Notes

of the agreed reduction.
Bookkeeping Entries for Revenue Credit Notes
 Credit notes are source documents.
 They are listed in a separate day book called the revenue returns day book or the returns
inwards day book.

Illustration of Purchases Returns Day Book

Posting Credit Notes to The Revenue and Nominal Ledger (Credit Notes Issued)
 After the credit notes have been entered into the revenue returns day book, each credit note
must be posted to the individual customer’s account.
 At the end of the month the total net goods returned are posted to the revenue returns in the
nominal ledger.
 The bookkeeper will have to:
Credit each customer’s account in the receivable’s ledger with the total of each individual credit
note.
Debit the revenue returns account with the total of the net goods returned.
NOTE
 Goods returned to the seller are entered on the IN side of the revenue returns account because
the goods are coming back IN.
 The goods returned to the supplier are entered on the OUT side of the individual relevant
customer’s account as they are sending the goods OUT to the supplier.
Example Posting Revenue Credit Notes

 The totals from the revenue returns book will then be posted to the revenue returns in the
nominal ledger.

Cash Discounts
 Businesses prefer customers to pay their accounts quickly as it helps cash flow.
 A business may accept a lesser sum in full settlement if payment is made within a certain period
of time.
 The reduction in the sum to be paid is known as a cash discount.
 Cash discount refers to the allowance given for quick payment. It is still called cash discount
even if the account is paid by cheque or by direct transfer into the bank account.
 The rate of cash discount is usually stated as a percentage.
 A typical period during which a discount may be allowed is one month from the date of the
original transaction.
Discount Allowed and Discount Received
Discount allowed
 Cash discounts allowed by a business to its customers when they paid their accounts promptly.
Discount Received
 Cash discounts received by a business from its suppliers when they pay their accounts promptly.
Example
C Chan owes us $100. On 2 September 2017, he pays by cash within the time limit and the business
allows him 5% cash discount.
Therefore, Chan will pay $100 less $5 cash discount = $95 in full settlement of his account.

This means that C Chan;s debt of $100 is shown as fully settled.
Example
A business owed R Abbass $400. They paid him by cheque on 3 September 2017-within the
specified 30 days-so the business claimed 2.5% cash discount.
The amount paid to R Abbas is $400 less $10 cash discount =$390

 The accounts in the business’s books for C Chan and R Abbas are shown below.

Discount Columns in the Cash Book
 The discounts allowed account and the discounts received account are in the nominal ledger,
along with all the other revenue and expenses accounts.
 Discounts allowed is in the discounts column on the debit side of the cash book while discount
received is in the discounts column on the credit side.

 Entries must also be made in the discounts accounts in the nominal ledger.

Example

Relevant Sections of the accounts books are shown below

Checking whether the accounts have been entered correctly

Bank Overdrafts and the Cash Book
 A bank overdraft allows a business to pay more out of their bank account than the money
available.
 A bank overdraft simply allows a business to borrow money on a temporary basis from the bank,
as long as the bank has agreed to offer this facility.
 When the account is overdrawn, the balance brought down becomes a credit balance, that is a
liability.
Recap to the previous Cash book.
If the amount A Mendez was €1429 instead of €429, the amount in the bank account, €1044,
would be exceeded by the amount withdrawn.
The cash book would appear as shown below.

 on a statement of financial position, a bank overdraft is shown under the heading current
liabilities.

Petty Cash Book

 for each of the above items, a petty cash voucher will be completed by the person who incurred
the expenditure o behalf of the business.

Illustration of a petty Cash Voucher

Receipt

£
Date Details Voucher
number
Total

£
Postage

£
Cleaning

£
Travel
Expenses
£
Stationery

£ p

Other
Operational
Expenses
£

2017

200.00 May 1 cash CB 19

May 2 stationery 1 11.75 11.75
May 4 Postage stamps 2 22.00 22.00
May 6 Tea, coffee 3 8.00 8.00
May 9 Travel expenses 4 16.00 16.00
May 10 Computer disks 5 10.67 10.67
May 12 Postage on parcel 6 3.60 3.60
May 15 Office cleaner 7 25.00
May 22 milk 8 4.20 4.20

6.00 May 25 Luisa moro postage 26

May 27 Office cleaner 9 25.00 25.00
May 27 Cleaning materilas 10 4.40 4.40 23.00
May 31 Travel expenses 11 23.00
May 31 153.62 25.60 54.40 39.00 22.42 12.20
GL 19 GL 29 GL 44 GL 56 GL 60

147.62 May 31 Cash
May 31 Balance c/d 200.00
353.62 353.62
200.00 June 1 Balance b/d 200.00

Double Entry for all the items in the Petty Cash Book.

 when a business pay a creditor out of the petty cash, the bookkeeper will enter the payment in
the petty cash book using a column headed ‘ledger accounts’.
 The bookkeeper will then post the item to the debit side of the creditor’s account in the payable
ledger.
 This type of transactions only occurs when:
i. The amount to be paid is small.
ii. The customer may have overpaid their account and a refund is being made out of petty cash.

The Journal
 The journal records a much less common transactions:
i. Purchase and sale of Non-Current Assets.
ii. Writing off Irrecoverable debt.
iii. Adjustments to any of the entries in the ledger.
iv. The correction of errors.
The layout of the Journal

 The journal is like a diary.
 Details of less common transactions are recorded here before they are posted to the ledger
accounts.
 The details recorded for each transaction include:
i. The date
ii. The name of the accounts to be debited and credited and the amount
iii. The description and explanation of the transaction. Known as narrative.
iv. a reference number for the source document as a proof of the transaction.
Writing up Journal Entries
1. Purchase and sale of Non-current assets
Example
A business buys a drilling machine on credit from Toolmakers for Kenya Shillings 550,000 on July
2017.
This transaction involves the acquisition of a new drilling machine, which is an asset. But the
business also incurs a liability because it has purchased the machine on credit from Toolmakers.
The double entry transactions.
Debit entry in the Machinery Account since the business has acquired an asset.
Credit entry in the Toolmakers Account, which is a liability.

 The above transactions MUST be followed a journal which says which account has to be debited
and which account has to be credited.
 It then gives a narrative that describes the nature of the transaction.

Example
Some office furniture that is no longer required is sold for £300 on credit to K De Silva on 2 July
2017.
The double entry accounts and Journal entries are shown below.

2. Writing off Irrecoverable debts
Example
A debt of HK$70 owed to a business by Y Li is written off as an irrecoverable debt on 31 August
2017.
The double entry transactions include:
Credit Y Li account to cancel the amount owing
Debit irrecoverable debt account since it is an expense.
 The double entry accounts and journal entries are shown below.

3. Adjustments to any of the entries in the ledger.
Example
Revenue of £150 to C Higgins on 13 May 2017 is entered as both a debit and credit of £130
The transactions will appear as shown below.

4. Correction of Errors
 Most errors are discovered after a period of time has elapsed.
 Once identified they need to be corrected properly via the journal.
What you should never do
i. Do not cross out items.
ii. Tear a page out of a ledger.
iii. Do not use correcting fluid.
 If these were allowed, there would be more risk of fraudulent transactions taking place.
 Some errors do not affect agreement of the trial balance. Other errors lead to the trial
balance failing to balance.