LEARNING OBJECTIVESTo explain the accounting cycleTo explain various types & functionsof each journal & ledgerTo determine the need for ananalytical petty cash bookTo explain an analytical petty cashimprest system
INTRODUCTIONSystematic bookkeeping procedures must be followed torecord transactions in the books of accounts.The recording system consists of the whole accountingcycle starting with the identification of sourcedocuments & the recording of the information containedin the source documents.Source documents of each transaction are differentdepend on the type of the transaction.i.e. invoices (sales), receipts ( cash/bank) , cash bills(expenses), credit note / debit note (return inwards /return outwards) & etc.The source documents will be classified accordingly &then recorded in the appropriate journals & later postedto various accounts in the ledger.
JOURNALS/BOOKS OF PRIME ENTRY Once the source documents are analyzed, the information are transferred first to journals that also known as books of prime entry. The journal is just like a diary whereby information such as the date, details & amounts regarding transactions are recorded. The books of prime entry consists of a petty cash & 7 types of journals which are as follows: General journal Purchases journal Sales journal Return inwards journal Return outwards journal Cash receipts journal Cash payments journal
GENERAL JOURNALGeneral journal is use to record:1. Sales/purchases of fixed assets on credit2. Correction of errors3. Opening entries4. Transfers5. Withdrawals of goods for owner’s personal use6. adjustments
GENERAL JOURNAL (cont’d)Example 1Jan 1 Purchase office equipment on credit from Streamyx Sdn. Bhd. RM5,000. General Journal Date Details Folio Debit Credit (RM) (RM)Jan 1 Office furniture GL 5,000 Creditor – Streamyx 5,000 Sdn. Bhd.
GENERAL JOURNAL (cont’d)Example 2Jan 5 sold unused computer to Ahmad RM1,000 on credit. General JournalDate Details Folio Debit Credit (RM) (RM)Jan 5 Debtor - Ahmad 1,000 Computer GL 1,000
GENERAL JOURNAL (cont’d)Example 3Jan 1 En. Jamal has the following assets & liabilities at the beginning of the accounting period: RMAssets: Office Equipment 8,000 Office Furniture 3,500 Cash 900 Stock 5,300Liabilities: Loan from BBMB 6,000 Creditors 2,000
GENERAL JOURNAL (cont’d) General JournalDate Details Folio Debit Credit (RM) (RM)Jan 1 Office Equipment GL 8,000 Office Furniture GL 3,500 Cash GL 900 Stock GL 5,300 Loan from BBMB 6,000 Creditors 2,000 Capital GL 9,700
GENERAL JOURNAL (cont’d)Example 4Jan 7 Mr. Wong owes the business RM9,000. He failed to settle his account & wishes to pay his debt by giving his own car worth RM9,000. General JournalDate Details Folio Debit Credit (RM) (RM)Jan 7 Car GL 9,000 Mr. Wong 9,000
GENERAL JOURNAL (cont’d)Example 5Jan 10 Adit is a watch & took a watch worth RM1,000 as present to his wife. General JournalDate Details Folio Debit Credit (RM) (RM)Jan 10 Drawings GL 1,000 Purchases 1,000
PURCHASES JOURNALIt is used to record purchase of goods on credit. Source documentinvolved is invoice received from the supplier.ExampleMac.10: Bought goods on credit from Ali RM500, invoice no.213Mac.20: Bought goods on credit from Kasim RM400, invoice no.223Mac.28: Bought goods on credit from Baba RM700, invoice no.233 Purchases Journal Date Particular Invoice no. Folio Amount (RM) Mac 10 Ali 213 PL1 500 20 Kasim 223 PL2 400 28 Baba 233 PL3 700 Transferred to GL5 1,600 Purchases a/c
SALES JOURNALIt is used to record credit sales. Source document involved isinvoice sent to debtor. Invoices are serially numbered.ExampleMac.11: Sold goods on credit to Tom RM900, invoice no.345Mac.21: Sold goods on credit to Tam RM800, invoice no.360Mac.29: Sold goods on credit to Tim RM500, invoice no.380 Sales Journal Date Particular Invoice no. Folio Amount (RM) Mac 11 Tom 345 SL1 900 21 Tam 360 SL2 800 29 Tim 380 SL3 500 Transferred to GL6 2,200 Sales a/c
RETURN OUTWARDS JOURNALIt is used to record transaction involving goods returned tosupplier. Source document involved is the credit note sent by thesupplier (not serially numbered) @ the business sent a debit noteto the suppliers (therefore the notes are serially numbered)ExampleMac.19: Goods returned to Ali RM10, credit note no. 007Mac.24: Goods returned to Kasim RM18, credit note no. 010 Return Outwards Journal Date Particular Credit Folio Amount note no. (RM) Mac 19 Ali 007 PL1 10 24 Kasim 010 PL2 18 Transferred to GL7 28 Returns Outwards a/c
RETURN INWARDS JOURNALIt is used to record transaction involving goods returned bycustomer. A Credit note will be issued to customer (the notes sentout are serially numbered), or the business received debit notesfrom customer.ExampleMac.14: Goods returned by Tom RM15, debit note no. 211Mac.23: Goods returned by Tam RM20, debit note no. 213 Return Inwards Journal Date Particular Credit Folio Amount note no. (RM) Mac 14 Tom 211 SL1 15 23 Tam 213 SL2 20 Transferred to GL8 35 Returns Inwards a/c
CASH RECEIPTS JOURNAL It is used to record all cash received from any sources. The most common is the receipt & the cash register summary. Example Mac.23: Received RM500 from Tom Mac.25: Received RM400 from Tam Mac.27: Received RM250 from Tim Cash Receipts JournalDate Receipts Details Folio Sales Service Other Debtor Bank No. Fees receiptsMac 001 Tom SL1 500 5002325 002 Tam SL2 400 40030 003 Tim 250 250 GL9 1,150
CASH PAYMENTS JOURNAL It is used to record all outflow of cash from the business for any purpose. The documents involved include payment vouchers & cheque butt, if payments are made by cheque Example Mac.22: Paid RM 490 to Ali, cheque no.132444 Mac.28: Paid RM 240 to Kasim, cheque no.132445 Mac.29: Paid RM 300 to Baba, cheque no.132446 Cash Payments JournalDate Cheque Details Folio Purchases Supplies Other Creditor Bank No. PaymentsMac 132444 Ali PL1 490 4902228 132445 Kasim PL2 240 24029 132446 Baba PL3 300 300 GL10 1,030
Ledgers A ledger is a book, set of a loose cards or file thatcontains accounts.i.e. purchases ledger, sales ledger & general ledger.Purchases or Creditors’ ledgerThis is a ledger to record suppliers’ personal accounts.Total credit purchase from the purchases journal aredebited to purchases account in the general ledger &credited to various creditor’s account in the purchasesledger.Total return outwards from the return outwards journalare credited to return outwards account in the generalledger & debited to various creditors account in thepurchases ledger.Total payments made to various creditors in the cashpayment journal will be credited to the bank account inthe general ledger & debited to various creditors accountin the purchases ledger.
Purchases or Creditors’ ledgerPurchases Ledger Ali PL119 Mac R/Outwards ROJ1 10 10 Mac. Purchases PJ1 50022 Mac Bank CPJ1 490 500 500 Kasim PL224 Mac. R/Outwards ROJ2 18 20 Mac. Purchases PJ2 40028 Mac. Bank CPJ2 24030 Mac Bal c/d 142 400 400 Baba PL329 Mac Bank 300 28 Mac Purchases PJ3 70030 Mac Bal c/d 400 700 700
Ledgers (cont’d)Sales or Debtors’ ledger This is a ledger to record debtors’ personal accounts. Posting for credit sales are from the various debtors’ accounts in the sales journal, & the total sales are credited to sales account in the general ledger. Postings for return inwards are from the various debtors’ accounts in the return inwards journal, & the total returns are debited to return inwards account in the general ledger. Postings for payments received are from the various debtors’ accounts in the cash receipts journal, & the total amount received is debited to the bank account in the general ledger
Sales or Debtors’ ledgerSales Ledger Tom SL111 Mac Sales SJ1 900 14 Mac. R/Inwards RIJ1 15 23 Mac. Bank CRJ1 500 31 Mac. Bal c/d 385 900 900 Tam SL221 Mac. Sales SJ2 800 23 Mac. R/Inwards RIJ2 20 25 Mac. Bank CRJ2 400 31 Mac Bal c/d 380 800 800 Tim SL329 Mac Sales SJ3 500 30 Mac Bank CRJ3 250 31 Mac Bal c/d 250 500 500
Ledgers (cont’d)General ledger This is a ledger to record all other accounts. Total credit purchase from the purchases journal are debited to purchases account in the general ledger Total return outwards from the return outwards journal are credited to return outwards account in the general ledger Total payments made to various creditors in the cash payment journal will be credited to the bank account in the general ledger Total sales are credited to sales account in the general ledger. Total returns are debited to return inwards account in the general ledger. Total amount received is debited to the bank account in the general ledger
Ledgers (cont’d)General Ledger Purchases GL531 Mac. Total Credit PJ1 1600 Purchases Sales GL6 31 Mac. Total Credit SJ1 2,200 Sales Return Outwards GL7 31 Mac. Total return ROJ1 28 outwards Return Inwards GL831 Mac. Total return RIJ1 35 inwards Bank GL931 Mac. Total CRJ1 1,150 31 Mac. Total CPJ1 1,030 Receipts Payments
PETTY CASHIt involved payments of amounts that are relatively smallA fund called “petty cash” is normally set up to facilitatethe payments.The recording of the items paid through the petty cashfund & the initial amount of ‘float’ depends on theorganization’s purchasing or payment or payment policy.The use of the petty cash book relieves the senioraccounting staff in the handling of cash payments sincethe work can be delegated to a junior staff.
PETTY CASH (cont’d)Petty Cash Imprest System – this system is created toenable the proper control of petty cash fund.There are 3 distinct steps within the system:i. Establishment of a petty cash fund or float • A petty cashier is given a certain amount of money to start the fund. The amount would depends on the company’s policy as to the type of expenditures that can be paid through the use of the fund or sometimes on the frequency of the fund being reimbursed.i. Recording of expenditures paid through the petty cash fund • Any proof of payments made through the petty cash, i.e. bills, tickets as well as the petty cash voucher must be available first before the expenditures can be recorded in petty cash book.i. Getting the reimbursements for expenditures made • At the end of the period or at any time when the petty cash fund runs low the petty cashier has to send the record on the spending together with the compilation of all bills, tickets & vouchers before the reimbursements can be obtained.
PETTY CASH (cont’d)Analytical Petty Cash Book• Various types of expenditures can be paid through the use of petty cash fund.• At the end of the month these expenditures are grouped according to the major expense accounts related to the expenditures.• The major groupings can be Postage,Stationery,Traveling, Motor Expenses,etc.• The totals of major expense groups are then posted to the ledger accounts.• Thus the petty cash book saves the ledger accounts from containing a lot of trivial details.
PETTY CASH (cont’d)Example2005 Particular RM1 Oct Receives a cheque from the cashier 300 Cash paid for the following expenditures:2 Oct Taxi fares 404 Oct Stationery 2010 Oct Postage 2014 Oct Stationery 1025 Oct Stamps 6030 Oct Receive a cheque for reimbursement 150