Books_of_Original_Entry_and_Control_Accounts_lecture_PowerPoints_2024-25

ACFI101 Topic 7: Books of Original Entry and Control Accounts

• Instructor: Lewis Gordon

• Attendance Code: 1

Overview of Key Concepts

• Double Entry Rule ('DEADCLIC')

  • Established rules for recording transactions in accounts.

  • Ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced.

• Trial Balance

  • A list of balances that checks if total debits equal total credits.

• Adjustment Entries

  • Necessary for accurate financial reporting. Includes:

    • Depreciation

    • Accruals

    • Prepayments

    • Inventory adjustments

    • Bad debts

• Financial Statements Preparation

  • Includes Statement of Profit and Loss (SPL) and Statement of Financial Position (SFP).

• Remaining Topics

  • Only five more topics to cover, emphasizing the importance of each.

Types of Entries

• Debit Entries

  • Increase in:

    • Expenses

    • Assets

• Credit Entries

  • Increase in:

    • Income

    • Liabilities

Books of Original (or Prime) Entry

• Introduction

  • Transactions are recorded in various books before being posted to the nominal ledger.

  • Avoids cluttering a single ledger and allows multiple bookkeepers access.

  • Each book caters to specific transaction types.

Main Types of Books

• Sales Daybook

• Purchase Daybook

• Returns Inwards Daybook

• Returns Outwards Daybook

• Cash Books (2 types)

• Journals

  • Physical books are often represented by modules in accounting software, maintaining key principles.

Sales Daybook

• Functionality

  • Records sales made on credit terms.

  • Total sales are periodically posted to the nominal ledger with specific entry examples.

• Posting to Ledger

  • Example entry:

    • Dr Receivables Control £160

    • Cr Sales £160

Sales Ledger

• Debtor Accounts

  • Individual accounts for credit customers are maintained in the receivables ledger.

  • Necessary to reflect amounts owed by customers based on entries from the sales daybook.

Purchase Daybook

• Functionality

  • Records all purchases on credit terms.

  • Periodical totals are posted to the nominal ledger.

• Posting Example

  • Dr Purchases £150

  • Cr Payables Control Account £220

Payable Ledger

• Creditor Accounts

  • Separate accounts for each supplier to track amounts owed.

  • Necessary to mirror the entries made in the purchase daybook.

Cash Books

• Types

  • Cash Book: Records bank transactions.

  • Petty Cash Book: Records small cash payments.

• Structure

  • Contains two sides: Receipts and Payments.

The Journal

• Usage

  • For transactions not recorded in other books.

  • Example: Recording depreciation for a motor vehicle.

Control Accounts

• Receivables Control Account

  • Summarizes total amounts owed by credit customers.

• Payables Control Account

  • Summarizes total amounts owed to suppliers.

Importance of Control Accounts

• Management Benefits

  • Limits accounts in the nominal ledger.

  • Quickly provides total payable and receivable balances.

  • Facilitates regular reconciliation and error checking.

Reconciliation Process

• Why It Matters

  • Maintain accuracy between control and individual account balances.

  • Correct discrepancies due to errors in posting.

Questions and Practice

• Engage in questions related to sales and purchase daybooks.

• Reconcile accounts based on hypothetical scenarios to reinforce learning.