Define the source of documents. Also, write down the types of source of documents.
Define the source of documents. Also, write down the types of source of documents.
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Source documents are the written evidence of business transactions, providing the evidence an accounting system requires to record transactions and serving as proof of the terms and conditions agreed upon between the business and the party it deals with; being standardized, they allow the bookkeeper to easily identify and interpret the relevant information.
- Invoice: a document issued by a seller to the buyer, mainly for credit transactions, covering the varieties of products, quantities, agreed prices, other expenses and the mode of payment or transportation. Normally three copies are prepared — one goes to the buyer with the goods (becoming the buyer's purchase invoice), one to the accounting department, and one is kept for reference.
- Cheque: a piece of paper provided by the bank to its customers to let them make withdrawals from their account.
- Bank statement: a statement periodically provided by the bank to its customers containing details of deposits and withdrawals, interest provided along with tax deduction, payments made by the bank on the account holder's behalf, and service charges deducted during the period.
- Debit note: a document sent by a customer to a supplier informing that the supplier's account has been debited by the sum, in respect of returned goods or overpayment, and requesting the supplier to issue a credit note.
- Credit note: a document sent by a supplier to a customer informing that the customer's account has been credited to the extent of returned goods, overpayment, or discounts and allowances provided.
- Cash register tape and cash receipt: the cash register tape is an electronic device that calculates financial transactions in paper roll form, used by a retailer to recognize a cash sale, while a cash receipt is issued against receiving instant cash for any reason.
- Promissory note: a written promise by a person or party to pay a certain amount within a certain period of time.
- Bank deposit slip: the slip used for depositing amounts into the bank.
- Time card and salary/payroll sheet: the time card is prepared by the payroll department and sent to the accounting section, while the salary or payroll sheet is prepared to record the wages, salaries and other benefits provided to workers and employees.
- Share/stock certificate and utility statements: the share certificate is issued by a company to its shareholders entitling their ownership, while the monthly statement from a utility company contains the total amount payable for the month — electricity, drinking water or gas bills (as with NEA bills in Nepal).
Thus, each type of source document supports a particular class of transaction, and together they form the documentary base on which the entire accounting record rests.
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1.
Practice
"Financial accounting is a specialized branch of accounting that keeps track of a company's financial transactions," discuss.
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2.
Long question Practice
An unadjusted trial balance of a company are given below:
Particulars Debit (Rs.) Credit (Rs.) Cash 300,000 Bank 250,000 Discount Allowed 7,000 Plant and Machinery 200,000 Purchases 215,000 Debtors 90,000 Particulars Debit (Rs.) Credit (Rs.) Interest on loan 8,000 Salary 120,000 Rent 70,000 Capital 400,000 Creditors 50,000 Commission Received 10,000 Sales 700,000 12% Bank Loan 100,000 Total 1,260,000 1,260,000 Adjustment:
a. Closing stock Rs. 40,000
b. Prepaid rent was Rs. 10,000
c. Outstanding interest on bank loan was Rs. 4,000
d. Depreciation on Plant and Machinery at 15% per annum
Required:
i. Adjusted Trail balance
ii. Statement of Profit and Loss a/c
iii. Statement of Financial Position
iv. Statement of Cash flow Statement
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3.
Long question Practice
The financial transaction of a trader are provided below:
a. Started business with cash Rs. 300,000, which was collected by issuing the shares of Rs. 100 each.
b. Rs. 200,000 was deposited into bank.
c. An equipment costing Rs. 100,000 was purchased and payment made by a cheque.
d. An equipment costing Rs. 60,000 was purchased on credit.
e. Sold goods on credit for Rs. 170,000.
f. Received a cheque from debtor, Rs. 135,000 after deduction of 10% discount.
g. Paid Rs. 47,500 to creditor after deducting 5% discount.
h. Rs. 15,000 was paid for electricity bill.
i. Paid wages Rs. 20,000 and office salary Rs. 25,000 by issuing cheques.
j. Paid Rs. 20,000 as rent by issuing a cheque for the period.
Required:
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i. Journal entries
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ii. T accounts (ledger) for sales, purchase, account receivable and account payable
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iii. Triple column cash book
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iv. Trial Balance
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4.
Practice
"The purpose of financial statement analysis is to reveal financial strengths and weaknesses of the firm," discuss.
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5.
Long question Practice
a) On 31st Chaitra 2075 Bank Statement of KK Company disclosed a balance of Rs. 25,000 and Cash Book showed the balance of Rs. 30,000.
i. Number of cheques were deposited in the bank but on 31st Chaitra, 2075, a cheque for Rs. 5,000 was not credited in the Bank Statement.
ii. Cheques issued of Rs. 8,000 but only Rs. 3,000 presented before 31st Chaitra.
iii. Notes receivable collected by the bank Rs. 5,000.
iv. Cash of Rs. 6,000 deposited by the company on Chaitra was recorded by the bank as Rs. 4,000.
v. A cheque for Rs. 8,000 received from a customer was returned by the bank due to insufficient fund with the bank.
Required : Bank Reconciliation Statement as on 31st Chaitra 2075.
b) Differentiate between account receivable and note receivable.
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6.
Long question Practice
(a) XYZ Company purchase a machine on 1st Jan 2016 for Rs. 500,000. The estimated life of machine is 10 years. Prepare machinery account for first three years on straight line method and the accounts are closed on 31st Dec.
(b) Differentiate between capital and revenue expenditure.
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