1. The Journal and Source Documents
Unit 3 : Chapter 6
The Journal and Source Documents
Chapter 6 Quiz will be on October 24 (Friday)

2. The First 6 Steps in the Accounting Cycle
1 Transactions occur.
2 Transactions are recorded in the journal in order by date.
3 The accounting entries are transferred to the ledger accounts. (or T accounts)
4 Trial Balance
5 Adjusting Entry
6 Balance Sheet and Income Statement

3. Source Documents
When a bookkeeper first records the journal entry, they have to read and interpret the information in source documents. (More than 90% of journal entries are made from source document)
Some business transactions are started by non-accounting people such as owner, sales- people, department supervisors, managers and other authorized people.

4. Source Documents There are many types of source documents :
Cash Sales slip
Sales Invoice
Point of Sale Summaries
Purchase Invoice
Cheque copies
Cash Receipts Daily Summary
Bank Advices or (Bank Memo)

5. Cash Sales Slip
Business form showing the details of a transaction in which goods or services are sold to a customer for cash.

6. Figure 6.4: Cash Sales Slip
PowerPoint 6– Chapter 6
Figure 6.4: Cash Sales Slip 6

7. Sales Invoice
A business form showing the details of a transaction in which goods or services are sold on account.

8. PowerPoint 6– Chapter 6
Figure 6.5: Sales Invoice 8

9. Point of Sale Summaries
People use credit cards and debit cards to pay for items.
A point of sale terminal is a computerized sales register which allows a business and its customers to exchange funds electronically. (More details in chapter 9)
At the end of each day, an accounting clerk can use POS terminal to print POSS at least two source documents.

10. Figure 6.6: Point of Sale Summary
PowerPoint 6– Chapter 6
Figure 6.6: Point of Sale Summary 10

11. Point of Sale Summaries
An example is Fig 6.6 Page 187
You can see that PSS reveals the sales activities of three cards: VISA, Master card and debit cards.
Journal Entry for POS summaries is:
Dr Cr
Bank
Sales
POS summary Oct 30

12. Point of Sale Summaries
Note: Cheque copy itself is not sufficient proof that the payment is proper. A bill or receipt is also needed to support the accounting entry for a cash purchase. Otherwise we have no idea what this check is for.

13. Purchase Invoice
Business form representing a purchase of goods or services on account.
This is different than a sales invoice. A purchase invoice is when the company makes a purchase from another company.
Ex. Best Buy buys IPhone from apple at a wholesale price and sells them to us at a retail price.

14. Figure 6.7: Purchase Invoice
PowerPoint 6– Chapter 6
Figure 6.7: Purchase Invoice 14

15. Figure 6.8: Purchase Invoice
PowerPoint 6– Chapter 6
Figure 6.8: Purchase Invoice 15

16. Cheque Copies
Document supporting the accounting entry for payment by cheque
Cheques are issued for many reasons
Cash purchases
Wages
Owner’s withdrawals
Payments on accounts
Etc.

17. PowerPoint 6– Chapter 6
Figure 6.9: Cheque 17

18. Cash Receipts Daily Summary
Businesses receives cheques from customers each day.
We must deposit these cheques in a bank. But before we do that we make a list of cash receipts.
Cash receipts daily summary is simply a business paper that lists the details of the money coming in from customers.
Remittance advice is the form accompanying the cheque explaining the payment

19. Figure 6.10: Cash Receipts Daily Summary
PowerPoint 6– Chapter 6
Figure 6.10: Cash Receipts Daily Summary 19

20. Bank Advices
Sometimes banks needs to make changes in the bank account of a business
A bank debit advice is a bank document informing the business of a decrease in their bank account
A bank credit advice is a bank document informing the business of an increase made in their bank account

22. Figure 6.11: Bank Debit Advice
PowerPoint 6– Chapter 6
Figure 6.11: Bank Debit Advice 22

23. Common Source Documents
Transaction Description
Journal Entries
Debit
Credit
Cash Sales Slip POS Summaries
A sale of goods (or services) for cash.
Bank
Sales or Revenue
Sales Invoice
A sale of goods (or services) on account.
Accounts Receivable
Purchase Invoice
Company purchased goods (or services) on account
1. An expense account (small amount)
Few times an asset account (big amount) can be debited. For example, machine
Accounts Payable

24. Transaction Description
Source Document
Transaction Description
Journal Entries
Debit
Credit
Cheque Copy
(Company wrote a cheque, meaning company paid cash)
1. Paying off of an account payable
2. Cash purchase of an asset
3. Cash payment for an expense
4. Owner draws out money for personal use
1. A liability account
2. An asset account
3. An expense account
4. Drawings account
Bank
Cash Receipts Daily Summary (or check copies)
Cheques received from customers (who purchased goods on account in the past)
Accounts Receivable

25. Transaction Description
Source Document
Transaction Description
Journal Entries
Debit
Credit
Bank Debit Advice (by Bank Statement)
Bank account decrease
Interest expense or service charge
Bank
Bank Credit Advice (by Bank Statement)
Bank account increase because company’s savings acct earned interest or customer paid back their debt by online payment
Interest earned (Revenue), or AR

26. Additional Supporting Documents
In addition to the source documents listed in previous slide, you may encounter the following source documents:
Receipts such as donations
Bills (=Invoice) such as hydro or telephone charge
invoices vs mail invoices
Online banking transactions
Insurance certificates

27. Additional Supporting Documents
In addition to the source documents listed in previous slide, you may encounter the following source documents:
Written memos from the owner
Bank Statements – can contain most (if not all) of these information in reality. You have to learn how to read bank statements.
Cash register tapes

28. Number of Copies of Source Documents
There is no fixed number of required copies of business documents. It depends on the business and the owner.
You would need to keep at least one copy of the source document in general.
I will take up one or two questions from yesterday.