1 Processing Financial Transactions and Extracting Interim

Processing financial transactions and extracting interim reports
1. Check and verify supporting documentation

1.1 Information from documents is identified, checked and recorded
A receipt is a written acknowledgment that a specified article or payment has been received. A
receipt records the sale of goods or provision of a service. If the recipient of the payment is
required to collect a tax from the customer, the amount collected would also be included on the
receipt and the amount would be deemed to have been collected on behalf of the relevant
government tax authority. In many countries a retailer is required to include the tax and similar
amounts in the price of goods sold. Similarly, amounts may be deducted from amounts payable,
as in the case of wage withholding taxes. On the other hand, tips or other gratuities given by a
customer, for example in a restaurant, would not form part of the payment amount. In some
countries, it is obligatory for a business to provide a receipt to a customer confirming the details
of a transaction. In most cases the recipient of money provides the receipt, but in some cases the
receipt is generated by the payer, as in the case of goods returned to a store for a refund. A
receipt is not the same as an invoice.
However, there is usually no set form for a receipt, such as a requirement that it be machine
generated. Many point-of-sale terminals or cash registers automatically produce receipts.
Receipts may also be generated by accounting systems, be manually produced or generated
electronically, for example if there is not a face-to-face transaction. To reduce the cost of postage
and processing, many businesses do not mail receipts to customers, unless specifically requested
or required by law; some transmitting them electronically. Others, to reduce time and paper, may
endorse an invoice, account or statement as "Paid".
What is a petty cash voucher?
A petty cash voucher is a standard form used as a receipt whenever cash is withdrawn from a
petty cash box. The voucher is typically purchased from an office supply store. It is a physically
small form, since it must fit within the petty cash box or drawer.
The petty cash voucher is an important form of evidence for reconciling the remaining cash in
the petty cash box. At the beginning of an accounting period, there should be a certain amount of
cash in the box and no vouchers (which should have been removed as part of the month-end
entry for the preceding month). Then, as cash is disbursed from the petty cash box, the vouchers
are essentially swapped for cash. Thus, at the end of the month, the total amount in the petty cash
box should still equal the balance at the beginning of the month - except that now the total is
comprised of both cash and vouchers. If there is a difference between the beginning and ending
figures, then it is likely that cash was removed without any voucher documentation, or else that
the amount on a voucher was incorrectly stated.
At month-end, the information in the vouchers is compiled to create a journal entry to credit the
petty cash account and debit a variety of expense accounts (depending upon the uses to which the
cash was put). The vouchers are attached to the journal entry as evidence of the underlying
transactions.
Given the uses just noted for the petty cash voucher, the information on it should contain the
following:
 The amount of cash taken
 The date on which the cash was taken
 The name of the person who took the cash
 The type of expense to be charged
You could also include on the voucher the account number to charge for the expense, though the
name of the expense is usually sufficient information to allow the general ledger accountant to
construct an adequate journal entry.
The petty cash voucher is also known as the petty cash receiptApetty cash voucher is usually a
small form that is used to document a disbursement (payment) from a petty cash fund. Petty cash
vouchers are also referred to as petty cash receipts and can be purchased from office supply
stores.
The petty cash voucher should provide space for the date, amount disbursed, name of person
receiving the money, reason for the disbursement, general ledger account to be charged, and the
initials of the person disbursing the money from the petty cash fund. Some petty cash vouchers
are prenumbered and sometimes a number is assigned for reference and control. Receipts or
other documentation justifying the disbursement should be attached to the petty cash voucher.
When the petty cash fund is replenished, the completed petty cash vouchers provide the
documentation for the replenishment check.
All vouchers must be approved before they can be paid. There are three ways to approve
vouchers:
 Matching vouchers to purchase order, receiver, and inspection information.
Matching occurs automatically based on the match rules—a set of rules and tolerances—
that you define for a purchase order transaction. If the voucher successfully matches, it is
available for payment. If the voucher does not successfully match and requires an
adjustment, the system can automatically create a debit memo.
 Routing vouchers through worklists and email using Workflow.
Workflow approval is most often used for vouchers that are not related to purchase
orders, but it is not limited to that use. If you want, you can record a voucher as
preapproved. The voucher is not routed for approval, and it is available for payment
immediately—provided that it has been matched or that matching is not necessary.
 Manually approving individual vouchers online.
Posting Vouchers
The Voucher Posting Application Engine process (AP_PSTVCHR) creates balanced accounting
entries for vouchers. The system combines information entered for a voucher with other control
information—offset accounts stored on the accounting entry templates and ChartField
inheritance rules—to create the balanced entries. Vouchers do not have to be approved for
accounting entries to be created.
You post vouchers through a batch process that you run periodically using Process Scheduler.
You can continue to process new transactions online during posting.
PeopleSoft Payables also enables you to unpost vouchers—that is, you can back out the
accounting entries made to accrue the liability and reopen the vouchers for amendment or
closure.
Once vouchers are posted, the information created is available for distribution to other business
processes, such as the Journal Generator Application Engine process (FS_JGEN), which
converts payables accounting entries to general ledger journal entries.
Remittance advice
Definition: A remittance advice is a note sent from a customer to their supplier, informing the
supplier that they have paid their invoice. The advice may contain elements such as a text note,
the invoice number and the invoice amount, among others.
Remittance advices are not required, but they are seen as a courtesy since they make it easier for
the supplier to match invoices with payments.
Remittance advices could be compared to a receipt from a cash register, in that they serve as a
record of received payment.
A remittance advice is a document that describes payments that are being made. The person or
company that is making the payment will sometimes include a remittance advice, which is like a
receipt of the payment. A remittance advice is usually used by companiesprocessing either a
purchase or a filed claim..
Invoice
An invoice, bill or tab is a commercial document issued by a seller to a buyer, relating to a sale
transaction and indicating the products, quantities, and agreed prices for products or services the
seller had provided the buyer.
Payment terms are usually stated on the invoice. These may specify that the buyer has a
maximum number of days in which to pay, and is sometimes offered a discount if paid before the
due date. The buyer could have already paid for the products or services listed on the invoice.
In the rental industry, an invoice must include a specific reference to the duration of the time
being billed, so in addition to quantity, price and discount the invoicing amount is also based on
duration. Generally each line of a rental invoice will refer to the actual hours, days, weeks,
months, etc, being billed.
From the point of view of a seller, an invoice is a sales invoice. From the point of view of a
buyer, an invoice is a purchase invoice. The document indicates the buyer and seller, but the
term invoice indicates money is owed or owing.
Invoice is a nonnegotiable commercialinstrument issued by a seller to a buyer. It identifies both
the tradingparties and lists, describes, and quantifies the items sold, shows the date of shipment
and mode of transport, prices and discounts (if any), and delivery and payment terms.
In certain cases (especially when it is signed by the seller or seller'sagent), an invoice serves as a
demand for payment and becomes a document of title when paid in full. Types of invoice include
commercial invoice, consular invoice, customs invoice, and pro forma invoice. Also called a bill
of sale or contract of sale.
A typical invoice contains
 The word invoice (or Tax Invoice).
 A unique reference number (in case of correspondence about the invoice)
 Date of the invoice.
 Credit terms.[3]
 Tax payments if relevant (e.g. GST or VAT)
 Name and contact details of the seller
 Tax or company registration details of seller (if relevant)
 Name and contact details of the buyer
 Date that the goods or service was sent or delivered
 Purchase order number (or similar tracking numbers requested by the buyer to be
mentioned on the invoice)
 Description of the product(s)
 Unit price(s) of the product(s) (if relevant)
 Total amount charged (optionally with breakdown of taxes, if relevant)
 Payment terms (including method of payment, date of payment, and details about charges
for late payment)
Credit note
A credit note or credit memorandum (memo) is a commercial document issued by a seller to a
buyer. The seller usually issues a credit memo for the same or lower amount than the invoice,
and then repays the money to the buyer or sets it off against a balance due from other
transactions.
It can also be a document from a bank to a depositor to indicate the depositor's balance is being
in event other than a deposit, such as the collection by the bank of the depositor's note receivable.
Credit note - What is a Credit note?
Definition: A credit note can be issued to correct a mistake if the invoice has been overstated or
to reimburse the buyer completely if the goods have been returned.
Return = Credit
If you return goods to a supplier or if a customer returns goods to you for a full or partial credit, a
credit note must be issued so that you or your customer can process this and adjust your accounts
accordingly.
If you have paid the invoice before the goods arrive and then have to return them due to damage
or unsuitability then a credit note can be issued if you intend to buy more from that supplier as
this can be offset against future purchases which in some cases would be the suppliers preference
or you may require a refund of your payment.
Deposit slip
A deposit slip is a form supplied by a bank for a depositor to fill out, designed to document in
categories the items included in the deposit transaction. The categories include type of item, and
if it is a cheque, where it is from such as a local bank or a state if the bank is not local. The teller
keeps the deposit slip along with the deposit (cash and checks), and provides the depositor with a
receipt. They are filled in a store and not a Bank ,so it is very convenient in paying.They also are
a means of transport of money.[1][2][3] Pay-in slips encourage the sorting of cash and coins, are
filled in and signed by the person who deposited the money, and some tear off from a record that
is also filled in by the depositor. [4][5] Deposit slips are also called deposit tickets and come in a
variety of designs. They are signed by the depositor if the depositor is cashing some of the
accompanying check and depositing the rest.[6][7]
Cash received
On a deposit slip, "cash received" means that part of the amount on a check that is to be
withdrawn as cash. The remainder is deposited into the person's account.
How to fill in a deposit slip
When you make a deposit by mail or at the bank (and at some ATMs) you’ll be asked to fill in a
deposit slip.
The parts of a deposit slip
Account number
This number ensures that the money is deposited in the correct account. If you do not have your
account number with you, your bank can provide the information to you.
Your information
Your name is pre-printed or written in.
Date
You will write today’s date here.
Cash
If depositing cash, you would write the amount here.
Checks
If you are depositing checks or money orders, you would list each one separately here and
continue on the back if more space were needed.
Subtotal
You will add the cash and check amounts and write the total amount being deposited here.
Less cash received
If you are at the bank, you would use this space to write the amount of cash you would like to get
back from the checks you are depositing. The teller will ask you to sign the deposit slip and
provide identification to confirm that you are the account holder.
Total
You will subtract the amount, if any, on the line “Less Cash Received” from the Subtotal, and
write the total amount being deposited here.
Signature line
The teller will ask you to sign the deposit slip and provide identification to confirm that you are
the account holder, if you are withdrawing cash from your deposit.
Purchase order
A purchase order (PO) is a commercial document and first official offer issued by a buyer to a
seller, indicating types, quantities, and agreed prices for products or services. It is used to control
the purchasing of products and services from external suppliers.[1] Acceptance of a purchase
order by a seller forms a contract between the buyer and seller, and no contract exists until the
purchase order is accepted. Although a typical Purchase Order may not contain contract language
(in fact most contain little more than a list of the goods or services the buyer desires to purchase,
along with price, payment terms, and shipping instructions), the Purchase Order is a specially
regarded instrument regulated by the Uniform Commercial Code or other similar law which
establishes a Purchase Order as a contract by its nature. Yet despite the nature of the Purchase
Order as a contract, it is common to accompany the acceptance of a Purchase Order with a legal
document such as the Terms & Conditions of Sale, which establish specific or additional legal
conditions of the contract. Creating a purchase order is typically the first step of the purchase to
pay process in an ERP system.
1.2 Supporting documentation is examined to establish accuracy and completeness and to

ensure authorization by appropriate personnel
A suspense account is an account in the general ledger that temporarily stores any transactions
for which there is uncertainty about the account in which they should be recorded. Once the
accounting staff investigates and clarifies the purpose of this type of transaction, it shifts the
transaction out of the suspense account and into the correct account(s). An entry into a suspense
account may be a debit or a credit.
It is useful to have a suspense account, rather than not recording transactions at all until there is
sufficient information available to create an entry to the correct account(s). Otherwise, larger
unreported transactions may not be recorded by the end of a reporting period, resulting in
inaccurate financial results.
For example, a customer sends in a payment for $1,000 but does not specify which open invoices
it intends to pay. Until the accounting staff can ascertain which invoices to charge, it temporarily
parks the $1,000 in the suspense account. In this case, the initial entry to place the funds in the
suspense account is:
Debit Credit
Cash $1,000
Suspense account $1,000
The accounting staff contacts the customer, identifies which invoices are to be paid with the
$1,000, and shifts the funds out of the suspense account with this entry:
Debit Credit
Accounts receivable $1,000
As another example, a supplier delivers an invoice for $2,500 of services, which is payable in 30
days. The accounting staff is uncertain which department will be charged with the invoice, so the
accounting staff records the following initial invoice, while the department managers argue over
who is responsible for payment:
Debit Credit
Accounts payable $2,500
The initial entry records the invoice in the accounts payable system in a timely manner, so that
the company can pay it in 30 days. The department managers eventually decide that the office
supplies account of the sales department should be charged with the expense, so the accounting
staff records the following entry:
Debit Credit
Supplies – Sales dept. $2,500
Regularly review the items in a suspense account, with the objective of shifting transactions into
their appropriate accounts as soon as possible. Otherwise, the amounts in the account can grow
to quite substantial proportions, and be very difficult to deal with months later, especially if there
is minimal documentation of why transactions were initially placed in the account. Accordingly,
there should be a daily measurement of the balance in the suspense account, which the controller
uses as the trigger for ongoing investigations. Further, it is useful to track which transactions are
repeatedly shunted into the suspense account, so that systems can be enhanced to make it easier
to properly identify these items in the future, thereby keeping them out of the suspense account.
The suspense account is classified as a current asset, since it is most commonly used to store
payments related to accounts receivable. It is possible to also have a liability suspense account,
to contain accounts payable whose disposition is still being decided. If so, the liability suspense
account is classified as a current liability. All suspense account items should be eliminated by the
end of the fiscal year. Otherwise, a company is issuing financial statements that contain
unidentified transactions, and which are therefore incorrect
Chapter 2: Preparing and processing banking and petty cash documents
Preparing and processing banking and petty cash documents is an essential procedure in
organisations. Documents must be prepared carefully and accurately in accordance with banking
and organisational guidelines and reconciled with bank records.
Petty cash is an imprest fund that is used only for expenditures of an incidental nature. An
imprest fund is a fund established for a fixed amount that is replenished in the exact amount
expended from it. Therefore, a petty cash fund can never contain more than the original amount
that was used to establish it; e.g. a petty cash fund established for $250.00 can never contain
more than $250.00.
I. How are withdrawals made from petty cash?
There are two methods of withdrawing funds from petty cash:
1. The reimbursement method: Petty cash may be used to reimburse an individual for a
purchase that was made using his/her personal funds. Upon presentation of an original receipt,
vendor invoice, or other adequate documentation to support the expenditure, the petty cash
custodian will reimburse the individual for the exact amount of the purchase, based upon the
documentation presented.
2. The advance method: The petty cash custodian may advance petty cash to an individual in
anticipation of a purchase. Since the purchase has not yet been made at the time of the petty cash
withdrawal, the amount withdrawn may vary from the amount of the actual purchase.
Documentation must be submitted to the petty cash custodian within a reasonable time, e.g. three
days. If the actual expenditure was less than the amount advanced, the individual must return the
excess cash together with valid documentation of the expenditure. If the actual expenditure was
more than the amount advanced, requiring an outlay of personal funds by the individual making
the purchase, the individual may be reimbursed for the excess amount after submitting adequate
documentation to support the expenditure.
Definition
Reimbursement or a purchase
Method #1 is preferred for the following reasons:
• It is less complicated.
• There is no risk of loss of petty cash due to failure to submit documentation.
• The petty cash fund can be replenished more quickly.
• Responsibility is transferred from the petty cash custodian to the individual making the
purchase.
In any event, petty cash expenditure is no different from any other expenditure in that all
withdrawals from petty cash must be supported by adequate and original vendor documentation.
2.2 Cheques and card vouchers are checked for validity before processing
A cheque (or check in American English) is a document that orders a bank to pay a specific
amount of money from a person's account to the person in whose name the cheque has been
issued. The person writing the cheque, the drawer, has a transaction banking account (often
called a current, cheque, chequing or checking account) where their money is held. The drawer
writes the various details including the monetary amount, date, and a payee on the cheque, and
signs it, ordering their bank, known as the drawee, to pay that person or company the amount of
money stated.
Cheques are a type of bill of exchange and were developed as a way to make payments without
the need to carry large amounts of money. Paper money evolved from promissory notes, another
form of negotiable instrument similar to cheques in that they were originally a written order to
pay the given amount to whomever had it in their possession (the "bearer").
Technically, a cheque is a negotiable instrument[nb 2] instructing a financial institution to pay a
specific amount of a specific currency from a specified transactional account held in the drawer's
name with that institution. Both the drawer and payee may be natural persons or legal entities.
Specifically, cheques are order instruments, and are not in general payable simply to the bearer
(as bearer instruments are) but must be paid to the payee. In some countries, such as the US, the
payee may endorse the cheque, allowing them to specify a third party to whom it should be paid.
Although forms of cheques have been in use since ancient times and at least since the 9th
century, it was during the 20th century that cheques became a highly popular non-cash method
for making payments and the usage of cheques peaked. By the second half of the 20th century, as
cheque processing became automated, billions of cheques were issued annually; these volumes
peaked in or around the early 1990s. Since then cheque usage has fallen, being partly replaced by
electronic payment systems. In an increasing number of countries cheques have either become a
marginal payment system or have been completely phased out.
Parts of a cheque
The four main items on a cheque are
 Drawer, the person or entity who makes the cheque
 Payee, the recipient of the money
 Drawee, the bank or other financial institution where the cheque can be presented for
payment
 Amount, the currency amount
As cheque usage increased during the 19th and 20th centuries additional items were added to
increase security or to make processing easier for the bank or financial institution. A signature of
the drawer was required to authorise the cheque and this is the main way to authenticate the
cheque. Second it became customary to write the amount in words as well as in numbers to avoid
mistakes and make it harder to fraudulently alter the amount after the cheque had been written. It
is not a legal requirement to write down the amount in words, although some banks will refuse to
accept cheques that do not have the amount in both numbers and words.
A cheque number was added and cheque books were issued so that cheque numbers were
sequential. This allowed for some basic fraud detection by banks and made sure one cheque was
not presented twice.
Voucher
A voucher is a bond of the redeemable transaction type which is worth a certain monetary value
and which may be spent only for specific reasons or on specific goods. Examples include (but
are not limited to) housing, travel, and food vouchers. The term voucher is also a synonym for
receipt and is often used to refer to receipts used as evidence of, for example, the declaration that
a service has been performed or that an expenditure has been made.
The term is also commonly used for school vouchers, which are somewhat different.
The term can also be used with reference to accounts receivable, where it is also a document
representing intent to make an adjustment to an account, and for the general ledger where there is
need to adjust the accounts within that ledger; in that case it is referred to as a journal voucher.
Any documentary evidence supporting the entries recorded in the books of accounts, establishing
the arithmetic accuracy of the transaction, may also be referred to as a voucher—for example, a
bill, invoice, receipt, salary and wages sheet, memorandum of association, counterfoil of paying-
in slip, counterfoil of cheque book, or trust deed.
Mobile phones
A voucher is a recharge number sold to a customer to recharge their SIM card with money and to
extend the card's availability period. Vouchers are typically sold at retail outlets, such as phone
stores run by the mobile operator or by distributors, grocery stores, and gas stations.
Vouchers are the prevalent form of recharge for prepaid mobile phones in many countries such
as Italy and Spain where well over 90% of consumers use vouchers, and the UK where over 60%
buy vouchers at retail.[1] In other countries such as the United States, Ireland, and many Nordic
countries, there is a growing trend of customers using Card Not Present recharge options such as
online payments, or by using their mobile handsets to call the operator and recharge with a
representative (CSR) or through their IVR (Interactive Voice Response) system. [1] A growing
number of prepaid mobile operators such as Meteor in Ireland and T-Mobile USA are offering
the option to send an SMS (text to pay), or use handset applications such as WAP or BREW
technology.
2.3 Reconciling banking documentation with the organisation’s financial records
How to Do Petty Cash Reconciliation
Although most business expenses will be paid by check or bank transfer through the company's
normal accounting system, incidental expenses and items such as small advances to employees
are usually handled as petty (from the French "petit" or "small") cash. One person should have
overall responsibility for the petty cash system and should only provide cash to employees when
provided with either a signed IOU or an approved receipt for expenditure. The imprest petty cash
system, where the cash on hand is always topped up to a fixed amount, is the most common
method of reconciling petty cash.
Step 1
Verify the opening cash balance, by checking the previous petty cash reconciliation or totaling
the amount of cash checks written since the last reconciliation was done. For this example, a
check for $100 was issued to petty cash and there was no previous cash balance.
Step 2
List and total the amount of cash expense receipts and IOUs in the petty cash lock box. For
example, there are expense receipts totaling $35 and an IOU for advance payment of travel
expenses of $16 in the box. The total cash disbursed is therefore ($35 + $16) or $51.
Step 3
Deduct the sum of the expenses and IOUs from the opening balance or from the total cash issued
to the box to determine the cash that should be on hand. In our example, $100 cash issued minus
$51 disbursements means a cash balance of $49 should remain.
Step 4
Count the remaining cash in the petty cash lock box and compare it with the cash balance
calculated in the previous step. Investigate any difference. For example, if the cash on hand is
less than $49, a receipt or IOU may not have been supplied, the petty cashier may have issued
the wrong amount, or cash may have been stolen from the box. If the lock box contains more
than $49, it may be that an employee has repaid an IOU without the original docket having been
canceled, the cashier may have made an error or an employee may have provided a receipt but
not yet collected the funds.
Step 5
Record the reconciliation. Using the figures from this example: Opening balance: $100.00 Less
receipted expenses: $35.00 Less IOUs: $16.00 Closing balance calculated: $49.00 Cash counted
on hand $49.00 Difference: $0.00
Step 6
Request a petty cash top-up of $51 to replace the cash issued.
Guidelines for reconciling journals

Completed journals are totalled and reconciled against the source documents to ensure they have
been accurately entered. This means that each figure is checked to ensure that it has been entered
correctly.
If you are using an electronic accounting system, journals are totalled automatically.
If you are using a manual system, each journal should be checked to ensure that each column
adds up and that the total of the source documents plus the GST equals the total of the relevant
journal.
Procedures for totaling adjusted journals
Totalling journals is a form of cross-checking to make sure all the details entered are correct.
You can total each section of the journal to ensure that the sum of the sections is the same as the
overall total for the journal.
For example, to total the Sales Returns and Allowances Journal, calculate the total sales returns
plus the total GST payable. This should equal the overall journal total.
Most journals are totalled in a similar way.
Accuracy
As with all financial transactions, it is critical that journal entries are accurate.
Journals form an early part of the whole bookkeeping cycle. The journals posted to the general,
debtors (accounts receivable) and creditors (accounts payable) ledgers need to be accurate to
ensure that the flow-on information is accurate, reliable and valid.
Here is an overview of the bookkeeping cycle:
As the information in the journals forms the basis of the ledgers, trial balance, profit and loss
and balance sheet, it is essential that all journals are cross-checked against the source documents
and proofread.
The ƒ. cash payments journal should be cross-checked against cheque butts and bank statements.
The cash receipts journal should be cross-checked against the receipt book, cash register roll and
bank statements.
You should report any errors to your supervisor and make sure they are corrected as soon as
possible.
Promptness
Just as the accuracy of journal entries is critical, it is essential that journal entries are made
promptly to ensure that an organisation’s financial reports are completed within designated
timelines.
ƒ. If source documents are not entered into journals promptly, there is also a risk they may be
misplaced or overlooked.
ƒ. If journals are not updated promptly, the reports which flow on from the journal (ledgers,
profit and loss statements and balance sheets) will not accurately reflect the current financial
situation of the organisation.
2.4 Checking, processing and recording petty cash claims and vouchers and balancing the petty cash
book
Businesses generally keep small amounts of cash to meet small miscellaneous payments such as
entertainment expenses and stationery costs. Such payments are generally handled by a petty
cash imprest system whereby an amount of 'Float' is fixed. This is the maximum amount of cash
that can be held at any time. Each time cash level runs low, the petty cash imprest is injected
with cash by drawing a cheque. The amount of reimbursement is equal to the expenses paid
through petty cash since the time of last reimbursement. Petty cash balance after reimbursement
reverts to back to the level of the float.
Every time a payment is made through petty cash, it is recorded in the petty cash register usually
by the cashier. When the cashier requests for reimbursement of petty cash, he creates a petty cash
voucher detailing the payments made through petty cash during the period since the last
reimbursement along with any supporting invoices acting as documentary evidence for the claim.
If everything appears in order, the authorized signatory (e.g. operations manager) draws a cheque
equal to the amount of expenses detailed in the petty cash voucher.
Petty cash imprest system is an effective way to manage small day to day expenses. However,
since cash is the most liquid resource of the entity, strong controls over it are necessary to avoid
possible misappropriation. Following controls may be applied over petty cash:
 Petty cash must be kept at a secure place (e.g. a cash box)
 Petty cash must be locked away in a safe when not in use
 Cashier must be responsible to keep supporting invoices in respect of payments made
through petty cash
 Surprise cash counts must be conducted time to time to ensure the accuracy of the cash
balance stated in the petty cash register
 The amount of petty cash float should not be set too high
Since petty cash register does not form part of the double entry system, payments made through
petty cash are subsequently posted into the cash ledger and the general ledger.
Example
On 1st January, petty cash of $100 is introduced. Petty cash register shows the following
payments in the month of January:
3rd January Tea $10
15th January Stationery $50 Petty cash is reimbursed on 31st January.
27th January Plumber $20 Following entries must be recorded:
Initial injection of petty cash will be
recorded as follows:
$ $
Debit Cash 100

Credit Bank 100
Petty cash payments will be recorded as follows:
$ $
Debit Tea 10
Debit Stationary 50
Debit Plumber 20
Credit Cash 80
As the total expenditure in the month was $80, this will be the amount reimbursed on 31st
January:
$ $
Debit Cash 80
Credit Bank 80
Once a petty cash claim has been checked and approved for payment, the cash is given to the
claimant. Details of the claim are then recorded in the petty cash book.
Chapter 3: Preparing and processing invoices for payment to creditors and for debtors
3.1 Preparing invoices in accordance with organisational procedures
If you're an entrepreneur who sells a product or provides a service to clients before they pay you,
a customer invoice is the ideal way for you and the client to know exactly how much money is
owed for the job or item(s) purchased. A customer invoice documents the quantity and cost of
what you provided, shows any sales tax, discounts and most importantly, tells customers how
and when you expect to be paid. Whether your invoice is electronic or on paper, this small
business bookkeeping tool is the best way to keep your business running
Steps
1. Write or type your company's contact information on a sheet of paper, spreadsheet
or other electronic record keeping system. Remember to include an email address and
phone number where they can contact you with questions.
2. Create an original customer invoice number using letters, numbers or both. A
customer invoice number can be as simple "Job-001" or more complex, such as "Smith-
Job-001." The second example is useful for repeat customers because it includes their last
name along with a job number. Future invoices should have original, sequential job
numbers, which make sorting the client's job histories easier.
3. Date the invoice. The sooner you begin invoicing clients for work or services you
provided, the sooner you can get paid.
4. Describe the work you performed. Use separate lines to itemize details about each
service or product you provided. Include a description of the type and quantity of
materials that were used. Service providers should offer clear details about the scope of
the work performed and how many hours were spent on each segment of the work.
5. Add up the total quantities of each material, product and/or service you provided.
This is called the subtotal.
6. Factor in sales tax based on taxable items you provided. If you are reselling items,
you need to charge customers sales tax for most tangible products. Check with your state
franchise tax board for licensing procedures and applicable sales tax rates.
7. Tally the subtotal and sales tax to arrive at the final job cost. Include this figure at the
bottom of the invoice. Always ensure the numbers are in legible, boldface type so
customers know exactly how much to pay.
8. Indicate payment terms that describe when you want to get paid. Examples small
business owners use include NET 15 or NET 30, which means payment is due in 15 or 30
days. If you want to be paid when the customer receives your invoice, write "Due on
Receipt."
9. Tell how you want to get paid. Whether you expect payment as cash on delivery
(COD), cash, check or credit card, let customers know what methods of payment are
accepted.
Don't forget - if you are not paid on time then follow the correct late payment process to collect
your debts.
Invoice Requirements
Here is a list of the legal requirements for invoices in the UK. These are all included on our
invoice templates at the bottom of this page.
Company details:
The following information should be included on all your invoices:
 Company name
 Company address
 Company telephone number and email address.
 Company number
 VAT registration number (if VAT registered)
Invoice number:
Each of your invoices should have a unique invoice number. Although is called a number it can
include letters. A common method is to prefix invoices with letters that indicate the client.
For example: If you provided services for IBM and the BBC, for IBM you could use IBM001
and IBM002, etc. For the BBC you could use BBC001 and BBC002.
Using three placements for the numbers will ensure they sort in date order.
Dates:
You should include the following dates:
 Date: the date the invoice was raised.
 Due date: the date by which payment should be made. Normally 30 days after the invoice
date.
Client details:
The name of the agency, or client if contracting directly.
Fees:
This section requires the following:
 A description of the services provided
 The gross amount due.
 The VAT amount, if you are VAT registered.
 The total amount due.
For example:
20 Days @ £500 per
Amount:£10,000
day
VAT: £2,000
Total: £12,000
Most agencies and clients do not pay via cheque and choose money transfer. Cheques can be
inconvenient. If you wish to only be paid by money transfer then use the following:
Payment should be made within 30 days by money transfer only to the following account:
The Contractors Bank
Example Invoice
Wicked Solutions
50 Software Drive
London E1 3FR
Tel: 0208 555 555
Company #:112334
VAT: 66-777-888
Invoice Number: ABC001
Date: 20 December 2004
Due Date: 20 January 2005

To: ABC Ltd
Contracting
Fees:
Services
20 days @ £12,000.0
£600 per day 0
£12,000.0
Sub Total
0
VAT @ 20% £2,400.00
£14,400.0
TOTAL
0
Payment terms:Payment within 30 days.
Money transfer to the account below:
Wicked Solutions Ltd
Sort Code: 20-21-22
Account No: 12345678
3.2 Invoices are checked against source documents for accuracy and any errors corrected
What is a source document?
A source document is the original record containing the details to substantiate a transaction
entered in an accounting system.
For example, a company's source document for the recording of merchandise purchased is the
supplier's invoice supported by the company's purchase order and receiving ticket.
A company's source documents for its weekly payroll are the employees' time cards. A
manufacturer's production records will also include source documents such as materials
requisition forms.
In the past, source documents were printed on paper. Today many of the paper documents are
being converted to an electronic format.
Source documents should be retained for future reference. For instance, auditors will review a
portion of a company's transactions and will need to examine the pertinent source documents.
Source documents are the physical basis upon which business transactions are recorded. Source
documents are typically retained for use as evidence when auditors later review a company's
financial statements, and need to verify that transactions have, in fact, occurred.
They usually contain the following information:
 A description of a business transaction
 The date of the transaction
 A specific amount of money
 An authorizing signature
Many source documents are also stamped to indicate an approval, or on which to write down the
current date or the accounts to be used to record the underlying transaction.
A source document does not have to be a paper document. It can also be electronic, such as an
electronic record of the hours worked by an employee, as entered into a company's timekeeping
system through a smart phone.
Examples of source documents, and their related business transactions that appear in the
financial records, are:
 Bank statement. This contains a number of adjustments to a company's book balance of
cash on hand that the company should reference to bring its records into alignment with
those of the bank.
 Cash register tape. This can be used as evidence of cash sales, which supports the
recordation of a sale transaction.
 Credit card receipt. This can be used as evidence for a disbursement of funds from petty
cash.
 Lockbox check images. These images support the recordation of cash receipts from
customers.
 Packing slip. This describes the items shipped to a customer, and so supports the
recordation of a sale transaction.
 Sales order. This document, when coupled with a bill of lading and/or packing list, can
be used to invoice a customer, which in turn generates a sale transaction.
 Supplier invoice. This is a source document that supports the issuance of a cash, check, or
electronic payment to a supplier. A supplier invoice also supports the recordation of an
expense, inventory item, or fixed asset.
 Time card. This supports the issuance of a paycheck or electronic payment to an
employee. If employee hours are being billed to customers, then it also supports the
creation of customer invoices.
For example, a company is in the consulting business. it accumulates hours-worked information
from employee timesheets, which is then included in customer invoices that in turn result in the
creation of a sale and accounts receivable transaction. Thus, in this situation, the timesheet is the
source document for a sale transaction.
There are a number of possible controls that can be used to reduce the risk that source documents
are not properly recorded in an accounting system. One of the more common controls is to
prenumber documents, so that missing documents are easier to track down. Another control is to
reconcile the balances in accounts to the supporting source documents to see if either some
documents have not been recorded, or if some transactions recorded in the accounts do not
appear to have any supporting source documents.
Various regulations mandate that some source documents be retained for a number of years. It
also may be prudent to retain these documents irrespective of regulations, if only to provide
evidence in the event of a lawsuit, or to provide better customer service. For these reasons, a
company should adopt a document destruction policy that strictly controls the shredding or other
form of elimination of source documents until a certain number of years have passed.
Here are some examples of common source documents:
 canceled check
 invoice
 cash register receipt
 computer-generated receipt
 credit memo for a customer refund
 employee time card
 deposit slip
 purchase order
3.3 All invoices and related documents are filed for auditing purposes
Commercial invoices are a documentation of goods sold and the transaction that took place
between an exporter and importer. Along with being a bill, these types of invoices are also used
by customs officials to track what is being shipped and to determine value. The invoice is the
master document of the shipment and all corresponding paperwork probably will be generated
based on its contents. The commercial invoice is mandatory for all transactions between
international buyers and sellers.
Filling out the invoice correctly can help to save problems in customs and expedite your
shipment.
Step 1
Write the shipper’s company name and full address at the top of the commercial invoice. Also
list a contact name, telephone number and tax identification number. List the same information
for the recipient after the shipper’s data.
Step 2
Note the buyer’s name, address and contact information if it is a different company than the
recipient. If you know the buyer’s tax identification number, include it with the data.
Step 3
Allocate a reference or invoice number to the shipment and note it on the invoice. These
numbers are extremely beneficial in tracking orders and payments.
Step 4
List the date the order was placed, along with the shipping date.The order might have been
placed in advance, such as a month or even a year earlier. Noting both dates helps to keep the
information regarding the purchase and shipment clear.
Step 5
Describe the contents of the shipment. Include what the product or goods are and their use, the
product’s value, materials used to determine fragility and toxicity, size and weight. If
appropriate, also list any serial numbers that are on the products or goods. Having a record of the
serial numbers can be beneficial in case of theft.
Step 6
Check that the information on the commercial invoice is correct and then sign the form.
How to Fill Out an Invoice Form
Invoices are forms that are given to customers to provide information. Categories of invoices
include sales, work orders, quotes, estimates and purchases. Most commonly, however, invoices
are thought of as a form that is used to show a customer how much money they owe you.
Invoices need to provide information to the customer in a clear and understandable way so that
they know exactly how much money they owe, what they owe it for, when it is due and how they
can pay it.
Utilize an invoice template or create your own. There must be a place for the information of the
company to which you are submitting the invoice, your company's name and address, an amount
due, what the money is owed for and when the money is due. If you create your own invoice
template, you can include your logo and company information at the top. There are also printed
invoices that can be purchased from office supply stores and filled out manually. In addition,
your accounting software may have an invoice feature where you simply enter the information
and print it out.
 Include an invoice number on the invoice. This will give you a way to keep track of the
invoices that are outstanding at any given time.
 Include sales tax on the invoice if necessary, depending on the service or product
provided to the customer.
 Provide detailed information about the services or products that the money is owed for.
Include a date that the money is due so that there is not an excuse to put off paying you.
Include the penalties for late payments if you have such policies in place.
 Give the customer information about where to send the payment and to whom to make
the check payable.
4.1 Preparing journals and batching items within organisational time lines
Record
ing transactions into special journals is undertaken to extract specific details that are needed
when the journal information is posted to the accounts in the general ledger.
The advantages of using specialised journals include the that: similar document data is brought
together and simplified transactions are recorded in chronological (date) order data can be
recorded concisely summarised information is readily accessible management can interpret the
information more easily than by looking at many individual source documents journals allow
division of duties (one person may look after debtors, another may look after creditors) posting
information to the ledgers is made easier.
The types of specialist journals organisations use include the following:

Credit journals
Purchases journal
Cash journals
Credit journals
Credit journals are used to record transactions where goods are bought or sold on credit. Credit
journals summarise the information provided by tax invoices and adjustment notes. They include
the:
sales or services journal
sales returns and allowances journal
purchases journal
purchases returns and allowances journal.
Sales journal
When a business sells goods on credit, the customer is issued with a tax invoice stating the goods
sold or service provided the value of the goods or service, the amount of GST charged and the
total amount owed by the customer. These details are entered into a sales or services journal.
A simple sales journal has the following format.
4.1 Journals are prepared accurately and completely and items batched within organizational timelines
Cash receiptis a printed document that is logged by a businesseach time cash is received for a
good or service
Cash Receipts Procedure
The process of receiving cash is highly regimented. This is because the task of processing checks
is loaded with controls. They are needed to ensure that checks are recorded correctly, deposited
promptly, and not stolen or altered anywhere in the process.
The procedure for check receipts processing is outlined below:

1. Record checks and cash. When the daily mail delivery arrives, record all received checks
and cash on the mailroom check receipts list. For each check received, state on the form
the name of the paying party, the check number, and the amount paid. If the receipt was
in cash, then state the name of the paying party, check the “cash?” box, and the amount
paid. Once all line items have been completed, enter the grand total in the “total receipts”
field at the bottom of the form. Sign the form, and state the date on which the checks and
cash were received. Also, stamp “for deposit only” and the company’s bank account
number on every check received; this makes it more difficult for someone to extract a
check and deposit it into some other bank account.
2. Forward payments. Insert all checks, cash, and a copy of the mailroom check receipt list
into a secure interoffice mail pouch. Have it hand-delivered to the cashier in the
accounting department. The cashier matches all items in the pouch to the mailroom check
receipt list, initials a copy of the list, and returns the copy by interoffice mail to the
mailroom. The mailroom staff then files the initialed copy by date.
3. Apply cash to invoices. Access the accounting software, call up the unpaid invoices for
the relevant customer, and apply the cash to the invoices indicated on the remittance
advice that accompanies each payment from the customer. If there is no indication of
which invoice is to be credited, record the payment either in a separate suspense account,
or as unapplied but within the account of the customer from whom it came. In the latter
situation, make a photocopy of the check and retain it for application purposes at a later
date, so that the check can still be deposited on the current date.
4. Record other cash (optional). Some cash or checks will occasionally arrive that are not
related to unpaid accounts receivable. For example, there may be a prepayment by a
customer, or the return of a deposit. In these cases, record the receipt in the accounting
system, along with proper documentation of the reason for the payment.
5. Deposit cash. Record all checks and cash on a deposit slip. Compare the total on the
deposit slip to the amount stated on the mailroom check receipts list, and reconcile any
differences. Then store the checks and cash in a locked pouch and transport it to the bank.
6. Match to bank receipt. Upon receipt of the checks and cash, the bank issues a receipt for
it. Someone other than the cashier should compare this receipt to the amount on the
deposit slip, and reconcile any differences. It may be useful to staple the receipt to a copy
of the deposit slip and file the documents, as proof that the matching step was completed.
General journal
The journal is where double entry bookkeeping entries are recorded by debiting one or more
accounts and crediting another one or more accounts with the same total amount. The total
amount debited and the total amount credited should always be equal, thereby ensuring the
accounting equation is maintained. In accounting and bookkeeping, a journal is a record of
financial transactions in order by date.
A journal is also named the book of original entry, from when transactions were written in a
journal prior to manually posting them to the accounts in the general ledger or subsidiary ledger.
Manual systems usually had a variety of journals such as a sales journal, purchases journal, cash
receipts journal, cash disbursements journal, and a general journal. Depending on the business's
accounting information system, specialized journals may be used in conjunction with the general
journal for record-keeping. In such case, use of the general journal may be limited to non-routine
and adjusting entries.
A general journal entry includes the date of the transaction, the titles of the accounts debited and
credited, the amount of each debit and credit, and an explanation of the transaction also known as
a Narration.
General Journal Entries
The journal is the point of entry of business transactions into the accounting system. It is a
chronological record of the transactions, showing an explanation of each transaction, the
accounts affected, whether those accounts are increased or decreased, and by what amount.
A general journal entry takes the following form:
Date Name of account being debited Amount
Name of account being credited Amount
Optional: short description of transaction
Consider the following example that illustrates the basic concept of general journal entries.
Mike Peddler opens a bicycle repair shop. He leases shop space, purchases an initial inventory of
bike parts, and begins operations. Here are the general journal entries for the first month:
Date Account Names & Explanation Debit Credit
9/1 Cash 7500
Capital 7500
Owner contributes $7500 in cash

to capitalize the business.

9/8 Bike Parts 2500
Accounts Payable 2500
Purchased $2500 in bike parts

on account, payable in 30 days.

9/15 Expenses 1000
Cash 1000
Paid first month's shop rent of $1000.

9/17 Cash 400
Accounts Receivable 700
Revenue 1100
Repaired bikes for $1100; collected $400

cash; billed customers for the balance.

9/18 Expenses 275
Bike Parts 275
$275 in bike parts were used.

9/25 Cash 425
Accounts Receivable 425
Collected $425 from customer accounts.

9/28 Accounts Payable 500
Cash 500
Paid $500 to suppliers for parts

purchased earlier in the month.
Most of the above transactions are entered as simple journal entries each debiting one account
and crediting another. The entry for 9/17 is a compound journal entry, composed of two lines for
the debit and one line for the credit. The transaction could have been entered as two separate
simple journal entries, but the compound form is more efficient.
In this example, there are no account numbers. In practice, account numbers or codes may be
included in the journal entries to allow each account to be positively identified with no confusion
between similar accounts.
The journal entry is the first entry of a transaction in the accounting system. Before the entry is
made, the following decisions must be made:
 which accounts are affected by the transaction, and
 which account will be debited and which will be credited.
Once entered in the journal, the transactions may be posted to the appropriate T-accounts of the
general ledger. Unlike the journal entry, the posting to the general ledger is a purely mechanical
process - the account and debit/credit decisions already have been made.
General Journal Description | Entries | Example
General Journal Description
The general journal is part of the accounting record keeping system. When an event occurs that
must be recorded, it is called a transaction, and may be recorded in a specialty journal or in the
general journal.
There are four specialty journals, which are so named because you record specific types of
routine transactions in them. These journals are:
 Sales journal
 Cash receipts journal
 Purchases journal
 Cash disbursements journal
There could be more specialty journals, but the four accounting areas represented by these
journals contain the bulk of all accounting transactions, so there is usually no need for additional
journals. Instead, by default, all remaining transactions are recorded in the general journal.
General Journal Entries
Examples of transactions recorded in the general journal are:
 Asset sales
 Depreciation
 Interest income and expense
 Stock sales
Once entered, the general journal provides a chronological record of all non-specialized entries
that would otherwise have been recorded in one of the specialty journals.
Journal Entry Format
Transactions are recorded in all of the various journals in a debit and credit format, and are
recorded in order by date, with the earliest entries being recorded first. These entries are called
journal entries (since they are entries into journals). Each journal entry includes the date, the
amount of the debit and credit, the titles of the accounts being debited and credited (with the title
of the credited account being indented), and also a short narration of why the journal entry is
being recorded.
General Journal Accounting Example
An example of a journal entry that would be recorded in the general journal is:
Date Account Debit Credit
June 30 Depreciation expense 10,000
Accumulated depreciation 10,000
To record depreciation for the month of June
Journal Process Flow

After the transactions are recorded in these journals, you "post" the summary of all the
transactions in each journal to the general ledger, which contains all of a company's accounts. An
account is a separate, detailed record associated with a specific asset, liability, equity, revenue, or
expense item. Examples of accounts are:
 Accounts Receivable (an asset account)
 Accounts Payable (a liability account)
 Retained Earnings (an equity account)
 Product Sales (a revenue account)
 Cost of Goods Sold (an expense account)
In summary, you record an accounting transaction into a journal, and then post the information in
the journal into the accounts which are stored in the general ledger. The general journal is the
repository for transactions that are not recorded in a specialty journal. Thus, the general journal
can be considered an intermediate repository of information for some types of information, on
the way to its final recordation in the general ledger.
Other Issues
The general journal was more visible in the days of manual record keeping. With nearly
everyone now using accounting software to record their accounting transactions, it is not so
readily apparent. Instead, the software makes it appear as though all transactions center around
the general ledger, with no specialty journals in use at all
Definition
A cash payment journal is a special journal that allows you to record all cash payments - that is,
all transactions during which you spend funds. For example, if you paid cash to any of your
creditors, you would record it in your cash payment journal. Other sources used to fill out these
journals include purchase receipts and check stubs.
Columns of a Cash Payment Journal
Let's work through the process of filling out a cash payment journal. Below you will find a
simple cash payment journal before any information has been filled in. You will note that there
are various columns that help a company organize its cash transactions.
DAT ACCOUNT CAS
FOLIO DISCOUNT PURCHASES DEBTOR SUNDRY
E DEBITED H
Let's break down what goes in each column:
 Date: This is simply the date on which the transaction occurred.
 Account debited: In this column, a business writes the actual name of the party it paid
cash to.
 Folio: This column references the cash ledger account
 Cash: In this column, you write in the actual amount of cash paid.
 Discount: If you received any discount in the form of cash, you place it in this column.
 Purchases: If you made a purchase in cash, you need to write in the amount of that
purchase in this column.
 Debtor: When you pay a creditor in cash, you record how much you paid to that creditor
in this column.
 Sundry: This is a special column that records cash payments to accounts that do not fit
within any other column, such as interest paid or commission.
Example: A Cash Payment Journal for Your Quilting Business
Now, let's look at an example to help us fill in a cash payment journal. Taking our example from
earlier, here are some of the transactions of your quilt-making business for the month of June
2015:
 June 2: You withdrew $500 for your own personal use.
 June 10: You paid cash for a cash purchase in the amount of $100.
 June 12: You paid the creditor Skyways $300 and, in doing so, you received a discount of
$50.
 June 23: You purchased a new sewing machine for $600.
 June 28: You paid commission to KJ Auctioneers at a quilt sale for the amount of $400.
Now, apply those figures to a cash payment journal:
ACCOUNT CAS
DATE FOLIO DISCOUNT PURCHASES DEBTOR SUNDRY
DEBITED H
June 2 Withdrawal 500 500
June
Purchases 100 100
10
June Skyways
300 50 350
12 Creditor
June Sewing
600 600
23 Machine
Commission
June
to KJ 400 400
28
Auctioneers
June
TOTAL 1900 50 100 350 1500
30
Lesson Summary
A cash payments journal is used to record transactions that are paid in the form of cash. A cash
payment can include paying a creditor or commission fee, making an interest payment, or
withdrawing cash. If any payment is made using cash, it is recorded in the cash payments
journal.
Cash Payments
A form of liquidfunds given by a consumer to a provider of goods or services as compensation
for receiving those products. In most domestic businesstransactions, a cash payment will
typically be made in the currency of the country where the transaction takes place, either in paper
currency, in coins or in an appropriate combination.
The Cash Payments Journal is used to record all cash payments made by a company. (Credit
purchases are not recorded here, they belong in the purchases journal.)
All transactions in the cash payments journal involve the disbursement of cash, so you'll find a
column for crediting cash (Cash CR.). There is also a credit column for purchases discounts in
case the transaction involves a discounted purchase.
To balance these credits, you'll find two debit columns. Accounts Payable is the account most
likely to be involved in these transactions (besides cash). The column for Other Accounts is for
all other types of cash-payment transactions that don't involve accounts payable.
See the columns available in the Cash Payments Journal in Figure A below. (To see Figure A,
click the A button in the flash program at the bottom of this page. This is where you'll find all the
figures for this tutorial.)
Cash Payments Journal Examples
Consider the following transactions for your cash payments journal:
 Paid $455 for office equipment;
 Paid $1,200 for purchases;
 Paid $2,000 to Supplier A against accounts payable, taking a purchases discount of $225;
 Paid $1,125 for purchases;
 Paid $765.50 to Supplier B against accounts payable.
Posting from the Cash Payments Journal
The column values are posted in their own separate ways:
 Transactions from the Other Accounts column should be posted individually in the
general ledger, as shown in Figure B and Figure C below. (The account number for the
general ledger account is placed in the posting column of the Cash Payments Journal.)
 NOTE: You could combine the two Purchases entries in Figure C below into a single
general ledger posting, but keeping them as separate entries will make it easier later on in
case you have to hunt down any difficulties (such as balancing an unbalanced trial
balance).
 When you record cash payments against accounts payable, you should post individual
transactions as debits to the supplier accounts in the accounts payable ledger. The
accounts payable total at month's end is then posted in the general ledger,
 Purchases discounts should be posted as a single Purchases Discounts credit total in
your general ledger,
 (These should also be posted as credits to the corresponding supplier account in the
accounts payable ledger).
 Cash should be posted as a single credit total in your general ledger,
Cash Payments Journal Illustrations
The Cash Payments Journal is a special journal designed to record a single type of frequently
occurring transaction — in this case, cash payments. This tutorial cover the concept of the cash
payments journal from the original transactions through the posting process.
Benefits of cash payments
Allowing cash payments for your goods and services has several benefits. Check out these
examples:
 Privacy – Cash payments don’t automatically leave records. Customers may prefer cash
payments when buying private goods or services, such as pharmaceuticals and medical
services.
 Convenience – Cash doesn’t require authorisations like typing in PIN codes.
 Reliability – Cash payments are possible in locations without electricity and aren’t
vulnerable to technical problems, such as broken EFTPOS machines.
 Low setup costs– Unlike other payment methods, cash payments don’t have the set up
costs of payment methods like online payments and EFTPOS. However, you still need to
consider the potential cash handling and labour costs associated with taking cash.
Disadvantages of cash payments
Processing cash payments isn’t free. It costs money because of labour costs, service fees and
losses due to theft. Check out these examples:
 High labour costs – If you receive lots of cash, labour costs are high. You have to spend
a lot of time and money on activities such as counting cash, bookkeeping and banking.
 High risk of theft – Cash has a high risk of theft. Cash is hard to identify and there is no
automatic record if someone steals it. Because of this, cash sales can attract thieves. Both
employees and non-employees can steal cash.
 Risk of counterfeit and fraud – There is a risk of receiving counterfeit cash, that is that
it looks like cash but is not legal Australian tender.
 Small service fees – There can be small service fees for banking when processing cash
payments, although this depends on your bank or financial institution.
 No automatic proof of payment – There is not automatic proof of payment if someone
pays in cash. This can make resolving disputes difficult.
Sales Journal
A sales journal is a specialized accounting journal used in an accounting system to keep track of
the sales of items that customers have purchased on account by charging a receivable on the
debit side of an accounts receivable account and crediting revenue on the credit side. It differs
from the cash receipts journal in that the latter will serve to book sales when cash is received. [1]
The sales journal is used to record all of the company sales on credit. Most often these sales are
made up of inventory sales or other merchandise sales. Notice that only credit sales of inventory
and merchandise items are recorded in the sales journal. Cash sales of inventory are recorded in
the cash receipts journal. Both cash and credit sales of non-inventory or merchandise are
recorded in the general journal.
The general journal is the all-purpose journal that all transactions are recorded in. Since all
transactions are recorded in the general journal, it can be extremely large and make finding
information about specific transactions difficult. That is why the general journal is divided up
into smaller journals like the sales journal, cash receipts journal, and purchases journal. Each of
these journals record specific transactions.
The sales journal is used to record all of the company sales on credit. Most often these sales are
made up of inventory sales or other merchandise sales. Notice that only credit sales of inventory
and merchandise items are recorded in the sales journal. Cash sales of inventory are recorded in
the cash receipts journal. Both cash and credit sales of non-inventory or merchandise are
recorded in the general journal.
The sales journal typically has six columns. A column for the transaction date, account name or
customer name, invoice number, posting check box, accounts receivable amount, and cost of
goods sold amount. Notice that there isn't a column for cash. Since all sales recorded in the sales
journal are paid on credit, there is no need for a cash column.
Here is an example sales journal. Assume that Big Guitars, Inc. sold a guitar to a Josh Roberts
for $1,500 on January 1st. The cost of the guitar was $700. Big Guitars, Inc. would record the
journal entry for the transaction in its general ledger like this:
After this sale, the Big Guitars, Inc. sales journal would look like this:
Cash Voucher
Definition: A cash voucher is a standard form used to document a petty cash payment. When
someone wants to withdraw cash from the petty cash fund, that person fills out the cash voucher
to indicate the reason for the withdrawal, and receives cash from the petty cash custodian in
exchange.
If the person requesting cash is doing so because he or she wants reimbursement for an expense
they already paid for from their own funds, then they should also staple the relevant receipt from
the original purchase transaction to the cash voucher. The vouchers are then stored as accounting
records.
The petty cash custodian uses the cash voucher to reconcile the petty cash fund. By adding
together all on-hand cash with the amounts stated on the cash vouchers, the total should equal the
designated cash total for the petty cash fund.
The cash voucher form should contain space for the name of the cash recipient, that person's
initials, the amount of cash disbursed, the date, the reason for the disbursement, and the account
code to which the disbursement should be charged. The forms may also be prenumbered, in
order to ensure that all forms have been accounted for.
The internal audit staff may schedule a review of cash vouchers, to see if the items reimbursed
comply with the company's policy for petty cash use.
4.2 Batch items are precisely matched to initial receipt records
Batch balance is checking some quantitative aspect of a processed batch to verify that the batch was
processed correctly. For example, computer generated batch quantities can be compared to manual
batch counts.
The practice of double verifying a batch of checks or other demands for payment to ensure correct
processing. For example, one may check the amounts written on the instruments against a deposit
slip.
4.3 Journals are authorized in accordance with organizational policy and procedures
Internal control
Internal control is an integral process that is effected by an entity’s management and personnel
and is designed to address risks and to provide reasonable assurance that in pursuit of the entity’s
mission, the following general objectives are being achieved:
• executing orderly, ethical, economical, efficient and effective operations;
• fulfilling accountability obligations;
• complying with applicable laws and regulations;
• safeguarding resources against loss, misuse and damage.
Internal control is a dynamic integral process that is continuously adapting to the changes an
organisation is facing. Management and personnel at all levels have to be involved in this
process to address risks and to provide reasonable assurance of the achievement of the entity’s
mission and general objectives.
An integral process
Internal control is not one event or circumstance, but a series of actions that permeate an entity's
activities. These actions occur throughout an entity’s operations on an ongoing basis. They are
pervasive and inherent in the way management runs the organisation. Internal control is therefore
different from the perspective of some observers who view it as something added on to an
entity's activities, or as a necessary burden.
The internal control system is intertwined with an entity's activities and is most effective when it
is built into the entity's infrastructure and is an integral part of the essence of the organisation.
Internal control should be built in rather than built on. By building in internal control, it becomes
part of an integrated with the basic management processes of planning, executing and
monitoring.
Components of Internal Control
Internal control consists of five interrelated components:
• control environment
• risk assessment
• control activities
• information and communication
• monitoring
Internal control is designed to provide reasonable assurance that the entity’s general objectives
are being achieved. Therefore clear objectives are a prerequisite for an effective internal control
process.
The control environment is the foundation for the entire internal control system. It provides the
discipline and structure as well as the climate which influences the overall quality of internal
control. It has overall influences on how strategy and objectives are established, and control
activities are structured.
Having set clear objectives and established an effective control environment, an assessment of
the risks facing the entity as it seeks to achieve its mission and objectives provides the basis for
developing an appropriate response to risk.
The major strategy for mitigating risk is through internal control activities.
Control activities can be preventive and/or detective. Corrective actions are a necessary
complement to internal control activities in order to achieve the objectives. Control activities and
corrective actions should provide value for money. Their cost should not exceed the benefit
resulting from them (cost effectiveness).
Effective information and communication is vital for an entity to run and control its operations.
Entity management needs access to relevant, complete, reliable, correct and timely
communication related to internal as well as external events. Information is needed throughout
the entity to achieve its objectives.
Finally, since internal control is a dynamic process that has to be adapted continuously to the
risks and changes an organisation faces, monitoring of the internal control system is necessary to
help ensure that internal control remains tuned to the changed objectives, environment, resources
and risks.
These components define a recommended approach for internal control in government and
provide a basis against which internal control can be evaluated. These components apply to all
aspects of an organisation’s operation.
Chapter 5: Posting journals to the ledger
5.1 Posting journals to the ledger in accordance with organisation input standards
6.1 Data is entered into system accurately and in accordance with organization input standards
with transactions correctly allocated to system and accounts
Entering Data into the Accounting System: General Journal: Guitar Lessons Corporation October
transactions.
Data is entered into modern financial accounting systems through the use of the general journal.
Data is entered in the general journal through the debits and credits process. The result of data
entry into the general journal is called a journal entry. Each journal entry is composed of equal
dollar amounts of debits and credits.
To illustrate the use of the general journal, consider the following events that affected the Guitar
Lessons Corporation in October. As you consider each event, remember that (1) in each journal
entry the total dollar amount of debits must equal the total dollar amount of credits and (2) assets
increase with debits.
Converting one resource into another resource: on October 3 the client serviced in
September pays the company the $1,300 he owes.
The October 3 collection of cash from a customer serviced in September results in both
an increase in the company's resources (cash) and a decrease in its resources (accounts
receivable). Sources of resources are not affected by this event because additional
resources were not borrowed, obtained from owners, or generated by management. The
effects of the October 3 cash collection are shown below. The October beginning
balances of assets ($10,995), liabilities ($550), and stockholders' equity ($10,445) were
the balances at the end of September.
Total Sources of Borrowed Sources of Owner Sources of Management
Resources = Resources + Invested Resources + Generated Resources
Assets = Liabilities + Stockholders' Equity
$10,995 = $550 + $7,000 + $3,445
+ $1,300 cash
- $1,300 A/R
$10,995 = $550 + $7,000 + $3,445
Remembering (1) in each journal entry the total dollar amount of debits must equal the total
dollar amount of credits and (2) assets increase with debits, how is the October 3 collection of
cash from a customer service in September recorded in the general journal?
Since cash is an asset (resource) and assets increase with debits, the $1,300 increase in cash
would be recorded in the general journal as a $1,300 debit to cash. Since debits must equal
credits and accounts receivable is the other account affected by this event, the $1,300 decrease in
accounts receivable would be recorded in the general journal as a $1,300 credit. If you also
remember that assets decrease with credits, you confirm this $1,300 credit to accounts
receivable. This event would be recorded in the general journal as follows.
Post.
Date Description Ref. Debits Credits
Oct. 3 Cash 111 1,300
Accounts Receivable 113 1,300
Accounts receivable collection
Similar to the general ledger, the general journal has several columns for reporting information.
The date column shows the date on which the event affected the company. Since the company
received the cash on October 3, that date appears in the date column. The description column
shows the accounts affected by the event. Notice that the cash account appears in the description
column before the accounts receivable account. This is so because debits are reported in journal
entries before credits. Notice also that the cash account appears next to the left margin of the
description column while the accounts receivable account is indented. In journals, debits not only
appear before credits, but the credits are indented from the left margin. If there are two or more
debits, they would all appear next to the left margin, one below the other. If there were two or
more credits, they would appear one below the other, all indented by the same number of spaces
from the left margin. After all affected accounts are reported in the description column, a brief
explanation is presented. For example, in the above journal entry the explanation was "accounts
receivable collection." This brief explanation allows users of the general ledger to easily
understand what the event was about. In this case, the cash was collected from a customer who
was provided services previously. The posting reference column contains the account number of
each account affected by the event. The account numbers will be used when the information is
transferred from the general journal to the general ledger, as will be discussed in the following
section. The journal's debits and credits columns contain the dollar amounts of the event's debits
and credits. There are no plus (+) or minus (-) signs in the debits column or the credits column.
Notice also, the dollar amount of the journal entry's total debits ($1,300) equals the total dollar
amount of its credits ($1,300). As you remember, it is this equality of debits and credits that
guarantees that the accounting equation (assets = liabilities + stockholders' equity) always
balances.
Borrowing resources: on October 6 the company buys $400 supplies, agreeing to pay for them
later in October or November.
When the company purchased the supplies, resources (supplies) increased. Since no other
resources were paid out in order get the supplies, the company's total resources increased by
$400. The source of the increased resources was a creditor (accounts payable), since the supplies
were purchased on credit. Thus, the company's resources and sources of resources both increased
by $400, as shown below.
Sources of Borrowed Sources of Owner Sources of Management

Total Resources = Resources + Invested Resources + Generated Resources
$10,995 = $550 + $7,000 + $3,445
= +$400
+$400 supplies accounts payable
$11,395 = $950 + $7,000 + $3,445
dollar amount of credits and (2) assets increase with debits, how is the October 6 purchase of
supplies recorded in the general journal?
Since supplies are assets (resources) and assets increase through debits, the $400 increase in
supplies would be recorded as a $400 debit to supplies. The required credit of $400 would be to
accounts payable, which is a liability. If you remember that liabilities increase with credits, you
support this credit to accounts payable since they increased through the supplies purchase. This
event would be recorded in the general journal as follows.
Post.
Oct. 6 Supplies 115 400
Accounts Payable 211 400
Supplies purchased on account
Again notice the detail and form of the journal entry. The debit to supplies came before the credit
to accounts payable. The debited account (supplies) appeared next to the left margin of the
description column, while the credited account (accounts payable) was indented from the left
margin. The posting reference column contains the account number of each account. Once again,
plus signs (+) and minus signs (-) were not used in the debits column or credits column.
Generating resources through management operations: on October 13 the manager coaches one
client and receives $1,100 cash.
The receipt of $1,100 increased the company's resources (cash). Since no other resources
were given to the client in order get the cash, the company's total resources increased by
$1,100. The source of the increased resources was a client, which means the resources
were generated through management's operation of the business. Since the owner has a
right to any resources generated by management, the source of resources that increased is
stockholders' equity. Thus, the company's resources and sources of resources both
increased by $1,100, as shown below.
$11,395 = $950 + $7,000 + $3,445
= +$1,100
+$1,100 cash fees revenue
$12,495 = $950 + $7,000 + $4,545
Notice the above increase in stockholders' equity was referred to as fees revenue rather than
retained earnings which was used in previous chapters. The fees revenue account will be used
from now on in order to allow for the faster preparation of financial statements. The fees revenue
account is used to record the dollar amount of the source of resources resulting in an increase in
resources from management operations. Remember, resources increased by $1,100 through
management providing services to a client. The resource that increased was cash. The source of
the resource was called fees revenue.
dollar amount of credits and (2) assets increase with debits, how is the October 13 coaching of a
client recorded in the general journal?
Since cash is an asset (resource) and assets increase through debits, the $1,100 increase in cash
would be recorded as an $1,100 debit to cash. The required credit of $1,100 would be to fees
revenue, which is a stockholders' equity account. If you remember that stockholders' equity
increases with credits, you support this credit to fees revenue. Note that as fees revenue increases
through credits, total stockholders' equity is increasing because stockholders' equity increases
through credits. Once again, since the owner has a right to any resources generated by
management, the source of resources that increased is stockholders' equity. This event would be
recorded in the general journal as follows.
Date Description Post. Ref. Debits Credits
Oct. 13 Cash 111 1,100
Fees Revenue 411 1,100
Services provided
Paying for borrowed resources: on October 19 the company pays the $550 owed on the supplies
purchased in September.
When the company pays $550 on October 19, the company does not obtain any additional
supplies. Remember the supplies were obtained in September. Thus, the cash payment on
October 19 decreased the company's resources (cash) by $550 but did not increase any other
additional resource. By paying $550 cash to the supplier, the company owes that supplier $550
less than before the payment was made. In other words, the company's liability to the supplier
(accounts payable) decreased by $550. The company's sources of resources, in this case
liabilities, decreased by the $550 payment. Thus, the company's resources and sources of
resources both decreased by $550, as shown below.

$12,495 = $950 + $7,000 + $4,545
- $550 = -$550
cash accounts payable
$11,945 = $400 + $7,000 + $4,545
dollar amount of credits and (2) assets increase with debits, how is the October 19 cash payment
for supplies purchased in September recorded in the general journal?
Since cash is an asset (resource) and assets increase through debits, hopefully it is reasonable that
assets must decrease with credits. This will result in a $550 credit to cash. The required debit of
$550 would be to accounts payable. Accounts payable is debited because the cash payment
reduced the liability accounts payable. Since liabilities increase with credits, they must decrease
with debits. This event would be recorded in the general journal as follows.

Post.
Oct. 19 Accounts Payable 211 550
Cash 111 550
Accounts payable payment
Practice Exercise
Record the following transaction in the Christopher Corporation's general journal (in this
exercise, ignore the post. ref. column). Before you prepare the journal entry, determine the
transaction's effects on the company's resources and sources of resources. On April 1, the owner
invested an additional $5,000 in the company.
The owner's cash investment increases the company's resources by $5,000. Since the source of
the resources was the owner, stockholders' equity also increases by $5,000.

+$5,000 = +5,000
cash common stock
Assets (resources) increase with debits. Thus, the $5,000 increase in cash would be recorded as a
debit to cash. The debits = credits rule requires a $5,000 credit to some other account. In this
case the $5,000 credit is to common stock, since the source of the cash was the owner.

Post.
Apr. 1 Cash 5,000
Common Stock 5,000
Owner's investment
6.2 Updating related systems to maintain the integrity of relationships between financial
systems
All accounting systems rely on the completion of business documents to kick start the process of
recording, posting and reporting.
Completed documents should first be batched and reconciled, recorded in special journals, and
then posted to the accounts in the general ledger where a trial balance is extracted. This was
discussed in Chapters 1 to 5.
The trial balance can then be used to prepare financial reports, which consist of an income
statement, a balance sheet and a cash flow statement. These are used by managers, owners and
other interested parties to assess the performance of the organisation.
The following diagram illustrates this process.
The diagram also includes subsidiary ledgers for debtors and creditors. These are used to
maintain control over the organisation’s debtors and creditors, and must be reconciled to the
control accounts kept in the general ledger. Accounts receivable and accounts payable personnel
are usually responsible for maintaining subsidiary ledgers.
Many trading organisations also maintain an inventory subsidiary system for the maintenance
and control of stock that has been purchased and sold.
The general ledger, debtor’s subsidiary ledger, creditor’s subsidiary ledger and inventory ledger
all rely on business documents for their information. Therefore, it is essential that an organisation
ensures documents are completed fully, errors are minimised, continual checking and
reconciliation occurs and that it follows formal organisational policies and procedures when
processing information.
7. Prepare deposit facility and lodge flows
7.1 A deposit facility is selected appropriate to the banking method to be used
The Term Deposit Facility is a program through which the Federal Reserve Banks offer interest-
bearing term deposits to eligible institutions.
The Term Deposit Facility was established to facilitate the conduct of monetary policy by
providing a tool that may be used to manage the aggregate quantity of reserve balances held by
depository institutions. An increase in term deposits outstanding drains reserve balances because
funds to pay for them are removed from the accounts of participating institutions for the life of
the term deposit. Term deposits cannot be used to satisfy reserve balance requirements or clear
payments. Term deposits will automatically be pledged as collateral to Federal Reserve Banks
and so can be used to secure discount window advances and for payment system risk purposes.
Term deposits may be offered with an early withdrawal feature that allows a depository
institution to obtain a return of funds prior to the maturity date subject to a penalty. The offering
announcement will indicate whether the term deposits being offered include an early withdrawal
feature, and will specify the penalty rate that will be used to determine the penalty for early
withdrawal.
7.3 Security and safety precautions are taken appropriate to the method of banking in accordance with
organizational policy and industry and legislative requirements
Enforcement of stamp duty is required to have strong system of law enforcement to prevent the
increasing incidence, from time to time, of contraband and other commercial fraud crimes which
are resulting negative impact to legitimate trade, public security, government revenue and other
social and economic development
1. Stamp Duty Proclamation No.110/1998 (download) and its amendment proclamation No.
612/2008 (download)
The legal instrument which regulates stamp duty in Ethiopia is Stamp Duty Proclamation proc.
No. 110/1998 and its amendment proclamation No. 612/2008.
Article 3 of the stump duty proclamation exhaustively lists instruments chargeable with stamp
duty:
1. Memorandum and articles of association of any business organization cooperative or any
other form of association.
2. award
3. bonds
4. warehouse bond
5. contractor agreements and memoranda thereof
6. security deeds
7. collective agreement
8. contract of employment
9. Lease, including sub-lease and transfer of similar rights.
10. natural acts
11. power of attorney
12. documents
Rates and Mode of Valuation of stamp Duty
As per Art 4 (1) (2) of Proclamation Number 110/1998: The rates might be flat or they may
depend on the value of the property.
Liability, Time and Manner of Payment
Article 6 & 7 of Proclamation Number 110/1998.
Exemptions from Stamp Duty
Article 11-the following are exempt from the liability of payment of same:
 Public bodies on which the federal government of Ethiopia Financial Administration
Proclamation No. 57/1996 applies.
 Goods imported for sale by traders having import license, when first registered in the
name of the trader.
 Documents that are exempted in accordance with international agreements and
conventional approved by Ethiopian government.
 Subject to reciprocity embassies, consulates and missions of foreign states may be
exempted.
 Share certificates are exempt from stamp duty payable on the register of title of property.
Penalties
Article 12 provides:
Any person:
a) Executing or signing, otherwise than as a witness, a document chargeable with stamp duty
without the same being stamped.
b) Who, with intent to defraud the appropriate payment of duty, conceals facts bearing on the true
nature of any instrument.
Shall be liable on conviction to a five not less then birr 25,000 and not exceeding Birr 35,000 and
to rigorous imprisonment for a term not less than 10 yrs and not more than 15 yrs.
Any person who is:
a) appointed to sell stamps or stamp papers, disobeys regulations issued under this proclamation;
or
b) not so appointed, sells or offers for sale stamps or stamped papers. Shall be liable on conviction
to a fine not less than 5,ooo and not exceeding and to rigorous imprisonment for a term not less
than 5 years and not more than 10 yrs.
Accounting and procedures for petty cash at the time the petty cash fund is to be replenished or
at the end of a month, whichever comes first, the custodian summarizes all expenditures in a
petty cash journal. The amounts entered into the petty cash journal come from the vouchers. An
example of a petty cash journal is presented below (you can also download this MS Excel file for
your use):
Illustration 2: Petty cash journal example
The petty cash journal lists all vouchers, their dates, the total amount of spending per voucher,
and then individual amounts spent in respective expense account columns. The Total column
should agree to the sum of all amounts in expense columns.
Underneath the table, there is a reconciliation of petty cash and vouchers to the petty cash fund:
 Total voucher amount shows the total amount of cash spent during the period. This amount
comes from the last row – Totals – in column Total.
 Petty cash on hand represents the cash in the secure lock box on the date the petty cash journal is
prepared.
 Total is the sum of the total voucher amount and petty cash on hand.
 Petty cash fund is the amount of the fund established for petty cash. As we noted earlier, this
amount usually ranges from $100 to $500.
 Cash short / over is the difference between the Total and the Petty cash fund. Normally, the
difference should be zero. However, sometimes the two amounts don't match. This indicates that
some errors were made in recording voucher amounts, counting cash on hand, etc. If possible, the
errors should be investigated and corrected. In cases when investigation still reveals a difference,
it can be recorded as cash short / over. When the petty cash fund amount is higher than the sum of
vouchers and petty cash on hand, there is cash shortage (loss); and vice versa, if the petty cash
fund is lower, then there is cash overage (gain).
After the petty cash journal is prepared and reconciliation is completed, the journal should be
signed by appropriate employees as evidence of their work on the journal.
The petty cash journal serves as the basis for the journal entry to record expenses and to replenish
the petty cash fund. The total in each expense column represents a debit entry, and the total of all
debits represents the amount of cash to be replenished. Cash shortages or overages either increase
or decrease the replenishing amount, respectively. The cash shortage is recorded as an expense,
and the cash overage if recorded as an income. The journal entry looks like this:
Account Titles Debit Credit
Postage Expense 000
Supplies Expense 000
Delivery Charges 000
Travel Expenses 000
Cash Short / Over 000
Cash 000
The cash manager verifies all vouchers and petty cash on hand and then issues a new check for
the amount of all debits (plus any cash shortages and less any cash overages) to the petty cash
custodian to replenish the petty cash fund.
As you can see, the petty cash account is only debited once when the petty cash fund is
established. Any journal entries after that don't impact the petty cash account. The only exception
to this rule is when the petty cash fund amount is decreased or increased. When expenses are
recorded, the cash account is impacted, not the petty cash account.
Note that this petty cash fund is also sometimes called an imprest fund because it is replenished
when it becomes low.
Standard accounting practice
Standard accounting practices require publicly traded companies to follow certain accounting
rules when presenting financial statements so that the readers of the statements can easily
compare different companies. Private companies are also often required by banks and
shareholders, for example, to present information according to their specified rules.
Usually, countries practicing civil law system write standards into law and countries with
Englishcommon law systems have private organizations to set the rules. There are specialist
organizations that can arrange for the set-up of an accounting practice with a franchise business
model which can prove successful from the out-set.
Rationale for uniform practices
The lack of transparent accounting standards in some nations has been cited as increasing the
difficulty of doing business in them. In particular, the Asian financial meltdown in the late 1990s
has been partially attributed due to the lack of detailed accounting standards. Giant firms in some
Asian countries were able to take advantage of their poorly devised accounting standards to
cover up immense debts and losses, which yielded a collective effect that eventually led the
whole region into financial crisis.
Trade Practices Act and Fair Trading Laws

To run a business in Australia you need to operate fairly and ethically and that means working
within the confines of the Trade Practices Act as well as the Fair Trading laws in your respective
State and Territory.

The Trade Practices Act is a federal law that deals with almost all parts of the marketplace
including unfair market practices, product safety, price monitoring and industry codes of
practice. Its aim is to inhibit unethical practices by competitors and to give customers confidence
that they are dealing with businesses that adhere to high standards.

The Australian Consumer and Competition Commission (ACCC) which is responsible for
administering the TPA encourages small business to view the Act as an important management
tool and that compliance with it should be part of good business practice.
It is suggested that every business have a TPA compliance program. This might include a
strategic vision that states your goals and how you plan to implement them, identifying
compliance risks and assessing these at regular intervals.
In addition to the TPA, each state and territory has fair trading laws to which you must adhere.
The two sets of laws complement each other.
These state it is unlawful to:
 make false clams about a product or service
 operate in a misleading or deceptive way that might mislead or deceive your customers
 take unfair advantage of vulnerable customers – unconscionable conduct.
If you break the Act in your state then you can be prosecuted, face financial penalties and have
your bank accounts frozen.
The ACCC has issued a CD TPA matters for small business. This covers topics such as
restrictive trade practices including price fixing and market sharing, misleading and deceptive
conduct, franchising, unconscionable conduct and the role of the ACCC in administering the Act.
Many industries have specific codes of practice providing a minimum standard of protection to
consumers. As an individual business you might consider creating a service charter outlining
your standards and in turn giving your customers certain guarantees. But it’s important that you
don’t just create the charter and then set and forget – it should be an ongoing document that you
adhere to.
Making sure business behaves in an acceptable manner, whether with your customers or your
competitors is vital to a business’ success.
7.4 Obtaining proof of lodgment and filing so it is easily accessible and traceable
As with all financial business documents, you must securely file receipts issued by the bank as proof
of lodgment, until they are reconciled with the bank statement.
If an organisation follows sound policies and procedures in relation to handling documentation and
recording cash received and banked, it should not experience errors, omissions or misappropriation of
funds.
However, if proper procedures are not followed, funds can and do go missing. A final procedure to
ensure the integrity of the organisation’s accounting system in relation to cash and the integrity of its
employees in handling cash is the preparation of a bank reconciliation report.
All organisations that have a banking facility will be issued with a bank statement by the bank. It is
common accounting practice to reconcile the bank statement to the organisation’s cash receipts and
cash payments journal, and to reconcile the balance of the cash account in the general ledger to the
balance on the bank statement. When reconciliation does not occur, investigation must be undertaken
to determine the cause/s of the differences.
Self check 3
Prepare a procedures checklist showing the steps that should be undertaken to ensure:
1. the day’s takings are correctly accounted for and deposited safely at the bank
2. theorganisation complies with its work health and safety responsibilities when handling
cash on its premises and depositing cash with the deposit facility.
Chapter 8: Extracting a trial balance and interim reports

8.1 Posting special journals to the general ledger and extracting a trial balance
Chapter 5 discussed how to post six special journals to the general ledger and prepare a trial
balance. The specialist journals were the:
sales journal
sales returns and allowances journal
purchases journal
purchases returns and allowances journal
cash receipts journal
cash payments journal.
The following analysis chart has been included to help you remember how to post the amounts from
these journals to the general ledger accounts.
8.2 Accurately processing special transactions
8.2 Cash and credit journals are completed and posted to general ledger
Special Journals and Methods of Processing Accounting Data
Identify (a) the use and types of subsidiary ledgers and (b) the use and types of special journals
A business constantly needs detailed information about its dealings with individual customers
and creditors. Imagine a business with several thousand charge (credit) customers and the
transactions with these customers are shown in only one account, Accounts Receivable, in the
general ledger. It would be virtually impossible to determine the balance owed by an individual
customer at a specific time. Similarly, details of transactions affecting a single creditor are
needed from time to time, and a single Accounts Payable account in the general ledger cannot
make this information available.
To provide this information, companies use a subsidiary ledger to keep track of individual
balances. A subsidiary ledger is a group of accounts with a common characteristic, e.g., all are
customer accounts, that is, all are accounts receivable. The subsidiary ledger facilitates the
recording process by freeing the general ledger from the details of individual balances. Thus, a
typical merchandising enterprise has subsidiary ledgers containing accounts with customers
(accounts receivable or customers' ledger) and creditors (accounts payable or creditors' ledger).
The enterprise maintains an account in the general ledger that summarizes the details in the
accounts receivable and accounts payable ledgers. This summary account in the general ledger is
called a control account, because the summary account controls the subsidiary ledger. The
general ledger control account balance must equal the composite balance of the individual
accounts in the subsidiary ledger.
As indicated, two common subsidiary ledgers are: (1) the accounts receivable ledger or
customers' ledger, controlled by the general ledger account, Accounts Receivable; and (2) the
accounts payable ledger or creditors' ledger, controlled by the general ledger account, Accounts
Payable. In subsidiary ledgers, the individual accounts are usually arranged in alphabetical order.
An example of a control account and subsidiary ledger for accounts receivable is provided in
Illustration 1.
Illustration 1: Relationship between General and Subsidiary Ledgers
Illustration 1 is based on the following transactions:
Sales and Collection Transactions
Credit Sales Collections on Account

Jan. 10 Aaron Co. $ 6,000 Jan. 19 Aaron Co. $ 4,000
12 Branden Inc. 3,000 21 Branden Co. 3,000
20 Caron Co. 3,000 29 Caron Co. 1,000
$12,000 $ 8,000
The total debits and credits in Accounts Receivable in the general ledger are reconcilable to the
detailed debits and credits in the subsidiary accounts. The balance of $4,000 in the Accounts
Receivable control account agrees with the total of the balances in the individual accounts
receivable accounts ($2,000 + $0 + $2,000) in the subsidiary ledger.
Postings are made to the control accounts in the general ledger monthly for the purpose of
preparing monthly financial statements. Postings to the individual accounts in the subsidiary
ledger are made daily. The rationale for posting daily is to ensure that current account
information can be used as a basis for monitoring credit limits, for billing customers, and also to
answer inquiries from customers about their account balances.
Note also in this example that postings to the control account are made in total at the end of the
month, whereas each of the individual transactions is posted daily to the subsidiary ledger.
Procedures used for posting entries to the subsidiary ledger and to the general ledger control
account generally involve the use of special journals, discussed in the next section.
In summary, the advantages of using subsidiary ledgers are that they:
Show transactions affecting one customer or one creditor in a single account, thus providing
necessary up-to-date information on specific account balances.
Free the general ledger of excessive details relating to accounts receivable and accounts
payable. As a result, a trial balance of the general ledger does not contain vast numbers of
individual account balances.
Help locate errors in individual accounts by reducing the number of accounts combined in
one ledger and by using control accounts.
Make possible a division of labor in posting by having one employee post to the general
ledger and a different employee post to the subsidiary ledgers.
Note that a business may also use control accounts and subsidiary ledgers for other accounts
such as inventory, equipment, and selling and administrative expenses.
Expansion Of The Journal - Special Journals
So far you have learned to journalize transactions in a two-column general journal and post these
entries individually to the general ledger. This procedure is satisfactory in only the very smallest
companies. To expedite journalizing and posting transactions, most companies use special
journals in addition to the general journal.
A special journal is used to group similar types of transactions, such as all sales of merchandise
on account, or all cash receipts. The types of special journals an enterprise uses depend largely
on the types of transactions that occur frequently in its business. Most merchandising enterprises
use the following journals to record transactions daily:
Sales journal-- all sales of merchandise on account.
Cash receipts journal-- all cash received (including cash sales).
Purchases journal-- all purchases of merchandise on account.
Cash payments journal-- all cash paid (including cash purchases).
If the transaction cannot be recorded in a special journal, it is recorded in the general journal. For
example, if you had special journals for only the four types of transactions listed, purchase
returns and allowances or sales returns and allowances would be recorded in the general journal.
Similarly, correcting, adjusting, and closing entries are recorded in the general journal. Other
types of special journals may be used in some situations. For example, where purchase returns
and allowances or sales returns and allowances are frequent, special journals may be employed
to record these transactions.
The journalization and posting process is illustrated using the sales journal and the cash receipts
journal. The same procedures apply to all special journals with only the column and account
names being different.
Sales Journal
The sales journal is used to record sales of merchandise on account. Cash sales of merchandise
are entered in the cash receipts journal. Similarly, credit sales of assets other than merchandise
are entered in the general journal.
Journalizing Credit Sales
Each entry in the sales journal used here results in a debit to Accounts Receivable and a credit to
Sales. Since each sale on account involves a debit to Accounts Receivable and a credit of equal
amount to Sales, only one line is used to record the transaction. Postings from the sales journal
are made daily to the individual accounts receivable in the subsidiary ledger and monthly to
the general ledger.
Illustration 2: Posting the Sales Journal
A check mark is inserted in the reference posting column instead of an account number to
indicate that the daily posting to the customer's account has been made. A check mark is used
when subsidiary ledger accounts are not numbered. A typical sales journal with related accounts
is shown in Illustration 2.
At the end of the month, the column total of the sales journal is posted to the general ledger-as a
debit to Accounts Receivable (account No. 4) and as a credit to Sales (account No. 60). The
insertion of the respective account numbers below the column total in the sales journal indicates
that the postings have been made. In both the general ledger and subsidiary ledger accounts, the
reference S1 indicates that the posting came from page 1 of the sales journal.
Cash Receipts Journal. All receipts of cash are recorded in the cash receipts journal. The most
common types of cash receipts are cash sales of merchandise and collections of accounts
receivable. Many other possibilities exist, however, such as receipt of money from bank loans
and cash proceeds from disposals of equipment, buildings, or land. As a result, a one-column
cash receipts journal is not sufficient to accommodate all possible cash receipts transactions;
therefore, a multiple-column cash receipts journal is used. Generally, a cash receipts journal
includes debit columns for cash and sales discounts and credit columns for accounts receivable,
sales, and "other" accounts. The other accounts category is used when
the cash receipt does not involve a cash sale or a collection of accounts receivable. A five-
column cash receipts journal is shown in Illustration 3. When a special journal has more than one
column it is often referred to as a columnar journal.
Illustration 3: Journalizing and Posting Cash Receipts Journal
Additional credit columns may be used if they significantly reduce postings to a specific account.
For example, the cash receipts of a loan company, such as Household Finance, include thousands
of collections from customers that are credited to Loans Receivable and Interest Revenue. A
significant saving in posting would result from using separate credit columns for Loans
Receivable and Interest Revenue. In contrast, a retailer that has only one interest collection a
month would not reduce its postings by using a separate column for interest revenue.
In a columnar journal, as in a single-column journal, only one line is needed for each entry.
However, in contrast to a single-column journal, an explanation is given for each entry, and
there must be equal debit and credit amounts for each line. When the collection from Abbot
Sisters on May 10 is journalized, for example, three amounts are indicated. Note also that the
Accounts Credited column is used to identify both general ledger and subsidiary ledger account
titles. The former is illustrated in the May 1 entry for Karns' investment; the latter is illustrated in
the May 10 entry for the collection in full from Abbot Sisters.
Posting the Cash Receipts Journal
Posting a columnar journal involves the following procedures:
All column totals except the total for the Other Accounts column are posted once at the end
of the month to the account title specified in the column heading, such as Cash or Accounts
Receivable.
The total of the Other Accounts column is not posted. Instead, the individual amounts
comprising the total are posted separately to the general ledger accounts specified in the
Accounts Credited column. See, for example, the credit posting to D. A. Karns, Capital. The
symbol (X) is inserted below the total of this column to indicate that the amount is not
posted.
The individual amounts in a column, posted in total to a control account (Accounts
Receivable, in this case), are posted daily to the subsidiary ledger account specified in the
Accounts Credited column. See, for example, the credit posting of $10,600 to Abbot Sisters.
Therefore, cash is posted to account No. 1, accounts receivable to account No. 4, sales to account
No. 60, and sales discounts to account No. 61. The symbol CR is used in the ledgers to identify
postings from the cash receipts journal.
Format of Purchases Journal and Cash Payments Journal
The column headings that might be used in a typical single-column purchases journal and a
multiple-column cash payments journal are shown in Illustration 4.
Purchases Journal
P1
Date Account Credited Terms Ref. Purchases Dr.
Accounts Payable
Cr.
Illustration 4: Purchases Journal and Cash Payments Journal
Cash Payments Journal

P1
Ck Accoun Accoun Purchas
. ts Other ts Store e Cas
Dat No Explanati Debite Re Accoun Payabl Suppli Discoun h
e . on d f. ts Dr. e Dr. es Dr. ts Cr. Cr.
Exercise 1
(Subsidiary Ledgers and Special Journals) Kris Kross Company uses both special journals and a
general journal as described in this chapter. On April 30, after all monthly postings had been
completed, the Accounts Receivable control account in the general ledger had a debit balance of
$350,000 and the Accounts Payable control account had a credit balance of $95,000.
The May transactions recorded in the special journals are summarized below. No entries
affecting accounts receivable and accounts payable were recorded in the general journal for May.
Cash receipts
Sales journal Purchases journal Cash payments journal
journal
Accounts
Total sales, Total purchases, Accounts Payable column total,
Receivable column
$162,000 $61,350 $55,000
total, $143,500
Instructions
A. What is the balance of the Accounts Receivable control account after the monthly
postings on May 31?
B. What is the balance of the Accounts Payable control account after the monthly postings
on May 31?
C. What posting would be made of the column total of $162,000 in the sales journal?
What posting would be made of the accounts receivable column total of $143,500 in the cash
receipts journal?
Exercise 2
(Subsidiary Ledgers and Special Journals) On September 1 the balance of the Accounts Payable
control account in the general ledger of Rick Mahorn Company was $5,760. The creditors'
subsidiary ledger contained account balances as follows: Khalid Reeves, $1,270; Kendall Gill,
$970; Ed O'Bannon, $1,850; Yinka Dare, $1,670. At the end of September the various journals
contained the following information:
Purchases journal: Purchases from Khalid Reeves, $1,500; from Kendall Gill, $1,350; from Ed
O'Bannon, $1,080; from Yinka Dare, $1,150; from Armon Gilliam, $1,365.
Cash payments journal: Cash paid to Ed O'Bannon, $1,500; to Yinka Dare, $1,070; to Khalid
Reeves, $2,746. (Khalid Reeves allowed Rick Mahorn a $24 discount.)
General journal: An allowance from Armen Gilliam, $45; a return of merchandise to Kendall
Gill, $80; and an entry to correct a $30 overcharge that Yinka Dare made on an invoice.
Instructions
A. Set up control and subsidiary accounts, and enter the beginning balances. Do not
construct the journals.
B. Post the various journals. Post the items as individual items or as totals, whichever would
be the appropriate procedure in the usual posting process.
Prepare a list of creditors and prove the agreement of the controlling account with the subsidiary
ledger.
Exercise 3
(Special Journals) The Marty Carter Company uses the columnar cash journals illustrated
in the text. In May, the following selected cash transactions occurred:
May 1 Paid cash for office equipment.
Received collection from customer within the 2% discount
2
period.
3 Received cash refund from supplier for merchandise returned.
4 Made cash sales.
5 Received an advance from a customer on June sales.
6 Made cash purchases.
7 Paid a creditor within the 2% discount period.
8 Paid freight on merchandise purchased.
9 Paid dividends.
1
Made a refund to a customer for the return of damaged goods.
0
1
Received cash due on a non-interest-bearing note receivable.
1
1 Received collection from customer after the 2% discount

2 period had expired.
Instructions Indicate (a) the journal, and (b) the columns in the journal that should be used in
recording each transaction.
Exercise 4
(Special Journals) Below are some typical transactions incurred by the Bob Hamelin Company.
1. Sales of merchandise on account. 9. Collection on account from customers.
10. Payment to building contractor of balance due

2. Payment of creditors on account.
on completed office building.
3. Payment of employee wages. 11. Sold land for cash.
4. Depreciation on building. 12. Close income summary to owner's capital.
5. Purchase of office supplies for 13. Sales of merchandise for cash.
6. Return of merchandise purchased. 14. Depreciation on machinery.
7. Sales discount given on goods sold. 15. Purchase of merchandise on account.

8. Return of merchandise sold for credit.
Instructions
For each transaction, indicate whether it would normally be recorded in a cash receipts journal,
cash payments journal, single-column sales journal, single-column purchases journal, or general
journal
8.3 Extracting and checking a trial balance and correcting errors

A trial balance, apart from providing proof that all your values are correctly entered, provides a list
of account balances that can then be used to prepare financial statements such as the income
statement and balance sheet.
It is essential that any errors in the trial balance are found and corrected, as they will be revealed in
the financial statements when the balance sheet does not balance.
When a trial balance reconciles, it indicates that postings from the journals have been entered
without error. However, a balanced trial balance may still include errors that may go undetected.
Trial balance errors
A balanced trial balance is a cause to celebrate. However, even if it balances, it is still possible that
you have made errors in the process of recording transactions in journals, posting to ledger accounts,
balancing and recording the balances.
The following are errors that may be found even when a trial balance balances:
You may have recorded a debit and credit for an equal amount, but it may have been the wrong
amount. For example, instead of debiting the purchases account for $200 and crediting the
creditors control account for $200, you mistakenly recorded $2,000 in each account.
You may have neglected to record a transaction altogether. For example, an invoice received for
the purchase of office stationery may have been caught up in other papers on your desk and was
not recorded in the journal.
You may have compensated for an error. For example, you may have recorded a rent expense of
$10,000 on the credit side of the trial balance and then recorded commission revenue of $10,000
on the debit side.
Because mistakes may slip through, you need to be very careful when making entries in the
general ledger. Double-check your postings and look over your work to see where you could
have made mistakes.
Causes of an unbalanced trial balance
A trial balance my include errors as a result of:
 incorrect addition of the trial balance
 incorrect additions in ledger accounts
 transposition of account balances
 recording a debit balance as a credit balance, or vice versa
 omitting account balances from the trial balance
 failing to record a debit entry for each credit entry of the same amount/s.
8.4 Any errors are found and corrected

Errors may include:
o a transaction not being recorded in a journal or recorded incorrectly
o a journal entry not posted to the ledger or posted twice
o an entry being made in an incorrect ledger account but on the correct side
o entries being made on the wrong side of two ledger accounts
o Offsetting errors (compensating errors) where two
o independent errors for the same amount are made.
The Accounting Cycle: 9-Step Accounting Process
The accounting cycle, also commonly referred to as accounting process, is a series of procedures
in the collection, processing, and communication of financial information.
As defined in earlier lessons, accounting involves recording, classifying, summarizing, and
interpreting financial information.
Financial information is presented in reports called financial statements. But before they can be
prepared, accountants need to gather information about business transactions, record and collate
them to come up with the values to be presented in the reports.
The cycle does not end with the presentation of financial statements. Several steps are needed to
be done to prepare the accounting system for the next cycle.
Accounting Cycle Steps
1. Identifying and Analyzing Business Transactions
The accounting process starts with identifying and analyzing business transactions and events.
Not all transactions and events are entered into the accounting system. Only those that pertain to
the business entity are included in the process.
For example, a personal loan made by the owner that does not have anything to do with the
business entity is not accounted for.
The transactions identified are then analyzed to determine the accounts affected and the amounts
to be recorded.
The first step includes the preparation of business documents, or source documents. A business
document serves as basis for recording a transaction.
2. Recording in the Journals
A journal is a book – paper or electronic – in which transactions are recorded. Business
transactions are recorded using the double-entry bookkeeping system. They are recorded in
journal entries containing at least two accounts (one debited and one credited).
To simplify the recording process, special journals are often used for transactions that recur
frequently such as sales, purchases, cash receipts, and cash disbursements. A general journal is
used to record those that cannot be entered in the special books.
Transactions are recorded in chronological order and as they occur.
Journals are also known as Books of Original Entry.
3. Posting to the Ledger
Also known as Books of Final Entry, the ledger is a collection of accounts that shows the
changes made to each account as a result of past transactions, and their current balances.
After the posting all transactions to the ledger, the balances of each account can now be
determined.
For example, all journal entry debits and credits made to Cash would be transferred into the Cash
account in the ledger. We will be able to calculate the increases and decreases in cash; thus, the
ending balance of Cash can be determined.
4. Unadjusted Trial Balance
A trial balance is prepared to test the equality of the debits and credits. All account balances are
extracted from the ledger and arranged in one report. Afterwards, all debit balances are added.
All credit balances are also added. Total debits should be equal to total credits.
When errors are discovered, correcting entries are made to rectify them or reverse their effect.
Take note however that the purpose of a trial balance is only test the equality of total debits and
total credits and not to determine the correctness of accounting records.
Some errors could exist even if debits are equal to credits, such as double posting or failure to
record a transaction.
5. Adjusting Entries
Adjusting entries are prepared as an application of the accrual basis of accounting. At the end of
the accounting period, some expenses may have been incurred but not yet recorded in the
journals. Some income may have been earned but not entered in the books.
Adjusting entries are prepared to update the accounts before they are summarized in the financial
statements.
Adjusting entries are made for accrual of income, accrual of expenses, deferrals (income method
or liability method), prepayments (asset method or expense method), depreciation, and
allowances.
6. Adjusted Trial Balance
An adjusted trial balance may be prepared after adjusting entries are made and before the
financial statements are prepared. This is to test if the debits are equal to credits after adjusting
entries are made.
7. Financial Statements
When the accounts are already up-to-date and equality between the debits and credits have been
tested, the financial statements can now be prepared. The financial statements are the end-
products of an accounting system.
A complete set of financial statements is made up of: (1) Statement of Comprehensive Income
(Income Statement and Other Comprehensive Income), (2) Statement of Changes in Equity, (3)
Statement of Financial Position or Balance Sheet, (4) Statement of Cash Flows, and (5) Notes to
Financial Statements.
8. Closing Entries
Temporary or nominal accounts, i.e. income statement accounts, are closed to prepare the system
for the next accounting period. Temporary accounts include income, expense, and withdrawal
accounts. These items are measured periodically.
The accounts are closed to a summary account (usually, Income Summary) and then closed
further to the appropriate capital account. Take note that closing entries are made only for
temporary accounts. Real or permanent accounts, i.e. balance sheet accounts, are not closed.
9. Post-Closing Trial Balance
In the accounting cycle, the last step is to prepare a post-closing trial balance. It is prepared to
test the equality of debits and credits after closing entries are made. Since temporary accounts are
already closed at this point, the post-closing trial balance contains real accounts only.
*10. Reversing Entries: Optional step at the beginning of the new accounting period
Reversing entries are optional. They are prepared at the beginning of the new accounting period
to facilitate a smoother and more consistent recording process.
In this step, the adjusting entries made for accrual of income, accrual of expenses, deferrals
under the income method, and prepayments under the expense method are simply reversed.

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Processing financial transactions and extracting interim reports

1. Check and verify supporting documentation

1.2 Supporting documentation is examined to establish accuracy and completeness and to

Suspense account $1,000

Accounts receivable $1,000

Suspense account $2,500

Accounts payable $2,500

Supplies – Sales dept. $2,500

Suspense account $2,500

Guidelines for reconciling journals

Debit Cash 100

The types of specialist journals organisations use include the following:

The procedure for check receipts processing is outlined below:

June 30 Depreciation expense 10,000

Accumulated depreciation 10,000

To record depreciation for the month of June

Journal Process Flow

June 2 Withdrawal 500 500

Sources of Borrowed Sources of Owner Sources of Management

Sources of Borrowed Sources of Owner Sources of Management

Trade Practices Act and Fair Trading Laws

Chapter 8: Extracting a trial balance and interim reports

Illustration 1 is based on the following transactions:

Sales and Collection Transactions

Credit Sales Collections on Account

Cash Payments Journal

1. Sales of merchandise on account. 9. Collection on account from customers.

10. Payment to building contractor of balance due

6. Return of merchandise purchased. 14. Depreciation on machinery.

7. Sales discount given on goods sold. 15. Purchase of merchandise on account.

8.3 Extracting and checking a trial balance and correcting errors

8.4 Any errors are found and corrected

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