Chapter 7 - Prime Entry Books

Every organization performs there accounting activities according to a process. This process is called an
accounting process.

Business Transaction

*Source Document

*Prime Entry Books

*Ledger Account

*Trial Balance

*Financial Statement

When a business transaction is entered in a document for the first time is known as Source Documents.

Source Documents include details such as the name and the address of the business, serial number, the
date on which the transaction has taken place, the details on the other party, description of the
transaction, the monetary value of the transaction, and signature.

Uses of Source Documents

 Used as initial document for transaction.
 Used as written evidence of the transaction.
 Additional information on transactions can be obtained.
 Used for recording transactions in the prime entry books.
 Responsibilities can be assigned to a specific officer.

Then the first book in which the transaction is written is called Prime Entry Book.

Prime Entry Books are being totally from time to time and values are posted to the relevant ledger
accounts.

Prime entry books are also known as daybooks, journals, and subsidiary books.
The necessity of Prime Entry Books
 A similar type of transaction of a period needs to be classified and recorded.
 Posting transactions to the ledger becomes systematic and convenient after recording them in a
prime entry book.
 Responsibility for preparing each prime entry book can be assigned distinctly to various individuals
which will help to minimize possible errors and frauds. It is easy to maintain the ledger because the
totals of prime entry books are posted to the ledgers which minimize the number of entries posted.
 Minimizes the occurrence of accounting errors and it is easy to find out such errors.
 These ledger accounts are balanced at the end of the year and those balances are then written in
the trial balance.

Type of transaction Prime Entry book Source Document

Transactions related to the receipt and Cash Book Receipt, Payment Voucher
payment of cash (cash receipts, cash
payments)
Transactions carried out through the Bank Account Deposit slip, Payment Voucher,
bank current account Bank Statement, Cheque return
notification
Petty cash transactions Petty Cash Book Petty cash payment voucher
Credit purchases of goods Purchase journals Purchase invoice
Credit sales of goods Sales journals Sales invoice
Other transaction General journals Journal voucher
Return inwards Return Inwards Journal Credit Note
Return outwards Return Outwards Journal Debit Note
Using the trial balance financial statements in the year-end are being prepared.

Ledger Accounts (Account Classification

 Chapter 8 - The cash book and the petty cash book

Cash Book – This is a prime entry book in which only cash receipts and payments are recorded.

Cash receipts – Owner’s capital, cash sales, cash received from debtors, borrowing money, cash receipts
from rent income, investment income, commission income.

Cash payments – Purchase of goods for cash, repayment of loans, cash payment to creditors, payment
made for expenses (such as electricity, rent, salary, advertising, repairs, etc), payments made for purchasing
fixed assets (such as furniture, equipment, land and building, motor vehicle, etc), cash drawings
(withdrawals of cash by the owner for personal use)

Cash Book (Or Cash Account)

Date Description LF Amount Date Description LF Amount

Owner’s capital Cash drawings
Cash sales Cash purchases
Cash received from debtors Cash payment to creditors
Borrowing money Payment made for expenses
Cash receipts from incomes Payment for Fixed Assets

Q1

Discounts - the amount or percentage deducted from the value of the transaction (Listed price/normal
selling price) of something.
Double-entry for discounts
Discount allowed Discount Received

Dr Discount allowed Account Dr Creditors Account

Cr Debtors Account Cr Discount received Account

Q2. In Kamal’s business transactions of cash receipts, cash payments and similar transactions during the
month of April 2018 are given below. Enter them in the ledger accounts.
05.04.2018 Cash sales R.N.01 Rs.50,000
06.04.2018 Payment of monthly electricity bill P.V 01 Rs.8,000
08.04.2018 Paid Perera - a creditor P.V 02 Rs.12,500 Discount received Rs.1,500
10.04.2018 Building rent received R.N.02 Rs.10,000
10.04.2018 Cash purchases P.V 03 Rs.17,000
12.04.2018 Payment of monthly insurance P.V 04 Rs.12,000
14.04.2018 Payment to Sagara - creditor P.V 05 Rs.17,000 Discount received Rs.2,000
15.04.2018 Received /bank loan R.N.03 Rs.100,000
16.04.2018 Purchased office furniture P.V.06 Rs.60,000
18.04.2018 Receipts from Amal (debtor) R.N. 04 Rs.8,000 Discount given to Amal Rs.500
18.04.2018 Payment of wages and salaries P.V 07 Rs.20,000
20.04.2018 Cash sales R.N. 05 Rs.60,000
20.04.2018 Payment of bank loan installment P.V 08 Rs.12,000 (Interest was Rs. 2,000)
22.04.2018 Cash purchases P.V 09 Rs.20,000
22.04.2018 Receipt from Ruwan (Debtor) R.N. 06 Rs.47,500 Discount given to Ruwan Rs.2,500
25.04.2018 Commission received R.N.07 Rs.2,000
28.04.2018 Investing additional capital R.N.08 Rs.50,000
26.04.2018 Cash drawings P.V 10 Rs.4,000

Q3.
 Q4.

Petty Cash Payment Journal is maintained in order to record minor payments in an entity.
► There are very small value transactions that take place in a business.
► Some examples are; - Entertainment expenses - Purchase of stamps and envelopes - Purchase of file
covers - Cost of purchasing a pen - Cost of travel
► That such small value payments can be identified as Petty expenses.
► Among the daily transactions that take place in a business, the low-value transaction must be identified
and recorded in a separate book of prime entry. The book of prime entry is identified as the Petty Cash
Payment Journal.
► The original document used to make entries in the Petty Cash Payment Journal is the Petty Cash
Payment Voucher.
► The likely total cost of such expenses for a given period is decided in advance and Chief Cashier will give
that some to a Petty Cashier.
► This sum of money is known as the Petty Cash Imprest and the reimbursement of the expenses to the
Petty Cashier is known as the Imprest system.

Petty Cash Payment Journal

Date Description V.No Amount Analysis Columns other Leger

Stationary Postal Traveling Miscellaneous Folio
(LF)
►The petty cash payments must be entered in a Petty Cash Payment Journal that has analysis columns.
► The double entry for the transactions entered in the Petty Cash Book is given below:

• Receiving petty cash Imprest

Petty cash A/c Debit

Cash A/c Credit

• Reimbursement of the Imprest

Petty cash A/c Debit

Cash A/c Credit

• Sum totals of the analysis columns

Respective A/c Debit

Petty cash A/c Credit

Q1. Below few transactions during the first two weeks of March 2018 in Gayani’s business. Prepare the
Petty Cash Payment Journal and record the transactions in the General Ledger.
Petty Cash Imprest Amount is Rs. 3,000/-
Date Voucher No. Gayani's Business Rs.
2018 04 March 01 Entertainment 300
05 March 02 Stamps and Envelops 280
06 March 03 Cleaning 400
08 March 04 Postage 400
09 March 05 Vehicle hire charges 350
10 March 06 Paid to Amal 700
11 March 07 Cleaning expenses 250

Q2. Tom Smart started a small printing business on 1 June. The following is a list of transactions that
occurred during his first week of trading. following relate to the petty cash expenditure incurred during the
first week. 2014
Jun.1 established the petty cash fund in the amount of 10,000
Jun.2 Issued Voucher No. 1 for Sundry accessories for shop display Rs.1850.
Jun.2 Issued Voucher No. 2 for Cleaning cloths, soap, and disinfectant Rs.975
Jun.3 Issued Voucher No. 3 for One dozen marker pens& one box of printer labels.1750
Jun.4 Issued Voucher No. 4 for Postage stamps Rs.250
Jun.6 Issued Voucher No. 5 for Petrol for delivery van Rs.2500
Jun.7 Replenished the fund
Required: Record the transactions in the petty cash book