Incomplete Records

• Assets - Liabilities = Capital
• Assets

  Consist of:

  • non-current assets, such as land/buildings, motor vehicles and equipment; these are items that the business keeps for more than one year
  • current assets are items that are used within one year, such as inventories, trade receivables, cash and cash equivalents. 

  Both of these added together make our assets.
• Liabilities

  Consist of:

  • non-current liabilities, such as long term loans; these are items that the business has for more than one year 
  • current liabilities are items such as trade payables and VAT that fall within the current financial year.

  Both of these added together make our liabilities.
• Capital

  The money originally introduced by the owner or partners of the business.As the business continues to be a going concern, any profit is added to the opening capital; a loss is deducted along with any drawings. If more capital has been introduced during the year this is added as well. Performing this calculation will give you the closing capital for the financial year end.
• A profit will increase capital, whereas a loss will reduce capital.
• Drawings will reduce capital.
• Capital introduced will increase capital.
• The cash account in the general ledger records the actual cash held on the business premises.  All receipts for the business will be assumed to be in the form of cash, unless they’re specifically described as cheques received.Some relatively small expenses are likely to be paid out of the cash received and from time to time, cash will be paid into the bank.
• The bank account in the general ledger shows all amounts paid into and out of the bank account.

  Receipts will comprise cheques received, BACS remittances from customers and cash banked.  All cheque payments, BACS payments made to suppliers, direct debit payments and standing orders will come out of the bank. 
• Professional scepticism is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud.