ACCA paper FA1 recording financial transations exam kit

SETTLEMENT DISCOUNT OFFERED TO CREDIT CUSTOMERS When preparing a sales invoice for a credit customer, the seller must estimate the amount of revenue that will be receivable from that sa

INTRODUCTORY CERTIFICATE

Paper FA1

Recording Financial Transactions

EXAM KIT

P.2 KA P LA N P UBL I SH IN G

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 Millar’s Lane

Wokingham

Berkshire

RG41 2QZ

ISBN: 978-1-78740-054-2

© Kaplan Financial Limited, 2017

Printed and bound in Great Britain

The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties Please consult your appropriate professional adviser as necessary Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials

All 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 Kaplan Publishing

Acknowledgements

This product contains material that is ©Financial Reporting Council Ltd (FRC) Adapted and

reproduced with the kind permission of the Financial Reporting Council All rights reserved For

We are grateful to the Association of Chartered Certified Accountants for the permission to reproduce past examination questions The answers have been prepared by Kaplan Publishing

K APLAN P UBLISH IN G P.3

INTRODUCTION

Packed with practice and exam-type questions, this book will help you to successfully prepare for your exam

questions’ (Section 1 of this book) and ‘multiple choice questions’ (Section 2)

syllabus topics These can be attempted either during your initial study or your early revision phase In the approach to the exam you should turn your focus away from these to the exam style multiple-choice questions to gain exam practice

should ensure that in the last few days/weeks of your preparation before the exam you focus exclusively on this style of question to ensure you are sufficiently rehearsed in this style of question

conditions and this will give you an idea of how you will perform in your exam

P.4 KA P LA N P UBL I SH IN G

K APLAN P UBLISH IN G P 5

CONTENTS

Page

Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an email to mykaplanreporting@kaplan.com with full details

Our Quality Co-ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions

P.6 KA P LA N P UBL I SH IN G

K APLAN P UBLISH IN G P 7

INDEX TO QUESTIONS AND ANSWERS

Page number

OBJECTIVE TEST QUESTIONS

Business transactions and documentation

Banking and petty cash

Sales and sales records

Purchases and purchase records

Control accounts, bank reconciliations and the initial trial balance

MULTIPLE-CHOICE QUESTIONS

Control accounts, bank reconciliations and the initial trial balance

K APLAN P UBL ISH I NG P.9

SYLLABUS AND REVISION GUIDANCE

SYLLABUS CONTENT

1 Types of business transaction

trade discounts have on sales tax

(i) cash

(ii) cheques

2 Types of business documentation

(i) invoice

presented with an inclusive amount

P.10 KA P LA N P UBL I SH IN G

3 Process of recording business transactions within the accounting system

records, showing understanding of how the accounting data and records meet the business’ requirements

user requirements and understand how data entry errors are dealt with

period-end routines and consider how errors are identified and dealt with

data

double entry bookkeeping system

of prime entry

(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

1 Books of prime entry

system

prime entry

2 Double entry system

system

bookkeeping system

S YLLABUS AND REV IS ION GUIDANCE

4 Elements of the financial statements

(b) Identify the content of a statement of financial position and statement of comprehensive income

1 The banking process

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

credit cards, debit cards for receipts and payments and electronic payment methods

1 Process payroll transactions within the accounting system

(a) Prepare and enter the journal entries in the general ledger to process payroll transactions including:

salaried workers

P.12 K A P LAN P UB LI S HI NG

1 Prepare ledger accounts

1 Maintaining a cash book

where applicable

2 Maintaining a petty cash book

tax effect where applicable

1 Recording sales

S YLLABUS AND REV IS ION GUIDANCE

2 Customer account balances and control accounts

(i) sales

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

of sales tax where applicable

1 Recording purchases

2 Supplier balances and reconciliations

(i) purchases

(iii) payments to suppliers including checking the accuracy and validity of the payment against relevant supporting information

I RECONCILIATION

1 Purpose of control accounts and reconciliation

and help identify bookkeeping errors

discrepancies quickly and professionally

P.14 KA P LA N P UBL I SH IN G

2 Reconcile the cash book

3 Reconcile the receivables control account

4 Reconcile the payables control account

1 Prepare the trial balance

the journal

S YLLABUS AND REV IS ION GUIDANCE

PLANNING YOUR REVISION

Begin by asking yourself two questions:

How much time do I have

available for revision?

What do I need to cover during my revision?

Remember to take into account:

work most effectively

(e.g holidays)

Remember to take into account that:

examinable

revising areas of the syllabus you feel least confident about

• List key words for each topic to remind you of the essential concepts

• Practise exam-standard questions, under timed conditions

• Rework questions that you got completely wrong the first time, but only when you think

you know the subject better

for example)

• Read recent articles on the ACCA website or in the student magazine

• Read good newspapers and professional journals

P.16 K A P LAN P UB LI S HI NG

K APLAN P UB LI SH ING P.17

TECHNICAL UPDATE

For 2017-18, there are amendments to the FA1 accounting requirements in relation to accounting

for revenue receivable The changes are based upon IFRS 15, Revenue from contracts with

customers Although the reporting standard is not examinable, ACCA have adopted a consistent

approach to how revenue receivable should be accounted for, and therefore how it may be examined The key issues are summarised below

SETTLEMENT DISCOUNT OFFERED TO CREDIT CUSTOMERS

When preparing a sales invoice for a credit customer, the seller must estimate the amount of revenue that will be receivable from that sale transaction Trade discount is always deducted from the list price of items before a sales invoice is prepared In addition, the seller must also consider whether a customer is likely to take advantage of any early settlement terms that may be offered

Customer expected to take advantage of early settlement terms offered

For example, consider the situation if goods are sold to a credit customer at a list price of $100, and settlement discount of 3% is offered for payment within seven days of the invoice date

If the customer is expected to pay early to take advantage of settlement discount offered, the settlement discount should also be deducted in arriving at the invoice price A receivable and revenue will be recorded at $97 ($100 less 3% discount)

Subsequently if, as expected, the credit customer does pay early, the cash receipt of $97 will clear the recorded receivable of $97

Alternatively, if the credit customer does not pay early, they will not be entitled to claim the settlement discount, and $100 will be due The larger cash receipt will then be allocated to clear the recorded receivable of $97, and the additional $3 received is accounted for as additional revenue as follows:

Debit Cash $100, Credit Receivables $97, and also Credit Revenue $3

Customer not expected to take advantage of early settlement terms offered

Consider again the situation if goods are sold to a credit customer at a list price of $100, and settlement discount of 3% is offered for payment within seven days of the invoice date

If the customer is not expected to pay early to take advantage of settlement discount offered, the settlement discount should not be deducted in arriving at the invoice price A receivable and revenue will be recorded at $100

Subsequently if, as expected, the credit customer does not pay early, the cash receipt of $100 will clear the recorded receivable of $100

Alternatively, if the credit customer does pay early, they will be entitled to claim the settlement discount, and a smaller cash receipt of $97 will be received The smaller cash receipt will then be allocated to clear the amount recorded as a receivable, with an adjustment made to revenue and receivable as follows:

Debit Cash received $97, and Credit Receivables $97 to record the cash receipt

Debit Revenue $3, and Credit Receivables $3 to clear the remaining amount outstanding by reducing revenue

In effect, discount allowed to credit customers for early settlement of amounts due is now adjusted against revenue

P.18 K A P LAN P UB LI S HI NG

K APLAN P UB LI SH ING P.19

THE EXAM

FORMAT OF THE EXAM

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

Number of marks

Time allowed: 2 hours

Answering the questions

• Multiple-choice questions – read the

questions carefully and work through

any calculations required

• 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

• 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

both narrative and computational

questions, so ensure that you are able to

deal with both types of question

Computer-based examinations

software before you start the exam If in

doubt, ask the assessment centre staff toexplain it to you

and answers are entered using keyboardand mouse At the end of the exam, youare given a certificate showing the resultyou have achieved

• Don’t panic if you realise you’ve

answered a question incorrectly – youcan always go back and change youranswer

P.20 K A P LAN P UB LI S HI NG

K APLAN P UBLISH IN G 1

Section 1

OBJECTIVE TEST QUESTIONS

BUSINESS TRANSACTIONS AND DOCUMENTATION

Given below are a number of transactions For each transaction, tick the relevant box to indicate whether it is a cash transaction or a credit transaction

with an invoice for that amount

deposit for the remaining value of the goods

(5 marks)

2 DOCUMENTS

Fill in the boxes to give the names of the various documents used at the following stages

of the process of purchasing goods by means of cash or on credit

the goods

enclosed as payment

(5 marks)

A debit note, on the other hand, is raised by the ………… and sent to the ………… requesting

a ……… Not all businesses employ a formal debit note for this purpose; many rely on a

DOUBLE ENTRY BOOKKEEPING

4 TERMINOLOGY

Fill in the gaps to identify the following terms:

(a) An …….……… is a resource controlled by the ……… as a result of a past…… ……… or ……… from which it is ………… that future economic benefits will be ………

Examples include a ……… and amounts owed to the suppliers of goods or services which have yet to be paid for

inclusion in manufactured products, and the finished products which have been manufactured which have not yet been sold

Given below are a number of typical transactions and balances that might be found in a business

Fill in the boxes to indicate whether the items are assets, liabilities, expenses or income

OBJE CTIVE TEST QUESTIONS : SECTION 1

(11 marks)

In the following transactions the accounting equation builds up at each stage

Use the boxes below the accounting equation to show the amounts in each category in which the transactions would be recorded and what the business owns and owes cumulatively, after each transaction

(b) A bank lends the business a further $5,000

(d) Bill buys inventory for $2,500 by writing out a business cheque

(e) All the inventory is sold for $4,000 The money is paid direct to the business bank account

(Remember there are two elements to this transaction Firstly, the money coming into the business and the fact that the business no longer has an inventory asset, and secondly, the calculation of profit.)

(16 marks)

4 K A P LA N P UBL I SH I NG

James Banner begins a business as a second-hand bookseller on 1 February 20X7 His first week’s transactions are listed below

Required:

For each of these transactions indicate which ledger account would be debited and which

Cameron Findlay opens his fishing tackle shop on 1 June 20X8 During that month he makes the following business transactions:

OBJE CTIVE TEST QUESTIONS : SECTION 1

Required:

Record the above transactions in the following ledger accounts (11 marks)

Cash at bank account

6 K A P LA N P UBL I SH I NG

Sales account

Sundry expenses account

On 14 April 20X5 John Fry set up a business in which he sold frozen fish, meat and vegetable dishes from door to door in a specially adapted van His transactions for the first two weeks of trading were as follows:

freezer to the van

OBJE CTIVE TEST QUESTIONS : SECTION 1

Required:

Fill in the boxes with the balance carried down on the following accounts:

Cash and bank account

(8 marks)

Tutorial note

You may find it helpful (and useful practice) to answer this question by entering these

transactions in the appropriate ledger accounts Then calculate a balance on each ledger

account

Given below are a number of typical examples of business expenditure

Required:

Tick the relevant box to classify each of these items as either capital expenditure or

the warehouse