Chapter 5: Books of Primary Entry & Subsidiary Ledgers Flashcards
What are the main books of prime entry? (7)
- Sales day book
- Purchase day book
- Sales returns day book
- Purchase returns day book
- Journal
- Cash book
- Petty cash book
Define books of primary entry
Books in which we first record transactions
What is the sales day book? what is it used for?
the book of prime entry for credit sales used to keep a list of all invoices sent out to customers
True or False: If a business sells boots and shoes they can split up the entries in the sales day book to capture information about the sales of both items
True the can split sales into partial entries like $50 shoes $30 boots instead of $80 sales
What is the purchase day book? What is it used for?
book of prime entry for credit purchases. it records all invoices received from credit suppliers
What is the most noticeable difference between a sales day book and a purchase day book?
purchase day book does not have invoices as it deals with other people’s invoices which have varying numbers etc
can a purchase day book have split entries to show more detail about the transaction?
yes it can show if the invoice relates to goods that will be resold or bills paid etc
What is a sales returns day book?
book of prime entry for credit notes raised. amounts in brackets are negatives or credits
What is the purchase returns day book?
book of prime entry for credit notes received from suppliers from goods sent back to the supplier.
What is the cash book?
Book of prime entry for all transactions that go through the bank account.
Where is the cash that is on a premises recorded
Petty cash book
In which book would you record:
a. Your business pays A Brown (a supplier) $450.
b. You send D Smith (a customer) an invoice for $650.
c. You receive an invoice from A Brown for $300.
d. You pay D Smith $500.
e. F Jones (a customer) returns goods to the value of $250.
f. You return goods to J Green to the value of $504.
g. F Jones pays you $500.
a. Cash book.
b. Sales day book.
c. Purchase day book.
d. Cash book.
e. Sales returns day book.
f. Purchase returns day book.
g. Cash book.
What are the purpose of the sales day book and sales returns day book? in which way does it hold useful information?
records the sales for the day. Useful in that it can be split up into say boots sold and socks sold not just a total value
Define sales tax (GST)
Sales tax is an indirect tax levied on the sale of goods and services. it is usually administered by the local tax authorities.
When is sales tax collected?
is cumulative, collected throughout the duration of a product’s life till it meets the consumer who ultimately pays the GST
Define Input and Output sales tax
Sales tax charged on goods and services sold by a business is referred to as output sales tax. Sales tax paid on good and services ‘bought in’ by a business is referred to as input sales tax.
In which case does a business pay the difference in tax to the authorities?
when the sales tax exceeds input sales tax. If less then the business is refunded.
What three things must a sales tax registered trader do?
- Charge sales tax on goods and services at the rate prescribed by the government. (output sales tax)
- Pay tax on goods and services purchased from other businesses. (input sales tax)
- Pay the tax difference between input and output sales tax at periodic intervals.
What is irrecoverable sales tax? how is it treated?
circumstances in which traders cannot reclaim sales tax paid on their inputs. the trader must bear the cost (expenses such as electricity). regarded as part of the cost of the item.
Do SOPL show tax inclusive or tax exclusive amounts
exclusive as the business does not make a profit on GST.
When does input and output sales tax arise?
only when a sale is made not when a debt is settled
What are the main things to remember when dealing with sales tax on credit sales? (4)
- Include sales tax in sales day book; show it separately
- Include gross receipts from receivables in cash book; no need to show sales tax separately.
- Exclude sales tax element from SOPL
- Credit sales tax payable with output sales tax element of receivables invoiced.
What are the main things to remember when dealing with sales tax on credit purchases? (5)
- Include sales tax in purchase day book; show it separately.
- Include gross payments in cashbook; no need to show sales tax separately.
- Exclude recoverable sales from SOPL
- Include irrecoverable sales tax in SOPL
- debit sales tax payable with the recoverable input sales tax element of credit purchases.
What are the main things to remember when dealing with sales tax on cash sales? (3)
- Include gross receipts in cash book; show sales tax separately.
- Exclude sales tax element from SOPL
- Credit sales tax payable with output sales tax element of cash sales.
