Assume the Position

ACT 1100 Introduction to Accounting Lecturer: Troy J. Wishart Summer Course

ACT 110 Is EASY POP! Our Confession Because, Death and Life is in the Power of the Tongue

Accounting Cycle

The Recording Process The transactions Evidencing the transactions in the form of documents Entering the details of each transaction in a Primary book or Journal. Entering the details of each transaction in the double entry accounts

Lecture Notes 3

Why do we Need BOPE? firm is small all While a firm is small all double entry accounts can be kept in one book. firm grows As the firm grows it will be impossible to just keep one book. several bookkeepers Also if we have several bookkeepers, they could not all use the same ledger.

Why do we Need BOPE? use more books The answer to the problem is for us to use more books created to record and summarize similar types of transactions Books of Prime Entry was created to record and summarize similar types of transactions in the same book before entering them in the ledgers.

Definition the first entry of a transaction Books of Prime Entry are the books where the first entry of a transaction is made.

Definition There is a separate book for each different kind of transaction depending on its nature.

These books give the following details:  Date –  Date – The transactions should be shown in in chronological order.  Details column  Folio Column  Folio Column – for cross-referencing purposes  Money Column

These books give the following details:  Date –  Date – The transactions should be shown in in chronological order.  Details column  Folio Column  Folio Column – for cross-referencing purposes  Money Column

Types of Books of Original Entry o Sales Day Book/Journal o Sales Day Book/Journal – for credits sales o Sales Return Day Book/Journal o Sales Return Day Book/Journal – for sales returns inwards o Purchases Day Book/Journal o Purchases Day Book/Journal – for credit purchases

Types of Books of Original Entry o Purchase Return Day Book o Purchase Return Day Book – for purchases returns o Cash Book (and discount columns) o Cash Book (and discount columns) – for receipts and payments of cash and cheques

Types of Books of Original Entry o Petty Cash Book o Petty Cash Book – For petty cash transactions o General Journal o General Journal – For all other items

Books of Original Entry & The Double Entry Accounts Sales Day Book Purchases Day Book Sales Return Day Book Purchases Return Day Book Cash Books General Journal Sales Ledger Purchases Ledger General Ledger

The General Journal as a Books of Prime Entry Lecture Notes 3

[Kieso & Weygandt, 1992:66, 71] - Journal book of original entry transactionsother events initially recorded The book of original entry is where transactions and selected other events are initially recorded. amounts are transferred to the book of original entry Various amounts are transferred to the ledger from the book of original entry.

[Kieso & Weygandt, 1992:66, 71] – Journal because a transaction affects two or more accounts, each of which is on a different page in the ledger. In practice, transactions and selected other events are not recorded originally in the ledger because a transaction affects two or more accounts, each of which is on a different page in the ledger.

General Journal [Kieso & Weygandt, 1992:66, 71] To circumvent this problem and to have a complete record of each transaction or other event in one place, a journal [the book of original entry] is employed.

[Millichamp 1992: 142,144] sequence of transactions, which are non-routine. The Journal is used as a book of prime entry for any sequence of transactions, which are non-routine.

[Millichamp 1992: 142,144] form a connected story The Journal entries form a connected story and thus items, which might properly be included in other books of prime entry are included for the sake of completeness.

General Journal Today the journal, if used at all is used for the following transactions:- 1.The purchase and sale of assets on credit 2.Opening and closing entries 3.The correction of errors

General Journal Today the journal, if used at all is used for the following transactions:- 4.Transfer between accounts 5.Any other items not recorded in another book of original entry

General Journal  All credit entries  All credit entries [those in which no cash changed hand] – into the journal first.  Unusual Cash Entries  Unusual Cash Entries – all such cash transaction as purchase or sale of assets [cash here includes bank entries] – into the Journal first. Transactions, except for routine cash entries and sales and purchases of goods are entered first in the journal.

General Journal except for routine cash entries and sales and purchases of goods Transactions, except for routine cash entries and sales and purchases of goods are entered first in the journal.

Function of the General Journal The function of the General Journal in bookkeeping can be described as: 1.Acting as a Diary 1.Acting as a Diary – Business events are recorded; 2.Acting as a Book of Explanation 2.Acting as a Book of Explanation - Brief Explanatory note or narration is given; and

Function of the General Journal The function of the General Journal in bookkeeping can be described as: 3.Acting as a Book of Instruction 3.Acting as a Book of Instruction – States which accounts to be debited and credited In Ledger [Favell, A.J. 1977:49]

Format of the General Journal DateParticularsFolioDebitCredit Jan 5Office Equipment Bank Account Being purchase of computer 123 for use in the Admin Office $650,000 LB.17 CB1

The General Journal Exercises Lecture Notes 3

Books of Prime Entry General Journal - Exercises Nov. 1 - Buys a new delivery truck on account from Auto Sales Ltd. $22,400 Nov. 3 - Received an invoice from Evening Graphic for advertising $280. Carl, a dealer in antiques, acquired the assets of a rival business owned by Robin for $20,000. The deal was financed by Carl paying cash $10,000 and leaving the remainder on loan from Robin at 15%. The assets acquired were valued as:- Leasehold premises $3,000; Delivery Van $2,500; Fixtures & Fittings $1,500; Rent & Rates prepaid $500 and Stock $7,650

Purchases Day Book Lecture Notes 3

Purchases Day Book record Purchases on credit for resale. It is used record Purchases on credit for resale. also known as It is also known as the Purchases Journal, Bought Journal, Purchases Book and Bought Day Book.

Purchases Day Book separate ledger Bought or Purchases Ledger is kept A separate ledger called the Bought or Purchases Ledger is kept for the accounts of suppliers of these goods.

Purchases Day Book Aggregate amount debited to the Purchases Account in the General Ledger. Aggregate amount of purchase invoices are debited to the Purchases Account in the General Ledger.

Purchases Day Book source document invoice The source document used to write up the purchases day book is the invoice.  An Invoice  An Invoice is a document, which is made out whenever one person sells goods to the other.

Purchases Day Book made out by the seller, An invoice is made out by the seller, and at least one copy is sent to the buyer. [Whitehead 1074:97]

Purchases Return Day Book Lecture Notes 3

Purchases Return Day Book return of goods purchased Returns Outwards Day Book A record of the return of goods purchased on credit is kept in a Returns Outwards Day Book. information to record source document called the credit note. The information to record these transactions is obtained from a source document called the credit note.

Purchases Return Day Book A credit note is a business document, one person returns goods to another A credit note is a business document, which made out whenever one person returns goods to another. – The credit note is made out by the original supplier of the goods; after the returned goods have reached his warehouse. [Whitehead, 1974:108]

Purchases Return Day Book The functions of a credit note are:- evidence the acceptance of the return of goods  To evidence the acceptance of the return of goods  by the seller from the buyer.

Purchases Return Day Book The functions of a credit note are:-  To evidence to a buyer that he need not pay for goods invoiced to him  because the goods have been lost in transit.

Purchases Return Day Book The functions of a credit note are:-  To correct errors on invoices,  such errors may be over pricing or inclusion of goods not actually sent [Millichamp 1992:7]

Sales Day Book Lecture Notes 3

Sales Day Book sale of goods on credit It records the sale of goods on credit Sales Journal or Sales Book, It is also referred to as the Sales Journal or Sales Book,

Sales Day Book Sales Ledger is kept for the accounts A separate ledger called the Sales Ledger is kept for the accounts of customer of these goods. aggregate amount credited to the Sales Account in the General Ledger The aggregate amount in the Sales Day book is credited to the Sales Account in the General Ledger.

Sales Returns Day Book return of goods sold on credit isReturns Inwards Day book. A record of the return of goods sold on credit is kept in a Returns Inwards Day book.

It is important to note that the day books do not form part of the double entry system.