bkp_lv3_c01_refresh - Advanced Financial Accounting Chapter...

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Advanced Financial Accounting Chapter 1 – Basic accounting techniques ngivansir@hotmail.com Page 1 of 6 Advanced Financial Accounting Chapter 1 – Basic accounting techniques Recording transactions and their posting Transactions are first recorded in the books of prime entry, includes: Sales day book – goods sold on credit to customers Purchases day book – goods and services purchases on credit from suppliers Cash book – cash receipts and payments Journal – recording opening balance, closing entries, error corrections and purchases and disposal of fixed assets Sales returns book – goods returned by customers Purchases returns book – goods returned to suppliers Transactions recorded in the books of prime entries will then be posted to the ledger accounts, includes: Sales Ledger – accounts of credit customers Purchases Ledger – accounts of suppliers General/Nominal Ledger – accounts for assets, liabilities, gains, losses, expenses and capital * Cash book belongs to both books of prime entry and Ledger for cash transactions. What is Control Accounts? Trial balance is used to find out errors in the accounts. However, it seems ineffective if there are a large number of accounts. Control accounts, sometimes called total accounts, collects information from other related accounts and check for errors. Control accounts (debtors and creditors) are ledger accounts in the general ledger that summarize a large number of customers and suppliers transaction. Debtors and Creditors ledgers are removed from the double-entry book-keeping system. They become the subsidiary ledgers , and the personal accounts are called memorandum (or memo) accounts . The memo accounts provide the necessary information about individual debtors and creditors accounts. Advantages of maintaining control accounts A control account can: Provides debtors’ and creditors’ balances for the production of a trial balance and balance sheet easily. Provides an internal check on the accuracy of entries, by comparing the total balances in the control accounts with the total in each of the memorandum accounts in the subsidiary ledgers. Provides immediate access to current totals of debtors/ creditors Safeguard against fraudulent entries in the accounting system. Reduces occurrence of errors by posting totals rather than individual items.
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Advanced Financial Accounting Chapter 1 – Basic accounting techniques ngivansir@hotmail.com Page 2 of 6 Sales Ledger (Debtors’) Control Account The Sales Ledger Control Account is presented as: Debtors’ Control $ $ Balance b/d X Cash received X Sales X Discounts allowed X Overdue interest charged Sales returns X Dishonored cheques Creditors’ control – contra X Bad debts expense X Balance c/d X X
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bkp_lv3_c01_refresh - Advanced Financial Accounting Chapter...

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