Would anyone please be able to explain to me the reasoning behind why my mock exam has come up with the answer in picture two....
I understand (or think i understand) that Expenses, Assets and Drawings come under debits and Liabilities, Income and Capital comes under credit (?) but if thats the case, I don't understand how they got the answer that all three (sales ledger control etc) go under credit when i would have thought sales ledger control is a debit. I also don't understand how they knew to put sales ledger control in the drop down box as opposed to, what I thought, sales ledger.
At this stage you would normally be asked some info about yourself - background, etc, but it's clear from this question that you are a student in this fine art, so that's half of the usual set of questions answered by default. :)
As to the question itself, I'm not going to answer it, but instead I will (hopefully) give you a clue and point you in the right direction: What you need to remember is that what you are seeing in the answer isn't necessarily the balance on the sales ledger - it's the funds received into it, which might be paying off balances thereon.
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
Would anyone please be able to explain to me the reasoning behind why my mock exam has come up with the answer in picture two....
I understand (or think i understand) that Expenses, Assets and Drawings come under debits and Liabilities, Income and Capital comes under credit (?) but if thats the case, I don't understand how they got the answer that all three (sales ledger control etc) go under credit when i would have thought sales ledger control is a debit. I also don't understand how they knew to put sales ledger control in the drop down box as opposed to, what I thought, sales ledger.
Im sorry if none of that makes any sense!
Hi Louise
Can you add pls your first name so that it appears under the signature bar on your posts? Saves everyone looking it up each time!! (Edit profile --->signatures)
Is this AAT you are studying? At what level - 2?
Have you come across DEAD CLIC before? Looks like you might've done -its good way to remember what goes where in your T accounts, along with the phrase DRive on the left, CRash on the right.
But you need to apply it carefully here - what is the question actually asking? It states you are looking at the DEBIT side of the cash book. So what does the debit side of the Cash Book represent/what are you doing when you debit cash?
Easy way to work it out is to draw up your T accounts on a bit of paper.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Hi Joanne, I have never seen that mnemonic before and I really love it! DRive on the left and CRash on the right that will be useful for some of our clients. Thanks
Thank you both for your helpful replies. I think I must be having brain fog because nothing seems to be going in! In all honesty it still isnt making any sense to me. Im so sorry for being so dense but I really appreciate your replies.
Hi Joanne, I have never seen that mnemonic before and I really love it! DRive on the left and CRash on the right that will be useful for some of our clients. Thanks
Hi Riel
Only problem with me saying this to students is that I am often likely to get it the complete wrong way round as my brain goes into the US driving mode for some mad reason.
Probaboy just cos I'm completely dotty
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Thank you again for replying. I understand now that it is payments received from both credit customers as well as cash customers (?) but may I ask why the credit side is ticked?
Thank you both for your helpful replies. I think I must be having brain fog because nothing seems to be going in! In all honesty it still isnt making any sense to me. Im so sorry for being so dense but I really appreciate your replies.
Lou
Hi Lou
Dont worry we all have that brain fog on more occasions that we care to mention.
So taking it back a step, you make a credit sale (ie you have issued an invoice for them to pay, but they haven't yet paid) and your entries are:
credit income dr sales ledger control/receivables.
Im ignoring vat.
Seriously, draw up your t accounts, it will help!
So in the above, you have increased an income account and increased an asset account.
(shout if you don't get anything!)
Now your mock example is all about the DEBIT side of the cash book, just stop and think about that for a second.
If you debit cash then you are increasing it, ie getting more cash in than you had before.
So you have increased your asset of cash. so where does the credit side go?
The entry shows some of the cash received is from CASH sales, so yes that amount goes to the income account (Cr)
Some of the cash is relating to the sales ledger control... a credit to that account indicates that one of your credit customers has paid off what they owe to you (they have paid that invoice you issued). So to reduce the receivables you will need a credit ie the answer on the mock page.
so a debit to cash and a credit to the sales ledger control/receivables account
ie an increased in cash and a decrease in receivables.
Does that help?
Who are you studying with?
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Thank you for writing all of that out, extremely helpful!
I now understand why the cash would be credit (income), the VAT would be credit (liability) (please correct me if im wrong) but if this is the case does that mean, in a mirrored situation if we were talking about the purchases ledger as opposed to the sales ledger, it would a debit as they still owe you said amount of money so that would be an asset (debit) but opposite in this case because we are talking about the sales ledger?
Sorry if im talking in riddles!
Also im studying distance learning with Amersham and Wycombe college (elearning) who use AAT. In all honesty they arent any help and you have all be much more helpful than my online tutor!
-- Edited by louyoung on Thursday 14th of December 2017 09:35:33 PM
Hi Lou
Ive heard of Amersham & wycombe college before but cannot recall what was said, although anecdotedly Ive found the individual and 6th form colleges dont seem to perform all that well with support. If you are happy to be a distance learner I would say look at the some of the ones who, lets just say, focus more on this type of offering as you will generally get better support, including better study materials (First Intuition, Kaplan, BPP, Osborne Books, Premier). Check out their independent reviews ebfore you choose or have a wander round this site.
Yes spot on re the VAT.
Purchases are a debit - so a cash purchase = debit purchases and credit cash. You are paying for goods hence the credit cash. Also - remember that the purchases (and sales) are in the statement of Profit & Loss.
But be careful of the purchases bought on credit - ie a supplier gives you an invoice and will say give you a month to pay for the goods. That is debit purchases as above, but this time the credit has to go somewhere else. In this case the purchase ledger control.
Purchase (and sales) ledger control sit in the Statement of Financial Position, where a debit shows its an asset (you own) and a credit shows a liability (you owe it to someone)
I would recommend the best way to learn it is to first of all learn what goes in the profit and loss and balance sheet
Then learn what the basic double entry is for cash items - do a list for each item (eg dr xxx/cr xxx ) AND enter the T accounts. Sometimes there is one side of the T you cannot remember so just remember one and you can usually work the rest out from there with logic (until it becomes second nature).
Then start to add your sales/purchase ledger.
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
After reading and re reading many pieces of information on this, including yours, may I explain how im understanding it and someone please correct me if im wrong and if you think I should just give up !
1. The Sales ledger control is an asset as its what people owe you but it has been decreased because certain companies have paid off all or some of their debts, which means this is a decrease in an asset so instead of debit it would go on the credit side?
2. Cash sales ( in this case as it is the debit side of the cash book ) are an income and they have been increased so it goes on the credit side?
And 3. VAT is a liability so would go on the credit side?
