3 - Sources, records and books of prime entry Flashcards
what are source documents
business transactions are recorded on source documents
examples of main source documents
- sales and purchase orders
- sales invoices
- sales credit notes
- purchases invoices
- purchases credit notes
- remittance advice notes
sales and purchase orders
buyer reviews products/prices
if they go ahead, they complete an order form
from buyers pov = purchase order
from sellers pov = sales order
what is a delivery note
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
what is an invoice
once goods are supplied, sellers accounts departments raise an invoice
they prompt payment for goods/services
what is a credit note
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
remittance advice note
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)
what is a book of prime entry
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
what is a sales day book
when a business makes a sale on credit, payment isn’t immediately received
lists all invoices which the business has sent to credit customers
what is the order from documents to final accounts
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
how are sales credit notes recorded in the day book
they can be recorded either as a negative entry or in a separate book of prime entry known as the sales returns day book
what is the sales return day book
= list of all credit notes raised against sales which have been made on credit
what is the cash book
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
what is the receipt section within the cash book
RECEIPTS = money received by the business, together with the appropriate analysis. receives payment for:
- cash sales
- cash received from credit customers
- other miscellaneous receipts
what is the payment section within the cash book
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
what is the purchase returns day book
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
why does a business make a payment
- purchases (goods for resale) made for cash
- payments made to credit suppliers
- regular payments made for other expenses (wages)
- drawings
- miscellaneous, eg bank charges
what is petty cash used for
- making low value cash purchases
- reimbursing employees for business expenses
- postage payments
- purchase of stationary or small items for the office
what is an imprest system
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
how does an imprest system work
- business has pre set limit, eg 250
- cash is withdrawn and replaced by petty cash voucher
- at any point in time, total of cash + petty cash voucher must = imprest amount
- at end of week/month petty cash book is written up from info on vouchers
- 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
- at end of period, business should be left with imprest amount in petty cash box
what is a petty cash voucher
internal doc which must be completed and authorised before any cash can be paid out of the petty cash box
how does the petty cash book operate within the account
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
