## **Learning Outcomes**

After reading this article, you will be able to explain how transactions move from source documents into day books and then into ledger accounts using double-entry. You will be able to describe the general ledger, receivables ledger and payables ledger, and how balances are produced. You will also be able to prepare and interpret a trial balance report, state what it checks (and what it cannot check), and describe how system reports support checking and an audit trail.

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

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

- how documents are coded and entered into an accounting system for posting to accounts
- how transactions move from books of prime entry (day books) into the double-entry system
- the purpose and structure of general ledger accounts and how balances are carried forward
- the role of receivables and payables ledgers and their link to general ledger control accounts
- how to extract an initial trial balance and what it does (and does not) prove
- how computerised systems produce reports that support checking and tracing transactions

## **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 record is primarily a chronological listing that supports posting to the ledger?
   - A. Trial balance
   - B. Day book (book of prime entry)
   - C. Statement of account
   - D. Statement of financial position

2. True or false? The trial balance includes the balances on each individual customer’s account from the receivables ledger.

3. A credit purchase invoice for £960 (including sales tax at 20%) is entered correctly. State the three general ledger accounts that would normally be affected.

4. Which statement best describes a trial balance?
   - A. A part of the double-entry system that records every transaction
   - B. A report that lists general ledger balances as debit or credit totals
   - C. A list of unpaid supplier invoices only
   - D. A report that proves there are no errors in the ledger

## **Introduction**

In FA1, many questions test whether you can follow the “paper trail” (or screen trail) from a business document to the accounting entries, and then to reports. This is not only about doing the double-entry correctly; it is also about knowing where the entry first appears and how it is later summarised.

Day books, ledgers and the trial balance sit in a simple chain: transactions are captured in date order, summarised by account, and then listed as balances in a report. If you can trace that chain forwards and backwards, you can answer most system and reporting questions quickly and accurately.

## Day books and source documents (where entries begin)

> **Key Term: Source document**
> A document that provides evidence of a transaction and supports the accounting entry (for example, an invoice, credit note, bank receipt listing or payroll summary).
>
> **Key Term: Day book (book of prime entry)**
> A record where transactions are first captured in date order before being posted to ledger accounts.

A day book is not the same as a ledger account. Day books list transactions of a similar type (for example, all sales invoices) in date order. Ledgers then summarise those transactions by account (for example, “Sales”, “Trade receivables”, “Rent expense”).

### Common day books you should recognise

In exam questions, day books may be described as “lists”, “registers”, or “modules” in accounting software. Typical day books include:

- **Sales day book**: sales invoices issued (credit sales)
- **Purchases day book**: supplier invoices received (credit purchases)
- **Sales returns day book**: credit notes issued to customers
- **Purchases returns day book**: supplier credit notes received
- **Cash book / bank receipts and payments listings**: money in and out
- **Petty cash record**: small cash payments
- **Journal**: entries that do not fit the standard day books (corrections, accrual-type adjustments in later studies, reclassifications)

### Coding and references (the start of the audit trail)

A source document is normally coded with:

- date, document number, customer/supplier details
- amount (and sales tax split where relevant)
- general ledger account codes (often at least two accounts, sometimes three when sales tax applies)

Those codes and references matter because they let you trace from a ledger entry back to the exact invoice or credit note that created it.

## Ledgers (where double-entry is stored and totals are built)

> **Key Term: General ledger**
> The complete set of ledger accounts used to record assets, liabilities, capital, income and expenses; it is the main record used to produce the trial balance.
>
> **Key Term: Receivables ledger**
> A listing of individual customer accounts showing amounts owed and payments received; in many systems it is treated as a memorandum record supported by the general ledger.
>
> **Key Term: Payables ledger**
> A listing of individual supplier accounts showing amounts owed and payments made; in many systems it is treated as a memorandum record supported by the general ledger.
>
> **Key Term: Control account**
> A general ledger account that summarises a set of related detailed accounts, such as total trade receivables or total trade payables.
>
> **Key Term: Memorandum account**
> A record kept for detailed monitoring and control that does not form part of the double-entry system totals (for example, individual customer or supplier accounts in some computerised systems).

### General ledger vs “personal” ledgers

For FA1, the key idea is:

- The **general ledger** contains the double-entry totals used for the trial balance (assets, liabilities, capital, income and expenses).
- The **receivables and payables ledgers** store detail by customer and supplier for credit control and payment planning.
- The **trade receivables** and **trade payables** accounts in the general ledger act as **control accounts** (summary totals).

### Balancing ledger accounts (why “b/d” and “c/d” appear)

At a period end, each ledger account is balanced to find the closing balance. In manual form, you total both sides and insert:

- **Balance c/d (carried down)** to make totals agree
- then **Balance b/d (brought down)** as the opening balance next period

In computerised systems this is usually automatic, but the exam still expects you to understand what the balance represents (debit for many assets/expenses; credit for many liabilities/income/capital).

## Posting routes and the audit trail (how you trace transactions)

> **Key Term: Audit trail**
> The ability to trace a figure from a report back through the ledgers to the original source document, and to trace forwards from the document to the final reports.

A good audit trail answers two exam-style questions:

1. “Where did this trial balance figure come from?”
2. “If I start with this invoice, where will it appear in the accounts?”

### Typical posting routes you should learn

#### Credit sale

- Source document: sales invoice
- Day book: sales day book
- Postings:
  - Customer account in receivables ledger (detail)
  - General ledger: trade receivables control, sales, and sales tax (if used)

#### Credit purchase

- Source document: supplier invoice
- Day book: purchases day book
- Postings:
  - Supplier account in payables ledger (detail)
  - General ledger: purchases/expense/non-current asset, trade payables control, and input sales tax (if used)

#### Cash/bank receipt

- Source document: remittance information/bank receipt listing
- Day book: cash book (receipts)
- Postings:
  - General ledger: cash at bank and (for example) trade receivables control

### **Worked Example 1.1**

On 10 June, a business issues Sales Invoice SI104 to a credit customer for £1,000 plus sales tax at 20%. The invoice is coded:

- Sales £1,000
- Sales tax (output) £200
- Trade receivables £1,200 (gross)

> **Answer:**
>
> Day book entry (sales day book): SI104 net £1,000, tax £200, gross £1,200.  
> General ledger double-entry:
>
> - Debit Trade receivables (control) £1,200
> - Credit Sales £1,000
> - Credit Sales tax payable (output tax) £200  
>   Receivables ledger: customer account is debited £1,200 as the amount now owed.

## Trial balance reports (what they show and what they prove)

> **Key Term: Trial balance**
> A report listing all general ledger account balances at a point in time, shown as debit or credit balances, where total debits should equal total credits.

A trial balance is a report produced from the **general ledger** balances. In many exam questions, it is produced “as at” a date (month end or year end). In a computerised system, it can usually be printed at any time.

### What the trial balance checks

If double-entry has been processed with equal debits and credits, then:

$$\text{Total debit balances} = \text{Total credit balances}$$

If the totals do not agree (in a manual setting), it suggests an arithmetical posting error, omission of a balance from the listing, or a one-sided entry.

### What is included (and excluded)

- **Included:** general ledger balances (assets, liabilities, capital, income, expenses)
- **Excluded:** memorandum records such as individual customer and supplier accounts (in many systems), because the trial balance is produced from double-entry totals only

### **Worked Example 1.2**

A business has these general ledger balances at 31 July:

- Cash at bank £4,900 Dr
- Trade receivables £1,200 Dr
- Purchases £2,700 Dr
- Rent expense £400 Dr
- Sales £3,800 Cr
- Trade payables £900 Cr
- Capital £4,500 Cr

Prepare the trial balance totals.

> **Answer:**
>
> | Account           | Debit (£) | Credit (£) |
> | ----------------- | --------: | ---------: |
> | Cash at bank      |     4,900 |            |
> | Trade receivables |     1,200 |            |
> | Purchases         |     2,700 |            |
> | Rent expense      |       400 |            |
> | Sales             |           |      3,800 |
> | Trade payables    |           |        900 |
> | Capital           |           |      4,500 |
> | **Total**         | **9,200** |  **9,200** |
>
> The trial balance agrees because the debit and credit totals match.

### **Exam Warning**

A balanced trial balance does **not** prove the accounts are correct. For example, posting to the wrong account (right value, wrong place) can still leave the trial balance totals equal.

## Reports produced by the accounting system (and how they support checking)

A computerised system can produce many reports from the same stored postings and references. Common examples include:

- **Aged receivables analysis** (who owes money and how long it is overdue)
- **Aged payables analysis** (what is owed to suppliers and when it is due)
- **Customer statements of account** (summary sent to a customer)
- **Transaction listings** (for example, all sales invoices entered today)
- **Registers** (for example, a list of non-current assets)
- **Payment due listings** (supporting payment runs)
- **Payroll summaries and payslips**
- **Inventory movement/usage summaries**

Each report is stronger when it includes clear references (document number, batch number, customer/supplier code, date/time, user ID). Those references allow you to trace amounts from reports back to postings and then back to source documents.

### **Revision Tip**

Practise tracing in both directions:

- **Forward:** invoice → day book listing → ledger postings → trial balance line
- **Backward:** trial balance line → ledger account entries → day book listing → source document

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- day books record similar transactions in date order, supported by source documents
- ledgers summarise transactions by account and store the double-entry totals
- receivables and payables ledgers store detail by customer/supplier and link to control accounts
- coding and references on documents support tracing and checking
- a trial balance lists general ledger balances as debit or credit, and totals should agree
- the trial balance is a report and does not include memorandum-only records
- a balanced trial balance does not guarantee that all postings are correct
- system reports (aged analyses, statements, listings) support control and tracing

## **Key Terms and Concepts**

- Source document
- Day book (book of prime entry)
- General ledger
- Receivables ledger
- Payables ledger
- Control account
- Memorandum account
- Audit trail
- Trial balance


Reports and audit trail - Day books, ledgers, and trial balance reports