Books of Prime Entry - Part 1

Books of prime entry (also called books of original entry) are the first books in which transactions are recorded. They act as an organised listing stage between the source document and the ledger.

Why use books of prime entry? Without them, every single invoice, credit note, and cash receipt would have to be posted directly to the ledger the moment it arrived — causing chaos in a busy business. Instead:

1. Similar transactions (e.g., all credit sales in a month) are collected in the appropriate day book.
2. Individual entries are posted to personal accounts (customer or supplier accounts in the subsidiary ledger).
3. The total for the period is posted to the general ledger account (Sales, Purchases, etc.) in ONE entry — reducing the number of postings to the main ledger.

This makes the ledger far less cluttered and easier to check.

Books of prime entry covered in Part 1:

Book	Type of transaction	Source document
Sales Day Book	Credit sales	Sales invoice (copy)
Purchases Day Book	Credit purchases	Purchase invoice (original)
Returns Inwards Day Book	Goods returned by customers	Credit note issued
Returns Outwards Day Book	Goods returned to suppliers	Credit note received
General Journal	Non-routine transactions	Various (narrative required)

Important: The cash book is ALSO a book of prime entry, but it is covered in Part 2 because it also doubles as a ledger account.

Sales Day Book (Sales Journal)

Used to record ALL credit sales — goods sold to customers who will pay later. Cash sales do NOT go in the Sales Day Book; they go in the cash book.

Format:

Date	Customer Name	Invoice No.	Folio	Amount $
1 Jun	A. Kumar	INV 301	SL3	500
5 Jun	B. Chen	INV 302	SL7	800
			Total	1,300

Posting the Sales Day Book:

• Each individual amount (e.g., A. Kumar $500) is posted to the Dr side of the individual customer's personal account in the Sales Ledger (subsidiary ledger).
• The total ($1,300) is posted to the Cr side of the Sales account in the General Ledger: Cr Sales $1,300.

Purchases Day Book (Purchases Journal)

Used to record ALL credit purchases. Format mirrors the Sales Day Book.

Posting the Purchases Day Book:

• Each individual amount is posted to the Cr side of the individual supplier's personal account in the Purchases Ledger.
• The total is posted to the Dr side of the Purchases account in the General Ledger: Dr Purchases (total).

The Trade Receivables/Payables Control Account: The total posted to the Sales account corresponds to the total posted to the Dr side of the Trade Receivables Control account — all individual customers' debits must equal the control account total.

Returns Inwards Day Book (Sales Returns Journal)

Used to record ALL goods returned by customers (sales returns). Source document: credit note issued by the business to the customer.

Posting:

• Individual amounts → Cr the customer's personal account (the customer owes less).
• Total → Dr the Returns Inwards account in the General Ledger.

Returns Outwards Day Book (Purchases Returns Journal)

Used to record ALL goods returned to suppliers (purchases returns). Source document: credit note received from the supplier.

Posting:

• Individual amounts → Dr the supplier's personal account (the business owes the supplier less).
• Total → Cr the Returns Outwards account in the General Ledger.

Summary of all four day book postings:

Day Book	Individual → personal account	Total → general ledger
Sales	Dr customer account	Cr Sales
Purchases	Cr supplier account	Dr Purchases
Returns Inwards	Cr customer account	Dr Returns Inwards
Returns Outwards	Dr supplier account	Cr Returns Outwards

Why post individual amounts to personal accounts? Because trade receivable and payable control accounts summarise all customers and suppliers — but the business also needs a separate record of exactly how much each individual customer owes or each supplier is owed.

The General Journal (also called the journal proper or simply 'the journal') is a catch-all book of prime entry for transactions that do not fit into the four day books or the cash book.

Transactions recorded in the general journal:

1. Opening entries: The initial recording of assets, liabilities, and capital when a business first starts keeping proper accounts (or when a new set of books is opened).
2. Purchase or disposal of non-current assets on credit (not for cash — cash NCA purchases go to the cash book).
3. Correction of errors: Journals are used to correct errors discovered after the trial balance.
4. Year-end adjustments: Depreciation charges, bad debts written off, accruals, prepayments.
5. Contra entries between accounts (e.g., offsetting a trade receivable and trade payable where the same person is both a customer and a supplier).

General journal format:

Date	Details	Folio	Dr $	Cr $
1 Jun	Motor Vehicles	GL5	8,000
	Trade Payables (Handa)	PL12		8,000
	Narrative: Purchased a motor vehicle on credit from Handa Motors, Invoice No. 1021

Key features of a general journal entry:

1. Debit entry: listed first, account name level with the left margin.
2. Credit entry: listed second, indented to the right.
3. Narrative: A short explanation of the transaction below the entries — this is MANDATORY in the general journal to explain what happened and provide an audit trail.
4. Folio: cross-reference to the ledger account.

Without a narrative, a general journal entry is incomplete — Cambridge examiners penalise missing narratives.