3 - Sources, records and books of prime entry

Question 1

what are source documents

Answer 1

business transactions are recorded on source documents

Question 2

examples of main source documents

Answer 2

• sales and purchase orders
• sales invoices
• sales credit notes
• purchases invoices
• purchases credit notes
• remittance advice notes

Question 3

sales and purchase orders

Answer 3

buyer reviews products/prices

if they go ahead, they complete an order form

from buyers pov = purchase order
from sellers pov = sales order

Question 4

what is a delivery note

Answer 4

order is received, then goods prepared for despatch

delivery note has product code and quantity of goods ordered

not entered in books of prime entry but help ensure correct goods/quantities are delivered

Question 5

what is an invoice

Answer 5

once goods are supplied, sellers accounts departments raise an invoice

they prompt payment for goods/services

Question 6

what is a credit note

Answer 6

if a customer receives faulty/incorrect goods then goods will be returned to seller

if invoice issued, credit note must be raised to reduce amount owed by customer

provides confirmation of nothing owed to seller

Question 7

remittance advice note

Answer 7

in the case of multiple purchases a month, several invoices may be settled in one payment

a remittance advice note details which invoices are being paid and which credit notes are deducted
(shows total amount already paid)

Question 8

what is a book of prime entry

Answer 8

key details are entered from business documents into the book of prime entry and they should be written up daily

on a regular basis the day books are totalled and totals are entered into the nominal ledger

Question 9

what is a sales day book

Answer 9

when a business makes a sale on credit, payment isn’t immediately received

lists all invoices which the business has sent to credit customers

Question 10

what is the order from documents to final accounts

Answer 10

transactions take place, shown in invoices –> categorised in books of prime entry –> summarised in the nominal ledger/trial balance –> appear in final accounts; statement of profit/loss and financial position

Question 11

how are sales credit notes recorded in the day book

Answer 11

they can be recorded either as a negative entry or in a separate book of prime entry known as the sales returns day book

Question 12

what is the sales return day book

Answer 12

= list of all credit notes raised against sales which have been made on credit

Question 13

what is the cash book

Answer 13

a book of prime entry that is used to record money received and paid out by the business

is sometimes split into two books: receipts and payments

Question 14

what is the receipt section within the cash book

Answer 14

RECEIPTS = money received by the business, together with the appropriate analysis. receives payment for:
- cash sales
- cash received from credit customers
- other miscellaneous receipts

Question 15

what is the payment section within the cash book

Answer 15

PAYMENTS = money paid out by the business, together with the appropriate analysis

purchase invoices are recorded in the book of prime entry known as the purchase day book

Question 16

what is the purchase returns day book

Answer 16

if a business has been invoiced for faulty/incorrect goods then it will request a credit note which will need to be recorded in:
- either as a negative entry in the purchase day book or
- in a separate book of prime entry known as the purchase returns day book

it is simply the list of all credit notes received against purchases which have been made on credit

Question 17

why does a business make a payment

Answer 17

• purchases (goods for resale) made for cash
• payments made to credit suppliers
• regular payments made for other expenses (wages)
• drawings
• miscellaneous, eg bank charges

Question 18

what is petty cash used for

Answer 18

• making low value cash purchases
• reimbursing employees for business expenses
• postage payments
• purchase of stationary or small items for the office

Question 19

what is an imprest system

Answer 19

business will have a pre set amount for its petty cash (imprest level) and from this it will make payments. once funds are depleted it will be topped up to imprest level

Question 20

how does an imprest system work

Answer 20

1. business has pre set limit, eg 250
2. cash is withdrawn and replaced by petty cash voucher
3. at any point in time, total of cash + petty cash voucher must = imprest amount
4. at end of week/month petty cash book is written up from info on vouchers
5. to restore cash to imprest amount, vouchers are withdrawn and replaced by cash of an equivalent amount, so: top up amount of cash = vouchers = money spent
6. at end of period, business should be left with imprest amount in petty cash box

Question 21

what is a petty cash voucher

Answer 21

internal doc which must be completed and authorised before any cash can be paid out of the petty cash box

Question 22

how does the petty cash book operate within the account

Answer 22

petty cash book = book of prime entry and is used to record the daily transactions concerning petty cash

there is a:
RECEIPTS side = receipts of notes/coins into petty cash
PAYMENTS side = payments of notes/coins from petty cash