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AAT - Lvl 2 > POBC > Flashcards

POBC Flashcards

1
Q

Basic principles of accounting (Double-entry bookkeeping)

A

Dual effect principle:
Every transaction has two financial effects

Separate entity principle:
Keeping Owner and Business separate.

Accounting equation:
Assets = Liabilities
Assets = Liabilities + Capital
Assets - Liability = Capital
Assets - Liability = Capital + Profit - Drawings

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2
Q

Ledger accounting

A

Entries posted in either the debit or a credit side.

                                  Dealer Dr increase:                                           Cr increase:

Drawings Liabilities
Expenses Equity (Capital)
Assets Revenue (Income)

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3
Q

Balancing a ledger account

A

1 - Total both Dr & Cr and make a note.

2 - Insert the higher amount in both totals.

3 - On side with lower amount, in the line above the higher total entered, enter Balance carried down and amount will be the higher total minus the lesser total.

4 - On the opposite side, in the line below total, enter Balance brought down and enter the amount of balance carried down.

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4
Q

Trail balance

A

It’s a list of all the Balance brought down on each ledger account. Dr and Cr should balance. Doesn’t reflect that the accounts are correct.

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5
Q

Books of prime entry

A
  • Sales day book
  • Purchases day book
  • Sales return day book
  • Purchases return day book
  • Cash book
  • Petty cash book
  • Discounts received day book
  • Discounts allowed day book
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6
Q

Accounting system

A

1 - Business transaction

2 - Business documents

3 - Books of prime entry

4 - Ledger accounts

5 - Trail balance

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7
Q

RLCA

A

Record the total amount owed from customers

Dr Cr
Balance b/d Returns per sales return DB
Sales per sales daybook Cash from receivables
Discounts allowed
Irrecoverable debt written off
Contra entry
Balance c/d
Total Total
Balance b/d

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8
Q

PLCA

A

Record the total amount owed to suppliers

Dr Cr
Cash paid Balance b/d
Discount received Purchases per purchases DB
Purchase returns
Contra entries
Balance c/d
Total Total
Balance b/d

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9
Q

Subsidiary ledger

A

Sales ledger - Sub ledger for RLCA

Purchase ledger - Sub ledger for PLCA

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10
Q

Irrecoverable debts

A

Customer in liquidation
Customer having difficult to pay
Customer disputes all/part of debt

If debt older than 6 months (VAT paid to HMRC) -> Can be reclaimed

Dr Cr
Irrecoverable debt exp (Net) RLCA (Gross)
VAT

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11
Q

Contra entries

A

Customer is a payable and receivable.

Dr PLCA (and sub payables ledger)
Cr RLCA (and sub receivables ledger)

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12
Q

Control account reconciliations & errors

A

If the subsidiary ledger balances do not equal the balances in the control account, an error has been made.

Errors:
Casting error - GL and sub ledgers correct, but RLCA/PLCA incorrect. Dr/Cr needs to be done to balance out.

Invoice error - All ledgers are correct, but invoice amount is wrong.

Casting errors in sub ledger - GL matches RLCA/PLCA, but sub ledgers incorrect.

Posting individual entries twice - GL and RLCA/PLCA correct, but entries in one or more sub ledger happened twice.

Omitted items - Entry missed either in the sub ledger or RLCA/CLCA

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13
Q

Perform control account reconciliation

A

1 - Balance control account in GL

2 - Balance individual sub ledgers

3 - List sub accounts names and balances

4 - Compare Control account vs. Sub accounts -> Balance
If it doesn’t, an error has occurred.

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14
Q

VAT control account

A

Output tax exceeds input tax -> Liability -> HMRC
Input tax exceeds output tax -> Assets <- HMRC

Dr Cr
Vat on Cr purchases VAT on credit sales
VAT on Cash purchases VAT on cash sales
VAT on sales returns VAT on purchase return
VAT on Irrecoverable debt VAT on discounts received
VAT on discounts allowed

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15
Q

Journal

A

Instruction to record an item by double-entry in the GL

Reasons:
* Correction of errors
* Other year-end adjustments

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16
Q

Errors detected by TB

A
  • Single entry: Double entry wrong - on one side was done
  • Casting error: Issue with addition when balancing account.
  • Transposition error: Mixed the amount brought over from ledgers to TB
  • Extraction error: Either the right amount brought over to the wrong side of TB or a completely wrong amount.
  • Omission error: No amount brought over to TB
  • Two entries on one side: Double entry wrong - Both amounts on one side.
17
Q

Errors not detected by TB

A
  • Error of original entry:
    Wrong amount in both Dr and Cr was entered.
    (Will reflect in Bank reconciliation)
  • Compensating error:
    Two errors that cancel each other out.
    (Customer/supplier accounts reconciliation)
  • Error of omission:
    The double entry omitted.
    (Will reflect in Bank reconciliation)
  • Error of commission: Entry made to the right account (Expense), but to the wrong type of account (H&L not Rent)
    (Reconciling accounts at the end of the year - Final accounts)
  • Error of principle: Entry made to the complete wrong account. (H&L not P&M)
    (Reconciling accounts at the end of the year - Final accounts)
  • Reversal of entries: Entries done on the wrong sides in the Dr and Cr.
    (Will reflect in Bank reconciliation)
18
Q

Correcting errors - Questions to ask

A
  • What entries was made
  • What entries should have been done
  • What needs to be done for it to be corrected?
19
Q

Suspense account

A
  • Balance a trail balance
  • Holding account when unsure of the entry
20
Q

Errors disclosed by the TB

A
  • In the GL (Not in sub ledger)
  • Only if the Dr & Cr don’t match.
21
Q

Payroll function

A
  • Gross pay - Total pay before deductions
  • Income tax - PAYE
  • Employee NIC - National insurance contributions
  • Employers NIC - Employers contribution
  • Employee pension contribution - Pension fund
  • Employer pension contribution - Employers contribution
  • Other deduction -
22
Q

Payroll calculations

A
  • Calculate net pay
  • Calculating total payroll (Wages) expense for employer.
  • Calculating liabilities due to various parties
23
Q

Payroll ledger accounts

A
  • Wages expense account - Gross pay + Employer NIC
  • Liability account - PAYE + NIC
  • Wages control account - Employee net (Cleared after paid)
  • Bank - Net pay
24
Q

Balancing the cash book

A

Opening balance
+ Receipts in the period
- Payments in the period
= Closing balance

25
Q

Banking system - Different payment types

A
  • Cheque - Cheque from person.
  • Bank draft - Cheque from bank.
  • Building society cheque - Same as bank draft, but can be cancelled.
  • Debit/Credit card
  • Standing order (SO) - Instruction to bank to make payment
  • Direct debit (DD) - Authorising recipients to claim payments.
  • BACS (Bankers Automated Clearing Service)
    Electronic system clearing DD, DC and SO in UK banks.
    (3 days: 1 - In system, 2 - Processed, 3 - Cleared)
  • CHAPS (Clearing House Automated Payment System)
    Same day UK electronic transfer (Buying a house)
  • FPS (Faster Payment Service)
    Internet based system - takes few seconds
26
Q

Examining cheques

A
  • Date - Not older than 6 months old
  • Valid - Invalid if details changed to cheque
  • Signature - Signed and valid
  • Amount - Amount in words agrees to numbers
27
Q

Examining debit/credit card

A
  • Check expiring date
  • Check there is a security code on back
  • Card not tampered with
  • Card signed
28
Q

Bank reconciliation

A

Matching business accounting record vs. bank statement

29
Q

Unpresented cheques

A

Cheque (Payment made) not reflected in bank statement or supplier not presented it to the bank yet.

30
Q

Uncleared lodgements

A

Payments received not yet reflecting in the bank statement or not paid in yet.

31
Q

Bank reconciliation process

A

Balance per bank statement
+ Uncleared lodgements
- Unpresented cheques
= Balance per cash book

32
Q
A

AAT - Lvl 2 (8 decks)

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