principles of bookkeeping Flashcards
developments in technology have caused a increase in the use of what
plastic cards( debit and credit)
BACS
developments in technology have caused a decline in the use of what
cash , cheques
when writing a check u must make sure these details are correct
- the date
- the name of the person or business receiving the money
- the amount in words
- the amount in figures
- authorized signature
BACS Stands for
Bankers, Automated, Clearing, Services
standing orders are used for
making regular payments of the same amount
CHAPS stands for
Clearing House Automated Payments System
a cheque
is an instruction in writing, signed by the bank’s customer (who is the paying money), telling the bank to pay an amount to a named person or business
a debit card is
a card which can be used for purchases and cash withdrawals; payment is normally taken from the bank account on the next working day
a electronic bank transfer is
a term used to describe the electronic transfer of funds through the banks computer system
a direct debit is
variable date and amount BACS payments set up by a business receiving the payments through their bank
a current account is
an account with a bank into which money can be paid from which payments can be made
payments into the bank are know as
credits
payments out of the bank are know as
debits
features of an overdraft
- a arrangement that allows you to go overdrawn
normal cost of having a business bank account
- bank service charges for operating the account
- interest payable on overdrawn balances
- fees for setting up and renewing an overdraft
how cash works with the bank
notes and coins are withdrawn, it immediately leaves the bank
how bank draft works with the bank
‘as good as cash” cheque’s issued by the bank, it immediately leaves the bank
how CHAPS payments work with the bank
large amount electronic transfer, it immediately leaves the bank
how faster payments work with the bank
electronic transfer processed by banks, it immediately leaves the bank
how BACS payments work with the bank
electronic transfer processed by BACS set up on BACS system 3 days before the actual money transfer, reduction in bank balance on the same day as the transfer reaches the account receiving payment
how debit cards work with the bank
card used for businesses expenses, normally taken from the account on the next working day
how cheque’s work with the bank
payment relies on an issued cheque, one working day after the cheque is cashed
how credit cards work with the bank
card used for businesses expenses, monthly payments of the previous month’s expenses made on the card
an overdraft is
an arrangement with a bank to allow short-term borrowing on a current account
an overdraft limit is
the amount which a bank will allow a customer to borrow on an overdraft
a same-day deduction is
where a payment made by a business is deducted from the bank account on the same day
the difference that need to be found between the bank statement and cash book are
timing differences
updating items for the cash book
the two main timing differences between the bank columns of the cash book and bank statements are
unpresented cheques and outstanding lodgments
unrepresented cheques are
cheques issued, not yet recorded on the bank statements
outstanding lodgments are
amounts paid into the bank not yet record on the bank statement
receipts (money in) are
- electronic receipts, including BACS direct debits, faster payments and CHAPS payments
- bank interest received
payments (money out) are
- electronic payments made by the bank
- bank charges and interest paid
- unpaid cheques deducted by the bank
bank reconciliation is carried out by
- tick of item that are in both cash book and bank statements
- the unticked items on the bank statement are entered into the cash book
- the bank columns are now balanced
- the remaining unticked will be timing difference
common control accounts are
- recivables ledger control account
- payables ledger control account
- value added tax control account
an irrecoverable debt written of is
is a debt owing to a business which it considers will never be paid
set off/ contra entries are
occur when the same person or business has a subsidiary account in both the receivables ledger and the payables ledger
the totals for the receivable ledger control account comes from
- total credit sales (include vat) from total column of sales day book
- total sales return (include vat) from total column of sales return day book
- total payments received by customer - from total column of the analysed cash book
- total discounts allowed - from total column of discounts allowed day book
- irrecoverable debts - from the journal
the first thing to do when dealing with discrepancy’s is to establish
- is the balance of receivables ledger control account greater than the total of the balance of the subsidiary accounts in receivable ledger
- is the total balances of the subsidiary accounts in receivables ledger greater then the receivables ledger control account
Vat returns show
- the money amount due to be paid by the business when VAT collected from sales is greater then the VAT paid on purchases
- the money amount due as a refund from HM Revenue & Customs to the business VAT collected from sales is less then the VAT paid on purchases
control accounts are
a ‘masters’ account which controls a number of subsidiary accounts
receivables ledger control account are
the general ledger account which controls the receivable ledger
payables ledger control account are
the general ledger account which controls payables ledger
value added tax control accounts are
the general ledger account which brings together totals of VAT from the books of prime entry
set off / contra entries are
where balances in the receivables ledger and the payables ledger are set of against one another
What is aged trade receivables/payables analysis
A summary of each customer/supplier balance analysed into columns showing how long the amounts have been outstanding
the purpose of the journal are
- to provide a book of rpime entry for non-regular transactions
- to reduce the risk of fraud
- the esnure entries can be traced back to an authorised financial document
an irrecoverable debit is
a debt owing to a business which it conciders will never be paid
for the inrecoverable debts account u
debit the ammount
for the value added tax account you
debit the ammount
for recievable ledger controll account
credit the ammount
payroll transactions are
the accounting entries which record wages and salaries piad to employees
payroll tranasations require journal and and accouting entries for
- gross pay
-net pay - income tax
- employers and employee NIC
- employers and employee pension contrubutions
accounts used in payroll transaction
- bank
- wage control accounts
- wages expense
- hm revenue and customs
- pension fund
the wages control account contains
all payroll transactions
the wages expense account contains
gross pay, employer’s National insurnce pnsion controbution, volentary donations
hm revnue and custom account contains
income tax (PAYE) and employee and employers NIC
pension fund account contains
pension contrubution from employee and employer
voluntary deductions conains
voluntary deductions from employees
the journal entries are as follows
- record the wages expense
- record the net pay
- record the liability to HM revenue and customs
- record the liability to the pension fund
- record the liabiity for voluntary deductions
the journal is a book of
prime entry
an initial trial balance is extracted for the purpose of
checking the accuracy of the double entry bookkeeping
a trial balance is
a list of the balances of every account from general ledger, distinguishing between those accounts which have debit balances and credit balances, theses are totaled to show that debits equal credits
certain accounts always have debit balances, debit balances are assets and expenses, and include
- purchases account
- sales return account
- non-current assets accounts
- inventory account
- expenses accounts
- drawings account
- receivables ledger control account
- petty cash accounts
- cash account
the non-current assets account contains
premises
motor vehicles
machinery
office equipment
the inventory account contains
the inventory valuation
expenses account contains
wages
telephone
rent paid
discount allowed
certain accounts always have credit balances, credit balances are liabilities, income and capital, and include
- sales account
- purchases returns account
- income accounts
- capital accounts
- loan accounts
- payables ledger control account
the income accounts contain
- rent received
- commissions
- fees received
- discount received
value added tax will be a debit when
vat is due to the business
value added tax will be a credit when
the business owes VAT to HM revenue and customs
the procedure to finding error’s is
- check the addition of the trial balance
- check balances have been entered correctly
- check all accounts have been included
- calculate the amount is out by and they to find that amount
error of omission is
when a financial transaction has been completely left out from the accounting records
error of commission is
a transaction is entered into the wrong account
wage expense
is when it comes from the employer
error of principle is
when a transaction has been entered in the wrong type of account
error of original entry is
when the wrong amount is entered
reversal of entries is
when the debit and credit have been put on the wrong side of the accouns
compensating error is
when 2 errors cancel each other out
Money goin into an account for assets or expenses is a
debit
Money going out an account for assets or expenses is a
credit
money going into a account for liabilities or income is a
credit
money going out a account for liabilities or income is a
debit
