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1st year
Financial Accounting
Course Overview
1) The Books of Prime Entry & Double Entry Postings to the Nominal Ledger
2) The Trial Balance, Corrections and Suspense Accounts
3) Period End Adjustments (Inventory, Accruals/Prepayments, Depreciation, Irrecoverable Debts)
4) From the Trial Balance to the Financial Statements
5) Control Account Reconciliations
6) Bank Account Reconciliation Statements
7) Incomplete Records
8) Theory Topics
9) Exam Approach
Contents
2
3
The Books of Prime Entry
4
There are 7 Books of Prime Entry:
The Sales Day Book
The Sales Returns Day Book
The Purchases Day Book
The Purchases Returns Day Book
The Cash Book
The Petty Cash Book
The Journal
These books are the source of information that will be posted to the nominal ledger.
5
The 7 Books of Prime Entry:
Know exactly what transactions are recorded in each one.
Know the format and layout of each one, remember to analyse out the
transactions as appropriate.
Remember that entries are initially recorded in the Books of Prime Entry; these
records do not form part of the double entry system.
The summary information is recorded periodically in the nominal ledger
using the principles of double entry.
6
Transferring the entries from the Books of Prime Entry: Sales Day Book: Sales on Credit:
Dr Receivables
Cr Sales
Sales Returns Day Book: Sales Returns on Credit:
Dr Sales
Cr Receivables
Purchases Day Book: Purchases On Credit:
Dr Purchases
Cr Payables
Purchases Returns Day Book: Purchas Returns on Credit:
Dr Payables
Cr Purchases
7
Transferring the entries from the Books of Prime Entry:
Cash Book (Cheque Payments/Cash Receipts):
Sales for Cash:
Dr Bank/Cash
Cr Sales
Purchases for Cash:
Dr Purchases
Cr Bank
Payments made (out) to Payables:
Dr Payables
Cr Bank
Payments received from (in) Receivables:
Dr Bank
Cr Receivables
Discounts Received (i.e. Add Income):
Dr Payables
Cr Discounts Received (Profit Increases)
Discounts Allowed (i.e. Expense):
Dr Discounts Allowed (Profit Decreases)
Cr Receivables
8
Transferring the entries from the Books of Prime Entry:
The Journal:
The Journal is a book of Prime Entry which records transactions which are not routine
(and are not recorded in any other Book of Prime Entry), for example:
•Year End Adjustments
•Correction of Errors
•Acquisitions and Disposals of Fixed Assets
•Opening Balances
NB:
A journal should be laid out in the following way:
Dr N/L A/C Description X (always display the values!)
Cr N/L A/C Description X
And a brief narrative should be given to explain the entry.
i.e. Being ......... e.g. Being cash received from a customer.
9
Transferring the entries from the Books of Prime Entry:
VAT:
Remember that VAT is a charge applied on behalf of Revenue.
NB The Sales/Purchase Price exclusive = 100%
e.g. If the VAT rate is 20%, sales are 10,000 (VAT exclusive) and purchases are 15,000
(VAT inclusive); prepare the VAT return for the period?
Net VAT Gross VAT Calculation
Sales 10,000 2,000 12,000 (10,000 x 20%)
Purchases 12,500 2,500 15,000 (15,000 / 120*100)
500 Reclaimable
10
The Trial Balance
11
A Trial Balance is a list of the balances on the ledger accounts according to whether they are
on the debit or credit side.
The Trial Balance will balance if every debit entry made corresponds to an equal value credit
entry(s) and the balances were correctly extracted and added up.
The purpose of the Trial Balance is to check the accuracy of the double entry bookkeeping
procedures and as a first step in preparing the financial statements.
After the Trial Balance is extracted the records will be checked for errors, corrections will be
made if necessary and period end adjustments may be performed based on the information
at hand.
The Financial Statements can then be prepared.
12
Identification of errors which do not affect the Trial Balance:
•Error of Omission
•Error of Commission
•Error of Principle
•Compensating Errors
•Error of Original Entry (e.g. Under/Over Casting Errors)
•Reversal of Entries error
Each error can be reversed/corrected by means of a nominal journal.
13
Identification of errors which do affect the Trial Balance:
When the debits do not equal the credits, the Trial Balance does not balance so we open
and employ a temporary Suspense Account.
•Same Sided Entry Error
•Single Sided Entry Error
•Transposition Error
•Human Error/Extraction error
1. Record the difference in value from the Trial Balance in the suspense a/c.
2. Adjust the account that was originally recorded incorrectly, and complete the double entry
to the suspense account.
3. Ensure that the Suspense account is reduced to Nil.
Remember to note that there may be an effect on profit for the period.
14
Identification of errors which do affect the Trial Balance:
Remember to note, when correcting errors, that there may be an effect on profit for
the period.
When corrections debit a SOPL account, profit will decrease.
When corrections credit a SOPL account, profit will increase.
15
Period End Adjustments
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Adjusting for Opening/Closing Inventory:
Cost of Sales:
Opening Inventory X
Plus Purchases X
Less Purchase Returns (X)
Plus any Costs of Conversion X
Plus Carriage In X
Less Closing Inventory (X)
Cost of Sales X
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Cost of Sales:
Opening Inventory X
Plus Purchases X
Less Purchase Returns (X)
Plus Costs of Conversion X
Plus Carriage In X
Less Closing Inventory (X)
Cost of Sales X
Cost of Sales
Opening Inventory x Purchases x Carriage In x Costs of Conversion x
x
Purchase Returns x Closing Inventory x Trading A/C x __ x
18
Inventories:
Inventories (Stocks) shall be valued at the lower of cost and Net Realisable Value.
(per the Prudence Concept)
Cost: Includes the Cost of Purchase (less Trade discounts received, not settlement
discounts) and the Cost of Conversion.
NRV: is the Selling price less Trade Discounts given, and less all further costs to completion
and all marketing, selling and distribution costs.
Be sure that you can calculate and provide a definition for Cost and NRV.
NB:
When estimating the value of stock the estimate should be done
on an Item by Item basis,
similar items may be grouped into categories.
19
Inventories:
Methods of valuing original Cost:
FIFO : First in, First Out
AVCO : Average Cost Formula – Period Weighted Average
– Continuous Weighted Average
Remember that FIFO and AVCO give different values of closing Inventory.
This will in turn impact both profit and the SOFP value.
Remember that Inventory is an asset in the Financial Statements
and
affects the Cost of Sales section of the Statement of Profit and Loss.
20
Adjustments for Accruals and Prepayments:
The accruals concept is the fundamental foundation in the preparation of an Income
Account.
The concept dictates that the effects of transactions and other events are recognised when
they occur, (not as they are paid or monies are received) i.e. they are ‘matched’ and
reported in the financial statements for the current reporting period.
Accrued Expenses:
Are expenses ‘matched’ to the current Statement of Profit and Loss
21
Accrued Expenses:
Are expenses ‘matched’ to the current Statement of Profit and Loss, and are shown as a
liability in the Statement of Financial Position.
Dr Expense A/C X
Cr Accruals X
Being the expense incurred this period
The accrual recorded in the SOFP at the start of the next financial period will be reversed to
the appropriate expense a/c so that when the Bank transfer does finally occur, the expense
will not be recorded as matching to the period in question.
Expense A/C 09
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25
Accrual A/c Expense A/C 2010
22
Accrued Expenses:
Are expenses ‘matched’ to the current Statement of Profit and Loss, and are shown as a
liability in the Statement of Financial Position.
Dr Expense A/C X
Cr Accruals X
Being the expense incurred this period
The accrual recorded in the SOFP at the start of the next financial period will be reversed to
the appropriate expense a/c so that when the Bank transfer does finally occur, the expense
will not be recorded as matching to the period in question.
Expense A/C 09
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25
To P&L 100
Accrual A/c Expense A/C 2010
23
Accrued Expenses:
Are expenses ‘matched’ to the current Statement of Profit and Loss, and are shown as a
liability in the Statement of Financial Position.
Dr Expense A/C X
Cr Accruals X
Being the expense incurred this period
The accrual recorded in the SOFP at the start of the next financial period will be reversed to
the appropriate expense a/c so that when the Bank transfer does finally occur, the expense
will not be recorded as matching to the period in question.
Expense A/C 09
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Accrual 25
To P&L 100
Accrual A/c
Expense 25
Expense A/C 2010
24
Accrued Expenses:
Are expenses ‘matched’ to the current Statement of Profit and Loss, and are shown as a
liability in the Statement of Financial Position.
Dr Expense A/C X
Cr Accruals X
Being the expense incurred this period
The accrual recorded in the SOFP at the start of the next financial period will be reversed to
the appropriate expense a/c so that when the Bank transfer does finally occur, the expense
will not be recorded as matching to the period in question.
Expense A/C 09
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Accrual 25
To P&L 100
Accrual A/c
To P&L 2010 Expense 25
Expense A/C 2010
Accrual 25
25
Accrued Expenses:
Are expenses ‘matched’ to the current Statement of Profit and Loss, and are shown as a
liability in the Statement of Financial Position.
Dr Expense A/C X
Cr Accruals X
Being the expense incurred this period
The accrual recorded in the SOFP at the start of the next financial period will be reversed to
the appropriate expense a/c so that when the Bank transfer does finally occur, the expense
will not be recorded as matching to the period in question.
Expense A/C 09
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Accrual 25
To P&L 100
Accrual A/c
To P&L 2010 Expense 25
Expense A/C 2010
Bank Q4 09 25 Accrual 25
26
Prepaid Expenses:
Are expenses ‘excluded’ from the current Statement of Profit and Loss, and shown as an
asset in the Statement of Financial Position.
Dr Prepayments X
Cr Expense A/C X
Being an expense prepaid this period
The prepayment recorded in the SOFP at the start of the next financial period will be
reversed to the appropriate expense a/c so that the expense will be appropriately matched
to the coming period.
Expense A/C 09
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Bank 25 Q1 10 Bank 25
Prepayments A/c Expense A/C 2010
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Prepaid Expenses:
Are expenses ‘excluded’ from the current Statement of Profit and Loss, and shown as an
asset in the Statement of Financial Position.
Dr Prepayments X
Cr Expense A/C X
Being an expense prepaid this period
The prepayment recorded in the SOFP at the start of the next financial period will be
reversed to the appropriate expense a/c so that the expense will be appropriately matched
to the coming period.
Expense A/C 09
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Bank 25 Q1 10 Bank 25
To P&L 100
Prepayments A/c Expense A/C 2010
28
Prepaid Expenses:
Are expenses ‘excluded’ from the current Statement of Profit and Loss, and shown as an
asset in the Statement of Financial Position.
Dr Prepayments X
Cr Expense A/C X
Being an expense prepaid this period
The prepayment recorded in the SOFP at the start of the next financial period will be
reversed to the appropriate expense a/c so that the expense will be appropriately matched
to the coming period.
Expense A/C 09
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Bank 25 Q1 10 Bank 25
To P&L 100 To p/pay 25
Prepayments A/c
Expense 25
Expense A/C 2010
29
Prepaid Expenses:
Are expenses ‘excluded’ from the current Statement of Profit and Loss, and shown as an
asset in the Statement of Financial Position.
Dr Prepayments X
Cr Expense A/C X
Being an expense prepaid this period
The prepayment recorded in the SOFP at the start of the next financial period will be
reversed to the appropriate expense a/c so that the expense will be appropriately matched
to the coming period.
Expense A/C 09
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Bank 25 Q1 10 Bank 25
To P&L 100 To p/pay 25
Prepayments A/c
Expense 25 Reversal 25
Expense A/C 2010
Q1 p/pay 25
30
Accrued Income:
Is income ‘matched’ to the current Statement of Profit and Loss, and shown as an asset in
the SOFP i.e. recording the payment in that is still outstanding (akin to a Receivable)
Dr Accrued Income X
Cr Income A/C X
Being income generated this period
The o/s income recorded in the ‘Accrued income A/C’ in the balance sheet at the start of the
next financial period will be reversed to the appropriate income a/c (e.g. Rental Income) so
that the income will not be matched to the coming period when the financial transfer occurs.
Income A/C 09
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25
Accrued Income A/c Income A/C 2010
31
Accrued Income:
Is income ‘matched’ to the current Statement of Profit and Loss, and shown as an asset in
the SOFP i.e. recording the payment in that is still outstanding (akin to a Receivable)
Dr Accrued Income X
Cr Income A/C X
Being income generated this period
The o/s income recorded in the ‘Accrued income A/C’ in the balance sheet at the start of the
next financial period will be reversed to the appropriate income a/c (e.g. Rental Income) so
that the income will not be matched to the coming period when the financial transfer occurs.
Income A/C 09
To P&L 100 Q1 Bank 25 Q2 Bank 25 Q3 Bank 25
Accrued Income A/c Income A/C 2010
32
Accrued Income:
Is income ‘matched’ to the current Statement of Profit and Loss, and shown as an asset in
the SOFP i.e. recording the payment in that is still outstanding (akin to a Receivable)
Dr Accrued Income X
Cr Income A/C X
Being income generated this period
The o/s income recorded in the ‘Accrued income A/C’ in the balance sheet at the start of the
next financial period will be reversed to the appropriate income a/c (e.g. Rental Income) so
that the income will not be matched to the coming period when the financial transfer occurs.
Income A/C 09
To P&L 100 Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Accrual 25
Accrued Income A/c
Income Q4 25
Income A/C 2010
33
Accrued Income:
Is income ‘matched’ to the current Statement of Profit and Loss, and shown as an asset in
the SOFP i.e. recording the payment in that is still outstanding (akin to a Receivable)
Dr Accrued Income X
Cr Income A/C X
Being income generated this period
The o/s income recorded in the ‘Accrued income A/C’ in the balance sheet at the start of the
next financial period will be reversed to the appropriate income a/c (e.g. Rental Income) so
that the income will not be matched to the coming period when the financial transfer occurs.
Income A/C 09
To P&L 100 Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Accrual 25
Accrued Income A/c
Income Q4 25 Reversal 25
Income A/C 2010
Q4 Accrual 25
34
Accrued Income:
Is income ‘matched’ to the current Statement of Profit and Loss, and shown as an asset in
the SOFP i.e. recording the payment in that is still outstanding (akin to a Receivable)
Dr Accrued Income X
Cr Income A/C X
Being income generated this period
The o/s income recorded in the ‘Accrued income A/C’ in the balance sheet at the start of the
next financial period will be reversed to the appropriate income a/c (e.g. Rental Income) so
that the income will not be matched to the coming period when the financial transfer occurs.
Income A/C 09
To P&L 100 Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Accrual 25
Accrued Income A/c
Income Q4 25 Reversal 25
Income A/C 2010
Q4 Accrual 25 Bank Q4 25
35
Prepaid Income:
Is income ‘excluded’ from the current Statement of Profit and Loss, and shown as an liability
in the Statement of Financial Position i.e. recording the value owed to the other party (akin
to a Payable)
Dr Income A/C X
Cr Prepaid Income X
Being income prepaid this period
The income received is recorded in the ‘Prepaid income A/C’ in the balance sheet at the
start of the next financial period and is then reversed to the appropriate income a/c (e.g.
Rental Income) so that the income can be matched correctly to the coming period.
Income A/C 09
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Bank 25 Q1 10 Bank 25
Prepaid Income A/c Income A/C 2010
36
Prepaid Income:
Is income ‘excluded’ from the current Statement of Profit and Loss, and shown as an liability
in the Statement of Financial Position i.e. recording the value owed to the other party (akin
to a Payable)
Dr Income A/C X
Cr Prepaid Income X
Being income prepaid this period
The income received is recorded in the ‘Prepaid income A/C’ in the balance sheet at the
start of the next financial period and is then reversed to the appropriate income a/c (e.g.
Rental Income) so that the income can be matched correctly to the coming period.
Income A/C 09
To P&L 100 Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Bank 25 Q1 10 Bank 25
Prepaid Income A/c Income A/C 2010
37
Prepaid Income:
Is income ‘excluded’ from the current Statement of Profit and Loss, and shown as an liability
in the Statement of Financial Position i.e. recording the value owed to the other party (akin
to a Payable)
Dr Income A/C X
Cr Prepaid Income X
Being income prepaid this period
The income received is recorded in the ‘Prepaid income A/C’ in the balance sheet at the
start of the next financial period and is then reversed to the appropriate income a/c (e.g.
Rental Income) so that the income can be matched correctly to the coming period.
Income A/C 09
To P&L 100 To P/Pay Inc 25
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Bank 25 Q1 10 Bank 25
Prepaid Income A/c
Prepay 25
Income A/C 2010
38
Prepaid Income:
Is income ‘excluded’ from the current Statement of Profit and Loss, and shown as an liability
in the Statement of Financial Position i.e. recording the value owed to the other party (akin
to a Payable)
Dr Income A/C X
Cr Prepaid Income X
Being income prepaid this period
The income received is recorded in the ‘Prepaid income A/C’ in the balance sheet at the
start of the next financial period and is then reversed to the appropriate income a/c (e.g.
Rental Income) so that the income can be matched correctly to the coming period.
Income A/C 09
To P&L 100 To P/Pay Inc 25
Q1 Bank 25 Q2 Bank 25 Q3 Bank 25 Q4 Bank 25 Q1 10 Bank 25
Prepaid Income A/c
Reversal 25 Prepay 25
Income A/C 2010
Q1 Prepay 25
39
Irrecoverable Debts
Double Entry for Irrecoverable Debts
Dr Bad and Doubtful Debts Expense A/C x SOPL
Cr Receivables x SOFP
40
Allowances for Receivables
Double Entry to establish an Allowance for Receivables
Dr Bad and Doubtful Debts Expense A/C x SOPL
Cr Allowance for Receivables A/C x SOFP
Double Entry to increase the Allowance for Receivables
Dr Bad and Doubtful Debts Expense A/C x SOPL
Cr Allowance for Receivables A/C x SOFP
NB: Being the value of the increase only
Double Entry to decrease the Allowance for Receivables
Dr Allowance for Receivables A/C x SOFP
Cr Bad and Doubtful Debts Expense A/C x SOPL
NB: Being the value of the decrease only
41
Remember:
There are 2 types of allowance for Receivables that can be set up:
1. Specific Provision (against named customers/Receivables)
2. General Provision (usually a % against o/s customers/Receivables)
NB:
The specific provision will usually be calculated first; and then the general allowance (or
provision) for irrecoverable debts will be a % of the overall amount outstanding after
irrecoverable debts and specific allowances have been accounted for.
(Remember to read the requirements of the question!)
42
Allowance for Receivables A/C
To SOPL Decrease X Bal b/f Closing X X
Bal b/d Opening X To SOPL Increase X X Bal b/d Opening X
Format of the Allowance for receivables A/C:
43
Remember:
Receivables (SOFP A/C)
Irrecoverable and Doubtful Debts (Expense, SOPL A/C)
Allowance for Receivables A/C (SOFP A/C)
Also NB:
Double Entry for Bad Debts Recovered (written off in a previous period)
Dr Bank
Cr Irrecoverable Debts Expense A/C
Or
Dr Bank
Cr Irrecoverable Debts Recovered A/C (Income A/C)
44
Non-Current Assets and Depreciation:
NB: The Double Entry for Depreciation is:
Dr Depreciation Expense A/C x (SOPL)
Cr Accumulated Depreciation A/C x (SOFP)
Know how to explain the difference between Capital and Revenue Expenditure
Know the definition of Depreciation
Be aware of the following terms and how they relate to the estimation of Depreciation:
•Residual Value
•Useful Economic Life
•Net Book Value
• What is a fixed asset register?
45
NB: Methods of Depreciation
Straight Line Method
Reducing Balance Method
Policies for Depreciation
Full year in the year of acquisition and none in the year of disposal
Pro rata applied e.g. from month of acquisition to month of disposal.
46
NB: Disposal of A Fixed Asset
1. Remove the asset @ cost from the Books i.e. transfer to Disposal A/C
2. Remove the associated Accumulated depreciation from the Books
i.e. transfer to the Disposal A/C (you may need to calculate this!)
3. Enter the Cash or Value received on the Credit Side of the Disposal A/C
4. Balance off the Disposal A/C to calculate the Gain/Loss generated.
re: Part Exchange
Follow the usual rules of double entry for each transaction.
E.g. the part exchange constitutes the disposal of an asset
47
Financial Statements
48
The Trial Balance Question:
1. Identify the accounts in the Trial Balance under the following headings:
Statement of Profit and Loss:
Sales
Cost of Sales
Expenses
Statement of Financial position:
Non Current Assets
Current Assets
Current Liabilities/Long Term Liabilities
Capital/Drawings/Retained Profits etc
49
The Trial Balance Question:
2. Make the necessary adjustments per the additional information e.g.
Closing Inventory
Additional Income
Prepaid / Accrued Expenses
Depreciation
Irrecoverable Debts and Allowance for Receivables
Remember that most period end adjustments in this question will effect both the Statement
of Profit and Loss; and the Statement of Financial position.
Make sure that you complete the double entry for every adjustment!
50
The Trial Balance Question: Know the ProForma Layouts
Show your workings
Presentation is very important
Know your Double Entry
This is usually a well marked question; no longer definitely compulsory but it will appear.
Complete all sections, but do not worry if the SOFP does not balance (Do not waste time
trying to make the figures balance.)
Remember that the following accounts are Temporary and should not appear in the Final
Statements:
The Disposal A/C
The Suspense A/C
Remember that: Opening Assets – Liabilities = Opening Capital
51
Control Accounts
52
Definition:
A Control Account is an account in the nominal ledger in which a record is kept of the total
value of a number of similar but individual items. Control Accounts are primarily used for
Receivables and Payables.
i.e. Receivables Ledger Control Account = sum of the Receivables ledger
part of Double Entry memorandum accounts
And
Payables Ledger Control Account = sum of the Payables ledger
Purpose of Control Accounts
1. Summary of information
2. Means of checking accuracy
3. Assist in incomplete Records
4. Can be used to provide an internal check
53
Re Receivables:
NB: Remember the Double Entry to record Sales on Credit
Remember that an Allowance for Receivables does not affect the Receivables Ledger
Control A/C directly.
Cash Sales do not affect the Receivables Control A/C
NB: Prepare/Be familiar with a similar a/c for Payables Ledger Control A/C and understand
the double entries that will affect the A/C.
Receivables Ledger Control A/C
Bal b/d e.g. Customers who owe us x Credit Sales x Bank Returned x Interest Charged x
Bal b/d e.g. Customers we owe x Sales Returns x Cash Receipts (i.e. Bank) x Discount Allowed x Closing Bal x Irrecoverable Debts x Contra x
54
NB: To approach a Reconciliation Question:
Step 1: Prepare the e.g. Receivables Control A/C, insert the given opening balances and
record any required adjustments:
Step 2: Prepare the List of Balances, and Record any adjustments for errors, to reach a
revised total which should agree with the balance b/f (the revised balance) on the Control A/C:
Balance per List of Receivables X
Adjustments for Errors X / (X)
Revised Total X
Receivables Ledger Control A/C
Bal b/d e.g. Customers who owe us x Adjustment for Errors x
x Bal b/d x
Bal b/d e.g. Customer we owe x Adjustments for errors x Bal b/f x x
55
Always remember to identify whether the error affected the list of balances (i.e. The
memorandum accounts), the control A/C (i.e. Part of the nominal ledger), or both;
and then adjust accordingly.
Remember that a control account reconciliation question can come up in respect of
Receivables and/or Payables
Review the effect of errors on the Statement of Profit and Loss and Statement of Financial
position
The purpose of Control Account Reconciliations is to ensure that the summary details in the
Control A/C agrees with the details in the individual memorandum accounts (the ledgers).
The two should therefore have the same closing balance.
56
Bank Reconciliations
57
To approach a Bank Reconciliation Question:
1. Identify the entries common to both the cash book and Bank Statement.
2. Ensure the opening balances can be reconciled.
3. Update the Cash Book with any unticked (unrecorded) items from the Bank statement.
4. Enter any outstanding items in the reconciliation statement e.g. o/s lodgements and
cheques that have been recorded on the Cash Book.
5. Correct any error and complete the Reconciliation statement.
•Be careful of overdrawn balances
•Check that debits and credits between the bank statement and the cash book are correct.
58
To approach a Bank Reconciliation Question:
Balance per Bank Statement x
Plus outstanding Lodgements x
Less outstanding cheques (x)
Revised Cash Book Balance xx
Cash Book Balance (Revised)
59
The need for a Bank Reconciliation:
to identify -
1. Accuracy
2. Errors
3. Omissions
NB: Pro-forma Layout for a Bank Reconciliation Statement:
Balance as per Bank Statement: x
Add outstanding Lodgements x
Less Outstanding Cheques (x)
Balance as per Cash Book x
****Practice previous Exam Papers
60
NB: Know the Petty Cash Imprest System!
Theory and Practice
B/d Required Float XX
Less Total Expenses (x)
Plus Cash Replenishments x
Bal b/f Required Float XX
61
Incomplete Records
62
Incomplete Records:
NB: Net Assets Approach
Assets = Liabilities + Capital (i.e. as stated on the face of the SOFP)
Assets – Liabilities = Capital
Opening Assets + Capital Injections + Profit for the Year – Drawings = Closing Capital
• Use the Accounting Equation to identify the missing figure -
e.g. Capital/Drawings/Profit etc.
63
NB: Net Assets Approach : Pro Forma Layout
Net Assets at the End of the year X
Less Net Assets at the Start of the Year (X)
Increase/Decrease in net assets during the period X
Less Capital introduced during period (X)
Plus Drawings during the period X
= Profit or Loss for the period X
64
NB: The Balancing Figure Approach
Approach: Set up the relevant T-Account(s) and insert the information provided so you can
identify the missing figure.
If Opening Receivables were €90,000, total receipts from customers were €165,000 of which
€45,000 related to cash sales, discounts allowed were €9,000, discounts received were
€6,500 and closing receivables were €111,000;
what is the Sales Figure for the Statement of Profit and Loss?
Bank / Receivable / Payables
65
Receivables
Op Bal 90,000
66
Receivables
Op Bal 90,000
Bank 120,000
67
Receivables
Op Bal 90,000
Bank 120,000 Discount allowed 9,000
68
Receivables
Op Bal 90,000 B/d 111,000
Bank 120,000 Discount allowed 9,000
69
Receivables
Op Bal 90,000 B/d 111,000
Bank 120,000 Discount allowed 9,000 b/f 111,000
70
Receivables
Op Bal 90,000 B/d 111,000
Bank 120,000 Discount allowed 9,000 b/f 111,000 240,000
71
Receivables
Op Bal 90,000 Credit Sales 150,000 240,000 B/d 111,000
Bank 120,000 Discount allowed 9,000 b/f 111,000 240,000
72
Theory Topics
73
Anything can come up under theory, be prepared!
Format and language is important in this type of question.
─The separate entity principle
─ Types of Business Entity (incl. advantages and disadvantages)
─ Limited Liability
─ Management and Financial Accounting
─ Users of Financial Statements
─ Characteristics of Financial Statements
─ Accounting Concepts and Convention e.g. Going Concern, Prudence, Accruals
─ The role of the Accountant
─ Ethical issues facing the Accounting Technician
74
─ The Petty Cash Imprest System
─ The Books of Prime Entry
─ The purpose of the Trial Balance
─ FIFO/AVCO
─ Accruals/Prepayments
─ Capital/Revenue Expenditure
─ The purpose of Control Accounts
─ Nature and Purpose of Bank Reconciliations
─ The objective of the Financial Statements
─ Errors which do/do not affect the Trial Balance
─ The ‘Balancing figure’ in Incomplete Records
75
Exam Guidelines
76
Bring plenty of pens, calculator etc. (NO phones) Black pen, definitely NO pencils, red pen, tippex. Write on one side of the page only. Clearly label and ‘head’ your answers. Show your workings and cross reference your workings and answers. Workings should flow from the question e.g. put them on the page after your answer. Loose pages will NOT be provided but you can request a 2nd answer book. Remember to number the questions. Questions will be marked in the order submitted.
77
Be VERY careful about timing e.g. Approx 32 minutes per question, move on to the next question, come back to any unfinished questions at the end. READ THE PAPER IN FULL FIRST! Use the total amount of time allotted – double check your tots etc. Remember that presentation and clear communication is important. Breathe and relax as much as possible.
Disclaimer Care has been taken to ensure that all data and information in Academy lectures is factual and that numerical values are accurate.
To the best of our knowledge, all information in the Academy lectures is accurate at the time of publication.
Accounting Technicians Ireland and its lecturers assume no responsibility for errors or misinterpretation of the information contained in these lectures or in its use.
