Books of Original Entry
Books of Original Entry
Books of Original Entry
GENERAL OBJECTIVES
At the end of this Study Guide, you should:
1.
2.
SPECIFIC OBJECTIVES
You should be able to:
1.
2.
3.
4.
5.
6.
CONTENT
Source documents
BOOK OF ORIGINAL
ENTRY
TRANSACTIONS RECORDED
SOURCE
USED
CREDIT SALES
(STOCK)
SALES INVOICES
PURCHASES
BOOK
DAY
OF
INVENTORY
DOCUMENT
PURCHASES INVOICES
ALL
CASH
AND
BANK
TRANSACTIONS, FOR EXAMPLE,
CASH SALES, RECEIPTS FROM
DEBTORS
(ACCOUNTS
RECEIVABLES),
PAYMENTS
TO
CREDITORS
PETTY CASH
CASH BILLS
VOUCHERS,
GENERAL JOURNAL
ALL
TRANSACTIONS
WHICH
CANNOT BE RECORDED IN ANY
OTHER BOOK OF ORIGINAL ENTRY
BILLS,
VOUCHERS,
CHEQUES.
RECEIPTS,
CANCELLED
CASH BOOK
RETURN
JOURNAL
INWARDS
RETURN
JOURNAL
OUTWARDS
important to distinguish between these two types of transactions since the accounting
treatment differs as well as the impact on the balance sheet.
(Activity 3.1)
Robert is the owner of an Auto Part shop located in Papine, Kingston. He purchases 500
carburetors from Massey Marketing at $35 each, together with 100 shock absorbers at $10
each and 75 disc pads at $25 each. The goods were delivered one week after the order
was placed. On checking the order Robert discovers that the disc pads were the wrong
brand and he returns them to Massey Marketing. On checking, Massey Marketing did not
have the correct brand in stock and so Robert was forced to purchase the disc pads for cash
at Car Tech Limited.
Answer the following questions which are based on the scenario above:
Identify the document Robert receives from Massey Marketing with his order.
Name the document Massey Marketing would issue to Robert after he returns the disc pads.
(Activity 3.1 contd)
What document would Robert receive from Car Tech Ltd when he purchases the correct
brand of disc pads?
Name the prime entry books in Roberts business where the above transactions would be
recorded.
Feedback
(a)
The document received would be a Sales Invoice
(b)
Credit Note
Cash Bill
Purchases Journal, Return Outwards Journal, Cash Book
Debit Cards
These are issued by commercial banks to customers allowing them to access their
accounts using automatic banking machines (ABMs). I am sure you have seen
commercials for debit cards. In Trinidad and Tobago they are referred to as LINXcards.
The customers account is immediately debited at the point of sale and the sellers
account is credited. This type of payment has become more popular to avoid a large
amount of cash on the premises. The receipts from debit cards are used to make records
in the cash book.
Credit Cards
Credit cards allow customers to charge their purchases of goods and services instead of
paying cash. When the credit card is presented to the seller, it must be verified to
ensure the sale does not exceed the approved amount. The use of computers allows the
sellers account to be credited with the amount. A percentage of the sale price is
charged by commercial banks for all credit card transactions. Popular credit card
companies include VISA, Master Card and American Express.
SOURCE DOCUMENTS
A source document records the essential elements of any transaction; the date, name
and address of the names of the parties involved and the value of the transaction. They
form the basis for the accounting records that are kept by the business. These
documents are retained for future verification. Let us now examine a very common
document that is used in most transactions, an Invoice.
Invoice
An invoice is a document sent to credit customers giving a detailed description of the
items, unit price and the terms and conditions of the transaction. The order number, as
well as the name and address of the customer, are also printed on the invoice.
Sometimes the invoice would also alert customers of interest charges when there are
overdue balances. An invoice is made in triplicate and the copies are used by different
departments to keep their own records. Sales invoices are used to record transactions in
the Sales Journal. The Purchases Invoice is sent by vendors and is used to make records
in the Purchases Journal. Both the buyer and the seller receive copies of the invoice and
use them to make records.
INVOICE
THE PLANT EMPORIUM
Orange Valley Road
San Juan
Customer Name
Address
Telephone
Fax:
Qty
Invoice No:
45678
Date
Order No.
Unit
Price
Description
Total
Total
Payment:
Terms and Conditions
E&OE
Credit Note
This is a document sent to a buyer when there is a reduction in the amount charged on
an invoice. This may occur when goods are returned or when there is an error in
pricing. Goods would normally be returned if they are faulty or damaged in some way.
Debit Note
If errors occur when an invoice is being prepared the document which is sent to
customers to change the amount charged on the original invoice is a debit note. It is
sometimes referred to as a supplementary invoice. Errors may occur if additional goods
were sent to the customer or there was an error on the original invoice.
Discounts
A discount is a reduction in the price of an item. In accounting there are two types of
discounts; cash discounts and trade discounts. Cash discounts are given as incentives
to customers to make payments on their account within a specified period of
time. Trade discounts reduce the catalogue price of an item and are intended to
encourage trade. Although they are shown on the sellers invoice, trade discounts are
not recorded in the ledger of the buyer or seller.
(Activity 3.2)
Grey Singh received an order from Jim Young, a credit customer with the following details on
September 30 2007:
6x20 inch planter @ $18.00 each
12kgs Fertilizer @12.50 per kg
20 bottles of Liquid Grow @ $18.50
The following terms and conditions applied:
Trade discount 10%
5% 7 days
2% 30 days
E&OE
You are required to prepare the invoice to be sent to Jim Young.
Explain the meaning of the terms and conditions outlined.
Feedback
INVOICE
GREY SINGH
Orange Valley Road
San Juan
Invoice No:
1245
DATE
Customer Name
Jim Young
Address
Railway Road
Sea View
Telephone: 640
8767
Fax:
Qty
12 kgs
6
20
Payment:
Terms &
Conditions
989
30/09/07
Order No.
005
200
7
Unit
Price
$12.50
$18.00
$18.50
Description
Fertilizer
20 Planters - green
Bottles Liquid Grow
$150.00
$108.00
$370.00
$628.00
$62.80
$565.2
0
Total
E&OE
Carriage Paid
The Terms of payment suggest a cash discount of 5% if the total of $565.20 is paid
within 7 days after receipt of the invoice. If the total due is paid within 30 days, Mr.
Young is entitled to a 2% discount. E&OE stands for errors and omissions excepted. It
allows the seller the right to alter the invoice even after it has been sent to the buyer if
any errors or omissions are discovered.
RECORDING TRANSACTIONS
Specialized Journals for Stock
As we discussed in an earlier Study Guide, a Journal is a daily record of business in
chronological order. The Sales, Purchases and Return Journals, also called books of
original entry or day books, record transactions dealing only with stock
(inventories). TheSales journal record only credit sales of stock and the Purchases
Journal records credit purchases of stock. The Returns Journals records goods previously
bought or sold on credit that have been returned to suppliers or by customers. Cash sales
and purchases of goods are not recorded here, neither the purchase nor sale of fixed
assets. These are recorded in the Cash book and the General Journal, respectively. The
layout of the journal is shown below.
Illustration: Format of Journal
Da
te
Details
Foli
o
Amount
Date on the
Invoice
Example
Demonstrating the recording of transactions in Books of Original Entry
J. Flowers is the sole owner of The Plant Emporium. Her records show the following
transactions for the month of June 2006.
June 01
June 05
June 10
June 13
June 18
discount
June 20
Sold goods on credit to Green Leaf $110, R. Fig $689 and S. Tato $725
Received Invoices from T. Tin $1 750 and S. Steel $1 105
Bought goods on credit from Planters Place $1875
S. Tato returned $125 worth of goods
Sold goods on credit to R. Fig with a list price of $1800, allowing a 2.5% Trade
Returned goods to T. Tin $250
Feedback to Example
JOURNAL
Date
Details
06/01/06
Green Leaf
R. Figg
S. Tato
R. Figg
1800
Less 2% trade discount
(45)
Total Credited to the Sales
A/C
PURCHASES JOURNAL
06/18/06
Foli
o
SL
SL
SL
SL
Amount
($)
110.00
689.00
725.00
1 755.00
3279.00
Date
Details
06/05
T. Tin
S. Steel
Planters Place
Total Debited to
Purchases A/C
06/10
06/30
Foli
o
PL
PL
PL
GL
Amoun
t
Amount
1 750.00
1 105.00
1 875.00
4 730.00
Details
Folio
06/20
T. Tin
PL
Amount
Amou
nt
250
250
Details
06/13
S. Tato
Total Debited to Return Inward
a/c
Folio
Amoun
t
Amoun
t
125
125
(Activity 3.3)
Now that you are familiar with the recording procedures of the day books you are to
enter up the sales, purchases, and returns day books from the following details for the
month of May 2006.
May
May
May
May
May
May
May
May
May
May
May
1
3
4
8
9
10
15
18
24
28
30
Sold goods on credit to L. Long $800, S. Short $1250 and B. Stone $1 620
Bought goods on credit from S. Lewis $730, J. Makoy $950
S. Short returned goods to us $370
Bought goods on credit from A. Ladi $840, B. Ready $1750
Returned faulty goods to B. Ready $500
Sold goods on credit to Tovadis Limited $1 290 less 10% trade discount
Credit purchases from S. Lewis $510, J. Makoy $ 450
Returned goods to J. Makoy $190
Credit sales to L. Long $2 700, B. Stone $970
B. Stone returns some of the goods purchased on May 24, $180
Tovadis Limited returned goods with a list price of $200
Record the above transactions and determine the amount to be transferred to the Sales
a/c, Purchases a/c, Return Inwards and Return Outwards a/cs.
Feedback
Total
Total
Total
Total
credit sales
$8 501
credit purchases $5 230
return inwards
$730
return outwards
$690
Details
Folio
A/C
Debited
A/C
Credited
Journalising is the process of recording entries in the Journal. As with the specialized
journals, transactions are recorded in chronological order. The accounts involved are
identified and the account to be debited is written first. Indented on the second line is
the account to be credited. A special feature of the general journal is the narration,
which follows every journal entry. The narration briefly explains the transaction
recorded.
Example
Demonstrate the use of the General Journal in recording varying transactions.
May 16 2006 The Plant Emporium purchased, on credit, machinery costing $17 890, from
Mackal Limited.
May 20 2006, the Cashier received a voucher for $1150 to pay the insurance for the owners
personal car.
May 30th 2006, the owner invested a further $21000 into the business from her private
savings.
Before these are recorded in the journal, the accounts involved are identified. Then, using
double entry rules of entry they are recorded in the general journal.
Date
May 16
06
May 20
06
May 30
06
Details
Folio
Machinery
GL
Mackal Limited
Fixed asset purchases
on credit
GL
Drawings
GL
Cash
Cash paid for owners
personal insurance
Bank
GL
GL
A/C
Debited
17 800
A/C
Credited
17 800
1 150
1 150
21 000
Capital
Additional investment by
owner
21 000
Opening entries this is a list of assets and liabilities used to begin a new accounting
period. (See the example below).
2.
3.
Correction of errors.*
4.
Closing entries.*
5.
6.
Date
02/0
1
Motor Vehicles
Furniture
Building
Cash in hand
Bank
Stock on hand
Debtor: R. Syms
Creditor: Beltronics Limited
Bank Loan
Capital
Folio
Debit
$
35 000
60 000
120 000
1 200
35 490
14 500
8 210
Credit
$
26 100
40 000
208 300
274400
274400
Date
Folio
Debit
$
Credit
$
1/6/06
97
34
4
1
8
000
000
370
650
200
750
1 450
144 520
145 970
145 970
Details
(RECEIPTS)
Cas
h
Bank
DEBIT SIDE
Di
s
All
Dat
e
Details
(PAYMENTS)
Cas
h
Bank
CREDIT
SIDE
Feedback
Your answer should include: Receipts, Cash bills, Payment vouchers, Deposit slips, Cash
register slips, cheque counterfoil.
Contra Entries
Since both cash and bank accounts are in the cash book, it is possible to complete the
double entry in the cash book if the transaction involves both accounts. When this
happens it is described as a contra entry. These occur when cash is deposited into the
bank or cash is withdrawn from the bank for use in the office.
Dis
Rec
Example
Record the following transactions of Seren Dippity, a retailer, in his three column cash
book for the month of April 2006.
$
April
01
Cash at bank
1 800
03
Cash sales
1 490
08
Paid cash for cleaning
124
10
Received a cheque from B. Calm
1 500
15
Purchases paid by cheque
1 380
17
Paid rent by cheque
750
19
Received a cheque from S. Leep to settle
his account of $700 less 5% discount
21
Paid cash into bank
1 200
24
Received $900 cash from P. Paine to settle his
account of $950
26
Paid D. Serene by cheque to settle an account of
$840 less 5% discount.
month.
Balance the cash book and bring down the balance at the end of the
Details
(RECEIPTS
)
Balance
b/f
Sales
B. Calm
S. Leep
Cash
P. Paine
Cash
Balance
b/d
Dis
All
Dat
e
Details
(PAYMENTS)
1800
4/8
Cleaning
1500
665
1200
4/15
4/17
4/21
4/26
4/30
Purchases
Rent
Bank
S. Serene
Balance c/d
1490
sl
sl
C
900
2390
5/1
Bank
1066
35
50
5165
2237
85
Cash
Bank
Dis
Rec
124
1380
750
C
1200
1066
2390
798
2237
5165
42
42
(Activity 3.6)
Write up the three column cash book of S. Sui from the following details and balance the
cash book at the end of the month.
Aug. 01
Aug. 02
Aug. 03
Aug. 05
Aug. 07
discount
Aug. 09
Aug. 11
Aug. 15
discount
Aug. 18
Aug. 20
Aug. 25
Started business with $1800 cash in hand and $16 000 in the bank
Paid rent by cheque $300
Paid utilities by cheque $1 240
Cash sale $4 300
Received a cheque from debtor C. Lebrity $3400 after allowing $135
Cash sales paid directly into bank $2 980
Paid cash into bank $4 000
Paid account at Vendor Ltd the amount owing $2 900 received 5%
Mr. Sui withdrew $1500 from the bank for personal use
Paid for motor repairs by cash $850
Withdrew $500 from the bank for office use
Feedback
CASH BOOK
Date
1/8
5/8
7/8
9/8
11/8
25/8
Details
(RECEIPTS
)
Balance
b/f
Sales
C. Lebrity
Sales
Cash
Bank
Cash
1800
Bank
Dis
All
16000
4300
C
C
3400
2980
4000
135
500
Dat
e
Details
(PAYMENTS)
2/8
Rent
3/8
11/8
15/8
18/8
20/8
Utilities
Bank
Vendor Ltd
Drawings
Motor
repairs
Cash
Balance
c/d
25/8
31/8
6600
5/1
Balance
1750
2638
0
20085
135
Cash
Bank
Dis
Rec
300
1240
C
4000
2755
1500
145
850
C
1750
6600
500
20085
2638
0
145
b/d
The Petty Cash Book
Small cash payments and receipts can be omitted from the Cash Book to avoid
overcrowding. When this is done, a Petty Cash Book is used. The format of the PCB
facilitates the analysis of transactions so that certain types of transactions can be posted
in aggregate to the ledger. The debit side of the PCB represents receipts whilst the credit
side, which represents payments, is divided into several analysis columns. (See example
below).
PETTY CASH BOOK
Receip
ts
Dat
e
Particulars
Vouch
er No.
Tota
l
Travelin
g
Postag
e
Statione
ry
Office
Expens
es
The PCB operates with an Imprest System. This means that the Petty Cashier is given a
float (imprest) at the beginning of a period from which funds are disbursed. Requests for
payment are written on vouchers which briefly explain the purpose of the payment and
indicate the amount. At the end of the period (week or month) the total cash paid is then
reimbursed by the main cashier. This is referred to as restoring the imprest. This means
that the petty cashier is given the exact amount she has disbursed. The totals of the
analysis columns are then posted to the general ledger. Small sums received in the
office are also recorded in the petty cash book on the receipt side, although generally
there is no analysis. These small receipts would reduce the amount to be reimbursed.
1000
585
415
585
1000
(Activity 3.7)
Enter the following transactions in a petty cash book, having analysis columns for
postages and stationery, traveling expenses, cleaning and miscellaneous.
June
June
June
June
June
June
June
June
June
June
June
1
3
5
9
10
12
14
17
20
23
30
V1
V2
V3
V4
V5
V6
V7
V8
V9
V10
600
100
80
40
72
100
20
40
20
30
16
Total the analysis columns and restore the imprest to the original amount. Voucher
numbers are consecutive.
Feedback
Dat
e
$600
1/6
3/6
5/6
9/6
10/
6
Particulars
Voucher
No.
Total
Travelin
g
Postage&
Stationer
y
Restore
Imprest
Postage
stamps
Stationery
Taxi fare
100
100
2
3
80
40
80
Cleaning
72
Cleanin
g
Expens
es
40
72
Misc.
Expense
s
12/
6
14/
6
17/
6
20/
6
23/
6
30/
6
30/
6
Refreshment
100
100
Newspaper
20
20
Cleaning
40
Taxi fare
20
Copy paper
30
10
16
Bulbs
Balance c/d
600
40
20
30
16
518
60
210
112
136
82
GL
GL
GL
GL
600
82
1/7
518
1/7
Balance b/d
Cash
(restored
imprest)
KEY POINTS
Books of Original Entry are useful in eliminating bulky details from the ledger.
Credit transactions occur when payment is made some time in the future, whereas a
cash transaction is where payment is immediate.
Source documents record the essential elements of any transaction and are kept for
future reference.
Sales and Purchases Invoices, receipts, bills, debit notes and credit notes are examples
of source documents used to make records in books of original entries.
Trade discounts are reductions in the catalogue price of goods and are not recorded in
the books whereas cash discounts are given as incentive for prompt payment and
recorded in the cash book.
The Sales, Purchases, Return Inwards and Return Outwards journals are used to record
the credit stock transactions.
The General Journal records unusual and onetime transactions and is unique in the way
each transaction is analyzed and recorded.
All non-credit transactions involving cash or bank are recorded in the cash book. This
would include credit and debit card transactions.
The Petty Cash Book is an analysis book that records all small cash transactions such as
the purchase of postage stamps and gas for office car.
CONCLUSION
SUGGESTED FURTHER
READINGS
Wood, F.
END TEST
1.
(a)
(b)
(c)
(d)
2.
(a)
(b)
(c)
(d)
save money
encourage trade
encourage early payment
discourage late payment
3.
The information needed to record transaction in the sales journal is taken from the
(a)
(b)
(c)
(d)
bank statement
credit note
debit note
sales invoice
4.
(a)
(b)
(c)
(d)
5.
(a)
(b)
(c)
(d)
a debit note
a credit note
a statement
an invoice
Complete the following sentences with words or phrases taken from the following word
list:
Journalising
Cash Discount
Debit note
6.
Trade discounts
Credit note
Return outwards
A _____________ is sent by the seller to let the buyer know that the amount on the invoice
was overstated.
7.
A __________ is issued when too many goods have been supplied to the customer and he
agrees to keep them.
8.
9.
When a customer pays off the amount owing before the due date a ______________ is
allowed.
10.
1.
2.
3.
4.
5.
6.
Credit note
7.
Debit note
8.
Trade discounts
9.
Cash discount
10.
Journalising
The Sports Depot, a sole trading business, sells a wide variety of sporting equipment and
clothes. Goods are bought and sold for cash and on credit. The invoice is used to enter
information in the Sales and Purchases journals. On March 1st 2006 the business had
$2500 in cash and $8000 in the bank. The following transactions took place during the
month:
March
March
March
March
02
03
08
10
$
500
400
1 390
March
March
March
March
March
March
March
March
March
March
March
12
15
15
18
20
21
24
24
25
29
30
March 31
1 850
1 200
1670
2 590
1 700
850
1500
350
1 500
2.
Prepare the invoice from the Outlet with the information on March 10 th.
3.
Determine the following: Total net credit sales and total net credit purchases.
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