1. Lesson 7 Objectives Quick recap bank reconciliations
Carry out period end routines – reconcile sales ledger and purchase ledger
Carry out period end routines – process payroll transactions
Record period end adjustments – including processing errors and clearing the suspense account
Prepare a trial balance

2. Bank Reconciliation – quick recap
Unpresented cheques
Timing differences
Overdrawn account
Dishonoured cheque
Outstanding lodgments
A cheque that has not been paid by the bank on which it was drawn Cheques received and recorded in the debit side of the cash book but not yet showing on the bank statement A debit balance at the end of the month showing on the bank statement Cheques paid and recorded on the credit side of the cash book but not yet showing on the bank statement Receipts and payments that are recorded in the cash book in one period are shown in the bank statement another period

3. Control Accounts

4. Sales Ledger and Purchase Ledger Reconciliation
Work through Illustration 1 p254 and illustration 2 p256
Show how to make entries to GL,SL,PL from day books
Show how GL is reconciled to PL,SL
Use white board for T accounts and SMART board for Questions
Show how to reconcile supplier statement with supplier J P259

5. Prompt Payment Discounts (Settlement discounts)
When a prompt payment discount is taken, a Prompt payment discount credit note is issued for the amount
The PPD CN’s are entered into:
Discounts allowed day book
Discounts received day book
(see p76/77 BKT)

6. Prompt Payment Discounts (Settlement discounts)
Totals are entered into GL:
Dr Discounts allowed
Dr VAT
Cr SLCA Or
Dr PLCA
Cr Discounts received
Cr VAT
Individual amounts are entered into the sales ledger or purchase ledger

7. Contra Entries
It is possible that a customer in the sales ledger is also a supplier with an account in the purchase ledger
Balances can be offset so that only one amount is left due as a receivable or payable

8. Eg: Brown is a customer of White Furniture, he is also a supplier to them
Sales Ledger
Purchase Ledger
Brown
Brown
Bal b/d
SDB
CRB
Contra entry 50
Bal c/d
Contra entry 50
PDB 50 50
300
300
Bal b/d
How would this affect the SLCA and PLCA?

9. Adjustments to the General ledger must be made for contra entries
Journal entry:
Dr PLCA 50
Cr SLCA 50
Description - Contra entry for Brown

10. Activity 1 p262
Activity 2 p263

11. Activity 3 p265 – show first the method

12. Payroll

13. Pay Proforma
£ Gross Pay X Less: Statutory Deductions Income Tax (X) NI (employee) (X) Non-statutory Deductions Pension (X) Benefits (X) Net Pay X

14. Cost to the employer of the employee: £ Gross Pay X NI – employers X Pension – employers X Total cost to employer X

15. The employer must make all payments for deductions made

16. Payroll Revision Cost to the employer:
Gross pay + employers NIC + employer pension contribution
Dr Wages expense account
Cr Wages control account
Payment to employee:
Gross pay less statutory and non statutory deductions
Dr Wages control account
Cr Bank
Account for the statutory deductions:
Income Tax, Ers NIC and Ees NIC
Dr Wages and salaries control account
Cr HMRC Liability account
When paid:
Dr HMRC Liability account
Cr Bank
Account for the non statutory deductions:
Pension, health, union etc
Dr wages and salaries control account
Cr Other payroll deductions liability account
When paid:
Dr Other payroll deductions liability account
Cr Bank

17. Question:
£ Gross pay 20,000 NI employers 2,000 NI employees 3,100 Income tax 4,800 Pension – ees 500 Pension – ers 300 Prepare the journal entries

18. Wages and salaries control account £ £ £ £
Wages Expense Account
Wages and salaries control account
HMRC Liability Account
Payroll non stat deductions liability account
£ Gross pay 20,000 Less: PAYE 4,800 Employees NIC 3,100 Personal Pension 500 Net Pay 11,600
Bank

19. Trial Balance and Year end adjustments

20. Year End Adjustments Depreciation Accruals and prepayments
Closing Inventory
Irrecoverable and doubtful debts
Errors

21. Errors where the trial balance does not agree:
Two entries on one side - if two debits entered to G/L instead of one debit and one credit
Single entry – if only one side of the transaction is entered to G/L (i.e. debit and no credit)
Casting error – in ledger accounts or ledger balancing
Transposition error – eg £2,345 shown as £2,435
Extraction error – the wrong amount is taken from the ledger account to the trial balance (Balance transfer error)
Omission error – an account balance is missing
Unequal entries – when a debit and credit have been made to the correct account but of different amounts

22. Errors where the trial balance agrees:
Error of original entry – when the. amount in the original transaction has been entered incorrectly (e.g. stationery costs of £34.90 entered as £24.90) – due to casting or transposition
Compensating errors – where two separate errors are equal and opposite
Reversal error – amounts and accounts are correct but the debits and credits are the wrong way round
Error of omission – a complete entry has been left out
Error of commission – an equal double entry has been made but one of the accounts is incorrect (e.g. debit entry to postage has gone to stationery)
Error of principle – an equal double entry has been made but one of the accounts is principally incorrect (e.g. debit entry to motor expenses going to motor vehicles non-current asset instead)

23. Suspense Accounts
A Suspense Account is a temporary account for errors and omissions
It can be used for differences on the trial balance
The suspense account can also be used to collect entries where the correct account is unknown

24. Clearing the Suspense Account
Balances on suspense accounts have to be cleared off
Identify the individual items
Understand what has happened
Work out what should have happened
Make the correction

25. Activity 1 p293
Activity 2 p296 – show ETB and how to process the adjustments
Activity 3 p299
Activity 4 p300
Test your learning p308/309