6-1 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

Chapter 6 – Cash and Credit Journals

Learning OutcomeThe outcome for this chapter is to prepare

four special journals from source documents

6-2 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

KEY TERMS• Cash journals • Cash payments journal (CPJ)• Cash receipts journal (CRJ)• Credit journals• Journal• Purchases dissection journal (PJ)• Sales dissection journal (SJ)• Trial Balance

6-3 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

SOURCE DOCUMENTS• Source documents that generate accounting

entries:– sales invoices– receipts/cash register tapes– purchase invoices– cheques– adjustment notes– memoranda

6-4 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

PROCESS TO TRIAL BALANCE

Sales invoices/purchase invoices/receipts or cash register tapes/cheques and electronic payments/adjustment notes/memoranda

Transactions from source documents

The four cash and credit journals and the General journal

Lead to accounting entries in

Posted to the general ledger and to the debtors and creditors subsidiary ledgers

Which are

Prepare a Trial Balance at the end of the accounting period

To

6-5 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

INVENTORIES—STOCK OR GOODS

• Balance of inventories on hand is an asset.• Purchase of inventories sold is an expense:

– Cash purchases—CPJ– Credit purchases—PJ.

• Sale of inventories is revenue:– Cash sales—CRJ– Credit sales—SJ.

6-6 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

PERIODIC INVENTORY SYSTEM

• Inventory balance determined by stocktake• Profit determined by deducting inventory balance from cost

of goods sold at end of period • For purchase:

DR: Cost of goods sold (purchases)

DR: GST input tax credits CR: Accounts payable/cash

6-7 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

PERPETUAL INVENTORY SYSTEM• Separate inventory cards for each item • Show continual stock movement• Physical stocktakes allow comparison with stock records• Distinguishes between cost and selling price• For purchase:

DR: Inventories DR: GST input tax credits CR: Accounts payable/cash

6-8 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

FOUR CASH AND CREDIT JOURNALS• Sales dissection journal, including sales returns

journal– Records credit sales– Records goods returned by debtors

• Purchases dissection journal, including purchases returns journal– Records credit purchases– Records stock returned to creditors

6-9 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

FOUR CASH AND CREDIT JOURNALS cont…• Cash receipts journal

– Details cash received

• Cash payments– Details cash paid out

6-10 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

JOURNALISING TRANSACTIONS

6-11 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

CREDIT JOURNALS

• Sales dissection journal• Records credit sales• Records inventory returns• Records sales of non-current assets• Source documents

– Sales invoice– Credit or adjustment note

6-12 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

CREDIT JOURNALS cont…

• Purchases dissection journal• Records credit purchases• Records inventory returned• Records purchases of non-current assets• Records expenses for items received but not yet

paid• Source documents

– Purchase invoice– Credit or adjustment note

6-13 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

CASH PAYMENTS JOURNAL

Records all cash paid out from bank accounts for payment of:

• trade creditors• other creditors• cash purchases and expenses• other liabilities (e.g. loans, leases)

6-14 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

CASH RECEIPTS JOURNAL

Records all cash received and paid into bank accounts from:

• trade debtors• other debtors• cash sales • receipts from other sources of revenue (e.g.

interest and dividends received)

6-15 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David WillisBy Kaye Watson

ADVANTAGES OF USING SPECIALISED JOURNALS

• Records only one type of transaction• Totals posted to ledgers rather than individual

transactions• Different staff use the journals, providing an

internal control to reduce error and fraud