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To ask someone with accounting knowledge to please explain why this is the case?

(53 Posts)
cinnamonfun Wed 26-Oct-16 22:22:45

Thanks so much

cinnamonfun Wed 26-Oct-16 22:24:03

Don't understand why profit (which increases capital) won't be a credit in both - why just SFP?

MrSlant Wed 26-Oct-16 22:24:16

Yup, that looks like the exam I sat. No clue. Are there hidden details?

MrSlant Wed 26-Oct-16 22:24:34

Aha, details!

Mirandawest Wed 26-Oct-16 22:25:50

That looks like an ACA question bank. Is it for the accounting paper?

cinnamonfun Wed 26-Oct-16 22:26:24

That's right, yes!

MrSlant Wed 26-Oct-16 22:26:26

Because those T cells are stupidly confusing and really useless in a world where you can use brilliant computer software to do the same job?

I'll try and answer the question properly now but I have had a glass of wine and apart from the exam this has never been an issue!

cinnamonfun Wed 26-Oct-16 22:27:15

Worried I am going to fail sad

cinnamonfun Wed 26-Oct-16 22:27:24

Thanks both!

booksandwool Wed 26-Oct-16 22:27:29

You're transferring your profit for the year ri reserves

MrSlant Wed 26-Oct-16 22:28:26

Right, as far as I can remember and work out, because at the end of the period you are preparing the TB for you take out the profit left at the end of the period and credit that into the capital of the business?

booksandwool Wed 26-Oct-16 22:28:34

So it's an appropriation like dividends

Chippednailvarnishing Wed 26-Oct-16 22:30:07

So you're taking the closing profit for the year (debit to cancel it out) and moving it to the bottom of the statement of financial position (balance sheet)?

cinnamonfun Wed 26-Oct-16 22:30:35

So like drawings?

MrSlant Wed 26-Oct-16 22:30:58

So debit profit (clear it back to zero) and credit capital. There always has to be a balance, money from one place to another. If there was a loss at the end of the year you would credit the profit and loss so that it became zero again and debit the capital. Balance is all!

cinnamonfun Wed 26-Oct-16 22:31:28

Ah ok! So debit to cancel then credit it (as it is increasing capital) to the SFP?

YelloDraw Wed 26-Oct-16 22:32:51

Thanks this:

You have to debit and credit something. Can't ever credit two things. Or debit two things.

D EAD
C LIC

Debit - expenses, assets and drawings
Credit - liabilities, income and capital

Debiting the things on the debit side INCREASES them, and CREDITING the things on the credit side increases them.

When I was doing my ACA I ended up dreaming about debuting and crediting things like I'd wake up and debit fridge credit orange juice... crazy. Actually really enjoyed my exams tho, won prizes and everything #massiveaccountinggeek

MrSlant Wed 26-Oct-16 22:33:53

No, drawings takes money out of the business capital completely. This way you are just drawing a line under the P/L account. Making clean sheet for the next period and putting that money into the capital of the business. Say, like me, you have a couple of bank accounts for various things, at the end of every month I take out (debit) what is left from my day to day account (where my wages go in) and put it into my savings account. So I debit one account and credit another but in real terms have no more or less money. It's just sitting in different places.

cinnamonfun Wed 26-Oct-16 22:34:52

Thanks! Yeah dead clic makes sense (debit life enjoyment, credit accounting knowledge grin), just confused why you would debit profit... but now I can see it's to clear the p&l, thanks all smile

Mirandawest Wed 26-Oct-16 22:35:01

It's asking about when you're preparing an extended trial balance. All the income and expense items will be taken across the ETB into the appropriate debit and credit columns of the statement of profit or loss.

Then the profit or loss will be calculated. If it's a profit then it will be on the debit side of the profit or loss account and then the opposite side of the entry will be a credit in the statement of financial position columns.

If there is a loss, it will be the other way round.

So in this question, the statement of profit or loss column will be debited and the statement of financial position column will be credited and it is answer D.

MrSlant Wed 26-Oct-16 22:35:28

Yes, you are getting it! It's so confusing at first but you'll get there.

I was just hmm the whole time until it started to make sense!

Mirandawest Wed 26-Oct-16 22:36:33

When are you doing your exam? Most people worry about failing and more people pass than fail. Remember that to pass you don't need to get 100% smile

MrSlant Wed 26-Oct-16 22:36:48

I think they use fancy words for everything so they can keep all the jobs for themselves grin. That question is just full of unnecessary confusion!

MrSlant Wed 26-Oct-16 22:38:24

Ah but Mirandawest if you want to be an accountant you want to be 100% or you wouldn't be into the job in the first place grin! You make a good point though. I got 80% and was overjoyed. Then stepped back and thought 'bugger, I can't be 1/5th out on everything I do grin

SummerSazz Wed 26-Oct-16 22:38:35

My favourite learning from T accounts was 'DRive' on the left 'CRash' on the right. I always wondered how they learnt it in Europe grin

And the others are right - you are clearing the P&L for the year into the BS reserves account.

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