Recording and Summarising Transactions

Chapter Recording, Summarising and Posting Transactions Source Documents What type of source documents • Petty cash vouchers • Cheques Received (lodgements) • Cheque Stubs (payments) • Wage, salary and payroll records These records are recorded so that the business knows what they owe people and who owes the business money These documents are recorded in the books of prime entry Due to the volume of document they are summarised in the books of prime entry and then posted to the general ledger accounts Books of Prime Entry Book of prime entry Documents Recorded Summarised and posted to Sales day book Sales Inv, credit note Receivable ledger/control ac Purchase day bk Pur Inv,credit note rec Payables ledger/control ac Cash Book Cash paid and rec General Ledger Petty Cash Book Notes/coin paid/rec General Ledger Journal Adjustments General Ledger Question State which book of prime entry the following transactions would be entered into (a) Your business pays J Sunderland (a supplier) €6,200 (b) You send Hall & Co (a customer) an invoice for €1,320 (c) You receive an invoice from J Sunderland for €1,750 (d) You pay Hall & Co €1,000 (e) Sarti (a customer) returns goods to the value of €100 (f) You return goods to Elphick & Co to the value of €2,400 (g) Sarti pays you €760 Posting to the ledger Trace diagram on page 57 Personnel Small Company – small number of people recording accounts Large Company – greater amount of people recording accounts Separation of departments, segregation of duties to prevent fraud In other words the person sending out the sales invoices will not be receiving the cheque from the client The individual could invoice the client and lodge cheque into their own account Accounts Dept • • • • • • • • A receivable ledger controller A credit controller A payables ledger controller An assistant accountant A payroll controller A management accountant A financial accountant A financial controller – to supervisor all other accounting staff Payables ledger controller The petty cash will be managed by the payables ledger controller and must be authorised by the accountant The payables ledger controller will prepare cheques for payment after checking that: • There is a purchase order for the goods • The correct goods were received (GRN) • They were received in good condition (any faults should be detailed on Delivery note) • The invoice is correct – correct quantities, price, vat calculation Main Books of Prime Entry The main books of prime entry are: • • • • • Sales day book Purchase day book Journal Cash book Petty cash book Sales day book The sales day book is a list of all invoices sent out to customers each day The sales ledger reference is the reference of the page that the customer is on in the sales ledger In a computerised accounting system this will be an account name, e.g University of Limerick (as a customer) might have an account called UL02 There may be further analysis columns in the sales day book for difference types of sales For example, in a car sales showroom might have sales of private vehicles and sales of commercial vehicles under different columns Double Entry Bookkeeping Double DoubleEntry EntryBookkeeping Bookkeeping Business BusinessEntity EntityConcept Concept Dual DualEffect Effect Accounting AccountingEquation Equation Separate SeparateEntity Entity Ledger LedgerAccounting Accounting Assets Assets==Capital Capital++Liabilities Liabilities Record Recordfrom from Business BusinessViewpoint Viewpoint Debit Debit Credit Credit Closing ClosingBalances Balances Trial TrialBalance Balance Adjustments Adjustments Financial FinancialStatements Statements Chapter • Business is a separate entity from its owner • Transactions are always recorded from the business’ point of view The Dual Effect Principle Debit  asset  liability Credit  asset  liability  expenditure  income  expenditure  income  drawings  capital Debit E A Credit R L Expense Asset Revenue (Income) Liability The Dual Effect Principle • Every transaction has two equal effects • Transactions recorded via ledger accounts • A ledger account Debit (Dr) Date Credit (Cr) Name of account e.g sales, bank Narrative $ Date Narrative $ Double Entry Bookkeeping Summary of steps to record a transaction Identify the two accounts affected Whether accounts are being increased or decreased Decide whether each account should be debited or credited General rule - Check debit = credit debit the receiving account credit the giving account Recording Transactions To record a cash payment Dr Expense account Cr Cash Account To record a cash Receipt Dr Cash Account Cr Income/Sales Account Question (a) A cash sale (ie a receipt) of €60 (b) Payment of a rent bill totalling €4,500 (c) Buying some goods for cash at €3,000 (d) Buying some shelves for cash at €6,000 Create the T accounts to record these transactions Credit Transactions Credit Sales Dr Debtors Cr Sales When money is received Dr Bank/Cash Cr Debtors Credit Purchases Dr Purchases/Expenses Cr Creditors Credit Transactions When the money is paid out Dr Creditors Cr Bank/Cash Questions Bought Machine on credit from A, cost €8,000 Bought goods on credit from B, cost €500 Sold goods on credit to C, value €1,200 Paid D (a supplier) €300 Collected €180 from E, a customer Paid wages €4,000 Received rent bill of €700 from landlord G Paid rent of €700 to landlord G Paid insurance premium €90 Question Opening balances: VAT Dr €500, Bank €10,000 • Sales on credit to T Wilde €1,000 excluding vat • Purchases of goods on credit €500 excluding vat • Received advertisement bill from news paper €200 • Sold goods Cash €1200 including VAT • Purchased Van €4,000 on credit including VAT • Paid wages €1,000 out of bank • Paid Advertising bill €200 • Approved for loan from bank €10,000 lodged to bank • Paid rent including VAT €2,000 out of bank account • Received refund of VAT from previous return of €500 Draw up T Accounts and balance off Questions Your business, which is not registered for sales tax, has the following transactions (a) The sale of goods on credit (b) Credit notes to credit customers upon return of faulty goods (c) Daily cash takings paid into the bank Task For each transaction identify clearly the following: (a) The original documents (b) The book of prime entry for the transaction (c) The way in which the data will be incorporated into the double entry system ... the left side (debit ) the income will be recorded and on the right side (credit) the payments will be recorded Recording Receipts Batching Transactions When a business receives a large number... summarised in the books of prime entry and then posted to the general ledger accounts Books of Prime Entry Book of prime entry Documents Recorded Summarised and posted to Sales day book Sales Inv,... Book Cash paid and rec General Ledger Petty Cash Book Notes/coin paid/rec General Ledger Journal Adjustments General Ledger Question State which book of prime entry the following transactions would