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CHAPTER CONTENTS
Recording business transactions
Summarising source documents
The day books
The general ledger
The receivables (sales ) and payables (purchases
ledgers)
Control accounts
Accounting for taxation
Method of coding data
Manual and computerised systems
Batch processing and control totals
Accounting systems
Accounting modules

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RECORDING BUSINESS TRANSACTIONS
Initial record of business transactions is done in the
Source documents
Source documents: Source of all information
recorded by the business
Examples of source documents relating to sales and
purchases
Invoice
Credit note
Debit note
Purchase order
Sales order
Statement of account

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RECORDING BUSINESS TRANSACTIONSRECORDING
BUSINESS TRANSACTIONS
other source documents apart from those relating
purchase and sales
Petty cash voucher - initial record of petty cash
transactions
Remittance advice – Document which shows which
invoices a payment covers
Payroll records - record of wages and salaries
Cheque stub – duplicate of a paid out cheque
Cheque received
Recording details of source documents – this done in
the books of prime entry
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Books of prime entry
Books of prime entry – form record of all documented
business transactions ( Received and sent)
Main books of prime record(entry):
 Sales day book

 Sales returns day book

 Purchase day book

 Purchase returns day book

 Cash book

 Petty cash book

 Journal

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 Books of prime entry
• Purpose, content and format of each book
• Books of prime entry and double entry
Books of prime record do not form part of double entry
•
instead transactions recorded in them are periodically
summarised and posted to double entry ledger
accounts.
Recording transactions in the books of prime entry

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 Sales day book
Sales day book
 Sales day book is used to record credit sales
 That is, it is used to keep a list of all invoices sent out to credit customers
each day.
 Sales returns day book
Sales returns day book
 The sales returns day book is used record returns by credit customers
 That is, it is used to keep a list of all credit notes sent out to credit
customers each day.
The purchases day book
Purchases day book
 This is used to keep a record of invoices which a business receives for
credit purchases.
 Used to record credit purchases.
 Purchases returns day book
Purchases returns day book
 The purchases returns day book is used to keep a list of all credit notes
received from credit suppliers each day.
Cash books
Cash book
 Cash receipts and payments are recorded in the cash book.
 Cash payments are recorded in a similar way.
Petty cash book
Petty cash book
 Petty cash payments and receipts are recorded in a petty cash book.
Journal
It is used to record unusual movement between
accounts
That is it is used to record any double entry not
arising from other books of prime entry.
Format:
Date Debit Credit
$ $
DEBIT A/c to be debited X
CREDIT A/c to be credited X
Narrative to explain transaction
Documents recorded in the books of prime entry
Books of prime entry Source Document
Sales day book  Invoices and credit notes sent
Sales returns day book  Credit notes sent
Purchases day book  Invoices and credit notes
received
Purchases returns day book  Credit notes received
Cash book  Cash received and paid via
bank account
 Notes and coins paid and
Petty cash book
received
 Adjustments
Journal

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Summarizing source documents
Summary is done in two ways:
Summary of transactions relating to individual supplier
or customer
 Is done in the Payables or receivables ledger

Summary of all transaction relating to suppliers or

customer in total
 It is done in the general ledger (receivables and

payables control accounts)

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General (nominal)ledger
General ledger- accounting record which
summarises the financial affairs of the business
Types of accounts contained;
Are impersonal in nature
They relate to:
 Assets, liabilities, capital, income, expenditure and profit
and loss
Are posted with day books totals
Format of a ledger account
Posting- entering transactions in the ledger accounts
Posting general ledger accounts from day books

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The receivables (sales) and payables
(purchases) ledgers
Receivables ledger- Consists of personal
receivable accounts.
There is a separate account for each
individual credit customer
They provide a record of how much is owed
by each customer
Accounts within this ledger are personal in
nature
Example of receivable personal account

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The receivables (sales) and payables
(purchases) ledgers
Payables ledger – Consists of personal payable
accounts
They show how much money is due to each
individual supplier
Each credit supplier has a separate account
As with receivable ledger, payables ledger
contains accounts which are personal in
nature
Example of payable personal account

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The receivables (sales) and payables
(purchases) ledgers
Personal accounts and double entry;
Personal accounts do not form part of double
entry
Memorandum accounts – contains details of
transactions already recorded in the general
ledger
Posting personal accounts:
They are posted with individual transactions
from books of prime entry.
Posting personal accounts from day books
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Control accounts
Control account – an account in the nominal ledger in
which a record is kept of the total value of a number of
similar but individual items.
Control accounts are mainly kept for receivables and
payables
Receivables control account -account in which a
record is kept of all transactions involving receivables in
total.
Posted with totals from:
 Sales day book,
 Sales returns day book and
 Cash book

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 Control accounts
Payables control account - account in the general
ledger in which a record is kept of all transactions
involving payables in total.
Posted with totals from:
 Purchase day book,
 Purchase returns day book and
 Cash book
NB: it the control account balance which appears in the
final accounts.
Other control accounts apart from receivables and
payables.
Sales tax control account
Wages and salaries control account
Inventory control account

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Accounting for sales tax
Output sales tax – tax charged on sales
Input Sales tax – tax charged on purchases
Accounting for output sales tax
Sales record should not include sales tax
Double entry
 DEBITCash
or receivables 120.00
 CREDIT Sales 100.00
 CREDIT Sales tax 20.00
Accounting for input tax
Purchase record may or may not include sales tax
depending on whether it is recoverable or not
 If recoverable – Purchases figure excludes tax
 If not recoverable – Purchase figure includes sales
tax
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 Accounting for sales tax
Double entry ;if tax is recoverable:
 DEBIT Purchases 60.00
 DEBIT Sales tax 10.00
 CREDIT Cash or Payables 70.00
Double entry; if tax is not recoverable:
 DEBIT
Purchase 70.00
 CREDIT Cash or Payables 70.00
When is tax accounted for?
 When it first arises
 Sales tax in credit transactions
 Sales tax in cash transaction

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 Accounting for sales tax
Sales tax account
Posting sales tax account
Amount paid or recovered from the tax
authority
 If output tax is more than input tax the difference is
tax payable to tax authority
 If input tax is exceed output tax the difference is
tax refund or claimable from tax authority.
Transaction inclusive of sales tax

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Methods of coding data
• Code
• Is a unique number (or combination of numbers and
letters) given to each account in the accounting
system.
• The code is what is used to identify the correct
account for posting.
• It makes easier to ensure that data is input into the
correct account even if there are two or more
accounts with similar name

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 Methods of coding data
• Advantages of coding data
• Saves time as codes are shorter than long hand
description
• Saves storage space
• Examples of codes in the accounting system
• Customer account number
• General ledger account number
• Employee reference number
• Inventory item code
• Coding in the general ledger (from text)
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Manual and computerised systems
Manual accounting systems: means recording, posting
and processing accounting records into physical books.
Computerised accounting systems: accounting task is
the same as with manual accounting system but records
are made in computer files not physical books.
Three processes of computer activity
Input – entering the data from original documents
Processing – posting books and ledgers and sorting
the inputted information
Output – producing any reports required including
financial statements
Advantage of computer over manual system
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Differences between manual and
computerised accounting systems
Manual system Computerised system
Store information in Store information in
physical books computer files
Journals are entered by Journal entries are
hand performed by accessing
the function through menu
option

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Data entry errors
Data entry errors: errors and omissions made
when data is entered into the accounting system.
Examples of sources of data entry errors:
Destroy or damage of source documents
Poor hand writing
Incorrect or omitted details on the source
document
Poor skilled staff

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Data entry errors
Reducing data entry errors:
Using properly and well trained staff
Use of automatic data entry such as scanning
Well- designed forms which are easy to be read etc

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Batch processing and control totals
Batch processing - is where similar
transactions are gathered together into batches, and
then processed together by a computer.
It save time and is cheap compared to transaction
processing
Transaction processing -where transactions
are processed individually as they arise.
Control totals - are used to make sure that there
have been no errors when the batch is input.

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Accounting systems
Computer software: instructions which tell the
electronics how to process data.
Types of computer software
System software
Application software
Two types of computer software used in accounting.
Dedicated accounting packages - these are
software devoted specifically for accounting tasks
General software - these ones are used for many
tasks in a business including accounting purposes.
E.g. spreadsheet

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 Accounting systems
Modules - is a program which deals with one particular
part of a business accounting system. E.g. invoicing
module
Stand alone module - is the name given to an
accounting package consisting of only one module.
Suite – refers to a set of several modules
Integrated software: system is said to be integrated
when modules are linked to one another.
Advantages and disadvantages
1. Becomes possible to make just one entry in one
ledger which automatically updates the others.
2. Users specify reports and computer extracts
relevant information from different modules
3. Workload is simplified as a result.

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 Accounting modules
Standing data in accounting module: means
data which does not change
Variable data: data which changes as the file is
updated.
Accounting for receivables and payables
Standing data held in receivables ledger file and
payables ledger file
Variable data held in the above mentioned files.

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