Principles of Bookkeeping Controls

Automated receipts

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These are receipts that have been directly paid into the bank account. They will be electronic receipts and could be the result of standing orders, Direct Debits, BACS credits (Bankers' Automated Clearing Services), CHAPS receipts (Clearing House Automated Payment System) or the receipt of a Faster Payment.

Automated payments

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These are the opposite of automated receipts. They are payments that have been made directly from the bank account. They will be electronic payments such as standing orders, Direct Debits, BACS payments (Bankers' Automated Clearing Services), CHAPS payments (Clearing House Automated Payment System) and Faster Payments.

unpresented meaning in accounting

Unpresented (cheques/items) → Money OUT

Outstanding lodgements → Money IN

journal

way of recording non-regular transactions, for example:

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when we finance a new asset

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writing off irrecoverable debt

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when we sell an asset

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processing payroll

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correcting errors in manual and digital accounting systems

Error of commission

This is where we have posted to the wrong type of account, for example 'motor expenses' have been posted to 'general expenses'. Both are an expense in accounting terms, however, the motor expenses will relate purely to the vehicles and the analysis here would be incorrect.

Error of omission

This is where a transaction has been missed and not entered into the manual bookkeeping or accounting software system. Paperwork sometimes can get misplaced.

Error of original entry

This is where the numbers entered have been entered incorrectly, for example they've accidentally been reversed and £36 has been entered as £63.

Error of principle

This is where the principle of how we recorded the transaction is incorrect, for example we wouldn't put 'motor expenses' in the 'motor vehicle at cost'. Motor expense items are running costs whereas motor vehicle at cost is an asset and this is where the original cost of the vehicle is recorded.

Reversal of entries

This is where we've reversed an entry, for example an expense item has been debited to the cash book and the expense account has been credited in error.

Compensating errors

This is where the results of two errors cancel each other out. For example, we have entered £75 too much in the advertising account and £75 too little in the rent account. Both entries will need correcting as the accounts will be overstated.

wages expense entry formula

the total cost to the employer: gross pay plus employers NIC and employers pension contributions (lines 1 + 6 + 7)

Debit entries: in wage control account

the bank entry is the net pay (shown here as line 5)

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the HMRC entry is the total of Income Tax and NIC deducted, and employers' NIC deducted (here lines 2 + 3 + 6)

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the pension entry is the total of the employees' pension deducted and employers' pension contribution (lines 4 + 7).

A receivables ledger control account

is kept in the general ledger

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is a summary of all the accounts in the receivables ledger

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is often abbreviated to RLCA.

Accounts for credit customers (trade receivables) are kept in a ledger.

separate from the general ledger

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a 'subsidiary ledger'

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called the receivables ledger

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not for cash sales.

A payables ledger control account:

is kept in the general ledger

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is a summary of all the accounts in the payables ledger

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is often abbreviated to PLCA.

Accounts for credit suppliers (trade payables) are kept in a ledger.

separate from the general ledger

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a subsidiary ledger

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called the payables ledger

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not for cash purchases.

standard rate VAT

Is set by HMRC and is applied to goods and services sold.

The rate can change, and our accounting systems and processes need to be able to manage this change.

Reduced Rate VAT

Is charged on some goods and services such as domestic fuel or electricity.

Zero Rate VAT

Applies to most food, children's clothing, and books.

You must keep records of all zero-rated goods; these will need to be reported through your VAT return.

Non-vatable items

subscriptions to membership bodies

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insurance, finance and credit

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fundraising events by charities

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education and training.

Sales daybook

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Lists sales invoices for goods or services sold to customers on credit.

Records the VAT to be paid to HMRC.

The total of the VAT column will be posted to the credit side of the VAT control account.

Sales return daybook

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Lists credit notes issued because credit customers have returned goods or cancelled services.

Records the VAT to be reclaimed from HMRC.

The total of the VAT column will be posted to the debit side of the VAT control account.

Purchases daybook

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Lists purchase invoices for goods or services bought on credit.

Records the VAT to be reclaimed from HMRC.

The total of the VAT column will be posted to the debit side of the VAT control account.

Purchases returns daybook

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Lists credit notes received from credit suppliers because we've returned goods or cancelled services.

Records the VAT to be paid back to HMRC.

The total of the VAT column will be posted to the credit side of the VAT control account.

Cash book

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The debit side records the receipt of money from cash transactions. The VAT analysed will be shown separately.

The total of the VAT column on the debit side of the cash book will be posted to the credit side of the VAT control account.

The credit side of the cash book records the payment of money for cash purchases. The VAT is analysed and shown separately.

The total of the VAT column on the credit side of the cash book will be posted to the debit side of the VAT control account.

Petty cash book

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Mainly used to pay for small expenses. Any VATable items will be analysed and shown separately.

Records the VAT to be reclaimed from HMRC.

The total of the VAT column will be posted to the debit side of the VAT control account.

Discounts allowed daybook

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Lists the details of discounts allowed to customers for prompt settlement of invoices.

Records the VAT to be reclaimed from HMRC.

The total of the VAT column will be posted to the debit side of the VAT control account.

Discounts received daybook

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Lists the details of discounts received from suppliers for prompt settlement of invoices.

Records the VAT to be paid to HMRC.

The total of the VAT column will be posted to the credit side of the VAT control account.

Journals

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Journals are used for non-regular transactions. Any VAT payable or reclaimable will be detailed in the journal separately.

If the transaction is an expense, then the VAT amount will be posted to the debit side of the VAT control account.

If the transaction is for income, then the VAT amount will be posted to the credit side of the VAT control account.

Accounting equation:

the accounting equation is assets - liabilities = capital. This can be extended to show the components of capital: assets - liabilities = capital introduced + (income - expenses) - drawings.

Bank draft:

a payment on behalf of a payer that is guaranteed by the issuing bank.

Bankers' Automated Clearing System (BACS)

an electronic money transfer between banks

Clearing House Automated Payment System (CHAPS)

UK system for same-day, high-value payments between banks.

Compensating errors

an error where the results of two errors cancel each other out. For example, we have entered £75 too much in the advertising account and £75 too little in the rent account, so the overall impact on expenses is nil. These errors will still need to be corrected

Control account

n account in the general ledger that summarises a set of subsidiary ledgers.

Employer's pension contributions

contributions made by an employer to an employee's pension.

Irrecoverable debts

debts that are unlikely to be collected.

Ledger

a book or account in which accounting transactions are recorded

Unpresented cheques

cheques that have been written but not yet cashed or deposited

What are the main characteristics of a control account?

Transactions will both increase and decrease the balance of these accounts. They are statement of financial position accounts.

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Control accounts will be categorised as either assets or liabilities depending on whether there is a debit or credit balance.

Which accounts are control accounts?

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Receivables ledger control account (RLCA).

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Payables ledger control account (PLCA).

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Bank control account or petty cash control account.

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VAT control account.

If credits are bigger

suspense is debit

if debit is bigger

suspense is credit

Things that CAN reclaim VAT (Input VAT)

Purchases of goods and services

• Stock / goods for resale

• Raw materials

• Office supplies (paper, stationery, etc.)

• Business equipment (computers, machinery)

• Utilities for business use (electricity, phone, internet)

🚗 Business expenses

• Business travel (train, fuel for business use, taxis)

• Hotel accommodation (business trips)

• Advertising and marketing costs

• Professional fees (accountants, solicitors)

🔁 Adjustments

• Purchases returns (VAT on returned goods)

• Credit notes from suppliers

💳 Other recoverable items (in some cases)

Things that CANNOT reclaim VAT

Personal or non-business use

• Personal purchases (even if bought through business)

• Private travel or holidays

• Mixed-use expenses (private portion not reclaimable)

🚗 Certain motor expenses

• Cars for personal use (VAT often not reclaimable)

• Leasing cars with private use restrictions

🍽 Hospitality & entertainment

• Staff/client entertainment (e.g. meals, events for clients)

• Gifts over limits or not strictly business-related

🏦 Financial & exempt services

• Bank charges

• Insurance premiums

• Loan interest

• Most financial services

🧾 No valid VAT invoice

• Cash purchases without VAT receipt

• Poorly documented expenses

🏠 Some property costs

• Private residential property costs

• Some land/property transactions (depending on exemption)