Transcript ACCA and CIMA courses

FIA FA1
Recording
Financial
Transactions
Chapter 1
Business transactions
and documentation
What is a business?
Business transactions
Discounts
Sales tax
Storage of information
What is a business?
Business
• The purpose of a business is to make a profit for its owner(s)
• Profit = income less expenditure
• A business is a separate entity from its owner
• Every financial transaction has a dual effect
• Double entry bookkeeping accounts for the dual aspect of
financial transactions
Slide 3
Business transactions
• Wherever property changes hands there has been a business
transaction.
• A cash transaction is where the buyer pays cash to seller
when goods are transferred.
• A credit transaction is a sale or purchase which occurs
earlier than cash is received or paid.
Slide 4
Business transactions
Business transactions are recorded on documents. These are the
source of information in accounts and include:
•
Letter of enquiry
• Goods received note
•
Quotation
• Invoice
•
Sales/purchase order
• Credit note
•
Delivery note
• Till receipt
•
Inventory list
• Cheque
•
Supplier list
•
Staff timesheet
Slide 5
Business transactions
• Invoices and credit notes are important documents which must
contain specific information.
• An invoice is a demand for payment
• A credit note is used by a seller to cancel part or all of
previously issued invoice(s) If it helps, think of a credit note as a
negative invoice.
• The accounting system records, summarises and presents
the information contained in the documentation generated by
the transactions.
Slide 6
Discounts
• A discount is a reduction in the price of goods below the
amount at which those goods would normally be sold to other
customers of the supplier.
There are two types of discount:
• Trade discount
• Cash discount
Slide 7
Discounts
Trade discount
• A reduction in the amount of money demanded from a
customer
• Usually results from buying goods in bulk
• Given on supplier’s invoice
• No separate accounting required
Slide 8
Discounts
Cash discount
• An optional reduction in the amount of money payable by a
customer
• Given for immediate or very prompt payment financing decision
• Needs to be recorded separately in the books of account
Slide 9
Sales tax
Sales tax
• Is an indirect tax levied on the sale of goods and services
• Administered by tax authorities
• Can have a number of rates, eg standard rate, reduced rate
Slide 10
Sales tax
Output sales tax
• Sales tax charged by the business on goods/services
Input sales tax
• Sales tax on purchases made by the business
Slide 11
Sales tax
Output tax is greater than input tax?
• Pay difference to tax authorities
Input tax is greater than output tax?
• Refund due to business
Slide 12
Storage of information
Storage of information
• Paperwork must be properly handled to ensure security and
availability of information.
• A retention policy sets down for how long different kinds of
information are retained.
• Files of data may be temporary, permanent, active and
non-active.
• Information no longer needed on a daily basis is electronically
scanned for long-term storage, archived or securely
destroyed.
Slide 13
Storage of information
Storage of information
• Information stored about individuals is regulated by Data
Protection legislation.
Slide 14
Chapter 2
Assets, liabilities and the
accounting equation
The accounting equation
Accounts receivable and payable
Double entry
Capital and revenue expenditure
The accounting equation
• The accounting equation says:
Assets = Capital + Liabilities
Slide 16
The accounting equation
• Asset – something which a business owns or has the use of
• Liability – something which the business owes to someone
else
• Capital – investment of funds to earn a return. Capital is owed
to the owner
• Drawings – are amounts of money taken out of a business by
its owner
Slide 17
Accounts receivable and payable
Trade account receivable
• An account receivable is a person to whom the business has
sold items and by whom the business is owed money.
• A receivable is an asset of a business (the right to receive
payment is owned by the business).
Slide 18
Accounts receivable and payable
Trade account payable
• An account payable is a person from whom a business has
purchased items and to whom a business owes money.
• An account payable is a liability of the business.
Slide 19
Double entry
Basic principles
• Double entry bookkeeping is based on the same idea as the
accounting equation.
• Every accounting transaction has two equal but opposite
effects.
• Equality of assets and liabilities is preserved.
• Therefore, in a system of double entry bookkeeping, every
accounting event must be entered in ledger accounts both as
a debit and as an equal but opposite credit.
Slide 20
Double entry
A debit is one of the following:
• An increase in an asset
• An increase in an expense
• A decrease in a liability (or capital)
Slide 21
Double entry
A credit is one of the following:
• An increase in a liability (or capital)
• An increase in income
• A decrease in an asset
Slide 22
Capital and revenue expenditure
Capital expenditure
• Expenditure which results in the acquisition of non-current
assets, or an improvement in their earning capacity.
• Capital expenditure on non-current assets results in the
appearance of a non-current asset in the accounts of the
business.
• The total amount of capital expenditure is not deducted from
income in calculating the profit for an accounting period.
• It is deemed to be expenditure that brings benefits to the
business over more than one accounting period.
Slide 23
Capital and revenue expenditure
Revenue expenditure
• is expenditure which is incurred either:
–
for the purpose of the trade of the business, including
expenditure classified as selling and distribution expenses,
administration expenses and finance charges; or
–
to maintain the existing earning capacity of non-current
assets, eg repairs to non-current assets.
Slide 24
Chapter 3
Recordings, summarising
and posting transactions
Overview
Sales and purchase day books
Cash book
General ledger and double entry
Posting from the day books
Accounting processes
Overview
Slide 26
Sales and purchases day books
Sales day book
• Used to keep a list of all invoices sent out to customers each
day.
Slide 27
Sales and purchases day books
Purchase day book
• Used to keep a record of invoices which a business receives.
Slide 28
Sales and purchases day books
The sales returns day book
• When customers return goods for some reason, the returns
are recorded in the sales returns day book.
The purchase returns day book
• Kept to record credit notes received in respect of goods which
the business sends back to its suppliers.
Slide 29
Cash book
The cash book
• The cash book is a book of prime entry, used to keep a
cumulative record of money received and money paid out by
the business via its bank account.
Slide 30
Cash book
The cash book
• Cash receipts are recorded as follows, with the total column
analysed into its component parts.
Slide 31
Cash book
The cash book
• Discounts allowed are shown in a memorandum column
• Cash payments are recorded in a similar way
Slide 32
General ledger and double entry
General ledger
• The general ledger is the accounting record which
summarises the financial affairs of a business.
• It contains details of assets, liabilities and capital, income
and expenditure.
• It consists of a large number of different ledger accounts,
each account having its own purpose or 'name' and an
identity or code.
• Another name for the general ledger is the nominal ledger.
Slide 33
General ledger and double entry
Accounts within the general ledger include the following:
•
Plant and machinery (non-current asset)
•
Rent (expense)
•
Inventories (current asset)
• Total payables (current liability)
•
Sales revenue (income)
Slide 34
General ledger and double entry
A ledger account or 'T' account looks like this.
Slide 35
General ledger and double entry
Double entry
• Remember:
• Every accounting transaction has two equal but opposite effects
• Equality of assets and liabilities is preserved
Slide 36
General ledger and double entry
Debit
• Increase in expense
• Increase in asset
• Decrease in liability / capital
Credit
• Increase in income
• Increase in liability / capital
• Decrease in asset
Slide 37
General ledger and double entry
• The cash book is a good starting point for understanding double
entry.
Slide 38
General ledger and double entry
Slide 39
General ledger and double entry
Slide 40
General ledger and double entry
Slide 41
Posting from the day books
Posting from the day books
• Note that day books are often analysed as in the following
extract (date, customer name and reference not shown).
Total invoiced
CD revenue
$
Slide 42
$
340
160
180
120
70
50
600
350
250
1060 580
480
DVD revenue
$
Posting from the day books
• To identify revenue by product, total revenue would be entered
(‘posted’) as follows.
$
1,060
$
DEBIT
Receivables a/c
CREDIT
Revenue: CDs
580
Revenue: DVDs
480
• Other books of prime entry are analysed and posted in a similar
way
Slide 43
Posting from the day books
Receivables and payables ledgers
• To keep track of individual customer and supplier balances it is
common to maintain subsidiary ledgers called the
–
receivables ledger and
–
the payables ledger
• Each account in these ledgers represents the balance owed by
or to an individual customer or supplier.
Slide 44
Posting from the day books
Entries to the receivables ledger are made as follows.
• On sending out an invoice, when making an entry in the sales
day book, an entry is then made on the debit side of the
customer's account in the receivables ledger.
• When cash is received and an entry made in the cash book, an
entry is also made on the credit side of the customer's account
in the receivables ledger.
• The payables ledger operates in much the same way.
Slide 45
Posting from the day books
Important
• Remember that these receivables and payables ledgers are kept
purely for reference and are therefore known as
memorandum records. They do not normally form part of the
double entry system.
Slide 46
Posting from the day books
Control accounts
• Control accounts are part of the double entry system
• A receivables control account is posted with totals from
the sales day book and the cash book
• A payables control account is posted with totals from the
purchases day book and the cash book
• The control accounts should agree with the total of the
individual balances and act as a check on the recording of
transactions
• The control account balances appear in the final accounts
Slide 47
Posting from the day books
Accounting for sales tax
• Records of sales and purchases should not include sales tax
• It is recorded separately in the analysis columns of the day
books or cash book and posted to the sales tax account
• The tax paid to or recovered from the authorities each quarter
is the balance on the sales tax account
Slide 48
Accounting processes
Accounting process overview
Slide 49
Accounting processes
Computerised accounting
• The principles of a computerised system are exactly the same
as for manual accounting but the records or files are held in
electronic formats
• Computer activity is divided into input, processing and
output
• Batch processing is where similar transactions are gathered
into batches, then each batch is sorted and processed by
computer
• Control totals are used to make sure there have been no
errors when the batch is input
Slide 50