Free AAT ITBK Exam Flashcards

Assets = Liabilities + Capital. Every transaction affects at least two elements so the equation stays in balance; if it doesn't, an error has occurred somewhere in the double entry.

Capital expenditure buys or improves a non-current asset with lasting benefit (e.g. buying a delivery van); revenue expenditure covers day-to-day running costs (e.g. fuel for the van). Misclassifying one as the other distorts both the balance sheet and the profit figure.

It's an asset if it provides lasting benefit beyond the current period (capital expenditure); it's only expensed if it's a low-value, short-life item consumed quickly, such as stationery.

Debit increases Expenses, Assets and Drawings (DEAD); Credit increases Liabilities, Income and Capital (CLIC). Use it to decide which side of an account a transaction hits before posting.

Codes (often alphanumeric) uniquely identify each account or item, letting transactions be recorded, filtered, and posted accurately and quickly — especially important in digital accounting software where codes drive automatic postings.

The first place a transaction is recorded from a source document, before it's summarised and posted to the ledgers. They include the sales, purchases, sales returns and purchases returns daybooks, the cash book, the petty cash book, and the discounts allowed/received daybooks.

A book of prime entry (e.g. the sales daybook) lists individual transactions in date order as they happen. A ledger account groups and posts the daybook TOTALS, showing a running balance for a customer, supplier or nominal item.

The general ledger (all nominal/income/expense/asset/liability accounts), the receivables ledger (individual customer balances), and the payables ledger (individual supplier balances).

The delivery note (confirms goods delivered) alongside the original invoice; a statement of account also lists all outstanding transactions and the running balance owed, which helps resolve the dispute.

Digital systems can automatically import bank transactions, apply coding rules, and post to ledgers in real time, reducing transposition and casting errors that are common when posting manually.

Quotation (estimated price) → customer order (confirms items wanted) → delivery note (confirms goods delivered) → invoice (requests payment).

It must show the net amount, the VAT amount, the VAT rate applied, and the gross (total) amount due — this lets the net, VAT and total columns be posted correctly to the sales daybook.

A trade discount is a fixed percentage reduction given to trade customers regardless of order size; a bulk discount is given specifically because the order quantity is large. Both are deducted from the list price before VAT is calculated.

Trade and bulk discounts are deducted on the original invoice before VAT. A PPD is only applied if the customer actually pays early — it is adjusted for afterwards via a credit note, not deducted upfront on the invoice.

Deduct trade and bulk discounts from the list price first to get the net amount, then calculate VAT at 20% on that discounted net figure to reach the gross total.

Customer name and account code, the net amount, the VAT amount, the total (gross) amount, and an analysis column splitting the sale by product or nominal code.

The sales returns daybook. A credit note is issued to the customer and recorded there, reducing the amount they owe on the receivables ledger.

As a full payment against one specific invoice or credit note, or as a part payment that only clears part of the balance — any remaining invoice balance stays outstanding until further payment is received.

This is an overpayment. It should be queried or left as a credit balance on the customer's receivables account until refunded or offset against a future invoice — it must not simply be ignored.

It reduces the amount the customer owes — issued for returned goods, pricing errors, or an agreed prompt payment discount — and is recorded in the sales returns or discounts allowed daybook.

Purchase order (confirms goods requested) → goods received note (confirms goods have arrived and matches the delivery) → supplier invoice (requests payment), which should be checked against both before it's paid.

The GRN confirms the goods actually arrived, in the quantity and condition ordered. Matching the GRN to the purchase order and invoice prevents paying for goods that were never delivered or don't match the order.

Supplier name and account code, the net amount, the VAT amount, the total (gross) amount, and an analysis column splitting the purchase by expense or nominal code.

Timing differences (a payment sent but not yet shown on the supplier's statement), invoices raised by the supplier that haven't reached you yet, and occasionally a duplicated or missing transaction that needs querying.

Trade and bulk discounts reduce the net amount before VAT is applied on the original invoice; a prompt payment discount only reduces the amount owed if you pay within the supplier's early-payment terms, adjusted via a credit note.

The purchases returns daybook. The supplier should send a credit note, which reduces the amount owed to them on the payables ledger.

Deduct any trade or bulk discount from the list price to get the net figure, add VAT at 20% to reach the gross invoice total, then deduct any prompt payment discount taken (via credit note) to get the final amount payable.

Check for timing differences first — a payment you've already sent may not yet be reflected on the supplier's statement — before assuming there's a posting error or a duplicated invoice.

It catches invoices you haven't yet recorded, payments not yet applied, and duplicated or incorrect entries, ensuring you don't overpay, underpay, or damage the relationship with the supplier.

This is a duplicated transaction, usually caught during supplier statement reconciliation. Reverse or remove the duplicate entry so the payables ledger balance matches the supplier's actual records.

The date, a description, whether the movement was cash or bank, the VAT element, and analysis columns splitting the receipt or payment by type (e.g. sales, rent, supplies) — combining prime entry and ledger functions in one book.

A fixed float (e.g. £100) is set. As vouchers record spending, cash reduces below the float; reimbursement always tops the cash back up to that original fixed float amount, not to a variable target.

Under a non-imprest system the float amount varies — reimbursement simply replaces however much cash was actually spent, rather than always restoring one fixed starting balance as the imprest system does.

Multiply the gross amount by 1/6, since VAT is 20% of the net and the net is 5/6 of the gross. For example, VAT on a £120 gross figure is £120 × 1/6 = £20.

Multiply the net amount by 20%, the UK standard VAT rate, and add it to the net to get the gross total. For example, VAT on a £100 net figure is £100 × 20% = £20, giving a gross of £120.

A standing order pays a fixed amount on a set schedule, controlled by the payer. A direct debit lets the recipient collect a variable amount, useful when the amount due changes each period, such as utility bills.

It's a source document evidencing a small cash expense, usually signed and dated, showing what was bought and the amount. It provides an audit trail so the float can be reconciled and reimbursed accurately.

The receipt is matched and allocated against each invoice it covers (or split proportionally if it doesn't cover both in full), clearing the receivables ledger balance for those specific invoices rather than being left unallocated.

The float running low, approaching the point where there isn't enough cash for the next expected expense, triggers a reimbursement claim, supported by the petty cash vouchers collected since the last top-up.

Physical cash and bank transactions are reconciled against different records (a physical cash count vs a bank statement), so keeping them in separate columns lets each be checked and balanced independently.

Periodically (e.g. weekly or monthly), the net, VAT and total columns of each daybook are totalled and posted as single summary entries to the relevant general ledger accounts, rather than posting every individual transaction separately.

The receivables ledger holds each customer's individual balance; the receivables control account in the general ledger holds the total of all of them. The two must reconcile — if they don't, an error has occurred in posting.

It's the general ledger total of everything owed to all suppliers combined, and should always equal the sum of the individual supplier balances in the payables ledger.

Balance c/d is the closing balance calculated at the end of the current period to make both sides of the account equal. Balance b/d is that same figure brought forward as the opening balance on the other side at the start of the next period.

A trial balance lists every ledger account balance in debit and credit columns. If total debits equal total credits, it confirms the double entry has been applied consistently — though it doesn't prove every entry is correct.

No. A trial balance can still balance even if there are errors of omission, errors of commission, errors of original entry, or compensating errors, because none of these create an inequality between total debits and credits.

An error of omission means a transaction is left out of the accounts entirely, so both sides are simply missing. An error of commission means the transaction is entered correctly in amount and side, but posted to the wrong account of the correct type, such as one supplier's account instead of another's.

An error of original entry means the wrong amount was used from the start, so both the debit and credit sides are equally wrong. A compensating error is when two unrelated errors happen to cancel each other out in value, hiding both from the trial balance.

It accumulates VAT charged on sales (output VAT, a liability owed to HMRC) and VAT paid on purchases (input VAT, reclaimable), with the net balance representing what's due to or from HMRC.

The control account is posted from daybook totals while the individual ledger is posted transaction by transaction — if they don't match, it signals a posting or arithmetic error that must be found and corrected before the trial balance is prepared.