Accounting Records and Control Systems
This section covers Accounting Records and Control Systems. The exam tests the flow from source document to book of prime entry to ledger, the trial balance, bank reconciliations, control accounts and correction of errors.
Core rules
- Source documents such as invoices, credit notes, cheque counterfoils and bank statements are recorded in books of prime entry: sales, purchases, returns, cash book and general journal.
- Double entry posts to ledgers; the trial balance is a list of balances, not a proof of accuracy.
- Errors not revealed by a trial balance include omission, commission, principle, original entry, compensating and complete reversal. Correct via journal; use a suspense account only where a trial balance difference exists.
- Bank reconciliation adjusts the cash book for items not yet entered, such as bank charges, standing orders and dishonoured cheques, then reconciles using unpresented cheques and uncredited lodgements.
- Control accounts summarise the receivables and payables ledgers; they help locate errors and deter fraud.
Worked example
Cash book debit balance €3,850. Bank charges €50 and a standing order €300 appear on the statement but not in the cash book. Unpresented cheques are €1,200; lodgements not yet credited €900.
Reasoning: adjusted cash book = €3,850 − €50 − €300 = €3,500. Balance per bank statement = adjusted cash book + unpresented cheques − uncredited lodgements = €3,500 + €1,200 − €900 = €3,800. The statement balance is therefore €3,800.
Traps
- Posting bank charges to the debit side of the cash book.
- Treating unpresented cheques as cash book adjustments rather than reconciliation items.
- Using suspense for every error; it is only for a trial balance imbalance.
- Recording a contra between receivables and payables in the wrong ledger.
- Forgetting that an error of principle does not affect the trial balance.