BOOKKEEPING FORM TWO TOPIC 1: BOOKS OF PRIME ENTRY

Whenever a transaction takes place, there is a relevant document prepared as a proof the transaction. This is a legal document sent by the business to its employees showing them their Gross pay, deductions / Tax and net pay during a particular period. It is a proof that wages and salaries have been paid to employees.

What are the 7 books of accounts?

• General journal.
• General ledger.
• Cash receipt journal.
• Cash disbursement journal.
• Sales journal.
• Purchase journal.

In order to monitor the growth of your business, you’d need to maintain records of all its transactions. “Here you can enhance your knowledge on various topics related to finance & accountancy related topics like taxation, management, accounting, business law, corporate law banking, stock market, investment and many more. Goods sold to A Baker ($4,000) were debited to the account of A Beker, another customer, instead. For example, if a motor vehicle costing $5,000 has been purchased on credit from XYZ Motors Ltd on 10 June 2020, this has to be journalised. After reading this article, you should be able to list the different types of books of original entry and state their purpose, in particular the general journal. ThePurchase Ledgeris your record of yourpurchasesand expenses, whether or not you have paid them and how much you still owe. On a Balance Sheet, the total unpaid bills will usually will be called Trade Creditors or Accounts Payable.

Journal in a conventional format

This document or set of documents is what we call the book of original entry. For that, we need to books of prime entry rely on another document, or maybe a set of documents depending on the volume of transactions.

This means that when the book is totalled, at regular intervals, it will be immediately apparent how much cash has been received from credit customers, how much paid to credit suppliers, how much paid in wages and so on. The totals can then be used to make nominal ledger and individual ledger account entries as appropriate. The total purchases made on credit for the day of $8,615 will be entered into the accounting ledgers in double­entry format. Note that the day book will also record any sales tax charged by suppliers on the purchases made by the entity.

The Core Accounting information in a Journal Entry in Manual Accounting

It is the first-ever transaction to be recorded in the business’s general journal. For example, if a business makes a sale, the details of the sale such as the transaction date and the amount, as well as its description will be recorded in the general journal. Whereas the general journal captures any type of transaction, a special journal only captures a certain type of transaction. The information posted in the general ledger will then be used in the preparation of the financial statements. Whenever your business has a transaction that needs to be recorded, you enter them into your book of original entry. The reason is that these documents only give you proof of your business’s transactions. To have a record of your purchases and expenses, you retain a copy of whatever document (e.g. invoice, official receipt) your supplier or service provider gives you.

• The capability of computers in terms of collection, storage and processing of data has driven software programmers to expand the additional information that is collected with respect to each accounting transaction.
• Nominal accounts include all income and expenditure accounts in an income statement.
• This can be done by signing the journal entries, or by referencing them to other forms of authorisation, for example, letters, minutes and so on.
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• This is a specialized journal used to record all credit purchases of goods and services by a business.
• There will be subsidiary accounts receivables for each regular customer, and subsidiary accounts payable for each regular supplier.

A journal with only two amount columns, one for debit amounts and one for credit amounts. An entry to correct that an incorrect entry that has been journalized by posted to the wrong account. Negative invoice ( document relating to returned goods or refunds when a customer has been overcharged. Trade discount is given on the catalogue price of the goods while the cash discount is given on the invoice price. Trade discount is granted with the aim of increasing the sales in bulk quantity, whereas Cash discount is granted to facilitate a quick payment.

Prime entry books or books of original entry

It would not be possible without the use of the proof the transaction though. Relate to individual or organization to which the business sold goods on credit. That way, the re-entry of an already recorded transaction will be avoided. Referencing the source document could also help in tracking errors and discrepancies should there be any. This is to prove that a transaction does exist, as well as prevent the recording of fictitious transactions.

• The main purpose of the prime entry books is to capture all the essential information needed to produce the financial accounts – which is the ultimate goal when it comes to accounting.
• The difference is that here we also record banking transactions i.e., the transactions in which bank is also involved.
• Examples of personal accounts are trade receivables and trade payables.
• This journal is used to record the return of goods and services that were previously purchased on credit.
• It helps to keep track of the business’s expenses and the flow of money to its suppliers.
• There are several Day Books which will be reviewed within this section.

The general journal allows businesses to record transactions in the appropriate accounts and to maintain the integrity of their double-entry accounting system. In summary, the Purchases Returns Journal is a record of all credit returns made by a business, it records the return transaction and the amount of accounts payable the business owe to the supplier. It helps to keep track of the business’s expenses, the flow of money to its suppliers and the return of goods and services.

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Receipts and payments of cash, cheques including a record of each discount allowed and received. In the ‘Amount’ column, the actual cash paid or received is recorded. Transactions, where the documents are recorded and the postings to made. Copying the debits and credits from the journal to the ledger account. The capability of computers in terms of collection, storage and processing of data has driven software programmers to expand the additional information that is collected with respect to each accounting transaction. The amount of data that is collected is only limited by the needs of the organisation. Where in a journal entry, there are multiple debits or multiple credits or both, the sum of debits and sum of credits will have to be equal.

The amounts in the debit and credit columns are correlated to the respective account heads on the same horizontal line. The purpose of the narration is to enable anyone who reads it to get a preliminary idea of why the entry is being recorded. A single journal entry in its simplest form pertains to a single transaction. There may be a single entry that would be representing one or more transactions combined together called compound/combined journal entry. In the later stages of learning accounting we do not come across such simple statements indicating accounting transactions. We will be required to derive the interpretations ourselves from the information provided. State the journal entries required to record each of the transactions.

Books of Prime Entry

The procedure for recording transactions in the cash book with bank column is the same as that stated in the case of simple cash book. Depending upon the reputation or goodwill of the business enterprise, bank fixes a limit on withdrawals, which is known as credit limit. It means bank column may either show debit or credit balance depending upon how receipts and payments made through bank column of the cash book have affected the credit limit. General journal is a daybook or journal which is used to record transactions relating to adjustment entries, opening stock, accounting errors etc. The source documents of this prime entry book are journal voucher, copy of management reports and invoices.

The information recorded in the journal of bank transactions is used to update the general ledger and to prepare other financial statements, such as the income statement and the balance sheet. It is also used to reconcile the bank statement with the business’s own records and to detect any discrepancies or errors. When a business records a transaction in the journal of bank transactions, it is debited and credited in the appropriate accounts. The journal of bank transactions allows businesses to keep track of their bank account activity and to reconcile the bank statement with their own records.