1. AAT Level 2 Foundation Certificate in Accounting Revision Objectives
Requirements of the assessment
Recap business documentation, preparation and checking process
Enter business documentation into books of prime entry
Make transfers from the books of prime entry into the general ledger and sales/purchase ledgers
Balance off accounts
Extract a trial balance

2. Unit 1: Bookkeeping Transactions Assessment
See page v in course book
Assessment 2 hours
70% pass mark
10 questions
Computer based assessment
All assessments in Room 1 Southchurch college, Ambleside Drive, arrive 15 mins earlier than assessment start time
Letters will be given out with assessment details
Only permitted to bring in pens and calculator (not internet enabled)
Rough paper will be provided if asked for
You will be instructed where to leave bags and phones

3. What is Accounting?

4. Accounting is a system of recording information about a business

5. What information? Mainly Financial Business Transactions
buying and selling (goods or services)
paying money into / with drawing money from banks
paying expenses
paying tax

6. What is a business?
An organisation that regularly enters into different transactions
Exists to make a profit for its owners
Profit (simply) = Income less expenditure

7. Level 2 Business types
Sole Trader - run your own business as an individual. You keep all of the profits and are responsible for all losses. You can employ other staff to work for you. The amount you invest in the business is the CAPITAL.
Partnership – two or more people pool money, skills and resources to run the business. They share profit and loses in accordance with a partnership agreement.
Company – an organisation set up to run a business. It is responsible for itself and the company finances are separate from personal finances of the owners. A company is run by its managers. In a Limited company the profit is owned by the company and shared between the members (people or organisations that own shares in it). The shareholders financial responsibility is limited to the value of the shares they have invested.

8. Why do we need to record information?
Run the business effectively
Meet legal obligations

9. Financial records
Financial records are used to produce financial statements for the business:
Statement of Profit and Loss
Statement of Financial Position

10. Statement of Profit and Loss
£ £
Sales revenue X
Less: cost of sales
opening inventory X
purchases X
closing inventory (X)
(X)
Gross Profit X
Other income X
Discounts received X X
Less Expenses:
Wages X
Travel X
Repairs X
Motor expenses X
Stationery X
Telephone X
Rent X
Discounts allowed X
Profit for the year (net profit) X
Trading account

11. Statement of Financial Position
£ £ £
Non-current assets X
Current assets
Inventory X
Receivables X
Bank & cash X X
Current liabilities
Payables (X)
Net current assets X
Non-current liabilities
Loans (X)
Net assets X
Financed By:
Capital X
Add: Profit X
Less: Drawings (X)

12. Financial Transactions should be:
Accurate
Complete
Valid
Time

13. Business Documentation
Financial records must be supported by documentation

14. SALES and PURCHASES (Goods and services) CASH- pay now
Is is a sale or is it a purchase?
Who is buying and who is selling?
CASH- pay now
CREDIT- pay later
RISKS?
RECEIPT
INVOICE

15. Sales and purchases documentation
Order enquiry
Quotation / price list
Purchase order
Sales order
Delivery note (Goods Received Note/Goods Returned Note)
Sales Invoice
Credit note
Remittance advice
‘The checking process’ – what needs to be verified?

16. Credit note – reduces the amount owed on an invoice
Has the same information as the invoice but is clearly marked CREDIT NOTE and has a credit note number
Details why it has been raised and the amount of the credit
Used for:
Errors on original invoice
Damaged goods
Returned goods

17. Coding Product type Customer / supplier
Codes enable information to be recorded and used accurately, in detail, and quickly.
Codes can be numeric, alpha or alpha-numeric
Letters usually relate to the product, customer or supplier – e.g. first three letters
Coding structures must be used consistently and carefully to avoid errors

18. Other business documentation
Petty cash voucher
These are completed for small amounts of cash taken to purchase incidental items for the business e.g. tea, milk, stamps, stationery

19. Books of Prime Entry ‘day books’

20. Invoices / Credit notes Receipts Payments
Cash book/ petty cash book
Sales day book
Sales returns day book
Purchases day book
Purchases returns day book
Books of Prime Entry
GENERAL LEDGER – DOUBLE ENTRY
SUBSIDIARY LEDGER – SALES LEDGER
SUBSIDIARY LEDGER – PURCHASE LEDGER

21. Books of Prime Entry
A book or computer record in which transactions are first recorded before total amounts are entered into the ledgers.
Transactions are recorded into the books of prime entry from their source document.

22. Credit Sales BUY NOW, PAY LATER Payment received from customer
Credit Sale to customer
Payment received from customer
Invoice issued to customer
Business document
Sales Day Book

23. The sales day book
It is a list of sales invoices sent to credit customers for a period of time; week, month
Details of the customer and the amount of the invoices are analysed

24. Sample sales day book Date Customer Ref Invoice number Total £ VAT Net
1/05/14
Grigsons Ltd
SL21
10356
199.20
33.20
166.00
Hall & Co
SL05
10357
103.60
15.60
88.00
Harris & Sons
SL17
10358
120.00
20.00
100.00
2/05/14
Jaytry Ltd
SL22
10359
309.60
51.60
258.00
TOTAL
732.40
120.40
612.00
Casting – adding vertically
Cross casting – adding horizontally

25. Sales Ledger
The sales ledger keeps all transaction information for each credit customer
Credit customers who owe money are known as
TRADE RECEIVABLES (Debtors)

26. Sales Returns day book Date Customer Ref Credit note number Total £
VAT
Net
4/05/14
Grigsons Ltd
SL21
CN668
72.00
12.00
60.00
5/05/14
Harris & Sons
SL17
CN669
96.00
16.00
80.00
TOTAL
168.00
28.00
140.00

27. Credit Purchases BUY NOW, PAY LATER Credit Purchase from supplier
Payment made to
supplier
Invoice issued by supplier
Business document
Purchases day book

28. The purchases day book
Similar to the sales day book but records a list of the purchases invoiced; detailing the supplier, vat and analysed goods.

29. Purchase day book
Date
Supp
Ref
Invoice number
Total
VAT
Net
Purchases
Telephone £
Stationery
1/1/16
Haley Ltd
PL25
33728
60.00
10.00
50.00
2/1/16
JJ Bros
PL14
242G
240.00
4/1/16
B Tel
PL06
530624
154.00
24.00
130.00
TOTAL
274.00
Ref – the supplier code number in the purchase ledger
Invoice number – this is on the sales invoice from the supplier
Total – gross figure including VAT as on the invoice
Net – the total on the invoice before VAT is added
Vat – the value on the purchase invoice

30. Purchase Ledger
The purchase ledger keeps records of individual credit purchases by supplier
Credit suppliers who a business owes money to are known as
TRADE PAYABLES (Creditors)

31. Purchase Returns day book
Date
Supp
Ref
Credit note number
Total
VAT
Net
Purchases
Telephone £
Stationery
4/5
Haley Ltd
PL25
CN783
24.00
4.00
20.00
5/5
JJ Bros
PL14
C52246
69.60
11.60
58.00
TOTAL
93.60
15.60
78.00

32. The Cash Book
The cash book records cash receipts and payments, whether through the bank or in coins or notes – excluding petty cash (payments for low value everyday items comes out of a petty cash float)
Receipts and payments may be in cash, cheque or by bank transfer

33. The Cash Book The cash book is split into two sides:
Cash Receipts Book (CRB) = Debit side
Cash Payments Book (CPB) = Credit side

34. Credit Sales BUY NOW, PAY LATER Payment received from customer
Credit Sale to customer
Payment received from customer
Invoice issued to customer
Business document
Sales Day Book
Cash Receipts Book

35. Cash receipts book - Debit side
Date
Description
Ref
Bank £
Cash
Vat
Trade Receivables
Sales £
TOTAL
Description- such as the name of the customer paying
Ref – sales ledger code for that customer, or BACS, Cq etc
Cash = notes and coins
Total - including VAT
VAT – vat on items that have not gone through the SDB
Trade receivables are receipts from credit customers – INCUDING VAT

36. Credit Purchases BUY NOW, PAY LATER Credit Purchase from supplier
Payment made to
supplier
Invoice issued by supplier
Business document
Purchases day book
Cash payments book

37. Cash payments book – credit side
Date
Desc
Ref
Total
Vat
Trade Payables
Cash
Purchases £
Premises
Costs
Stationery
TOTAL
Description- such as the name of the supplier you are paying
Ref – purchase ledger code for that supplier, or BACS, Cq etc
Total - included VAT
Trade payables - total amount paid to a supplier (or a ‘payable’), this would include the vat
Expenses paid will be analysed in columns such as premises costs and stationery

38. Treatment of the Cash book
The cash book may itself be part of the double entry system – if so, you do not need to do the ‘cash’ and ‘bank’ entries
If the cash book is a book of prime entry only, then the ‘cash’ and ‘bank’ entries need to be done

39. Customer OWES The Business = a receivable
Sales Ledger
Customer OWES The Business = a receivable
Customer A
Bal b/d X
Sales Return Credit Note X
Sales Invoice X
Bank receipt X
Discount allowed X
Bal c/d X X X
Bal b/d X
TOTAL OF ALL SALES LEDGER ACCOUNTS = BAL ON SALES LEDGER CONTROL ACCOUNT

40. The Business OWES the supplier = a payable
Purchase Ledger
The Business OWES the supplier = a payable
Supplier Z
Sales Return Credit Note X
Bal b/d X
Bank payment X
Sale invoice ZZX X
Discount received X
Bal c/d X X X
Bal b/d X
TOTAL OF ALL PURCHASE LEDGER ACCOUNTS = BAL ON PURCHASE LEDGER CONTROL ACCOUNT

41. VAT

42. What is VAT? Value Added Tax, Goods and Services Tax, or Sales Tax
It is levied (charged) on the taxable supply of goods or services in the UK by a taxable person in the course of a businesses i.e. consumer expenditure

43. Tax charged on the sale of goods and services is known as output tax
Tax paid on the purchase of goods and services is known as input tax
Businesses (‘taxable persons’) deduct input tax paid from output tax collected and pay the difference to the HMRC (HM Revenue and Customs), usually in a quarterly VAT return

44. VAT Due/reclaimable from HMRC
Simply: £ Output VAT X Less: Input VAT (X) Balance due to/ due from HMRC X

45. How Does it work? VAT is charged at three rates:
Zero rate – eg children’s clothing and footwear, books and newspapers, food (not crisps, confectionary, hot takeaways, ice cream), water, medicines
Reduced rate 5% - home fuel and children’s car seats
Standard rate 20% - Most goods and services

46. Roundings
VAT is always rounded DOWN to the nearest penny

47. Discounts
Trade discounts
Bulk discounts
Settlement or cash discounts

48. Discounts
Trade discounts – an amount deducted from the list price of goods for the supplies to some customers to encourage a new sale or loyalty.
Bulk discounts – an amount deducted from the list price of goods given for orders above a certain size.
These discounts are shown on the invoice before arriving at the total invoice amount

49. VAT - Discounts
VAT is calculated after the Trade and Bulk discounts are deducted
No adjustment is made for Prompt payment discount

50. Prompt Payment Discount
Prompt payment (PPD) or settlement discounts – given to customers to encourage early/prompt payment of invoices.
Not shown on the invoice as a deduction; it is detailed in the terms and up to the customer to decide whether or not to accept

51. If the customer pays early and takes advantage of the PPD:
The customer calculates the amount due and makes the payment
The supplier will then issue a prompt payment discount credit note to the customer to the value of the discount

52. PPD’s received from suppliers
DISCOUNTS RECEIVED
PPD’s given to our customers
DISCOUNTS ALLOWED

53. Books of Prime Entry for Discounts
Credit notes received for discounts from suppliers are entered into a
Discounts received day book
Credit notes issued to customers for discounts taken are entered into a
Discounts allowed day book

54. Recording Credit Sales

55. Customer receipts - checks
How has the payment been received – cash, cq, BACS – Bankers Automated Clearing System, online transfer
Is the payment correct?
Does it match the remittance advice?
Does that tie up to the invoice?
Are discounts applied correctly?
What are you going to do if there are differences?

56. Receivable or customer statement (Statement of Account)
Using the individual account in the sales ledger list all transactions in date order
Invoices
Credit notes for returns
Payments made
Discounts allowed

57. Credit Purchases

58. Communication with Suppliers
Why is it important to be on good terms with your supplier?
How do you chose which supplier to pay first?
Does it matter which payment method you use?

59. Authorisation Process
Why do invoices need to be authorised?
Supplier Statement Checking

60. Double entry bookkeeping

61. Accounting Principles
The dual effect principle – every transaction has two financial effects

62. Accounting Principles
The separate entity principle – the owner of the business is, for accounting purposes, a separate entity from the business itself
The money the owner pays into the business is the capital that the business owes back to the owner
Money the owner takes out is called drawings, and reduces the amount of capital owed

63. Accounting Principles
The accounting equation
assets – liabilities = capital – drawings + profit

64. Accounting Principles
Key Terms
Assets – Something a business OWNS
Liabilities – Something a business OWES
Capital – Contribution by the OWNER
Drawings – Money taken out of the business by the OWNER
Profit – Income less Expenses

65. Every debit entry must have an equal and opposite credit entry
Following on from the dual effect principle, (where every transaction has two financial effects), for entries into the ledger:
Every debit entry must have an equal and opposite credit entry
This is called double entry bookkeeping

66. CLIC DEAD D ebits C redits E xpenses L iabilities A ssets I ncome
Ledger Account
D ebits
E xpenses
A ssets
D rawings
C redits
L iabilities
I ncome
C apital
DEAD
CLIC

67. Key Ledger Accounts Bank Capital Drawings
Sales
Purchases
Trade receivables
Sales Ledger Control Account (SLCA)
Trade payables
Purchase Ledger Control Account (PLCA)
Bank
Capital
Drawings
Expenses e.g rent, wages, electricity
Assets e.g van, machines

68. CAPITAL AND REVENUE CAPITAL INCOME CAPITAL EXPENDITURE REVENUE INCOME
Income from the sale of capital assets (non-current assets) of the business e.g. sell a business warehouse, bank loans received, extra capital invested by the owner of the business.
CAPITAL EXPENDITURE
Purchase cost of non-current assets, installation cost, cost of improvement and legal cost of purchasing the non-current asset e.g. purchase of a delivery van, premises, machinery
REVENUE INCOME
From the sales of goods and services; also regular amounts received, eg rent received, commission received, prompt payment discounts.
REVENUE EXPENDITURE
Day to day costs of running the business: purchases of inventory which will be resold or used in manufacturing, selling expenses (eg advertising and distribution), administration expenses (wages, power bills and stationery), repair and maintenance (eg decorating, cleaning)

69. Books of Prime Entry Petty Cash

70. Petty cash book
Businesses usually make payments for low value everyday items out of petty cash
Petty cash is topped up according to the business policy to ensure there is enough to meet their needs
Receipts and petty cash vouchers are kept to support payments and give analysis and vat details
Petty cash cashier is responsible for maintaining the petty cash box

71. Imprest System
The Imprest (float) is the amount that the petty cash totals
e.g. Imprest £100
Petty cash paid out = vouchers £(64)
Cash remaining in box £ 36
Cash withdrawn from bank to
restore the imprest £ 64
Cash at start of next period £100
= imprest amount
Some businesses don't use the imprest system - they top the petty cash with the same amounts every week

72. Ledger entries for the Petty cash book
Petty cash book not part of double entry system - i.e. book of prime entry only
Petty cash entries made
Petty cash book is part of the double entry system:
No entries to petty cash account made

73. Ledger entries for the Petty cash book
Petty cash book treated as part of the double entry system unless told otherwise
Same with cash book
No entries for ‘Bank’

74. Trial Balance
Lists all the general ledger account balances (brought down balances) at a specific date in two columns
And adds them both up
The left-hand column contains the debit balances and the right-hand column contains the credit balances.
The two totals should agree.

75. Example: Trial Balance
ABC Ltd Trial Balance as at 31 May
Account name
Balance £
Bank (cash at Bank)
2,000
Capital
20,000
Electricity
395
Insurance
935
Machinery
4,900
Payables
2,700
Purchases
49,970
Receivables
3,500
Sales
81,000
VAT (payable to HMRC)
870
Wages
42,870
Debit £
Credit £
2,000
20,000
395
935
4,900
2,700
49.970
3,500
81,000
870
42,870
Total 104,570
104,570

76. Double Entry Practice Questions
Ben sets up in business on 1 May by paying £15,000 into a business bank account
Ben buys some goods for resale for £1,000 in cash
Ben buys some goods for resale from Price Retail for £2,000 on credit
Ben pays rent for premises of £600 in cash
Sales of £1,500 for a cheque are made by selling some of the goods
Sales of £3,200 are made on credit to Gregs
Ben purchases a computer to help with the accounting process at a cost of £1,000 and pays for this by cheque
Ben buys computer disks and other stationery for £200 by cheque
Ben transfers £500 from the business to his own bank account for his own living expenses
Ben pays his trade payable, Price Retail £1,500 by cheque
Ben’s credit customer, Gregs pays £3,200 by cheque
a) Write up the debit and credit entries for each transaction. Use separate ledger accounts for bank and cash
b) Enter the transactions into ledger accounts
c) Balance off all of the ledger accounts
d) Produce a trial balance

77. Revision and practice assessments
BPP Practice papers from workbook
Work through BPP Practice assessments 1-5
BPP Mock Exam paper 1 & 2
Osborne Practice papers
AAT Sample papers 1 & 2 – Online or Moodle
Any topic you are not sure of – go back to course book and read through again, looking at examples