Process for preparing financial statements

This article should be read in conjunction with the article ‘Computerised accounting systems – rationale for change’ (see 'Related links'), which details ACCA’s reasons for amending the FA1, FA2 and FFA/FA syllabuses to replace references to manual, paper-based accounting systems with computerised accounting systems from September 2023.

The following diagram and supporting notes illustrate the basic process of preparing financial statements that will be assessed in the FA1, FA2 and FFA/FA exams from September 2023:

Notes on assumptions made

From September 2023, for the purposes of the FA1, FA2 and FFA/FA exams, the following assumptions will be made regarding the accounting system used by an entity:

1. Although the trial balance and financial statements can be produced at any time, the focus of the FA1, FA2 and FFA/FA exams will be on preparing year-end accounts for a 12-month period.
   
   
2. The sales system WILL be integrated with the accounting system. This means that both the trade receivables ledger account and individual customer account will be updated simultaneously by raising a sales invoice in the accounting system. Reconciliations between trade receivables and the list of customer balances will NOT be required because they have been updated simultaneously with the same information.
   
   
3. The purchases system WILL be integrated with the accounting system. This means that when a purchase invoice is received from a supplier, the details from that purchase invoice are entered into the accounting system and the trade payables ledger account and individual supplier account  will be updated simultaneously. Reconciliations between trade payables and the individual list of supplier balances will NOT be required because they have been updated simultaneously with the same information. However, reconciliations between the individual supplier balances and any supplier statement received from that supplier WILL be required because it verifies the information against an external source. Differences may have arisen due to, for example, transposition errors when entering information from the purchase invoice, allocating the supplier invoice against the wrong supplier, not updating the accounting records for settlement discounts taken, payments made but not yet received by the supplier, etc. Further detail on this can be found in the technical article ‘Supplier statement reconciliations’.
   
   
4. Although it may be common in many accounting systems, particularly cloud accounting packages, the bank account will NOT be integrated into the accounting system in the exam. This means that adjustments will need to be made to the bank ledger account for any items which appear on the bank statement but have not been manually entered into the accounting system (eg direct debit payments, bank charges, interest, etc.) and reconciliations with the bank statement WILL be required.

Written by a member of the FFA/FA examining team