Lecturer: Tran Viet Thang
ACCACertified Accounting Technician
(CAT)Paper 1 - Recording Financial
Transactions
Syllabus overview
Part A Introduction to transaction accounting1 Business transactions and documentation2 Assets, liabilities and the accounting
equation3 Statement of financial position and income
statement4 Recording, summarising and posting
transactions5 Completing ledger accounts
Syllabus overview
Part B Recording and accounting for cash transactions6 Receiving and checking money7 Banking monies received8 Recording monies received9 Authorising and making payments10 Recording payments11 Maintaining petty cash records12 Bank reconciliations
Syllabus overview
Part C Recording and accounting for credit transactions13 Sales and sales returns day books14 The receivables ledger 15 Purchase and purchase returns day books 16 The payables ledger17 Control accounts
Part D Payroll18 Recording payroll transactions
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
Types of business transaction What is a business?
Uses economic resources to create goods or services which customers will 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
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
Other business transactions
Payment of wages Borrowing money Lending money Offering a discount Receiving a discount
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
More documents
Inventory lists: check availability of all the parts Supplier lists: where to buy parts Staff schedules: plan for human resource Timesheet: record the actual hours staff spent Goods received notes Expense claims: Employees may incur
expenses which need to be reimbursedAccounting system: records, summarizes and
presents the information contained in these documents
Invoice vs. credit note vs. debit note Invoice
A demand for payment Settled immediately in
cash: receipt Paid on receipt of
goods: cash on delivery (COD) invoice
Paid later: credit invoice
Invoice illustration How many copies
needed?
Credit note Negative invoice: cancel
part or all of previously issued invoice
Amount payable: unpaid invoice’s value minus the credit note’s
Debit note Customer to supplier
requesting a credit note Supplier to customer to
adjust upwards the amount of issued invoice
Discounts, rebates and allowances
$1 per unit, but 95p for 100 units or more
Given on invoice Permanent
10% 0 days, 5% 7 days, net 30 days
Financing matter
Trade discount Cash discount
A reduction in the bills for the following year
A cheque for the calculated rebate amount
Buy 1 get 1 free
Rebate Allowance
Example
Trent Marcus has three major suppliers.(a) Parker is in the same business as Trent and offers 5% trade
discount(b) Scott offers a trade discount of 6% on amounts in excess of
$200 (ie the trade discount does not apply to the first $200)(c) Alan offers a 10% cash discount for immediate payment or a
5% cash discount for all items paid for within 30 days of purchase
Purchase transactions in Jan 20X8 worth the following amounts before discounts have been deducted.
From Parker: $600 From Scott: $850 From Alan: $280 cash and $920 to be paid on 14.1.X8 for goods
purchased on 3.1.X8Calculate how much Trent has received as discounts in January.
How much were trade and cash discounts?
Example
Product A is quoted at $10 per each. A lower price of 95% per unit for buying 100 units or more at a time. One company purchased 150 units.
What is accounting treatment?
Trade discount The value of those goods recorded in accounting
book should be the net amount after discount i.e, $1,425
($1,425 = 150*$10*95%)
Question
Champer purchases goods with a list price of $30,000. The supplier offers a 10% trade discount, and a 2½% cash discount for payment within 10 days.
RequiredNote. Ignore sales tax.
(a) Calculate the amount Champer will have to pay if it delays longer than 10 days before paying.
(b) Calculate the amount the company will pay if it pays within 10 days.
Answer
List price 30,000Less 10% trade discount 3,000
27,000Less 2½ cash discount
27,000 x 2½% 67526,325
Note: Trade discount first, cash discount second
Example
Credit period allow: 60 daysInvoice price of the goods: $10,0003% discount for immediate paymentQuestions:
1. Should the customer take this option when he has no money and has to ask money from bank with interest rate 2% per month?
2. Should the supplier offer this option if he can deposit the early payment in bank with interest rate 1.8% per month?
Answer
The discount worth = $10,000*3% = $300
The interest paid to bank= 2%*2*$10,000*97%= $388
Customer should refuse this option
The interest income received from bank= 1.8%*2*$10,000*97%= $349.2
Supplier should refuse this option
Sales tax
Net price = $120Sales tax rate = 17½% Sales tax = 17½% * $120 = $21Gross price = $141 Note:
Purchaser pays gross price 141 Government takes the sales tax (21) Seller keeps net price 120
Input tax vs. output tax? Sales tax return?
Illustration
The gross price of product A is $705 and the net price of product B is $480. What is the sales tax charged on each product if the sales tax rate is 17½%?
Solution(a) Sales tax for product A = 17.5/117.5 ×
$705 = $105. (So net price was $705 – $105 = $600.)
(b) Sales tax for product B = 0.175 × $480 = $84. (So gross price was $480 + $84 = $564.)
Question
A company sells goods for $127,350 including sales tax at 17 ½% in a quarter. It buys goods for $101,290 including sales tax. What amount will it pay to or receive from the tax authorities for the quarter (round to the nearest $)?
Example: Discounts and sales taxA company buys goods for sale costing
$6,000. A cash discount of 5% is offered for payment within 10 days. If the sales tax rate is 17½%, what is the sales tax due? Is your answer different if the company pays after 10 days?
Answer
Sales tax is calculated on the discounted price regardless of whether the discount is actually taken.
Situation 1
You pick up something in a department store which is priced at $24. When the assistant scans it, the price appears as $26.
You tell her that, as it was marked at $24, the store is legally obliged to sell it to you at that price. Are you correct?
No, you are not correct. The price label in the store is an 'invitation to treat' (invitation to make an offer). Your proposal to pay $24 is the offer. There is no acceptance from the store, so no contract has been made.
Situation 2
R bought a car from D, which D had unknowingly bought from a thief. When this was discovered, the car was returned to the true owner. R sued D for the return of the full purchase price (as damages).
The court decided that, although R had used the car for several months, he had not had ownership of it, which is what he had paid for. D therefore had to repay the full amount.
Situation 3
A sells goods to B, who sells them on to C. B then fails to pay A for the goods and disappears without trace. Then how A and C should go on?
If A can demonstrate that he was genuinely mistaken as to the identity of B and would not have dealt with him had he known who B really was, then A can recover the goods which were subject to the original contract from C.
This is because the law takes the view in such a situation that the original contract between A and B was no contract at all. Therefore C, who was an innocent third party acting in good faith, has to return the goods to A and either bear the loss or find and sue B.
Situation 4
A seller advertised a second-hand reaping machine, describing it as new the previous year. The buyer bought it without seeing it. When it arrived he found that it was much more than a year old and rejected it. The seller sued for the price.
It was held that this was a sale by description, the goods had not corresponded to the description, and the buyer was therefore entitled to reject the goods.
Situation 5
Peter buys an electronic keyboard from his local catalogue store. He pays $199 for it. He returns to the store the next day complaining that, although the main keys work, none of the pre-set rhythm buttons seem to function. He demands an immediate refund. The sales assistant refuses to given him a refund or take back the goods, and instead gives him a card with the name and address of the manufacturer, suggesting that Peter contacts them to obtain a refund or a replacement.
Questions: (a) Was the sales assistant legally justified in refusing to give
a refund?NO
(b) Give briefly a reason for your answer.Contracts of sale are between the buyer and the seller
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
No long needed info and data Will you throw it away??? Ways to deal:
Microfilmed or microfiched Stored elsewhere (archiving) Securely destroyed
QB 1
1 A trade discount is best described as
A A reduction in the amount of money demanded from a customer
B An optional reduction in the amount of money payable by a customer
C A reduction by the supplier of the amount payable by a customer in return for prompt payment
D An offer by the supplier to reduce the amount demanded on the invoice if certain conditions are fulfilled
Answer: A
QB 2
2 A cash discount is best described as
A A reduction in the amount of money demanded from a customer
B An optional reduction in the amount of money payable by a customer
C A reduction in the amount of money demanded from a customer as shown on the supplier's invoice because of the customer's large re-order quantities
D A reduction in the amount demanded from a customer as shown on the invoice as certain conditions have been fulfilled
Answer: B