PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd CHAPTER 3 Cash and credit journals Learning outcome Be able to prepare four special journals from source documents and information supplied 3-1

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd KEY TERMS Cash journals Cash payments journal (CPJ) Cash receipts journal (CRJ) Credit journals Purchases journals (PJ) Sales journals (SJ) Trial balance 3-2

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd SOURCE DOCUMENTS Source documents that generate accounting entries: –Sales invoices –Receipts/Cash register tapes –Purchase invoices –Cheques –Adjustment notes –Memoranda –Electronic transfers 3-3

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd 3-4 PROCESS TO TRIAL BALANCE Sales invoices/Purchase invoices/Receipts or cash register tapes/ Cheques and electronic payments/Adjustment notes/Memoranda Transactions from source documents The four cash and credit journals and the general journal Lead to accounting entries in: Posted to the general ledger and to the debtors and creditors subsidiary ledgers Which are: Prepare a trial balance at the end of the accounting period To:

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd INVENTORIES—STOCK OR GOODS Balance of inventories on hand is an asset Purchase of inventories sold is an expense: Cash purchases—CPJ Credit purchases—PJ Sale of inventories is revenue: Cash sales—CRJ Credit sales—SJ 3-5

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd PERIODIC INVENTORY SYSTEM Inventory balance determined by stocktake Profit determined by deducting inventory balance from cost of goods sold at end of period For purchase: DR: Cost of goods sold (purchases) DR: GST input tax credits CR: Accounts payable/Cash 3-6

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd PERPETUAL INVENTORY SYSTEM Separate inventory cards for each item Show continual stock movement Physical stocktakes allow comparison with stock records Distinguishes between cost and selling price For purchase: DR: Inventories DR: GST input tax credits CR: Accounts payable/Cash 3-7

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd FOUR CASH AND CREDIT JOURNALS Sales journal, including sales returns journal –Records credit sales –Records goods returned by debtors Purchases journal, including purchases returns journal –Records credit purchases –Records stock returned to creditors 3-8

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd FOUR CASH AND CREDIT JOURNALS cont. Cash receipts journal –Details cash received Cash payments –Details cash paid out 3-9

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd JOURNALISING TRANSACTIONS 3-10

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd PPTs to accompany Accounting and Bookkeeping Principles by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd CREDIT JOURNALS Sales journal –Records credit sales –Records inventory returns –Records sales of non-current assets –Source documents  Sales invoice  Credit or adjustment note 3-11

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd PPTs to accompany Accounting and Bookkeeping Principles by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd CREDIT JOURNALS cont. Purchases journal –Records credit purchases –Records inventory returned –Records purchases of non-current assets –Records expenses for items received but not yet paid –Source documents  Purchase invoice  Credit or adjustment note 3-12

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd CASH PAYMENTS JOURNAL Records all cash paid out from bank accounts for payment of: trade creditors other creditors cash purchases and expenses other liabilities (e.g. loans, leases ) 3-13

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd CASH RECEIPTS JOURNAL Records all cash received and paid into bank accounts from: trade debtors other debtors cash sales receipts from other sources of revenue (e.g. interest and dividends received) 3-14

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis © 2011 McGraw-Hill Australia Pty Ltd ADVANTAGES OF USING SPECIALISED JOURNALS Record only one type of transaction Totals posted to ledgers rather than individual transactions Different staff use the journals, providing an internal control to reduce error and fraud 3-15