Chapter 4 Flashcards
Requirements of an accounting system
- Relevant and accurate information must be disclosed on time
- Internal control measures are necessary to protect the assets and to ensure reliable information
- The system must be flexible enough to adapt in order to accommodate changes.
Objective of the purchases and creditors system
- All purchases must be authorised
- To ensure that goods which have been ordered, were indeed received.
- The prices on the invoice must correspond with those that have been agreed upon.
- All obligations must be recorded accurately
- The creditor must be paid on time
Recording of cash purchases
Cash purchases are recorded in the cash payment journal from one of the following source documents:
- cheque,
- counterfoil,
- original cash invoice
- original receipt.
Recording of credit purchases
Credit purchases are recorded in the purchase journal from one of the following source documents:
- original purchase invoice
- original goods received note
Recording of payment of creditors
The payment of the creditor is recorded from the cheque counterfoil in the cash payment journal together with cash discount received if applicable.
Recording of cash purchase returns
Returns that relates to cash purchases are recorded from duplicate debit notes or original credit notes in the cash receipt journal.
Recording of credit purchase returns
Returns that relate to credit purchases are recorded from duplicate debit notes or original credit notes in the purchase return journal.
Two groups of discount
- trade discount
- cash discount (settlement discount)
Trade discount
Normally received from suppliers when the entity purchases in bulk.
The amount is directly subtracted from the purchase price and not recorded at all.
Recording of cash discount received
Cash discount received is recorded in the cash payment journal with the cash payment made to the creditor.
Objective of the sales and debtor system
- All sales must be recorded on time
- The correct amount must be invoiced
- All payments must be recorded
- Control over collection from debtors is essential
Recording of cash sales
Recorded in the cash receipt journal and general journal from one of the following source documents:
- Cash register slips
- Duplicate cash invoice of duplicate receipts
Recording of credit sales
Recorded in sales journal and the general journal from a duplicate sales invoice.
Recording of payment received from the debtor
Recorded from the duplicate receipt in the cash receipt journal together with cash discount allowed if applicable.
Recording of cash sales returns
Recorded from original debit notes or duplicate credit notes in the cash payment journal.
Recording of credit sales returns
Recorded from original debit notes or duplicate credit notes in the sales return journal
Recording of cash discount allowed
Recorded in the cash receipt journal together with the payment received from the debtor.
Accounting equation:
Purchase of an asset for cash
- Assets +
- Assets -
Double entry:
Purchase of an asset for cash
- Dt Equipment
- Cr Bank
Accounting equation:
Payment received from debtor
- Assets +
- Assets -
Double entry:
Payment received from debtor
- Dt Bank
- Cr Debtors
Accounting equation:
Purchase of an asset on credit
- Assets +
- Liabilities +
Double entry:
Purchase of an asset on credit
- Dt Vehicles/Equipment/etc.
- Kt Creditors
Accounting equation:
Paying a creditor
- Assets -
- Liabilities -
Double entry:
Paying a creditor
Dt Creditors
Cr Bank
Accounting equation:
Borrow money from financial institution
- Assets +
- Liabilities +
Double entry:
Borrow money from financial institution
Dt Bank
Cr Long-term loan
Accounting equation:
Capital contribution
- Assets +
- Equity + (capital contributions)
Double entry:
Capital contribution
Dt Bank
Cr Capital
Accounting equation:
Withdrawals by owner
- Assets +
- Equity -
Double entry:
Withdrawals by owner
Dt Withdrawals
Cr Bank
Accounting equation:
Services rendered for cash
- Assets +
- Equity +
Double entry:
Services rendered for cash
Dt Bank
Cr Services rendered (income)
Accounting equation
Services rendered on credit
- Assets +
- Equity +
Double entry:
Services rendered on credit
Dt Debtors
Cr Services rendered (income)
Accounting equation:
Cash expenses
- Equity -
- Assets -
Double entry:
Cash expenses
Dt Salaries and wages (expenses)
Cr Bank
Accounting equation:
Expenses on credit
Equity -
Liabilities +
Double entry:
Expenses on credit
- Dt Expense
- Cr Creditors
Accounting equation:
Purchase returns
- Liabilities -
- Equity +
Double entry:
Purchase returns
Dt Creditors
Cr Expense
Accounting equation:
Sales returns
- Equity -
- Assets -
Double entry:
Sales returns
Dt Sales returns
Cr Debtors
Accounting equation:
Payments received from debtor and discount allowed
Assets +
Assets -
Equity -
Double entry:
Payments received from debtor and discount allowed
Dt Bank
Cr Debtors
Dt Discount allowed
Accounting equation:
Payment of creditor and discount received
Assets -
Creditors -
Equity +
Double entry:
Payment of creditor and discount received
Dt Creditors
Cr Bank
Cr Discount received
