Presentation on suspense and cash flow for bstai conference

METHODOLOGY IN LEAVING CERT.

ACCOUNTINGALAN RYAN BComm GDE(Bus) HDEA MEd

Alan Ryan BComm, GDE(Bus), HDEA, MEd

Focus student’s attention: Suspense came up in 2002; 2004; 2006; 2008 & 2010!

Recap on double entry Explain required layout: Page 1 & 2 for rough work (3 column

system) Page 3 & 4 for Journal One Page 5 for Suspense A/c and Statement of

Corrected Net Profit Page 6 for Corrected Balance Sheet

CORRECTION OF ERRORS









Underline name of owner and put yourself into the owner’s shoes(i.e. every time the owner is mentioned, visualise it as “I”)

Underline type of business and consider this while completing each adjustment

Use 3 column system for each adjustment; enter the completed middle column directly into Journal; check for and enter missing Suspense figure; put in narration starting with word “Being...” and transfer Suspense figure directly into Suspense A/c.



2010 Q 7 – Correction of Errors


2010 Q 7 – Correction of Errors


McCarthy had returned a motor car previously purchased on credit for €15,600 from a supplier. McCarthy entered this transaction as €16,500 on the correct sides of the correct accounts in the ledger. A credit note subsequently arrived from the supplier showing a transport charge of €600 to cover the cost of the return. The only entry made in respect of this credit note was a credit of €15,000 in the creditor’s account.

2010 Question 7 part (ii) – C. McCarthy, motor dealer



Cash payments of €450 for repairs to equipment had been credited to the creditors account and also credited to the motor vehicles account.

2010 Question 7 part (iv) – C. McCarthy, motor dealer



McCarthy sent a cheque for €620 in full settlement of a business debt of €660 and this was recorded correctly in the books. However, no entry had been made in the books of the subsequent dishonouring of this cheque and the payment on account of €300 cash by McCarthy.

2010 Question 7 part (i) – C. McCarthy, motor dealer



McCarthy won a motor vehicle valued at €30,000 in a draw. McCarthy gave this vehicle to the business and took an old vehicle from the business valued at €22,500 which was to be used for private purposes. The only entry made in the firm’s books regarding both vehicles was a debit in the cash book for €22,500.

2010 Question 7 part (iii) – C. McCarthy, motor dealer



A cheque for €5,250 paid by McCarthy out of a private bank account for 15 months hire of diagnostic equipment up to 31/3/2010 had not been entered in the books.

2010 Question 7 part (v) – C. McCarthy, motor dealer



Do this for each of the 5 adjustments Journal and Suspense a/c should be

completed simultaneously Calculate missing figure in Suspense a/c

and call it “original balance” Now place your completed Journal in front of

you(forget about rough work pages now)




2010 Q7 Suspense A/c


Open your blank “Statement of Corrected Net Profit” and have the Balance Sheet from the question sheet open in front of you also

Insert the original net profit from the question into the Statement of Corrected Net Profit

Go through each line in the Journal Ask yourself if it affects the Trading & Profit

& Loss A/c OR the Balance Sheet



If it affects Trading & P & L A/c follow simple rule:

Left = Less (i.e. If it’s on Debit side of Journal, put it under Less in the Statement of Corrected Net Profit – so credit side = Add)

If it affects Balance Sheet, decide if it’s an asset or liability. If it’s an asset and on debit side of Journal, you need to add it to the asset in the Balance Sheet

Literally, write a plus and the figure beside the asset on the question sheet.



Repeat for each line in the Journal (suspense entries have been dealt with in Suspense A/c)

Total the Statement of Corrected Net Profit and insert corrected net profit figure onto question sheet, replacing the original net profit.



2010 Q7 Statement of Corrected Net Profit


Deal with the “original balance” suspense figure that is included/incorporated into an asset/liability in Balance Sheet by following this system:



2010 Q7 Suspense A/c


i. Look to see what side the original suspense balance is on

ii. Look to see what side the item that the original suspense balance is included in is on (e.g. if it’s included in Stock, like 2010, this is the debit/left side)

iii. If (i) & (ii) are on the same side, we WOULD HAVE added them so now we subtract them

iv. If (i) & (ii) are on opposite sides, we WOULD HAVE subtracted them so now we add them



Rewrite the Balance Sheet on page 6, ensuring that any asset/liability that involves an addition/subtraction should have the original figure in brackets after the wording for the asset/liability followed by the additions/subtractions with the resultant answer in the appropriate column.




Ensure that all previously asked theory bits are known by students – can be up to 15 marks going for this part.



An overdraft of €400 in the bank account had been brought down on the incorrect side of the nominal ledger and consequently had been entered on the incorrect side of the trial balance.

2008 Question 7 part (i) – L. O’ Shea, boutique owner



O Shea won a motor vehicle valued at €20,000 in a grand prize draw. L O’ Shea gave the vehicle to the business and took an old van from the business valued at €8,000, which was to be used for private purposes. The only entry made in the firm’s books regarding both motor vehicles was a debit in the cash book of €8,000.

2008 Question 7 part (iv) – L. O’ Shea, boutique owner



A private debt for €770, owed by O’ Meara, had been offset in full against a business debt of €820 owed to the firm for car repairs previously carried out. No entry had been made in the books in respect of this offset.

2006 Question 7 part (iv) – M O’ Meara, garage owner



Bedside lockers, previously sold on credit for €340, had been returned to Craddock. These goods had been incorrectly entered as €34 on the credit of the Fixtures & Fittings account and as €40 on the debit of the Purchases account.

2004 Question 7 part (iii) – S. Craddock, furniture & carpet trader



Focus student’s attention: Cash Flow Statements came up in 2004; 2006; 2008 & 2010!

Recap on double entry

CASH FLOW STATEMENTS


2010 Q2 Cash Flow Statements



Explain required layout: Page One contains working for: Asset T a/cs Dep of Asset T a/cs Disposal of Asset T a/cs




Page 2 contains workings for: Taxation T a/c Loan interest T a/c Dividends T a/c




Page 3 & 4 to contain: Reconciliation of operating profit to net cash

flow from operating activities Cash Flow Statement Reconciliation of net cash flow to movement

in net debt



Oh Really Should They Call Every Man Fat Operating activities Return on Investments & Servicing of Finance Taxation Capital Expenditure & Financial Investments Equity dividends paid Management of liquid resources Financing



Stress to students the importance of knowing names of “reconciliations” as they may not be given titles in the “Required to” section of question.

Stress importance of learning the layout and order of each heading/section in the Cash Flow Statement and highlight the fact that marks are going for the headings



Check to see which Balance Sheet year comes first when comparing last year to this year

For increases/decreases in stock/debtors/creditors ask yourself what’s happening your money:

With STOCK, if it increased, we must have bought more so we have less money so it’s a minus



With DEBTORS, consider what happens when debtors decrease (even if particular question involves debtors increasing). Debtors decreasing means debtors must have paid us, so we have more money so it’s a plus. If debtors increases it’s the opposite.



With CREDITORS, consider what happens when creditors decreases (even if particular question involves creditors increasing). Creditors decreasing means we must have paid some of our creditors, so we have less money so it’s a minus. If creditors increases it’s the opposite.



For non-cash item in the Reconciliation of operating profit to net cash flow from operating activities:

Instil in students the reason why depreciation always needs to be added to operating profit

As depreciation is a non-cash expense, then generalise that all non-cash expenses are added to operating profit (e.g. loss on sale of fixed asset).

It then follows that all non-cash gains are subtracted from operating profit (e.g. decrease in provision for bad debts)



Deal with any other changes in asset/liability values in the two Balance Sheets and enter changes in Cash Flow Statement, again answering the question, “What affect does this have on cash?”

Changes leading to a decrease in cash should be entered as a minus figure in Cash Flow Statement





Components of “Net debt on 31/12..” in “Reconciliation of net cash flow to movement in net debt” are:

Debenture loan (minus) Bank (minus if overdraft/plus if current

asset) Cash (plus) Government securities (plus) Note: end of year figures are used, not the

difference from one year to the next.



Components of “Net debt on 1/1/..” are the year end figures for the previous year which are the opening balances for the present year

Money used to purchase liquid resources/repay/increase debenture loans must be entered in “Reconciliation of net cash flow to movement in net debt”




Presentation on suspense and cash flow for bstai conference

Documents

balance sheet alan ryan

original suspense balance

suspense ac andcall

original net profit

transfer suspense

completed journal

original netprofit

journal suspenseentries