Chapter 1 BOOKS OF ORIGINAL ENTRY (Journal)

1. Purchases Journal
2. Sales Journal
3. Returns Outwards Journal
4. Returns Inwards Journal
5. Cash Book
6. Petty Cash Book (out syllabus)
7. General Journal

(i) Purchases Journal (Purchases Day Book)

For what? what situation?
Record goods Purchased on credit
X cash
X assets

Format: Purchases Journal

Date Details Amount

2022 $

Jun 30 Hubert Shop 516

30 Robert 204

30 Total credit purchases for the month

720
========

(ii) Sales Journal (Sales Day Book)

For what? what situation?

Record goods sold on credit
X cash
X assets
 Format: Sales Journal

Date Details Amount

2022 $

Jun 30 ABC shop 522

30 Alex 188

30 Total credit sales for the month

710
===================

(iii) Returns Outwards Journal (Returns Outwards Day Book)

For what? what situation?
Record Returned goods bought from the suppliers (trade payables)

 A debit note will be sent by customer to the supplier giving details of a claim
for a reduction in the amount owned
 Debit note definition: A debit note is issued by a customer to a supplier for
goods received or an allowance received
 Refer to text book

Format: Returns Outwards Journal

Date Details Amount

2022 $

Jun 30 Mirror shop 500

30 MJ shop 200

30 Total Return Outwards for the month

700
=======
 （iv）Returns Inwards Journal ( Returns Inwards Day Book)
For what? what situation?
Record Returned goods from customer (trade receivables)

 Supplier will send a credit note to the customer upon receipt of the returned
goods and a debit note from customer
 Credit note definition: A credit note is issued by a supplier to a customer for
goods returned or an allowance granted
 Refer to textbook

Returns Inwards Journal

Date Details Amount

2022 $

Jun 30 Amazon Shop 800

30 Google 100

30 Muji 200

30 Total Returns Inwards for the month 1100

======

Important notes:
站在我地角度

Send Debit Note Returns Outwards

Send Credit Note Returns Inwards

Receive Debit Note Returns Inwards

Receive Credit Note Returns Outwards

(V) Cash Book (will talk in detail in later part)
For what？ what situation?
Record transactions involved cash and cash at bank
Examples: Cash Purchases
(Vi) General Journal
For what? What situation?
All other transactions ( 即係以上其他 Journal 都唔符合既 transactions）
Examples: Buys assets on credit, Bad Debts (later), Depreciation(later)
General Journal

Date Details Dr Cr

2022 $ $

Jun 30 Furniture 500

30 Accounts Payables 500

Format for General Journal:

Debit side on left
Credit side on right
Checkpoint: (DSE Questions) 2020 modified
Your firm trades furniture which keeps the following day books:

1. Purchases Journal
2. Sales Journal
3. Returns Inwards Journal
4. Returns Outwards Journal
5. Cash Book
6. General Journal
 Please fill in the blanks

Book of original Account to be Account to be

Transactions
Entry debited credited

Issue a debit note for the furniture

returned

Issue a credit note for the furniture

returned by customer

Return a motor van to a supplier

Paid rental expense for the firm by cheque

Ans:
1. Returns Outwards Journal 2. Trade Payables 3. Returns Outwards
4. Returns Inwards Journal 5. Returns Inwards 6. Trade Receivables
7. General Journal 8. Accounts Payables 9. Motor Van
10. Cash Book 11. Rental Expense 12. Bank
Ledgers

1. Trade Receivables Ledger

2. Trade Payables Ledger
3. General Ledger
4. Cash Book

(i) General Ledger

For what?
keeping other accounts (except debtors and creditors accounts), like sales
account, purchases account, motor vehicles, Furniture,
drawings of goods by owner for personal use
Example/Situation 1:
[Link] recording the drawings of goods in General Journal
[Link] the entries from General Journal to the General Ledger

General Journal

Date Details Dr Cr

2022 $ $

Jun 30 Drawings 500

30 Purchases 500

General Ledger:
Drawings
2022 $
Jun30 Purchases 500

Purchases
2022 $
Jun30 Drawings 500
 Further Examples of posting entries to General Ledger will be demonstrated with the
Trade Receivables Ledger and Trade Payables Ledger below

(ii) Trade Receivables Ledger

For what?
Keeping trade debtors/ trade receivables accounts
Sales Journal

Date Details Amount

2022 $

Jun 30 ABC shop 522

30 Alex 188

30 Total credit sales for the month

710
=======

Example/Situation 1:

1. After recording credit sales in the Sales Journal

2. Post the entries from sales journal to the Trade Receivables Ledger and
General Ledger

Trade Receivables Ledger:

ABC shop
2022 $
Jun30 Sales 522
 Alex
2022 $
Jun30 Sales 188

General Ledger:

Sales
2022 $
Jun30 Trade Receivables:
Total credit sales for the month 710

Example/ Situation 2:
1. After recording returns inwards in Returns Inwards Journal
2. Post entries to the Trade Receivables Ledger and General Ledger

Returns Inwards Journal

Date Details Amount

2022 $

Jun 30 Amazon Shop 800

30 Google 100

30 Total Returns Inwards for the month 900

======

Trade Receivables Ledger:

Amazon Shop
2022 $ 2022 $
xxxx Balance b/d xxx Jun30 Returns Inwards 800
 Google
2022 $
Jun30 Returns Inwards 100

General Ledger:
Returns Inwards
2022 $
Jun 30 Trade Receivables:
Total Returns Inwards
for the month 900

(iii) Trade Payables Ledger

For what?
Keeping trade payables/ trade creditors accounts

Example /Situation 1:
1. After recording credit Purchases in the Purchases Journal
2. Post the entries to the Trade Payables Ledger and General Ledger

Purchases Journal

Date Details Amount

2022 $

Jun 30 Hubert Shop 516

30 Robert 204

30 Total credit purchases for the month

720
========
 Trade Payables Ledger:
Hubert shop
2022 $
Jun30 Purchases 516

Robert
2022 $
Jun30 Purchases 204

General Ledger:

Purchases
2022 $
Jun30 Trade Payables:
Total credit Purchases
For the month 720

Example/ Situation 2:
1. After recording Returns Outwards in Returns Outwards Journal
2. Post the entries to the Trade Payables Ledger and General Ledger
Returns Outwards Journal

Date Details Amount

2022 $

Jun 30 Mirror Shop 500

30 MJ shop 200

30 Total Return Outwards for the month

700
=======
Trade Payables Ledger:
Mirror Shop
2022 $ 2022 $
Jun 30 Returns Outwards 500 xxxx Balance b/d xxx

MJ Shop
2022 $ 2022 $
Jun 30 Returns Outwards 200 xxxx Balance b/d xxx

General Ledger:
Returns Outwards
2022 $
Jun30 Trade Payables:
Total Returns Outwards
For the month 700

(iV) Cash Book

Two formats:

1. Two Column Cash Book

Cash Book

Date Details Cash Bank Date Details Cash Bank

$ $ $ $
 2. Three Column Cash Book( Examples will be demonstrated

Date Details Discounts Cash Bank Date Details Discounts Cash Bank

$ $ $ $ $ $

Cash discounts (will introduce later in this chapter) are included in three column cash
books but not in two column cash books
Discounts column at the left represent Discounts Allowed
Discounts column at the right represent Discounts Received
*Remember Cash Book acts as both book of original entry and ledger

Examples/situation 1:
Record and post entries of cash purchases in the cash book (Two column cash book)
and General Ledger

Cash Book

Date Details Cash Bank Date Details Cash Bank

$ $ 2022 $ $

Jun30 Purchases 200 /

General Ledger:
Purchases
2022 $
Jun30 Cash 200
Example/ situation 2:
Record and post entries of cash sales in the cash book (Two column cash book)
and General Ledger
Cash Book

Date Details Cash Bank Date Details Cash Bank

2022 $ $ $ $

Jun30 Sales 300 /

General Ledger:
Sales
2022
$
Jun30 Cash 300
Example/ situation 3:
Record and post entries of drawings by cheque to the Cash Book (Two column cash
book) and General Ledger
Cash Book

Date Details Cash Bank Date Details Cash Bank

$ $ 2022 $ $

Jun30 Drawings 500

General Ledger:
Drawings
2022 $
Jun30 Bank 500

Cash Discounts VS Trade Discounts

Cash Discounts(現金折扣)用呢做咩？

答∶供應商為咗儘快收到欠款，就會推出現金折扣鼓勵客人還錢

For example 如果顧客係還款期內提早還就可以享受 5%折扣，俾少啲錢

Trade Discounts(貿易折扣) 用呢做咩？

答∶商家為吸引顧客大量購物，就會推出貿易折扣鼓勵人買嘢

For example 惠康賣半打蛋 6 蚊，一打蛋就 10 蚊，平咗嘅錢(2 蚊)就係

Trade Discounts
文字題(Short Question)
Differences between Trade Discounts and Cash Discounts
1. Cash discounts are recorded as expense (Discounts Allowed) or revenue
(Discounts Received) in books while trade discount is not recorded in books
2. Cash discount is used to encourage prompt payment while trade discount is
usually used to encourage bulk purchase
新題型（Cash Discounts）(ICPA mock 出過, DSE 可能出)
題目可能會出現 6/10,5/20,4/30

前面號碼代表折扣 percentage, 後面代表日子

In this case 代表 10 日內還就可以有 6% Discount
If n/10, it means 超過 10 日就 no discount

Double entry for recording trade discounts

Situtation1 : Purchases
Dr Purchases ($List Price – trade discount)
Cr Cash/ Trade Payables ($List Price – trade discount)

Situation 2: Sales
Dr Cash/ Trade Receivables ($List Price – trade discount)
Cr Sales ($List Price – trade discount)

Double entry for recording cash Discounts

Situation 1: When receiving payments from customers

Dr Cash $xxx
Dr Discounts Allowed $xxx
Cr Trade Receivables $xxx

Situation 2: When making payments to suppliers

Dr Trade Payables $xxx

Cr Cash $xxx
Cr Discounts Received $xxx
 題目分折（Question Analysis）
[Link] the following transactions in Purchase Journal, Sales Journal, Returns
Inwards Journal, Returns Outwards Journal and Cash Book.

2022
Jan 1 Purchased goods $2700 on credit from Jason, with trade discount of 2%
5 Purchased goods $4000 on credit from Mary, with trade discount of 5%.
8 Returned goods purchased on 1 January with a list price of $300 to Jason.
13 Sold goods $8400 to Chris on credit, with trade discount of 10%.
15 The owner drew $300 cash for repaying his home rental.
17 Chris returned goods $3200 and the goods was purchased 4 days ago.
30 Chris settled his balance with cheque, less cash discount of 5%
Purchases Journal

Date Details Amount

2022 $

Jan 1 Jason ($2700x (1-2%)) 2646

5 Mary ($4000x (1-5%)) 3800

30 Total credit purchases for the month

6446
========

Returns Outwards Journal

Date Details Amount

2022 $

Jan 8 Jason ($300x(1-2%)) 294

30 Total Returns Outwards for the month

294
===================
 Important notes:
*List price 係未扣 trade discount 嘅價錢
*Record Purchases or sales 個陣直接入 List price 扣返 trade discount 個 amount
***Returns Inwards or Returns Outwards 都要扣返 Trade discounts

Sales Journal

Date Details Amount

2022 $

Jan 13 Chris ($8400x (1-10%)) 7560

30 Total credit sales for the month

7560
===================

Returns Inwards Journal

Date Details Amount

2022 $

Jan 17 Chris ($3200x (1-10%)) 2880

30 Total Returns Inwards for the month 2880

======
 Cash Book

Date Details Discounts Cash Bank Date Details Discounts Cash Bank

2022 $ $ $ 2022 $ $ $

Jan30 Chris 234 / 4446 Jan15 Drawings / 300 /

Workings:
W(1): {($8400x (1-10%))-($3200x (1-10%))} x (1-5%)
W(2): ($8400x (1-10%))-($3200x (1-10%))-4446

Important notes:
Settle the balance 同 pay/repay the balance with cash discount 係唔同做法

(i) 如果題目話 settle the balance with cash discount (當 cash discount 係 x%)

You need to do journal entries like below

1. If we are customers/trade receivables
Dr Trade Payables (Balance 個 amount)
Cr Cash/Bank (Balance 個 amount -(Balance 個 amount x x%))
Cr Discounts Received (Balance 個 amount x x%)

2. If we are suppliers/ trade creditors ( 參考 workings(1))

Dr Cash/Bank (Balance 個 amount -(Balance 個 amount x x%))
Dr Discounts Allowed (Balance 個 amount x x%)
Cr Trade Receivables (Balance 個 amount)

(i) 如果題目話 pay the balance with cash discount (當 cash discount 係 x%)
You need to do journal entries like below
1. If we are customers
Dr Trade Payables (照抄題目話 pay 嘅 amount 除(1-x%))
Cr Cash/Bank (照抄題目話 pay 嘅 amount)
Cr Discounts Received (照抄題目話 pay 嘅 amount 除(1-x%))- (照抄題目
話 pay 嘅 amount)
 [Link] we are suppliers/ trade creditors
Dr Cash/Bank (照抄題目話 pay 嘅 amount)
Dr Discounts Allowed (照抄題目話 pay 嘅 amount 除(1-x%))- (照抄題目話
pay 嘅 amount)
Cr Trade Receivables (照抄題目話 pay 嘅 amount 除(1-x%))

Example:
Jason (Trade Debtor) paid $600 by cash to settle his balance with 20% cash discount
Journal Entries:
Dr Cash 600
Dr Discounts Allowed W(1) 150
Cr Jason w(2) 750

W(1): $600/(1-20%)-$600
W(2):$600/(1-20%)
Functions of keeping book of original Entry （文字題）
1. Segregation of duties which could reduce frauds
2. Classification of the transactions so as to facilitate the postings to the ledger
accounts

Nominal Account Vs Real Accounts

Real Accounts
-Accounts which represent resources(assets) and the provision of such resources）
（補充）
- Real Accounts are the accounts whose balances will be carried to the next
accounting cycle
Examples: Buildings, motor Vehicles, Bank Loan

Nominal Accounts
-Nominal accounts are the accounts whose balances will be closed of at the end of
an accounting cycle
Examples: Sales, Rental Income, Wages

Personal Accounts
-Accounts which record dealings with persons, including firm and companies
-Examples: Accounts Receivables, Accounts Payables

Important notes:
Accounting Cycle***
1st Record transactions in books of original entry
2nd Post entries to ledger
3rd Prepare the trial balance
4th Make Period-end Adjustments
5th Prepare Income statement
6th Prepare statement of financial position