Books of Prime Entry ‘day books’

AAT Level 2 Foundation Certificate in Accounting Lesson 2 Objectives Recap last lesson Business documentation; petty cash vouchers Understand coding systems Understand how business documents are processed into the accounting system – books of prime entry Introduce the sales and purchase ledger Calculation of VAT

Invoices / Credit notes Receipts Payments Cash book/ petty cash book Sales day book Sales returns day book Purchases day book Purchases returns day book Books of Prime Entry GENERAL LEDGER – DOUBLE ENTRY SUBSIDIARY LEDGER – SALES LEDGER SUBSIDIARY LEDGER – PURCHASE LEDGER

Books of Prime Entry A book or computer record in which transactions are first recorded before total amounts are entered into the ledgers. Transactions are recorded into the books of prime entry from their source document.

Credit Sales BUY NOW, PAY LATER Payment received from customer Credit Sale to customer Payment received from customer Invoice issued to customer Business document Sales Day Book

The sales day book It is a list of sales invoices sent to credit customers for a period of time; week, month Details of the customer and the amount of the invoices are analysed

Sample sales day book Date Customer Ref Invoice number Total £ VAT Net 1/05/14 Grigsons Ltd SL21 10356 199.20 33.20 166.00 Hall & Co SL05 10357 103.60 15.60 88.00 Harris & Sons SL17 10358 120.00 20.00 100.00 2/05/14 Jaytry Ltd SL22 10359 309.60 51.60 258.00 TOTAL 732.40 120.40 612.00 Casting – adding vertically Cross casting – adding horizontally

Sales Ledger The sales ledger keeps all transaction information for each credit customer Credit customers who owe money are known as TRADE RECEIVABLES (Debtors)

Analysed sales day book : See p35 Annotate entries to GL and SL Work through example Activity 1 p36

Sales returns day book Goods may be returned to a supplier because they are faulty, inaccurate or as a result of a prior agreement Items are sent back with a goods returned note and a credit note is then issued by the supplier The credit note reverses all /part of the sales invoice The sales returns day book lists returns – the invoice number column is replaced with the credit note number If returns are low, businesses may not run a sales returns day book, but will enter credit notes as a negative number in the sales day book

Sales Returns day book Date Customer Ref Credit note number Total £ VAT Net 4/05/14 Grigsons Ltd SL21 CN668 72.00 12.00 60.00 5/05/14 Harris & Sons SL17 CN669 96.00 16.00 80.00 TOTAL 168.00 28.00 140.00

Show Illustration 2: p37 Work through example activity 2 p37

Credit Purchases BUY NOW, PAY LATER Credit Purchase from supplier Payment made to supplier Invoice issued by supplier Business document Purchases day book

The purchases day book Similar to the sales day book but records a list of the purchases invoiced; detailing the supplier, vat and analysed goods.

Purchase day book Date Supp Ref Invoice number Total £ VAT Net Purchases Telephone £ Stationery 1/1/16 Haley Ltd PL25 33728 60.00 10.00 50.00 2/1/16 JJ Bros PL14 242G 1440.00 240.00 1200.00 4/1/16 B Tel PL06 530624 154.00 24.00 130.00 TOTAL 1654.00 274.00 1380.00 Ref – the supplier code number in the purchase ledger Invoice number – this is on the sales invoice from the supplier Total – gross figure including VAT as on the invoice Net – the total on the invoice before VAT is added Vat – the value on the purchase invoice

Purchase Ledger The purchase ledger keeps records of individual credit purchases by supplier Credit suppliers who a business owes money to are known as TRADE PAYABLES (Creditors)

Show Illustration 4 p40 See p 41 Activity 3

Purchases returns day book A credit note would be issued by the supplier for any purchases that are returned These are entered into the purchases returns day book (replacing the invoice number column) If the business does not run a purchases returns day book due to low volumes of such transactions, they will enter credit notes as a negative value in the purchases day book

Purchase Returns day book Date Supp Ref Credit note number Total £ VAT Net Purchases Telephone £ Stationery 4/5 Haley Ltd PL25 CN783 24.00 4.00 20.00 5/5 JJ Bros PL14 C52246 69.60 11.60 58.00 TOTAL 93.60 15.60 78.00

See Illustration 5 p42 Activity 4 p42

The Cash Book The cash book records cash receipts and payments, whether through the bank or in coins or notes – excluding petty cash (payments for low value everyday items comes out of a petty cash float) Receipts and payments may be in cash, cheque or by bank transfer

The cash book is split into two sides: Cash Receipts Book (CRB) = Debit side Cash Payments Book (CPB) = Credit side

Credit Sales BUY NOW, PAY LATER Payment received from customer Credit Sale to customer Payment received from customer Invoice issued to customer Business document Sales Day Book Cash Receipts Book

Cash receipts book - Debit side Date Description Ref Bank £ Cash £ Vat Trade Receivables Sales £ TOTAL Description- such as the name of the customer paying Ref – sales ledger code for that customer, or BACS, Cq etc Cash = notes and coins Total - including VAT VAT – vat on items that have not gone through the SDB Trade receivables are receipts from credit customers – INCUDING VAT

See Illustration 3 p39

Credit Purchases BUY NOW, PAY LATER Credit Purchase from supplier Payment made to supplier Invoice issued by supplier Business document Purchases day book Cash payments book

Cash payments book – credit side Date Desc Ref Total £ Vat Trade Payables Cash Purchases £ Premises Costs Stationery TOTAL Description- such as the name of the supplier you are paying Ref – purchase ledger code for that supplier, or BACS, Cq etc Total - included VAT Trade payables - total amount paid to a supplier (or a ‘payable’), this would include the vat Expenses paid will be analysed in columns such as premises costs and stationery

See Illustration 6 p43

Sales Ledger See illustration 7 p45 Activity 5 p46

Purchase Ledger See illustration 8 p47 Activity 6 p48

Homework lesson 2 Make sure you have: Read chapter 1 Completed the test your learning questions p30 Completed question bank chapter 1 Know the keywords for chapter 1 p26 & 27 Completed Knowledge topic 1 all questions Complete Knowledge topic 2 questions