Purpose of Preparing Accounts:
Accounting records all financial transactions that occur during a period of time, for example the financial year. This is necessary so that the owner can control their business and control how it is performing and use the accounts to make good business decisions. It also means that the owner can: * Provide records of information that is required by HM Revenue and Customers for tax purposes and VAT returns * Provide records required by suppliers of additional finance, e.g. banks Accounting Records: Subsidiary Books and Ledger Accounts:
* Sales Invoices-records sales made by the business
* Purchase Invoices- record the purchases made by the business * Bank Statement-Records all transactions made to or from the businesses bank account * Cash Book Counterfoil-Records any payments the business had made via check * Paying-in Slip Counterfoil-records any payments of cash that the business has paid into their bank account * Till Receipts-Records any sales that the business has made * Bank Statement-Evidence of standing orders (when a fixed payment is made each month by the business bank account under their authority), direct debits (when either a fixed or variable amount is paid by the business through their bank account) and bank charges. * Credit Notes-either received by the business to keep a track of what they owe or sent out to credit customers to remind them of their balance. Subsidiary Books-
* General Journal-This is used when there isn’t another appropriate book of prime entry. This has six main uses: when fixed assets are purchased on a credit basis, when fixed assets are sold on credit, when a business first comes into existence, when a business finally closes, for the correction of errors and for recording inter-ledger transfers. The source documents used would be the purchase invoices for capital expenditure and sales invoices for sales of capital items.
Four Day Books:
* Purchase Day Book-is a list of all credit purchases made. The source documents are the purchase invoices received * Sales Day Book-A list of all credit sales made. The source documents are the copy sales invoice that has been sent out to credit customers * Purchase Returns Day Book-A list of all the credit notes received from suppliers. The credit notes are the source documents. * The Sales Returns Day Book-This is a list of all of the goods returned to the business and a copy of their credit notes.
Verification of Accounting Records:
Creating Trial Balances:
* Cash * Bank * Rent * Wages * Purchases * Fixed Assets * Returns in * Trade Receivables * Opening Stock * Discount Allowed * Payments by customers| * Capital * Sales * Returns out * Trade Payables * Loans * Discount Received * Payments to suppliers |
Preparation of Bank Reconciliation Statements:
1. Put closing balance in the new cash book
2. Put all things that appear in the bank statement but not yet in the cash book in the new cash book (on the opposite side to what it appeared in the Bank Statement) 3. Check for any errors and messed up numbers e.g. 163 instead of 136, and if there are any adjust the cash book 4. Balance up the new cash book
5. Use the new cash book balance to start the bank reconciliation statement 6. Add cheques that have gone out of cash book but not yet the bank statement (un-presented cheques) 7. Deduct cheques that have come into the cash book but not yet the bank (Lodgements) 8. Total up the Bank reconciliation statement. The balance should be the same as the original bank balance Example of the layout of the bank reconciliation statement:
Cash book balance100
+ Un-presented cheque