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Basic Principles of Accounting

Task 1

Books of primary entry

In general accounts are recorded in two main set of books such as books of original entry or prime entry or the book of final entry of the ledger (Bebbigton, 2001). Books of prime entry are formed in order to record the transactions in a framework from where it is easy to prepare final accounts. The entries are initially depicted in the books of prime entry and to the ledger and financial statements (Rajasekaran, 2011). There are different types of books of prime entry and these are discussed henceforth along with the preparation of books of prime entry of the business of Hudson and Hudson. The books of prime entry are as follows:

  1. a) Sales Day book (SDB): The sales day book depicts the transactions have taken place with respect to sales. In this book of accounts, the company elaborates the volume and amount of sales that have taken place (Rajasekaran, 2011). The following table highlights the sales day book of Hudson and Hudson.

Date

Customer

Total

VAT

Net

 

 

£

£

£

10-Jan

Cash Sales

5760

304

5456

18-Jan

Telephone Bills

3456

691.2

2765

29-Jan

Mr Dawes

6400

1280

7680

10-Feb

Cash sales

1800

360

1440

11-Feb

Legal Fees

270

54

324

22-Feb

Mr Daniels

3200

640

2560

1-Mar

Mr Dawes

1420

284

1704

2-Mar

Mr Dickson

2280

456

2736

11-Mar

Motor vehicle

1920

384

2304

19-Mar

Mr Dickson

920

184

1104

 

 

 

 

 

Total

 

27426

4637

28073

From the above sales day book it can be concluded that the company has earned a revenue of £ 28,073 after 3 months.

  1. Purchase Day Book (PDB): The purchase day book highlights the transactions that are made by the company in order to operate the business. According to accounting policies, purchase day book depicts the amount of purchase that has been made by the company (Henry and Piekarski, 2005, Hoofman, 2009, Ingram, 2007, Kimuda, 2008, Milad, 2009). The following purchase day book is prepared for Hudson and Hudson:

PURCHASE DAY BOOK

Date

Narrative

Total

VAT

Purchases

Telephone

 

 

£

£

£

£

1-Jan

Mr Curtis

540

108

432

 

1-Jan

Petty cash

18

3.6

 

14.4

2-Jan

Insurance premium

1080

 

1080

 

4-Jan

Mr Curtis

5200

 

5200

 

16-Jan

Petty cash

80

 

80

 

4-Jan

Advertising cost

96

19.2

76.8

 

28-Jan

Mr Christopher

6080

1216

4864

 

2-Feb

Mr Clark

1520

 

1520

 

8-Feb

Outstanding VAT liability

3600

 

3600

 

1-Mar

Car

4200

840

3360

 

6-Mar

Mr Christopher

2160

432

1728

 

17-Mar

Mr Curtis

440

88

352

 

 Total

 

25014

2706.8

22292.8

14.4

From the above table it can be stated that Hudson and Hudson has to spend £ 22, 292 in order to buy material and assets for the company. It is observed that the sales revenue is higher than that of the total purchase of the 3 months. This indicates the fact that the company has the opportunity to earn profit in the business.

  1. Cash Book (Payments): Cash books are prepared in order to evaluate the amount of money that have either gone out of the business or received from sales. Hence, cash books can be prepared both for payments and receipts of the business.  

CASH BOOK (Payments)

Date

        Narrative

Total

VAT

To

Rates

Petty

Discount

   

 

 

Creditors

 

Cash

Received

 

 

£

£

£

£

£

 

1-Jan

Petty cash

 

     

18

 

2-Jan

Insurance

1080

       

 

4-Jan

Mr Curtis

5200

       

 

16-Jan

Petty cash

 

     

80

 

28-Jan

Mr Christopher

6080

       

 

2-Feb

Mr Clark

1520

       

 

31-Jan

 

48

       

 

Total

 

13928

     

98

0

From the above table it can be depicted that the business has to make a payment of £ 13,928 to continue their business by paying insurance premium, payment for petty cash and payments to various creditors, who has once provided cash to the owner of Hudson and Hudson for operation of the business.

  1. Cash Book (Receipts): Cash book receipts consist the financial data have taken place in the company during the tenure of its business. The following table elaborates the cash book receipts of Hudson and Hudson.

CASH BOOK (Receipts)

Date

Narrative

Total

VAT

From

Sales

Disposals

Discount

       

Debtors

   

Allowed

   

£

£

£

£

£

£

10-Jan

Cash Sales

5760

1152

 

4608

 

 

10-Jan

Mr Daniel

6000

1200

 

4800

 

 

29-Jan

Mr Dawes

6400

1280

 

5120

 

 

10-Feb

Cash Sales

1800

360

 

1440

 

 

23-Feb

Mr Daniel

3200

640

 

2560

 

 

1-Mar

Mr Dawes

1420

284

 

1704

 

 

2-Mar

Mr Dickson

2280

456

 

2736

 

 

11-Mar

Sales of car

1920

384

 

2304

 

 

19-Mar

Mr Dickson

920

184

 

1104

 

 

 

 

 

 

 

 

 

 

Total

 

29700

5940

0

22968

0

0

From the above table it can be stated that the company have received adequate amount of receipts from the customers and business as a result it has the possibility to sustain in the long run. The cash book receipts of Hudson and Hudson have taken into account sales receipts and accounts receivables from the debtors of the business (Bebbigton, 2001, Edwards, 2008, Elmaleh, 2005, Francis, 2010, Grant, 2001, Harrison, 2008).

  1. Petty Cash Book: Petty cash book is the cash book, which depicts all the small payments that are made during the course of a business with the help of petty cash funds (Albrecht, 2011). This type of petty cash book is prepared by petty cashier and it is maintained in a very simple or analytical way.

PETTY CASH BOOK

Receipts

Narrative

Date

Total

VAT

Advertising

 

 

 

 

 

 

18

Bal B/f

1-Jan

 

 

 

80

Advertising

16-Jan

96

19.2

76.8

 

 

 

 

 

 

 

Bal c/f

31-Jan

96

 

 

 

 

 

 

 

 

98

 

 

96

 

76.8

From the above table, it can be depicted that the petty cash amounts are negligible for the business.

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