PRC - CHP 2 Books of Prime Entry
PRC - CHP 2 Books of Prime Entry
PRC - CHP 2 Books of Prime Entry
Sales Return Day Return of Credit Sale Records items returned by credit
Book customers (credit notes issued to
customers).
For the transactions which do not fit in any of the above 5 categories
these transactions are recorded in the General Journal.
Prepared By : Sir Muhammad Walid Azhar (ACA)
1 Started the business with Rs. 15,000,000 in the bank. Cash book
2 Bought goods on credit from: Jamal Rs. 290,000; Faisal Rs. Purchase day book
1,200,000; Talal Rs. 610,000; Rashid (List price Rs. 550,000, trade
discount Rs. 20,000)
7 We returned goods to: Jamal Rs. 18,000; Rashid Rs. 27,000. Purchase return day
book
10 Goods were returned to us by: Jawad Rs. 6,000; Taseer Rs. Sales return day
14,000 book
11 Bought Delivery Vehicle on credit from Turnkey Motors Rs. General Journal
4,950,000.
12 We paid the following by cheque: Cash book
Jamal Rs. 265,000 (after settlement discount of Rs. 7,000); Faisal
Rs. 1,200,000; Talal Rs. 480,000 (after discount of Rs. 20,000)
15 Received cheques from: Taseer Rs. 65,000 (after cash discount of Cash book
Rs. 6,000); Jawad Rs. 40,000 (after cash discount of Rs. 2,000).
16 Proprietor brings a further Rs. 900,000 into the business, by a Cash book
payment into the business bank account.
Prepared By : Sir Muhammad Walid Azhar (ACA)
Documentation in Sales:
Following documents are prepared in order to account for a transaction of sales
Prepared By : Sir Muhammad Walid Azhar (ACA)
D2
o At period end (day end, weekend or month end) all the receivable ledgers
are updated with a credit entry.
(SL 16) Customer A
Date Account Amount Date Account Amount
1-Sep Sales Return 300
o Further a Double entry is posted with the total amount in the main General
Ledger of Trade Receivables (Trade Receivable Control Account) and Sales
Return with the total amount of all the individual customer returns
(GL 96) Trade Receivable (GL 41) Sales Return
Date Account Amount Date Account Amount Date Account Amount Date Account Amount
30-Sep Sales Return 1,100 30-Sep Trade Receivable 1,100 10-Jan Receivable 1,100
Prepared By : Sir Muhammad Walid Azhar (ACA)
Example 02:
Maria Enterprises (ME) sold goods of Rs. 10,000 to Zahra Traders (ZT) on 8th
August 2021 to be paid on 31st August 2021. However, if ZT pays within 10 days,
it will be entitled to 4% cash discount and will have to pay only Rs. 9,600.
How the above transactions alongwith following independent scenarios will be
treated in the books of ME on 8th August and on the date of payment:
(a) ME expected that ZT will not pay within 10 days and ZT actually paid on
31st August.
(b) ME expected that ZT will not pay within 10 days but ZT actually paid on 17th
August.
(c) ME expected that ZT will pay within 10 days and ZT actually paid on 17th
August.
(d) ME expected that ZT will pay within 10 days but ZT actually paid on 31st
August.
Example 03:
Using the information in Example 01, prepare sales day book and sales
return day book. Assume that none of the customer was expected to avail
the cash discount.
Prepared By : Sir Muhammad Walid Azhar (ACA)
Unlike sales day book where multiple items are purchased and expenses are
incurred of different nature a separate column is assigned for each category of
goods / expense.
DISCOUNT RECEIVED:
Discounts received are settlement discounts that a business has been offered by
its suppliers and which it takes up. The business pays earlier but pays less.
Example 04
Maria Enterprises (ME) sold goods of Rs. 10,000 to Zahra Traders (ZT) on 8th August 2021 to be paid
on 31st August 2021. However, if ZT pays within 10 days, it will be entitled to 4% cash discount and
will have to pay only Rs. 9,600.
How the above transactions alongwith following independent scenarios will be treated in the books
of ZT on 8th August and on the date of payment:
(a) ZT did not take advantage of settlement discount terms and paid on 31 st August.
(b) ZT took advantage of settlement discount and paid on 17 th August.
D4
CONTRA ENTRIES
When ever a supplier of a business is also a customer or vice versa contra entries
between payables and receivables are recorded by a business.
For Example, Mr. A’s business is to sell Furniture and Mr. A sold Furniture amounting
to 20,000 to Mr. B whose business is to sell furniture polish. After few days Mr. A
purchased polish amounting to Rs. 100,000 from Mr. B. They both decided to offset
their payment. following accounting entries would be made in the Double Entry System:
RECORDING OF SALES
DR. CR.
Trade Receivable Control A/C 20,000
Sales 20,000
RECORDING OF PURCHASES
DR. CR.
Purchases 100,000
Trade Payable Control A/C 100,000
Prepared By : Sir Muhammad Walid Azhar (ACA)
Example 05:
Using the information in Example 01, prepare purchases day book and
purchases return day book.
2. TWO COLUMN CASH BOOK - for recording cash and bank transactions;
3. TRIPLE COLUMN CASH BOOK – for recording cash, bank and discounts
Example 06:
Following data has been extracted from Sara Shah’s records for the month of June 2016.
Enter the above transactions in the cash book of Naeem Traders. The cash and bank accounts
should be shown in a two columnar cash book.
Prepared By : Sir Muhammad Walid Azhar (ACA)
Note:
There is no need to balance the discount columns because they are representing
two different accounts which are discount received and discount allowed.
Example 08:
Using the information in Example 01, prepare cash receipt book and cash
payment day book. Assume that revenue was recognised at gross amount
without expecting that any customer would avail the settlement discount terms.
Prepared By : Sir Muhammad Walid Azhar (ACA)
GENERAL JOURNAL
The general journal (journal for short) is a book of prime entry that is used to
record transactions that are not recorded in any other book of original entry.
The journal might be used to provide a record and explanation of:
•year-end adjustments;
•settlement discounts;
•contra settlement;
•correction of errors; or
•any other adjustment.
Prepared By : Sir Muhammad Walid Azhar (ACA)
Example 11:
Using the information in Example 01, prepare General Journal for relevant
transactions only.
Example 12:
In July 2014, Abdullah established a business for providing van service to private schools in the
city of Gujarat. The transactions during the month are listed below:
1 July A bank account was opened with a cash deposit of Rs. 20,000,000.
3 July A property was purchased at a cost of Rs. 10,000,000, of which Rs. 7,200,000 was
considered as applicable to the land and Rs. 2,800,000 to the building. The
transaction involved a cash payment of Rs. 3,000,000 and the balance was agreed
to paid after six months.
5 July 10 new vans were purchased for at Rs. 300,000 each from City Showroom, Lahore.
Abdullah paid Rs. 600,000 in cash and agreed to pay Rs. 1,000,000 by 31 July and
the remaining balance by 15 August.
7 July Upon inspection, a van was found to be defective and was returned to City
Showroom, Lahore.
8 July Office equipment was purchased against cash payment by cheque of Rs. 24,400.
15 July Abdullah signed an agreement with a petrol pump for supply of CNG on credit. As
per agreement, he issued a cheque for Rs. 15,000 as security deposit.
30 July 25% of the property acquired on 3 July was rented out from 1 August 2014 at a
monthly rent of Rs. 30,000. A three month advance was received from the tenant.
31 July Cheque for Rs. 1,000,000 was issued to City Showroom, Lahore.
Required: Journal entries of all the above transactions for the month of July 2014.
Prepared By : Sir Muhammad Walid Azhar (ACA)
2. Sales return day book Sales Return Voucher (or credit notes issued).
4. Purchases return day book Purchase return voucher (or credit notes received).
Payment voucher: Payment can be made after approval of payment voucher supported with bills or other relevant
supporting documents.
Business Entity Name
Payment Voucher
Sr. #___________ Date:________________
Paid to:_________________________________________________ Mode of payment: Cash / Cheque
On account of: _________________________________________ Cheque #: __________________________
Amount in words: _____________________________________ Amount Rs. ____________________
Received by Checked by
Journal voucher (JV): JV is prepared to evidence the authorization to record non-cash transactions.
Business Entity Name
Journal Voucher
Sr. #___________ Date:________________
Code Account Description Debit (Rupees) Credit (Rupees)
Details: ______________________________________________________________________________________________________
_______________________________________________________________________________________________________________
MCQS