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Chapter Six, Lesson Two

Chapter Six, Lesson Two discusses the importance of source documents in accounting, which serve as the original records of transactions and provide objective evidence for accurate record-keeping. It outlines various types of source documents, their uses, and the differences between cash sales slips and sales invoices. Additionally, it addresses the roles of different departments in transaction initiation and the necessity of maintaining accurate records for auditing and compliance purposes.

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Chapter Six, Lesson Two

Chapter Six, Lesson Two discusses the importance of source documents in accounting, which serve as the original records of transactions and provide objective evidence for accurate record-keeping. It outlines various types of source documents, their uses, and the differences between cash sales slips and sales invoices. Additionally, it addresses the roles of different departments in transaction initiation and the necessity of maintaining accurate records for auditing and compliance purposes.

Uploaded by

ceyar71067
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter Six, Lesson Two

Notes:
SOURCE DOCUMENT:
• A business paper
• The original record of a transaction
• Provides the information needed when accounting for the transaction
• Examples: bills, cheques, credit card statements, receipts.

THE OBJECTIVITY PRINCIPLE


States that accounting will be recorded on the basis of Objective
evidence.
(i.e. Fact not personal opinion)
The Best Objective evidence is a Source Document.

Review Questions, p. 193


1. Not all transactions requiring journal entries are initiated by the
accounting staff. Explain.
Transactions can be initiated by various departments (e.g., sales,
purchasing) or external parties (e.g., customers, vendors). The accounting
staff records these transactions but does not necessarily initiate them.

2. How does the accounting department find out about all transactions?
The accounting department learns about transactions through source
documents such as invoices, receipts, and purchase orders, which are
generated by other departments or external parties.

3. What is a source document?


A source document is the original record of a transaction, providing
evidence that the transaction occurred. Examples include invoices, receipts,
and purchase orders.

4. What is the principal use of source documents in the accounting


department?
Source documents are used to record transactions in the accounting
system, ensuring accuracy and providing a trail for auditing purposes.

5. Give an example of a transaction for which there is no conventional


source document.
An example could be an internal adjustment or depreciation entry, which
may not have a conventional source document like an invoice or receipt.
6. Who else, besides the accounting department, may have reason to use
the source documents on file?
Other departments such as sales, purchasing, and legal may use source
documents for verification, dispute resolution, or compliance purposes.

7. What is the purpose of a cash sales slip?


A cash sales slip records the details of a cash sale, including the amount
received and the items sold, serving as proof of the transaction.

8. Explain the essential difference between a sales invoice and a cash sales
slip.
A sales invoice is issued for credit sales, indicating that payment will be
made later, while a cash sales slip is issued for immediate cash payments.

9. Explain who the vendor is.


A vendor is a supplier or seller who provides goods or services to a
business.

10. What is a point of sale terminal?


A point of sale (POS) terminal is a device used to process sales
transactions, typically including payment processing and receipt
generation.

11. When a customer uses a credit card to purchase an item, the business
debits Accounts Receivable. True or False? Explain your answer.
False. When a customer uses a credit card, the business typically debits
Cash or Bank Account (for the amount to be received from the credit card
company) and credits Sales Revenue.

12. What is a purchase invoice?


A purchase invoice is a document received from a vendor detailing the
goods or services provided, the amount due, and payment terms.

13. Explain why all journal entries for purchase invoices are not the same.
Journal entries for purchase invoices vary based on the nature of the
purchase (e.g., inventory, expenses) and the payment terms (e.g.,
immediate payment, credit terms).

14. Why is a cheque not used as a source document?


A cheque is a payment instrument, not a source document. The source
document would be the invoice or bill that the cheque is paying.
15. What is the most common type of transaction for which a cheque is
issued?
The most common type of transaction for which a cheque is issued is the
payment of bills or invoices to vendors.

16. What supporting documents are needed for payment by cheque?


Supporting documents typically include the invoice or bill being paid,
approval for payment, and any relevant purchase orders.

17. Explain what cash receipts are.


Cash receipts are documents that provide proof of cash received by a
business, such as receipts from customers for sales or payments.

18. Why is it necessary to prepare a cash receipts daily summary?


A cash receipts daily summary consolidates all cash received in a day,
helping to ensure accuracy in recording and reconciling cash transactions.

19. From what two sources does the clerk obtain the data to prepare the cash
receipts daily summary?
The clerk obtains data from cash register tapes and individual cash
receipts.

20. Why do banks issue bank advices?


Banks issue bank advices to inform businesses of transactions affecting
their bank accounts, such as deposits, withdrawals, and fees.

21. A bank debit memo requires a credit entry in the bank account of the
business. Explain.
A bank debit memo indicates a deduction from the business's bank
account (e.g., for fees or charges), which requires a credit entry to reduce
the bank account balance in the business's books.

Exercise 1, p. 193
Exercise 2 & 3, p. 194-195
Exercise 4 & 5, p. 195-196

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