books of oe recording transactions

Source documents&

Books of original entry

Section 3Objective 5

Use source documents to make entries into books of original entry:

• Purchases journal• Sales journal• Returns inwards

journal/sales returns journal

• Returns outwards journal/purchases returns journal

• Cash book• Petty cash book

• It is important to prepare accounting records as they occur.

– Also the information must be in chronological (date)order

• The sequence (procedure or steps to follow) is known as the accounting cycle.

• The first two stages of the diagram below identifies the process of collecting source documents

&• using the information from

the documents and record in the books of original entry.

• The accounting cycle:

• Documents used to record in the books of original entry are linked (matched) to each other in the table

– Purchases journal

– Sales journal– Returns inwards

journal– Returns

outwards journal – Cash book and– Petty cash book

Templates of books of original entry

– The following details should be recorded in the journal:• Transaction date• Name of the supplier• Purchase invoice number• Total amount to be paid on the invoice

Purchases journal: Keeps a record of credit purchase

– Source documents for making credit entries in the journal are purchase invoices

– after the entries are made the journal is totalled at the end of the period

– The following are not to be recorded in the purchase journal• Cash purchases• Purchase of fixed assets

(non-current assets) on credit

Template• Purchases Journal Page

Date Supplier Invoice number Folio Amount due

Sales journal: Keeps a record of credit sales

• the following details are to be recorded in the sales journal:

• Date of transaction• Name of credit customer• Sales invoice number• Amount due to be paid

– Source documents for making credit entries in the journal are sales invoices

– after the entries are made the journal is totalled at the end of the period

– The following are not to be recorded in the sales journal• Cash sales• Sales of fixed assets (non-

current assets) on credit

Date Customer Invoice number Folio Amount due

Template Sales journal

Returns outwards & returns inwards journals

• Goods are returned and recorded in the journals for several reasons:

• When goods are found to be damaged on receipt

• When the wrong goods were sent out by the supplier

• When goods ordered were received very late ( that is, it was received past due the selling date)

– The source document used for both journals are credit notes

– Returns outwards journal: Returning goods to a supplier which were previously purchased on credit

–A business returns goods to the supplier and then receives a credit note.

–The document indicates how much will be deducted from the purchase invoice price

Credit notes used for both returns journals are as follows:

– Returns inwards journal: Goods returned by a customer which were previously sold to that customer on credit

–The business selling the goods would send a credit note to customer

–The document states how much will be deducted from the sales invoice price

Credit notes used for both returns journals are as follows:

Template ofReturns inwards journal

Date Customer Credit note number

Folio Amount due

Template of Returns outwards journal

Date Supplier Credit note number

Folio Amount due

Cash book• Some businesses

may use two-column or three-column cash books.– The following

documents are used to prepare both cash books

• Cash register bills (tapes)

• Cash receipts• Cash vouchers• Bank paying

deposit slips or withdrawals slips

• Cheque counterfoils

• Bank statements

The two column cash

• records information from source documents– sets out transactions in date order– format is presented as a ledger

account– information shown on the left

hand side of the book represents receipts (money collected)

– In ‘lay man accounting terms’ the left side is known as the debit side

– information shown on the right hand side of journal represents payments (money paid out)

– The right side using the ‘lay man accounting terms’ is known as the credit side

Template of two-cash book

Three column cash book

– records information from source documents

– sets out transactions in date order

– format is presented as a ledger account

– additional columns on either side of the cash book for discounts

– information shown on the left hand side of the book represents receipts (money collected)

– information shown on the right hand side of journal represents payments (money paid out)

Template of three-column cash book

Petty cash

– Use to record small cash payments– Business operates a system called

the imprest system– The business document used is

known as the petty cash voucher– The first few columns in the journal

operates as a cash account to record the amount received for the imprest, details and payments made with the relevant voucher number

– Additional columns shown in the petty cash are used to analyse the petty cash payments.

– The analysis columns totals are used to determine the types of payment to be recorded as expenses in the general ledger

Template of petty cash book