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Bookkeeping Transactions 28
Unit level GLH value Assessment
2 60 Unit and synoptic assessment
Introduction
This unit introduces students to the double-entry bookkeeping system and the associated documents and processes. Students will reach the stage of extracting an initial trial balance, before any adjustments are made. This unit provides students with the skills necessary to operate a manual double-entry bookkeeping system and provides a strong foundation for progression to more advanced manual and computerised activities.
On completion of this unit, students will be able to check the accuracy of invoices, credit notes, remittance advices, statements of account and petty cash vouchers. They will know how to use these documents to make entries in sales and purchases daybooks, sales and purchases returns daybooks, and discounts allowed and received daybooks using account codes, as well as how to transfer those totals to the sales, purchases and general ledgers.
The UK government department responsible for collecting taxes (HMRC) offers more than one method of accounting treatment when prompt payment discount (PPD) is allowed and received. However, students at Foundation level are only required to use credit notes to adjust for PPD. Using this approach, credit notes are recorded in separate daybooks, a discounts allowed daybook and/or a discounts received daybook, removing the need for discount columns in the cash book. There is no requirement at this level for learners to understand how to account for PPD by any other method.
The cash book and petty cash book are also covered in this unit, including making entries into both and transferring totals to the ledgers. Students will make appropriate checks on the accuracy of supplier invoices and credit notes, reconcile supplier statements with the purchases ledger account and calculate payments due to suppliers. They will also calculate sales invoice and credit note amounts and check receipts from customers.
This unit refers to value added tax or VAT. This is an indirect tax operating in the UK but this type of tax may also operate and be known by another name in other countries.
Bookkeeping Transactions is a mandatory unit in this qualification.
Learning outcomes
- Understand financial transactions within a bookkeeping system
- Process customer transactions
- Process supplier transactions
- Process receipts and payments
- Process transactions through the ledgers to the trial balance
Bookkeeping Transactions
Bookkeeping Transactions 29
Scope of content
This section illustrates the depth and breadth of content to be delivered for this unit. All areas indicated in the table below must be covered in teaching.
In any one assessment, students may not be assessed on all content, or on the full depth or breadth of a piece of content. The content assessed may change over time to ensure validity of assessment, but all assessment criteria will be tested over time.
- Understand financial transactions within a bookkeeping system
1.1 Indicate the purpose of business documents Students need to know:
- the purpose of business documents: petty cash voucher, invoice, credit note (including for PPD), remittance advice, statement of account. 1.2 Distinguish between prompt payment, trade and bulk discounts Students need to know:
- the difference between discounts offered: prompt payment, trade and bulk
- how discounts are shown on invoices: prompt payment, trade and bulk
- how to use credit notes to adjust for PPD and how PPD is recorded once taken: discounts allowed or discounts received daybook, sales or purchases ledger account, general ledger discounts allowed or received account as income or expenditure, sales or purchases ledger control account, value added tax (VAT) account. 1.3 Demonstrate an understanding of a coding system Students need to know:
- the different types of code: customer account, supplier account, product
- where to use codes: sales, sales returns and discounts allowed daybooks and purchases, purchase returns and discounts received daybooks, sales and purchases ledgers
- how to create codes: alphabetical, numerical, alphanumerical. 1.4 Demonstrate an understanding of the process of recording financial transactions Students need to know:
- the role of the books of prime entry: sales and sales returns daybooks, purchases and purchases returns daybooks, discounts allowed and discounts received daybooks
- the role of the cash book and petty cash book: as a book of prime entry only, as a book of prime entry and as part of the double-entry bookkeeping system
- the ledgers: sales, purchases and general
- the accounting equation: calculation of assets, liabilities and capital, dual effect of transactions
- the classification of items: assets and liabilities
- the classification of income and expenditure: capital income, capital expenditure, revenue income, revenue expenditure
- the purpose of the trial balance.
Bookkeeping Transactions 31
- Process supplier transactions
3.1 Check the accuracy of supplier invoices and credit notes Students need to know:
- the documents to use: quotations including discounts, purchase orders, goods received notes, delivery notes, goods returned notes. Students need to be able to:
- identify discrepancies that may be found: non-delivery of goods, incorrect type or quantity of goods, incorrect calculations, incorrect discounts (trade, bulk and prompt payment), date and terms of payment.
3.2 Enter supplier invoices and credit notes into books of prime entry Students need to know:
- the books of prime entry: purchases, purchases returns and discounts received daybooks
- the columns within books of prime entry: supplier name, supplier account code, total, VAT, net, analysis (including product code). Students need to be able to:
- calculate VAT amounts from net and total figures
- calculate total and net amounts from the VAT figure
- make entries in books of prime entry
- total columns in books of prime entry. 3.3 Prepare payments to suppliers Students need to know:
- the records and documents to use: purchases ledger account, invoices and credit notes (including discounts and VAT), statement of account
- the information to take into account: agreed payment terms. Students need to be able to:
- identify discrepancies between the supplier’s statement of account and the purchases ledger account: timing differences, wrong amounts, missing transactions, duplicated transactions
- calculate payments due to suppliers, including PPD.
- Process receipts and payments
4.1 Enter receipts and payments into a two column analysed cash book Students need to know:
- the format of the cash book: date, details, cash, bank, analysis columns (including VAT)
- the documents to use: direct debit/standing order schedule, remittance advice (including BACS), paying in slip, cheque stub, cash receipt, receipts and payments listing. Students need to be able to:
- calculate VAT amounts from net and total figures
- make entries in the cash book.
Bookkeeping Transactions 32
4.2 Enter receipts and payments into an analysed petty cash book Students need to know:
- the format of the petty cash book: date, details, amount, analysis columns (including VAT)
- the documents to use: cash receipt, petty cash voucher. Students need to be able to:
- calculate VAT amounts from net and total figures
- make entries in the petty cash book, including reimbursement, using the imprest and non-imprest systems. 4.3 Total and balance the cash book and petty cash book Students need to be able to:
- present totals and balances: column totals, balance carried down, balance brought down, debit balance, credit balance, date and details.
- Process transactions through the ledgers to the trial balance
5.1 Transfer data from the books of prime entry to the ledgers Students need to know:
- the books of prime entry: sales and sales returns daybooks, purchases and purchases returns daybooks, discounts allowed and discounts received daybooks, cash book, petty cash book
- the ledgers: sales, purchases, general
- that the sales and purchases ledger control accounts are part of the double-entry system. Students need to be able to:
- transfer data from books of prime entry to the relevant accounts in the ledgers. 5.2 Total and balance ledger accounts Students need to be able to:
- total and balance ledger accounts: balance carried down, balance brought down, debit balance, credit balance. 5.3 Extract an initial trial balance Students need to know:
- to use the general ledger to extract balances
- the column to use in the trial balance: debit, credit. Students need to be able to:
- transfer balances to the initial trial balance
- total and balance the initial trial balance.
Bookkeeping Transactions 34
Test specification for Bookkeeping Transactions unit assessment
Please refer to the latest Qualification Technical Information (QTI) for specific legislation or rates that apply to the current assessments. Details can be accessed at aat.org.uk/about-aat/qualification-development
Assessment method Marking Type Duration of exam
Computer based assessment
Computer marked 2 hours
Learning outcomes Weighting
- Understand financial transactions within a bookkeeping system 10%
- Process customer transactions 10%
- Process supplier transactions 15%
- Process receipts and payments 25%
- Process transactions through the ledgers to the trial balance 40% Total 100%
Bookkeeping Controls 35
Unit level GLH value Assessment
2 45 Unit and synoptic assessment
Introduction
This unit is about control accounts, journals and methods of payment. It takes students through reconciliation processes and the use of the journal to the stage of redrafting the trial balance, following initial adjustments.
This unit covers more complex Foundation level bookkeeping procedures, which will enable students to develop their understanding of the relationship between the various accounting records and consolidate their knowledge of double-entry bookkeeping. Students will gain the confidence they need to perform well in the workplace and the unit will prepare them for greater responsibility.
Students will develop the ability to prepare the value added tax (VAT) control account as well as the sales and purchases ledger control accounts, including reconciliation with the sales and purchases ledgers. They will use the journal to record a variety of transactions, including the correction of errors. Students will be able to redraft the initial trial balance, following adjustments, and be able to identify different methods of payment and their use. They will learn to update the cash book following receipt of a bank statement, and also how to prepare a bank reconciliation statement.
This unit builds on the knowledge and skills acquired from studying Bookkeeping Transactions. Studying Bookkeeping Controls and consolidating the double-entry bookkeeping skills gained in Bookkeeping Transactions will also provide an important foundation for the financial accounting units at Advanced level: Advanced Bookkeeping and Final Accounts Preparation.
This unit refers to value added tax or VAT. This is an indirect tax operating in the UK but this type of tax may also operate and be known by another name in other countries.
Bookkeeping Controls is a mandatory unit in this qualification.
Learning outcomes
- Understand payment methods
- Understand controls in a bookkeeping system
- Use control accounts
- Use the journal
- Reconcile a bank statement with the cash book
Bookkeeping Controls
Bookkeeping Controls 37
3.2 Reconcile control accounts Students need to be able to:
- total the balances of the individual sales and purchases ledger accounts: sales ledger debit/credit balances, purchases ledger debit/credit balances
- identify discrepancies between the sales and purchases ledger control accounts and the individual ledgers
- identify reasons for discrepancies between the sales and purchases ledger control accounts and the individual ledgers.
- Use the journal
4.1 Produce journal entries to record accounting transactions Students need to be able to:
- record opening entries for a new business
- identify and record entries to write off irrecoverable debts: record VAT where appropriate, calculate VAT from gross and net amounts
- identify and record entries for payroll transactions: wages control account, gross pay, income tax, employer’s and employees’ National Insurance contributions (NIC), employer’s and employees’ pension and voluntary deductions. 4.2 Produce journal entries to correct errors not disclosed by the trial balance Students need to be able to:
- correct errors using the journal: errors of commission, errors of omission, errors of original entry, errors of principle, reversal of entries, compensating errors. 4.3 Produce journal entries to correct errors disclosed by the trial balance Students need to be able to:
- open a suspense account
- correct errors and clear the suspense account using the journal. 4.4 Use journal entries to make adjustments in the ledger accounts Students need to be able to:
- post journal entries to the general ledger accounts
- total and balance the general ledger accounts: balance carried down, balance brought down. 4.5 Redraft the trial balance following adjustments Students need to be able to:
- recalculate the balance of a general ledger account following journal entries
- complete a trial balance from adjusted and unadjusted balances
- balance the adjusted trial balance: total debit and credit columns.
- Reconcile a bank statement with the cash book
5.1 Locate differences between items on the bank statement and entries in the cash book Students need to be able to:
- recognise items on the bank statement but not in the cash book and recognise items in the cash book but not on the bank statement: opening balance differences, bank interest paid/received, bank charges, automated payments/receipts, unpresented cheques and outstanding lodgements.
Bookkeeping Controls 38
5.2 Use the bank statement to update the cash book Students need to be able to:
- make appropriate entries from the bank statement into the cash book: bank interest paid/received, bank charges and automated payments/receipts
- total and balance the cash book: credit/debit balance carried down, credit/debit balance brought down. 5.3 Produce a bank reconciliation statement Students need to be able to:
- use appropriate items to complete a bank reconciliation statement: closing bank statement credit balance, unpresented cheques, outstanding lodgements
- check a bank statement has been correctly reconciled with a (debit) closing cash book balance.
Delivering this unit
This unit has the following links across the AAT Foundation Certificate in Accounting.
Unit name Content links Suggested order of delivery
Bookkeeping Transactions
This unit builds on the knowledge and skills acquired from studying Bookkeeping Transactions, in particular double-entry bookkeeping techniques and reconciliation processes.
It is recommended that Bookkeeping Controls is delivered either after or at the same time as Bookkeeping Transactions.
Using Accounting Software
Prior completion of both Foundation level manual bookkeeping units will benefit students studying Using Accounting Software. The skills and knowledge gained will enable students to understand the business environment and facilitate their comprehension of a computerised accounting system.
It is recommended that Bookkeeping Controls is delivered either before or at the same time as Using Accounting Software.
Links to standards
This unit links with the following National Occupational Standards (NOS) for Accountancy and Finance:
- FA-3 Account for income and expenditure.
Elements of Costing 40
Unit level GLH value Assessment
2 45 Unit and synoptic assessment
Introduction
The purpose of this unit is to give students a basic introduction to costing, while building a sound foundation in the knowledge and skills they need for more complex costing and management accounting units such as Advanced level Management Accounting: Costing and Professional level Management Accounting: Budgeting. Students will understand the importance of the costing system as a source of information for internal management decision making. In contrast to the more outward perspective of financial accounting, the skills developed in this unit will allow students to provide information to managers that can be used to assist in internal business planning, decision making and control.
A student successfully completing this unit will be an effective member of the costing function within the accounting team. Working with the management/financial accountant and supervision, they can be expected to:
- use the costing system to record and extract data and information for management purposes
- extract, compare and provide information on actual performance against budget.
This unit covers the nature of cost and how it is used in a costing system. Students will understand the different classifications of cost and how they can be used for internal management decision making. As well as classifying costs, students will code transactions and build up a unit cost for a product or service, using a range of techniques to cost material, labour and overheads. Students will also engage with the budgetary control system by comparing actual costs with budgeted costs and they will determine variances, noting whether they are adverse or favourable.
Cost behaviour is essential to the unit. Students will understand how cost behaves at different levels of output, and how variable and fixed costs per unit behave as output changes. The High-Low method, in its simplest format, is introduced to give students the underpinning knowledge and skill development for later units for management accounting at Advanced and Professional levels, where marginal costing is used as an aid to management decision making.
Another important knowledge and skill that students will develop is to understand overhead as a component of cost and to build a basic unit product cost using labour hours, machine hours and per unit as a basis. This will prepare students and give them the basic tools for studies in overhead apportionment, reapportionment and absorption at Advanced level.
Elements of Costing is a mandatory unit in this qualification.
Elements of Costing
Elements of Costing 41
Learning outcomes
- Understand the cost recording system within an organisation
- Use cost recording techniques
- Provide information on actual and budgeted costs and income
Elements of Costing 43
- Use cost recording techniques
2 .1 Calculate cost of inventory issues and inventory valuations Students need to be able to:
- cost issue of inventory for management accounting purposes using FIFO, LIFO and AVCO
- calculate closing values of inventory using FIFO, LIFO and AVCO (rounding figures as necessary). 2.2 Calculate labour payments Students need to be able to:
- calculate labour payments: time-rate and overtime, piecework, bonuses.
2.3 Calculate overhead absorption rates Students need to be able to:
- calculate simple overhead absorption rates: per unit, labour hours, machine hours (rounding figures as necessary) to show differing methods to arrive at unit cost. 2.4 Use cost behaviour to calculate total and unit costs Students need to be able to:
- calculate total and unit costs at different levels of output
- apply simple High-Low method to arrive at output costs at differing levels of output 2.5 Calculate the direct cost of a product Students need to know:
- how direct cost is a component of product cost. Students need to be able to:
- calculate direct cost of a product in a manufacturing organisation, taking into account the flow of inventory in the production process, what constitutes direct cost, manufacturing cost, cost of goods manufactured and cost of goods sold.
- Provide information on actual and budgeted costs and income
3.1 Compare actual and budgeted costs and income Students need to be able to:
- calculate differences between actual and budgeted costs and income
- identify whether variance is adverse or favourable for costs and income. 3.2 Apply exception reporting to identify significant variances Students need to be able to:
- calculate variances as a percentage of budget
- identify significant variances according to an organisation’s policy
- report significant variances to a relevant manager.
Elements of Costing 44
Delivering this unit
This unit has the following links across the AAT Foundation Certificate in Accounting.
Unit name Content links Suggested order of delivery
Bookkeeping Transactions
The use of codes in this unit links with Bookkeeping Transactions.
Bookkeeping Transactions might be delivered before, at the same time or after Elements of Costing.
Links to standards
This unit links with the following National Occupational Standards (NOS) for Accountancy and Finance:
- MA-1 Provide cost and revenue information.
Test specification for Elements of Costing unit assessment
Please refer to the latest Qualification Technical Information (QTI) for specific legislation or rates that apply to the current assessments. Details can be accessed at aat.org.uk/about-aat/qualification-development
Assessment method Marking type Duration of exam
Computer based assessment
Computer marked 1 hour 30 minutes
Learning outcomes Weighting
- Understand the cost recording system within an organisation 20%
- Use cost recording techniques 60%
- Provide information on actual and budgeted costs and income
Total 100%
Using Accounting Software 46
Scope of content
This section illustrates the depth and breadth of content to be delivered for this unit. All areas indicated in the table below must be covered in teaching.
In any one assessment, students may not be assessed on all content, or on the full depth or breadth of a piece of content. The content assessed may change over time to ensure validity of assessment, but all assessment criteria will be tested over time.
- Set up accounting software
1.1 Enter information relating to the organisation at the beginning of an accounting period Students need to be able to:
- set up and amend general ledger accounts
- enter the relevant opening balance information. 1.2 Set up customer accounts Students need to be able to:
- create customer accounts
- enter the relevant opening balance information. 1.3 Set up supplier accounts Students need to be able to:
- create supplier accounts
- enter the relevant opening balance information.
- Process sales and purchases transactions
2 .1 Process sales invoices and credit notes Students need to be able to:
- process sales invoices from source documents ensuring that value added tax (VAT) where applicable is posted to the correct account
- process credit notes from source documents ensuring that VAT where applicable is posted to the correct account. 2.2 Allocate receipts from customers Students need to be able to:
- process receipts from customers and allocate amounts correctly: in full payment, in part payment, against the opening balance, invoices and credit notes. 2.3 Process purchase invoices and credit notes Students need to be able to:
- process purchase invoices from source documents ensuring that VAT where applicable is posted to the correct account
- process credit notes from source documents ensuring that VAT where applicable is posted to the correct account. 2.4 Allocate payments to suppliers Students need to be able to:
- process payments to suppliers and allocate amounts correctly: in full payment, in part payment, against the opening balance, invoices and credit notes.
Using Accounting Software 47
- Process bank and cash transactions
3 .1 Process receipts and payments for non-credit transactions Students need to be able to:
- process bank and cash receipts ensuring that VAT where applicable is posted to the correct account
- process bank and cash payments ensuring that VAT where applicable is posted to the correct account. 3.2 Process recurring receipts and payments Students need to be able to:
- set up and process a recurring bank receipt
- set up and process a recurring bank payment. 3.3 Process petty cash receipts and payments Students need to know:
- how to top up petty cash. Students need to be able to:
- process petty cash payments ensuring that VAT where applicable is posted to the correct account
- process petty cash receipts ensuring that VAT where applicable is posted to the correct account.
- Perform period end routine tasks
4 .1 Process journals Students need to be able to:
- process journals: to correct errors, to record unrecorded transactions or adjustments. 4.2 Reconcile the bank statement Students need to know:
- how to agree the payments and receipts for the period from the bank statement to the bank entries made on accounting software. Students need to be able to:
- process unrecorded payments and receipts
- reconcile the bank balance at the end of an accounting period.
- Produce reports
5 .1 Produce routine reports for customers and suppliers Students need to know:
- how to identify the customer or supplier report required. Students need to be able to:
- produce reports that meet business requirements. 5.2 Produce routine reports from the general ledger Students need to be able to:
- produce a trial balance and audit trail
- identify additional general ledger reports required
- produce reports that meet business requirements.
