Cash and Credit TransactionsSection 3 objective 2

Cash and Credit transactions– Distinguish between cash and

credit transactions• The use of• Cash• Cheques• Debit & credit cards

1. by Cash - the customer pays right away by cash or cheque

2. on Credit - the customer pays later

Cash and Credit transactionsThere are two ways to sell or purchase

goods:

• Cash transactions– Can be identified

by • The use of words

– Payments by…– Collection of

cash or cheques

Cash and Credit transactions• Posting of cash

transactions to Books of original entry– entered in:

• Cash book • Petty cash book• General journal

Cash and Credit transactions

• Credit transactions– Is on credit if the following applies:

• If it was described as the transaction took place on credit

• The name of the supplier or customer was mentioned

• If neither the words cash nor bank was mentioned

Cash and Credit transactions

• Posting of credit transactions to Books of original entry– entered in:

• Purchases journal• Sales journal• Returns outwards journal

(purchases returns journal)• Sales inwards journal (sales

returns journal)• General journal

Cash and Credit transactions

• The use of cash :– Used for frequent small

transactions such as• Paying day to day

expenses• Collections for

services rendered• Balance paid or

received for outstanding balances

Cash and Credit transactions

• The use of cheques:– Used as a security measure for

not carrying large sums of cash. Examples of usage of cheques are• Payment of cheques for

credit transactions• Payment of expenses such

as salaries and wages to employees

• Collections of cheques for credit transactions

Cash and Credit transactions

• The use of credit cards:

• Payment of cheques for credit transactions

• Payment of expenses such as salaries and wages to employees

• Collections of cheques for credit transactions

• Making a purchase online or to a major retailer

• For building credit

Cash and Credit transactions

• The use of debit cards :– Limits spending.

Cannot use card if there is insufficient funds in the account

– Useful for point of sale for making purchases or payment of bills (for cash or on credit)

– Making payment online

Cash and Credit transactions

Cash and Credit transactions