Association of Accounting Technicians (AAT) Principles of Bookkeeping Controls (Level 2) Syllabus

Principles of Bookkeeping Controls (Level 2) syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Principles of Bookkeeping Controls (Level 2) in Association of Accounting Technicians (AAT), not a summary of it.

1. 1

   Control Accounts

   4 topics

   • Sales ledger control account
     • Reconciling to the subsidiary ledger
     • Identifying and correcting differences
   • Purchases ledger control account
   • VAT control account
     • Entries owed to and from HMRC
     • Reconciling the VAT account
   • Purpose and benefits of reconciliation
2. 2

   The Journal

   4 topics

   • Using the journal as a book of prime entry
   • Recording opening entries for a new business
   • Journal entries for irrecoverable debts
     • Writing off debts and the VAT impact
   • Journals for payroll transactions
     • Gross pay, deductions and net pay
     • Employer's NIC and pension contributions
3. 3

   The Trial Balance and Error Correction

   4 topics

   • Preparing the trial balance
     • Extracting ledger balances
   • Errors not disclosed by the trial balance
     • Error of omission, commission and principle
     • Error of original entry and reversal
     • Compensating errors
   • Errors disclosed by the trial balance
   • Using the suspense account
     • Clearing the suspense account by journal
4. 4

   Bank Reconciliation

   4 topics

   • Comparing the cash book to the bank statement
   • Identifying timing differences
     • Unpresented cheques
     • Outstanding lodgements
   • Updating the cash book
     • Bank charges, interest and direct debits
     • Dishonoured cheques
   • Preparing the bank reconciliation statement

Principles of Bookkeeping Controls (Level 2) flashcards for Association of Accounting Technicians (AAT)

18 of 67 cards from the Principles of Bookkeeping Controls (Level 2) deck — real questions with worked answers.

1. What is the purpose of a sales ledger control account (SLCA)?

   It is a summary account in the general (nominal) ledger that records the total of all transactions with trade receivables (credit customers). It shows the total amount owed to the business by all credit customers and acts as a check on the individual accounts in the subsidiary sales ledger.

2. On which side of the sales ledger control account do credit sales appear, and why?

   Credit sales are entered on the debit side. Trade receivables are assets, so increases (sales made on credit) are debited to the control account.

3. List the typical entries on the DEBIT side of the sales ledger control account.

   Opening balance (amount owed by customers), credit sales, dishonoured (bounced) cheques, and interest charged to customers on overdue accounts.

4. List the typical entries on the CREDIT side of the sales ledger control account.

   Receipts/money received from customers, sales returns (returns inwards), discounts allowed, irrecoverable (bad) debts written off, and contra/set-off entries with the purchases ledger.

5. What is a contra (set-off) entry in control accounts?

   When a person or business is both a customer and a supplier, the amount owed can be offset. The contra is credited in the sales ledger control account and debited in the purchases ledger control account, reducing both balances by the same amount.

6. What is the purpose of a purchases ledger control account (PLCA)?

   It is a summary account in the general ledger recording the total of all transactions with trade payables (credit suppliers). It shows the total amount the business owes to all credit suppliers and provides a check on the individual accounts in the subsidiary purchases ledger.

7. On which side does the closing balance of a purchases ledger control account normally appear?

   On the credit side. Trade payables are a liability, so the account normally carries a credit balance representing the total owed to suppliers.

8. List the typical entries on the CREDIT side of the purchases ledger control account.

   Opening balance (amount owed to suppliers), credit purchases, and interest charged by suppliers on overdue amounts.

9. List the typical entries on the DEBIT side of the purchases ledger control account.

   Payments made to suppliers, purchases returns (returns outwards), discounts received, and contra/set-off entries with the sales ledger.

10. What is the purpose of the VAT control account?

    It records all VAT a business has charged on sales (output tax) and all VAT it has paid on purchases and expenses (input tax). Its balance shows the net amount owed to, or reclaimable from, HMRC.

11. In the VAT control account, on which side is output VAT recorded and on which side is input VAT recorded?

    Output VAT (VAT on sales) is recorded on the CREDIT side as it is owed to HMRC. Input VAT (VAT on purchases/expenses) is recorded on the DEBIT side as it is reclaimable from HMRC.

12. How is the amount payable to (or reclaimable from) HMRC determined from the VAT control account?

    $$\text{VAT due to HMRC} = \text{Output VAT} - \text{Input VAT}$$ A credit balance means VAT is payable to HMRC; a debit balance means VAT is reclaimable from HMRC.

13. What does a credit balance on the VAT control account indicate?

    Output VAT exceeds input VAT, so the business owes VAT to HMRC (a liability).

14. Calculate the VAT on a net sale of £200 at the standard UK rate of 20%, and the gross (VAT-inclusive) amount.

    $$\text{VAT} = 200 \times 0.20 = \pounds 40$$ $$\text{Gross} = 200 + 40 = \pounds 240$$

15. How do you extract the VAT amount from a VAT-inclusive (gross) figure at 20% standard rate?

    $$\text{VAT} = \text{Gross} \times \frac{20}{120} = \text{Gross} \times \frac{1}{6}$$ For example, a gross figure of £240 contains $240 \times \frac{1}{6} = \pounds 40$ of VAT.

16. What is reconciliation in the context of control accounts?

    Reconciliation is the process of agreeing the balance on a control account (in the general ledger) with the total of the individual balances in the corresponding subsidiary ledger, to confirm they match.

17. State the key purpose and benefits of preparing control account reconciliations.

    They check the accuracy and completeness of the ledgers, help detect errors and fraud, provide a control/internal check (separation of the person posting individual accounts from the one posting totals), and give assurance that the receivables/payables figures used in financial statements are reliable.

18. How is a sales ledger control account reconciliation performed?

    The closing balance on the SLCA is compared with the total of all individual customer balances listed from the subsidiary sales ledger. Any difference is investigated and corrected until the two figures agree.

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