Hi all,
I'm currently in the first year of an accounting course - and stuck at the first stage.
I've got a company with £10,000,000 of initial capital.
Throughout the year, it loses a total £610216, and buys £10 worth of plant and machinery (included in this figure).
My balance sheet shows the cash current assets, along with the non-current assets of the plant/machinery.
But... it won't balance!! What am I doing wrong here!
I've attached the balance sheet - any help would be really really appreciated.
Many thanks,
Tom
Replies (11)
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The £10 shouldn't be included in the £610,216, or more likely a £10 piece of plant & machinery wouldn't be shown as an asset in the balance sheet.
Because the expenditure of £10 is a Debit, Dr Something Cr Bank,it is either a Debit to fixed assets or a debit to expenses, but cannot be both at the same time.
You really need to get back to the five types of accounts and what debits and credits do to each type.
If you Debit Fixed assets £10 you have not debited expenses £10 or if all costs of £610,216 were first debited to expenses and we need to correct we Dr Fixed Assets £10 Cr expenses £10, so a credit to expenses reduces the expenses and therefore reduces the loss for the year.
You're double counting the £10.
it's either:
1) A fixed asset
CR Cash £10
DR Fixed Assets £10
or
2) It's an expense
CR Cash £10
DR P&L/Retained Earnings £10
The key to this is understanding the difference between capital and revenue transactions.