Cash Transactions Notes

  • Cash Flow and Business:
    • Profit-making is the main goal.
    • Monitoring cash movements is crucial; poor cash management can lead to business failure.
  • Journals:
    • Transactions are initially recorded on source documents, then summarized in journals.
    • Journals group similar transactions for posting to the General Ledger.
    • Eight journals are used in a manual accounting system.
  • Key Journals and Source Documents:
    • Cash Book Receipts (CBR): Records increases in the bank account balance; uses duplicate cash slips, invoices, and deposit slips.
    • Cash Book Payments (CBP): Records decreases in the bank account balance; uses EFT confirmation slips and supplier invoices/receipts.
    • Petty Cash Journal (PCJ): Records petty cash purchases; uses petty cash vouchers.
    • Creditors Journal (CJ): Records credit purchases; uses original credit invoices.
    • Creditors Allowances Journal (CAJ): Records returns/rebates on credit purchases; uses original credit notes.
    • Debtors Journal (DJ): Records credit sales; uses duplicate credit invoices.
    • Debtors Allowances Journal (DAJ): Records returns/rebates on credit sales; uses duplicate credit notes.
    • General Journal (GJ): Records transactions not fitting other journals; uses journal vouchers.
  • Cash Transactions Defined:
    • Settled at the point of sale; no outstanding debt.
    • Cash Receipts: Increase bank balance; recorded in CBR.
    • Cash Payments: Decrease bank balance or petty cash; bank transactions in CBP, petty cash in PCJ.
  • Cash Book Receipts (CBR) Structure:
    • Records cash inflows.
    • Columns for document number, day, details, analysis of receipts, bank, VAT, services rendered, sales, sundry accounts.
    • Bank column total posted to the debit side of the bank account in the General Ledger.
  • Cash Book Payments (CBP) Structure:
    • Records cash outflows.
    • Columns for document number, day, payee, bank, input VAT, trading inventory, sundry accounts.
    • Bank column total posted to the credit side of the bank account in the General Ledger.
  • Petty Cash Journal (PCJ) Structure:
    • Summarizes petty cash payments.
    • Columns for document number, day, details, petty cash, postage & stationery, refreshments, VAT, sundry accounts.
    • Petty cash column total posted to the credit side of the petty cash account in the General Ledger.
  • General Ledger Posting:
    • Manual systems total journals at month-end before posting.
    • Computerized systems post automatically.
    • General Ledger summarizes subsidiary journals into accounts (debit/credit).
  • VAT references
    • Calculations for VAT are 15/115
  • Accounting Equation:
    • Assets = Owner's Equity + Liabilities; A=O+LA = O + L
  • Important Note:
    • The details of such transactions will be recorded in the cash book. The cash book is a journal, and as such a book of prime entry (i.e. a book into which source documents are recorded/summarised). The cash book is nothing other than a detailed version of the bank account in the General ledger of the business.
  • Bank account
    • Total cash receipts
    • Total cash payments
    • First recorded in the cash book receipts
    • First recorded in the cash book payments