Books of Prime Entry (Copy)
Cheat Sheet: 2.3 Books of Prime Entry
O Level and IGCSE Accounting – Quick Revision
What Are Books of Prime Entry?
- Books of prime entry (also called books of original entry) are the first place transactions are recorded.
- They help in organizing and summarizing transactions before posting to the ledger.
- Each book is used for specific types of transactions.
Advantages of Using Books of Prime Entry
| Advantage | Explanation |
|---|---|
| Division of work | Each book handles a specific transaction type, improving efficiency |
| Reduces errors | Organizing transactions by type minimizes confusion |
| Speeds up posting | Ledger entries are made in bulk from summaries |
| Provides source references | Easily traceable back to original documents |
Types of Books of Prime Entry
| Book | Used For | Source Document(s) |
|---|---|---|
| Cash Book | All receipts and payments by cash, cheque, or bank transfer | Cheque, receipt, bank statement |
| Petty Cash Book | Small or minor cash expenses | Petty cash vouchers |
| Sales Journal | All credit sales of goods | Sales invoice |
| Purchases Journal | All credit purchases of goods | Purchase invoice |
| Sales Returns Journal | Goods returned by customers | Credit note issued |
| Purchases Returns Journal | Goods returned to suppliers | Debit note sent |
| General Journal | Unusual/non-routine transactions like depreciation, corrections, opening balances | Journal vouchers or narration |
Example Format – Cash Book (Two-Column)
| Date | Details | Debit (Receipts) | Credit (Payments) | Balance |
|---|---|---|---|---|
| 1 Jan | Capital introduced | 10,000 | – | 10,000 |
| 3 Jan | Rent paid | – | 500 | 9,500 |
Posting to Ledger Accounts
- After entries are made in the books of prime entry, they are posted to the respective ledger accounts:
- Cash Book → Cash and Bank Accounts
- Sales Journal → Credit Customers’ Accounts (Debtors)
- Purchases Journal → Credit Suppliers’ Accounts (Creditors)
- General Journal → Relevant nominal accounts (e.g. depreciation, error correction)
Trade Discount vs. Cash Discount
| Type of Discount | When Given | Accounting Treatment |
|---|---|---|
| Trade Discount | At time of sale (bulk/loyalty) | Not recorded in books |
| Cash Discount | For early payment | Recorded in books as “Discount Allowed” or “Discount Received” |
Dual Function of the Cash Book
| Function | Description |
|---|---|
| Book of prime entry | First record of cash/bank transactions (e.g. receipts/payments) |
| Part of ledger system | Acts as Cash A/C and Bank A/C in double-entry system |
Electronic Payments and Receipts
- Payments via:
- Bank transfer
- Direct debit
- Standing order
- Credit transfer
- Recorded in the cash book with proper narration.
- Also included in bank reconciliation later.
Petty Cash and Imprest System
| Concept | Explanation |
|---|---|
| Petty Cash Book | Used for small payments like stationery, tea, bus fare |
| Imprest System | Petty cashier is given a fixed float (e.g. $200) and reimbursed back to that amount periodically |
Example:
- Imprest = $200
- Expenses during month = $160
- Reimbursement = $160 (to return to $200 float)
Summary Table
| Book of Prime Entry | Ledger Posting To | Example Transaction |
|---|---|---|
| Cash Book | Cash/Bank, Sales, Purchases | Rent paid, Sales receipt, Electricity bill |
| Sales Journal | Trade Receivables | Sold goods to Ahmed on credit |
| Purchases Journal | Trade Payables | Bought inventory from Zara on credit |
| Sales Returns Journal | Trade Receivables | Customer returned damaged goods |
| Purchases Returns Journal | Trade Payables | Returned goods to supplier |
| Petty Cash Book | Expenses/Drawings | Bought stamps, paid for bus fare |
| General Journal | Multiple nominal accounts | Correction of error, depreciation, bad debts |