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Chapter 5 BOOKS OF ORIGINAL ENTRY. Cash vs Credit Transactions. There are two ways to sell or purchase goods: by Cash - the customer pays right away by cash or cheque; on Credit - the customer pays later. . Example. Maggie Jones went to buy a calculator from
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Cash vs Credit Transactions There are two ways to sell or purchase goods: • by Cash - the customer pays right away by cash or cheque; • on Credit - the customer pays later.
Example Maggie Jones went to buy a calculator from Corts. The calculator costs $200 and she can afford to pay for this right away.
Cash Transaction • In Maggie’s books the transaction is a cash purchase. • In Cort’s books the transaction is a cash sale. Customer pays Cash right away Transaction
Step 1 • Record the sale using the relevant paper. One copy goes to the customer. • The other will be used to make the entry in step 2 then kept on file. We call this the "SOURCE DOCUMENT" stage. • The SOURCE DOCUMENT is the piece of paper on which the transaction is noted. In this case the specific name given to the source document is a "RECEIPT" (also called a "Cash Bill").
Step2 • The information on the receipt would be entered in a book that only records cash coming in and cash going out. • We call this the "JOURNALISING" stage. The JOURNAL is a book (or location in a computer) that collects all the details of many similar transactions. • In this case the specific name given to the journalis a "CASH BOOK" (also called a "Cash Journal")
Example Maggie Jones went to buy a flat screen television from Corts. The TV costs $20 000 and she cannot afford to pay for this right away.
Credit Transaction • In Maggie’s books the transaction is a credit purchase. • In Cort’s books the transaction is a credit sale. Customer pays Credit later Transaction
Step 1 • Record the transaction using the relevant paper. One copy goes to the customer. • The other will be used to make the entry in step 2 then kept on file. We call this the "SOURCE DOCUMENT" stage. • The SOURCE DOCUMENT is the piece of paper on which the transaction is noted. In this case the specific name given to the source document is a "INVOICE" (also called a "Credit Bill").
Step 2 • The information on the receipt would be entered in a book that only records credit transactions. • In the case of the seller the specific name given to the journalis a Sales Journal orSales Day Book. • In the case of the buyer the specific name given to the journalis a Purchases Journal orPurchases Day Book.