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Business transactions
Cash transaction Credit transaction

Cash Sales Cash Purchases Credit Sales Credit Purchases

Discount
Trade discounts Cash discounts

Discount received Discount allowed

1.3.1: SOURCES, RECORDS AND (Buyer) (Seller)
BOOKS OF PRIME ENTRY

SOME KEYWORDS IN OVERVIEW OF FINANCIAL ACCOUNTING

Quotation Báo giá Sales day book Sổ nhật ký bán hàng
Sources of documents
Purchase/Sale order Đơn đặt hàng (mua/bán) Purchases day book Sổ nhật ký mua hàng Documents Content Purpose
Receipt Phiếu nhận tiền/phiếu thu Sales return day book Sổ NK hàng bán bị trả lại
Quotation Quantity/description/details of goods To establish price from
Goods Received Note Phiếu nhập kho Purchase return day book Sổ NK hàng mua trả lại required. various suppliers and cross
Good despatched Note Phiếu xuất kho Journal Sổ nhật kí
refer to purchase requisition
Invoice (issue/receive) Hóa đơn Cash book Sổ TGNH
Credit Note Hóa đơn điều chỉnh bán Petty cash book Sổ tiền mặt
Purchase Details of supplier, e.g. name, address. Sent to supplier as request
order Quantity/description/details of goods for supply. To check to the
Debit Note Hóa đơn điều chỉnh mua Ledger Sổ kế toán
required and price. Terms and quotation and delivery note.
Statement (list all invoice) Danh mục các hóa đơn Nominal/general ledger Số kế toán tổng hợp
conditions of delivery, payment, etc.
Remittance advice Chi tiết các khoản th.toán Account receivables Tài khoản phải thu
Sales order Quantity/description/details of goods Issue by a supplier for
Imprest system Số dư tiền tối thiểu/cần thiết Account payables Tài khoản phải trả required and price goods or services will sale
Capital Vốn Return inwards Hàng bị trả lại to customer.
Drawings Rút vốn Return outwards Trả lại hàng mua

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Sources of documents Sources of documents

Documents Content Purpose
Documents Content Purpose
Goods received Details of goods that the Produced by company receiving Credit note Details of supplier, name and address. Issued by the supplier.
note business has received from the goods as proof of receipt. Contains details of goods returned, Checked with documents
supplier: name, quantity Matched with delivery note and quantity, price, value, sales tax, terms regarding goods returned.
and description,… of goods purchase order. of Credit.
Goods Details of supplier, e.g. Provided by supplier. Checked Debit note Details of the supplier. Contains Issued by the company
despatched name and address. Quantity with goods details of goods returned, e.g. receiving the goods. Cross
note – GDN and description of goods received and purchase order. quantity, price, value, sales tax, terms referred to the credit note
Receipt Details of payment Issued by the selling company of credit, etc. issued by the supplier.
received. indicating the Remittance Method of payment, invoice number, Sent to supplier with, or as
payment received. advice account number, date, etc. notification of, payment.

Books of prime entry

Sources of documents Books of prime entry are books in which we first record transactions

Documents Content Purpose Books of prime entry Transaction type

Invoice Name and address of Issued by supplier of goods as a Sales day book Credit sales
supplier and customer; request for payment. For the supplier Purchases day book Credit purchases
details of goods, e.g. selling the Sales returns day book Returns of goods sold on credit
quantity, price, value, salesgoods/services this will be treated as a Purchases returns day book Returns of goods bought on credit
tax, terms of credit, etc. sales invoice. For the customer this
will be treated as a purchase invoice. Cash book All bank transactions
Statement Details of supplier, name Issued by the supplier. Checked with Petty cash book All small cash transactions
(list all and address. Date, invoice other The journal All transactions not recorded elsewhere
invoice) numbers and values, documents to ensure that the amount All transactions are initially recorded in a book of prime entry. This is a
payments made, refunds, owing is correct. simple note of the transaction, the relevant customer/supplier and the amount of
amount owing. the transaction. It is, in essence, a long list of daily transactions.

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Revision
QUESTION 1: State which books of prime entry the following transactions
would be entered into.
Transactions Book of prime entry
Your business pays A Brown (a supplier) $450.00
You send D Smith (a customer) an invoice for $650
Your accounts manager asks you for $12 urgently in order to
buy some envelopes
You receive an invoice from A Brown for $300
You pay D Smith $500
F Jones (a customer) returns goods to the value of $250
You return goods to J Green to the value of $504 1.3.2: LEDGER ACCOUNTS AND
F Jones pays you $500 DOUBLE ENTRIES

Revision Ledger Account

► Nominal ledger (General ledger/GL) is an accounting
record which contains the principle accounts and which
QUESTION 2: Which of the following is Not a book of summarizes the financial affairs of a business
prime entry? ► The method used to summarise these records: ledger
A. Journal accounting and double entry.
B. Sales day book
► Format of a nominal ledger
C. Receivables ledger
D. Cash book Account Name

Dr Cr

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The Business Equation Balancing off The Ledger Account

Assets, expenses, purchases, COGS,
Closing net Opening Introduced Drawing, Sales tax – input, Sales returns Cr
= + + Profit - Drawings Dr
assets net assets Capital
Balance brought forward
Closing net Opening net Introduced (Opening balance)
Profit = - - + Drawings
assets assets Capital

Balance carried forward

MOVEMENT IN NET ASSETS
(Closing balance)
Introduced capital
ASSETS = CAPITAL + LIABILITIES
NET ASSETS Retained Earnings
NET ASSETS = CAPITAL = Balance brought forward
Reserves
ASSETS - LIABILITIES (Opening balance)

Ledger Account
Revision
Liabilities, Capital, Sales, Income,
QUESTION Business equation
Net assets at the beginning of 20X7 were $101,700. The proprietor Dr Sales tax-output, Purchase returns Cr
injected new capital of $8,000 during the year and took drawings of Balance brought forward
$2,200. Net assets at the end of 20X7 were $180,000.
What was the profit earned by the business in 20X7?
(Opening balance)
A $72,500 profit
B $88,300 profit
C $84,300 profit Balance carried forward
D $(84,100) loss (Closing balance)

Balance brought forward

(Opening balance)

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The Accounting Equation

Concepts Description

Stocks/Inventories Unsold goods

Account receivables (AR) Amounts owed to the business by its customers
Account payables (AP) Amount owed by the business to its suppliers
Retained earnings (RE) Profit generated from operation by a business but not
yet distributed to its owners
Drawings Amounts of money or assets taken out of a business by
its owners
Return inwards Goods returned to the business
Return outwards Goods returned by the business
Gross profit Gross profit = Sales – Cost of goods sold (COGS)
Net profit Net profit = Gross profit – Expenses

Double entry FSs

Account type

ASSETS
Debit (DR) Credit (CR)
Double Entry Bookkeeping
Except from (adversely recorded)
Statement Dual effect (duality concept)
Accumulated depreciation/Provision for depreciation
Provision for slow moving stocks of ► Double entry bookkeeping is the method used to transfer the weekly/monthly totals from the books of
prime entry into the nominal ledger.
Provision for doubtful debts/irrecoverable debts Financial ► Double entry bookkeeping is the method by which a business records financial transactions. An
LIABILITIES Position account is maintained for every asset, liability, income and expense. Every accounting event must be
entered in ledger accounts both as a debit and as an equal but opposite credit.
(Balance
CAPITAL ► The duality concept means that each transaction will affect at least two ledger accounts.
Except from (adversely recorded) Sheet)
Summary of steps to record a transaction
Drawings (1) Identify the items that are affected.
SALES/INCOME (2) Consider whether they are being increased or decreased.
COST/COGS (COST OF GOODS SOLD) Income
(3) Decide whether each account should be debited or credited.
Except from (adversely recorded) (4) Check that a debit entry and a credit entry have been made and they are both for the same amount
Return outwards
statement
Total DR side = Total CR side (balance)
EXPENSES

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Double Entry Bookkeeping Double entry for typical transactions

Double entry

Double entry Debit (DR) $ Credit (CR) $

Double entry for typical transactions
Debit (DR) $ Credit (CR) $ Cash receipts
Sales transactions Capital contribution
Cash sales Owner paid $ 900 into the business’s bank account
Sold goods for cash at $ 1,000 Cash at bank 900
Cash at bank 1,000 Capital contribution 900
Sales 1,000 Receipt from credit customers
Credit sales A customer paid $ 1,100 to totally clear his debt
Sold goods on credit for $ 1,175 including 17.5% sales tax Cash at bank 1,100
Trade receivables 1,175 Trade Receivables 1,100
Sales 1,000 Discount allowed
Sales tax-output 175 Due to the immediate payment, the business accept customer to
Sales return deduce the paying amount of $ 1,000 to $ 900
A customer returned goods value $ 117.5 including 17.5% sales tax Cash at bank 900
Sales return 100 Discount allowed 100
Sales tax - output 17.5 Trade receivables/sales 1,000
Trade receivable 117.5

Double Entry Bookkeeping Double Entry Bookkeeping

Double entry
Double entry for typical transactions Debit (DR) $ Credit (CR) $ Double entry
Purchase transactions Double entry for typical transactions Debit (DR) Credit (CR)
 Cash purchases $ $
Payment of a purchase billed totaling $ 1,175 including sales tax of 17.5%
Purchases (Inventory,…) 1,000 Cash payments
Sales tax – Input 175 Drawings
Cash at bank 1,175 Owner withdraw $ 900 from the business’s bank account
 Purchase return Drawings 900
A business returned goods valued $ 100 excluding sales tax of 17.5%
Cash at bank 900
Cash at bank/Trade payable 117.5
Purchase return 100 Payment to suppliers
Sales tax-input 17.5 A payment of $ 1,100 for the company’s AP
 Credit purchase Trade payables 1,100
Bought goods on credit $ 1,175 including sales tax of 17.5% Cash at bank 1,100
Purchases 1,000
Sales tax-input 175
Trade payables 1,175

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Revision and Chapter summary 2

Revision QUESTION
During a period, A Co has the following
QUESTION 1: What is the double entry to record transactions on receivables control account:
RECEIVABLES CONTROL
Dual effect recorded
a credit sale of $50? in ledger accounts sales $125,000, cash received $50,000, $ $
A DEBIT cash $50, CREDIT sales $50 discounts allowed $2,000. The balance carried Bal b/d (bal. 22,000 Cash 50,000
B DEBIT receivables $50, CREDIT sales $50 forward is $95,000. What was the opening figure)
C DEBIT sales $50, CREDIT receivables $50 Account name balance at the beginning of the period?
D DEBIT sales $50, CREDIT cash $50 Sales 125,000 Discounts allowed 2,000
CR = increase in A. $22,000 debit
DR = increase in
QUESTION 2 : The double entry to record a  Purchases  Revenues B. $22,000 credit
 Expenses  Liabilities _______ Bal c/d 95,000
purchase of office chairs for $1,000 is:  Equity
C. $18,000 debit
 Assets
DEBIT non-current assets $1,000, CREDIT cash D. $20,000 debit
$1,000. True or false? 147,000 147,000
DR = CR ANSWER:
QUESTION 3 : Individual customer accounts are
kept in the …………?

Revision and Chapter summary 1

QUESTION 1 : What is the double entry to record a credit sale of $50?

A DEBIT cash $50, CREDIT sales $50
B DEBIT receivables $50, CREDIT sales $50
C DEBIT sales $50, CREDIT receivables $50
D DEBIT sales $50, CREDIT cash $50

QUESTION 2: The double entry to record a purchase of office chairs for $1,000 is:
DEBIT non-current assets $1,000, CREDIT cash $1,000. True or false?

QUESTION 3 : Individual customer accounts are kept in the …………? 1.3.3: FROM TRIAL BALANCE TO
FINANCIAL STATEMENTS

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The Trial Balance (TB) Financial Statements

At suitable intervals, the entries in each ledger account are totaled and a STATEMENT OF FINANCIAL POSITION
balance is struck. Balances are usually collected in a trial balance which is then
used as a basis for preparing a statement of profit or loss and a statement of
financial position. The balances on all remaining ledger accounts (including the
A trial balance is a list of ledger balances shown in debit and credit columns. profit or loss account) can be listed and rearranged to form the
statement of financial position.
Steps to prepare the Trial Balance (TB):
These remaining accounts must also be balanced and ruled off,
► Step 1: Collect of ledger accounts
but since they represent assets and liabilities of the business (not
► Step 2: Balance ledger accounts income and expenses) their balances are not transferred to the
► Step 3: Collect the balances P/L account. Instead they are carried down in the books of the
► Step 4: Check and reconcile business. This means that they become opening balances for the
next accounting period and indicate the value of the assets and
liabilities at the end of one period and the beginning of the next.

Financial Statements Revision

QUESTION:
STATEMENT OF PROFIT AND LOSS
A trial balance is made up of a list of debit
A profit or loss ledger account is opened up to gather all items balances and credit balances.
relating to income and expenses. When rearranged, these items Which of the following statements is correct?
make up the statement of profit or loss.
A.Every debit balance represents an expense
B.Assets are represented by debit balances
C.Liabilities are represented by debit balances
D.Income is included in the list of debit balance