CAT 1

1
CAT 1 Recording financial transactions

• Course slides

For computer-based and paper-based exams
2
Syllabus
1 Business transactions and documentation
2 Double entry bookkeeping
3 Banking and petty cash
4 Sales and sales records
5 Purchases and purchase records
6 Payroll
7 Control accounts and the initial trial balance
3
Examiner and exam format
Can be taken as a paper-based or computer-based exam
50 multiple-choice questions 100 marks
Time allowed 2 hours Pass mark 55
4
The BPP Learning Media classroom slides

• What do these slides cover?
• A selection of key areas of the syllabus
• Using the slides
• Use the slides as a point of reference
• Add detail by talking around the slides (eg using
  material from the corresponding Study Text
  chapter)
• Consider adding slides yourself to suit your
  course
• Recommend students attempt appropriate questions
  from the Practice Revision Kit and from i-Pass

5
Chapter 1

• Business transactions and documentation

6
Sales
SALES
Goods delivered before payment made
Goods paid for immediately
CASH SALES
CREDIT SALES
7
Purchases
PURCHASES
Goods delivered before payment made
Goods paid for immediately
CASH PURCHASES
CREDIT PURCHASES
8
Invoice
9
Discounts

• Trade discounts
• Given at time of sale/ purchase
• Bulk buying

• Settlement discounts
• Offered as incentive for early payment
• For example 5 if settled within 14 days
• May or may not be taken

10
Sales tax
INDIRECT TAX
Charge sales tax on sales
Suffer sales tax on purchases
OUTPUT TAX
INPUT TAX
11
Sales tax and Discounts
Sales tax is calculated on the amount after all
discounts regardless of whether the discount is
taken or not
12
Contract law

• What is a contract?
• Legally binding agreement (offer and acceptance)
• Consideration
• Breach of contract

13
Implied terms

• Goods must
• Exist
• Match description
• Be of satisfactory quality
• Seller must have the right to sell

14
Storage of information

• Information stored must be
• Accessible
• Secure
• What information may be needed by a business?
• Who may be entitled to information from a
  business?

15
Retention periods

• If you think you may need it, keep it
• Legal limits for different records
• Simple contracts 6 years
• Income and sales tax) records 6 years
• Purchase orders, sales invoices 6 years
• Bank statements 6 years
• Cheque counterfoils 1 year

16
Data protection

• To protect individuals (data subjects)
• Data subjects have rights
• Gain access to personal data held
• Know why data is held and who has access
• Have inaccurate data corrected or deleted
• Seek compensation

17
Question practice end of Chapter 1
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Business transactions and documentation
The material in this chapter is covered in the
following BPP Learning Media i-Pass tests.
Tests 1 and 2 Business transactions and
documentation
18
Chapter 2

• Assets, liabilities and the accounting equation

19
Profit

• Income
• Expenses

20
Assets
ASSETS Non-current
assets Land and buildings 100,000 Plant and
machinery 50,000 Motor vehicles 30,000 Fixture
s and fittings 20,000 200,000 Current
assets Inventories 55,000 Trade
receivables 28,000 Cash in hand and at bank
7,000 90,000 Total assets 290,000
21
Liabilities
Non-current
liabilities Bank loans 40,000 Current
liabilities Bank overdraft 16,000 Trade
payables 40,000 Accruals 4,000
60,000 Total liabilities 100,000
22
The concept of business entity

• A business is a separate entity from its owner
• Exclude personal transactions

23
The accounting equation

CAPITAL
ASSETS
LIABILITIES


Investment
-
Profit
Drawings
24
Accounts receivable

• SALE to customer creates
• ACCOUNT RECEIVABLE (customer owes )
• ASSET of the business
• CASH RECEIPT settles

25
Accounts payable

• PURCHASE from supplier creates
• ACCOUNT PAYABLE (we owe )
• LIABILITY of the business
• CASH PAYMENT settles

26
General rules
redits
ebits
iabilities
xpenses
ncome
ssets
rawings
apital invested
27
Question practice end of Chapter 2
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Assets, liabilities and the accounting equation
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 5 The accounting equation
28
Chapter 3

• Statement of financial position and income
  statement

29
Statement of Financial Position Income
Statement
Statement of financial position worth of
business at a point in time
31.12.X6
31.12.X7
Income statement trading activities over period
30
Non-current Assets

• Land and buildings
• Plant and machinery
• Fixtures and fittings
• Vehicles

31
Current Assets

• Inventory
• Receivables
• Prepayments
• Bank and Cash

32
Current Liabilities

• Bank overdraft
• Trade payables
• Accruals

33
Non-current Liabilities

• Bank loans

34
Capital

• Share capital
• Reserves

35
Income Statement

• Income
• Expenses

36
Capital v Revenue expenditure
Capital expenditure Expenditure on the
acquisition of non-current assets or improvement
in their earning capacity
37
Capital v Revenue expenditure
Revenue expenditure Trading expenses or the
repair/ maintenance of non-current assets
38
Question practice end of Chapter 3
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Balance sheet and profit and loss account
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 4 Classification of expenditure
39
Chapter 4

• Recording, summarising and posting transactions

40
Source documents
Invoice
Supplier account
Delivery note
Source document
Customer account
Bank statement
Remittance advice
Payslip
41
Books of prime entry
42
Sales Day Book
Lists all sales made on credit
Date Customer
3.1.X7 5.1.X7 8.1.X7 14.1.X7 J. Spalding G. McGregor J. Spalding G. McGregor 200 400 400 300
1,300
43
Purchase Day Book
Lists all purchases made on credit
Date Supplier
1.1.X7 4.1.X7 16.1.X7 Tewson Co. Manley Co. Manley Co. 400 350 200
950
44
Cash Book

• Records receipts and payments into and out of the
  bank
• Often assumed to be two books

45
Cash Book (receipts)
Date Narrative Total Capital Sales Receivables
2.1.X7 5.1.X7 6.1.X7 F. Bloggs J. Spalding J. Smith 4,000 200 500 4,000 500 200
4,700 4,000 500 200
46
Cash Book (payments)
Date Narrative Total Purchases Van Rent Payables Petty Cash Drawings
6.1.X7 6.1.X7 8.1.X7 Manley Co. Petty Cash Digby Co 350 50 1,000 1,000 350 50
1,400 1,000 350 50
47
General Ledger

• Example

Advertising account Advertising account Advertising account Advertising account Advertising account Advertising account Advertising account Advertising account
Date Details Ref Date Details Ref
20X8
15/4 JFK PL8 2,500
48
Ledger Accounts

• Dr Cr
• DEBIT CREDIT
• TOTAL DEBITS TOTAL CREDITS

49
Cash Sales double entry

• Dr Cash
• Cr Sales

50
Cash Purchases double entry

• Dr Purchases
• Cr Cash

51
Credit Sales double entry

• Dr Accounts receivable
• Cr Sales
• When goods are sold
• Dr Cash
• Cr Accounts receivable
• When cash is received

52
Credit Purchases double entry

• Dr Purchases
• Cr Accounts payable
• When goods are purchased
• Dr Accounts payable
• Cr Cash
• When cash is paid

53
Memorandum Ledgers
Can you identify how much J. Spalding owes you
from the following invoices?
Or how much you owe to Tewson Co.?
54
Memorandum Ledgers

• Receivables ledger
• Shows the total owed by each individual customer
• Payables ledger
• Shows the total owed to each individual supplier

55
Control Accounts

• Receivables and payables recorded in two places
• Sales and purchase ledgers giving information on
  individual customers and suppliers
• The general ledger
• Receivables account or Sales Ledger Control
  Account
• Payables account or Purchase Ledger Control
  Account
• giving information on receivables and payables
  in total.

56
Output Sales Tax

• Dr Accounts receivable
• Cr Sales
• Cr Sales tax account

57
Input Sales Tax recoverable

• Dr Purchases
• Cr Accounts payable
• Cr Sales tax account

58
Input Sales Tax not recoverable

• Dr Purchases
• Cr Accounts payable

59
Question practice end of Chapter 4
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Recording, summarising and posting transactions
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 3 Double entry transactions
60
Chapter 5

• Completing ledger accounts

61
Journal
Period end adjustments
Correction of errors
62
Journal entry example

• 
  
• DEBIT Accountancy fees 10,000
• CREDIT Legal costs
  10,000
• With payments to accountants incorrectly posted
  to legal fees

63
Balancing off ledger accounts
1 Separately add debit and credit sides
2 Fill in higher of two totals on both sides
3 Balance the account balance c/d
4 Bring down balance b/d on opposite side
64
The Trial Balance

• Lists the balances brought down on each ledger
  account

Debits Credits
65
Example Miss Smith
Account Debit Credit
Cash 720
Capital 500
Sales 2,200
Purchases 1,100
Furniture 500
Electricity 120
Telephone 60
Drawings 200
Total 2,700 2,700
66
Suspense accounts
Never appear in the final accounts
67
Dealing with items in Suspense account
1 Determine what original entry was made
2 Determine what original entry should have been
3 Make required adjustment
68
Computer terms
Input Entering data from original documents
Processing Sorting data
Output Producing data in useful form
69
Accounting packages
Dedicated accounting packages
General software
70
Accounting modules
A program which deals with one part of a
business accounting system
71
Question practice end of Chapter 5
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Completing ledger accounts
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 11 The trial balance
72
Chapter 6

• Receiving and checking money

73
Remittance advice
74
Comparing Receipts and Remittance advice
1 Check remittance advice adds up
2 Compare total with receipt
3 Calculate and record any difference
4 Bank cheque and record receipts
5 Send remittance advice to receivables dept
75
Till receipts
76
Methods of payment other than cash

• Credit card
• Debit card
• Cheque
• Bankers draft

77
Security over cash receipts

• Security guards and collections
• Safe
• Protective glass
• Strong box
• Cash register
• Night safes
• Banking

78
Cheque guarantee cards
79
Receipt of cheques
1 Examine cheques to ensure details correct
2 Make sure cheque is signed
3 Compare signatures on cheque and card
4 Check details on cheque guarantee card
5 Copy cheque guarantee card details to back of cheque
80
Plastic cards
81
Accepting credit card receipts
1 Rub thumb over signature panel to check not raised
2 Compare signatures on card and vouchers
3 Check warning lists of stolen cards
4 Check card date is still valid
5 Check transaction does not exceed business floor limit
82
EFTPOS
83
Question practice end of Chapter 6
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Receiving and checking money
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 6 Banking and petty cash
84
Chapter 7

• Banking monies received

85
Banker-customer relationship

• Comply with customers instructions
• Honour cheques
• Receive funds
• Repayment on demand
• Provide statement
• Confidentiality

86
Paying-in slip
87
Preparing a paying-in slip
1 Count the cash
2 Add up how much cash is being banked
3 Compare total calculated with cash register record
4 Calculate and investigate if discrepancy big
5 Enter total for each denomination of note
6 Add up numbers again and enter in total cash box
88
Paying in cheques
89
Returned cheques

• Insufficient funds
• Stolen cheques
• Wrongly completed cheques
• Out-of-date cheques
• X

90
Banking credit card transactions

• q

Retailer
1
4
Bank
2
3
Credit Card Company
91
Question practice end of Chapter 7
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Banking monies received
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 6 Banking and petty cash
92
Chapter 8

• Recording monies received

93
Security over cash register

• Access keys kept in secure place
• Staff training
• Programming of preset information
• Analysis of periodic information

94
Posting cash to General Ledger
Book of prime entry Cash book Summarises cash receipts p O S T I N G Ledger account Cash account Records cash receipts
95
Question practice end of Chapter 8
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Recording monies received
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 6 Banking and petty cash
96
Chapter 9

• Authorising and making payments

97
Controls over payments
Controls
Evidence - for reason of payment
Authorisation - by appropriate person
98
Cheque Requisition form
99
Expenses claims

• EXPENSES CLAIM
  
• Business travel
  X
• Newspapers or magazines
  X
• Telephone
  X
• Petrol
  X
• Car service and repair
  X
• Total
  X
• Receipts must be attached for all amounts claimed
  
• Authorised by

100
Cash payments

• Small payments out of petty cash
• Cash wages

101
Preparing cheques
1 Prepare list of payments
2 Authorise payments
3 Check invoices to be paid
4 Prepare cheques
5 Sign cheques
6 Mark invoices as paid
7 Send cheques plus remittance advices
102
Stopping cheques
103
Bank Giro Credit
104
Standing Orders

• Examples Hire purchase/Rental/Insurance
• Business making payment specifies
• Desire to make regular payment
• Amount
• Frequency
• Banking details of supplier

105
Standing Order Mandate
106
Direct Debits

• Differ from standing orders
• Recipient initiates payment
• Payments can be for variable amounts
• Payments can be at irregular intervals

107
Direct Debit instruction
108
Remittance Advice
109
Question practice end of Chapter 9
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Authorising and making payments
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 6 Banking and petty cask
110
Chapter 10

• Recording payments

111
Analysis of Cash Book

• Number of categories of purchases
• Frequency of purchases
• Split of business
• How complicated cash book may become

112
Posting to the General Ledger

• Sales Receipt Purchase
• invoice Payment invoice
• S/L SDB CB PDB P/L
• General ledger

113
Use of automated credit systems

• Standing orders
• Direct debits
• Monthly salaries
• Weekly wages

114
Question practice end of Chapter 10
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Recording payments
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 6 Banking and petty cash
115
Chapter 11

• Maintaining petty cash records

116
What is Petty Cash?

• Cash held in the form of coins and notes. Used to
  pay small incidental expenses
• Employees
• Travel, groceries, postage
• Suppliers
• Cleaners

117
Security of Petty Cash

• Staff responsibility
• Authority
• Container
• Limits
• Supporting documentation

118
The Imprest system

• Pre set limit of 50. At the beginning of the
  week

10 note
10 note
10 note
10 note
10 note
119
The Imprest system

• During the week
• Buy plants 10
• Pay milkman 5
• Now

5 note
10 note
10 note
10 note
10 voucher
5 voucher
120
The Imprest system

• At the end of the week
• Write up expenses in the petty cash book
• Top up cash (15) to the imprest amount (50)

10 note
10 note
10 note
10 note
10 note
121
Petty Cash vouchers

• Sequentially numbered
• Dated
• Amount Sales tax (VAT) should be analysed
• Signature
• Authorisation

122
Petty Cash Book
123
Question practice end of Chapter 11
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Maintaining petty cash records
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 6 Banking and petty cash
124
Chapter 12

• Bank reconciliations

125
Bank statement
126
Bank Reconciliations

• Cash transactions
• posted to
• Cash books
• posted to
• Cash account in N/L
• reconciles to
• Bank statement

127
Differences Cash Book v Bank Statement

• Three reasons
• Timing differences
• Errors by the business
• Errors by the bank

128
Bank Reconciliation

• Cash account (cash book)
• Bal b/d X Dishonoured chq X
• Bank charges, direct debits X
• Error in bal b/d X Bal c/d
  Y X X
• Balance per statement X
• Less unpresented cheques (X)
• Add uncleared lodgements X reconciles
• Bank errors X/(X)
• Adjusted balance
  Y

129
Question practice end of Chapter 12
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Bank reconciliations
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 12 Bank reconciliations
130
Chapter 13

• Sales and sales returns day books

131
Sales Day Book
Lists all sales made on credit
Date Customer
3.1.X7 5.1.X7 8.1.X7 14.1.X7 J. Spalding G. McGregor J. Spalding G. McGregor 200 400 400 300
1,300
132
Coding

• Accounting codes used should be
• Unique
• Useful
• Compact
• Meaningful
• Self-checking of standard size
• Expandable

133
Coding systems
Sequence Give next available number
Block Different sequences
Significant digit Incorporates description
Hierarchical Interrelationship
Faceted Different features
134
Coding sales

• Sales invoice number
• Product code numbers

135
Credit Sales postings

• Sales invoice
• Sales day book
• Daily postings Weekly/monthly postings
• Sales ledger General ledger

136
Question practice end of Chapter 13
The material in this chapter is covered in the
following question set from the BPP Learning
Media Practice and Revision Kit.
The receivables ledger
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 7 Sales and sales records
137
Chapter 14

• The receivables ledger

138
Receivables Ledger

• Ledger account

139
Discounts

• Trade discounts
• Given at time of sale/ purchase
• Bulk buying

• Settlement discounts
• Offered as incentive for early payment
• For example 5 if settled within 14 days
• May or may not be taken

140
Discounts allowed
Offered to customers
Sales are recorded after trade discounts but
before settlement discounts
141
Aged Receivables report
142
Irrecoverable debts
Bad debts and irrecoverable debts are the same
thing!
An irrecoverable debt is a debt which will
definitely not be recovered
143
Doubtful debts
A doubtful debt is a debt which is possibly
irrecoverable

144
Irrecoverable bad debts double entry

• Dr Irrecoverable debts account
• Cr Accounts receivable

145
Question practice end of Chapter 14
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
The receivables ledger
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 7 Sales and sales records
146
Chapter 15

• Purchase and purchase returns day book

147
Purchase Day Book
Lists all purchases made on credit
Date Supplier
1.1.X7 4.1.X7 16.1.X7 Tewson Co. Manley Co. Manley Co. 400 350 200
950
148
Coding purchases

• Supplier account number
• Product or service number
• Purchase invoice sequence number

149
Posting credit purchases

• Purchase order/use of utilities
• Purchase invoice
• Purchase day book
• Daily postings Weekly/monthly postings
• Purchase ledger General ledger

150
Posting cash purchases

• Invoice
• Cash payments book
• Daily/weekly postings
• General ledger

151
Question practice end of Chapter 15
The material in this chapter is covered in the
following question set from the BPP Learning
Media Practice and Revision Kit.
The payables ledger
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 8 Purchases and purchase records
152
Chapter 16

• The payables ledger

153
Payables Ledger

• SUPPLIER ACCOUNT
• Debit side Credit side
• Payments made X Invoices received X
• Purchase returns X
• Discounts received X

154
Discounts

• Trade discounts
• Given at time of sale/ purchase
• Bulk buying

• Settlement discounts
• Offered as incentive for early payment
• For example 5 if settled within 14 days
• May or may not be taken

155
Discounts received
Received from the business suppliers
Purchases are recorded after trade discounts but
before settlement discounts
156
Suppliers statement
157
Suppliers statement reconciliation
1 Tick off items which appear in statement and payables ledger
2 Agree opening balance on suppliers statement
3 Allocate payments to invoices after allowing for credit notes
4 Identify differences
158
Checks over payments

• Authorisation of payments
• Signing by cheque signatory
• Attachment of supporting documents

159
Contras
but F Co owes P Co 200
P Co owes F Co 70
160
Question practice end of Chapter 16
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
The payables ledger
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 8 Purchases and purchase records
161
Chapter 17

• Control accounts

162
Control Accounts

• Receivables and payables recorded in two places
• Sales and purchase ledgers giving information on
  individual customers and suppliers
• The general ledger
• Receivables account or Sales Ledger Control
  Account
• Payables account or Purchase Ledger Control
  Account
• giving information on receivables and payables
  in total.

163
Reasons for control accounts

• Check on accuracy of ledger balances
• Aid location of errors
• Reinforce segregation of duties
• Assist preparation of trial balance

164
Control account reconciliations
Theory
Balance per RLCA Balance per list of balances
in receivables ledger
and similarly for the PLCA and payables ledger
165
Question practice end of Chapter 17
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Control accounts and the trial balance
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 10 Control accounts
166
Chapter 18

• Recording payroll transactions

167
Payroll systems

• Basic hourly rate
• Piecework systems
• Wages units produced x rate of pay per unit
• Overtime
• Bonus schemes
• Commission

168
Employers legal responsibilities

• Operate income tax system
• Maintain and retain records
• Pay income tax and benefit contributions
• Allow tax office to access records
• Submit year-end returns
• Give employees payslips

169
Gross and net pay in the UK
170
Personnel records

• A COMPANY PERSONNEL SYSTEM
• Name A Chappel
• Main Menu
• Personal details
• Job and salary
• Training
• Exit

171
Payroll function

• Calculation of gross pay
• Calculation of tax and other deductions
• Preparing and distributing payslips
• Making returns to external agencies
• Arranging for payment of wages and salaries
• Preparing payroll statistics

172
Timesheet

• Example

Timesheet No Timesheet No Timesheet No Timesheet No Timesheet No Timesheet No Timesheet No Timesheet No
Name Name Name Name Dept Dept Dept Dept
Date Date Date Date Week Week Week Week
Job Start Finish Qty Check Hour Rate Ext





173
Income Tax

• Tax deducted at source covering all employees of
  an organisation

PAYE
174
Benefit Contributions

• Unemployment benefit
• Income support
• Healthcare contributions
• State pension scheme contributions

175
Payslip
176
Remittance advice
177
Updating payroll records

• Updating normally only done weekly or monthly
• Same type of entry takes place every month
• Use of wages control account as half of double
  entry

178
Payroll accounting entries
DR CR
Wages control X X
Staff costs (gross wages) X
Staff costs (employer contributions) X
Cash (net wages paid) X
PAYE liability X
179
Question practice end of Chapter 18
You should now be able to attempt the following
question set from the BPP Learning Media Practice
and Revision Kit.
Recording payroll transactions
The material in this chapter is covered in the
following BPP Learning Media i-Pass test.
Test 9 Payroll