Presentation on theme: "The Journal and Source Documents"— Presentation transcript:
1 The Journal and Source Documents Unit 3 : Chapter 6The Journal and Source DocumentsChapter 6 Quiz will be on October 24 (Friday)
2 The First 6 Steps in the Accounting Cycle 1 Transactions occur.2 Transactions are recorded in the journal in order by date.3 The accounting entries are transferred to the ledger accounts. (or T accounts)4 Trial Balance5 Adjusting Entry6 Balance Sheet and Income Statement
3 Source DocumentsWhen a bookkeeper first records the journal entry, they have to read and interpret the information in source documents. (More than 90% of journal entries are made from source document)Some business transactions are started by non-accounting people such as owner, sales- people, department supervisors, managers and other authorized people.
4 Source Documents There are many types of source documents : Cash Sales slipSales InvoicePoint of Sale SummariesPurchase InvoiceCheck copiesCash Receipts Daily SummaryBank Advices or (Bank Memo)
5 Point of Sale Summaries People use credit cards and debit cards to pay for items.A point of sale terminal is a computerized sales register which allows a business and its customers to exchange funds electronically. (More details in chapter 9)At the end of each day, an accounting clerk can use POS terminal to print POSS at least two source documents.
6 Point of Sale Summaries An example is Fig 6.6 Page 187You can see that PSS reveals the sales activities of three cards: VISA, Master card and debit cards.Journal Entry for POS summaries is:Dr CrBankSalesPOS summary Oct 30
7 Point of Sale Summaries Note: Cheque copy itself is not sufficient proof that the payment is proper. A bill or receipt is also needed to support the accounting entry for a cash purchase. Otherwise we have no idea what this check is for.
8 Common Source Documents Transaction DescriptionJournal EntriesDebitCreditCash Sales Slip POS SummariesA sale of goods (or services) for cash.BankSales or RevenueSales InvoiceA sale of goods (or services) on account.Accounts ReceivablePurchase InvoiceCompany purchased goods (or services) on account1. An expense account (small amount)Few times an asset account (big amount) can be debited. For example, machineAccounts Payable
9 Transaction Description Source DocumentTransaction DescriptionJournal EntriesDebitCreditCheque Copy(Company wrote a cheque, meaning company paid cash)1. Paying off of an account payable2. Cash purchase of an asset3. Cash payment for an expense4. Owner draws out money for personal use1. A liability account2. An asset account3. An expense account4. Drawings accountBankCash Receipts Daily Summary (or check copies)Cheques received from customers (who purchased goods on account in the past)Accounts Receivable
10 Transaction Description Source DocumentTransaction DescriptionJournal EntriesDebitCreditBank Debit Advice (by Bank Statement)Bank account decreaseInterest expense or service chargeBankBank Credit Advice (by Bank Statement)Bank account increase because company’s savings acct earned interest or customer paid back their debt by online paymentInterest earned (Revenue), or AR
11 Additional Supporting Documents In addition to the source documents listed in previous slide, you may encounter the following source documents:Receipts such as donationsBills (=Invoice) such as hydro or telephone chargeinvoices vs mail invoicesOnline banking transactionsInsurance certificates
12 Additional Supporting Documents In addition to the source documents listed in previous slide, you may encounter the following source documents:Written memos from the ownerBank Statements – can contain most (if not all) of these information in reality. You have to learn how to read bank statements.Cash register tapes
13 Number of Copies of Source Documents There is no fixed number of required copies of business documents. It depends on the business and the owner.You would need to keep at least one copy of the source document in general.I will take up one or two questions from yesterday.
14 Classwork / HomeworkReview Questions: #10 to #12, #14, 16 and 18 (P193)Exercises #1, #4 and #5 (P193 and P195)