two, the figures transferred to the ETB were all
VAT inclusive. The trading and profit and loss account
entries are normally VAT exclusive and you will have to
make some adjustment for this. You could introduce more
columns to make these adjustments. However, it's common
practice to transfer the net figures to the ETB.
You still prepare a bank reconciliation and cash and bank
control accounts. However, as these will be VAT inclusive,
you will return to the cash book and the purchases day book
to obtain the net figures. If no records are available, then
you would have to take a pragmatic view of the VAT position
and estimate the net figure as accurately as you can. For
the purposes of our example, we will assume that the
cash book is available.
A summary of the entries in the cash book is shown on the
next page. You use this to record the net figures after VAT
in the ETB for cash and bank transactions.
Please note that you will not be able to reconcile these cash
book entries exactly. It's possible that not all purchases and
expenses will carry VAT, so the adjustment will not be a
straight 61 (assuming a 20 per cent VAT rate) in every case.
Furthermore, some expenses may carry different rates of
VAT.
You can assume that only the purchases, motor expenses,
telephone, general expenses, electricity and sales, in our
example, would carry VAT at 20 per cent. For ease of
calculation, we have rounded the figures in some
cases.
Page 139
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 139
Cash book payments and receipts
Ban
k
chg
s
£
3,4
00
3,4
00
Drw
gs
£
12,0
00
12
,00
0
Ele
c £
2,8
00
2,8
00
W
ag
es
£
9,2
00
1,8
00
11
,00
0
Gen
£
330
5,6
50
5,9
80
HM
RC
VA
T
£
8,5
05
8,5
05
Ins £
1,7
00
1,7
00
Tel £
910
91
0
Ren
t
£
6,0
00
6,0
00
Mo
tor
£
580
1,7
20
2,3
00
Pu
rch
£
138,8
30
13
8,8
30
Sale
s
£
188,0
00
VA
T
£ 160
24,4
85
24
,64
5
VA
T
£
33,2
50
To
tal
£
10,2
70
207,8
00
21
8,0
70
To
tal
£
221,2
50
Paym
en
ts
Cas
h
Ban
k
Rece
ipts
Ban
k
Page 140
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
140 10-Feb-14
After transferring the information the entries in the ETB will
look like this.
Extended Trial Balance as at 31 March 2013
Description 1 2 3 4 5 6
Balance sheet
as at 31/3/2012
Cash and bank
Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £
Capital 18,700
Trade creditors 21,450
VAT 900 8,505
24,645 33,250
Accruals 500
Bank 12,000 221,250 218,180
Motor car 35,000
Equipment 12,000
Stock 15,000
Cash on hand 100 10,380 10,270
Trade debtors 10,000
Acc dep'n - Car 15,300
Acc dep'n - Equip 3,250
Purchases 138,830
Motor car
expenses
1,720
580
Wages 1,800
9,200
Rent 6,000
Telephone 910
Electricity 2,800
Insurance 1,700
General expenses 5,650
330
Drawings 12,000
Bank charges 3,400
Sales 188,000
72,100 72,100 449,700 449,700
Page 141
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 141
In practice, you may introduce more columns to process the
adjustments for VAT. However, this example shows the net
figures which you would have transferred to the ETB once
you had adjusted for the VAT. The adjusted figures are
shown in bold.
Now that VAT has been introduced
the entries for cash and bank remain the same as
before.
the totals remain the same as before.
some entries are now VAT exclusive. For example, the
sales figure is now £188,000. The only items attracting
output tax in this business are sales. Therefore, the
entry in the ETB for VAT output tax (the credit entry) of
£33,250 must all relate to the sales. The total of these
two figures is £221,250, which was the figure for sales in
the previous ETB.
Similarly, we have assumed that the only items which incur
input tax are purchases, motor expenses, telephone,
general expenses and electricity. The accounting entries are
therefore debit VAT £24,645 and credit the relevant expense
category, as shown below, to remove the VAT element.
VAT incl
figure
£
VAT excl
figure
£
Difference
(VAT)
£
Purchases 161,405 138,830 22,575
Motor car 1,970 1,720 250
680 580 100
Telephone 1,080 910 170
Electricity 3,300 2,800 500
Gen Expenses 6,640 5,650 990
390 330 60
175,465 150,820 24,645
Page 142
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
142 10-Feb-14
Have a look at the entries on the line for VAT again. These
can be explained as follows.
Column 2 At the start of the year, the business owed
VAT of £900.
Column 3 During the year, the business will have made
VAT returns, probably quarterly. VAT paid
amounted to £8,505.
Column 3 The figure of £24,645 is the total input tax
incurred by this business in the year in
question.
Column 4 The figure of £33,250 is the total output tax
charged by this business in the year in
question.
You will see how to finalise the ETB later in this chapter.
However, if these are the only entries required in the ETB,
then it's relatively straightforward to work out the VAT
position.
The debit entries total £33,150 (£24,645 + £8,505). The
credit entries total £34,150 (£900 + £33,250).
The net position is a credit balance of £1,000. This is the
amount owed to HMRC at 31 March 2013.
Another way to look at this is.
VAT control account
Dr Cr
£ £
Balance at 1/4/2012 900
Bank 8,505 Output tax 33,250
Input tax 24,645
Closing balance at
31/3/2013
1,000
34,150 34,150
Bal b/d 1,000
Page 143
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 143
Cash discrepancies
In subchapter 3.1.2 you saw how the preparation of a cash
control account forms part of the process of preparing the
ETB in a case when there are limited records. To complete
your understanding of ETBs in a limited records situation,
you will now look at the ETB entries needed to deal with an
imbalance on the cash control account.
Here is the cash control account from subchapter 3.1.2
again. However, when the customer physically counted the
cash in hand, there was only £100 rather than the £210 as
previously recorded. The cash control account therefore
looks like this.
Cash control account
Dr Cr
£ £
Balance at 1/4/2012 100 Car expenses 680
Bank 10,380 General expenses 390
Wages 9,200
Balancing figure 110
Balance at 31/3/2013 100
10,480 10,480
Balance at 1/4/2013 100
Imbalances on the credit side of the account mean that the
business has spent more cash than it has accounted for.
In this example the balance should be taken to the drawings
account.
The ETB that you have been studying throughout this
chapter will be affected as follows.
Page 144
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
144 10-Feb-14
Extended trial balance as at 31 March 2013
Description 1 2 3 4 5 6
Balance sheet as at 31/3/2012
Cash and bank Adjustments
Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £
Capital 18,700
Trade creditors 21,450
VAT 900 24,645 33,250
8,505
Accruals 500
Bank 12,000 221,250 218,180
Motor car 35,000
Equipment 12,000
Stock 15,000
Cash on hand 100 10,380 10,270 110
Trade debtors 10,000
Acc dep'n – Car 15,300 Acc dep'n – Equip 3,250
Purchases 138,830
Motor car expenses 1,720
580
Wages 1,800
9,200
Rent 6,000
Telephone 910
Electricity 2,800
Insurance 1,700
General expenses 5,650
330
Drawings 12,000 110
Bank charges 3,400
Sales 188,000
Depreciation Clos stock (TP&L) Op stock (TP&L)
72,100 72,100 449,700 449,700
The imbalance is accounted for through the adjustments
columns of the ETB.
Page 145
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 145
When you treat the unexplained cash deficit as drawings, it
doesn't affect the profit figure. If you had taken the
imbalance to expenses, then this would have reduced the
profit.
This is why HMRC would not accept an adjustment to
anything other than drawings in this situation without
supporting evidence.
Evidence can have a wider meaning than simply receipts or
a record of a transaction. So it's important to consider all of
the facts presented to you when establishing whether
expenditure has been incurred.
Imbalance not treated as drawings
If the customer produces evidence that the imbalance
relates to unrecorded cash expenditure rather than
drawings, you can make the appropriate debit against the
expense concerned. However, you need to adjust for VAT, if
appropriate.
If the balancing figure is on the debit side of the cash
account, the corresponding credit should be to sales unless
there is evidence to show that it's capital introduced. Again,
there will be an adjustment for VAT where appropriate.
3.1.3 Year end adjustments
The next columns to be completed in the ETB are called
the adjustment columns and perform exactly the same
purpose as those you saw in subchapters 2.2 and 2.3.
These normally involve year end adjustments such as
accruals, prepayments, depreciation, closing stock and bad
debts. They could also include adjustments for identified
errors.
In limited records situations, customers don't generally
make formal journal entries. They may keep notes of any
adjustments.
Generally, you should be aware of what can give rise to year
end adjustments, for example, telephone, insurance and
VAT.
Page 146
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
146 10-Feb-14
As a first step, you normally establish the adjustments
made in the previous year. In this case, the customer has
made some calculations, noted in their diary, to show that in
2012 the year end adjustments for accruals were
£
Telephone 130
General expenses 170
Motor expenses 80
Electricity 120
By referring to other records and speaking to the customer,
you can establish the year end adjustments for 2013 as
follows.
£
1. Telephone year end accrual 140
2. General expenses year end accrual 110
3. Electricity year end accrual 150
4. Wages year end accrual 200
5. Provision for depreciation
Car 4,925
Equipment 875
6. Closing stock 16,000
There are no prepayments required as at 31 March 2013.
Page 147
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 147
Activity three We have entered the year end adjustments for telephone
and depreciation in the ETB. You should enter all the others
and total the columns to ensure that they balance.
Extended trial balance as at 31 March 2013 Description 1 2 3 4 5 6
Balance sheet as at 31/3/2012
Cash and bank Adjustments
Dr Cr Dr Cr Dr Cr £ £ £ £ £ £ Capital 18,700 Trade creditors 21,450 VAT 900 24,645 33,250 8,505 Accruals 500 130 140 Bank 12,000 221,250 218,180 Motor car 35,000 Equipment 12,000 Stock 15,000 Cash on hand 100 10,380 10,270 110 Trade debtors 10,000 Acc dep'n – Car 15,300 4,925 Acc dep'n – Equip 3,250 875 Purchases 138,830 Motor expenses 1,720 580 Wages 1,800 9,200 Rent 6,000 Telephone 910 140 130 Electricity 2,800 Insurance 1,700 General expenses 5,650 330 Drawings 12,000 110 Bank charges 3,400 Sales 188,000 Depreciation 5,800 Clos stock (TP & L) Op stock (TP & L) 72,100 72,100 449,700 449,700
Page 148
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
148 10-Feb-14
Response
Extended trial balance as at 31 March 2013
Description 1 2 3 4 5 6
Balance sheet as at 31/3/2012
Cash and bank
Adjustments
Dr Cr Dr Cr Dr Cr
£ £ £ £ £ £
Capital 18,700
Trade creditors 21,450
VAT 900 24,645 33,250
8,505
Accruals 500 130 140
170 110
120 150
80 200
Bank 12,000 221,250 218,180
Motor car 35,000
Equipment 12,000
Stock 15,000 16,000 15,000
Cash on hand 100 10,380 10,270 110
Trade debtors 10,000
Acc dep'n – car 15,300 4,925
Acc dep'n – equip 3,250 875
Purchases 138,830
Motor expenses 1,720 80
580
Wages 1,800 200
9,200
Rent 6,000
Telephone 910 140 130
Electricity 2,800 150 120
Insurance 1,700
General expenses 5,650 110 170
330
Drawings 12,000 110
Bank charges 3,400
Sales 188,000
Depreciation 5,800
Clos stock (TP & L) 16,000
Op stock (TP & L) 15,000
72,100 72,100 449,700 449,700 38,010 38,010
Page 149
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 149
3.1.4 Adjustments for transactions made on credit
The entries against sales and purchases are the amounts
received and paid. These figures are VAT exclusive where
appropriate. You have to adjust these to arrive at income
earned and expenditure incurred in accordance with the
accruals concept.
The first step is to remove the opening trade debtors and
creditors balances. The next step will then be to record the
closing trade debtors and creditors balances.
Generally, you will introduce new column headings for these
adjustments. However, sometimes they're included in the
existing adjustments columns.
When VATable sales are made on credit, the accounting
entries are
Dr Trade debtors – VAT inclusive amount
Cr Sales – VAT exclusive amount
Cr VAT – VAT amount
Similarly, when credit purchases are made the accounting
entries are
Dr Purchases – VAT exclusive amount
Dr VAT – VAT amount
Cr Trade creditors – VAT inclusive amount
Trade debtors
To reverse the opening debtors figure the adjustment will
be the reverse of the entries made to record the initial sale
Dr Sales – VAT exclusive amount
Dr VAT – VAT amount
Cr Trade debtors – VAT inclusive amount
Page 150
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
150 10-Feb-14
To record the closing debtors figure the adjustment will be
Dr Trade debtors – VAT inclusive amount
Cr Sales – VAT exclusive amount
Cr VAT – VAT amount
Trade creditors
To reverse the opening trade creditors figure the
adjustment will be the reverse of the initial entries made to
record the purchase
Dr Trade creditors – VAT inclusive amount
Cr Purchases – VAT exclusive amount
Cr VAT – VAT amount
To record the closing trade creditors figure the adjustment
will be
Dr Purchases – VAT exclusive amount
Dr VAT – VAT amount
Cr Trade creditors – VAT inclusive amount
Page 151
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 151
Activity four We have used the information from the bank statements and
other records to establish that
closing trade debtors are £12,000, including VAT of
£2,000
opening trade debtors included VAT of £1,667
closing trade creditors are £11,620, including VAT of
£1,937
opening trade creditors included VAT of £3,575.
The ETB on the next page has been adjusted for opening
and closing trade debtors. You should make the necessary
adjustments for opening and closing trade creditors.
Note that in this example we have introduced new columns
and you should total these to ensure that they balance.
Page 152
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
152 10-Feb-14
Page 153
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 153
Activity four (Cont)
12
Cr
£
11
Dr
£
10
Cr
£
9
Dr
£
8
Cr
£
2,0
00
10,0
00
10,0
00
7
Deb
tors
and c
reditors
Dr
£
1,6
67
12,0
00
8,3
33
6
Cr
£
600
15,0
00
110
4,9
25
875
80
130
120
170
16,0
00
38,0
10
5
Adju
stm
ents
Dr
£
500
16,0
00
200
140
150
110
110
5,8
00
15,0
00
38,0
10
4
Cr
£
33,2
50
218,1
80
10,2
70
188,0
00
449,7
00
3
Cas
h a
nd b
ank
Dr
£
24,6
45
8,5
05
221,2
50
10,3
80
138,8
30
1,7
20
580
1,8
00
9,2
00
6,0
00
910
2,8
00
1,7
00
5,6
50
330
12,0
00
3,4
00
449,7
00
2
Cr
£
18,7
00
21,4
50
900
500
12,0
00
15,3
00
3,2
50
72,1
00
1
Bal
ance
shee
t at
31/0
3/2
012
Dr
£
35,0
00
12,0
00
15,0
00
100
10,0
00
72,1
00
Exte
nd
ed
Tri
al
Bala
nce
as
at
31
Marc
h 2
01
3
D
escr
iption
Cap
ital
Tra
de
cred
itors
VAT
Acc
rual
s
Ban
k
Moto
r ca
r
Equip
men
t
Sto
ck
Cas
h o
n h
and
Tra
de
deb
tors
Acc
dep
– c
ar
Acc
dep
– e
quip
Purc
hase
s
M
otor
exp
ense
s
Wag
es
Ren
t
Tel
ephone
Ele
ctri
city
Insu
rance
Gen
exp
ense
s
Dra
win
gs
Ban
k ch
arges
Sal
es
D
epre
ciat
ion
Clo
s st
ock
– TP
&L
O
p s
tock
– T
P &
L
Tota
ls
Page 154
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
154 10-Feb-14
Response 12
Cr
£
11
Dr
£
10
Cr
£
9
Dr
£
8
Cr
£
11
,62
0
2,0
00
3,5
75
10,0
00
17
,87
5
10,0
00
55
,07
0
7
Deb
tors
and c
reditors
Dr
£
21
,45
0
1,6
67
1,9
37
12,0
00
9,6
83
8,3
33
55
,07
0
6
Cr
£
600
15,0
00
110
4,9
25
875
80
130
120
170
16,0
00
38,0
10
5
Adju
stm
ents
Dr
£
500
16,0
00
200
140
150
110
110
5,8
00
15,0
00
38,0
10
4
Cr
£
33,2
50
218,1
80
10,2
70
188,0
00
449,7
00
3
Cas
h a
nd b
ank
Dr
£
24,6
45
8,5
05
221,2
50
10,3
80
138,8
30
1,7
20
580
1,8
00
9,2
00
6,0
00
910
2,8
00
1,7
00
5,6
50
330
12,0
00
3,4
00
449,7
00
2
Cr
£
18,7
00
21,4
50
900
500
12,0
00
15,3
00
3,2
50
72,1
00
1
Bal
ance
shee
t at
31/0
3/2
012
Dr
£
35,0
00
12,0
00
15,0
00
100
10,0
00
72,1
00
E
xte
nd
ed
Tri
al B
ala
nce
as
at
31
Marc
h 2
01
3
D
escr
iption
Cap
ital
Tra
de
cred
itors
VAT
Acc
rual
s
Ban
k
Moto
r ca
r
Equip
men
t
Sto
ck
Cas
h o
n h
and
Tra
de
deb
tors
Acc
dep
– c
ar
Acc
dep
– e
quip
Purc
hase
s
M
oto
r ex
pen
ses
W
ages
Ren
t
Tel
ephone
Ele
ctri
city
Insu
rance
Gen
exp
ense
s
Dra
win
gs
Ban
k ch
arges
Sal
es
D
epre
ciat
ion
Clo
s st
ock
– TP
&L
O
p st
ock
– T
P &
L
Tota
ls
Page 155
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 155
3.1.5 Finalising the ETB from limited records
All that remains is to use the information in columns 1 to 8
to arrive at the figures which will appear in the trading and
profit and loss account (columns 9 and 10) and the
balance sheet (columns 11 and 12).
You will work through each row in the ETB, add together all
debit entries, and deduct from these all credit entries, or the
other way round. The difference is the figure that will
appear in either the trading and profit and loss account or
the balance sheet.
For example, if you look at the entries in the ETB for
electricity you will see that the debit entries are £2,800 and
£150. These total £2,950. There is only one credit entry
and that is for £120. By deducting the credit entry from the
total entries for debit, you arrive at the figure that will
appear in the trading and profit & loss account, which is
£2,830.
Alternatively, if you had prepared a 'T' account this would
have shown the following.
Electricity
Dr Cr
£ £
Bank 2,800 Opening accrual 120
Closing accrual 150 Profit & loss 2,830
2,950 2,950
B/d 120
Page 156
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
156 10-Feb-14
Page 157
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 157
Activity five Using the response from activity four establish the closing
figure for VAT. State whether the figure would be a creditor
or debtor on the balance sheet.
Page 158
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
158 10-Feb-14
Response £
Total credits (900 + 33,250 + 2,000 + 3,575) 39,725
Less
Total debits (24,645 + 8,505 + 1,667 + 1,937)
(36,754)
Therefore closing VAT creditor 2,971
If you did not get to the correct answer above, check your
calculations to see where you went wrong and make sure
you understand how we arrived at the answer before you go
on.
Page 159
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 159
Activity six Following on from the last activity, we have introduced
additional column headings in the ETB for the trading and
profit & loss account and balance sheet. We have entered
details in these columns for electricity, VAT and some
others.
Complete the other entries in these columns on the next
page.
By totalling each column you should find that columns 9 and
10 do not balance and that columns 11 and 12 have an
equal and opposite imbalance. The difference is the
net profit if the shortfall is in column 9 (debit) or the
net loss if it is in column 10 (credit). The equal and
opposite double entry in the ETB for the net profit or loss
will be in either column 11 or column 12 as appropriate to
reflect the increase or decrease in capital depending on
whether a profit or loss is made.
Page 160
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
160 10-Feb-14
Page 161
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 161
Activity six (Cont)
12
Cr
£
18,7
00
2,7
60
11
Bal
ance
shee
t
Dr
£
12,0
00
16,0
00
12,1
10
10
Cr
£
9
Tra
din
g a
nd P
& L
Dr
£
130,4
60
2,8
30
5,8
00
8
Cr
£
11,6
20
2,0
00
3,5
75
10,0
00
17,8
75
10,0
00
55,0
70
7
Deb
tors
and c
reditors
Dr
£
21,4
50
1,6
67
1,9
37
12,0
00
9,6
83
8,3
33
55,0
70
6
Cr
£
600
15,0
00
110
4,9
25
875
80
130
120
170
16,0
00
38,0
10
5
Adju
stm
ents
Dr
£
500
16,0
00
200
140
150
110
110
5,8
00
15,0
00
38,0
10
4
Cr
£
33,2
50
218,1
80
10,2
70
188,0
00
449,7
00
3
Cas
h a
nd b
ank
Dr
£
24,6
45
8,5
05
221,2
50
10,3
80
138,8
30
1,7
20
580
1,8
00
9,2
00
6,0
00
910
2,8
00
1,7
00
5,6
50
330
12,0
00
3,4
00
449,7
00
2
Cr
£
18,7
00
21,4
50
900
500
12,0
00
15,3
00
3,2
50
72,1
00
1
Bal
ance
shee
t at
31/0
3/2
012
Dr
£
35,0
00
12,0
00
15,0
00
100
10,0
00
72,1
00
Exte
nd
ed
Tri
al
Bala
nce
as
at
31
Marc
h 2
01
3
D
escr
iption
Cap
ital
Tra
de
cred
itors
VAT
Acc
rual
s
Ban
k
Moto
r ca
r
Equip
men
t
Sto
ck
Cas
h o
n h
and
Tra
de
deb
tors
Acc
dep
– c
ar
Acc
dep
– e
quip
Purc
hase
s
M
oto
r ex
pen
se
W
ages
Ren
t
Tel
ephone
Ele
ctri
city
Insu
rance
Gen
exp
ense
s
Dra
win
gs
Ban
k ch
arges
Sal
es
D
epre
ciat
ion
Clo
s st
ock
– TP
&L
O
p st
ock
– TP
&L
N
et p
rofit
Tota
ls
Page 162
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
162 10-Feb-14
Response In the answer we have included the figure for net profit and
totalled each of the columns.
12
Cr
£
18,7
00
11
,62
0
2,9
71
60
0
8,9
30
2
0,2
25
4
,12
5
20
,03
9
87
,21
0
11
Bal
ance
shee
t
Dr
£
35
,00
0
12,0
00
16,0
00
10
0
12
,00
0
12,1
10
87
,21
0
10
Cr
£
1
89
,66
7
16
,00
0
20
5,6
67
9
Tra
din
g a
nd P
& L
Dr
£
130,6
38
2,2
20
1
1,2
00
6
,00
0
92
0
2,8
30
1,7
00
5
,92
0
3,4
00
5,8
00
15
,00
0
20
,03
9
20
5,6
67
8
Cr
£
11,6
20
2
,000
3,5
75
10,0
00
17,8
75
10,0
00
55,0
70
7
Deb
tors
and c
reditors
Dr
£
21,4
50
1,6
67
1,9
37
12,0
00
9,6
83
8,3
33
55,0
70
6
Cr
£
600
15,0
00
110
4,9
25
875
80
130
120
170
16,0
00
38,0
10
5
Adju
stm
ents
Dr
£
500
16,0
00
200
140
150
110
110
5,8
00
15,0
00
38,0
10
4
Cr
£
33,2
50
218,1
80
10,2
70
188,0
00
449,7
00
3
Cas
h a
nd b
ank
Dr
£
24,6
45
8,5
05
221,2
50
10,3
80
138,8
30
1,7
20
580
1,8
00
9,2
00
6,0
00
910
2,8
00
1,7
00
5,6
50
330
12,0
00
3,4
00
449,7
00
2
Cr
£
18,7
00
21,4
50
900
500
12,0
00
15,3
00
3,2
50
72,1
00
1
Bal
ance
shee
t at
31/0
3/2
012
Dr
£
35,0
00
12,0
00
15,0
00
100
10,0
00
72,1
00
Exte
nd
ed
Tri
al
Bala
nce
as
at
31
Marc
h 2
01
3
D
escr
iption
Cap
ital
Tra
de
cred
itors
VAT
Acc
rual
s
Ban
k
Moto
r ca
r
Equip
men
t
Sto
ck
Cas
h o
n h
and
Tra
de
deb
tors
Acc
dep
– c
ar
Acc
dep
– e
quip
Purc
hase
s
M
oto
r ex
pen
ses
W
ages
Ren
t
Tel
ephone
Ele
ctri
city
Insu
rance
Gen
exp
ense
s
Dra
win
gs
Ban
k ch
arges
Sal
es
D
epre
ciat
ion
Clo
s st
ock
– TP
&L
O
p st
ock
– TP
&L
N
et p
rofit
Tota
ls
Page 163
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 163
Response (Cont) The net profit for the year is £20,039 (£205,667 – £185,628).
At the period end, this will be transferred to the capital account
in the balance sheet to clear the profit and loss account ready
to start the next accounting period.
Now try the next activity.
Page 164
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
164 10-Feb-14
Page 165
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 165
Activity seven Use the completed ETB in activity six to draw up the trading
and profit & loss account and balance sheet for the year
ended 31 March 2013.
Page 166
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
166 10-Feb-14
Response Trading and profit & loss Account
Year Ended 31 March 2013
£ £
Sales 189,667
Less Cost of goods sold
Opening stock 15,000
Purchases 130,638
Closing stock (16,000)
(129,638)
Gross profit 60,029
Less
Motor expenses 2,220
Wages 11,200
Rent 6,000
Telephone 920
Electricity 2,830
Insurance 1,700
General expenses 5,920
Bank charges 3,400
Depreciation 5,800 (39,990)
Net profit 20,039
Page 167
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 167
Response (Cont) Balance sheet as at 31 March 2013
£ £
Fixed assets
Car 35,000
Accum dep'n (20,225) 14,775
Equipment 12,000
Accum dep'n (4,125) 7,875
22,650
Current assets
Stock 16,000
Trade debtors 12,000
Cash on hand 100
28,100
Current liabilities
Trade creditors 11,620
Other creditors 3,571
Bank overdraft 8,930 (24,121)
Net current assets 3,979
Net assets 26,629
Represented by
Capital 18,700
Add Net profit 20,039
Less Drawings (12,110)
Closing capital 26,629
This is the end of the material in this chapter. Now read the
review and try the learning check that follows.
Page 168
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
168 10-Feb-14
Page 169
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 169
Review
When a business has limited accounting records, you may
not have enough information to extract an initial trial
balance.
In these circumstances, you can use an ETB to build up
figures to include in the final accounts. You will then use
the completed ETB figures to prepare the trading and profit
and loss account and balance sheet.
The stages are as follows.
Record the opening balances from the previous year's
balance sheet.
Record all cash and bank transactions.
Record any adjustments.
Record transactions made on credit.
Add the figures down and across to give the final ETB
figures.
Prepare the trading and profit and loss account and
balance sheet.
In summary, the ETB is the main way you can turn limited
accounting records into the double entry system to prepare
balanced financial accounts.
Now try the learning check that follows.
Page 170
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
170 10-Feb-14
Page 171
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 171
Learning check
1. What is the purpose of an extended trial balance for a
business with limited accounting records?
Page 172
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
172 10-Feb-14
2. Using the following information, complete the ETB provided
for the year ended 31 December 2013.
Cash book (payments)
Date
2013
Details
Total
£
VAT
£
Purch.
£
Motor
exps
£
Rent
£
Wages
£
Ins
£
HMRC
– VAT
£
Gen
£
Dwgs
£
Cash 14,815 150 410 5,000 755 8,500
Bank 38,505 5,060 26,700 1,710 2,300 1,000 1,735
53,320 5,210 26,700 2,120 2,300 5,000 1,000 1,735 755 8,500
Cash book (receipts)
Date Details Total
£
VAT
£
Net
£
Cash sales 54,230 7,030 47,200
Deposits to bank 39,315
Bank control account
Dr Cr
£ £
Balance b/d at
1 Jan 13
820 Payments 38,505
Cash deposits 39,315 Bal c/d at
31 Dec 13
1,630
40,135 40,135
Bal b/d 1,630
Cash control account
Dr Cr
£ £
Balance b/d at
1 Jan 13
150 Bank 39,315
Sales 54,230 Payments 14,815
Bal c/d at
31 Dec 13
250
54,380 54,380
Bal b/d 250
Page 173
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 173
Closing balances at 31 December 2013
£
Accruals (wages) 200
Trade debtors 150
Trade creditors 1,200
Stock 1,500
Other information
Annual depreciation on the car and equipment was £1,875.
Closing trade debtors of £150 include VAT of £25.
Closing trade creditors of £1,200 include VAT of £200.
Opening trade debtors of £100 include VAT of £17.
Opening trade creditors of £700 include VAT of £117.
The opening balances have been extracted from the
previous year's balance sheet and are shown on the ETB
provided.
Page 174
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
174 10-Feb-14
12
Cr
£
11
Bal
ance
shee
t
Dr
£
10
Cr
£
9
Tra
din
g a
nd P
& L
Dr
£
8
Cr
£
7
Deb
tors
and c
reditors
Dr
£
6
Cr
£
5
Adju
stm
ents
Dr
£
4
Cr
£
3
Cas
h a
nd b
ank
Dr
£
2
Cr £
8,7
00
700
370
100
2,5
00
12,3
70
1
Bal
ance
shee
t at
31/1
2/2
012
Dr
£
9,0
00
1,0
00
820
100
1,3
00
150
12,3
70
E
xte
nd
ed
Tri
al B
ala
nce
as
at
31
Dece
mb
er
20
13
Cap
ital
Tra
de
cred
itors
VAT
Acc
rual
s (w
ages
)
Moto
r ca
r
Equip
men
t
Ban
k
Tra
de
deb
tors
Sto
ck 1
Jan
13
Cas
h o
n h
and
Acc
dep
'n
N
et p
rofit
Tota
ls
Page 175
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 175
Learning check – answers
1. What is the purpose of an extended trial balance for a
business with limited accounting records?
It is the main way you can transform limited accounting
records into the double entry system and balanced financial
accounts.
This was covered in subchapter 3.1.
Page 176
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
176 10-Feb-14
2. The completed ETB for the year ended 31 December 2013 is
below.
12
Cr
£
8,7
00
1,2
00
380
200
4,3
75
7,1
75
22,0
30
11
Bal
ance
shee
t
Dr
£
9,0
00
1,0
00
1,6
30
150
1,5
00
250
8,5
00
22,0
30
10
Cr
£
47,2
42
1,5
00
48,7
42
9
Tra
din
g a
nd P
& L
Dr
£
2,1
20
2,3
00
5,1
00
1,0
00
755
27,1
17
1,8
75
1,3
00
7,1
75
48,7
42
8
Cr
£
1,2
00
2
5
117
100
583
125
2,1
50
7
Deb
tors
and
cred
itors
Dr
£
700
17
200
150
1,0
00
83
2,1
50
6
Cr
£
200
1,3
00
1,8
75
100
1,5
00
4,9
75
5
Adju
stm
ents
Dr
£
100
1,5
00
200
1,8
75
1,3
00
4,9
75
4
Cr
£
7,0
30
38,5
05
14,8
15
39,3
15
47,2
00
146,8
65
3
Cas
h a
nd b
ank
Dr
£
150
5,0
60
1,7
35
39,3
15
54,2
30
410
1,7
10
2,3
00
5,0
00
1,0
00
755
8,5
00
26,7
00
146,8
65
2
Cr
£
8,7
00
700
370
100
2,5
00
12,3
70
1
Bal
ance
shee
t at
31/1
2/2
012
Dr
£
9,0
00
1,0
00
820
100
1,3
00
150
12,3
70
E
xte
nd
ed
Tri
al B
ala
nce
as
at
31
Dece
mb
er
20
13
Cap
ital
Tra
de
cred
itors
VAT
Acc
rual
s (w
ages
)
Moto
r ca
r
Equip
men
t
Ban
k
Tra
de
deb
tors
Sto
ck 1
Jan
13
Cas
h o
n h
and
Acc
dep
'n
M
oto
r ex
pen
ses
Ren
t
Wag
es
In
sura
nce
Gen
eral
exp
ense
s
Dra
win
gs
Pu
rchase
s
Sal
es
D
epre
ciat
ion
Op s
tock
(TP
& L
) Clo
s st
ock
(TP &
L)
N
et p
rofit
Tota
ls
Page 177
Bookkeeping – Extended Trial Balance Chapter 3 – Limited Records and the ETB
10-Feb-14 177
The debit entry to cash of £54,230 is made up of the
following credit entries.
£
Sales 47,200
VAT 7,030
The credit entry to cash of £14,815 is made up of the
following debit entries.
£
VAT 150
Motor expenses 410
Wages 5,000
General expenses 755
Drawings 8,500
The credit entry to bank of £38,505 is made up of the
following debit entries.
£
VAT (5,060 + 1,735) 6,795
Purchases 26,700
Motor expenses 1,710
Rent 2,300
Insurance 1,000
This was covered in subchapter 3.1.
Page 178
Chapter 3 – Limited Records and the ETB Bookkeeping – Extended Trial Balance
178 10-Feb-14
Before moving on
If you have answered the learning check correctly, you will
have successfully completed the learning outcomes and
study objectives for this chapter, which you can see in the
table below.
Learning outcomes Study objectives
You will To achieve your aim you need
to be able to
understand how to prepare
an ETB in order to produce
financial accounts for a
business with limited
accounting records.
prepare an ETB from limited
accounting records in order
to produce financial
accounts.
If you had difficulty in achieving any of these objectives,
have another look at the relevant part(s) of the chapter and
try the learning check again. You should be confident that
you have achieved them before moving on. There is also a
space for you to note any points you might want to discuss
with your line manager or tutor.
Notes