Introduction: every business transactions tend
to be supported by a source document.
Source documents are original
documents from which accounting records are kept. Data from the document are first
assembled and classified before they are posted to the ledger.
The books in which data are first assembled and classified before they are posted to the ledger are called subsidiary books, so called because they are subordinate but give support to the ledger which is the principal books of accounts.
The books in which data are first assembled and classified before they are posted to the ledger are called subsidiary books, so called because they are subordinate but give support to the ledger which is the principal books of accounts.
We
shall consider the different kinds
of source documents and of the
subsidiary books in details in this lecture.
SOURCE DOCUMENT
1.
INVOICE: An invoice is
a business document prepared when goods are sold and is normally sently the
seller to the buyer. It gives details of the goods and the value of the
transaction (s). to the seller of the goods, the copy of the invoice is a sales
invoice. The same document in the hands of the buyer is called a purchase
invoice.
2.
VOUCHERS: Vouchers are documents raised as evidence of
financial transactions. They provide a written authorization for the payments
or receipt of money. Vouchers fall into 3 main classifications:
a. Payment
vouchers (PVS)-which are used as evidence of payment of payment of cash or
cheque to a customer (or supplier).
b. Receipt
vouchers (RVS) cash receipts). These are used to provide evidence of receipt of
cash or cheque from a customer.
c. Adjustment
vouchers (AVS) –which are used in effecting the transfer of debit or credit
balance from one account to the another when physical transfer of cash is not
involved. A typical example is payment of inter departmental services. The
receipt and payment vouchers are source document for the entries in the cash
book.
3.
DEBIT NOTE: This is a commercial document written by the buyer
to the seller as a notification of rejected goods returned to the seller. It is
a source document for the preparation of the return outwards, Journals.
4.
CREDIT
NOTE: This is a commercial document
that is normally sent by the seller to the buyer notifying him or her that his
or her account has been credited, this may due to over payment or receipts of
goods returned by the buyer. It is a source document for the preparation of the
returns inward journals.
5.
RECEIPTS: This is a written document issued to acknowledged
that money or valuable property has been received. The date and details of the
transaction as well as the receipt number must be stated on the document.
Receipt relating to cash are called cash receipts. There are other types of
receipts but we are mainly interested in those which are relevant to
accounting. Thus receipt issued to customer in the post firefly the post clerk
in respect of the registered packets are not of interest to us because they do
not give rise to any entry in the ledger or subsidiary book of accounts.
Question/Assignment: with a help of a diagram explain
on invoice.
DISCOUNTS:
DISCOUNT ALLOWED: This is the allowance given to the debtor or one who owes the business
money for credit sales or services in order to encourage him to settle his
account promptly. It reduces the amount of the debtors debt. This is why it is
entered on the credit side of the debtors side. The difference between what he
owes and what he pays is called discount allowed.
Discount Received: This is the allowance received by
the business from its supplies for prompt settlement of accounts with its
suppliers. It is called discount received since it reduces liability to
creditors. It is entered on the debit side of the creditors accounts. Where as
discount allowed is an expenses, Discount received is an income.
Trade Discount: This is sometimes included by the
supplier in the terms of sale and is shown on the invoice to enable the
retailer to sell the item to the financial consumer at the stated price and
make a profit. Trade discount is defined as a reduction from the cateloque
price of a commodity by a dealer to enable the retailer to make a profit to the
extent of the trade discount
Trade discount is not the same as discount allowed and
discount received. Discount allowed and discount received are all cash in
settling accounts where as discount allowed and discount received are entered
in the respective accounts in the general ledge, no ledger account is usually
opened to record a trade discount. The only record of trade discount is usually
on the invoice and as a note in the relevant subsidency books.
Note: Abbrevations ‘E & O.E” at the bottom of an
invoice means “Errors and Omission Excepted the word means that, if an error or
omission has been made on the invoice, a correction will be effected
subsequently by the seller.
BED iii
Jounals
The journal (or Day Book) is the book of prime or book
of original entry. This means that all business transactions are to be finish recorded
in the journal before posting them to the other book or ledger.
For some reasons the journal is normally subdivided
into a number of subsidiary books. The reasons are:
1. Conveniences sub-division of the journal reduces the
size of the journal (especially in big organizations) and makes it convenient
to handle.
2. division of labori sub-division of ledger facilitate
the practice of division of labour since different persons can write different
journals.
3. provision of classified information I Each journal provides
information relating to a particular aspect of the business (e,g purchases
journal provide information relating to credit purchases, while the sales
journal provide information relating to credit sales). Thus, within the
shortest possible time the business set the information relating to different
aspects of the business in a classified form.
Sub-division of the journal
The journal is broadly sub-divided into 2:
a. The special journal and
b. The journal proper or general journal.
SPECIAL JOURNAL
This is a
sub-division of journal meant for a special purpose. It is made up of various
types including:
a. The cash journal (or cash book), which is both
receipts and payments.
b. The good journal, which is meant for recording, all
transactions relating to goods meant for resale. It is further classified inot:
(i)
purpose
journal-meant for recording all credit purchases of goods.
(ii)
Sales
journal-meant for recording all credit sales of good.
(iii)
Returns outwards
(or purchases returns ) journal for recording all returns of goods purchased on
credit
(iv)
Returns towards
(or sales returns) journal for recording of all returns of goods sold on
credit.
C. THE BILLS JOURNAL, WHICH IS MEANT FOR
RECORDING OF ALL BILLS OF Exchange or promissory notes received
or issued by the business. It
is classified into:
1. The bills journal, which is meant for recording of all bills of exchange or promissory notes received by the business from its debtors
2. bills payable journal:
meant for recording all bills of exchange or promissory notes issued by the business infarcure of its
credits.
NB: there will
be no further discussions of bills journal in this topic.
THE
JOURNAL PROPER (GENERAL JOURNAL)
Is
meant for recording all such
transactions for which no special Journal has been kept by the business
it is infact meant for recording such
transactions which due not occur
frequently in the business and
therefore, do not warrant setting up of special journals. Typical examples such transactions includes.
a. opening entries
: of assets and liabilities at the
beginning of the year from the last year
books.
b. Clossign
entries : meant to transfer to
trading Account or P&L
account , end of the yea nominal
account.
c. Adjustment entries : for outstanding / prepaid expenses accrued/outstanding income, etc tat the end of the accounting
year.
d. Transfer
entries: required for
transferring one account to the other
e. Ratification entries: for rectifying the error, which have might been
made in the book of accounts e.g. Ekpe’s account might have been debited
instead of Eke’s account. The correction
of this error will be made in the journal proper.
The cash book
The
cash book or cash journal is meant for recording all cash transactions. It is a
very important book of prime
(and fiscal) entry on account of
the following reasons.
1. The enormity of cash transactions is every business the business
has to pay for salaries, rent, lighting, insurance, purchase, and it has to receive cash for sales of goods
and capital assets.
2. the relatively
higher risk of cash related frauds. This
necessitate a strike control over cash assets . a properly maintained cash book
helps to achieve the objective.
3. the
indispensability of cash in business affairs cash is the new center of every business, srike
timely payments to its creditors increases the reportation of the
business, while timely payments
from its debtors improve the financial position of the business