ACCA paper FA 1 recording FInancial transactions

Types of business transaction a Understand a range of business transactions b Understand the various types of discount including where applicable the effect that trade discounts have on

INTRODUCTORY LEVEL

Paper FA1

Recording Financial Transactions

STUDY TEXT

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Published by:

Kaplan Publishing UK

Unit 2 The Business Centre

Molly Millars Lane

Wokingham

RG41 2QZ

ISBN: 978-1-78740-044-3

© Kaplan Financial Limited, 2017

Printed and bound in Great Britain

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amount to advice on a particular matter and should not be taken as such No reliance should be placed

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relation to the use of such materials

2 Types of business documentation 11

7 Purchases and purchase records 153

9 Recording receipts and payments 185

10 Maintaining petty cash records 205

Answers to activities and exam-style questions 325

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This is the new edition of the FIA study text for FA1, Recording Financial Transactions, approved by the

ACCA and fully updated and revised according to the examiner’s comments

Tailored to fully cover the syllabus, this study text has been written specifically for FIA students A clear and comprehensive style, numerous examples and highlighted key terms help you to acquire the information easily Plenty of activities and self-test questions enable you to practise what you have learnt

At the end of most of the chapters you will find multiple-choice questions These are exam-style questions and will give you a very good idea of the way you will be tested

SYLLABUS AND STUDY

GUIDE

Position of paper in the overall syllabus

No prior knowledge is required before commencing study for FA1 This paper provides the basic techniques required to enable candidates to prepare financial statements for various enterprises at

a later stage Candidates will, therefore, need a sound knowledge of the methods and techniques introduced in this paper to ensure they can employ them in later papers The methods used in this

paper are extended in FA2, Maintaining Financial Records, and further developed in FFA, Financial

Accounting

Syllabus

A TYPES OF BUSINESS TRANSACTION AND

DOCUMENTATION

1 Types of business transaction

(a) Understand a range of business transactions

(b) Understand the various types of discount

including where applicable the effect that

trade discounts have on sales tax Ch’s 5& 9

(c) Describe the processing and security

procedures relating to the use of:

(i) Cash

(ii) Cheques

(iii) Credit cards

(iv) Debit cards for receipts and payments

and electronic payment methods

Ch’s 2 & 4

2 Types of business documentation

(a) Outline the purpose and content of a range

of business documents to include but not

limited to:

(i) Invoice (ii) Credit note (iii) Remittance advice Ch’s 2 & 5 (b) Prepare the financial documents to be sent to credit customers including:

(i) Sales invoices (ii) Credit notes (iii) Statements of account Ch’s 2 & 5

(c) Prepare remittance advices to accompany payments to suppliers Ch 2

(d) Prepare a petty cash voucher including the sales tax element of an expense when presented with an inclusive amount

Ch’s 2 & 10

3 Process of recording business transactions

within the accounting system

(a) Identify the characteristics of accounting data

and the sources of accounting data records,

showing understanding of how the accounting

data and records meet the business’

requirements

Ch’s 1 & 2

(b) Understand how users can locate, display

and check accounting data records to meet

user requirements and understand how data

entry errors are dealt with Ch’s 1 & 2

(c) Outline the tools and techniques used to

process accounting transactions and

period-end routines and consider how errors are

identified and dealt with Ch 14 (and

throughout)

(d) Consider the risks to data security, data

protection procedures and the storage of

(e) Understand the principles of coding in

entering accounting transactions, including

(i) describing the need for a coding

system for financial transactions within

a double entry bookkeeping system

(ii) describe the use of a coding system

within a filing system Ch 3

(f) Code sales invoices, supplier invoices and

credit notes ready for entry into the books of

prime entry Ch’s 3, 5 & 7

(g) Describe the accounting documents and

management reports produced by

computerised accounting systems and

understand the link between the accounting

system and other systems in the business

Ch’s 3, 6 & 9

B DUALITY OF TRANSACTIONS AND THE

DOUBLE ENTRY SYSTEM

1 Books of prime entry

(a) Outline the purpose and content of the books

of prime entry including their format Ch 3

(b) Explain how transactions are entered in the

books of prime entry Ch’s 3 & 5

(c) Outline how the books of prime entry

integrate with the double entry bookkeeping

(d) Enter transactions including the sales tax

effect where applicable into the books of

prime entry Ch’s 5 & 7

2 Double entry system

(a) Define the accounting equation Ch 3

(b) Understand and apply the accounting

(c) Understand how the accounting equation relates to the double entry bookkeeping system

Ch 3

(d) Process financial transactions from the books

of prime entry into the double entry bookkeeping system Ch’s 5 - 11

3 The journal Ch’s 3, 13 & 14

(a) Understand the use of the journal including the reasons for, content and format of the journal

(b) Prepare journal entries directly from transactions, books of prime entry as applicable or to correct errors

4 Elements of the financial statements Ch 3

(a) Define and distinguish between the elements

of the financial statements

(b) Identify the content of a statement of financial position and statement of profit or loss and other comprehensive income

C BANK SYSTEM AND TRANSACTIONS

1 The banking process Ch 4

(a) Explain the differences between the services offered by banks and banking institutions

(b) Describe how the banking clearing system works

(c) Identify and compare different forms of payment

(d) Outline the processing and security procedures relating the use of cash, cheques, credit cards, debit cards for receipts and payments and electronic payment methods

(a) Explain why it is important for an organisation

to have a formal document retention policy

(b) Identify the different categories of documents that may be stored as part of a document retention policy

D PAYROLL Ch 11

1 Process payroll transactions within the

accounting system

(a) Prepare and enter the journal entries in the

general ledger to process payroll transactions

including:

(i) Calculation of gross wages for employees

paid by the hour, paid by output and salaried

workers

(ii) Accounting for payroll costs and

deductions

(iii)The employers' responsibilities for taxes,

state benefit contributions and other

deductions

(b) Identify the different payment methods in a

payroll system, e.g cash, cheques,

automated payment

(c) Explain why authorisation of payroll

transactions and security of payroll

information is important in an organisation

E LEDGER ACCOUNTS

1 Prepare ledger accounts

(a) Enter transactions from the books of prime

entry into the ledgers Ch’s 5 - 11

(b) Record journal entries in the ledger accounts

Ch’s 3, 13 & 14

(c) Balance and close off ledger accounts

Ch’s 3, 13 & 14

F CASH AND BANK

1 Maintaining a cash book Ch 9

(a) Record applicable transactions within the

cashbook, including any sales tax effect

where applicable

(b) Prepare the total, balance and cross cast

cash book columns

(c) Identify and deal with discrepancies

2 Maintaining a petty cash book Ch 10

(a) Enter and analyse petty cash transactions in

the petty cash book including any sales tax

effect where applicable

(b) Balance off the petty cash book using the

imprest and non imprest systems

(c) Reconcile the petty cash book with cash in

(ii) sales returns (iii) payments from customers including checking the accuracy and validity of receipts against relevant supporting information

(iv) settlement discounts

(v) irrecoverable debt and allowances for irrecoverable debts including any effect

of sales tax where applicable

Ch’s 6 & 13

H PURCHASES AND CREDIT TRANSACTIONS

1 Recording purchases Ch 7

(a) Record purchase transactions taking into

account:

(i) various types of discount

(ii) sales tax

(iii) the impact of the sales tax ledger account

where applicable

(b) Enter supplier invoices and credit notes into

the appropriate book of prime entry

2 Supplier balances and reconciliations

(a) Prepare the payables control account or

payables ledgers by accounting for:

(i) purchases

(ii) purchase returns

(iii) payments to suppliers including

checking the accuracy and validity of

the payment against relevant

supporting information

(iv) settlement discounts Ch’s 8 & 13

I RECONCILIATION Ch’s 12 & 13

1 Purpose of control accounts and reconciliation

(a) Describe the purpose of control accounts as

a checking devise to aid management and

help identify bookkeeping errors

(b) Explain why it is important to reconcile control

accounts regularly and deal with

discrepancies quickly and professionally

2 Reconcile the cash book

(a) Reconcile a bank statement with the cash

book

3 Reconcile the receivables control account

(a) Reconcile the balance on the receivables

control account with the list of balances

4 Reconcile the payables control account

(a) Reconcile the balance on the payables

control account with the list of balances

J PREPARING THE TRIAL BALANCE Ch 14

1 Prepare the trial balance

(a) Prepare ledger balances, clearly showing the balances carried down and brought down as appropriate

(b) Extract an initial trial balance

2 Correcting errors

(a) Identify types of error in a book-keeping system that are disclosed by extracting a trial balance

(b) Identify types of error in a book-keeping system that are not disclosed by extracting a trial balance

(c) Use the journal to correct errors disclosed by the trial balance

(d) Use the journal to correct errors not disclosed

by the trial balances

(e) Identify when a suspense account is required and clear the suspense account using the journal

(f) Redraft the trial balance following correction

of all errors

THE EXAMINATION

Format of the examination

Number of marks

Time allowed: 2 hours

You can sit this paper as paper-based or computer-based exam

Computer-based examinations

• Be sure you understand how to use the software before you start the exam If in doubt, ask

the assessment centre staff to explain it to you

• Questions are displayed on the screen and answers are entered using keyboard and

mouse At the end of the examination, you are given a certificate showing the result you have achieved

• Objective test questions might ask for numerical answers, but could also involve paragraphs of

text which require you to fill in a number of missing blanks or to write a definition of a word or phrase Others may give a definition followed by a list of possible key words relating to that description

• Don’t panic if you realise you’ve answered a question incorrectly – you can always go back and

change your answer

Answering the questions

Multiple-choice questions – read the questions carefully and work through any calculations

required This paper comprised a mixture of narrative and computational questions

If you don’t know the answer, eliminate those options you know are incorrect and see if the answer

becomes more obvious Remember that only one answer to a multiple-choice question can be right!

If you get stuck with a question skip it and return to it later Answer every question – if you do not

know the answer, you do not lose anything by guessing Towards the end of the examination spend the last five minutes reading through your answers and making any corrections

Equally divide the time you spend on questions In a two-hour examination that has 50 questions you

have about 2.4 minutes per a question

If sitting a paper-based examination, before you finish, you must fill in the required information on the

front of your answer booklet

Do not treat multiple-choice questions as an easy option Do not skip any part of the syllabus and

make sure that you have learnt definitions, know key words and their meanings and importance, and

understand the names and meanings of rules, concepts and theories

STUDY SKILLS AND REVISION GUIDANCE

Preparing to study

SET YOUR OBJECTIVES

Before starting to study decide what

you want to achieve – the type of pass

you wish to obtain

This will decide the level of

commitment and time you need to

dedicate to your studies

DEVISE A STUDY PLAN

Determine when you will study

Split these times into study sessions Put the sessions onto a study plan making sure you cover the course, course assignments and revision

Stick to your plan!

Use the MURDER method

Mood – set the right mood

Understand – issues covered and

make note of any uncertain bits

Recall – stop and put what you have

learned into your own words

Digest – go back and reconsider the

information

Expand – read relevant articles and

newspapers

Review – go over the material you

covered to consolidate the knowledge

Effective study techniques

Use the SQR3 method

Survey the chapter – look at the

headings and read the introduction,

summary and objectives Get an

overview of what the text deals with

Question – during the survey, ask

yourself the questions that you hope

the chapter will answer for you

Read through the chapter thoroughly,

answering the questions and meeting

the objectives Attempt the exercises

and activities, and work through all the

examples

Recall – at the end of the chapter, try

to recall the main ideas of the chapter

without referring to the text Do this a

few minutes after the reading stage

Review – check that your recall notes

are correct

While studying…

Summarise the key points of the chapter

Make linear notes – a list of headings, divided up with subheadings listing the key

points Use different colours to highlight key points and keep topic areas together

Try mind-maps – put the main heading in the centre of the paper and encircle it Then

draw short lines radiating from this to the main sub-headings, which again have circles

around them Continue the process from the sub-headings to sub-sub-headings, etc

The best approach to revision is to

revise the course as you work

through it

Also try to leave four to six weeks

before the exam for final revision

Make sure you cover the whole

syllabus

Pay special attention to those areas

where your knowledge is weak

If you are stuck on a topic find

somebody (a tutor) to explain it to you

Read around the subject – read good

newspapers and professional journals,

especially ACCA’s Student Accountant

– this can give you an advantage in the

Practise exam-standard questions

under timed conditions Attempt all the different styles of questions you may be asked to answer in your exam

Review any assignments you have

completed and look at where you lost marks – put more work into those areas where you were weak

Ensure you know the structure of the

exam – how many questions and of

what type they are

Revision