Books of Prime Entry & Ledgers Accounting Cycle Books of Original Entry Cae) @e Transaction; In Business contextiany commercial event is known as a transaction, This means we are exchanging something for another. Eg. Buy or sell goods orsarvices, Receipt or Payment by cash or by Cheque, Return of goods etc. Source Documents / Documentary Records: are(the documents that are used as an evidence / Proof and record of business transattions that took place in a particular period. E.g, Sales Invoice, Receipt, Credit Note ete ‘Type of Transaction. ‘Source Document LSi oodsi/ Services o dit Purchase of Goods / Services on Credit [Sale / Purchase of Goods on Cash Returned Goods by Customer Returned Goods to Supplier Recording / Payment of Wages / Salaries Payment to Supplier or any other Expense by Cheque [Deposit cash into the bank PoBooks of Prime / original entry are the books in which we first record transactions, through source documents [Type of Transaction ‘Soures Document f Original Entry Sale of Goods / Services on Credit Invoice Purchase of Goods / Services e Invoice Retumed Goods from Cust tes Issued Retumed.Goods to Su; aceived Receipt / Payment ue oR Seles / Purchase by Cash or Chequ ZI9) heque i non-routine Transactions fe ay a Lao 3 Cr of transactions. A T account is an account prepared in x Left hand side is Debit and Right hand side is used for credit. Types of Accounts Parwcial Adoounts! linparsaial Accounts Debtors Creditors (Trade Receivables) _(Trade Payables) Nominal Accounte Real Accounts 2Nominal Accounts They contain All Income Statement Items eg Sales, Purchase, Retum Inwards, Return ‘Outwards, Income and Expense etc. These are also known as temporary Accounts. Real Accounts They contain all statement of financial position items eg Assets, Liablities and Capital etc. Real Accounts are also known as permanent Accounts. Ledger: A Ledger is a collection of Accounts. Its a ‘Types of ledgers There are three types of ledgers. * Sales Ledger. This is for in © Enter in Enter in Enter in Enter in Returns Returns Cash Journal Book | | inwards | | outwards 00K Day Book | | Day Book Ss ae Enter in double entry accounts in the various ledgers: * Sales Ledger Purchases Ledger + General LedgerEffect on Capital Capital of the business is affected by following transactions. Transaction _Effect of Capital | | Introduce Additional Capital Increase Drawings in Cash / Goods form Decrease Profit / Gain / Income Increase Loss / Expense Decrease Types of Discounts eo Trade Discount Cash Discount * Discount Allowed Discount Received Trade / Bulk Purchase Discount It is discount received oF given at the time of purchase whichis applied on list price of goods. It is given or received when selling or buying goods in bulk quantity or when we are selling goods to a regular customer or a trader so thathe may also eatn some profit upon’ resale. It is never recorded in the books of either seller or buyer means no entry.t0\be recorded. Cash Discount It is discount at the time of payment. Always recorded in thé bodkS of customer and supplier Discount Allowed It is allowed to customer when he pays us earlyp It's an expense which is recorded as a debit entry which will reduce the customer's balance Discount Received Itis reoeived when We pay our suppliers early. It is an income which is credited which will reduce our supplier account i.e. liability Book-Keey vs accountin: Book-keeping is concerned with recording transactions in the books of accounts. It is 2 lower level task carried out by book-keeper / clerks on daily basis. Accounting refers to processing that data into meaningful information such as financial statements; Accounting is also concerned with analysis and interpretation of information to help management in planning, controlling and decision making of the business. Accounting is carried out by higher level personnel such as accountants on periodic basis.Documentary Records / Source Documents Invoice It is a commercial document issued by a seller to a buyer as a request for payment, relating to a sale of product. Usually an invoice contains the following information; the name and address of the supplier, the name and the address of the date (on which itis issued) list of the products sy its quantities agreed pric VVVVVYV ‘ena dest ordered 2 Rosewood tame 0 70000 350000 rey den yor sahara sub Tet soc000 Toxat ‘900 ewes wondet og sine wo. Tankyou! Terme & conditions Pease mate poprent within 3 days su of hs iocDebit note The customer should check that goods received are in a satisfactory condition and that they are exactly what was ordered (in respect of price, quantity and quality). The supplier must be informed of any shortages, overcharges and faults, This is done by issuing a debit note to the supplier. Each business has its own format or style of debit notey but they all ‘contain the following information: > the name and address of the supplief, > the name and the address of the customer, date (on which itis isst > full details and qu: ote re only isstied Orpen has to be made. E.g. Goods returned by the r sa .d Value of goods sold on credit and allowance for faulty | damaged ds. supplfer sends the wrong product to the buyer then the supplier will give him a fea te for the value of the goods incorrectly supplied. Similarly, if an error was made by the supplier on the invoice, for example the correct goods were delivered but were charged at the wrong piece of rate/unit on the invoice, then the supplier would send a credit noie to the buyer. Seller records credit notes (Issued) in sales return journal while Buyer records credit notes (received) in purchases return journal the name and address of the supplier (creditor), the name and the address of the customer (debtor), date (on which its issued) full details and quantities/price of the goods returned or overcharged. vvvy‘Sample - Credit note payee on the , iy that person orCheque Counterfoil is that part of a cheque, which is torn off and kept as a receipt by the drawer of a cheque to serve a piece of evidence or proof for having made the payment. omer one ee Oa foo 3 lip XY EP cc aaReceipts ‘When the customer pays an invoice a receipt should be issued by the supplier. if buyer paid off his entire outstanding amount (liabilities) of previous months then the supplier would send a receipt, keeping a copy of it. This confirms to buyer that he has paid and it ensures that the supplier does not charge him for this amount again. Sample — Receipt pateBank statement Also known as account statement is a summary of financial transactions which have ‘occurred over a given period on 2 bank account held by a person or business with a financial institution. Bank statements had historically been printed on one or several pieces of paper and either mailed directly to the account holder, or kept at the financial institution's local branch for pick-up. In recent years there has been a shift towards paperless, electronic statements, and most financial institutions offer direct download into account holders accounting software. 10T Accounts and Trial Balance Q Prepare T Accounts, balance them off and make a Trial balance for the following transactions Date Transa Dec 2018 1 Started in business with $65000 Cash and $135000 in bank 3 Bought a shop for$8000 from Peter agreeing to pay him within 8 months - Received a loan from James for $50,000 by cheque 9 Bought goods from Dsouza for $3000 agreeing to pay later 10 Sold $750 of the goods to Jimmy & Received a promise from,him to pay later _ 13 Paid Insurance by cash $150 45 Sublet partof the shop to Hussain for rent of $550, By cheque 17 Sold Goods worth $525 in exchange’of cash 19 Bought more goods worth $6000 in exchange for cash 20 Repaid part of the Joar.of $10,000 to James by Cheque 21 Some of the’goods worth $250 were defected and returned back to Dsouza 28 Jimmy teturned $50 goods to us 29 Took cash from the bank $500 and goods worth $250 for personal useQ MrARD has the following transactions for the month of November 1 Sold stock on credit to Mr. X for $500 costing $350 5" Bought goods on credit from Mr. Y for $300 11 Mr X returned faulty goods worth $50 17" Paid Wages for the week by Chq $150 19" Sent details for the transactions for the month to Mr. X 23" Returned damaged stock to Mr. Y worth $30 25" Paid rent for the month of nov by cheque. 27" Sold old motor vehicle with a book 0 for $' in credit 29" Sold goods for Cash $125 to Mr. Required a) For each of these documents, k of original e1 D ‘on’ | Effect on Working 17Mr Sohail purchased goods from Mr. ARD. The following transactions took place in the month of Dec 4 Sohail owed ARD $1000 3° Bought goods from ARD worth $500 trade discount 5% 5" Received a credit note fom ARD for goods worth $100 (list price) 7" Paid ARD outstanding balance on 1* Dec and received a discount of 2.5% 9" Purchased goods from ARD worth $600 trade discount 10% by Cheque Required: by Make the Account of sohail in the books of ARD b) 18Q__ On 1 April, Trinity Stores owed Akma $800. During the month of April, Akms recorded the following transactions with Trinity Stores. 8 April 10 April 18 April REQUIRED ‘Akma supplied goods to Trinity Stores with a list price of $900, less 20% trade discount. Trinity Stores retuned goods supplied by Akma on 8 April with a list price of $100. ‘Tiinity Stores paid the balance due on 1 pti less 2%% cash discount. (@) Prepare the account of Trinity Stores in the books of Akma. Belance the account and bring down the balance. Trinity Stores ac Details s {6} ft that Akma woul i Fane discount. 19Q___ The following are some of the transactions carried out by Tay, a retailer, during April 2013. (i) Paid insurance $470 by cheque (li) Sold goods on credit to J Dins, cost price $6400 plus 0% mark up. (iil) Paid amount owing to P Lee by cheque, $1800, less 4% cash discount. (iv) Returned damaged goods costing $590 to R & R Ltd REQUIRED (a) Complete the table below for transactio as an example.Nov 2013 - Papar 21 ‘Mary buys goods on credit from Kim. Mary receives 14% trade discount on all purchases and takes advantage of the 5% cash discount offered for payment within 14 days. The following information is available: 2013 June 1. Mary owed kim $680 for goods purchased on 29 May 2013 June 4 Kim sold goods to Mary, list price $800. June & Mary sent Kim a cheque for the balance owing on 1 June. Jane 8 Mary returned goods purchased on 4 June, list price $10 viune 28. Kim sold further goods to Mary, list price $300. fo] 21(d)_ Indicate with a tick () the ledger in which the following accounts would appear. The first item has been completed as an example. ‘Account Sales ledger Purchase ledger General ledger Sales v Drawings Kline Ltd (Supplier) Millar and Son (Customer) Insurance (@) State three advantages of a 4]Q Mikaela purchases goods from Steve. On 1 March 2019 Mikaela owed Steve $900. Mikaela provided the following information for the month of March 2019. March 5 Received an invoice from Steve, $730 9 Received a refund by cheque from Steve, $80, for overpayment made in February 18 Sent a cheque to Steve for the balance owing taking 2% discount 23 Received a credit note from Steve, REQUIRED (a) Prepare the account of Ste Balance the account an 6 Book of prime (original) entry Steve, $80, for overpayment made in February 18 Sent a cheque to Steve for the balance owing on 1 March after taking 2% discount 23 Received a credit note from Steve, $45 4 (c)_ Name the subdivision of Mikaela’s ledger that would contain the account of Steve.Q Joe's business had the following assets and liabilities on 31 March 2011: s Non-current assets 120000 Liabilities due within one year 25.000 Current assets 35.000 Liabilities due in over one year 50 000 REQUIRED (a) Calculate the: Capital seling price of $500, on credit. jement of his debt of $200 (b) the amcunt and effect on capital of each transacton, completed as an example, Tr ‘of prime | Accounts tobe | Accounts tobe | — Effecton entry debited credited ‘capital s i Purchases | Purchases Henry Si Journal 12)Christos is in business buying and selling goods on credit. The following details relate to the account of his customer Michelle for the month of July 2011. $ July 1 Michelle owed Christos 200 July7 Christos sent an invoice to Michelle 150 July 16 Christos sent a credit note to Michelle 8 July 31 Michelle sent Christos a cheque 195 July 31 Christos allowed Michelle cash discount 5 REQUIRED (a) Prepare the account of Michelle in the books of balance on 1 August 2011. in rage July 2011 were as follows: s 2 of a Drawings 8000 Office furniture 5000 Provision for depreciation on office furniture 3200 Inventory 4150 Bank overdraft 250 Trade payables 2950 ‘Sundry expenses 10600 Purchases 32400 Provision for doubtful debts 360 Revenue (sales) 53750 Trade recevables 6250 REQUIRED (c) Prepare the trial balance for Christos at 31 July 2011, including the balance on the 9 capital account‘Christos. Trial Balance at 31 July 2011 Dr $ 0QQ Adils transactions in August 2014 included the following. August 2 Purchased goods on credit from Tiara, $1500, less 20% trade discount. August 5 Returned goods to Tiara, list price $300. ‘August 7 Paid a cheque to Tiara, $500, after deducting $6 cash discount. August 9 Sold non-current assets on credit to D Costa, at book value, $4000. (a) Complete the following table for the above transactions. been completed as an example, Date Source document entry on ital August2| Purchase in 8 jour August § August 7 = < GB of the -currenttassets oO ing at ks. He was aware that there were the % $s uld not balance. 9500 8500 ae Saas 7250 e ak Pu gust 201 3850 1600 14400 22000 Bani 2000 Capital 3000 REQUIRED (€) Complete the trial balance at 31 August 2014, balancing the trial balance by the use of an appropriate account.2014 Debit CreditQ__ Abbie supplied the following information related to a credit customer, Izzat. October 4 Balance owed by Izzat to Abbie $750 5 Sold goods on credit to Izzat, $1800, less 20% trade discount 6 Izzat returned goods, lst price $350 21 Received a cheque from Izzat, $800 22 ~The remaining balance on Izzat's account was written off as irrecoverable. REQUIRED (©) (Name the subdivision of the ledger containing Izzat's (i) Name the document issued by Abbie to | 5 (@)_ Prepare the account: of Oe , e the the transaction on 22 October. A narrative is required. General journal Dat Dr cr i)Q (2) (Explain the difference between book-keeping and April list price $240. aunt at 1 April and was allowed 2% cash discount. the ledger of Fashran for April 2014, Balance the account and 31Hajar account Date Details s Date Details Name the document th: ing dat sdf on is April | he an ii Hajar unt jonth » ao 1 May 2013, ON Bank overdraft Non-current assets Provision for depreciation — Non-current assets 9230 68.400 29800 5100 22350 830 24000 7800 6) \O 3)REQUIRED (e) Prepare the trial balance showing Fashran’s capital at 30 April 2014. Fashran Trial Balance at 30 April 2014Q Giorgos commenced business on 1 May 2012 with the following assets and liabilities. s$ Bank joan 6 000 Bank 4000 Dr Cash 600 Premises 15 000 Inventory 1.800 Trade payable — Early Ltd| 4200 REQUIRED (a) Complete the opening trial balance Oo completed in early May: id Ltd $570, after deducting $30 cash discount jought office furniture on credit for $3000 id wages in cash, $250 Customer returned goods selling price $745 (cost price $630) REQUIRED (b) Complete the following table for the above transactions. The first item has been completed as an example. Stete clearly if there is no effect on owner's capital.Source document Book of prime entry Effect on ‘owners capital May 1 Paid Early Ltd $570, after deducting $30 cash discount Cheque counterfoil Cash book +830 May 2 Bought office furniture on credit for $3000 May 3 Paid wages in cash, $250 May 4 Customer returned goods selling price $745 (cost price $630) 12 e) another trial balance. aS attial balance.Q Jane started business on 1 October 2012 with a motor van, $1500, shop fixtures, $250, and cash, $500. To start the business she had borrowed $600 from Peter. REQUIRED (a) Complete the following trial balance showing clearly the value of the capital. Jane Trial Balance at 1 October 2012 Debit $ Motor van i) On first ‘week of trading. the emount, if any, of isaction has been completed as fount to be debited Account tobe | Effect on credited capital $ Purchases Punto No effect credit to Yuen Sold all the shop fixtures for cash, $200 Paid wages by cash, $150 Yuen returned goods, valued at $100The following balances were available from the books of Priya on 1 April 2015. $ Putil 8000 credit Wages 1750 debit The following transactions took place in April 2015. April 5 Paid Putil halt of his outstanding balance on 1 April by cheque, less 2% cash discount April 8 — Bought goods on credit from Putt, $800, loss 20% discount April 19 Paid wages in cash $450 ‘April 23. Returned gocds, ist price $200, pu April26 Sold a non-current asset at book (2) Compiete the folowing owner's capital is ni Where theDate Transaction Source Book of prima Effect on owner's capital $ April 5 Paid Putil half of his outstanding balance on 1 Aprilby cheque, less 2% cash discount ‘Cash book April 8 Bought goods on credit from Putil, $800, less 20% trade discount April 19 aid wages in cash $450 April 23 Returned goods, list price $200, purchased on 8 April April 26 ‘Sold a non-current asset a! book value, $2000, on credit < 80 April 2015. She calculated that wages, $150, were 61(©) Prepare the wages account forthe month of Api 2015 including the tanaer othe ncome stement. Balance the account and bring down the balance on 1 May 2015. ‘Wages account Date Details $ | Date Details s 31 The following were some din 015. rl D it to rik 1 ods: ril as they d, by che ased offi it from imited. item has b ted ago unt docum ntry credited Sal Sales ‘April19 [Purchased office fixtures on crecit from Equip Limited. 112] 39Q__ Sawas is a supplier of goods to Akmal. Savvas allows 15% trade discount on all purchases made by Akmal. ‘The following transactions took place in September 2011. September1 —_ Akmal owed $1500 to Sawas. September 8 — Akmal purchased goods from Savvas with alist price of $800. ‘September 10 _Akmal retumed some of the goods purc! list price of $240. September with a September 25 _Akmal sent a cheque in fu 1 September, less 4% REQUIRED (a) Write up the account on [2] (¢) State the name of the documeht that Savvas would send to Akmal for the return of goods on 10 September 2011. (1(d) Place a tick (v) under the correct heading to show the ledger in which Akmal would record each of the following accounts. Item (i) has been completed as an example. Resa Sales Purchase | Nomina/general Ledger Ledger Ledger (i) | Sales (il) | Savas (Supplier) (iti) | Heat & light (lv) | Capital G.R.G. Ltd (Customer) a1‘Yang is a supplier of goods to Win. The following transactions took place in March 2012 2012 March 1 Win owed $3 000 to Yang. March 17 Win purchased goods from Yang with a list price of $1 000. Yang allowed Win 20% trade discount. March 20 Win returned goods purchased on 17 March, list price of $200. March 30 Win informed Yang that he had ceased trading and was unable to pay his debt in full. Win offered Yang $650 in full settlement, which Yang accepted. REQUIRED (a) Prepare the account of Win in the led(b) State the name of the document that Yang would send to Win, following delivery of the goods returned on 20 March 2012. om ia (6) State the name of the book of prime entry used to write off the bac dent. (a) Yang extracted a trial balance on 31 March 2012. (i) State one purpose in preparing a trial balance (4)Q__ The following balances were taken from the books of Salim Electrical Supplies on 15 September 2009. s Sales 14 950 Cr Stock 1 800 Dr * Eastern Retailers 1 200 Dr Khan Ltd 2 150 Dr September 16 Sold goods, list price $500 less 20% discount, on credit to Khan Ltd 18 Received a cheque from Eastern Retailers in full settlement of their account less 5% cash discount 24 Khan Ltd returned goods, list price $50, purch 6 September 25 Sold goods, $250, on credit to Eastern Ri 26 Sold goods, $500, to Khan Ltd for ca 30 Khan Ltd ceased trading. Salim Electric balance of Khan Ltd as a bad det Adqitional information mM (1) ptember 2009 either by balancing the account or by unt, as appropriate. Sales account ase [4]‘The following balances were taken from the books of Seafood Restaurant on 1 September 2005. s King Prawn Supplies 1080 Cr Purchases 27960 Dr Tan's Tours Ltd 400r Stock 690 Dr ‘The following transactions took place during September 2005, 2 September Paid King Prawn Supplies the ot deducting 5% cash discount. 4 September a 7 September 12 September 16 September 3 September