chapter 3

THE ROLE OF SOURCE DOCUMENTS SALES AND PURCHASE DAY BOOKS CASH BOOKS

Accounting transactions are initially recorded on source documents and these are then summarised in books of prime entry.

RECORDING AND SUMMARISING TRANSACTIONS

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THE ROLE OF SOURCE DOCUMENTS

The role of source documents

Sales and purchase day books

Cash books

Source documents
Business transactions are nearly always recorded on a document. These documents are the source of the information in the accounts. Such documents include the following: Sales order Purchase order Invoice Credit note Debit note Goods received note Remittance advice Cheque stubs Petty cash vouchers

Books of prime entry

The source documents are recorded in books of prime entry. Sales day book Purchases day book Sales returns day book Purchases returns day book Cash book Petty cash book Journal (see Chapter 6)

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Context
Accounting transactions are recorded on source documents and are then posted to the day books.

Learning example 3.1

Tick where you would expect to see these documents recorded. Purchases returns day book Sales day book Sales invoice Record of cheque payment Purchase invoice Credit note issued Remittance advice Credit note received Sales returns day book Purchases day book Cash book

Solution 3.1

3: Recording and summarising transactions

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SALES AND PURCHASE DAY BOOKS

The role of source documents

Sales and purchase day books

Cash books

Sales day book

The sales day book is used to keep a list of all invoices sent out to customers each day. Here is an example. SALES DAY BOOK
Date
3.3.X9

Purchases day book

This is used to keep a record of invoices which a business receives. Here is an example. PURCHASES DAY BOOK
Date
3.4.X9 10.4.X9 15.4.X9

Invoice number
207 208

Receivables ledger Total Customer ref. invoiced $ ABC SL12 4,000 XYZ SL59 1,200 5,200

Supplier
RST JMU DDT

Payables ledger ref.

PL31 PL19 PL24

Total invoiced $ 215 1,804 758 2,777

There are also sales and purchase returns day books, which record goods returned by customers / to suppliers.

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Context
Sales and purchase day books are the books of prime entry for sales and purchase invoices. Information is then accumulated for posting to the ledgers.

3: Recording and summarising transactions

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CASH BOOKS

The role of source documents

Sales and purchase day books

Cash books

Cash book
Cash receipts and payments are recorded in the cash book. Cash receipts are recorded as follows, with the total column analysed into its component parts. CASH RECEIPTS
Date
3.3.X9

Narrative
Cash sale Receivable: ABC (discount taken)

Discounts allowed $

Total $ 150
1,000 1,150

Receivables ledger $

Cash sales $ 150

Sundry $

50 50

1,000 1,000 150

Cash payments are recorded in a similar way. CASH PAYMENTS

Date
3.3.X9

Narrative
DEF Petty Cash

Discounts received $

Total $ 300 100 400

Payables ledger $ 300 300

Cash purchases $

Petty Cash $
100 100

Note that for accounting purposes cash includes cheques, unless specified as cash in hand or petty cash (see next page).

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Context
Cash receipts and payments (mainly cheques and transfers) go to the cash book. Some organisations which have computerised accounting systems still keep a manual cash book.

Learning example 3.2

A cash book has an opening balance at the beginning of the week of $6,134 (debit). The following movements take place: (i) (ii) (iii) (iv) Cheque receipts of $4,657 are banked. A transfer for $2,000 is received. Cheque payments totalling $5,186 are made. A direct debit payment of $300 goes out.

What is the closing balance?

Solution 3.2

3: Recording and summarising transactions

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CASH BOOKS

The role of source documents

Sales and purchase day books

Cash books

Petty cash book

Most businesses keep a small amount of cash on the premises for small payments, eg stamps, coffee. Petty cash payments and receipts are recorded in a petty cash book. PETTY CASH BOOK
Date
3.3.X9 RECEIPTS Narrative Bank PAYMENTS Total $ 10 5 15

Total $ 50
50

Date
3.3.X9

Narrative
Paper Coffee

Stationery $ 10
10

Coffee $
5 5

Under the imprest system:

Cash still held in petty cash Plus voucher payments Must equal the agreed sum or float

$ X X __ X __ __

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Context
The cash book records payments from and receipts into the bank account. Receipts and payments of cash notes and coins are recorded in the petty cash book.

3: Recording and summarising transactions

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Reinforcement
Interactive Text chapter 3 Go through Sections 2,3 and 4, paying particular attention to the diagrams in Sections 2 and 4. Read Sections 6 - 9. Attempt Quick Quiz

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