cat paper 1

8/7/2019 CAT paper 1

1/268

Mustafa Khuwaja - CAT Finalist 1


2/268

Syllabus overviewPart A Introduction to transaction

accountingo Business transactions and documentationo Assets, liabilities and the accounting equation

o Statement of financial position and incomestatement

o Recording, summarizing and posting

transactionso Completing ledger accounts


Part B Recording and accounting

for cash transactionso Receiving and checking money

o Banking monies received

o Recording monies received

o Authorizing and making payments

o Recording payments

o Maintaining petty cash records

o Bank reconciliations


3/268

Syllabus overview

Part C Recording and accountingfor credit transactions

o Sales and sales returns day books

o The receivables ledgero Purchase and purchase returns day

books

o The payables ledger

o Control accounts

Part D Payroll

oRecording payroll transactions



4/268

Chapter 1

Business Transactions &

Documentation


5/268

Contents overview

Types of business transaction

Documenting business

transactions

Invoices and credit notes

Discounts, rebates and

allowances Sales tax

Contract law

Storage of information

Data protection



6/268

Types of business

transaction What is a business?

Uses economic resources to create

goods or services which customerswill buy

Provides jobs for people to work in

Invests money in resources in order

to make even more money for its

owners

Business transactions?

Property changes hands

Two main types: sales and

purchases



7/268

By cash or on credit

Sales

By cash: goods or services given in

exchange for immediate payment(in notes, coins, cheques)

On credit: cash received later

Purchases:

For cash: payment made

immediately

On credit: cash paid later



8/268

Other business

transactions Payment of wages

Borrowing money

Lending money

Offering a discount

Receiving a discount



9/268

Documenting business

transactions


Binding point b/w seller and buyer?


10/268

Discussion

Documentation to expect

(i) You buy a CD from a shop, paying

cash(1) A receipt

(ii) You have air-conditioning system

installed

(1) A letter of enquiry(2) A quotation

(3) An order

(4) An order acknowledgement

(5) A delivery note

(6) An invoice

(7) A credit note



11/268

More documents

Inventory lists: check availability of allthe parts

Supplier lists: where to buy parts

Staff schedules: plan for humanresource

Timesheet: record the actual hours staffspent

Goods received notes

Expense claims: Employees may incurexpenses which need to be reimbursed

Accounting system: records, summarizes

and presents the information containedin these documents



12/268

Purchase order vs. sales

order


Purch

aseorder

Salesorder


13/268

Invoice vs. credit note vs.

debit note

Invoice

A demand forpayment

Settledimmediately incash: receipt

Paid on receipt ofgoods: cash ondelivery (COD)

invoice Paid later: credit

invoice

Invoice illustration

How many copies

needed?

Credit note

Negative invoice:cancel part or all ofpreviously issued

invoice Amount payable:

unpaid invoicesvalue minus thecredit notes

Debit note Customer to

supplier requestinga credit note

Supplier tocustomer to adjustupwards theamount of issuedinvoice

http://invoice%20example.pptx/http://invoice%20example.pptx/


14/268

Illustration


Ho

w

muchisthe

payable?


15/268

Discounts, rebates and

allowancesTrade discount

$1 per unit, but95p for 100 units

or more

Given on invoice

Permanent

Cash discount

10% 0 days, 5% 7days, net 30 days

Financing matter


A reduction in thebills for thefollowing year

A cheque for thecalculated rebate

amount

Buy 1 get 1 free

Rebate Allowance


16/268

CONTRACT LAW -

DISCUSSION

Home Reading



17/268

INFORMATION AND DATA

Home Reading



18/268

Retention policy

Sets down how long different

kinds of information are retained

Master files and reference files:charter agreement, legal documents

Temporary or transitory files

Active files: invoices, GRNs files

Non-active file: purchase invoices of

previous years



19/268

No long needed info and

data Will you throw it away???

Ways to deal:

Microfilmed or microfiched

Stored elsewhere (archiving)

Securely destroyed



20/268

Chapter 2

Assets, Liabilities and the

Accounting Equation


21/268

Contents


Illustration

The accounting equation

Liabilities

Assets

Business definition


22/268

Business definition

A business owns assets and owesliabilities.


1

Anorganizationwhich useseconomicresources tocreate goods

or serviceswhichcustomerswill buy.

2

A business isanorganizationproviding

jobs forpeople to

work in.

3

Investsmoney inresources(eg it buysbuildings,machinery

etc; it paysemployees)inorder tomake evenmore moneyfor its

owners.


23/268

A business from different

perspectives


Legal:

Separatelegal entityNodistinction

with itsowners.

Business

Accounting:

Must alwaysbe treated as aseparate entity

from itsowners.


24/268

Assets


Assets

Something valuable which a business owns or has the use of.

Non-

current

assets

Text

Current

assets

Text

Items belonging to a business and used in therunning of the business.


25/268

Assets classification


Non-current assets

Held and usedin operationsfor a long time,normally more

than 1 years.

E.g.: factories,office building,plant andmachinery,cars, etc.

Current assets

Held for only ashorter time.

E.g.: Cash and

banks,inventories,receivables,etc.

Classified by period of holding


26/268

Liabilities


Liabilities

Something which is owed to somebody else.

Non-

current

Liabilities

Text

Current

Liabilities

Text

Sums of money owed by a business to outsiders


27/268

Liabilities classification


Non-current liabilities

Payable in along time,normally morethan one year.

E.g.: long termloans orborrowingsfrom banks,etc.

Current liabilities

Payable in ashorter time.

E.g.: short

termborrowingsfrom banks,overdrafts,payables tosuppliers, etc.

Classified by period of liabilities


28/268

The accounting equation

Very simple equation to keep in mind


Capital(Ownersequity

Retainedearnings)

Assets(CashReceivablesBuildings

Cars)

Liabilities(Bankloans,Trade

payablesTax

payables)

= +

A Business


29/268

Accounting equation 2


Capitalintroduc

ed +

earnedprofit -drawing

s

Assets Liabilities= +

A Business


30/268



Capitalintroduced

+ profitretained inpreviousperiods+

profitearned in

currentperiod -drawings

AssetsLiabiliti

es= +

A Business


31/268



Capital introducedin previous

periods+ Profit retained

in previousperiods

+ Profit earned incurrent period

+ Capital

introduced incurrent period Drawings incurrent period

AssetsLiabiliti

es= +

A Business


32/268

The business

equation

Profit

earned

incurrent

period

Drawings

in currentperiod

Increase/d

ecrease in

net assetsin current

period

Capital

introduce

d incurrent

period

= + -


33/268

Credit transactions


Credit

sales

Creates anaccountreceivable

Settled

when cash isreceivedfromcustomer

Purchases

on credit

Creates anaccountpayable

Settled

when cash ispaid tosupplier

A sale or a purchase whichoccurs some time earlier than

cash is received or paid.


34/268

Double entry

bookkeeping


Debit:

Increases assetsDecreasesliabilitiesDecreases capitalDecreases incomeIncreasesexpenses

Means left handside

A businessDuality: Every transaction has two accounting entries,a debit and a credit.

Credit:

Decreases assetsIncreasesliabilitiesIncreases capitalIncreases incomeDecreasesexpenses

Means right handside


35/268

Chapter 3

Statement of financial position and incomestatement


36/268

Contents


Users of accounts

Organisational structure

The income statement

Statement of financial position

Introduction to financial statements


37/268

Introduction to financial

statements


The statement of financial position


The cash flow statement

Basic

accountingstatements


38/268

Statement of financial

position


ASSETS

CAPITAL

LIABILITIES

A statement of the assets,liabilities and capital of a

business 'as at' a particular

date.

EQUAL

Also called the Balance sheet


39/268

Typical statement of

financial position

BUSINESS NAMESTATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X8

$ $

Non-current assets

Land and buildings XPlant and machinery X

Fixtures and fittings X

X

Current assets

Inventory XReceivables X

Cash at bank and in hand X X

X

Capital

Proprietor's capital X

Retained profits XX

Non-current liabilities

Loan XCurrent liabilities

Bank overdraft X

Payables XX

X



40/268

Assets


Text

Non-currentassets

Acquired forlong-termuse within

the business

Strictly, morethan oneaccountingperiod

Assets

Text

Currentassets

Expectedto beconverted

into cashwithin oneyear

Classification depends on the nature of the business


41/268

Example


Text

Non-currentassets

LandOffice

buildingFactoryMachineryOfficeequipmentEtc.

Assets

Currentassets

CashInventory

ReceivablesEtc.


42/268

Discussion

Current or non-current?

Asset Business Current ornon-current

VanDelivery

firm

Cement

mixer Builder

Car Car trader

Laptop Audit firm

Laptop Laptoptrader

42

Non-current

Non-current

Non-current

Current

Current


43/268

Liabilities


Text

Non-currentliabilities

Debts notpayablewithin the'short

term

E.g: long-termbankloans.

Liabilities

Text

Currentliabilities

Debtspayablewithinone year.

E.g.:short-termloans,bankoverdrafts, tradepayables,

etc.

Long-term loan is split to:-Amount due within one year-Amount due beyond one year


44/268

Discussion

Classification:

(a) PC used in the accounts department

of a retail storeNon-current asset

(b) A PC on sale in an office equipment

shop

Current asset(c) Wages due to be paid to staff at the

end of the week

Current liability



45/268

Discussion

Classification:

(d) A van for sale in a motor dealer's

showroomCurrent asset

(e) A delivery van used in a grocer's

business

Non-current asset

(f) An amount owing to a bank for a loan

for the acquisition of a van, to be

repaid in 9 monthsCurrent liabilities



46/268

Capital


Text

Amountsinvestedby theowner(s)

in thebusiness

Business capital account

Profitearnedandretained

by thebusiness.

he make-up depends on the legal nature of the busines


47/268


BUSINESS NAMEINCOME STATEMENTFOR THE YEAR ENDED 31 DECEMBER 20X8

$ $Sales XCost of sales X

Gross profit X

Selling costs X

Distribution costs XAdministration expenses X

XProfit for the year X


Shows in detail how the profit or loss of a period has been made.


48/268

Income statement

breakdown


Text

Grossprofit:

Compares

revenuewith costof goodssold(directcosts)

Income statement

Netprofit:

Different

betweengrossprofit andtotaloverheads(indirectcosts).


49/268

Capital expenditure vs. revenue

expenditure


Capitalexpenditure

Results in:Theacquisition ofnon-current

assets; orAnimprovementin theirearningcapacity.

Revenueexpenditure

Balance sheet items Income statement item

Incurred in:For thepurpose ofthe trade ofthe business.

To maintainthe existingearningcapacity ofnon-currentassets.

Exam focus


50/268

Capital and revenue

income


Capitalincome

Proceedsfrom thesale ofnon-tradingassets.

Revenueincome

The sale oftradingassets

Rent,

interest anddividendsreceivedfrom non-currentassets heldby the

business

Profit/loss apprears on IS Appears on income statement

Exam focus


51/268

Users of accounts


Employees

of thebusiness

Owners

of thebusiness

Tradecontacts

Users ofaccounts

Managers

of thebusiness

Providersof finance

to thebusiness

Taxauthorities


52/268

Whats what?

(a) Freehold property

Non-current asset

(b) Payment of wages for a director witha two year service contract

Expense

(c) Payments into a pension fund

Expense



53/268

Whats what?

(d) A trade receivable who will pay in 18

months time

Non-current asset(e) An irrecoverable debt written off

Expense

(f) A patent

Non-current asset

(g) A company car

Non-current asset



54/268

Whats what?

(h) Interest on a bank overdraft

Expense

(i) A bank loan repayable in five years

Non-current liability

(j) Petty cash of $25

Current asset

(k) The portion of local taxes paid covering theperiod after the reporting date

Current asset: prepayment



55/268

Chapter 4

Recording and summarisingtransactions


56/268

Contents


Recording business transaction1

Recording Sales2

Recording purchases3

The cash book4


57/268

Contents


Cash registers and cash received sheets5

The general ledger6

Discounts, rebates and allowances7

Sales tax8

Posting cash receipts to the general ledger9 Posting cash receipts to the general ledger


58/268

Recording business

transactions


Text

To record

Source

documentsBooks of

prime

entry


59/268

Source documents

Invoices

Credit notes

Petty cash vouchers

Cheques received

Cheque stubs (for chequespaid out)

Wages, salary and employeetax records



60/268

Books of prime entry


61/268

Discussion

Which of books of prime entry isused if:

Your business pays a supplier$5,000?

Cash book

You send a customer an invoice

for $1,320? Sales day book

You receive an invoice from JSunderland for $1,750

Purchase day book

Mustafa Khuwaja - CAT Finalist

61


62/268

Discussion

You pay Hall & Co $1,000

Cash book

Sarti (a customer) returns goodsto the value of $100

Sales returns day book

You return goods to Elphick & Co

to the value of $2,400 Purchase returns day

book



63/268

Summarising source

documents



64/268

Full processes



65/268

Recording Sales


Sales

invoices

Sales credit

notes

Cheques

received

Sales day

book

Bank account

Sales tax control account

Cash book

Receivables ledger control

accountReceivables ledger


66/268

Sales day book

The sale to Jones Co for $105 is also recorded

on page 14 of the receivables ledger.

Invoice number is unique generated by the

business's sales system.



67/268

Recording Purchases


Purchase

invoices

Purchase

credit

invoices

Cheques

paid

Purchase

day book

Bank account

Sales tax control account

Cash book

Payables ledger control accountPayables ledger


68/268

Purchase day book


The purchase from Cook Co for $315 is

also recorded on page 31 of thepayable ledger.


69/268

The cash book


C a s h c o n t r o la c c o u n t i n G / L

C a s h r e c e i p t sd a y b o o k

C a s hb o o k

C a s h p a y m e n t

b o o k /C h e q u e p a y m e n t

d a y b o o k


70/268

The cash receipts book

J Bloggs Cash receipts

Date Narrative TotalCashsales

Capitalintroduced

Cash fromdebtors

$ $ $ $

1.10 Capital injection 1,000 - 1,000 -

3.10 Cash sales 90 90 - -

8.10 Cash sales 50 50 - -11.10 A Smith 200 - - 200

12.10 Capital injection 500 - 500 -

13.10 B Brown 300 - - 300

Total 2,140 140 1,500 500


What you expect to see?


71/268

The cash payments book

J Bloggs Cash payments

Date Narrative TotalCash

purchasesCash to

creditors Telephone

$ $ $ $1.10 BT 100 - - 100

12.10 C Jones 1,200 - 1,200 -

18.10 D Davies 300 - 300 -

20.10 Cash purchases 200 200 - -

26.10 Cash purchases 50 50 - -

29.10 Cash purchases 100 100 -

30.10 BT 140 - - 140

Total 2,090 350 1,500 240


What you expect to see?


72/268

Question

Which of the following will not be entered in the cash book?

(a) Cheque received

(b) Payment to receivables ledger customers

(c) Supplier's invoice(d) Credit note

(e) Debit note

(f) Bank charges debited to the bank account

(g) Overdraft interest debited to the bank account

(h) Payment for a non-current asset purchased on credit(i) Refund received from a supplier

(j) Depreciation

Answer: CDEJ



73/268

The bank statement


Text

To reconcile

Bank

statement

received

from bank

Weekly/monhtly basis

Investigate differences

Cash book

(internally

generated)


74/268

The petty cash book

The book of prime entry

which keeps a cumulative

record of the small amountsof cash received into and paid

out of the cash float

There are usually morepayments than receipts, and

petty cash must be topped-

up' from time to time with

cash from the business bankaccount.



75/268

The general ledger


The general ledger is the accountingrecord which summarizes the financialaffairs of a business.

It contains details of assets, liabilitiesand capital, income and expenditureand so profit and loss.

It consists of a large number of differentledger accounts, each account having

its own purpose or 'name' and anidentity or code

Another name for the general ledger isthe nominal ledger


76/268

The general ledger



77/268

The T format


The 'T' format accounts:

On top of the account is its name

Left hand side called debit side

Right hand side called credit side


78/268

Example

For example: Profit and Loss accounts

Note: No b/f or c/f for profit and lossesaccounts



79/268

Example

For example: Balance sheet accounts

Note: There are always b/f or c/f for profit and

losses accounts for balance sheet accounts



80/268

Double entry book-keeping



81/268

The Principles

Every transaction has a two fold

effect!!!



82/268

Example Cash

transactionsIn the cash book of a business, the following

transactions have been recorded.

(a) A cash sale (ie a receipt) of $2

(b) Payment of a rent bill totalling $150

(c) Buying some goods for cash at $100

(d) Buying some shelves for cash at $200

How would these four transactions be posted to

the ledger accounts? For that matter, which

ledger accounts should they be posted to?

Don't forget that each transaction will be

posted twice, in accordance with the rule ofdouble entry.



83/268



84/268



85/268

How much cash is left?



86/268

Posting from the day

books



87/268

Posting cash receipts

J Bloggs Cash receipts

Date Narrative TotalCashsales

Capitalintroduced

Cash fromdebtors

$ $ $ $

1.10 Capital injection 1,000 - 1,000 -

3.10 Cash sales 90 90 - -

8.10 Cash sales 50 50 - -11.10 A Smith 200 - - 200

12.10 Capital injection 500 - 500 -

13.10 B Brown 300 - - 300

Total 2,140 140 1,500 500

Dr Cash Account 2,140

Cr Sales 140

Cr Capital Account 1,500

Cr Debtors Control Account 500

87


88/268

Impersonal vs. personal

account

Impersonal accounts: Accounts in the general

ledger

Personal accounts:

Include details of transactions which have

already been summarized in ledger

accounts.

Do not form part of the double entry

system Memorandum accounts only.

Control accounts:

Used chiefly for receivables and payables.

Should agree with the total of theindividual balances



89/268

Accounting for sales tax

If a business sells goods for $600 + $105 sales

tax, ie for $705 gross price, the sales

account should only record the $600excluding sales tax.

DEBIT Cash or AR $705

CREDIT Sales$600

CREDIT Sales tax account (output)

$105



90/268

Accounting for sales tax

If a business purchases goods on credit for$400 + tax $70

Tax is recoverable

DEBIT Purchases$400

DEBIT Sales tax account (input tax)$70

CREDIT Trade AP$470

Tax is not recoverable

DEBIT Purchases

$470CREDIT Trade accounts payable

$470



91/268

When is sales tax

accounted for?

Sales tax is accounted for when it

first arises:

when recording creditpurchases/sales in credit transactions

and when recording cash received or

paid in cash transactions



92/268

Sales tax account


Purchase day book

xxx

(input sales tax)

Bank

xxx(input sales tax on cash

purchase)

C/f:

xxx

B/f:xxx

Sales day book

xxx

(out put sales tax

invoiced)

Bank

xxx

(out put sales tax on cash

sales)

Sales tax account


93/268


94/268

Contents

The journal

The trial balance

Methods of coding data

Manual and computerized

systems

Batch processing and controltotals

Accounting systems

Accounting modules



95/268

The journal

One of the books of prime entry

Record of (not arise from the other

books of prime entry) unusualmovement between accounts

Date

$ $DEBIT Account name

X

CREDIT Account name

XNarrative to explain the transaction



96/268

Example: Journal entries

1 JanuaryPut in cash of $2,000 as capital

DEBIT Cash2,000

CREDIT Paul Brown capital account2,000

Initial capital introduced

Purchased brushes and combs for cash of $50

DEBIT Brushes and combs account50

CREDIT Cash50

The purchase for cash of brushes and combs as non-current assets

Purchased hair driers from Z on credit for $150

DEBIT Hair dryer account150

CREDIT Sundry payables account *150

The purchase on credit of hair driers as non-current assets



97/268

Example: Journal entries

30 January

Paid three months rent to 31 March of $300

DEBIT Rent account 300

CREDIT Cash

300The payment of rent to 31 March

Collected and paid in takings of $600

DEBIT Cash 600

CREDIT Sales (or takings account)

600

Cash takings 31 January

Gave Mrs X a perm, highlights etc on credit $80.

DEBIT Receivables account 80

CREDIT Sales account (or takings account)

80The provision of a hair-do on credit



98/268

The trial balance

List of ledger balances shown in

debit and credit columns

The debit should equal creditbalances



99/268

Illustration TB



100/268

TB not balance Why

(a) The complete omission of atransaction, because neither a debit nora credit is made

(b) Posting a debit or credit to the correctside of the ledger, but to a wrongaccount (an error of commission)

(c) Compensating errors (eg debit error of

$100 is exactly cancelled by credit $100error elsewhere)

(d) Errors of principle (eg cash receivedfrom customers being debited to thetotal receivables account and creditedto cash instead of the other way round)

(e) Errors of transposition (eg $11,729written as $11,279)



101/268

Errors in detailErrors of transposition

Two digits in an amount are

accidentally recorded the wrong

way round

Detect: the difference can bedivided exactly by 9

rrors of omission

Fail to record a transaction at all

Making a debit or credit entry, but not

the corresponding double entry


Compensating errors

Errors which are, coincidentally,

equal and opposite to one

another


102/268

Errors in detailErrors of principle Accounting entry breaks the 'rules' of

an accounting principle or concept

E.g.:

Capital expenditure treated as revenueexpenditure

Drawings treated as expenses

Errors of commission

Bookkeeper makes a mistake

E.g.:

Putting a debit entry or a credit entry inthe wrong account

Errors of casting (adding up)



103/268

Correction of errors

ournal entries

Requires a debit and an equal credit entry

Total debits equal total credits before a journaentry is made

They will still be equal after the journal entry ismade

Suspense account

Why have?

A trial balance is drawn up which does notbalance

Knows where to post the credit side of atransaction, but does not know where topost the debit (or vice versa)



104/268

Example - JE

Suppose a bookkeeper accidentallyposts a bill for $200 to the gasaccount instead of to the business

rates account. A trial balance isdrawn up, and total debits are$100,000 and total credits are$100,000.

Journal entries

DEBIT Business rates account $200

CREDIT Gas account $200

To correct a misposting of $200 fromthe rates account to electricityaccount.



105/268

Methods of coding data

Each account has a unique code

for posting

Why need? Used to identify the correct account

for a posting

Saves time Saves storage space



106/268

Example

A nominal ledger has the followingcodes.


State what type of code this is. Explainyour answer


107/268

Solution

This is a significant digit code.

The digits are part of the

description of the item beingcoded.

'1' in 100000 clearly represents

non-current assets '2' in 100200 represents plant and

machinery etc.



108/268

Computerized systems

Perform the same tasks as

manual systems

Differences: How information is stored

How tasks are performed

How some package do things'automatically'



109/268

Computerized systems

Input: Entering data from original

documents

Processing: Entering up booksand ledgers and generally sorting

the input information

Output: Producing any reportdesired by the managers of the

business, including financial

statements



110/268

Batch processing and

control totals Batch processing

Similar transactions are gathered into batches,and then each batch is sorted and processed bythe computer

Control totals Used to make sure that there have been no errors

when the batch is input

Make sure that the total value of transactions

input is the same as that previously calculated

E.g. A batch of 30 sales invoices with total value of

$42,378.47.

When the batch is input, the computer adds upthe total value of the invoices input and producesa total of $42,378.47.

The control totals agree

No further action is required



111/268

Accounting packages

Advantages

(a) The packages can be used by non-specialists.

(b) A large amount of data can be processed very

quickly.

(c) More accurate than manual

(d) Handling and processing large volumes of data.

Disadvantages

(a) Initial time and costs involved

(b) Need for security checks

(c) The necessity to develop a system of coding (see

below) and checking.

(d) Lack of 'audit trail'. It is not always easy to seewhere a mistake has been made.

(e) Possible resistance on the part of staff to the

introduction of the system.



112/268

Modules

Program which deals with one particular part of abusiness accounting system

Modules may be integrated with the others

InvoicingInventory

Receivables ledger

Payables ledger

Nominal ledger

Payroll

Cash book

Job costing

Non-current asset register

Report generator



113/268

QB 9

A credit balance of $917 brought

down on Y Co's account in the

books of X Co means thatA X owes Y $917

B Y owes X $917

C X has paid Y $917D X is owed $917 by Y

Answer: A



114/268

Chapter 6

Receiving and

checking money


115/268

Contents

Control over receipts

Remittance advices

Receipts given to customers Ways in which customers pay

Cash: physical security

considerations Cheques

Receipt of cheque payments

Receipt of card payments

EFTPOS

Other receipts



116/268

Control over receipts

Ensure a good cash flow

Banking (performed promptly and

correctly) Security (avoiding loss or theft)

Documentation (remittance advice)



117/268

Remittance advices

Trade customers usually send a remittance

advice with their payment

A remittance advice shows which invoices a

payment covers



118/268

Receipts given to

customers

Till receipts

Issued by

a cash

registers

or 'tills

Writtenreceipts

Or typed

may be

used if nocash

register is

used


Cash Registeroperation Store price info

on all stocks Record the value

of the sale ofeach item andtotal

Calculate therequired changeto customer

Issue a till receiptshowing theentire transaction

Sum up thetransactions ofthe day at closingtime


119/268

Evidence of payment

other than in cash



120/268

Receipt from customers

Main types

Cash

Cheque

Credit or

debit card

Other types

Standing

order

Direct

debit

Mailtransfer

and

telegraphi

c transfer

Automate

d credit

services



121/268

Cash: physical security

Problem

Forgery

Theft

How to deal

Careful examination

Cash register

security, Safes

Protective glass

('bandit screen')

Frequent banking

Never be sent by

post



122/268

Cheques

Definition

A cheque is 'an

unconditional orderin writing

addressed by a

person to a bank,

signed by the

person giving it,

requiring the bank

to pay on demand a

sum certain in

money to or to theorder of a specified

person or bearer

New related words

Dishonored

Cheque guarantee

cards



123/268

Cheque: procedures

1. Ensure details are correct (date,

payee, amount)2. Signature: on the cheque vs.

guarantee card

3. Check the details on the cheque

guarantee card. 'Expires end' date

Amount of the guarantee

Name agrees with that on the cheque

Other details

4. Copy GC details on to the chequesback



124/268

Cheques: physical security

Customers are asked to keep

cheque books and cards separate

The number of cheques in a bookis kept to a minimum.



125/268

Plastic card

Most retail

outlets

which

accept

PLASTIC

cards now

use an

electronic

system

known inthe UK as

EFTPOS

(Electronic

Funds

Transfer at

Point ofSale).

CREDIT vs.

DEBIT cards



126/268

Credit cards

Credit card payment involves 3

transactions

Debit card vs. Credit card



127/268

EFTPOS

Electronic Funds Transfer at Point

of Sale: makes possible the

automatic transfer of funds froma customer's bank account to a

retail organization at the point in

time when the customer

purchases goods (or services)

from it.

The EFTPOS terminal



128/268

Other receipts

Bankers draft

Method of payment

available frombanks for a fee

When a customer

needs a guarantee

that the paymentcannot be

dishonoured

Standing orders and

direct debits

Regular payments

Standing order can

only be changed by

the payer

Direct debit can be

changed by the

receiver at will



129/268

Discussion

Business: electricity company

'I am a domestic customer, and receive a bill fromyou each quarter. I want to continue to payquarterly, but I don't want to go the trouble of

writing out a cheque or making a special trip (forexample to a bank or your office) to pay the bill.However, I do need to know how much the bill isgoing to be before I am due to pay it. Whatmethod of payment would you suggest?

'You can pay by quarterly direct debit. You need

to complete a direct debit mandate form whichauthorises us to debit amounts from your bankaccount. We will send you a bill in the usual wayeach quarter, and the amount due will be debitedfrom your account 14 days after the date of thebill, so you'll know how much is to be debited

well in advance. If an error is made, either thebank or ourselves must put it right.'



130/268

Business: mail order company

'I want to place an order with

you. I don't have a bank account,building society account or acredit card, so I suppose that I'llneed to send you the amount dueby cash through the post. Is thatOK?

'We do not advise you to send

cash through the post, as wecannot accept responsibility if it islost. We suggest that you pay bypostal order, obtained from your

post office. The post office willcharge a fee for this service.'



131/268


132/268

Chapter 7

Banking monies

received


133/268

Contents

The banking system

The banker/customer relationship

Procedures for banking cash

Procedures for banking cheques

Procedures for banking plastic

card transactions

Banking other receipts



134/268


135/268

Clearing system principles

Step 1 Receiving bank branches stamptheir names and addresses in additionto the crossings on the cheques

Step 2 Cheques from receiving bankbranches sent to the head office

Step 3 The head office delivers to theBankers Clearing House

Step 4 The Bankers Clearing Housedistributes these cheques to the headoffices of the relevant paying banks.

Step 5 The paying banks' head offices

process the cheques using computersand distribute the cheques to thevarious branches of the banks on whichthe cheques are drawn.



136/268

The banker/customer

relationshipBanker

Put money and

cheques receivedon a customer's

behalf into his

account.

Take out all chequesand orders paid

from the account by

the customer.

Keep accounts on

the customer'sbehalf.

Customer

Bank opens an

account for him inhis name.

Bank accepts his

instructions and

undertakes toprovide a service



137/268

Contractual relationship



138/268

Procedures for banking

cashProcedures for preparing a paying-

in slip

Step 1 Count the cashStep 2 Add up, on a separate piece of paper

Step 3 Compare: calculated total vs. cash

register

Step 4 Calculate any discrepancyStep 5 Enter the total for each denomination

of note in the appropriate place on the

paying in slip.

Step 6 Add up the numbers again to checkthe total and enter it in the 'total cash'

box.



139/268


140/268

Procedures for banking

plastic card transactions The card issuers require the

business receiver of cardtransactions to summarise alltransactions on a summary voucher.The summary voucher consists of anoriginal or 'top copy' and two copieswith carbon paper in between. The

bottom copy is the processing copy,on the back of it is a place to list thevouchers.

The summary voucher has to beimprinted with the retailer's plasticcard.



141/268

Queries arising from card

transactions



142/268

Banking other receipts Direct debits

Standing orders

Automatedpayments

Telegraphictransfers

Banker's drafts same manner as

cheques

Bank giro credits paid into a bank

account by thecustomer of thebusiness, in whichcase the amounts

will appearautomatically onthe business's bankstatement

Banking andEFTPOS

Credit, chargeor debit cardreceipts viaEFTPOS arecrediteddirectly to theretailer's bank

account. He canagree theamountsreceived to the'End of day'reconciliationproduced bythe terminal



143/268

Chapter 8

Recording monies

received


144/268

Contents

Controls over recording receipts

Cash registers

Cash received sheets (remittance

lists)

Posting cash receipts to the

general ledger



145/268


146/268

Cash registers

What is it?

To check the

amount of moneyin the cash register

at the end of the

day against the

summary

To record receipts

in the cash book

Security and controls

Who can access

Training

Work observation

The maximum

possible amount of

preset information

Periodic info

analysis



147/268

Cash received sheets

(remittance lists)Manually Pre-printed



148/268

Posting from cash book

Suppose we wished to post

Warren Miles's cash received for

1 September 20X7 to his generalledger. The relevant general

ledger accounts are as follows



149/268



150/268



151/268

Posting results



152/268

Chapter 9

Authorizing and making

payments


153/268

Contents

Controls over payments

Cheque requisition forms

Expenses claim forms The timing and methods of payments

Payments by cash

Payments by cheque

Bank Giro credits (credit transfers) Payments by banker's draft (payable

order)

Payments by standing order and direct

debit Documentation to go out with payments



154/268

Controls over payments

Suppose that a company buys

goods costing $5,000.

1. Invoice from the supplier: reason

for and amount of the payment

2. Authorization of the payment: bythe purchasing director

3. Payment made to the supplier: For

a payment of $5,000, perhaps only

the finance director or managingdirector will be permitted



155/268

Authorization - Illustration



156/268

Cheque requisition forms

A form requestingthat a cheque shouldbe drawn to make apayment

E.g.: The advertising

manager of ABCwants to put anadvertisementinto the localweeklynewspaper. Thenewspaperwants paymentof $470 ($400 +sales tax at

17%) inadvance, andhas sent a faxletterrequesting thisamount. Areceipt will besent later withconfirmationthat theadvertisementhas beeninserted andpaid for.

The advertisingmanager will fill ina chequerequisition form.



157/268

Expenses claim forms

Employees make payments by

their own pocket and then claim

back Proof should be given of the

existence and the amount of the

expense (attaching receipts,invoices)

Insufficient supporting evidence?

Company may refuse to reimburse

the expense.



158/268

The timing of payments

When and whom?

Things to consider?

Credit terms

Discounts

Who decides andhow?

Senior person

List of unpaid

invoices

Overdue

Outstanding

Soon due to bepaid.



159/268

Methods of payment

Commonly used

Cheques

Automated transfers(especially forsalaries and wages)

Internet payments

Other

Cash

Banker's draft

Standing order

Direct debit

Company credit

card or charge card

Mail transfer and

telegraphic transfer

Internet payments



160/268

Payments by cash

For small payments out ofpetty

cash

Sometimes for wages

Pay large amounts? Not

recommended

Rare Secure

Dishonest dealers in backstreet or

underworld businesses



161/268

Payments by cheque

Signatures on business cheques:

Only certain specified individuals

With names and signatures suppliedto the bank on a bank mandate

form

Cheques above a certain value must

contain two authorized signatures

Might consist of the chairman, all

the directors and the chief

accountant or financial controller



162/268

Payments by cheque



163/268

Procedures for preparing

chequesStep 1 Prepare list of payments

Step 2 Payments authorised,

sufficient funds available

Step 3 Check invoices to be paid

Step 4 Prepare the cheques

Step 5 Attach invoice to cheque,sign

Step 6 Mark invoice PAID

Step 7 Send cheque off to payeewith remittance advice



164/268

Examine the cheque



165/268

Lost cheques



166/268

Step 1

Telephone

your bank

saying that youwant the

cheque to be

stopped.

Step 2 Confirmthis instruction

in writing.



167/268

Bank giro credits

Filling in a bank giro credit

transfer form and handing this

together with the payment(cheque or cash) over the counter

at a bank

Telephone companies

Electricity companies

Water companies



168/268

Payments by banker's

draft Unlike company cheques, a

bankers draft cannot be stopped

or cancelled after it has beenissued

And so when a supplier receives

the draft, payment is guaranteed



169/268

Standing orders

To make

regular

payments

of a fixedamount

Arranged

by a

StandingOrder

Mandates



170/268

Direct debits

Similar

Like standing

orders, are used forregular payments

Difference

the person who

receives thepayments who

initiates each

payment

Payments can befor a variable

amount each time,

and at irregular

intervals



171/268

Documentation to go out

with payments A remittance advice:

Created by the customer

Part of the statement sent by the

supplier A copy of a pro-forma invoice where

this has been provided by thesupplier for payments with an order

A bank giro credit form fortelephone, electricity and othersimilar bills

A covering letter explaining whatthe payment is for, when otherforms of documentation do notexist



172/268

Chapter 10

Recording payments


173/268


174/268

Controls over recording

payments

Fraud All payments are

authorised correctly

Proper checks

against supportingdocs

Segregation ofduties

At day end, a list ofthe payments forthat day is submittedto a senior memberof staff to check forunusual payments

A minimum numberof cheque books is in

use at any time

Completeness Regular bank

reconciliations

Sequential numbering

A sequence checkcarried out on thecheques in cash book

Regular examinationsof bank statements toensure that allpayments by directdebit and standingorder have beenrecorded in the cashbook (along with bankinterest and charges)


To avoid fraud and to ensure

completeness


175/268

The cash book: recording

payments



176/268


177/268

Procedures for using ACS

To pay the salaries of its staff using ACS

1. Produces a file with staff details tosend AC processing computer centre

2. Bank updates its database

3. On the day specified by the company

1. The salary due credited to staff account

2. Company's account is debited with the

total amount

4. Related data and info a recorded andsaved

5. The business's records will be updated

with the same information



178/268

Chapter 11

Maintaining petty cash

records


179/268

Contents

1 The purpose of petty cash

2 Security and control of petty cash

3 The imprest system4 Petty cash vouchers

5 The petty cash book

6 Recording and analysing pettycash transactions

7 Recording petty cash transactions:sales tax

8 Topping up the float, balancing offand posting petty cash



180/268

Chapter scenario



181/268

The purpose of petty cash

Payments for small items of expense

Exam focus point: A possible MCQmight be 'Which one of the followingitems would/would not be paid out of

petty cash?'Mustafa Khuwaja - CAT Finalist 181


182/268

Security and control of

petty cash The petty cash box

Limiting the size of petty cash

payments

Authorisation and authorisation

limits

Receipts Sales tax receipts

No available receipts



183/268

The imprest system



184/268

Petty cash vouchers

Prepared by

cashier when

payment is

requested Usually,

vouchers are

numbered in

sequence foreach year,

starting at 1

with the first

voucher each

year For what?



185/268


186/268


187/268

Receiving money into

petty cash


An employee of the organisation might use someof the office's postage stamps, to put on personalletters. He or she will pay for the stamps bygiving the cash to the petty cashier

Similarly, employees might be expected to payfor any private telephone calls that they makefrom an office telephone

Very occasionally, perhaps when the petty cashfloat is running low, the money received from acash sale might be used to boost petty cash.


188/268

Chapter 12

Bank reconciliation


189/268

Contents

Bank reconciliations

The bank statement

Procedures for performing a bank

reconciliation

Reconciliations on a

computerised system



190/268


A bank reconciliation compares

the balance of cash in the

business's records to the balanceheld by the bank.

Differences will be errors or

timing differences, and they mustbe identified and satisfactorily

explained.



191/268

The bank statement

Sent by a bank to its short-termreceivables and payables (customerswith bank overdrafts and customers

with money in their accounts) itemising The balance on the account at the

beginning of the period

Receipts into the account

Payments from the account during theperiod

And the balance at the end of the period.

These statements may be producedmonthly, weekly or even daily depending

on the volume of transactions goingthrough the account.



192/268



193/268

Proforma bank

reconciliation



194/268

Chapter 14

The receivables

ledger


195/268

Contents

Personal accounts for credit

customers

Recording transactions in thereceivables ledger

The age analysis of receivables

and other reports Irrecoverable debts



196/268

The need for personal

accounts A customer might telephone, and ask

how much he currently owes. Staff mustbe able to tell the customer the state of

his account. It is a common practice to send out

statements to credit customers at theend of each month, showing how muchthey still owe, and itemising new

invoices sent out and payments receivedduring the month.

The managers of the business will wantto keep a check on the credit position ofan individual customer, and to ensure

that no customer is exceeding his creditlimit by purchasing more goods.

Perhaps most important is the need tomatch payments against debts owed.



197/268

Authorisation

Ensure it will receive payment forthose goods.

Authorisation procedures Require references from suppliers with

whom he already has a credit account,and maybe also a reference from hisbank.

The customer's credit limit must beauthorised

Before goods are despatched to acustomer, the order may need to beauthorised by the credit controldepartment. If the customer has invoices overdue for

payment, it may be decided that nofurther orders can be accepted untilpayment is received.



198/268

Benefits and costs of

offering credit facilitiesCosts

Interest costs of an

overdraft, ifcustomers do not

pay promptly

Costs of trying to

obtain payment Court costs

Benefits

Very few businesses

expect to be paidimmediately in cash

What benefits?



199/268

Accounts receivable


Sales returns (credit notes) inc

sales tax X

Payments

received X

Discountsallowed


200/268

Personal accounts as

memorandum accounts What means by memorandum?

Do not form part of the double

entry system

Businesses not needing a

receivables ledger? Small businesses

Large businesses



201/268

Recording transactions in

the receivables ledger Hawkins Co started trading at the

beginning of April. During April,

the sales day book and the salesreturns day book of Hawkins Co

showed the following

transactions.

We need to show the entries as

they would appear in the sales

ledger accounts to reflect the

above transactions



202/268



203/268

BalancingMustafa Khuwaja - CAT Finalist 203


204/268

Posting to general ledger



205/268

Posting to general ledger



206/268

Summary

Which isNOT part of

double

entry


How to

check

posting

correctness?


207/268

Discounts allowed

Pet supplies makes a sale for $1,000 worth of

goods to Janice. A 10% discount will be

allowed if Janice settles within 10 days.

Assuming that Janice settles within 10 daysrecord the journal entries in the suppliers'

books.



208/268

The age analysis of

receivables Breaks down the customer balances on the

receivables ledger into different periods of

outstanding debt.


Whatfor?


209/268

Other reports

Statements of account

Sales tax analysis

Sales analysis

List of customer accounts

Customer mailing lists



210/268

Irrecoverable debts

Some debts may need to be

written off as 'irrecoverable

debts' because there is no realprospect of them being paid.

Reasons?

What should be done?



211/268

Irrecoverable debts

written offDEBIT Irrecoverable debts account

(expense)

CREDIT Total receivables account

A write off of any irrecoverable debt

will need the authorisation of asenior official in the organisation.



212/268

Irrecoverable debts and

sales tax A business may be able to claim

relief from sales tax on the

following irrecoverable debts. At least six months old (from the

time of supply)

Written off in the accounts of the

business



213/268

Example

If both the debts written off in

previous example were inclusive

of sales tax, the accounts wouldlook as follows.

Mustafa Khuwaja - CAT Finalist 213How about total AR?


214/268

Chapter 15

Purchase and purchase returns

day books


215/268

Contents

What is the purchase day book?

What is the purchase returns day

book?

Entering purchase transactions in

the day books

Coding data Posting the day book totals



216/268

What is the purchase day

book? Used to keep a list of all of the invoices

received from suppliers of goods and services

to the business.

Like the sales day book, it is a 'book of primeentry' or a 'primary record' and not a ledger

account.



217/268

What is the purchase

returns day book?Lists credit notes received in respect

of purchase returns in chronologicalorder.

Why returns? Supplier to accept?

Faulty or damaged goods

Goods purchased on a 'sale or return'basis will be returned if they cannot besold

If goods have been ordered by thebusiness and are in good condition butare surplus to the requirements of the

purchasing business, it is up to thesupplier whether he accept them asreturns



218/268

Discussion

Which of the following cases would you classify as apurchase return by your business

(a) Goods purchased from you by a customer andreturned.

(b) You have been billed twice, by accident, for a singleamount of goods, and you return the superfluouspurchase invoice.

(c) You have been delivered some goods which are faultyand you send them back. You have posted the invoicereceived in respect of the goods.

(d) A customer sends back some sub-standard goods toyou.

(e) A supplier sends back some goods to you which youhave delivered there by mistake, thinking the supplierwas in fact a customer.

(f) An item of inventory is damaged in a fire at yourwarehouse and, because you cannot use it any more,

you have to go back to the original supplier and ordera replacement.

(g) You question an invoice because you have been billedfor items which you have not ordered, and which youhave not received.

(h) You have been delivered a quantity of goods in excessof your requirements. The supplier agrees that youcan return them.Mustafa Khuwaja - CAT Finalist 218


219/268

Analysis of purchases



220/268

Posting the day book

totals


Narrative: Posting purchases

Narrative: Posting purchases returns


221/268

Chapter 16

The payables ledger


222/268

Contents

Personal accounts for suppliers

Recording transactions in the

payables ledger

Payments to suppliers

The age analysis of payables and

other reports Contra entries with the

receivables ledger



223/268


224/268

The payables ledger

The personal accounts showing

how much is owed to each credit

supplier of the business arecontained in the purchase ledger,

or payables ledger.


Purchase returns

Discounts received


225/268

Trade accounts payable

Trade accounts payable consist of

those liabilities which are related

to the trade of the business. Other payables will not normally

be recorded in the payables

ledger and the balances owedshould instead be recorded in:

Liabilities to pay wages and salaries

Taxes



226/268

Discussion

(a) What is the status of a trade

account payable in the accounts

of a business?(i) An asset

(ii) A liability

(iii) An expense(iv) An item of revenue



227/268

Discussion

(i) Depreciation

provision

(ii) Personal accounts

for suppliers of

subcomponents(iii) Taxation authorities

(iv) Sales tax authorities

(v) Suppliers of raw

materials

(vi) Bank overdraft

(vii) Long-term bank

loan

(viii) Share premium

(ix) Telephone expenses

(x) Drawings

(xi) Proprietor's capital


(b) Which are not normally found in a

payables ledger of trade accounts

payable?

Answer: 2 5 9 only


228/268

Recording transactions



229/268

Discounts received

Remember: Memorandum'

discounts received column in the

cash book Recording?



230/268


231/268

The reasons for

reconciling items



232/268

Checks over payments



233/268

The age analysis of

payables The age analysis of payables will

consist of a listing of payables'

balances analysed betweendifferent 'ages' of debt

represented by different items in

the balance, measured in months



234/268

Contra entries with the

receivables ledger Contra entries 'net off' amounts

due to and from the same parties

in the payables ledger andreceivables ledger respectively.



235/268

Chapter 17

Control accounts


236/268

Contents

Internal check

Control accounts

Control account reconciliations



237/268

Internal check

What is it?Also known as

internal controls,ensure that

transactions to be

recorded and

processed have

been authorised,

that they are all

included and that

they are correctly

recorded andaccurately

processed.

Types of internalcheck

A trial balance


Control account

reconciliations

Segregation of

duties

Authorisation



238/268

Control accounts

A control account is an account in

the nominal ledger in which a

record is kept of the total value ofa number of similar but individual

items.

Control accounts are used chieflyfor receivables and payables



239/268

Reasons for having

control accounts Check accuracy of entries made in

the personal accounts

Assist in the location of errors

Internal check where there is

separation of bookkeeping duties

A balance can be extractedquickly for producing a trial

balance or statement of financial

position



240/268

Control account

reconciliationsThe balance on the receivables control is $15,091. List of

receivables ledger balances totals $15,320. The

following errors are discovered.

(a) A receivable paid $10 in cash. This has been correctlyrecorded in the receivables ledger, but no entries in

the control account.

(b) One of the receivables had a credit balance of $60.

However this has been included as a debit balance

(c) Returns inwards of $35 have been recorded in the

receivables ledger, but not in the receivables control

account.

(d) One page of the sales day book has been undercast

by $100.

(e) When a sales invoice for $95 was entered in the

receivables ledger, the figures were transposed andshown as $59.

(f) An error has been made in totalling the list of

receivables ledger balances, which has been overcast

by $90.



241/268

Solution



242/268



243/268

Chapter 18

Recording payroll

transactions


244/268

Contents

The nature of payroll

Gross pay and basic pay

Overtime, bonus payments and

commissions

Payroll administration and

documentation Payroll deductions

Payment methods

Updating records



245/268

Payroll

A payroll is a list of employees

and what they are to be paid.

Being on the payroll of anorganisation means that you are

selling your labour to it for an

agreed price.



246/268

Employer's legal

responsibilities to collect

income tax

Employer's duties(a) Operate the income tax system for allcovered by it.

(b) Maintain the necessary records.

(c) Pay the income tax and benefitcontribution collected fromemployees to the tax authoritiesevery month (in most cases).

(d) Let the tax office inspect the records.

(e) Submit end of year returns.

(f) Give employees payslips

(g) Maintain for three years, at theminimum, after the end of a tax year,

the records relating to that year.Mustafa Khuwaja - CAT Finalist 246


247/268

Question

All an employee's income isassessed to tax through the systemoperated by employers?

False. The employer only deals withincome arising from theemployment. If the employee, say,

received interest on a depositaccount, this would not be taxeddirectly, through his or heremployer's payroll system, althoughit might be reflected in the tax code.

However, lower rate tax on suchincome may be deducted at source.



248/268


249/268


250/268

Gross pay and basic pay

Gross pay is what an employeeearns., not what the employeeactually receives in cash

Basic pay is the rate for the job,and is what you expect to receivefor a normal period's work,irrespective of overtime and so

forth.



251/268

Basic pay: Fixed rate per

periodYour contract of employment states

that you are to receive an annualsalary of $9,000. You join on 1January 20X2. You are told that thefirst three months of youremployment are a probationaryperiod, and that from 1 April 20X2

your annual salary will increase by10%. You are informed on 20 May20X2 that everyone in the companyis to receive a pay rise: yours works

out at $600 per year in addition tothe 10% rise you have alreadyreceived, effective from 1 July 20X2.



252/268

Basic pay: Hourly rate

Some workers get paid a rate per

hour. If you work 40 hours at $5

per hour then your basic pay willbe $200.



253/268

Piecework

Wages = Units produced Ra

It is common for pieceworkers to

be offered a guaranteedminimum wage, so that they do

not suffer loss of earnings when

production is low through no faultof their ownte of pay per unit



254/268

Differential piecework

Offer an incentive to employees

to increase their output by paying

higher rates for increased levelsof production.

Up to 80 units per week, rate of pay

per unit = $1.00

80 to 90 units per week, rate of pay

per unit = $1.20

Above 90 units per week, rate of

pay per unit = $1.30



255/268

Overtime

Overtime comprises hours

worked over a standard working

week If an hour at basic rate is $4, how

much is an hour of overtime at

time and a half? $6 per hour.



256/268

Bonuses

An extra payment made to an

employee as a reward for results

achieved. To motivate employees to work

harder and to reach or exceed

some target



257/268

Commission

Payment made to an employee (oragent) based on the value of something(usually sales) the employee (or agent)

has generatedStraight percentage of all sales10%: $1,000 of sales get $100, for

$100,000 get $10,000

Sliding scale, more valuable contracts

earn greater commissionContracts up to $5,000 a 5% commission,

over $5,000 7.5%

Increase with the total volume of sales.Sales up to $100,000 a 5% commission is

earnedIf the target is exceeded, then a 7.5%

commission is paid on the excess (ie allsales over $100,000).



258/268

Payroll administration and

documentationDocuments associated with payroll

preparation.

Timesheets record the hours spentby each employee on each job, ordoing the work of each client.

Attendance records are used by the

personnel department to determinethe reasons for absence from work,and to administer the granting ofannual leave.

Other personnel recorddocumentation includes cards torecord a person's career progress.



259/268

Personnel department

Personnel record card

Record of attendance

card


Responsible for recruiting, engaging

and holding certain basic data of

employees


260/268

Payroll function Calculation of

gross pay

Calculation of

tax, national

insurance and

other

deductions

Preparing

payslips

Making

appropriate

returns toexternal

agencies

Making up

wages, or

preparing tapes

for bank

transfer

Distributing

payslips

Preparingpayroll

statistics.



261/268

Documentation

Salaried employees

Personnel records

held in the personneldepartmentdocument how mucheach salariedemployee is to bepaid, and for what

periods Payroll department

will receiveinstructions from thepersonnel

department relatingto salary increases, orother alterations toan employee's pay.

Hourly paid

employees

Attendance cards

are the basis forpayroll preparation

Time recording

clock



262/268

The records required

Daily time sheets Filled in by

employee indicatetime spent on each

job

The total time ontime sheet shouldcorrespond withattendance records

Job cards Cards are prepared

for each job


Weekly time sheets Similar to daily

time sheets butare passed to thecost office at theend of the week

Entries should bemade daily toavoid error.

Route cards Similar to job

cards, except thatthey follow theproduct throughthe works and

carry details of alloperations to becarried out.


263/268

Payroll deductions



264/268

Income tax tax

deducted at source Tax deducted at source covers all

the employees of an organisation

Does not cover self-employedpeople



265/268

Benefit contributions

Compulsory

contributions

Borne in part by the

employee and inpart by the

employer:

Unemployment

benefit

Income support

The state pension

scheme

The National Health

Service in some

countries

Remittances to

authorities

Contributions

payable by theemployee

Form part of the

deductions from

gross pay.

Contributions

payable by the

employer

An additional cost

to the employer.


The total cost of wages and salaries in the income

statement is:

Gross wages + employer's benefit contribution


266/268


267/268

Other deductions

Sharesave payments

Deductions from net

pay linked to shareoptions. They do not

affect payroll

calculations.

Run by employer co-

operates with building

society or bank.

The employer deducts

an agreed sum from net

pay of the employee

and deposits it in a

building society orbank.

Trade Union

contributions

Deducted fromearnings, if theemployee is a memberof a union


Payroll departmentdeducts from employees'pay, maintain records andreport them to the pensionfund administrators.

The employer only (a

so-called non-contributory pensionscheme)

The employer and theemployee (called acontributory pensionscheme)

Pension scheme


268/268

Payment methods