This is Huw Morgan
from the Alliance Manchester
This is the second talk
in a series of lectures
on accounting records.
In this lecture,
we will be looking at the uses
of a single entry cashbook
and its limitations.
This session introduces you to Shaun,
who begins his business
using a simple cashbook
to record the transactions made
We shall use his first month of trading
to see how the cashbook can be used
as a form of internal control,
a check to reduce the risk
that no transactions are omitted
or no cash is missing.
We will then apply
the accounting equation
mentioned in the first session
to each cash transaction
and show how the financial statements
could be generated
from this basic cashbook.
We will also discover
that there are certain limitations
using the single entry cashbook
when transactions may be made
without a change in cash.
A new concept is introduced in this session
called the matching concept.
Our friend, Shaun has started up
a business running a lemonade stand
in a series of music festivals.
He has injected some cash
to start the business,
and his uncle Jim has also lent him
some cash to get started.
After a month in business,
Shaun still hasn't really considered
what sort of accounting records
he should keep.
In fact, he's been so busy
getting the business up and running,
the only records he has
after his first month of trading
is a handful of receipts
and a summary of his daily takings
from the three festivals
he attended in June,
his first month of trading.
So what would be appropriate
to keep at this stage?
Well, the answer depends
on a number of issues.
Firstly, what type of business
is Shaun operating?
Secondly, who intends
to use the accounting records,
and for what purpose?
Shaun is operating as a sole proprietor.
Being the smallest type of business,
and being owner-managed,
will tend to have fewer
external financial accounting
The users of his financial statements
will be limited to himself,
the government who want to collect tax
on any profit he earns,
and his uncle Jim,
who has lent the business cash,
which he presumably wants back
Shaun will therefore need to maintain
sufficient accounting records
to meet these users' requirements,
unless we require the preparation
of a statement to financial position,
to inform the users
of its financial position
at the end of the accounting period,
and an income statement
to show the performance
of the business in making profit
in that period.