Source Documents

• A source document is a specially designed form which supplies details of a business transaction.

• It contains information like the date, the nature and types of transactions, the value of the transactions and the names of the buyers and sellers involved.

• Source documents are important:– as evidence of transactions;– for recording transactions;– for auditing purposes.

Source Documents

Books of Prime Entry

• Books of prime entry are the first books in which the business transactions are recorded throughout the accounting process.

• They are also known as books of original entry.

• Each transaction recorded must be supported by documentary evidence such as invoices, receipts, cash register slips, cheques, etc.

Books of Prime Entry

Journals

• The General Journal is used to record all transactions other than those in the special journals.

• A Special Journal is used to record transactions of a similar nature such as credit purchases of goods or credit sales. Special journals are created to reduce the number of entries in the General Journal.

Journals

• The following special journals are usually used by a trading enterprise:

• Purchases journal– Purchases returns journal– Sales journal– Sales returns journal– Cash book

Invoices

• An invoice is a business document sent by the seller to the buyer to inform the latter of the amount due on goods or services supplied.

Invoices

Invoices• The following figure shows the process of recording the

information from invoices received into the Purchases Journal and posting it to the Ledger.

Invoices• Example

Purchases Journal

• The Purchases Journal is used for recording credit purchases of merchandise.

• It excludes cash purchase and purchase of fixed assets.

• It is a one-line entry without any debit or credit.

• It supplies information on transactions in chronological order of date.

• It facilitates cross-reference.• It reduces detailed recordings in the Ledger.

Credit Notes

• Credit notes are prepared by the seller to be sent to the buyers informing them that their accounts in the books of the seller have been credited.

• It is used for goods returned or for amount overcharged.

• Goods bought on credit are returned for the following reasons:– They are defective or damaged.– They are not in accordance to specification,

quality, size, type or brand name.– They are empty bottles, cases or containers which

are returnable.

Credit Notes

Credit Notes• The following figure shows the process of recording the

information from credit notes received into the Purchases Returns Journal and posting it to the Ledger.

Credit Notes• Example

Purchases Returns Journal

• The Purchases Returns Journal is used to record returns of goods bought for resale.

• It also records overcharges by the suppliers.• It is a one-line entry without any debit or

credit.• It gives the date order for each transaction.• It cuts down detailed recordings in the

Ledger.• It enables quick reference to the source of

transactions.

Example 1

Example 1

Example 1

Sales Journal

• The Sales Journal is used for recording credit sales of merchandise.

• It excludes cash sales and sales of fixed assets.

• It is a one-line entry without any debit or credit.

• It supplies information on credit sales in chronological order of date.

• It facilitates cross-reference.• It reduces detailed recordings in the Ledger.

Sales Journal• The following figure shows the process of recording the information

of invoices sent to the buyers into the Sales Journal and posting it to the Ledger.

Sales Journal• Example

Sales Returns Journal

• The Sales Returns Journal is used to record returns of goods by the customers.

• It is also used when the customers are overcharged.

• It is a one-line entry without any debit or credit.

• It gives the date order for each transaction.• It reduces the volume of entries in the

Ledger.• It enables easy reference to the source of

transactions.

Sales Returns Journal• The following figure shows the process of recording the

information of credit notes sent to the customers into the Sales Returns Journal and posting it to the Ledger.

Sales Returns Journal• Example

Example 2

Example 2

Example 2

Recording Transactions in the General Journal and Posting to the Ledger

• The General Journal is usually used to record the following transactions:– Purchase and sale of fixed assets on account.– Other transactions such as drawings, additional

capital by the owner and services charged.– Opening entry.– Closing entry.– Adjustments on balance day.– Correction of errors.

Purchase of Fixed Assets

Owner Withdrew Goods for Personal Use

Additional Capital Other Than Cash