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CAT 1 Recording financial transactions

Course slides

For computer-based and

paper-based exams

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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

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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%

Examiner: Claire Estlin

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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 Interactive Text chapter)

Consider adding slides yourself to suit your course

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

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Chapter 1

Business transactions

and documentation

Interactive Text

Chapter 1

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Slide 6

Sales

SALES

SALES

Goods paid

for immediately

CASH SALES

CASH SALES

Goods delivered

before payment

made

CREDIT SALES

CREDIT SALES

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Slide 7

Purchases

PURCHASESPURCHASES

Goods paid

for immediately

CASH PURCHASESCASH PURCHASES

Goods delivered

before payment

made

CREDIT PURCHASESCREDIT PURCHASES

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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$ $

Vauxhall ItelRegistration A977 TMF 2,500.00 2,500.00

TOTAL 2,500.00

DISCOUNTSInclusive of

DUE PAID BY CHEQUE Sales tax 2,500.00

To: M Rose Videos10 The YardIlfordEssex

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

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Slide 9

Discounts

Trade discounts Given at time of sale/ purchase

Bulk buying


Bulk buying

Settlement discounts

Offered as incentive for early payment

For example 5% if settled within 14 days

May or may not be taken

Settlement discounts

Offered as incentive for early payment



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Slide 10

Sales tax

INDIRECT TAXINDIRECT TAX

Charge sales tax

on sales

OUTPUT TAXOUTPUT TAX

Suffer sales tax

on purchases

INPUT TAXINPUT TAX

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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

Sales tax is calculated on the amount

after all discounts regardless of

whether the discount is taken or not

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Slide 12

Contract law

What is a contract?

Legally binding agreement (offer and

acceptance)

Consideration

Breach of contract

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Slide 13

Implied terms

Goods mustExist

Match description

Be of satisfactory quality

Seller must have the right to sell

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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?

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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

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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

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Slide 17

Question practice end of Chapter 1

Business transactions and

documentation

You should now be able to attempt the following question setfrom the BPP Learning Media Practice and Revision Kit.

The material in this chapter is covered in the following BPP

Learning Media i-Pass tests.

Tests 1 and 2: Business

transactions and documentation

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Chapter 2

Assets, liabilities and theaccounting equation

Interactive Text

Chapter 2

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Slide 19

Profit

Income

Expenses

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Slide 20

$ $

ASSETSNon-current assets

Land and buildings 100,000

Plant and machinery 50,000

Motor vehicles 30,000

Fixtures and fittings 20,000200,000

Current assets

Inventories 55,000

Trade receivables 28,000

Cash in hand and at bank 7,000

90,000

Total assets 290,000

Assets

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Slide 21

$ $

Non-current liabilities

Bank loans 40,000

Current liabilities

Bank overdraft 16,000Trade payables 40,000

Accruals 4,000

60,000

Total liabilities 100,000

Liabilities

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Slide 22

The concept of business entity

A business is a separate entity from its

owner

Exclude personal transactions

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Slide 23

The accounting equation

ASSETS LIABILITIES=

Investment + -Profit

Drawings

ASSETS - LIABILITIESCAPITAL

=

+ CAPITAL

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Slide 24

Accounts receivable

SALE to customer creates

ACCOUNT RECEIVABLE (customer owes $)

ASSET of the business

CASH RECEIPT settles

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Slide 25

Accounts payable

PU

RCHASE from supplier creates

ACCOUNT PAYABLE (we owe $)

LIABILITY of the business

CASH PAYMENT settles

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Slide 26

General rules

reditsebits

xpenses

ssets

rawings apital invested

ncome

iabilities

CD

E

C

IA

D

L

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Slide 27

Capital v Revenue expenditure

Capital expenditure

Expenditure on the acquisition of non-

current assets orimprovement in theirearning capacity

Capital expenditure

Expenditure on the acquisition of non-

current assets orimprovement in theirearning capacity

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Slide 28

Capital v Revenue expenditure

Revenue expenditure

Trading expenses or the repair/

maintenance of non-current assets

Revenue expenditure

Trading expenses or the repair/

maintenance of non-current assets

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Slide 29


Assets, liabilities and the

accounting equation



Learning Media i-Pass test.

Test 5: The accounting equation

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Chapter 3 Interactive TextChapter 3

Recording, summarising

and posting transactions

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Slide 31

Invoice

Supplier account

Customeraccount

Remittance advicePayslip

Bank

statement

Delivery note

Source documents

Source document

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Slide 32

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 adjustments

correction of errorslarge/unusual transactions

Journal book other information

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Slide 33

Sales Day Book

Lists all sales made on creditDate Customer $

3.1.X7

5.1.X7

8.1.X7

14.1.X7

J. Spalding

G. McGregor

J. Spalding

G. McGregor

200

400

400

3001,300

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Slide 34

Purchase Day Book

Lists all purchases made on creditDate Supplier $

1.1.X74.1.X7

16.1.X7

Tewson Co.Manley & Co.

Manley & Co.

400350

200

950

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Slide 35

Cash Book

Records receipts andpayments into and out of the

bank

Often assumed to be twobooks

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Slide 36

Cash Book (receipts)

Date Narrative Total

$

Capital

$

Sales

$

Receivables

$

2.1.X75.1.X7

6.1.X7

F. BloggsJ. Spalding

J. Smith

4,000200

500

4,000

500

200

4,700 4,000 500 200

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Slide 37

Cash Book (payments)

Date Narrative Total

$

Purchases

$

Van

$

Rent

$

Payables

$

Petty

Cash

$

Drawings

$

6.1.X76.1.X7

8.1.X7

Manley & Co.Petty Cash

Digby Co

35050

1,000 1,000

35050

1,400 1,000 350 50

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Slide 38

General Ledger

ExampleAdvertising account

Date Details Ref $ Date Details Ref $

20X8

15/4 JFK PL8 2,500

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Slide 39

Ledger Accounts

Dr Cr

$ $

DEBIT CREDIT

TOTAL DEBITS = TOTAL CREDITS

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Slide 40

Cash Sales double entry

Dr Cash

Cr Sales

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Slide 41

Cash Purchases double entry

DrPurchases

Cr Cash

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Slide 42

Credit Sales double entry

Dr Accounts receivableCr Sales

When goods are sold

Dr Cash

Cr Accounts receivable

When cash is received

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Slide 43

Credit Purchases double entry

DrP

urchasesCr Accounts payable

When goods are purchased

Dr Accounts payable

Cr Cash

When cash is paid

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Slide 44

Memorandum Ledgers

Enable businesses to identify how much isowed by individual customers

And how much is owed to individual suppliers.

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Slide 45

Memorandum Ledgers

Receivables ledger

Shows the total owed by each

individual customer

Payables ledger

Shows the total owed to each individual

supplier

C l A

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Slide 46

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 Accountgiving information on receivables and

payables in total.

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Slide 47

Output Sales Tax

Dr Accounts receivableCr Sales

Cr Sales tax account

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Slide 48

Input Sales Tax recoverable

DrP


Cr Sales tax account

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Slide 49

Input Sales Tax not recoverable

DrP


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Slide 50


Recording, summarising and posting

transactions




Test 3: Double entry transactions

Ch 4

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Chapter 4

Completing

ledger accounts

Interactive Text

Chapter 4

J l

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Slide 52

Journal

Period end adjustments

Correction of errors

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Slide 53

Journal entry example

$ $DEBIT Accountancy fees 10,000

CREDIT Legal costs 10,000

With payments to accountants incorrectly

posted to legal fees

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Slide 54

Balancing off ledger accounts

1 Separately add debit and credit sides

2 Fill in higherof two totals on both sides

3 Balance the account balance c/d

4 Bring down balance b/d on opposite side

Th T l B l

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Slide 55

The Trial Balance

Lists the balances brought down on each

ledger account

Lists the balances brought down on each

ledger account

Debits = Credits

E l Mi S i h

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Slide 56

Example Miss Smith

Account Debit

$

Credit

$

Cash 720

Capital 500

Sales 2,200

Purchases 1,100

Furniture 500

Electricity 120

Telephone 60Drawings 200

Total 2,700 2,700

S

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Slide 57

Suspense accounts

Neverappear in the final accountsNeverappear in the final accounts

D li i h i i S

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Slide 58

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

C

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Slide 59

Computer terms

Input Entering data from original

documents

Processing Sorting data

Output Producing data in useful form

A i k

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Slide 60

Accounting packages

Dedicated

accountingpackages

Dedicated

accountingpackages

General

software

General

software

A i d l

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Slide 61

Accounting modules

A program which deals with one part of a

business accounting system

A program which deals with one part of a

business accounting system

May or may not be integratedMay or may not be integrated

Q i i d f Ch 4

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Slide 62


Completing ledger accounts




Test 11: The trial balance

Chapter 5 Interactive Text

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Chapter 5

Receiving and

checking money

Interactive Text

Chapter 5

R itt d i

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Slide 64

Remittance advice

C i R i t d R itt d i

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Slide 65

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

Till receipts

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Slide 66

Till receipts

Methods of payment other than cash

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Slide 67

Methods of payment other than cash

Credit card

Debit card

Cheque

Bankers draft

Security over cash receipts

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Slide 68

Security over cash receipts

Security guards and collections

Safe

Protective glass

Strong box Cash register

Night safes

Banking

Plastic cards

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Slide 69

Plastic cards

EFTPOS

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Slide 70

EFTPOS


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Slide 71


Receiving and checking money

You should now be able to attempt the following question set

from the BPP Learning Media Practice and Revision Kit.



Test 6: Banking and petty cash


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Chapter 6

Banking monies

received

Interactive Text

Chapter6

Banker customer relationship

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Slide 73

Banker-customer relationship

Comply with customers instructions

Honour cheques

Receive funds

Repayment on demand

Provide statement

Confidentiality

Paying in slip

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Slide 74

Paying-in slip

Preparing a paying-in slip

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Slide 75

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

Paying in cheques

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Slide 76

Paying in cheques

$ $

Returned cheques

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Slide 77

Returned cheques

Insufficient funds

Stolen cheques

Wrongly completed cheques

Out-of-date cheques

Banking credit card transactions

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Slide 78

Banking credit card transactions

Retailer

Bank

Credit Card Company

1

2 3

4


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Slide 79


Banking monies received







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Chapter 7

Recording monies

received

Chapter7

Security over cash register

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Slide 81

Security over cash register

Access keys kept in secure place

Staff training

Programming of preset information

Analysis of periodic information

Posting cash to General Ledger

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Slide 82

Posting cash to General Ledger

Book of

prime entry

Cash book

Summarisescash receipts

P

O

S

T

I

N

G

Ledger

account

Cash account

Records cashreceipts


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Slide 83


Recording monies received







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p

Authorising and

making payments

Chapter8

Controls over payments

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Slide 85

Controls over payments

Controls

Evidence - for

reason of

payment

Authorisation -

by appropriate

person

Cheque Requisition form

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Slide 86

Cheque Requisition form

Expenses claims

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Slide 87

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 claimedAuthorised by

Cash payments

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Slide 88

Cash payments

Small payments out of petty cash

Cash wages

Preparing cheques

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Slide 89

p g q

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

Stopping cheques

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Slide 90

pp g q

BankGiro Credit

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Slide 91

Standing Orders

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Slide 92

g

Examples: Hire purchase/Rental/Insurance

Business making payment specifies:

Desire to make regular payment

Amount

Frequency

Banking details of supplier

Standing Order Mandate

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Slide 93

g

Direct Debits

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Slide 94

Differ from standing orders:

Recipient initiates payment

Payments can be for variable amounts

Payments can be at irregular intervals

Direct Debit instruction

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Slide 95

Remittance Advice

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Slide 96


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Slide 97

Authorising and making payments






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Analysis of Cash Book

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Slide 99

Number of categories of purchases

Frequency of purchases

Split of business

How complicated cash book may become

Posting to the General Ledger

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Slide 100

g g

Sales Receipt Purchase

invoice Payment invoice

S/L SDB CB PDB P/L

General ledger

Use of automated credit systems

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Slide 101

Standing orders

Direct debits

Monthly salaries

Weekly wages


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Slide 102

Recording payments







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Maintaining petty

cash records

p

What is Petty Cash?

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Slide 104

Cash held in the form of coins and notes.

Used to pay small incidental expenses

Employees

Travel, groceries, postage

Suppliers

Cleaners

Security of Petty Cash

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Slide 105

Staff responsibility

Authority

Container

Limits

Supporting documentation

The Imprest system

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Slide 106

Pre-set limit of$50. At the beginning of theweek:

$10 note$10 note

$10 note

$10 note

$10 note

The Imprest system

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Slide 107

During the week:

Buy plants $10

Pay milkman $5

Now:

$10 note

$10 note$10 note $5 note

$10

voucher$5

voucher

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Petty Cash vouchers

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Slide 109

Sequentially numbered

Dated

Amount Sales tax (VAT) should be

analysed Signature

Authorisation

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Slide 111

Maintaining petty cash records







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Bank

reconciliations

Bank statement

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Slide 113

Bank Reconciliations

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Slide 114

Cash transactions

posted to

Cash books

posted to

Cash account in N/L

reconciles to

Bank statement

Differences: Cash Book v BankStatement

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Slide 115

Three reasons:

Timing differences

Errors by the business Errors by the bank

Bank Reconciliation

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Slide 116

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: outstanding lodgements X reconciles

Bank errors X/(X)

Adjusted balance Y


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Slide 117

Bank reconciliations





Test 12: Bank reconciliations


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Sales and sales

returns day books

Sales Day Book

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Slide 119

Lists all sales made on credit

Date Customer $

3.1.X75.1.X7

8.1.X7

14.1.X7

J. SpaldingG. McGregor

J. Spalding

G. McGregor

200400

400

3001,300

Coding

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Slide 120

Accounting codes used should be:

Unique

Useful

Compact

Meaningful

Self-checking & of standard size

Expandable

Coding systems

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Slide 121

Sequence Give next available

number

Block Different sequences

Significant digit Incorporates description

Hierarchical Interrelationship

Faceted Different features

Coding sales

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Slide 122

Sales invoice number

Product code numbers

Credit Sales postings

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Slide 123

Sales invoice

Sales day book

Daily postings Weekly/monthly postings

Sales ledger General ledger


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Slide 124

The receivables ledger

The material in this chapter is covered in the following question

set from the BPP Learning Media Practice and Revision Kit.



Test 7: Sales and sales records


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The receivables

ledger

Receivables Ledger

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Slide 126

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 SS1DATE DETA ILS INVOICES

$

RECEIPTS

$

BALANCE

$

Discounts

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Slide 127


Bulk buying


Bulk buying

Settlement discounts: Offered as incentive for early payment






Discounts allowed

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Slide 128

Offered to customersOffered to customers

Sales are recorded after trade

discounts but before settlementdiscounts

Sales are recorded after trade

discounts but before settlementdiscounts

Aged Receivables report

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Slide 129

Aged receivables reportCustomer Credit

LimitBalance Current

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Slide 130

An irrecoverable debt is a debt which

will definitely not be recovered

An irrecoverable debt is a debt which

will definitely not be recovered

Bad debts andirrecoverable

debts are the

same thing!

Doubtful debts

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Slide 131

A doubtful debt is a debt which is

possibly irrecoverable

A doubtful debt is a debt which is

possibly irrecoverable

Irrecoverable bad debts double entry

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Slide 132

Dr Irrecoverable debts account

Cr Accounts receivable


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Slide 133

The receivables ledger





Test 7: Sales and sales records


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Purchase and purchasereturns day book

Purchase Day Book

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Slide 135

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

Coding purchases

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Slide 136

Supplier account number

Product or service number

Purchase invoice sequence number

Posting credit purchases

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Slide 137

Purchase order/use of utilities

Purchase invoice

Purchase day book

Daily postings Weekly/monthly postings

Purchase ledger General ledger

Posting cash purchases

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Slide 138

Invoice

Cash payments book

Daily/weekly postings

General ledger


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Slide 139

The payables ledger

The material in this chapter is covered in the following question

set from the BPP Learning Media Practice and Revision Kit.



Test 8: Purchases and purchase

records


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The payables

ledger

Payables Ledger

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Slide 141

SUPPLIER ACCOUNT

Debit side Credit side

Payments made X Invoices received X

Purchase returns XDiscounts received X

Discounts

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Slide 142

Trade discounts

Given at time of sale/ purchase

Bulk buying

Trade discounts

Given at time of sale/ purchase

Bulk buying







Discounts received

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Slide 143

Received from the business suppliersReceived from the business suppliers

Purchases are recorded after tradediscounts but before settlement

discounts

Purchases are recorded after tradediscounts but before settlement

discounts

Suppliers statement

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Slide 144

STATEMENT OF ACCOUNT

Pickett (Handling Equipment) Co

Unit 7, Western Industrial EstateDunford DN2 7RJ

Tel : (01990) 72101 Fax: (01990) 72980 VAT Reg No 982 7213 49

Accounts Depa rtme ntFinstar Co67 Laker AvenueDunford DN4 5PS

31 May 20X1

F023

Date:

A/c No:

D

at eD

etails

Debi t Cred i t Ba lance

$ c

30/4/X1

3/5/X1

4/5/X1

5/5/X1

17/5/X1

18/5/X1

21/5/X1

28/5/X1

Balance brought forward from

previous statement

Invoice no. 34207

Invoice no. 34242

Payment rece ived - thank you

Invoice no. 34327

Credit note no. 00192

Invoice no. 34392

Credit note no. 00199

129 40

22 72

394 95

392 78

412 17

64 40

107 64

492 22

621 62

644 34

232 17

627 12

562 72

955 50

847 86

Amount now due 847 86$

Terms: 30 days net, 1% discount for payment in 7 days. E & OE

Reg i s te red o f f ice : 4 Arkwr i gh t Road , London E16 4PQ Reg i s te red in Eng land No 2182417

RECEIV

ED

1JUN

X1

$ c $ c

Suppliers statement reconciliation

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Slide 145

1 Tick off items which appear in

statement and payables ledger

2 Agree opening balance on suppliers

statement

3 Allocate payments to invoices after

allowing for credit notes

4 Identify differences

Checks over payments

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Slide 146

Authorisation of payments

Signing by cheque signatory

Attachment of supporting documents

Contras

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Slide 147

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


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Slide 148

The payables ledger





Test 8: Purchases and purchase

records


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Control accounts

Control Accounts

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Slide 150

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.

Reasons for control accounts

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Slide 151

Check on accuracy of ledger balances

Aid location of errors

Reinforce segregation of duties

Assist preparation of trial balance

Control account reconciliations

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Slide 152

Theory:

Balance per RLCA

=

Balance per list of balancesin receivables ledger

and similarly for the PLCA and payables ledger


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Slide 153

Control accounts and the trial

balance





Test 10: Control accounts


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Recording payroll

transactions

Payroll systems

B i h l t

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Slide 155

Basic hourly rate

Piecework systems

Wages = units produced x rate of pay per

unit Overtime

Bonus schemes

Commission

Employers legal responsibilities

O t i t t

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Slide 156

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

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Personnel records

A COMPANY PERSONNEL SYSTEM

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Slide 158

A COMPANY PERSONNEL SYSTEM

Name: A Chappel

Main Menu

1 Personal details2 Job and salary

3 Training

4 Exit

Payroll function

C l l ti f

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Slide 159

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

Timesheet

Example

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Slide 160

Example

Timesheet NoName Dept

Date Week Job Start Finish Qty Check Hour Rate Ext

Income Tax

Ta ded cted at so rce co ering all

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Slide 161

Tax deducted at source covering all

employees of an organisation

Benefit Contributions

U l t b fit

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Slide 162

Unemployment benefit

Income support

Healthcare contributions

State pension scheme contributions

Payslip

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Slide 163

Remittance advice

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Slide 164

Updating payroll records

Updating normally only done weekly or

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Slide 165

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

Payroll accounting entries

DR CR

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Slide 166

DR CR

Wages control X X

Staff costs (gross wages) X

Staff costs (employer

contributions)

X

Cash (net wages paid) X

PAYE liability X


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Recording payroll transactions





Test 9: Payroll

Documents

PS_CT1i_001