AAT ITBK cheat sheet

Every transaction has two effects of equal value, so total debits always equal total credits in the ledger.

Debit entries increase expenses, assets and drawings; credit entries increase liabilities, income and capital (DEAD CLIP).

Asset and expense accounts normally carry debit balances; liability, capital and income accounts normally carry credit balances.

Credit purchase of goods for resale: Dr Purchases, Cr Payables.

Credit sale of goods: Dr Receivables, Cr Sales.

Customer returns goods: Dr Sales returns (returns inwards), Cr Receivables.

Business returns goods to a supplier: Dr Payables, Cr Purchase returns (returns outwards).

Owner introduces capital: Dr Bank, Cr Capital. Owner takes drawings: Dr Drawings, Cr Bank (or Cr Purchases for goods taken).

Where one party is both customer and supplier, a contra entry is made: Dr Payables, Cr Receivables with the agreed amount.

Document flow for a credit purchase: quotation, purchase order, goods received note, purchase invoice, then credit note if goods are returned.

The supplier's invoice is a purchase invoice in the buyer's books and a sales invoice in the seller's books; the same document is viewed from two sides.

Only credit transactions are recorded in the day books; cash sales and cash purchases go directly into the cash book.

Books of prime entry: sales day book, purchases day book, sales returns day book, purchases returns day book, cash book, petty cash book and the journal.

The journal is used for non-routine entries: opening entries, correction of errors, year-end adjustments, and credit purchase or sale of fixed assets.

The sales day book is totalled periodically and posted as Dr Receivables, Cr Sales; individual invoices are posted to the receivables ledger.

A statement of account is a summary sent by a supplier, not a book of prime entry; it is checked against the payables ledger.

Trade discount is deducted on the invoice before the net amount is calculated and is not recorded separately; settlement (cash) discount is recorded only when the customer takes it.

Imprest petty cash: the amount reimbursed at each top-up equals the total analysed payments made since the previous top-up, restoring the fixed float.

On a bank statement a credit entry means money paid into the account; a debit means money paid out, the reverse of the cash book viewpoint.

Statement items not yet in the cash book (bank charges, interest, standing orders, direct debits, dishonoured cheques) are entered in the cash book before reconciling.

Cash book items not yet on the statement (unpresented cheques, uncredited lodgements) appear only in the reconciliation statement.

Updated cash book balance + unpresented cheques - uncredited lodgements = balance per bank statement.

Balance per bank statement - unpresented cheques + uncredited lodgements = updated cash book balance.

Dishonoured cheque: reverse the original receipt with Dr Receivables, Cr Bank, then correct the reconciliation.

Standing order: fixed amount, set up by the payer, who alone can change it. Direct debit: variable amount, collected by the payee, which the payer can cancel.

A transfer between the business cash account and bank account is recorded on both sides of the cash book, not in the journal.

Reconcile only after all statement items have been posted to the cash book, so the reconciled balance equals the updated cash book balance.

Accounting equation: Assets = Capital + Liabilities; rearranged, Capital = Assets - Liabilities.

Closing capital = opening capital + profit for the period - drawings.

Profit = total income - total expenses for the period.

Gross profit = sales revenue - cost of sales, where cost of sales = opening inventory + purchases + carriage inwards - closing inventory.

A trial balance lists all debit and credit balances at a date; equal totals confirm arithmetic accuracy only, not freedom from error.

Errors not revealed by a trial balance: omission, commission, principle, original entry, reversal, compensating errors, and offsetting transposition errors.

Errors revealed by a trial balance: a one-sided entry, an addition or extraction error, or a single transposition creating a difference.

A difference between trial balance totals is entered in a suspense account on the side with the smaller total pending investigation.

A difference between debit and credit totals that is divisible by 9 suggests a transposition or slide error.