## **Learning Outcomes**

After reading this article, you will be able to explain why controls are still needed in computerised accounting, even when double entry is automated. You will be able to describe common input controls (authorisation, validation checks, batch control totals and audit trails) and explain how they prevent or detect incorrect postings. You will also be able to explain and perform key reconciliation routines (especially bank reconciliations) and identify which differences need accounting entries and which are timing differences.

## **ACCA Recording Financial Transactions (FA1) Syllabus**

For ACCA Recording Financial Transactions (FA1), you must understand:

- how transactions are recorded and checked within a computerised accounting system
- how data entry errors arise and how systems deal with them
- tools and techniques used to process transactions and identify errors (including period-end routines)
- risks to data security and how access to accounting areas is controlled
- why reconciliations are performed (bank, cash, petty cash and other balance checks)

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which input control best prevents posting a purchase invoice to a supplier that does not exist on the system?
   - A. Bank reconciliation
   - B. Supplier code lookup from an approved list
   - C. Trial balance extraction
   - D. Aged payables report

2. True or false? If a computerised system produces a trial balance where total debits equal total credits, it proves that every transaction was posted to the correct ledger accounts.

3. State two examples of batch control totals used to check that a batch of invoices has been fully processed.

4. When preparing a bank reconciliation, which item normally requires an entry in the cash at bank ledger account?
   - A. Cheques not yet presented
   - B. Lodgements not yet credited by the bank
   - C. Bank charges shown on the bank statement but not yet recorded
   - D. A cheque you issued that appears on both records

## **Introduction**

Computerised accounting systems process transactions quickly and will usually stop you posting a transaction that does not balance in double entry. That does not mean the records are automatically correct. Wrong amounts, wrong account codes, duplicate invoices and unauthorised payments can still be processed.

For FA1, you must be able to describe how computerised systems reduce certain errors, why input controls are still required, and how reconciliation routines identify differences between records. In the exam, bank reconciliations are the most common reconciliation routine, but the same logic applies to cash, petty cash, receivables and payables checks.

## Controls in computerised accounting: what you are trying to achieve

A good computerised system is designed to make sure transactions are:

- **valid** (a real transaction for the business)
- **authorised** (approved by the right person)
- **complete** (nothing missing, nothing duplicated)
- **accurate** (correct amounts, dates, codes, sales tax)
- **recorded on time** (so reports are up to date)

These aims are met using input controls (at the point data enters the system) and reconciliation routines (comparisons after processing).

## Input controls

> **Key Term: input controls**
> Checks built into procedures and software to prevent, detect, or correct errors and unauthorised activity when accounting data is entered.

### Source documents and coding discipline

Most entries start from source documents such as sales invoices, purchase invoices, credit notes, petty cash vouchers, and bank receipts listings. Input controls begin before typing anything: the document should be complete, dated correctly, and matched to any supporting evidence (for example, goods received documentation for a supplier invoice).

Coding is also an input control. If you enter an incorrect general ledger code, the computer will still post a balanced double entry, but to the wrong place. Many systems reduce this risk by using drop-down lists, account code searches, and limits on which codes a user can select.

### Authorisation and access rights at input

A computerised system should restrict who can:

- set up new customers and suppliers
- change standing data (addresses, bank details, credit limits)
- raise and approve purchase orders
- create payments or payment runs
- post journals

Segregation of duties still matters. For example, the person who creates a supplier record should not be the person who approves supplier payments.

### Validation checks (edit checks)

> **Key Term: validation check**
> An automated test applied to entered data to make sure it is sensible and in the correct format before the system accepts it.

Validation checks are designed to stop incorrect data being accepted. Common examples include:

- **format checks** (a date must be entered as DD/MM/YYYY)
- **range checks** (sales tax rate must be within an allowed range)
- **length checks** (customer reference must be 6 characters)
- **mandatory fields** (you cannot save without an account code)
- **duplicate checks** (system warns if invoice number already used)
- **reasonableness checks** (an unusually large discount needs approval)

If a validation check fails, the system may reject the transaction, hold it for review, or request authorisation before posting.

### Batch control totals (when processing in batches)

Some organisations process transactions in batches (for example, entering a day’s invoices together). You reduce the risk of missing or duplicating documents by agreeing control totals before and after processing.

> **Key Term: batch control totals**
> Pre-agreed totals (such as number of documents and total value) used to confirm that all items in a batch were processed once.
>
> **Key Term: hash total**
> A control total created by adding up non-money values (such as account codes) to help detect missing items or wrong codes.

Typical batch controls include:

- **record count** (number of invoices entered)
- **value total** (sum of invoice amounts, sometimes gross)
- **hash total** (sum of customer or supplier codes)

### **Worked Example 1.1**

A clerk enters a batch of five sales invoices with values: \$420, \$310, \$180, \$255 and \$615.  
The expected batch value total is calculated before input. After input, the system shows a batch total of \$1,705.

> **Answer:**
>
> Expected total is $$420 + 310 + 180 + 255 + 615 = 1{,}780$$  
> Difference is $$1{,}780 - 1{,}705 = 75$$  
> This suggests at least one invoice has been entered with the wrong amount (or one invoice is missing and another is duplicated). The clerk should re-check the five documents against the batch report to find the \$75 error.

### Audit trail and error handling

> **Key Term: audit trail**
> A record that lets you trace a transaction from source document to ledger posting (and back), including details such as document references, dates and user IDs.

An audit trail helps you investigate errors and supports internal checks. Good systems log changes (who changed what and when) and discourage deletion of posted transactions; corrections are normally done by reversals and new entries so the history remains visible.

### Exception reports and management review

> **Key Term: exception report**
> A report that lists items outside expected limits (for example, negative balances, missing document sequences, or credit limits exceeded) for review.

Exception reports are a practical control because they direct attention to items most likely to contain errors or unauthorised activity. For FA1, be ready to explain examples such as: duplicate invoice numbers, unusual discounts, negative inventory, or customers over their credit limit.

## Reconciliation routines

> **Key Term: reconciliation**
> A check that compares two records that should agree, explains differences, and confirms the corrected balance.

Reconciliations are detective controls: they do not stop errors happening, but they help you find them quickly. The most common FA1 reconciliation is the bank reconciliation.

### Bank reconciliation routine (high exam focus)

A bank reconciliation compares:

- the **cash at bank ledger account** (business records), and
- the **bank statement** (bank records)

Differences arise because of timing and because some items are only known when the statement arrives (for example, bank charges). A common structure is:

1. Tick items appearing in both records.
2. Update the cash at bank ledger for statement items not yet recorded (bank charges, interest, direct credits/debits, errors).
3. Prepare a bank reconciliation statement for timing differences.

A typical reconciliation calculation is:
$$\text{Adjusted bank statement balance}=\text{Bank statement balance}+\text{lodgements not yet credited}-\text{cheques not yet presented}$$

### **Worked Example 1.2**

At 30 June, the cash at bank ledger shows a debit balance of \$2,450. The bank statement shows a balance of \$2,425.  
Further details:

- Cheque #105 for \$210 has not yet been presented.
- A lodgement of \$290 paid in on 30 June has not yet been credited by the bank.
- Bank charges of \$20 appear on the bank statement but are not recorded in the ledger.
- A direct credit from a customer of \$75 appears on the statement but is not recorded in the ledger.

> **Answer:**
>
> **Step 1: Update cash at bank ledger for statement items not recorded**
>
> - Bank charges: subtract \$20
> - Direct credit: add \$75  
>   Corrected cash at bank balance is \$2,450 - 20 + 75 = \$2,505.
>
> **Step 2: Bank reconciliation statement (timing differences only)**
> $$2{,}425 + 290 - 210 = 2{,}505$$
> The reconciled balance of \$2,505 agrees to the corrected cash at bank ledger balance.

### Other reconciliations you should know

- **Cash/till reconciliation:** cash and card receipts counted and agreed to the till roll or end-of-day report, with differences investigated.
- **Petty cash reconciliation:** petty cash vouchers plus remaining cash should equal the petty cash record (and imprest reimbursements should return cash held to the set float).
- **Supplier statement checks:** supplier statements are not used to post entries, but they help identify missing invoices, unrecorded credit notes, or timing differences.
- **Receivables and payables checks:** computerised systems often update the general ledger and individual customer/supplier balances at the same time, but you still review listings and exception reports for unusual balances.

### **Exam Warning**

In a bank reconciliation, do not post timing differences (unpresented cheques and lodgements in transit) to the cash at bank ledger. You only post items that the bank has processed but you have not yet recorded (for example, bank charges and direct debits).

### **Revision Tip**

When practising reconciliations, always mark each difference as either:

- **needs a ledger entry**, or
- **timing difference only**  
  This reduces sign errors and stops you making unnecessary postings.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Input controls reduce the risk of incorrect, incomplete, or unauthorised transactions being accepted by the system.
- Validation checks test data format, completeness, ranges and duplicates before posting.
- Batch control totals (record counts, value totals and hash totals) help confirm a batch is processed once and in full.
- Audit trails help you trace entries and investigate errors by keeping document references and user details.
- Reconciliations compare independent records, explain differences and confirm corrected balances.
- Bank reconciliations separate statement-only items (post to ledger) from timing differences (do not post).
- Exception reports focus attention on unusual items that need review.

## **Key Terms and Concepts**

- input controls
- validation check
- batch control totals
- hash total
- audit trail
- exception report
- reconciliation


Controls in computerised systems - Input controls and reconciliation routines