Chapter 4- Accounting for Sales, Returns and Discounts Flashcards
What are the 4 stages of the accounting system?
- financial documents
- books of prime entry {day books}
- double entry bookkeeping
- trial balance
what does the term sale mean?
the sales of goods in which the business trades
what is revenue income?
- income from goods in which the business trades
what is capital income?
- income from items other than the goods in which the business trades
- eg a shop selling an old cash till
what is revenue?
- the total amount of income from the sale of goods or services related to the company’s primary operations
what is capital?
- owner’s investment
what are sales returns?
- goods previously sold on credit which have been returned by customers
what is a ‘discount allowed’?
- ppd offered by a supplier to its customers to encourage quick or short period of time from invoice date payment
What type of financial documents are there?
- sales invoices
- credit notes for sales returns and discounts allowed
What books of prime entry are there?
- sales day book
- sales returns day book
- discounts allowed day book
What are the double entry accounts in the general ledger?
- sales account
- sales returns account
- discounts allowed account
- sales ledger control account
- value added tax account
what subsidiary accounts are there in the sales ledger?
- accounts of trade receivables {customers}
what are books of prime entry?
- the first place in the accounting system where financial documents are recorded
what are the day books included in the books of prime entry?
- sales day book
- sales returns day books
- discounts allowed day book
what do the day books include?
- they list amounts of money and other financial information taken from financial documents
what are the day books used for?
- day books are used for credit sales, sales returns and discounts allowed
why aren’t the books of prime entry used for double- entry bookkeeping process?
- they aren’t a part of double- entry bookkeeping, but they are used to give totals which are then entered into the double- entry accounts
what are the reasons for using books of prime entry?
- totals can be checked before entering the ledger accounts
- they are used for a large number of regular transactions {like sales}, which makes fewer transactions enter the double-entry accounts
- divides up work at the accounts department
Notes for when writing up day books from invoices and credit notes:
- the total amounts from the invoices/credit notes should be written in the total column
- enter the VAT in the VAT column
- enter the net amount of the invoice/credit note, before VAT is added on, in the net column
what is a credit note?
- a financial doc which is created from sales being returned, sent by the seller to the buyer
what is an invoice?
- a financial doc which is created from a sale being made, sent from the seller to the buyer
what is the sales day book?
- a book of prime entry prepared from sales invoices
what does the sales day book list?
- lists credit sales made
how is the sales day book prepared?
- prepared from sales invoices
what details are taken from the invoice and entered into the sales day book?
- invoice date
- customer name
- sales invoice number
- customer account number
- total amount of invoice
- VAT amount shown
- Net amount shown
what are the ledger accounts?
- double entry accounts for financial transactions involving individuals, assets, liabilities, purchases, expenses, income and capital
what is the general ledger?
- ledger section which includes: sales account, sales returns account, discounts allowed account, sales ledger control account, VAT account
what is a sales ledger?
- a sales ledger is where accounts for individual customers are recorded
- it also records money received from products or services being sold
where are entries made after being written up in the sales day book?
- they are entered into the ledger accounts, contained in the general ledger and the sales ledger
what ledgers are used in sales transactions?
- general ledger
- sales ledger
what does the general ledger contain?
- sales account
- sales returns account
- sales ledger control account
- VAT account
- discounts allowed account
what does the sales ledger contain?
- individual customer accounts (trade receivables)
what does a sales account record?
- records sales invoices issued
what does a sales returns account record?
- records credit notes issued for sales returns
what does discounts allowed account record?
- records credit notes issued for prompt payment discount allowed
what does the sales ledger control account record?
- records the total amount of the trade receivables
what does the VAT account record?
- records the VAT amounts of credit sales and sales returns
what other accounts does the general ledger record?
- purchases, expenses, capital, liabilities, assets, income, receipts and payments
accounting system for credit sales is in the order of:
- goods sold on credit (invoice issued)
- sales day book (books of prime entry)
- general ledger (debit to SLCA, credit to SA & VAT account)
- sales ledger (debit to trade receivables)
is the sales ledger control account db or cr in the general ledger? (credit sales)
- debit to the sales ledger control account
is the sales account db or cr in the general ledger? (credit sales)
- credit to the sales account
is the VAT account db or cr in the general ledger? (credit sales)
- credit to the VAT account
is the trade receivables account db or cr in the sales ledger? (credit sales)
- debit to the trade receivables
accounting system for sales returns is in the order of:
- goods sold on credit returned (credit note issued)
- sales returns day book (books of prime entry)
- general ledger (debit to SRA, VAT account, credit to SLCA)
- sales ledger (credit to trade receivables)
is the sales returns account db or cr in the general ledger? (returns)
- debit to the sales returns account
is the VAT account db or cr in the general ledger? (returns)
- debit to the VAT account
is the sales ledger control account db or cr in the general ledger? (returns)
- credit to the sales ledger control account
are the customer accounts db or cr in the sales ledger? (returns)
- credit to the trade receivables
accounting system for discounts allowed is in the order of:
- discounts (ppd) taken by customer (CN to customer)
- discounts allowed day book (books of prime entry)
- cash book & GL (debit to cash book: bank or cash, discounts allowed account, VAT account, credit to SLCA)
- sales ledger (credit to customer account)
is the cash book debit or credit in the CB/ GL? (discounts allowed)
- debit to the cash book
is the discounts allowed account db or cr in the general ledger? (discounts allowed)
- debit to the discounts allowed account
is the VAT account db or cr in the general ledger? (discounts allowed)
- debit to the discounts allowed account
is the SLCA cr or db in the general ledger? (discounts allowed)
- credit to the sales ledger control account
are the customer accounts cr or db in the sales ledger? (discounts allowed)
- credit to the customer account
what are financial documents?
- source documents for the accounting records
what is coding?
- cross referencing methods used to trace transactions through the accounting system
what is a ledger?
- section of an accounting system, a book, eg general ledger, sales ledger, purchases ledger
what are analysed sales day books?
- day books which incorporate analysis columns between different departments or different types of goods/services sold/supplied
