chapter 4 - recording and summarizing transactions
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CAT T1TRANSCRIPT
CHAPTER 4
Recording and summarising transactions
Contents
Recording business transaction1
Recording Sales2
Recording purchases 3
The cash book4
Contents
Cash registers and cash received sheets5
The general ledger 6
Discounts, rebates and allowances 7
Sales tax 8
Posting cash receipts to the general ledger9 Posting cash receipts to the general ledger
Recording business transactions
Text
To record
Source documents
Books of 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 invoices
Sales credit notes
Cheques received
Sales day book
Bank account
Sales tax control account
Cash book
Receivables ledger control accountReceivables ledger
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 invoices
Purchase credit
invoicesCheques paid
Purchase day book
Bank account
Sales tax control account
Cash book
Payables ledger control accountPayables ledger
Purchase day book
The purchase from Cook Co for $315 is also recorded on page 31 of the payable ledger.
The cash book
Cash control account in G/L
Cash control account in G/L
Cash receipts day book
Cash receipts day book
Cash book
Cash book
Cash payment book/
Cheque payment day book
Cash payment book/
Cheque payment day book
The cash receipts book
J Bloggs – Cash receipts
Date Narrative Total Cash sales
Capital introduced
Cash from debtors
$ $ $ $ 1.10 Capital injection 1,000 - 1,000 - 3.10 Cash sales 90 90 - - 8.10 Cash sales 50 50 - - 11.10 A Smith 200 - - 200 12.10 Capital injection 500 - 500 - 13.10 B Brown 300 - - 300 Total 2,140 140 1,500 500
What you expect to see?
The cash payments book
J Bloggs – Cash payments
Date Narrative Total Cash
purchases Cash to
creditors Telephone $ $ $ $ 1.10 BT 100 - - 100 12.10 C J ones 1,200 - 1,200 - 18.10 D Davies 300 - 300 - 20.10 Cash purchases 200 200 - - 26.10 Cash purchases 50 50 - - 29.10 Cash purchases 100 100 - 30.10 BT 140 - - 140 Total 2,090 350 1,500 240
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
Text
To reconcile
Bank statement received
from bank
Weekly/monhtly basis
Investigate differences
Cash book(internally generated)
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
The general ledger is the accounting record which summarizes the financial affairs of a business.
It contains details of assets, liabilities and capital, income and expenditure and so profit and loss.
It consists of a large number of different ledger accounts, each account having its own purpose or 'name' and an identity or code
Another name for the general ledger is the nominal ledger
The general ledger
The ‘T’ format
The 'T' format accounts:On top of the account is its nameLeft hand side called debit sideRight 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
For example: Balance sheet accounts
Note: There are always b/f or c/f for profit and losses accounts for balance sheet accounts
Carried
forward
balance
Brought
forward
balance
Double entry book-keeping
The Principles
Every transaction has a two fold effect!!!
Example – Cash transactionsIn 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 transactionsRecorded 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
J Bloggs – Cash receipts
Date Narrative Total Cash sales
Capital introduced
Cash from debtors
$ $ $ $ 1.10 Capital injection 1,000 - 1,000 - 3.10 Cash sales 90 90 - - 8.10 Cash sales 50 50 - - 11.10 A Smith 200 - - 200 12.10 Capital injection 500 - 500 - 13.10 B Brown 300 - - 300 Total 2,140 140 1,500 500 Dr Cash Account 2,140 Cr Sales 140 Cr Capital Account 1,500 Cr Debtors Control Account 500
Impersonal vs. personal account
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 for?
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
Purchase day book xxx
(input sales tax)
Bank xxx(input sales tax on cash purchase)
C/f: xxx
B/f: xxx
Sales day book xxx
(out put sales tax invoiced)
Bank xxx
(out put sales tax on cash sales)
Sales tax account
Calculating sales tax
Question 1One 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 2The 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 3A 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 InvoiceB Goods received noteC Credit noteD 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 noteB A credit noteC A consignment noteD 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 expenseB A liability or an expenseC An amount owing to the
organisationD A liability or a revenueAnswer: D
QB 7
Which ONE of the following is not a book of prime entry?
A The petty cash bookB The sales returns day bookC The receivables ledgerD The cash bookAnswer: C