AAT Bookkeeping Controls BKCL

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  • Created by: M_gan
  • Created on: 31-12-19 09:21
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  • Bookkeeping Controls
    • Correction of Errors
      • Types of Errors:
        • Error of Principle: wrong type of account.
        • Reversal of Entries: credit and debit have been put on the wrong side on both accounts.
        • Error of Commission:  wrong person/ business account
        • Error of Omission: completely omitted (not put on)
        • Compensating Error: two errors cancel each other out.
        • Error of Original Entry: wrong amountsUntitled
      • Suspense Accounts
        • opened when the trial balance doesn't match
        • cleared by using journals
      • Correcting Errors
        • Omission: do double entry in accounts it needs to go in
        • Commission: remove from account its in and put it in account it should be in
        • Principle: remove from account its in and put where it should be.
        • Complete reversal: take out of wrong sides put on correct side (4 entries)
        • Original Entry: take out wrong amount put in correct amount (4 entries)
    • Reconciling Control Accounts:
      • ensures that the entries in the sales & purchase ledgers match entries in the control accounts
      • SLCA  is a asset accounts that show the amount owed to the company
        • Debit Side: balance of recieveables, sales and unpresented cheques.
        • Credit Side: sales retuens, payments recieved, discount allowed, contra and irrecoverable debts.
      • PLCA is a liability account that shows the amount owed by the company.
        • Debit Side: payments, discount recieved, returns and bal c/d.
        • Credit Side: balance of payables and purchases.
    • VAT Control Account
      • Credit: Sales Day Book, Purchase Returns Day Book, Discount Allowed Day Book.
      • Debit Side: Purchases Day Book, Sales Returns Day Book, Cash Book, Petty Cash Book, Discounts Received Day Book
    • Writing off Irrecoverable Debts
      • If a company stops traiding and they owe money to another business than the other business would have to write off the debt as they wont recieve the money
      • How to Write it off:
        • Irrecoverable Debts = Debit
        • VAT Control = Debit
        • SLCA = Credit
    • Payroll Transactions
      • the accounting entries that record wages and salaries paid to employees.
      • Definitions
        • Gross Pay: pay before deductions
        • Net Pay: pay after all deductions
        • Income Tax: collected by employer paid to HMRC
        • Employers NI contribution: paid to HMRC
        • Employees NI Contribution: collected by employer paid to HMRC
        • Pension Contributions: provided by employer paid to pension funds.
        • Employees Pension Contributions: deducted from pay paid to pension funds
        • Voluntary Deductions: eg trade union fees, deducted from pay & paid to organisation
      • Accounts Used
        • Bank: net pay of employees, pensions, HMRC and payment to outside agencies
        • Wages Control Account: all go through,  forms one half of double entry
        • Wages Expense: employers expense account, records gross pay, employers NI Contributions, pensions and trade unions
        • HMRC: amounts payable in NI and Income Tax to HMRC
        • Pension Fund: payable to external pension funds, employers and employees contributions
      • Journal and Ledger Entries:
        • payroll transactions must be recorded by journal entries to trace the entries from payroll records through book of prime entry to the general ledger accounts
        • 1. Record wages as an expense (cost to employer)
          • D = wage expense
          • C = wages control account
        • 2. Record Net Pay (paid to employees)
          • C = bank
          • D = wages control account
        • 3. Record liability to HMRC (income tax and NI)
          • D = wages control account
          • C = HMRC
        • 4. Record liability to pension fund (employer & employee contributions)
          • D = wage control account
          • C = pension
        • 5. Record liability to voluntary deductions eg TU fees
    • Banking Procedures
      • Banks
        • Owened by shareholders eg HSBC, Lloyds
        • Bank Accounts
          • Current Account: used to pay money out of the account
          • Loan Account: money is lent in these accounts with interest
          • Savings Account: money is saved. Person borrowing the money to the bank so the bank pays interest
      • Building Societies
        • Owned by its customers eg Nationwide, the Coventry
        • Deposits for current and savings accounts
        • Lons: mortgages for house purchase
        • Insurance
      • Bank Lending
        • Overdrafts: allows more money to be taken out the account than there is in there. Short periods of time, high interest.
        • Business Loan: given to businesses to cover large expenses such as new machinary
        • Commercial Mortgage: up tp 25 years to cover purchase of property with interest either fixed or variable rates.
      • Other Bank Services:
        • Debit Card: used for purchases and cash withdrawals money that is in the bank account
        • Credit Card: "buy now pay later" money is not in the account, interest paid
        • BACS: Bankers Automated Clearing Services, 3 day computer-based direct payment system
        • Standing Order: regular BACS payments set up with bank by customer
        • Direct Debit: regular & variable BACS payments set up by organisation recieving payments
        • CHAPS: Clearing House Automated Payment System, high value same day payments
      • Statement &  Reconcilliation
        • The cash book and the bank statement might be different:
          • Unpresented cheques: on bank statement but not in cash book
          • Outstanding Lodgements: in cash book but not on bank statement
        • Bank Statements
          • on bank statement credit means money in the account and debit means overdrawn
            • not the same on cash book      opposite way debit is money in and credit is money out
        • Reconcilliation
          • Balance as per cash book + unpresented cheques - outstanding lodgements = balance as per bank statement
          • Balance as per bank statement - unpresented cheques + outstanding lodgements = balance as per cash book

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