10: Accounting Systems and VAT Flashcards
Detail the sales cycle
Seller’s perspective
Sales order received from customer, detailing goods required
Goods sent to customer with a Goods Delivery Note
Sales Invoice sent to customer as request for payment
Credit note issued if: customer overcharged or goods returned
Detail the purchases cycle
Buyer’s perspective
Purchase order sent to supplier as a request for goods
Goods received and Goods Received Note completed
Purchase invoice received from supplier and matched to GRN
Debit note may be issues in order to request credit note from supplier
What different modules are there in accounting software and what are they for?
Nominal ledger - contains a separate ledger account for each type of everything! Used to produce a trial balance
Receivables ledger - separate ledger accounts for each credit customer. Can manage outstanding receivables balances
Payables ledger - separate ledger accounts for each credit supplier. Can ensure they make payment to suppliers in agreed credit terms
Payroll - recording and processing
Record of non-current assets
What are the processing transactions in accounting software?
Inputs:
- source documents: trigger an accounting entry, such as invoices or credit notes
- standing data: reference data that does not change
Processes:
- Calculations (on standing data)
- ledgers (records)
- journal entries (double entries)
- record keeping (T accounts)
Can be either real time (one by one) or batch (input individually then processed in one go)
Outputs:
- trial balance (can be extracted whenever)
- reports (some standard, but bespoke reports can be created on anything!)
What are ‘suspense accounts’?
A temporary account. Features ‘unknown’ transactions that accounting software cannot match to a source document and therefore process.
These will then be reported on an exception report and investigated by an accountant.
The accountant will move the transaction to the correct account, and the suspense account will be removed.
What is petty cash and what’s the imprest system?
Cash kept on the premises designed to deal with small sundry expenses such as milk, tea.
- Business withdraws amount of cash to be the ‘float’
- As payments are made, these are recorded in the petty cash book. All expenditure must be evidenced by an expense receipt and numbered voucher.
- When the float runs low, a cheque is drawn to return the petty cash to the original float. Vouchers will be presented to do this
- The subtotals of each column of the petty cash book are entered into the accounting system (ie Cr Cash, Dr Stationary, Dr Sundry, etc…)
What is a journal entry and how are they presented?
Present the accounting double entry of transactions. Generally used to record non-routine transactions, such as:
- acquisition of non-current assets on credit
- disposal of non-current assets
- year-end adjustments
Presented as the debit and credit, with the date and the narrative
year-end adjustments?
- recording of depreciation
- recording closing inventory
- writing off irrecoverable debts
- accounting for the movement in allowance for receivables
- accruals and prepayments
- correction of errors
Steps to adjust a trial balance?
- Extract the trial balance from the ledger accounts
- Enter the journals in the adjustments column
- Add across the debits and credits for each item and enter into the final trial balance
VAT and input/output tax
VAT is indirect taxation. A business registered for VAT collects tax on behalf of HMRC.
Output tax - the customer pays this to us on items we sell to them. SELLS
Input tax - tax we pay to suppliers on items we buy. BUYS
If output tax exceeds input tax, we pay to HMRC. If the other way, we reclaim tax
Net and gross selling prices?
Net selling price is the amount the business wishes to achieve - 100%
Gross selling price is the price charged to customers - 120%
The difference is paid to HMRC
Double entries for VAT?
Output
Dr Receivables (gross/full amount)
Cr Sales (net amount)
Cr VAT
Input
Cr Payables (gross/full amount)
Dr Purchases/expenses (net amount)
Dr VAT
A ledger for these is another way to see if you need to pay or receive from HMRC
Why would you not be able to get VAT back?
- you’re not VAT registered
- you’re selling blocked input VAT, including purchase of motor cars and client entertaining expenses
How does VAT work with prompt payment discounts?
VAT is initially put on the full sales price, as we don’t know if the customer will take the discount!
If they do take the discount, the VAT will need to be adjusted, and this can be done via a credit note or by detailing the terms of the discount on the invoice (as well as the amounts with and without discount)
How does VAT work with prompt payment discounts?
VAT is initially put on the full sales price, as we don’t know if the customer will take the discount!
If they do take the discount, the VAT will need to be adjusted, and this can be done via a credit note or by detailing the terms of the discount on the invoice (as well as the amounts with and without discount)
