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Accounting Financial Analysis Lecture


									Accounting & Financial

Analysis 111

Lecture 8

Source Documents, Day accounts/Specialised
Journals, Debtors & Creditors Subsidiary
What are source documents?

 Source documents are the evidence
  that a business transaction has
  taken place.
 Any document that is back-up to an
  entry in the accounts is a source
    What are source documents
 Source means “ The place from
  which things originate (start)”
 The source documents help to
  record the transactions that take
  place within an organization
  (business) and it is from the source
  documents that the “Financial
  Records” are developed.
     Are source documents
 Source documents are important to
  the business and should be checked
  carefully to confirm their accuracy
  and that they meet company and
  legislative requirements.
 All source documents relating to an
  individual transaction should be
  attached together and filed in proper
    Stock source documents
 The ordering of stock will involve
  various source documents that
  relate to the transaction:
 The stores requisition
 The purchase order
 The supplier delivery note
 The stores receipt note
 The tax invoice
    Document Procedures
 Businesses should have established
  procedures indicating the process
  to create and authorise documents.
 Before processing documents all
  details have to be checked to make
  sure that they are correct.
Document Procedures - points
       to look for:
 Purchase invoices
 Type of document to be processed –
  Tax Invoice, Credit note, etc.
 Name and address of supplier
  including ABN
 Date and invoice number
 Does tax invoice match the
  purchase order
 Is the quantity and price correct
    Document Procedures –
    Purchase Invoices ctd.
 Is GST included in the charge or
 Is the total charge correct
 What are the terms of trade
 Check receipt details if goods are
  purchased for cash
 If paid by cheque confirm details on
  cheque butts are accurate
Document Procedures - points
       to look for:
 Sales      invoices
   All sales invoices have to be checked to
    confirm they meet customer order and
    are mathematically correct.
   Sales invoices have to be printed in
    duplicate (one for customer and the other
    for business records)
   Confirm customer requirements
   Confirm quantity and price charged
   Confirm GST charged
Document Procedures – Sales
      Invoices ctd.
 Confirm totals inclusive of GST
 Confirm the trade terms
 Confirm dispatch of goods
 Confirm credit status of customer
  (no accounts outstanding beyond
  trade terms).
 Sales invoices should be authorised
  for issue (validated, checked and
     Sales invoices ctd.

 If a sales invoice is found to be
  incorrect it should be corrected
  before posted to customer.
 If the invoice has already been
  posted a manager or supervisor
  should contact the customer in
  accordance with the company policy
  and procedures.
    Checking source documents

   If a source document is not correct it has
    to be given to the supervisor/manager to:
   Check the reason for the error
   Check quantity and price
   Confirm receipt of items
   Adjust the error if internal
   Contact supplier if external error
   Authorise adjustment – by company
    authorised person
   Process document
Adjusting Source Documents

 Any adjustments to source
  documents have to be authorised by
  an appointed person as per the
  Policy & Procedures of the
  company. There is usually a list of
  authorised persons indicating their:
 Name
 Position
 Sample of signature
 „$‟ Limit of authorisation
         Examples of source
   an invoice received after shopping is a
    source document,
   a purchase order is a source document,
   a cheque book,
   a deposit book,
   a cheque requisition,
   a bank statement,
   all expense vouchers,
   credit notes,
   these are all source documents.
         Purchase invoices
   We are all familiar with the receipt of
    invoices (bills) such as telephone bills,
    electricity bills, gas bills, invoices for
    purchases such as stationery,
    service/repairs to motor vehicle, etc.
    Each one of these bills/invoices is a
    source document and relates to our
    It shows the cost, the GST amount, and
    the total amount paid or owing to the
    creditor (accounts payable).
              Purchase Order

   A business writes out a purchase order each
    time it requires a Service or to purchase an item.
    The purchase order will show:
   The reference number of the purchase order.
   Name of the business making the order.
   The person authorising the issue of the order.
   The name of the supplier.
   The quantity ordered.
   The price per item (service) as agreed
   The total charge inclusive of GST.
   Other comments – such as date of delivery
    Why use a Purchase Order?

   The purchase order will be used to
    confirm the accuracy of the tax
    invoice when received and will be
    attached to the invoice for filing.
         Sales invoices
 In the same way, if we are in business
  and sell our products we issue a tax
  invoice showing:
 the amount of sales,
 the GST and
 The total amount paid to us or owing
  by the debtor (accounts receivable).
      Sales invoices ctd.
 A sales invoice should be issued as
  close to the sale date as possible since
 Credit terms indicate required payment
  after a certain number of days from
  date of invoice.
    Outstanding Accounts
 All accounts receivable need to be
 Regularly to confirm that they are
  within their trading terms.
 If accounts receivable are left
  uncollected the business will suffer
  negative cash flow and will not be able
  to pay its own expenses such as
 wages, rent, suppliers etc.
Outstanding Accounts ctd.
 If accounts receivable are left
  uncollected the business:
 will suffer negative cash flow and
 will not be able to pay its own
  expenses such as wages, rent,
  suppliers etc.
Outstanding Accounts ctd.
 The business will lose its credit rating
  with its suppliers and will not be
  allowed credit on future purchases.
 It will also have to pay interest on
  overdue accounts affecting its profit
               Credit notes
   A credit note is issued to a customer when
    the goods sold do not meet the
   expectations of the customer and they are
    returned to the store.
   The goods could have been damaged not
    according to specifications( wrong model,
    colour etc), or
   in excess of requirements.
   In the same way a credit note can be
    received by the business for goods that the
   Business returned to the supplier.
    Evidence of payments
 Other source documents relate to
  evidence of payment, such as:
 cheque book butts,
 credit card vouchers,
 receipts, written receipts for cash
 bank a/c statements Showing the direct
  debits to the account.
     Evidence of receipts
 Are documents that record cash or
  cheques received by the business;
 listings of cheques deposited to our
  bank a/c
 the bank a/c statements that show
  direct credits
    Evidence of receipts ctd.
 the cash till roll,
 the receipt book which is a copy of the
  receipt given to the customer
         What is GST ?
 GST stands for “Goods and Service
 it is a TAX imposed by government
  on all commercial transactions and
 is payable to the Australian Tax
  Office (ATO)
Who does the GST belong to?

   The GST amount that the business
    collects on all of its sales does not
    belong to the business it is merely
    collected by the business on behalf
    of the ATO and it is a debt owing to
    the ATO (liability).
        Is GST deductible?
   Any GST that the business pays on
    expenses for business use is
    allowed as a deduction from the
    amounts owing to the ATO.
  How much is the GST?

    current rate of GST is
 The
 10% on sales value.
    How do I work out GST?
   If the sales value is inclusive of GST
    then you have to divide the total
    amount by 11 in order to get the
    GST amount.
How do I account for GST?

 GST     payable a/c = GST owing to
 ATO (on sales)
     Liability – Credit

 Input    Tax Credits a/c = GST owing
 to the business by the ATO (on
     Assets - Debit
         Debtors Ledger
 Trade debtors originate from the
  Sales Journal
 Every sale made on credit will either
  create a new debtor or increase the
  amount owing by an existing debtor
 Previously, we said that the monthly
  total of the sales journal is posted to
  the General Ledger.
      Monthly total of the sales
   The entry would be:
   CR Sales a/c (Nominal ledger)   $68,700
   CR GST payable a/c               $6,870
   (Proprietary ledger)
   DR Accounts receivable (Trade Debtors,
   Debtors control a/c)
   (Proprietary ledger)   $75,570
   Being credit sales for the month of
       Amount posted to the
    Accounts Receivable will be:
   The total of all the Credit Sales
    made during the month to all of the
   The total of the Sales Returns for
    the month by all of the customers.
   The total of Cash Received from
    Debtor payments.
    Why use subsidiary ledgers?
   The general ledger will only show a total figure
    of how much is owed to the business it will not
    give details as to WHO owes the money nor
    HOW MUCH each customer owes.
   This information is most important to a business
    as it needs to collect money owing as quickly as
   In order to have this information available there
    needs to be a Debtors Subsidiary Ledger for
    amounts owing to the business and
   a Creditors Subsidiary Ledger for amounts
    owing to the customers.
         Controlling Debtors
   A business needs to monitor debtor payments
    using some of the following techniques:
   Get a credit check by using a reputable credit
   Get 3 references on the customer from their
    current suppliers
   Clearly indicating the credit terms being offered
   Enforcing credit terms as agreed
   Ensure that all invoices and statements are
    accurate and delivered promptly.
   Stop service to any delinquent payer
   Offer discount for early settlement
   Review debtors regularly to confirm that the
    credit terms are being observed.
    Outstanding accounts
 Check that the invoice sent to the
  customer was correct and that the
  customer received the goods.
  (delivery note signed by customer)
 Contact the customer by telephone
  followed by a letter demanding
 If payment is still not received
  contact your debt collecting agency
  or lawyer to follow up.
 The debtors subsidiary ledger will
  have an account opened for each
  individual debtor
 Each credit sales invoice (after
  being entered into the SALES
  JOURNAL) will also be entered into
  the appropriate debtors account in
  the subsidiary ledger as will
 other journal transactions that effect
  the Accounts Receivables.
        LEDGER (2)
 The journals that have a direct
  influence on Accounts Receivable
  (Debtors) are:
 The Sales journal
 The Sales returns journal
 The Cash receipts journal
 Class Exercise 8A & 8B
 Do it manually or use Excel

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