Lecture Note 1-2

1Paper 1 – Recording Financial Transactions

Chapter 1 Business Transactions and Documentation

1. Types of business transaction (giao dịch)

Business: commercial organization (tổ chức kinh doanh), large or small,

exits to make money or profits for its owner

Sales: cash sales & credit sales

Purchases: purchase for cash, purchase on credit

Cash transaction (giao dịch tiền mặt): is one where buyer pays cash to

the seller at the time the goods or services are transferred.

Credit transaction (giao dịch tín dụng, giao dịch nợ): is a sale or a

purchase which occurs sometime earlier than cash received or paid.

2. Documenting business transactions

External documentation: letter of enquiry, quotation, sales order, etc.

Internal documentation: purchase order, inventory list, supplier lists

Accounting system: record, summarize, and present the information

contained in the documentation generated by transactions.

3. Invoices and credit notes

Invoices: are created when there is a sale or a purchase. Invoice is a

demand for payment. It shows: name address, invoice number, quantity

& unit sold, etc. (see text book)

Credit note (giấy báo thanh toán): is used by a seller to cancel part or all

of previously issued invoices.

E-commerce: increase the volume of using credit and debit cards.

4. Discount, rebates, and allowances

Trade discount: (chiết khấu thương mại) results from buying good in

bulk

Accounting for trade discount: the amount of money demanded from the

business by the supplier will be net of discount. (normal sales value less

the discount)

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2 Paper 1 – Recording Financial Transactions

Cash discount: (chiết khấu giá) reduction in the amount payable to the

supplier, in return for immediate payment in cash. (ex. 10% 0 days, 5% 7

days, net 30 days)

Rebates (hồi khấu) Allowance (khoản miễn giảm)

5. Sales tax

Gross price = Net Price + Sale tax

Output sales tax: is charged on sales

Input sales tax: is incurred on purchases

6. Storage of information:

A company’s retention policy sets down how long different kind of

information are retained.

Demand for information: within the organization, people and groups

outside the organization, specific individual

Retention policy sets down for how long different kinds of information

are retained

ACCA Centre – Duy Tan University


Chapter 2 Assets, Liabilities and the accounting equation

1. Accounting fundamentals = double entry bookkeeping (kế toán kép)

2. Assets: items belong to a business and used in the running of the business (non-

current assets or current assets)

Current assets (tài sản lưu động) assets are hold for a short time

Non-current assets: ( tài sản không lưu động) assets are held and used in

operations for a long time.

3. Liabilities: is something which is owed to somebody else

A liability is the accounting term for the debts of a business. Debt are

owed to account payable

Examples: bank loan, bank overdraft, tax owned to the government

4. A business is separate from its owner

Limited liability companies: liabilities of shareholders (cổ đông) is

limited to the amount they “put in” to the company

A business must always be treated as a separate entity from its owners

when preparing accounts.

5. The accounting equation

a. Assets = Capital + Liabitities

Capital (vốn sỡ hữu –tư bản) is an investment of money (funds) with the

intention of earning a return. A business proprietor invest capital with

the intention of earning profits.

Example page 36

b. Assets = (capital introduced + Retained Profits) + Liabilities

6. Increase in net assets

Net assets = Total Assets – Total Liabilities

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7. Drawings (rút tiền)o is the amounts of money taken out of a business by its

owner.

Example 5.6

Assets = Capital introduced + (Earned Profit – Drawings) + Liabilities

8. Account payable and account receivable

Account Payable: is a liability of the business (buy on credit)

Account Receivable: is an asset of a business (sell on credit)

9. Double entry bookkeeping (kế toán kép)

Double entry booking requires that every transaction has two accounting

entries, a debit and a credit

Total value of debit entries is always equal at anytime to the value of

credit entries

Each assets, liability, item of expense or item of income has a ledger

account (tài khoản tổng hợp) in which debits and credits are made

See summary table and questions on pg 41



Chapter 3 Statement of Financial Position

and Income Statement

1. Financial statements

Capital expenditure: (chi phí vốn, chi phí tài sản cố định)

Revenue expenditure: (chi phí kinh doanh)

2. Statement of financial statement position is a statement of the assets, liabilities

and capital of a business at a given moment in time.

Statement of financial statement is divided into two halves: one shows

assets and one shows liabilities + capital

3. Non-current assets: (tài sản không lưu động, tài sản cố định) is an asset acquired

for use within the business rather than for selling, earn income or making

profits from its use.

4. Current assets: (tài sản lưu động) are expected to converted to cash within one

year. Current assets are either:

Items owned by the business, turning to cash within one year (inventory,

receivables)

Cash

Distinguish depending on type of business (example pg 47)

5. Current Liabilities: are debts of the business that must be paid within a fairly

short period of time – within one year.

6. Long-term Liability: are debits which are not payable within the “short term”

and so any liability which is not current must be long-term.

7. The inpcome statement : (bảng báo cáo thu nhập) is a financial statement

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

Gross profit (lợi nhuận tổng) = sale revenue – cost of good sold

Net profit (lợi nhuận ròng) = gross profit – expenses (selling,

distribution, administration, etc)

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Example of income statement on pg 49

Overhead category table pg 49

8. Capital Expenditure: is expenditure which results in the acquisition of non-

current assets, or an improvement in their earning capacity

Results in the appearance of a non-current assets

Is not charged as an expense in the income statement

9. Revenue Expenditure: incur either

For the purpose of the trade of the business

Maintain existing earning capacity of non-current assets (repairs)

Is shown in the income statement as expense



Chapter 4 Recording, summarizing, and posting transactions

1. Source documents

Sales day book: sales invoices, credit notes sent, receivables ledger

Sales returns day book: sales returns, credit notes, receivables ledger

Purchase day book: purchase invoices, credit notes, payables ledger

Purchase returns day book: purchase returns, credit notes, payables

ledger

Cash book: cash paid and received, nominal ledger

Petty cash book: notes and coin paid and received, nominal ledger

Separation of duties: for security purposes as well as to meet the

demands of the workload.

2. The sales day book: is a list of all invoices sent out to customers each day. Post

to “receivable ledger”

When customers return goods for some reason, the returns are recorded

in the sales return day book, they are shown as bracketed figures in the

sales day book.

3. The purchase day book: is the record of all the invoices received from

suppliers. Post to “payable ledger”.

The purchase returns day is kept to record credit notes receive in

respect of goods which the business sends back to its suppliers, they are

shown as bracketed figures in the purchases day book

4. The cash book: is a book of a prime entry, used to keep a cumulative record of

money received and money paid out by the business via its bank account.

Left hand side (the debit side): is used to record amounts of money

received by the business

Right hand side (the credit side): is used to record payments of monies

by the business.

Periodically the entries in the book are totaled and the balance of cash

available to the business is determined.

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Petty cash funds (quỹ tạp chi) funds are used for everyday expenses such

as postages, tea and coffee, etc.

Example pg 60

Discount allowed on sales are shown in a separate column:

memorandum column (bảng ghi nhớ)

Example pg 63

5. The nominal (general) ledger (sổ cái danh nghĩa) is the accounting record which

summaries the financial affairs of a business. It contains details of assets,

liabilities and capital, income and expenditures. It consists of many different

ledger account (tài khoản gốc)

Posting (ghi vào sổ cái)

The format T account: debit side (left) and credit side (right)

6. Double entry book-keeping

Important rule: every transaction give rise to two accounting entries, one

debit and one credit

Cash payment is a credit entry in the cash account. Cash maybe paid out

to pay an expense or to purchase assets. The matching debit entry is

therefore in the appropriate expense account or assets account

Cash receipt is a debit entry in the cash account. Cash might be received

by a retailer who makes a cash sale. The matching credit entry would be

made in the sales account.

Example 6.2 pg 67

Credit transactions: post to account payable or account receivable

Example 6.4 & 6.5 pg 70

7. The receivables (sales) ledger:

Impersonal account : (tài khoản về vật, tài khoản phi cá nhân) accounts

relate to types of income, expense, assets, liability, etc. rather than to the

person to whom the money is paid or from whom it is received.

Personal accounts account for customers and suppliers, and these are

contained in the receivables ledger and payable ledger. The personal



account do not form part of the double entry system, they are

memorandum accounts (chú thích) only.

Receivables ledger consist a number of personal receivable accounts.

When entries are made in the sales day book, they are subsequently also

made in the debit side of the relevant customer account in the receivable

ledger.

When entries are made in the cash book, or in sales return day book, they

are also made in the credit side of relevant customer account.

8. The payable (purchase) ledger:

Consists of number of personal payable accounts, for each individual

supplier

If the business pays out some money, it would enter into the cash book,

and subsequently be entered individually into the debit side of the

personal account.

If the business purchase some goods, it would enter into the purchase

book, and subsequently be entered individually into the credit side of the

personal account

9. Control account (tài khoản kiểm tra): is an account in the general ledger in

which a record is kept of the total value of a number of similar but individual

items. Control accounts are usually used for receivables and payables. They

should agree with the total of the individual balances and act as a check to

ensure that all transactions have been recorded correctly in the individual

ledger account.

A receivable control account is an account in which records are kept of

transactions involving all receivables in total. It is posted with totals

from the sales day book and the cash book.

A payable control account is an account in which records are kept of

transactions involving all payables in total. It is posted with totals from

the purchase day book and the cash book

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10. Accounting for sales tax

A business does not keep the output sales tax it charges, because it pays

the tax back to the government. It therefore follows that its records of

sales should not include sales tax

Example 11.2 pg

If the input tax is recoverable, the cost of purchases should exclude the

tax

If the input tax is not recoverable, the cost of purchases must include the

tax

11. The sales tax account

The tax paid to or recovered from the authorities each quarter is the

balance on the sales tax account. These following items are post to the

sales tax account:

(a) the total input tax in the purchases day book (debit)

(b) the total output tax in the sales day book (credit)

(c) tax on cash sales (credit)

(d) tax on cash purchase (debit)



Chapter 5 Completing ledger accounts

1. The journal (sổ nhật ký kế toán, nhật biên) keeps a record of unusual

movements between accounts. It is used to record any double entries made

which do not arise from the other books of prime entry.

Sundry (tạp hóa) payable: payable to suppliers who have non-current

assets. Trade account payable: payable to suppliers who have supplied

raw material or goods for re-sale.

Example 1.1 pg 89

The correction of errors: errors corrected by the journal must be capable

of correction by means of a double entry in the ledger accounts. The

error must not have caused total debits and total credits to be unequal.

Journal Voucher (chứng từ) is used to record the equivalent of one entry

in the journal.

2. The trial balance (bảng cân đối): is a list of ledger balances shown in debit and

credit columns.

Balancing ledger accounts: at the end of an accounting period, all debits

on the account are totaled and so are all credits.

If the total debits exceed the total credits, there is a debit balance on the

account

If the total credits exceed the total debits, there is a credit balance on the

account

If the basic principle of double entry has been correctly applied

throughout the period, it will be found that the credit balances equal the

debit balances in total

Errors of transportation is when two digits in an amount are accidently

recorded the wrong way round (check by divide the difference by 9)

Errors of omission (bỏ qua): means failing to record a transaction at all,

or making a debit or credit entry, but not corresponding double entry.

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Error of principles (nguyên lý): involves making a double entry in the

belief that the transaction is being entered in the correct accounts, but

subsequently finding out that the accounting entry breaks the “rules” of

an accounting principle or concept.

Errors of commission (ủy quyền): are when the bookkeeper makes a

mistake in carrying out his or her task of recording transactions in the

account.

Compensating (bù trừ) errors are errors which are, coincidentally, equal

and opposite to one another.

Suspense account: (tài khoản tạm thời) is an account showing a balance

equal to the difference in a trial balance. This is a temporary account

Use and example, pg 95 - 100

3. Methods of coding data

Each accounting system has a unique code which is what to be used to

identified the correct account for a posting

Significant digit codes incorporate some digits which describe the item

being coded.

4. Manual and computerized systems

All computer activities can be divided into three processes: input,

processing, and output

5. Batch processing and control totals

Batch processing is where similar transactions are gathered into batched,

and then each batch is sorted and processed by the computer

Control totals are used to make sure that there have been no errors when

the batch is input. A control total is used to make sure that the total value

of transactions input is the same as that previously calculated.

6. Accounting systems (hệ thống kế toán)

The principles of computerized accounting are the same as those of

manual accounting



See advantages and disadvantages of accounting packages compared

with a manual system – pg 105

Module (chương trình đơn vị) is a program which deals with one

particular part of a business accounting system.

7. Accounting modules:

An accounting package consists of a number of modules which perfom

all the tasks needed to maintain a normal accounting function like

payables ledger or payroll. In modern system, the modules are usually

intergrated with each other.

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Chapter 6 Receiving and checking money

1. Control over receipts (biên lai): receipts have to be well controlled to ensure a

good cash flow. There are three key features of control: banking, security, and

documentation.

2. Example on three key features: page 118

3. Remittance advice (chứng từ thanh toán): shows which invoices the payment

covers. The paying company may send out its own remittance advice with its

payments. However, it is common now that the receiving company to send a

statement which has a detachable remittance advice as procedures to compare

receipts with remittance advice: page 120

4. Receipts given to customers: receipts is a document given by the seller to the

buyer when goods change hands in exchange for payment. It maybe a till

receipt, a written receipt or some other form of receipt:

Till receipts (hóa đơn điện tử). Information on till recepit – page 121

Written receipt (hóa đơn viết tay)

Other types of payment: credit card, debit card, cheque, and banker dratf

(hối phiếu ngân hàng)

5. Ways in which customers pay: cash, cheque, credit or debit card.

Distinguish between credit sales and cash sales

A retail business (cash sale) will get fairly steady flow of receipts

A trading business will get the bulk of its receipts on the date credit

customers are due to pay.

6. Cash: physical security considerations: holding cash create problems and

careful security procedures are required.

Forgery (lừa đảo – tiền giả): frequently the case of larger denomination

(mệnh giá) notes



Theft (trộm cắp): can be reduced by cash register security, safes,

protective glass, strong box, security guards and collections, night safes,

frequent banking.

7. Cheques: is an unconditional order in 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 the order of a specified person or bearer.

Cheque guarantee cards: see page 126

8. Receipt of cheque payments

Procedures: see page 126

9. Receipt of card payments: primarily used by individual, rather than by

company.

Distinguish between transactions of credit card and debit card

10. EFTPOS (chuyển khoản điện tử)

EFTPOS terminal: (cổng chuyển khoản điện tử)

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Chapter 7 Banking monies received

1. The banking system (hệ thống ngân hàng): central bank (ngân hàng trung ương)

and retail banks (ngân hàng thương nghiệp)

The clearing system (hệ thống thanh toán) is the mechanism for obtaining

payment for cheques

Bank settled cheques and credit through the clearing system, the resulting

debts between banks need to be settled

The balances on these accounts are termed operational balances.

2. The banker/customer relationship

Banker: put money and checks received on a customer’s behalf into his

account, take out all checks and order paid from the account by the

customers; keep the account which can be used for paying in or taking

out on the customer’s behalf.

Contractual relationships (mối quan hệ theo hợp đồng): 4 main

relationships

receivable/payable relationship: customer is the account payable of the

bank, and the bank is the account receivable of the customer

Bailor/bailee (người gửi / người nhận): bank offer a safe deposit service

to the customers

Principle/agent relationship (người đại diện): the bank act as an agent for

its customers

Mortgagor/mortgagee relationship (thế chấp): customer asks a bank to

give a loan, secured by a mortgage.

The fiduciary relationship (ủy thác): is not contractual. A special

relationship where one party is in a position to exert undue influence on

another and must therefore be shown to act in good faith.



3. Procedures for banking cash: cash must be properly counted, and notes must be

listed by denomination (mệnh giá) on the paying-in slip (phiếu gửi tiền)

Float (tiền dùng hàng ngày): is the money kept in the till at the end of the

day, so that the next day there is some cash available

4. Procedures for banking checks: detailed paying-in slip, include: name of

drawer, amount of check, total value of check, total value of check banked,

number of check banked.

Returned/dishonored checks (check xấu): because of insufficient funds,

stolen checks, wrongly completed or out of date.

5. Procedures for card transactions: card voucher (biên lai thẻ) are processed

through the banking system, paying-in slip should be used. Also, card

summaries (phiếu tổng kết) should be prepared first.

6. Banking and EFTPOS: credit or debit card receipt via EFTPOS are credited

directly to the retailer’s bank account

Retention of documents: all copies of receipts are kept in a safe place for

a minimum period of six months.

End of day reconciliation (đối chiếu tài khoản)

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Chapter 8 Recording monies received

1. Controls over recording receipts: include segregation of duties and bank

reconciliation.

Receipt may be recorded on a cash register (quầy tính tiền), or on cash

received sheets

For accounting purposes, the receipt is not recorded in the “books” of the

company if it has not been entered in to the cash book.

2. Cash register:

The more sophisticated and larger stores will have cash registers which

are connected to a central computer.

The total daily sales recorded by the cash register will be used to: check

the amount of money in the cash register at the end of the day against the

summary, and record the receipt in the cash book.

Cash register has to be secured and controlled.

3. Cash received sheets (remittance lists)

Very small shops or business will just write down on a piece of paper the

money received as they sell something.

Information include: account number, cash received sheet number, bank

account number, and total receipts

4. Posting cash receipts to the general ledger

Cash receipt is only account for if we post the receipts side of the book

to the cash account

Example page 162

Computerized accounting system follow the same principles as manual

systems

In computerized system, receipts are normally posted directly to the

individual account on the computerized receivable ledger.



Chapter 9 Authorising and making payments

1. Control over payments: there are three steps in applying controls over

payments:

a. Obtaining documentary evidence of the reason why payment is being

made

b. Authorization of the payment

c. Restricting the authority to actually make the payment

It is important to establish proper authorization procedures. Every

payment must be approved by an authorized person.

Each organization has its own system: which individuals can authorized

particular expenses, and the maximum amount of expenditure that an

individual can authorize.

2. Check requisition forms

Are used when primary documentation such as an invoice has not been

received. Check requisition forms help to ensure authorization and

recording of payments.

Check requisition form is an internal document for use within the

business, and so there is no standard design.

3. Expenses claim form (phiếu yêu cầu thanh toán kinh phí)

Expenses paid by an employee for which the employee wants

reimbursement (hoàn trả) should be itemized on an expenses claim form.

Proof should be given of the existence and the amount of the expense,

and this can be given by attaching receipts.

4. The timing and method of payments

Period of credit: a period when the payment is due

If the invoice is not paid by the specified date then it becomes overdue

(quá hạn)

Decisions about who should be paid and when are made by a senior

person in the company, perhaps the chief accountant.

Methods of payments: same as methods of receiving payments. Most

commonly used: checks, automated transfers, and internet payments.

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5. Payments by cash: cash payments are used for:

Small payments out of petty cash

Sometimes for wages

Using cash to pay large amounts of money to suppliers ought to be very

rare indeed: cash need to be kept secure, can get lost, difficult to control

over cash, and no evidence of payment if suppliers don’t issue receipts.

6. Payments by check

A bank will not permit a payment by check from a customer’s account

unless it has been properly signed.

Specified individuals within the company will be permitted to sign a

check on behalf of the company.

See procedures for preparing checks (step 1 – 7 page 177)

Advantages of check payments: convenient to use for payment of any

amount, the check counterfoil to trace evidence, and they are widely

accepted

Disadvantages: security problems with keeping checks safe from theft

and misuse, could be a slow method of payment

Checks can get lost in the post: procedures to confirm if check has been

lost (pg 179)

Procedures to stop the checks (page 181)

7. Bank giro credit (chuyển khoản): means by which payments might be received

from customers, it can also be used to make payments

8. Payments by banker’s draft

A banker’s draft does not stop or cancelled after it has been issued

9. Payments by standing order (thanh toán định kì) and direct debit

Standing order maybe used to make regular payment of a fixed amount:

hire purchase, rental payments, insurance premium.

The business must modified its bank: the regular payments, fixed

amount, frequency, and banking details of the supplier.



Direct debits: are used for regular payment. It is the person who receives

the payments will initiates each payment. Payment can be for a variable

amount each time.

Example page 187

10. Documentation to go out with payments: when a payment is made, it is usual to

send out another document with the payment to inform the recipient as to what

the payment is for and who it is from. The documents might be:

A remittance advice

An order form

A copy of a pro-forma invoice

A bank giro credit

A covering letter

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Chapter 10: Recording payments

1. Controls over recording payments: are important to avoid fraud and to ensure

completeness

Fraud: someone who makes an unauthorized payment will want the

payment to be recorded, but the nature of the payment to be hidden.

Procedures needed to prevent fraud: authorized payments, proper

documentations, segregation of duties, check for unusual payments, use

a minimum number of check books.

Completeness: all payments need to be recorded

Procedures needed to ensure completeness: bank reconciliations, checks

should be issued in sequences, segregation of duties, and regular

examinations on bank statements.

2. The cash book: recording payments

To help control the business, we analyze the cash book into different

types of payments: cash purchases, payments to payable, sales tax,

cancelled checks, extent of analysis, and non-check payments.

Discounts received and discounts allowed are recorded in a separate

column, a memorandum column which is not part of the cash book

balance.

3. Posting cash payments to the general ledger:

A. Follow the procedures:

Add up the cash book columns

Check the analysis column add up the total

Identify relevant general ledger accounts

Draw up the posting summary and post to the general ledger

Example page 202

B. computerization of payments recording

Updating the payables ledger for payments will usually cause the cash

book to be automatically updated.

Payables ledger function can record and issue checks at the same time



Payables ledger program can: print check, update payables ledger,

update the cash book or cash account, and update the total payables

account in the general ledger.

C. recording in the payables ledger and cash book

when a payment has taken place, a payable ledger system will update the

relevant supplier account in the payable ledger.

D. recording in the cash book

if the manual cash book is kept, then the check total (from the printed list

of the check issued) would be entered in the cash book

a computerized cash book will be updated automatically.

4. Returned checks: checks that have been drawn by the business, paid, processed

by the bank and then return to the business.

Advantages of receiving returned checks: extra guard against fraud as

the account holder can check the signature, the amounts and the payee on

the check. Also provides an extra guard against the bank

Disadvantages: the cost will outweigh the benefit; the filing and storing

of returned checks can become difficultly and costly; the number of

queries surrounding payments is low, therefore keeping returned checks

should not be necessary.

5. Automated credit systems: are useful methods of making and recording

payments, they can save business time.

Operate the electronic transfer of funds between accounts within the

banking system.

Most important advantage: reduce the amounts of paperwork.

Automated credit system are used for: standing orders, direct debits,

salaries, wages, and some one-off payments

See procedures for using automated credit systems (pg 207)

Chapter 11: Maintaining petty cash records

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1. The purpose of petty cash

Petty cash is used to make small payments with notes and coins.

Payments must be properly authorized, and all transactions should be

supported by receipts and vouchers.

Each business has its own policies and list of allowable items for petty

cash.

Petty cash can be made to employees and/or suppliers

2. Security and control of petty cash: all payments out of petty cash must be

authorized and evidenced by a voucher or receipts.

Petty cash is controlled by petty cash officer or petty cashier: make sure

that cash is held in a safe place, actual payment is made, and payments

are properly authorized.

Petty cash must be kept secure in a safe box or locked drawer. Only petty

cash officers are allowed to access petty cash box.

Petty cash should not be used for large expenses because of security.

There should be a maximum limit to the amount of any individual

payment

Payments out of petty cash should be properly authorized by the

appropriate person.

If there is no receipt to support a claim for payment, the petty cashier

should refer the claim to his or her supervisor. The payment should be

sanctioned by an authorized person, maybe the supervisor or manager of

the individual who is asking for the cash.

3. The impress system (chế độ chi vặt): is a system in which there is a maximum

amount of money in petty cash, the impress amount. The impress amount varies

from one organization to another, and maybe enough to make petty cash

payments in one month.

4. Petty cash vouchers: is the initial record of payment, it must be prepared by the

petty cashier whenever a payment is requested



A voucher should contain these information: details of payment, the

amount paid, name and signature of authorizing person/ person receive

the money, date of payment, number of vouchers, and relevant receipts.

For the expenses not yet incurred, payment in advance must be

authorized by a supervisor or office manager. Petty cash should be

written out, but a receipt must be provided as soon as possible.

When the voucher and the change are eventually received, the petty

cashier should alter the voucher to show the exact amount of the

payment

For security and control reasons, there ought to be regular checks on the

float. Mistake and theft could be the reasons for discrepancy in petty

cash.

When someone borrow cash, he or she must put an IOU into the petty

cash box, and for the purpose of petty cash, IOUs are equivalent to cash

When money is paid into petty cash, the petty cashier should insert a

voucher for the money received.

5. The petty cash book: petty cash payments are recorded from the vouchers into

the petty cash book. Vouchers should be in date order and numbered

sequentially and they should be entered into the petty cash book in order.

The purpose of petty cash book: provide accounting record for petty

cash transactions, post petty cash expenses to the general ledger

Cash receipts are recorded in the debit side, cash payments are recorded

in the credit side (see petty cash book on page 225)

6. Recording and analyzing petty cash transactions

Petty cash payments are recorded to the right side (credit side) of the

petty cash book, vouchers are carried in sequential numbers.

Column on the payment side will include: total payment, voucher

number, analysis column (type of expenses), details, sale tax. (see

example page 227)

Petty cash receipts are recorded to the left side (debit side) of the petty

cash book.

Column on the receipts side will include: total receipt, sales tax, net

receipt, and details column.

Vo Thi Thuy Tien


7. Recording petty cash transactions: sale tax

VAT receipts: total payment, VAT paid, supplier’s name, address, VAT

number, date of payment

VAT payments: total payment, VAT paid, the amount entered in the

analysis column for the expenses item will be total amount net of VAT

8. Topping up the float: a new page in the petty cash book is started whenever the

impress float is topped up.

Whenever the impress float is topped up by drawing more cash from the

bank, the petty cash book must be balanced off to complete one double

page and start the next. The balances must then be posted to the general

ledger.

See the steps on page 237

See example 8.1 page 237



Chapter 12 Bank reconciliation

1. Bank reconciliations (đối chiếu ngân hàng): is a comparison between the bank

balance recorded in the books of a business and the balance appearing on the

bank statement.

The cash book of a business is the record of how much cash the business

believes that it has in the bank

Common reasons that cause discrepancies: errors, bank charges/bank

interest, timing differences

2. The bank statement: is sent by the bank to its short-term receivables and

payables (customers with bank overdraft and customers with money in their

account) itemizing the balance on the account at the beginning of the period,

receipts into the account and payments from the account during the period, and

the balance at the end of the period.

The balance the customer owed on his account at beginning of the month

New debts incurred by the customer

Payments made by the customer during the month

The balance the customer owes at the at of the month

Bank statement includes: the statement date, account number, date, sheet

number, key, balance, check numbers, paying-in slip numbers, direct

debit payments and receipts, standing order payments and receipts,

charges, and interest.

3. Procedures for performing a bank reconciliation: the cash book and bank

statement will rarely agree at a given day. Several procedures should be

followed to ensure that the reconciliation between them is performed correctly.

Step 1: Identify the cash book balance and the bank balance

Step 2: add up the cash book

Step 3: identify the items appear on the bank statement but have not been

entered in the cash book

- standing orders and direct debits

- dividend receipts from investment

- bank charges and interest

Vo Thi Thuy Tien


Step 4: Identify all reconciling items due to timing differences

- some check payments made by the business and entered in

the cash book, but have not been “clear”, and so do not

appear on the bank statement

- check received, entered in the cash book, and paid into the

bank, but which have not been cleared and entered in the

account by the bank

- See the profoma bank reconciliation (how the adjust the

balance – pg 253)

- Examples page 254, 256, 257

4. Reconciliations on a computerized system: there is no difference between

reconciling a manual cash book and reconciling a computerized cash book.



Chapter 13 Sales and sales return day books

1. Sale day book : lists the invoices raised by a business when it supplies goods or

services on credit.

The function of sale day book: is used to keep a list of all the invoices

and credit notes sent out to customers each day (sale journal)

The items listed in the sale day book should follow an unbroken

numerical sequence (invoice number) – Spoiled invoice (hóa đơn

hỏng/hủy) should be entered as well.

2. Sales returns day book: list the credit notes when goods are returned.

It records the value of goods returned to the business by buyers, dealt

with the issue of credit notes.

There might be no separate sales returns day book, with the return being

entered as figures in brackets in the sales day book instead.

3. Entering sales transactions in the day books

Method one

Step 1: sales invoices are typed out

Step 2: the details on invoices are keyed into the computer system

Step 3: one of the “reports” which the computer is able to produce might

be listing of sales invoices and credit notes for a particular day. The

listing might be similar to the spreadsheet.

For packages producing invoices themselves

Step 1: certain information will be input, such as the date, the customer

number, product codes and quantities

Step 2: the computer package will use this information to produce

invoices

Step 3: the package will collect the information on the invoices and

credit notes needed to create the sales day book.

Vo Thi Thuy Tien


For stocks and processing order system: as for the system recording stocks of

goods and system for the process sales order, the following applies:

Step 1: the details of goods which a customer orders are keyed in and

recorded

Step 2: when the goods are dispatched or sent out to the customers,

details of this dispatch can be keyed in to the computer together with the

number of the order which is being satisfied.

Step 3: the computer with then produce a sales, invoices, using the

information it already has about the order.

Step 4: reports maybe produced for sales and sales returns made on a

particular day or in a particular period to give the information which a

“traditional” sales day book would contain

4. Posting the day book totals

The day book totals for sales and returns are posted to the general ledger

receivables control account, the sales tax control account and the sale account.

The amount owed by individual customers are entered in the sales ledger

personal accounts (memorandum accounts)

Personal account: of each individual debtor maintained in the sales ledger

could address this situation.

Each individual sales transaction is entered in the sales day book and

needs to be recorded in the personal sales ledger account of the

customers

The day book totals need to be posted to the total debtor and sales

accounts in the general ledger.

Debtors control account: or sales ledger control account is maintained in the

general ledger to record in total the amount which are posted to the debtors’

individual personal memorandum accounts in the sales ledger.

See diagram page 275

5. The double entry

Sales summaries: sales summaries in the sales day book are transactions having

two aspects:

- an increase in assets (receivable)

- an increase in income (sales)



Double entry: the double entry would be as follow

Debit Total debtors account XXX

Credit Sales account XXX

There is no need to record each sales transactions separately in the general

ledger as day book totals summaries all transactions.

Double entry with VAT: the VAT invoiced to its customers is an increase in the

liability of the business to pay VAT to the authority.

The double entry would be as follow:

Debit Total debtor account: XXX

Credit VAT account XX

Credit Sales account XX

Double entry with sales returns day book: The double entry would be as follow:

Debit VAT account XX

Debit Returns account XX

Credit Total Receivable account XXX

Vo Thi Thuy Tien


Chapter 14 The Receivable Ledger (sale ledger)

1. Personal accounts for credit customers

Definition: The receivable ledger contains the personal account of credit

customers of the business. An account must be kept for each customer so that

the business always has a full record of how much each customer owes and

what items the debts is made up of.

The personal account is needed because:

a. staff must be able to tell the customers the state of his account

b. send out statements to credit customers

c. keep a check on credit position on an individual customer (credit limit)

d. match payments against debts owed.

The receivable ledger accounts are written up as follow:

DEBIT: when invoices are entered in the sales day book (sale, send

invoices), they are also made in the debit side of the relevant customer

account in the receivable ledger.

CREDIT: when entries are made in the cash book (customers make

payment), or in the sales returns day book for goods returned, they are

made in the credit side of the relevant customer account.

1.4 See example page 288

2. Recording transactions in the receivables ledger

Example page 289

Posting transactions to the general ledger

The payments received will be posted as debits in the cash account

Sales income excluding sales tax will be credits in the sales account

Sales returns excluding sales tax will be debits in the sales return account

Sales tax on sales and sales return will be credits and debits respectively

in the sales tax account.



Total amount owed and the payments received will be debits and credits

of the total receivables account.

It should be noticed that:

The total receivables account has a debit balance overall.

The balances of individual receivable ledger accounts and total balance

on the general ledger should be equal.

Discount allowed:

Is posted as a DEBIT to a discount allowed account and as a CREDIT to

the trade receivable / receivable control account

The cash received and discount allowed accounting entries would ensure

that the total debt is cleared.

3. The age analysis of receivables and other reports

Definition: An age analysis of receivables break down the customer balances on

the receivable ledger into different periods of outstanding debt.

Usage of age analysis debtors:

Correspondence in relation to some of these items

Investigate some older invoices under dispute

Perhaps recognized debtors under financial difficulties

Providing information on the state of individual accounts

Give a broader picture of the total debtors of business

If there are high number of debtors, credit control department should

address the situation

Review customers credit limits

Uses of other reports:

Sales day book

The date of the item

The account reference

A transaction reference (invoice number)

Type of transaction (invoice, credit note or adjustment)

Net total before VAT

Vo Thi Thuy Tien


VAT

Gross total

Statement of accounts

Send to customers at end of each month

Tell customers how much they owe the business

Shows details of transactions

VAT analysis

Show how much output tax has been involved

Shows how much input tax to be collected.

Sales analysis

Allows the business to analyze sales

The configuration of the system relates to the types of sales information

4. Irrecoverable debts

Bad and doubtful debts: having little or no respect of business being paid

The customer has gone bankrupt

The customer is out of business

Dishonestly maybe involved

The customers in another country might be prevented from paying by the

unexpected introduction of foreign exchange control restriction by their

country’s government during the credit period

Bad debts written off : ledger accounting entries give rise to:

Bad debt account in the general ledger

A double entry system that is very straight forward

DEBIT: Bad debt account (expense)

CREDIT: Total debtor account

See example page 305.

Bad 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

Sales tax irrecoverable debt relief is accounted for as follows:

DEBIT: Sales tax account

Irrecoverable debts

CREDIT: Total receivable

Vo Thi Thuy Tien


Chapter 15 Purchase and purchase return day books

1. THE PURCHASE DAY BOOK

1.1 The purchase day book : is used to keep a list of all the invoices received

from suppliers of goods and services to the business. It is a book of prime

entry or primary record and not a ledger account.

1.2 The importance of the purchase day book

- Keep track of all purchase transactions.

- To make a single payment to a supplier.

- To pay close to the end of the credit period.

- Keep records of the total purchases.

- Helps the cash flow of the business.

- Prevents overdraft and the interest on the overdraft.

- Does not lose interest in the amount in the bank statement.

1.3 Example

Date Ref Supplier nameSupplier

A/c no

Net

Total

$

Sales

Tax

$

Gross

Total

$

10.01.X7 1423

1424

1425

1426

1427

V. Princely

Grantcroft Ltd

Midnorth Electric

pic

Harley & Co

Cardright

Total

4009

5020

4010

5008

3872

152.00

28.00

116.80

100.00

278.00

674.80

26.60

4.90

20.44

17.50

48.65

118.09

178.60

32.90

137.24

117.50

326.65

792.89



2. THE PURCHASE RETURNS DAY BOOK

Definition: The purchase returns day book lists credit notes received in

respect of purchase returns in chronological.

3. ENTERING PURCHASE TRANSACTIONS IN THE DAY BOOKS

3.1 Analyzing purchases

Purchase day book may have further columns which splits the purchases into

different categories.

Details of suppliers are as follows:

Ref Supplier nameSupplier

A/c noDetails

1423

1424

1425

1426

1427

V. Princely

Grantcroft Ltd

Midnorth Electric pic

Harley & Co

Cardright

4009

5020

4010

5008

3872

Paper

Ink

Electricity

Desk fans for Amin Office

Card

3.2 Analyzing purchase day book

(Refer to Table in the text book)

How purchases are analyzed will depend on the nature of the business. There

may be separate books for inventory purchases and expenses (expense day

book)

4. POSTING THE DAY BOOK TOTALS TO GENERAL LEDGER

4.1 Posting into general ledger

In the general ledger, a TOTAL CREDITOR ACCOUNT (or purchase ledger

control account) will be maintained to record in TOTAL the amount which are

posted individually to the creditors personal accounts in the purchase ledger.

Vo Thi Thuy Tien


If the business purchases something in CREDIT from a supplier, the double

entry will be:

A CREDIT to the total creditors account (the control account)

A DEBIT to either purchases, or expenses, depending on whether the

item is a purchase or stock, or an expense such as office stationery,

electricity, sundry expenses or fixed assets (if the item is capital

expenditure).

4.2 Posting day book total

DEBIT

CREDIT

Purchase/ expense account

Total creditors account

$

X

$

X

SALES TAX AND PURCHASES

DEBIT

CREDIT

DEBIT

CREDIT

Purchase/ expenses

account

Sales tax account



Sales tax account

Purchases/expenses

X

X

X

X

X

X

4.3 Posting purchases and returns example

The following credit note (in respect of damaged paper) is shown in the purchase returns day

book

Megatype Printers for 10.01.X7 RDB07



Ref

C014

Supplier

A/c no

4009

Net

Total

$30.00

Sales

Tax

$5.25

Gross

Total

$35.25

Posting summary for the purchase

DEBIT

CREDIT

Paper account

Card account

Ink account

Electric account

Other expense account

Sales tax account


$

152.00

278.00

28.00

116.00

100.00

118.09

792.89

$

792.89

792.89

The purchase return would be the following

DEBIT

CREDIT


Sales tax account

Paper account

$

35.25

35.25

$

5.25

30.00

35.25

Vo Thi Thuy Tien


Chapter 16 The Payables ledger

1. PERSONAL ACCOUNTS FOR SUPPLIERS

1.1 Personal accounts for suppliers

The personal accounts showing how much is owed to each credit supplier of

the business are contained in the purchase ledger, or payables ledger

1.2 The need for personal accounts

- To answer inquiries on payment of full balance due to suppliers.

- Staff can verify the balance claimed and when it’s due for payment.

- Business can receive statement of account from suppliers.

- Business needs to maintain its own records on how much it owes the

suppliers.

- Business needs to maintain a complete record of the items making up the

balance.

- It can make appropriate payments on regular basis to suppliers.

- To make it easy for business to make monthly payments covering few

invoices

1.3 The payables ledger

Payables ledger accounts are written up as follows:

- When entries are made in the purchase day book (for suppliers’ invoices

received), they are also made on the credit side of the relevant supplier account

in the purchase ledger.

- Entries made in the purchase returns day book (credit note received) are

entered on the debit side of the supplier’s account.



- When entries are made in the cash book in respect of payments made to

suppliers, they are also made on the debit side of the relevant supplier account.

- Discounts received for prompt payment (cash book) are entered on the debit

side.

The entries recorded in the supplier’s account can be represented by a “T”–

account, as follows.

SUPPLIER ACCOUNT

On the debit side $ On the credit side $

Payment made

Purchase returns

Discounts received

X

X

X

Invoices received X

1.4 Example

BUNTE CO PL32

Date Details $ Date Details $

15.03.X7

16.03.X7

Cash

Balance c/d

150.00

365.00

515.00

15.03.X7

15.03.X7

16.03.X7

Balance b/d

Invoice rec’d PDB

37

Balance b/d

200.00

315.00

515.00

365.00

1.5 Debit balance

Debit balances in the payables ledger are unusual, but they can arise in these

following situations:

Vo Thi Thuy Tien


- An overpayment of the supplier’s balance might be made in error.

- A credit note might be received after full payment has been made of the

balance.

If debit balances are arising on payables ledger accounts frequently, some

investigation may be called for. The occurrence of debit balances could indicate

that procedures in the payables ledger department need to be improved.

1.6 Trade account payable

Trade account payable consists of those liabilities which are related to the trade

of the business.

Trade payables include those businesses and organizations which supply the

business with goods for the trading inventories of the business (the “raw

materials” of the business) as well as suppliers of other goods such as office

suppliers and services, such as the telephone company, the electricity company,

and the garage which repairs the vehicles owned by the business.

1.7 Other payables

- Liability to pay wages and salaries.

- Taxes collected by business on behalf of third parties.

- Amounts payable for goods and services not related to main trade (e.g

purchase of fixed assets)

- Overhead expenditure (e.g rent sometimes processed as other creditors)

2. PURCHASE LEDGER POSTING

(Refer to the diagram on the text book)



3. PAYMENT TO SUPPLIERS

3. 1 Method of payment

METHOD COMMENTS

Cash An unusual method for business to use to pay its suppliers,

although it will be used for small non-credit “petty cash”

purchases.

Cheque Still the commonest method of payment.

Interbank

transfer

An increasingly common means of making payments to suppliers,

for example using the automated credit system. The system can

save administrative time since, instead of making out of individual

cheques and sending each by post, details of a full payment run to

the suppliers of the business can be submitted to the business’s

bank on computer tape or disk, and the funds are then transferred

to suppliers’ bank accounts electronically through the bank

clearing system. There may also be savings in bank charges using

this system.

3.2 Selecting items for payment

Deciding who and when to pay is a key function of a business’s management and only a

senior person should decide

All systems Computerized payables ledger systems

The items for

payment may be

selected manually

A “suggested payments” listing may be produced,

“suggesting” how much should be paid to which

suppliers, based on information on settlement days and

any discounts which may be offered. A payments listing

of this sort generated by computer will normally need to

be checked through manually in case there are any

reasons to make a different payment from that

“suggested”

Vo Thi Thuy Tien


It queries on any

invoices are to be

raised with the

suppliers, there

needs to be

procedures to

ensure that the

invoice is not paid

until the query has

been settled

There may be a facility to “flag” items which should not

be paid for the time being. For example, the invoice in the

reference used for the disputed invoice. The “dispute”

designation will need to be “ released” when the dispute

has been settled so that the item can be paid in the normal

way

It may be desirable

to take the full

period of credit

from each supplier.

The number of days before settlement can be recorded for

each supplier. This indicates the time period before

payment is to be made. A computerized payables ledger

which offers the option of making automatic payment will

automatically list all items which are now due to be paid.

This will exclude the following:

(a) Items which have not yet reached their settlement date.

(b) Items which are “in depute”

3.3 Checks over payment

It is important for a business to have a procedure to ensure that only valid

payments are made.

Procedure Effect

Cheques will need to be signed by the

authorized cheque signatories which are

recognized by the bank as authorized to

sign cheques

For cheques produced by a

computerized payables ledger system,

the password restrictions should limit

the value of cheques which different

users can authorize

Authorization of payments by an

appropriate official, who could be a

senior employee or director of the

The bank will pay the cheque as

requested



organization

Details and appropriate supporting

documents for each payment should be

presented to the person who must sign

each cheque (say the general manager)

“Appropriate supporting documents”

may consist of the suppliers’ invoices

which are to be paid, authorized by an

appropriate staff member, together with

the goods received note or other

document recording receipt of the goods

invoiced.

Documents supporting payments are

reviewed by people who are

independent of the preparation and

processing of the documents. The

person carrying out this review will

check for any unusual items which

might deserve further investigation.

4. THE AGE ANALYSIS OF PAYABLES AND OTHER REPORT

4.1 The age analysis of payables

- The age analysis of payables will consist of a listing of payables’ balance

analyzed between different “ages” of debt represented by different items in the

balance, measured in months (usually).

- The age analysis of payables serves to highlight any supplier accounts which

are long overdue.

- Information used for better cash flow management.

- Analysis is less of importance as compared to age analysis of debtors.

4.2 Other reports

Other reports which a computerized payables ledger package is able to print out

will be very similar to those produced from a receivables ledger package.

Vo Thi Thuy Tien


5. CONTRA ENTRIES WITH THE RECEIVABLES LEDGER

Sometimes, a business might both purchase goods from and sell goods to the

same person on credit.

a. Purchases will be entered in the purchase day book when invoices are

received, and an entry subsequently recorded in the supplier’s account in the

payable ledger.

b. Credit sales will be entered in the sales day book when invoices are sent out,

and an entry subsequently recorded in the customer’s individual account in the

receivables ledger

Even though the supplier and the customer are one and the same person, he will

have a separate account in each ledger. For example, if A owes B $200 for

purchases and B owes A $350 for credit sales, the net effect is that B owes A

$150. However in the book of A

- There would be a payable in the payables ledger – B – for $200

- There would be a receivable in the receivable – B – for $350

Now, if A and B decide to settle their accounts by netting off their respective

debts (and getting B to write a single cheque for the balance), settlement would

be made in contra.

The contra entries in the accounts of A would be to set off the smallest amount

($200 owed to B) against the larger amount ($350 owed by B).

a. In the receivables ledger and payable ledger

DEBIT Payable’s account (B) payables ledger – to clear $200

CREDIT Receivable’s account (B) receivable ledger $200

- Leaving balance of $150

b. In the general ledger

DEBIT Total payables $200

CREDIT Total receivables $200



The contra entries must be made in both the personal accounts of B and also in

the total payables and receivables accounts in the general ledger.

Vo Thi Thuy Tien


Chapter 17 Control Account1. INTERNAL CHECK

1.1 Internal check

Internal check is concerned with the maintenance of accounting records. Internal

checks, sometimes known as internal control, ensure that transactions to be recorded

and processed have been authorized, that they are all included and that they are

correctly recorded and accurately processed.

1.2 Types of internal check

- A trial balance.

- Bank reconciliations.

- Control account reconciliation.

- Segregation of duties.

- Authorization.

2. CONTROL ACCOUNT

2.1 Control account

A control account is an account in the nominal ledger in which a record is kept of

the total value of a number of similar but individual items. Control accounts are used

chiefly for receivables and payables.



2.2 Entries in control account

2.2.1 Sales ledger (debtors) control

SALES LEDGER (DEBTORS) CONTROL

Folio $ Folio $

Opening balance

Sales

Dishonored cheques

b/d

SDB

Jnl

7,120

52,500

1,000

Cash received

Discount allowed

Return inwards

Bad debts

Closing balance

CB

CB

SRDB

Jnl

c/d

52,450

1,250

800

300

5,820

Debit balance

60,620

5,820

60,620

Note: Opening credit balances are unusual in the debtors control account. They

represent debtors to whom the business owes money, probably as a result of the over

payment of debts or for advance payments of debts for which no invoices have yet

been sent.

2.2.2 Purchase ledger (Creditors) Control

PURCHASE LEDGER (CREDITORS) CONTROL

Folio $ Folio $

Cash paid

Discount received

Return outwards

Closing balance

CB

CB

PRDB

c/d

29,840

100

60

9,400

Opening balance

Purchase and other

expenses

b/d

PDB

8,300

31,100

39,400

Credit balance

39,400

9,400

Vo Thi Thuy Tien


Note: Opening debit balances are unusual in the payable ledger control account. They

represent suppliers who owe the business money, perhaps because debts have been

overpaid or because debts have been paid or because debts have been prepaid before

the suppliers has sent an invoice.

2.3 Reasons for having control accounts

- Provide a check on accuracy

+ Compare total balance on the debtors control account with the total of

individual balances of the personal accounts.

+ Compare total balances on the creditors control account with the total of

individual balances.

- Assists in the location of errors in posting.

- Provide internal check through separation of duties.

- To extract simply and quickly.

3. CONTROL ACCOUNT RECONCILIATION

3.1 The control account should be balanced regularly and the balance should be agreed

at all times.

Likely mistakes or errors that may occur due to the following:

- Incorrect amount may be posted.

- A transposition error.

- An entry in ledger is missed out.

- Incorrectly extracted or miscast.

3.2 Agreeing account balances

Reconciling the control account balance with the sum of the balances extracted from

(memorandum) sales ledger or purchase ledger should be done in two stages

Stage 1: Correct the total of the balances extracted from the memorandum ledger, (the

errors must be located first of course)



Sales ledger total

Add differences from transposition error ($95 written as

$59)

Less

Credit balance extracted as debit balance ($60x2)

Overcast of list of balances

$

120

90

$

15320

36

15356

210

15146

Stage 2: Bring down the balance before adjustments on the control account, and adjust

or post the account with correct entries.

DEBTORS CONTROL ACCOUNT

Balance before adjustment

Undercast of total invoices

issued in SDB

Balance b/d

$

15,091

100

15,191

1514

6

Petty cash-posting omitted

Returns inwards-individual

posting omitted from control

account

Balance c/d (now in agreement

with the corrected total of

individual balances in (stage 1)

$

10

35

15,146

15,191

Vo Thi Thuy Tien


Chapter 18 Recording Payroll Transactions1. THE NATURE OF PAYROLL

1.1 Payroll

A payroll is a list of employees and what they are to be paid. Being on the payroll

of an organization means that you are selling your labor to it for an agreed price;

you are in paid employment and employer benefits from your skills and your time.

1.2 The nature of payroll

It involves three following categories:

- Payroll and the employee

- Payroll and the employer

- Payroll and the government

- Employer’s legal responsibilities to collect income tax.

2. GROSS PAY AND BASIC PAY

2.1 Gross pay

Gross pay is what an employee earns. It is not what the employee actually

receives in cash or by transfer to the bank account.

2.2 Basic pay

Basic pay is the rate for the job, and what an employee expects to receive for a

normal period’s work, irrespective of overtime and so forth.

3. METHODS OF CALCULATING



3.1 Methods of calculating employee’s earnings

- The same amount every month

- On an hourly rate

- Piecework

- Piecework hours

- Differential piecework

3.2 Other ways of remunerating employees

- Overtime.

- Bonus scheme.

4. OVERTIME, BONUS PAYMENT AND COMMISSION

4.1 Overtime

Overtime is payment for work done in excess of an employee’s hours at basic rate

pay.

A number of overtime rates offered

- 40 hours at a basic rate of $4 per hour.

- The first ten hours overtime at time and a haft (i.e $6)

- Overtime over and above ten hours at double time (basic rate times two, in

this case $8 per hour)

4.2 Bonus payment

Bonus payment is an extra payment made to an employee (or a group of

employees) as a relevant for results achieved.

4.3 Commission

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Commission is a payment made to an employee (or agent) base on the value of

something (usually sales the employee (or agent)) has generated.

A number of ways of commission offered

- Straight percentage

- Sliding scale

- Increasing with total volume of sales

5. PAYROLL ADMINISTRATION AND DOCUMENTATION

5.1 Personnel department

- A personnel record.

- A record attendance card.

5.2 Payroll function

- Calculation of gross pay.

- Calculation of tax, national insurance and other deductions.

- Preparing payslips.

- Making appropriate returns to external agencies.

- Making up wages, or preparing tapes for bank transfer.

- Distributing payslips.

- Preparing payroll statistics.

5.3 Documentation – salaries employees

The personnel records held in the personnel department how much each salaried

employee is to be paid, and for what periods.

5.4 Documentation - hourly paid employees



- Time recording clock.

- Attendance cards

+ Time workers

+ Piece workers

- Job time booking

+ Daily time sheets

+ Weekly time sheets

+ Job card

+ Route cards

- Timesheets for salaries staff

6. PAYROLL DEDUCTIONS

6.1 GAYE

- Stands for Give as You Earn

- Employee donates to charitable organisation

- Payroll Giving

- Employer pays a collected amount to an approved agency charity such as

CHARITY AID FOUNDATION.

- Employer can deduct 5% of the donations as administration cost.

6.2 Income tax – PAYE system

- PAYE covers all the employees

- PAYE does not cover te seft-employed

- UK PAYE system (employer given Tax Office and PAYE reference number)

- Employees have the same Tax Office

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- UK Tax year 5 April to 6 April next year

- Each year divided into weeks. Weekly paid staff, and months, for monthly paid

staff.

6.3 Other forms of contributions deducted

- SAYE (Save As You Earn)

- Deducted from the net pay

- Deduction done via BACS

- Trade Union Contributions

- Pension contributions, can come from:

+ The employer only (non-contribution pension scheme)

+ The employer and employee (contribution pension scheme)

6.4 National Insurance

- Compulsory savings for employees

- Born by employer and employee

- For dunding benefits such as:

+ Unemployment benefit

+ Income support

+ The state pension scheme

+ The National health Service

- National Insurance payments known as National Insurance Contributions

(NICs)

7. PAYMENT METHODS



- Payment are usually made either by cheque or increasing by credit transfer.

- The payslip is second in importance only to the actual money received. A

payslip must show:

+ An employee’s gross pay

+ Deductions from gross pay and what they are

+ Net pay

* Compulsory Disclosures

- Employer’s name

- Employee’s name

- Gross pay, showing how it is made up

- Additions to and deductions from pay

- Employee’s pension contribution, if any

- Statutory Sick Pay, if any

- Statutory Maternity Pay, if any

- Tax paid to Date (i.e. in the current tax year)

- Tax in the period

- NICs for the year

- Date

- Net pay

- The method of payment for each segment of net pay, if they are paid in

different ways.

* Not compulsory but usually disclosed

- Employee’s tax code

- NICs to date (i.e. in the current tax year)

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- The employee’s payroll number

- The employee’s National Insurance number

- The method of payment

7.1 Cash payments

Cash payment still occurs occasionally in the case of

+ Part time employees

+ Temporary staff

+ Casual staff.

* Reasons for abandoning cash payment

- Counting notes and coins by payroll staff

- Employees counting the notes and coins

- Note and coins to be prepared from the bank and worked out

- Handing and transporting the poses security problem

* Reasons for cheque payment

- Simplest form of cashless pay

- Can have strict control over payments because sequential numbers

- An employee joining during the month

- Advance of salary

7.2 Ordering money

Because of the cost in time and inconvenience of cash payment, employers are

increasingly using other methods of payment:

+ Giving employees a cheque which they themselves present to the bank.

+ Using automated credit systems to transfer the amount automatically between

bank accounts.



8. UPDATING THE RECORDS

- Record of each payment has to be maintained on cumulative basis. The

following are the reasons:

+ Explain an organisation’s total labour cost

+ Cost can be correctly allocated to the right departments

+ Occupational pension operated by employer could be recorded

+ Employee who borrow money from the company can be recorded

+ To ensure reconciliation on between gross and net pay.

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Lecture Note 1-2

Documents

Transcript of Lecture Note 1-2