Bookkeeping Controls
- Created by: elishaurwin
- Created on: 31-01-20 10:19
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- Bookkeeping Controls
- Reconciling Control Accounts
- Ensures that the entries in the sales and purchase ledgers match the entries in the control accounts
- SLCA is an asset account that shows the amount owed to the company
- Credit side: sales returns, payments received, discounts allowed, contras, and irrecoverable debts
- Debit side: balance of receivables, sales and unpresented cheques
- PLCA is a liability account that shows the amount owed by the company
- Credit side: balance of payables and purchases
- Debit side: payments, discounts received, returns and balance c/d
- Correction of errors
- Suspense Accounts
- Cleared by using journals
- Opened when the trial balance doesn't balance
- Types of errors (CROPOC errors)
- Error of original Entry: wrong amounts entered
- Error of Omission: completely omitted from the accounts (not entered)
- Reversal of Entries: credit and debit balances have been put to the wrong side on both accounts
- Error of Principle: posted to the wrong account
- Error of Commission: posted to the right sort of account but the wrong account name
- Correcting Errors
- Omission: add it in to the accounts
- Commission: remove from the account it's in and put it in to the account it should be in
- Principle: remove from the account where It is and put it in to the correct one
- Complete reversal: take it out of the wrong sides and correct it, it will need 4 entries
- Original Entry: take out of the wrong account and put in the correct amount, it will need 4 entries
- Errors are corrected by the use of a journal
- Suspense Accounts
- Banking Procedures
- Banks
- LLoyds
- HSBC
- Natwest
- Halifax
- Barclays
- Types of Bank Accounts
- Savings Account: Used to save money, the bank also pays interest into these accounts
- Loan Account: Money is lent by the bank into these accounts and the borrower has to pay intererest
- Current Account: Used to manage personal funds
- Business Account: Used to manage the income and expenses of the business
- Bank Lending
- Business Loans: Given to businesses to help cover large expenses such as new machinery or vehicles or to help the business get started
- Loan Account: Money is lent by the bank into these accounts and the borrower has to pay intererest
- Commercial Mortgage: Money lent by the bank to help purchase a property, can last up to 25 years but has interest at either a fixed or variable rate
- Overdrafts: Allows more money to be taken out of the bank account than what is actually available. They're meant to be short periods of time but unarranged borrowing has high interest rates
- Business Loans: Given to businesses to help cover large expenses such as new machinery or vehicles or to help the business get started
- Statements and Reconciliation
- Reconciliation
- Balance as per bank statement ADD unpresented cheques LESS outstanding lodgements = balance as per cash book
- Differences in bank statement and cash book
- Unpresented cheques mean that the bank balance will be higher than the cash book balance
- Outstanding lodgements mean that the bank balance will be lower than the cash book balance
- Unpresented cheques mean that the bank balance will be higher than the cash book balance
- Bank Statements
- On a bank statement a debit balance means that the account is overdrawn and a credit balance means that the account as money in it
- In the cash book if there is a debit balance then there is a positive balance in the account but if there is a credit balance then is it overdrawn
- On a bank statement a debit balance means that the account is overdrawn and a credit balance means that the account as money in it
- Reconciliation
- Other bank features/ services
- Credit cards: 'Buy now, pay later', credit cards are used to make payments but the money spent on the card will be taken from the bank account at the end of every month in a lump sum
- Direct debit: Payments of variable amounts are taken from your account automatically weekly or monthly
- Standing order: Payments of the same amount authorised by the account holder are taken from the account on the date stated when the standing order was set up
- CHAPS Payments: Clearing House Automated Payment System. High value, same day payments. Often used when buying property
- Debit card: Used for purchases and cash withdrawals. Same day affect on the bank account
- Bank draft: Same day payment used for large purchases such as a new vehicle
- BACS: Bankers Automated Clearing Services, the money will reach the account after 3 days and it is the best method for paying wages
- Cheque: Used to pay someone and takes 3 business days to clear when going to someone's account with a different bank
- Banks
- Payroll Transactions
- The entries that records wages and salaries paid to employees
- Definitions
- Net pay: pay after all deductions, the amount that hits the employees bank account
- Voluntary deductions: e.g. trade union fees deducted from pay and paid to the organisation
- Employees NI: the employees national insurance contribution, collected by the employer and paid to HMRC
- Employers NI: the employers national insurance contribution paid to HMRC
- Employees pension: pension contribution deducted from the pay and paid to a pension fund, however not all employees opt into the pension scheme
- Employers pension: pension contribution provided by the employer and paid into a pension fund
- Income tax: collected by the employer and paid to HMRC
- Accounts Used
- HMRC: amounts payable in NI and income tax to HMRC
- Bank: net pay of employees, pensions, HMRC and payments to outside agencies
- Wages control: everything goes through here, it forms one half of the double entry
- Wages expense: employers expense account, records gross pay, employers NI, pension and trade unions
- Pension fund: payable to external pension schemes, employers and employees contribution
- Journal and ledger entries
- Payroll transactions are recorded by journal entries
- 1. Record wages as an expense - cost of employer
- D = wages expense
- C = wages control
- 2. Record net pay - received by the employee
- D = wages control
- C = bank
- 3. Record liability to HMRC - income tax and NI
- D = wages control
- C = HMRC
- 4. Record liability to pension fund - employer and employee contributions
- D = wages control
- C = pension
- 5. Record liability to voluntary deductions - e.g. trade union fees
- VAT Control Account
- Debit side: Purchases daybook, Sales returns daybook, Cash book, Petty cash book, Discounts received daybook
- Credit side: Sales daybook, Purchase returns daybook, Discounts allowed daybook
- Writing off irrecoverable debts
- If a company doesn't have the means to pay you as they may have ceased trading or gone into liquidation then their debt would have to be written off as there your company wont receive the money owed to them
- How to write off irrecoverable debts
- Irrecoverable debts = DEBIT
- VAT control = DEBIT
- SLCA = CREDIT
- VAT control = DEBIT
- VAT control = DEBIT
- SLCA = CREDIT
- Irrecoverable debts = DEBIT
- Reconciling Control Accounts
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