Topic 2: Trade Documents and Books of Original Entry: Learning Objectives

HNTEC IN BUSINESS AND FINANCE 01/07/2021
Rev. No: 3; July 2021
Topic 2: Trade Documents and

Books of Original Entry
Performance Objective:
Record transactions from trade documents into Books of Original Entry

and post it to the ledgers
BASIC ACCOUNTING FOR HNTEC IN BUSINESS AND FINANCE 1
Learning Objectives:
1. Identify trade documents and their uses:
1.1 Quotation
1.2 Purchase order
1.3 Delivery order
1.4 Sales and Purchase invoice
1.5 Credit note
1.6 Debit note
1.7 Cheque
1.8 Receipt/till slip
2. Identify different types of books of original entry and their uses.
3. Record transaction in the following journals:
3.1 Purchases Journal
3.2 Sales Journal
3.3 Return Outwards Journal
3.4 Return Inwards Journal
3.5 General Journal
4. Record transactions from source documents to books of original entry.
1
Accounting cycle (No.1 – 3):
Books of
Source
Transactions Original
Documents
Entry
1. Identify Trade Documents and their uses

• Businesses rely on source documents to record business
transactions.
• Trade documents serve as evidence to prove that a business
transaction has taken place an also provide details of the
transactions.
• The accounting concepts involved are Historical cost and
Objectivity.
2

Most trade documents contain the
following information:
• A unique serial number is used for
control and for easy reference.
• The date when transaction took
place.
• The nature of the transaction.
• The total amount of money
involved.
• Terms and conditions of the
transaction.
• An authorized signature.
Transactions
Quotations
Credit Cash/Cheque
Purchase
Orders
Invoice Credit Note Debit Note Cheque Receipt Sales Orders
Purchase
Sales Invoice
Invoice
3

1.1 Quotations
• The buyer may require a quote from different sellers for the items it wants to buy. The
quotes will be looked at, discussed and a decision made as to which seller to buy the
product from, usually based on who is the cheapest. After that an order will be placed
and the winning supplier will turn the quote into a sales invoice.
1.2 Purchase Order

• A purchase order (PO) is a commercial document and first official offer issued by a
buyer to a seller, indicating types, quantities, and agreed prices for products or
services.
1.3 Delivery Order

• A Delivery Order (abbreviated D/O) is a document from a consignor, a shipper, or an
owner of freight which orders the release of the transportation of cargo to another
party.

1.4 Sales Invoice
• Records the goods/services details and the amount

owing to the business by a customer. The original goes
to the customer with the copy held by the business.
1.4 Purchase Invoice
• Records the goods/services details and the amount

owing by the business to suppliers. The original is
provided by the supplier to the business.
4
1.5 Credit Note
• To correct an overcharge (commonly used during

sales returns and purchases returns of goods).
1.6 Debit Note
• To correct an undercharge.
1.7 Cheque
• Details of payment of money from the bank

account which represents the cash that is being
paid by the customer.
1.8 Receipts/Till Slip
• A document to acknowledge a payment received.

10
5
2. Identify different types of Books of Original Entry and their

uses
Books
Original
Entry
Special General Petty Cash

Cash Book
Journals Journal Book
Return Return
Purchases Sales
Outwards Inwards
Journal Journal
Journal Journal
11

uses
Trade
Discount
Types of
Discounts
Cash
Discount
12
6

uses
Trade Discount
• A deduction off the list/ catalogue price.

• Given at the point of purchase or sales.
• Given to encourage bulk purchases.
• No record of trade discount in the ledger as it
is not part of the double entry recording. It is
recorded in the journals.
13

uses
Cash Discount
• A deduction from the net amount owing/ a deduction

off the net invoice price.
• Given at the point of payment.
• Given to encourage prompt payment of amount owing.
• Discount allowed recorded as an expense and
discount received recorded as an income in the
ledger.
14
7
Important:
Accounting Equation is always
kept BALANCE.
OWNER’S
ASSETS + EXPENSES = LIABILITIES + REVENUE +
EQUITY
DR ↑ ↑ ↓ ↓ ↓
CR ↓ ↓ ↑ ↑ ↑
15

uses
Purchases Journal
• Records all credit purchases of goods meant for resale.

• Invoices received from suppliers.
• Purchases of such goods with cash and the purchase of non-current
assets are not recorded in the Purchases Journal.
Sales Journal
• Records sales of goods to customers on credit.

• Duplicate copies of invoices and duplicate copies of debit notes.
• Sales of goods for cash and the disposal of used non-current assets
are not recorded in the Sales Journal.
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8

uses
Return Outwards Journal
• Records the return of goods previously purchased on credit.

• Any trade discount that has been previously received on these goods should be
taken into account.
• It is also record a reduction invoice amounts resulting from previous overcharging
in the invoice sent by supplier.
• Duplicate of credit note.
Return Inwards Journal
• Records the return of goods previously sold on credit to customers.

• Trade discount that has been given to customer has to be taken into account.
• Duplicate of credit note.
17

uses
Cash Book
• Records all money transactions

including cash, cheques and
electronic transfers.
18
9

uses
General Journal
•Records all other transactions

not recorded in the above
journals and cash book.
19
3. Record transactions in the following journals:

Example 1:
John’s credit purchases of goods during December 2016 were:
2016 Suppliers Price Trade Discount rate
Dec 2 Ali $400 20%
23 Ben $600 25%
30 Tom $100 -
You are to required to write up the Purchases Journal.
20
10
SOLUTION
Purchases Journal
Invoice
Date Particulars Folio Details Amount
No.
2016 $ $
Dec 2 Ali 400
Less trade discount 20% (80) 320
23 Ben 600
30 Tom 100
31 Purchases Account Dr 870
21

Example 2:
John’s credit sales of goods during December 2016 were:
2016 Customers Price Trade Discount rate
Dec 5 Rashidah $500 10%
26 Fizah $400 10%
You are to required to write up the Sales Journal.
22
11
SOLUTION
Sales Journal
Invoice
No.
2016 $ $
Dec 5 Rashidah 500
26 Fizah 400
31 Sales Account Cr 810
23

Example 3:
Purchases returned by John to the following suppliers during
December 2016 were:
2016 Suppliers Price Trade Discount rate
Dec 6 Ali $100 20%
24 Ben $100 25%
You are to required to write up the Return Outwards Journal.
24
12
SOLUTION
Return Outwards Journal
Invoice
No.
2016 $ $
Dec 6 Ali 100
24 Ben 100
31 Return Outwards Account Cr 155
25

Example 4:
John’s sale returns during December 2016 were:
2016 Customers Price Trade Discount rate
Dec 9 Rashidah $100 10%
29 Fizah $50 10%
You are to required to write up the Return Inwards Journal.
26
13
SOLUTION
Return Inwards Journal
Invoice
No.
2016 $ $
Dec 9 Rashidah 100
29 Fizah 50
31 Returns Inwards Account Dr 135
27
FORMAT
General Journal
Date Particulars Folio Debit Credit
XXX The name of the account to be debited $xxx
The name of the account to be credited $xxx
(The narrative)
28
14

Example 5:
On 1st January 2014, Azim started his business with cash of
$10,000, which he deposited into his bank account.
You are required to enter the transactions in the general journal.
29
SOLUTION
General Journal
Date Particulars Folio Debit Credit
2014
Jan 1 Bank $10,000
Capital $10,000
30
15
4. Record transactions from source documents to books

of original entry:
Purchases Journal Return Outwards Sales Journal
• Purchase invoices received Journal • Sales invoices issued for
for goods on credit. • Credit notes received for goods sold on credit.
goods purchased on credit
returned to suppliers.
General Journal Cash Book Return Inwards

• All other transactions that • Cash and bank receipts Journal
do not fit any other books of and payment • Credit notes issued for
original entry goods sold on credit
returned by customers.
31
4. Record transactions from source documents to books

of original entry:
SOURCE
SPECIAL
RECORDS DOCUMENTS
JOURNALS
USED
• Purchases journal • Purchases of • Invoices received
goods on credit. (Purchase invoice)
• Return outwards • Return of goods • Credit notes
journal bought on credit received.
• Sales journal • Sales of goods on • Invoices, debit note
credit. sent (Sales invoice)
• Return inwards • Return of goods • Credit note sent.
journal sold on credit.
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HNTEC IN BUSINESS AND FINANCE 01/07/2021

Rev. No: 3; July 2021