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17
Bookkeeping Controls Lesson 1: Control Account Reconciliations and the Journal
Transcript of Bookkeeping Controls - s3-eu-west-1.amazonaws.com
Untitled2
3
Bookkeeping Controls
This unit is about the controls that are in place to ensure that the accounts are accurate and complete.
In particular, we will be looking at reconciliations. This is where we compare, for example, the total of the subsidiary (sales) ledger accounts and the total of the control account in the main ledger.
The totals should be the same and checking will identify some of the possible errors that could be made.
The purpose of a reconciliation is to find and understand any differences between items that should be the same.
We will also look at how to correct errors by using a new book of prime entry called The Journal. The Journal is used for non-routine transactions that do not fit into the other Books of Prime Entry.
4
Control Account Reconciliations
The purpose of a reconciliation is to find and understand any differences between items that should be the same.
Let’s start by looking at the Sales Ledger Control Account and the Sales Ledger, which is where we record our receivables.
5
Control Account Reconciliations (cont.)
Everything should match. The balance as per the individual accounts equals £2,912.04. The balance as per the control account equals £2,912.04. In this case, they do match.
6
Purchases Control Account Reconciliation
Let’s look at another example. This time it’s a Purchase Ledger Control account from later in the year. In this case we have only the totals and the control account and we need to identify a problem that has shown up. The difference is £52.48 which equals the discount received figure that you can see in the control account.
7
Purchases Control Account Reconciliation (cont.)
In this case, it is likely that the discount received figure has been posted twice to the individual accounts. This is why we reconcile - to try to detect mistakes before they can cause a problem.
8
Reconciliation Tips
There are many errors that can cause the control account reconciliations to show an imbalance.
In the workplace you will have a lot of information to look at that will help you to identify the error, but if a recognisable figure suggests a particular problem, that would be where you should start making your checks.
When doing a control account reconciliation, look for a figure that is the same as your calculated difference and try to understand where something is either missing or has been entered twice.
9
The Journal
The Journal is used for non-routine transactions that do not fit into the other Books of Prime Entry.
Journal transactions will typically be used for:
Introduction of capital and the initial transactions of a new business Transactions such as writing off bad or irrecoverable debts Entering payroll figures into the accounts from the Wages Day Book Correcting errors
So what does the Journal look like? Well, it looks a bit like the trial balance but with a column for the date.
Journal
The Journal in Use
The journal is fairly straightforward to complete but there are some rules that you should be aware of.
Firstly, a journal is part of the double entry so, as always, total Debits must equal total Credits.
Secondly, it is expected that the debit entries are written down before the credit entries.
Thirdly, each journal must have a narrative – a note to say why the journal has been written. The narrative usually starts with the word ‘being’ and need not be long but must give enough information to enable the reader to understand the circumstances surrounding the transaction.
Journal
Example Credit Entry £
Being the narrative
Journals for the Start of a New Business - Opening Capital
Let’s have a go at writing the journal for the opening capital when we start a new business from scratch.
Start with the date, which was 1st of January. Then enter the Debit side of the transaction: Debit -- Bank -- £10,000 Then the Credit side: Credit -- Capital -- £10,000 And finally the narrative: “Being opening capital”.
Journal
12
Journals for the Start of a New Business - Buying a Van
Now, let’s add the journals for the van that we bought when we started our business.
Start with the date, which was 1st of January. Then enter the Debit side of the transaction: Debit -- Van at Cost -- £3,000 Then the Credit side: Credit -- Bank -- £3,000 And finally the narrative: “Being purchase of Van registration AB 12 CDE”.
Journal
Bank 3,000.00
13
Journals for the Start of a New Business - Opening Balances
As well as transactions for a new business, we might use the journal to transfer balances to a new computerised system or a sole trader may have made a few transactions without using proper accounting systems so you may start your accounts with a longer journal like this one: Journal
Date Details Dr Cr
Petty Cash 100.00
14
Checking Journals
You should always check that debits = credits with your journals, as you do elsewhere in the double entry system. Remember, journals are simply double entry bookkeeping written slightly differently prior to entering into the accounts.
Journal
Petty Cash 100.00
15
Common Journals: Irrecoverable Debts
Irrecoverable debts are part of the cost of allowing credit. When we decide to sell goods on credit we do so knowing that occasionally payment for the goods will not be received, either because of loss, damage, disagreement or customer businesses going bankrupt.
For disagreement or bankruptcy, we need to write a journal to remove the irrecoverable debt from our accounts as it is no longer an asset for the business. Irrecoverable debts are seen to be an expense, and expenses are debited to the accounts. The journal entry format is always the same and can be memorised. Let’s write one for a customer who has been invoiced for £100 + VAT, with a note under the narrative to remind us to credit the customer’s account in the Subsidiary (Sales) Ledger.
Journal
VAT 20.00
Sales Ledger Control 120.00
Being debt for Customer X, who has gone into administration Credit Customer X £120
16
Posting Journals
Like every book of prime entry, the information must be posted to the accounts. Posting Journals is very easy. Put simply, if the journal says: Debit -- Irrecoverable debts -- £100, then Debit Irrecoverable debts by £100. You do exactly what it says on the tin!
Journal
VAT 20.00
Sales Ledger Control 120.00
Being debt for customer X, who has gone into administration Credit customer X £120
Debit Irrecoverable Debts Credit
Date Details £ Date Details £
01 Jan Journal 100.00
Date Details £ Date Details £
01 Jan Journal 120.00
Credit
In this lesson we have looked at:
3
Bookkeeping Controls
This unit is about the controls that are in place to ensure that the accounts are accurate and complete.
In particular, we will be looking at reconciliations. This is where we compare, for example, the total of the subsidiary (sales) ledger accounts and the total of the control account in the main ledger.
The totals should be the same and checking will identify some of the possible errors that could be made.
The purpose of a reconciliation is to find and understand any differences between items that should be the same.
We will also look at how to correct errors by using a new book of prime entry called The Journal. The Journal is used for non-routine transactions that do not fit into the other Books of Prime Entry.
4
Control Account Reconciliations
The purpose of a reconciliation is to find and understand any differences between items that should be the same.
Let’s start by looking at the Sales Ledger Control Account and the Sales Ledger, which is where we record our receivables.
5
Control Account Reconciliations (cont.)
Everything should match. The balance as per the individual accounts equals £2,912.04. The balance as per the control account equals £2,912.04. In this case, they do match.
6
Purchases Control Account Reconciliation
Let’s look at another example. This time it’s a Purchase Ledger Control account from later in the year. In this case we have only the totals and the control account and we need to identify a problem that has shown up. The difference is £52.48 which equals the discount received figure that you can see in the control account.
7
Purchases Control Account Reconciliation (cont.)
In this case, it is likely that the discount received figure has been posted twice to the individual accounts. This is why we reconcile - to try to detect mistakes before they can cause a problem.
8
Reconciliation Tips
There are many errors that can cause the control account reconciliations to show an imbalance.
In the workplace you will have a lot of information to look at that will help you to identify the error, but if a recognisable figure suggests a particular problem, that would be where you should start making your checks.
When doing a control account reconciliation, look for a figure that is the same as your calculated difference and try to understand where something is either missing or has been entered twice.
9
The Journal
The Journal is used for non-routine transactions that do not fit into the other Books of Prime Entry.
Journal transactions will typically be used for:
Introduction of capital and the initial transactions of a new business Transactions such as writing off bad or irrecoverable debts Entering payroll figures into the accounts from the Wages Day Book Correcting errors
So what does the Journal look like? Well, it looks a bit like the trial balance but with a column for the date.
Journal
The Journal in Use
The journal is fairly straightforward to complete but there are some rules that you should be aware of.
Firstly, a journal is part of the double entry so, as always, total Debits must equal total Credits.
Secondly, it is expected that the debit entries are written down before the credit entries.
Thirdly, each journal must have a narrative – a note to say why the journal has been written. The narrative usually starts with the word ‘being’ and need not be long but must give enough information to enable the reader to understand the circumstances surrounding the transaction.
Journal
Example Credit Entry £
Being the narrative
Journals for the Start of a New Business - Opening Capital
Let’s have a go at writing the journal for the opening capital when we start a new business from scratch.
Start with the date, which was 1st of January. Then enter the Debit side of the transaction: Debit -- Bank -- £10,000 Then the Credit side: Credit -- Capital -- £10,000 And finally the narrative: “Being opening capital”.
Journal
12
Journals for the Start of a New Business - Buying a Van
Now, let’s add the journals for the van that we bought when we started our business.
Start with the date, which was 1st of January. Then enter the Debit side of the transaction: Debit -- Van at Cost -- £3,000 Then the Credit side: Credit -- Bank -- £3,000 And finally the narrative: “Being purchase of Van registration AB 12 CDE”.
Journal
Bank 3,000.00
13
Journals for the Start of a New Business - Opening Balances
As well as transactions for a new business, we might use the journal to transfer balances to a new computerised system or a sole trader may have made a few transactions without using proper accounting systems so you may start your accounts with a longer journal like this one: Journal
Date Details Dr Cr
Petty Cash 100.00
14
Checking Journals
You should always check that debits = credits with your journals, as you do elsewhere in the double entry system. Remember, journals are simply double entry bookkeeping written slightly differently prior to entering into the accounts.
Journal
Petty Cash 100.00
15
Common Journals: Irrecoverable Debts
Irrecoverable debts are part of the cost of allowing credit. When we decide to sell goods on credit we do so knowing that occasionally payment for the goods will not be received, either because of loss, damage, disagreement or customer businesses going bankrupt.
For disagreement or bankruptcy, we need to write a journal to remove the irrecoverable debt from our accounts as it is no longer an asset for the business. Irrecoverable debts are seen to be an expense, and expenses are debited to the accounts. The journal entry format is always the same and can be memorised. Let’s write one for a customer who has been invoiced for £100 + VAT, with a note under the narrative to remind us to credit the customer’s account in the Subsidiary (Sales) Ledger.
Journal
VAT 20.00
Sales Ledger Control 120.00
Being debt for Customer X, who has gone into administration Credit Customer X £120
16
Posting Journals
Like every book of prime entry, the information must be posted to the accounts. Posting Journals is very easy. Put simply, if the journal says: Debit -- Irrecoverable debts -- £100, then Debit Irrecoverable debts by £100. You do exactly what it says on the tin!
Journal
VAT 20.00
Sales Ledger Control 120.00
Being debt for customer X, who has gone into administration Credit customer X £120
Debit Irrecoverable Debts Credit
Date Details £ Date Details £
01 Jan Journal 100.00
Date Details £ Date Details £
01 Jan Journal 120.00
Credit
In this lesson we have looked at:
