Topic 5: Day Books/ Journals Flashcards
What source document do we use when a Buyer orders goods?
Purchase Order
What source document do we use when the seller sends goods?
Invoice
What source document do we use when the seller accepts the return of goods?
Credit note
What source document do we use when the seller reminds the buyer of the amount outstanding
Statement of account
What source document do we use when The buyer sends payment?
remittance advice
What source document do we use when the seller gives this as proof of payment by the buyer?
Cash receipt
What does the PAYABLES LEDGER contain?
Contains all the personal accounts of trade payables (creditors, suppliers)
What does the RECEIVABLES LEDGER contain?
Contains all the personal accounts of trade receivables (debtors, customers)
What does the NOMINAL LEDGER contain?
It contains all other accounts (expenses, revenues, sales revenue, OGP, inventory, etc.). PRIVATE LEDGER: capital & drawings accounts
State the Source document, Book of original entry, and ledger (Double entry) we use when selling on credit.
Sales Invoice
Sales day book
DR: Trade receivable (RL)
CR: Sales day book (NL
State the Source document, Book of original entry, and ledger (Double entry) we use when we buy on credit
Purchases invoice
Purchases day book
DR: ordinary goods purchased (NL)
CR: Trade Payable (PL)
State the Source document, Book of original entry, and ledger (Double entry) we use when we have sales return
Credit note
Sales Return day book
DR: Sales returns (NL)
CR: Trade receivable (RL)
State the Source document, Book of original entry, and ledger (Double entry) we use when we have purchase returns.
Credit Note
Purchases return day book
DR: Trade Payable (PL)
CR: Purchases returns
State the Source document, Book of original entry, and ledger (Double entry) we use when we have bank receipts/payments.
Bank Remittance advice
Cash Book (bank column)
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State the Source document, Book of original entry, and ledger (Double entry) we use when we have Cash receipts and payments.
Cash Receipts
Payment vouchers
Cash book (cash column)
Petty Cash Book
What is a Trade Discount?
TRADE DISCOUNT of goods when they price Trade Discount is an amount deducted by traders from the list are selling to other traders in bulk (large quantities). It reduces the selling price of the goods (we selUbuy at cheaper prices) Trade discount a quoted as a percentage to be deducted from the list price, and only appears on the invoice (hoj shown in the accounts).
Example: List price of goods E4000, Trade Discount 20% Trade Discount = 20% s £4000 = E800 NET selling price= £4000 - £800 = £3200
Evaluate Trade Discount.
ADVANTAGE:
Trade Discounts are awarded to customers who buy in bulk. If we offer trade discounts we encourage customer loyalty and bulk buying so we increase the amount of goods sold.
DISADVANTAGE:
The reduction in the selling price will reduce our profit %
What is a Cash Discount?
A cash discount is an allowance given by the seller for prompt (early) payment of an amount owed.
For example, if the invoice is paid within 30 days, a 2% % cash discount will be allowed. The seller allows the buyer to pay 2% % less if he pays early. Example: Invoice NET (after trade discount) is £3200, and if paid within 30 days, a 2% cash discount will be allowed.
Evaluate Cash Discount.
ADVANTAGES
* Encourages quick (prompt) payment of debts. This helps to improve cash flow (liquidity) so the firm has enough cash to pay its obligations on time.
* Reduce the possibility of irrecoverable debts
DISADVANTAGES
* The seller receives less money by allowing a cash discount.
* Discount allowed is an expense that reduces Profit for the Year.
What are the Advantages of the Imprest system/reasons for maintaining the PCB?
ADVANTAGES OF THE IMPREST SYSTEM/REASONS FOR MAINTAINING PCB
- The cashier (a senior and highly paid member of staff) should not be bothered with routine payments and recording of small (petty) expenses. A junior (and lower paid) member of staff — the Petty Cashier - can be responsible for keeping the Petty Cash Book and making these payments as H is an easy job and good training for junior staff
- The Cash Book should be kept clear of many, very small expenses so that major receipts and payments can be better monitored by the senior cashier. By posting petty expenses in the Petty Cash Book, we make only one ledger entry at the end of the month for each petty expense total instead of having to make one ledger entry each time we make a payment from the Cash Book. Also, it is highly impractical to draw many cheques for such small amounts.
- The petty cash work is very easy to check by a senior member of staff since at any time the cash held + the total of vouchers paid should equal the imprest amount.
What are some reasons why the balance in the Petty Cash Book may be different from the amount of money In the petty cash box?
- There may be an error in the petty cash book
- There may be a missing voucher for a payment made
- Some cash may have been stolen
*The cash due from the main cashier has not been received but has been recorded
