Books of original entry

Imagine a business with 200 credit sales a month. Posting each one individually to the Sales account in the general ledger would mean 200 lines. Instead, all credit sales are first listed in the Sales Day Book, totalled, and that single total is posted to Sales.

Functions:

1. Group similar transactions before posting to the ledger.
2. Reduce ledger entries — one total per period instead of one entry per transaction.
3. Enable division of labour — different clerks can work on different day books.
4. Provide an audit checkpoint — totals can be reconciled with control accounts (Topic 3).
5. Preserve transaction-level detail for tracing individual entries.

Format of a Day Book (Sales Day Book example):

At month-end: the £4,800 is posted as Cr Sales in the general ledger.

The Cash Book has TWO functions:

1. Book of original entry — first place cash/bank transactions are recorded.
2. Ledger — the cash account and bank account live inside it (no separate ledger accounts).

Two-column Cash Book: columns for Cash and Bank on both sides.

Three-column Cash Book: adds memorandum columns for Discount Allowed (Dr side) and Discount Received (Cr side).

Standard format:

Key rules:

• Cash sales → Dr Cash, Cr Sales (account in nominal ledger).
• Cheque received from customer → Dr Bank, Cr Customer.
• Cheque paid to supplier → Dr Supplier, Cr Bank.
• Discount Allowed column entries are memorandum — totalled at period-end and posted Dr Discount Allowed; the matching Cr already in the customer's account.
• Discount Received column is mirror image — posted Cr Discount Received.
• Contra entries (cash to bank or vice versa) are recorded on both sides with details column 'Bank' or 'Cash' and a 'C' mark.

Small cash payments (stamps, taxi fares, biscuits for the office) are not efficiently handled through the main Cash Book — too many low-value entries. They are recorded in a Petty Cash Book.

Imprest system:

• The business agrees an imprest amount (e.g., £150).
• The petty cashier is given £150 to start.
• Throughout the period, payments are made against signed petty cash vouchers.
• At period-end the cashier presents the vouchers totalling, say, £126.
• The cashier is reimbursed £126 to restore the float to £150.

Why imprest?

• Provides a control — the vouchers must always reconcile to (imprest − cash in hand).
• Limits the float size — only the amount in hand can be lost.
• Creates a clear audit trail.

Format with analysis columns:

At period-end, the analysis columns are totalled and posted to the nominal accounts (Postage, Travel, Sundries). The total paid is credited to Petty Cash; the reimbursement debits Petty Cash from the main Cash Book.

The Journal records the transactions that don't fit any Day Book or Cash Book. Common uses:

1. Opening entries — first entries in a new set of books.
2. Purchase/sale of non-current assets on credit (not 'goods').
3. Year-end adjustments — depreciation, accruals, prepayments, provisions.
4. Correction of errors (Topic 3).
5. Writing off bad debts and creating/adjusting provisions for doubtful debts.
6. Transfers between accounts — e.g., reclassifying an error.

Format:

Every journal entry MUST:

• Show Dr first, Cr second.
• Have equal Dr and Cr totals.
• Include a narrative explaining the transaction.

The standard posting flow:

1. Transaction occurs → source document created.
2. Recorded in the appropriate book of original entry.
3. Individual entry posted to the personal account (customer or supplier in Sales/Purchases Ledger).
4. Total posted to the nominal account (Sales, Purchases, etc. in General Ledger).

For example, three credit sales of £1,000, £800 and £3,000:

• Sales Day Book: 3 entries totalling £4,800.
• Individual entries: Dr Patel £1,000, Dr Khan £800, Dr Brown £3,000 (in Sales Ledger).
• Total entry: Cr Sales £4,800 (in General Ledger).

Double entry is preserved: total Dr (£1,000 + £800 + £3,000 = £4,800) = total Cr £4,800.