Sort and match

One document, two businesses. To the seller it is a sales invoice. To the buyer it is a purchase invoice.

The seller's customer is a trade receivable. The buyer's supplier is a trade payable.

The seller collects the VAT from the customer and later pays it to HMRC. Until then the seller owes it, so it is a credit in the VAT account.

Some payments are not sales of goods or services at all. VAT has nothing to do with them. They are outside the scope of VAT.

• Wages paid to staff
• Money the owner takes out of the business
• Money moved between the business's own bank accounts
• Tax paid to HMRC

There is no VAT to charge and none to claim back. These payments are left out of the VAT records.

Liabilities, capital and income normally have a credit balance.

A credit balance on Trade payables is money the business still owes its suppliers.

The business writes a payment in its cash book on the day it is made. The bank only shows it when the money actually moves.

Unpresented cheque

a payment in the cash book that has not reached the bank statement yet

Outstanding lodgement

money paid in, in the cash book, that the bank has not shown yet

These are timing differences. They clear by themselves within a few days.

A cheque is a written instruction to a bank to pay someone. It is rare now, but some customers still pay this way.

Drawer

the person or business that writes and signs the cheque

Payee

the person or business to be paid

Drawee

the drawer's bank, which pays the money

A bank will only pay a cheque that is signed, has the same amount in words and in figures, and is dated within the last six months.

A cheque is not money straight away. It has to clear, which normally takes until the end of the next working day. If the drawer does not have enough money, the bank returns the cheque unpaid, and the debt is still owed.

Every asset is debited. Every liability is credited. Capital is credited.

The narrative is short, such as: Opening entries of Marlow Cycles at 1 May.

If the two columns do not agree, the capital figure has been worked out wrongly.