Trouble with Journals

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:31AM in AAT student discussion
Hi,

I would be so grateful if someone can help me out with this matter on journals.

I've started the simulation on FRA Part 1 and Im well and truly stuck on Journals.
I'm very familiar with the ETB, but I can not even begin this without getting my journals finished first otherwise I'll get in a right mess!!

Can someone explain how to deal with the selling of an asset, disposal,etc what needs to go on the journal etc.

Im really at a lost...please help!! Louise

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Trouble with Journals

    Journal enties for disposals can seem a bit tricky but aren't that hard really. As always with the more involved journals, I'd start by sorting out what needs to go in the various T accounts. In this case I'd prepare the disposals a/c.

    For example, you're getting rid of a car that was bought for £10,000, the accumulated depreciation has been calculated as £4,000 and you've got £5,000 for it. Assuming (as is nearly always the case in questions set on disposals) that no depreciation is charged in the year of disposal, the disposals a/c will be:

    Dr Cars:Cost 10,000
    Cr Accum. Dep. 4,000
    Cr Bank 5,000
    Cr P&L (Loss on disp) 1,000*

    *This is the balancing figure, if you've made a profit on disposal it will be a debit)

    From this the journal entries should be obvious:

    Cr Cars: Cost 10,000
    Dr Accum. Dep. 4,000
    Dr Bank 5,000
    Dr P&L 1,000

    Hope that helps

    Chris
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Trouble with Journals

    This is what we do where I work.

    Procedure For Accounting For Disposals of Assets



    1. Get rid of cost.
    Debit Disposals of Assets Account, Credit Cost.

    Determine this value by reference to the figures in the Accounts for the specific asset




    2. Get rid of accumulated depreciation.

    Debit Accumulated Depreciation Account, Credit Disposals of Assets Account

    Determine this value as above.




    3. Deal with the payment

    Debit Bank or cash, Credit Disposals of Assets.


    Hope it helps,

    Anne Marie
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Trouble with Journals

    Hi Chris, thanks for your post.

    I did some revision Sunday night and Im happy with the T-accounts (side of it).
    With the journals I can understand the 2 top entries are balancing or closing the accounts down but I do not understand so much about the last two entries on debting the bank and P&L.
    I got really confused when looking at the textbook last night.
    Step 3 was to debit the cash and credit the disposal. I'm confused on this last bit!

    Many thanks, Louise
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Trouble with Journals

    Chris is absolutely correct.

    The debit to the bank account represents the money you received for the car. Debit bank with the cheque and credit the disposals to show the proceeds. The final entry is the profit or loss on disposal. As the cost of the car is more than the depreciation charged plus the proceeds we have sold the car for less than we thought it was worth (in reality we have not charged sufficient depreciation). This will go to the P and L account as a further expense.

    Hope this helps
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Trouble with Journals
    ...but I do not understand so much about the last two entries on debting the bank and P&L.
    Just to say few words,
    this part depends on the amount of the part exchange that the seller of the new Asset will give you. Lets say you are disposing of an asset worth £5000 with an Accumulated Depreciation of £3500. The book value would be £1500, but the seller may only give you £1000 as part exchange for the old asset, in which case you have to debit P&L a/c for the difference(which is £500) as a Loss on Disposal of Fixed asset. If the seller of the new Fixed Asset allows you more than £1500 as PE, you will be posting the difference as Gain in the P&L a/c.
    I hope I didn't complicate it. Basically, what I wanted to say was that, the amount you post in the credit side of the Disposal a/c dependes on the part exchange the seller give you. It would be simpler to make journal entries if the seller gives you the exact amount of the book value of the asset, but I don't think that happens
    Regards
    Tom
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Trouble with Journals

    I hope I didn't copmlicate things by including the purchase of a new asset
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Trouble with Journals

    As part of my intermittent attempt at turning my course notes into a wiki, I've knocked up a page on part-exchange here

    Chris
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Trouble with Journals

    Hi Chris
    Read your message, what do you mean by WIKI and how do I get access to it ?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Trouble with Journals

    Hi Chris

    Sorry to gate crash the post but just wanted to say i have looked at your website and it looks like it will be very useful to students. Reading things in a different format and especially in a bullet point revision type layout really helps compound learning.

    Keep up the good work
    thanks
    Emma
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Trouble with Journals

    A wiki is basically just basically a way of organising textual information on the web, it's often usued for technical documentation and generally has a collaborative aspect. Wikipedia is prbably the best known example.

    Yvonne, just click on the link in my post. You can also get there my following the FAQ link on my main site http://tcaat.net.

    I started playing around with this last year, the same questions were getting asked over and over in here (still are) so I though some kind of FAQ resource might be good. I wanted to take a look at setting up a wiki anyway so I gave it a go.

    There's not a huge amount there really, it's mostly structure without content. I fill in bits when I feel motivated (ie not very often). I've just worked out how to fudge a T-account in HTML which will help things along.

    Chris (who's not geeky really)

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