Incomplete Records Theory Past Exam Questions Mr. BarryA-level Accounting Year13

January 2013 Mr. BarryA-level Accounting Year13 Recommend to Alberto whether or not he should introduce a double entry bookkeeping system of accounting records. Justify your decision. (16 marks)

Benefits less errors (1) due to each transaction having a debit and a credit entry (1) verify accuracy (1) via trial balances (1) and control accounts (1) more detailed (1) and accessible (1) information such as totals for trade receivables (1) and trade payables (1) helps to provide information for tax purposes (1), eg for payment to HMRC (1) assists with the preparation of financial statements (1) including the income statement (1) and the balance sheet (1) reduces the chances of fraud (1) such as stolen cash (1) supports a loan application (1) by showing business liquidity/cash flow (1) to aid decision making (1) and potentially lead to improved business performance (1) with specialist accounting software (1), it would be inexpensive and easy to prepare accounting records (1) Reduce fees paid to accountants (1) if he is able to prepare the accounting records (1). Mr. BarryA-level Accounting Year13

Drawbacks Alberto may lack the knowledge (1) to keep double entry records if he is not an accountant or book keeper (1) the accounting system is costly (1) to set up including possibly training (1) and wage costs (1) there is no statutory requirement for a sole trader to keep books of accounts it is time consuming (1) to process transactions (1) which will leave less time to run the business (1) the system will not reveal all errors (1) for example error of commission (1 mark only for an example). Mr. BarryA-level Accounting Year13

June 2010 Assess the impact on Jennifer’s business of the introduction of a system of double-entry bookkeeping (10 marks) Mr. BarryA-level Accounting Year13

Positive impact Fewer errors (1) Jennifer will record all entries are recorded as debit and credit (1). There should be fewer errors than in a single entry system (1). Verification of accuracy (1) If Jennifer prepares trial balances and control accounts (1) it will enable the accuracy of the bookkeeping to be checked (1). More information available (1) Jennifer will have a record, for example, of how much she is owed (1) and owes (1) for stakeholders (1). Easier to prepare final accounts (1) All the balances are gathered in the trial balance and the entries have been checked (1) so this makes the accounts easier for Jennifer to prepare and they will balance (1). Reduce the likelihood of fraud/theft (1) Jennifer is likely to detect missing cash and similar problems more quickly (1) which may reduce the chances of fraud (1). Evidence for loan applications (1) If Jennifer applies for a bank loan, the bank would expect evidence of liquidity (1). Mr. BarryA-level Accounting Year13

Negative impact Lack of expertise (1) Jennifer may not have the knowledge of double-entry bookkeeping (1) and may need to take a training course (1) or employ a bookkeeper or accountant (1). Cost (1) Jennifer may need to either employ a bookkeeper (1), or be trained (1). Time (1) If Jennifer decides to do the bookkeeping herself (1) then this may distract her from other parts of her business (1). Mr. BarryA-level Accounting Year13