Books of original entry

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TABLE OF CONTENT

Page. No

  • Introduction

Pg 2

  • Books Of Original entry
  • Sales Journal

Pg 2

  • Purchase Journal

Pg 4

  • Purchase Return Day Book

Pg 5

  • Sales Return Day Book

Pg 6

  • Cash Book

Pg 8

  • General Journal

Pg 10

  • Conclusion

Pg 11

  • Referencing

Pg 12

  • BOOKS OF ORIGINAL ENTRY

INTRODUCTION:

The Books of original entry are known as the books which consider the very first entry of a transaction. Subsidiary book or Primary entry is other known names for these books. All the transactions of a business are recorded in the subsidiary books and if not then in the journal, and thus with the information provided by both Ledger Accounts are prepared. Books of prime entry have many advantages towards the firm, firstly regularly the transactions are recorded and the totals of the journals are posted in the Ledgers regularly every month because if all the transactions were to be recorded in the Ledgers chances of errors would be high so with the help of subsidiary books information can accurately be recorded and also posting of entries become easier, secondly everything would be cluttered and without books of prime entry the process would be very time consuming also preparing accurate Financial statements would be extremely hard and impossible lastly, descriptions or information of transactions can easily be accessible, so Books of original entry play a very significant function in the smooth running of the business. In number there are 6 books of original entry:

  1. Sales Journal, It is a journal which records the non cash sales i.e., the credit sales. All the information is taken from the sales invoices issued for each credit sale to a customer. The sales journal is also known as the Sales day book.

It is only used in manual accounting system since in computerized systems automatically all customer invoices are totaled through the accounting software’s and the need of preparing a sales day book is not necessary. From the sales invoice details are recorded in the Sales Day Book in 5 columns which are:

Date

Invoice Number

Customer Name

Folio

Amount

  • From the Sale invoices the date, invoice number and the name of customer is recorded in the Sales Day Book along with the total amount invoiced and also a column of folio, which shows a reference between the Sales ledger and journal.
  • The process of recording is very simple and easy to understand all the credit sales of the day are listed and totaled in the sales day book and credited to the sales account and the customers to whom the goods are sold are debited with their names and the particular amounts.

Debit

Debtors Account in the Sales Ledger

Credit

The Sales Account in the General Ledger

  • So the total is transferred to the Sales Account and the entry is also posted in the Sales Control Account inorder to tally with the underlying Sales Ledger.
  • E.g. Sold Goods on Credit to Richard on 5 February and D.Jones on 9 February worth $800 and $1200.
  • Debit Richard $800

Credit Sales $800

  • Debit D.Jones $1200

Credit $1200

Sales Day Book

Date

Invoice Number

Customer Name

Folio

Total Amount Invoiced

Feb 5

002346

Richard

SL

800

Feb 9

002347

D.Jones

SL

1200

2000

  • This is how a particular transaction is entered in the Sales Day Book. As the goods are being sold to Richard and D.jones the receivers are debited and as the business earns revenue i.e. sales it will be credited. At the end of the month similar entries are noted and taking this entry into consideration the total of 2000 at the end will be transferred to the Sales Ledger Account as a single entry on the credit side.
  1. Purchase Journal, It is also known as the purchase day book. This book of original entry is maintained to record the credit purchases only the cash purchases are not recorded in it. The entries in the book are recorded on daily basis from the Purchase invoices received under the headings of the 5 columns in purchase day book :

Date

Name of Supplier

Invoice Number

Ledger Folio

Amount

  • From the purchase invoices, the invoice date, number and the name of supplier is recorded in the Purchase Day Book along with a total value of Purchases and a ledger folio which provides a reference in both the Purchase ledger and the journal that the posting is completed.

Debit

The Purchase Account in the Purchase Ledger

Credit

Creditor’s Personal Account in the General Ledger

  • As the Purchase Day Book is not part of the double entry model, the double entry will now be followed as all the credit Purchases are posted one by one on the creditor’s (suppliers) personal account in the Purchase Ledger. And at the end of each month the purchase day book is totaled, and the total amount is posted on the debit of Purchases Account in the General Ledger.
  • E.g. Purchases of an equipment worth $20,000 on credit from Arman & Sons on the date 10 march

Debit Equipment $ 20,000

Credit Supplier $20,000

Purchase Day Book

Date

Supplier

Invoice No.

Ledger Folio (L.F.)

Total Amount Invoiced

March 10

Arman & Sons

002348

PL 15

20,000

  • This is how a typical entry for any Purchase by the firm is posted on the Purchase Day Book, All the detail information noted from the purchase invoice and at the end similarly like this transaction all the transactions are recorded and the total amount assume of 20,000 is posted as a single entry on the debit side of the Purchase Ledger. And the suppliers (Arman & Sons) are credited to their personal account in the General Ledger.
  1. Purchase Return Day Book, Purchase return book or register is the one in which transactions regarding the goods which are returned to the suppliers are recorded. It is also termed as a Return outward, these goods are returned either because they are damaged or not up to the standard of what the business wants. When this Return Outwards takes place a Debit note is sent to the supplier giving details about the good and reason for returning.
  • Debit notes are mostly concerned about errors of undercharge, they are prepared just like the invoices and present as vouchers for the entries showing that the particular amount is being debited to the suppliers account as they are receiving goods.

Debit

Every Creditor’s Personal Account in Purchase Ledger

Credit

Return Outwards Account in the General Ledger

  • Debit notes are listed in Return Day Book. And then are used to post items in the Ledgers. All the amounts of debit notes are debited individually to the personal accounts of the suppliers in the Purchase Ledger. And at the end of period the total of Return Outwards Day Book is posted on the credit side of Return Outwards Account.
  • E.g. Returned Goods of worth $2000 to M.Caruana on 15 Feb

Debit M.Caruana $2000

Credit Return Outwards $2000

Purchase Return Day Book

Date

Particulars

D/N (debit note)

Ledger Folio

Total Amount

Feb 15

M.Caruana

PR 6

2000

  • This is how a typical entry of Return outward is posted in the Purchase Return Day book, the format is similar but a column of debit note would be included to avoid any errors, all the transaction in a month are noted such as this particular one and at the end total of 2000 posted on the credit side of Purchase Return Account as the goods are going out of the business, and the creditor (M.Caruana) is debited in the Purchase Ledger.
  1. Sales Return Day Book, Sale Return register or book is the opposite of Return outwards, and it is termed as Return Inwards, this book records the transactions regarding the goods which our customers return to the business because of any default or damage in the goods, when the sellers agree to take back goods and refund the amount paid or some part of the amount the buyer paid, a document known as Credit note will be sent to customer.
  • Credit notes are prepared by the business to show the actual amount at which the goods were sold and what must be deducted from that total amount. These Credit notes usually are used to correct any errors from the overcharge.

Debit

Return Inwards Account in the General Ledger

Credit

Every Debtors Personal Account in the Sales Ledger

  • Credit notes are listed in Return Inwards day book. And the items then are posted in the Ledgers; One by one the amounts of credit notes are credited to the accounts of customers in the Sales Ledger. And the total of the Return Day Book is posted at the end of the period to the debit of Return Inward Account.
  • E.g. F. James Returned Goods of worth 1500 sold on10 Jan

Debit Return Inwards $ 1500

Credit F.James $1500

Sales Return Day Book

Date

Particulars

C/N (Credit note)

Ledger Folio

Total Amount

Jan 10

F.James

SR 45

1500

  • This is how a typical transaction of Return Inwards posted in the Sales Return Day Book; the only difference that there is one column which is not in other books that is of Credit note. Similarly like other books this book’s total suppose of 1500 at the end of the month will be posted as a single entry on the debit side of Return Inwards Account, and all the debtors (F.James) will be posted on the particular personal account in the Sales ledger.
  1. Cash Book, The Cash book is a distinctive book of original entry, which is a journal but for cash and bank it acts like an account which needs to be balanced and this is the only subsidiary book which is part of the double entry model. Mostly business transactions are done in Cash, such as cash payments, cash sales, cash purchases etc are all recorded in the Cash Book, this book serves the purpose more of a ledger although it is a journal. It also has a unique format, where the payments and receipts column stand side by side. There are four types of Cash book :
  • Single column Cash Book
  • Double Column Cash Book
  • Three Column Cash Book
  • Petty Cash
  • Single Column Cash book is also known as simple cash book, but both single and double column cash books are not used in these days although, Three column cashbook and petty cash book are still used.
  • This Cash book is also used as a book of prime entry for Cash Discounts, Any kind of discount given by business to the customers when the pay their accounts quickly it is termed as Discount Allowed and it is debited in the cash book in a separate column besides with cash and bank, and any amount of discount given to us by the suppliers when business pays what is owed to them quickly is known as Discount Receivable which is recorded on the credit side of the cash book.
  • In a double column cash book the column for account is split into 2 columns the Cash and Discount, and in a three column cash book as the names says the amount column is divided into 3 columns which are for Cash, Bank and discount.
  • E.g. In 20x8 the following transactions took place in Toolmakers.ltd. during the month of September, show how these transactions be recorded in the Three Column Cash Book:

20x8 Sept 1. Banked Sr.50 of the cash held by business

20x8 Sept 7. Paid Wages in cash worth Sr.200

20x8 Sept 12. Cash Sales worth Sr.102

CASH BOOK (Three Column)

Date

20X8

Particulars

Amount

Date

Particulars

Amount

Cash

Bank

Disc.

Cash

Bank

Disc

Sept 1

Cash

50

Sept

1

Bank

50

Sept 12

Sales

222

Sept 7

Wages

100

Sept 30

Balances c/d

72

50

222

50

222

50

Oct 1

Balances b/d

72

50

  • This is how cash transaction are recorded in the cash book, firstly taking into consideration the first transaction cash is banked so the Asset of Cash is credited i.e. the cash account represented by cash column and as the Asset of Bank is increased it will be debited in the cash book. Secondly the wages are an expense the money is going out thus it will be credited in the cash book in the Cash column. And then cash sales, as cash is increasing it will be debited in the cash book in the Cash column. Lastly the closing balances which are the difference between the payments and receipts will be the opening balances for the next month.
  1. General Journal, It is a journal which records all the entries for transactions where there is no other book of prime entry for recording, all transaction have to be recorded in one of the subsidiary book before being posted into the ledger accounts. In the subsidiary books it is relatively easy to record a transaction as by the names it is understood which book would contain the items for e.g. all the credit purchases are in the Purchase Journal. But the other items which do not go through the other five books are usually less frequent and more complicated to record by the book keeper and if the entries are directly made to the ledgers it could be cluttered and impossible to understand and thus such entries are recorded in the GENERAL JOURNAL.

  • Some of the items which are recorded in the general journal are:
  • Writing off bad debts
  • Purchase and sale of Fixed Asset
  • Transfer between accounts
  • Correcting of posting errors
  • Opening Entries (this is done when no room in existing ledger is left and balances of accounts are transferred to new ledgers)
  • Adjustments to any entries of ledgers.
  • Depreciation Entries
  • E.g. Purchase of Fixed Asset

A machine is bought on credit from toolmakers ltd for Sr 750 on1 July 20x6

Debit Machinery……………………750

Credit Toolmakers Ltd………………………750

The General Journal

Date

Details

Folio

Dr

Cr

20x6

July 1

Machinery

Toolmakers

Purchase of machine on credit, Capital purchase invoice No 5/189

GL 1

PL 75

750

750

  • This is how a transaction is recorded in the general journal; it is simply a kind of diary which states what has to be debited and credited and then describes the nature of the transaction which occurred, as shown above.
  • The above transaction involves purchasing an asset, as it will increase the value of assets it will be debited and the double entries would be completed by crediting the company toolmakers.ltd

Conclusion

Preparing the Books of prime entry assist a firm to record the very first transactions that take place in a comprehensible manner, this helps to conveniently indicate and separate similar nature transactions which saves time and for businesses especially in the accounting department accuracy of accounts is compulsory as it determines the financial health of a company and this can be achieved by maintaining the subsidiary books.

  • REFERENCES:

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