Paper 1 Recording Financial Transactions (GBR)

To develop knowledge and understanding of the operational aspects of maintaining accounting systems and procedures relating to invoicing, receipts and payments, recording income and expenditure, the preparation of ledger accounts and the preparation of an initial trial balance.

On completion of this paper, candidates should be able to:

• distinguish between types of business transactions and documentation, recognising relevant basic business law and data protection legislation
• prepare basic ledger accounts under the double entry system
• record income and receipts from credit customers
• explain and account for bad debts
• record purchases, expenditure, and payments to suppliers
• account for banking transactions
• maintain general cash and petty cash records
• produce bank reconciliation statements
• record payroll transactions
• prepare and reconcile control accounts
• prepare an initial trial balance identifying and correcting errors using journal entries.

No prior knowledge is required before commencing study for Paper

1. 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 Paper 3, Maintaining Financial Records and further developed in Paper 6, Drafting Financial Statements.

(a) Types of business transactions

(i) sales

(ii) purchases

(iii) receipts

(iv) payments

(v) petty cash

(vi) payroll

(b) Types of business documentation

(i) quotation

(ii) sales and purchase orders

(iii) delivery note

(iv) invoice

(v) credit note

(vi) debit note

(vii) statement

(viii) remittance advice

(ix) receipt

(x) internal cheque requisition

(xi) petty cash claim

(xii) payslip

(c) Basic law and business policies

(i) contract law

(ii) Sale of Goods Act

(iii) document retention policies

(iv) data protection law

(a) Double entry transactions

(i ) nature and function of primary records

(ii) types of ledger accounts

(iii) posting by means of double entry

(iv) balancing-off ledger accounts

(b) Classification of expenditure

(i) capital

(ii) revenue

(c) The accounting equation

(a) Sources of funds and documentation

(i) types of receipts / payments: cash, cheque, standing orders and direct debits, credit card, debit card and BACS

(ii) supporting information: invoice, credit note, remittance advice and statement

(iii) unusual features: wrongly completed cheques, out-of-date cheques, credit and debit card limits exceeded and disagreement with / insufficient supporting documentation

(b) Banking monies received

(i ) banking documentation: paying-in slips, credit and debit card documentation

(ii) methods of handling and storing money, including security aspects

(c) Recording payments and monies received

(i) manual cash book

(ii) manual general ledger and sales ledger

(iii) computerised records

(d) Authorising and making payments

(i) documentation: cheque requisitions

(ii) authorisation

(e) Maintaining petty cash records

(i) documentation: petty cash claims

(ii) authorisation

(iii) security of cash

(iv) queries: unauthorised claims for payment, insufficient supporting evidence, claims exceeding authorised limit

(v) manual petty cash book

(vi) imprest and non-imprest methods

(vii) reconciliation of petty cash book to cash in hand

(a) Sales and sales returns

(i) source documents

(ii) invoices and credit notes

(iii) general principles of VAT

(iv) types of discount

(v) methods of coding data

(vi) sales day book

(vii) sales returns day book

(viii) authorisation

(b) Recording sales

(i) manual general ledger

(ii) manual sales ledger

(iii) computerised ledgers

(iv) statements

(v) aged debtors analysis

(vi) communication with customers (orally and in writing)

(vii) credit limits

(viii) bad debts

(a) Purchases and purchase returns

(i) ordering systems: Internet, verbal, written

(ii) source documents

(iii) suppliers’ invoices and credit notes

(iv) types of discount

(v) methods of coding data

(vi) purchase day book

(vii) purchase returns day book

(b) Recording purchases

(i) manual general ledger

(ii) manual purchase ledger

(iii) computerised ledgers

(iv) statements

(v) aged creditor analysis

(vi) communication with suppliers: (orally and in writing), incorrect calculations, non-delivery of goods charged, duplication of invoices and incorrect discounts

(a) Recording payroll transactions

(i) documentation: payslips

(ii) authorisation

(iii) payment methods: cash, cheques, automated payments

(iv) queries

(v) security and control

(vi) cash book

(vii) general ledger

(a) Bank reconciliations

(i) general bank services and operation of bank clearing system

(ii) function and form of banking documentation

(iii) bank reconciliation statement

(b) Control accounts

(i) different types of errors

(ii) correction of errors (including journals)

(iii) reconciliation of control account with ledger: sales ledger, purchase ledger

(c) The trial balance

(i) initial trial balance

(ii) identification of errors

(iii) suspense accounts

The following topics are specifically excluded from Paper 1:

• detailed knowledge of VAT
• specific and general provisions for doubtful debts
• foreign currency transactions
• use of PAYE tax and NIC tables.

The key topic areas are as follows:

• sales
• purchases
• receipts
• payments
• petty cash
• bank reconciliation's
• control accounts
• the trial balance.

The examination is a two-hour paper. It can be taken as a written paper or as a computer based exam. Assessment will be based on multiple choice questions covering the breadth of the syllabus, testing that candidates have acquired the necessary knowledge of the areas identified above.

50 multiple choice questions: 100

Accounting standards will not be examined until six months after they have been published. The cut off date for the June examination is 30 November preceding the June examination. The cut off date for the December examination is 31 May preceding the December examination.

Candidates may also find the following texts useful:

Wood, Frank and Robinson, Sheila. Bookkeeping and Accountsm (Pitman Publishing: 4th edition) – Sections 1, 2 and 3 ISBN: 0273646192

Cox, David and Fardon, Michael. Cash and Credit Accounting –NVQ Level 2 Accounting (Osborne Books) – This is a tutorial and workbook. ISBN: 1872962033

Whitehead, Geoffrey. Bookkeeping (Made Simple Books, Butterworth & Heinemann) – Chapters 1-10

Wider reading is also desirable, especially regular study of relevant articles in ACCA’s student accountant magazine.

1 Types of business transactions and types of business documentation

(a) Identify the main types of transactions that a business is likely to undertake e.g. sales, purchases, payments, receipts, cash and bank, and payroll

(b) Explain the main provisions of contract law in relation to transactions

(c) Understand the importance of coding transactions correctly

(d) Distinguish between cash and credit transactions

(e) Identify the key personnel involved in initiating, processing and completing transactions

(f) Understand the need for effective control over transactions

(g) Identify the timing of various transactions e.g. daily, monthly, annually

(h) Understand the need to document business transactions

(i ) Explain the purpose and scope of data protection law, storage and archiving policies

(j ) Distinguish between different types of business documentation e.g. quotation, sales and purchase order, delivery note, invoice, statement, credit note, debit note, remittance advice, receipt, internal payment, petty cash claim and payslip

(k) Identify the main provisions of a Sale of Goods Act or equivalent

(l ) Outline the contents and purpose of each piece of documentation

(m) Describe the documentation and the flow of documentation for different transactions including Internet transactions

(n) Identify the personnel involved in preparing and authorising documents

(o) Outline the main features of systematic recording and filing of documents and data in manual and computerised systems

2 The duality of transactions and the double entry system

• (a) Understand the nature and function of primary financial records
• (b) Recognise the duality of transactions and understand and apply the accounting equation
• (c) Explain the fundamental rules of double entry accounting and debits and credits
• (d) Identify the main types of ledger account
• (e) Identify and classify assets, liabilities, income and expenditure
• (f) Distinguish between capital and revenue expenditure and identify examples of each

3 Recording business transactions in the double entry bookkeeping system

(a) Record a complete series of basic transactions within a double entry system

(b) Prepare journal entries and identify the uses of the journal

(c) Balance off ledger accounts, recording closing balances

(d) Understand the basic functions of a computerised accounting package

4 Banking systems and transactions

N.B for the purpose of answering questions, please note that a detailed understanding of UK banking legislation will not be required

(a) Describe the relationship between a bank and its customer

(b) Outline the working of a central bank clearing system

(c) Recognise the obligation owed by a bank to its clients

(d) Understand the content and format of a cheque

(e) Prepare a cheque prior to despatch

(f) Outline the purpose and format of paying-in documents

(g) Describe the procedures and documentation relating to the use of credit and debit cards

(h) Describe other services offered by banks – inter-bank transfers, payable orders, automated credit systems, standing orders, direct debits, credit transfers

N.B foreign currency transactions are not examinable

5 Cash handling, petty cash operations and cash security

(a) Describe the general procedures for dealing with cash, cheques, credit and debit card receipts and payments

(b) Identify the documentation accompanying payments and receipts

(c) Recognise the importance of accurately recording all payments and receipts

(d) Identify the main ways to ensure that only authorised payments are made

(e) Record payments and receipts in the cash book, general ledger, purchase and sales ledger (manual or computerised)

(f) Understand procedures for banking cash receipts

(g) Recognise the types of transaction likely to be paid out of petty cash

(h) Account for petty cash using imprest and non-imprest methods

(i ) Exercise control over petty cash and recognise how control can be maintained – security of cash, authorised

personnel and reconciliations

(j ) Record petty cash claims and the petty cash book

(j ) Describe the key procedures for ensuring safety, security and, where appropriate, confidentiality over the handling of cash and cheques

(k) Explain the correct procedure to cope with unusual situations: wrongly completed or out of date cheques,

exceeded credit limits on debit or credit cards, or discrepancies between receipts and supporting documents, unauthorised claims for payment, insufficient supporting evidence, or claims exceeding authorised limits

6 Sales and sales records

(a) Identify and recognise source sales documents

(b) Complete sales invoices and process credit notes / debit notes

(c) Understand the general principles of VAT

(d) Calculate VAT on transactions

(e) Calculate and record trade and settlement discounts

(f) Record transactions in a sales day book and a sales returns day book

(g) Code sales and customer records and data

(h) Recognise and describe authorisation procedures

(i) Record sales

(i ) maintain a manual general and sales ledger

(ii) describe a computerised sales ledger

(iii) prepare, reconcile and understand the purpose of customer statements

(j) Communicate efficiently and effectively with customers

7 Credit control and bad debts

(a) Explain the benefits and costs of offering credit facilities to customers

(b) Understand the purpose of and prepare an aged debt analysis

(c) Understand the purpose of credit limits

(d) Recognise the existence and impact of bad debts

(e) Record the accounting treatment of bad debts

8 Purchases and purchase records

(a) Identify and recognise source purchase and expenditure documents

(b) Complete purchase invoices and process credit notes

(c) Calculate and record trade and settlement discounts

(d) Record transactions in a purchase day book and a purchase returns day book

(e) Code purchases and supplier records and data

(f) Record purchases

(i ) maintain a manual general and purchase ledger

(ii) describe a computerised purchase ledger

(iii) understand the purpose of and prepare an aged creditors analysis

(iv) prepare, reconcile and understand the purpose of supplier statements

(g) Communicate efficiently and effectively with suppliers

9 Bank reconciliation statements

(a) Recognise the need to reconcile the cash book with the bank statement periodically

(b) Identify the main reasons for any discrepancies between the cash book and the bank statement, such as errors, unanticipated receipts and payments and timing differences

(c) Correct cash book errors and/or omissions

(d) Reconcile the corrected cash book balance with the bank statement through adjustments for un cleared and un credited cheques

10 Payroll

(a) Understand payroll systems

(b) Understand the duties of employers in relation to taxes, state benefit contributions and other deductions

(c) Record hours worked; time sheets, clock cards

(d) Calculate gross wages for employees paid by hour, by output (piecework) and salaried workers

(e) Define and calculate bonuses, overtime, and commission given the details of each scheme

(f) Describe the documentation required for recording various elements of wages and salaries

(g) Recognise the need for payroll to be authorised and identify appropriate authorisation, security and control

procedures

(h) Make other deductions from wages - trade union subscriptions, payroll saving, pension contributions and

payroll giving

(i ) Identify various methods for making payments to employees

(j) Account for payroll costs and payroll deductions

11 Principles of internal checks and control accounts

(a) Understand the need for internal checks

(b) Complete postings to control accounts and understand the link to primary records

(c) Understand the need for individual debtors and creditors accounts and understand the link to primary records

(d) Explain the purpose of control accounts

(i ) as a check on the accuracy of entries in the individual accounts

(ii) to establish a total of debtors and creditors at any time

(iii) to identify errors in the completion of the day book and in posting the totals from primary records

(iv) as an internal check; the control account should be administered by someone other than the person who completes the day books

(e) Perform a basic control account reconciliation

(f) Identify errors which would be highlighted by performing a control account reconciliation

12 Preparing an initial trial balance and recognising and correcting errors

(a) Compile an initial trial balance

(b) Identify errors which would be highlighted by the extraction of a trial balance

(c) Identify and explain different types of errors:

(i) errors of commission

(ii) errors of principle

(iii) errors of omission

(iv) single entry

(v) transposition errors

(vi) casting errors

(d) Distinguish between compensating and non-compensating errors

(e) Explain the function of a suspense account

(f) Correct errors using journal entries