1. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.1 Chapter 16 Returns day books

2. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.2 Learning objectives After you have studied this chapter, you should be able to:  Make the appropriate entries relating to returns outwards in the returns outwards day book  Make the appropriate entries relating to returns inwards in the returns inwards day book

3. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.3 Learning objectives (Continued)  Make the correct postings from the returns day books to the purchases ledger, sales ledger and general ledger  Explain the differences between a credit note and a debit note  Describe how a debtor should use statements received from suppliers

4. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.4 Learning objectives (Continued)  Enter up the accounts for credit card transactions  Explain the need for internal checks on all sales and purchases invoices and credit notes  Describe what use may be made of factoring

5. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.5 Returns inwards and credit notes  When a seller agrees to take back goods and refund all or part of the amount paid, a credit note is sent to the customer.  The customer’s account is credited with the amount on the credit note to show the reduction in the amount owed.  To identify them from invoices, credit notes are often printed in red.

6. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.6 A credit note

7. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.7 Posting credit notes From the returns inwards day book:  The values of the credit notes are individually posted to the accounts of the customers in the ledger.  The total of the returns inwards day book is posted to the debit of the returns inwards account.

8. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.8 Activity Post the returns inwards day book to the customer accounts in the sales ledger and the returns inwards account in the general ledger.

9. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.9 Activity (Continued)

10. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.10 Returns outwards and debit notes  When goods are returned, the supplier will send a credit note to the customer, but if the customer chooses, they can send a debit note to the supplier.  A debit note will contain the same details as a credit note, but is always titled as a debit note.  Debit notes are entered in the returns outwards day book.

11. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.11 A debit note

12. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.12 Posting debit notes From the returns outwards day book:  The values of the debit notes are individually posted to the accounts of the suppliers in the ledger.  The total of the returns outwards day book is posted to the credit of the returns outwards account.

13. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.13 Activity Post the returns outwards day book to the supplier accounts in the purchase ledger and the returns outwards account in the general ledger.

14. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.14 Activity (Continued)

15. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.15 Statements  At the end of each month, a business will send a statement to each debtor who owes money on the last day of the month.  A statement is a copy of the debtor’s account in the supplier’s books.  A statement should show the amount owing at the start of the month, all sales invoices, all credit notes, any payments from the debtor and the amount due at the end of the month.  Debtors should always check the statement against their version of the account.

16. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.16 A statement

17. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.17 Sales and purchases via credit cards  Many businesses will offer a credit card payment facility.  When a purchase is paid for by credit card, a voucher is produced which is given to the customer and the business files a copy.  The credit card company pays the business for the goods or service and then collects the money from the customer.

18. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.18 Recording credit card sales The double entry to record credit card sales is: Sale of goods Debit Credit card company Credit Sales Receipt of moneyDebit Bank Credit Credit card company Commission chargedDebit Selling expenses Credit Credit card company

19. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.19 Internal checks Sales invoices should ideally be prepared by one person and checked by another. Purchases invoices should be checked using a four-stage process:  One person checks the goods were received  A second person checks the goods were ordered  A third person checks the invoice is correct  A fourth person checks the goods are satisfactory

20. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.20 Factoring  Many businesses fail, not because they are not making a profit but because they run out of cash, meaning they cannot buy stock or pay employees.  Factoring is a financial service designed to improve cash flow and make better use of the money tied up in trade credit to customers.  Factors can provide sales accounting and collection services, credit management including protection against bad debts, and finance against sales invoices.

21. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.21 Learning outcomes You should have now learnt:  That ‘returns inwards day book’, ‘returns inwards journal’, ‘sales returns journal’ and ‘sales returns day book’ are different names for the same book  That ‘returns outwards day book’, ‘returns outwards journal’, ‘purchases returns journal’ and ‘purchases returns day book’ are different names for the same book

22. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.22 Learning outcomes (Continued)  That goods returned by customers are all entered in a returns inwards day book  That the returns inwards day book is used to post each item to the credit of the personal account of the customer in the sales ledger  That the total of the returns inwards day book is debited at the end of the period to the returns inwards account in the general ledger

23. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.23 Learning outcomes (Continued)  That goods returned to suppliers are all entered in a returns outwards day book  What the difference is between a credit note and a debit note  That the returns outwards day book is used to debit the personal account of each supplier in the purchases ledger  That the total of the returns outwards day book is credited at the end of the period to the returns outwards account in the general ledger

24. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.24 Learning outcomes (Continued)  How to make the appropriate entries relating to returns in the returns inwards and returns outwards day books and make the correct postings from them to the purchases ledger, sales ledger and general ledger  That the process of making entries for returns in the books of purchasers and sellers is the mirror image of those made in their books for purchases and sales

25. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.25 Learning outcomes (Continued)  That statements are used by debtors to check the entries made in their books  Of a range of causes for differences that can arise between statements and the seller’s account in the debtor’s purchases ledger and that such differences may not all be the result of an error

26. Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12 th Edition, © Pearson Education Limited 2012 Slide 16.26 Learning outcomes (Continued)  How credit card transactions are recorded in the books and how commission charged to sellers by the credit card companies is treated in the income statement  Why an effective system of invoice checking should be used by all businesses  Why factoring is an attractive option for some businesses