Quick sums

The direct costs are variable: £640 for every table. Treat the indirect costs as fixed at £11,000 a month.

In July Fernhill Furniture makes 125 tables.

The variable cost of each table does not change. The fixed costs are spread over more tables.

When the invoice had VAT on it, the business owes that VAT to HMRC even though the customer never paid. If the business can claim the VAT back, the VAT account is debited. A question will always say when it can.

Pedal Couriers owes £720, which includes VAT at 20%. Marlow Cycles can claim the VAT back. VAT at 20% is one sixth of the gross amount.

• Debit Irrecoverable debts with the net amount
• Debit VAT with the VAT
• Credit Trade receivables with the gross amount

Start from the balance on the bank statement. Add money paid in that is not shown yet. Take off cheques that have not cleared.

Balance per bank statement

start here

Add outstanding lodgements

money paid in, not yet shown

Less unpresented cheques

payments not yet cleared

Balance per cash book

the answer must match this

The cash book was updated for the bank charges and the direct debit, so it now shows £2,000.

Banks charge a business for its payments. Fernhill's bank charges £0.35 for each BACS payment and £25 for each CHAPS payment here.

In the books, a transfer to a supplier does two things. The amount owed to the supplier goes down, and so does the bank balance.

Sometimes you have two amounts and want the percentage. The part is the smaller amount. The whole is the amount it is part of.

• Step 1: divide the part by the whole
• Step 2: multiply by 100

Worked example: £45 out of £180. 45 ÷ 180 = 0.25. Then 0.25 × 100 = 25%.

Next, check each deduction against the gross pay on the payslip.

Tom's tax code is 1200L. In this room that makes £1,000 of his month's pay tax-free, and income tax is 20% of the rest.

National Insurance here is 10% of pay above £1,100 a month.

A sale that VAT applies to is called a taxable supply. Every taxable supply carries one of three rates.

Standard rate, 20%

most goods and services

Reduced rate, 5%

a short list, such as children's car seats, and gas and electricity for a home

Zero rate, 0%

a longer list, such as most food, books, and children's clothes and shoes

The rate depends on what is sold, not on who sells it. The lists are set by law and are published on GOV.UK.

Deferred income is money received this year for work that will be done next year. Until the work is done, the business owes it.

On 1 December, Fellgate Hotel pays the joinery £1,800 for a furniture care contract. It covers the 6 months from 1 December to 31 May. The whole receipt was credited to Contract income.

Only December has been earned by the year end. The other five months are deferred income, shown under current liabilities.

• Debit the income account: the income for the year goes down
• Credit Deferred income: a liability, because the joinery still owes the work