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Mustafa Khuwaja - CAT Finalist 1
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Syllabus overviewPart A Introduction to transaction
accountingo Business transactions and documentationo Assets, liabilities and the accounting equation
o Statement of financial position and incomestatement
o Recording, summarizing and posting
transactionso Completing ledger accounts
Mustafa Khuwaja - CAT Finalist 2
Part B Recording and accounting
for cash transactionso Receiving and checking money
o Banking monies received
o Recording monies received
o Authorizing and making payments
o Recording payments
o Maintaining petty cash records
o Bank reconciliations
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Syllabus overview
Part C Recording and accountingfor credit transactions
o Sales and sales returns day books
o The receivables ledgero Purchase and purchase returns day
books
o The payables ledger
o Control accounts
Part D Payroll
oRecording payroll transactions
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Chapter 1
Business Transactions &
Documentation
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Contents overview
Types of business transaction
Documenting business
transactions
Invoices and credit notes
Discounts, rebates and
allowances Sales tax
Contract law
Storage of information
Data protection
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Types of business
transaction What is a business?
Uses economic resources to create
goods or services which customerswill buy
Provides jobs for people to work in
Invests money in resources in order
to make even more money for its
owners
Business transactions?
Property changes hands
Two main types: sales and
purchases
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By cash or on credit
Sales
By cash: goods or services given in
exchange for immediate payment(in notes, coins, cheques)
On credit: cash received later
Purchases:
For cash: payment made
immediately
On credit: cash paid later
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Other business
transactions Payment of wages
Borrowing money
Lending money
Offering a discount
Receiving a discount
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Documenting business
transactions
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Binding point b/w seller and buyer?
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Discussion
Documentation to expect
(i) You buy a CD from a shop, paying
cash(1) A receipt
(ii) You have air-conditioning system
installed
(1) A letter of enquiry(2) A quotation
(3) An order
(4) An order acknowledgement
(5) A delivery note
(6) An invoice
(7) A credit note
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More documents
Inventory lists: check availability of allthe parts
Supplier lists: where to buy parts
Staff schedules: plan for humanresource
Timesheet: record the actual hours staffspent
Goods received notes
Expense claims: Employees may incurexpenses which need to be reimbursed
Accounting system: records, summarizes
and presents the information containedin these documents
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Purchase order vs. sales
order
Mustafa Khuwaja - CAT Finalist 12
Purch
aseorder
Salesorder
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Invoice vs. credit note vs.
debit note
Invoice
A demand forpayment
Settledimmediately incash: receipt
Paid on receipt ofgoods: cash ondelivery (COD)
invoice Paid later: credit
invoice
Invoice illustration
How many copies
needed?
Credit note
Negative invoice:cancel part or all ofpreviously issued
invoice Amount payable:
unpaid invoicesvalue minus thecredit notes
Debit note Customer to
supplier requestinga credit note
Supplier tocustomer to adjustupwards theamount of issuedinvoice
Mustafa Khuwaja - CAT Finalist 13
http://invoice%20example.pptx/http://invoice%20example.pptx/8/7/2019 CAT paper 1
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Illustration
Mustafa Khuwaja - CAT Finalist 14
Ho
w
muchisthe
payable?
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Discounts, rebates and
allowancesTrade discount
$1 per unit, but95p for 100 units
or more
Given on invoice
Permanent
Cash discount
10% 0 days, 5% 7days, net 30 days
Financing matter
Mustafa Khuwaja - CAT Finalist 15
A reduction in thebills for thefollowing year
A cheque for thecalculated rebate
amount
Buy 1 get 1 free
Rebate Allowance
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CONTRACT LAW -
DISCUSSION
Home Reading
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INFORMATION AND DATA
Home Reading
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Retention policy
Sets down how long different
kinds of information are retained
Master files and reference files:charter agreement, legal documents
Temporary or transitory files
Active files: invoices, GRNs files
Non-active file: purchase invoices of
previous years
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No long needed info and
data Will you throw it away???
Ways to deal:
Microfilmed or microfiched
Stored elsewhere (archiving)
Securely destroyed
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Chapter 2
Assets, Liabilities and the
Accounting Equation
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Contents
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Illustration
The accounting equation
Liabilities
Assets
Business definition
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Business definition
A business owns assets and owesliabilities.
Mustafa Khuwaja - CAT Finalist 22
1
Anorganizationwhich useseconomicresources tocreate goods
or serviceswhichcustomerswill buy.
2
A business isanorganizationproviding
jobs forpeople to
work in.
3
Investsmoney inresources(eg it buysbuildings,machinery
etc; it paysemployees)inorder tomake evenmore moneyfor its
owners.
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A business from different
perspectives
Mustafa Khuwaja - CAT Finalist 23
Legal:
Separatelegal entityNodistinction
with itsowners.
Business
Accounting:
Must alwaysbe treated as aseparate entity
from itsowners.
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Assets
Mustafa Khuwaja - CAT Finalist 24
Assets
Something valuable which a business owns or has the use of.
Non-
current
assets
Text
Current
assets
Text
Items belonging to a business and used in therunning of the business.
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Assets classification
Mustafa Khuwaja - CAT Finalist 25
Non-current assets
Held and usedin operationsfor a long time,normally more
than 1 years.
E.g.: factories,office building,plant andmachinery,cars, etc.
Current assets
Held for only ashorter time.
E.g.: Cash and
banks,inventories,receivables,etc.
Classified by period of holding
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Liabilities
Mustafa Khuwaja - CAT Finalist 26
Liabilities
Something which is owed to somebody else.
Non-
current
Liabilities
Text
Current
Liabilities
Text
Sums of money owed by a business to outsiders
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Liabilities classification
Mustafa Khuwaja - CAT Finalist 27
Non-current liabilities
Payable in along time,normally morethan one year.
E.g.: long termloans orborrowingsfrom banks,etc.
Current liabilities
Payable in ashorter time.
E.g.: short
termborrowingsfrom banks,overdrafts,payables tosuppliers, etc.
Classified by period of liabilities
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The accounting equation
Very simple equation to keep in mind
Mustafa Khuwaja - CAT Finalist 28
Capital(Ownersequity
Retainedearnings)
Assets(CashReceivablesBuildings
Cars)
Liabilities(Bankloans,Trade
payablesTax
payables)
= +
A Business
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Accounting equation 2
Mustafa Khuwaja - CAT Finalist 29
Capitalintroduc
ed +
earnedprofit -drawing
s
Assets Liabilities= +
A Business
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Accounting equation 3
Mustafa Khuwaja - CAT Finalist 30
Capitalintroduced
+ profitretained inpreviousperiods+
profitearned in
currentperiod -drawings
AssetsLiabiliti
es= +
A Business
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Accounting equation 4
Mustafa Khuwaja - CAT Finalist 31
Capital introducedin previous
periods+ Profit retained
in previousperiods
+ Profit earned incurrent period
+ Capital
introduced incurrent period Drawings incurrent period
AssetsLiabiliti
es= +
A Business
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The business
equation
Profit
earned
incurrent
period
Drawings
in currentperiod
Increase/d
ecrease in
net assetsin current
period
Capital
introduce
d incurrent
period
= + -
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Credit transactions
Mustafa Khuwaja - CAT Finalist 33
Credit
sales
Creates anaccountreceivable
Settled
when cash isreceivedfromcustomer
Purchases
on credit
Creates anaccountpayable
Settled
when cash ispaid tosupplier
A sale or a purchase whichoccurs some time earlier than
cash is received or paid.
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Double entry
bookkeeping
Mustafa Khuwaja - CAT Finalist 34
Debit:
Increases assetsDecreasesliabilitiesDecreases capitalDecreases incomeIncreasesexpenses
Means left handside
A businessDuality: Every transaction has two accounting entries,a debit and a credit.
Credit:
Decreases assetsIncreasesliabilitiesIncreases capitalIncreases incomeDecreasesexpenses
Means right handside
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Chapter 3
Statement of financial position and incomestatement
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Contents
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Users of accounts
Organisational structure
The income statement
Statement of financial position
Introduction to financial statements
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Introduction to financial
statements
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The statement of financial position
The income statement
The cash flow statement
Basic
accountingstatements
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Statement of financial
position
Mustafa Khuwaja - CAT Finalist 38
ASSETS
CAPITAL
LIABILITIES
A statement of the assets,liabilities and capital of a
business 'as at' a particular
date.
EQUAL
Also called the Balance sheet
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Typical statement of
financial position
BUSINESS NAMESTATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X8
$ $
Non-current assets
Land and buildings XPlant and machinery X
Fixtures and fittings X
X
Current assets
Inventory XReceivables X
Cash at bank and in hand X X
X
Capital
Proprietor's capital X
Retained profits XX
Non-current liabilities
Loan XCurrent liabilities
Bank overdraft X
Payables XX
X
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Assets
Mustafa Khuwaja - CAT Finalist 40
Text
Non-currentassets
Acquired forlong-termuse within
the business
Strictly, morethan oneaccountingperiod
Assets
Text
Currentassets
Expectedto beconverted
into cashwithin oneyear
Classification depends on the nature of the business
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Example
Mustafa Khuwaja - CAT Finalist 41
Text
Non-currentassets
LandOffice
buildingFactoryMachineryOfficeequipmentEtc.
Assets
Currentassets
CashInventory
ReceivablesEtc.
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Discussion
Current or non-current?
Asset Business Current ornon-current
VanDelivery
firm
Cement
mixer Builder
Car Car trader
Laptop Audit firm
Laptop Laptoptrader
42
Non-current
Non-current
Non-current
Current
Current
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Liabilities
Mustafa Khuwaja - CAT Finalist 43
Text
Non-currentliabilities
Debts notpayablewithin the'short
term
E.g: long-termbankloans.
Liabilities
Text
Currentliabilities
Debtspayablewithinone year.
E.g.:short-termloans,bankoverdrafts, tradepayables,
etc.
Long-term loan is split to:-Amount due within one year-Amount due beyond one year
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Discussion
Classification:
(a) PC used in the accounts department
of a retail storeNon-current asset
(b) A PC on sale in an office equipment
shop
Current asset(c) Wages due to be paid to staff at the
end of the week
Current liability
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Discussion
Classification:
(d) A van for sale in a motor dealer's
showroomCurrent asset
(e) A delivery van used in a grocer's
business
Non-current asset
(f) An amount owing to a bank for a loan
for the acquisition of a van, to be
repaid in 9 monthsCurrent liabilities
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Capital
Mustafa Khuwaja - CAT Finalist 46
Text
Amountsinvestedby theowner(s)
in thebusiness
Business capital account
Profitearnedandretained
by thebusiness.
he make-up depends on the legal nature of the busines
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The income statement
BUSINESS NAMEINCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 20X8
$ $Sales XCost of sales X
Gross profit X
Selling costs X
Distribution costs XAdministration expenses X
XProfit for the year X
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Shows in detail how the profit or loss of a period has been made.
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Income statement
breakdown
Mustafa Khuwaja - CAT Finalist 48
Text
Grossprofit:
Compares
revenuewith costof goodssold(directcosts)
Income statement
Netprofit:
Different
betweengrossprofit andtotaloverheads(indirectcosts).
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Capital expenditure vs. revenue
expenditure
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Capitalexpenditure
Results in:Theacquisition ofnon-current
assets; orAnimprovementin theirearningcapacity.
Revenueexpenditure
Balance sheet items Income statement item
Incurred in:For thepurpose ofthe trade ofthe business.
To maintainthe existingearningcapacity ofnon-currentassets.
Exam focus
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Capital and revenue
income
Mustafa Khuwaja - CAT Finalist 50
Capitalincome
Proceedsfrom thesale ofnon-tradingassets.
Revenueincome
The sale oftradingassets
Rent,
interest anddividendsreceivedfrom non-currentassets heldby the
business
Profit/loss apprears on IS Appears on income statement
Exam focus
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Users of accounts
Mustafa Khuwaja - CAT Finalist 51
Employees
of thebusiness
Owners
of thebusiness
Tradecontacts
Users ofaccounts
Managers
of thebusiness
Providersof finance
to thebusiness
Taxauthorities
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Whats what?
(a) Freehold property
Non-current asset
(b) Payment of wages for a director witha two year service contract
Expense
(c) Payments into a pension fund
Expense
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Whats what?
(d) A trade receivable who will pay in 18
months time
Non-current asset(e) An irrecoverable debt written off
Expense
(f) A patent
Non-current asset
(g) A company car
Non-current asset
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Whats what?
(h) Interest on a bank overdraft
Expense
(i) A bank loan repayable in five years
Non-current liability
(j) Petty cash of $25
Current asset
(k) The portion of local taxes paid covering theperiod after the reporting date
Current asset: prepayment
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Chapter 4
Recording and summarisingtransactions
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Contents
Mustafa Khuwaja - CAT Finalist 56
Recording business transaction1
Recording Sales2
Recording purchases3
The cash book4
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Contents
Mustafa Khuwaja - CAT Finalist 57
Cash registers and cash received sheets5
The general ledger6
Discounts, rebates and allowances7
Sales tax8
Posting cash receipts to the general ledger9 Posting cash receipts to the general ledger
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Recording business
transactions
Mustafa Khuwaja - CAT Finalist 58
Text
To record
Source
documentsBooks of
prime
entry
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Source documents
Invoices
Credit notes
Petty cash vouchers
Cheques received
Cheque stubs (for chequespaid out)
Wages, salary and employeetax records
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Books of prime entry
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Discussion
Which of books of prime entry isused if:
Your business pays a supplier$5,000?
Cash book
You send a customer an invoice
for $1,320? Sales day book
You receive an invoice from JSunderland for $1,750
Purchase day book
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Discussion
You pay Hall & Co $1,000
Cash book
Sarti (a customer) returns goodsto the value of $100
Sales returns day book
You return goods to Elphick & Co
to the value of $2,400 Purchase returns day
book
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Summarising source
documents
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Full processes
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Recording Sales
Mustafa Khuwaja - CAT Finalist 65
Sales
invoices
Sales credit
notes
Cheques
received
Sales day
book
Bank account
Sales tax control account
Cash book
Receivables ledger control
accountReceivables ledger
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Sales day book
The sale to Jones Co for $105 is also recorded
on page 14 of the receivables ledger.
Invoice number is unique generated by the
business's sales system.
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Recording Purchases
Mustafa Khuwaja - CAT Finalist 67
Purchase
invoices
Purchase
credit
invoices
Cheques
paid
Purchase
day book
Bank account
Sales tax control account
Cash book
Payables ledger control accountPayables ledger
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Purchase day book
Mustafa Khuwaja - CAT Finalist 68
The purchase from Cook Co for $315 is
also recorded on page 31 of thepayable ledger.
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The cash book
Mustafa Khuwaja - CAT Finalist 69
C a s h c o n t r o la c c o u n t i n G / L
C a s h r e c e i p t sd a y b o o k
C a s hb o o k
C a s h p a y m e n t
b o o k /C h e q u e p a y m e n t
d a y b o o k
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The cash receipts book
J Bloggs Cash receipts
Date Narrative TotalCashsales
Capitalintroduced
Cash fromdebtors
$ $ $ $
1.10 Capital injection 1,000 - 1,000 -
3.10 Cash sales 90 90 - -
8.10 Cash sales 50 50 - -11.10 A Smith 200 - - 200
12.10 Capital injection 500 - 500 -
13.10 B Brown 300 - - 300
Total 2,140 140 1,500 500
Mustafa Khuwaja - CAT Finalist 70
What you expect to see?
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The cash payments book
J Bloggs Cash payments
Date Narrative TotalCash
purchasesCash to
creditors Telephone
$ $ $ $1.10 BT 100 - - 100
12.10 C Jones 1,200 - 1,200 -
18.10 D Davies 300 - 300 -
20.10 Cash purchases 200 200 - -
26.10 Cash purchases 50 50 - -
29.10 Cash purchases 100 100 -
30.10 BT 140 - - 140
Total 2,090 350 1,500 240
Mustafa Khuwaja - CAT Finalist 71
What you expect to see?
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Question
Which of the following will not be entered in the cash book?
(a) Cheque received
(b) Payment to receivables ledger customers
(c) Supplier's invoice(d) Credit note
(e) Debit note
(f) Bank charges debited to the bank account
(g) Overdraft interest debited to the bank account
(h) Payment for a non-current asset purchased on credit(i) Refund received from a supplier
(j) Depreciation
Answer: CDEJ
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The bank statement
Mustafa Khuwaja - CAT Finalist 73
Text
To reconcile
Bank
statement
received
from bank
Weekly/monhtly basis
Investigate differences
Cash book
(internally
generated)
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The petty cash book
The book of prime entry
which keeps a cumulative
record of the small amountsof cash received into and paid
out of the cash float
There are usually morepayments than receipts, and
petty cash must be topped-
up' from time to time with
cash from the business bankaccount.
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The general ledger
Mustafa Khuwaja - CAT Finalist 75
The general ledger is the accountingrecord which summarizes the financialaffairs of a business.
It contains details of assets, liabilitiesand capital, income and expenditureand so profit and loss.
It consists of a large number of differentledger accounts, each account having
its own purpose or 'name' and anidentity or code
Another name for the general ledger isthe nominal ledger
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The general ledger
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The T format
Mustafa Khuwaja - CAT Finalist 77
The 'T' format accounts:
On top of the account is its name
Left hand side called debit side
Right hand side called credit side
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Example
For example: Profit and Loss accounts
Note: No b/f or c/f for profit and lossesaccounts
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Example
For example: Balance sheet accounts
Note: There are always b/f or c/f for profit and
losses accounts for balance sheet accounts
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Double entry book-keeping
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The Principles
Every transaction has a two fold
effect!!!
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Example Cash
transactionsIn the cash book of a business, the following
transactions have been recorded.
(a) A cash sale (ie a receipt) of $2
(b) Payment of a rent bill totalling $150
(c) Buying some goods for cash at $100
(d) Buying some shelves for cash at $200
How would these four transactions be posted to
the ledger accounts? For that matter, which
ledger accounts should they be posted to?
Don't forget that each transaction will be
posted twice, in accordance with the rule ofdouble entry.
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How much cash is left?
Mustafa Khuwaja - CAT Finalist 85
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Posting from the day
books
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Posting cash receipts
J Bloggs Cash receipts
Date Narrative TotalCashsales
Capitalintroduced
Cash fromdebtors
$ $ $ $
1.10 Capital injection 1,000 - 1,000 -
3.10 Cash sales 90 90 - -
8.10 Cash sales 50 50 - -11.10 A Smith 200 - - 200
12.10 Capital injection 500 - 500 -
13.10 B Brown 300 - - 300
Total 2,140 140 1,500 500
Dr Cash Account 2,140
Cr Sales 140
Cr Capital Account 1,500
Cr Debtors Control Account 500
87
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Impersonal vs. personal
account
Impersonal accounts: Accounts in the general
ledger
Personal accounts:
Include details of transactions which have
already been summarized in ledger
accounts.
Do not form part of the double entry
system Memorandum accounts only.
Control accounts:
Used chiefly for receivables and payables.
Should agree with the total of theindividual balances
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Accounting for sales tax
If a business sells goods for $600 + $105 sales
tax, ie for $705 gross price, the sales
account should only record the $600excluding sales tax.
DEBIT Cash or AR $705
CREDIT Sales$600
CREDIT Sales tax account (output)
$105
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Accounting for sales tax
If a business purchases goods on credit for$400 + tax $70
Tax is recoverable
DEBIT Purchases$400
DEBIT Sales tax account (input tax)$70
CREDIT Trade AP$470
Tax is not recoverable
DEBIT Purchases
$470CREDIT Trade accounts payable
$470
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When is sales tax
accounted for?
Sales tax is accounted for when it
first arises:
when recording creditpurchases/sales in credit transactions
and when recording cash received or
paid in cash transactions
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Sales tax account
Mustafa Khuwaja - CAT Finalist 92
Purchase day book
xxx
(input sales tax)
Bank
xxx(input sales tax on cash
purchase)
C/f:
xxx
B/f:xxx
Sales day book
xxx
(out put sales tax
invoiced)
Bank
xxx
(out put sales tax on cash
sales)
Sales tax account
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Contents
The journal
The trial balance
Methods of coding data
Manual and computerized
systems
Batch processing and controltotals
Accounting systems
Accounting modules
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The journal
One of the books of prime entry
Record of (not arise from the other
books of prime entry) unusualmovement between accounts
Date
$ $DEBIT Account name
X
CREDIT Account name
XNarrative to explain the transaction
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Example: Journal entries
1 JanuaryPut in cash of $2,000 as capital
DEBIT Cash2,000
CREDIT Paul Brown capital account2,000
Initial capital introduced
Purchased brushes and combs for cash of $50
DEBIT Brushes and combs account50
CREDIT Cash50
The purchase for cash of brushes and combs as non-current assets
Purchased hair driers from Z on credit for $150
DEBIT Hair dryer account150
CREDIT Sundry payables account *150
The purchase on credit of hair driers as non-current assets
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Example: Journal entries
30 January
Paid three months rent to 31 March of $300
DEBIT Rent account 300
CREDIT Cash
300The payment of rent to 31 March
Collected and paid in takings of $600
DEBIT Cash 600
CREDIT Sales (or takings account)
600
Cash takings 31 January
Gave Mrs X a perm, highlights etc on credit $80.
DEBIT Receivables account 80
CREDIT Sales account (or takings account)
80The provision of a hair-do on credit
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The trial balance
List of ledger balances shown in
debit and credit columns
The debit should equal creditbalances
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Illustration TB
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TB not balance Why
(a) The complete omission of atransaction, because neither a debit nora credit is made
(b) Posting a debit or credit to the correctside of the ledger, but to a wrongaccount (an error of commission)
(c) Compensating errors (eg debit error of
$100 is exactly cancelled by credit $100error elsewhere)
(d) Errors of principle (eg cash receivedfrom customers being debited to thetotal receivables account and creditedto cash instead of the other way round)
(e) Errors of transposition (eg $11,729written as $11,279)
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Errors in detailErrors of transposition
Two digits in an amount are
accidentally recorded the wrong
way round
Detect: the difference can bedivided exactly by 9
rrors of omission
Fail to record a transaction at all
Making a debit or credit entry, but not
the corresponding double entry
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Compensating errors
Errors which are, coincidentally,
equal and opposite to one
another
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Errors in detailErrors of principle Accounting entry breaks the 'rules' of
an accounting principle or concept
E.g.:
Capital expenditure treated as revenueexpenditure
Drawings treated as expenses
Errors of commission
Bookkeeper makes a mistake
E.g.:
Putting a debit entry or a credit entry inthe wrong account
Errors of casting (adding up)
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Correction of errors
ournal entries
Requires a debit and an equal credit entry
Total debits equal total credits before a journaentry is made
They will still be equal after the journal entry ismade
Suspense account
Why have?
A trial balance is drawn up which does notbalance
Knows where to post the credit side of atransaction, but does not know where topost the debit (or vice versa)
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Example - JE
Suppose a bookkeeper accidentallyposts a bill for $200 to the gasaccount instead of to the business
rates account. A trial balance isdrawn up, and total debits are$100,000 and total credits are$100,000.
Journal entries
DEBIT Business rates account $200
CREDIT Gas account $200
To correct a misposting of $200 fromthe rates account to electricityaccount.
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Methods of coding data
Each account has a unique code
for posting
Why need? Used to identify the correct account
for a posting
Saves time Saves storage space
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Example
A nominal ledger has the followingcodes.
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State what type of code this is. Explainyour answer
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Solution
This is a significant digit code.
The digits are part of the
description of the item beingcoded.
'1' in 100000 clearly represents
non-current assets '2' in 100200 represents plant and
machinery etc.
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Computerized systems
Perform the same tasks as
manual systems
Differences: How information is stored
How tasks are performed
How some package do things'automatically'
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Computerized systems
Input: Entering data from original
documents
Processing: Entering up booksand ledgers and generally sorting
the input information
Output: Producing any reportdesired by the managers of the
business, including financial
statements
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Batch processing and
control totals Batch processing
Similar transactions are gathered into batches,and then each batch is sorted and processed bythe computer
Control totals Used to make sure that there have been no errors
when the batch is input
Make sure that the total value of transactions
input is the same as that previously calculated
E.g. A batch of 30 sales invoices with total value of
$42,378.47.
When the batch is input, the computer adds upthe total value of the invoices input and producesa total of $42,378.47.
The control totals agree
No further action is required
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Accounting packages
Advantages
(a) The packages can be used by non-specialists.
(b) A large amount of data can be processed very
quickly.
(c) More accurate than manual
(d) Handling and processing large volumes of data.
Disadvantages
(a) Initial time and costs involved
(b) Need for security checks
(c) The necessity to develop a system of coding (see
below) and checking.
(d) Lack of 'audit trail'. It is not always easy to seewhere a mistake has been made.
(e) Possible resistance on the part of staff to the
introduction of the system.
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Modules
Program which deals with one particular part of abusiness accounting system
Modules may be integrated with the others
InvoicingInventory
Receivables ledger
Payables ledger
Nominal ledger
Payroll
Cash book
Job costing
Non-current asset register
Report generator
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QB 9
A credit balance of $917 brought
down on Y Co's account in the
books of X Co means thatA X owes Y $917
B Y owes X $917
C X has paid Y $917D X is owed $917 by Y
Answer: A
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Chapter 6
Receiving and
checking money
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Contents
Control over receipts
Remittance advices
Receipts given to customers Ways in which customers pay
Cash: physical security
considerations Cheques
Receipt of cheque payments
Receipt of card payments
EFTPOS
Other receipts
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Control over receipts
Ensure a good cash flow
Banking (performed promptly and
correctly) Security (avoiding loss or theft)
Documentation (remittance advice)
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Remittance advices
Trade customers usually send a remittance
advice with their payment
A remittance advice shows which invoices a
payment covers
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Receipts given to
customers
Till receipts
Issued by
a cash
registers
or 'tills
Writtenreceipts
Or typed
may be
used if nocash
register is
used
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Cash Registeroperation Store price info
on all stocks Record the value
of the sale ofeach item andtotal
Calculate therequired changeto customer
Issue a till receiptshowing theentire transaction
Sum up thetransactions ofthe day at closingtime
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Evidence of payment
other than in cash
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Receipt from customers
Main types
Cash
Cheque
Credit or
debit card
Other types
Standing
order
Direct
debit
Mailtransfer
and
telegraphi
c transfer
Automate
d credit
services
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Cash: physical security
Problem
Forgery
Theft
How to deal
Careful examination
Cash register
security, Safes
Protective glass
('bandit screen')
Frequent banking
Never be sent by
post
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Cheques
Definition
A cheque is 'an
unconditional orderin writing
addressed by a
person to a bank,
signed by the
person giving it,
requiring the bank
to pay on demand a
sum certain in
money to or to theorder of a specified
person or bearer
New related words
Dishonored
Cheque guarantee
cards
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Cheque: procedures
1. Ensure details are correct (date,
payee, amount)2. Signature: on the cheque vs.
guarantee card
3. Check the details on the cheque
guarantee card. 'Expires end' date
Amount of the guarantee
Name agrees with that on the cheque
Other details
4. Copy GC details on to the chequesback
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Cheques: physical security
Customers are asked to keep
cheque books and cards separate
The number of cheques in a bookis kept to a minimum.
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Plastic card
Most retail
outlets
which
accept
PLASTIC
cards now
use an
electronic
system
known inthe UK as
EFTPOS
(Electronic
Funds
Transfer at
Point ofSale).
CREDIT vs.
DEBIT cards
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Credit cards
Credit card payment involves 3
transactions
Debit card vs. Credit card
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EFTPOS
Electronic Funds Transfer at Point
of Sale: makes possible the
automatic transfer of funds froma customer's bank account to a
retail organization at the point in
time when the customer
purchases goods (or services)
from it.
The EFTPOS terminal
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Other receipts
Bankers draft
Method of payment
available frombanks for a fee
When a customer
needs a guarantee
that the paymentcannot be
dishonoured
Standing orders and
direct debits
Regular payments
Standing order can
only be changed by
the payer
Direct debit can be
changed by the
receiver at will
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Discussion
Business: electricity company
'I am a domestic customer, and receive a bill fromyou each quarter. I want to continue to payquarterly, but I don't want to go the trouble of
writing out a cheque or making a special trip (forexample to a bank or your office) to pay the bill.However, I do need to know how much the bill isgoing to be before I am due to pay it. Whatmethod of payment would you suggest?
'You can pay by quarterly direct debit. You need
to complete a direct debit mandate form whichauthorises us to debit amounts from your bankaccount. We will send you a bill in the usual wayeach quarter, and the amount due will be debitedfrom your account 14 days after the date of thebill, so you'll know how much is to be debited
well in advance. If an error is made, either thebank or ourselves must put it right.'
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Business: mail order company
'I want to place an order with
you. I don't have a bank account,building society account or acredit card, so I suppose that I'llneed to send you the amount dueby cash through the post. Is thatOK?
'We do not advise you to send
cash through the post, as wecannot accept responsibility if it islost. We suggest that you pay bypostal order, obtained from your
post office. The post office willcharge a fee for this service.'
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Chapter 7
Banking monies
received
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Contents
The banking system
The banker/customer relationship
Procedures for banking cash
Procedures for banking cheques
Procedures for banking plastic
card transactions
Banking other receipts
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Clearing system principles
Step 1 Receiving bank branches stamptheir names and addresses in additionto the crossings on the cheques
Step 2 Cheques from receiving bankbranches sent to the head office
Step 3 The head office delivers to theBankers Clearing House
Step 4 The Bankers Clearing Housedistributes these cheques to the headoffices of the relevant paying banks.
Step 5 The paying banks' head offices
process the cheques using computersand distribute the cheques to thevarious branches of the banks on whichthe cheques are drawn.
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The banker/customer
relationshipBanker
Put money and
cheques receivedon a customer's
behalf into his
account.
Take out all chequesand orders paid
from the account by
the customer.
Keep accounts on
the customer'sbehalf.
Customer
Bank opens an
account for him inhis name.
Bank accepts his
instructions and
undertakes toprovide a service
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Contractual relationship
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Procedures for banking
cashProcedures for preparing a paying-
in slip
Step 1 Count the cashStep 2 Add up, on a separate piece of paper
Step 3 Compare: calculated total vs. cash
register
Step 4 Calculate any discrepancyStep 5 Enter the total for each denomination
of note in the appropriate place on the
paying in slip.
Step 6 Add up the numbers again to checkthe total and enter it in the 'total cash'
box.
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Procedures for banking
plastic card transactions The card issuers require the
business receiver of cardtransactions to summarise alltransactions on a summary voucher.The summary voucher consists of anoriginal or 'top copy' and two copieswith carbon paper in between. The
bottom copy is the processing copy,on the back of it is a place to list thevouchers.
The summary voucher has to beimprinted with the retailer's plasticcard.
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Queries arising from card
transactions
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Banking other receipts Direct debits
Standing orders
Automatedpayments
Telegraphictransfers
Banker's drafts same manner as
cheques
Bank giro credits paid into a bank
account by thecustomer of thebusiness, in whichcase the amounts
will appearautomatically onthe business's bankstatement
Banking andEFTPOS
Credit, chargeor debit cardreceipts viaEFTPOS arecrediteddirectly to theretailer's bank
account. He canagree theamountsreceived to the'End of day'reconciliationproduced bythe terminal
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Chapter 8
Recording monies
received
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Contents
Controls over recording receipts
Cash registers
Cash received sheets (remittance
lists)
Posting cash receipts to the
general ledger
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Cash registers
What is it?
To check the
amount of moneyin the cash register
at the end of the
day against the
summary
To record receipts
in the cash book
Security and controls
Who can access
Training
Work observation
The maximum
possible amount of
preset information
Periodic info
analysis
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Cash received sheets
(remittance lists)Manually Pre-printed
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Posting from cash book
Suppose we wished to post
Warren Miles's cash received for
1 September 20X7 to his generalledger. The relevant general
ledger accounts are as follows
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Posting results
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Chapter 9
Authorizing and making
payments
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Contents
Controls over payments
Cheque requisition forms
Expenses claim forms The timing and methods of payments
Payments by cash
Payments by cheque
Bank Giro credits (credit transfers) Payments by banker's draft (payable
order)
Payments by standing order and direct
debit Documentation to go out with payments
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Controls over payments
Suppose that a company buys
goods costing $5,000.
1. Invoice from the supplier: reason
for and amount of the payment
2. Authorization of the payment: bythe purchasing director
3. Payment made to the supplier: For
a payment of $5,000, perhaps only
the finance director or managingdirector will be permitted
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Authorization - Illustration
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Cheque requisition forms
A form requestingthat a cheque shouldbe drawn to make apayment
E.g.: The advertising
manager of ABCwants to put anadvertisementinto the localweeklynewspaper. Thenewspaperwants paymentof $470 ($400 +sales tax at
17%) inadvance, andhas sent a faxletterrequesting thisamount. Areceipt will besent later withconfirmationthat theadvertisementhas beeninserted andpaid for.
The advertisingmanager will fill ina chequerequisition form.
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Expenses claim forms
Employees make payments by
their own pocket and then claim
back Proof should be given of the
existence and the amount of the
expense (attaching receipts,invoices)
Insufficient supporting evidence?
Company may refuse to reimburse
the expense.
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The timing of payments
When and whom?
Things to consider?
Credit terms
Discounts
Who decides andhow?
Senior person
List of unpaid
invoices
Overdue
Outstanding
Soon due to bepaid.
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Methods of payment
Commonly used
Cheques
Automated transfers(especially forsalaries and wages)
Internet payments
Other
Cash
Banker's draft
Standing order
Direct debit
Company credit
card or charge card
Mail transfer and
telegraphic transfer
Internet payments
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Payments by cash
For small payments out ofpetty
cash
Sometimes for wages
Pay large amounts? Not
recommended
Rare Secure
Dishonest dealers in backstreet or
underworld businesses
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Payments by cheque
Signatures on business cheques:
Only certain specified individuals
With names and signatures suppliedto the bank on a bank mandate
form
Cheques above a certain value must
contain two authorized signatures
Might consist of the chairman, all
the directors and the chief
accountant or financial controller
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Payments by cheque
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Procedures for preparing
chequesStep 1 Prepare list of payments
Step 2 Payments authorised,
sufficient funds available
Step 3 Check invoices to be paid
Step 4 Prepare the cheques
Step 5 Attach invoice to cheque,sign
Step 6 Mark invoice PAID
Step 7 Send cheque off to payeewith remittance advice
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Examine the cheque
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Lost cheques
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Step 1
Telephone
your bank
saying that youwant the
cheque to be
stopped.
Step 2 Confirmthis instruction
in writing.
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Bank giro credits
Filling in a bank giro credit
transfer form and handing this
together with the payment(cheque or cash) over the counter
at a bank
Telephone companies
Electricity companies
Water companies
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Payments by banker's
draft Unlike company cheques, a
bankers draft cannot be stopped
or cancelled after it has beenissued
And so when a supplier receives
the draft, payment is guaranteed
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Standing orders
To make
regular
payments
of a fixedamount
Arranged
by a
StandingOrder
Mandates
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Direct debits
Similar
Like standing
orders, are used forregular payments
Difference
the person who
receives thepayments who
initiates each
payment
Payments can befor a variable
amount each time,
and at irregular
intervals
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Documentation to go out
with payments A remittance advice:
Created by the customer
Part of the statement sent by the
supplier A copy of a pro-forma invoice where
this has been provided by thesupplier for payments with an order
A bank giro credit form fortelephone, electricity and othersimilar bills
A covering letter explaining whatthe payment is for, when otherforms of documentation do notexist
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Chapter 10
Recording payments
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Controls over recording
payments
Fraud All payments are
authorised correctly
Proper checks
against supportingdocs
Segregation ofduties
At day end, a list ofthe payments forthat day is submittedto a senior memberof staff to check forunusual payments
A minimum numberof cheque books is in
use at any time
Completeness Regular bank
reconciliations
Sequential numbering
A sequence checkcarried out on thecheques in cash book
Regular examinationsof bank statements toensure that allpayments by directdebit and standingorder have beenrecorded in the cashbook (along with bankinterest and charges)
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To avoid fraud and to ensure
completeness
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The cash book: recording
payments
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Procedures for using ACS
To pay the salaries of its staff using ACS
1. Produces a file with staff details tosend AC processing computer centre
2. Bank updates its database
3. On the day specified by the company
1. The salary due credited to staff account
2. Company's account is debited with the
total amount
4. Related data and info a recorded andsaved
5. The business's records will be updated
with the same information
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Chapter 11
Maintaining petty cash
records
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Contents
1 The purpose of petty cash
2 Security and control of petty cash
3 The imprest system4 Petty cash vouchers
5 The petty cash book
6 Recording and analysing pettycash transactions
7 Recording petty cash transactions:sales tax
8 Topping up the float, balancing offand posting petty cash
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Chapter scenario
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The purpose of petty cash
Payments for small items of expense
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Security and control of
petty cash The petty cash box
Limiting the size of petty cash
payments
Authorisation and authorisation
limits
Receipts Sales tax receipts
No available receipts
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The imprest system
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Petty cash vouchers
Prepared by
cashier when
payment is
requested Usually,
vouchers are
numbered in
sequence foreach year,
starting at 1
with the first
voucher each
year For what?
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Receiving money into
petty cash
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An employee of the organisation might use someof the office's postage stamps, to put on personalletters. He or she will pay for the stamps bygiving the cash to the petty cashier
Similarly, employees might be expected to payfor any private telephone calls that they makefrom an office telephone
Very occasionally, perhaps when the petty cashfloat is running low, the money received from acash sale might be used to boost petty cash.
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Chapter 12
Bank reconciliation
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Contents
Bank reconciliations
The bank statement
Procedures for performing a bank
reconciliation
Reconciliations on a
computerised system
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Bank reconciliations
A bank reconciliation compares
the balance of cash in the
business's records to the balanceheld by the bank.
Differences will be errors or
timing differences, and they mustbe identified and satisfactorily
explained.
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The bank statement
Sent by a bank to its short-termreceivables and payables (customerswith bank overdrafts and customers
with money in their accounts) itemising The balance on the account at the
beginning of the period
Receipts into the account
Payments from the account during theperiod
And the balance at the end of the period.
These statements may be producedmonthly, weekly or even daily depending
on the volume of transactions goingthrough the account.
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Proforma bank
reconciliation
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Chapter 14
The receivables
ledger
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Contents
Personal accounts for credit
customers
Recording transactions in thereceivables ledger
The age analysis of receivables
and other reports Irrecoverable debts
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The need for personal
accounts A customer might telephone, and ask
how much he currently owes. Staff mustbe able to tell the customer the state of
his account. It is a common practice to send out
statements to credit customers at theend of each month, showing how muchthey still owe, and itemising new
invoices sent out and payments receivedduring the month.
The managers of the business will wantto keep a check on the credit position ofan individual customer, and to ensure
that no customer is exceeding his creditlimit by purchasing more goods.
Perhaps most important is the need tomatch payments against debts owed.
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Authorisation
Ensure it will receive payment forthose goods.
Authorisation procedures Require references from suppliers with
whom he already has a credit account,and maybe also a reference from hisbank.
The customer's credit limit must beauthorised
Before goods are despatched to acustomer, the order may need to beauthorised by the credit controldepartment. If the customer has invoices overdue for
payment, it may be decided that nofurther orders can be accepted untilpayment is received.
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Benefits and costs of
offering credit facilitiesCosts
Interest costs of an
overdraft, ifcustomers do not
pay promptly
Costs of trying to
obtain payment Court costs
Benefits
Very few businesses
expect to be paidimmediately in cash
What benefits?
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Accounts receivable
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Sales returns (credit notes) inc
sales tax X
Payments
received X
Discountsallowed
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Personal accounts as
memorandum accounts What means by memorandum?
Do not form part of the double
entry system
Businesses not needing a
receivables ledger? Small businesses
Large businesses
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Recording transactions in
the receivables ledger Hawkins Co started trading at the
beginning of April. During April,
the sales day book and the salesreturns day book of Hawkins Co
showed the following
transactions.
We need to show the entries as
they would appear in the sales
ledger accounts to reflect the
above transactions
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BalancingMustafa Khuwaja - CAT Finalist 203
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Posting to general ledger
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Posting to general ledger
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Summary
Which isNOT part of
double
entry
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How to
check
posting
correctness?
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Discounts allowed
Pet supplies makes a sale for $1,000 worth of
goods to Janice. A 10% discount will be
allowed if Janice settles within 10 days.
Assuming that Janice settles within 10 daysrecord the journal entries in the suppliers'
books.
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The age analysis of
receivables Breaks down the customer balances on the
receivables ledger into different periods of
outstanding debt.
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Whatfor?
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Other reports
Statements of account
Sales tax analysis
Sales analysis
List of customer accounts
Customer mailing lists
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Irrecoverable debts
Some debts may need to be
written off as 'irrecoverable
debts' because there is no realprospect of them being paid.
Reasons?
What should be done?
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Irrecoverable debts
written offDEBIT Irrecoverable debts account
(expense)
CREDIT Total receivables account
A write off of any irrecoverable debt
will need the authorisation of asenior official in the organisation.
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Irrecoverable debts and
sales tax A business may be able to claim
relief from sales tax on the
following irrecoverable debts. At least six months old (from the
time of supply)
Written off in the accounts of the
business
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Example
If both the debts written off in
previous example were inclusive
of sales tax, the accounts wouldlook as follows.
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Chapter 15
Purchase and purchase returns
day books
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Contents
What is the purchase day book?
What is the purchase returns day
book?
Entering purchase transactions in
the day books
Coding data Posting the day book totals
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What is the purchase day
book? Used to keep a list of all of the invoices
received from suppliers of goods and services
to the business.
Like the sales day book, it is a 'book of primeentry' or a 'primary record' and not a ledger
account.
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What is the purchase
returns day book?Lists credit notes received in respect
of purchase returns in chronologicalorder.
Why returns? Supplier to accept?
Faulty or damaged goods
Goods purchased on a 'sale or return'basis will be returned if they cannot besold
If goods have been ordered by thebusiness and are in good condition butare surplus to the requirements of the
purchasing business, it is up to thesupplier whether he accept them asreturns
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Discussion
Which of the following cases would you classify as apurchase return by your business
(a) Goods purchased from you by a customer andreturned.
(b) You have been billed twice, by accident, for a singleamount of goods, and you return the superfluouspurchase invoice.
(c) You have been delivered some goods which are faultyand you send them back. You have posted the invoicereceived in respect of the goods.
(d) A customer sends back some sub-standard goods toyou.
(e) A supplier sends back some goods to you which youhave delivered there by mistake, thinking the supplierwas in fact a customer.
(f) An item of inventory is damaged in a fire at yourwarehouse and, because you cannot use it any more,
you have to go back to the original supplier and ordera replacement.
(g) You question an invoice because you have been billedfor items which you have not ordered, and which youhave not received.
(h) You have been delivered a quantity of goods in excessof your requirements. The supplier agrees that youcan return them.Mustafa Khuwaja - CAT Finalist 218
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Analysis of purchases
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Posting the day book
totals
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Narrative: Posting purchases
Narrative: Posting purchases returns
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Chapter 16
The payables ledger
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Contents
Personal accounts for suppliers
Recording transactions in the
payables ledger
Payments to suppliers
The age analysis of payables and
other reports Contra entries with the
receivables ledger
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The payables ledger
The personal accounts showing
how much is owed to each credit
supplier of the business arecontained in the purchase ledger,
or payables ledger.
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Purchase returns
Discounts received
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Trade accounts payable
Trade accounts payable consist of
those liabilities which are related
to the trade of the business. Other payables will not normally
be recorded in the payables
ledger and the balances owedshould instead be recorded in:
Liabilities to pay wages and salaries
Taxes
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Discussion
(a) What is the status of a trade
account payable in the accounts
of a business?(i) An asset
(ii) A liability
(iii) An expense(iv) An item of revenue
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Discussion
(i) Depreciation
provision
(ii) Personal accounts
for suppliers of
subcomponents(iii) Taxation authorities
(iv) Sales tax authorities
(v) Suppliers of raw
materials
(vi) Bank overdraft
(vii) Long-term bank
loan
(viii) Share premium
(ix) Telephone expenses
(x) Drawings
(xi) Proprietor's capital
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(b) Which are not normally found in a
payables ledger of trade accounts
payable?
Answer: 2 5 9 only
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Recording transactions
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Discounts received
Remember: Memorandum'
discounts received column in the
cash book Recording?
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The reasons for
reconciling items
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Checks over payments
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The age analysis of
payables The age analysis of payables will
consist of a listing of payables'
balances analysed betweendifferent 'ages' of debt
represented by different items in
the balance, measured in months
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Contra entries with the
receivables ledger Contra entries 'net off' amounts
due to and from the same parties
in the payables ledger andreceivables ledger respectively.
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Chapter 17
Control accounts
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Contents
Internal check
Control accounts
Control account reconciliations
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Internal check
What is it?Also known as
internal controls,ensure that
transactions to be
recorded and
processed have
been authorised,
that they are all
included and that
they are correctly
recorded andaccurately
processed.
Types of internalcheck
A trial balance
Bank reconciliations
Control account
reconciliations
Segregation of
duties
Authorisation
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Control accounts
A control account is an account in
the nominal ledger in which a
record is kept of the total value ofa number of similar but individual
items.
Control accounts are used chieflyfor receivables and payables
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Reasons for having
control accounts Check accuracy of entries made in
the personal accounts
Assist in the location of errors
Internal check where there is
separation of bookkeeping duties
A balance can be extractedquickly for producing a trial
balance or statement of financial
position
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Control account
reconciliationsThe balance on the receivables control is $15,091. List of
receivables ledger balances totals $15,320. The
following errors are discovered.
(a) A receivable paid $10 in cash. This has been correctlyrecorded in the receivables ledger, but no entries in
the control account.
(b) One of the receivables had a credit balance of $60.
However this has been included as a debit balance
(c) Returns inwards of $35 have been recorded in the
receivables ledger, but not in the receivables control
account.
(d) One page of the sales day book has been undercast
by $100.
(e) When a sales invoice for $95 was entered in the
receivables ledger, the figures were transposed andshown as $59.
(f) An error has been made in totalling the list of
receivables ledger balances, which has been overcast
by $90.
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Solution
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Chapter 18
Recording payroll
transactions
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Contents
The nature of payroll
Gross pay and basic pay
Overtime, bonus payments and
commissions
Payroll administration and
documentation Payroll deductions
Payment methods
Updating records
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Payroll
A payroll is a list of employees
and what they are to be paid.
Being on the payroll of anorganisation means that you are
selling your labour to it for an
agreed price.
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Employer's legal
responsibilities to collect
income tax
Employer's duties(a) Operate the income tax system for allcovered by it.
(b) Maintain the necessary records.
(c) Pay the income tax and benefitcontribution collected fromemployees to the tax authoritiesevery month (in most cases).
(d) Let the tax office inspect the records.
(e) Submit end of year returns.
(f) Give employees payslips
(g) Maintain for three years, at theminimum, after the end of a tax year,
the records relating to that year.Mustafa Khuwaja - CAT Finalist 246
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Question
All an employee's income isassessed to tax through the systemoperated by employers?
False. The employer only deals withincome arising from theemployment. If the employee, say,
received interest on a depositaccount, this would not be taxeddirectly, through his or heremployer's payroll system, althoughit might be reflected in the tax code.
However, lower rate tax on suchincome may be deducted at source.
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Gross pay and basic pay
Gross pay is what an employeeearns., not what the employeeactually receives in cash
Basic pay is the rate for the job,and is what you expect to receivefor a normal period's work,irrespective of overtime and so
forth.
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Basic pay: Fixed rate per
periodYour contract of employment states
that you are to receive an annualsalary of $9,000. You join on 1January 20X2. You are told that thefirst three months of youremployment are a probationaryperiod, and that from 1 April 20X2
your annual salary will increase by10%. You are informed on 20 May20X2 that everyone in the companyis to receive a pay rise: yours works
out at $600 per year in addition tothe 10% rise you have alreadyreceived, effective from 1 July 20X2.
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Basic pay: Hourly rate
Some workers get paid a rate per
hour. If you work 40 hours at $5
per hour then your basic pay willbe $200.
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Piecework
Wages = Units produced Ra
It is common for pieceworkers to
be offered a guaranteedminimum wage, so that they do
not suffer loss of earnings when
production is low through no faultof their ownte of pay per unit
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Differential piecework
Offer an incentive to employees
to increase their output by paying
higher rates for increased levelsof production.
Up to 80 units per week, rate of pay
per unit = $1.00
80 to 90 units per week, rate of pay
per unit = $1.20
Above 90 units per week, rate of
pay per unit = $1.30
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Overtime
Overtime comprises hours
worked over a standard working
week If an hour at basic rate is $4, how
much is an hour of overtime at
time and a half? $6 per hour.
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Bonuses
An extra payment made to an
employee as a reward for results
achieved. To motivate employees to work
harder and to reach or exceed
some target
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Commission
Payment made to an employee (oragent) based on the value of something(usually sales) the employee (or agent)
has generatedStraight percentage of all sales10%: $1,000 of sales get $100, for
$100,000 get $10,000
Sliding scale, more valuable contracts
earn greater commissionContracts up to $5,000 a 5% commission,
over $5,000 7.5%
Increase with the total volume of sales.Sales up to $100,000 a 5% commission is
earnedIf the target is exceeded, then a 7.5%
commission is paid on the excess (ie allsales over $100,000).
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Payroll administration and
documentationDocuments associated with payroll
preparation.
Timesheets record the hours spentby each employee on each job, ordoing the work of each client.
Attendance records are used by the
personnel department to determinethe reasons for absence from work,and to administer the granting ofannual leave.
Other personnel recorddocumentation includes cards torecord a person's career progress.
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Personnel department
Personnel record card
Record of attendance
card
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Responsible for recruiting, engaging
and holding certain basic data of
employees
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Payroll function Calculation of
gross pay
Calculation of
tax, national
insurance and
other
deductions
Preparing
payslips
Making
appropriate
returns toexternal
agencies
Making up
wages, or
preparing tapes
for bank
transfer
Distributing
payslips
Preparingpayroll
statistics.
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Documentation
Salaried employees
Personnel records
held in the personneldepartmentdocument how mucheach salariedemployee is to bepaid, and for what
periods Payroll department
will receiveinstructions from thepersonnel
department relatingto salary increases, orother alterations toan employee's pay.
Hourly paid
employees
Attendance cards
are the basis forpayroll preparation
Time recording
clock
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The records required
Daily time sheets Filled in by
employee indicatetime spent on each
job
The total time ontime sheet shouldcorrespond withattendance records
Job cards Cards are prepared
for each job
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Weekly time sheets Similar to daily
time sheets butare passed to thecost office at theend of the week
Entries should bemade daily toavoid error.
Route cards Similar to job
cards, except thatthey follow theproduct throughthe works and
carry details of alloperations to becarried out.
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Payroll deductions
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Income tax tax
deducted at source Tax deducted at source covers all
the employees of an organisation
Does not cover self-employedpeople
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Benefit contributions
Compulsory
contributions
Borne in part by the
employee and inpart by the
employer:
Unemployment
benefit
Income support
The state pension
scheme
The National Health
Service in some
countries
Remittances to
authorities
Contributions
payable by theemployee
Form part of the
deductions from
gross pay.
Contributions
payable by the
employer
An additional cost
to the employer.
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The total cost of wages and salaries in the income
statement is:
Gross wages + employer's benefit contribution
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Other deductions
Sharesave payments
Deductions from net
pay linked to shareoptions. They do not
affect payroll
calculations.
Run by employer co-
operates with building
society or bank.
The employer deducts
an agreed sum from net
pay of the employee
and deposits it in a
building society orbank.
Trade Union
contributions
Deducted fromearnings, if theemployee is a memberof a union
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Payroll departmentdeducts from employees'pay, maintain records andreport them to the pensionfund administrators.
The employer only (a
so-called non-contributory pensionscheme)
The employer and theemployee (called acontributory pensionscheme)
Pension scheme
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Payment methods
Recommended