SOURCE DOCUMENTS
These are the physical basis upon which business transactions are recorded. Source
documents are used as verification that a transaction actually occurred. They usually
contain:-
i. Description of the business transaction
ii. Date of the transaction
iii. Specific amount of money
iv. An authorizing signature
Source documents include:-
1. Quotations – issued by seller to a prospective buyer and contains a written offer
to supply goods or services at a given price
2. Purchase orders – issued by a customer requesting the seller to supply certain
quantities of goods of specified description
3. Delivery note – accompanies the goods dispatched to the customer. Serves as
evidence of goods received by the purchaser when it is signed by him/her.
4. Goods received note – shows evidence that the goods dispatched to an
organization are received in good condition and meet the specific conditions.
5. Statement of account – sent by a supplier to their customer showing all the
outstanding payments that the customer owes.
6. Remittance of advice – accounting document sent to supplier by a customer
detailing which invoices are being paid and which credit notes offset. This is an
advice sent against a statement of account to detail which payments are being
made from the statement of account.
7. Receipt – issued for cash and cheques received from a customer for goods sold
or services rendered.
8. Petty cash vouchers – sent by a cashier to the finance office requesting for
payment of trivial cash or petty cash to seek authority for payments.
9. Sales invoice – document sent by the seller to the buyer showing a record of
sales made, requesting the buyer to pay for the amount.
10. Purchase invoice – document received from a vendor containing goods or
services purchased.
11. Credit note – document relating to gods returned by the buyer or refunds when
the buyer has been overcharged.
Credit note shows the buyer that the indebtedness has reduced.
12. Debit notes – is prepared to increase the amount due from a buyer e.g. if a seller
has undercharged an invoice.
13. Bank statements – a record from the bank showing all cash in and out.
BOOKS OF ORIGINAL ENTRY
Relate to accounting books used to post information to enable extraction of a trial
balance and the financial statements.
The initial recording of transactions is done in journals through a process called
journalizing.
Books of original entry are also called books of prime entry, journals or day books.
They include:
1. Sales Journal
Also known as sales day book. Records all sales invoices issued by the company during
a particular time. Individual entries on the sales journal are posted on the debit side of
debtors account. The total is posted on the credit side of the general ledger.
2. Purchases Journal
Also known as purchases day book. Records all purchases invoices received by the
company during a particular time. Individual entries on the purchases journal are
posted on the credit side of creditors account. The total is posted on the debit side of
the general ledger.
3. Return inwards journal
Also known as return inwards or sales returns day book. Records all credit notes
received by the company. Shows goods returned by customers.
Individual entries are posted to the credit side of the debtors account in the sales ledger
and the total is posted on the debit side of return inwards account in the general ledger.
4. Return outwards journal
Also known as returns outwards journal or purchases returns. Records all debit notes
sent to suppliers. Occurs when the company returns goods to the suppliers.
Individual entries in a return outwards journal are posted to the debit side of the
creditors accounts and the credit side of the return outwards account in the general
journal.
ILLUSTRATION
The following transactions relate to Jasho Enterprises. Enter the transactions in the
relevant books of original entry and show the postings made in the general ledger
20x5
1/10/20x3 Credit purchases from: Martin Sh. 40,000; Mark Sh. 5,000; Mike Sh.1,060
3/10/20x3 Credit sales to: Rick Sh. 5,100; Raps Sh. 2,460; Rachael Sh. 3,560
5/10/20x3 Credit purchases from: Mathew Sh.2,000; Mabel Sh.1,800; Marshal Sh.4,100;
Michael Sh.660
8/10/20X3 Credit sales to: Stephen Sh. 3,070; Stella Sh. 2,500; Samuel Sh. 1,850
12/10/20x3 Returns outwards to: Mark Sh. 300; Mike Sh.160
14/10/20x3 Returns inwards from: Raps Sh.180; Rachael Sh.220
20/10/20x3 Credit sales to: Raps Sh. 1,880; Shakes Sh. 3,100; Slim Sh. 4,200
24/10/20x3 Credit purchases from; Peter Sh. 5,500; Patrick Sh. 9,000
31/10/20x3 Returns inwards from: Raps Sh. 270; Rick Sh. 300
31/10/20x3 Returns outwards to: Mabel Sh. 130; Michael Sh. 110
5. Cash Books
Records all receipts and payments in form of cash or cheques for a particular financial
period. Shows available cash at bank and cash in hand.
Types of cash books
1. One column cash book – contains an individual cash or bank account column
but not both at the same time.
2. Two Column Cash book – combines both cash and bank accounts. The amount
column is subdivided into two; cash and bank columns.
3. Three Column Cash book – combines cash, bank and discounts columns.
ILLUSTRATION
The following details belong to JJ Wholesalers. Prepare a 1 and 2 column cash book
SOURCE DOCUMENTS
These are the physical basis upon which business transactions are recorded. Source
documents are used as verification that a transaction actually occurred. They usually
contain:-
v. Description of the business transaction
vi. Date of the transaction
vii. Specific amount of money
viii. An authorizing signature
Source documents include:-
14. Quotations – issued by seller to a prospective buyer and contains a written offer
to supply goods or services at a given price
15. Purchase orders – issued by a customer requesting the seller to supply certain
quantities of goods of specified description
16. Delivery note – accompanies the goods dispatched to the customer. Serves as
evidence of goods received by the purchaser when it is signed by him/her.
17. Goods received note – shows evidence that the goods dispatched to an
organization are received in good condition and meet the specific conditions.
18. Statement of account – sent by a supplier to their customer showing all the
outstanding payments that the customer owes.
19. Remittance of advice – accounting document sent to supplier by a customer
detailing which invoices are being paid and which credit notes offset. This is an
advice sent against a statement of account to detail which payments are being
made from the statement of account.
20. Receipt – issued for cash and cheques received from a customer for goods sold
or services rendered.
21. Petty cash vouchers – sent by a cashier to the finance office requesting for
payment of trivial cash or petty cash to seek authority for payments.
22. Sales invoice – document sent by the seller to the buyer showing a record of
sales made, requesting the buyer to pay for the amount.
23. Purchase invoice – document received from a vendor containing goods or
services purchased.
24. Credit note – document relating to gods returned by the buyer or refunds when
the buyer has been overcharged.
Credit note shows the buyer that the indebtedness has reduced.
25. Debit notes – is prepared to increase the amount due from a buyer e.g. if a seller
has undercharged an invoice.
26. Bank statements – a record from the bank showing all cash in and out.
BOOKS OF ORIGINAL ENTRY
Relate to accounting books used to post information to enable extraction of a trial
balance and the financial statements.
The initial recording of transactions is done in journals through a process called
journalizing.
Books of original entry are also called books of prime entry, journals or day books.
They include:
6. Sales Journal
Also known as sales day book. Records all sales invoices issued by the company during
a particular time. Individual entries on the sales journal are posted on the debit side of
debtors account. The total is posted on the credit side of the general ledger.
7. Purchases Journal
Also known as purchases day book. Records all purchases invoices received by the
company during a particular time. Individual entries on the purchases journal are
posted on the credit side of creditors account. The total is posted on the debit side of
the general ledger.
8. Return inwards journal
Also known as return inwards or sales returns day book. Records all credit notes
received by the company. Shows goods returned by customers.
Individual entries are posted to the credit side of the debtors account in the sales ledger
and the total is posted on the debit side of return inwards account in the general ledger.
9. Return outwards journal
Also known as returns outwards journal or purchases returns. Records all debit notes
sent to suppliers. Occurs when the company returns goods to the suppliers.
Individual entries in a return outwards journal are posted to the debit side of the
creditors accounts and the credit side of the return outwards account in the general
journal.
ILLUSTRATION
The following transactions relate to Jasho Enterprises. Enter the transactions in the
relevant books of original entry and show the postings made in the general ledger
20x5
1/10/20x3 Credit purchases from: Martin Sh. 40,000; Mark Sh. 5,000; Mike Sh.1,060
3/10/20x3 Credit sales to: Rick Sh. 5,100; Raps Sh. 2,460; Rachael Sh. 3,560
5/10/20x3 Credit purchases from: Mathew Sh.2,000; Mabel Sh.1,800; Marshal Sh.4,100;
Michael Sh.660
8/10/20X3 Credit sales to: Stephen Sh. 3,070; Stella Sh. 2,500; Samuel Sh. 1,850
12/10/20x3 Returns outwards to: Mark Sh. 300; Mike Sh.160
14/10/20x3 Returns inwards from: Raps Sh.180; Rachael Sh.220
20/10/20x3 Credit sales to: Raps Sh. 1,880; Shakes Sh. 3,100; Slim Sh. 4,200
24/10/20x3 Credit purchases from; Peter Sh. 5,500; Patrick Sh. 9,000
31/10/20x3 Returns inwards from: Raps Sh. 270; Rick Sh. 300
31/10/20x3 Returns outwards to: Mabel Sh. 130; Michael Sh. 110
10. Cash Books
Records all receipts and payments in form of cash or cheques for a particular financial
period. Shows available cash at bank and cash in hand.
Types of cash books
1. One column cash book – contains an individual cash or bank account column
but not both at the same time.
2. Two Column Cash book – combines both cash and bank accounts. The amount
column is subdivided into two; cash and bank columns.
3. Three Column Cash book – combines cash, bank and discounts columns.
Purpose of keeping 3 column cash book
1. Accurate recording of cash discounts allowed (Dr. side) and cash discount
received (Cr. Side)
2. Accurate recording of cash and cheque receipts and payments
3. Records opening and closing balances at the beginning and end of financial year
respectively
4. Helps detect errors and fraud
Discounts
Refer to allowances given by a trader or manufacturer to another trader or customer to
enable or encourage prompt payment, buy in bulk or earn profits.
Discounts can be classified into: -
1. Trade discount – allowance given by a trader to another trader to enable them
earn a profit on goods with low profit margin or fixed prices
2. Quantity discount – allowance given by a trader to encourage bulk purchasing
from the customers
3. Cash discount – allowance given to encourage buyers or customers to pay
promptly. Can be: -
i. Discount allowed – allowances made by a business firm on the amounts
receivable from customers so as to encourage prompt payment. It is
treated as an expense.
ii. Discount received – allowances given by the creditors or suppliers to a
business firm to encourage payment. It is treated as income.
Illustration
The following details belong to KL Traders. Prepare a 3 column cash book.
KL Traders had the following cash balances as at 1st January 20X3.
Cash Ksh. 2,900
Bank Ksh 65,400
Debtors accounts: Creditors accounts:
Benson Ksh 12,000 Unity Ltd Ksh 6,000
Nathan Ksh 28,000 ABC Ltd Ksh 44,000
Dennis Ksh 4,000 Riper Ltd Ksh 10,000
The following transactions took place in January:
PETTY CASHBOOK AND THE IMPREST SYSTEM
A petty cashbook records all the petty cash vouchers maintained by a cashier. The petty
cash vouchers summarize expenses paid by the cashier. These expenses are classified
in the petty cash book as per the individual expense.
The closing balance of the petty cash book represents the balance of cash in hand. The
expense amounts are posted in the Dr side of the expense accounts.
The imprest system refers to the system where a petty cashier is given enough cash by
an accountant to meet the petty cash needs for a particular period. At the end of a
period, the accountant is reimbursed the value of the amount spent on petty cash in the
period to the petty cashier.
Petty cashbook format
Expenses
Payments
Receipts
Date Detail Amount
(Ksh)
(Ksh) Postage Cleaning Stationery Travelling Ledger
(Ksh) (Ksh) (Ksh) (Ksh) (Ksh.)
Illustration