its the first time i understood how to do double entry. ive done other courses but i understood nothing from it. your explaining is very precise and simple.
Hello Sir, would I have been wrong if I had debited the capital account with the $100 Kristine the owner took and credited cash of $100 instead of opening a drawings account since drawings go on to reduce the capital we owe to the proprietor?
Now I understand the logic about the background of T accounts (two sides of a physical page), nominal ledger (the entire book of accounts – I love how you showed a physical example of a book ), ledger = another word for book, and double entry (how you used cash account as the basis to relate to the results in other accounts)
Other tutors would not go to such lengths or rather would lack your wisdom and capabilities to get the point across in such an easy and nice way.
Although I do wonder, why would would someone waste an entire two pages for a Car account – not much activity can be expected from it in the future. Why not just create a single non asset account including all such future non asset purchases such as cars etc within them to save space.
Hi sir, good day to you!! Thank you for your lecture! Just a small question: In real life, when we prepare for a T account if we purchase a car, will we call it ‘car account’ or ‘asset account’? Thank you!!
It doesn’t matter – they can call it what they like. However they will almost certainly call it a car account in order to distinguish it from all the other assets that the business will own.
sir, help me. a company does not manage to get all of its WIP processed before the end of the period. the followings are introduced into process 1. raw materials 1500 units $12000 labour $8880 overheads $2930 closing WIP 50 units completed as below raw materials 100% complete labour 60% oberheads 30% there were no losses. how to prepare appropriate ledger accounts and the statement of equivalent units. thankyou sir in advance. please reply ASAP
narminsaid: When we buy goods we call them purchases. If any are unsold at the end of the period we then refer to them as inventory. This is explained in later lectures.
But using the extended accounting equation, if you’ve bought inventory, it is a + (debit) to the inventory account, and you would just take away (credit) the amount of goods actually sold, and the amount of goods actually sold becomes the cost of sales no?
Don’t forget to include the inventory balance b/f from the previous year. Cost of goods sold (COGS) or Cost of Sales = Beginning of Inventory + Purchase – Closing Inventory. Yes, Inventory is an asset always goes to debit side. I hope it helps.
narminsaidsays
Hi! Firstly thanks in advance for clear explanation. This site is very good opportunity for the students who prepare “ACCA” self-study. So, I have one question from this lecture (double entry part A). In the last lecture you have mentioned that ” Buys goods for resale” means that this is inventory account. But in this lecture you said that in the third transaction: ” Buy goods for resale for 500$ cash” this will be “purchase” account. I am confusing in this part. Is this “inventory” account or “purchase” account? If you answered this question i will be very happy:) In any case i highly appreciate your effort and very grateful to your team ๐
A purchase account is a general ledger account where we record the inventory purchases of a business. Remember the Cost of Sales = Beginning of Inventory + Purchase โ Closing Inventory.
Sir, why are drawings from the business recorded as a Debit to the drawings account and not as a Credit to the capital account since the owners financial interest in the business is now reduced?
The capital account is a credit balance – the amount owing to the owner – and so crediting the account would increase the amount owing, which is not what is happening!
We would debit the capital account instead of debiting drawings – the net effect would be the same. However, it is better practice (and certainly for the exam) to record drawings separately so that on the SOFP we can show the capital less the drawings (plus the profit) so as to explain why the total amount owing to the owner has changed over the year.
NASSIR55 says
Well explaining thank you very much Mr JM
John Moffat says
Thank you for your comment ๐
SonaliThombe says
its the first time i understood how to do double entry. ive done other courses but i understood nothing from it. your explaining is very precise and simple.
John Moffat says
Thank you for your comment ๐
thomas.hughes says
I just realized you’ve already explained my question. Many thanks. I understand why we open the drawings account now
John Moffat says
Great ๐
thomas.hughes says
Hello Sir, would I have been wrong if I had debited the capital account with the $100 Kristine the owner took and credited cash of $100 instead of opening a drawings account since drawings go on to reduce the capital we owe to the proprietor?
Barathiraj says
Dear Lecture sir, and open tuition,
Thank you very much for your free lecture and its very useful for all.
Thank you very much.
John Moffat says
Thank you for your comment ๐
MohamedH says
I really appreciate the way you deliver the information.
Very clear.
rushdy says
Epic.. Thank you!
John Moffat says
Thank you for your comment ๐
lee28taemi says
Thank you so much for this. It’s all starting to make sense now.
John Moffat says
That is great ๐
Asif110 says
Excellent, excellent lecture sir !
Now I understand the logic about the background of T accounts (two sides of a physical page), nominal ledger (the entire book of accounts – I love how you showed a physical example of a book ), ledger = another word for book, and double entry (how you used cash account as the basis to relate to the results in other accounts)
Other tutors would not go to such lengths or rather would lack your wisdom and capabilities to get the point across in such an easy and nice way.
Although I do wonder, why would would someone waste an entire two pages for a Car account – not much activity can be expected from it in the future. Why not just create a single non asset account including all such future non asset purchases such as cars etc within them to save space.
John Moffat says
Given that these days the ‘pages’ will be on computer, then there is no waste ๐
debrazilian says
Thank you I have been struggling to understand this for a long time
John Moffat says
I am glad that you found it useful ๐
SarahjaneCrawford says
Wish I had found this before I had paid for totally useless course with an online provider. Thank you, interesting and easy to follow
John Moffat says
Thank you for your comment ๐
wfarooq@hotmail.com says
I like the way you make it simple. And then I think your going to build up the concepts, one top of the other. Thank you.
John Moffat says
Thank you for your comment ๐
sbennett says
In real life, I would say -Motor Vehicles.
kamranshahs says
Respected sir .
there are lot of topics which are missing in lecture from chater 2 and 3 like dayBooks etc ?
John Moffat says
They are covered in a later lecture (Books of Prime Entry), because day books are not actually part of the double entry.
There is nothing missing – the lectures are a complete free course and cover everything needed to be able to pass the exam well.
zhao0702 says
Hi sir, good day to you!!
Thank you for your lecture!
Just a small question: In real life, when we prepare for a T account if we purchase a car, will we call it ‘car account’ or ‘asset account’? Thank you!!
John Moffat says
It doesn’t matter – they can call it what they like. However they will almost certainly call it a car account in order to distinguish it from all the other assets that the business will own.
zhao0702 says
Ah.okay, I see. Thank you sir!
John Moffat says
You are welcome ๐
sbennett says
In real life, I would say -Motor Vehicles.
Shermaine says
Where on earth were you when I started learning accounting? Thank you sooooo much! Your explanations are so clear and you are so easy to follow.
John Moffat says
Thank you for your comment ๐
haniszmr says
sir, help me.
a company does not manage to get all of its WIP processed before the end of the period. the followings are introduced into process 1.
raw materials 1500 units $12000
labour $8880
overheads $2930
closing WIP 50 units completed as below
raw materials 100% complete
labour 60%
oberheads 30%
there were no losses.
how to prepare appropriate ledger accounts and the statement of equivalent units. thankyou sir in advance. please reply ASAP
John Moffat says
Firstly, this is a question that could be asked in Paper MA but not in Paper FA.
Secondly, you must ask this sort of question in the relevant Ask the Tutor Forum and not as a comment on a lecture.
abufarhan1 says
Thank you so much for the simplicity
John Moffat says
Thank you for your comment ๐
John Moffat says
narminsaid: When we buy goods we call them purchases. If any are unsold at the end of the period we then refer to them as inventory. This is explained in later lectures.
kingkongsajang says
But using the extended accounting equation, if you’ve bought inventory, it is a + (debit) to the inventory account, and you would just take away (credit) the amount of goods actually sold, and the amount of goods actually sold becomes the cost of sales no?
sbennett says
Don’t forget to include the inventory balance b/f from the previous year.
Cost of goods sold (COGS) or Cost of Sales = Beginning of Inventory + Purchase – Closing Inventory.
Yes, Inventory is an asset always goes to debit side.
I hope it helps.
narminsaid says
Hi! Firstly thanks in advance for clear explanation. This site is very good opportunity for the students who prepare “ACCA” self-study.
So, I have one question from this lecture (double entry part A). In the last lecture you have mentioned that ” Buys goods for resale” means that this is inventory account. But in this lecture you said that in the third transaction: ” Buy goods for resale for 500$ cash” this will be “purchase” account. I am confusing in this part. Is this “inventory” account or “purchase” account?
If you answered this question i will be very happy:)
In any case i highly appreciate your effort and very grateful to your team ๐
sbennett says
A purchase account is a general ledger account where we record the inventory purchases of a business. Remember the Cost of Sales = Beginning of Inventory + Purchase โ Closing Inventory.
haddock says
Sir, why are drawings from the business recorded as a Debit to the drawings account and not as a Credit to the capital account since the owners financial interest in the business is now reduced?
John Moffat says
The capital account is a credit balance – the amount owing to the owner – and so crediting the account would increase the amount owing, which is not what is happening!
We would debit the capital account instead of debiting drawings – the net effect would be the same. However, it is better practice (and certainly for the exam) to record drawings separately so that on the SOFP we can show the capital less the drawings (plus the profit) so as to explain why the total amount owing to the owner has changed over the year.
heshepem says
thanks
John Moffat says
You are welcome ๐
sbennett says
Because drawings are expenses.
In Ledger A/C
Expenses
Increase Expenses Debit Decrease Expenses Credit
B/S Capital Cr Drawings Dr