CAT T1 Recording Financial Transactions Course Slides

CAT 1 Recording financial transactions
Course slides
For computer-based and paper-based exams
Syllabus
1 2 Business transactions and documentation Double entry bookkeeping
3
4
Banking and petty cash

Sales and sales records
5
6
Purchases and purchase records

Payroll
7
Slide 2
Control accounts and the initial trial balance
Examiner and exam format
Can be taken as a paper-based or computer-based exam
50 multiple-choice questions 100 marks
Time allowed: 2 hours Pass mark: 55%

Slide 3
The BPP Learning Media classroom slides

What do these slides cover?
A selection of key areas of the syllabus
Using the slides

Use the slides as a point of reference Add detail by talking around the slides (eg using material from the corresponding Study Text chapter) Consider adding slides yourself to suit your course Recommend students attempt appropriate questions from the Practice & Revision Kit and from i-Pass
Slide 4
Chapter 1
Study Text Chapter 1
Business transactions and documentation
Sales SALES
Goods paid for immediately CASH SALES

Slide 6
Goods delivered before payment made
CREDIT SALES
Purchases PURCHASES
Goods delivered Goods paid before payment for immediately made CASH PURCHASES CREDIT PURCHASES
Slide 7
Invoice
G O GET EM AT GOTHAM!!
W.E. GOTHAM USED CARS
Old Iron Gate Street, Wraillings Industrial Estate, Melchett
SALES INVOICE No. A576

Item Vauxhall Itel Registration A977 TMF 2,500.00 2,500.00
Date: 10 March 20X8

List Price p Total p
TOTAL DISCOUNTS DUE PAID BY CHEQUE Inclusive of VAT
2,500.00
2,500.00
To:
M Rose Videos 10 The Yard Ilford Esse x
Reg Office: Old Iron Gate Street, Wraillings Industrial Estate, Melchett Reg No: 82912 VAT Reg No: 5 439832
Slide 8
Discounts
Trade discounts Given at time of sale/ purchase Bulk buying
Settlement discounts Offered as incentive for early payment For example 5% if settled within 14 days May or may not be taken
Slide 9
Sales tax INDIRECT TAX
Charge sales tax on sales OUTPUT TAX

Slide 10
Suffer sales tax on purchases
INPUT TAX
Sales tax and Discounts
Sales tax is calculated on the amount after all discounts regardless of whether the discount is taken or not
Slide 11
Contract law
What is a contract?
Legally binding agreement (offer and acceptance) Consideration
Breach of contract
Slide 12
Implied terms
Goods must
Exist Match description Be of satisfactory quality
Seller must have the right to sell
Slide 13
Storage of information
Information stored must be:
Accessible Secure What information may be needed by a business? Who may be entitled to information from a business?
Slide 14
Retention periods
If you think you may need it, keep it
Legal limits for different records
Simple contracts 6 years Income and sales tax) records 6 years Purchase orders, sales invoices 6 years Bank statements 6 years Cheque counterfoils 1 year
Slide 15
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
Slide 16
Chapter 2
Assets, liabilities and the accounting equation
Profit
Income
Expenses
Slide 18
Assets
$
ASSETS Non-current assets Land and buildings Plant and machinery Motor vehicles Fixtures and fittings
100,000 50,000 30,000 20,000 200,000
Current assets Inventories Trade receivables Cash in hand and at bank

Total assets
Slide 19
55,000 28,000 7,000
90,000 290,000
Liabilities
$ Non-current liabilities Bank loans Current liabilities Bank overdraft Trade payables Accruals Total liabilities 16,000 40,000 4,000 60,000 100,000 $ $
40,000
Slide 20
The concept of business entity

A business is a separate entity from its owner Exclude personal transactions
Slide 21
The accounting equation

ASSETS = LIABILITIES
CAPITAL
ASSETS
- LIABILITIES
CAPITAL
Investment
+ Profit
Drawings
Slide 22
Accounts receivable
SALE to customer creates ACCOUNT RECEIVABLE (customer owes $)
ASSET of the business CASH RECEIPT settles
Slide 23
Accounts payable
PURCHASE from supplier creates ACCOUNT PAYABLE (we owe $)
LIABILITY of the business CASH PAYMENT settles
Slide 24
General rules
D ebits E xpenses
C redits L iabilities
A ssets
D rawings
Slide 25
I ncome
C apital invested
Chapter 3
Statement of financial position and income statement
Statement of Financial Position & Income Statement
Statement of financial position worth of business at a point in time

Income Statement for y/e 31.12.X7
31.12.X6
31.12.X7
Income statement trading activities over period

Slide 27
Non-current Assets
Land and buildings
Plant and machinery
Fixtures and fittings

Vehicles
Slide 28
Current Assets
Inventory Receivables
Prepayments
Bank and Cash
Slide 29
Current Liabilities
Bank overdraft
Trade payables
Accruals
Slide 30
Non-current Liabilities
Bank loans
Slide 31
Capital
Share capital
Reserves
Slide 32
Income Statement
Income
Expenses
Slide 33
Capital v Revenue expenditure

Capital expenditure
Expenditure on the acquisition of noncurrent assets or improvement in their earning capacity
Slide 34
Capital v Revenue expenditure

Revenue expenditure
Trading expenses or the repair/ maintenance of non-current assets
Slide 35
Chapter 4
Recording, summarising and posting transactions
Source documents
Invoice
Delivery note Supplier account Customer account
Bank statement Payslip
Source document
Remittance advice
Slide 37
Books of prime entry

Sales day book Purchase day book Cash book Petty cash book Journal book credit sales
credit purchases
movements in bank account physical cash movements other information e.g. period end adjustments correction of errors large/unusual transactions
Slide 38
Sales Day Book

Lists all sales made on credit
Date 3.1.X7 5.1.X7 8.1.X7 14.1.X7 Customer J. Spalding G. McGregor J. Spalding G. McGregor $ 200 400 400 300 1,300
Slide 39
Purchase Day Book

Lists all purchases made on credit
Date 1.1.X7 Supplier Tewson Co. $ 400
4.1.X7
16.1.X7
Manley & Co.

Manley & Co.
350
200 950
Slide 40
Cash Book
Records receipts and payments into and out of the bank
Often assumed to be two books
Slide 41
Cash Book (receipts)

Date Narrative Total $ Capital $ Sales $ Receivables $
2.1.X7 5.1.X7 6.1.X7
F. Bloggs J. Spalding J. Smith
4,000 200 500 4,700
4,000 200 500 4,000 500 200
Slide 42
Cash Book (payments)
Date
Narrative
Total $
Purchases $
Van $
Rent $
Payables $ 350
Petty Cash $
Drawings $
6.1.X7
Manley & Co.
350
6.1.X7
8.1.X7
Petty Cash
Digby Co
50
1,000 1,000
50
1,400
1,000
350
50
Slide 43
General Ledger
Example
Advertising account
Date Details Ref $ Date Details Ref $
20X8 15/4 JFK PL8 2,500
Slide 44
Ledger Accounts
Dr $ DEBIT
TOTAL DEBITS
Slide 45
Cr $ CREDIT
= TOTAL CREDITS
Cash Sales double entry
Dr Cash
Cr Sales
Slide 46
Cash Purchases double entry
Dr Purchases
Cr Cash
Slide 47
Credit Sales double entry
Dr Accounts receivable
Cr Sales
When goods are sold
Dr Cash
Cr Accounts receivable
When cash is received
Slide 48
Credit Purchases double entry
Dr Purchases
Cr Accounts payable
When goods are purchased
Dr Accounts payable
Cr Cash
When cash is paid
Slide 49
Memorandum Ledgers
Can you identify how much J. Spalding owes you from the following invoices?
Or how much you owe to Tewson Co.?
Slide 50
Memorandum Ledgers
Receivables ledger
Shows the total owed by each individual customer Payables ledger

Shows the total owed to each individual supplier
Slide 51
Control Accounts
Receivables and payables recorded in two places
1. Sales and purchase ledgers giving information on individual customers and suppliers 2. The general ledger Receivables account or Sales Ledger Control Account Payables account or Purchase Ledger Control Account giving information on receivables and payables in total.
Slide 52
Output Sales Tax
Dr Accounts receivable
Cr Sales
Cr Sales tax account
Slide 53
Input Sales Tax recoverable
Dr Purchases
Cr Accounts payable
Cr Sales tax account
Slide 54
Input Sales Tax not recoverable
Dr Purchases
Cr Accounts payable
Slide 55
Chapter 5
Completing ledger accounts
Journal
Period end adjustments
Correction of errors
Slide 57
Journal entry example
$
DEBIT Accountancy fees 10,000
$ 10,000
CREDIT Legal costs
With payments to accountants incorrectly posted to legal fees
Slide 58
Balancing off ledger accounts

1 2 Separately add debit and credit sides Fill in higher of two totals on both sides
3
4
Balance the account balance c/d

Bring down balance b/d on opposite side
Slide 59
The Trial Balance
Lists the balances brought down on each ledger account
Debits = Credits
Slide 60
Example Miss Smith

Account
Cash
Debit
$ 720
Credit
$
Capital Sales Purchases Furniture Electricity Telephone Drawings Total

Slide 61
500 2,200
1,100 500 120 60 200
2,700
2,700
Suspense accounts
Never appear in the final accounts
Slide 62
Dealing with items in Suspense account

1 Determine what original entry was made Determine what original entry should have been Make required adjustment
Slide 63
Computer terms
Input Entering data from original documents Sorting data Producing data in useful form
Processing
Output
Slide 64
Accounting packages
Dedicated accounting packages
General software
Slide 65
Accounting modules
A program which deals with one part of a business accounting system
May or may not be integrated
Slide 66
Chapter 6
Receiving and checking money
Remittance advice
Slide 68
Comparing Receipts and Remittance advice

1 Check remittance advice adds up
2
3 4 5
Compare total with receipt

Calculate and record any difference Bank cheque and record receipts Send remittance advice to receivables dept
Slide 69
Till receipts
Slide 70
Methods of payment other than cash

Credit card
Debit card
Cheque
Bankers draft
Slide 71
Security over cash receipts

Security guards and collections
Safe
Protective glass
Strong box Cash register Night safes Banking
Slide 72
Cheque guarantee cards
Slide 73
Receipt of cheques
1 Examine cheques to ensure details correct
2
3 4 5
Make sure cheque is signed

Compare signatures on cheque and card Check details on cheque guarantee card Copy cheque guarantee card details to back of cheque
Slide 74
Plastic cards
Slide 75
Accepting credit card receipts

1 2 3 4 5
Slide 76
Rub thumb over signature panel to check not raised Compare signatures on card and vouchers Check warning lists of stolen cards Check card date is still valid Check transaction does not exceed business floor limit
EFTPOS
Slide 77
Chapter 7
Banking monies received
Banker-customer relationship
Comply with customers instructions
Honour cheques
Receive funds
Repayment on demand
Provide statement
Confidentiality
Slide 79
Paying-in slip
Slide 80
Preparing a paying-in slip

1 2 3 4 5 6
Slide 81
Count the cash Add up how much cash is being banked Compare total calculated with cash register record Calculate and investigate if discrepancy big Enter total for each denomination of note Add up numbers again and enter in total cash box
Paying in cheques
Slide 82
Returned cheques
Insufficient funds
Stolen cheques
Wrongly completed cheques

Out-of-date cheques
X
Slide 83
Banking credit card transactions

q
1
Bank Retailer
3
Credit Card Company
Slide 84
Chapter 8
Recording monies received
Security over cash register

Access keys kept in secure place
Staff training
Programming of preset information

Analysis of periodic information
Slide 86
Posting cash to General Ledger

Book of prime entry Cash book Summarises cash receipts p Ledger account Cash account Records cash receipts
O
S
T
I
N
G
Slide 87
Question practice end of Chapter 8

You should now be able to attempt the following question set from the BPP Learning Media Practice and Revision Kit.
Recording monies received
The material in this chapter is covered in the following BPP Learning Media i-Pass test.
Test 6: Banking and petty cash
Slide 88
Chapter 9
Authorising and making payments
Controls over payments
Controls
Evidence - for reason of payment
Authorisation by appropriate person
Slide 90
Cheque Requisition form
Slide 91
Expenses claims
EXPENSES CLAIM
Business travel Newspapers or magazines
$
X X
Telephone
Petrol Car service and repair Total Receipts must be attached for all amounts claimed Authorised by
X
X X X
Slide 92
Cash payments
Small payments out of petty cash
Cash wages
Slide 93
Preparing cheques
1 2 3 4 5 6 Prepare list of payments Authorise payments Check invoices to be paid Prepare cheques Sign cheques Mark invoices as paid
7
Slide 94
Send cheques plus remittance advices
Stopping cheques
Slide 95
Bank Giro Credit
Slide 96
Standing Orders
Examples: Hire purchase/Rental/Insurance
Business making payment specifies:
Desire to make regular payment

Amount
Frequency
Banking details of supplier
Slide 97
Standing Order Mandate
Slide 98
Direct Debits
Differ from standing orders:
Recipient initiates payment
Payments can be for variable amounts

Payments can be at irregular intervals
Slide 99
Direct Debit instruction
Slide 100
Remittance Advice
Slide 101
Chapter 10
Recording payments
Analysis of Cash Book

Number of categories of purchases
Frequency of purchases
Split of business
How complicated cash book may become
Slide 103
Posting to the General Ledger

Sales Receipt Purchase
invoice Payment invoice S/L SDB CB PDB P/L
General ledger
Slide 104
Use of automated credit systems

Standing orders
Direct debits
Monthly salaries
Weekly wages
Slide 105
Chapter 11
Maintaining petty cash records
What is Petty Cash?

Cash held in the form of coins and notes. Used to pay small incidental expenses
Employees Travel, groceries, postage
Suppliers
Cleaners
Slide 107
Security of Petty Cash

Staff responsibility
Authority
Container
Limits
Supporting documentation
Slide 108
The Imprest system

Pre set limit of 50. At the beginning of the week:
10 note 10 note
10 note
10 note 10 note
Slide 109
The Imprest system

During the week:
Buy plants 10 Pay milkman 5 Now:
10 note 10 note 10 note 10 voucher
Slide 110
5 note
5 voucher
The Imprest system

At the end of the week
Write up expenses in the petty cash book Top up cash (15) to the imprest amount (50)
10 note 10 note 10 note 10 note 10 note
Slide 111
Petty Cash vouchers

Sequentially numbered
Dated
Amount Sales tax (VAT) should be analysed

Signature Authorisation
Slide 112
Petty Cash Book

Receipts
Date Narrative Total $
Payments
Date Narrative Total $ Stationery $ Travel $
6.1.X7
Cheque cashed
50
7.1.X7
City Stationers
10
10
8.1.X7
F. Bloggs Metro fare 2 12 10 2 2
Slide 113
Chapter 12
Bank reconciliations
Bank statement
Slide 115
Bank Reconciliations
Cash transactions
posted to
Cash books
posted to
Cash account in N/L

reconciles to
Bank statement
Slide 116
Differences: Cash Book v Bank Statement

Three reasons:
Timing differences
Errors by the business

Errors by the bank
Slide 117
Bank Reconciliation
Cash account (cash book)
Bal b/d Error in bal b/d X X X Balance per statement Less: unpresented cheques Add: uncleared lodgements Bank errors Adjusted balance X (X) X X/(X) Y reconciles Dishonoured chq Bank charges, direct debits Bal c/d X X Y X
Slide 118
Chapter 13
Sales and sales returns day books
Sales Day Book

Lists all sales made on credit
Date 3.1.X7 5.1.X7 8.1.X7 Customer J. Spalding G. McGregor J. Spalding $ 200 400 400 300 1,300
14.1.X7 G. McGregor
Slide 120
Coding
Accounting codes used should be: Unique Useful Compact Meaningful Self-checking & of standard size Expandable
Slide 121
Coding systems
Sequence Block Significant digit Hierarchical Faceted
Slide 122
Give next available number Different sequences Incorporates description Interrelationship Different features
Coding sales
Sales invoice number
Product code numbers
Slide 123
Credit Sales postings

Sales invoice Sales day book
Daily postings
Sales ledger
Slide 124
Weekly/monthly postings
General ledger
Chapter 14
The receivables ledger
Receivables Ledger
Ledger account
CUSTOMER S S Ltd ADDRESS 11 The Drive CREDIT LIMIT TERMS DISCOUNT DETAILS ACCOUNT INVOICES
3,000
30 days from date of invoice
none Mrs C Control

RECEIPTS BALANCE
TEL FOLIO DATE
Alderney 550 6565 SS1

DETA ILS
Slide 126
Discounts
Settlement discounts: Offered as incentive for early payment For example 5% if settled within 14 days May or may not be taken
Slide 127
Discounts allowed
Offered to customers Sales are recorded after trade discounts but before settlement discounts
Slide 128
Aged Receivables report
Aged receivables report

Customer Credit Balance Current <60 <90 >90 Limit days days days
Slide 129
Irrecoverable debts
Bad debts and irrecoverable debts are the same thing!
An irrecoverable debt is a debt which will definitely not be recovered
Slide 130
Doubtful debts
A doubtful debt is a debt which is possibly irrecoverable
Slide 131
Irrecoverable bad debts double entry

Dr Irrecoverable debts account Cr Accounts receivable
Slide 132
Chapter 15
Purchase and purchase returns day book
Purchase Day Book

Lists all purchases made on credit
Date 1.1.X7 4.1.X7 16.1.X7 Supplier Tewson Co. Manley & Co. Manley & Co. $ 400 350 200 950
Slide 134
Coding purchases
Supplier account number
Product or service number
Purchase invoice sequence number
Slide 135
Posting credit purchases

Purchase order/use of utilities
Purchase invoice Purchase day book
Daily postings
Purchase ledger
Weekly/monthly postings
General ledger
Slide 136
Posting cash purchases

Invoice Cash payments book Daily/weekly postings
General ledger
Slide 137
Chapter 16
The payables ledger
Payables Ledger
SUPPLIER ACCOUNT
Debit side Credit side
Payments made X
Purchase returns X
Invoices received X
Discounts received X
Slide 139
Discounts
Settlement discounts: Offered as incentive for early payment For example 5% if settled within 14 days May or may not be taken
Slide 140
Discounts received
Received from the business suppliers
Purchases are recorded after trade discounts but before settlement discounts
Slide 141
Suppliers statement
Slide 142
Suppliers statement reconciliation

1 2 Tick off items which appear in statement and payables ledger Agree opening balance on suppliers statement
3
4
Allocate payments to invoices after allowing for credit notes

Identify differences
Slide 143
Checks over payments

Authorisation of payments
Signing by cheque signatory
Attachment of supporting documents
Slide 144
Contras
P Co owes F Co $70 but F Co owes P Co $200

Slide 145
Chapter 17
Control accounts
Control Accounts
Receivables and payables recorded in two places
1. Sales and purchase ledgers giving information on individual customers and suppliers 2. The general ledger Receivables account or Sales Ledger Control Account Payables account or Purchase Ledger Control Account giving information on receivables and payables in total.
Slide 147
Reasons for control accounts

Check on accuracy of ledger balances
Aid location of errors
Reinforce segregation of duties

Assist preparation of trial balance
Slide 148
Control account reconciliations

Theory:
Balance per RLCA = Balance per list of balances in receivables ledger
and similarly for the PLCA and payables ledger
Slide 149
Chapter 18
Recording payroll transactions
Payroll systems
Basic hourly rate
Piecework systems
Wages = units produced x rate of pay per unit Overtime

Bonus schemes Commission
Slide 151
Employers legal responsibilities

Operate income tax system
Maintain and retain records
Pay income tax and benefit contributions

Allow tax office to access records
Submit year-end returns

Give employees payslips
Slide 152
Gross and net pay in the UK

GROSS WAGE Employees NI Net wage Pension Income tax
paid to employee
paid to pension fund
paid to tax authorities
Total cost to employer is full gross wage plus employers NI:

GROSS WAGE Employees NI
Net wage
Pension
Income tax
Employers NI
TOTAL EXPENSE
Slide 153
Personnel records
A COMPANY PERSONNEL SYSTEM
Name: A Chappel
Main Menu
1 Personal details
2 Job and salary

3 Training 4 Exit
Slide 154
Payroll function
Calculation of gross pay
Calculation of tax and other deductions
Preparing and distributing payslips

Making returns to external agencies
Arranging for payment of wages and salaries

Preparing payroll statistics
Slide 155
Timesheet
Example
Timesheet No Name Date
Job Start Finish Qty
Dept Week
Check Hour Rate Ext
Slide 156
Income Tax
Tax deducted at source covering all employees of an organisation
Slide 157
Benefit Contributions
Unemployment benefit
Income support
Healthcare contributions
State pension scheme contributions
Slide 158
Payslip
Slide 159
Remittance advice
Slide 160
Updating payroll records

Updating normally only done weekly or monthly
Same type of entry takes place every month Use of wages control account as half of double entry
Slide 161
Payroll accounting entries

DR
Wages control X
CR
X
Staff costs (gross wages)

Staff costs (employer contributions) Cash (net wages paid)
X
X
X X
PAYE liability
Slide 162

CAT T1 Recording Financial Transactions Course Slides

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CAT 1 Recording financial transactions

Banking and petty cash

Purchases and purchase records

Control accounts and the initial trial balance

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%

The BPP Learning Media classroom slides

Using the slides

Study Text Chapter 1

Business transactions and documentation

Goods paid for immediately CASH SALES

Goods delivered before payment made

SALES INVOICE No. A576

Date: 10 March 20X8

TOTAL DISCOUNTS DUE PAID BY CHEQUE Inclusive of VAT

M Rose Videos 10 The Yard Ilford Esse x

Sales tax INDIRECT TAX

Charge sales tax on sales OUTPUT TAX

Suffer sales tax on purchases

Sales tax and Discounts

Seller must have the right to sell

Study Text Chapter 2

Assets, liabilities and the accounting equation

100,000 50,000 30,000 20,000 200,000

Current assets Inventories Trade receivables Cash in hand and at bank

55,000 28,000 7,000

The concept of business entity

The accounting equation

Study Text Chapter 3

Statement of financial position and income statement

Statement of Financial Position & Income Statement

Statement of financial position worth of business at a point in time

Income statement trading activities over period

Fixtures and fittings

Capital v Revenue expenditure

Expenditure on the acquisition of noncurrent assets or improvement in their earning capacity

Capital v Revenue expenditure

Trading expenses or the repair/ maintenance of non-current assets

Study Text Chapter 4

Recording, summarising and posting transactions

Bank statement Payslip

Books of prime entry

Sales Day Book

Purchase Day Book

Manley & Co.

Cash Book (receipts)

2.1.X7 5.1.X7 6.1.X7

F. Bloggs J. Spalding J. Smith

4,000 200 500 4,700

4,000 200 500 4,000 500 200

Cash Book (payments)

Manley & Co.

20X8 15/4 JFK PL8 2,500

Cash Sales double entry

Cash Purchases double entry

Credit Sales double entry

Credit Purchases double entry

Or how much you owe to Tewson Co.?

Shows the total owed by each individual customer Payables ledger

Output Sales Tax

Cr Sales tax account