Course Title: Financial Accounting

IV. Accounting entries

Current operations: purchases, sales, payments, receipts

Accounting entries are used to record the financial transactions of a
business. Common transactions, such as purchases, sales, payments
and receipts, are frequent transactions that require accounting entries to
be recorded accurately.

Here are some examples of accounting entries for these common

transactions:

Purchases:
When a business purchases goods or supplies, an accounting entry is
needed to record this transaction. The following is an example of an
accounting entry for a purchase of goods valued at 1,000 Euros:
Debit Goods 1,000 Euros
Credit Supplier 1,000 euros

The company debits the Goods account to increase its inventory assets,
and credits the Supplier account to record the company's debt to the
supplier.

Sales :
When a company sells products or services, an accounting entry is
required to record this transaction. The following is an example of an
accounting entry for a sale of products valued at 2,000 Euros:
Debit Accounts Receivable 2,000 Euros
Credit Sales 2,000 Euros

The company debits the Accounts Receivable account to record money

owed by customers, and credits the Sales account to record the
company's revenue.

Payments :
When a company pays its debts, an accounting entry is needed to
record this transaction. Here is an example of an accounting entry for a
payment of debts worth 500 euros:
Debit Supplier 500 euros
Credit Bank 500 euros

The company debits the Supplier account to reduce the debt to the
supplier, and credits the Bank account to record the cash outflow from
the company.

Cash receipts :
When a company receives payments from its customers, an accounting
entry is required to record this transaction. The following is an example
of an accounting entry for an incoming payment of 1,500 Euros:
Debit Bank 1,500 euros
Credit Customers 1 500 euros

The company debits the Bank account to record the cash inflow, and
credits the Accounts Receivable account to reduce the amount owed by
customers.
These accounting entries help maintain accurate records of the
company's financial transactions, which is essential for bookkeeping and
informed decision-making.
Here are some examples of accounting entries for common transactions:

Purchase of goods on credit:

On February 1, Company A purchases goods for 10,000 Euros from
Company B, using a 30-day supplier credit. The accounting entry will be
as follows:
Debit "Goods" account for 10,000 Euros
Credit "Suppliers" account for 10,000 euros
Cash sale of goods :
On February 10, Company A sells goods for 8,000 Euros to Company C,
which pays immediately in cash. The accounting entry will be as follows:
Debit "Cash" account for 8,000 Euros
Credit "Sales" account for 8,000 Euros
Payment of wages:
On February 28, Company A pays the salaries of its employees in the
amount of 5,000 Euros. The accounting entry will be as follows:
Debit the "Wages and social security charges" account for 5,000 Euros
Credit to the "Bank" account for 5,000 Euros
Collection of a receivable :
On March 5, Company A collects a receivable of 3,000 euros that it had
previously issued. The accounting entry will be as follows:
Debit to the "Bank" account for 3,000 Euros
Credit to the "Customers" account for 3,000 Euros
These examples illustrate the main transactions common in accounting:
purchases, sales, payments and receipts. The corresponding accounting
entries make it possible to follow the evolution of the various accounts of
the company and to prepare the financial statements.
Below are a few tips on how to make better accounting entries:

Understand the transactions: before making an accounting entry, it is

important to fully understand the transaction in question. It is therefore
advisable to take the time to read the supporting documents carefully
and to ask questions if necessary.

Respect the double entry principle: each accounting entry must respect
the double entry principle, i.e. each transaction must have a counterpart
in another account.

Know the company's accounts: it is important to know the different

accounts used by the company (expense, income, asset, liability
accounts, etc.) in order to be able to use them correctly in the accounting
entries.

Use accounting software: accounting software can make it easier to

make accounting entries by offering entry models and avoiding
calculation errors.

Verify your entries: it is important to verify your accounting entries before

recording them definitively, making sure that the amounts are correct
and that the double entry principle is respected.

By following these tips, it is possible to make quality accounting entries

that accurately reflect the company's operations.
Inventory transactions: purchases and sales of fixed assets,
depreciation, provisions
Inventory operations are accounting operations that are carried out at
the end of the accounting period to take into account the changes in the
company's assets and liabilities that have occurred during the period.
The main inventory operations are the following:

Purchases and sales of fixed assets: fixed assets are goods acquired by
the company to be used on a long-term basis in the company's activity.
Purchases and sales of fixed assets must be recorded in the company's
accounts and their value must be depreciated over the period of their
use.

Depreciation: depreciation is the accounting recognition of the loss in

value of fixed assets over time. It corresponds to an expense for the
company and allows the depreciation of fixed assets to be taken into
account in the results of the financial year.

Provisions: provisions are expenses recognized in advance to cover

potential losses. Provisions can be made for losses on receivables,
losses on inventories, losses on pending litigation, etc.

The realization of these inventory operations is essential for the good

accounting management of the company and for the production of its
financial statements at year-end. Inventory operations must be carried
out with care and precision to allow a reliable evaluation of the
company's financial situation.
Let's take the example of a company that buys a machine tool for 100
000 €. This machine tool has an estimated life of 10 years and will be
depreciated over that period. The company must record this transaction
in its accounting using the appropriate accounts.

The accounting entry for the purchase of the machine tool would be:

Debit: Fixed asset account (e.g. "Industrial equipment") for €100,000

Credit: Cash account for €100,000

This transaction should not impact the company's income statement

since it concerns an asset that will be used to generate income in the
future. However, the depreciation of the machine tool must be recorded
each year to reflect the loss in value of this asset in the company's
results.

Suppose the company decides to depreciate the machine tool on a

straight-line basis, with a residual value of $0 at the end of its 10-year
life. The annual depreciation would therefore be €10,000 (€100,000 / 10
years). The accounting entry for depreciation would be as follows:

Debit: Depreciation account (e.g. "Industrial depreciation") for €10,000

Credit: Fixed asset account (e.g. "Industrial equipment") for €10,000

The company must also make provisions for potential losses. For
example, if the company has unpaid trade receivables, it can make a
provision for credit losses. The allowance will be an estimate of the
expected loss on these unpaid receivables.

Let's assume that the company decides to make an allowance for credit
losses of $5,000. The corresponding accounting entry would be:
Debit: Expense account (e.g. "Allowance for credit losses") for €5,000
Credit: Provisions account (e.g.: "Provisions for losses on receivables")
for €5,000

Finally, when the company sells a fixed asset, it must record this
transaction in its accounts. If the asset has been depreciated, it is
necessary to take into account the net book value of the asset (gross
value - accumulated depreciation) to determine the gain or loss on the
sale.

Let's assume that the company decides to sell the machine tool for
€70,000 after 5 years of use. The net book value of the machine tool is
€50,000 (€100,000 - €10,000 x 5 years). The gain on the sale of the
machine tool would be €20,000 (€70,000 - €50,000). The corresponding
accounting entry would be:

Debit: Cash account for €70,000

Credit: Fixed asset account (e.g. "Industrial equipment") for €50,000
Credit: Extraordinary income account (e.g.: "Extraordinary income on
disposal of fixed assets")

Depreciation of a fixed asset:

When a company purchases a fixed asset, it must record it on its
balance sheet and depreciate it each year based on its estimated useful
life. This depreciation is called amortization and must be recorded each
year in the accounting records.
Example: A company buys a computer for 1,000 euros, with an
estimated life of 4 years. The annual depreciation will therefore be
1,000/4 = 250 euros.

The accounting entry for the first year's depreciation would be as follows:

Debit: Depreciation account (e.g. "Depreciation of computers") for 250

Euros

Credit: Fixed asset account (e.g. "Computers") for 250 euros

The constitution of provisions:

Provisions are sums set aside to meet possible future expenses or
losses. They must be accounted for each year to take into account the
evolution of the company's situation.

Example: A company has to pay a redundancy allowance to one of its

employees. This indemnity is estimated at 5,000 euros. The company
decides to make a provision for this expense.

The accounting entry for this provision will be as follows:

Debit: Expense account (e.g. "Provision for redundancy payments") for

5,000 euros

Credit: Provision account (e.g. "Provision for redundancy payments") for

5,000 euros

V. Accounting documents
The invoice
The invoice is an accounting document that establishes the proof of a
sale or a service. It is used to invoice a customer and must include
certain mandatory information such as

the date of the invoice

the invoice number
the name and address of the customer
description of the goods or services provided
the unit price and the total amount of the invoice
the VAT applied
method of payment and terms of payment
The invoice can be issued in paper or electronic format, and must be
kept by the company to justify commercial transactions.

There are different types of invoices, such as the proforma invoice

(which establishes a quote before the order), the credit invoice (which
cancels all or part of a previous invoice), the progress invoice (which
allows you to ask for a partial payment before the service is provided),
etc.

The invoice is a key element of the accounting management of a

company, because it allows to follow the sales, to establish the accounts
receivable and to calculate the VAT to be transferred.
The invoice is a commercial document used to formalize a sale or a
service. It allows the company to prove the realization of the transaction
and to justify the invoiced amounts. The invoice is also an important
accounting document, which allows to follow the commercial operations
of the company.

The obligatory mentions of an invoice are defined by the article L.R.C.

(1985) of the Commercial Code. They include :

the date of the invoice

the invoice number;
the name and address of the invoicing company;
the name and address of the customer;
detailed description of the products or services provided;
the quantity, the unit price and the total amount excluding VAT;
the VAT applied, with the rate and the corresponding amount;
the total amount to be paid including VAT;
the method of payment;
any late payment penalties in the event of non-payment within the
stipulated period.
In addition to these compulsory mentions, the invoice can include other
useful information, such as the general sales conditions, the delivery
terms, the return or guarantee terms, etc.

It is important to manage the invoices issued and received, by

numbering them and filing them chronologically. Invoices must also be
kept for a certain period of time, depending on the company's legal and
fiscal obligations. In the event of a tax audit, the administration may
request the presentation of the corresponding invoices.
Finally, it is possible to use invoicing software to automate the creation
and sending of invoices, which saves time and improves the company's
accounting management.
In Canada, the invoice is a legal document regulated by law. It must
include certain mandatory information, including

The date of issue of the invoice

The name and address of the supplier and the buyer
The invoice number (which must be unique)
A precise description of the goods or services sold
Unit price and total amount of the sale
Applicable taxes (VAT, GST, QST, etc.)
Terms of payment (deadline, method of payment)
Delivery and transportation terms
It is important to respect these mandatory mentions so that the invoice is
considered valid and opposable in case of litigation. Companies can use
invoicing software to generate invoices that comply with current
regulations
The following is an example of an invoice that complies with Canadian
regulations:

INVOICE No: 2023-001

Date of issue: March 5, 2023

Supplier: ACME Inc.

123 Rue de la Facture
Montreal, QC H2X 1Y6

Buyer : XYZ Corporation

456 Purchase Street
Toronto, ON M5J 2H7

Description Quantity Unit Price Total

Dell XPS 13 Laptop 2 $1200.00 $2400.00
Microsoft Office 365 software license 5 $120.00 $600.00

| Subtotal $3000.00
| VAT (5%) | $150.00
| Total $3,150.00
Payment terms: net 30 days
Delivery: free of charge

This invoice contains mandatory information such as the date of issue,

the names and addresses of the parties, the precise description of the
goods or services sold, the unit price and the total amount of the sale,
the applicable taxes, the terms of payment, and the terms of delivery and
transportation.

Purchase order
The purchase order is a document used in commercial transactions to
formalize the commitment to buy or sell a product or service. It is used to
specify the terms of the order such as quantity, price, delivery times,
payment terms, etc. The purchase order is usually issued by the buyer
and sent to the seller.

This document usually contains the following information:

Contact information for the buyer and seller: name, address, phone
number, etc.
The date the purchase order was issued.
Detailed description of the products or services ordered: quantity,
reference, characteristics, etc.
The unit price and the total amount of the order.
Delivery terms: delivery address, mode of transport, delivery time, etc.
Payment terms: payment terms, due date, etc.
The purchase order is an important document for both parties because it
constitutes proof of the agreement between the buyer and the seller. It
can also serve as a basis for invoicing and thus facilitate the accounting
and financial management of transactions.
The purchase order is a commercial document that allows the buyer to
formalize his order with the seller. It can be used to order goods or
services. The purchase order is often used in business-to-business
transactions, but it can also be used in transactions between individuals.

The purchase order should generally contain the following information:

Contact information for the buyer and seller;

A detailed description of the goods or services ordered, including
quantities, unit prices and any discounts or promotions applied;
The terms of payment and delivery, including delivery times and
payment terms;
Any special terms of the transaction, such as guarantees, confidentiality
clauses, etc.
The purchase order must be signed by the buyer and/or seller to be
considered valid. It can also be invoiced after the goods or services have
been delivered.
Here is an example of a purchase order:

[Buying Company Logo]

Purchase Order No. 12345
Date: March 5, 2023

Buyer:
Buying Company Name
Purchasing Company Address
Buying Company's Telephone Number
Purchasing Company's Email Address

Seller:
Selling Company Name
Selling Company Address
Selling Company's Phone Number
Selling company's e-mail address

Purpose of Order:
[Detailed description of goods or services ordered, including quantities,
unit prices and any discounts or promotions applied]

Payment and Delivery Terms:

[Delivery times, payment terms, etc.]

Special Conditions:
[Warranties, confidentiality clauses, etc.]
Date and signature of buyer:

Done at [Place], on [Date]

An example of a purchase order could be the following:

Purchase Order Number: BC-001

Date: 05/03/2023

Supplier: Supplier X
Address: 123 Rue des Fournisseurs
City: Montreal
Province: Quebec
Postal Code: H1A 2B3
Telephone: (514) 555-1234

Quantity Description Unit Price Total

100 Black ballpoint pens $0.50 $50.00
50 Notebooks 200 pages $2.00 $100.00
20 2" ring binders $5.00 $100.00
Subtotal: $250.00
Taxes : $12.50
Total: $262.50

This purchase order is sent by the buyer to the supplier to place an order
for office supplies. It includes the information necessary to identify the
supplier, the purchase order number, the details of the order itself, and
the estimated total cost of the order. The supplier can use this purchase
order to prepare for delivery of the order to the buyer.
The delivery order
The delivery note is an accounting document that certifies the delivery of
goods or services between a supplier and a customer. It can be
considered as proof of the completion of the transaction between the two
parties.

The delivery note generally contains the following information:

The date of delivery

The name and address of the customer
Name and address of the supplier
A detailed description of the goods or services delivered
The quantities delivered
Unit price and total amount of the order
Payment and delivery terms
The signature of the customer and the supplier
The delivery note is an important document for inventory management,
because it allows to follow the entry and exit of products. It is also used
for the invoicing of the delivered goods or services.

An example of a delivery note could look like this:

DELIVERY NOTE
Date: 05/03/2023
Customer: John Doe
Address: 123 A Street
City: Montreal
Supplier: ABC Inc.
Address: 456 B Street
City: Montreal
Description Quantity
Product A 10
Product B 20
Product C 15
Price per unit Amount
10.00 $ 100.00
5.00 $ 100.00
20.00 $ 300.00
Total order: $500.00
Payment terms : 30 days
Delivery terms: Home delivery
Customer's signature
Supplier's signature

The delivery note is a commercial document used to certify the delivery

of a good or service to a customer. It is usually issued by the supplier or
service provider and must be sent to the customer to confirm that the
order has been delivered in accordance with their requirements.

The delivery note contains important information such as the supplier's

name and address, the customer's name and address, the delivery date,
a description of the products or services delivered, the quantities
delivered, the unit prices and the total amounts. It may also contain
additional information such as the order number, product reference
number, and delivery instructions.
The delivery note is often used in conjunction with other documents such
as the invoice and purchase order to track and verify business
transactions. It can also be used to resolve disputes if there are
problems with the delivery of the order.

Issuing a delivery note is often a crucial step in the sales process. It

allows suppliers to prove that the order has been delivered and
customers to verify that the products or services have been delivered
according to their requirements. This can help build customer confidence
and satisfaction, as well as avoid errors or misunderstandings in
business transactions.

The statement of account

The statement of account is a document issued by a financial institution
(bank, savings bank, etc.) to inform a customer of the movements on his
bank account over a given period. It allows you to consult the operations
carried out on the account, as well as the possible bank charges.

The statement of account can be sent at regular intervals (for example,

every month), or at the request of the customer. It is usually sent by mail
or accessible online via a secure personal space.

The account statement contains information such as:

Transactions made on the account, with the date, description and

amount
Payments made by direct debit or credit card
Transfers received or issued
Bank charges levied (account maintenance fees, agios, etc.)
The balance of the account at the end of the period concerned.
The account statement is an important tool for managing your budget
and ensuring that your finances are well managed. It also allows you to
check that all transactions are correctly recorded and to detect any
errors or fraud.
The statement of account is a document that summarizes all the banking
transactions made on a bank account during a given period. It allows to
check the concordance between the operations recorded by the bank
and the cash movements of the company.

The statement of account can be sent by the bank by mail or

electronically. It is usually sent monthly, but this can vary depending on
the agreements made with the bank.

The account statement contains the following information:

The date and number of each transaction made on the account;

The description of each transaction, which indicates whether it is an
incoming payment, an outgoing payment or an adjustment transaction;
The amount of each transaction, which can be positive (incoming
payment) or negative (outgoing payment);
The balance of the account before and after each transaction;
Any bank charges (account maintenance fees, commissions, etc.);
Any interest (credit or debit interest).
The account statement must be carefully checked to ensure that the
movements are consistent with the company's accounting records. In
case of error or anomaly, it is important to contact the bank quickly to
make the necessary corrections.
It is also advisable to keep the account statements for a certain period of
time, according to the tax rules in force.