Additional Notes On Topic 4 Source Documents

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Additional Notes On Topic 4 Source Documents

  1. 1. Source Documents <ul><li>A source document is a specially designed form which supplies details of a business transaction. </li></ul><ul><li>It contains information like the date, the nature and types of transactions, the value of the transactions and the names of the buyers and sellers involved. </li></ul><ul><li>Source documents are important: </li></ul><ul><ul><li>as evidence of transactions; </li></ul></ul><ul><ul><li>for recording transactions; </li></ul></ul><ul><ul><li>for auditing purposes. </li></ul></ul>
  2. 2. Source Documents
  3. 3. Books of Prime Entry <ul><li>Books of prime entry are the first books in which the business transactions are recorded throughout the accounting process. </li></ul><ul><li>They are also known as books of original entry. </li></ul><ul><li>Each transaction recorded must be supported by documentary evidence such as invoices, receipts, cash register slips, cheques, etc. </li></ul>
  4. 4. Books of Prime Entry
  5. 5. Journals <ul><li>The General Journal is used to record all transactions other than those in the special journals. </li></ul><ul><li>A Special Journal is used to record transactions of a similar nature such as credit purchases of goods or credit sales. Special journals are created to reduce the number of entries in the General Journal. </li></ul>
  6. 6. Journals <ul><li>The following special journals are usually used by a trading enterprise: </li></ul><ul><li>Purchases journal </li></ul><ul><ul><li>Purchases returns journal </li></ul></ul><ul><ul><li>Sales journal </li></ul></ul><ul><ul><li>Sales returns journal </li></ul></ul><ul><ul><li>Cash book </li></ul></ul>
  7. 7. Invoices <ul><li>An invoice is a business document sent by the seller to the buyer to inform the latter of the amount due on goods or services supplied. </li></ul>
  8. 8. Invoices
  9. 9. Invoices <ul><li>The following figure shows the process of recording the information from invoices received into the Purchases Journal and posting it to the Ledger. </li></ul>
  10. 10. Invoices <ul><li>Example </li></ul>
  11. 11. Purchases Journal <ul><li>The Purchases Journal is used for recording credit purchases of merchandise. </li></ul><ul><li>It excludes cash purchase and purchase of fixed assets. </li></ul><ul><li>It is a one-line entry without any debit or credit. </li></ul><ul><li>It supplies information on transactions in chronological order of date. </li></ul><ul><li>It facilitates cross-reference. </li></ul><ul><li>It reduces detailed recordings in the Ledger. </li></ul>
  12. 12. Credit Notes <ul><li>Credit notes are prepared by the seller to be sent to the buyers informing them that their accounts in the books of the seller have been credited. </li></ul><ul><li>It is used for goods returned or for amount overcharged. </li></ul><ul><li>Goods bought on credit are returned for the following reasons: </li></ul><ul><ul><li>They are defective or damaged. </li></ul></ul><ul><ul><li>They are not in accordance to specification, quality, size, type or brand name. </li></ul></ul><ul><ul><li>They are empty bottles, cases or containers which are returnable. </li></ul></ul>
  13. 13. Credit Notes
  14. 14. Credit Notes <ul><li>The following figure shows the process of recording the information from credit notes received into the Purchases Returns Journal and posting it to the Ledger. </li></ul>
  15. 15. Credit Notes <ul><li>Example </li></ul>
  16. 16. Purchases Returns Journal <ul><li>The Purchases Returns Journal is used to record returns of goods bought for resale. </li></ul><ul><li>It also records overcharges by the suppliers. </li></ul><ul><li>It is a one-line entry without any debit or credit. </li></ul><ul><li>It gives the date order for each transaction. </li></ul><ul><li>It cuts down detailed recordings in the Ledger. </li></ul><ul><li>It enables quick reference to the source of transactions. </li></ul>
  17. 17. Example 1
  18. 18. Example 1
  19. 19. Example 1
  20. 20. Sales Journal <ul><li>The Sales Journal is used for recording credit sales of merchandise. </li></ul><ul><li>It excludes cash sales and sales of fixed assets. </li></ul><ul><li>It is a one-line entry without any debit or credit. </li></ul><ul><li>It supplies information on credit sales in chronological order of date. </li></ul><ul><li>It facilitates cross-reference. </li></ul><ul><li>It reduces detailed recordings in the Ledger. </li></ul>
  21. 21. Sales Journal <ul><li>The following figure shows the process of recording the information of invoices sent to the buyers into the Sales Journal and posting it to the Ledger. </li></ul>
  22. 22. Sales Journal <ul><li>Example </li></ul>
  23. 23. Sales Returns Journal <ul><li>The Sales Returns Journal is used to record returns of goods by the customers. </li></ul><ul><li>It is also used when the customers are overcharged. </li></ul><ul><li>It is a one-line entry without any debit or credit. </li></ul><ul><li>It gives the date order for each transaction. </li></ul><ul><li>It reduces the volume of entries in the Ledger. </li></ul><ul><li>It enables easy reference to the source of transactions. </li></ul>
  24. 24. Sales Returns Journal <ul><li>The following figure shows the process of recording the information of credit notes sent to the customers into the Sales Returns Journal and posting it to the Ledger. </li></ul>
  25. 25. Sales Returns Journal <ul><li>Example </li></ul>
  26. 26. Example 2
  27. 27. Example 2
  28. 28. Example 2
  29. 29. Recording Transactions in the General Journal and Posting to the Ledger <ul><li>The General Journal is usually used to record the following transactions: </li></ul><ul><ul><li>Purchase and sale of fixed assets on account. </li></ul></ul><ul><ul><li>Other transactions such as drawings, additional capital by the owner and services charged. </li></ul></ul><ul><ul><li>Opening entry. </li></ul></ul><ul><ul><li>Closing entry. </li></ul></ul><ul><ul><li>Adjustments on balance day. </li></ul></ul><ul><ul><li>Correction of errors. </li></ul></ul>
  30. 30. Purchase of Fixed Assets
  31. 31. Owner Withdrew Goods for Personal Use
  32. 32. Additional Capital Other Than Cash

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