Chapter 5: Books of Primary Entry & Subsidiary Ledgers

Question 1

What are the main books of prime entry? (7)

Answer 1

1. Sales day book
2. Purchase day book
3. Sales returns day book
4. Purchase returns day book
5. Journal
6. Cash book
7. Petty cash book

Question 2

Define books of primary entry

Answer 2

Books in which we first record transactions

Question 3

What is the sales day book? what is it used for?

Answer 3

the book of prime entry for credit sales used to keep a list of all invoices sent out to customers

Question 4

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

Answer 4

True the can split sales into partial entries like $50 shoes $30 boots instead of $80 sales

Question 5

What is the purchase day book? What is it used for?

Answer 5

book of prime entry for credit purchases. it records all invoices received from credit suppliers

Question 6

What is the most noticeable difference between a sales day book and a purchase day book?

Answer 6

purchase day book does not have invoices as it deals with other people’s invoices which have varying numbers etc

Question 7

can a purchase day book have split entries to show more detail about the transaction?

Answer 7

yes it can show if the invoice relates to goods that will be resold or bills paid etc

Question 8

What is a sales returns day book?

Answer 8

book of prime entry for credit notes raised. amounts in brackets are negatives or credits

Question 9

What is the purchase returns day book?

Answer 9

book of prime entry for credit notes received from suppliers from goods sent back to the supplier.

Question 10

What is the cash book?

Answer 10

Book of prime entry for all transactions that go through the bank account.

Question 11

Where is the cash that is on a premises recorded

Answer 11

Petty cash book

Question 12

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.

Answer 12

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.

Question 13

What are the purpose of the sales day book and sales returns day book? in which way does it hold useful information?

Answer 13

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

Question 14

Define sales tax (GST)

Answer 14

Sales tax is an indirect tax levied on the sale of goods and services. it is usually administered by the local tax authorities.

Question 15

When is sales tax collected?

Answer 15

is cumulative, collected throughout the duration of a product’s life till it meets the consumer who ultimately pays the GST

Question 16

Define Input and Output sales tax

Answer 16

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.

Question 17

In which case does a business pay the difference in tax to the authorities?

Answer 17

when the sales tax exceeds input sales tax. If less then the business is refunded.

Question 18

What three things must a sales tax registered trader do?

Answer 18

1. Charge sales tax on goods and services at the rate prescribed by the government. (output sales tax)
2. Pay tax on goods and services purchased from other businesses. (input sales tax)
3. Pay the tax difference between input and output sales tax at periodic intervals.

Question 19

What is irrecoverable sales tax? how is it treated?

Answer 19

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.

Question 20

Do SOPL show tax inclusive or tax exclusive amounts

Answer 20

exclusive as the business does not make a profit on GST.

Question 21

When does input and output sales tax arise?

Answer 21

only when a sale is made not when a debt is settled

Question 22

What are the main things to remember when dealing with sales tax on credit sales? (4)

Answer 22

1. Include sales tax in sales day book; show it separately
2. Include gross receipts from receivables in cash book; no need to show sales tax separately.
3. Exclude sales tax element from SOPL
4. Credit sales tax payable with output sales tax element of receivables invoiced.

Question 23

What are the main things to remember when dealing with sales tax on credit purchases? (5)

Answer 23

1. Include sales tax in purchase day book; show it separately.
2. Include gross payments in cashbook; no need to show sales tax separately.
3. Exclude recoverable sales from SOPL
4. Include irrecoverable sales tax in SOPL
5. debit sales tax payable with the recoverable input sales tax element of credit purchases.

Question 24

What are the main things to remember when dealing with sales tax on cash sales? (3)

Answer 24

1. Include gross receipts in cash book; show sales tax separately.
2. Exclude sales tax element from SOPL
3. Credit sales tax payable with output sales tax element of cash sales.

Question 25

What are the main things to remember when dealing with sales tax on cash purchases? (4)

Answer 25

1. Include gross payments in cash book; show sales tax separately.
2. Exclude recoverable sales tax from SOPL
3. Include recoverable sales tax in SOPL
4. Debit sales tax payable with recoverable input sales tax element of cash purchases

Question 26

What is an example of a personal account and an example of an impersonal account?

Answer 26

personal: Receivables and payables per client
impersonal: rent, sales, trade payables etc

Question 27

What are some reasons why a customer needs a personal account? (4)

Answer 27

1. to track the amount they owe
2. so that statements can be sent periodically showing the activity they have had with the business.
3. so that managers can keep track of credit position and so they don’t rack up a huge debt
4. to match of payments made to debts owed

Question 28

What is a trade discount?

Answer 28

a reduction in the list price of an article. often given for bulk purchases. eg unit price $1 but if you buy 100 units it becomes 95c

Question 29

What is a cash discount?

Answer 29

reduction in amount payable in return for a payment of cash or within an agreed period. eg. discount of 5% if you pay before due date.

Question 30

How is a Trade discount recorded in accounting?

Answer 30

deducted from the gross cost of purchases. ie. gross - discount.

Question 31

How is a trade discount allowed recorded in accounting?

Answer 31

deducted from the gross sales prices so that sales for the period will be reported at their invoiced amount.

Question 32

If there is both a trade and a cash discount in which order are they applied?

Answer 32

trade then cash discount.

Question 33

How are cash discounts received recorded in the cash payments book?

Answer 33

as a debit in the trade payables account and as a credit in the discounts received account.

Question 34

How are cash discounts allowed recorded in the cash book?

Answer 34

as a debit in the discount allowed accounts and as a credit in the trade receivables control account

Question 35

Define the General journal

Answer 35

the general journal is the record of prime entry for transactions which are not recorded in any of the other books of prime entry. for example any entries that are errors and need to be corrected.

Question 36

What must accompany all general journal entries?

Answer 36

a narrative explanation. required for audit and control

Question 37

What happens if an employee has annual leave outstanding at the end of an accounting period?

Answer 37

use annual leave provisions in the journal to account for it. ie. debit the amount of leave they have taken already and credit the amount they have left.