Lecture notes Introductory Financial Accounting (FAC1501)

FAC1501
LEARNING UNIT 4

BUSINESS DOCUMENTS:
CASH TRANSACTIONS




Introductory Financial
Accounting

, LEARNING UNIT 4

OVERVIEW
2




Learning outcomes .............................................................................................................................. 62
Key concepts ....................................................................................................................................... 62
Assessment criteria ............................................................................................................................. 63
4.1 Introduction.................................................................................................................................... 63
4.2 The financial accounting cycle ...................................................................................................... 63
4.3 Cash transactions.......................................................................................................................... 63
4.4 Business documents ..................................................................................................................... 64
4.5 Starting a business entity .............................................................................................................. 64
4.6 Value Added Tax (VAT) ................................................................................................................ 65
4.7 Comprehensive example............................................................................................................... 69
4.8 Exercises and solutions ................................................................................................................. 88
Self-assessment activity ...................................................................................................................... 89


LEARNING OUTCOMES
After studying this learning unit, you should be able to:
• define cash transactions
• define source documents
• explain the difference between internal source documents and external business documents
• explain the applicable source documents involved in different cash transactions
• complete different business documents



KEY CONCEPTS

• Cash transactions
• Source documents
• Internal source documents
• External source documents
• Cash slips
• Cash register rolls
• Duplicate cash invoices
• Original cash invoices
• Duplicate receipts
• Original receipts
• Duplicate cash sales invoices
• Original delivery note
• Duplicate delivery note
• Petty cash voucher




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, LEARNING UNIT 4

• Original credit card slip
• Duplicate credit card slip
• Bank statement
• Original deposit slip
• Duplicate deposit slip
• Internet banking: Notice of payment
• Value Added Tax (VAT)
• Sales
• Purchases
• Cash discount



ASSESSMENT CRITERIA
• The concept “source documents” is explained and source documents applicable
to cash transactions are identified using appropriate examples from entities.
• The principles of VAT and the calculation thereof are explained with examples
to verify the ability to calculate VAT.
• The ability to complete business documents applicable to cash transactions
from relevant financial data is demonstrated.
• The ability to apply the accounting equation when recording cash transactions
is demonstrated.
• The ability to record cash transactions of a sole proprietor in various ledgers
from source documents is demonstrated.

4.1 INTRODUCTION
In learning units 2 and 3 you learned how to analyse transactions and to determine their effect on the
accounting equation. The principle of the double-entry system was also explained as well as the
recording of all the transactions in the various ledger accounts. This created a framework within which
you now must study the processing of accounting data in greater detail.

4.2 THE FINANCIAL ACCOUNTING CYCLE
Accounting data is processed within a definite framework which is known as the financial accounting
cycle. The financial accounting cycle was explained in learning unit 1.

You will remember that, according to the financial accounting diagram, there must first be a transaction
and then there must be proof that a transaction did take place. The proof that a transaction did take
place takes the form of a source document. There are different business documents for different
transactions that serve as proof that transactions did take place. In this learning unit the source
documents for cash transactions will be discussed.

4.3 CASH TRANSACTIONS
The transaction of an entity can be either in cash or on credit or a mixture of both. In this learning unit
only business documents applicable to cash transactions will be discussed. Cash transactions always
affect the bank account, petty cash, or cash float. That means that, when cash transactions take place,
the entity will either receive or pay out money. The type of source document used to record cash
transactions will depend on the type of transaction that took place.




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