Understanding Financial Transactions: Recording Sales, Purchases, and Reconciliation, Study notes of Finance

Download Understanding Financial Transactions: Recording Sales, Purchases, and Reconciliation and more Study notes Finance in PDF only on Docsity! Bookkeeping Transactions 28 Unit level GLH value Assessment 2 60 Unit and synoptic assessment Introduction This unit introduces students to the double-entry bookkeeping system and the associated documents and processes. Students will reach the stage of extracting an initial trial balance, before any adjustments are made. This unit provides students with the skills necessary to operate a manual double-entry bookkeeping system and provides a strong foundation for progression to more advanced manual and computerised activities. On completion of this unit, students will be able to check the accuracy of invoices, credit notes, remittance advices, statements of account and petty cash vouchers. They will know how to use these documents to make entries in sales and purchases daybooks, sales and purchases returns daybooks, and discounts allowed and received daybooks using account codes, as well as how to transfer those totals to the sales, purchases and general ledgers. The UK government department responsible for collecting taxes (HMRC) offers more than one method of accounting treatment when prompt payment discount (PPD) is allowed and received. However, students at Foundation level are only required to use credit notes to adjust for PPD. Using this approach, credit notes are recorded in separate daybooks, a discounts allowed daybook and/or a discounts received daybook, removing the need for discount columns in the cash book. There is no requirement at this level for learners to understand how to account for PPD by any other method. The cash book and petty cash book are also covered in this unit, including making entries into both and transferring totals to the ledgers. Students will make appropriate checks on the accuracy of supplier invoices and credit notes, reconcile supplier statements with the purchases ledger account and calculate payments due to suppliers. They will also calculate sales invoice and credit note amounts and check receipts from customers. This unit refers to value added tax or VAT. This is an indirect tax operating in the UK but this type of tax may also operate and be known by another name in other countries. Bookkeeping Transactions is a mandatory unit in this qualification. Learning outcomes 1. Understand financial transactions within a bookkeeping system 2. Process customer transactions 3. Process supplier transactions 4. Process receipts and payments 5. Process transactions through the ledgers to the trial balance Bookkeeping Transactions Bookkeeping Transactions 29 Scope of content This section illustrates the depth and breadth of content to be delivered for this unit. All areas indicated in the table below must be covered in teaching. In any one assessment, students may not be assessed on all content, or on the full depth or breadth of a piece of content. The content assessed may change over time to ensure validity of assessment, but all assessment criteria will be tested over time. 1. Understand financial transactions within a bookkeeping system 1.1 Indicate the purpose of business documents Students need to know: • the purpose of business documents: petty cash voucher, invoice, credit note (including for PPD), remittance advice, statement of account. 1.2 Distinguish between prompt payment, trade and bulk discounts Students need to know: • the difference between discounts offered: prompt payment, trade and bulk • how discounts are shown on invoices: prompt payment, trade and bulk • how to use credit notes to adjust for PPD and how PPD is recorded once taken: discounts allowed or discounts received daybook, sales or purchases ledger account, general ledger discounts allowed or received account as income or expenditure, sales or purchases ledger control account, value added tax (VAT) account. 1.3 Demonstrate an understanding of a coding system Students need to know: • the different types of code: customer account, supplier account, product • where to use codes: sales, sales returns and discounts allowed daybooks and purchases, purchase returns and discounts received daybooks, sales and purchases ledgers • how to create codes: alphabetical, numerical, alphanumerical. 1.4 Demonstrate an understanding of the process of recording financial transactions Students need to know: • the role of the books of prime entry: sales and sales returns daybooks, purchases and purchases returns daybooks, discounts allowed and discounts received daybooks • the role of the cash book and petty cash book: as a book of prime entry only, as a book of prime entry and as part of the double-entry bookkeeping system • the ledgers: sales, purchases and general • the accounting equation: calculation of assets, liabilities and capital, dual effect of transactions • the classification of items: assets and liabilities • the classification of income and expenditure: capital income, capital expenditure, revenue income, revenue expenditure • the purpose of the trial balance. Bookkeeping Transactions 32 4.2 Enter receipts and payments into an analysed petty cash book Students need to know: • the format of the petty cash book: date, details, amount, analysis columns (including VAT) • the documents to use: cash receipt, petty cash voucher. Students need to be able to: • calculate VAT amounts from net and total figures • make entries in the petty cash book, including reimbursement, using the imprest and non-imprest systems. 4.3 Total and balance the cash book and petty cash book Students need to be able to: • present totals and balances: column totals, balance carried down, balance brought down, debit balance, credit balance, date and details. 5. Process transactions through the ledgers to the trial balance 5.1 Transfer data from the books of prime entry to the ledgers Students need to know: • the books of prime entry: sales and sales returns daybooks, purchases and purchases returns daybooks, discounts allowed and discounts received daybooks, cash book, petty cash book • the ledgers: sales, purchases, general • that the sales and purchases ledger control accounts are part of the double-entry system. Students need to be able to: • transfer data from books of prime entry to the relevant accounts in the ledgers. 5.2 Total and balance ledger accounts Students need to be able to: • total and balance ledger accounts: balance carried down, balance brought down, debit balance, credit balance. 5.3 Extract an initial trial balance Students need to know: • to use the general ledger to extract balances • the column to use in the trial balance: debit, credit. Students need to be able to: • transfer balances to the initial trial balance • total and balance the initial trial balance. Bookkeeping Transactions 33 Delivering this unit This unit has the following links across the AAT Foundation Certificate in Accounting. Unit name Content links Suggested order of delivery Bookkeeping Controls Bookkeeping Transactions is the first of two bookkeeping units at Foundation level. With Bookkeeping Controls, it is the foundation for financial accounting at Advanced level. It is recommended that Bookkeeping Transactions is delivered either before or at the same time as Bookkeeping Controls. Elements of Costing The use of codes in this unit links with Elements of Costing. Elements of Costing might be delivered before, at the same time as or after Bookkeeping Controls. Using Accounting Software Bookkeeping Transactions gives students underlying knowledge that may support their study of Using Accounting Software. It is recommended that Bookkeeping Transactions is delivered either before or at the same time as Using Accounting Software. Links to standards This unit links with the following National Occupational Standards (NOS) for Accountancy and Finance: • FA-1 Process income • FA-2 Process expenditure • FA-3 Account for income and expenditure. Bookkeeping Transactions 34 Test specification for Bookkeeping Transactions unit assessment Please refer to the latest Qualification Technical Information (QTI) for specific legislation or rates that apply to the current assessments. Details can be accessed at aat.org.uk/about-aat/qualification-development Assessment method Marking Type Duration of exam Computer based assessment Computer marked 2 hours Learning outcomes Weighting 1. Understand financial transactions within a bookkeeping system 10% 2. Process customer transactions 10% 3. Process supplier transactions 15% 4. Process receipts and payments 25% 5. Process transactions through the ledgers to the trial balance 40% Total 100% Bookkeeping Controls 37 3.2 Reconcile control accounts Students need to be able to: • total the balances of the individual sales and purchases ledger accounts: sales ledger debit/credit balances, purchases ledger debit/credit balances • identify discrepancies between the sales and purchases ledger control accounts and the individual ledgers • identify reasons for discrepancies between the sales and purchases ledger control accounts and the individual ledgers. 4. Use the journal 4.1 Produce journal entries to record accounting transactions Students need to be able to: • record opening entries for a new business • identify and record entries to write off irrecoverable debts: record VAT where appropriate, calculate VAT from gross and net amounts • identify and record entries for payroll transactions: wages control account, gross pay, income tax, employer’s and employees’ National Insurance contributions (NIC), employer’s and employees’ pension and voluntary deductions. 4.2 Produce journal entries to correct errors not disclosed by the trial balance Students need to be able to: • correct errors using the journal: errors of commission, errors of omission, errors of original entry, errors of principle, reversal of entries, compensating errors. 4.3 Produce journal entries to correct errors disclosed by the trial balance Students need to be able to: • open a suspense account • correct errors and clear the suspense account using the journal. 4.4 Use journal entries to make adjustments in the ledger accounts Students need to be able to: • post journal entries to the general ledger accounts • total and balance the general ledger accounts: balance carried down, balance brought down. 4.5 Redraft the trial balance following adjustments Students need to be able to: • recalculate the balance of a general ledger account following journal entries • complete a trial balance from adjusted and unadjusted balances • balance the adjusted trial balance: total debit and credit columns. 5. Reconcile a bank statement with the cash book 5.1 Locate differences between items on the bank statement and entries in the cash book Students need to be able to: • recognise items on the bank statement but not in the cash book and recognise items in the cash book but not on the bank statement: opening balance differences, bank interest paid/received, bank charges, automated payments/receipts, unpresented cheques and outstanding lodgements. Bookkeeping Controls 38 5.2 Use the bank statement to update the cash book Students need to be able to: • make appropriate entries from the bank statement into the cash book: bank interest paid/received, bank charges and automated payments/receipts • total and balance the cash book: credit/debit balance carried down, credit/debit balance brought down. 5.3 Produce a bank reconciliation statement Students need to be able to: • use appropriate items to complete a bank reconciliation statement: closing bank statement credit balance, unpresented cheques, outstanding lodgements • check a bank statement has been correctly reconciled with a (debit) closing cash book balance. Delivering this unit This unit has the following links across the AAT Foundation Certificate in Accounting. Unit name Content links Suggested order of delivery Bookkeeping Transactions This unit builds on the knowledge and skills acquired from studying Bookkeeping Transactions, in particular double-entry bookkeeping techniques and reconciliation processes. It is recommended that Bookkeeping Controls is delivered either after or at the same time as Bookkeeping Transactions. Using Accounting Software Prior completion of both Foundation level manual bookkeeping units will benefit students studying Using Accounting Software. The skills and knowledge gained will enable students to understand the business environment and facilitate their comprehension of a computerised accounting system. It is recommended that Bookkeeping Controls is delivered either before or at the same time as Using Accounting Software. Links to standards This unit links with the following National Occupational Standards (NOS) for Accountancy and Finance: • FA-3 Account for income and expenditure. Bookkeeping Controls 39 Test specification for Bookkeeping Controls unit assessment Please refer to the latest Qualification Technical Information (QTI) for specific legislation or rates that apply to the current assessments. Details can be accessed at aat.org.uk/about-aat/qualification-development Assessment method Marking type Duration of exam Computer based assessment Computer marked 2 hours Learning outcomes Weighting 1. Understand payment methods 5% 2. Understand controls in a bookkeeping system 5% 3. Use control accounts 20% 4. Use the journal 50% 5. Reconcile a bank statement with the cash book 20% Total 100% Elements of Costing 42 Scope of content This section illustrates the depth and breadth of content to be delivered for this unit. All areas indicated in the table below must be covered in teaching. In any one assessment, students may not be assessed on all content, or on the full depth or breadth of a piece of content. The content assessed may change over time to ensure validity of assessment, but all assessment criteria will be tested over time. 1. Understand the cost recording system within an organisation 1.1 Recognise how costs are collected and classified in different types of organisation Students need to know: • how costs are collected in different organisations • what constitutes cost in different organisations and different types of organisation • how elements of cost are classified: labour, material, overhead • how costs are classified by nature: direct, indirect • how costs are classified by behaviour: fixed, variable, semi-variable. 1.2 Recognise common costing techniques used in an organisation Students need to know: • how product cost is determined: material, labour and overhead • inventory valuation methods: first-in-first-out (FIFO), last-in-first-out (LIFO), weighted average cost (AVCO) • labour costing methods: time-rate, overtime, piecework, bonus payments • overhead absorption methods: per unit, labour hours, machine hours. 1.3 Identify the relationship between the costing and financial accounting systems within an organisation Students need to know: • costing and financial accounting systems within an organisation • how each system uses cost: costing using many classifications of cost, financial accounting depending on historic cost. 1.4 Identify sources of information about income and expenditure Students need to know: • how historic cost is used for accounting and costing reporting • how costing systems use actual or budgeted costs to determine unit/job cost • how budgeted and actual costs are used for planning and control purposes. 1.5 Distinguish between cost, profit and investment centres Students need to know: • differences between cost centres, profit centres and investment centres • use of different centres in different organisations. 1.6 Identify how materials, labour and overheads are classified and recorded Students need to know: • how costs are classified: element, nature, behaviour, function • how costs are coded using numeric, alphabetic and alphanumeric coding systems • the components and construction of a manufacturing account. Elements of Costing 43 2. Use cost recording techniques 2.1 Calculate cost of inventory issues and inventory valuations Students need to be able to: • cost issue of inventory for management accounting purposes using FIFO, LIFO and AVCO • calculate closing values of inventory using FIFO, LIFO and AVCO (rounding figures as necessary). 2.2 Calculate labour payments Students need to be able to: • calculate labour payments: time-rate and overtime, piecework, bonuses. 2.3 Calculate overhead absorption rates Students need to be able to: • calculate simple overhead absorption rates: per unit, labour hours, machine hours (rounding figures as necessary) to show differing methods to arrive at unit cost. 2.4 Use cost behaviour to calculate total and unit costs Students need to be able to: • calculate total and unit costs at different levels of output • apply simple High-Low method to arrive at output costs at differing levels of output 2.5 Calculate the direct cost of a product Students need to know: • how direct cost is a component of product cost. Students need to be able to: • calculate direct cost of a product in a manufacturing organisation, taking into account the flow of inventory in the production process, what constitutes direct cost, manufacturing cost, cost of goods manufactured and cost of goods sold. 3. Provide information on actual and budgeted costs and income 3.1 Compare actual and budgeted costs and income Students need to be able to: • calculate differences between actual and budgeted costs and income • identify whether variance is adverse or favourable for costs and income. 3.2 Apply exception reporting to identify significant variances Students need to be able to: • calculate variances as a percentage of budget • identify significant variances according to an organisation’s policy • report significant variances to a relevant manager. Elements of Costing 44 Delivering this unit This unit has the following links across the AAT Foundation Certificate in Accounting. Unit name Content links Suggested order of delivery Bookkeeping Transactions The use of codes in this unit links with Bookkeeping Transactions. Bookkeeping Transactions might be delivered before, at the same time or after Elements of Costing. Links to standards This unit links with the following National Occupational Standards (NOS) for Accountancy and Finance: • MA-1 Provide cost and revenue information. Test specification for Elements of Costing unit assessment Please refer to the latest Qualification Technical Information (QTI) for specific legislation or rates that apply to the current assessments. Details can be accessed at aat.org.uk/about-aat/qualification-development Assessment method Marking type Duration of exam Computer based assessment Computer marked 1 hour 30 minutes Learning outcomes Weighting 1. Understand the cost recording system within an organisation 20% 2. Use cost recording techniques 60% 3. Provide information on actual and budgeted costs and income 20% Total 100% Using Accounting Software 47 3. Process bank and cash transactions 3.1 Process receipts and payments for non-credit transactions Students need to be able to: • process bank and cash receipts ensuring that VAT where applicable is posted to the correct account • process bank and cash payments ensuring that VAT where applicable is posted to the correct account. 3.2 Process recurring receipts and payments Students need to be able to: • set up and process a recurring bank receipt • set up and process a recurring bank payment. 3.3 Process petty cash receipts and payments Students need to know: • how to top up petty cash. Students need to be able to: • process petty cash payments ensuring that VAT where applicable is posted to the correct account • process petty cash receipts ensuring that VAT where applicable is posted to the correct account. 4. Perform period end routine tasks 4.1 Process journals Students need to be able to: • process journals: to correct errors, to record unrecorded transactions or adjustments. 4.2 Reconcile the bank statement Students need to know: • how to agree the payments and receipts for the period from the bank statement to the bank entries made on accounting software. Students need to be able to: • process unrecorded payments and receipts • reconcile the bank balance at the end of an accounting period. 5. Produce reports 5.1 Produce routine reports for customers and suppliers Students need to know: • how to identify the customer or supplier report required. Students need to be able to: • produce reports that meet business requirements. 5.2 Produce routine reports from the general ledger Students need to be able to: • produce a trial balance and audit trail • identify additional general ledger reports required • produce reports that meet business requirements. Using Accounting Software 48 Delivering this unit This unit has the following links across the AAT Foundation Certificate in Accounting. Unit name Content links Suggested order of delivery Bookkeeping Transactions Manual bookkeeping skills are useful underpinning knowledge for Using Accounting Software. It is recommended that Bookkeeping Transactions is delivered either before or at the same time as this unit. Bookkeeping Controls Control account reconciliations and basic journal adjustments offer useful underpinning knowledge for Using Accounting Software. It is recommended that Bookkeeping Controls is delivered either before or at the same time as this unit. Links to standards This unit links with the following National Occupational Standards (NOS) for Accountancy and Finance: • PS-1 Work effectively in accounts and finance • FA-1 Process income • FA-2 Process expenditure. Test specification for Using Accounting Software unit assessment Please refer to the latest Qualification Technical Information (QTI) for specific legislation or rates that apply to the current assessments. Details can be accessed at aat.org.uk/about-aat/qualification-development Assessment method Marking type Duration of exam Computer based assessment Human marked 2 hours Learning outcomes Weighting 1. Set up accounting software 25% 2. Process sales and purchases transactions 35% 3. Process bank and cash transactions 20% 4. Perform period end routine tasks 15% 5. Produce reports 5% Total 100% Work Effectively in Finance 49 Unit level GLH value Assessment 2 45 Synoptic assessment only Introduction This unit will help students to develop the professional skills and behaviours needed in the workplace. While this unit is set in the context of the finance function, these skills are transferable to many other working environments. Students will understand the work of the finance function and why that work is important to an organisation. They will understand that finance employees require more than numerical skills: they also need interpersonal and written communication skills. Students will learn the importance of being an effective employee and what this means, and how to work as part of a finance team. Students will be able to identify activities that develop current skills and knowledge, and those that will help them achieve future career aspirations. Students will understand how to ensure data security and the importance of maintaining confidentiality of information. Students will understand why corporate social responsibility is important and what actions individuals can take to ensure that they behave ethically and support sustainability. Studying this unit helps to prepare students for Advanced level Ethics for Accountants. The communication and numeracy skills included within this unit will be beneficial to those studying all AAT qualifications. The written communication skills element of this unit will prepare students for work and further study by developing their reading and writing skills. The basic numerical functions covered in this unit are important in all financial computations and, as such, students who successfully complete this unit should have an increased confidence in dealing with financial computations. Work Effectively in Finance is a mandatory unit in this qualification. Learning outcomes 1. Understand the finance function within an organisation 2. Use personal skills development in finance 3. Produce work effectively 4. Understand corporate social responsibility (CSR), ethics and sustainability within organisations Work Effectively in Finance Work Effectively in Finance 52 3.2 Communicate information effectively Students need to be able to: • communicate using acceptable business language • produce written communication that is clear, structured and follows a logical progression • prepare logical and clearly structured notes to plan for verbal communications. 3.3 Plan workload to meet the needs of the organisation Students need to know: • the importance of communicating with others during the completion of tasks or when deadlines are in danger of not being met • the importance of meeting agreed deadlines and adhering to working practices • the impact on others of not completing specified tasks. Students need to be able to: • work independently, and manage workload using time management techniques and planning aids • plan, prioritise, monitor and review workload within deadlines. 4. Understand corporate social responsibility (CSR), ethics and sustainability within organisations 4.1 Demonstrate an understanding of corporate social responsibility (CSR) Students need to know: • what CSR is • organisational actions that support CSR • good practice in organisations with a strong CSR commitment. 4.2 Identify how finance staff can support ethical business practices Students need to be able to: • maintain confidentiality of information • behave professionally in finance: acting with honesty and fairness, ensuring that professional knowledge is up to date. 4.3 Establish the features and benefits of sustainable business practices Students need to know: • areas of sustainability: economic, social, environmental • organisational actions that support sustainability • the impact of sustainability activities on the organisation: costs, benefits • the impact of sustainability activities outside the organisation: on stakeholders, on the environment, on society. Work Effectively in Finance 53 Delivering this unit This unit has the following links across the AAT Foundation Certificate in Accounting. Elements of this unit are found across the qualification and this unit may be delivered at any time throughout the course. However, it is recommended that the synoptic assessment is only taken when all other units have been completed. Unit name Content links Suggested order of delivery Bookkeeping Transactions Numerical skills, communication of information and professional behaviour may be linked with Bookkeeping Transactions. Bookkeeping Transactions might be delivered before, at the same time as or after Work Effectively in Finance. It is recommended that the synoptic assessment is only attempted after the contributing units are completed, although this is not compulsory. Bookkeeping Controls Numerical skills, communication of information and professional behaviour may be linked with Bookkeeping Controls. Bookkeeping Controls might be delivered before, at the same time as or after Work Effectively in Finance. It is recommended that the synoptic assessment is only attempted after the contributing units are completed, although this is not compulsory. Elements of Costing Numerical skills may be linked with Elements of Costing. Elements of Costing might be delivered before, at the same time as or after Work Effectively in Finance. It is recommended that the synoptic assessment is only attempted after the contributing units are completed, although this is not compulsory. Links to standards This unit links with the following National Occupational Standards (NOS) for Accountancy and Finance: • PS-1 Work effectively in accountancy and finance • PS-2 Professional ethics in accountancy and finance. 12. Synoptic test specification 54 Please refer to the latest Qualification Technical Information (QTI) for specific legislation or rates that apply to the current assessments. Details can be accessed at aat.org.uk/about-aat/qualification-development Assessment Marking type Duration of exam Computer based synoptic assessment Partially computer / partially human marked 2 hours 12.1 Assessment objectives Assessment objective 1 Demonstrate an understanding of the finance function and the roles and procedures carried out by members of an accounting team. Related learning outcomes Work Effectively In Finance LO1 Understand the finance function within an organisation LO2 Use personal skills development in finance LO3 Produce work effectively LO4 Understand corporate social responsibility (CSR), ethics and sustainability within organisations Assessment objective 2 Process transactions, complete calculations and make journal entries. Related learning outcomes Bookkeeping Transactions LO2 Process customer transactions LO3 Process supplier transactions LO4 Process receipts and payments LO5 Process transactions through the ledgers to the trial balance Assessment objective 3 Compare, produce and reconcile journals and accounts. Related learning outcomes Bookkeeping Controls LO3 Use control accounts LO4 Use the journal LO5 Reconcile a bank statement with the cash book Elements of Costing LO2 Use cost recording techniques LO3 Provide information on actual and budgeted costs and income Assessment objective 4 Communicate financial information effectively. Related learning outcomes Work Effectively In Finance LO3 Produce work effectively 12. Synoptic test specification