©) studocu Igcse Accounting notes Chap 1-10 Studocu isnot sponsored or endorsed by any college. lala (ahVardhan Shah ACCOUNT ING NOTES PREPARED BY:Vardhan Shah VARDHAN SHAH Chapter 1- Introduction to accounting Key Term: v v v v v v Book-Keeping is the detailed recording of all the financial transactions of a business. ‘Accounting is using book-keeping records to prepare financial statements and to assist in decision making A statement of financial position shows the assets and liabilities of a business on @ certain date. Capital is the total resources provided by the owner and represents what the business owes the ‘owner. It is also known as owners’ equity Inventory is the goods a business has available for resale. ‘Trade payables represents the amount the business owes to the credit suppliers of goods. Trade receivables represent the amount owed to the business by its credit customers. GOLDEN RULES: Personal A/C 1. Debit the receiver vollala (shirervalaia@gral.com)Vardhan Shah 2. Credit the giver + Real A/C 1. Debit what comes in 2. Credit what goes out + Nominal A/C 1. Debit all expenses and losses, 2. Credit all incomes and gains. ACCOUNTING EQUATION: © Assets = Capital + Liability 0 Capital = Assets - Liability o Liability = Assets ~ Capital IP: If you know two elements of the accounting equation, you can easih calculate the third element. Format of accounting equation in a form of a statement of financial position: Business Name Statement of financial position at: Assets $ Liabilities | os IP: The totals of a statement of financial position must always agree: if hey do not you know that there is an error. "Wis douent i evatale fe of charg on 9 studocu Downloaded by Dhiren vollala(dhirervaliala@gmail.com)Vardhan Shah Chapter 2: Double Entry Book-Keeping — Part A Key Terms: > Double entry book-keeping is the process of making a debit entry and a credit entry for each transaction > Drawings represent any value taken from the business by the owner of that business. » Abalance on a ledger account is the difference between the debit side and the credit side. ® Carriage is the cost of transporting goods. » Carriage inwards is the cost of bringing the goods to the business and carriage outwards is the cost of delivering the goods to the customers. IMPORTANT: A ledger is traditionally a bound book where each account appears on a separate page. Over the years, the ledger has developed into a looseleaf folder with separate sheets, each containing a ledger account. Recent developments have seen the introduction of a computer file divided into separate ledger accounts. = Dr: Debit = Cr: Credit = Folio: A number column used for reference purposes Account Name ] Or cr Date Details els Date Details Flos Downloaded by Dhiren vollala(dhirervallala@gmail.com)PS: The debit side of a ledger account is the side which is receiving or gaining value and the credit side of a ledger account is the side which is giving value. Itis important to ensure that every transaction is entered twice, once on the debit side and once on the credit side. ‘When an item such as rent is both paid and received by a business, separate accounts are maintained, one for rent payable and one for rent receivable, ‘When balancing an account, add up each side of the account and find the difference between them before drawing total lines and before writing the word “Balance”. Only goods bought for resale are entered in the purchase account. ‘When goods/originally purchased for resale are sold they are recorded in the sales account, The principles of double entry are applied to all record: Expense, Assets & Liabilities, Balancing ledger accounts ‘Add up each side of the account and find the difference between the two sides m this difference on the next available line on the side which is smaller in money. "Wis douent i evatale fe of charg on 9 studocu Downloaded by Dhiren vollala(dhirervaliala@gmail.com) Vardhan Shah Enter Total each side of the account. The totals of an account must be on the same level and must be the same figure.Vardhan Shah = Make the double entry for the balance carried down. How to record double entry records for sales, purchases and returns = Purchases- 1. Goods purchased for cash or cheque: - Purchases Account will be debited = Cash or Bank Account will be credited 2. Goods purchased on credit: - Purchases Account will be debited - Supplier Account will be credited = SALES 1. Goods sold for cash or cheque: - Cash or Bank Account will be debited - Sales Account will be credited 2. Goods sold on credit: = Customer Account will be debited - Sales Account will be credited = RETURNS- 1. Sales returns for cheque or cash: - Sales Returns Account will be debited - Bank or Cash Account will be credited 2. Sales return due but not paid: -Sales Returns Account will be debited Credit Customers Account will be credited 3. Purchase returns for cheque or cash: Downloaded by Dhiren vollala(dhirervallala@gmail.com)~ Bank or Cash Account will be debited - Purchase Returns Account will be credited 4, Purchase returns due but not paid: - Suppliers Account will be debited - Purchase Returns Account will be credited Format of Three Column running balance accounts. Vardhan Shah Date Details Debit $ Credit $ Balance Ss The advantage of this method is that it shows the balance of the account after every transaction. When the accounts are prepared manually it involves extra calculations which may lead to errors. INTERPRETING LEDGER ACCOUNTS AND THEIR BALA! NCES. It is necessary to be able to understand the entries made in a ledger account and to be able to explain those entries. Name of Account Date Details F $ Date Details $ 2007 Balance b/d 122 2007 Cash 122 Mar 1 Mar 9 2007 sales 650 2007 Returns 98. Mar 8 Mar 12 2007 sales 820 2007 Bank 550 Mar 20 Mar 29 2007 Balance c/d 822 Mar 31 1592 1592 Tiscoumersamusininestoomn EY studocu Downloaded by Dhiren vollala(dhirervaliala@gmail.com)Vardhan Shah Chapter 3: The Trial Balance Key Terms. > A trial balance isa list of balances on the accounts in the ledger at a certain date, IMPORTANT: The Trial Balance is not a part of the double is not a part of the double entry system of book keeping as it is simply a list of balances. If the ledger accounts are balanced monthly then a trial balance may also be drawn up at the end of each month, The purpose of a trial balance 1. The trial balance can help in locating arithmetical errors. However, the balancing of the trial balance is not a proof that the entries in the ledger accounts are completely free from errors 2. Atrial balance is useful in preparing financial statements. The format of the Trial Balance. Trial Balance at... Details F Debit $ Credit $ The preparation of Trial Balance. + Allthe ledger accounts which are “open” (those which stil have an amount of money showing in the account) are listed together with the balance on each account + If the bought down (b/d) balance of the account is on the debit side, it is entered in the debit column of the tral balance, because it has a debit balance. + Ifthe bought down (b/d) balance of the account is on the credit side, itis entered in the credit, column of the trial balance, because it has a credit balance. * The debit and the credit column are then totaled. If the totals agree, it indicates that the double entry book-keeping is arithmetically correct. Downloaded by Dhiren vollala(dhirervallala@gmail.com)Vardhan Shah Accounts and their Balances. Debit Balances Credit Balances Assets Liabilities Expenses Incomes Drawings Capital Purchases Sales Sales Returns Purchase Returns Trial Balance and error: ‘When a trial balance fails to balance, it is obvious that an error has been made somewhere. This may be: An error of addition within the trial balance An error of addition within one of the ledger accounts Entering a different figure on the credit to that entered on the debit when making a double entry inthe ledger Making a single entry for a transaction rather than a double entry Entering a transaction twice on the same side of the ledgers ‘When trial balance balances, it does not imply that the double entry is error-free. The trial balance will still balance if any of the following errors are made: Name of error Description of error Example Error of Commission | This occurs when a transaction is entered _| Cash received from Malini using the correct amount and on the correct | credited to Mallika’s Account. side, but in the wrong account of the same class Error of Complete This occurs when the correct amount is Cash Drawings debited to the Reversal entered in the correct accounts, but on the | Cash Account and credited to wrong side of each account, the Drawings Account. Error of Omission ‘This occurs when a transaction has been Payment of wages not completely omitted from the accounting entered in the books. records. Neither a debit entry nor a credit entry has been made. Error of Original Entry | This occurs when an incorrect figure is used | Goods $100, bought on when a transaction is first entered in the credit, but recorded as $1000 accounting records. The double entry will therefore use the incorrect figure. Error of Principle This occurs when a transaction is entered _| Motor expenses debited to Using the correct amount and on the correct | the Motor Vehicles account. side, but in the wrong class of account. Compensating Errors _ | These occur when two or more errors cancel | Purchases account, each other out. underadded by $100 and Tiscoumersamusininestoomn EY studocu Downloaded by Dhiren vollala(dhirervaliala@gmail.com)10 Vardhan Shah sales returns account over- added by $100 PS: ‘Atrial balance isa list of balances: It is not part of the double entry system. ‘Atrial balance is a useful list from which to prepare a set of financial statements The opening inventory is included in a trial balance. The closing, inventory does not appear on the books when a trial balance is prepared| so cannot be included in a trial balance. If the totals of a trial balance do not agree you know an error has been made in the ledger or in the preparation of the trial balance. There are six types of error which may occur that a trial balance will not! reveal. In addition to learning the names of the types of error not revealed by a| trial balance, you must be able to explain and provide examples of each of these types of error, Downloaded by Dhiven volala (shirenvollala@gmal comVardhan Shah Chapter 4: Double Entry Book-Keeping — Part B Key Terms Sales Ledger is in which all accounts of credit customers are maintained Purchases Ledger is in which all accounts of credit suppliers are maintained” vvv Nominal (General) Ledger is in which all the other accounts, than of those maintained in sales ‘and purchases ledger, is included in the nominal ledger. ‘A Contra Entry is one which appears on both sides of the cash book ‘A bank overdraft occurs when more has been paid out of the bank than was put into the bank Cash discount is an allowance given to a customer when an account is settled within the time limit set by the supplier. A dishonored cheque is a cheque received which the debtor's bank refuses to pay. vvv v Specialist areas of division of the ledger. Name ofthe Ledger | Description Sales Ledger ‘Also known as debtors ledger / trade receivables ledger Contains all the personal accounts of credit customers Purchases Ledger ‘Also known as creditors ledger / trade payables ledger Contains all the personal accounts of credit suppliers ‘Also known as general ledger Apart from Cash Account, Bank Account and the accounts of credit customers and credit suppliers, all the remaining Nominal Ledger accounts are kept in the nominal ledger m= Contains accounts of assets, liabilities, expenses, income, sales, L purchases and returns. ‘Cash Book = Contains the main Cash Book and the Petty Cash Book Advantages of Division of the ledger into specialist areas + Makes it more convenient to use as the same type of accounts can be kept together * Task of maintaining the ledger can be divided between several people * Enables checking procedures to be introduced and may reduce the possibility of fraud i "Wis douent i evatale fe of charg on 9 studocu Downloaded by Dhiren vellala(dhirervaliala@gmail.com)Vardhan Shah Cash Book, ‘A.cash book is 2 book of prime entry, which is a part of the double entry book-keeping. As two separate accounts- a bank and a cash account is made to record the movements of money, the cash book therefore moves these accounts from the ledger to be shown in a separate book. Format of the two column Cash Book. (Business Name) ‘CASH BOOK Date Details, F| cash | Bank$ | Date Details F| cash | Bank$ $ Contra Entries. ‘Sometimes surplus cash is paid into the bank, or money may be withdrawn from the bank to place in the cash. Such transactions are known as contra entries because they appear on both sides of the cash book, debited to one account, and credited to the other. How to record Contra Entries. 1. Torecord surplus cash paid into the bank: + Debit the bank account and write the balance in the cash column. Credit the cash account and write the balance in the bank column. 2. To record cash withdrawn from the bank for office use: Credit the cash account and write the balance in the bank column, Debit the bank account and write the balance in the cash column. 2 Downloaded by Dhiren vollala(dhirervallala@gmail.com)Vardhan Shah Bank Overdraft. = The Cash Column will always bring down as a debit balance at the start of the next trading. period, = Only exception to this is when there is no cash left in the cash account, in this case the balance will be nil, as itis not possible to have a credit balance on a cash account. = However, itis possible to have a credit balance on a bank account, as the bank allows the business to pay out from the bank, than is put into the bank in the form of bank overdraft. "= In this case, the bank account is balanced in the usual way and the balance will be brought down on the credit side of the cash book. ‘= This represents the amount the business owes the bank and is a liability Cash Discount. 1 An account does not have to be paid in cash to qualify for cash discount, rather the deciding factor is the time of payment. 1 The business which gives the cash discount will receive an amount slightly less than the due ‘amount. = However, as the money has been paid early it can be available for use within the business. = ftencourages customers to pay their accounts promptly. Discount Allowed 1 Itis the discount a business allows to its eredit customers when they pay their accounts within a set time 1 This is an expense for the business as its the cost of having debts settled promptly Discount Received. = Itis the discount a business receives from its credit suppliers when it pays their accounts within a set time, 1 This is an income for the business as its the benefit received from settling debts promptly. How to record Discounts. 1. When an account is paid by a debtor and a discount is allowed: * Credit the discount in the debtors account to show that this amount is no longer owing, + Enter the amount of the discount in the discount allowed column of the cash book. 2. When an account of a creditor is paid and a discount is received: + Debit the discount in the creditors account to show that this amount is no longer going. 3 "Wis douent i evatale fe of charg on 9 studocu Downloaded by Dhiren vellala(dhirervaliala@gmail.com)Vardhan Shah Enter the amount of the discount in the discount received column of the cash book. Three Column Cashbook, ‘The discount columns in the cash book are not a part of the double entry system. Hence, they are used in the three-column cashbook for convenience to make a note of discount at the time an account is paid or received. ‘At the end of the trading period the totals of the discount must be transferred to the double entry system the steps for this are as follows: 1. Total each discount column, 2. Debit the discount allowed account in the nominal ledger with the total of the discount received column. This now represents the double entry for all the individual's credits in the accounts of debtors. 3. Credit deep discount received account in the nominal Ledger with the total of the discount received column. This now represents their double entry for all the individual debits in the accounts of creditors. Dishonored Cheques. 1 Iemay occur because the debtor does not have enough money in his/her bank account, or it may be because of an error on the cheque, e.g., no signature, no date, the amounts in words and the amount in figures do not agree. Ifa cheque is dishonored, itis returned to the business that paid the cheque into the bank. How to record dishonored cheques. 4. To record the returns of the dishonored cheque into the bank of a credit customer: = Debit the debtor’s account = Credit the bank account 2. To record the returns of the dishonored cheque into the bank of a credit supplier: Debit the bank account = Credit the creditor's account 14 Downloaded by Dhiren vollala(dhirervallala@gmail.com)15 Vardhan Shah Only the personal accounts of credit customers are recorded in the sales, Ledger. The sales account is recorded in the nominal (general) ledger. Only the personal accounts of the credit suppliers are recorded in the purchase ledger. The purchases account is recorded in the nominal (general) ledger. ‘To make a contra entry: In the detail’s column on the debit side, right the name of the account where the money has come from, In the detail’s column on the credit side, write the name of the account to which the money is going. Abank loan is different to a bank overdraft because: itis a fixed amount which is paid into the business bank account it must be repaid by an agreed date interest at a fixed rate is payable on the total amount borrowed. ‘An account does not necessarily have to be paid in cash to qualify for cash discount. Do not attempt to balance the discount columns in the cash book. They represent different types of cash discount: the column on the debit side is discount allowed and the column on the credit side is discount, received "Wis douent i evatale fe of charg on 9 studocu Downloaded by Dhiven volala (shirenvallla@gmail comVardhan Shah Chapter 5: Petty Cash Books Key Terms. A petty cash book is used to record low value cash payments. The imprest system of the petty cash is where the amount spent each period is restored so that the petty cashier starts each period with the same amount. ‘Analysis columns are used to divide the payments into different categories. v v v What is Petty Cash Book? 1 Apetty cash book resembles a ledger account with several money columns on the credit sie. 1 These columns are known as analysis columns and are used to divide the payments into different categories = Each column is used for one of the main types of expenses paid out of petty cash Instead of a folio column on the credit side there is a column for recording the number of the voucher to which the payment relates. = The items recorded in petty cash books are postages and stationery, cleaning, travelling expenses and even small cash payments to creditors. Purpose of the petty cash book. 4. tists the transactions for transferring to ledger accounts. 2. Itacts as a ledger account for petty cash transactions and reduces the number of entries in the cash book or the ledger. NOTE Just like the cash book, the petty cash book is a book of prime entry and since it is a part of the double entry system, itis also a ledger account. Petty Cash Vouchers. The task of maintaining a petty cash book is often given to a junior member of the staff who is given an amount of cash to act as a float, from which small cash payments are made. When a member of the staff wishes to obtain some petty cash, he/she should present the petty cashier with a completed petty cash voucher. Its purpose is to show why the money is required, the date and the signature of the person receiving the cash. At regular intervals the petty cashier should check these vouchers against the total cash spent. 16 Downloaded by Dhiren vollala(dhirervallala@gmail.com)Vardhan Shah he imprest system: Most petty cash books are maintained using the imprest system. The procedure of using the imprest system is: 1 ‘The petty cashier starts each period (week, fortnight, month, etc.) with a fixed amount of money called the imprest amount or the float. During the period, payments are made out of this cash and are recorded in the petty cash book. At the end of the period, the petty cash book is balanced After balancing the chief cashier will provide the petty cashier with enough cash to restore the balance to the amount of the imprest (float) The petty cashier therefore starts each period with the same amount of cash. Advantages of using the imprest system. ROKK The chief cashier is aware of exactly how much petty cash has been spent in each period, Petty cash expenditure can be controlled ‘The amount of the imprest can be adjusted as necessary if itis too much or not enough. Helps to reduce fraud The layout of the petty cash book. PETTY CASH BOOK Date] Details |F| Total | Date) Details | Vo. | Total ‘Analysis Columns received No.* | paid $ | | $ $ $ ” Tiscoumersamusininestoomn EY studocu Downloaded by Dhiren vellala(dhirervaliala@gmail.com)Vardhan Shah How to record entries in petty cash book. During the period: 1. Money Received "Debit total received column with any money received from the chief cashier. Insert the word ‘cash’ or ‘bank’ in the details column "Debit the total received column with any money received from any other source. insert the name of the account to be credited in the detail’s column, 2. Money Paid = Credit the total paid column, "= Insert the amount in the analysis column for that particular expense. = Provide a brief description of the expense in the detail’s column. At the end of the period: 18 1. Add the total paid column. insert the total. 2. Add the analysis columns and insert the totals. Add the totals of the analysis column and if it matches with the total paid column, the entries made are correct. 3. Balance the total received column and the total paid column, and bring down the balances to start the new period. 4. Make a debit entry for the imprest restored amount (if there is a restore), 5. Complete the double entry of the analysis columns by debiting the expenses to the appropriate expense account in the nominal ledger. ‘The imprest is sometimes referred to as ‘the float’ Every payment should be entered in the appropriate analysis column as well as the total paid column, Each of the analysis columns should be totaled. Check the arithmetic by making sure that these are equal to the total amount paid. At the end of the period: The total of each expense analysis column is transferred to the appropriate ledger account. Any entries in the analysis column headed ‘ledger accounts’ should be debited individually to the purchases ledger account of the creditor, Downloaded by Dhiren vollala(dhirervallala@gmail.com)Vardhan Shah Chapter 6: Business Documents. Key Terms, v ‘An invoice is a document issued by the supplier of goods on credit showing details, quantities, and prices of goods supplied. v Trade Discount is a reduction in the price of goods: the rate often increases according to quantity purchased. > Adebit note is a document issued by a purchaser of goods an credit to request a reduction in the invoice received > Acredit note is a document issued by a seller of goods on credit to notify of a reduction in an invoice previously issued. v A statement of account is a document issued by the seller of goods on credit to summarize the transactions for the month. > A cheque is a written order to a bank to pay a stated sum of money to the person or business named on the order. v A receipt is a written acknowledgement of money received and acts as proof of payment. Invoice. = When a business sells goods on credit it will issue an invoice to the purchaser. = Each business has its own style of invoice. = Sometimes the suppliers allow the customer trade discounts. Information an invoice contains: The name and address of the supplier - The name and address of the customer - The date - Full details, quantities and prices of the goods supplied. Advantages of Trade Discount. + Encourages customers to buy in bulk + Itis also given to businesses in the trade (For example, a Cadbury seller [BUSINESS x] will give the ‘same trade discount to another Cadbury seller [BUSSINESS Y] just like it gives to its customers, this is because [BUSSINESS Y] will not be prepared to pay the full rate as they need to make profit, when they sell the goods) Difference between Cash Discount and Trade Discount. 19 "Wis douent i evatale fe of charg on 9 studocu Downloaded by Dhiren vellala(dhirervaliala@gmail.com)Cash Discount Vardhan Shah Trade Discount Reduction in the price of goods when amount due is paid within the set time Reduction in the price of goods when goods are bought in bulk Encourages customers to pay thelr accounts promptly Not shown as a deduction on the invoice. Encourages customers to buy goods in bulk. Shown as a deduction on the invoice. Debit Note. ‘The customer should check that goods are in a satisfactory condition and that they are exactly as 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 style of debit note. When a price is included on a debit note, itis the price which the customer was actually charged for those goods (the price after the deduction of trade discount). ‘When there has been an undercharge on an invoice most business will issue an additional Invoice. However, some businesses may issue a debit note instead. This will be entered in the books of both the supplier and the customer in the same way as the original invoice. Information a debit note contains: The name and address of the supplier The name and address of the customer The date Full details and quantities (and sometimes prices) of the goods returned or overcharged. Credit Note. ‘When goods are returned, reporting faulty, or where there has been an overcharge on an invoice, the supplier may issue a credit note. Each business has its own style of credit note. Information a credit note contains: 20 The name and address of the supplier ‘The name and address of the customer The date Full details, quantities and prices of the goods returned or overcharged Downloaded by Dhiren vollala(dhirervallala@gmail.com)Vardhan Shah Statement of accounts. = At the end of each month, a supplier will usually issue each customer with a statement of account, "= This is a summary of the transactions for the month, = Each business will have its own style of statement of accounts. Information a statement of account contains: ~The name and address of the supplier ~The name and address of the customer ~The date + The balance owing at the start of the period - Invoices and credit notes issued + Payments received = Any cash discounts allowed The balance owing at the end of the period Cheques. Information a cheque contains: 21 = Many accounts are paid by the means of a cheque. = Abook of preprinted cheques is issued by the bank. "= The customer is required to complete the necessary details of date, amount and payee. - Date - Payee = Whom to Pay - Amount in words and digits Receipts. = Usually, businesses issue receipts to customers if their accounts have been paid by cash. It acts as 2 proof of payment = Since 2 cheque passes through the banking system it can act as a receipt, so there is no need to issue a receipt to customers if their accounts have been paid by cheque. ~ Trade discount is shown as @ deduction on an invoice, but cash discount is not deducted on an invoice. - From the supplier's viewpoint an invoice may be described as a sales invoice; from the customer's viewpoint it may be described as a purchase invoice. "Wis douent i evatale fe of charg on 9 studocu Downloaded by Dhiren vellala(dhirervaliala@gmail.com)Vardhan shah Debit notes are never entered in the accounting records A statement of accounts never entered in the accounting records Chapter 7: Books of prime entry Key Terms. > Abook of prime entry is one in which transactions are recorded before being entered in the ledger. Itis also known as book of original entry or subsidiary books > The sales journal shows alist of the names of businesses to which credit sales have been made, the value of the goods sold and the date on which the sales was made. v ‘The sales returns journal shows a list of the names of the businesses which have returned goods previously sold on credit, the value of the goods returned and the date in which the returns were made. The purchases journal shows a list of the names of businesses from which credit purchases have been made, the value of the goods purchased and the date on which the purchases were made. v > The purchases return journal shows alist of the names of businesses to which goods, previously purchased on credit, have been returned, the value of the goods returned and the date on which the returns were made. The books of prime entry are. Cash Book = Petty Cash Book = Sales Journal = Purchases Journal - Sales Returns Journal - Purchases Returns Journal - Nominal (general) Journal. Sales Journal = Allist of the names of businesses it which credit sales were made. = Sometimes referred to as sales book or the sales day book. = Includes the value of the sales and date of sales. How to record entries for sales jour 1. When goods are sold on credit 2 Downloaded by Dhiren vollala(dhirervallala@gmail.com)Vardhan Shah + Enter the date, customers name and the invoice total in the sales journal. + Debit the customer’s account in the sales ledger with the invoice total. 2. Atthe end of the month + Credit the sales account in the nominal ledger with the sales journal total. + This will now form the double entry for all the individual debit entries in the sales ledger Format of Sale Journal. (Business Name) . Sales Journal Date Name Invoice Number | Folio ‘Amount $ Sales Returns Journal = Alist of the names of businesses, the value of goods returned and the dates on which the returns were made. = Sometimes referred to as sales returns book or returns inwards book/ journal How to record entries for sales returns journal 1. When goods are returned by a credit customer + Enter the date, customer name and credit note total in the sales returns journal. * Credit the customer's account in the sales ledger with the credit note total. 2. Atthe end of the month + Debit the sales returns account in the nominal ledger with the sales returns journal total + This will now form the double entry for all the individual credit entries in the sales ledger. Format of Sale Journal (Business Name) 23 "Wis douent i evatale fe of charg on 9 studocu Downloaded by Dhiren vellala(dhirervaliala@gmail.com)Vardhan Shah ‘Sales Returns Journal Date Name Credit Note | Folio. ‘Amount Number $ Purchases Journal. = Alist of the names of businesses from which credit purchases were made. = Sometimes referred to as purchase book or purchases day book. = Includes the value of the purchases and the dates on which the purchases were made. How to record entries for purchases journal. 1. When goods are purchased on credit + Enter the date, supplier name and the invoice total in the purchases journal * Credit the supplier’s account in the purchase’s ledger with the invoice total 2. Atthe end of the month + Debit the purchases account in the nominal ledger with the purchases journal total + This will now form the double entry for all the individuals credit entries in the purchase’s ledger. Format of Purchases Journal. (Business Name) Purchases Journal Date Name Invoice Number | Folio ‘Amount $ Purchases Returns Journal. = _Allist of the names of businesses, the value of goods returned and the dates on which the returns were made, = Sometimes referred to as Purchases Returns book or the return outward book / journal. How to record entries for purchases returns journa 24 Downloaded by Dhiren vellala(dhirervaliala@gmail.com)Vardhan Shah 1. When goods are returned to a credit supplier Enter the date, supplier name and the credit note total in the purchases returns journal. Debit the supplier’s account in the purchases journal with the credit note total. 2. Atthe end of the month Credit the purchases returns account in the nominal ledger with the purchases returns journal total. This will now form the double entry for all the individual debit entries in the purchase’s, ledger. Format of Purchases Journal. (Business Name) Date Purchases Returns Journal Name Credit Note | Folio ‘Amount Number $ 25 Books of prime entry may be referred to as books of original entry or subsidiary books. Only the total of the sales journal is posted to the sales account at the end of the month, not the individual transactions. Trade discount may be shown in the journals for information but is never entered in the double entry records. Only the net value of the goods is recorded Only the purchases journal total is posted to the purchases account at the end of the month, not the individual transactions. At the end of the month the total of the sales returns journal is posted to the sales returns account and the total of the purchases returns journal is posted to the purchases returns account. If trade discount was allowed when goods were purchased (or sold), then it must be deducted when those goods are returned so that the actual price charged for those goods is recorded in the accounts. "Wis douent i evatale fe of charg on 9 studocu Downloaded by Dhiren vellala(dhirervaliala@gmail.com)Vardhan Shah Chapter 8: Financial Statements — Part A Key Terms. v ‘An income statement is statement prepared for a trading period to show the gross profit and profit for the year. ‘The gross profit s the difference between the selling price and the cost of those goods. The profit for the year is the final profit after any other has been added to the gross profit and the running expenses have been deducted. v v v A service business is one which provides a service. v A trading business is one which buys and sells goods. Introduction. ‘When a person starts a business his/her aim is to make a profit. The profit (or loss) is calculated in the financial statements which are usually prepared at the end of each financial year. Financial statements basically consist of two parts: 1. An income statement which consists of two sections; "= Atrading section in which the gross profit of the business is calculated "A profit and loss section in which the profit for the year of the business is calculated (The trading section and the profit and loss section of the income statement are part of the double entry system). 2. Astatement of financial position which consists: = The assets and liabilities if the business at a certain date. (The statement of financial position is not a part of the double entry system) Remember. Financial statements are usually prepared from a trial balance. @ Everyitem ina trial balance appears once in a set of financial statements. [tis common to find notes accompanying a trial balance about various adjustments which are to be made. Any adjustments / notes to a trial balance are used twice in a set of financial statements. Tradin; tion of the incom: 26 Downloaded by Dhiren vollala(dhirervallala@gmail.com)