the van will have a useful life of 12 months with no residual value.
2.12 With uncertainty comes imprecision. it is a feature of accounts that there are many measurement challenges. Each of the above factors involves a measurement challenge. 2.13 Jane put £12,000 into her business in cash on 31 December. She was required to pay the supplier in cash for the first delivery of windsurfers, which arrived on 2 January. She recognises that her customers will expect some credit and she therefore has trading terms which require payment from customers at the end of the month following the sale. We can show the cash transactions in the summary of the cash book for the months of December to March:
December
January
February
March
Cash In From Jane
12,000
-
- -
-
From customers
2,000 _____ 2,000 _____
______ 12,000 ______
_____
_____
Total
-
-
_____
_____
Cash Out For van To supplier To landlord
1,200 7,000 1,500 _____ 9,700 _____
500 ___ 500 ___
500 ___ 500 ___
Total
Movement in month
12,000
(9,700) 12,000
(500)
1,500 1,800 _____ 3,300
Opening cash
-
2,300 _____ 1,800
______ 12,000
_____ 2,300
Closing cash
2.14 There are some points that need to be emphasised: Jane has introduced cash of £12,000 in order to start the business. This will often be described as capital introduced. The word “capital” probably causes more confusion in respect of accounts than any other word. The reason for this is that it is used in so many different contexts, and has different meanings according to that context. If the Beancounters Guild is engaged in restrictive practices in order to keep out the uninitiated, then the word “capital” is a very effective weapon in that endeavour. 2.15 Capital introduced (in a non-corporate setting) or share capital (in a corporate environment) is used to describe the stake that the owners initially have in the business. That stake might be represented by the cash that has been injected into the business: that cash injection may have been invested in property, plant or a van, it may be invested in trading stocks, or it may be used to repay liabilities of the business. That
5
Made with FlippingBook Learn more on our blog