I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

 

1 

List four pieces of information normally shown on an invoice.  

2 

Which of the following is not a book of prime entry? 

A Sales 

invoice 

B 

Purchase day book 

C 

Sales day book 

 D 

Journal 

 

3 

What is the purchase returns day book used to record? 

 A 

Suppliers' 

invoices 

 B 

Customers' 

invoices 

 

C 

Details of goods returned to suppliers 

 

D 

Details of goods returned by customers 

4 

The petty cash book records payments into and out of the bank account. True or false?  

5 

Fill in the blank. 

 

Cash still held in petty cash + ……………………….. = the imprest amount. 

 

 

 

 

QUICK QUIZ

CHAPTER ROUNDUP 

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CHAPTER 4  

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  SOURCES, RECORDS AND BOOKS OF PRIME ENTRY 

 

57 

1 

Four from the following: 

 

 Invoice 

number 

 

 

Seller's name and address 

 

 

Purchaser's name and address 

 

 

Date of sale 

 

 

Description of goods or services 

 

 

Quantity and unit price 

 

 

Trade discount (if any) 

 

 

Total amount, including sales tax (if any) 

 

 

Any special terms 

 

Cash (or settlement) discount (if any) 

2 

A 

Sales invoice is a source document. 

3 

C 

Suppliers' invoices (A) are recorded in the purchase day book, customers' invoices (B) are 

 

recorded in the sales day book and goods returned by customers (D) are recorded in the sales 

 

returns day book. 

4 

False. The cash book records amounts paid into or out of the bank account. The petty cash book records 

payments of small amounts of cash.  

5 

Cash still held in petty cash + voucher payments = the imprest amount. 

 

 

 

Now try ... 

 

Attempt the questions below from the Practice Question Bank 

 

Qs 11 – 15  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ANSWERS TO QUICK QUIZ 

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PART C: THE USE OF DOUBLE-ENTRY AND ACCOUNTING SYSTEMS 

 

58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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59 

C H A P T E R 

 

 

TOPIC LIST 

SYLLABUS 

REFERENCE 

1  Why do we need ledger accounts? 

C1(e)

2  The nominal ledger 

C1(e), C2(a)

3  The accounting equation 

C1(d), D8(a)

4 Double 

entry 

bookkeeping 

C1(c), D2(a)

5 The 

journal 

C2(b),(c)

6 Day 

book 

analysis 

D1(a),(b)

7  The receivables and payables ledgers 

D1(a),(b), D8(a)

 

Ledger accounts and 

double entry

In the previous chapter we saw how to organise transactions into 

lists (ie entered into books of prime entry). It is not easy, 

however, to see how a business is doing from the information 

scattered throughout these books of prime entry. The lists need 

to be summarised. This is ledger accounting, which we look at 

in Sections 1 and 2. 

The summary is produced in the nominal ledger by a process 

known as double entry bookkeeping. This is the cornerstone of 

accounts preparation and is surprisingly simple, once you have 

grasped the rules. We will look at the essentials in Sections 3 

and 4. 

In Section 5, we will deal with the final book of prime entry: the 

journal. 

We will then look in detail at posting transactions from the day 

books to the ledgers in Section 6. 

Finally, we will consider how to deal with credit transactions in 

Section 7. 

 

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PART C: THE USE OF DOUBLE-ENTRY AND ACCOUNTING SYSTEMS 

 

60

 

 

Study Guide 

Intellectual level 

 

 

C  The use of double entry and accounting systems 

 

 

 

1  Double entry bookkeeping principles including the 

maintenance of accounting records  

 

 

 

(c)  Understand and apply the concept of double entry accounting 

and the duality concept. 

K 

 

 

(d)  Understand and apply the accounting equation. 

S 

 

 

(e)  Understand how the accounting system contributes to 

providing useful accounting information and complies with 

organisational policies and deadlines. 

K 

 

 

2  Ledger accounts, books of prime entry and journals 

 

 

 

(a)  Identify the main types of ledger accounts and books of prime 

entry, and understand their nature and function. 

K 

 

 

(b)  Understand and illustrate the uses of journals and the 

posting of journal entries into ledger accounts. 

S 

 

 

(c)  Identify correct journals from given narrative. 

S 

 

 

D  Recording transactions and events 

 

 

 

1 Sales 

purchases 

 

 

 

(a)  Record sale and purchase transactions in ledger accounts. 

S 

 

 

(b)  Understand and record sales and purchase returns. 

S 

 

 

2 Cash 

 

 

 

(a)  Record cash transactions in ledger accounts. 

S 

 

 

8  Receivables and payables 

 

 

 

(a)  Explain and identify examples of receivables and payables. 

K 

 

 

 

 

 

 

1

   Why do we need ledger accounts? 

Ledger accounts summarise all the individual transactions listed in the books of prime entry.  

A business is continually making transactions, eg buying and selling. It does not prepare a statement of 

profit or loss and a statement of financial position on completion of every individual transaction. To do 

so would be a time-consuming and cumbersome administrative task. 

However, a business should keep a record of the transactions that it makes, the assets it acquires and 

liabilities it incurs. When the time comes to prepare a statement of profit or loss and a statement of 

financial position, the relevant information can be taken from those records. 

The records of transactions, assets and liabilities should be kept in the following ways. 

(a) In 

chronological order, and dated so that transactions can be related to a particular period of 

time. 

(b) 

Built up in cumulative totals.  

(i)

 

Day by day (eg total sales on Monday, total sales on Tuesday) 

(ii) 

Week by week 

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CHAPTER 5  

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  LEDGER ACCOUNTS AND DOUBLE ENTRY 

 

61 

(iii) 

Month by month 

(iv) 

Year by year 

We have already seen the first step in this process, which is to list all the transactions in various books 

of prime entry. Now we will look at the method used to summarise these records: ledger accounting and 

double entry. 

This system of summarising information speeds up the provision of useful information to managers and 

so helps managers to keep to organisational deadlines (eg provision of monthly profit figures for 

management purposes). This system also provides useful accounting information to other parts of the 

organisation. For example: 

(a)  

The credit control department monitors the receivables balances. The accounting system will 

provide valuable information to the credit control department by summarising all the sales made 

on credit. This will enable the credit control department to monitor receivables balances and 

make sure they are paid within the company's allowed credit period. The accounting information 

produced can also help with cash planning, as the credit control department can provide 

management with predicted timings of cash receipts based on outstanding receivables balances.  

(b)   Summarised information relating to sales will be very useful to the sales department. The 

information provided could be used to work out which products are best sellers and which are not 

selling very well, whether products sell better at different times of the year and so on. The sales 

department could also liaise with the credit control department to make sure that sales are not 

made to customers who have a history of not paying their bills.  

(c) 

Summarised information on sales and purchases can also help the company manage its inventory 

levels. The purchasing department can use the summarised accounting information to spot trends 

in the use of raw materials to help it predict demand levels and avoid stock outs.  

 

2

   The nominal ledger 

The principal accounts are contained in a ledger called the general or nominal ledger. 

 

The 

nominal ledger

 is an accounting record which summarises the financial affairs of a business.  

 

The nominal ledger is sometimes called the 'general ledger'. The information contained in the books of 

prime entry (eg the sales and purchases day books) is summarised and posted to accounts in the 

nominal ledger. Accounting software operates in the same way; however, it is more common for the 

information in the sales and purchases day books to be posted to the nominal ledger as individual 

transactions rather than summaries. 

The nominal ledger contains details of all accounts including assets, liabilities, capital, income and 

expenditure, and so profit and loss. Each account has an account name and an account code. Access to 

certain accounts in the nominal ledger may be restricted to certain accounting staff, as a control against 

fraud, or for confidentiality reasons (eg salary accounts).   

Examples of accounts in the nominal ledger include the following. 

(a) 

Plant and machinery at cost (non-current asset) 

(b) 

Motor vehicles at cost (non-current asset) 

(c) 

Plant and machinery, accumulated depreciation (liability) 

(d) 

Motor vehicles, accumulated depreciation (liability) 

(e) 

Proprietor's capital (liability) 

(f) 

Inventories – raw materials (current asset)  

(g) 

Inventories – finished goods (current asset) 

(h) 

Total trade accounts receivable (current asset) 

(i) 

Total trade accounts payable (current liability) 

(j) 

Wages and salaries (expense item) 

(k) 

Rent and local taxes (expense item) 

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