AAT Level 3 Recap on Debits and Credits and Introduction to Income

Statement and Statement of Financial Position

“T” accounts Debit on left, credit on right Debit – gains value, credit – gives value PEARLS – Debit side – purchase, expenses, assets Credit side – revenue, liability, sales Accounting equations :– Assets – liabilities = Capital Income – expenses = Profit or Loss

Income – expenses = profit or loss, these items make up the P & L account

Now known as “ the income statement”

Assets – liabilities = Capital. These items are found on the Balance Sheet – now known as “the statement of financial position”

Purchases Expenses Assets Revenue Liability Sales

Purchase Rent, rates, ins Car, stock, bank Commission

received Capital, VAT Sales

If I bought a car for £10000 and paid for it from the bank, the double entry postings would be:

Debit Assets (car account) £10000

Credit Bank £10000

If I invested £50000 into the business as Capital and paid it into the bank, the double entry postings would be:

Debit the Bank £50000

Credit the Capital account £50000

Write the previous two examples into the “T” accounts provided

Car (Asset) – Debit £10000

Bank – Credit £10000

Bank – Debit £50000

Capital – Credit £50000

Enter the following into “T” accounts:

Paid a further £10000 into the bank as capital

Paid rent £550 Paid rates £675 Bought a

computer and paid from the bank £1500

Paid car insurance £950

Bought some stationery for £150

How much is in the bank?

Assets = £50000 Liabilities =

£10000 Capital =

£40000

Income = £75500

Expenses = £25500

Profit = £50000

Assets = £65000 Liabilities =

£5000 Capital = ?

Assets = ? Liabilities =

£23000 Capital = £20000

Assets = £98000 Liabilities = ? Capital £53000

Complete the missing figures

Income = £105000

Expenses = £10500

Profit = ?

Income = ? Expenses =

£25000 Profit = £75000

Income = £54000 Expenses =

£64000 ?

Income = £67500 Expenses = ? Profit = £60000

Complete missing figures