Accounting Fundamentals: Recording Transactions and Financial Statements

This document provides an introduction to financial accounting and explains the process of recording transactions in journals, ledgers, and trial balance. It also discusses the difference between revenue expenditure and capital expenditure. The document includes journal entries, ledger accounts, and a trial balance for various tasks.

ACCOUNTING
FUNDAMENTALS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................4
TASK 3............................................................................................................................................8
TASK 4..........................................................................................................................................12
TASK 5..........................................................................................................................................16
Difference between revenue expenditure and capital expenditure ...........................................16
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Financial accounting refers to specialised accounting branch that keep record of financial
transaction of company. Transactions are recorded using standard guidelines in financial report
and financial statements like income statements or balance sheet. Financial accounting is
essential for generating financial statements & related disclosures appropriately reflecting
financial results and position of the organisation. They are prepared for company as well as
outside stakeholders like creditors, investors and lenders. There are various types of financial
accounting that are used by organisation for recording the transactions. Financial accounting is
helping organisations around the world. There are various standards, guiding principles and
reporting frameworks that are essential for making properly structured financial statements of the
organisations(Scott, 2015). The report will give brief understanding about the recording of
transactions in journals, ledgers and trial balance. It will also demonstrate the difference between
capital expenditure and revenue expenditure in reference with International Accounting
Standards.
TASK 1
Journal for the year ended
Date Particulars Debit Credit
05/04/19 Cash a/c Dr. £300.00
To capital a/c £300.00
07/04/19 Purchase a/c Dr. £200.00
To cash a/c £200.00
08/04/19 Cash a/c Dr. £250.00
To Tatiana £250.00
15/04/19 Motor van a/c Dr. £150.00
To cash a/c £150.00
20/04/19 Cash a/c Dr. £350.00
To sales a/c £350.00
28/04/19 Rent a/c Dr. £50.00
To cash a/c £50.00
29/04/19 Tatiana a/c Dr. £200.00
To cash a/c £200.00
30/04/19 Drawings a/c Dr. £60.00
To cash a/c £60.00
£1,560.00 £1,560.00
1

Ledgers
(Dr.) CASH A/C (Cr.)
Date Particulars Amount Date Particulars Amount
05/04/19 To capital £300.00 07/04/19 By purchase £200.00
08/04/19 To Tatiana £250.00 15/04/19 By motor van £150.00
20/04/19 To sales £350.00 28/04/19 By rent £50.00
29/04/19 By Tatiana £200.00
30/04/19 By drawings £60.00
30/04/19 By closing Bal. £240.00
£900.00 £900.00
(Dr.) CAPITAL A/C (Cr.)
Date Particulars Amount Date Particulars Amount
05/04/19 By cash a/c £300.00
30/04/19 To closing Bal. £300.00
£300.00 £300.00
(Dr.) PURCHASES A/C Dr. (Cr.)
Date Particulars Amount Date Particulars Amount
07/04/19 To cash a/c £200.00
30/04/19 By closing bal. £200.00
£200.00 £200.00
(Dr.) TATIANA A/C (Cr.)
Date Particulars Amount Date Particulars Amount
29/04/19 To cash a/c £200.00 08/04/19 By cash a/c £250.00
30/04/19 To Closing Bal. £50.00
£250.00 £250.00
(Dr.) MOTOR VAN A/C (Cr.)
Date Particulars Amount Date Particulars Amount
15/04/19 To cash a/c £150.00
30/04/19 By closing Bal. £150.00
£150.00 £150.00
(Dr.) SALES A/C (Cr.)
Date Particulars Amount Date Particulars Amount
2

20/04/19 By cash a/c £350.00
30/04/19 To closing bal. £350.00
£350.00 £350.00
(Dr.) RENT A/C (Cr.)
Date Particulars Amount Date Particulars Amount
28/04/19 To cash a/c £50.00
30/04/19 By closing Bal. £50.00
£50.00 £50.00
(Dr.) DRAWINGS A/C (Cr.)
Date Particulars Date Particulars Amount
30/04/19 To cash a/c £60.00
30/04/19 By closing Bal. £60.00
£60.00 £60.00
Trial balance
Particulars Debit Credit
Cash £240.00
Capital £300.00
Purchase £200.00
Sales £350.00
Tatiana £50.00
Drawings £60.00
Rent £50.00
Motor van £150.00
£700.00 £700.00
Profit and Loss a/c
Particulars Amount Total amount
Sales £350.00
cost of goods sold 100
Gross profit £250.00
Expenses £50.00
Net Profit £200.00
3

Balance sheet
Particulars Amount Total amount
Liabilities
Capital £300.00
Add: Profit £200.00
Less:drawings £60.00
£440.00
Current liabilities
Tatiana £50.00 £50.00
Total liabilities £490.00
Assets
Fixed assets £150.00
Current assets
Cash in hand £240.00
Closing stock £100.00 £340.00
Total assets £490.00
TASK 2
Pendo
Journal entries
Particulars Debit Credit
Cash a/c Dr. £5,000.00
To capital a/c £5,000.00
Motor van a/c Dr. £600.00
To cash a/c £600.00
Purchase a/c Dr. £1,300.00
To cash a/c £1,300.00
Cash a/c Dr. £1,000.00
To Sergei a/c £1,000.00
Expense a/c Dr. £200.00
To cash a/c £200.00
Cash a/c Dr. £300.00
TO Sales a/c £300.00
Cash a/c Dr. £500.00
TO Sales a/c £500.00
Storage Expense A/c Dr. £150.00
To cash a/c £150.00
Sergei a/c Dr. £350.00
To cash a/c £350.00
4

Drawings a/c Dr. £175.00
To cash a/c £175.00
£9,575.00 £9,575.00
Ledger a/c
(Dr.) CASH A/C (Cr.)
Date Particulars Amount Date
Particular
s Amount
01/01/19 To capital a/c £5,000.00 02/01/19
By Motor
van a/c £600.00
04/01/19 To Sergei a/c £1,000.00 03/01/19
By
purchase
a/c £1,300.00
13/01/19 TO Sales a/c £300.00 10/01/19
By
Expense
a/c £200.00
20/01/19 TO Sales a/c £500.00 24/01/19
By storage
Expenses
a/c £150.00
27/01/19
By Sergei
a/c £350.00
30/01/19
By
drawings
a/c £175.00
30/01/19
By Closing
Bal. £4,025.00
£6,800.00 £6,800.00
(Dr.) CAPITAL A/C (Cr.)
Date Particulars Amount Date
Particular
s Amount
01/01/19 By cash a/c £5,000.00
31/01/19 To Closing bal. £5,000.00
(Dr.) MOTOR VAN A/C (Cr.)
Date Particulars Amount Date
Particular
s Amount
02/01/19 To cash a/c £600.00
30/01/19
By Closing
Bal. £600.00
£600.00 £600.00
5

(Dr.) PURCHASES A/C Dr. (Cr.)
Date Particulars Amount Date
Particular
s Amount
03/01/19 To cash a/c £1,300.00
30/01/19
By closing
Bal. £1,300.00
£1,300.00 £1,300.00
(Dr.) SERGEI A/C (Cr.)
Date Particulars Amount Date
Particular
s Amount
04/01/19 By cash a/c £1,000.00
27/01/19 To cash a/c £350.00
30/01/19 To closing bal. £650.00
£1,000.00 £1,000.00
(Dr.) EXPENSE A/C (Cr.)
Date Particulars Amount Date
Particular
s Amount
10/01/19 To cash a/c £200.00
24/01/19 To cash a/c £150.00
30/01/19
By Closing
Bal. £350.00
£350.00 £350.00
(Dr.) SALES A/C (Cr.)
Date Particulars Amount Date
Particular
s Amount
13/01/19 By cash a/c £300.00
20/01/19 By cash a/c £500.00
30/01/19 To closing bal. £800.00
£800.00 £800.00
(Dr.) DRAWINGS A/C (Cr.)
Date Particulars Amount Date
Particular
s Amount
30/01/19 To cash a/c £175.00
30/01/19
By Closing
Bal. £175.00
£175.00 £175.00
6

TRIAL BALANCE
Particulars Debit Credit
Cash £4,025.00
Capital £5,000.00
Motor van £600.00
Purchases £1,300.00
Sergei £650.00
Expense £350.00
Sales £800.00
Drawings £175.00
£6,450.00 £6,450.00
Profit and loss a/c
Particulars Amount Total amount
Sales £800.00
Cost of goods sold £500.00
Gross profit £300.00
Less:Expenses £350.00
Net Profit -£50.00
Balance sheet
Particulars Amount Total amount
Assets
Fixed assets
Motor van £600.00
£600.00
Current assets
Cash in hand £4,025.00
Closing stock £800.00
£4,825.00
Total assets £5,425.00
Liabilities
capital £5,000.00
add:profits -£50.00
less:drawings £175.00
£4,775.00
Current liabilities
Sergei £650.00
Total liabilities £5,425.00
7

TASK 3
Mafuta
Journal entries
Date Particulars Debit (£) Credit(£)
02/01/19 Harvey a/c Dr. 124
To Sales a/c 124
05/01/19 Wages a/c Dr. 12
To cash a/c 12
Purchase a/c Dr. 150
To Rich a/c 150
07/01/19 Cash a/c Dr. 18
To smith a/c 18
09/01/19 Max a/c Dr. 21
To cash a/c 21
11/01/19 Cash a/c Dr. 64
To Sales a/c 64
14/01/19 Wages a/c Dr. 14
To cash a/c 14
Purchase a/c Dr. 75
To cash a/c 75
15/01/19 Rich a/c Dr. 162
To cash a/c 162
20/01/19 Office desk a/c Dr. 32
To cash a/c 32
21/01/19 Wages a/c Dr. 17
To cash a/c 17
Cash a/c Dr. 110
To Sales a/c 110
23/01/19 Office expenses a/c Dr. 3
To cash a/c 3
Cash a/c Dr. 25
To Harvey a/c 25
28/01/19 Cash a/c Dr. 84
To Sales a/c 84
Wages a/c Dr. 15
To cash a/c 15
31/01/19 Cash a/c Dr. 30
To Sales a/c 30
956 956
8

Ledgers
(Dr.) Cash a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
01/01/19
To opening
bal. 343 05/01/19 By wages a/c 12
07/01/19 To smith 18 09/01/19 By Max a/c 21
11/01/19 To Sales a/c 64 14/01/19 By wages a/c 14
21/01/19 To Sales a/c 110 15/01/19 By rich a/c 162
23/01/19 To Harvey a/c 25 20/01/19
By office desk
a/c 32
28/01/19 To Sales a/c 84 21/01/19 By wages a/c 17
31/01/19 To Sales a/c 30 23/01/19
By office
expenses a/c 3
28/01/19 By wages a/c 15
14/01/19
By purchase
a/c 75
31/01/19 By closing bal. 323
674 674
(Dr.) Office expense a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
23/01/19 To cash a/c 3
31/01/19 By closing bal. 3
3 3
(Dr.) Sales a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
02/01/19 By Harvey a/c 124
11/01/19 By cash a/c 64
21/01/19 By cash a/c 110
28/01/19 By cash a/c 84
31/01/19 By cash a/c 30
31/01/19 To closing bal. 412
412 412
(Dr.) Purchase a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
05/01/19 To Rich a/c 150
9

14/01/19 To cash a/c 75
31/01/19 By closing bal. 225
225 225
(Dr.) Harvey a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
01/01/19
To opening
bal. 39 23/01/19 By cash a/c 25
02/01/19 To Sales a/c 124
31/01/19 By closing bal. 138
163 163
(Dr.) Wages a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
05/01/19 To cash a/c 12
14/01/19 To cash a/c 14
21/01/19 To cash a/c 17
28/01/19 To cash a/c 15
31/01/19 By closing bal. 58
58 58
(Dr.) Rich a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
15/01/19 To cash a/c 162 01/01/19
By opening
bal. 12
05/01/19
By purchase
a/c 150
162 162
(Dr.) Smith a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
01/01/19
To Opening
bal. 18 07/01/19 By cash a/c 18
18 18
(Dr.) Max a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
01/01/19
By opening
bal. 21
10

09/01/19 To cash a/c 21
21 21
(Dr.) Furniture and Fittings a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
01/01/19
To opening
bal. 198
31/01/19 By closing bal. 198
198 198
(Dr.) Inventory a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
01/01/19
To opening
bal. 458 31/01/19
By cost of
goods sold 84
31/01/19 By closing bal. 374
458 458
(Dr.) Moon a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
01/01/19
To opening
bal. 26
31/01/19 By closing bal. 26
26 26
Trial balance
Particulars Debit Credit
Cash a/c 323
Sales a/c 412
Wages a/c 58
Office expense a/c 3
Office desk a/c 32
Harvey a/c 138
Purchase a/c 225
Inventory a/c 374
Moon a/c 198
Furniture and fittings a/c 26
Capital (bal.) 965
1377 1377
Profit and loss account
11

Particular Amount Total
Sales 412
less:Cost of goods sold 309
Gross profit 103
Expenses
office expenses 3
Wages a/c 58
Net profit 42
Balance sheet
Particulars Amount Total amount
Liabilities
capital 965
add: profits 42 1007
Current liabilities
Bank overdraft 84 84
Total liabilities 1091
Fixed assets 230
Furniture and fittings 198
Office desk 32
Current assets 861
cash 323
Inventory 374
Debtors:
Harvey 138
Moon 26
Total assets 1091
TASK 4
Ricardo
Journal entries
Date Particulars Debit (£) Credit(£)
02/06/19 Claire a/c Dr. 425
To sales a/c 425
13/06/19 Purchase a/c Dr. 12000
To discount received
a/c 840
To Georgina a/c 11160
12

14/06/19 Hywel a/c Dr. 8550
Discount allowed a/c
Dr. 450
To sales a/c 9000
20/06/19 Cash a/c Dr. 6000
To sales a/c 6000
21/06/19 Purchase a/c Dr. 4500
To discount received
a/c 90
To Andrew a/c 4410
22/06/19 Sales return a/c Dr. 1000
To Claire a/c 1000
24/06/19 Mandy a/c Dr. 4850
Discount allowed a/c
Dr. 150
To sales a/c 5000
24/06/19 Cash a/c Dr. 7075
Discount allowed a/c
Dr. 425
To Claire a/c 7500
25/06/19 Cash a/c Dr. 8550
To Hywel a/c 8550
25/06/19 Georgina a/c Dr. 11160
To Ricardo a/c 11160
27/06/19 Andrew a/c Dr. 4410
To Ricardo a/c 4410
69545 69545
Ledger a/c
(Dr.) Claire a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
02/06/19 To sales a/c 425 22/06/19
By sales return
a/c 1000
24/06/19 By cash a/c 7075
24/06/19
By Discount
allowed a/c 425
27/06/19 To closing bal. 8075
8500 8500
(Dr.) Cash a/c (Cr.)
13

Date Particulars Amount(£) Date Particulars Amount(£)
20/06/19 To sales a/c 6000
24/06/19 To Claire a/c 7075 27/06/19 By closing bal. 13075
13075 13075
(Dr.) Sales a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
02/06/19 By Claire a/c 425
14/06/19 By Hywel a/c 8550
20/06/19 By cash a/c 6000
14/06/19
By Discount
allowed a/c 450
24/06/19 By mandy's a/c 4850
24/06/19
By Discount
allowed a/c 150
27/06/19 To closing bal. 20425
20425 20425
(Dr.) Sales return a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
22/06/19 To Claire a/c 1000 27/06/19
BY closing
bal. 1000
1000 1000
(Dr.) Purchase a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
13/06/19
To Discount
received a/c 840
13/06/19
To Georgina
a/c 11160
21/06/19
To Discount
received a/c 90
21/06/19 To Andrew a/c 4410 27/06/19 By closing bal. 16500
16500 16500
(Dr.) Discount received a/c (Cr.)
14

Date Particulars Amount(£) Date Particulars Amount(£)
13/06/19
BY purchase
a/c 840
21/06/19
BY purchase
a/c 90
27/06/19 To Closing bal. 930
930 930
(Dr.) Georgina a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
13/06/19
BY purchase
a/c 11160
25/06/19 To Ricardo a/c 11160
11160 11160
(Dr.) Hywel a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
25/06/19 By cash a/c 8550
14/06/19 To sales a/c 8550
8550 8550
(Dr.) Discount allowed a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
14/06/19 To sales a/c 450
24/06/19 To sales a/c 150
24/06/19 To Claire a/c 425 27/06/19
By Closing
bal. 1025
1025 1025
(Dr.) Cash a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
20/06/19 To sales a/c 6000
24/06/19 To Claire a/c 7075 27/06/19 By closing bal. 13075
13075 13075
(Dr.) Andrew a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
21/06/19 BY purchase 4410
15

a/c
27/06/19 To Ricardo a/c 4410
4410 4410
(Dr.) Mandy a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
24/06/19 To sales a/c 4850 27/06/19 By closing bal. 4850
4850 4850
(Dr.) Ricardo a/c (Cr.)
Date Particulars Amount(£) Date Particulars Amount(£)
25/06/19
By Georgina
a/c 11160
27/06/19 By Andrew a/c 4410
27/06/19 To closing bal. 15570
15570 15570
Trial balance
Particulars Debit Credit
Claire 8075
Sales 20425
Purchase 16500
Discount received 930
Discount allowed 1025
Cash 13075
Sales Return 1000
Mandy 4850
Ricardo 15570
Suspense 2000
41775 41775
TASK 5
Difference between revenue expenditure and capital expenditure
Revenue Expenditures
16

Revenue expenditure refers to the cost which would be an expense in accounting period
in which the accounting is taking place. This helps company in using matching principles for
linking the expenses incurred to the revenues that are generate in same accounting period. This
provides with most accurate results for income statement (Doraisami, 2015). Revenue
expenditure are further divided into two types.
Maintaining revenue generating assets -In this repairs & maintenance expenses are included as
these expenses are incurred for supporting the current operations where life of assets is not
improved or extended (KC, 2018).
Generating Revenue- They include daily expenses for operating the business like, salaries,
office supplies, utilities and rent.
Other costs are not considered as revenue expenditures as they are related to generating future
revenues.
Capital Expenditures
Capital expenditures refers to the funds utilised by company for acquiring, upgrading and
maintaining physical assets like buildings, property, industrial plant, equipments or technology.
Capital expenditures are often incurred for undertaking investments and new projects by
company(Sawyer, 2015). Capital expenditure of fixed assets could include repairing building
roof, purchasing part of equipment or building new factory. They also include intangibles like
licenses and patents.
Difference Between Revenue and Capital Expenditure.
Capital expenditure refers to expenses incurred for purchasing fixed assets that will be
productive over long period (Obeng, 2015). Revenues expenditures relates to costs incurred for
particular revenue transactions or for operating periods like COGS or repairs & maintenance
expenses. Differences are :
Timings – Capital expenses are gradually charged as expense via depreciation over longer time
period. Revenue expenses are charged as expense in current accounting period.
Consumption – Consumption of capital expenditure is incurred over useful life of fixed assets.
Where revenue expenditure are consumed within very short time span (Brinkerink, Chegut and
Letterie, 2019).
Size – It is the biggest difference capital expenditure involves large amount of monetary funds as
compared with revenue expenditures. An expenditure is classified as capital only if the threshold
17

limit is exceeded otherwise they are automatically classifies as revenue(Muda, 2018). Some of
the big expenditure could be classified as revenue expenses if they have direct association with
sale transactions(Difference Between Revenue and Capital expenditure, 2019).
CONCLUSION
The above study has given an understanding about the recording of transactions in
journal, posting in ledgers and extracting the trial balance out of it. They also involved
preparations of profit or loss statements. By carrying out the above tasks it is understood how
important the recording of transactions is for the business enterprise. It also gave an
understanding about the revenue and capital expenditure.
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REFERENCES
Books and Journals
Scott, W.R., 2015. Financial Accounting Theory Seventh Edition. United States: Canada
Cataloguing.
KC, J.B., 2018. Capital versus Revenue: Receipts, Expenditures, Profits and Losses in
Accounting and Taxation. NCC Journal. 3(1). pp.71-81.
Doraisami, A., 2015. Has Malaysia really escaped the resource curse? A closer look at the
political economy of oil revenue management and expenditures. Resources Policy. 45.
pp.98-108.
Obeng, S., 2015. A causality test of the revenue-expenditure nexus in Ghana.
Sawyer, T.Y., 2015. Operating and Capital Expenditures Models: Manage Your Budget.
In Financial Modeling for Business Owners and Entrepreneurs (pp. 185-211). Apress,
Berkeley, CA.
Brinkerink, J., Chegut, A. and Letterie, W., 2019. Energy performance and capital expenditures
in manufacturing industries. Energy Efficiency. pp.1-28.
Muda, I., 2018. Effect of revenue and general allocation fund of capital expenditures in the
economic growth as moderator variable.
Online
Difference Between Revenue and Capital expenditure. 2019. [Online]. Available through :
<https://keydifferences.com/difference-between-capital-and-revenue-expenditure.html>.
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