Books of Prime Entry

A book of prime entry (or 'day book') is the first place a transaction is recorded, taken from a source document. Transactions are grouped by type, then posted to the ledger.

Why use them?

• Reduce clutter in the ledger — many transactions are summarised and posted as totals.
• Division of labour — different staff can keep different books.
• Easier to locate errors — similar items are together.
• They provide an audit trail from source document → day book → ledger.

Book of prime entry	Records	Source document
Sales journal	Credit sales	Sales invoice
Sales returns journal	Goods returned by customers	Credit note issued
Purchases journal	Credit purchases	Purchase invoice
Purchases returns journal	Goods returned to suppliers	Credit note received
Cash book	All bank & cash receipts/payments	Receipts, cheque counterfoils, bank statements
General journal	Non-routine entries	Various / internal memos

Note: the journals record credit transactions only; cash/bank transactions go in the cash book.

The four 'trade' journals work the same way. Take the sales journal as the model:

1. List each credit sale from its invoice (date, customer, amount).
2. Total the journal for the period.
3. Post the total to the credit of the Sales account.
4. Post each individual entry to the debit of that customer's account (trade receivable).

Example — sales journal total $4,000:

• Debit each customer's account (individually) — total $4,000.
• Credit Sales $4,000 (the period total).

The same pattern applies to:

• Purchases journal → debit Purchases (total), credit each supplier.
• Sales returns journal → debit Sales returns (total), credit each customer.
• Purchases returns journal → credit Purchases returns (total), debit each supplier.

Key idea: the total goes to the nominal account (Sales, Purchases, etc.); the individual amounts go to the personal accounts (customers/suppliers). This is also the basis of control accounts (1.4.4).

The cash book records all money received and paid through bank and cash. It is unusual: it is both a book of prime entry and the ledger account for bank and cash (so it is not posted to a separate bank ledger account).

• Debit side: money received (receipts).
• Credit side: money paid (payments).
• A two-column cash book has cash and bank columns; a three-column cash book adds discount columns (discount allowed on the debit side, discount received on the credit side) as memorandum totals posted to the discount accounts.

The discount columns are memoranda — their totals are posted to the discount allowed (debit) and discount received (credit) accounts; they are not part of the cash book's own double entry.

The general journal (or just 'the journal') records transactions that do not fit any other book of prime entry. You must be able to write journal entries — they appear on almost every Paper 2/Paper 3.

Use the general journal for:

• Opening entries (recording assets, liabilities and capital when the books are first opened).
• Purchase or sale of non-current assets on credit (e.g. machinery bought on credit).
• Correction of errors (often via a suspense account — 1.4.2).
• Year-end adjustments (depreciation, irrecoverable debts, accruals/prepayments transferred via the journal).
• Transfers between accounts and closing entries.

Format: the account to be debited is written first, then the account credited (indented), then a narrative explaining the entry.

Example — bought machinery on credit from BX Ltd, $12,000:

	Dr $	Cr $
Machinery	12 000
BX Ltd		12 000
Narrative: machinery bought on credit from BX Ltd

A source document is the original evidence of a transaction. It is where the audit trail begins, and questions often ask you to name the document for a given transaction.

Source document	Issued/received when	Feeds
Invoice	Goods/services sold or bought on credit	Sales journal (seller) / Purchases journal (buyer)
Credit note	Goods returned / an overcharge corrected (reduces the amount owed)	Sales returns journal (issuer) / Purchases returns journal (receiver)
Debit note	A request for a credit note (claim for returns/overcharge)	Supports the returns claim
Statement of account	Sent by a supplier summarising the month's transactions and the balance	Checking/agreeing the supplier's account
Remittance advice	Sent with a payment, listing the invoices being paid	Supports posting receipts/payments
Receipt	Confirms cash/cheque received	Cash book
Paying-in slip / bank statement	Money banked / bank transactions	Cash book; bank reconciliation

Key distinctions for the exam:

• An invoice increases the amount owed; a credit note decreases it.
• A debit note is only a request for a credit note — it is not itself the document that reduces the account.
• A statement of account is for checking, not for first recording a transaction.

The cash book deserves extra attention because it is both a book of prime entry and the ledger account for bank and cash — so it is not posted to a separate bank account.

Formats:

• Two-column: separate cash and bank columns (debit = received, credit = paid).
• Three-column: adds discount columns — discount allowed (debit side) and discount received (credit side). These are memoranda, totalled and posted to the discount accounts; they are not part of the cash book's own double entry.

Contra entries. When cash is paid into the bank (or drawn from the bank for the till), both halves are in the cash book: e.g. banking $400 of cash is credit cash $400 and debit bank $400. These are marked with a 'C' (contra) because the double entry is completed within the one book.

Balancing. Each column is balanced separately. A bank column can show a credit balance — that is a bank overdraft (a liability). The cash column can never be a credit balance (you cannot pay out more physical cash than you hold).