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Books of Prime Entry


 
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Books of prime entry

Introduction

The ledger accounts of a business are the main source of information used to prepare the financial statements. However, if a business were to update their ledgers each time a transaction occurred, the ledger accounts would quickly become cluttered and errors might be made. This would also be a very time consuming process.

To avoid this complication, all transactions are initially recorded in a book of prime entry. This is a simple note of the transaction, the relevant customer/supplier and the amount of the transaction. It is, in essence, a long list of daily transactions.

Different types of book

Several books of prime entry exist, each recording a different type of transaction:

Book of prime entry

Transaction type

Sales day book

Credit sales

Purchases day book

Credit purchases

Sales returns day book

Returns of goods sold on credit

Purchases returns day book

Returns of goods bought on credit

Cash book

All bank transactions

Petty cash book

All small cash transactions

The journal

All transactions not recorded elsewhere

The sum total of the day's transactions is recorded in the accounting ledgers of the company. This is done in a 'double entry' format. 

The sales day book

The sales book summarises the daily sales made on credit terms (i.e. the goods are sold and payment is collected at a later date).

Date

Invoice

Customer

Ledger Ref

$

4.1.X6

1

Jake

RL3

4,500

4.1.X6

2

Bella

RL18

3,000

4.1.X6

3

Fizz

RL6

2,200

4.1.X6

4

Milo

RL1

10,000

4.1.X6

5

Max

RL12

500

––––––

Total for 4.1.X6

20,200

The total sales for the day of $20,200 will be entered into the accounting ledgers in double entry format.

Purchases day book

The purchase day book summarises the daily purchases made on credit terms (i.e. the goods are purchased and payment is made at a later date).

Date

Invoice

Customer

Ledger Ref

$

4.1.X6

34

Harry

PL2

2,700

4.1.X6

11

Ron

PL37

145

4.1.X6

5609

Hermione

PL12

4,675

4.1.X6

2

Neville

PL9

750

4.1.X6

577

Draco

PL1

345

–––––

Total for 4.1.X6

8,615

The total purchases for the day of $8,615 will be entered into the accounting ledgers in double entry format.

The sales returns day book

Date

Invoice

Customer

Ledger Ref

$

4.1.X6

1

Max

RL12

50

4.1.X6

2

Ernie

RL2

450

4.1.X6

3

Pat

RL20

390

4.1.X6

4

Sam

RL27

670

4.1.X6

5

Milo

RL1

2,300

–––––

Total for 4.1.X6

3,860

The purchases returns day book

Date

Invoice

Customer

Ledger Ref

$

4.1.X6

112

Harry

PL3

600

4.1.X6

56

Cho

PL16

75

4.1.X6

7

Fleur

PL2

800

4.1.X6

890

Neville

PL1

50

4.1.X6

12

Draco

PL12

100

–––––

Total for 4.1.X6

1,625

The cash book

All transactions involving cash at bank are recorded in the cash book. Many businesses have two distinct cash books: a cash payments book and a cash receipts book.

A note of cash discounts given and received is also recorded in the cash book. This is to facilitate the recording of discounts in both the general and accounts payable/receivable ledgers.

It is common for businesses to use a columnar format cash book in order to analyse types of cash payment and receipt.

Illustrative cash payments book

The following is the cash payments book of a small business.

Date

Detail

Bank

Discount ledger

Payables

Rent

$

$

$

$

18.7.X6

Mr A

1,400

100

1,400

18.7.X6

Office

3,000

 

3,000

18.7.X6

Mr B

210

210

18.7.X6

Mr C

1,600

80

1,600

18.7.X6

Shop

400

400

–––––

––––

–––––

–––––

6,610

180

3,210

3,400

The journal

The journal is a book of prime entry which records transactions which are not routine (and not recorded in any other book of prime entry), for example:

The journal is a clear and comprehensible way of setting out a bookkeeping double entry that is to be made.

Presentation of a journal

A journal should be laid out in the following way:

Dr Non-current asset $xxx

Cr Payables $xxx

A brief narrative should be given to explain the entry.

Created at 10/23/2012 1:31 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
Last modified at 11/1/2016 3:55 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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ACCAPEDIA - Books of Prime Entry