Tracking (4.1) Flashcards
The business has received R 50 000 cash from the owner, in the form of a capital contribution. As such, this amount will be recorded as cash received in the business’s bank account.
Moreover, as the amount was contributed to the partnership by Mrs Shaw as capital, it will also be recorded as such in the business’s capital account.
Mrs Shaw’s personal bank account has obviously decreased due to the capital contribution she has made to the partnership. However, do you notice how the above paragraphs do not indicate how this transaction affects Mrs Shaw’s personal records?
This is because the entity principle specifically requires the financial records of the business to be kept separate from those of the owners. In the world of bookkeeping and financial accounting, we do not worry about the impact of financial transactions on other entities or individual owners who transact with the business. Instead, we worry about the financial impact of those transactions on the entity itself.
Mrs Shaw, from Shawram, a partnership, has contributed R 50 000 cash to the business.
Required: In the context of the entity principle, discuss how this transaction should be accounted for?
The business has received R 50 000 cash from the owner, in the form of a capital contribution. As such, this amount will be recorded as cash received in the business’s bank account.
Moreover, as the amount was contributed to the partnership by Mrs Shaw as capital, it will also be recorded as such in the business’s capital account.
Mrs Shaw’s personal bank account has obviously decreased due to the capital contribution she has made to the partnership. However, do you notice how the above paragraphs do not indicate how this transaction affects Mrs Shaw’s personal records? This is because the entity principle specifically requires the financial records of the business to be kept separate from those of the owners. In the world of bookkeeping and financial accounting, we do not worry about the impact of financial transactions on other entities or individual owners who transact with the business. Instead, we worry about the financial impact of those transactions on the entity itself.
There are three main types of transactions that take place in business on a daily basis, namely?
- cash transactions;
- credit transactions; and
- sundry transactions.
Explain Cash transactions?
These are transactions where the delivery of goods and the rendering of services occur at the same time as the payment for these goods and services. These transactions can either be in the form of cash receipts or cash payments.
Explain Credit transactions?
These are transactions where goods are delivered and services are performed, but the payment occurs at a later stage. These transactions can either be in the form of credit sales (and returns thereof) or credit purchases (and returns thereof).
Explain Sundry transactions?
These are all the transactions that occur in business, other than cash or credit transactions.
What is a source document and what info appears on it?
is the original record of a transaction. It serves as proof that a transaction has occurred and usually contains details such as:
- the document number (e.g. Receipt 101);
- details of the buyer and seller (names, contact details, address etc);
- the date of the transaction;
- the description, quantity and unit price of the items sold or purchased;
- the amount of the transaction (VAT amount, VAT exclusive amount and VAT inclusive amount, where VAT is applicable.
- VAT will be covered in detail in later units); settlement terms (where applicable); and an authorising signature.
Explain Till slip?
The document given at the point of sale as evidence of a cash sale. The seller retains the duplicate.
Explain Cheque counterfoil or stub?
The document is retained in a chequebook as proof of a cheque payment.
Explain a Credit note?
A document that is issued when goods are returned to the business by the customer (i.e. sales returns), or when the business returns goods to the supplier (purchases returns).
Explain an Invoice?
A document that is used to record credit transactions – i.e. credit sales and credit purchases. The seller retains the duplicate and the original invoice is used to record credit purchases by the buyer.
The invoice will include payment terms, such as:
- the number of days within which payment is expected – for example, 30 days or 45 days from the delivery date;
- the discount given for early payment – for example, five per cent if payment is made within 15 days; and
- penalties for late payment – for example, interest of six per cent on overdue accounts.
Explain an EFT confirmation slip?
This is a proof of payment by way of an electronic funds transfer.
Explain Petty cash voucher? .
An internal source document used to record payments made from the petty cash box
What is a Journal voucher?
An internally generated source document from which transactions are recorded in the general journal.
Why are the Source documents important for?
They provide evidence of financial transactions that have occurred, and therefore protect the business from fraud.
Some source documents are signed by the parties to the transaction, making it hard to deny the validity of the transaction – for example, cheques are signed by authorised signatories.
Identify the source document that would be used by Grind Traders to record each of the following transactions in its books:
1. Bought items at Kliprite Supermarket and paid R 250 cash.
2. Paid R 6 000 cash to Juju Wholesalers.
3. Sold goods worth R 5 000 to a customer on credit.
4. Paid a supplier an amount of R 10 000 by cheque for goods supplied.
5. Bought trading inventory on credit from Triam Close Corporation (CC).
6. A customer returned damaged goods worth R 500, previously bought on credit.
- Original till/cash slip
- Original cash receipt
- Duplicate tax invoice
- Cheque counterfoil
- Original tax invoice
- Duplicate credit note
There are currently eight different journals that are used to keep track of the day-to-day transactions of the business, namely?
- Cash receipts journal
- Cash payments journal
- Petty cash journal
- Debtors (sales) journal
- Creditors (purchases) journal
- Debtors allowances (sales returns) journal
- Creditors allowances (purchases returns) journal
- General journal
What is a Cash receipts journal (CRJ)?
This is a journal used to record all the cash received by the business, regardless of the source of the cash and the reasons for the receipt of the cash. The transactions recorded in this journal are usually referred to as cash receipts.
Examples of transactions that are recorded in the cash receipts of a Cash receipts journal (CRJ) include?
- cash refunds received from suppliers;
- cash sales of goods and services;
- cash received from debtors for goods and services previously sold on credit;
- cash contributed as capital by the owner of the business;
- cash donations received by the business;
Explain a Cash payments journal (CPJ)?
This is a journal used to record all cash payments made by the business. The transactions recorded in this journal are usually referred to as cash payments.
Examples of transactions that are recorded in the cash receipts of a Cash payments journal (CPJ) journal include?
- cash purchases of goods and services;
- payments to creditors for goods and services previously acquired on credit;
- salaries and wages paid to employees;
- cash refunds paid to customers;
- cash withdrawn by the owner of the business, from the business’s bank account, for personal use;
- cash donations made by the business;
- cash withdrawn from the business’s bank account for use as petty cash;
List any three source documents used to record transactions in the CRJ?
Duplicates of cash slips (cash register roll), cash invoices and receipts.
