Chapter 3 - Journal Entries

8/6/2019 Chapter 3 - Journal Entries

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CASH BOOKS

Journal Entries

CHAPTER 2


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Study Objectives

After you have studied this chapter, you should:

Be able to enter up and balance off cash books

Be able to use folio columns for cross-referencingpurposes

Be able to complete entries for discount allowedand discount received.


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Drawing up a cash book

CASH BOOK

consists of cash account and bank account

the bank column records transactions relating tothe bank account

the bank will send bank statement to thecompany. The company/firms will perform bankreconciliation once they received the bankstatement


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Contra between Cash and Bank

Scenario 1

Bank in cash

Debit the bank column in the cash book.

Credit the cash column in the cash book

Scenario 2

Withdraw cash from the bank

Credit the bank column in the cash book

Debit the cash column in the cash book


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Cash discounts

Allowance given for quick payment

Two types of cash discounts:

1)Discounts allowed

2)Discounts received


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Example 1 Discounts allowed when thepayment is made by cash

There are 2 things that should be considered by the firm.

1) Cash received2) The discounts allowed to the debtors

Cash received:Debit cash account in the cash book

Credit debtors

The discounts allowed to the debtors:Debit discounts allowed accounts

Credit debtors accounts


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Example 2 Discounts received when the payment is made by

cheque

There are 2 things that should be considered by thefirm.

1) Payment by cheque

2) The discounts received from creditors

Payment by chequeDebit creditors

Credit bank account in the cash book

The discounts received from creditors :Debit creditors

Credit discount received


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Remember!!!!

Discounts columns in the Cashbook

Discounts received in the credit side ofthe cash book

Discounts allowed in the debit side of thecash book


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Bank overdraft

The firm is allowed to use more than thebalance that they have in the bankaccount


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Sales and Purchases Journal


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Study Objectives

After studying this chapter, you should be able to :

enter up a sales journal and post to the salesledger

differentiate the trade discounts and cashdiscounts

post the purchases journal to the purchasesledger


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Sales Journal

Is kept specially to record credit sales

Represents a chronological listing of salesinvoices information on the sales journalincluding date, name of customer, invoice

number, folio column, final amount of

invoice


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Posting Credit Sales to the Ledgers

The names of the individual customersand the net amount owing by each areposted to their individual accounts in theSales Ledger as debit entries.

The net amount of credit sales for the

period is totalled up in the sales journaland is posted as a single entry to thecredit side of the Sales Account


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Trade Discounts

Is a deduction off the list price given tothe traders who buy in large quantities

No entry is made in the double entryaccount

It is a way to calculate selling price


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Remember!!!!

Trade discounts:

NEVER shown in double entryaccounts, nor in the Trading and

Profit and Loss Account.

Cash discounts:

ALWAYS shown in double entryand in the Trading and Profit andLoss Account


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Purchases Journal

Is used to record all the credit purchases

Represents a chronological listing of

purchases invoices information on thepurchases journal including date, name of

supplier, reference number of the invoice,

folio column, final amount of invoice


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Posting Credit Purchases to the Ledger

The net amount owing to the individualsuppliers is posted to their individualaccounts in the Purchases Ledger as credit

entries

At the end of each period, the total of the

credit purchases in the purchases journalis posted to the debit of the PurchasesAccount.


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THE RETURNS JOURNALS


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Study Objectives

After studying this chapter, you should be able to:

Enter up the returns inwards and returns

outwards journals from source documents

Post the journal entries to the sales and

purchases ledger


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Returns of Goods

Goods sold on credit previously might bereturned due to defect or faulty; wrong

specification, type, size; or damaged

A credit note will be sent by the sellerto the buyer

Sent by company to the customer


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Credit Notes

A note sent to our customers when the goodssold have been over-charged or customers return

the goods to the supplier

Is called credit notes because the supplier willcredit the customer's account (tradereceivables/debtors account), this will reducethe amount owing by the customer to thebusiness.


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Two Scenarios ofReturns of Goods

Scenario 1: Customer returns the goods.

Supplier will sent the credit notes to the

customer with the amounts agreed by bothparties.

Scenario 2: Customer keeps the goods but the

supplier has to reduce the price.

Supplier will sent the credit notes to thecustomer with the amount of the allowance.


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Returns Inwards Journal

Credit notes are listed in the returns inwardsjournal

Items in the returns inwards journal will be

posted as follows: Sales ledger - Credit the amount of the credit

notes to the respective customer's account inthe sales ledger

The total of the return inwards journal is postedto the debit of the returns inwards account.


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Debit Notes

A note send to our supplierwhen we return thegoods to the supplier or discovers that it has

been overcharged in the invoice by the supplier

Is called debit notes because we will debit thesupplier's account (trade payables/creditoraccount) to show the reduction in the amount

that business owes.


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Returns Outwards Journal

Debit notes are listed in the returns outwardsjournal

Items in the returns outwards journal will beposted as follows:

Purchases ledger - debit the amounts of thedebit notes to the respective supplier'saccount in the purchases ledger

The total of the return outwards journal isposted to the credit of the returns outwardsaccount.

Documents

Chapter 3 - Journal Entries