3 - Recording financial transactions

Question 1

What are some of the advantages of computerised accounting systems?

Answer 1

Speed of processing large volumes of transactions
In-built controls to reduce input errors
Storage and sharing vast quantities of data in easily accessible formats
Freeing up accountants time to focus on higher level skills, such as analysis and advice

Question 2

What are elements within a computerised accounting system?

Answer 2

Standing data:
This is reference data that doesn’t necessarily change (addresses for delivery of goods, payment details for suppliers)

Account codes:
Unique codes allow a business to accurately record the various transactions correctly. The codes can be sub divided into the required level of detail.

Processing:
Recording of transactions in a computerised system often referred to as processing. Can be done in “real time” (each transaction is updated at the point it takes place) or “batch processing” where groups of similar transactions are recorded in bulk at the end of a period

Controls:
Computerised accounting systems will require adequate controls embedded within them to ensure the accuracy of the info, such as authorisation and mathematical controls.

Question 3

What is cloud computing and accounting?

Answer 3

Cloud computing:
Resources such as software are provided to computers via the internet. Users can then log into their accounts remotely, with the software and processing being performed in the cloud rather than on their computer

Cloud accounting:
Accountancy software which is provided in the cloud, allowing the software to be constantly updated, access to backup data from a range of users and offsite backup of the data. However, cloud accounting does increase the risk of loss through hacking and relies on the security and back ups provided by the service provider.

Question 4

What are source documents?

Answer 4

Whenever a sale or purchase takes place, or the receipt of payment of money, it is usual for the transaction to be recorded on a source document.

Question 5

Order of documents for a credit sale and which one is the source document?

Answer 5

1) Customer order - Customer sends a request for goods or services at an agreed price
2) Dispatch goods - Good or services are delivered to the customer, along with a delivery note (agreed to the sales order) which the customer should sign.
3) Raise invoice - Seller should then create the sales invoice to request payment for the goods or services delivered. This is the SOURCE DOCUMENT that must be recorded in the accounting system
4) Receive payment - Customer then pays the outstanding amount (Sends us a remittance advice saying we have paid etc)

Question 6

Order of documents for a credit purchase and which one is the source document?

Answer 6

1) Purchase order - A business will identify goods and services required and raise an approve purchase order to send to a supplier
2) Receive goods - A goods received note (GRN) records the receipt
3) Receive invoice - An invoice will be received from the supplier requesting payment. This purchase invoice is the SOURCE DOCUMENT for recording the purchase in the accounting system
4) Make payment - The business then pays the outstanding amount. We send a remittance advice and this is also another SOURCE DOCUMENT

Question 7

What are credit notes?

Answer 7

These are documents issued to customers relating to returned goods or refunds when a customer has been overcharged. It is like a negative invoice and so is another SOURCE DOCUMENT for credit transactions.

Question 8

What is an exception report?

Answer 8

Unexpected or unmatched cash transactions can be highlighted in an exception report for further investigation

Question 9

What are some examples of transactions that the accounting system should usually recognise and match?

Answer 9

Receipts from and payments to ongoing customers and suppliers (through unique code)
Regular monthly transactions such as payroll or rental charges (often paid by direct debit or BACs transfer)
Payments to recognised bodies such as HMRC.

Question 10

What are some examples of transactions that the accounting system may not recognise and would be included in an exception report?

Answer 10

Unusual one off transactions such as the proceeds on disposal of NCA or additional capital invested into the business.
Amounts that do not agree with the original transactions (where settlement discounts have been unexpectedly taken)

Question 11

Payroll?

Answer 11

You see gross pay first. Then tax, NI, pension contributions are deducted. But then employers also have to pay NI and match the pension. These are total payroll costs to employers.