In the first session we had a look at the basic principles of accounting. So today we first going to do a recap and then I'm going to do a few exercises with you. And then we're going to go through the accounting cycle. First of all, we said we have five types of accounts and it was assets. We have liabilities with equity, income, and we add expenses. And then we said we have assets, they become on the debit side and this on the credit side we had liabilities that become on the credit side and they suddenly debit side, we had equity becomes more on the credit side less on the debit side, where income comes from on the credit side, at least on the debit side.

And then we add expenses, it becomes more on the debit side and lease on the credit side. And it was only assets and expenses that become more on the debit side. And you need to know this, why not? Then there's five types of accounts can be divided into two categories to balance sheet items and the income statement items and navy assets. We have liabilities and equity, income statement items with income and expenses and that will give us our profit or our loss. So five times over again.

Two categories balance sheet items, income statement items, assets, liability and equities or balance sheet items and income statement items or income and expenses. And then we had a look at what is an asset assets or both with intention to generate income over the lifespan of an asset. Remember in our business model that I bought a bicycle and with a bicycle he generated some extra income, then liabilities, liabilities or debt that was rise to purchase assets or expenses that will be settled light on remain the border bicycle and he borrowed the money from the bank and you have to repay the bank in monthly installments. Equity equity consists of two elements capital and reserves, capital of funds that the end is contribute towards the company. So when I started that newspaper business I deposited and a trend into the bank account and that was the capital that contributed towards the company and there is equity.

And then we have income income as a transaction that is conducted between entities resulting in income flowing into the company that business so newspapers, so, every newspaper that was sold was a transaction and that transaction can be classified as income. And then we are expenses, expenses or transactions initiated to generate income expenses have a direct link to income. So first of all, you had to purchase these newspapers, and then he sold them at a higher price. So when he bought them that was an expense. So he bought them with intention to sell them at a higher price. We need to have a look at value added tax.

His value added tax. Now value added tax is a tax that businesses collect on behalf of the government, the government sees if you sell something for 100 grand, you need to add 14% VAT or tax. So you're going to sell it for 114. Now 100 is yours and 14 is the government's for sauce. So you need to buy that 14 I will towards sauce, but now sauces. If you paid 57 Rand for the item, then you can claim back seven Rand well the seven Rand is 14% of 57.

So 50 you pay and seven you can claim back from source so you're going to claim back now seven ran and at the end of the day you only need to buy ever to sauce seven. If you you have actually sold for 114 and you bought for 57. So 57 is the difference. But that's not your profit, we need to show the profit excluding that because you paid towards our seven rent minus seven that will give you 50. So you sold for 100, you bought 250 and then your profit is 50 then that's what it is. Now some entities are registered for VAT and others are not.

The reason for that is if you have a turnover of more than a million Rand you need to register you don't have an option. If you turnovers less than a million rent, you have an option to register. If you decide to register then you need to charge the VAT you don't have an option. So you charge 14% you claim back 14% on your purchases, and then you need to buy every neat amount And then how do we calculate value added tax? If you sell something for underground, you need to add 14% that that was added and written 14. You can also say 100 times 1.14 equals 114.

If you want to calculate the amount, excluding ovett if you're going to say one one for less 14%, you will get to 98 dot zero for that if you add 14%. Again, you will get to triple one or double seven. That is not the correct answer. You can never ever say minus 14%. The correct way to do it is 114 times 100 divided by 114 equals 100. And if you want to test yourself, is that plus 14%?

And that will give you 114. That is not the correct answer. You can see, if you take that amount the plus 14%, you get to triple one double seven, you should get back to 114. So remembers times 100 divided by 114 equals 100. And if you want to calculate the vet amount each one four times 14 divided by 114 and that will give you 14 Ren. So make sure that you calculate that correctly.

Now, let's do a few examples. We take that into consideration. By this country's for 5007 grand and bye for now check. First of all, we paid 5007 In the train for the furniture, need to calculate the amount excluding VAT. So 5700 times 100 divided by 114 equals 4000. So that is the amount excluding VAT, the VAT amount is 4700 times 14 divided by 114.

That is seven and that's the vet that I'm going to claim back from the government. So first of all, we bought this and cheese, that's furniture. Now furniture is an acid acid. As it became more plus bigger David, we're going to debit it with 5000. That is the amount excluding VAT. Then we have the ID when that's a liability when we climb it back from there.

About liability becomes less liability listening me, David worth 700 grand and then we have bank. Now bank is an acid and when the chiqui into the bank balance reduce so acid becomes less so we less created and we'll create it with 4700 friends because that's the check amount that went through the bank. And now we just need to copy and paste furniture 5000 debit 4008 VAT, VAT debit 700 grand and bank created 4007 and and if we add up all the David's 5000 plus 700 4700 and if I add up the credits 4700 and the system is in balance, so you can you can see first of all we had to calculate the amount excluding VAT, then we calculated the VAT and then we had to classify it as an asset liability or equity income or expense. And after that we just copied and pasted into the general ledger liabilities.

So, buy a motor vehicle for 228,000 and financing through the bank so we bought a vehicle and we finance the vehicle festival teach you eight times 100 divided by 114 is 200,000 That's the cost of the vehicle, excluding that. Then the VAT amount to 28,000 times 14 divided by 114. net is 28,000. That's the VAT on it. First of all, we bought a motor motor vehicles and motor vehicle mounted vehicles an asset. We didn't have an add a motor vehicle, now we have one, so assets increased, plus even increased. David 200,000.

And then VAT VAT is a liability. We're going to claim the 220 8000 ran back from source the liability became less, liability becomes less we need to debit 28,000 and then we financed it so we have a loan loan is a liability Didn't as a bank any money but now I was in some money so loans liability increased and it will increase we need to create it in a creditor to I want to see to do it. So, motor vehicle we bought a motor vehicle we need to debit with 200,000 then that that is a liability became less if it reduces debit 28,000 and then we have loan land as a liability increase so I need to create it two to eight. And if I add up my debits 200 plus 22 to 8002 1000 system is in balance. So I claim that back the event on the motor vehicle not bought and not on the loan.

It's what you bought To claim the veteran then income senior sell stock to the value of 11,400 and deposit the money into the bank. So I sold something for 11 400. But now I need to determine what is my portion of it and what do I need to pay it to sauce. So you live in 400 exceeding or that will be times hundred divided by 114 and that will be 10,000. That's my money 11 400 times 14 divided by 114 equals 1400. That's the money that I need to buy over two saws at the end of the month.

But what I will bang is 11 400. So first of all, we'll add sales, sales is income, my income increased plus inker plus created and we can With 10 Grand 13,000 and then we have VIP. That's a liability. Now I received 1400 grand on behalf of sauce so I need to pay it over towards him. So that's Elia realty liability increased Plus, it's a liability plus when we created with 1400 rain and bought a positive the money into the bank bank is an asset. My assets increase because when I paint the money on balance increased, plus, such as a plus and plus, David 11,400 grand and all I need to do now is copy and paste, sales.

Sales created 13,008 VAT credit liability created 1400 and bank thank David 11 400 I need to add up mine, David's David's 11 400 and I need to add up my credits 11 400 system isn't balanced. And then we can have a look in expense by stationery for 1140 elda petty cash, so I bought stationery for 1141. First of all I need to calculate email excluding VAT. So 1140 times 14 divided 114 will be 140. That's the event. I'm going to claim that from sauce 1140 times 100 divided by 114 is 1000.

That's the amount excluding. So excluding VAT is 1,001st of all I bought stationery. stationery is an expense expense increased. Plus it's an expense plus the me David 1000. That is a liability. I'm going to claim back that hundred and 40 million from the government.

That's a liability liability became less, less, David 140. And then our title out of the petty cash, petty cash, an asset. asset, my asset became late because I took the money out of the petty cash balance reduced acid lists, as it completely created book 1140 because that's what I actually buy. And then I just need to copy and paste. First of all, we have stationary, stationary 1008 David, they may Yvette David 140 Rand, and then we have petty cash, some acid created 1140 and up to David's 1140. And after he created 1140, and the system is in balance, and then we can look at equity sheets to the value of 1000 are issued and taken up by Sheldon, the shell that deposits the money into the bank account.

Now first of all, there's no vent on shares. So, shares Oh, equity, equity gain more shares equity Plus, it becomes more we created 1000 then we deposit the money into the main bank, bank is an asset, asset asset became more plus David's 1000 Rand VAT not applicable zero. So we copy and paste says 1000 and created bank 1000 and debit because we deposited the money via it, nothing, nothing. add up the credits thousand and add up the debits thousand and that's how we account for VAT. Now I'm going to show you something that not a lot of people have seen. I'm going to explain to you the accounting cycle.

I'm going to show you how the trends Actions flow through entities accounting system. You can sit back and relax and just watch what I'm doing. First of all, we are going to have some journals, we're going to have a sales journal, a cash book, that's our bank, a purchase journal, petty cash journal, credit this journal, data's journal and a general journal. First of all science. One, our monthly sales are going to be summarized in the sales general. And then at the end of the month, I'm going to close it off, and I'm going to transfer all these amounts to the general ledger.

And I'm going to transfer all the transactions into the data's later. So this is my sales general for Amen. So I bought from me count for under drain and be bought from me on account for 15. Now my total sales were 159 and anb areas Me and 15. So first of all, I had sales, that's income, my income increased and income increases, then it's a credit of 150 million. Secondly, they bought from us on a cap so it's status status on asset.

Asset became more plus, an asset becomes more we David with and written 50 rain. So now we just need to copy and paste sales created 150 rain, data's control and 50 rain. Now, this datas is just a control account in our gym. Religion. If I want to see the breakdown of my data's control, I go to the data's ledger. In the data's ledger.

This is the only place where you will have only one side entries. First of all, I will have an account for a, I know that a bought for me. So he's an asset because it's a data, my data becomes more plus, so I need to debit and return visa data is an asset, my asset becomes more plus David firstname. If I add up my David's sentence, this hundred and 50 Rand corresponds with the 150 names that I have in my general ledger in the data's control account. So that hundred and 50 was made up of a and b A owes me 120 NVMe 15 in total to me, and interesting, so data's ledger is a breakdown of the data's control. Then I have my purchase journal, I'm going to summarize all my purchases purchase journal.

And I'm going to post the status to the general ledger and I'm going to transfer all the transactions to my credit this Legion. So I bought from see 50 rain net wasn't created, I bought from the 430 rain on credit. So my total purchases were at Red and now I see in the it rain. So purchases as an expense expenses have become more plus, so we need to debit with it and then I have created This creates as a liability a liability becomes more plus created it during an hour just copy and paste purchases it ran David creditors control it when created. If we want to see the breakdown, I go to my creditors ledger and have a can see see is a creditor as a liability liability becomes more plus sorry created with first earring, D is a liability liability becomes more plus thing we created with city rain rate.

And if I add up to 50 plus the city and get to create of it, and then equals the ATM credit than I have in my general ledger. So if we want to see the breakdown of my creditors control account, I just go to the creditors ledger. So in the creditors ledger, we only account for one side of the transaction We will only have a debit or a credit. It's not the beginning to have a debit and a credit. In our general ledger will have debits and credits and the credits this ledger, we can only have one leg increase. Then we are going to summarize our bank in the cash book.

And we're going to transfer that to the general ledger. We're going to transfer the proceeds to the data's ledger, and we're going to transfer payments towards the creditors, creditors ledger. Now our cash book consists of two Ledger's receipts and payments. You can see that was a data. So the data by the statement and then I received 20 rain for rain. So that was a data that is an asset.

And when he paid me, my data became late so we're going to create it and then I receive rent rental income Income came over because I received it going to create income and then I banked that city when I put it into the bank bank as an asset. As it becomes more as it becomes more we David Fitch quickly conferred in our general ledger first of all data's received in rent the data became less less acid credit, then received 20 rent income created 20 rent, and then we have bank securing we debit our bank account. Security rain credits 30, rainy David's and then we might have payment towards See that's a creditor. So that's a creditor. So liability liability became less because we bite the creditor. liability becomes less Namie davidians account.

Then we have bank charges bank charges an expense expense becomes more and if the expense becomes more the data and then we pay that out of the bank so the bank balance reduced thank is an asset asset produced then if the asset becomes less we need to credit the account. So I created this thing rain copy paste thing Rent Expense one rain bank George one rain and bank as the country's living room. If we add up all the debits to the thing 40s 41 add up your presidents thing 2014 one and we tie Tim ran towards c so we need to transfer that into the creditors legacy we tied in 10 right 30 credit thing David these are weather 40 rained created Then we also received 10 rain from a thin rain day 100 debit laced in rain credit, please us with 90 David and then we transfer all of those titles into the general ledger.

So these are general ledger and now we just need to copy and paste. So let's have a look at sales, sales 150 credit, sales 150 credit. So we've done then that is hundred and 50 debit debtors control 150 ran debit. Then we go into purchases. It ran purchase debit ID David And it traded for creditors. Creditors control it.

So we just copy and paste into the general ledger. Then we go to the cash, thing rain credit for datas. So datas 17 ran credit at one time 20 rent for rent, rent received when you're in credit. We've done that. Then we have 30 debit for the bank. Bank, city rent.

David and we have 11 rain credit for bank 11 rain created so we've accounted for that thing. tame rain, David for creditors control chain rain day We have one rainfall thank Georges St. George's wondering. And now we need to add up all our debits at 81 to 31 to 41 to seven 150 170 182 6271 and the system is in balance. And now we can see datas 150 listing will leave us with a debit of 140. Credit this ID listing will leave us with a credit of 70 at 140 will correspond to 90 plus 50 is our new total year is 140. So we sold him for 100 he fighting so as is 90, that axle is 50 so that adds up to 114 creditors, we bought for 50 we buy 10s we still early 40 that I sold to us for 30. So we still owe him the 30 40% at 70 credit and if we have a look at our creditors in Turin credit, then we are going to copy the general ledger into the trial balance.

So we are going to copy the totals from the general ledger into the travels. And from there we're going to prepare an income statement and we are going to prepare balance sheet. So let's quickly copy those general ledger accounts into the trial balance festival sales 150 150 credit purchases it debit purchases at debit print, receive 20 Credit 20 credit and bank charges one rain David one rain David. Now you can see we've split this into income statement items and these are balance sheet items. And that's why it's pretty important to know when it's an income statement item we need to balance sheet item. Now profit here is 150 lays it then 70 plus 20 is 90 plus one is 89 ledger profit.

And then we need to copy data's controller handwritten and 40 debit 140 David and we are going to copy 70 rental creditors control creditors control 70 and we are going to copy 30 less 11 that's a 19 David so it's 19 and then We need to add up the difference. It it one plus 149 13 to 1470 plus 20 is 9240. And then we are going to copy the trial balance to the income statement and balance sheet. First of all sales 150 sales 150 and that's it created then purchases it David at David and sons lease purchases is gross profit 150 credit list it David will leave us with 70 rent credit and then we add range 20 credit to that 20 credit and that will give me a total income of 90 rent credit. And then I have wonderful bank charges one rain David and that will leave me with a profit of 89 I created so we just copied and paste from the province.

Then our balance sheet, data's control 140 debit 140 debit bank 19, debit 19 debit credit this 70 credit, credit is 70 credit and profit was 89 rain profit 89. Now that's a David and David. This is a created and then created. Now you can see we have a section we we account for assets and then we have a section we can for our liabilities and equity 140 plus 1900 and 59 David that's a total 89 7159 credit. And you can see that our direct debits are equal to our credits. And that's all due to the double entry system.

And that is how easy it is. So, we accounted for all the transactions in the different journals. We transfer it to the general journal. We transfer the interest to the debtors ledger and the creditors ledger. Copy and paste it to the trial balance and copy and paste it to the income statement and balance sheet. Then there's one more thing that we need to look at next financial year.

The financial year consists of 12 periods. So let's say a company's financial year starts on the first of January 2001 and ends on the 31st of December 2001 Next 12 months you can calculate is January, February, March, April, May, June, July, August in demand is in the next 12 months. That's a financial year. The next financial year will start on the first of January 2018 to enroll ram till 31st of December 2002. That might be that a company is registered on the first of January 2001. And with registration it decides that its financial year in will be the end of June.

So the first year in groovy 36 2001 so that first financial year will only be six months from January to June. The next financial year we'll run from the first of July 2000 And one till the 30th of June 2002. That's pretty important that you notice. Because sometimes in an example for an a question, I will say to you that the financial year starts on the first of March 2000 and x. And you need to do the financial statements up until the 28th of February 2001. So it's pretty important that you know that the financial year consists of 12 periods 12 months, and you need to be able to calculate when the financial year will start and when it will.

Now in the next session, we are going to look at the sales journal, the purchase journal and the petty cash. Now, we're going to do those transactions in detail and we're going to copy it to the general ledger and we also going to transfer it into the debtors and creditors. So go and have a look in the menu and make sure that you understand the accounting cycle. In the in the next session, we will deal with three of those channels. See you then