ICAEW CFAB

ACCOUNTING

1
Chapter 3
RECORDING FINANCIAL
TRANSACTIONS

2
Topic List
Computerised accounting systems
Source documents for recording financial transactions
Recording bank transactions
Petty cash book
The payroll

3
Computerised accounting system
Accounting system
is the system in place within a business to allow it to record, process and store
financial information

satisfy the requirement for businesses to maintain records of their

financial transactions
allows it to produce relevant and reliable information for stakeholders

4
Computerised accounting system
o Accountants still need to understand the accounting principles and processes
that lie within a computerized system

Computerized accounting system

INPUT PROCESS OUTPUT

✓ Ledger
✓ Reports
✓ Source ✓ Journals
✓ Trial balance
documents ✓ Calculations
✓ Financial
✓ Standing data ✓ Record
Statements
keeping

5
Source documents for recording financial
transactions

TRANSACTIONS RECORDED BY
OCCUR SOURCE DOCUMENT

To support

EVIDENCE

6
 Source documents for recording financial
transactions
Purchase
Request

Demand for sth Request to Approved

Head of Department Hand over
minutes
Purchase Contract Goods Receipt
Order Note (GRN)
Invoices

Purchase Dep. Sign contract with Goods Delivered

Makes Order Supplier
Journal Voucher (JV)
Record into
accounting book

PURCHASE CYCLE ICAEWONLINE.EDU.VN 91 7

 Source documents for recording financial
transactions Customer Master
Purchase Warehouse book i.e. file/ Credit scores
Order Inventory Listing

Receive Order Review customer credit Credit Granted

from customer + stock available + Goods on Stock
Goods issuance Note
Contract Sales Order (GIN)
Hand over minutes
(HOM)/GDN
Invoices
Sign contract Request to sell Goods Delivered
with Customer

Record into
accounting book

(This process can be different between companies

SALES CYCLE i.e. Frame contract can be signed first then PO made) 92 9
 Source documents for recording financial
transactions Payment Request
PO, HOM, GRN
Statements/ Payment Contract, Invoices
Confirmation letter Request

Account Payables Request for Payment Supporting documents

reconciled with Supplier from Supplier checked

Bank advice

$
Approved Request bank to Money transferred Record into
transfer money accounting book
Bank advice
Bank Debit note
Bank statement Journal Voucher

CASH DISBURSEMENT 93 1
0
 Source documents for recording financial
transactions
Statements/ Payment Payment Request
Confirmation letter Request PO, HOM, GRN
Contract, Invoices

Account Receivables Request for Payment Supporting documents

reconciled with Customers sent to customer accompanied

Bank Credit note Journal Voucher

Bank statement

Money Received Record into

accounting book

CASH RECEIPT
11
 Source documents for recording financial
transactions
• Quotation: A written offer to a customer to produce or deliver goods or
services for a certain amount of money
• Sales order: Customer writes out or sign an order
• Purchase order: Company orders from other business for goods, services
• GRN, GDN: A list of goods that a business has received from a supplier (most
commonly in a warehouse) or sent out to a customer
• Invoices: see below
✓ Invoice relates to a sales order or purchase order
✓ When a business sells goods, services on credit to a customer ➔ sends out
Invoice. The detail on the invoice should match the detail on the sales order.
The invoice is a request for the customer to pay what he owes.
✓ When business buys goods, services on credit ➔ received Invoice from supplier

12
 Source documents for recording financial
transactions
• Statement: a document sent out by a supplier to a customer listing all
invoices, credit notes and payments received from the customer.
• Credit note: a document relating to returned goods or refunds when a
customer has been overcharged. It also can regard as negative invoice.
• Debit note: a document sent by a customer to a supplier in respect of
goods returned or an overpayment made ➔ a formal request for the
supplier to issue a credit note.
• Remittance advice: a document sent with a payment, detailing which
invoices are being paid and which credit notes offset.
• Receipt: a written confirmation that money has been paid (normally cash
sale like till receipt from a cash register).

13
 Source documents for recording financial
transactions
Example: Matching transactions with relevant documents

1. Credit sales a) Bank-in slip

2. Cash sales b) Credit note from supplier
3. Purchases c) Sales invoice
4. Deposit with bank d) Payment voucher
5. Payment of salary e) Debit note from customer
6. Payment of rental f) Payroll sheet/Pay slip
7. Return of goods to supplier g) Cash receipt/memo
8. Return goods from customer h) Supplier’s invoice
9. Payment of expenses i) Receipt from landlord

14
Recording bank transactions
Electronic banking
Electronic banking means businesses now have constant access to their bank accounts and can use
the information recorded by the bank to update their accounting records on a regular basis.

TRANSACTIONS ACCOUNTING
EXEPTION
REPORT SYSTEM
REPORTS
(from bank) (uploaded)

✓ Match
✓ Deposits information
✓ Reconciling
✓ Withdrawal with
items
✓ … transactions
recorded

15
Recording bank transactions
Electronic banking

Cash at bank account

Cash at bank account is used to record all receipts and payments made through the
business bank account.
16
Petty cash book
Petty cash book
The book or spreadsheet in which payments and receipts of petty cash are
recorded.

Most common, petty cash use the imprest system ➔ reimburse/ refund the total
amount paid out in a period
(i.e. if on 1 Dec petty cash paid out $100 ➔ under imprest system, on 2 Dec
accountant will draw $100 to top-up the amount paid in yesterday).
Under the imprest system, the petty cash is kept at an agreed sum, so that each
toping is equal to the amount paid out in the period.
Although the amounts are small, petty cash transactions still need to be recorded to
prevent fraudulent or misuse of funds (i.e. IOU).
There are usually more payments than receipts in petty cash
17
Petty cash book
Petty cash book

18
The Payroll
Payroll
The record of wages and salaries costs.
Gross pay = Net pay (cash paid/ take home) + PAYE income tax (pay as you
earns) + employee’s NI contribution (insurance) + employee’s pension
contributions
Additional cost for employer: employer’s NI contribution + pensions
contributions

19
The Payroll
Payroll principle
EMPLOYER PAYS

GROSS SALARY EMPLOYER’S NATIONAL

INSURANCE
CONTRIBUTIONS (NICS)
EMPLOYEE’S
INCOME TAX NATIONAL
NET SALARY
(PAYE) INSURANCE
CONTRIBUTIO
NS (NICS)

PAID TOTHE
PAID TO THE GOVERNMENT AS TAX
EMPLOYEE

20
Interactive Question
Fantab Ltd has 10 employees who had gross pay of $190,000 per annum between them in 20X4. In that
year, Fantab made net pay to employees of $129,200, and paid $20,900 to the pension trustees. Its total
payroll cost was $220,400.
Requirements:
How much did Fantab pay to HMRC in respect of NI and PAYE?
(Her Majesty's Revenue and Customs: the UK government department that is responsible for
calculating and collecting taxes)

21