Books of prime entry

Accounting 9706
 Sales journal

When there is a credit sale, an invoice

is issued to the customer. The invoice
confirms that the customer must pay
for the goods or services that the
business has supplied and it states
the amount owed and the payment
deadline.
Once the invoice has been sent, an
entry is made in the sales journal to
record the sale.
 Sales return journal

❖ If a credit sale is returned, a credit note is issued to the customer that shows
the amount credited to the customer’s account for the return. Once the credit
note is sent, an entry is made in the sales returns journal to record the sales
return.
 Purchase Journal

When a purchase is made on credit, an invoice is received from the supplier, which confirms that
the business must pay for the goods or services supplies and states the amount owed and the
payment deadline.
All invoices received from suppliers are entered into the purchases journal to record
the purchase.
 Purchase return journal

When a purchase is made on credit, an invoice is received from the supplier,

which confirms that the business must pay for the goods or services supplies
and states the amount owed and the payment deadline.
All invoices received from suppliers are entered into the purchases journal to
record the purchase.
 Why use a general journal?

No transaction can be entered straight into the ledger. They must first be
recorded in a book of prime entry and then posted to the ledger.
The general journal is used for items which cannot be conveniently entered into
any other book of prime entry.
 When do we use General journal

There are many instances when we would

make use of the journal instead of another
subsidiary book. For example:
❖ when we buy or sell a non-current asset on
credit (if we paid cash, then it would be
entered via the cash book)
❖ to write off any irrecoverable debts
❖ to correct errors when we adjust entries, such as adjustments for other payables and
other receivables
❖ for any year-end adjustments for depreciation
❖ to transfer amounts between accounts (inter-ledger transfers).
 Example

❖ On 1st August 2019, A ltd purchased from X motors a delivery van for
business for $8000 on credit.
❖ J Smith a trade receivable of the business became insolvent on 30th June
❖ On 31st March business buys a new machine for the factory from Planters Ltd
for $15000 and payment will be made after two months
❖ M Smith owes us $130 for the goods we sold to him. At the same time, we
also purchased goods from him for business. On 30th Sept business owes to
M Smith a total of $90 on his trade payable account. On same day he sends
a cheque for $40 to settle his account.
 Cash book

❖ Cash book is also a day book, used to keep a record of money received and
money paid out by the business. The cash book deals with money paid into
and out of the business bank account. This could be money received on the
business premises in notes, coins and cheques, subsequently paid into the
bank. There are also receipts and payments made by bank transfer, standing
order, direct debit and bank interest and charges, directly by the bank.
❖ Except for cash book, all other books of prime entry re memorandum books,
used to collect transaction of similar nature.
 Example

Date Transactions
May 1 Balance brought down from April,
Cash $2900, Bank $6500
Trade receivable: Bala $1200, Nitin $280, Dinesh $400
Trade payable: Umesh $600, Manish $440, Rashmi $1000
May 2 Bala pays us by cheque after deducting 2.5% cash discount
May 8 We pay Rashmi for the amount due after deducting 5% cash discount
May 11 Withdrew $500 from bank for business use
May 16 Nitin pays us the amount due after deducting 5% cash discount
May 25 Paid wages by cash $900
May 28 Dinesh pays us in cash his amount due after deducting 3% cash discount
May 29 We pay Umesh by cheque for his amount due after deducting 5% cash discount
May 30 We pay Manish for his dues by cheque after deducting 2.5% cash discount