EA AAT

• DEAD CLIC Debits: Expenses Assets Dividends Credits: Liabilities Income Capital
• What is another name for the general ledger? The nominal ledger
• How do we balance the ledger accounts? Total both sides of the debit and the credit side of ledger account and make note of each total Insert higher of the two totals as the total on both sides of ledger leaving line beneath final entry on each side On side with the smaller total make this add to total by adding Bal c/d Insert same figure below total on opposite side and refer to bal b/d
• Benefits of using digital bookkeeping systems: Simple data entry and efficiency saves time and reduces errors and omissions Automatic generation of reports: automatically creates a trial balance from general ledger accounts
• What are examples of automation of tasks within digital bookkeeping systems? Processes recurring entries Makes duplication of automated and manual entries Automatically bakances cash book Automatically completes transfer of data from books of prime entry to ledgers Automatically reconciles the receivables and payables ledgers to their respective control accounts
• Drawback of digital bookkeeping systems: Price: The package cost is more expensive than paper based system Implementation and support: Some assistance maybe required when setting up accounting software. The system provider usually charges you for this service and the purchase of yearly maintenance may be required Potential errors: If the amount or frequency of a recurring entry changes it may create errors although there are automatic balances it doesn't mean entries are correct every time Specialised needs: Specialist businesses may need to tailor a digital package or change the process to use the software successfully
• What is a credit sale? Goods or services are provided along with an invoice that will specify when the payment is due No cash is paid at time transaction is occuring
• What is bulk discounting? A percentage of the list price of goods
• What is Trade discounting? A percentage of the list price of goods for certain customers
• What is Prompt payment discounting? Percentage off if invoice is paid in x amount of days
• What is a credit purchase? Goods and/or services which are provided along with an invoice which will specify when a payment is due
• What is the receivables account? Money owed by customers
• What is the payables account? Money owed to our suppliers
• What does the sales ledger control account contain? All the total value of all invoices and credit notes issued to and cash receipts from credit customers for a given period
• What does the purchase ledger control account contain? The total value of all the invoices and credit notes received from and cash payments made to credit supplier for a given period
• Why may an item be returned? Item is faulty Customer has changed their mind Incorrect item
• What happens when an item is returned? The original invoice is incorrect and a credit note will need to be issued and connected to that particular invoice
• What are the double entry correspondence for a sales return? And what is the initial? Sales return: DR Sales Return £Net DR VAT £VAT CR Receivables £Gross Initial: DR Receivables £Gross CR VAT £VAT CR Sales Returns £Net
• Double entry for sales return for cash payments Sales return: DR Sales Return £Net DR VAT £VAT CR Cash/Bank £Gross Initial: DR Cash/Bank £Gross CR VAT £VAT CR Sales Returns £Net
• Double entry for purchase return: Purchase return: CR Purchase return £Net CR VAT £VAT DR Payables £Gross Initial: CR Payables £Gross DR VAT £VAT DR Purchase £Net
• What is the RLCA Receivables ledger control account records the total balance owed to the business by all the credit customers THIS BALANCE FEATURES AS A CURRENT ASSET ON THE STATEMENT OF FINANCIAL POSITION
• What is the PLCA? Payables ledger control account records the total balance owed by the business to all the credit suppliers THIS BALANCE FEATURES AS A CURRENT LIABILITY ON THE STATEMENT OF FINANCIAL POSITION
• What is the subsidiary ledger? Also known as the Memorandum account These DO NOT form part of the double entry system merely for keeping track of individual accounts receivable and payable
• In the RLCA: Balance b/d: Dr Sales per sales daybook: Dr Returns per sales return day book: Cr Irrecoverable debt written off: Cr Cash from receivables: Cr Contra entry: Cr Discounts allowed: Cr Balance c/d: Cr
• In the PLCA: Cash Paid: Dr Balance c/d: Dr Contra entry: Dr Discounts Received: Dr Purchase Returns: Dr Balance b/d: Cr Purchase per purchase daybook: Cr
• Reasons for irrecoverable debts: Receivable goes into liquidation and ceases trading Receivable is having difficulty paying. Perhaps debts due to the receivable aren't being paid so there are cash flow issues Receivable may dispute all or some of debt. This may be due to poor quality of goods or services provided or even not being received
• How to account for irrecoverable debts: NOT CONSIDERING VAT Dr the irrecoverable debt expense Receivables ledger control account (& subsidiary receivables ledger) The debit is increasing the expense of not recovering the amount due from the receivable The credit is decreasing the asset of the receivable which is deemed to be irrecoverable
• How to account for irrecoverable debts: CONSIDERING VAT If debt is more than 6 months overdue the VAT originally paid to HMRC will need to be reclaimed Dr Irrecoverable debt expense (net) Dr VAT Receivables ledger control account (gross) The debit is increasing the expense if not recovering the amount due from the receivable. However as the debt is more than 6 months overdue the VAT element can be reclaimed (from the original amount paid to HMRC on the credit sale that was made) A reclaim of VAT is shown by the debit to the VAT control account The credit is decreasing the asset of the receivables which is deemed to be irrecoverable. This amount included VAT so needs to be the gross account a corresponding entry must be accounted for in the subsidiary ledger.
• What are contra entries: If a business is both a customer and a supplier it will appear both as a receivable and a payable in our amounts. An agreement can be made to offset these balances against each other. The offset amount will be the smaller of the two balances owed. This amount is subtracted from both the receivables and payables account leaving a net amount due
• Control account reconciliation: A control account reconciliation checks that the control account balance matches the total amount of individual receivable or payable ledgers ensuring internal accuracy. Discrepancies indicate errors in the general or subsidiary ledger. Regular reconciliations are crucial to promptly identify and address these discrepancies preventing potential fraud or unnoticed errors
• How to preform a control account reconciliation: Step 1: Balance the control account in the general ledger. This establishes the overall account balance at a particular point in time Step 2: Balance the individual accounts in the subsidiary ledger. This establishes each individual account total (needed for step 3) Step 3: List the subsidiary account names and balances. This provides an overall total of the individual account totals (needed for step 4) Step 4: Compare the balances on the account to the total of the subsidiary accounts (these should agree) This process is important as it enables us to identify any accounting errors or omissions that have occurred