Set Up Bookkeeping Systems
20%of exam
Process Customer Transactions
20%of exam
Process Supplier Transactions
20%of exam
Process Receipts and Payments
20%of exam
Process Ledger Accounts
20%of exam
Quick Facts
- Exam
- AAT ITBK
- Credential
- AAT Level 2 Certificate
- Format
- Computer-based (CBA)
- Time
- 1h 30m
- Pass
- 70%
- Outcomes
- 5 x 20%
- Level
- AAT Level 2
- GLH
- 65 hours
- VAT rate
- 20% standard
- Blueprint
- Q2022 v5.5
DEAD CLIC
Debit Expenses Assets Drawings, Credit Liabilities Income Capital
D: Debit sideE: ExpensesA: AssetsD: DrawingsC: Credit sideL: LiabilitiesI: IncomeC: Capital
Debit vs Credit
Debit (DEAD)
- Assets increase
- Expenses increase
- Drawings increase
Credit (CLIC)
- Liabilities increase
- Income increase
- Capital increase
DEAD debits, CLIC credits
Which Daybook to Use
- Credit sale invoice issued→Sales daybook
- Credit sale return accepted→Sales returns daybook
- Credit purchase invoice received→Purchases daybook
- Credit purchase return sent→Purchases returns daybook
- Cash or bank movement→Cash book
- Small cash expense paid→Petty cash book
- PPD allowed to customer→Discounts allowed daybook
- PPD received from supplier→Discounts received daybook
Business Documents
- Invoice
- Request payment for sale
- Credit note
- Reduces amount owed
- Remittance advice
- Confirms payment sent
- Statement of account
- Lists outstanding balance
- Petty cash voucher
- Evidences small expense
- Bank statement
- Bank transaction record
Accounting Equation
Assets equals Liabilities plus Capital always
A = L + CCapital = Assets − LiabilitiesMust always balance
Books of Prime Entry vs Ledgers
Books of Prime Entry
- Record transactions first
- Daybooks and cash book
Ledgers
- Second-stage accounts
- Posted from daybook totals
Record first, then post
Books of Prime Entry
- Sales daybook
- Records credit sales
- Sales returns daybook
- Records sales returns
- Purchases daybook
- Records credit purchases
- Purchases returns daybook
- Records purchase returns
- Discounts allowed daybook
- Records PPD given
- Discounts received daybook
- Records PPD received
- Cash book
- Prime entry plus ledger
Coding Systems
- Customer code
- Identifies customer account
- Supplier code
- Identifies supplier account
- Product code
- Identifies item type
- General ledger code
- Identifies nominal account
- Alphanumerical code
- Letters plus numbers
Accounting Equation and Classification
- Assets
- What business owns
- Liabilities
- What business owes
- Capital
- Owner's investment
- Income
- Revenue earned
- Expenses
- Costs incurred
- Equation
- Assets = Liabilities + CapitalFormula
Trade Discount vs Bulk Discount
Trade Discount
- Given to trade buyers
- Fixed % off list price
Bulk Discount
- Given for large orders
- Scales with order volume
Both deducted before VAT
Discount and VAT Order
- Trade discount given→Deduct before VAT
- Bulk discount given→Deduct before VAT
- PPD offered at sale→Adjust via credit note
- Need VAT amount→Apply 20% after discounts
- PPD taken by customer→Issue credit note
- Extracting VAT from gross→Multiply by 1/6
Customer Invoice Documents
- Quotation
- Estimated price offer
- Customer order
- Confirms items wanted
- Delivery note
- Confirms goods delivered
- Price list
- Standard item prices
- Discount policy
- States discount terms
PPD vs Trade and Bulk Discount
Prompt Payment Discount
- Rewards early payment
- Adjusted via credit note
Trade and Bulk Discount
- Fixed at time of sale
- No credit note needed
Timing differs; both reduce total
Sales Discounts
- Trade discount
- Reduces price at sale
- Bulk discount
- Reduces price for volume
- Prompt payment discount
- Reward for early paymentPPD
- PPD adjustment
- Via credit note only
- Discount order
- Trade, bulk, then VAT
Sales Daybook Columns
- Customer name
- Buyer identification
- Customer account code
- Links to receivables ledger
- Net column
- Amount before VAT
- VAT column
- Tax on sale
- Total column
- Gross invoice amount
- Analysis column
- Splits by product code
Processing Customer Receipts
- Full payment
- Clears whole invoice
- Part payment
- Clears partial balance
- Against invoice
- Matched to specific invoice
- Against credit note
- Offsets returned goods
- Underpayment
- Customer paid too little
- Overpayment
- Customer paid too much
Supplier Documents
- Purchase order
- Confirms goods requested
- Goods received note
- Confirms goods arrived
- Delivery note
- Accompanies delivered goods
- Goods returned note
- Confirms goods sent back
- Supplier statement
- Lists account activity
Purchases Daybook Columns
- Supplier name
- Seller identification
- Supplier account code
- Links to payables ledger
- Net column
- Amount before VAT
- VAT column
- Tax on purchase
- Total column
- Gross invoice amount
- Analysis column
- Splits by product code
Supplier Payment Checks
- Reconciliation
- Match statement to ledger
- Payment terms
- Agreed date to pay
- Discounts received
- Trade, bulk or PPD
- Timing difference
- Payment not yet recorded
- Duplicated transaction
- Entered more than once
VAT Extraction from Gross
Divide gross by 6 for VAT
Gross includes VATNet excludes VAT20% standard UK rateVAT = gross ÷ 6
Imprest vs Non-Imprest Petty Cash
Imprest System
- Fixed float amount
- Reimburse to restore float
Non-Imprest System
- Variable float amount
- Reimburse amount actually spent
Imprest always restores fixed level
Petty Cash Reimbursement
- Imprest system in use→Top up to float
- Non-imprest system in use→Reimburse amount spent
- Voucher missing signature→Query before reimbursing
- Float below minimum level→Request reimbursement now
Analysed Cash Book
- Date column
- Transaction date
- Details column
- Transaction description
- Cash column
- Physical cash movement
- Bank column
- Bank transaction movement
- Analysis columns
- Splits by expense type
- VAT column
- Tax on transaction
Petty Cash and Imprest
- Imprest system
- Restores fixed float
- Non-imprest system
- Reimburses variable amount
- Float
- Fixed starting balance
- Reimbursement
- Tops up cash spent
- Petty cash voucher
- Evidences each expense
VAT Basics
- Standard VAT rate
- 20% in the UKHMRC
- Extract VAT from gross
- Multiply gross by 1/6
- Add VAT to net
- Multiply net by 20%
- Gross amount
- Net plus VAT
- Net amount
- Price before VAT
Recurring Entries
- Recurring entry
- Repeats on a schedule
- Standing order
- Fixed recurring bank payment
- Direct debit
- Variable recurring bank payment
- Digital automation
- System repeats entry automatically
Trial Balance Blind Spots
Trial balance can still hide errors
Omission: entry missing entirelyCommission: posted to wrong accountOriginal entry: wrong amount both sidesCompensating errors cancel out
Control Account vs Subsidiary Ledger
Control Account
- Single summary total
- Sits in general ledger
Subsidiary Ledger
- Individual customer or supplier balances
- Must reconcile to control
Control checks the detail
Ledger Posting Picker
- Customer owes the business→Post to receivables ledger
- Business owes a supplier→Post to payables ledger
- Asset expense or income→Post to general ledger
- Checking ledger accuracy→Compare to control account
- Daybook totals ready→Post totals to ledgers
- Balances don't match→Recheck control account
Ledger Types
- Receivables ledger
- Individual customer balances
- Payables ledger
- Individual supplier balances
- General ledger
- All nominal accounts
- Control account
- Summary total check
Balancing and Trial Balance
- Balance carried down
- Closing balance this periodc/d
- Balance brought down
- Opening balance next periodb/d
- Debit balance
- Total debits exceed credits
- Credit balance
- Total credits exceed debits
- Trial balance
- Lists all ledger balances
- Trial balance purpose
- Checks debits equal credits
Common Traps
PPD ≠ Cash Book Discount Column
PPD uses credit notes ≠ No discount column needed
Trade Discount ≠ Prompt Payment Discount
Trade fixed at sale ≠ PPD depends on payment timing
Daybook ≠ Ledger
Daybook records first ≠ Ledger posts from daybook
Imprest ≠ Non-Imprest System
Imprest restores fixed float ≠ Non-imprest reimburses variable spend
Trial Balance ≠ Error-Free Proof
Balancing doesn't mean correct ≠ Some errors self-cancel
Gross ≠ Net Amount
Gross includes VAT ≠ Net excludes VAT
Control Account ≠ Individual Ledger
Control is summary total ≠ Ledger holds individual balances
Last Minute
- 1.Pass mark is 70%
- 2.Five learning outcomes, each 20%
- 3.Assessment time: 1 hour 30 minutes
- 4.Standard UK VAT rate: 20%
- 5.PPD adjusted via credit notes only
- 6.Deduct trade and bulk discounts first
- 7.DEAD debits, CLIC credits
- 8.Daybooks record first, ledgers post second
- 9.Imprest system restores a fixed float
- 10.VAT extraction uses 1/6 fraction
- 11.Trial balance doesn't guarantee zero errors
- 12.Control accounts check subsidiary ledger totals
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