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Session Objectives

Topic 10
Books of Prime Entry and Control Accounts

Identify and explain the function of the main data sources in an accounting system Outline the contents and purpose of different types of business documentation Understand the basic function and form of accounting records in a typical manual system Understand the purpose of control accounts for accounts receivable and accounts payable Understand how control accounts relate to the double-entry system

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

Session Objectives
Prepare ledger control accounts from given information Perform control account reconciliations for accounts receivable and accounts payable Identify errors which would be highlighted by performing a control account reconciliation Identify and correct errors in control accounts and ledger accounts Record cash transactions in ledger accounts

Session Objectives
Understand the need for a record of petty cash transactions Describe the features and operation of a petty cash imprest system Account for petty cash using imprest and nonimprest methods Understand the importance of, and identify controls and security over the petty cash system

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

Business Documentation
Quotation: Asking price. Used for establishing price from various suppliers Purchase order: A written authorization prepared by a buyer for the purchase of goods or services at a specified price. Sales order: An order received by a business from a customer. A sales order may be for products and/or services.

Business Documentation
Delivery Note (Goods Delivery Note): A written document from the seller to the buyer that accompanies a delivery of goods and specifies type of goods and quantity. Purchase Invoice: Produced by company receiving the goods as a proof of receipt. Credit Note: A monetary instrument issued by a seller that allows a buyer to purchase an item or service from that seller on a future date.

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

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Student Notes for ACCA F3-Financial Accounting

Business Documentation
Debit Note: Note to a person or a company signifying an amount owed. Although it is very similar to an invoice, the invoice always represents sales, whereas a debit note is used for deducting money without a sale being made. Remittance Advice: A statement sent to providers showing that claims were processed and the amount for which the beneficiary is responsible. If denied, an explanation of denial is provided. Receipt: Details of payments received

Books of Prime Entry


Sales Day Book Recording credit sales Purchases day book - Recording credit purchases Sales returns day book Recording sales returns Purchases returns day book - Recording purchases returns Cash book - All cash / bank transactions Petty cash book All small cash transactions Journal All transactions not recorded elsewhere

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Student Notes for ACCA F3-Financial Accounting

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Student Notes for ACCA F3-Financial Accounting

Ledger Accounts
General ledger Contains all accounts or a summary of all accounts necessary to produce the trial balance and financial statements Accounts receivables ledger- Contains an account for each credit customer. An account to summarise this information , Sales ledger control account, is normally contained in the General ledger Accounts payable ledger- Contains an account for each credit supplier. An account to summarise this information , Purchase ledger control account, is normally contained in the General ledger

Sales Day Book Format

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

Sales Day Book Double Entry


Double entry will depend on whether individual accounts are maintained in individual ledger or sales ledger control account in general ledger Individual accounts part of double entry:
Dr. Sam Dr. John Cr Sales $4500 $10,000 $14,500

Sales Day Book Double Entry


Sales Ledger Control Account part of double entry:
Dr. Sales Ledger Control Account Cr. Sales $14,500 $14,500

Each entry also posted to individual memorandum accounts in accounts receivable ledger

(Total sales posted to sales ledger control account)


SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting

Purchases Day Book, Sales Returns Day Book, Purchases Returns Day Book
Format is similar to that of sales day book.
Individual accounts part of double entry Purchases Day Book
Dr. Purchases Cr. Individual Accounts in accounts payable ledger Total purchases posted to purchases ledger control account

Sales Returns Day Book


Individual accounts part of double entry Control accounts part of double entry
Dr Sales Returns Cr Sales ledger control account

Control accounts part of double entry


Dr. Purchases Cr. Purchase ledger control account Each entry also posted to individual memorandum accounts in accounts payable ledger

Sales returns day book

Dr Sales Returns Cr Individual accounts in accounts receivables ledger Total returns posted to sales ledger control account

Each entry posted to individual memorandum accounts in accounts receivable ledger

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

Purchases Returns Day Book


Individual accounts part of double entry Control accounts part of double entry
Dr. Purchase ledger control account Cr. Purchases returns Each entry posted to individual memorandum accounts in accounts payable ledger

Control Accounts
Sales Ledger Control Account Purchases Ledger Control Account

Purchases returns day book

Dr. Individual accounts in accounts payable ledger Cr. Purchases returns Total returns posted to purchases ledger control account

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

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Student Notes for ACCA F3-Financial Accounting

Sales Ledger Control Account Format

Purchases Ledger Control Account Format

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

Contra Entries
These are entries made when a customer is also a supplier.
Dr. Purchase ledger control account Cr. Sales ledger control account

Cash Book
All transactions involving cash and bank are recorded in cash book. Many businesses may have separate books for cash receipts and cash payments A note of cash discounts is also made in the cash book Businesses generally use a columnar format of cash book

Individual receivables and payables must also be updated to reflect this.

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

Petty Cash Book


All transactions involving small amounts are recorded in the petty cash book Petty cash is maintained using Imprest System

Imprest System
Step 1: Business decides on an amount to be held as a float
Dr. Petty Cash Cr. Bank

Step 2: As petty cashier makes payments he records them in the petty cash book. All expenditure must be evidenced by an expense receipt Step 3: Cheque is drawn to return the petty cash to the original float level
Float = Cash in petty cash box + Sum total of expense vouchers since last disbursement

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting

SmartClasses.com 2007

Student Notes for ACCA F3-Financial Accounting