Topic 5 - Day books/journals Flashcards
What source document represents a buyer ordering goods, who is it issued by, what is its purpose and what does it contain?
- Purchase order
- Issued by buyer to seller
- Used to order goods from supplier
- Contains details of goods ordered
What source document represents a seller sending goods, who is it issued by, what is its purpose and what does it contain?
- Invoice
- Issued by seller to buyer
- Used to accompany goods delivered to the customer
- Contains details (quantity & price) of goods supplied on credit and amount owed
What source document represents a seller accepting return of goods, who is it issued by, what is its purpose and what does it contain?
- Credit note
- Issued by seller to buyer
- Confirms acceptance and allowance given to customer in respect of unsatisfactory goods returned
- Contains details (quantity & price) of goods returned
What source document represents a seller reminding buyer of amount outstanding, who is it issued by, what is its purpose and what does it contain?
- Statement of account
- Issued by seller to buyer at regular intervals (weekly, monthly)
- Used to inform customer of outstanding balance on their account
- Contains up to date details of transactions and current amount outstanding
What source document represents a buyer sending payment, who is it issued by, what is its purpose and what does it contain?
- Remittance advice
- Issued by buyer to seller
- Used to inform supplier of transactions being settled
- Contains details of payment made
What source document represents a seller giving proof of payment by the buyer, who is it issued by, what is its purpose and what does it contain?
- Cash receipt
- Issued by seller to buyer
- Used to provide proof of payment and evidence of cash purchases when goods need to be returned if faulty
- Contains details of payment made
What are the 3 types of ledgers?
- Receivables ledger
- Payables ledger
- General ledger
- Nominal ledger
- Private ledger
What does the receivables ledger contain?
Contains all the personal accounts of trade receivables.
What the the payables ledger contain?
Contains all the personal accounts of trade payables.
What does the nominal ledger contain?
Contains all other accounts (expenses, revenues, sales etc.).
What does the private ledger contain?
Capital and drawings accounts.
What are the 2 types of accounts?
- Personal
- Trade receivables
- Trade payables - Impersonal
- Real (accounts of property)
- Nominal (accounts that record expenses, income & capital)
Check page 7 for all transactions, source documents, books of original entry and ledgers.
What is a trade discount?
An amount deducted by traders from the list price of goods when they are selling to other trades in bulk. This reduces selling price of goods.
Where does the trade discount appear?
Invoice (not shown in accounts).
What are the advantages and disadvantages of trade discounts?
Advantage:
- Offering trade discounts encourages customer loyalty and bulk buying which increases the amount of goods sold
Disadvantage:
- Reduction in the selling price will reduce our profit %
What is a cash discount?
An allowance given by the seller for prompt payment of an amount owing.
What are the advantages and disadvantages of a cash discount?
Advantages:
- Encourages prompt payment of debts which increases cash flow so firm has enough cash to pay obligations on time
- Reduces possibility of irrecoverable debts
Disadvantages:
- Seller receives less money
- Discount allowed is an expense that reduces profit for the year
What information is recorded in the sales day book?
Information for sales on credit taken from the sales invoice:
- Date
- Customer’s name
- Total amount due (after trade discount)
What information is recorded in the purchases day book?
Information for purchases on credit taken from the purchases invoice:
- Date
- Supplier’s name
- Total amount due
Why do we use a folio in the cash book?
- Reference to the book and page where the other half of the double entry is
- To check if the double entry has been completed
What are the advantages of the imprest system and reasons for maintaining the petty cash book?
- Cashier (senior/highly paid staff) should not be bothered with routine payments and recording of small expenses. A junior can be responsible for this instead as it is easy and good training
- Cash book should be kept clear of many, very small expenses so that major receipts and payments can be better monitored by the senior cashier. It is highly impractical to draw many cheques for such small amounts and making only one ledger entry at the end of the month for the petty expense total is more suitable
- Petty cash work is very easy to check by senior cashier since at any time cash held + total of vouchers paid equal imprest amount
What reasons could there be for the balance in the petty cash book being different to the amount of money in the petty cash box?
- May be an error in the petty cash book
- May be a missing voucher for a payment made
- Cash may have been stolen
- Cash due from main cashier may have been recorded but not received
Which transactions are not recorded in the general journal?
- Credit sales and purchases
- Sales returns and purchase returns
- Receipts and payments of money
