Bookkeeping work-place scenario Answer book Adewale Babatunde. February AAT is a registered charity. No

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1 Bookkeeping work-place scenario Answer book Adewale Babatunde February 2017 AAT is a registered charity. No

2 Notes for tutors This scenario covers topics from the AQ2016 Foundation level units: Bookkeeping transactions and Bookkeeping controls. This resource can either be used as homework for your students or used in the classroom. However this resource is used, we advise that you go through the scenario with your students after they have completed it to help identify key areas they should focus on. This resource should not be reproduced or used for anything other than an AAT qualification. 2

3 Background Adewale Babatunde runs a part-time business developing and managing websites for small businesses in his local area. This includes setting up, registering and renewing web-site domains, keeping websites updated and implementing and checking on-line ordering and payment systems are working and are safe and secure. Although he currently generates income below the annual VAT registration threshold, he is registered as a VAT business because at times his income exceeds the registration threshold. The VAT rate is charged at 20%. In the next couple of years, he is considering going full-time once his children are older, so is likely to be consistently earning above the registration threshold. Adewale has employed you as an Accounts Junior to help him keep his paperwork and accounts systems up to date. The year end is 31 May 20X9. Below is a price list for his work. Service Activity Fee Domain Names.co.uk or.biz 3 per year.com 10 per year Hosting Web server 10 per month Own server 60 per month Website build 1 to 10 pages per hour Maintenance of online and payments systems Own server Web server Own server 60 per month 30 set up, plus 20 per quarter 30 set up, plus 40 per quarter Packages Small first website Small Business website Medium-sized website Large-sized website Domain and hosting Design 600 1,200 1,800 3,000 Ongoing costs 10 per month 30 per month 60 per month 60 per month Content creation 1,000 1,500 Mobile responsive 2,000 Programming 2,000 3,000 4,000 Total cost 770 3,660 6,820 11,520 3

4 Task 1 Adewale has been sorting through some paperwork and realised that he has a new customer account that has not yet been processed. He has provided you with the details and asked you to raise the invoice. Today s date is 26 May 20X9. Customer s to be invoiced Account details Yosi Fulder Ltd 101 Parsonage Road Thornton-Cleveleys Lancashire FY5 6BS Tel: Customer ID YFL02 1 x small business website domain & hosting 1 x design Ongoing cost for 12 months 1 x programming Credit limit 5,000 Payment terms: 30 days PPD 5% if paid within 10 days Enter the above details into the invoice below. INVOICE To: Yosi Fulder Ltd 101 Parsonage Road Thornton-Cleveleys Lancashire FY5 6BS Tel: Adewale Babatunde Website Specialist 9 Wheeton Crescent Thornton Cleveleys FY3 7WB Telephone: : 26/5/20X9 PO: Customer ID: YFL02 Unit price Net total Quantity Description 1 Small Business Domain and Hosting Web design 2 page 1,200 1,200 1 Programming 2,000 2, On-going costs Payment terms: 30 days PPD 5% if paid within 10 days sub total 3,660 VAT 732 Total 4,392 4

5 Task 2 Adewale has sent you a summary of the Sales day book and has asked if you could enter the invoice you have just completed in Task 1 and calculate the totals. He would like to see what sales he has made over the last couple of days. Summary of Sales day book Customer name ID Invoice No. Gross VAT SDB 18 Net 25/05/20X9 W.Row Estate Agents WRE , , /05/20X9 M2 Landscapes MLA , , /05/20X9 Yosi Fulder Ltd YFL , , Totals 9, , , Adewale would like you to enter the daybook entries into the ledgers below, using the 27 May as the transfer date. He would also like you to balance them off, so he can establish what Sales he has made over the last few weeks, the VAT amount due and the money still owed to him at the end of May. Sales ledger control 17/05/20X9 Opening balance 39, /05/20X9 Bank 10, /05/20X9 SDB 18 9, /05/20X9 Balance c/d 38, , , Sales 27/05/20X9 Balance c/d 81, /05/20X9 Opening balance 73, /05/20X9 SDB 18 7, , , VAT 18/05/20X9 PDB /05/20X9 Opening balance 1, /05/20X9 Balance c/d 2, /05/20X9 SDB 18 1, , ,

6 Task 3 Adewale has requested that you send him a quick to let him know the balance carried down figures from the ledgers, calculated in Task 2. To: Adewale From: AAT Student : 27/5/20X9 Subject: Sales Information Hi Adewale, I have now entered the Sales day book entries into the ledgers. In summary you have the following balances carried forward. Sales 81, VAT 2,744 Sales ledger control 38,400 I hope this helps. Kind regards, Accounts Junior Task 4 One of Adewale customers paid their invoice within 10 days and qualified for the prompt payment discount, a credit note has been created and needs to be entered into the discounts allowed day book. Credit Note 35 To: W. Row Estate Agents 140 Fleetwood Road Fleetwood Lancashire FY7 6EA Tel: Adewale Babatunde Website Specialist 9 Wheeton Crescent Thornton Cleveleys FY3 7WB Telephone: : 31/5/20X9 PO: Net total Quantity Description 1 Prompt Payment Discount on Invoice VAT 37 PPD 5% if paid within 10 days Total 222 6

7 Enter the above credit note in the discounts allowed day book and total all columns. Discount allowed day book DADB 3 Customer name Credit Note No. Total VAT Net 26/05/20X9 M2 Landscapes /05/20X9 W. Row Estate Agents Totals Now enter the totals in the ledgers below and balance off the ledgers. Sales ledger control 31/05/20X9 Opening balance 38, /05/20X9 DADB /05/20X9 Balance c/d 38, , , Discounts allowed 31/05/20X9 DADB /05/20X9 Balance c/d VAT 31/05/20X9 DADB /05/20X9 Opening balance 2, /05/20X9 Balance c/d 2, , ,

8 Task 5 Adewale has secured a contract with a large company and has received the following quotation, which will be held for 14 days. 365 Cabling specialists Unit 14, Surest Industrial Park Kent ME3 9GE Telephone: To: Adewale Babatunde 9 Wheeton Crescent Thornton Cleveleys FY3 7WB Telephone: Quotation : 31/5/20X9 Quantity Description Net total 10 metres RJ45 head to RJ45 socket 20 1 metre CAT 5e 8 10 metres Antenna cables cost around 34 Terms 30 days within 10 days PPD 5% if paid 5% Bulk discounts offered on orders over 200 metres Trade Discount on first order of 10% Adewale was happy with the quote and asked you to raise a purchase order for 500 metres RJ45 head to RJ45 socket, 700 metres of Antenna cables cost around and 20 metres of CAT 5e. Enter the details in the purchase order template. 8

9 Purchase order: 1597 To: 365 Cabling specialists Unit 14, Surest Industrial Park Kent, ME3 9GE Telephone: Adewale Babatunde Website Specialist 9 Wheeton Crescent Thornton Cleveleys FY3 7WB Telephone: : 31/5/20X9 Supplier ID: CSP02 Quantity Description Unit Price 500 RJ45 head to RJ45 socket (10 metres 700 metres metres) Antenna cables (10 metres) Total Discounts Net 20 1, , , metres CAT 5e. (1 metre) Workings for total column 500/10 = 50 x 20 = 1, /10 = 70 x 34 = 2,380 20/1 = 20 x 8 = 160 Goods total 3,371 Trade Discount -10% (337.10) sub total 3, VAT Total 3,

10 Task 6 Adewale received the goods from 365 Cabling specialists and produced the goods received note from the system. He would like you to check this against the purchase order raised in Task 5. If you are happy that this agrees then you are to sign off the goods received note and await the invoice. Send an to Adewale to confirm your findings. To: Adewale From: AAT Student : 31/5/20X9 Subject: Sales Information Hi Adewale, I have checked the goods received note against the purchase order and I can confirm this agrees with what we originally ordered. Kind regards, Accounts Junior 10

11 The invoice has now been received, Adewale has left a note asking you to check the supplier invoice against the purchase order you completed on page 9 and complete the checklist below. He is keen to pay this invoice quickly, so he can take advantage of the 5% Prompt Payment Discount. Check list Purchase order number matches Description on purchase order matches the description on the invoice The quantity on the purchase order matches the invoice The quantity and unit price matches on the purchase order and invoice Total is correctly calculated on the purchase order and matched the invoice for each item Bulk discounts have been calculated correctly on the invoice and match the purchase order Net price item is correct on the invoice and matches the purchase order Goods Total has been calculated correctly Trade discount has been applied correctly on the invoice VAT has been calculated correctly on the invoice Total has been calculated correctly on the invoice Tick if correct If Adewale paid the invoice within 10 days how much Prompt Payment Discount would he receive?

12 Task 7 You ve come across another invoice that doesn t appear to have been processed; this will need checking against the purchase order before you can enter it in to the daybook. A check list has been provided: detail any issues that may need to be referred back to Adewale. Tick the checks you have performed. (All should be ticked). PO Number Quantity Description Unit price Discounts Calculations Comments: The PO Number is incorrect 1586 on invoice and 1598 on Purchase order. The unit price for the 4 port switch is 15 on invoice and 10 on purchase order, this needs investigating. The discounts do not appear to be showing on the invoice. This needs investigating. This should be referred to Adewale to clarify with the supplier and should not be entered in the day book. 12

13 Enter the invoices that can be processed from Tasks 5, 6 and 7 into the daybook and total the Gross, VAT and Net columns. Summary of Purchase day book Supplier name ID Invoice No Gross VAT PDB 11 Net 24/05/20X9 Comp Time Ltd CTL , , /05/20X9 Tech43 Supplies TES , , /05/20X9 365 Cabling Specialists CSP , , Totals 8, , , Adewale would like you to enter the daybook entries into the ledgers below, using 31 May as the transfer date. He would also like you to balance them off, so he can establish what purchases he has made, the VAT and what money he owes by end of May. Purchase ledger control 17/05/20X9 Bank 8, /05/20X9 Opening balance 20, /05/20X9 Balance c/d 20, /05/20X9 PDB 11 8, , , Purchases 27/05/20X9 Opening balance 33, /05/20X9 Balance c/d 40, /05/20X9 PDB 11 7, , , VAT 31/05/20X9 PDB 11 1, /05/20X9 Opening balance 2, /05/20X9 Balance c/d 1, , ,

14 Task 8 Adewale has received the following three credit notes; two are in relation to returned goods and one is in relation to prompt payment discount. These have been entered into the day books below. Purchase returns day book Supplier name ID Credit note Gross VAT PRDB 5 Net 31/05/20X9 Rotech plc ROP , /05/20X9 Tech43 Supplies TES Totals 1, , Discount received day book DB 2 Customer name Credit Note No. Total VAT Net 31/05/20X9 Comp Time Ltd Totals Using the date of 31 May, enter the totals of the daybooks into the ledgers, and balance them off. Purchases ledger control 31/05/20X9 PRDB 5 1, /05/20X9 Opening balance 20, /05/20X9 Discounts received /05/20X9 Balance c/d 19, , , Purchases returns 31/05/20X9 Balance c/d 1, /05/20X9 PRDB5 1, , ,

15 VAT 31/05/20X9 Balance c/d 1, /05/20X9 Opening balance 1, /05/20X9 PRDB /05/20X9 DB , , Discount received 31/05/20X9 Balance c/d /05/20X9 DB Task 9 Adewale has left you a note to sort through the payments and receipts on his desk. He would like the cashbook reconciling against his latest bank statement, however he knows the cashbook will need updating with any missing transactions for May. You have found two BACS remittance advice notes from customers, two cash sales and two cheques that you have recently sent to your suppliers all of which need entering into the cashbook. 15

16 Cash sales Customer Description Total Payment method 31/05/20X9 F Stiglitz Cost of building website (10 pages Own server) 1, Cash 31/05/20X9 Valerie Swindles Small Web First Cash A list of cheques not yet posted to the cashbook Cheque number Supplier Amount 27/05/20X Rotech plc 5, /05/20X Comp Time Ltd 2, Enter the above details into the correct cash book, total and show the balance c/d for both bank and cash columns for the end of May. Dr Cash Book s Account code Cash Bank Net VAT Sales ledger control 01/05 Balance b/d , /05 W. Row Estate Agents SL 1, , /05 Yosi Fulder SL 1, , /05 F Stinglitz GL 1, , /05 Valerie Swindles GL , , , ,

17 Cr Cash book s Account code Cash Bank Net VAT Purchase ledger control 27/05 Rotech Plc PL 5, , /05 Comp Time Ltd PL 2, , /05 Balance c/d 2, , , , , Task 10 Adewale has had a really busy month and he has been keeping a manual record of the transactions from his credit customers in May. He knows that you ve been updating his systems and would like you to reconcile his list against your updates. Adewale manual customer account balances for May Transaction Amount owed Paid Balance W. Row Estate Agents 21, , , M2 Landscapes 18, , , Yosi Fulder Ltd 4, , , Totals 44, , , Extract from Cash book - recent payments not yet recorded in sales ledger Dr Cash Book s Account code Cash Bank Net VAT Sales ledger control 31/05 W. Row Estate Agents SL 1, , /05 Yosi Fulder SL 1, ,

18 A copy of the latest Sales ledger control account has been pulled from the system. Update the two recent payments from the cash book and balance off the ledger, clearly showing the balance c/d. Sales ledger control 31/05/20X9 Opening balance 38, /05/20X9 Discount Allowed /05/20X9 Cashbook 1, /05/20X9 Cashbook 1, /05/20X9 Balance c/d 34, , , Enter the balance from both Adewale s manual sales ledger account and the balance c/d on the sales ledger control and calculate the difference. Item Sales ledger control 34, Adewale Sales ledger 33, Difference 1, Adewale has asked you to investigate the difference calculated above. Upon viewing the system you notice that the discrepancy was caused by an irrecoverable debt in relation to H Delta, which has not been authorised, and therefore not fully processed. Adewale has now authorised this transaction and has asked you to complete the Journal entry and update the general ledgers. Journal Reference Debit Credit 31/05 Irrecoverable debt GL 1, /05 VAT GL /05 Sales ledger control SL 1, Correction of error: Irrecoverable debt in relation to H Delta omitted from the accounts Enter the Journal into the ledgers Sales ledger control 31/05/20X9 Opening balance 34, /05/20X9 Irrecoverable debt 1, /05/20X9 Balance c/d 33, , ,

19 VAT 31/05/20X9 Irrecoverable debt /05/20X9 Opening balance 1, /05/20X9 Balance c/d 1, , , Irrecoverable debt 31/0520X9 Irrecoverable debt 1, /05/20X9 Balance c/d 1, , , Task 11 Adewale has noticed there is a difference of on the credit side of the VAT control account in his manual records, and would like you to do a reconciliation of the recent transactions. A list of transactions that have recently taken place is below. Enter these into the control account and calculate the balance c/d. Transaction Opening balance: Credit side 1, Purchase day book Sales day book 18 1, Discounts allowed Purchase day book 11 1, Purchase returns day book Discounts received day book Irrecoverable debt VAT control account 31/05/20X9 Purchase day book /05/20X9 Opening balance 1, Discount allowed Sales day book 18 1, Purchase day book 11 1, Purchase returns Irrecoverable debt Discount received Balance c/d 1, , ,

20 Write a brief note to Adewale showing clearly the balance c/d you have calculated and what you think may be reason for the difference. The balance c/d in the VAT control account amounts to 1,312.82, if the difference is on the credit side then it can only be the cash sales, recorded in the cash book, that have not been transferred to the general ledgers: the VAT amounts are and totalling (See the answer for Task 9.) Adewale has provided you with a list of balances from the purchase ledger from his manual records, he would like you reconcile this against the entries made to the purchase ledger control account. Purchase ledger manual record Supplier name Gross Return Discounts Paid Balance 17/05/20X9 Rotech plc 15, , , , /05/20X9 Comp Time Ltd 8, , /05/20X9 31/05/20X9 Tech43 Supplies 365 Cabling Specialists 1, , , , Totals 29, , , , Purchase ledger control balances as at 31/5/20X9 Items Opening balance 20, Bank 8, Purchase day book 8, Purchase returns 1, Discounts received Redraft the Purchase ledger control account, showing clearly the balance c/d. Purchase ledger control 31/005/20X9 Bank 8, /05/20X9 Opening balance 20, /05/20X9 Purchase returns 1, /05/20X9 Purchase day book 8, /05/20X9 Discounts received /05/20X9 Balance c/d 19, , ,

21 Items Balance on Purchase ledger control 19, Balance on Purchase ledger 11, Difference 7, Explain what could have caused the difference The discounts received of does not appear to be showing in Adewale s manual records, and the amount paid in the purchase ledger is higher than the purchase ledger control, this could mean there are some payments that have not been entered into the control account ( 16, ,350 = 8,114.50). 8, = , which is the difference between the control account and the ledgers. Task 12 Adewale has found two receipts, which have not yet been entered into the petty cash book. Petty cash is only topped up when the balance falls below 100. Adewale likes to maintain a float of /05 Petrol 25 including VAT 20% 31/05 Post office (no VAT) Enter the two receipts into the book below, calculating the VAT where necessary. Balance off the petty cash book, clearly showing the balance c/d and the totals for the analysis columns. Petty cash reconciliation s s VAT Petrol Other expenses 01/05 Bank /05 Petrol /05 Post Office /05 Stationery /05 Petrol /05 Petrol /05 Post Office Balance c/d Does Adewale need to top up the petty cash book? Yes How much would you need to transfer from the bank to obtain a balance of 200?

22 Prepare the journal entries for the general ledger (the petty cash book is not integrated into the general ledger.) Journal s Reference Debit Credit 31/05 VAT GL /05 Petrol GL /05 Other expenses GL /05 Petty cash GL Task 13 The following journals have been created and are ready to be posted to the ledgers. Adewale has asked you to post the entries into the general ledger accounts and work out the wages expense figure for the wages control account (ER contributions are included in the figures shown). Journals HM revenue and Customs s Reference Debit Credit 31/05 Wages control GL 20, /05 HM Revenue & Customs GL 20, Net wages paid to employees s Reference Debit Credit 31/05 Wages control GL 35, /05 Bank GL 35, Pension s Reference Debit Credit 31/05 Wages control GL /05 Pension GL Post the journals to the Wages control account, then enter the figure that you have calculated for Wages Expense. Wages control 31/05/20X9 HM Revenue & Customs 20, /05/20X9 Wages expense 55, /05/20X9 Bank 35, /05/20X9 Pension , ,

23 Task 14 Adewale has produced a draft trial balance and has asked you to investigate the suspense account. Account Name Debit Credit Suspense account 7, Totals 205, , You have gone through your records and rechecked all the balances, there appears to be two issues that might have caused the imbalance. 1. Cash sales recorded in the cash book has been completed correctly however the VAT of was omitted from the analysis columns. 2. Two cheques made to Suppliers for 8, have been recorded correctly in the cash book but not entered into the Purchase ledger control account. Produce the journal entries to correct the errors identified, the reference for suspense is SP. Journals s Reference Debit Credit 31/05 Suspense SP /05 VAT GL s Reference Debit Credit 31/05 Purchase ledger control GL 8, /05 Suspense SP 8, Enter the opening balance into the suspense account and process the corrections to clear the suspense account. Suspense account 31/05/20X9 Opening balance 7, /05/20X9 Purchase ledger control 8, /05/20X9 VAT , ,

24 Task 15 Adewale would like you to use the figures below and the journals from task 14 to recalculate the balances for the Purchase ledger control and VAT accounts. Then draft the trial balance which should balance. Account Name Balance at 31/05/20X9 Debit Credit Bank 33, , Capital 100, , Cash 2, , Discount allowed Discount received Heat and light 1, , Inventory Irrecoverable debts Other expenses Petty cash Purchase ledger control 19, , Purchase returns 1, , Purchases 40, , Sales 83, , Sales ledger control 33, , VAT 1, , Vehicle at cost 22, , Vehicle expenses 2, , Wages 55, , Totals 403, , , Adewale is now in a good position to produce his financial statements. 24

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