ESTADOS DE CAMBIOS EN EL PATRIMONIO NETO
14. Activos intangibles distintos a la plusvalía y Plusvalía
Day books is a topic that sometimes results in the loss of examination marks.The problem arises largely from failure of students to understand the function of the day books. So often, day books are prepared as if they are ledger accounts.
Entries in the day books require an authorized source such as an invoice or copy invoice.
Trade discount also has to be considered.
Topic summary
● The invoice or copy invoice as the source document for credit purchases or sales
● The preparation of a Sales Day Book for a given period and posting entries to ledger accounts
● The function of the Sales Day Book
● The book-keeping significance of trade discount and how it contrasts with cash discount
● The preparation of a Purchases Day Book for a given period and posting entries to ledger accounts
Extended Syllabus references
5.7 Use of the term source document: in particular, the part played in book-keeping by the invoice and the credit note
5.8 The significance of trade discount
5.9 The calculation of trade discount, from list price to obtain net price
6.1 The function of Purchases, Sales, Returns Outwards, and Returns Inwards Day Books
6.2 The alternative names used for these various day books 6.3 The recording of individual transactions in the day books
6.4 Making individual postings from the day books to personal accounts
6.5 Making postings of period day-book totals to the Purchases, Sales, and Returns Accounts in the General Ledger
8.12 The differences between trade discount and cash discount and the different book-keeping effects
Step 1
1 Explain that when goods are sold on credit, the seller will send an invoice to the buyer, setting out:
● the parties to the transaction
● details of the goods sold
● their prices
● the ‘terms of sale’.
2 Show a specimen invoice (Figure 11.1) on the overhead projector.
Figure 11.1 A specimen invoice
Purchases and Sales Day Books
INVOICE
Tempster & Fall 25 The Square
Northbridge NT3 5WR 7 April Year 4
Invoice no 5622 To: R Maundy
17 The Luttens
Wednesbury WD4 3ET
Quantity Description Unit price Total
£ £
40 Moveable shelves 7 280.00
20 Lockable containers 12 240.00
10 Storage cabinets 20 200.00
720.00
less trade discount at 121/2% 90.00
630.00 Terms: 21/2% cash discount for payment within 30 days
Aim: to recognize the invoice or copy invoice as the source document for credit purchases or sales
If possible, obtain actual invoices for the students to see.
3 Explain that the seller will pass a copy of the outgoing invoice to his or her book-keeper.
The copy invoice will then be the basis of entry into the accounts, ie it will be the
‘source document’.
Step 2
1 On the board or overhead projector, show the Sales Day Book of Tempster & Fall, below, and:
● explain that the sources of the entries are copy invoices;
● show the postings to the ledger one by one;
● show clearly how the double entry is achieved.
SALES DAY BOOK
Invoice no Amount
Year 4 £
2 Apr A Trumble 5621 433
7 Apr R Maundy 5622 630
20 Apr W Trent 5623 290
26 Apr F Skane 5624 375
To Sales Account 1,728
Point out that invoice numbers might not be included in some examination questions, and so the ‘invoice no’ column would be left out.
2 The double entry for Tempster & Fall’s transactions is achieved as follows:
(a) the individual amounts are posted to the debtor accounts as soon as possible, ie they are debit entries;
(b) the total of the credit sales for April Year 4 is transferred at the end of the month to the credit of the Sales Account in the General Ledger.
SALES LEDGER
Dr A Trumble
Year 4 £
2 Apr Sales 433
Purchases and Sales Day Books
Aim: to be able to prepare a Sales Day Book for a given period and to post entries to ledger accounts
R Maundy
Check that the total of the 4 debit entries is equal to the amount of the credit entry.
Step 3
1 Discuss the function of the Sales Day Book. Explain that it is used for:
● recording credit sales;
● carrying transaction detail instead of the Sales Account.
Emphasize that, usually, only credit sales are entered in the day book: cash sales will continue to be entered directly into the Sales Account.1
2 Illustrate the procedure for credit sales by displaying Figure 11.2 on the overhead projector.
Figure 11.2 Credit sales procedure
Purchases and Sales Day Books
Aim: to appreciate the functions of the Sales Day Book
Copy invoice (source document)
Stress that the entry in the day book is not part of double entry: it is a note only – a form of memorandum. The amounts of credit sales are held in the day book throughout each month. At the end of each month the total is transferred to the Sales Account. Thus, during the month, the debit part of each credit sale has been entered but not the credit part. The double entry is complete when the monthly total is transferred.
3 Ask the students what the advantages are of having a Sales Day Book. The answers should be that:
● fewer items need to be passed through the double-entry system;
● accounting work can be divided among staff, with one person looking after the day book and another the ledger.
4 The day book seems to have limited detail recorded for each transaction. Ask the students if it really helps the ledger that much.The answer is that it is true that day book entries nowadays are much briefer than in the past. Much of the detail is shown on the copy invoice, which can be referred to if necessary. The file of copy invoices can be regarded as supporting the day book. Present-day practice still means that the ledger is helped by not having to carry a lot of detail.
5 Explain that in a computer-based account system, the information included in the manually based Sales Day Book would be recorded to enable many functions to be performed. Thus, the amount of monthly credit sales could be known quickly.
Information may also be readily available on the amounts outstanding on individual customer accounts, on the regularity of payments by customers, etc. The print-out of invoices for despatch to customers and other documents could also be part of an integrated system.
6 Hand out copies of or display exercise T/11.1 in the Appendix (page 234) on the overhead projector and ask the students to work through it.
Step 4
1 Explain the nature of trade discount and its effect on selling price. Trade discount is normally an allowance to traders for buying in bigger quantities. Any one trader might offer different levels of discount, eg 10%, 121/2%, or 15%, according to the quantity or amount (in £) of an order.
2 If possible, show examples of trade discount in catalogues or price lists issued by traders.
Refer to the trade discount shown on the invoice illustrated on page 71. Show that the entry in the Sales Day Book for R Maundy is £630 (see page 72), ie the net figure on
Purchases and Sales Day Books
Aim: to appreciate the book-keeping significance of trade discount and how it contrasts with cash discount
the invoice after the trade discount is deducted. From this example, the students will see that trade discount is not recorded in the accounts. However, cash discount is recorded in the accounts: the buyer still has to meet the condition of paying the account by a certain date.
3 Hand out copies of or display the following exercise on the overhead projector and ask the students to work through it.
Exercise
On 5 January Year 7, K Johnson sells goods on credit to V Lympne, at a list price of
£750 and quantity (trade) discount of 20%. A cash discount of 21/2% is allowed if the account is settled within 30 days of the invoice date. V Lympne pays the account by cheque on 31 January Year 7.
Required
In the books of K Johnson, show the relevant entries in:
(i) the Sales Day Book
(ii) the ledger account of V Lympne.
Solution
In the books of K Johnson:
SALES DAY BOOK
5 Jan Sales 600 31 Jan Bank 585
31 Jan Discount allowed 15
600 600
Note
The trade discount does not appear in any account and need not appear in the Sales Day Book, ie it is sufficient to show the net figure after the deduction of the trade discount.
4 Explain that cash discount does not, as some students think, appear in the Sales Day Book. It does, however, appear on the credit side of V Lympne’s account – because Lympne has paid the account within the required 30 days.
5 Hand out copies of or display on the overhead projector exercise T/11.2 in the Appendix (page 234) and ask the students to work through it.
Purchases and Sales Day Books
Step 5
1 Explain that purchases on credit are treated on a similar basis to credit sales. First, they are listed in a Purchases Day Book. Illustrate the procedure for credit purchases by displaying Figure 11.3 on the overhead projector.
Figure 11.3 Procedure for credit purchases
2 Show the following Purchases Day Book of R Maundy on the board or overhead projector:
PURCHASES DAY BOOK
Invoice no Amount
Year 4 £
7 Apr Tempster & Fall 980 630
14 Apr S Clegg 981 416
20 Apr T Roman 982 528
23 Apr B Porter 983 364
To Purchases Account 1,938
3 Show the students how to post the transactions recorded in the Purchases Day Book to the ledger accounts:
Purchases and Sales Day Books
Aim: to be able to prepare a Purchases Day Book for a given period and to post entries to ledger accounts
T Roman
Point out that the sale to R Maundy, in the Sales Day Book of Tempster & Fall, becomes a purchase in the Purchases Day Book of R Maundy.The amount is the same.
4 Inform the students that each entry in the Purchases Day Book is made from an invoice received from the seller. Compare this procedure with that for the copy invoice from which entries are made in the seller’s day book.
5 Display exercise T/11.3 in the Appendix (page 235) on the overhead projector, or hand out copies of it to the students. Ask the students to work through the exercise.
Note
Advise the students that they need to be familiar with the alternative names for the 2 day books dealt with in this lesson to complete the exercise. The alternative names are given below:
Sales Day Book or Sales Journal Purchases Day Book or Purchases Journal
6 Common errors made by candidates concerning day books Draw the attention of the students to the following points.
(a) The day books are shown in account format, which demonstrates a basic misunderstanding of the function of the day book.
(b) The transactions that have been recorded in the day books are repeated, line by line, in the Purchases Account and/or Sales Account. Only period totals are supposed to be posted to the Purchases and Sales Accounts.
(c) The deduction of cash discount in the day books.
7 Display exercise T/11.4 in the Appendix (page 236) on the overhead projector or hand out copies of it to the students. Ask them to work through the exercise. This exercise should help to reinforce the students’ knowledge about the 3-column Cash Book.
Purchases and Sales Day Books