In this unit, you will complete a set of accounts for a typical business. You will learn how source documents are recorded in the accounts, how to record this information into double entry ledger accounts and extract a trial balance.

Unit 10 Recording Financial Transactions Assessment Brief

Unit in Brief

Learners explore how and why financial transactions are recorded as well as checking bank records and dealing with errors.

Unit Introduction

The accounting or bookkeeping system is the process that provides all the information for the final accounts of a business. It is essential that accounting records are clear, concise and accurate.

In this unit, you will complete a set of accounts for a typical business. You will learn how source documents are recorded in the accounts, how to record this information into double entry ledger accounts and extract a trial balance. You will consider the importance of keeping accurate financial records, including the legal and professional obligations of a business relationship with stakeholders and the risk of fraud. You will also learn how control mechanisms, such as bank reconciliation, and how control accounts are prepared and used to help keep accurate financial records. You will examine how and why errors may occur in the financial records of a business and make the necessary corrections. You will consider how these errors affect the financial statements for the business as well as understanding the wider implications of errors and inaccurate financial records to the success of a business.

This unit provides a useful opportunity to gain the practical and professional skills of working in an accounting environment, which will enable you to decide if you want to progress to further study or training in this area.

Learning Aims

In this unit you will:

A Undertake the accurate recording of financial transactions using the double entry accounting system
B Carry out bank reconciliation as a function of accurate financial control
C Construct control accounts for debtors and creditors for accurate financial control
D Examine the correction of errors in accounting records for financial control.

Summary of Unit

Content

Learning aim A: Undertake the accurate recording of financial transactions using the double entry accounting system

A1 Importance of accurate records

• Importance of accurate financial record keeping, including: audits, comply with concepts, measuring performance, legal obligations, risk of fraud, professional responsibility, security, reputation, tax liability, stakeholder confidence.

A2 Financial documents

• Purpose of source documents, including: cash receipt, cheque, purchase order, delivery note, invoice, goods received note, credit note, debit note, statement of account, remittance advice.
• Types of discounts available to customers.

A3 Types of transactions

• Including: cash, bank, credit card, debit card, credit transactions, BACS, direct debit, online payment apps, internet banking and online security implications.

A4 Double entry system

• The double entry bookkeeping and accounting equation, layout of a ledger account (‘T’ account).

A5 Books of original entry

• Purpose and completion of day books and journals, including: sales day book, sales returns day book, journal, purchases day book, purchase returns day book. NOTE: the journal should include the purchase and disposal of fixed assets, depreciation and bad debts only (i.e. not the recording of errors).

A6 Double entry ledger accounts and cash books

• Purpose and completion of double entry accounts, including all those in the following ledgers: sales ledger (all personal debtor accounts), purchase ledger (all personal creditor accounts), cash book (cash, bank, discount allowed, discount received), general ledger (all other accounts).
• Balancing all ledger accounts accurately to show total columns, balance carried down (c/d) and balance brought down (b/d).

A7 The trial balance

• Prepare a trial balance from a set of double entry ledger accounts.
• Why the debit and credit trial balances should equal one another, link between the trial balance and financial statements.

Learning aim B: Carry out bank reconciliation as a function of accurate financial control

B1 Need for bank reconciliation

• Reasons why the cash book (bank column) balance differs from the bank statement, including timing, receipts credited by the bank, payments debited by the bank, transaction errors, balancing errors, banking security procedures.

B2 Completion of bank reconciliation

• Complete appropriate bank reconciliation examples, following steps.
• Unusual items, including out-of-date cheques, dishonoured cheques, stopped cheques, bank errors, bank charges and interest.

B3 Importance of bank reconciliation

• Reasons for bank reconciliation for control purposes, including correction of errors and omissions, correct entry in trial balance, queries to suppliers and/or customers,  late presented cheques, segregation of duty, and fraud.

Learning aim C: Construct control accounts for debtors and creditors for accurate financial control

C1 Definition and purpose of control accounts

• The benefits of control accounts, including: deterrent against fraud, ‘mini’ trial balance for debtors and creditors, tracking what is owed to debtors and by creditors, division of responsibility, locating errors.

C2 Preparation and calculation of control accounts

• Purpose of control accounts for debtors and creditors.
• Make entries to the control accounts, including: balances b/d, returns, sales and purchases, receipts and payments, discounts, bad debts, dishonoured cheques, interest on overdue amounts, refunds, contra entries.

C3 Correction of errors in the control accounts and the schedule of debtors and creditors

• Identification and correction of errors by updating (revising) the control account.
• Preparation of a reconciliation statement of the control account(s) balance with the schedule(s) of debtors’ and/or creditors’ personal accounts.

Learning aim D: Examine the correction of errors in accounting records for financial control

D1 Identification and explanation of different types of errors

• Transposition, omission, principle, compensating, reversal, original entry, commission.

D2 Correction of errors not affecting the trial balance

• Make journal entries to show how the error must be corrected and complete a narrative to identify and explain the type of error.

D3 Correction of errors and suspense accounts

• Make journal entries to show how the error must be corrected and complete a narrative to identify and explain the type of error, open and post entries to a suspense account where appropriate.

D4 The effect of errors on financial statements

• Preparation of a revised profit statement to show how errors have altered financial statements.
• Analysis of how errors affect a business, including financial and non-financial factors.

Assessment Criteria

Essential information for assignments

The recommended structure of assessment is shown in the unit summary along with suitable forms of evidence. Section 6 gives information on setting assignments and there is further information on our website.

There is a maximum number of two summative assignments for this unit. The relationship of the learning aims and criteria is:

Learning aims: A and B (A.P1, A.P2, B.P3, A.M1, B.M2, AB.D1)

Learning aims: C and D (C.P4, D.P5, D.P6, C.M3, D.M4, C.D2, D.D3)

Further information for teachers and assessors

Resource requirements

For this unit, learners will need access to a range of current business information from websites and printed resources.

Essential information for assessment decisions

Learning aims A and B

Complex financial transactions must include the following: sales and purchase returns, discount allowed and received, depreciation entries (amount should be given), bad debts.

Complex bank reconciliation entries must include: dishonoured and stopped cheques, out- of- date cheques, bank interest, using a cash book and/or bank statement which is overdrawn.

For distinction standard, learners will produce a written report that evaluates the importance of accurate reporting and recording of financial transactions, including bank reconciliation, to ensure accurate financial control.

For merit standard, learners will record more complex financial transactions from the whole range of books of original entry. They will then produce a more comprehensive set of double entry ledger accounts and extract a trial balance from a given set of documents and financial records. In addition, learners will produce complex bank reconciliation from a given set of business documents and financial records

For pass standard, learners will record financial transactions from a number of different books of original entry; complete double entry accounts and extract a trial balance from a given set of documents and financial records. They will accurately prepare straightforward bank reconciliation from a given set of financial records.

Learning aims C and D

For distinction standard, learners will produce a written report evaluating the importance of control mechanisms in the accurate recording of financial transactions. Types of errors will be identified and learners will evaluate the implications of these errors and inaccurate financial records in terms of the success of the given business. Learners will show consistent accuracy, individuality and independence in their presented assessment evidence.

For merit standard, learners will identify and correct complex errors in both the control accounts and the schedule of debtors and creditors, and analyse the benefits of control accounts in ensuring financial control. Learners will show analysis of the effect of errors in accounting records on final accounts.

For pass standard, learners will produce written evidence explaining the types of errors that occur in accounting records. Learners will also produce simple control accounts not requiring suspense accounts for debtors and creditors from a given set of transactions, together with a revised set of accounts showing their ability to identify and correct given errors. Learners will record journal entries to support the correction of errors.

Links to other units

This unit links to:

• Unit 3 Personal and Business Finance
• Unit 7 Business Decision Making
• Unit 11 Final Accounts for Public Limited Companies
• Unit 12: Financial Statements for Specific Businesses
• Unit 13: Cost and Management Accounting.

Employer involvement

This unit would benefit from employer involvement in the form of:

• guest speakers
• design/ideas to contribute to unit assignment/case study/project materials
• work experience
• business materials as exemplars
• support from local business staff as mentors.