The beast has awoken. Hello World!

Hello World!

In this blog I will attempt to reveal the mysteries that are AAT Accounts Preparation and Prepare Final Accounts.

I will try to give simple guidance on how to develop the skills required to be successful in both assessments.

Wherever possible, I will try to provide simple stepped processes to make application of these skills much easier to remember.

You will find that I like to use t-accounts wherever possible - I apologise if you don't like them but, as my old accounting lecturers taught me, you can't go wrong if you go back to basics (isn't that right Karen and Andy?)

So, here goes:

Let's look at an example of disposal of non-current assets.

Jackie has a van which she sold for £2,000. The van originally cost £15,000 and had £10,000 accumulated depreciation associated with it.

Here's the starting position:

Let's looks at the process:

Step 1:

Open a Disposal t-account

Step 2

Dispose of the asset

• Debit Disposals with the original cost of the asset
• Credit Motor vehicles with the original cost of the asset

Step 3

Transfer the accumulated depreciation associated with the vehicle being disposed of to the Disposals account

• Debit Accumulated depreciation with the accumulated depreciation associated with the vehicle
• Credit Disposals with the accumulated depreciation associated with the vehicle

Step 4

Record the proceeds from the disposal.

• Debit Bank with the proceeds
• Credit Disposals with the proceeds

Step 5

Finally, balance of the disposal T-account and transfer the balancing figure to the statement of profit or loss:

There you have it a simple (hopefully) 5 step process to deal with the disposal of a non-current asset.

The beauty of adopting this method of dealing with a disposal task is that when you are faced with a part-exchange situation, only step 4 changes!

Part exchange

Instead of selling the van, Jackie part-exchanged it for a new van which had a cost of £15,000. The part-exchange allowance was £1,500

Step 4

Here, you must ensure you maintain double entry (debits must equal credits). 

Debit Motor vehicles with the part-exchange allowance
Credit Disposals with the part-exchange allowance

• Debit Motor vehicles with the balance of the payment (i.e. £15,000 - £1,500 part-exchange allowance)
• Credit Bank/Loan/Liability with the balance of the payment

The only thing left to do it balance off the Disposals t-account to see if Jackie made a profit or loss on disposal (that's your job!)

So, now you can deal with any disposal task thrown at you!