Accounting Course Book 5
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Transcript of Accounting Course Book 5
Accounting Course – Book 5
- 1 -
The Returns Day Book After this section you should be able to:
• Make appropriate entries relating to returns outwards and inwards in the Day Books
• Make correct postings from returns day books to Purchase, Sales & General Ledgers
• Explain the difference between a Credit and a Debit note • Describe how a debtor should use statements received from suppliers • Enter up the accounts for credit card transactions • Explain the need for internal checks on sales and purchases invoices
and credit notes • Describe what use may be made of factoring
The Returns Day Books
The Returns Inwards Day Book The Returns Outwards Day Book
(Or Journals) Postings will be the mirror image of ones you learnt to make for sales
and purchases! Returns Inwards and Credit Notes
Businesses allow customers to return goods and often give a refund Businesses that deal with trade customers may operate a similar policy When a seller agrees to take back goods and refund a Credit Note is
issued. It is called this because the customers account will be credited to show the reduction in the amount owed – they are sometimes printed in red to avoid confusion with invoices! *See example of a Credit note on the next page.
Returns Inwards
The Returns Inwards Day Book is used for posting the items SALES LEDGER: credit amount of credit notes to customer
accounts GENERAL LEDGER: at END of period post the TOTAL of the Returns
Day Book to the debit side of the Returns Inwards account
Accounting Course – Book 5
- 2 -
Example of a Credit Note
2007 Per Unit Total
R. Grant Higher Side Preston
8th September 2007 Tel: Fax:
Credit Note No. 9137
To: D. Poole 4 Charles Street Manchester
Mc Brand Pears Less 20% trade discount
25 50 (10) 40
2
Quantity
Accounting Course – Book 5
- 3 -
Example of a Returns Inwards Day Book and how this is entered in the Sales Ledger and then the Returns Inwards Account in the General Ledger
Sales Ledger
AAmmoouunntt ((££)) 4400
112200 229900 116600 661100
FFOOLLIIOO SSLL1122 SSLL3388 SSLL9999 SSLL111122 GGLL111144
NNoottee NNoo 99//3377 99//3388 99//3399 99//4400
22000066 SSeepptt 88 DD PPoooollee 1177 AA BBrreewwsstteerr 1199 CC VViicckkeerrss 3300 DD SStteevveennss && CCoo TTrraannssffeerrrreedd ttoo RReettuurrnnss IInnwwaarrddss AAccccoouunntt
Returns Inwards day Book Page 10
Pg 12Date Details Folio Amount (£) Date Details Folio Amount (£)
2006Sept 8 Returns Inwards RI10 40
Pg 58Date Details Folio Amount (£) Date Details Folio Amount (£)
2006Sept 17 Returns Inwards RI10 120
D. Poole
A. Brewster
Accounting Course – Book 5
- 4 -
General Ledger
Pg 27Date Details Folio Amount (£) Date Details Folio Amount (£)
2006Sept 19 Returns Inwards RI10 290
Pg 34Date Details Folio Amount (£) Date Details Folio Amount (£)
2006Sept 30 Returns Inwards RI10 160
C. Vickers
D. Stevens & Co
Pg114Date Details Folio Amount (£) Date Details Folio Amount (£)
2006Sept 30 Returns for March RI10 610
Returns Inward Account
Accounting Course – Book 5
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Returns Outwards and Debit Notes
If supplier agrees goods may be returned. When this happens a DEBIT note is sent by the customer to the supplier giving details of goods returned. *See example of a Debit note on the next page.
The credit note from the supplier will be evidence of the suppliers agreement of amounts involved
Allowance may be also made for faulty goods Statement of Accounts
At the end of each month a statement should be sent to each debtor who owes money. It is really a copy of the debtors account in the sellers books
It shows – amount owing at start of month Amount of each sales invoice Credit notes sent to debtor Cash and cheques received from debtor Amount owing at the end of the month
Statements and Debtors
Debtors will check their accounts agree with statement Statement also acts as a reminder to debtors
Accounting Course – Book 5
- 6 -
Example of a Debit Note
It is important to note that the Debit note is the reverse of the Credit note on the previous page. The Debit note is issued by the customer to the supplier with the returned goods, (see the date). The supplier then authorises a Credit note to the Customer.
To: R. Grant
Higher Side Preston
D. Poole 45 Charles Street Manchester
7th September 2007 Tel: Fax:
Debit Note No. 9.22
Mc Brand Pears damaged in transit Less 20% trade discount
25 50 (10) 40
2
Accounting Course – Book 5
- 7 -
Example of a Returns Outwards Day Book and how this is entered in the Customers accounts in the Purchase Ledger and then the Returns Outwards Account in the General Ledger
Purchase Ledger
AAmmoouunntt ((££)) 4400
224400 3300 336600 667700
FFOOLLIIOO PPLL2299 PPLL4466 PPLL5555 PPLL8877 GGLL111166
NNoottee NNoo 99..2222 99..2233 99..2244 99..2255
22000066 SSeepptt 77 RR.. GGrraanntt 1166 BB RRoossee 2288 CC BBllaakkee 3300 SS.. SSaauunnddeerrss TTrraannssffeerrrreedd ttoo RReettuurrnnss OOuuttwwaarrddss AAccccoouunntt
Returns Outwards day Book Page 7
Pg24Date Details Folio Amount (£) Date Details Folio Amount (£)
2006Sept 7 Returns Outwards RO7 40
Pg32Date Details Folio Amount (£) Date Details Folio Amount (£)
2006Sept 16 Returns Outwards RO7 240
R. Grant
B. Rose
Accounting Course – Book 5
- 8 -
General Ledger
Pg4Date Details Folio Amount (£) Date Details Folio Amount (£)
2006Sept 28 Returns Outwards RO7 30
Pg12Date Details Folio Amount (£) Date Details Folio Amount (£)
2006Sept 30 Returns Outwards RO7 360
C. Blake
S. Saunders
Pg10Date Details Folio Amount (£) Date Details Folio Amount (£)
2006Sept 30 Returns for March RO7 670
Returns Outwards Account
Accounting Course – Book 5
- 9 -
Credit Cards
Sales and purchases via credit cards Customer is not a debtor! Seller must collect from Credit Card Company: Double entry :
o Sale via credit card = Debit Credit Card Co / Credit Sales Account
o Receipt of money from Credit Card Company = Debit Bank Account / Credit the Credit Card Company
o Commission Charged by Credit Card Company = Debit Selling Expenses / Credit the Credit Card Company
Commission isn’t deducted from selling price; it is treated as a cash
discount i.e. the selling expense goes in the Profit and Loss part of T&P&L Internal Check
Sales invoices need checking CAREFULLY usually at each stage e.g. rubber stamped and initials
Accounting Course – Book 5
- 10 -
Each Debit note is posted separately
Returns Outward Day Book
Book of Original Entry (Debit Notes)
Returns Inward Day Book
Book of Original Entry (Credit Notes)
General Ledger
Returns Outward Account
Debit / Credit
Returns Inwards Account
Debit / Credit
Sales Ledger
Customer Accounts
Debit / Credit
Purchases Ledger
Suppliers Accounts
Debit / Credit
Each Credit note is posted separately
Total Only to the Returns Inward Account
Total Only to the Returns Outwards Account
Accounting Course – Book 5
- 11 -
Factoring
Debtors can cause cash flow problems and one way to solve this is FACTORING
This means selling the debts to another company – for a bit less than they are worth!
E & EO
Stands for Errors and Omissions Excepted which means figures COULD be incorrect!
Found on some invoices and is a warning to CHECK figures carefully.
Accounting Course – Book 5
- 12 -
Exercise 1
AAmmoouunntt ((££)) 111199 9988 111144 2255 5566 5599 8899 6677 119966 111199 5566 9988 11009966
FFOOLLIIOO IInnvvooiiccee NNoo
22000077 MMaayy 11 HH LLllooyydd MMaayy 44 DD SSccootttt MMaayy 44 AA SSiimmppssoonn MMaayy 44 AA WWiilllliiaammss MMaayy 44 SS WWoooodd MMaayy 1100 SS SSiimmppssoonn MMaayy 1188 MM WWhhiittee MMaayy 1188 JJ WWoonngg MMaayy 1188 HH MMiilllleerr MMaayy 1188 HH LLeewwiiss MMaayy 3311 AA WWiilllliiaammss MMaayy 3311 CC CCooooppeerr TTrraannssffeerrrreedd ttoo PPuurrcchhaasseess AAccccoouunntt
Purchases day Book Page
Accounting Course – Book 5
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Purchases Ledger
AAmmoouunntt ((££)) 1166 1144 55 1111 4466
FFOOLLIIOO IInnvvooiiccee NNoo
22000077 MMaayy 77 HH LLllooyydd MMaayy 77 DD SSccootttt MMaayy 2255 JJ WWoonngg MMaayy 2255 AA SSiimmppssoonn TTrraannssffeerrrreedd ttoo RReettuurrnnss OOuuttwwaarrddss AAccccoouunntt
Returns Outwards day Book Page
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007May 7 Returns Outwards 16 May 1 Purchases 119
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007May 7 Returns Outwards 14 May 4 Purchases 98
H Lloyd
D Scott
Accounting Course – Book 5
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Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
May 25 Returns Outwards 11 May 4 Purchases 114May 10 Purchases 59
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
May 4 Purchases 25May 31 Purchases 56
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
May 4 Purchases 56
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
May 18 Purchases 89
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
25 May Returns Outwards 5 May 18 Purchases 67
S Wood
M White
J Wong
A Simpson
A Williams
Accounting Course – Book 5
- 15 -
General Ledger
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
May 18 Purchases 196
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
May 18 Purchases 119
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
May 31 Purchases 98
H Lewis
C Cooper
H Miller
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
May 31 Credit Purchases 1096
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
May 31 Returns for May 46
Purchase Account
Returns Outwards Account
Accounting Course – Book 5
- 16 -
Exercise 2
AAmmoouunntt ((££)) 118888 6600 7777 8888 111144 111188 6666 997700 9911 11777722
FFOOLLIIOO IInnvvooiiccee NNoo
22000088 JJuunnee 11 AA SSiimmeess JJuunnee 11 PP TTuulllloocchh JJuunnee 11 JJ FFllyynnnn JJuunnee 11 BB LLooppeezz JJuunnee 66 MM HHoowweellllss JJuunnee 66 SS TThhoommppssoonn JJuunnee 66 JJ FFllyynnnn JJuunnee 2200 MM BBaarrrrooww JJuunnee 3300 MM PPaarrkkiinn TTrraannssffeerrrreedd ttoo SSaalleess AAccccoouunntt
Sales day Book Page
Accounting Course – Book 5
- 17 -
Sales Ledger
AAmmoouunntt ((££)) 1122 1177 55 3344
FFOOLLIIOO IInnvvooiiccee NNoo
22000088 JJuunnee 1100 AA SSiimmeess JJuunnee 1100 BB LLooppeezz JJuunnee 2244 SS TThhoommppssoonn TTrraannssffeerrrreedd ttoo RReettuurrnnss IInnwwaarrddss AAccccoouunntt
Returns Inwards day Book Page
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
June 1 Sales 188 June 10 Returns Inwards 12
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
June 1 P. Tulloch 60
A. Simes
P. Tulloch
Accounting Course – Book 5
- 18 -
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
June 1 Sales 77June 6 Sales 66
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
June 1 Sales 88 June 10 Returns Inwards 17
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
June 6 Sales 114
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
June 6 Sales 118 June 24 Returns Inwards 5
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
June 20 Sales 970
J. Flynn
M. Barrow
B. Lopez
M. Howells
S. Thompson
Accounting Course – Book 5
- 19 -
General Ledger
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
June 30 Sales 91
M. Parkin
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
June 30 Credit Sales 1772
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
June 30 Returns for June 34
Sales Account
Returns Inwards Account
Accounting Course – Book 5
- 20 -
Exercise 3 You are to enter up the sales, purchases, returns inwards and returns outwards day books from the following details, then to post the items to the relevant accounts in the sales and purchase ledgers. The total of the day books are then to be transferred to the accounts in the General Ledger. The month is August and the year is 2007
AAmmoouunntt ((££)) 5566 114488 114455 8899 7788 225577 5577 6655 111122 5555 11006622
FFOOLLIIOO IInnvvooiiccee NNoo
22000077 AAuugg 11 TT.. TThhoommppssoonn AAuugg 11 LL.. RRooddrriigguueezz AAuugg 11 KK.. BBaarrttoonn AAuugg 77 KK.. KKeellllyy AAuugg 77 NN.. MMeennddeess AAuugg 77 NN.. LLeeee AAuugg 2244 KK.. MMoohhaammmmeedd AAuugg 2244 KK.. KKeellllyy AAuugg 2244 OO’’ GGrreeeenn AAuugg 3311 NN.. LLeeee TTrraannssffeerrrreedd ttoo SSaalleess AAccccoouunntt
Sales day Book Page
Accounting Course – Book 5
- 21 -
AAmmoouunntt ((££)) 55 1111 1144 24 54
FFOOLLIIOO IInnvvooiiccee NNoo
22000077 AAuugg 1144 TT.. TThhoommppssoonn AAuugg 1144 KK.. BBaarrttoonn AAuugg 1144 KK.. KKeellllyy AAuugg 2288 NN.. MMeennddeess TTrraannssffeerrrreedd ttoo RReettuurrnnss IInnwwaarrddss AAccccoouunntt
Returns Inwards day Book Page
AAmmoouunntt ((££)) 114444 2255 7766 2244 5588 112233 5544 6655 7755 664444
FFOOLLIIOO IInnvvooiiccee NNoo
22000077 AAuugg 33 PP.. PPootttteerr AAuugg 33 HH.. HHaarrrriiss AAuugg 33 BB.. SSppeenncceerr AAuugg 99 BB.. PPeerrkkiinnss AAuugg 99 HH.. HHaarrrriiss AAuugg 99 HH.. MMiilleess AAuugg 1177 HH.. HHaarrrriiss AAuugg 1177 BB.. PPeerrkkiinnss AAuugg 1177 LL.. NNiixxoonn TTrraannssffeerrrreedd ttoo PPuurrcchhaasseess AAccccoouunntt
Purchases day Book Page
Accounting Course – Book 5
- 22 -
Sales Ledger
AAmmoouunntt ((££)) 1122 2222 1144 4488
FFOOLLIIOO IInnvvooiiccee NNoo
22000077 AAuugg 1111 PP.. PPootttteerr AAuugg 1111 BB.. SSppeenncceerr AAuugg 2200 BB.. SSppeenncceerr TTrraannssffeerrrreedd ttoo RReettuurrnnss OOuuttwwaarrddss AAccccoouunntt
Returns Outwards day Book Page
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007Aug 1 Sales 56 Aug 14 Returns Inwards 5
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007Aug 1 Sales 148
T. Thompson
L. Rodriguez
Accounting Course – Book 5
- 23 -
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007Aug 1 Sales 145 Aug 14 Returns Inwards 11
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007Aug 7 Sales 89 Aug 14 Returns Inwards 14
Aug 24 Sales 65
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007Aug 7 Sales 78 Aug 28 Returns Inwards 24
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007Aug 7 Sales 257
Aug 31 Sales 55
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 24 Sales 57
N. Mendes
N. Lee
K. Mohammed
K. Barton
K. Kelly
Accounting Course – Book 5
- 24 -
Purchase Ledger
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 24 Sales 112
O' Green
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 11 Returns Inward 12 Aug 3 Purchases 144
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 3 Purchases 25
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 11 Returns Inward 22 Aug 3 Purchases 76Aug 20 Returns Inward 14
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 9 Purchases 24Aug 17 Purchases 65
P. Potter
H. Harris
B. Spencer
B. Perkins
Accounting Course – Book 5
- 25 -
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 9 Purchases 58Aug 17 Purchases 54
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 9 Purchases 123
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 17 Purchases 75
H. Harris
H. Miles
L. Nixon
Accounting Course – Book 5
- 26 -
General Ledger
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 31 Credit Sales 1062
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 31 Returns for August 54
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 31 Credit Purchases 644
Date Details Folio Amount (£) Date Details Folio Amount (£)2007 2007
Aug 31 Returns for August 48
Returns Inwards Account
Purchase Account
Returns Outwards Account
Sales Account
Accounting Course – Book 5
- 27 -
Exercise 4 You are to enter the following items in the books, post to personal accounts, and show the transfers to the General ledger. The Month is December and the year is 2008.
AAmmoouunntt ((££)) 551100 224466 335566 330077 225500 118855 118888 331100 442200 22777722
FFOOLLIIOO IInnvvooiiccee NNoo
22000088 DDeecc 33 EE RRiiggbbyy DDeecc 33 EE PPhhiilllliippss DDeecc 33 FF TThhoommppssoonn DDeecc 88 AA GGrreeeenn DDeecc 88 HH GGeeoorrggee DDeecc 88 JJ FFeerrgguussoonn DDeecc 2200 EE PPhhiilllliippss DDeecc 2200 FF PPoowweellll DDeecc 2200 EE LLeeee TTrraannssffeerrrreedd ttoo SSaalleess AAccccoouunntt
Sales day Book Page
Accounting Course – Book 5
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AAmmoouunntt ((££)) 1188 2222 2277 3300 9977
FFOOLLIIOO IInnvvooiiccee NNoo
22000088 DDeecc 1144 EE PPhhiilllliippss DDeecc 1144 FF TThhoommppssoonn DDeecc 3311 EE PPhhiilllliippss DDeecc 3311 EE RRiiggbbyy TTrraannssffeerrrreedd ttoo RReettuurrnnss IInnwwaarrddss AAccccoouunntt
Returns Inwards day Book Page
AAmmoouunntt ((££)) 338800 550000 110066 220000 118800 441100 6666 11884422
FFOOLLIIOO IInnvvooiiccee NNoo
22000088 DDeecc 11 KK HHiillll DDeecc 11 MM NNoorrmmaann DDeecc 11 NN SSeenniioorr DDeecc 55 RR MMoorrttoonn DDeecc 55 JJ CCooookk DDeecc 55 DD EEddwwaarrddss DDeecc 55 CC DDaavviieess TTrraannssffeerrrreedd ttoo PPuurrcchhaasseess AAccccoouunntt
Purchases day Book Page
Accounting Course – Book 5
- 29 -
Sales Ledger
AAmmoouunntt ((££)) 3300 1166 1133 1111 7700
FFOOLLIIOO IInnvvooiiccee NNoo
22000088 DDeecc 1122 MM NNoorrmmaann DDeecc 1122 NN SSeenniioorr DDeecc 3311 JJ CCooookk DDeecc 3311 CC DDaavviieess TTrraannssffeerrrreedd ttoo RReettuurrnnss OOuuttwwaarrddss AAccccoouunntt
Returns Outwards day Book Page
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008Dec 3 Sales 510 Dec 31 Returns Inward 30
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008Dec 3 Sales 246 Dec 14 Returns Inward 18
Dec 20 Sales 188 Dec 31 Returns Inward 27
E Rigby
E Phillips
Accounting Course – Book 5
- 30 -
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008Dec 3 Sales 356 Dec 14 Returns Inward 22
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008Dec 8 Sales 307
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008Dec 8 Sales 250
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008Dec 8 Sales 185
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 20 Sales 310
F Thompson
A Green
H George
J Ferguson
F Powell
Accounting Course – Book 5
- 31 -
Purchase Ledger
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 20 Sales 420
E Lee
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 1 Purchases 380
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 12 Returns Outward 30 Dec 1 Purchases 500
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 12 Returns Outward 16 Dec 1 Purchases 106
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 5 Purchases 200
K Hill
M Norman
N Senior
R Morton
Accounting Course – Book 5
- 32 -
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 31 Returns Outward 13 Dec 5 Purchases 180
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 5 Purchases 410
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 31 Returns Outward 11 Dec 5 Purchases 66
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 24 Purchases 550
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 24 Purchases 900
J Cook
D Edwards
C Davies
C Ferguson
K Ennevor
Accounting Course – Book 5
- 33 -
General Ledger
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 31 Credit Purchases 2772
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 31 Returns for December 97
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 31 Credit Purchases 1842
Date Details Folio Amount (£) Date Details Folio Amount (£)2008 2008
Dec 31 Returns for December 70
Returns Outwards Account
Sales Account
Returns Inward Account
Purchases Account
Accounting Course – Book 5
- 34 -
The Journal The objectives of this section are as follows: ♦ Explain the purpose of the Journal ♦ Enter up the Journal ♦ Post from Journal to ledgers ♦ Complete opening entries for a new set of accounting books in the journal
and make appropriate entries in the ledgers ♦ Describe and explain the accounting cycle The Journal This is the book of original entry that “Sweeps Up” all transactions not yet entered in the other FIVE
Question 1
What are the other FIVE called? Answer – Cash Book, Sales Day Book, Purchases Day Book,
Returns Inwards and Returns Outwards. All these are devoted to one form of transaction
What does the Journal do? ♣ The journal deals with less common items and sometimes more
complicated! ♣ It would be easy for the book keeper to forget details of transactions if they
were made directly to the ledgers from source documents and may be impossible to understand at a later date!
Question 2 What do you think might need recording in the journal? Answers
errors, corrections or changes all transactions relating to fixed assets transfers involving the capital account, e.g. setting aside funds for building
repairs writing off bad debts opening entries for new set of books
Accounting Course – Book 5
- 35 -
What is recorded in the journal? ♦ Date ♦ Name of account to be debited ♦ Name of account to be credited ♦ Description/explanation, (called the Narrative) ♦ Folio reference to the source document
Benefits of having a Journal
♥ The journal makes fraud more difficult ♥ Reduces the risk of entering only once instead of double entry ♥ Despite those benefits some businesses do not have a journal!
Journal Entries and Exams
♠ Examiners say that questions on the journal are often badly answered. Not because they are difficult but due to a mental block!
♠ It is possible that students fail to view the Journal as a document containing instructions – 3 per transaction.
What are the Instructions?
1. Account to be DEBITED 2. Account to be CREDITED 3. A description of the transaction
Date Details Folio Dr CrThe name of the account to be debited The name of the account to be creditedThe Narrative
Accounting Course – Book 5
- 36 -
Example 1 Machinery purchased £500 on credit from Toolmakers Ltd on the 1st July 2006 Workings
Date Details Folio Amount (£) Date Details Folio Amount (£)2006
1st July Toolmakers Ltd PL55 500
Date Details Folio Amount (£) Date Details Folio Amount (£)2006
1st July Machinery GL1 500
Machinery
Toolmakers Ltd
Date Details Folio Dr Cr2006
1st July Machinery GL1 500 Toolmakers Ltd PL55 500Purchase of milling machine on credit. Capital purchases invoice no.7/59
Accounting Course – Book 5
- 37 -
Example 2 Sale of stationary no longer required for £300 on credit to K. Lamb on 2nd July 2006
General Ledger
Sales Ledger
Date Details Folio Amount (£) Date Details Folio Amount (£)2006
2nd July Machinery SL79 300
Stationary
Date Details Folio Amount (£) Date Details Folio Amount (£)2006
2nd July Stationary GL 51 300
K Lamb
Date Details Folio Dr Cr2006
2nd July K. Lamb SL79 300 Stationary GL51 300Sale of Stationary no longer required - see letter ref:KL3X8
Accounting Course – Book 5
- 38 -
Bad Debts The following example illustrates how we deal with them. A debt of £78 owing to us from H. Mander is written off as a bad debt on 31st Aug 2006.
General Ledger
Sales Ledger
Journal
♥Bad debts are an expense so are posted as debits, i.e. they reduce capital and reductions in capital are debits.
Date Details Folio Amount (£) Date Details Folio Amount (£)2006
Aug 31 H Mander SL99 78
Bad Debts
Date Details Folio Amount (£) Date Details Folio Amount (£)2006
Aug 31 Bad debts GL16 78
H Mander
Date Details Folio Dr Cr200631 Aug Bad Debts GL16 78
H Mander SL99 78Debt written off as bad - see letter in file HM2X6
Accounting Course – Book 5
- 39 -
Opening Entries The following example illustrates how we deal with opening entries. J. Brew after being in business for some years without keeping proper records now decides to keep a double entry set of books. On the 1st July 2006 he establishes that his assets and liabilities are as follows: ASSETS: Van £840 – post to the Van account in the General Ledger Fixtures £700 – post to the Fixtures & Fittings account in the General Ledger Stock £390 – post to the Stock account in the General Ledger Debtors: - B Young £95 – post to Customers account in the Sales Ledger D Blake £45 – post to the Customers account in the Sales Ledger Bank £80 – post to the Cash Account Cash £20 – post to the Cash Account LIABILITIES: Creditors: - M Quinn £129 – post to the Suppliers Account in the Purchase Ledger C Walters £41 – post to the Suppliers Account in the Purchase Ledger Capital Capital was calculated from the above by the accounting equation Assets = Liabilities + Capital (See below for the workings) This gave us a figure of: Capital £2000 – post to the Capital account in the General Ledger
ASSETS LIABILITIES CAPITAL
840 129700 4139095458020
2170 170 2000
Accounting Course – Book 5
- 40 -
General Ledger
Pg1Date Details Folio Amount (£) Date Details Folio Amount (£)
2006 2006July 1 Balance J5 840
Pg2Date Details Folio Amount (£) Date Details Folio Amount (£)
2006 2006July 1 Balance J5 700
Pg3Date Details Folio Amount (£) Date Details Folio Amount (£)
2006 2006July 1 Balance J5 390
Pg4Date Details Folio Amount (£) Date Details Folio Amount (£)
2006 2006July 1 Balance J5 200
Van
Fixtures & Fittings
Stock
Capital
Accounting Course – Book 5
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Sales Ledger
Purchase Ledger
Pg1Date Details Folio Amount (£) Date Details Folio Amount (£)
2006 2006July 1 Balance J5 95
Pg2Date Details Folio Amount (£) Date Details Folio Amount (£)
2006 2006July 1 Balance J5 45
B Young
D Blake
Pg1Date Details Folio Amount (£) Date Details Folio Amount (£)
2006 2006July 1 Balance J5 129
Pg2Date Details Folio Amount (£) Date Details Folio Amount (£)
2006 2006July 1 Balance J5 41
M Quinn
C Walters
Accounting Course – Book 5
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The Journal
Cash Book
Date Details Folio Dr Cr2006July 1 Van GL1 840
Fixtures GL2 700Stock GL3 390Debtors - B Young SL1 95 D Blake SL2 45Bank CB1 80Cash CB1 20 Creditors - M Quinn PL1 129 C Walters PL2 41 Capital GL4 2000Assets and Liabilities at this date are entered to open the Books 2170 2170
Date Details Folio Cash Bank Date Details Folio Cash Bank2006 2006July 1 Balances J5 20 80
CASH BOOK
Accounting Course – Book 5
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The Accounting Cycle for a Profit Making Organisation
Double Entry
How the dual aspect of each transaction is recorded
Check Arithmetic
Checking the arithmetical accuracy of double entry accounts
Profit or Loss
Calculation of profit or loss for the accounting period
Closing Financial Position
Financial statement showing liabilities, assets and capital at the end of the accounting period
Source Documents
Where original information is to be found
• Sales and purchase invoices • Debit and credit notes for returns • Bank pay-in slips and cheque counterfoils • Receipts for cash paid out and received • Correspondence containing other financial
information
Original Entry
What happens to it
Classified and then entered into books of prime entry:
• The Cash Books* • Sales and Purchases Day Books • Returns Inwards and Outwards Day Books • The Journal
General Ledger
Sales Ledger
Purchases Ledger
Cash Books*
Real and Nominal Accounts
Debtors' Accounts
Creditors' Accounts
Cash Book and Petty Cash Book
Double Entry Accounts
*Note Cash Books fulfil both the roles of books of original entry and double entry accounts
Trial Balance
Trading and Profit & Loss Account
Balance Sheet
Accounting Course – Book 5
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Review Question 1
Journal
Date Details Folio Dr Cr2008May 1 Van 6790May 1 Kingston Garage 6790
Bought a vanMay 3 Bad debt 34May 3 H Newman 34
Written off bad debtMay 8 Unique Offices 490May 8 Office Furniture 490
Unsuitable furniture returned to unique offices with full allowance given to usMay 12 Bank 39May 12 W Charles 39May 12 Bad Debt 111May 12 W Charles 111
£39 is accepted as full settlement of £150 debt from W Charles due to bankruptcy, £111 written off as a bad debt
May 14 Drawings 45 Stock 45Goods withdrawn out of business stock without paying for them
May 28 76May 28 Insurance 76
£76 still owing on Insurance Account due to mispayment to private insurance from this account
May 28 Machinery 980May 28 Systems Accelerated 980
Bought machinery on credit
Accounting Course – Book 5
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Review Question 2
Journal
Date Details Folio Dr Cr2007April 1 Fixtures 1809
J Harper 1809Bought fixtures
April 4 Drawings 500 Stock 500Goods withdrawn out of business stock without paying for them
April 9 Stock 28 Capital 28Return of some of the stock drawn on April 4
April 12 Office Equipment 500April 12 K Lamb 500
Office Equipment taken as full value of K Lamb's debtApril 18 J Harper 65April 18 Fixtures 65
Unsuitable fixtures returned to J Harper for full allowanceApril 24 Bad debt 68April 24 J Brown 68
Bad debt written offApril 30 Office Equipment 2190April 30 Super Offices 2190
Office equipment bought on credit
Accounting Course – Book 5
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Errors not affecting the Trial Balance
Types of Error Errors of Omission – where a transaction is completely missed from the books. Errors of Commission – when the correct amount is entered but in the wrong person’s account. Errors of Principle – where an item is in the wrong class of account. Compensating Errors – where 2 errors cancel each other out. Errors of Original Entry – where the original figure is incorrect yet double entry is still observed using this figure. Complete Reversal of Entries – where the correct accounts are used but each item is shown on the wrong side of the account. Transposition Errors – where the wrong sequence of characters within a number was entered, (more common on one side only in which case the Trial Balance would not balance). Casting
1. Casting means ADDING UP. 2. Overcasting means incorrectly adding up a column of figures to get an
amount greater than it should be. 3. Undercasting is incorrectly adding up a column of figures to give an
answer less than it should be.
Accounting Course – Book 5
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Review Questions
Accounting Course – Book 5
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The Answers The journal is part of the books of original entry. No Date, Name of the Debit Account, Name of the Credit Account, Description and Folio. Credit entries are offset on the line to highlight that is what they are. Journal entries help prevent fraud because it gives details of every transaction that is unusual.
Frank LawsonTrial Balance as at April 5 2007
Account Name Debit Credit
MachineryOpening Stock
17001400
Fittings 250
Bank
245
575
Jones
EvansSmith
65210
4275
Brown 105
Capital 40004275
Accounting Course – Book 5
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22.1
The Journal
22.2
ASSETS LIABILITIES CAPITAL
6000 5000550 290
1010 320865 18535
425160
25001750
13295 5795 7500
Date Details Folio Dr Cr2007Jan 1 Premises 6000
Fittings 550Stock 1010Bank 865Cash 35Trade debtors - Fraser 425 Fisher 160 Mortgage Loan 5000Machinery 2500Van 1750 Rates 290 Trade Creditors - Mansel 320 Nutkins 185 Capital 7500
Date Details Folio Dr Cr2007March 2 Office Equipment 175March 2 Bank 175
Bought 2nd hand computerMarch 5 Purchases 138March 5 Cash 138
Cash PurchasesMarch 6 A Fircone 52March 6 Sales 52
Goods sold to A FirconeMarch 7 Purchases 130March 7 Horace Heap 130
Bought goodsMarch 8 Cash 45March 8 Office Equipment 45
Sold old computer for cashMarch 9 Stationary 5March 9 Cash 5
Bought stationaryMarch 30 Drawings 50March 30 Bank 50
Draw cheque for self
Accounting Course – Book 5
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23.3
Journal
Date Details Folio Dr Cr2007July 1 Office Machinery 250July 1 Purchases 250
Error of Complete ReversalJuly 2 Sue 38July 2 Sarah Palliser 38
Error of CommissionJuly 3 A Smith 20July 3 J Smith 20
Error of CommissionJuly 4 Drawings 25July 4 Salaries 25
Error of PrincipleJuly 5 Machinery Repairs 75July 5 Machinery 75
Error of PrincipleJuly 6 Office Furniture 80July 6 Stationary 80
Error of PrincipleJuly 17 Purchases 18
Error of TranspostionJuly 30 Bank Interest 8.50July 30 Bank Charges 8.50
Error of Principle
Accounting Course – Book 5
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More Review Exercises 1 Jonathon Smith had entered his profit and loss account for 30th November 2004 which showed a profit of £26790. His accountant then discovered the following errors:
1. The sales account had been undercast by£450 2. Discount allowed of £140 had been entered on the credit of the
discount allowed account 3. Wages of £2500 had been completely omitted from the books account 4. The cost of a fixed asset £9500 had been included in the purchases
account 5. A payment from BA Jones of £1200 had been entered in the account of
CA Jones 6. The closing stock had been entered as £2400; it was actually £2500
Required Calculate the corrected profit. Show clearly whether each adjustment is added, subtracted or has no effect on the total.
Jonathon Smith Corrected Profit for the year ended 30 November 2004
Profit calculated by Jonathon £26790 1. Sales undercast add £450 2. Discounts Allowed Credited minus £140 3. Wages omitted minus £2500 4. Fixed Asset in Purchases Account no effect 5. Payment in CA Jones Account no effect 6. Closing Stock entered incorrectly add £100 Total £24700
Accounting Course – Book 5
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2
The Journal
Date Details Folio Dr Cra J Harris 678
J Hart 678Sale of Goods to J Harris misposted to J Harts account
b Machinery 4390 P Lyle 4390Purchase of Machinery ommited from the books
c Vehicles 3800 Motor Expenses 3800Purchase of Vehicle misposted to Motor Expenses
d E Fitzwilliam 9Sales misposted by £9 9
e Sales Account 257 Commission Received 257Commission Received misposted to Sales
f Cash Book 154 T Heath 154Receipt of Cash entered in error as a Credit in Cash Book
g Purchase 189 Drawings 189Purchase misposted to Drawings
h Discounts Allowed 366 Discounts Received 366Discounts entered in error to Discounts Received
Accounting Course – Book 5
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3
The Journal
Date Details Folio Dr Cra H Wood 699
K Ward 699Misposting of Purchase to H Woods account
b Bank 189 Cash 189Misposting of Bank payment for advertising into Cash Column
c B Gordon 443 B Gorton 443Misposting of Sale to B Gorton's Account
d Purchase 10 K Isaacs 10Shortfall of £20 on Credit Purchase from K Isaacs
e H Moore 178 Cash Book 178Misposting of Cash Payment to Debit column of Cash book
f Sales Account 1000 Fittings 1000Misposting of Sale of fittings to Sales accounts
g Cash 100 Bank 100Cash withdrawn from bank entered into debit column in error
h Purchase 428 Fittings 428Misposting of Purchase to Fittings
Accounting Course – Book 5
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4
a) 100 x 1.39 is £139 not £1390 b) i) stock would be overstated by £1251 c) ii) Cost of goods sold overstated by £1251 d) iii) Net profit overstated by £1251 e) iv) Current Assets overstated by £1251 f) v) Owners capital overstated by £1251
Accounting Course – Book 5
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5
The Journal
Date Details Folio Dr Cra Sales Account 10000
Capital 10000b Drawings of Goods 700
General Expenses 700c Drawings 89
Insurance 89d Purchase 270
C Kelly 270e Bank 780
Cash 780f Bank 400
Cash 400J Charlton 168
g Mc Carthy 168h Motor Expenses 1000
Sales 1000
Accounting Course – Book 5
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6
The Journal
Date Details Folio Dr Cra Rent Received 880
Commissions Received 880b Bank Charges 77
Rent Account 77c Sundry Expenses 23
Bank 23d Fixtures 478
Purchases 478e Returns Inwards 833
Returns Outwards 833f Capital 5000
Loan from R Smiley 5000g Loan Interest 500
Premises 500h Drawings of Goods 250
Purchases 250