RECORDING FINANCIAL TRANSACTIONS (INTERNATIONAL)
I N T E R A C T I V E T E X T INTRODUCTORY PAPER 1 RECORDING FINANCIAL TRANSACTIONS (INTERNATIONAL) BPP is the official provider of training materials for the ACCA's CAT qualification. This Interactive Text forms part of a suite of learning tools, which also includes CD-ROMs for tuition and computer based assessment, and the innovative, internet-based Learn Online. This text has been specifically written to the current syllabus and Teaching Guide. • Clear language and presentation • Plenty of questions, examples and quizzes to demonstrate and practise techniques • A question and answer bank prepared by BPP Learning Media authors FOR EXAMS IN DECEMBER 2008 AND JUNE 2009 ii First edition 2003 Sixth edition June 2008 ISBN 9780 7517 4830 7 (Previous ISBN 07517 3577 2) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia Printed in Great Britain by WM Print 45-47 Frederick Street Walsall West Midlands WS2 9NE Your learning materials, published by BPP Learning Media Ltd, are printed on paper sourced from sustainable, managed forests. All our rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd. We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions. The suggested solutions in the exam answer bank have been prepared by BPP Learning Media Ltd, unless where otherwise stated. © BPP Learning Media Ltd 2008 Contents iii Contents Page Introduction How to use this Interactive Text v Approach to examining the syllabus vi The computer based examination vii Tackling multiple choice questions viii Part A Introduction to transaction accounting 1 Business transactions and documentation 3 2 Assets, liabilities and the accounting equation` 31 3 Statement of financial position and income statement 45 4 Recording, summarising and posting transactions 53 5 Completing ledger accounts 87 Part B Recording and accounting for cash transactions 6 Receiving and checking money 117 7 Banking monies received 135 8 Recording monies received 157 9 Authorising and making payments 169 10 Recording payments 197 11 Maintaining petty cash records 211 12 Bank reconciliations 247 Part C Recording and accounting for credit transactions 13 Sales and sales returns day books 263 14 The receivables ledger 285 15 Purchase and purchase returns day books 309 16 The payables ledger 333 17 Control accounts 351 Part D Payroll 18 Recording payroll transactions 363 Exam question bank 401 Exam answer bank 408 List of key terms 413 Index 415 Review form and free prize draw iv Introduction v How to Use this Interactive Text Aim of this Interactive Text To provide the knowledge and practice to help you succeed in the examination for Paper 1 Recording Financial Transactions (International). To pass the examination you need a thorough understanding in all areas covered by the syllabus and teaching guide. Recommended approach (a) To pass you need to be able to answer questions on everything specified by the syllabus and teaching guide. Read the text very carefully and do not skip any of it. (b) Learning is an active process. Do all the questions as you work through the text so you can be sure you really understand what you have read. (c) After you have covered the material in the Interactive Text, work through the Question Bank, checking your answers carefully against the Answer Bank. (d) Before you take the exam, check that you still remember the material using the following quick revision plan. (i) Read through the chapter topic list at the beginning of each chapter. Are there any gaps in your knowledge? If so, study the section again. (ii) Read and learn the key terms. (iii) Look at the exam alerts. These show the ways in which topics might be examined. (iv) Read the chapter roundups, which are a summary of the fast forwards in each chapter. (v) Do the quick quizzes again. If you know what you're doing, they shouldn't take long. This approach is only a suggestion. You or your college may well adapt it to suit your needs. Remember this is a practical course. (a) Try to relate the material to your experience in the workplace or any other work experience you may have had. (b) Try to make as many links as you can to other papers at the Introductory and Intermediate levels. vi Introduction Approach to examining the syllabus Paper 1 is a two-hour paper. It is taken as a computer based examination. The questions in the computer based examination are multiple choice questions. (See page vii for frequently asked questions about computer based examinations.) Important note Past papers refer to 'doubtful debts' and the 'provision for doubtful debts'. From the December 2005 examination, these have been referred to as 'receivables allowances' or 'allowances for receivables' and this is the terminology we use in this text. The written examination consists of three sections, structured as follows: Number of marks 50 compulsory multiple choice questions of two marks each 100 Analysis of past papers Pilot paper and all past papers Fifty multiple choice questions covering various topics 100 It is important that you practice as many multiple choice questions as possible before your exam. There are questions for you to do at the end of this text and over 200 questions in the Practice and Revision Kit for CAT Paper 1. BPP I-Pass will then give you further practice in a computer environment. See over for important advice on tackling multiple choice questions Student Accountant 2006 has a useful article: Five steps to multiple choice success by Steve Widberg. You can access this article via the ACCA website. Introduction vii The Computer Based Examination The ACCA has introduced a computer based examination (CBE) for CAT Papers 1–4 (in addition to the conventional paper based examination for papers 3 and 4). Computer based examinations must be taken at an ACCA CBE Licensed Centre. How does CBE work? • Questions are displayed on a monitor • Candidates enter their answer directly onto the computer • Candidates have two hours to complete the examination • When the candidate has completed their examination, the computer automatically marks the file containing the candidate's answers • Candidates are provided with a certificate showing their results before leaving the examination room • The CBE Licensed Centre uploads the results to the ACCA (as proof of the candidate's performance) within 48 hours Benefits • Flexibility as a CBE can be sat at any time. • Resits can also be taken at any time and there is no restriction on the number of times a candidate can sit a CBE. • Instant feedback as the computer displays the results at the end of the CBE. • Results are notified to ACCA within 48 hours. • Extended closing date periods (see ACCA website for further information) CBE question types • Multiple choice – choose one answer from four options • Multiple response 1 – select more than one response by clicking the appropriate tick boxes • Multiple response 2 – select a response to a number of related part questions by choosing one option from a number of drop down menus • Number entry – key in a numerical response to a question CAT CBE You will have two hours in which to answer a number of questions, which are worth a total of 100 marks. See the ACCA website for a demonstration and up to date information (www.acca.org.uk/colleges/cbe_demo ). viii Introduction Tackling Multiple Choice Questions MCQ's are now part of all CAT exams. Papers 1 and 2 are examined by CBE, Papers 3 and 4 can be taken by CBE or by a written paper which is 40% MCQs. Paper 5 is now 50% MCQ's and Papers 6-10 are 20% MCQs. All MCQs carry 2 marks. The MCQs in your exam contain four possible answers. You have to choose the option that best answers the question. The three incorrect options are called distracters. There is a skill in answering MCQs quickly and correctly. By practising MCQs you can develop this skill, giving you a better chance of passing the exam. You may wish to follow the approach outlined below, or you may prefer to adapt it. Step 1 Skim read all the MCQs and identify what appear to be the easier questions. Step 2 Attempt each question – starting with the easier questions identified in Step 1. Read the question thoroughly. You may prefer to work out the answer before looking at the options, or you may prefer to look at the options at the beginning. Adopt the method that works best for you. Step 3 Read the four options and see if one matches your own answer. Be careful with numerical questions as the distracters are designed to match answers that incorporate common errors. Check that your calculation is correct. Have you followed the requirement exactly? Have you included every stage of the calculation? Step 4 You may find that none of the options matches your answer. • Re-read the question to ensure that you understand it and are answering the requirement • Eliminate any obviously wrong answers • Consider which of the remaining answers is the most likely to be correct and select the option Step 5 If you are still unsure make a note and continue to the next question Step 6 Revisit unanswered questions. When you come back to a question after a break you often find you are able to answer it correctly straight away. If you are still unsure have a guess. You are not penalised for incorrect answers, so never leave a question unanswered! After extensive practice and revision of MCQs, you may find that you recognise a question when you sit the exam. Be aware that the detail and/or requirement may be different. If the question seems familiar read the requirement and options carefully – do not assume that it is identical. 1 Introduction to transaction accounting P A R T A 2 [...]...Business transactions and documentation Topic list 1 Types of business transaction 2 Documenting business transactions 3 Invoices and credit notes 4 Discounts, rebates and allowances 5 Sales tax 6 Contract law 7 Storage of information 8 Data protection 3 Study guide Syllabus reference 1 (a) Identify the main types of business transactions eg, sales, purchases, payments,... and credit transactions 1a (i) Understand the need to document business transactions 1b (j) Explain the purpose and scope of data protection, storage and archiving policies 1c (k) Distinguish between different types of business documentation 1b (l) Outline the contents and purpose of each piece of documentation 1b (m) Describe the documentation and the flow of documentation for different transactions. .. increased the volume of transactions made using credit and debit cards 14 1: Business transactions and documentation ⏐ Part A Introduction to transaction accounting AU TH O RI SE D 400.00 70.00 470.00 30 Days Net Sales Tax Registration Number 345 7654 32 AU T HO RI SE D 100.00 117.50 Sales Tax Registration Number 345 7654 32 Part A Introduction to transaction accounting ⏐ 1: Business transactions and documentation... administering There are several reasons for this (a) Most businesses account to the tax authorities for their transactions involving sales tax every quarter (b) All transactions involving sales tax will have to show separately the net price, sales tax and the gross price This increases the time taken to record the transactions of the business (c) Accounting for sales tax will have an effect on cash flow, whether... evidence and confirmation of what has been sent Financial records prepared or received in the course of transactions and reporting These require storage and management for the purposes of planning and control, and to comply with the accountability requirements of external agencies and legislation Part A Introduction to transaction accounting ⏐ 1: Business transactions and documentation 27 7.1 Retention... receive an acknowledgement Part A Introduction to transaction accounting ⏐ 1: Business transactions and documentation 5 The above diagram gives a picture of the external documentation involved We will not examine what happens inside the central heating company yet, but just look at the system as a whole 6 1: Business transactions and documentation ⏐ Part A Introduction to transaction accounting YOU (Customer)... amount of paperwork It is quite possible that some of this paperwork will not be paperwork at all It might be automated, and the majority of the transactions will be carried out by computer No matter, the principles are the same Question (a) (b) Cash and credit transactions A friend of yours who has no knowledge of accounting matters has asked you to explain the difference between a cash transaction and... its employees Comparing what it earns with what it costs is important, as the company hopes to make a profit (c) (d) 8 1: Business transactions and documentation ⏐ Part A Introduction to transaction accounting Part A Introduction to transaction accounting ⏐ 1: Business transactions and documentation 9 The diagram on the previous page summarises the internal documentation required by the central heating... invoice Although you may find it helpful to think of the receipt, the COD invoice and the credit invoice, you will find that usually people refer only to receipts (for cash transactions, such as buying a newspaper) and invoices (for credit transactions) Remember, however, that not all documents described as invoices are invoices on credit terms – they may need to be settled immediately 3.2 What does an invoice... and settlement discounts 5a 8 (a) 1 Types of business transaction FAST FORWARD Business transactions are of two main types: cash and credit 1.1 Businesses In your studies for the ACCA Accounting Technician qualification, and specifically for this paper on transaction accounting, you will be concerned with business transactions There is no one definition of a business, although we all know more or less