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FA1 Source Documents and Books of Prime Entry Week 2

The document discusses source documents and books of original entry used in accounting. It describes three types of transactions - cash, credit, and account transfers. It then explains various books used to record transactions, including sales day books, purchases day books, cash books, and general journals. Examples are provided for how transactions are recorded in each book.

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Sebastian Feuerstein
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61 views

FA1 Source Documents and Books of Prime Entry Week 2

The document discusses source documents and books of original entry used in accounting. It describes three types of transactions - cash, credit, and account transfers. It then explains various books used to record transactions, including sales day books, purchases day books, cash books, and general journals. Examples are provided for how transactions are recorded in each book.

Uploaded by

Sebastian Feuerstein
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Source Documents and

Books of Original Entry


Presented by:
MR.ERNEST KAPUMPE
INTRODUCTION
Business activities are called
transactions.
There are three types of transactions:
(a) Cash transaction
(b) Credit transactions
(c) Account transfers
TYPES OF TRANSACTIONS
Cash transactions are those business activities in which cash is given
or received. Cash may be in the form of notes and coins or in the
form of cheques, credit card and electronic funds.
Credit transactions are those business activities in which one person
gives goods (or provides a service) to another without the immediate
exchange of cash.
Account transfers are transactions internal to the business and
involve transfers of funds from one account to another. They are
usually handled at the end of the year and when correcting errors
that arise in the course of preparing ledger accounts.
Sales day book
When sales are paid for by cash, a cash day book is
used to record transactions. Receipts are listed in
the cash received day book (receipts are debits as
they increase the asset).
Credit sales are recorded in the sales day book and
credit notes in the sales return day book. These are
eventually posted to the customer ledger account.
Sales day book is a list of all credit sales .
Example of sales day book
Date Details Invoice no Reference no Amount
K
1 June Shoprite 0001 order no 250 50000

Total is transferred to the sales account as credit


sales.
When an invoice is entered into the books of a
seller it is called a Sales Invoice
Purchases day book
When an invoice is entered in the books of the buyer it is
called it is called a Purchases invoice. It is from the
purchases invoice that the purchaser enters the details in
the purchases day book.
Credit purchases are entered and the total transferred to
the purchases ledger account.
Purchases day book is a list of all credit purchases and
Purchases returns day book record all returned items
debit note.
Examples of purchases day book
Date Details/Name of supplier Invoice no Reference no Amount
K
• 1 June Tembo and sons 1200 GRN 12 20000

Total is transferred to the purchases


account as credit purchases.
Cash book
The cash book is the book of prime entry for cash receipts and
payments; it records all transactions that go through the bank
account.
The cash book is used as a day book, used to keep a record of money
received and money paid out by the business .
The cash book deals with money paid into and out of the business
bank account.
Receipts and payments can be made by the bank transfers, standing
orders, direct debit and bank interest and charges directly by the
bank.
CASH BOOK STRUCTURE
The cash book is updated by these transactions
so that they are recorded in the ledger.
The Cash book is in two parts Receipts and
payments, sometimes one book is opened but
divided into two or separate books are opened.
The common method is where books are kept
separately.
Example of a cash book (Receipts)
Date Details Reference no Amount
K
Balance b/d 500
1 June N Mbewe 001 2500
Cash sale 002 1000

Total 4000
Example of a cash book (payments)
Date Details Ref no (cheque no) Amount
K
1 June Cavendish university 2500 1000
Zesco 2501 1000
Lusaka Water 2502 1500
Balance carried down 500
Total 4000

Balance carried down represents the balance remaining after removing the
receipts it’s carried down to the start of the next day.
General Journal
The general journal is one of the prime
books of entry.
It is not part of the double entry system, it
takes care of items not recorded in the other
books, and it is used to correct errors in the
ledger, opening entries and adjustments
including writing off of debts.
Example of the journal
Date Details Folio Dr Cr
K K
1 June Plant and machinery 010 20,000
Repairs and maintenance 20,000

Being plant and machinery wrongly debited to p&m repairs

Name of account to be debited and name of account to be credited and the


description
Class Work
The following transactions will be entered in the sales day
book
April 1 Sold goods on credit to Catherine K 540 000 net.
VAT is charged at the rate of
17.5 %.
April 5 Sold goods on credit to chinyama K 800 000 net.
The customer is entitled to
2% prompt discount if payment is made within 14 days.
April 13 Issued an invoice to stacey K400 000 net.
Solution
The transactions are entered in strict chronological
order as they occur.
The names of businesses are entered in the
particulars or customers column. If the column were
named Customers’ then we would need a column
for account numbers. The account number column
is not shown here for convenience’s sake.
Cont..
Value Added Tax has been calculated as follow: On
the net figure 0.175 x K 400 000 =
K70 000.
The total amount is the sum of the net figure and the
Value Added Tax.
K 400 000 + 70 000 = K 470 000
Cont…
When the invoice carries an entitlement of cash discount,
Value Added Tax is calculated on the value after deducting
the discount.
The tax authorities presume that the cash discount will be
taken up. Thus, value for Value Added Tax is K 800 000 x
0.98 = K784 000, and Value Added Tax is 784 000x 0.175 =
K137 200.
The gross amount is the sum of the Value Added Tax and
the original invoice value (not the value for Value Added
Tax).
The end

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