Introduction
Today, we will be focusing on the Cash Receipt Journal (CRJ) and Cash Payment Journal (CPJ) of a sole trader.
Our main focus for today will be identifying cash transactions of a trading business. We will also be looking at how to calculate selling price, as well as cost price using a mark-up percentage.
Lastly, we will be touching on the topic, "How to analyse the effect of cash transactions on the accounting equation"
Lets watch the video below and answer the two questions thereafter.
Answer the two questions below, based on the above video and your prior knowledge.
- What is the cost of sales column used for?
- How do you calculate the cost of sales amount, if it is not given directly?
Task
The following notes are your learner/student notes. Please read with understanding, before attempting to answer the activities throughout todays lesson.
Cash transactions of a trading business
In grade 8, you looked at a service business. This is a business that receives income by providing a service, for example: A hairdresser obtains income by cutting hair. In grade 9, we will deal with a trading business. This is a business that generates income by selling goods, for example: Selling clothes, food, furniture, and so on.
In a trading business, the transactions are entered into the cash journals the same way as for a service business. However, there are two main differences:
- Income is received from sales (not current or fee income). There will be a sales column in the CRJ.
- The difference between the cost price of goods sold and the selling price which = the mark up. This affects the trading stock as well.
In a trading business, the business buys goods at cost price. A mark-up is added and the goods are sold for a profit at the selling price. Before we explain cash transactions of a trading business, you need to know how to calculate the selling price, cost price and gross profit.
Calculating selling price and cost price
You know that a trading business buys goods from another business at cost price. A mark-up is added to the price and the goods are sold at a higher price (the selling price) in order to make a profit. The mark-up must be high enough so that all the operating costs (expenses to run the business) are covered and there is enough left over to make a profit.
Calculating selling price and cost price using a mark-up percentage
Normally in a retail business, the profit added to the purchase price (cost price) is set at a percentage. The percentage (mark-up) will depend on the type of products sold. Example: If a sport shop sells golf balls and gold clubs, the mark-up percentage on golf balls will be lower than on golf clubs. Why? Because they will sell a lot of golf balls and not as many golf clubs. Another reason is that golf balls are cheaper than golf clubs.
Effect of cash transactions on the accounting equation
The accounting equation is:
Assets = Liabilities + Owners Equity (Capital - drawings + profit - loss)
It is very important to remember how profit or loss is calculated as this affects the Owners Equity. Profit/Loss = income - expenses.
Therefore, you need to remember the following when analyzing transactions in the accounting equation.
Assets = Liabilities + Capital (+ income or - expenses)
Process
Complete the activity below. Please note that all these words are being used everyday in this subject, especially in this current topic.
Unjumble the following words:
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1. sahc acistntornsa |
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2. enrtsgaee |
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3. lbitiailesi |
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4. nkba |
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5. newros utyeqi |
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6. stsaes |
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7. sibsunes |
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8. fectfe |
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9. quteioan |
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10. naljruo |
Evaluation
The "jumbled words" activity might have seen to be easy, however, it can be mind triggering to some, especially if you have not yet read the notes and made yourself familiar with the current topic.
Please check your answers below, after completing the activity and make the necessary corrections.
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1. sahc acistntornsa |
cash transactions |
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2. enrtsgaee |
generates |
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3. lbitiailesi |
liabilities |
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4. nkba |
bank |
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5. newros utyeqi |
owners equity |
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6. stsaes |
assets |
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7. sibsunes |
business |
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8. fectfe |
effect |
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9. quteioan |
equation |
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10. naljruo |
journal |
Conclusion
We have reached the end of our lesson for today. Next week, we will be focusing on the application of the Cash Receipt Journal (CRJ) and the Cash Payment Journal (CPJ).
Please attempt the homework below for our next lesson, next week. Completing the homework will contribute to your understanding and application for next weeks topic.
HOMEWORK ACTIVITY
Calculate the missing amounts in the table below.
| SELLING PRICE | COST PRICE | MARK-UP |
| R120 000 |
R? |
100 % |
| R? | R80 000 |
10 % |
| R40 000 |
R32 000 |
? |
| R12 000 |
R? |
33 1/3 % |
| R? |
R12 000 |
66 2/3 % |
| R136 000 |
R80 000 |
? |
Credits
Content/Learner Notes
Oxford Successful, Economics and Management Sciences Learner's Book, Grade 9 CAPS by J. Bronkhorst, S. King and T. Rousseau
YouTube video
https://www.youtube.com/watch?v=ye2eMv8Af18
Activity sheet + Homework
Ms. I.M. Colbie
Teacher Page
Learners are welcome to research further more on the current topic, should they need further clarification and explanation on this topic. They may also email or message me directly should they not understand anything specific.
Students may contact me anytime throughout the day and I will respond as soon as I am available to respond.
Contact details
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Email communication
For preparation practice, learners are to complete the homework for next weeks class, to give them a push start for the upcoming week.