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Extra resources for Accounts
41 Part A: Basic Accounting NOTES Chapter roundup • Business transactions are recorded on source documents. Examples include sales and purchase orders, invoices and credit notes. • Books of prime entry record the source documents. • The main books of prime entry are as follows. – – – – – – – Sales day book Purchase day book Sales returns day book Purchases returns day book Journal (described in the next chapter) Cash book Petty cash book • Day books are the books of prime entry for sales and purchases.
EXAMPLE CONTINUED: MAKING A PROFIT Let us now suppose that on 3 July Courtney has a very successful day. She is able to sell all of her herbs and spices, for £900. All of her sales are for cash. Since Courtney has sold goods costing £650 to earn revenue of £900, we can say that she has earned a profit of £250 on the day's trading. Profits belong to the owners of a business. In this case, the £250 belongs to Courtney Spice. However, so long as the business retains the profits, and does not pay anything out to its owner, the retained profit are accounted for as an addition to the sole trader's capital.
The records of transactions, assets and liabilities should be: (a) Dated and in chronological order, so that transactions can be related to a particular period of time. (b) Built up in cumulative totals. For example, a business may build up the total of its sales: (i) (ii) (iii) (iv) Day by day (eg total sales on Monday, total sales on Tuesday) Week by week Month by month 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.