45446533 CAT T1 Recording Financial Transactions Course Slides

CAT 1 – Recording financial transactions

Course slides

For computer-based and

paper-based exams

Slide 2

Syllabus

1 Business transactions and documentation

2 Double entry bookkeeping

3 Banking and petty cash

4 Sales and sales records

5 Purchases and purchase records

6 Payroll

7 Control accounts and the initial trial balance

Slide 3

Examiner and exam format

Can be taken as a paper-based or computer-based exam

50 multiple-choice questions – 100 marks

Time allowed: 2 hours

Pass mark: 55%

Slide 4

The BPP Learning Media classroom slides

What do these slides cover?

– A selection of key areas of the syllabus

Using the slides – Use the slides as a point of reference

– Add detail by talking around the slides (eg using material from the corresponding Study Text chapter)

– Consider adding slides yourself to suit your course

– Recommend students attempt appropriate questions from the Practice & Revision Kit and from i-Pass

Chapter 1

Business transactions and documentation

Study Text Chapter 1

Slide 6

Sales

SALES

Goods paid

for immediately

CASH SALES

Goods delivered

before payment

made

CREDIT SALES

Slide 7

Purchases

PURCHASES

Goods paid

for immediately

CASH PURCHASES

Goods delivered

before payment

made

CREDIT PURCHASES

Slide 8

Invoice

‘G O GET EM AT GOTHAM!!’

W.E. GOTHAM USED CARS

Old Iron Gate Street, Wraillings Industrial Estate, Melchett

SALES INVOICE

No. A576 Date: 10 March 20X8

Item List Price Total£ p £ p

Vauxhall Itel

Registration A977 TMF 2,500.00 2,500.00

TOTAL 2,500.00

DISCOUNTSInclusive of

DUE PAID BY CHEQUE VAT 2,500.00

To: M Rose Videos10 The YardIlfordEsse x

Reg Office: Old Iron Gate Street, Wraillings Industrial Estate, MelchettReg No: 82912VAT Reg No: 5 439832

Slide 9

Discounts

Trade discounts

• Given at time of sale/ purchase

• Bulk buying

Settlement discounts

• Offered as incentive for early payment

• For example 5% if settled within 14 days

• May or may not be taken

Slide 10

Sales tax

INDIRECT TAX

Charge sales tax

on sales

OUTPUT TAX

Suffer sales tax

on purchases

INPUT TAX

Slide 11

Sales tax and Discounts

Sales tax is calculated on the amount

after all discounts regardless of

whether the discount is taken or not

Slide 12

Contract law

• What is a contract?

– Legally binding agreement (offer and

acceptance)

– Consideration

• Breach of contract

Slide 13

Implied terms

• Goods must

– Exist

– Match description

– Be of satisfactory quality

• Seller must have the right to sell

Slide 14

Storage of information

• Information stored must be:

– Accessible

– Secure

• What information may be needed by a

business?

• Who may be entitled to information from a

business?

Slide 15

Retention periods

• If you think you may need it, keep it

• Legal limits for different records

– Simple contracts – 6 years

– Income and sales tax) records – 6 years

– Purchase orders, sales invoices – 6 years

– Bank statements – 6 years

– Cheque counterfoils – 1 year

Slide 16

Data protection

• To protect individuals (data subjects)

• Data subjects have rights

– Gain access to personal data held

– Know why data is held and who has

access

– Have inaccurate data corrected or deleted

– Seek compensation

Chapter 2

Assets, liabilities and the accounting equation


Slide 18

Profit

• Income

• Expenses

Slide 19

$ $ $

ASSETS

Non-current assets

Land and buildings 100,000

Plant and machinery 50,000

Motor vehicles 30,000

Fixtures and fittings 20,000

200,000

Current assets

Inventories 55,000

Trade receivables 28,000

Cash in hand and at bank 7,000

90,000

Total assets 290,000

Assets

Slide 20

$ $ $

Non-current liabilities

Bank loans 40,000

Current liabilities

Bank overdraft 16,000

Trade payables 40,000

Accruals 4,000

60,000

Total liabilities 100,000

Liabilities

Slide 21

The concept of business entity

• A business is a separate entity from its

owner

• Exclude personal transactions

Slide 22

The accounting equation

ASSETS LIABILITIES=

Investment+

-Profit

Drawings

ASSETS - LIABILITIESCAPITAL

=

+ CAPITAL

Slide 23

Accounts receivable

SALE to customer creates

ACCOUNT RECEIVABLE (customer owes $)

ASSET of the business

CASH RECEIPT settles

Slide 24

Accounts payable

PURCHASE from supplier creates

ACCOUNT PAYABLE (we owe $)

LIABILITY of the business

CASH PAYMENT settles

Slide 25

General rules

reditsebits

xpenses

ssets

rawings apital invested

ncome

iabilities

CD

E

C

IA

D

L

Chapter 3 Study Text Chapter 3

Statement of financial position and income

statement

Slide 27

Statement of Financial Position & Income Statement

Statement of financial position –

worth of business at a point in time

Income statement –

trading activities over period

31.12.X6 31.12.X7

Income Statement for y/e 31.12.X7

Slide 28

Non-current Assets

• Land and buildings

• Plant and machinery

• Fixtures and fittings

• Vehicles

Slide 29

Current Assets

• Inventory

• Receivables

• Prepayments

• Bank and Cash

Slide 30

Current Liabilities

• Bank overdraft

• Trade payables

• Accruals

Slide 31

Non-current Liabilities

• Bank loans

Slide 32

Capital

• Share capital

• Reserves

Slide 33

Income Statement

• Income

• Expenses

Slide 34

Capital v Revenue expenditure

Capital expenditure

Expenditure on the acquisition of non-

current assets or improvement in their

earning capacity

Slide 35

Capital v Revenue expenditure

Revenue expenditure

Trading expenses or the repair/

maintenance of non-current assets

Chapter 4 Study Text Chapter 4

Recording, summarising

and posting transactions

Slide 37

Invoice

Supplier account

Customer

account

Remittance advicePayslip

Bank

statement

Delivery note

Source documents

Source document

Slide 38

Books of prime entry

Sales day book credit sales

Purchase day book credit purchases

Cash book movements in bank account

Petty cash book physical cash movements

e.g. period end adjustmentscorrection of errorslarge/unusual transactions

Journal book other information

Slide 39

Sales Day Book

Lists all sales made on credit

Date Customer $

3.1.X7

5.1.X7

8.1.X7

14.1.X7

J. Spalding

G. McGregor

J. Spalding

G. McGregor

200

400

400

300

1,300

Slide 40

Purchase Day Book

Lists all purchases made on credit

Date Supplier $

1.1.X7

4.1.X7

16.1.X7

Tewson Co.

Manley & Co.

Manley & Co.

400

350

200

950

Slide 41

Cash Book

• Records receipts and

payments into and out of the

bank

• Often assumed to be two

books

Slide 42

Cash Book (receipts)

Date Narrative Total

$

Capital

$

Sales

$

Receivables

$

2.1.X7

5.1.X7

6.1.X7

F. Bloggs

J.

Spalding

J. Smith

4,000

200

500

4,000

500

200

4,700 4,000 500 200

Slide 43

Cash Book (payments)

Date Narrative Total

$

Purchases

$

Van

$

Rent

$

Payables

$

Petty

Cash

$

Drawings

$

6.1.X7

6.1.X7

8.1.X7

Manley & Co.

Petty Cash

Digby Co

350

50

1,000 1,000

350

50

1,400 1,000 350 50

Slide 44

General Ledger

Example

Advertising account

Date Details Ref $ Date Details Ref $

20X8

15/4 JFK PL8 2,500

Slide 45

Ledger Accounts

Dr Cr

$ $

DEBIT CREDIT

TOTAL DEBITS = TOTAL CREDITS

Slide 46

Cash Sales double entry

Dr Cash

Cr Sales

Slide 47

Cash Purchases double entry

Dr Purchases

Cr Cash

Slide 48

Credit Sales double entry

Dr Accounts receivable

Cr Sales

When goods are sold

Dr Cash

Cr Accounts receivable

When cash is received

Slide 49

Credit Purchases double entry

Dr Purchases

Cr Accounts payable

When goods are purchased

Dr Accounts payable

Cr Cash

When cash is paid

Slide 50

Memorandum Ledgers

Can you identify how much J. Spalding

owes you from the following invoices?

Or how much you owe to Tewson Co.?

Slide 51

Memorandum Ledgers

• Receivables ledger

– Shows the total owed by each

individual customer

• Payables ledger

– Shows the total owed to each individual

supplier

Slide 52

Control Accounts

Receivables and payables recorded in two places

1. Sales and purchase ledgers giving information

on individual customers and suppliers

2. The general ledger

• Receivables account or Sales Ledger

Control Account

• Payables account or Purchase Ledger

Control Account

giving information on receivables and

payables in total.

Slide 53

Output Sales Tax

Dr Accounts receivable

Cr Sales

Cr Sales tax account

Slide 54

Input Sales Tax recoverable

Dr Purchases

Cr Accounts payable

Cr Sales tax account

Slide 55

Input Sales Tax not recoverable

Dr Purchases

Cr Accounts payable

Chapter 5

Completing ledger accounts


Slide 57

Journal

Period end adjustments

Correction of errors

Slide 58

Journal entry example

$ $

DEBIT Accountancy fees 10,000

CREDIT Legal costs 10,000

With payments to accountants incorrectly

posted to legal fees

Slide 59

Balancing off ledger accounts

1 Separately add debit and credit sides

2 Fill in higher of two totals on both sides

3 Balance the account – balance c/d

4 Bring down balance b/d on opposite side

Slide 60

The Trial Balance

Lists the balances brought down on each

ledger account

Debits = Credits

Slide 61

Example – Miss Smith

Account Debit

$

Credit

$

Cash 720

Capital 500

Sales 2,200

Purchases 1,100

Furniture 500

Electricity 120

Telephone 60

Drawings 200

Total 2,700 2,700

Slide 62

Suspense accounts

Never appear in the final accounts

Slide 63

Dealing with items in Suspense account

1 Determine what original entry was

made

2 Determine what original entry should

have been

3 Make required adjustment

Slide 64

Computer terms

Input Entering data from original

documents

Processing Sorting data

Output Producing data in useful form

Slide 65

Accounting packages

Dedicated

accounting

packages

General

software

Slide 66

Accounting modules

A program which deals with one part of a

business’ accounting system

May or may not be integrated

Chapter 6

Receiving and checking money


Slide 68

Remittance advice

Slide 69

Comparing Receipts and Remittance advice

1 Check remittance advice adds up

2 Compare total with receipt

3 Calculate and record any difference

4 Bank cheque and record receipts

5 Send remittance advice to receivables dept

Slide 70

Till receipts

Slide 71

Methods of payment other than cash

• Credit card

• Debit card

• Cheque

• Banker’s draft

Slide 72

Security over cash receipts

• Security guards and collections

• Safe

• Protective glass

• Strong box

• Cash register

• Night safes

• Banking

Slide 73

Cheque guarantee cards

Slide 74

Receipt of cheques

1 Examine cheques to ensure details correct

2 Make sure cheque is signed

3 Compare signatures on cheque and card

4 Check details on cheque guarantee card

5 Copy cheque guarantee card details to

back of cheque

Slide 75

Plastic cards

Slide 76

Accepting credit card receipts

1 Rub thumb over signature panel to check

not raised

2 Compare signatures on card and

vouchers

3 Check warning lists of stolen cards

4 Check card date is still valid

5 Check transaction does not exceed

business floor limit

Slide 77

EFTPOS

Chapter 7

Banking monies received


Slide 79

Banker-customer relationship

• Comply with customer’s instructions

• Honour cheques

• Receive funds

• Repayment on demand

• Provide statement

• Confidentiality

Slide 80

Paying-in slip

Slide 81

Preparing a paying-in slip

1 Count the cash

2 Add up how much cash is being banked

3 Compare total calculated with cash

register record

4 Calculate and investigate if discrepancy big

5 Enter total for each denomination of note

6 Add up numbers again and enter in total

cash box

Slide 82

Paying in cheques

Slide 83

Returned cheques

• Insufficient funds

• Stolen cheques

• Wrongly completed cheques

• Out-of-date cheques

X

Slide 84

Banking credit card transactions

qRetailer

Bank

Credit Card Company

1

2 3

4

Chapter 8

Recording monies received


Slide 86

Security over cash register

• Access keys kept in secure place

• Staff training

• Programming of preset information

• Analysis of periodic information

Slide 87

Posting cash to General Ledger

Book of

prime entry

Cash book

Summarises

cash receipts

p

O

S

T

I

N

G

Ledger

account

Cash account

Records cash

receipts

Slide 88

Question practice – end of Chapter 8

Recording monies received

You should now be able to attempt the following question set

from the BPP Learning Media Practice and Revision Kit.

The material in this chapter is covered in the following BPP

Learning Media i-Pass test.

Test 6: Banking and petty cash

Chapter 9

Authorising and making payments


Slide 90

Controls over payments

Controls

Evidence - for

reason of

payment

Authorisation -

by appropriate

person

Slide 91

Cheque Requisition form

Slide 92

Expenses claims

EXPENSES CLAIM $

Business travel X

Newspapers or magazines X

Telephone X

Petrol X

Car service and repair X

Total X

Receipts must be attached for all amounts claimed

Authorised by

Slide 93

Cash payments

• Small payments out of petty cash

• Cash wages

Slide 94

Preparing cheques

1 Prepare list of payments

2 Authorise payments

3 Check invoices to be paid

4 Prepare cheques

5 Sign cheques

6 Mark invoices as paid

7 Send cheques plus remittance advices

Slide 95

Stopping cheques

Slide 96

Bank Giro Credit

Slide 97

Standing Orders

Examples: Hire purchase/Rental/Insurance

Business making payment specifies:

• Desire to make regular payment

• Amount

• Frequency

• Banking details of supplier

Slide 98

Standing Order Mandate

Slide 99

Direct Debits

Differ from standing orders:

• Recipient initiates payment

• Payments can be for variable amounts

• Payments can be at irregular intervals

Slide 100

Direct Debit instruction

Slide 101

Remittance Advice

Chapter 10

Recording payments


Slide 103

Analysis of Cash Book

• Number of categories of purchases

• Frequency of purchases

• Split of business

• How complicated cash book may become

Slide 104

Posting to the General Ledger

Sales Receipt Purchase

invoice Payment invoice

S/L SDB CB PDB P/L

General ledger

Slide 105

Use of automated credit systems

• Standing orders

• Direct debits

• Monthly salaries

• Weekly wages

Chapter 11

Maintaining petty cash records


Slide 107

What is Petty Cash?

• Cash held in the form of coins and notes.

Used to pay small incidental expenses

• Employees

– Travel, groceries, postage

• Suppliers

– Cleaners

Slide 108

Security of Petty Cash

• Staff responsibility

• Authority

• Container

• Limits

• Supporting documentation

Slide 109

The Imprest system

Pre set limit of £50. At the beginning of the

week:

£10 note£10 note

£10 note

£10 note

£10 note

Slide 110

The Imprest system

• During the week:

Buy plants £10

Pay milkman £5

• Now:

£10 note

£10 note£10 note £5 note

£10

voucher£5

voucher

Slide 111

The Imprest system

At the end of the week

Write up expenses in the petty cash book

Top up cash (£15) to the imprest amount

(£50)

£10 note

£10 note

£10 note£10 note

£10 note

Slide 112

Petty Cash vouchers

• Sequentially numbered

• Dated

• Amount – Sales tax (VAT) should be

analysed

• Signature

• Authorisation

Slide 113

Petty Cash Book

Receipts Payments

21012

22

F. Bloggs

Metro fare

8.1.X7

1010City

Stationers

7.1.X750Cheque

cashed

6.1.X7

Travel

$

Stationery

$

Total

$

NarrativeDateTotal

$

NarrativeDate

Chapter 12

Bank reconciliations


Slide 115

Bank statement

Slide 116

Bank Reconciliations

Cash transactions

posted to

Cash books

posted to

Cash account in N/L

reconciles to

Bank statement

Slide 117

Differences: Cash Book v Bank Statement

Three reasons:

• Timing differences

• Errors by the business

• Errors by the bank

Slide 118

Bank Reconciliation

Cash account (cash book)

Bal b/d X Dishonoured chq X

Bank charges, direct debits X

Error in bal b/d X Bal c/d Y

X X

Balance per statement X

Less: unpresented cheques (X)

Add: uncleared lodgements X reconciles

Bank errors X/(X)

Adjusted balance Y

Chapter 13

Sales and sales returns day books


Slide 120

Sales Day Book

Lists all sales made on credit

Date Customer $

3.1.X7

5.1.X7

8.1.X7

14.1.X7

J. Spalding

G. McGregor

J. Spalding

G. McGregor

200

400

400

300

1,300

Slide 121

Coding

Accounting codes used should be:

– Unique

– Useful

– Compact

– Meaningful

– Self-checking & of standard size

– Expandable

Slide 122

Coding systems

Sequence Give next available

number

Block Different sequences

Significant digit Incorporates description

Hierarchical Interrelationship

Faceted Different features

Slide 123

Coding sales

• Sales invoice number

• Product code numbers

Slide 124

Credit Sales postings

Sales invoice

Sales day book

Daily postings Weekly/monthly postings

Sales ledger General ledger

Chapter 14

The receivables ledger


Slide 126

Receivables Ledger

Ledger account

CUSTOMER S S Ltd CREDIT LIMIT £3,000ADDRESS 11 The Drive TERMS 30 days from date of invoice

Alderney

DISCOUNT

DETAILS

none

TEL 550 6565 ACCOUNT Mrs C ControlFOLIO SS1

DATE DETA ILS INVOICES

£

RECEIPTS

£

BALANCE

£

Slide 127

Discounts

Trade discounts


• Bulk buying

Settlement discounts:




Slide 128

Discounts allowed

Offered to customers

Sales are recorded after trade

discounts but before settlement

discounts

Slide 129

Aged Receivables report

Aged receivables report Customer Credit

Limit Balance Current <60

days <90 days

>90 days

£ £ £ £ £ £

Slide 130

Irrecoverable debts

An irrecoverable debt is a debt which

will definitely not be recovered

Bad debts and

irrecoverable

debts are the

same thing!

Slide 131

Doubtful debts

A doubtful debt is a debt which is

possibly irrecoverable

Slide 132

Irrecoverable bad debts double entry

Dr Irrecoverable debts account

Cr Accounts receivable

Chapter 15

Purchase and purchase returns day book


Slide 134

Purchase Day Book

Lists all purchases made on credit

Date Supplier $

1.1.X7

4.1.X7

16.1.X7

Tewson Co.

Manley & Co.

Manley & Co.

400

350

200

950

Slide 135

Coding purchases

• Supplier account number

• Product or service number

• Purchase invoice sequence number

Slide 136

Posting credit purchases

Purchase order/use of utilities

Purchase invoice

Purchase day book

Daily postings Weekly/monthly postings

Purchase ledger General ledger

Slide 137

Posting cash purchases

Invoice

Cash payments book

Daily/weekly postings

General ledger

Chapter 16

The payables ledger


Slide 139

Payables Ledger

SUPPLIER ACCOUNT

Debit side Credit side

Payments made X Invoices received X

Purchase returns X

Discounts received X

Slide 140

Discounts

Trade discounts


• Bulk buying

Settlement discounts:




Slide 141

Discounts received

Received from the business’ suppliers

Purchases are recorded after trade

discounts but before settlement

discounts

Slide 142

Supplier’s statement

Slide 143

Supplier’s statement reconciliation

1 Tick off items which appear in

statement and payables ledger

2 Agree opening balance on supplier’s

statement

3 Allocate payments to invoices after

allowing for credit notes

4 Identify differences

Slide 144

Checks over payments

• Authorisation of payments

• Signing by cheque signatory

• Attachment of supporting documents

Slide 145

Contras

P Co owes F Co $70 but F Co owes P Co $200

Chapter 17

Control accounts


Slide 147

Control Accounts

Receivables and payables recorded in two places

1. Sales and purchase ledgers giving information

on individual customers and suppliers

2. The general ledger

• Receivables account or Sales Ledger

Control Account

• Payables account or Purchase Ledger

Control Account

giving information on receivables and

payables in total.

Slide 148

Reasons for control accounts

• Check on accuracy of ledger balances

• Aid location of errors

• Reinforce segregation of duties

• Assist preparation of trial balance

Slide 149

Control account reconciliations

Theory:

Balance per RLCA

=

Balance per list of balances

in receivables ledger

and similarly for the PLCA and payables ledger

Chapter 18

Recording payroll transactions


Slide 151

Payroll systems

• Basic hourly rate

• Piecework systems

– Wages = units produced x rate of pay per

unit

• Overtime

• Bonus schemes

• Commission

Slide 152

Employer’s legal responsibilities

• Operate income tax system

• Maintain and retain records

• Pay income tax and benefit contributions

• Allow tax office to access records

• Submit year-end returns

• Give employees payslips

Slide 153

Gross and net pay in the UK

GROSS WAGE

Net wage

Pension

Employee’s

NI

Income

tax

paid to employee paid to paid to tax authorities pension fund

Total cost to employer is full gross wage plus employers NI:

GROSS WAGE

Net wage

Pension

Employee’s

NI

Income tax

Employers

NI

TOTAL EXPENSE

Slide 154

Personnel records

A COMPANY PERSONNEL SYSTEM

Name: A Chappel

Main Menu

1 Personal details

2 Job and salary

3 Training

4 Exit

Slide 155

Payroll function

• Calculation of gross pay

• Calculation of tax and other deductions

• Preparing and distributing payslips

• Making returns to external agencies

• Arranging for payment of wages and

salaries

• Preparing payroll statistics

Slide 156

Timesheet

Example

Timesheet No

Name Dept

Date WeekJob Start Finish Qty Check Hour Rate Ext

Slide 157

Income Tax

Tax deducted at source covering all

employees of an organisation

Slide 158

Benefit Contributions

• Unemployment benefit

• Income support

• Healthcare contributions

• State pension scheme contributions

Slide 159

Payslip

Slide 160

Remittance advice

Slide 161

Updating payroll records

• Updating normally only done weekly or

monthly

• Same type of entry takes place every month

• Use of wages control account as half of

double entry

Slide 162

Payroll accounting entries

DR CR

Wages control X X

Staff costs (gross wages) X

Staff costs (employer

contributions)

X

Cash (net wages paid) X

PAYE liability X

Documents

45446533 CAT T1 Recording Financial Transactions Course Slides