MARYKNOLL SECONDARY SCHOOL
Principles of Accounts
3
Books of Original Entry
Books of Original Entry are sometimes simply called Journals or Day Books into which all
transactions are primarily entered after appropriate classification of their nature. The main types of these
books are:1.
2.
3.
4.
5.
6.
7.
Purchases Day Book
Sales Day Book
Returns Inwards Day Book
Returns Outwards Day Book
Cash Book
Petty Cash Book
Journal
Purchases Day Book is often called Purchases Journal. This book is for recording all the goods bought
on credit.
Sales Day Book is often called Sales Journal. This book is for recording all the goods sold on credit.
Invoice is a document made out by the seller to the buyer showing details of the goods sold and their prices
especially when the goods are supplied on credit. It is recorded in the seller‘s Sales Day Book as a sales
invoice and the purchaser’s Purchases Day Book as a purchases invoice.
Trade Discount represents a reduction in the price of goods and should be shown on the invoice. It is an
allowance given to the purchasers for buying goods in large quantities. It may be recorded by way of note
in the relevant Day Book but cannot be entered in the ledger account at any time.
Returns Outwards Book is used to record goods returned to suppliers. Returns Inwards Book is used
to record goods returned from customers. The reason for the returns may be goods of wrong kind, not up
to standard of sample or damaged, etc.
Debit Note is a note in writing stating that the account of the person to whom it is sent is to be debited in
respect of some transactions.
Credit Note is a note issued by a trader setting out that the account of the person to whom it is directed is
entitled to be credited by the issuer with a certain amount.
Ex. 3.1
Albert Au has the following credit purchases and credit sales for the month of January 2001:Jan 2
Jan 8
Jan 18
Jan 20
Jan 26
Jan 28
Bought 10 pencil sharpeners at $20 each from Jacky Chan.
Sold 20 notebooks at $10 each, 10 pens at $5 each to Sunny Wong.
Bought from Johnny Co: 20 notebooks at $10 each, 20 pens at $5 each. Less 10%
trade discount.
Sold to Fanny Co: 30 colour pens at $20 each, 50 pencil sharpeners at $20 each.
Less 20% trade discount.
Sales to Mickey Co $500. Less 10% trade discount.
Bought from Snoopy Co $800. Less 10% trade discount.
Required:
1.
2.
3.
Enter up the Purchases Day Book and Sales Day Book for the month.
Post the transactions to the purchases ledgers’ account and sales ledgers’ account.
Transfer the total to the Purchases Account and Sales Account.
-1MARYKNOLL SECONDARY SCHOOL
Principles of Accounts
Ex. 3.2
China Co has the following transactions for the month of January 2002:Jan 2
Jan 5
Jan 6
Jan 8
Jan 15
Jan 20
Jan 22
Jan 25
Jan 28
Bought 50 notebooks at $20 each, 50 pens at $15 each from AA Co. Less 10%
trade discount.
Bought 100 rulers at $10 each from BB Co.
Returned 10 notebooks at $20 each to AA Co. Less 10% trade discount.
Sold 20 notebooks at $30 each, 20 pens at $20 each to CC Co.
Sold 50 rulers at $16 each to DD Co.
CC Co returned 5 notebooks at $30 each to us.
Bought 100 files at $30 each, 200 pens at $25 each from EE Co. Less 10% trade
discount.
Returned 10 files to EE Co. at $30 each. Less 10% trade discount.
DD Co returned 5 rulers at $16 each to us.
Required:
1.
2.
3.
Enter up the Day Books for the month.
Post the transactions to the personal accounts.
Transfer the totals to the appropriate nominal accounts.
Ex. 3.3
Walter Lee has the following transactions for the month of January 2000:Jan 2
Jan 8
Jan 10
Jan 18
Jan 20
Jan 21
Jan 25
Jan 29
Bought from Sunny Co: 20 pencils sharpeners at $15 each.
Bought from Mickey Co: 50 notebooks at $10 each, 10 pens at $25 each.
Returned 10 notebooks to Mickey Co at $10 each.
Sold to Johnny Co: 30 notebooks at $30 each, 20 pens at $50 each. Less 10% trade
discount.
Johnny Co returned 10 notebooks at $30 each, 10 pens at $50 each to us. Less 10%
trade discount.
Sold to Fanny Co: 60 colour pens at $65 each, 50 pencils sharpeners at $30 each.
Less 20%trade discount.
Returned 5 pens at $25 each to Mickey Co.
Fanny Co returned 10 colour pens at $65 each having 20% trade discount.
Required:
1. Enter up the Day books for the month.
2. Post the transactions to the personal accounts.
3. Transfer the totals to the appropriate nominal account.
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MARYKNOLL SECONDARY SCHOOL
Principles of Accounts
CASH BOOK
Transactions involving the receipts and payments of cash or cheques are recorded in Cash Book.
The business may offer to accept a lesser amount in full settlement provided that the payment is
made within a specified period of time. This reduction is referred as Cash Discounts - Discount
Allowed and Discount Received.
Cash from the office or shop till deposited into the bank or cash withdrawn from the bank for use in
the office is called a Contra Entry.
Ex. 3.4
Frank Lee, a sole trader, enters all his cash and bank transactions in a three column Cash Book. His
transactions for the month of January 2000 are as follows:
Jan
1
5
12
18
22
24
29
30
Cash in Hand $50. Cash at Bank $255.
Paid wages in cheque $100.
Sold goods for cash $350.
Purchased goods by cheque $200.
Received from J. Jones cash amounting to $56 in full settlement of a debt of $60.
Paid C. Wong $235 cash in full settlement to his account of $250.
Sold goods for cheque $880.
Frank Lee took cash for personal use $90.
Required:
Prepare the 3-column Cash Book for the month of January 1998 and balance it at 31 January bringing
the balances down at 1 February.
Indicate clearly the ledger postings in respect of discount column of the Cash Book
Ex. 3.5
Henry Chan is a sole trader who keeps records of his cash and bank transaction in a three column Cash
Book. His transaction for the month of March 2000 were as follows:Mar
1
2
9
10
15
17
19
21
28
Cash in Hand $250. Cash at Bank $1250.
Received a cheque for $246 in full settlement of Sunny account of $260.
Withdrew $200 from the bank for office purposes.
Cash purchases $280.
Sold goods for cheque $560.
Paid salaries by cheque $240.
Paid Sandy Wong’s account $300 by cheque receiving discount 5%.
Paid Andy Lau by cheque $105, receiving discount $15.
Sold goods for cash $1000.
Required:
Prepare Henry’s Cash Book to record the transaction, balancing the amount at the end of the month.
Indicate clearly the ledger postings in respect of each of the figures appearing in the discount column of
the Cash Book.
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MARYKNOLL SECONDARY SCHOOL
Principles of Accounts
Ex. 3.6
On 1 July 1999, the balances in the Cash Book of John Chan were:
Cash in Hand $100, Bank Overdraft $880.
His transactions of the month of July were:July
2
3
5
8
11
13
17
21
23
25
26
29
Received cheque from Wood $280 in full settlement of his debts $300.
Paid wages in cash $102.
Paid Hill $211 by cheque in full settlement to his account of $225.
Cash sales $500 and paid direct into bank.
John took $100 cash for his own use.
Withdrew $200 from bank for office cash.
Paid sundry expenses in cash $120.
Purchased fixtures $1,500.
Paid Wendy’s account of $200 by cheque receiving discount 5%.
Received a cheque for $825 in full settlement of Andy’s account $850.
Sold goods for cash $950.
Banked cash with the exception of $100 as a cash float.
Required:
Draw up the Cash Book and show the discount accounts in the general ledger.
Ex. 3.7
The transactions which occurred during the first month of January 1998 for Peter Chan are listed below:Jan
1
3
5
7
8
12
14
18
19
21
23
25
29
Mr. Chan started business with cash $20,000.
Paid $18,000 into the bank.
Bought fixtures from Modern Co on credit $8,000.
Purchases on credit from New Co amounted to $5,000.
Cash sales were $800.
Rent of $2,500 was paid by cheque.
Paid Modern Co $7,800 to Modern Co in full settlement of the debt.
Paid New Co $4,900 in full settlement of the debt.
Paid wages $200 in cash.
Credit sales to John was $750.
Mr. Chan drew $500 cash for his own use.
John paid cheque to settle his account, deducting 5% discount.
Retained $500 in office cash and paid the remainder into the bank.
Required:
Show the relevant entries in Cash Book and the discounts accounts in the general ledger.
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MARYKNOLL SECONDARY SCHOOL
Principles of Accounts
Petty Cash Book
It may be considered as a subdivision of the cash book to meet the numerous small items of
expenditure.
Imprest Amount
A fixed sum, which is estimated to be sufficient to cover all petty payments for a given period, is
advanced to the petty cashier.
Imprest System
The petty cashier reimbursed from the main cash for the exact amount he spent for the period
concerned.
Ex. 3.8
Mr Yip is a sole trader who keeps his petty cash on the imprest system - the imprest amount being
$400. The petty cash transactions for the month of April 2001 are as follows:Apr
1
5
8
12
15
18
22
25
28
29
Petty cash in hand $400.
Bought notepaper for $32.50.
Paid wages $85.20.
Bought postage stamps for $18.00.
Paid wages $92.80.
Bought envelopes for $45.50.
Bought clips $10.00.
Bought postage stamps for $22.00.
Bought pens $25.00.
Bought pencils $20.00.
Required:
Draw up the Petty Cash Book for the month of April, recording the above transaction and restoring
the petty cash to the imprest amount on 30 April 2001.
Note: Your analysis columns should be for: Stationery, Wages and Postages.
-5-
MARYKNOLL SECONDARY SCHOOL
Principles of Accounts
Ex. 3.9
Mr. Chan is a sole trader who keeps his petty cash on the imprest system - the imprest amount
being $300. The petty cash transactions for the month of January 1995 are as follows:Jan
1
2
9
13
17
19
23
26
29
Petty cash in hand $300.
Paid wages $52.80.
Bought postage stamps for $12.00.
Bought envelopes for $10.00.
Paid wages $82.20.
Paid to Mr. Yip, a creditor, $25.00.
Bought foolscap paper for $22.50.
Bought pencil sharpen for $50.00.
Bought postage stamps for $24.00.
Required:
Draw up the Petty Cash Book for the month of January 1995, recording the above transactions and
restoring the petty cash to the imprest amount on 31 January.
Note: Your analysis columns should be for Wages, Postages, Stationery and Ledger.
Ex. 3.10
Mr. Chan keeps his petty cash on the imprest system - the imprest amount being $500. The petty
cash transactions for the month of January 2000 are as follows:Jan
1
1
2
5
9
13
14
18
23
25
28
Petty cash in hand $42.
Restored to the imprest amount.
Taxi fares $52.
Graph paper and clips $48.
Repairs of furniture $50.
Wages $30.
Repairing windows $135.
Pencils $25.
Wages of part-time office boy $10..
Notepaper and envelopes $60.
Bus fares $10.
Required:
Draw up the Petty Cash Book to record the above transactions, carry down the balance and restore
the imprest amount on 1 February 2000.
Note:- Your analysis columns are Travelling expenses, Stationery, Repairs and Wages.
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MARYKNOLL SECONDARY SCHOOL
Principles of Accounts
Ex. 3.11
The Prince Company Limited operates its petty cash account on the imprest system.
It is maintained at a float of $1500 on the first day of each month.
At 31 March 1997, the petty cash box held $240.30 in cash. During April 1997, the
following petty cash transactions were made:
1997
April 1
April 1
April 5
April 8
April 9
April 11
April 12
April 14
April 20
April 21
April 23
April 24
April 24
April 26
April 30
May 1
Cash Received to restore imprest
Bus fares
MTR common stored value ticket
Postage Stamps
Magazines
Pencil sharpener
Parcel postage
Ball pens
Registered letters
Lunch – entertaining customers
Tram fares
Photocopier paper
Wall Clock
Note pads
Donations to Hong Kong Committee four UNICEF
Cash received to restore imprest
$
?
04.50
70.00
15.00
65.00
36.00
58.00
50.00
41.00
280.00
3.60
48.00
123.00
12.00
300.00
?
The company opens the following five accounts in the ledger: traveling expenses,
stationery, postage, entertainment and sundries.
Required:
(a)
Record the above transactions for the period 1 April to 1 May in a
columnar petty cash book.
(8 marks)
(b)
Explain the purpose to a business of keeping a petty cash float.
(2 marks)
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MARYKNOLL SECONDARY SCHOOL
Principles of Accounts
General Journal
The Journal is a subsidiary book in which we record the details of any transaction that cannot be
recorded in any other subsidiary book. These transactions are entered in the Journal in date order
and classified into debits and credits with explanation (narration) of the entries to be made.
The use of the Journal may be summarized as follows:
1.
2.
3.
4.
5.
6.
Opening entries,
Purchase and sale assets (other than goods) on credit,
Correction of errors,
Adjusting entries,
Closing entries, and
All other entries that cannot be recorded in any other books of original entry.
a. Opening Entries:
On the purchase of a business, Mr. Chow opened the ledger accounts by means of a Journal
entry.
b. Purchase and Sale of Fixed assets on Credit:
Bought equipment $300 on credit from Monko Co.
-8-
MARYKNOLL SECONDARY SCHOOL
Principles of Accounts
Ex. 3.12
Record the following by journal entries for Mr. Lam.
1998
Dec
1
3
9
10
15
16
20
25
Mr. Lam acquired the whole business with the following assets and liabilities: Freehold
Premises $12,000, Office Equipment $3,500, Stock $900, Debtors – Mr. Young $500 and
Mr. Choi $600, Bank $5,000, and Creditors – Mr. Ko $300 and Mr. Au $900
A motor can was bought on credit from Wong’s Co. for 4,000
A debtor, Mr. Choi, offered a manual typewriter to Mr. Lam in full settlement of his debt
$600 because he was unable to pay his account in cash. The offer was accepted.
An electric typewriter in office was sold to Mr. Chow for $1,000 on credit.
Goods $200 purchased early this month was taken by Mr. Lam for his private use.
Mr. Lam returned goods $50 back into stock
A table $100, goods in warehouse, was taken for business use.
The electric typewriter, sold to Mr. Chow on December 10, was found malfunctioning and
returned to use for full allowance.
Ex. 3.13
Show the journal entries necessary to record the following transactions:
1990
Jan
1
5
10
12
15
20
25
30
Mr. Chan, after being in business for some years without keeping proper records, decided to
keep a double entry set of books. He established that his assets and liabilities were as
follows:
Assets: Motor Van $840, Fixtures $700, Stock $390, Debtors – Mr. Young $95, Mr. Shum
$45, Bank $800, Cash $20
Liabilities: Creditors – Mr. Ko $129, Mr. Wong $41
A machine was bought on credit from Tai Chi Co. for $500
A motor van was sold for $300 on credit to Caine Ltd.
Mr. Shum, a debtor, owned us $45 and was unable to pay his account in cash, but offered
fixtures in full settlement of the debt. The offers was accepted.
Mr. Wong, a creditor, of $41, transferred his business to Mr. Ng to whom the debt was to be
paid.
Mr. Chan, the owner of the business, took $10 goods out of the business stock without
paying for them.
$5 of the goods taken by Mr. Chan on January 20 was returned back into stock.
The machine bought on credit form Tai Chi Co. was found to be unsuitable and Tai Chi Co.
allowed us to return for full allowance.
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