Accounting & Financial

Analysis 111

Lecture 8

SSource Documents, Day accounts/Specialised ource Documents, Day accounts/Specialised Journals, Debtors & Creditors Subsidiary Journals, Debtors & Creditors Subsidiary LedgersLedgers

What are source documents? What are source documents?

Source documents are the evidence that a business transaction has taken place.

Any document that is back-up to an entry in the accounts is a source document.

Source documents are the evidence that a business transaction has taken place.

Any document that is back-up to an entry in the accounts is a source document.

What are source documents ctd.?

What are source documents ctd.?

Source means “ The place from which things originate (start)”

The source documents help to record the transactions that take place within an organization (business) and it is from the source documents that the “Financial Records” are developed.

Source means “ The place from which things originate (start)”

The source documents help to record the transactions that take place within an organization (business) and it is from the source documents that the “Financial Records” are developed.

Are source documents important?

Are source documents important?

Source documents are important to the business and should be checked carefully to confirm their accuracy and that they meet company and legislative requirements.

All source documents relating to an individual transaction should be attached together and filed in proper order.

Source documents are important to the business and should be checked carefully to confirm their accuracy and that they meet company and legislative requirements.

All source documents relating to an individual transaction should be attached together and filed in proper order.

Stock source documentsStock source documents

The ordering of stock will involve various source documents that relate to the transaction:

The stores requisition The purchase order The supplier delivery note The stores receipt note The tax invoice

The ordering of stock will involve various source documents that relate to the transaction:

The stores requisition The purchase order The supplier delivery note The stores receipt note The tax invoice

Document ProceduresDocument Procedures

Businesses should have established procedures indicating the process to create and authorise documents.

Before processing documents all details have to be checked to make sure that they are correct.

Businesses should have established procedures indicating the process to create and authorise documents.

Before processing documents all details have to be checked to make sure that they are correct.

Document Procedures - points to look for:

Document Procedures - points to look for:

Purchase invoices Type of document to be processed –

Tax Invoice, Credit note, etc. Name and address of supplier

including ABN Date and invoice number Does tax invoice match the

purchase order Is the quantity and price correct

Purchase invoices Type of document to be processed –

Tax Invoice, Credit note, etc. Name and address of supplier

including ABN Date and invoice number Does tax invoice match the

purchase order Is the quantity and price correct

Document Procedures – Purchase Invoices ctd.

Document Procedures – Purchase Invoices ctd.

Is GST included in the charge or separate

Is the total charge correct What are the terms of trade Check receipt details if goods are

purchased for cash If paid by cheque confirm details on

cheque butts are accurate

Is GST included in the charge or separate

Is the total charge correct What are the terms of trade Check receipt details if goods are

purchased for cash If paid by cheque confirm details on

cheque butts are accurate

Document Procedures - points to look for:

Document Procedures - points to look for:

Sales invoices All sales invoices have to be checked to

confirm they meet customer order and are mathematically correct.

Sales invoices have to be printed in duplicate (one for customer and the other for business records)

Confirm customer requirements Confirm quantity and price charged Confirm GST charged

Sales invoices All sales invoices have to be checked to

confirm they meet customer order and are mathematically correct.

Sales invoices have to be printed in duplicate (one for customer and the other for business records)

Confirm customer requirements Confirm quantity and price charged Confirm GST charged

Document Procedures – Sales Invoices ctd.

Document Procedures – Sales Invoices ctd.

Confirm totals inclusive of GST Confirm the trade terms Confirm dispatch of goods Confirm credit status of customer

(no accounts outstanding beyond trade terms).

Sales invoices should be authorised for issue (validated, checked and signed)

Confirm totals inclusive of GST Confirm the trade terms Confirm dispatch of goods Confirm credit status of customer

(no accounts outstanding beyond trade terms).

Sales invoices should be authorised for issue (validated, checked and signed)

Sales invoices ctd.Sales invoices ctd.

If a sales invoice is found to be incorrect it should be corrected before posted to customer.

If the invoice has already been posted a manager or supervisor should contact the customer in accordance with the company policy and procedures.

If a sales invoice is found to be incorrect it should be corrected before posted to customer.

If the invoice has already been posted a manager or supervisor should contact the customer in accordance with the company policy and procedures.

Checking source documents Checking source documents

If a source document is not correct it has to be given to the supervisor/manager to:

Check the reason for the error Check quantity and price Confirm receipt of items Adjust the error if internal Contact supplier if external error Authorise adjustment – by company

authorised person Process document

If a source document is not correct it has to be given to the supervisor/manager to:

Check the reason for the error Check quantity and price Confirm receipt of items Adjust the error if internal Contact supplier if external error Authorise adjustment – by company

authorised person Process document

Adjusting Source DocumentsAdjusting Source Documents

Any adjustments to source documents have to be authorised by an appointed person as per the Policy & Procedures of the company. There is usually a list of authorised persons indicating their:

Name Position Sample of signature ‘$’ Limit of authorisation

Any adjustments to source documents have to be authorised by an appointed person as per the Policy & Procedures of the company. There is usually a list of authorised persons indicating their:

Name Position Sample of signature ‘$’ Limit of authorisation

Examples of source documents

Examples of source documents

an invoice received after shopping is a source document,

a purchase order is a source document, a cheque book, a deposit book, a cheque requisition, a bank statement, all expense vouchers, credit notes, these are all source documents.

an invoice received after shopping is a source document,

a purchase order is a source document, a cheque book, a deposit book, a cheque requisition, a bank statement, all expense vouchers, credit notes, these are all source documents.

Purchase invoices Purchase invoices

We are all familiar with the receipt of invoices (bills) such as telephone bills, electricity bills, gas bills, invoices for purchases such as stationery, service/repairs to motor vehicle, etc.

Each one of these bills/invoices is a source document and relates to our expenditure

It shows the cost, the GST amount, and the total amount paid or owing to the creditor (accounts payable).

We are all familiar with the receipt of invoices (bills) such as telephone bills, electricity bills, gas bills, invoices for purchases such as stationery, service/repairs to motor vehicle, etc.

Each one of these bills/invoices is a source document and relates to our expenditure

It shows the cost, the GST amount, and the total amount paid or owing to the creditor (accounts payable).

Purchase OrderPurchase Order

A business writes out a purchase order each time it requires a Service or to purchase an item. The purchase order will show:

The reference number of the purchase order. Name of the business making the order. The person authorising the issue of the order. The name of the supplier. The quantity ordered. The price per item (service) as agreed

beforehand. The total charge inclusive of GST. Other comments – such as date of delivery

A business writes out a purchase order each time it requires a Service or to purchase an item. The purchase order will show:

The reference number of the purchase order. Name of the business making the order. The person authorising the issue of the order. The name of the supplier. The quantity ordered. The price per item (service) as agreed

beforehand. The total charge inclusive of GST. Other comments – such as date of delivery

Why use a Purchase Order?Why use a Purchase Order?

The purchase order will be used to confirm the accuracy of the tax invoice when received and will be attached to the invoice for filing.

The purchase order will be used to confirm the accuracy of the tax invoice when received and will be attached to the invoice for filing.

Sales invoicesSales invoices

In the same way, if we are in business and sell our products we issue a tax invoice showing:

the amount of sales, the GST and The total amount paid to us or owing

by the debtor (accounts receivable).

In the same way, if we are in business and sell our products we issue a tax invoice showing:

the amount of sales, the GST and The total amount paid to us or owing

by the debtor (accounts receivable).

Sales invoices ctd.Sales invoices ctd.

A sales invoice should be issued as close to the sale date as possible since most

Credit terms indicate required payment after a certain number of days from date of invoice.

A sales invoice should be issued as close to the sale date as possible since most

Credit terms indicate required payment after a certain number of days from date of invoice.

Outstanding AccountsOutstanding Accounts

All accounts receivable need to be checked

Regularly to confirm that they are within their trading terms.

If accounts receivable are left uncollected the business will suffer negative cash flow and will not be able to pay its own expenses such as

wages, rent, suppliers etc.

All accounts receivable need to be checked

Regularly to confirm that they are within their trading terms.

If accounts receivable are left uncollected the business will suffer negative cash flow and will not be able to pay its own expenses such as

wages, rent, suppliers etc.

Outstanding Accounts ctd.Outstanding Accounts ctd.

If accounts receivable are left uncollected the business:

will suffer negative cash flow and will not be able to pay its own

expenses such as wages, rent, suppliers etc.

If accounts receivable are left uncollected the business:

will suffer negative cash flow and will not be able to pay its own

expenses such as wages, rent, suppliers etc.

Outstanding Accounts ctd.Outstanding Accounts ctd.

The business will lose its credit rating with its suppliers and will not be allowed credit on future purchases.

It will also have to pay interest on overdue accounts affecting its profit margin

The business will lose its credit rating with its suppliers and will not be allowed credit on future purchases.

It will also have to pay interest on overdue accounts affecting its profit margin

Credit notesCredit notes

A credit note is issued to a customer when the goods sold do not meet the

expectations of the customer and they are returned to the store.

The goods could have been damaged not according to specifications( wrong model, colour etc), or

in excess of requirements. In the same way a credit note can be

received by the business for goods that the Business returned to the supplier.

A credit note is issued to a customer when the goods sold do not meet the

expectations of the customer and they are returned to the store.

The goods could have been damaged not according to specifications( wrong model, colour etc), or

in excess of requirements. In the same way a credit note can be

received by the business for goods that the Business returned to the supplier.

Evidence of paymentsEvidence of payments

Other source documents relate to evidence of payment, such as:

cheque book butts, credit card vouchers, EFTPOS receipts, written receipts for cash

payments, bank a/c statements Showing the direct

debits to the account.

Other source documents relate to evidence of payment, such as:

cheque book butts, credit card vouchers, EFTPOS receipts, written receipts for cash

payments, bank a/c statements Showing the direct

debits to the account.

Evidence of receiptsEvidence of receipts

Are documents that record cash or cheques received by the business;

listings of cheques deposited to our bank a/c

the bank a/c statements that show direct credits

Are documents that record cash or cheques received by the business;

listings of cheques deposited to our bank a/c

the bank a/c statements that show direct credits

Evidence of receipts ctd.Evidence of receipts ctd.

the cash till roll, the receipt book which is a copy of the

receipt given to the customer

the cash till roll, the receipt book which is a copy of the

receipt given to the customer

What is GST ?What is GST ?

GST stands for “Goods and Service Tax”

it is a TAX imposed by government on all commercial transactions and

is payable to the Australian Tax Office (ATO)

GST stands for “Goods and Service Tax”

it is a TAX imposed by government on all commercial transactions and

is payable to the Australian Tax Office (ATO)

Who does the GST belong to?Who does the GST belong to?

The GST amount that the business collects on all of its sales does not belong to the business it is merely collected by the business on behalf of the ATO and it is a debt owing to the ATO (liability).

The GST amount that the business collects on all of its sales does not belong to the business it is merely collected by the business on behalf of the ATO and it is a debt owing to the ATO (liability).

Is GST deductible?Is GST deductible?

Any GST that the business pays on expenses for business use is allowed as a deduction from the amounts owing to the ATO.

Any GST that the business pays on expenses for business use is allowed as a deduction from the amounts owing to the ATO.

How much is the GST?How much is the GST?

The current rate of GST is 10% on sales value.

The current rate of GST is 10% on sales value.

How do I work out GST?How do I work out GST?

If the sales value is inclusive of GST then you have to divide the total amount by 11 in order to get the GST amount.

If the sales value is inclusive of GST then you have to divide the total amount by 11 in order to get the GST amount.

How do I account for GST?How do I account for GST?

GST payable a/cGST payable a/c = GST owing to ATO (on sales) Liability – Credit

Input Tax Credits a/cInput Tax Credits a/c = GST owing to the business by the ATO (on purchases) Assets - Debit

GST payable a/cGST payable a/c = GST owing to ATO (on sales) Liability – Credit

Input Tax Credits a/cInput Tax Credits a/c = GST owing to the business by the ATO (on purchases) Assets - Debit

Debtors LedgerDebtors Ledger

Trade debtors originate from the Sales Journal

Every sale made on credit will either create a new debtor or increase the amount owing by an existing debtor

Previously, we said that the monthly total of the sales journal is posted to the General Ledger.

Trade debtors originate from the Sales Journal

Every sale made on credit will either create a new debtor or increase the amount owing by an existing debtor

Previously, we said that the monthly total of the sales journal is posted to the General Ledger.

Monthly total of the sales journal

Monthly total of the sales journal

The entry would be: CR Sales a/c (Nominal ledger) $68,700 CR GST payable a/c $6,870 (Proprietary ledger) DR Accounts receivable (Trade Debtors, Debtors control a/c) (Proprietary ledger) $75,570 Being credit sales for the month of Being credit sales for the month of

……..……..

The entry would be: CR Sales a/c (Nominal ledger) $68,700 CR GST payable a/c $6,870 (Proprietary ledger) DR Accounts receivable (Trade Debtors, Debtors control a/c) (Proprietary ledger) $75,570 Being credit sales for the month of Being credit sales for the month of

……..……..

Amount posted to the Accounts Receivable will be:

Amount posted to the Accounts Receivable will be:

The total of all the Credit Sales made during the month to all of the customers.

The total of the Sales Returns for the month by all of the customers.

The total of Cash Received from Debtor payments.

The total of all the Credit Sales made during the month to all of the customers.

The total of the Sales Returns for the month by all of the customers.

The total of Cash Received from Debtor payments.

Why use subsidiary ledgers?Why use subsidiary ledgers?

The general ledger will only show a total figure of how much is owed to the business it will not give details as to WHO owes the money nor HOW MUCH each customer owes.

This information is most important to a business as it needs to collect money owing as quickly as possible.

In order to have this information available there needs to be a Debtors Subsidiary LedgerDebtors Subsidiary Ledger for amounts owing to the business and

a Creditors Subsidiary LedgerCreditors Subsidiary Ledger for amounts owing to the customers.

The general ledger will only show a total figure of how much is owed to the business it will not give details as to WHO owes the money nor HOW MUCH each customer owes.

This information is most important to a business as it needs to collect money owing as quickly as possible.

In order to have this information available there needs to be a Debtors Subsidiary LedgerDebtors Subsidiary Ledger for amounts owing to the business and

a Creditors Subsidiary LedgerCreditors Subsidiary Ledger for amounts owing to the customers.

Controlling DebtorsControlling Debtors

A business needs to monitor debtor payments using some of the following techniques:

Get a credit check by using a reputable credit agency

Get 3 references on the customer from their current suppliers

Clearly indicating the credit terms being offered Enforcing credit terms as agreed Ensure that all invoices and statements are

accurate and delivered promptly. Stop service to any delinquent payer Offer discount for early settlement Review debtors regularly to confirm that the

credit terms are being observed.

A business needs to monitor debtor payments using some of the following techniques:

Get a credit check by using a reputable credit agency

Get 3 references on the customer from their current suppliers

Clearly indicating the credit terms being offered Enforcing credit terms as agreed Ensure that all invoices and statements are

accurate and delivered promptly. Stop service to any delinquent payer Offer discount for early settlement Review debtors regularly to confirm that the

credit terms are being observed.

Outstanding accountsOutstanding accounts

Check that the invoice sent to the customer was correct and that the customer received the goods. (delivery note signed by customer)

Contact the customer by telephone followed by a letter demanding payment.

If payment is still not received contact your debt collecting agency or lawyer to follow up.

Check that the invoice sent to the customer was correct and that the customer received the goods. (delivery note signed by customer)

Contact the customer by telephone followed by a letter demanding payment.

If payment is still not received contact your debt collecting agency or lawyer to follow up.

DEBTORS SUBSIDIARY LEDGER

DEBTORS SUBSIDIARY LEDGER

The debtors subsidiary ledger will have an account opened for each individual debtor

Each credit sales invoice (after being entered into the SALES JOURNAL) will also be entered into the appropriate debtors account in the subsidiary ledger as will

other journal transactions that effect the Accounts Receivables.

The debtors subsidiary ledger will have an account opened for each individual debtor

Each credit sales invoice (after being entered into the SALES JOURNAL) will also be entered into the appropriate debtors account in the subsidiary ledger as will

other journal transactions that effect the Accounts Receivables.

DEBTORS SUBSIDIARY LEDGER (2)

DEBTORS SUBSIDIARY LEDGER (2)

The journals that have a direct influence on Accounts Receivable (Debtors) are:

The Sales journal The Sales returns journal The Cash receipts journal

The journals that have a direct influence on Accounts Receivable (Debtors) are:

The Sales journal The Sales returns journal The Cash receipts journal

PRACTICE ACTIVITY!PRACTICE ACTIVITY!

Class Exercise 8A & 8B Do it manually or use Excel

Class Exercise 8A & 8B Do it manually or use Excel