Overview
This lecture covers the purpose, types, and entries for books of original entry in accounting, focusing on their functions, layouts, and processes for accurate transaction recording.
Introduction to Books of Original Entry
- Books of original entry record initial details of business transactions.
- Also called subsidiary books or books of prime entry.
- Transactions are entered from source documents, then posted to ledger accounts.
- The main books are: sales day book, purchases day book, sales returns day book, purchases returns day book, cash book, petty cash book, and journal.
Advantages of Books of Original Entry
- Help detect errors before posting to ledgers.
- Aid in preparing control accounts for accuracy checks.
- Group similar transactions for easier management and oversight.
- Reduce the number of entries in ledgers.
- Allow division of bookkeeping tasks among staff, minimizing duplication or errors.
Day Books
- Sales day book records all credit sales, not cash sales, using sales invoices; totals go to sales accounts and trade receivables.
- Sales returns day book records returns from credit customers using credit notes; totals go to sales returns and trade receivables.
- Purchases day book records all credit purchases of goods (not assets), using purchase invoices; totals go to purchases and trade payables.
- Purchases returns day book logs returns to suppliers using received credit notes; totals go to purchases returns and trade payables.
The Cash Book
- Records all cash and bank transactions and acts as both a book of original entry and a ledger.
- Cash account records physical money; bank account records transactions without physical cash.
- Cash balances always on debit side; bank may be debit (in funds) or credit (overdrawn).
- Contra entries are for internal transfers between cash and bank accounts.
- Discount columns show allowed (debit) and received (credit) discounts; only totalled, not balanced.
The Petty Cash Book & Imprest System
- Used for small-value transactions, using petty cash vouchers for each payment.
- Analysis columns categorize expenses and allow bulk posting to ledgers.
- Balances brought down are always on the debit side.
- Imprest system maintains a set petty cash balance, topping up as needed.
The Journal
- The journal records transactions not suitable for other day books (e.g., opening balances, corrections, asset purchases).
- Entries include the date, debits, credits, and a narrative explaining the transaction.
- Journal ensures that debits and credits in entries always balance.
Key Terms & Definitions
- Books of original entry — records where transactions are first entered.
- Day books — specialized books for credit sales, purchases, and their returns.
- Ledger accounts — where summarized entries from books of original entry are posted.
- Contra entry — a transaction affecting both cash and bank in opposite ways.
- Imprest system — method to maintain petty cash at a set balance.
- Journal — book for recording transactions outside day books, especially non-routine ones.
- Discount allowed/received — reductions given to customers or received from suppliers for prompt payment.
Action Items / Next Steps
- Practice preparing and balancing day books, cash books, and petty cash books.
- Review worked examples in the notes for full process understanding.
- Ensure you can distinguish transactions appropriate for each type of book.