Accounting Records and Control
Accounting Records and Control tests the bookkeeping system that produces reliable information: books of prime entry, ledgers, the trial balance, control accounts, bank reconciliations and the correction of errors.
Core rules
- Every transaction is recorded first in a book of prime entry (sales, purchases, returns, cash book, journal), then double-entered in the ledgers.
- The trial balance proves arithmetic equality only, not accuracy. Errors of principle, omission, commission, original entry, reversal and compensating errors do not disturb it; one-sided errors do and are cleared through a suspense account.
- Receivables and payables control accounts are memorandum totals of the personal ledgers; their balances should reconcile to the list of balances.
- A bank reconciliation starts by updating the cash book for items the bank has recorded but the business has not (charges, interest, standing orders, dishonoured cheques), then reconciles to the bank statement using unpresented cheques and uncredited deposits.
Worked example
Cash book shows a debit balance of €2,340. Bank charges of €60 are on the statement but not in the cash book. Unpresented cheques are €780 and deposits not yet credited are €1,150.
Adjusted cash book = 2,340 − 60 = €2,280. Balance per bank statement = 2,280 + 1,150 − 780 = €2,650. The charges reduce the cash book; unpresented cheques have already reduced the cash book but not the statement, so they are added back when moving from cash book to statement.
Marks-losing traps
- Reconciling from the cash book without first posting bank charges and direct debits.
- Adding unpresented cheques instead of deducting them (or vice versa).
- Treating a dishonoured cheque as a bank error rather than a reduction of the customer's balance.
- Posting a one-sided error to profit or loss instead of suspense.
- Forgetting that control accounts do not replace the personal ledgers.