Cash Sales vs. Credit Sales

Sales to customers can be in cash or on credit.
- Cash Sale:
  - Debit Cash (increase in asset).
  - Credit Sales (increase in income).
- Credit Sale:
  - Credit Sales (increase in income).
  - Debit Receivables (increase in asset).
When payment is received from a customer (who previously bought on credit):
- Debit Cash (increase in asset).
- Credit Receivables (decrease in asset).
- This is essentially a cash sale that's processed through the receivables account.

The purpose of balancing off is to determine the final balance in each account at the end of a period (e.g., month or year).
Example:
- Cash account with debits (cash in) totaling $1,000$ and credits (cash out) totaling $350$ .
- Logically, the remaining cash should be $650$ .

Add the debit and credit sides separately.
Fill in the higher of the two totals on both sides of the T-account.
Balance the two sides by filling the gap on the side with the lower total. The amount needed to balance the sides is called the "balance carried down" (represented as "b/d").
Complete the double entry by transferring the "balance carried down" to the opposite side of the account as a "balance brought down".
- This ensures that the balance is carried forward to the next accounting period.

Cash Account Example: If $650$ is the balance carried down at the end of the month, a balance brought down of $650$ will appear on the debit side at the beginning of the next month.

For monthly balancing off, balance carried down and balance brought down are used for all accounts.
However, at the end of the year, statement of profit or loss account balances (income and expense accounts) do not get carried into the next period.
Instead of a balance carried down, the balance is transferred to the statement of profit or loss.
Example: Rent expense of $300$ in the current year should not accumulate to $3,000$ over ten years. Profit and loss account balances essentially "disappear" at the end of the year. These balances are used to calculate the profit figure.

Ron and Knuckle start a business called "Buy Your Biceps" selling Keeper Fit equipment.

Ron invests $7,000$ of his own money into the business bank account (capital).
- Double Entry: Debit Cash, Credit Capital

Transaction B: Paid rent.
- Debit Rent, Credit Cash.
Transaction C: Purchased equipment on credit.
- Debit Purchases, Credit Payables.
Transaction D: Took out a bank loan.
- Debit Cash, Credit Loans (liability).
When buying inventories, always post to "Purchases", not "Inventory". Inventory is assessed at the period's beginning and end to determine the amount left after sales.
Transaction E: Purchase shop fittings (an asset).
- Debit Fixtures and Fittings, Credit Cash.
Transaction F: Sales equipment for cash.
- Debit Cash, Credit Sales.
Transaction G: Sales equipment on credit.
- Debit Receivables, Credit Sales.
Transaction H: Payments to suppliers.
- Debit Payables (reduce liability), Credit Cash.
Transaction I: Payments received from customers.
- Debit Cash, Credit Receivables (reduce receivables).
Transaction J: Interest on the loan.
- Debit Interest Paid (expense), Credit Cash.
Transaction K: General expenses.
- Debit Expenses, Credit Cash.
Transaction L: Drawings by the owner.
- Debit Drawings, Credit Cash.

Cash Account:
- Debit: Capital, Loan, Sales, Receivables.
- Credit: Rent, Fittings, Payables, Interest Paid, Expenses, Drawings.
Capital Account:
- Credit: Initial investment by Ron.
Loan Account:
- Credit: Loan amount received.
Purchases Account:
- Debit whenever inventories are bought
Payables Account:
- Credit when owing, Debit when paying.
Rent Account:
- Debit: Rent expense.
Fixtures and Fittings Account:
- Debit: Purchase of shop fittings.
Sales Account:
- Credit: Cash and credit sales.
Receivables Account:
- Debit when selling on credit, Credit when the cash is being paid off (hopefully will reduce to zero)
Interest Paid Account:
- Debit: Interest expense.
Expenses Account:
- Debit: Expenses incurred.
Drawings Account:
- Debit: Amount of cash the owner withdrew.

Distinguish between statement of financial position (balance sheet) items and statement of profit or loss (income statement) items.
- Assets, liabilities, and capital are statement of financial position items.
- Income and expenses are statement of profit or loss items.

Debit side totals $20,500$ .
Credit side totals less than $20,500$ .
Write $20,500$ on both sides.
Calculate the balance carried down: $20,500$ - (total of credit side) = $6,500$ .
Balance brought down on the debit side for the next period: $6,500$ .
This $6,500$ is the figure that will appear on the trial balance and statement of financial position for cash at bank.

Capital and Loan Accounts: If there's only one entry, there's no need to write a balance carried down, then balance brought down. Just show the amount under the line (double entry) and then again on the other side. Both accounts should have balances on the credit side (liabilities).
Purchases Account: Transfer the balance to the statement of profit or loss. Do not carry it forward to the next year's accounts.
Payables Account: Balance carried down and balance brought down as it's a statement of financial position account (liability). The balance should be on the credit side.
Rent Account: Transfer to the statement of profit or loss (expense).
Fixtures and Fittings Account: Balance carried down and balance brought down as it's an asset (statement of financial position).
Sales Account: Transfer to the statement of profit or loss (income).
Receivables Account: If the account balances to zero (all payments received), there is nothing to carry down.
Interest Paid and Expenses Accounts: Transfer to the statement of profit or loss (expenses).
Drawings Account: Transfer to the capital account section of the statement of financial position. This reduces the owner's equity.

Allocating items to day books, posting to the nominal ledger, and balancing off the nominal ledger are key steps in the accounting cycle.