Books of Prime Entry (Copy)

2. Sources and Recording of Data

2.3 Books of Prime (Original) Entry

Definition and Purpose of Books of Prime Entry

• Books of prime entry (also called books of original entry) are first-stage accounting records.
• They are used to initially record transactions from source documents before posting to ledgers.
• Each book is designed to record a specific type of transaction for easy organisation and reference.

Advantages of Using Books of Prime Entry

• Systematic organisation: Transactions are grouped by type.
• Reduces errors: By separating types of entries, accuracy increases.
• Saves time: Speeds up ledger preparation.
• Improves control: Helps in auditing and verification.
• Acts as reference: Original source before information is posted to ledger.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course

Types of Books of Prime Entry and Their Functions

1. Cash Book

• Records all cash and bank transactions.
• It is both a book of prime entry and part of the ledger system.

Sections:

• Cash column (for physical cash)
• Bank column (for bank transfers, cheques, electronic payments)
• Discount columns (if applicable)

Debit side: Receipts
Credit side: Payments

Examples of entries:

• Cash sales → Debit cash
• Payment to supplier by cheque → Credit bank

Dual Role:

• Records transactions from source documents (e.g. cheque counterfoils, bank statements)
• Also acts as ledger accounts for cash and bank

2. Petty Cash Book

• Records small, low-value payments (e.g. taxi fare, postage, refreshments).
• Operates using the Imprest System:
  • A fixed amount (float) is given to the petty cashier.
  • At the end of the period, expenses are summarised, and the float is restored to its original value.

Example:

• Float = 500
• Expenses = 300
• Reimbursement = 300 → restores float to 500

Columnar format:

• Date | Details | Voucher No. | Total | Postage | Stationery | Travel | Miscellaneous

3. Sales Journal (Sales Day Book)

• Records credit sales of goods only.
• Source document: Sales invoice
• Does not include:
  • Cash sales
  • Sale of non-inventory items

Example entry:

• 5 Aug: Sold goods to Ali Ltd for 2,000 → recorded in Sales Journal

4. Purchases Journal (Purchases Day Book)

• Records credit purchases of goods for resale only.
• Source document: Purchase invoice
• Does not include:
  • Cash purchases
  • Purchase of fixed assets

Example entry:

• 7 Aug: Bought goods from ABC Traders for 3,500 on credit → Purchases Journal

5. Sales Returns Journal (Returns Inwards Book)

• Records goods returned by credit customers.
• Source document: Credit note

Example:

• Customer returns faulty goods worth 200
• Entry: Credit Sales Returns Journal with 200

6. Purchases Returns Journal (Returns Outwards Book)

• Records goods returned to suppliers that were bought on credit.
• Source document: Debit note

Example:

• Return goods worth 100 to supplier → Entered in Purchases Returns Journal

7. General Journal (Journal Proper)

Used for:

• Opening entries
• Closing entries
• Correction of errors
• Non-regular transactions (e.g. depreciation, bad debts)
• Transfers between accounts

Format:

• Date | Details | Debit | Credit | Narration

Example:

• Error correction: Rent was wrongly debited to Salaries
  Entry:
  Debit: Rent Account
  Credit: Salaries Account
  Narration: “To correct error of misposting rent to salaries”

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course

Posting to Ledger Accounts from Books of Prime Entry

• After transactions are entered in the books of prime entry, they are posted to relevant ledger accounts.
• Sales Journal → Sales Ledger (individual customer accounts) and General Ledger (sales control account)
• Purchases Journal → Purchases Ledger (individual supplier accounts) and General Ledger (purchases control account)
• Cash Book → General Ledger (bank, cash, expenses, income accounts)
• Petty Cash Book → General Ledger (expense accounts)

Example:
Credit sale to Salman Traders for 1,200:

• Sales Journal →
  • Debit: Salman Traders A/C
  • Credit: Sales A/C

Trade Discount vs Cash Discount

Example:

• Goods worth 5,000 sold with 10% trade discount → Invoice shows 4,500
• If paid within 7 days, 2% cash discount may apply → Pay 4,410

Electronic Payments and Bank Transfers

Modern businesses use:

• Direct bank transfers
• Online banking
• Credit card payments
• Mobile/e-wallet transactions

Recorded in:

• Cash Book (bank column) as:
  • Debit: for amounts received
  • Credit: for amounts paid

Examples:

• Received payment by online transfer → Debit Bank
• Paid electricity bill online → Credit Bank

Source documents:

• Bank statement
• Electronic payment confirmations
• Email receipts

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course

Imprest System of Petty Cash

• Operates on the principle that a fixed amount (float) is maintained.
• Expenses are recorded daily using vouchers.
• At the end of the period, the amount spent is reimbursed to restore the float.

Example:

• Float: 500
• Total expenses in July: 280
• Reimbursement: 280 → Float becomes 500 again for August

Advantages:

• Better control over small expenses
• Minimises misuse of cash
• Reduces burden on the main cash book
• Easy tracking through vouchers and categories

Summary Table: Books of Prime Entry

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course