Year 12 Accounting Chapter 6

Report
Tuesday
Year 12 Accounting
Cash Journals
Warning…Warning
SAC!
• Thursday P3?
• You are now in VCE. If you are absent you must have
a medical certificate.
• It covers source documents, journals, Subsidiary
Ledgers, posting to the General Ledger and relevant
theory.
• Please remember the VCAA monitor SAC’s. No
talking, no messaging & closed books. When you are
finished, you can then use your iPod or study but no
noise.
Remember?
• Types of Special Journals.
Cash payments
journal
•
The special journals described in Chapter 5 dealt solely with credit transactions; the Purchases Journal summarised all
stock purchased on credit, and the Sales Journal summarised all stock sold on credit. By summarising the transactions, it
was possible to post the Purchases Journal to the General Ledger in only three entries, and the Sales Journal in only
five:
•
Purchases Journal
DR. Stock Control
DR. GST Clearing
CR. Creditors Control *
•
Sales Journal
DR. Debtors Control *
CR. Sales revenue
CR. GST Clearing
and
DR. Cost of Sales
CR. Stock Control
Cash payments
journal
• The same approach (i.e. summarising similar transactions
before posting them to the General Ledger), can be applied
to cash receipts and cash payments, with the Cash Payments
Journal used to summarise all cash paid, and the Cash
Receipt Journal used to summarise all cash received.
• See Green Thumb Plants example on p.108. Note that each
of the transactions above is a cash payment, and therefore
each has exactly the same effect on the ledger account for
Bank (credit).
• The Cash Payments Journal is an accounting record
summarising all cash paid during a Reporting period.
You!
• Review Questions 6.1.
• Q 1.
TRANSACTIONS IN
THE CASH
PAYMENTS JOURNAL
• See Figure 6.1 on p. 109.
• Date Transactions are recorded in date order.
• Details Because each and every cash payment requires a
credit to the Bank ledger account, the only part of the
double-entry which must be specified for each payment is
the other account – the account to be debited. Note how the
name of each individual creditor is listed when payments are made
to creditors. The total paid to creditors ($750) will be posted
to the Creditors Control account in the General Ledger, but
the individual transactions will be posted to the individual
creditor’s accounts in the Creditors Ledger.
CASH
PAYMENTS JOURNAL
• Cheque number In order to satisfy the demands of
Reliability, the source document is identified. A cheque
number is identifiable from the cheque butt, and
businesses should be encouraged to make payments by
cheque for all but the smallest amounts (see Chapter
4). All cheque numbers should be recorded in the Cash
Payments Journal, even if the cheque is cancelled, so
that all cheques are accounted for and theft is (at best)
discouraged or (at worst) detected.
THE CASH
PAYMENTS JOURNAL
• Bank The amount of the payment must be recorded first in the
Bank column, to allow calculation of the total cash paid. Where
GST is involved, the amount recorded in the Bank column
includes the GST amount. This amount will be posted to the Bank
ledger account as one total, at the end of the Reporting period.
• Classification columns The amount of each transaction is
recorded twice – once in the Bank column to record the cash paid,
and a second time in a classification column to record what the
cash was paid for. These classification columns allow for frequent
cash payments to be summarised, and the total posted to the
ledger account. The headings used for each of these classification
columns will, of course, vary between businesses, as their
transactions vary. In Figure 6.1, frequent cash payments are made
to creditors, for stock and for wages, and so these transactions
have their own classification column.
THE CASH
PAYMENTS JOURNAL
• GST For transactions that incur GST, this column is
where the GST paid (10% of the purchase price) is
recorded. The GST increases the amount paid out of
the Bank account, but does not effect the value of
whatever has been purchased (which, in this case, is
stock, electricity and a vehicle).
• Sundries Any cash payments that are infrequent must
be recorded in the Sundries column. The cash purchase
of the vehicle is unlikely to occur more than once in a
Reporting period, and the payment of electricity is
infrequent, so they do not warrant their own columns.
Double-checking
mechanism
• At the end of the Reporting period, each column in the
Cash Payments Journal should be totaled. As a doublechecking mechanism, the total of the Bank column
should equal the sum of the totals of the other
columns.
• If these amounts do not match, then a transaction has
been recorded incorrectly in the Cash Payments
Journal, and the journal cannot be posted to the ledger
until the error is rectified.
You!
• Review Questions 6.2.
• Q’s 1, 3 & 4.
Posting the cash
payments journal to
the general ledger
• The Cash Payments Journal is posted to the General Ledger
using the column totals at the end of the Reporting period.
• Pay attention to the ledger entries Figure 6.2 (p. 111).
• In all the ledger accounts shown in this text so far, the crossreference has been the name of the other ledger account
effected by each transaction. Even when posting the Cash
Payments Journal, the cross-reference in the Stock Control,
Creditors, Wages, GST Clearing, Electricity, Drawings and
Vehicle accounts was Bank.
Note
• However, the cross-reference in the Bank account itself does
not follow this same rule – it is not the name of a ledger
account. This is because there is no single account linked to
the $15,057 paid out of the Bank account – it has been paid
for a number of different purposes. For this reason, the crossreference in the Bank account must simply be Cash payments to
indicate that there are a number of other accounts linked to this
total payments figure.
• This also means any GST paid ($1,257) is included in the
total cash paid, and the GST Clearing account does not
need to be noted in the cross-reference. (Because it is the
only entry in the GST Clearing account, the debit entry
means that the business currently has a current asset in
relation to GST.)
You!
• Review Questions 6.3.
• Q’s 1 & 2.
SAC
• Covers the topics of establishing a double-entry
accounting system including preparing journal entries,
posting to the General Ledger, the payment of stock
bought on credit, and balancing a Subsidiary Ledger
on a monthly basis.
POSTING THE CASH PAYMENTS JOURNAL TO
THE
CREDITORS (SUBSIDIARY) LEDGER
• The same approach that was taken to posting the
Purchases Journal (in Chapter 5) must be taken when
posting the Cash Payments Journal. In the General
Ledger, the total paid to creditors is debited to the
Creditors Control account at the end of the Reporting
period. However in the Creditors Ledger, the individual
transactions must be debited to the account of each individual
creditor on the day that they occur.
• This is shown in Figure 6.3 p. 113.
You!
• Review Questions 6.4.
• Q 1.
Cash receipts
journal
• The transactions in the Cash Payments Journal had one
ledger entry in common – they all involved a credit to the
Bank account in the General Ledger. The same principle
can be applied to all cash receipts, but from the opposite
perspective: each cash receipt requires a debit to the Bank account.
• While the credit part of each entry will vary according to
the source of the cash received, each cash receipt involves
the same debit entry to Bank. As with the Cash Payments
Journal, rather than a separate debit to the Bank account for
each individual transaction (and these could number 30 or
40 per month) these transaction can be summarised in a
Cash Receipts Journal.
You!
• Review Questions 6.5.
• Q 1.
RECORDING TRANSACTIONS IN THE CASH
RECEIPTS JOURNAL
• See Figure 6.4 on p. 114.
• Notes for recording in the Cash Payments Journal
• Date Transactions are recorded in date order.
• Details Because each and every cash receipt requires a
debit to the Bank ledger account, the only part of the
double-entry that must be specified for each payment is
the account to be credited.
• Receipt number With cash receipts, the source document
itself should be a cash receipt, generated either manually or
by computer or cash register. Because these receipts are
issued by the firm itself (in this case, Green Thumb
Plants), the receipt numbers should run in sequence.
RECORDING TRANSACTIONS IN THE CASH
RECEIPTS JOURNAL
• Bank The amount received must be recorded first in the Bank
column, to allow calculation of the total cash received. Where
GST is involved, the amount recorded in the Bank column includes
the GST amount.
• Classification columns As with the Cash Payments Journal, the
amount of each transaction must be recorded twice – once in the
Bank column to record the cash received, and a second time in a
classification column to record the source of that cash.
• Cost of sales One of the complicating factors in recording cash
sales is the fact that each sale will involve two double-entries – one
at selling price, and one at cost price. The amount of cash received
from the sale (recorded at selling price) is recorded in the Bank
and Sales columns. But because each sale also decreases stock and
creates an expense (Cost of sales) it is also necessary to show the
cost price of each sale in the Cash Receipts Journal.
RECORDING TRANSACTIONS IN THE CASH
RECEIPTS JOURNAL
• GST For cash sales, this is where the GST received
(10% of the selling price) is recorded. The GST
increases the amount received (as shown in the Bank
column), but does not effect sales revenue earned, nor
the cost of the sale.
• Sundries This column fulfils exactly the same function
in the Cash Receipts Journal as it does in the Cash
Payments Journal. Infrequent cash receipts must be
recorded in the Sundries column.
Double-checking
mechanism
• The Cash Receipts Journal has a checking mechanism
just like the Cash Payments Journal, but it is
complicated by one factor – the use of the Cost of sales
column. At the end of the period, each column in the
Cash Receipts Journal should be totaled. As a doublechecking mechanism, the total of the Bank column
should equal the sum of the totals of the other
(Classification and Sundries) columns, except Cost of
sales. (This is because Cost of sales does not record
cash received from sales; it only records the cost price
of the stock that has been sold.)
You!
• Review Questions 6.6.
• Q’s 3 & 4.
Wednesday
POSTING THE CASH RECEIPTS JOURNAL TO
THE
GENERAL LEDGER
• Once the columns in the Cash Receipts Journal have
been totaled, these totals can be posted to the General
Ledger accounts. Once again, this is done only at the
end of the Reporting period (30 June).
• The example does not account for all the information
in the Cash Receipts Journal: we must also record the
cost price of the sales made. This is done by posting an
additional double-entry:
POSTING THE CASH RECEIPTS JOURNAL TO
THE
GENERAL LEDGER
• Figure 6.5 shows how the General Ledger accounts
would appear after posting the Cash Receipts Journal
(p. 116).
• The Cash Receipts Journal is posted to the General Ledger
using the column totals at the end of the Reporting period.
Cross-references in
the Bank account
• As with the Cash Payments Journal, the amount posted to
the Bank account ($12 470) is not linked to one account, but
many (in this case, four: Debtors Control, Sales, Capital and
GST Clearing). The cross-reference in the Bank cannot,
therefore, be the name of a ledger account: it must be Cash
receipts to indicate that there are a number of other
accounts linked to this total receipts figure.
• This means the GST received ($170) is simply included in
the total cash received, and the GST Clearing account does
not need to be noted in the cross-reference. But in the GST
Clearing, Debtors, Sales, and Capital accounts the crossreference can, and therefore must, be the name of the other
ledger account involved: Bank.
POSTING THE CASH RECEIPTS JOURNAL TO THE
DEBTORS (SUBSIDIARY) LEDGER
• Among other things, Figure 6.4 records the cash
received from two debtors, G. Matthews and T. May.
The total received from debtors ($600) is credited to the
Debtors Control account at the end of the Reporting
period (30 June 2015), but the individual transactions –
on 8, 14 and 27 June – must be credited to the account
of each individual debtor in the Debtors Ledger on the
day they occur. This is shown in Figure 6.6 (p. 118).
• The Cash Receipts Journal is posted to the Debtors Ledger
using individual transactions on the day they occur.
Tuesday’s revision
Gst settlement &
gst refund
• At the end of the Reporting period, each business will
balance its GST Clearing account to determine
whether it has a GST liability, or a GST asset. At the
end of its BAS period (when it must complete and
submit its Business Activity Statement), the business
will then have to pay any GST owing to the ATO as a
GST settlement, or will receive a GST refund from
the ATO for excess GST paid/incurred.
• See Holding Furniture example on p.119.
Gst settlement
• Refer Figure 6.7.
• Note that although the GST settlement is paid, it is not
recorded in the GST column, as this column is only for
GST paid to suppliers, on purchases. A GST
settlement is paid to the ATO to settle a GST debt. As
a result, it must be identified separately, and so is
recorded in the Sundries column.
Gst settlement
• (Remember that although the GST settlement will be
recorded in the Cash Payments Journal when it is paid
on 4 October 2015, the Cash Payments Journal will
not be posted to the General Ledger until 31 October
2015.)
GST refund
• If GST paid and incurred on purchases is greater than
GST received and charged on sales, the business will
be entitled to a GST refund from the ATO.
• See Garner Electronics example. Again it is recorded
in the Sundries column of the Cash Receipts Journal.
• Again the GST refund would have the same effect as a
GST settlement in terms of clearing the previous
balance in the GST Clearing account, as is shown on
p. 103.
GST Cash flows
• The GST charged on credit sales increases the GST
liability, but it is not a cash flow.
• The same applies to GST incurred on credit purchases,
which decreases the GST liability, but does not involve
a payment of cash.
Discounts
• For a business that sells on credit terms, the issue of how to make
sure debtors pay – either early or on time – can be a vexed
question. One of the more obvious options is to offer a settlement
discount, which rewards debtors who pay early by reducing the
amount that they are required to pay. The terms of a settlement
discount must be stated on the sales invoice, and are usually
expressed in the form of 10/7, n/30:
• 10/7 10% reduction in the invoice amount if the invoice is paid
within 7 days
• n/30 the net amount (the balance owing) must be paid within 30
days.
• The discount rate and the number of days allowed to pay will vary
between firms, depending on how quickly they need their cash
and the relationships they develop with their customers, but the
format for expressing the credit terms is generally fairly consistent.
discounts
• See advantages & disadvantages on p. 122.
• Of course, if the discount is received from a creditor (rather
than given to a debtor), then these costs become benefits – a
discount means less cash is paid to creditors, and as the
discount is a revenue, profit increases.
• Note: A settlement discount does not reduce the amount of
revenue earned from the sale – it reduces the cash received from
the debtor, and because it is an expense (to the seller), also
reduces profit. Any GST effect is simply absorbed by the
business offering the discount.
• See method of calculating on p. 123.
Recording discount
revenue
• When a creditor is paid early and a discount is received, the
amount paid to that creditor is reduced. The amount of this
reduction is known as discount revenue, as it is a reduction in an
outflow of economic benefits (less cash is paid to creditors) in the form of a
reduction in liabilities (creditors) that increases owner’s equity.
• Figure 6.10 uses the transactions from Figure 6.1, but with the
two transactions involving payments to creditors – on 5 June (to
Mills Bros) and 24 June (to Johnson Ltd) – adjusted to reflect a
discount revenue.
• Note the total reduction in creditors is actually $400 ($360 paid
plus $40 discount) and it is this total that must be recorded in the
Creditors column. The Creditors column thus records the total by
which Creditors Control will decrease, with the Bank column
recording the amount of actual cash paid.
Recording discount
revenue
• Double checking mechanism: The total of the Bank column plus
the discount revenue column should equal the sum of the totals of
the other (classification and sundries) columns.
• Posting the Cash Payments Journal: Figure 6.11 shows how the
General Ledger accounts would appear after the Cash Payments
Journal had been posted. Note how the cross-reference in the
Creditors Control account now refers to two accounts – Bank and
Discount revenue. This is because the amount debited to Creditors
Control ($750) accounts consists of some cash ($675), and also
some discount revenue ($75). On the other hand, the crossreference in the Discount revenue account refers only to Creditors
Control. There is no connection between the Bank and Discount
revenue accounts, as by definition, the discount is the amount that
has not been paid! The same principle applies in the Creditors
Ledger, shown in Figure 6.12.
Recording discount
expense
• When cash is received from a debtor who pays early and a
discount is granted, the amount actually received from the debtor
is reduced. The amount of this reduction is known as discount
expense, as it is a reduction in an inflow of economic benefits
(less cash is received from debtors) in the form of a reduction in
assets (debtors) that decreases owner’s equity.
• Figure 6.13 uses the transactions from Figure 6.4, but with the
three transactions involving receipts from debtors – on June 8 and
27 (from G. Matthews.) and June 14 (from T. May) – adjusted to
reflect a discount terms of 10/7, n/30. Note the Debtors column
records the total by which Debtors Control will decrease, with the
Bank column recording the amount of actual cash received.
• See Effect on Accounting Equation & Double Checking
Mechanism.
Posting discount
expense
• See General Ledger entries p. 128.
• This time it takes two debits (to Bank and Discount expense) and four credits
to form a matching double-entry. Figure 6.14 shows how the General Ledger
accounts would appear after the Cash Receipts Journal had been posted.
• As with cash payments involving a discount revenue, a cash receipt from a
debtor which also involves a discount expense is posted to the Debtors
Control account using one figure - the total of the Debtors column from the
Cash Receipts Journal ($600). But this figure includes some cash received (in
the example above, $540) plus some discount expense ($60), so the crossreference must refer to both Bank and Discount expense.
• On the other hand, the cross-reference in the Discount expense account refers
only to Debtors Control, as the discount is the amount not received.
• The same principle applies in the Debtors Ledger, which is shown in Figure
6.15.
You!
• Read Summary.
• Do a minimum five exercises.
• Copy chart p. 130.

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