Lecturer Notes

FIANANCIAL
ACCOUNTING

ACCA Program
03, 2024
 Financial Accounting

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TABLE OF CONTENT

1 Module Overview....................................................................................................................3
1.1 Overview And Aims Of The Module..............................................................................3
1.2 Weight of the module (if available).................................................................................3
2 Module content........................................................................................................................3
2.1 Content 1..........................................................................................................................3
2.2 Content 2..........................................................................................................................3
3 Revision and practices.............................................................................................................3
4 Mock exam questions...............................................................................................................3

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1 Module Overview
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1.1 Overview And Aims Of The Module
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 Brief description of the course overview: aims and main objectives
1.2 Weight of the module (if available)
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2 Module content
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2.1 Content 1
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3 Revision and practices

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4 Mock exam questions

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CHAPTER 4: FINANCIAL TRANSACTIONS AND ACCOUNTING SYSTEMS

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1 Module Overview
1.1 Overview And Aims Of The Module

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2 Module content
2.1 From business transaction to financial statements

Transactions must be recorded in the business’s

accounting system (*)

(*) An accounting system is a set of [accounting processes] which enable the business to record
their financial transactions and then process the transactions in a meaningful way (such as to
produce financial statements, tax report, etc.)
Detailed information regarding the accounting system will be specifically discussed in 2.2 of this
chapter.

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2.2 Computerized accounting system

Assumption that all entities in question use a computerized accounting system
1.2.1 Accounting systems and accounting software

Accounting systems Accounting software

Definition Please refer to point 2.1 of this A software package which enables
chapter businesses to record and process
transactions electronically
Type Consist of several modules, but main Consist of 2 main types:
accounting module is known as the - “off-the-shelf” packages:
“general ledger”. designed for businesses that
Other modules that interact with the have a high volume of basic
general ledger: transactions and can be used
- Receivables ledger by many organisations.
- Payables ledger - “bespoke” package:
- Non-current assets register designed and tailored for
- Inventory system businesses with unique
transactions or other
complexities

1.2.2 Key features of computerized accounting systems

There are certain features common to all computerized accounting systems that you need to
be familiar with
Features Description
Controls Accounting systems have controls in place to ensure that data is recorded
and processed as expected.
Standing data There is certain information that will be input into the computerized
accounting system that will not change frequently. For example, the
name, address, credit limit of particular customers
Account Within the computerized accounting systems, all customers and suppliers
codes will be allocated an account code.
Similarly, all transactions will be given a code relating to the nature of the
transaction so that they can be posted to the general ledger

1.2.3 Accessing computerized accounting systems

An organisation may have the computerised accounting software installed locally on the
computers of its accounting staffs -> accounting staff will access the software.
Alternatively, the accounting software maybe cloud-based. This means that the data and
software is held remotely on the “cloud accounting”.

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2.3 Types of business documentation

Each transaction is recorded on the relevant business document. Typically, there are six states to
a sale or purchase, although there could be more, and at each stage a document is generated.

Process Name of document

1 Quotation is requested Quotation

2 Order is placed Sale order/Purchase order

3 Goods are despatched and Goods dispatched note + Invoice Supplier

Customer
signed for receipt Goods received note

4 Payment requested Sale invoice/supplier

(purchase) invoice

5 Goods maybe returned Credit note

to vendor Debit note

6 Payment Remittance advice

Receipt + Statement

The list below details all the documents that could be used to record the business transactions in
the “books of account” of the business:
Documents Description
Quotation A document sent to a customer by a company stating the fixed price that
would be charged to produce or deliver goods or services.
Quotations tend to be used when businesses do not have a standard
listing of prices for products.
Purchase order A document of the company that details goods or services which the
(*) Please refer to company wishes to purchase from another company.
the detailed Two copies of a purchase order are often made, one is sent to the
examples following company from which the goods or services will be purchased, and the
this table. one is kept internally so the company can keep track of its orders.
Purchase orders are often sequentially numbered.
Sales order A document of the company that details an order placed by a customer

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for goods or services.

The customer may have sent a purchase order to the company from
which the company will then generate a sale order.
Sales orders are usually sequentially numbered so that the company can
keep track of orders placed by customers.
Goods received A document of the company that lists the goods that a business has
note received from a supplier.
(*) Please refer to A goods received note is usually prepared by the business has received
the detailed from suppliers.
examples following A goods received note is usually prepared by the business’s own
this table. warehouse or good receiving area.
GRNs can be used as a record that a service has been carried out.
GRNS are also key documents in estimating a company’s figure for
accrued purchases (accruals) that needs to go into the financial
statements. This is because they are evidence of liabilities to pay for
goods or services received, that have not yet been invoiced by the
suppliers. The figure goes into the accruals account or, sometimes, more
specifically a “GRNI” account (Good Received Not Invoiced) which
forms part of the overall accruals figure.
Goods despatched A document of the company that lists the goods that the company has sent out
note to a customer.
The company will keep a record of goods despatched notes in case of any
queries by customer about the goods sent, The customer will compare the
goods despatched note to what they receive to make sure all the items listed
have been delivered and are the right specification.
Sales invoice and An invoice relates to a sale order or a purchase order:
supplier (purchase) a. When a business sells goods or services on credit to a customer. It
invoice sends out a sales invoice. The details on the sales invoice should
(*) Please refer to match the details on the sales order. The sales invoice is a request for
the detailed the customer to pay what they owe.
examples following b. When a business buys goods or services on credit, it receives a
this table. supplier (purchase) invoice from the supplier. The details on the
supplier (purchase) invoice should match the details on the purchase
order.
The invoice is primarily a demand for payment, but it is used for other
purposes such as:
- Copy to customer as a request for payment
- Copy to accounts department to match to eventual payment
- Copy to warehouse to generate a dispatch of goods, as evidenced by a
goods despatched note
- Copy matched to sales order and kept in sales department as a record
of sales.
Supplier statement A document sent out by a supplier to a customer listing the transactions on the
customer’s account, including all invoices and credit notes issued and all
payments received from the customer.
The supplier statement is useful, as it allows the customer to reconcile the
amount that they believe they owe the supplier to the amount the supplier
believes they are owed. Any differences can then be queried.

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Credit note A document sent by a supplier to a customer in respect of goods returned, a

correction to an invoice previously sent out or overpayments make by the
customer. It is a “negative” invoice.
Debit note A document sent by a customer to a supplier in respect of goods returned or an
overpayment made. It is a formal request for the supplier to issue a credit note.
Remittance advice A document sent to a supplier with a payment, detailing which invoices are
being paid and which credit notes offset.
A remittance advice allows the supplier to update the customer’s records to
show which invoices have been paid and which are still outstanding.

(*) Examples for the template forms of Purchase order, GRN and Invoice.

Source: https://www.autocountsoft.com/products/ac_accounting/helpfile/AutoCountHelp.html?
goods_received_note.htm

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2.4 Business documentation and the accounting records

Some of the documentation will form part of the accounting records and the financial amounts
detailed on them are ultimately included in the financial statements. This includes the following:

Sales invoices When the business sells goods or provides a service to a customer on credit, the
customer will be sent an invoice to request payment. In a computerised
accounting system, when the accounts assistant enters the details of the sale into
the receivables module, the invoice will be generated.
As will be seen in the next chapter, the invoice is also automatically included in
the accounting records. This means that it will be one of the transactions that
comprise part of revenue for that accounting periods.
Sale credit note Where the customer is not satisfied with the goods or services provided, the
business may agree to send them a credit note. This reduction in the amount
originally due (as shown on the sales invoice) is also automatically included in
the accounting records. It will be a transaction which reduces income (sales) for
the accounting period concerned.
Purchase invoices When a business purchases goods or services on credit, they will, in due course,
expect to receive a purchase invoice. The purchase invoice will be created by
the supplier and therefore the details on the purchase invoice need to be input
into the recipient’s accounting system. Once the accounts assistant has
manually entered the transaction amount and related details into the accounting
system, they will be included in the accounting records.
Purchase credit If a purchase credit note is received from a supplier, then again the accounts
note assistant will need to input the details into the accounting system so that the
accounting records include the transaction.

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2.5 Petty cash

2.5.1. Definition

Petty cash/cash float A small amount of cash on the premises to make occasional small
payments/small receipts in cash.

The imprest system The amount of money in petty cash is kept at an agreed sum or
“float”. This is called the imprest amount. Expense items are
recorded on vouchers as they occur, so that at any time:
The imprest system = Cash still held in the petty cash tin +
Vouchers for payments

Example for petty cash:

[Voucher for payment]

[Cash still held in petty cash tin]

[The imprest system]

2.5.2. Recording petty cash transactions

There are usually more petty cash payments to record than petty cash receipts. The main receipt
is usually money from the business bank account that is withdrawn and put into petty cash to
create a float or an amount paid monthly to top the balance back up to the amount of the original
float.

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3 Revision and practices

3.1 Chapter summary

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3.2 Exam context

You need to be aware of the principal transactions businesses enter into, the underlying
documents for these transactions and the purpose of accounting systems.

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