Study tips: applying the Foundation Certificate in Accounting to a business scenario (part 2)

This is the second in a series of articles where we are exploring some of the trickiest areas at Foundation level. 

Study tips: Applying the AAT Foundation Certificate to a business scenario series


We are working through a business scenario to illustrate how the AAT Foundation Certificate in Accounting can be applied, in practice, to the typical day-to-day tasks of an accounts assistant.

Let’s re-join Zairah at the end of November when she is making the final entries to the sales ledger control account (SLCA) so that she can reconcile it as part of JDB Supplies’ month end processes.

As the SLCA is an asset account, Zairah knows it should have a debit balance. She also knows that transactions that increase the balance should be entered on the debit side and transactions that decrease the balance should be entered on the credit side. The first entry she needs to make is from the sales daybook (SDB):

She needs to ask herself:

  • Q – Which is the right figure to use from the SDB extract?
  • A – The total because it includes the VAT and that’s the figure customers will pay.
  • Q – Will the transaction increase or decrease the SLCA?
  • A – Increase as the SDB lists credit sales invoices and the SLCA records how much the credit customers owe JDB Supplies.

Therefore £47,603 should be debited to the SLCA. Zairah has made the entry from the SDB and now needs to make another from the sales returns daybook (SRDB)

The same questions apply:

  • Q – Which is the right figure to use from the SRDB extract?
  • A – The total because it includes the VAT. Customers will have been invoiced for a VAT inclusive figure so any credit notes must refund the VAT.
  • Q – Will the transaction increase or decrease the SLCA?
  • A – Decrease as the SRDB lists the credit notes that have been issued to credit customers when they return goods and this reduces the amount that is owed to JDB Supplies.

Therefore £918 should be credited to the SLCA.

Updating the SLCA

Having posted both daybooks, Zairah now needs to update the SLCA for the bank receipts. Bank receipts are entered in the debit side of the cash book as they increase the cash book balance.

Zairah is aware that a common mistake when posting entries to control accounts is to enter them on the wrong side. However, she knows that double entry accounting is based on the fundamental principle that total debits equal total credits.

Therefore, as £60,357 has been debited to the cash book then the same amount must be entered in the credit side of the SLCA. She can double check her thought process by thinking through the purpose of the transactions – the money was received from credit customers to pay the invoices that were originally listed in the SDB and posted to the debit side of the SLCA. Customers no longer owe that money so the entry in the SLCA needs to decrease its balance and that means posting it to the credit side.

Zairah is now in a position to balance the SLCA:

Her next task is to reconcile the sales ledger with the SCLA. As the SCLA has a debit balance, Zairah expects the individual customer accounts in the sales ledger will have debit balances as well, although she is aware that credit balances are possible.

Zairah totals the debit balances and then deducts the credit balances to calculate the correct ledger figure.

When things don’t add up

The total of the sales ledger balance is £44,280 which is £501 lower than the balance on the SLCA. Zairah knows they should be the same.

JDB Supplies has a policy that all control account discrepancies should be investigated and then reported to the finance team manager. Zairah knows there could be a number of possible reasons why the amounts don’t match so she tries to work out what might result in the SLCA balance being more than the sales ledger total.

Some possible explanations are:

  • Omissions
    • An omission of a posting from the credit side of the SLCA
    • An omission of a posting from the debit side of the sales ledger
  • Duplication
    • If a transaction had been posted twice to the debit side of the SLCA
    • If a transaction had been posted twice to the credit side of the sales ledger
  • Entered on the wrong side
    • Correctly entering a transaction on the debit side of the SLCA but then incorrectly posting it to the credit side of the sales ledger

Explaining an account discrepancy

Zairah found the cause of the difference eventually and emailed Ian her manager:

Hi Ian,

I found a £501 discrepancy when I reconciled the SLCA with the sales ledger today. The control account balance is more than the sales ledger total, so I thought there might be an omission, duplication or transaction entered on the wrong side somewhere.

I started looking for these kinds of transactions and noticed that a £501 sales invoice had been correctly posted to the debit side of the SLCA but that it has not been entered into JU Weavers’ account in the sales ledger. Once this omission is corrected and the individual customer account has been updated, the SLCA and sales ledger will agree.

If you require any more details then please do not hesitate to contact me.

Zairah proof-read her email before she sent it, correcting spelling mistakes and amending some of her wording to ensure the information was accurate, technically correct and free from spelling and grammatical errors.

In summary

Zairah has dealt with some of the areas many struggle with at Foundation level.

Read the next article of this series, where we’ll see how Zairah uses double entry techniques and journals to correct the error she found.

Read more on the Foundation Certificate in Accounting qualification;

Gill Myers is a self-employed accounts consultant. She has taught AAT qualifications since 2005 and written numerous articles and e-learning resources.

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