Lecture Note 1-2

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Paper 1 – Recording Financial Transactions
Chapter 1 Business Transactions and Documentation
1. Types of business transaction (giao dịch)
• Business: commercial organization (tổ chức kinh doanh), large or small,

exits to make money or profits for its owner
• Sales: cash sales & credit sales
• Purchases: purchase for cash, purchase on credit
• Cash transaction (giao dịch tiền mặt): is one where buyer pays cash to
the seller at the time the goods or services are transferred.
• Credit transaction (giao dịch tín dụng, giao dịch nợ): is a sale or a
purchase which occurs sometime earlier than cash received or paid.
2. Documenting business transactions
• External documentation: letter of enquiry, quotation, sales order, etc.
• Internal documentation: purchase order, inventory list, supplier lists
• Accounting system: record, summarize, and present the information

contained in the documentation generated by transactions.
3. Invoices and credit notes
• Invoices: are created when there is a sale or a purchase. Invoice is a

demand for payment. It shows: name address, invoice number, quantity
& unit sold, etc. (see text book)
• Credit note (giấy báo thanh toán): is used by a seller to cancel part or all
of previously issued invoices.
• E-commerce: increase the volume of using credit and debit cards.
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2 Paper 1 – Recording Financial Transactions
4. Discount, rebates, and allowances
• Trade discount: (chiết khấu thương mại) results from buying good in
bulk
• Accounting for trade discount: the amount of money demanded from the
business by the supplier will be net of discount. (normal sales value less
the discount)
• Cash discount: (chiết khấu giá) reduction in the amount payable to the
supplier, in return for immediate payment in cash. (ex. 10% 0 days, 5% 7
days, net 30 days)
• Rebates (hồi khấu) Allowance (khoản miễn giảm)
5. Sales tax
• Gross price = Net Price + Sale tax
• Output sales tax: is charged on sales
• Input sales tax: is incurred on purchases
6. Storage of information:
• A company’s retention policy sets down how long different kind of

information are retained.
• Demand for information: within the organization, people and groups

outside the organization, specific individual
• Retention policy sets down for how long different kinds of information
are retained
ACCA Centre – Duy Tan University

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Chapter 2 Assets, Liabilities and the accounting equation
1. Accounting fundamentals = double entry bookkeeping (kế toán kép)
2. Assets: items belong to a business and used in the running of the business (non-
current assets or current assets)
• Current assets (tài sản lưu động) assets are hold for a short time
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• Non-current assets: (tài sản không lưu động) assets are held and used in
operations for a long time.
3. Liabilities: is something which is owed to somebody else
• A liability is the accounting term for the debts of a business. Debt are
owed to account payable
• Examples: bank loan, bank overdraft, tax owned to the government
4. A business is separate from its owner
• Limited liability companies: liabilities of shareholders (cổ đông) is

limited to the amount they “put in” to the company
• A business must always be treated as a separate entity from its owners

when preparing accounts.
5. The accounting equation
a. Assets = Capital + Liabitities
• Capital (vốn sỡ hữu –tư bản) is an investment of money (funds) with the
intention of earning a return. A business proprietor invest capital with
the intention of earning profits.
• Example page 36
b. Assets = (capital introduced + Retained Profits) + Liabilities
6. Increase in net assets
Net assets = Total Assets – Total Liabilities

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7. Drawings (rút tiền)o is the amounts of money taken out of a business by its
owner.
• Example 5.6
• Assets = Capital introduced + (Earned Profit – Drawings) + Liabilities
8. Account payable and account receivable
• Account Payable: is a liability of the business (buy on credit)
• Account Receivable: is an asset of a business (sell on credit)
9. Double entry bookkeeping (kế toán kép)
• Double entry booking requires that every transaction has two accounting
entries, a debit and a credit
• Total value of debit entries is always equal at anytime to the value of

credit entries
• Each assets, liability, item of expense or item of income has a ledger

account (tài khoản tổng hợp) in which debits and credits are made
• See summary table and questions on pg 41
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Chapter 3 Statement of Financial Position
and Income Statement
1. Financial statements
• Capital expenditure: (chi phí vốn, chi phí tài sản cố định)
• Revenue expenditure: (chi phí kinh doanh)
2. Statement of financial statement position is a statement of the assets, liabilities

and capital of a business at a given moment in time.
• Statement of financial statement is divided into two halves: one shows

assets and one shows liabilities + capital
3. Non-current assets: (tài sản không lưu động, tài sản cố định) is an asset acquired
for use within the business rather than for selling, earn income or making
profits from its use.
4. Current assets: (tài sản lưu động) are expected to converted to cash within one
year. Current assets are either:
• Items owned by the business, turning to cash within one year (inventory,
receivables)
• Cash
• Distinguish depending on type of business (example pg 47)
5. Current Liabilities: are debts of the business that must be paid within a fairly
short period of time – within one year.

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6. Long-term Liability: are debits which are not payable within the “short term”
and so any liability which is not current must be long-term.
7. The inpcome statement: (bảng báo cáo thu nhập) is a financial statement
showing in detail how the profit or loss of a period has been made.
• Gross profit (lợi nhuận tổng) = sale revenue – cost of good sold
• Net profit (lợi nhuận ròng) = gross profit – expenses (selling,

distribution, administration, etc)
• Example of income statement on pg 49
• Overhead category table pg 49
8. Capital Expenditure: is expenditure which results in the acquisition of non-

current assets, or an improvement in their earning capacity
• Results in the appearance of a non-current assets
• Is not charged as an expense in the income statement
9. Revenue Expenditure: incur either
• For the purpose of the trade of the business
• Maintain existing earning capacity of non-current assets (repairs)
• Is shown in the income statement as expense
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Chapter 4 Recording, summarizing, and posting transactions
1. Source documents
• Sales day book: sales invoices, credit notes sent, receivables ledger
• Sales returns day book: sales returns, credit notes, receivables ledger
• Purchase day book: purchase invoices, credit notes, payables ledger
• Purchase returns day book: purchase returns, credit notes, payables

ledger
• Cash book: cash paid and received, nominal ledger
• Petty cash book: notes and coin paid and received, nominal ledger
• Separation of duties: for security purposes as well as to meet the

demands of the workload.
2. The sales day book: is a list of all invoices sent out to customers each day. Post
to “receivable ledger”
• When customers return goods for some reason, the returns are recorded
in the sales return day book, they are shown as bracketed figures in the
sales day book.
3. The purchase day book: is the record of all the invoices received from
suppliers. Post to “payable ledger”.
• The purchase returns day is kept to record credit notes receive in

respect of goods which the business sends back to its suppliers, they are
shown as bracketed figures in the purchases day book
4. The cash book: is a book of a prime entry, used to keep a cumulative record of
money received and money paid out by the business via its bank account.
• Left hand side (the debit side): is used to record amounts of money
received by the business

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• Right hand side (the credit side): is used to record payments of monies
by the business.
• Periodically the entries in the book are totaled and the balance of cash
available to the business is determined.
• Petty cash funds (quỹ tạp chi) funds are used for everyday expenses such
as postages, tea and coffee, etc.
• Example pg 60
• Discount allowed on sales are shown in a separate column:

memorandum column (bảng ghi nhớ)
• Example pg 63
5. The nominal (general) ledger (sổ cái danh nghĩa) is the accounting record which
summaries the financial affairs of a business. It contains details of assets,
liabilities and capital, income and expenditures. It consists of many different
ledger account (tài khoản gốc)
• Posting (ghi vào sổ cái)
• The format T account: debit side (left) and credit side (right)
6. Double entry book-keeping
• Important rule: every transaction give rise to two accounting entries, one
debit and one credit
• Cash payment is a credit entry in the cash account. Cash maybe paid out
to pay an expense or to purchase assets. The matching debit entry is
therefore in the appropriate expense account or assets account
• Cash receipt is a debit entry in the cash account. Cash might be received
by a retailer who makes a cash sale. The matching credit entry would be
made in the sales account.
• Example 6.2 pg 67
• Credit transactions: post to account payable or account receivable
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• Example 6.4 & 6.5 pg 70
7. The receivables (sales) ledger:
• Impersonal account: (tài khoản về vật, tài khoản phi cá nhân) accounts
relate to types of income, expense, assets, liability, etc. rather than to the
person to whom the money is paid or from whom it is received.
• Personal accounts account for customers and suppliers, and these are
contained in the receivables ledger and payable ledger. The personal
account do not form part of the double entry system, they are
memorandum accounts (chú thích) only.
• Receivables ledger consist a number of personal receivable accounts.
• When entries are made in the sales day book, they are subsequently also
made in the debit side of the relevant customer account in the receivable
ledger.
• When entries are made in the cash book, or in sales return day book, they
are also made in the credit side of relevant customer account.
8. The payable (purchase) ledger:
• Consists of number of personal payable accounts, for each individual

supplier
• If the business pays out some money, it would enter into the cash book,
and subsequently be entered individually into the debit side of the
personal account.
• If the business purchase some goods, it would enter into the purchase
book, and subsequently be entered individually into the credit side of the
personal account
9. Control account (tài khoản kiểm tra): is an account in the general ledger in
which a record is kept of the total value of a number of similar but individual
items. Control accounts are usually used for receivables and payables. They
should agree with the total of the individual balances and act as a check to

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ensure that all transactions have been recorded correctly in the individual
ledger account.
• A receivable control account is an account in which records are kept of

transactions involving all receivables in total. It is posted with totals
from the sales day book and the cash book.
• A payable control account is an account in which records are kept of

transactions involving all payables in total. It is posted with totals from
the purchase day book and the cash book
10. Accounting for sales tax
• A business does not keep the output sales tax it charges, because it pays
the tax back to the government. It therefore follows that its records of
sales should not include sales tax
• Example 11.2 pg
• If the input tax is recoverable, the cost of purchases should exclude the
tax
• If the input tax is not recoverable, the cost of purchases must include the
tax
11. The sales tax account
• The tax paid to or recovered from the authorities each quarter is the
balance on the sales tax account. These following items are post to the
sales tax account:
(a) the total input tax in the purchases day book (debit)
(b) the total output tax in the sales day book (credit)
(c) tax on cash sales (credit)
(d) tax on cash purchase (debit)
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Chapter 5 Completing ledger accounts
1. The journal (sổ nhật ký kế toán, nhật biên) keeps a record of unusual
movements between accounts. It is used to record any double entries made
which do not arise from the other books of prime entry.
• Sundry (tạp hóa) payable: payable to suppliers who have non-current

assets. Trade account payable: payable to suppliers who have supplied
raw material or goods for re-sale.
• Example 1.1 pg 89
• The correction of errors: errors corrected by the journal must be capable

of correction by means of a double entry in the ledger accounts. The
error must not have caused total debits and total credits to be unequal.
• Journal Voucher (chứng từ) is used to record the equivalent of one entry
in the journal.
2. The trial balance (bảng cân đối): is a list of ledger balances shown in debit and
credit columns.
• Balancing ledger accounts: at the end of an accounting period, all debits

on the account are totaled and so are all credits.
• If the total debits exceed the total credits, there is a debit balance on the
account
• If the total credits exceed the total debits, there is a credit balance on the
account
• If the basic principle of double entry has been correctly applied

throughout the period, it will be found that the credit balances equal the
debit balances in total
• Errors of transportation is when two digits in an amount are accidently

recorded the wrong way round (check by divide the difference by 9)

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• Errors of omission (bỏ qua): means failing to record a transaction at all,

or making a debit or credit entry, but not corresponding double entry.
• Error of principles (nguyên lý): involves making a double entry in the

belief that the transaction is being entered in the correct accounts, but
subsequently finding out that the accounting entry breaks the “rules” of
an accounting principle or concept.
• Errors of commission (ủy quyền): are when the bookkeeper makes a

mistake in carrying out his or her task of recording transactions in the
account.
• Compensating (bù trừ) errors are errors which are, coincidentally, equal
and opposite to one another.
• Suspense account: (tài khoản tạm thời) is an account showing a balance

equal to the difference in a trial balance. This is a temporary account
• Use and example, pg 95 - 100
3. Methods of coding data
• Each accounting system has a unique code which is what to be used to

identified the correct account for a posting
• Significant digit codes incorporate some digits which describe the item
being coded.
4. Manual and computerized systems
• All computer activities can be divided into three processes: input,

processing, and output
5. Batch processing and control totals
• Batch processing is where similar transactions are gathered into batched,

and then each batch is sorted and processed by the computer
• Control totals are used to make sure that there have been no errors when
the batch is input. A control total is used to make sure that the total value
of transactions input is the same as that previously calculated.
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6. Accounting systems (hệ thống kế toán)
• The principles of computerized accounting are the same as those of

manual accounting
• See advantages and disadvantages of accounting packages compared

with a manual system – pg 105
• Module (chương trình đơn vị) is a program which deals with one
particular part of a business accounting system.
7. Accounting modules:
• An accounting package consists of a number of modules which perfom

all the tasks needed to maintain a normal accounting function like
payables ledger or payroll. In modern system, the modules are usually
intergrated with each other.

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Chapter 6 Receiving and checking money
1. Control over receipts (biên lai): receipts have to be well controlled to ensure a
good cash flow. There are three key features of control: banking, security, and
documentation.
2. Example on three key features: page 118
3. Remittance advice (chứng từ thanh toán): shows which invoices the payment
covers. The paying company may send out its own remittance advice with its
payments. However, it is common now that the receiving company to send a
statement which has a detachable remittance advice as procedures to compare
receipts with remittance advice: page 120
4. Receipts given to customers: receipts is a document given by the seller to the

buyer when goods change hands in exchange for payment. It maybe a till
receipt, a written receipt or some other form of receipt:
• Till receipts (hóa đơn điện tử). Information on till recepit – page 121
• Written receipt (hóa đơn viết tay)
• Other types of payment: credit card, debit card, cheque, and banker dratf
(hối phiếu ngân hàng)
5. Ways in which customers pay: cash, cheque, credit or debit card.
• Distinguish between credit sales and cash sales
• A retail business (cash sale) will get fairly steady flow of receipts
• A trading business will get the bulk of its receipts on the date
credit customers are due to pay.
6. Cash: physical security considerations: holding cash create problems and

careful security procedures are required.
• Forgery (lừa đảo – tiền giả): frequently the case of larger denomination
(mệnh giá) notes
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• Theft (trộm cắp): can be reduced by cash register security, safes,

protective glass, strong box, security guards and collections, night safes,
frequent banking.
7. Cheques: is an unconditional order in writing addressed by a person to a bank,

signed by the person giving it, requiring the bank to pay on demand a sum
certain in money to or to the order of a specified person or bearer.
• Cheque guarantee cards: see page 126
8. Receipt of cheque payments
• Procedures: see page 126
9. Receipt of card payments: primarily used by individual, rather than by

company.
• Distinguish between transactions of credit card and debit card
10. EFTPOS (chuyển khoản điện tử)
• EFTPOS terminal: (cổng chuyển khoản điện tử)

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Chapter 7 Banking monies received
1. The banking system (hệ thống ngân hàng): central bank (ngân hàng trung ương)
and retail banks (ngân hàng thương nghiệp)
• The clearing system (hệ thống thanh toán) is the mechanism for
obtaining payment for cheques
• Bank settled cheques and credit through the clearing system, the
resulting debts between banks need to be settled
• The balances on these accounts are termed operational balances.
2. The banker/customer relationship
• Banker: put money and checks received on a customer’s behalf into his
account, take out all checks and order paid from the account by the
customers; keep the account which can be used for paying in or taking
out on the customer’s behalf.
• Contractual relationships (mối quan hệ theo hợp đồng): 4 main

relationships
• receivable/payable relationship: customer is the account payable of the

bank, and the bank is the account receivable of the customer
• Bailor/bailee (người gửi / người nhận): bank offer a safe deposit service
to the customers
• Principle/agent relationship (người đại diện): the bank act as an agent for
its customers
• Mortgagor/mortgagee relationship (thế chấp): customer asks a bank to

give a loan, secured by a mortgage.
• The fiduciary relationship (ủy thác): is not contractual. A special

relationship where one party is in a position to exert undue influence on
another and must therefore be shown to act in good faith.
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3. Procedures for banking cash: cash must be properly counted, and notes must be
listed by denomination (mệnh giá) on the paying-in slip (phiếu gửi tiền)
• Float (tiền dùng hàng ngày): is the money kept in the till at the end of the
day, so that the next day there is some cash available
4. Procedures for banking checks: detailed paying-in slip, include: name of

drawer, amount of check, total value of check, total value of check banked,
number of check banked.
• Returned/dishonored checks (check xấu): because of insufficient funds,

stolen checks, wrongly completed or out of date.
5. Procedures for card transactions: card voucher (biên lai thẻ) are processed
through the banking system, paying-in slip should be used. Also, card
summaries (phiếu tổng kết) should be prepared first.
6. Banking and EFTPOS: credit or debit card receipt via EFTPOS are credited
directly to the retailer’s bank account
• Retention of documents: all copies of receipts are kept in a safe place for
a minimum period of six months.
• End of day reconciliation (đối chiếu tài khoản)

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Chapter 8 Recording monies received
1. Controls over recording receipts: include segregation of duties and bank

reconciliation.
• Receipt may be recorded on a cash register (quầy tính tiền), or on

cash received sheets
• For accounting purposes, the receipt is not recorded in the

“books” of the company if it has not been entered in to the cash book.
2. Cash register:
• The more sophisticated and larger stores will have cash registers which
are connected to a central computer.
• The total daily sales recorded by the cash register will be used to: check
the amount of money in the cash register at the end of the day against the
summary, and record the receipt in the cash book.
• Cash register has to be secured and controlled.
3. Cash received sheets (remittance lists)
• Very small shops or business will just write down on a piece of

paper the money received as they sell something.
• Information include: account number, cash received sheet

number, bank account number, and total receipts
4. Posting cash receipts to the general ledger
• Cash receipt is only account for if we post the receipts side of the
book to the cash account
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• Example page 162
• Computerized accounting system follow the same principles as

manual systems
• In computerized system, receipts are normally posted directly to

the individual account on the computerized receivable ledger.
Chapter 9 Authorising and making payments
1. Control over payments: there are three steps in applying controls over
payments:
a. Obtaining documentary evidence of the reason why payment is being

made
b. Authorization of the payment
c. Restricting the authority to actually make the payment
• It is important to establish proper authorization procedures.

Every payment must be approved by an authorized person.
• Each organization has its own system: which individuals can

authorized particular expenses, and the maximum amount of expenditure
that an individual can authorize.
2. Check requisition forms

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• Are used when primary documentation such as an invoice has not been
received. Check requisition forms help to ensure authorization and
recording of payments.
• Check requisition form is an internal document for use within the

business, and so there is no standard design.
3. Expenses claim form (phiếu yêu cầu thanh toán kinh phí)
• Expenses paid by an employee for which the employee wants

reimbursement (hoàn trả) should be itemized on an expenses claim form.
• Proof should be given of the existence and the amount of the

expense, and this can be given by attaching receipts.
4. The timing and method of payments
• Period of credit: a period when the payment is due
• If the invoice is not paid by the specified date then it becomes

overdue (quá hạn)
• Decisions about who should be paid and when are made by a senior
person in the company, perhaps the chief accountant.
• Methods of payments: same as methods of receiving payments.

Most commonly used: checks, automated transfers, and internet
payments.
5. Payments by cash: cash payments are used for:
• Small payments out of petty cash
• Sometimes for wages
• Using cash to pay large amounts of money to suppliers ought to be

very rare indeed: cash need to be kept secure, can get lost, difficult to
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control over cash, and no evidence of payment if suppliers don’t issue

receipts.
6. Payments by check
• A bank will not permit a payment by check from a customer’s

account unless it has been properly signed.
• Specified individuals within the company will be permitted to sign a

check on behalf of the company.
• See procedures for preparing checks (step 1 – 7 page 177)
• Advantages of check payments: convenient to use for payment of

any amount, the check counterfoil to trace evidence, and they are widely
accepted
• Disadvantages: security problems with keeping checks safe from

theft and misuse, could be a slow method of payment
• Checks can get lost in the post: procedures to confirm if check has
been lost (pg 179)
• Procedures to stop the checks (page 181)
7. Bank giro credit (chuyển khoản): means by which payments might be

received from customers, it can also be used to make payments
8. Payments by banker’s draft
• A banker’s draft does not stop or cancelled after it has been issued
9. Payments by standing order (thanh toán định kì) and direct debit
• Standing order maybe used to make regular payment of a fixed

amount: hire purchase, rental payments, insurance premium.

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• The business must modified its bank: the regular payments, fixed
amount, frequency, and banking details of the supplier.
• Direct debits: are used for regular payment. It is the person who
receives the payments will initiates each payment. Payment can be for a
variable amount each time.
10. Documentation to go out with payments: when a payment is made, it is

usual to send out another document with the payment to inform the recipient
as to what the payment is for and who it is from. The documents might be:
• A remittance advice
• An order form
• A copy of a pro-forma invoice
• A bank giro credit
• A covering letter
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Chapter 10: Recording payments
1. Controls over recording payments: are important to avoid fraud and to

ensure completeness
• Fraud: someone who makes an unauthorized payment will want the

payment to be recorded, but the nature of the payment to be hidden.
• Procedures needed to prevent fraud: authorized payments, proper

documentations, segregation of duties, check for unusual payments, use
a minimum number of check books.
• Completeness: all payments need to be recorded
• Procedures needed to ensure completeness: bank reconciliations,

checks should be issued in sequences, segregation of duties, and regular
examinations on bank statements.
2. The cash book: recording payments
• To help control the business, we analyze the cash book into different
types of payments: cash purchases, payments to payable, sales tax,
cancelled checks, extent of analysis, and non-check payments.
• Discounts received and discounts allowed are recorded in a separate

column, a memorandum column which is not part of the cash book
balance.
3. Posting cash payments to the general ledger:
A. Follow the procedures:
• Add up the cash book columns
• Check the analysis column add up the total
• Identify relevant general ledger accounts

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• Draw up the posting summary and post to the general ledger
B. computerization of payments recording
• Updating the payables ledger for payments will usually cause the
cash book to be automatically updated.
• Payables ledger function can record and issue checks at the same
time
• Payables ledger program can: print check, update payables ledger,

update the cash book or cash account, and update the total payables
account in the general ledger.
C. recording in the payables ledger and cash book
• when a payment has taken place, a payable ledger system will

update the relevant supplier account in the payable ledger.
D. recording in the cash book
• if the manual cash book is kept, then the check total (from the
printed list of the check issued) would be entered in the cash book
• a computerized cash book will be updated automatically.
4. Returned checks: checks that have been drawn by the business, paid,
processed by the bank and then return to the business.
• Advantages of receiving returned checks: extra guard against fraud

as the account holder can check the signature, the amounts and the payee
on the check. Also provides an extra guard against the bank
• Disadvantages: the cost will outweigh the benefit; the filing and
storing of returned checks can become difficultly and costly; the number
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of queries surrounding payments is low, therefore keeping returned

checks should not be necessary.
5. Automated credit systems: are useful methods of making and recording

payments, they can save business time.
• Operate the electronic transfer of funds between accounts within the

banking system.
• Most important advantage: reduce the amounts of paperwork.
• Automated credit system are used for: standing orders, direct debits,
salaries, wages, and some one-off payments
• See procedures for using automated credit systems (pg 207)
Chapter 11: Maintaining petty cash records
1. The purpose of petty cash
• Petty cash is used to make small payments with notes and coins.
Payments must be properly authorized, and all transactions should be
supported by receipts and vouchers.
• Each business has its own policies and list of allowable items for
petty cash.

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• Petty cash can be made to employees and/or suppliers
2. Security and control of petty cash: all payments out of petty cash must be
authorized and evidenced by a voucher or receipts.
• Petty cash is controlled by petty cash officer or petty cashier: make sure
that cash is held in a safe place, actual payment is made, and payments
are properly authorized.
• Petty cash must be kept secure in a safe box or locked drawer. Only
petty cash officers are allowed to access petty cash box.
• Petty cash should not be used for large expenses because of security.
• There should be a maximum limit to the amount of any individual

payment
• Payments out of petty cash should be properly authorized by the

appropriate person.
• If there is no receipt to support a claim for payment, the petty cashier

should refer the claim to his or her supervisor. The payment should be
sanctioned by an authorized person, maybe the supervisor or manager of
the individual who is asking for the cash.
3. The impress system (chế độ chi vặt): is a system in which there is a

maximum amount of money in petty cash, the impress amount. The impress
amount varies from one organization to another, and maybe enough to make
petty cash payments in one month.
4. Petty cash vouchers: is the initial record of payment, it must be prepared by

the petty cashier whenever a payment is requested
• A voucher should contain these information: details of payment,

the amount paid, name and signature of authorizing person/ person
Vo Thi Thuy Tien

receive the money, date of payment, number of vouchers, and relevant

receipts.
• For the expenses not yet incurred, payment in advance must be

authorized by a supervisor or office manager. Petty cash should be
written out, but a receipt must be provided as soon as possible.
• When the voucher and the change are eventually received, the
petty cashier should alter the voucher to show the exact amount of the
payment
• For security and control reasons, there ought to be regular checks

on the float. Mistake and theft could be the reasons for discrepancy in
petty cash.
• When someone borrow cash, he or she must put an IOU into the
petty cash box, and for the purpose of petty cash, IOUs are equivalent to
cash
• When money is paid into petty cash, the petty cashier should
insert a voucher for the money received.
5. The petty cash book: petty cash payments are recorded from the vouchers
into the petty cash book. Vouchers should be in date order and numbered
sequentially and they should be entered into the petty cash book in order.
• The purpose of petty cash book: provide accounting record for petty
cash transactions, post petty cash expenses to the general ledger
• Cash receipts are recorded in the debit side, cash payments are
recorded in the credit side (see petty cash book on page 225)
6. Recording and analyzing petty cash transactions
• Petty cash payments are recorded to the right side (credit side) of
the petty cash book, vouchers are carried in sequential numbers.

29
• Column on the payment side will include: total payment, voucher

number, analysis column (type of expenses), details, sale tax. (see
example page 227)
• Petty cash receipts are recorded to the left side (debit side) of the
petty cash book.
• Column on the receipts side will include: total receipt, sales tax, net
receipt, and details column.
7. Recording petty cash transactions: sale tax
• VAT receipts: total payment, VAT paid, supplier’s name, address,

VAT number, date of payment
• VAT payments: total payment, VAT paid, the amount entered in

the analysis column for the expenses item will be total amount net of
VAT
8. Topping up the float: a new page in the petty cash book is started whenever
the impress float is topped up.
• Whenever the impress float is topped up by drawing more cash

from the bank, the petty cash book must be balanced off to complete one
double page and start the next. The balances must then be posted to the
general ledger.
• See the steps on page 237
• See example 8.1 page 237
Vo Thi Thuy Tien

Chapter 12 Bank reconciliation
1. Bank reconciliations (đối chiếu ngân hàng): is a comparison between the

bank balance recorded in the books of a business and the balance appearing
on the bank statement.
• The cash book of a business is the record of how much cash the
business believes that it has in the bank
• Common reasons that cause discrepancies: errors, bank charges/bank

interest, timing differences
2. The bank statement: is sent by the bank to its short-term receivables and
payables (customers with bank overdraft and customers with money in their
account) itemizing the balance on the account at the beginning of the period,
receipts into the account and payments from the account during the period,
and the balance at the end of the period.
• The balance the customer owed on his account at beginning of the

month
• New debts incurred by the customer
• Payments made by the customer during the month
• The balance the customer owes at the at of the month
• Bank statement includes: the statement date, account number, date,

sheet number, key, balance, check numbers, paying-in slip numbers,
direct debit payments and receipts, standing order payments and receipts,
charges, and interest.
3. Procedures for performing a bank reconciliation: the cash book and bank
statement will rarely agree at a given day. Several procedures should be

31
followed to ensure that the reconciliation between them is performed

correctly.
• Step 1: Identify the cash book balance and the bank balance
• Step 2: add up the cash book
• Step 3: identify the items appear on the bank statement but have not
been entered in the cash book
- standing orders and direct debits
- dividend receipts from investment
- bank charges and interest
• Step 4: Identify all reconciling items due to timing differences
- some check payments made by the business and entered in

the cash book, but have not been “clear”, and so do not
appear on the bank statement
- check received, entered in the cash book, and paid into the
bank, but which have not been cleared and entered in the
account by the bank
- See the profoma bank reconciliation (how the adjust the

balance – pg 253)
- Examples page 254, 256, 257
4. Reconciliations on a computerized system: there is no difference between

reconciling a manual cash book and reconciling a computerized cash book.
Vo Thi Thuy Tien

Chapter 13 Sales and sales return day books
1. Sale day book: lists the invoices raised by a business when it supplies
goods or services on credit.
• The function of sale day book: is used to keep a list of all the invoices
and credit notes sent out to customers each day (sale journal)
• The items listed in the sale day book should follow an unbroken
numerical sequence (invoice number) – Spoiled invoice (hóa đơn
hỏng/hủy) should be entered as well.
2. Sales returns day book: list the credit notes when goods are returned.
• It records the value of goods returned to the business by buyers, dealt

with the issue of credit notes.
• There might be no separate sales returns day book, with the return
being entered as figures in brackets in the sales day book instead.
3. Entering sales transactions in the day books
Method one
• Step 1: sales invoices are typed out
• Step 2: the details on invoices are keyed into the computer system
• Step 3: one of the “reports” which the computer is able to produce

might be listing of sales invoices and credit notes for a particular day.
The listing might be similar to the spreadsheet.

33
For packages producing invoices themselves
• Step 1: certain information will be input, such as the date, the

customer number, product codes and quantities
• Step 2: the computer package will use this information to produce

invoices
• Step 3: the package will collect the information on the invoices

and credit notes needed to create the sales day book.
For stocks and processing order system: as for the system recording stocks of
goods and system for the process sales order, the following applies:
• Step 1: the details of goods which a customer orders are keyed in

and recorded
• Step 2: when the goods are dispatched or sent out to the

customers, details of this dispatch can be keyed in to the computer
together with the number of the order which is being satisfied.
• Step 3: the computer with then produce a sales, invoices, using

the information it already has about the order.
• Step 4: reports maybe produced for sales and sales returns made
on a particular day or in a particular period to give the information which
a “traditional” sales day book would contain
4. Posting the day book totals
The day book totals for sales and returns are posted to the general ledger
receivables control account, the sales tax control account and the sale account.
The amount owed by individual customers are entered in the sales ledger
personal accounts (memorandum accounts)
Personal account: of each individual debtor maintained in the sales ledger

could address this situation.
Vo Thi Thuy Tien

• Each individual sales transaction is entered in the sales day

book and needs to be recorded in the personal sales ledger account of the
customers
• The day book totals need to be posted to the total debtor and
sales accounts in the general ledger.
Debtors control account: or sales ledger control account is maintained in the

general ledger to record in total the amount which are posted to the debtors’
individual personal memorandum accounts in the sales ledger.
• See diagram page 275
5. The double entry
Sales summaries: sales summaries in the sales day book are transactions having
two aspects:
- an increase in assets (receivable)
- an increase in income (sales)
Double entry: the double entry would be as follow
Debit Total debtors account XXX
Credit Sales account XXX
There is no need to record each sales transactions separately in the general

ledger as day book totals summaries all transactions.
Double entry with VAT: the VAT invoiced to its customers is an increase in the
liability of the business to pay VAT to the authority.
The double entry would be as follow:

35
Debit Total debtor account: XXX
Credit VAT account XX
Credit Sales account XX
Double entry with sales returns day book: The double entry would be as follow:
Debit VAT account XX
Debit Returns account XX
Credit Total Receivable account XXX
Vo Thi Thuy Tien

Chapter 14 The Receivable Ledger (sale ledger)
1. Personal accounts for credit customers
Definition: The receivable ledger contains the personal account of credit

customers of the business. An account must be kept for each customer so that
the business always has a full record of how much each customer owes and
what items the debts is made up of.
The personal account is needed because:
a. staff must be able to tell the customers the state of his account
b. send out statements to credit customers
c. keep a check on credit position on an individual customer (credit limit)
d. match payments against debts owed.
The receivable ledger accounts are written up as follow:
DEBIT: when invoices are entered in the sales day book (sale, send
invoices), they are also made in the debit side of the relevant customer
account in the receivable ledger.
CREDIT: when entries are made in the cash book (customers make
payment), or in the sales returns day book for goods returned, they are
made in the credit side of the relevant customer account.
1.4 See example page 288

37
2. Recording transactions in the receivables ledger
Example page 289
Posting transactions to the general ledger
• The payments received will be posted as debits in the

cash account
• Sales income excluding sales tax will be credits in the

sales account
• Sales returns excluding sales tax will be debits in the

sales return account
• Sales tax on sales and sales return will be credits and

debits respectively in the sales tax account.
• Total amount owed and the payments received will be

debits and credits of the total receivables account.
It should be noticed that:
• The total receivables account has a debit balance overall.
• The balances of individual receivable ledger accounts

and total balance on the general ledger should be equal.
Discount allowed:
• Is posted as a DEBIT to a discount allowed account and

as a CREDIT to the trade receivable / receivable control account
• The cash received and discount allowed accounting

entries would ensure that the total debt is cleared.
Vo Thi Thuy Tien

3. The age analysis of receivables and other reports
Definition: An age analysis of receivables break down the customer balances on

the receivable ledger into different periods of outstanding debt.
Usage of age analysis debtors:
• Correspondence in relation to some of these items
• Investigate some older invoices under dispute
• Perhaps recognized debtors under financial difficulties
• Providing information on the state of individual accounts
• Give a broader picture of the total debtors of business
• If there are high number of debtors, credit control

department should address the situation
• Review customers credit limits
Uses of other reports:
Sales day book
• The date of the item
• The account reference
• A transaction reference (invoice number)
• Type of transaction (invoice, credit note or adjustment)
• Net total before VAT
• VAT
• Gross total

39
Statement of accounts
• Send to customers at end of each month
• Tell customers how much they owe the business
• Shows details of transactions
VAT analysis
• Show how much output tax has been involved
• Shows how much input tax to be collected.
Sales analysis
• Allows the business to analyze sales
• The configuration of the system relates to the types of

sales information
4. Irrecoverable debts
Bad and doubtful debts: having little or no respect of business being paid
• The customer has gone bankrupt
• The customer is out of business
• Dishonestly maybe involved
• The customers in another country might be prevented

from paying by the unexpected introduction of foreign exchange control
restriction by their country’s government during the credit period
Vo Thi Thuy Tien

Bad debts written off : ledger accounting entries give rise to:
• Bad debt account in the general ledger
• A double entry system that is very straight forward
DEBIT: Bad debt account (expense)
CREDIT: Total debtor account
See example page 305.
Bad debts and sales tax: a business may be able to claim relief from sales tax on
the following irrecoverable debts
• At least six months old (from the time of supply)
• Written off in the accounts of the business
Sales tax irrecoverable debt relief is accounted for as follows:
DEBIT: Sales tax account
Irrecoverable debts
CREDIT: Total receivable

41
Chapter 15 Purchase and purchase return day books
1. THE PURCHASE DAY BOOK
1.1 The purchase day book : is used to keep a list of all the invoices received
from suppliers of goods and services to the business. It is a book of prime
entry or primary record and not a ledger account.
1.2 The importance of the purchase day book
- Keep track of all purchase transactions.
- To make a single payment to a supplier.
- To pay close to the end of the credit period.
- Keep records of the total purchases.
- Helps the cash flow of the business.
- Prevents overdraft and the interest on the overdraft.
- Does not lose interest in the amount in the bank statement.
1.3 Example
Net Sales Gross

Supplier
Date Ref Supplier name Total Tax Total
A/c no
$ $ $
10.01.X7 1423 V. Princely 4009 152.00 26.60 178.60
1424 Grantcroft Ltd 5020 28.00 4.90 32.90
1425 Midnorth Electric 4010 116.80 20.44 137.24

pic
1426 5008 100.00 17.50 117.50
Harley & Co
1427 3872 278.00 48.65 326.65
Cardright
674.80 118.09 792.89
Total
Vo Thi Thuy Tien

2. THE PURCHASE RETURNS DAY BOOK
Definition: The purchase returns day book lists credit notes received in
respect of purchase returns in chronological.
3. ENTERING PURCHASE TRANSACTIONS IN THE DAY BOOKS
3.1 Analyzing purchases
Purchase day book may have further columns which splits the purchases into
different categories.
Details of suppliers are as follows:
Supplier
Ref Supplier name Details
A/c no
1423 V. Princely 4009 Paper
1424 Grantcroft Ltd 5020 Ink
1425 Midnorth Electric pic 4010 Electricity
1426 Harley & Co 5008 Desk fans for Amin Office
1427 Cardright 3872 Card
3.2 Analyzing purchase day book
(Refer to Table in the text book)
How purchases are analyzed will depend on the nature of the business. There
may be separate books for inventory purchases and expenses (expense day
book)
4. POSTING THE DAY BOOK TOTALS TO GENERAL LEDGER
4.1 Posting into general ledger
In the general ledger, a TOTAL CREDITOR ACCOUNT (or purchase ledger

control account) will be maintained to record in TOTAL the amount which are
posted individually to the creditors personal accounts in the purchase ledger.

43
If the business purchases something in CREDIT from a supplier, the double

entry will be:
• A CREDIT to the total creditors account

(the control account)
• A DEBIT to either purchases, or

expenses, depending on whether the item is a purchase or stock, or an
expense such as office stationery, electricity, sundry expenses or fixed
assets (if the item is capital expenditure).
4.2 Posting day book total
$ $
DEBIT Purchase/ expense account X
CREDIT Total creditors account X
SALES TAX AND PURCHASES
DEBIT Purchase/ expenses X

account
X
Sales tax account
CREDIT X
Total creditors account
X
Total creditors account
DEBIT X
Sales tax account
CREDIT X
Purchases/expenses
4.3 Posting purchases and returns example
The following credit note (in respect of damaged paper) is shown in the
purchase returns day book
Vo Thi Thuy Tien

Megatype Printers for 10.01.X7 RDB07

Ref Supplier Net Sales Gross
A/c no Total Tax Total
C014 4009 $30.00 $5.25 $35.25
Posting summary for the purchase
$ $
DEBIT Paper account 152.00
Card account 278.00
Ink account 28.00
Electric account 116.00
Other expense account 100.00
Sales tax account 118.09
CREDIT Total creditors account 792.89
792.89 792.89
The purchase return would be the following
$ $
DEBIT Total creditors account 35.25
CREDIT Sales tax account 5.25
Paper account 30.00
35.25 35.25

45
Chapter 16 The Payables ledger
1. PERSONAL ACCOUNTS FOR SUPPLIERS
1.1 Personal accounts for suppliers
The personal accounts showing how much is owed to each credit supplier of
the business are contained in the purchase ledger, or payables ledger
1.2 The need for personal accounts
- To answer inquiries on payment of full balance due to suppliers.
- Staff can verify the balance claimed and when it’s due for payment.
- Business can receive statement of account from suppliers.
- Business needs to maintain its own records on how much it owes the
suppliers.
- Business needs to maintain a complete record of the items making up the

balance.
- It can make appropriate payments on regular basis to suppliers.
- To make it easy for business to make monthly payments covering few

invoices
1.3 The payables ledger
Payables ledger accounts are written up as follows:
- When entries are made in the purchase day book (for suppliers’ invoices
received), they are also made on the credit side of the relevant supplier account
in the purchase ledger.
- Entries made in the purchase returns day book (credit note received) are
entered on the debit side of the supplier’s account.
Vo Thi Thuy Tien

- When entries are made in the cash book in respect of payments made to
suppliers, they are also made on the debit side of the relevant supplier account.
- Discounts received for prompt payment (cash book) are entered on the debit
side.
The entries recorded in the supplier’s account can be represented by a “T”–

account, as follows.
SUPPLIER ACCOUNT
On the debit side $ On the credit side $

Payment made X Invoices received X
Purchase returns X
Discounts received X
1.4 Example
BUNTE CO PL32
Date Details $ Date Details $

15.03.X7 Cash 150.00 15.03.X7 Balance b/d 200.0
0
16.03.X7 Balance c/d 365.00 15.03.X7 Invoice rec’d PDB
37 315.0
515.00
0
515.0
16.03.X7 Balance b/d 0
365.0
0
1.5 Debit balance

47
Debit balances in the payables ledger are unusual, but they can arise in these
following situations:
- An overpayment of the supplier’s balance might be made in error.
- A credit note might be received after full payment has been made of the
balance.
If debit balances are arising on payables ledger accounts frequently, some

investigation may be called for. The occurrence of debit balances could indicate
that procedures in the payables ledger department need to be improved.
1.6 Trade account payable
Trade account payable consists of those liabilities which are related to the trade
of the business.
Trade payables include those businesses and organizations which supply the
business with goods for the trading inventories of the business (the “raw
materials” of the business) as well as suppliers of other goods such as office
suppliers and services, such as the telephone company, the electricity company,
and the garage which repairs the vehicles owned by the business.
1.7 Other payables
- Liability to pay wages and salaries.
- Taxes collected by business on behalf of third parties.
- Amounts payable for goods and services not related to main trade (e.g
purchase of fixed assets)
- Overhead expenditure (e.g rent sometimes processed as other creditors)
2. PURCHASE LEDGER POSTING
(Refer to the diagram on the text book)
Vo Thi Thuy Tien

3. PAYMENT TO SUPPLIERS
3. 1 Method of payment
METHOD COMMENTS
Cash An unusual method for business to use to pay its suppliers,
although it will be used for small non-credit “petty cash”
purchases.
Cheque Still the commonest method of payment.
Interbank An increasingly common means of making payments to suppliers,
transfer for example using the automated credit system. The system can
save administrative time since, instead of making out of individual
cheques and sending each by post, details of a full payment run to
the suppliers of the business can be submitted to the business’s
bank on computer tape or disk, and the funds are then transferred
to suppliers’ bank accounts electronically through the bank
clearing system. There may also be savings in bank charges using
this system.
3.2 Selecting items for payment
Deciding who and when to pay is a key function of a business’s management

and only a senior person should decide
All systems Computerized payables ledger systems

The items for A “suggested payments” listing may be produced,
payment may be “suggesting” how much should be paid to which
selected manually suppliers, based on information on settlement days and
any discounts which may be offered. A payments listing
of this sort generated by computer will normally need to
be checked through manually in case there are any reasons

49
to make a different payment from that “suggested”

It queries on any There may be a facility to “flag” items which should not
invoices are to be be paid for the time being. For example, the invoice in the
raised with the reference used for the disputed invoice. The “dispute”
suppliers, there designation will need to be “ released” when the dispute
needs to be has been settled so that the item can be paid in the normal
procedures to way
ensure that the
invoice is not paid
until the query has
been settled
It may be desirable The number of days before settlement can be recorded for
to take the full each supplier. This indicates the time period before
period of credit payment is to be made. A computerized payables ledger
from each supplier. which offers the option of making automatic payment will
automatically list all items which are now due to be paid.
This will exclude the following:
(a) Items which have not yet reached their settlement date.
(b) Items which are “in depute”
3.3 Checks over payment
It is important for a business to have a procedure to ensure that only valid

payments are made.
Procedure Effect
Cheques will need to be signed by the For cheques produced by a
authorized cheque signatories which are computerized payables ledger system,
recognized by the bank as authorized to the password restrictions should limit
sign cheques the value of cheques which different
users can authorize
Authorization of payments by an The bank will pay the cheque as
appropriate official, who could be a requested
senior employee or director of the
Vo Thi Thuy Tien

organization
Details and appropriate supporting Documents supporting payments are
documents for each payment should be reviewed by people who are
presented to the person who must sign independent of the preparation and
each cheque (say the general manager) processing of the documents. The
person carrying out this review will
“Appropriate supporting documents”
check for any unusual items which
may consist of the suppliers’ invoices
might deserve further investigation.
which are to be paid, authorized by an
appropriate staff member, together with
the goods received note or other
document recording receipt of the goods
invoiced.
4. THE AGE ANALYSIS OF PAYABLES AND OTHER REPORT
4.1 The age analysis of payables
- The age analysis of payables will consist of a listing of payables’ balance

analyzed between different “ages” of debt represented by different items in the
balance, measured in months (usually).
- The age analysis of payables serves to highlight any supplier accounts which
are long overdue.
- Information used for better cash flow management.
- Analysis is less of importance as compared to age analysis of debtors.
4.2 Other reports
Other reports which a computerized payables ledger package is able to print out
will be very similar to those produced from a receivables ledger package.

51
5. CONTRA ENTRIES WITH THE RECEIVABLES LEDGER
Sometimes, a business might both purchase goods from and sell goods to the
same person on credit.
a. Purchases will be entered in the purchase day book when invoices are
received, and an entry subsequently recorded in the supplier’s account in the
payable ledger.
b. Credit sales will be entered in the sales day book when invoices are sent out,
and an entry subsequently recorded in the customer’s individual account in the
receivables ledger
Even though the supplier and the customer are one and the same person, he will
have a separate account in each ledger. For example, if A owes B $200 for
purchases and B owes A $350 for credit sales, the net effect is that B owes A
$150. However in the book of A
- There would be a payable in the payables ledger – B – for $200
- There would be a receivable in the receivable – B – for $350
Now, if A and B decide to settle their accounts by netting off their respective
debts (and getting B to write a single cheque for the balance), settlement would
be made in contra.
The contra entries in the accounts of A would be to set off the smallest amount
($200 owed to B) against the larger amount ($350 owed by B).
a. In the receivables ledger and payable ledger
DEBIT Payable’s account (B) payables ledger – to clear $200
CREDIT Receivable’s account (B) receivable ledger $200
- Leaving balance of $150
b. In the general ledger
DEBIT Total payables $200
CREDIT Total receivables $200
Vo Thi Thuy Tien

The contra entries must be made in both the personal accounts of B and also in
the total payables and receivables accounts in the general ledger.

53
Chapter 17 Control Account

1. INTERNAL CHECK
1.1 Internal check
Internal check is concerned with the maintenance of accounting records. Internal

checks, sometimes known as internal control, ensure that transactions to be recorded
and processed have been authorized, that they are all included and that they are
correctly recorded and accurately processed.
1.2 Types of internal check
- A trial balance.
- Bank reconciliations.
- Control account reconciliation.
- Segregation of duties.
- Authorization.
2. CONTROL ACCOUNT
2.1 Control account
A control account is an account in the nominal ledger in which a record is kept of

the total value of a number of similar but individual items. Control accounts are used
chiefly for receivables and payables.
Vo Thi Thuy Tien

2.2 Entries in control account
2.2.1 Sales ledger (debtors) control
SALES LEDGER (DEBTORS) CONTROL
Folio $ Folio $
Opening balance b/d 7,120 Cash received CB 52,450
Sales SDB 52,500 Discount allowed CB 1,250
Dishonored cheques Jnl 1,000 Return inwards SRDB 800
Bad debts Jnl 300
Closing balance c/d 5,820
60,620 60,620
Debit balance 5,820
Note: Opening credit balances are unusual in the debtors control account. They
represent debtors to whom the business owes money, probably as a result of the over
payment of debts or for advance payments of debts for which no invoices have yet
been sent.
2.2.2 Purchase ledger (Creditors) Control
PURCHASE LEDGER (CREDITORS) CONTROL
Folio $ Folio $
Cash paid CB 29,840 Opening balance b/d 8,300
Discount received CB 100 Purchase and other PDB 31,100

expenses
Return outwards PRDB 60
Closing balance c/d 9,400
39,400 39,400
Credit balance 9,400
Note: Opening debit balances are unusual in the payable ledger control account. They
represent suppliers who owe the business money, perhaps because debts have been

55
overpaid or because debts have been paid or because debts have been prepaid before
the suppliers has sent an invoice.
2.3 Reasons for having control accounts
- Provide a check on accuracy
+ Compare total balance on the debtors control account with the total of
individual balances of the personal accounts.
+ Compare total balances on the creditors control account with the total of
individual balances.
- Assists in the location of errors in posting.
- Provide internal check through separation of duties.
- To extract simply and quickly.
3. CONTROL ACCOUNT RECONCILIATION
3.1 The control account should be balanced regularly and the balance should be agreed
at all times.
Likely mistakes or errors that may occur due to the following:
- Incorrect amount may be posted.
- A transposition error.
- An entry in ledger is missed out.
- Incorrectly extracted or miscast.
3.2 Agreeing account balances
Reconciling the control account balance with the sum of the balances extracted from
(memorandum) sales ledger or purchase ledger should be done in two stages
Stage 1: Correct the total of the balances extracted from the memorandum ledger, (the
errors must be located first of course)
$ $
Vo Thi Thuy Tien

Sales ledger total 15320
Add differences from transposition error ($95 written as 36

$59)
15356
Less
Credit balance extracted as debit balance ($60x2)

120
Overcast of list of balances
90 210
15146
Stage 2: Bring down the balance before adjustments on the control account, and adjust
or post the account with correct entries.
DEBTORS CONTROL ACCOUNT
$ $
Balance before adjustment 15,091 Petty cash-posting omitted 10
Returns inwards-individual 35
posting omitted from control
account
15,146
Balance c/d (now in agreement
Undercast of total invoices 100 with the corrected total of
issued in SDB individual balances in (stage 1)
15,191 15,191
1514
Balance b/d 6

57
Chapter 18 Recording Payroll Transactions

1. THE NATURE OF PAYROLL
1.1 Payroll
A payroll is a list of employees and what they are to be paid. Being on the payroll
of an organization means that you are selling your labor to it for an agreed price;
you are in paid employment and employer benefits from your skills and your time.
1.2 The nature of payroll
It involves three following categories:
- Payroll and the employee
- Payroll and the employer
- Payroll and the government
- Employer’s legal responsibilities to collect income tax.
2. GROSS PAY AND BASIC PAY
2.1 Gross pay
Gross pay is what an employee earns. It is not what the employee actually
receives in cash or by transfer to the bank account.
2.2 Basic pay
Basic pay is the rate for the job, and what an employee expects to receive for a
normal period’s work, irrespective of overtime and so forth.
3. METHODS OF CALCULATING
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3.1 Methods of calculating employee’s earnings
- The same amount every month
- On an hourly rate
- Piecework
- Piecework hours
- Differential piecework
3.2 Other ways of remunerating employees
- Overtime.
- Bonus scheme.
4. OVERTIME, BONUS PAYMENT AND COMMISSION
4.1 Overtime
Overtime is payment for work done in excess of an employee’s hours at basic rate
pay.
A number of overtime rates offered
- 40 hours at a basic rate of $4 per hour.
- The first ten hours overtime at time and a haft (i.e $6)
- Overtime over and above ten hours at double time (basic rate times two, in
this case $8 per hour)
4.2 Bonus payment
Bonus payment is an extra payment made to an employee (or a group of

employees) as a relevant for results achieved.
4.3 Commission

59
Commission is a payment made to an employee (or agent) base on the value of

something (usually sales the employee (or agent)) has generated.
A number of ways of commission offered
- Straight percentage
- Sliding scale
- Increasing with total volume of sales
5. PAYROLL ADMINISTRATION AND DOCUMENTATION
5.1 Personnel department
- A personnel record.
- A record attendance card.
5.2 Payroll function
- Calculation of gross pay.
- Calculation of tax, national insurance and other deductions.
- Preparing payslips.
- Making appropriate returns to external agencies.
- Making up wages, or preparing tapes for bank transfer.
- Distributing payslips.
- Preparing payroll statistics.
5.3 Documentation – salaries employees
The personnel records held in the personnel department how much each salaried
employee is to be paid, and for what periods.
5.4 Documentation - hourly paid employees
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- Time recording clock.
- Attendance cards
+ Time workers
+ Piece workers
- Job time booking
+ Daily time sheets
+ Weekly time sheets
+ Job card
+ Route cards
- Timesheets for salaries staff
6. PAYROLL DEDUCTIONS
6.1 GAYE
- Stands for Give as You Earn
- Employee donates to charitable organisation
- Payroll Giving
- Employer pays a collected amount to an approved agency charity such as

CHARITY AID FOUNDATION.
- Employer can deduct 5% of the donations as administration cost.
6.2 Income tax – PAYE system
- PAYE covers all the employees
- PAYE does not cover te seft-employed
- UK PAYE system (employer given Tax Office and PAYE reference number)
- Employees have the same Tax Office

61
- UK Tax year 5 April to 6 April next year
- Each year divided into weeks. Weekly paid staff, and months, for monthly paid
staff.
6.3 Other forms of contributions deducted
- SAYE (Save As You Earn)
- Deducted from the net pay
- Deduction done via BACS
- Trade Union Contributions
- Pension contributions, can come from:
+ The employer only (non-contribution pension scheme)
+ The employer and employee (contribution pension scheme)
6.4 National Insurance
- Compulsory savings for employees
- Born by employer and employee
- For dunding benefits such as:
+ Unemployment benefit
+ Income support
+ The state pension scheme
+ The National health Service
- National Insurance payments known as National Insurance Contributions

(NICs)
7. PAYMENT METHODS
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- Payment are usually made either by cheque or increasing by credit transfer.
- The payslip is second in importance only to the actual money received. A

payslip must show:
+ An employee’s gross pay
+ Deductions from gross pay and what they are
+ Net pay
* Compulsory Disclosures
- Employer’s name
- Employee’s name
- Gross pay, showing how it is made up
- Additions to and deductions from pay
- Employee’s pension contribution, if any
- Statutory Sick Pay, if any
- Statutory Maternity Pay, if any
- Tax paid to Date (i.e. in the current tax year)
- Tax in the period
- NICs for the year
- Date
- Net pay
- The method of payment for each segment of net pay, if they are paid in
different ways.
* Not compulsory but usually disclosed
- Employee’s tax code
- NICs to date (i.e. in the current tax year)

63
- The employee’s payroll number
- The employee’s National Insurance number
- The method of payment
7.1 Cash payments
Cash payment still occurs occasionally in the case of
+ Part time employees
+ Temporary staff
+ Casual staff.
* Reasons for abandoning cash payment
- Counting notes and coins by payroll staff
- Employees counting the notes and coins
- Note and coins to be prepared from the bank and worked out
- Handing and transporting the poses security problem
* Reasons for cheque payment
- Simplest form of cashless pay
- Can have strict control over payments because sequential numbers
- An employee joining during the month
- Advance of salary
7.2 Ordering money
Because of the cost in time and inconvenience of cash payment, employers are
increasingly using other methods of payment:
+ Giving employees a cheque which they themselves present to the bank.
+ Using automated credit systems to transfer the amount automatically between

bank accounts.
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8. UPDATING THE RECORDS
- Record of each payment has to be maintained on cumulative basis. The

following are the reasons:
+ Explain an organisation’s total labour cost
+ Cost can be correctly allocated to the right departments
+ Occupational pension operated by employer could be recorded
+ Employee who borrow money from the company can be recorded
+ To ensure reconciliation on between gross and net pay.

65
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1

Paper 1 – Recording Financial Transactions

Chapter 1 Business Transactions and Documentation

1. Types of business transaction (giao dịch)

• Business: commercial organization (tổ chức kinh doanh), large or small,

• Sales: cash sales & credit sales

• Purchases: purchase for cash, purchase on credit

2. Documenting business transactions

• External documentation: letter of enquiry, quotation, sales order, etc.

• Internal documentation: purchase order, inventory list, supplier lists

• Accounting system: record, summarize, and present the information

3. Invoices and credit notes

• Invoices: are created when there is a sale or a purchase. Invoice is a

• E-commerce: increase the volume of using credit and debit cards.

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4. Discount, rebates, and allowances

• Rebates (hồi khấu) Allowance (khoản miễn giảm)

• Gross price = Net Price + Sale tax

• Output sales tax: is charged on sales

• Input sales tax: is incurred on purchases

• A company’s retention policy sets down how long different kind of

• Demand for information: within the organization, people and groups

ACCA Centre – Duy Tan University

Chapter 2 Assets, Liabilities and the accounting equation

1. Accounting fundamentals = double entry bookkeeping (kế toán kép)

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3. Liabilities: is something which is owed to somebody else

• Examples: bank loan, bank overdraft, tax owned to the government

4. A business is separate from its owner

• Limited liability companies: liabilities of shareholders (cổ đông) is

• A business must always be treated as a separate entity from its owners

5. The accounting equation

a. Assets = Capital + Liabitities

b. Assets = (capital introduced + Retained Profits) + Liabilities

6. Increase in net assets

Net assets = Total Assets – Total Liabilities

ACCA Centre – Duy Tan University

• Assets = Capital introduced + (Earned Profit – Drawings) + Liabilities

8. Account payable and account receivable

• Account Payable: is a liability of the business (buy on credit)

• Account Receivable: is an asset of a business (sell on credit)

9. Double entry bookkeeping (kế toán kép)

• Total value of debit entries is always equal at anytime to the value of

• Each assets, liability, item of expense or item of income has a ledger

• See summary table and questions on pg 41

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Chapter 3 Statement of Financial Position

and Income Statement

• Revenue expenditure: (chi phí kinh doanh)

2. Statement of financial statement position is a statement of the assets, liabilities

• Statement of financial statement is divided into two halves: one shows

• Distinguish depending on type of business (example pg 47)

ACCA Centre – Duy Tan University

• Net profit (lợi nhuận ròng) = gross profit – expenses (selling,

• Example of income statement on pg 49

• Overhead category table pg 49

8. Capital Expenditure: is expenditure which results in the acquisition of non-

• Results in the appearance of a non-current assets

• Is not charged as an expense in the income statement

9. Revenue Expenditure: incur either

• For the purpose of the trade of the business

• Maintain existing earning capacity of non-current assets (repairs)

• Is shown in the income statement as expense