Recording Other Transactions (Cambridge (CIE) IGCSE Accounting)

Revision Note

Purchase of a Non-Current Asset

How do I record the purchase of a non-current asset in the ledger accounts?

  • Debit the non-current asset account in the nominal ledger

  • Credit the cash, bank, or a liability account in the nominal ledger

    • Use the cash or bank account if the business pays upfront

    • Use a liability account if the business buys the asset on credit

      • The name will be the name of the lender

  • Note that a purchase of a non-current asset is not entered into the purchases account

    • This is because the purchases account is just for purchases of goods for trading

What other transactions are included in a non-current asset account?

  • The only other transaction that is included in a non-current asset account is its sale or disposal

    • It will be credited with the original cost of the non-current asset

    • A disposal account will be needed to show the profit or loss of the sale

  • Depreciation will be recorded in a provision for depreciation account

Taking Out a Loan

How do I record taking out a loan in the ledger accounts?

  • Debit the bank account

    • The asset is increasing

  • Credit a loan account

    • The liability is increasing

How do I record interest on a loan in the ledger accounts?

  • Loan interest is an expense

  • Credit the bank account

    • The asset is decreasing

  • Debit the loan interest account

  • Do not make any entries for this in the loan account

    • The amount borrowed has not changed

Receiving Incomes & Paying Expenses

What types of income could a business receive?

  • A business will receive income from their sales of goods or services

  • A business can also receive other income such as:

    • Rent 

    • Commission

How do I record the receipt of an income in the ledger accounts?

  • Debit the cash or bank account

    • The asset is increasing

  • Credit the income account

What types of expenses could a business pay?

  • The purchase of goods is an expense to a business

  • A business can also incur other expenses such as:

    • Rent

    • Commission

    • Rates

    • Wages

    • General expenses

  • If a business receives income from rent and also pays rent then separate accounts are used

    • Rent payable is the expense account

    • Rent receivable is the income account

How do I record the payment of an expense in the ledger accounts?

  • Credit the cash or bank account

    • The asset is decreasing

  • Debit the expense account

Worked Example

Frank is a sole trader. Frank rents a building for part of his business. Frank also owns a building as part of his business and rents out a room to another sole trader, Karen.

  • On 1 February 2024, Frank pays $300 rent by a standing order.

  • On 3 February 2024, Frank receives $200 in rent from Karen by bank transfer.

Enter these transactions into Frank’s accounts.

Answer

Bank Account

Date

Details

$

Date

Details

$

2024

Feb 3

Rent receivable

200

2024

Feb 1

Rent payable

300

Rent Payable Account

Date

Details

$

Date

Details

$

2024

Feb 1

Bank

300

Rent Receivable Account

Date

Details

$

Date

Details

$



2024

Feb 3

Bank

200

Taking Drawings & Introducing Capital

How do I record the owner taking drawings in the ledger accounts?

  • The owner could take assets from the business for personal use:

    • Money

    • Goods

    • Non-current assets 

      • Such as vehicles

  • Credit the relevant account

    • Bank account if money is taken

    • Purchases account if goods are taken

    • Non-current asset account if a vehicle or machinery is taken

  • Debit the drawings account

How do I record the owner introducing capital in the ledger accounts?

  • The owner might put some of their own money into the business

  • Debit the cash or bank account

    • The asset is increasing

  • Credit the capital account

Worked Example

Ahmed is a sole trader.

  • On 1 January 2024, Ahmed puts $20 000 into the business bank account from his personal bank account.

  • On 1 February 2024, Ahmed withdraws $5 000 from the business bank account for personal use.

Record these transactions in ledger accounts for Ahmed’s business.

Answer

Bank Account

Date

Details

$

Date

Details

$

2024

Jan 1

 

Capital

 

20 000

2024

Feb 1

 

Drawings

 

5 000

Capital Account

Date

Details

$

Date

Details

$



2024

Jan 1

 

Bank

 

20 000

Drawings Account

Date

Details

$

Date

Details

$

2024

Feb 1

 

Bank

 

5 000



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Dan Finlay

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