2) Books Of Prime Entry

Question 1

Day book DEBIT entries?

Answer 1

Daybook DEBIT entries?

DAYBOOK DEBIT SIDE
.Purchases day book
.Cash book receipts (into bank)
.Petty cash day book
.Sales returns day book
.Discounts allowed day book

Question 2

Day book CREDIT entries?

Answer 2

Daybook CREDIT entries?

DAYBOOK CREDIT SIDE
.Sales day book
.Cash book payments (out of bank)
.Purchase returns daybook
.Discounts received daybook

Question 3

Payments recording day books?

Answer 3

Payments recording daybooks?

.Cash book payments
.Petty cash book
.Purchases daybooks
.Sales returns daybook (paying customer back)

Question 4

Sales recording day books?

Answer 4

Sales recording daybooks?

.Sales day book
.Cash book receipts (into bank)
.Purchase returns daybook
.Discounts received daybook

Question 5

Types of day books?

Answer 5

Types of day books?

DAYBOOKS

1.Sales daybook - includes sales
returns (return of goods SOLD on
credit).

2.Purchases daybook - includes
purchase returns (return of
goods BOUGHT on credit). Returns
outwards would be entered as a
(purchase return).

3.Prompt payment discounts
daybooks = discounts allowed (to
a customer) and discounts received
(from a supplier).

4.Petty cash book (small cash
transactions)

5.Cash book - Cash payments (debit,
credit card ect (all payments out of
the bank). Cash receipts (all
receipts into the bank).

6. Journal - record of entries made
   that do not have a source
   document e.g. purchase of a
   non-current asset, introduction of
   capital to start a business.

PURPOSE OF DAYBOOKS
.Record high-volume transactions
without logging up the general
ledger (6 daybooks).

Question 6

The sales day book

Answer 6

The sales day book

.DEBTORS IS AN ASSET = DEBIT ENTRY
.ONCE PAID ARE A CREDIT = SALES INCOME

.List all sales invoices made on credit terms to customers
.Trade debtors (UK term)
.Trade receivables (international term)

RECORDING TRANSACTIONS
.Gross invoice total (trade receivables balance owed by
customer)
.Net invoice total (business gets to record as sales
income)
.OUTPUT VAT owed to HMRC

Question 7

Sales returns daybook

Answer 7

Sales returns daybook

.Record of all sales credit notes (negative invoice). Issued to customers for goods returned inwards.

SALES CREDIT NOTE
- Is deducted from the balance the customer owes and VAT is deducted from the output VAT the business owes HMRC. The net amount reduces the income that is shown in the SPL. A prompt payment discount is ignored when raising the sales credit note.

.The total of the SRDB is entered into the sales ledger control account and the receivables ledger is updated with the sale credit note to reduce the amount owed. These entries are a reversal of the entries made for the original sales invoices in the sales daybook.

SRDB credit note into RECEIVABLES LEDGER (NOT
DOUBLE ENTRY)
- Individual credit notes go into the credit customers
receivables ledger with total credit note value
ONLY.

SRDB credit note into SLCA/ RLCA (DOUBLE ENTRY)
-DEBIT Sales returns = net amount
-DEBIT VAT control account = VAT amount
-CREDIT RLCA = total amount
-b/d on DEBIT SIDE for 1st of the month.

Question 8

Discounts allowed daybook (PPD)

Answer 8

Discounts allowed daybook (PPD)

.Records credit notes for prompt payment discounts
issued to customers.
.Receivables owed are asset = DEBIT ENTRY
.Receivables once paid by or are refunded to the customer are a CREDIT ENTRY because it decreases the amount owed by the customer (decrease in asset = CREDIT ENTRY)

STEPS
.Raise the sales invoice for the full amount, assuming that
the PPD will not be taken.
.The full invoice amount is recorded in the sales day
book.

IF PPD TAKEN
.Incorrect full invoice amounts are included in the
accounting records, so a credit note is raised for the
discounts allowed and VAT.

.The credit note is recorded in the discounts allowed day
book, which is entered in the general ledger as:
-DEBIT = Discounts allowed = net amount
-DEBIT = VAT control account = VAT amount
-CREDIT = RLCA/ SLCA = Total amount
.Then in the RECEIVABLES LEDGER with a CREDIT entry for the TOTAL AMOUNT of the credit note to replicate the entry in the general ledger.
.Funds received are recorded in the cash receipts book.

IF PPD NOT TAKE
.The correct amounts are included in the accounting records, so no adjustment is needed. Funds received are recorded in the cash receipts book.

Question 9

Cash book RECEIPTS

Answer 9

Cash book RECEIPTS

.Record of all receipts into the bank account, including
cheque receipts from customers or the proceeds of
selling assets.

.Examples = credit customers, cash sales, capital put in by
owner, loan receipts, bank interest, rent received,
commission received.

Question 10

Purchases daybook

Answer 10

Purchases daybook

.Record of all purchase invoices made on credit terms
from suppliers.

.CREDITORS ARE A LIABILITY, THEY OWE MONEY = CREDIT
ENTRY.
.ONCE PAID ARE A DEBIT = PURCHASES.

Question 11

Purchase returns daybook

Answer 11

Purchase returns daybook

.Record of all purchase credit notes received from suppliers for (goods returned outwards = goods returned to the supplier by the customer). Purchases account is reduced = CREDIT ENTRY (Reduce in expense = CREDIT).

.The total of the net column of this book would be posted to the credit side of the purchase returns account.

.Returned goods to supplier - on the 17th Dec we returned goods to S.Supplies that were damaged, for the value of £98.54 inc VAT @ 20%, how would this be posted to the accounts?

ANSWER = DEBIT S.Supplies £98.54, CREDIT VAT £16.42, CREDIT PURCHASE RETURNS £82.12 (opposite entries from purchases)

.Example on laptop

Question 12

Discounts received daybook

Answer 12

Discounts received daybook

.Records credit notes for the prompt payment discounts received from suppliers.

Question 13

Cash book PAYMENTS

Answer 13

Cash book PAYMENTS

.Record of all payments out of the bank e.g. wages, rent,
bankers’ automated clearing system (BACS).

PAYMENT TERMS
.Net monthly means payment will be taken next month.

.Examples = payment to credit suppliers, cash purchases, drawings paid to owner, electricity, rent and rates, wages, printing, stationery and travel expenses.

BALANCING CASH BOOK PAYMENTS
.Total have to balance on both sides
.Details column = exactly what expense is e.g. stationery,
wages, window cleaner.

ANALYESD CASH BOOK PAYMENTS
.Example = sent a cheque for £1,328 to a supplier for goods purchased on credit. ENTRIES ON CASH BOOK (VAT = Debit £221.33) (payables = Debit £0) (bank = Credit £1,328)

Question 14

Petty cash book

Answer 14

Petty cash book

.Record of the small cash transactions paid for out of the
petty cash tin e.g. stamps.

PETTY CASH SYSTEMS
-Imprest system (the amount requested is documented)
-Non-imprest system (fixed amount is issued every
month, might not be documented)

.Imprest level or float = amount of petty cash

.Recording petty cash = petty cash vouchers (document
that records the expenses of an organization), evidence,
imprest level, replenishment (withdraw cash from bank).

.Petty cash voucher has = the amount of petty cash being
reclaimed, signature of the member of staff making the
claim, description of what was claimed for.

REIMBURSE PETTY CASH BOOK
.Amount required to reimburse the imprest to the
original or new balance.
.Example = add on new imprest - remaining balance
leaves money to reimburse balance to new balance.
.Example 2 = 22+36+38.40 = 96.40. Original balance is
£100 leaving £3.60. The new imprest is £130 minus £3.60
= £126.40 to reimburse to new balance.

Question 15

Digital system for daybooks

Answer 15

Digital system for daybooks

.Normally total column will be missing as the computer will add it up.

Question 16

Sales day book examples

Answer 16

Sales day book LEDGER examples

RECEIVABLES LEDGER
-DEBIT ABC Ltd £120.
-DEBIT DEF Ltd £240.
-TOTAL = £360 INCLUDING VAT.
.THE ENTRIES IN THE RECEIVABLES LEDGER ARE A
DETAILED BREAKDOWN OF THE TOTAL ENTRY IN THE
RECEIVABLES LEDGER CONTROL ACCOUNT (RLCA).
.NOT PART OF THE DOUBLE-ENTRY SYSTEM.
.FOR BUSINESS USE ONLY TO CHASE OUTSTANDING
DEBTS AND CREATE STATEMENTS OF ACCOUNT FOR
EACH CUSTOMER.

RECEIVABLES LEDGER CONTROL ACCOUNT
-DEBIT RECEIVABLES LEDGER CONTROL ACCOUNT £1,800
-CREDIT VAT CONTROL ACCOUNT £300
-CREDIT SALES INCOME £1,500

Question 17

Book entries for payment + PPD

Answer 17

Book entries for payment + PPD

.Book entries for payment of £1,600 plus VAT from a
customer who had taken the offer of a prompt payment
discount?

.ANSWER = CREDIT SALES LEDGER, DEBIT BANK, DEBIT
DISCOUNTS ALLOWED, CREDIT VAT?

Question 18

Purchases invoice to account

Answer 18

Purchases invoice to account

.On the 12th Dec a PURCHASE INVOICE was received
from S.Supplies, for £1,263.59 excl VAT @ 20%. Post to
account.

.ANSWER = DEBIT PURCHASES £1,263.59, DEBIT VAT
£252.71, CREDIT S.Supplies £1,516.30.

Question 19

Basic journal corrections

Answer 19

Basic journal corrections

.If the trial balance doesn’t balance. Once the errors have
been found. it needs to be corrected this is done with
the use of a journal; we do not change the original wrong
entry in the accounts.

Question 20

Cash book

Answer 20

Cash book

.Records all payments in and out of the bank
.Recorded in a two-column cash book and the general
ledger.

.Payments and receipts are entered into the cash book
by one of these documents;
- Cheque book stubs (detailing cheque payments written,
cheques are paid directly from the bank)
- Paying in slip counterfoils (detailing cheques received
into the bank)
- BACS listings (direct bank-to-bank transfers)
- Direct debit (direct bank-to-bank transfers)/ standing order schedules
- Remittance advice note
- Cash receipts

Question 21

Two-column cash book

Answer 21

Two-column cash book

.Each column represents a separate account. This would
be used for an organisation that regularly has customers
paying in physical cash and the organisation chooses to
keep some of the cash in hand to pay for some of its
purchases.

.Bank column = records total amounts going into or out
of the bank account.
.Cash column = shows transactions that are in the form
of actual physical cash.

The following transactions must be separately recorded;
.Receipts into and payments out of the organisation
bank account; as detailed on the bank statements.
.Receipts of and payments out of cash by the
organisation.
.There are other columns to analyse the totals.

.DONT’T add VAT when entering PAYABLES (Cashbook
payments CREDIT SIDE) only gross. (AS NOT PAID YET).

.DON’T add VAT when entering RECEIVABLES (Cashbook
receipts DEBIT SIDE) only gross. (AS NOT PAID YET).

Question 22

Control accounts in the books

Answer 22

Control accounts in the books

.If it is the company policy to include the control accounts in the books then the personal accounts within the receivables and payable ledger will no longer form part of the double entry process, they are completed as MEMORANDUM accounts.

.A MEMORANDUM in accounting refers to a document with a short message to be entered in the general journal and the general ledger account. The message in the memorandum is entered in the ledger for tracking purposes of the updates made in the accounting record.

Question 23

Bank reconciliation steps

Answer 23

Bank reconciliation steps

.Comparing the cashbook and bank statement

STEPS
1. Check opening balances agree
2. Tick off items that appear in both the cash book and on
the bank statement.
3. Update the cash book with any items not ticked in the
bank statement.
4. Re-balance the cash book after updating it.
5. Prepare a bank reconciliation statement taking account
of outstanding lodgements and unpresented cheques.

Question 24

Double entry JOURNAL debit entries ONLY

Answer 24

Double-entry JOURNAL debit entries ONLY

.If only debit entries in a journal add up all assets (debit side) in the journal and put the total for assets as a CREDIT CAPITAL ENTRY so both sides balance.

                                          Journal Date            Account Name  	 Debit 	  Credit  01/04           Bank	                    1,000       0.00
 	                Cash	                    300          0.00
 	                Inventory	               1,200      0.00
 	                Office Equip           3,500      0.00
 	                Capital	                    0.00        6,000 Opening business entries       6000       6000

Question 25

Double-entry JOURNAL debit and credit entries

Answer 25

Double-entry JOURNAL debit and credit entries

.Add up debit side and put total at the bottom of both
debit side.
.Take away any capital entries from debit total and add in
this figure to the capital column on the direct side. Then
put total of the debit side in the credit side total so they
balance.

Account Name Debit Credit
Bank 3600 0.00
Office Furniture 900 0.00
Office Equipment 1,750 0.00
Loan from Bank 0.00 1,500
Capital 0.00 4750 (- credit entries)
Opening Entries 6250 6250

Question 26

Journal entry of an asset

Answer 26

Journal entry of an asset

                                            Journal Date	        Account Name	               Debit  	  Credit 04/03/XX      Computer                       1,450         0.00 04/03/XX       VAT                                  290            0.00 04/03/XX       Bank                                0.00          1740 Purchase of computer                      1740         1740

Question 27

JOURNAL ENTRY Irrecoverable debt of 7 months

Answer 27

Journal Irrecoverable debt of 7 months

.An Irrecoverable debt of 7 months old of £720 inclusive
of VAT is to be written off for customer Chalmers Ltd.
.VAT can be RECLAIMED as over 6 months old debt.
.The Gross value reduces the customer account.

                                Journal Account Name	               Debit  	   Credit Irrecoverable Debts	      600            0.00 VAT	                                    120            0.00 Chalmers Ltd	                0.00           720

Question 28

JOURNAL ENTRY Irrecoverable debt of 4 months old

Answer 28

JOURNAL ENTRY Irrecoverable debt of 4 months old

.VAT cannot be reclaimed as the debt needs to be over 6
months.
.The Gross value reduces the customer account.

Journal
Account Name Debit Credit
Irrecoverable Debts 456 0.00
VAT 0.00 0.00
Connor & Son 0.00 456