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CHAPTER 4

Recording and summarising transactions


Contents

1 Recording business transaction

2 Recording Sales

3 Recording purchases

4 The cash book


Contents

5 Cash registers and cash received sheets

6 The general ledger

7 Discounts, rebates and allowances

8 Sales tax

9 Posting cash
Posting cash receipts
receiptsto
tothe
thegeneral
generalledger
ledger
Recording business
transactions
Text

To record

Source Books of
documents prime entry
Source documents

 Invoices

 Credit notes
 Petty cash vouchers

 Cheques received

 Cheque stubs (for cheques paid out)

 Wages, salary and employee tax records


Books of prime entry
Discussion
Which of books of prime entry is used if:
Your business pays a supplier $5,000?
 Cash book

You send a customer an invoice for


$1,320?
 Sales day book

You receive an invoice from J


Sunderland for $1,750
 Purchase day book
Discussion

You pay Hall & Co $1,000


 Cash book

Sarti (a customer) returns goods to


the value of $100
 Sales returns day book

You return goods to Elphick & Co to


the value of $2,400
 Purchase returns day book
Summarising source
documents
Full processes
Recording Sales
Sales Sales credit Cheques
invoices notes received

Sales day
Cash book
book

Bank account

Sales tax control account

Receivables ledger Receivables ledger control account


Sales day book

 The sale to Jones Co for $105 is also recorded on


page 14 of the receivables ledger.
 Invoice number is unique generated by the
business's sales system.
Recording Purchases
Purchase
Purchase
credit Cheques paid
invoices
invoices

Purchase day
Cash book
book

Bank account

Sales tax control account

Payables ledger Payables ledger control account


Purchase day book

v The purchase from Cook Co for $315 is


also recorded on page 31 of the payable
ledger.
Cash
payment
book/
Cheque
payment
day book
Cash
contr
ol
The cash book

accou
Cash

nt in
book

G/L
Cash
receipts
day
book
The cash receipts book
What you expect to see?
The cash payments book
What you expect to see?
Example

At the beginning of 10 Jan, Peter


Jeffries had $2,100 in the bank. During
10 January 20X8:
(a) Cash sale: receipt of $220
(b) Payment from credit customer
Khan: $3,100 less discount
allowed $100 (R/L ref. 07)
(c) Payment from credit customer
Likert: $1,480 (R/L ref. 12)
(d) Payment from credit customer
Lee: $2,400 less discount allowed
$70 (R/L ref. 10)
(f) Cash received for sale of machine:
$370
Example

(g) Payment to supplier Price: $1,250


(P/L ref. 27) Discount received $50
(h) Payment to supplier Burn: $2,420
(P/L ref. 16) Discount received $80
(i) Payment of telephone bill: $235
(j) Payment of gas bill: $640
(k) Payment of $3,400 to Fawcett for
new plant and machinery
Solution
Solution
Question
Which of the following will not be entered in the cash book?
(a) Cheque received
(b) Payment to receivables ledger customers
(c) Supplier's invoice
(d) Credit note
(e) Debit note
(f) Bank charges debited to the bank account
(g) Overdraft interest debited to the bank account
(h) Payment for a non-current asset purchased on credit
(i) Refund received from a supplier
(j) Depreciation
Answer: CDEJ
The bank statement

Weekly/monhtly basis

Bank Text Cash book


statement (internally
received To reconcile generated)
from bank

Investigate differences
The petty cash book
 The book of prime entry which
keeps a cumulative record of the
small amounts of cash received
into and paid out of the cash float
 There are usually more payments

than receipts, and petty cash


must be ‘topped-up' from time to
time with cash from the business
bank account.
The general ledger
v The general ledger is the accounting record
which summarizes the financial affairs of a
business.
v It contains details of assets, liabilities and
capital, income and expenditure and so
profit and loss.
v It consists of a large number of different
ledger accounts, each account having its
own purpose or 'name' and an identity or
code
v Another name for the general ledger is the
nominal ledger
The general ledger
The ‘T’ format

The 'T' format accounts:


vOn top of the account is its name
vLeft hand side called debit side
vRight hand side called credit side
Example
For example: Profit and Loss accounts

Note: No b/f or c/f for profit and losses


accounts
Example bal
for ance
w
Bro ard
ugh

For example: Balance sheet accounts


t

bal
for ance
Ca ward
rrie
d

Note: There are always b/f or c/f for profit and losses
accounts for balance sheet accounts
Double entry book-keeping
The Principles
 Every transaction has a two fold effect!!!
Example – Cash transactions
In the cash book of a business, the following
transactions have been recorded.
(a) A cash sale (ie a receipt) of $2
(b) Payment of a rent bill totalling $150
(c) Buying some goods for cash at $100
(d) Buying some shelves for cash at $200

How would these four transactions be posted to the


ledger accounts? For that matter, which ledger
accounts should they be posted to? Don't forget
that each transaction will be posted twice, in
accordance with the rule of double entry.
 How much cash is left?
Example – Credit
transactions
Recorded in the sales day book and the
purchase day book are the following
transactions.
(a) The business sells goods on credit to a
customer Mr A for $2,000.
(b) The business buys goods on credit from
a supplier B for $100.

How and where are these transactions


posted in the ledger accounts?
More transactions
Identify the debit and credit entries in the following
transactions.
(a) Bought a machine on credit from A, cost $8,000
DEBIT Machine account (non-current asset) $8,000
CREDIT Payables (A) $8,000

(b) Bought goods on credit from B, cost $500


DEBIT Purchases account $500
CREDIT Payables (B) $500

(c) Sold goods on credit to C, value $1,200


DEBIT Receivables (C) $1,200
CREDIT Sales $1,200
More transactions
(d) Paid D (a supplier) $300
DEBIT Payables (D) $300
CREDIT Cash $300

(e) Collected $180 from E, a customer


DEBIT Cash $180
CREDIT Receivables (E) $180

(f) Paid wages $4,000


DEBIT Wages expense $4,000
CREDIT Cash $4,000
More transactions
(g) Received rent bill of $700 from landlord G
DEBIT Rent expense $700
CREDIT Payables (G) $700

(h) Paid rent of $700 to landlord G


DEBIT Payables (G) $700
CREDIT Cash $700

(i) Paid insurance premium $90


DEBIT Insurance expense $90
CREDIT Cash $90
Posting from the day books
Posting cash receipts
Impersonal vs. personal
 Impersonal accounts: Accounts in the general
ledger
 Personal accounts:
 Include details of transactions which have
already been summarized in ledger accounts.
 Do not form part of the double entry system
 Memorandum accounts only.

 Control accounts:
 Used chiefly for receivables and payables.
 Should agree with the total of the individual
balances
Accounting for sales tax

If a business sells goods for $600 + $105 sales tax,


ie for $705 gross price, the sales account should
only record the $600 excluding sales tax.

DEBIT Cash or AR $705


CREDIT Sales $600
CREDIT Sales tax account (output) $105
Accounting for sales tax
If a business purchases goods on credit for $400 +
tax $70
Tax is recoverable
DEBIT Purchases $400
DEBIT Sales tax account (input tax) $70
CREDIT Trade AP $470

Tax is not recoverable


DEBIT Purchases $470
CREDIT Trade accounts payable $470
When is sales tax accounted

Sales tax is accounted for when it first


arises:
when recording credit purchases/sales in
credit transactions

and when recording cash received or paid


in cash transactions
Sales tax account
Sales tax account
B/f: xxx
Purchase day book xxx Sales day book xxx
(input sales tax)
(out put sales tax invoiced)
Bank xxx
(input sales tax on cash purchase) Bank xxx
(out put sales tax on cash sales)
C/f: xxx
Calculating sales tax
Question 1
One product has net price of $10,000 and
sales tax at 10% is to be added.
How much sales tax is?

 Answer:
Sales tax = 10,000*10%

= 1,000
Calculating sales tax
 Question 2
The gross price of Product A is $15,000. What
is the sales tax at 10% charged on each
product?

 Answer:
Net sale = 15,000/(1+10%)
= 13,636

Sales tax = 13,636*10%


= 1,363
Calculating sales tax
Question 3
A company sells goods for $127,350
including sales tax at 17 ½% in a
quarter. It buys goods for $101,290
including sales tax. What amount will it
pay to or receive from the tax
authorities for the quarter (round to the
nearest $)?
Calculating sales tax
 Answer:
Question 1
Which of the following business
documents is the source of information
for purchases made on credit?
A Invoice
B Goods received note
C Credit note
D Bank statement
Answer: A
Question 2
A document from a seller notifying the
purchaser that an overcharge has been
made is called:
A An advice note
B A credit note
C A consignment note
D A debit note
Answer: B
QB 5
Net profit was calculated as being $10,200. It was
later discovered that capital expenditure of $3,000
had been treated as revenue expenditure, and
revenue receipts of $1,400 had been treated as
capital receipts.
The correct net profit should have been
A $5,800
B $8,600
C $11,800
D $14,600

Answer: D
QB 6
A credit balance on a ledger account
indicates
A An asset or an expense
B A liability or an expense
C An amount owing to the organisation
D A liability or a revenue
Answer: D
QB 7
Which ONE of the following is not a
book of prime entry?
A The petty cash book
B The sales returns day book
C The receivables ledger
D The cash book
Answer: C