Preparing financial statements

the nominal ledger

central accounting record where a business logs all its financial transactions

the dual effect

every transaction affects two things

total debits equals

total credits

journal entries

any transaction can be represented by a journal entry however, they are generally used to record unusual or one off transactions

narrative explanation

used to indicate the purpose and authority of every transaction

DEAD

debits → increases expenses, assets, drawings

CLIC

Credits → increases in liabilities, income, capital

total debits > total credits

debit balance on the account

t

balance c/d

balance carried down, which is the closing balance of an account at the end of an accounting period

balance b/d

balance brought down, representing the opening balance of an account carried over from the previous period

nominal ledger accounts do not record

individual details relating to the person to whom money is paid or from whom it is received → shows the transactions made to and from all customers, all sources

receivables ledger and payables ledger are not

part of the double entry

receivables ledger

showing how much is owed by each individual customer

payables ledger

showing how much is owed to each individual supplier

the total of the individual accounts in the receivables ledger will be

exactly equal to the total included in trade receivables

sales and purchase invoices, credit notes and payments

are recorded in the receivables and payables ledger will be done by the computerised accounting system

payments =

opening payables + credit purchases - closing payables

NRV>COST ->

no loss so keep at cost

nrv < cost

loss exists so write invenory down to NRV