accounts

sales journal

• bope

• consists of tr’s individual a/c

• recorded in seller’s pov

• records credit sales

• cash sales are in CASH BOOK

• credit sales of nca are in GENERAL JOURNAL

sales returns journal

• cash refunds in CASH BOOK

• trade disc must be deducted before entering into sales return journal

• it is credited to sales ledger control a/c to show total decrease in tr

• updated by duplicate of credit note issued by business to customer

invoice

• credit sales/purchases only

• supplier keeps duplicate of sales invoice to write sales journal

• customer keeps og invoice to write purchases journal

• involves trade & cash discount

  • trade → bulk buy, loyal customer

    • deducted on invoice itself

  • cash → prompt payment

    • not deducted on invoice

    • recorded on cash book

trial balance

• a statement prepared at a specific date that lists all the debit & credit balances extracted from the ledgers

• main purpose is to test arithmetical accuracy of double entry system

• errors when tb balances

  • poorcc

• errors when tb doesn’t balance

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income statement

• drawings do NOT affect income statement

• wages are an expense, under less expenses

• when total expenses are overstated, profit oty increases

bank reconciliation

• a document prepared by a business to explain the differences between the balance in its Cash Book (bank column) & the balance on the Bank Statement received from the bank

• main purpose is to detect errors (in bank a/c or statement) & to prevent fraud

• balances don’t match because of:

  • items in cash book but not in bank statement (timing difference, already in business’ books but not yet processed by bank)

    1. unpresented cheques (cheques not yet presented)

    2. uncredited deposits (amounts not yet credited)

    3. errors made by bank

  • items in bank statement but not in cash book (cash book needs to be updated, not yet in business’ books)

    1. credit transfer → money received by bank on behalf of its account holders

    2. standing orders → instructions given by business to bank to make regular payments of fixed amounts by a given date (eg. salary, rent, insurance)

    3. direct debits → payments made directly by bank on behalf of account holders (eg. electricity, water bill)

    4. bank charges → charges made by bank for services rendered to account holders

    5. dishonoured cheques → cheques rejected by bank

    6. errors in cash book

  • 2 ways to fix:

    1. update cash book

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    2. prepare bank reconciliation statement

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discounts

• cash → debited to supplier’s a/c in purchases ledger

  • dr supplier’s a/c

    • purchases ledger

  • cr disc received

    • general (nominal) ledger

• trade → never enters any ledger, only invoice

purchases ledger

• separate book that contains the individual accounts of all credit suppliers (trade payables)

• NOT for cash purchases

purchases ledger control a/c (aka total creditors a/c)

• a summary account that checks the accuracy of the Purchases Ledger.

• contains the grand totals of all credit purchases

• in general ledger

• format:

  • dr: purchases returns, cash/bank, disc received, contra/transfer, balance c/d

  • cr: balance b/d, purchases, any charges (by creditor, eg. interest, etc.), bank/cash refunds

• source of info:

  • total purchases → purchases journal

  • total pr → pr journal

  • total disc received → cash book

  • total cash/bank paid to creditors → cash book

  • contra/transfer → gen journal

• contra is dr to plca & cr to slca

• there is NO cash purchases/allowance for irr. debts

irrecoverable debts

• expense account in the General Ledger where all written-off bad debts are accumulated during the financial year.

• end of financial yr → total balance of this account is transferred to the SOPL as an expense under expenses section

  • this reduces the net profit

• prov for irr debt