DPA10183

BUSINESS ACCOUNTING
Chapter 2 : Accounting Books

Prepared by:
Sarawati Binti Ahmad
Commerce Department PMS
Learning Outcomes
2.1Provide understanding of the accounting cycle
2.1.1 State the basic steps in the accounting cycle
2.1.2 Describe the term ‘journal’ and ‘ledger account’.

2.2 Provide understanding of the source documents used in the business

2.2.1 Describe the types and usage of source documents below :
a. Invoices
b. Cash bills
c. Credit notes
d. Debit notes
e. Receipts
f. Vouchers
g. Memos
h. Cheque and any other relevant documents.
Learning Outcomes
2.3 Understand the books of prime entry and subsidiaries ledgers
2.3.1 State the types of books of prime entry
2.3.2 Classify the source transactions into different types of journals :
a. Purchase Journal
b. Sales Journal
c. Return Inwards (Sales Return) Journal
d. Return Outwards (Purchase Return) Journal
e. Cash Book (Receipt or Payment)
f. General Journal.
2.3.3 Describe the narration of the journals.
2.3.4 Describe the subsidiaries ledgers.
2.1 ACCOUNTING CYCLE
Accounting Cycle
Transactions

The process of
recording business
transactions, which
consists 8 steps.
 Accounting Cycle
• The process of recording business
transactions.

• Involves several stages over a particular

period of time.

• Show the steps to collect and record

business information systematically.

• Financial reports or statements can be

presented to the management &
analyzed.
 Basic Steps in Accounting Cycle (1)
The type of transaction is identified based on the source
document.

The transactions are recorded into a suitable Book of Prime

Entry or Journal.

Journal entries are posted to the correct acct. in the ledger book.
All accts. in the ledger are balanced. Balance of each accts is
identified.

A trial balance is prepared to check the accuracy of the acct

entries in the ledger book
 Basic Steps in Accounting Cycle (2)
The account are adjusted based on accounting principles.
The closing inventory value is determined.

An adjusted trial balance is prepared.

Financial statements are prepared:

• i) Statement of Comprehensive Income
• iii) Statement of Financial Position

Financial reports are prepared based on analyses and

interpretations made from the financial statements.
 Journal
• Also known as Journal – a sheet in which all
business transaction entries are recorded in
chronological order.
• Format:
 Ledger
• A ledger is a record that details all business
accounts and account activity during a
period.
• Format:
2.2 SOURCE DOCUMENTS
Source Document
• A basic material or evidence
used for recording purposes.
Source Document
• Documents – business
transactions between buyers and
sellers
• Important items:

• Transaction date
• Documents type
• Received/sent documents
• Transaction details
• Transaction amount
• Credit/cash transaction
• Rules/Information
Source Document & Its Usage
Sales Invoice
Purchase
Invoice
Cash Bill
Credit Note
Debit Note
Receipt
Voucher
Memo
Cheque Butt
Deposit Slip
Payment Bills
2.3 BOOKS OF PRIME ENTRY
@ JOURNAL
 Recording Process
JOURNAL

LEDGER
JOURNAL

1 Analyze each transaction

2 Enter transaction in a journal
3 Transfer journal information to ledger accounts
 The Journal
 Transactions are initially recorded in
chronological order in a journal before being
transferred to the accounts.
 Every company has a general journal which
contains:
1 spaces for dates,
2 account titles and explanations,
3 references and
4 two amount columns.
 Journalizing
 Entering transaction data in the journal is
known as journalizing.
 Separate journal entries are made for each
transaction.
 A complete entry consists of:
1. the date of the transaction,
2. the accounts and amounts to
be debited and credited, and
3. a brief explanation of the transaction.
 Types of Books of Prime Entry
Books of Prime Entry

Journal Cash Books Petty Cash Books

General Journal Special Journal

Purchases Journal

Sales Journal

Purchases Return Journal

Sales Return Journal

Purchases Journal
• Credit purchases of goods

Sales Journal
• Credit sales of goods

Sales Returns/Return Inwards Journal

• Returns of sales

Purchase Returns/Return Outwards Journal

• Returns of purchases

Cash Book (Debit)

• Cash inflows/receipt

Cash Book (Credit)

• Cash outflows/payment

General Journal
• All other transactions that cannot be recorded in any special Journal, cash book or petty cash
book
 Types of Journals

Purchases Journal

General Journal

Journal Sales Journal

Special Journal

Purchases Return
Journal

Sales Return Journal

GENERAL JOURNAL
 General Journal
All transactions that cannot be recorded in any
special journal, cash book or petty cash book
will be recorded in the general journal
.
What are being recorded in a General
Journal?

• Recording opening entries

• Credit purchases of fixed assets
• Credit sales of fixed assets
• Recording drawings of goods
• Recording drawings of fixed assets
• Correcting errors
• Adding assets/capital into business
• Recording closing entries
(Refer to Oxford Fajar FOA Text Book pg.16-22)
SPECIAL JOURNAL
 Sales Journal
To record sales of goods on credit.

Format of Sales Journal

Sales Journal
Date Accounts Fol. Amount Amount
(RM) (RM)
dd/mm/yy Debtor A xx xx
Debtor B xx
Less: Trade discount (x) xx
Sales (Ct) xx
 Purchases Journal
To record purchases of goods on credit.

Format of Purchases Journal

Purchases Journal
Date Accounts Fol. Amount Amount
(RM) (RM)

dd/mm/yy Creditor A xx xx
Creditor B Less: xx
Trade discount (x) xx

Purchases (Ct) xx
 Sales Return/Return Inwards Journal
To record return of sales.

Format of Sales Return Journal

Sales Returns Journal
Date Accounts Fol. Amount Amount
(RM) (RM)
dd/mm/yy Debtor A xx xx
Debtor B xx
Less: Trade discount (x) xx
Sales Returns (Dt) xx
 Purchases Return/Return Outwards
Journal
To record return of purchases.

Format of Purchases Return Journal

Purchases Returns Journal
Date Accounts Fol. Amount Amount
(RM) (RM)
dd/mm/yy Creditor A xx xx
Creditor B xx
Less: Trade discount (x) xx
Purchases Returns (Ct) xx
CASH BOOK
 Cash Book
A book of original entry used to record receipts
and payments by cash and cheques.
 What are being recorded in a Cash
Book?
• Opening cash or bank balance (including overdraft)
• Receipts and payments by cash and cheque
• Transfer of cash from the office to the bank and vice
versa (contra entries)
• Discounts received or discounts allowed
• Dishonoured cheques (cancelling the discount given)
• Closing cash or bank balance
(Refer to Oxford Fajar FOA Text Book pg.16-22)
Double Entry Principle for Cash Book
Cash inflows Cash outflows

Receive Cash Book Payment

Date Particulars Fol. Cash Bank Date Particulars Fol. Cash Bank
(RM) (RM) (RM) (RM)
 Format of Three-Column Cash Book
Cash Book
Receive Cash Book Payment
Date Particulars Fol. Disc. Cash Bank Date Particulars Fol. Disc. Cash Bank
Allo (RM) (RM) Rec (RM) (RM)
(RM) (RM)
 Format of Two-Column Cash Book
Receive Cash Book Payment
Cash Book
Date Particulars Fol. Cash Bank Date Particulars Fol. Cash Bank
(RM) (RM) (RM) (RM)
Relationship between source
documents, transactions and books of
prime entry

Source documents

Books of prime
Transactions
entry
 Source Document Transaction Books of Original Entry
Invoice received Credit purchases Purchases Journal
Invoice issued Credit sales Sales Journal
Cash bill received Cash purchases Cash Book (Credit Cash
Column)
Cash bill issued Cash sales Cash Book (Debit Cash
Column)
Receipt received Cash payment Cash Book (Credit Cash
Column)
Receipt issued Cash received Cash Book (Debit Cash
Column)
Memos Additional capital General Journal
Drawings of assets General Journal
Drawings of goods General Journal
 Source Document Transaction Books of Original Entry
Credit note received Purchase returns Purchase Return Journal
General Journal
Overstated purchase price
Credit note issued Sales returns Sales Return Journal
Understated purchase price General Journal

Debit note received Understated purchase price General Journal

Debit note issued Overstated purchase price General Journal
Vouchers Payments made but no Cash Book (Credit Cash
receipt issued Column)
Cheque butts Payment by cheques Cash Book (Credit Bank
Column)
 Exercise
Fundamentals of Accounting Workbook (3rd.
edition), PPD
• Question 2 (pg.8 - 17)
LEDGERS
 Ledgers
The book which keeps accounts in T-account
format. The entry is based on the double-entry
principle.
 Types of Accounts
Types of
Accounts

Non-
Subsidiary
Subsidiary
Accounts
Accounts

Accounts Accounts Real Nominal

Receivable Payable Accounts Accounts

Liabilities &
Assets Owner’s Expenses Revenues
Equity
THE END