Doubleentry Bookkeeping Further Considerations

1
Double-entry Book-keeping (Further Considerations)

• Accounting

2
What We Now Know (About Double-Entry Book-Keeping)

• Ledgers
• Balancing
• Trial Balance

3
Objectives

• Accruals Prepayments
• Depreciation

4
Accruals Prepayments

• Accrual - owing
• Prepayment - paid in advance

5
Example Accrual (rent)

• Normally 1200 per annum
• paid by cheque 800

6
Example Prepayment (rates)

• Normally 1000 per annum
• paid by cheque 1250

7
Depreciation (of Fixed Assets)

• Meaning
• a fall in value
• an allocation of cost

8
Definition of Depreciation

• Depreciation accounting is a system of
  accounting which aims to distribute the cost or
  other basic value of tangible capital assets,
  less salvage (if any), over the estimated useful
  life of the unit in a systematic and rational
  manner. It is a process of allocation and not of
  valuation.
• Woods (1997)

9
Cost and Life of an Asset

• Cost at input to the business
• Input Cost - all costs in acquiring
• Life - Useful economic life
• Depreciate over life
• Salvage value

10
Methods of Depreciation

• Straight Line
• Reducing Balance

11
Straight Line Method

• (Original Cost - Salvage Value) / Useful economic
  life
• Example
• Original Cost 1050
• Salvage Value 50
• Useful Life 5 years

12
Reducing Balance Method

• Percentage of remaining value
• Example
• 10
• Initial cost 10000

13
Accounting for Depreciation (Ledgers)

• Method of depreciation no difference
• Example
• Furniture 1000
• Straight line 200 p.a.
• Need
• Furniture account
• Provision for Furniture Depreciation Account

14
Accounting for Depreciation (Balance Sheet)

• Fixed Assets at Cost
• Accumulated Depreciation
• Net Book Value (NBV)

15
Summary

• Accruals Prepayments
• Depreciation
• Benefit derived
• Methods of calculation
• Trading Profit Loss Account - expense
• Balance Sheet