Source documents

A source document is a business paper from which information is obtained for a journal entry. A journal
entry is a day-to-day record of a business transaction. In other words, these are documents used as
sources of information for the preparation of subsidiary books. They include the following:

1. Receipts Book: These are documents from which the information for cash and cheques
received from customers are obtained. This piece of information is transferred to the
cash book, bank column if a cheque is received and cash column if cash is received.
2. Petty Cash Voucher: This is where the information for recording in the petty cash book
can be obtained. Thus it is document used to record petty cash expenses.
3. Sales invoice: credit sales information is obtained from the sales invoice. The sale invoice
gives the details of goods sold on credit such as the price, quantities, trade discount, etc.
this is a source document for sales journal. Thus the information obtained from the sales
invoice is transferred to the sales journal.
4. Purchase Invoice: this gives detailed information about goods bought on credit such as
the price, quantities, etc. and any trade discount, if any. The information on this
document is use for the purchase daybook.
5. Pay-in-slip: This is the document that gives information for entries on the debit side of
the bank column of the cash book. This document is given out to anybody who operates
a current account with a bank to be used when cash is paid/ deposited into the bank.
Thus is a record for all deposits made by the current account holder.
6. Cheque counterfoil: this is a small portion of the cheque book, where similar information
on a detached cheque can be found. It gives information of cheques issued out and is
subsequently transferred to the credit side of the cash book(bank column)
7. Credit note: a document acknowledging purchases returns and sales returns. In each case it is
the seller who makes out the invoice and credit note.
8. Debit Note: a document which is made out whenever a purchaser has been undercharged on an
invoice.
9. Memorandum: is a form on which a brief massage is written describing a transaction. Usually to
add additional information.
 Subsidiary Books

Because of the large volume of business transactions, accounting practice recommends that all the
numerous business transactions are not recorded directly into the ledger account but first recorded in
other books called subsidiary books or day books. Below are the different types of day books:

a. Purchase Day Book

b. Sales Day Book
c. Purchases Returns Day Book
d. Sales Return Day Book
e. Cash Book
f. Petty Cash Book
g. The Journal Proper

Cash Book

The cash book consists of both the cash account and the bank account put together in one book.
Because of the numerous transactions in a period, it is more convenient to put the two sets of account
together called the two-column cash book. The cash book is both a subsidiary book and part of the
ledger account.

Discount & The Three-Column Cash Book

Discount- refers to a reduction in the price of goods an=d services to be paid. There are two types of
discount:

 Trade discount: a discount given by a firm who sells to both wholesalers and retailers. It is given
for two main purposes:
1. For buying large quantities of goods (i.e. bulk buying)
2. To enable trade customers to make profit when they in turn resell to the public.

 Cash discount: is a discount given by a firm to its customers to encourage prompt payment
within a stated credit period. A firm encounter cash discount from two angles:
1. Discount allowed- is when a firm gives discount to its customers to whom it sells goods.
Discount allowed is an expense to the seller and its always debited. E.g. sold goods to Amie
worth D500 on credit and if she pays within one week, she enjoys a cash discount of 5%.
2. Discount received- is the discount given to firms by other firms from which they buy goods.
Discount received is an income to the buyer and is always credited. E.g. bought goods on
credit D1000 from A,B&C Ltd, paid the amount within the credit period and enjoys a
discount of 10%.
The discount allowed account and discount received account are found in the general ledger along with
other expenses and revenue account. Since discount allowed and discount received are very much
related to cash receipt and payment, an extra column is added to the each side of the cash book to avoid
constant reference to the general ledger. This form of cash book is referred to as Three-Column Cash
Book. Note that the discount columns added are not account but memorandum columns, at the end of
the period, the total of the discount allowed column on the receipt side of the cash book is posted to the
debit side of the discount allowed in the general ledger. And the total of the discount received column
on the payment side of the cash book is posted to the credit side of the discount received account in the
general ledger.

The Analytical Petty Cash Book and Imprest System

The analytical petty cash book- the word petty means small. In business, as they expand small expenses
are made daily. To keep the main cash book from being cumbersome with such daily recurrent expenses,
a separate book is kept where all the small expenses are recorded known as the Analytical Petty Cash
Book or simply the Petty Cash Book. Every small payment is supported by a petty cash voucher showing
what the expenses is all about and the amount

The Imprest System- under this system, the cashier gives the petty cashier an adequate amount of
money to meet his expenses for the period. This amount is called float. At the end of the period,
whatever amount is spent by the petty cashier is re-imbursed to enable him begin the next period with
the exact amount he stared with. At all times, the amount spent and the petty cash balance must equal
the float.

Procedure:

1. A cash or cheque would be drawn from the main cash. The main cash book will be credited
2. The cash will be handed to the petty cashier who will debit the petty cash book with the amount
3. All payments made out must be credited in the petty cash book and analyse them under their
respective column and headings
4. Debit the total of the analysis column on their respective account in the general ledger at the
end of the period
5. Re-imburse the petty cash at the end of the period.

The Sales Journal and The Sales Ledger

Sales Journal- sometimes referred to as sales day book is where credit sales are first entered before they
are posted into the ledger accounts. At times, sold goods are paid for immediately by cash or cheque. In
such instances, we do not need to know the customer’s name or what was sold and the amount involved
as a result, such transactions are entered into the cash book.

Most of the time sales are on credit rather than for immediate payment. In such cases, we need to keep
record of the customer’s name, what was sold and the amount involved. To make this easy, a document
is issued by the seller to the buyer indicating the details of the goods sold and the price of the goods,
such document is invoice. Such sales are recorded in the sales journal. This book is a mere list showing
the following:

 Date
 Name of customer
 Invoice number
 Folio
 Amount

Sales or Debtors Ledger: this is where all personal accounts of debtors are maintained.

Posting Credit Sales from Sales Journal to sales Ledger Accounts

Steps:

 All credit sales are posted one by one to the debit side of each customer’s account in the sales
ledger
 The total of the credit sales at the end of the period is posted to the credit side of the sales
account in the general ledger.

Note: To encourage customers to buy a lot of goods, sellers always give them a trade discount. As trade
discount is simply a way of calculating sales price, NO entry for trade discount should be made in the
double entry records nor in the sales journal.

The Purchases Journal and The Purchases Ledger

Purchases Journal or Purchases day Book is where credit purchases are entered first before being posted
to the ledger accounts. Like the sales journal, the purchase journal is not an account but a merely a list
showing:

 Date
 Name of customer
 Invoice number
 Folio
 Amount

Purchases or Creditors Ledger: this is where all personal accounts of creditors are maintained.

Posting Credit purchases from Purchases Journal to Purchases Ledger

Steps:
  All credit purchases are posted one by one to the credit side of each supplier’s account in the
purchases ledger
 The total of the credit purchases at the end of the period is posted to the debit side of the
purchases account in the general ledger.

Return Inwards and Credit notes: Most of times, customers returned goods sold to us. Goods returned
by customer to the business are referred to as Return Inwards. It may be due to:

 Goods were the wrong type

 Goods were faulty
 Customer had bought more than needed

In each case a credit note will be sent to the customer, showing the amount of allowance given for the
return of the goods. It is called credit because the customer’s account is credited to show the reduction
in the amount he owes. The returned goods are recorded in the return inwards journal. Like the other
subsidiary book, it is also a mere list showing:

 Date
 Customer’s name
 Credit note number
 Folio
 Amount

Posting from the Return Inwards Journal to the ledger Account

Steps:

 Credit the amount of the credit notes one by one to the customer’s account in the sales ledger
 At the end of the period, transfer the total of the return inwards journal to the debit side of the
return inwards accounts in the general ledger.

Return Outwards and Debit notes: Most of times, we returned goods bought to our suppliers. Goods
returned by business to the suppliers are referred to as Return Outwards. It may be due to:

 Goods were the wrong type

 Goods were faulty
 Customer had bought more than needed

In each case a debit note will be sent to the supplier, stating the allowance to which the firm returning
the goods is entitled to. Because the suppliers are liabilities to us and as a liability reduced you debit the
personal account to show this decrease thus the word debit note. The returned goods are recorded in
the returned outward journal. Like the other subsidiary book, it is also a mere list showing:

 Date
 Customer’s name
  Debit note number
 Folio
 Amount

Posting from the Return Outwards Journal to the ledger Account

Steps:

 Debit the amount of the debit notes one by one to the supplier’s account in the purchases
ledger
 At the end of the period, transfer the total of the return outwards journal to the credit side of
the return outwards accounts in the general ledger.

Exercises:

1. Rule up a petty cash book with analysis columns for office expenses, motor expenses, cleaning
expenses and casual labour. The cash float is D3500 and the amount spent is reimbursed on 30 th
June 2011
D
June 1: H. Sanyang- casual labour 130
2: letter headings 220
3: m.K.Motors-motor expenses 300
8: pertrol 80
8; envelopes 140
11: J.Haroun- casual labour 70
12: paper clips 20
12: cleaning material 60
14: petrol 110
16: computer repairs 100
21: copy papers 210
25: motor taxation 210
26: motor repair 120
30: Y.Young- casual labour 160

2. Write up the sales journal I the books of Buba Demba, from the following details in the month of
May 2010. Post the items to the relevant accounts in the sales ledger and then show the transfer
to the sales ledger in the general ledger.
May 1: credit sales to Mariama Kah D1250 less trade discount of 10%
2: credit sales to Abdou Bah D400
5: credit sales to Sulayman Jobe D1500 less 5% trade discount
10: credit sales to Adam Jammeh D200
 15: credit sales to Juldeh Bah D1450 less 10% trade discount
28: credit sales to Samba Sallah D75
30: credit sales to Lamin Cham D150

3. Isatou Manneh has the following purchases for the month of March 2011
Mar. 1: from Kebba; 4 radios at D60 each, 3 music cassettes at D129 each. Less 25% trade
discount
3: From Maimuna: 2 video machines at D400 each, 5 cassette recorders at D120 each, 2
radios at D300 each, 2 videos at D500 each. Less 25% trade discount
15: from Ousman: 10 radio at D500 each, 2 videos at D500 each. Less 25% trade discount
20: From Awa: 6 radios at D140 each
30: from Musa 4 television sets at D700 each, less 20% trade discount

4. Mr Jobe a sole proprietor, has acknowledge the return of goods made by his customer during
the month of June 2010
D credit note #
June 2: Mariama Jah 600 101
15: Oumie Kah 1600 102
20: laim fatty 500 103
25: binta ceesay 200 104
26: banna sawaneh 400 105

5. Mr Jarju return the following goods to his sippliers in 2011

D Debit note #
Dec 8: MP trading 625 6/34
16: B Bah 400 6/35
20: Buba Jobe 500 6/36
25: Marie Manga 375 6/37
6. From the following information, write up a two-column cash book for Mr Sanneh and balance off
as at the end of the month September 2011
Sept 1: balances brought forward from last month: D
Cash 20
Bank 940
2: received cheque from Mr Jobe 115
4: cash sales 82
6: paid rent by cash 35
7: banked D50 of the cash held by the firm 50
15: cash sales paid direct into the bank 40
23: paid cheque to Ms bah 277
29: withdrew cash from the bank 120
31: paid wages in cash 118
7. Write up a two-column cash book from the following details, and balance off as at the end of the
month December 2010
Dec 1: balances brought down from last month:
Cash in hand D56
Cash in bank D2356
2: paid water charges by cheque D156
3: paid for postage stamps in cash D5
5: cash sales D74
7: cash paid into bank D60
8: We paid Buba by cheque D75
10: we paid Binta in cash D2
12: Omar pays us D150, D50 being in cash and D100 by cheque
17:cash drawings by proprietor D20
20: Musa pays us by cheque D79
22: withdrew D200 from the bank for business use
28: paid rent by cheque D40
31: cash sales paid direct into the bank D105
8. Write up a three-column cash book from the following transaction and balance off as at the end
of March 2011
Mar 1: balance brought forward from last month : cash d230, bank D 4756
2: the following paid their account by cheque in each case deducting 5% cash discount, J.
Jallow D140, Sarr D220, Dawda D300
4:paid rent by cheque D120
6: J. conteh lent us D1000 paying by cheque
8: we paid the following by cheque in each case deducting a 21/2% cash discount: Nuha D480,
Omar D800, Awa D 360
10: paid motor expenses in cash D44
12: Binta Jobe paid his account of D77 by cheque less D3 cash discount
15: paid wages in cash D160
18: the following paid their accounts by cheque, in each case deducting 5% cash discount: Mr.
Camara D260, Fansu D340, Fatou D460
21: cash withdrew from the bank D350 for office us
24: cash drawings D120
25: bought fixtures paying by cheque D650
31: received commission by cheque D88
9. Write up a three-column cash book from the following details, balance off as the end of the
month October 2011
Oct 1: started business with D6000 in the bank
2: received a cash loan of D500 from Peter
4: bought goods for cash D460
5: cash withdrawn from the bank D300
 7:paid rent in cash d70
8: cash drawings D100
10: We settle the following by cheque less 5% discount in each case: Buba D100, Alpha D260,
Mai D60, Ansu D340
15: the following people settle their account by cheque, in each case deducting 2 ½%
discount: Foday D200, Abdoulie D360, Kumba D160
20: cash sales paid direct into the bank D98
24: received rent for sub-lease by cheque D20
25; the following paid us their account by cheque, in each case deducting 2 ½% discount:
Fatou D560, Bakary D120, Kolleh D440
26: we paid the following by cheque, in each case deducting a 5% discount: Musa D80,
Tamba D500, barry D220
29: drawings by cheque D80
30: transfer all but D150 of cash to bank