Michael Herbert

Limited Company Accounts

‘Of course I’ve heard of limited liability companies. I’m dealing with them all the time. Many of my suppliers are companies, my bank is and some of my customers are. But why should my business become one? What makes them so special?’

Prepayments and Accruals

We have now covered the whole process involved in keeping a set of financial accounts — from opening a ledger and keeping track of transactions there and in the journals to preparing the final accounts at the end of the period. In the remaining chapters we will consider the reasons why certain adjustments have to be made to the information recorded in our books. We will also see how these adjustments can be made. In addition we will take the opportunity of giving you some additional practice preparing the final accounts. This chapter will cover the adjustments which arise because payments and receipts of money do not always occur in the financial period to which the expenditure or income relates.

Absorption and Marginal Costing

The research and development and marketing departments of Sportstuffs Ltd had made their presentation of a new product idea to the managing director, Chris Disley.

Measuring and Accounting for Profit

The main theme of the remainder of this book can be summed up by one word: profit. It is something of vital importance to all businesses. In this chapter we will examine concepts which are essential to understanding how to measure profit and we will deal with the method of measurement. In the remaining chapters with particular problems relating to its measurement.

The Trial Balance

The last two chapters concerned the rules of double-entry book-keeping and the application of these rules to a variety of transactions. In this chapter we are going to look at a simple way of making a preliminary check on the accuracy of the entries made in the ledger. We will do this by balancing the accounts and then drafting a trial balance. We will start, however, by demonstrating how the folio column in the ledger can be used to provide a reference system for all the double entries. Such a system helps to speed up the process of checking that all the double entries have been completed correctly.

Expanding the Ledger

The last chapter introduced the principles of double-entry book-keeping and applied them to assets and sources of finance. In this chapter we will apply these rules to the asset, stock. Then we will consider how to deal with transactions involving expenses and incomes.

Double Entry Book-Keeping

The last chapter demonstrated how any transaction will have two effects on a balance sheet. You should now be able to identify which assets and/or sources of finance are affected by different transactions. In this chapter we will introduce a more efficient way of recording transactions than redrafting a balance sheet after each one. This will be done by means of ledger accounts. You will learn the principles of double entry book-keeping which will enable you to keep a simple set of ledger accounts.

Businesses and Balance Sheets

Most people associate accounting with the world of business. To see what it involves we can divide it into three parts.

The Cash Book

In this chapter we will see how the contents of a ledger can be subdivided into a number of sections. We will then deal in some detail with one of these subdivisions — the cash book.

Estimating and Recording Depreciation

In this chapter we are going to look at the way in which capital expenditure on a fixed asset can be spread over the life of the asset. This is done so that a fair amount of the expense can be recorded each year in the profit and loss account and a truer, more up-to-date valuation of the asset can be shown in the balance sheet. Two methods of book-keeping will be considered because both are encountered in examination questions. Before you begin this chapter you are advised to reread section 3.8 on depreciation in Chapter 3 and section 8.2 on capital expenditure in Chapter 8.