Books of Prime Entry

Prepared by D.
El-Hoss
Journal
Journal  a book of original entry that is used by the book-keeper to record transactions that
do not fit into any other day book. The main uses of a journal are:
 the purchase and sale of non-current (fixed assets) on credit

 the correction of errors
 writing off a firm’s bad debts
 to record opening balances in a new set of books
 to record any other transaction that is not relevant to the other six day books
1- Purchase and sale on credit of fixed assets.

Example 1: A machine was bought on credit from the Toolstation for $600 on 1 July
2XX7.
Journal
Date Details Dr Cr
2XX7 $ $
July 1 Machinery 600
Toolstation 600
Narrative
www.igcseaccounts.com
Purchase of machine on
credit
Example 2: Sale of motor vehicle no longer needed by the firm for $300 on credit to A
Daly on 2 July 2XX7.
Journal
Date Details Dr Cr
2XX7 $ $
July 2 A Daly 300
Motor Vehicle 300
Narrative Sale of motor vehicle on
credit to A Daly
Prepared by D. El-Hoss
2- Writing off bad debts
Example 3: A debt of $125 owing to the firm from H. G. Wells is written off as a bad debt on
31 September 2XX7. A bad debt is an expense that will need to be written off from H. G.
Wells’ account as the company believes he will never pay it. Usually this is the case when
the debtor becomes bankrupt and goes out of business.
Journal
Date Details Dr Cr
2XX7 $ $
September 31 Bad Debts 125
H. G. Wells 125
Narrative H. G. Wells’ account is
written off as a bad debt
3- Opening Entries.
Example 4: I. N. Brew has decided to start keeping proper books of original entry after
being in business for some years. On 1 June 2XX7 she had the following balance on her
accounts:
Assets: MotorVan $1680, Fixtures & Fittings $1400, Stock $780, Debtor B. Old $190,
Debtor U. Shave $90, Bank $80, Cash $40.
Liabilities: Creditor M. Quill $258, C. Waters $82
In order to start the process of collecting the relevant balances in a book of original entry
the balance on the asset and liability accounts are double entered in the journal for
reference by the senior accountant.
Journal
Date Details Dr Cr
2XX7 $ $
June 1 Motor Van 1680
Capital 1680
Fixtures and Fittings 1400
Capital 1400
Debtor B. Old 190
Capital 190
Debtor U. Shave 90
Capital 90
Bank 80
Capital 80
Stock 258
Creditor - Quill 258
Stock 82
Creditor 82
4- Other items
Example 5 – K. Man, a debtor, owes the firm $4000 on 1 October 2XX7. He is not able
to pay his debt so the firm accepts a motor vehicle on 5 October in full payment of the
money owing to the company.
Journal
Date Details Dr Cr
2XX7 $ $
July 5 Motor Vehicle 4000
K. Young 4000
Narrative Accepts a Motor Vehicle as
full payment of K. Young’s
debt.
Transactions causing an irregular balance in the Sales and Purchases Ledger
Certain transactions will cause an unusual balance to be carried down in the debtor(s) and
creditor(s) accounts. Returns inwards and outwards after payment has been made or an
overpayment of an account are examples of transactions causing irregular balances.
General Ledger
Dr Bank Account Cr
$ $
1/1/X9 Debtor 100 12/1/X9 Creditor 200
Dr Returns Outwards Account Cr
$ $
13/1/X9 Creditor 200
Dr Returns Inwards Account Cr
$ $
12/1/X9 Debtor www.igcseaccounts.com
100
Dr Purchases Account Cr
$ $
11/1/X9 Creditor 200
Dr Sales Account Cr
$ $
1/1/X9 Debtor 100
Sales Ledger
Dr Debtor Account Cr
$ $
1/1/X9 Sales 100 11/1/X9 Bank 100
31/12/X9 Bal. c/d 100 12/1/X9 R. Inwards 100 *
200 200
1/1/X0 Bal. b/d 200
Purchases Ledger
Dr Creditor Account Cr
$ $
12/1/X9 Bank 200 11/1/X9 Purchases 200
13/1/X9 R. Outward 200 * 31/12/X9 Bal. c/d 200
400 400
1/1/X0 Bal. b/d 200

* Irregular balances b/d as a result of returns inwards and outwards that have been made
after payments have occurred.
Adapted from F. Wood Book-keeping
Control Accounts
Need for control accounts
As all accounts are kept in different ledgers then it is more likely that a mistake will
occur when a Trial Balance is drawn up. In addition as the ‘T’ accounts are kept in
different ledgers mistakes are very often hard to locate.
As a result accountants use Control Accounts to check whether errors have occurred in
the Purchases Ledger or the Sales Ledger. The control account acts as a type of Trial
Balance for each ledger.
Form of control accounts
1- Sales Ledger Control Account
$
st
Sales Ledger Debit balances on 1 January 20X8 1,894
Total credit sales for the month 10,290
Cheques received from customers in the month 7,284
Cash received from customers in the month 1,236
Returns inwards from customers during the month
Debit balances on the 31st January 20X8 as extracted from the sales ledger
296
3,368
Dr Sales Ledger Control Account Cr
20X8 $ 20X8 $
Jan 1 Balances b/d 1,894 Jan 31 Bank 7,284
Jan 31 Sales 10,290 Cash 1,236
Returns Inwards 296
Balances c/d 3,368
12,184 12,184
In this case the Sales Ledger Control Account has proven that there is no error in the
Sales Ledger because the balance c/d in the Sales Ledger is the correct figure that
balances with the other entries made in the various day books.
2- Purchases Ledger Control Account
$
st
Purchases Ledger Credit balances on 1 January 20X8 3,890
Cheques paid to suppliers during the month 3,620
Returns outwards to suppliers in the month 95
Purchases from suppliers in the month 4,936
Credit balances on 31st January as extracted from the purchases ledger 5,151
Dr Purchases Ledger Control Account Cr
20X8 $ 20X8 $
Jan 31 Bank 3,620 Jan 1 Balances b/d 3,890
Jan 31 Returns Outwards 95 Jan 31 Purchases 4,936
Jan 31 Balances c/d 5,151
8,866 8,826*
* This difference between the Balance c/d from the Purchases Ledger and the other
entries is $40. This proves there is a mistake somewhere in the Purchases Ledger.
Information for control accounts
The following tables show where information is obtained from to draw up control
accounts.
Sales Ledger Control Source
1 Opening debtors (Bal b/d) List of debtors drawn up at end of previous period
2 Credit sales Total from Sales Day Book
3 Returns inwards Total from Returns Inwards Day Book
4 Cheques received Cash Book: Bank column on received side (Dr)
5 Cash received Cash Book: Cash column on received side (Dr)
6 Closing debtors (Bal c/d) List of debtors drawn up from the Sales Ledger
Purchases Ledger Control Source

1 Opening Creditors (Bal b/d) List of creditors drawn up at the end of previous
period
2 Credit purchases Total from purchases day book
3 Returns Outwards Total of returns outwards day book
4 Cheques paid Cash book: bank column on payments side (Cr)
5 Cash paid Cash Book : Cash column on payments side (Cr)
6 Closing Creditors (Bal c/d) List of creditors drawn up from the Purchases Ledger
Bank Reconciliation Statements

A bank statement is issued by the bank at the end of each month and will contain
details of the money paid out and into the firm's account.
In order to be able to understand the terms used in a bank statement some important
terms need to be defined:
1- Direct Bank Transfer  An automatic transfer of money from a firm's account
to a creditor, or to employees to pay their salaries and wages.
2- Bank Overdraft  When we have paid more out of our bank account than we
have paid into it. In this situation the firm will owe the bank the difference in the
balance.
3- Direct Debit  An agreement by the firm for a creditor to automatically draw
out a variable amount of money from its bank account. For example, at the end of
each month a firm might set up a direct debit which gives the mobile phone
supplier the power to draw out enough money to pay the monthly charges for
phone calls.
4- Standing Order  An agreement by the firm for a creditor to automatically
draw out a fixed amount of money from it's bank account. For example, a firm
may set up a standing order for it's insurance company to take out a fixed sum of
money from it account over an agreed time period.
5- Drawer  The person writing the cheque and using it for payment.
6- Payee  The person to whom a cheque is paid.
Unpresented Cheques, Bank Lodgements and Dishonoured Cheques
When a firm pays a creditor by cheque it will usually take a period of time before the
amount is deducted from the balance in your account. The following diagram explains
why this occurs:
1st January: GLX firm pays its creditor Jones $700 by cheque which it sends by letter
in the post.
3rd January: The creditor Jones receives the cheque and pays into the firm's HSBC
account.
4th January: The HSBC bank will send the cheque back down to GLX's Lloyds bank
so that they may verify that he has enough money to pay the amount written out in the
cheque.
5th January: Lloyds bank confirm that GLX has enough money in their bank account
to pay creditor Jones. An electronic transfer of money is then made out of GLX firm's
account into creditor Jones' account.
As can be seen from the example illustrated above the process of money changing
hands from the firm to the creditor takes at least five working days. This time delay
will often mean that the Bank Statement and the Cash Book do not match.
The three possible terms that might be used to describe this time delay are:
1-Unpresented Cheque  A cheque paid by your firm to a creditor which has not yet
cleared through the banking system.
2- Bank Lodgement  A cheque received by your firm from a debtor which has not
yet cleared through the banking system.
3- A Dishonoured Cheque  When a cheque is received from a customer and paid
into the bank, it is recorded on the debit side of the cash book. It is also shown on the
bank statement as a banking by the bank. However, at a later date it may be found that
his bank will not pay us the amount due on the cheque. Therefore the bank has failed
to honour the cheque.
A Bank Reconciliation Statement
Obviously when an accountant pays or receives a cheque he/she will immediately

record it on the credit or debit side of the Cash Book bank colums. However very
often cheques will not clear through the banking system until at least five days after
they have been written and as a result there is often a time delay between when the
money is recorded in the Cash Book and when it actually leaves or enters the firm's
bank account. This time delay often means that the bank statement balance at the end
of the month and the bank balance brought down in the Cash Book will be different.
As a result accountants use a system to verify that the difference between the bank
statement and the bank balance in the Cash Book is a result of a time delay and not an
accounting error. This system is called a Bank Reconciliation Statement.
Where the closing balances differ between the Bank Statement and Cash Book
Where there is a difference between the closing balances in the Bank Statement and
the Cash Book the following two steps must always be followed:
1- Update the Cash Book  Check the bank statement for transactions that have
not been entered in the cash book.
2- A Bank Reconciliation Statement  A reconciliation of the difference between
the remaining balance must be performed using an agreed format. This statement
will prove that the different balances between the two business documents are a
result of a time delay and not an accounting error.
The credit and debit entries on a bank statement
Obviously the bank statement that the firm receives at the end of the month is
prepared by the bank's accountant and as a result from their point of view the business
in question is a creditor of money. This is because they owe the firm the amount
shown in the final balance as the end of the month. Consequently debit and credit
entries are reversed in the bank statement. This means that on the Bank Statement a
debit entry is shown for money leaving your account and a credit entry is shown for
money entering your account.
Practical example of a Bank Reconciliation Statement
The following is the bank account in the cash book of a business for the month of
September:
Dr Cash Book (Bank Columns) Cr
$ $
Sept. 1 Bal. b/d 8,300 Sept. 5 Suppliers & 3,090
Co.
Sept. 8 Cash Sales 2,100 Sept. 11 Wheel 416
Garages
Sept. 19 A. Ali 984 Sept. 20 Wages 1,640
Sept. 29 Enni Co. (B) 627 Sept. 28 Brite Light (B) 772
Sept. 30 Cosi Bros. 42 Sept. 29 Ojay Co. (B) 100
Sept. 30 Bal. c/d 6,035
12,053 12,053
Oct. 1 Bal. b/d 6,035
The Crystal Bank - Anytown Branch

Bank Statement as at the 30th September
Debit Credit Balance
$ $ $
Sept 1
Sept 8
Balance
Cash & cheques 2,100
8,300
10,400
Sept 10 Suppliers & Co. 3,090 7,310
Sept 15 Wheel Garages 416 6,894
Sept 19 Cheque 984 7,878
Sept 20 Cash 1,640 6,238
Sept 30 Cheque 42 6,280
Sept 30 Bank Charges (a) 200 (C) 6,080
Bank interest (b) 84 (C) 5,996
Step One - Update the Cash Book  Transactions (a) & (b) appear on the bank
statement but have not been entered in the Cash Book. The updated Cash Book would
appear as follows:
Dr Cash Book (Bank Columns) Cr

$ $
Sept. 1 Bal. b/d 8,300 Sept. 5 Suppliers & Co. 3,090
Sept. 8 Cash Sales 2,100 Sept. 11 Wheel Garages 416
Sept. 19 A. Ali 984 Sept. 20 Wages 1,640
Sept. 29 Enni Co. [c] 627 Sept. 28 Brite Light Co. [d] 772
Sept. 30 Cosi Bros. 42 Sept. 29 Ojay Co. [e] 100
Sept. 30 Bal. c/d 6,035
12,053 12,053
Oct. 1 Bal. b/d 6,035 30 Sept Bank Charges 200
30 Sept Bank Interest 84
30 sept Bal. c/d 5,751
6,035 6,035
Oct 1 Bal. b/d 5,751
Step 2 - Prepare a Bank Reconciliation Statement  A statement reconciling the
different balances that still remain after the Cash Book has been updated needs to be
drawn up to prove that the difference is a result of a delay in time and not an
accounting error. To perform this we check which items have been entered in the
Cash Book but do not appear in the Bank Statement (i.e [c],[d] &[e]).
Bank Reconciliation Statement as at the 30th September 1998

www.igcseaccounts.com $
Balance as per cash book 5,751
Add
Unpresented Cheques  Brite Lite co. 772
Ojay Co. 100
6,623
Less
Bank Lodgements  Enni Co. 627
5,996
A useful tip for working out whether a transaction should be entered as an addition or
subtraction in the Bank Reconciliation Statement is to think the opposite of the entry in
the ‎Cash Book. In other words:
a-Debit Transactions in the Cash Book add to income  They are subtracted in the
Bank Reconciliation ‎Statement.
b-Credit Transaction in the Cash Book minus from the firm's income  They are
added in the Bank Reconciliation Statement.
Petty Cash
Most small businesses need to use petty cash - money withdrawn from the bank and used to buy
sundry items.
It is important to put procedures in place, so that employees now what authorisation is required and
the expense is correctly recorded in the accounting system.
Petty cash voucher

A petty cash voucher is used as a detailed record whenever some money is withdrawn. The petty
cash voucher will need to show the following information:
 A unique voucher number
 Date the money is withdrawn
 Details of the transaction, include as much information as possible.
 Total amount that is withdrawn
 www.igcseaccounts.com
Attach any receipts to the voucher
 Make sure the voucher is authorised by the correct person
If the petty cash voucher is used as an advance, ensure that the correct details are recorded when
the change and receipt are returned.
Petty cash procedures
You will need to put petty cash procedures in place and ensure that staff are made aware of them.
•Use a locked box and make sure that only a few people know where the box and key are stored.
•Choose an appropriate float amount, this will vary from business to business, most businesses keep
£300 imprest amount. This amount will need to be withdrawn from the bank.
•Put the money in the box and record your transaction in a petty cash book.
•When money is withdrawn from the box fill out a petty cash form or voucher.
• The money in the box plus the vouchers should always equal the original amount of money in the box.
If you have a £300 float and the vouchers add up to £215 you should have £91 remaining in the box.
Three-column Cash Books and Discounts

Cash Discounts for quick payment
It is better for the firm if as customer pays their account quickly. Many companies
will offer a discount to their debtors if they pay quickly. The term 'Cash Discount'
refers to the allowance given for quick payment.
 Discounts allowed  cash discounts allowed by a firm to its customers when

they pay their accounts quickly.
 Discounts received  cash discounts received by a firm from its suppliers
when it pays their accounts quickly.
Example
May 2nd B. King (Debtor) pays us by cheque having deducted 5% discount from a
$100 debt.
May 15th We pay P. Spiro (Creditor) cash of $97 having received a 3% discount on
the original amount owing.
Sales Ledger
Dr B King Account (Debtor) Cr

$ $
1st May
Sales 100 2nd May
nd
2 May
Bank
Discount
95
5
100 100
Purchases Ledger
Dr P Spiro Account (Creditor) Cr

$ $
15th May Cash 97 13th May Purchases 100
15th May Discount 3
100 100
General Ledger
Dr Discounts Allowed Account Cr

$ $
2nd May B. King 5 31 May P & L 5
Dr Discounts Received Account Cr

$ $
31 May P & L 3 15th May P. Spiro 3
(Income)
Three-column Cash Book
Dr Cash Book Cr
Date & Detail Discount Cash Bank Date & Detail Discount Cash Bank
Details Allowed Details Received
$ $ $ $ $ $
1 May Bal.b/d 150 4500
2 May King 5 95 May 15 Spiro 3 97
May 22 Rent 500
May 30 Wages 1000
May 31 Bal.c/d 53 3095
5 150 4595 3 150 4595
1 June Bal.b/d 53 3095
Return Inwards (Sales Returns) Day Book
All Business
Transactions
Credit Sales Credit Sales Purchases Returns Cash/Bank Small Other
Purchases Returns In Out Receipts/ Cash Transactions
Payments Receipts/
payments
Enter in Enter in Enter in Enter in Purchases Enter in Enter in Enter in

Sales Day Purchases Sales Returns (Out) Day Cash Book Petty Cash General
Book Day Book Returns (In) Book Book Journal
Day Book
Enter Transactions
into three Ledgers
1 Sales 2 General Ledger 3Purchases

Ledger Ledger
1) Sales Ledger: To record the trade receivables (debtors) in personal named accounts only.
2) Purchases Ledger: To record the trade payables (creditors) personal account only.
3) General Ledger: To record everything all other non-personal accounts.
Sales Returns (Returns Inwards) Day Book  A book of original entry used
by the book-keeper to enter all returns back into the firm by debtors (trader receivables) of stock
(Inventory). Usually there will be a reason why goods have been returned on the debit note sent
by the customer. The business will need to check that the goods ordered were sent incorrectly or
were faulty (broken). If the reason given is accepted by the firm then the sales manager will send
the customer a credit note for the cost of the goods sold. This will be deducted from the amount
owing in their monthly statement.
A - Debit Note  Sent by the customer to the seller.
Buyer:Villa Market Ltd,

Aston Industrial Park,
Birmingham,
BM6 7CB.
Telephone: 01773832834
Fax: 01773832836
Purchases Returns
Debit Note
Supplier: GLT Fruits Ltd,
7 Limes Industrial Estate,
Alfreton,
DE55 7JW.
11 June 2XX5
Quantity Description Price per Unit
2 Boxes of Cherries $40
3 Boxes of Apples $8
2 Boxes of Tomatoes $20
Goods returned as they Signed: R. Lean. 144
were damaged. (Purchases Manager)
B – Sales Returns Credit Note  Sent by the seller to the customer once the firm has accepted
that the goods are bad or that there was a mistake with the order eg wrong colour of goods.

Alfreton,
DE55 7JW.
Sales Returns
Credit Note
Birmingham,
BM6 7CB.
Fax: 01773832836 15 June 2XX5
as damaged.
Goods returned accepted Signed: E Z Street.
(Sales Manager)
144
Sales Returns Day Book

Date Description Amount
$
15 June 2XX3 Villa Market Ltd 144
Total Sales (Debtors) transferred to 144
Sales Returns Account for the month
Sales Ledger
Dr $ Villa Market a/c $ Cr
10.6.X5 Sales 1008 15.6.X5 Returns Inwards 144
:Dr $ D Poole a/c Cr

27.6.X5 Sales 1192
General Ledger
Dr $ Sales Returns a/c $ Cr
30.6.X5 Total Sales 144
Returns inwards for the
month of June
Transferring the Total Sales Returns from the Sales Returns Inwards Day Book to the Sales
Returns Inwards ‘T’ or ledger account saves the senior accountant having to enter all the debit
entries into the Sales account.
Returns Outwards (Purchases Returns) Day Book
All Business
Transactions
Credit Sales Credit Sales Purchases Returns Cash/Bank Small Other
Purchases Returns In Out Receipts/ Cash Transactions
Payments Receipts/
payments

Day Book
Enter Transactions
into three Ledgers

Ledger Ledger
Purchases Returns (Returns Outwards) Day Book  A book of original

entry used by the book-keeper to enter all returns back out of the firm to Creditors (trade
payables) of stock (Inventory). Usually there will be a reason why goods have been returned on
the debit note sent to the seller. The supplier business will need to check that the goods ordered
were sent incorrectly or were faulty (broken). If the reason given is accepted by the firm then
their sales manager will send us a credit note for the cost of the goods sold. This will be deducted
from the amount owing in the monthly statement.
A - Debit Note  Sent by our firm to the supplier.
Buyer: GLT Fruits Ltd,

Alfreton,
DE55 7JW
Purchases Returns
Debit Note
Supplier: Apple Orchards,
23 Marsden Close,
Orpington,
Kent.
www.igcseaccounts.com 16 June 2XX5

Goods returned as they Signed: R. Lean. 24
were damaged. (Purchases Manager)
B – Sales Returns Credit Note  Sent by the customer once the firm has accepted that the
goods (apples) were bad.
Supplier: Apple Orchards,

23 Marsden Close,
Orpington,
Kent.
Sales Returns
Credit Note
Buyer: GLT Fruits Ltd,
Alfreton,
DE55 7JW.
25 June 2XX5
Goods returned accepted Signed: E Z Street. 24
as damaged. (Sales Manager)
Purchases Returns Day Book
$
25 June 2XX3 Apple Orchards Ltd 24
Total Purchases Returns (Suppliers) 24
transferred to Purchases Returns
Account for the month
Purchases Ledger
Dr $ Villa Market a/c $ Cr
25.6.X5 Purchases Returns 24 15.6.X5 Purchases 24
General Ledger
Dr Sales Returns a/c $ Cr
30.6.X5 Total Purchases 24
Returns Outwards for the
month of June
Transferring the Total Purchases Returns from the Purchases Returns Inwards Day Book to the
Purchases Returns Inwards ‘T’ or ledger account saves the senior accountant having to enter all
the credit entries into the Purchases Returns account.
Purchases Day Book
All Business
Transactions
Credit Credit Sales Purchases Returns Cash/Bank Small Other
Sales Purchases Returns In Out Receipts/ Cash Transactions
Payments Receipts/
payments

Day Book
Enter Transactions
into three Ledgers

Ledger Ledger
Purchases Day Book  A book of original entry used by the book-keeper to enter all
creditors (trader payables) of stock (Inventory). Once the firm has received an invoice from the
Creditor (Supplier) the purchase is considered legal and the book-keeper will enter the debtor
and amount owed into the Purchases Day Book.
Seller: GLT Fruits Ltd,

Alfreton,
DE55 7JW.
Fax: 01773832836
Invoice #001
Buyer: Villa Market Ltd,
Birmingham,
BM6 7CB 10 June 2XX5
Quantity & Description Price per Unit $
21 Boxes of Cherries $40 840
5 Boxes of Apples $8 40
6 Boxes of Tomatoes $20 240
Total 1120
Less Trade Discount for
Bulk Buying 10%
112
Final amount due for 1008

payment
Terms: Signed: E Z Street
1- Payment due (Sales Manager)
within 90 days
2- Cash discount 5%
if invoice is paid
before 17 June X5
Trade discount  A discount given to the customer for bulk buying (buying in large quantities)
or to encourage the customer to buy again from the company.
Puchases Day Book

$
10 June 2XX3 GLT Fruits Ltd 1008
27 June 2XX3 R Simpson 592
Total Purchases (Creditors) 1600
transferred to Purchases Account for
the month
Purchases Ledger
Dr Villa a/c $ Cr
10.6.X5 Purchases 1008
Dr Simpson a/c $ Cr
27.6.X5 Purchases 592
General Ledger
Dr $ Purchases a/c Cr
27.6.X5 Total Purchases 1600
for the month of June
Transferring the Total Purchases from the Purchases Day Book to the Purchases ‘T’ or ledger
account saves the senior accountant having to enter all the debit entries into the Purchases
account.
Sales Day Book
All Business
Transactions
Credit Credit Sales Purchases Returns Cash/Bank Small Other
Sales Purchases Returns In Out Receipts/ Cash Transactions
Payments Receipts/
payments

Day Book
Enter Transactions
into three Ledgers

Ledger Ledger
Sales Day Book  A book of original entry used by the book-keeper to enter all debtors
(trader receivables) of stock (Inventory). Once a credit customer has been sent an invoice the sale
is considered legal and the book-keeper will enter the debtor and amount owed into the Sales
Day Book.

Alfreton,
DE55 7JW.
Fax: 01773832836
Invoice #001
Birmingham,
Total 1120
Less Trade Discount for
Bulk Buying 10%
112

payment
within 90 days
2- Cash discount 5%
if invoice is paid
before 17 June X5
Trade discount  A discount given to the customer for bulk buying (buying in large quantities)
or to encourage the customer to buy again from the company.
Sales Day Book

$
10 June 2XX3 Villa Market Ltd 1008
27 June 2XX3 D Poole 1192
Total Sales (Debtors) transferred to 2200
Sales Account for the month
Sales Ledger
Dr $ Villa Market a/c Cr
10.6.X5 Sales 1008
:Dr $ D Poole a/c Cr

27.6.X5 Sales 1192
General Ledger
:Dr $ Sales a/c $ Cr

30.6.X5 Total Sales for the month 2200
of June
Transferring the Total Sales from the Sales Day Book to the Sales ‘T’ or ledger account saves
the senior accountant having to enter all the credit entries into the Sales account.
Business Documentation
A source document - A business document that provides information about a transaction
that took place.
All businesses are involved in buying and selling goods and services in order to make a profit. In
the trading process important business documents are issued between the buyer and seller. The
flow of documents is illustrated below:
Action by Seller The Flow of Documents Action by buyer

between buyer and seller (Purchases)
Seller sends Quotation Buyer receives
Seller receives order Purchases order Buyer sends
Seller sends Advice note Buyer receives
Seller sends Delivery note Buyer receives

with goods and checks goods
are correct and then
signs one copy
of the delivery note
Seller sends Invoice Buyer receives and

transaction is now
a legal sale
Seller receives Returns debit note Buyer Sends

goods and checks (faulty goods or
order to see if goods incorrect order)
not working properly
Seller sends Credit note Buyer can now

accepting return enter returns out
in day book
Seller sends Monthly statement of Buyer receives

account and checks to see
if correct
Seller recieves Remittance advice of Buyer sends

payment payment for
goods
Seller sends Receipt Buyer enters in
Cash book
1- Quotation  A document sent by the seller to the potential buyer detailing what is to
be supplied, when, where and at what unit price.

7 Limes Industrial
Estate,
Alfreton,
DE55 7JW.
Telephone:
01773832834
Fax: 01773832836
Quotation
Birmingham,
BM6 7CB 1 June 2XX5
Delivery within one day
of the order
Terms: Payment within
Signed: E Z Street.
90 days of invoice (Sales Manager)
2- Purchase Order  A business will issue a purchase order when it wants to buy
goods or services from another company (Supplier). The order will contain
 Name of the supplier
 Date of the order
 Details of the goods or service ordered
 Delivery date requied

Birmingham,
BM6 7CB.
Fax: 01773832836
Purchase Order
Alfreton,
DE55 7JW. 3 June 2XX5
Quantity Description Price per

Unit
21
5
Boxes of Cherries
Boxes of Apples
$40
$8
Delivery required on June 7
Signed: R. Lean.
(Purchases Manager)
3- Advice Note  a note that is sent by the seller to the buyer before the good or
service is sent. This is to make sure that the buyer is aware that the purchase order is
about to be dispatched.

Alfreton,
DE55 7JW.
Fax: 01773832836
Advice Note
Birmingham,
BM6 7CB 4 June 2XX5
Goods will be dispatched
on June 5.
Signed: E Z Street.
Please advise if goods are
(Sales Manager)
not received by June 7
4- Delivery (Dispatch) Note  When the supplier is ready to dispatch the order to
the buyer a delivery note is sent with the goods. The buyer will need to sign for the goods
once they have been received. The delivery business document will contain:
 Purchaser name and address
 Details of goods dispatched (sent)
 Quantity supplied
 Delivery address
 Date
 Signature for recipient (Buyer)

Alfreton,
DE55 7JW.
Fax: 01773832836
Delivery Note
Birmingham,
BM6 7CB
Quantity
21
Description
Boxes of Cherries
5 June 2XX5
Price per Unit
$40
Received by: R Lean. Date:5 June
5- Invoice  An invoice is a document that is sent by the seller whenever it sells goods
or services on credit. By law a credit sale is only realised once a receipt has been sent by
the seller. An invoice will contain the following information:
 Seller’s name & address
 Buyer’s name & address
 Date
 Date of delivery
 Description of goods and services required
 Details of trade discounts given
 Total amount owing
 Terms and conditions of any cash discounts that might be given

Alfreton,
DE55 7JW.
Fax: 01773832836
Invoice #001
Birmingham,
Total 1120
Less Trade Discount for 112
Bulk Buying 10%
payment
within 90 days
2- Cash discount 5%
if invoice is paid
before 17 June X5
6- Purchases Returns Debit Note  A note sent by the buyer (purchaser) to the
supplier if the goods are broke, damaged or not what was ordered.

Birmingham,
BM6 7CB.
Fax: 01773832836
Purchases Returns
Debit Note
Alfreton,
DE55 7JW.
11 June 2XX5
Goods returned as they
were damaged.
Signed: R. Lean.
(Purchases Manager)
144
7- Sales Returns Credit Note  Once the supplier has checked to see if the
goods returned are damaged, faulty or not ordered they will send the buyer a credit note
that will be deducted from their statement of account.

Alfreton,
DE55 7JW.
Sales Returns
Credit Note
Birmingham,
BM6 7CB.
Fax: 01773832836 15 June 2XX5
Goods returned accepted
as damaged.
Signed: E Z Street.
(Sales Manager)
144
8- Statement of Account  At the end of each month the seller will send the buyer
a statement of account that outlines how much is owed to the supplier.

Alfreton,
DE55 7JW.
Fax: 01773832836
Statement of
Account
Birmingham,
BM6 7CB
30 June 2XX5
Date Reference $ $ $
1 June 2XX5 Opening Balance b/d 540
10 June 2XX5 Invoice #001 1008 1548
www.igcseaccounts.com144
15 June 2XX5 Credit Note
Final amount due for
1404
3492
payment
Signed: E Z Street
(Sales Manager)
9- Remittance Advice  Once the cheque or transfer of money has been sent by the
buyer a remittance advice business document will be sent to the seller (supplier).

Alfreton,
DE55 7JW.
Fax: 01773832836
Remittance
Advice
Birmingham,
BM6 7CB
5 July 2XX5
10 June 2XX5 Invoice #001 1008 1548
www.igcseaccounts.com144
15 June 2XX5 Credit Note
Total Payment Sent
1404
3492
Signed: R Lean.
10- Receipt  Once the cheque or transfer of money has been received by the seller
(Supplier) a receipt will be sent to the seller.

Birmingham,
BM6 7CB.
Receipt
Alfreton,
DE55 7JW.
Telephone: 01773832834 10 July 2XX5
Fax: 01773832836
10 June 2XX5 Invoice #001 1008 1548
15 June 2XX5 Credit Note 144 1404
Total Payment Received 3492
Signed: E Z Street.

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Prepared by D.

 the purchase and sale of non-current (fixed assets) on credit

1- Purchase and sale on credit of fixed assets.

2- Writing off bad debts

Transactions causing an irregular balance in the Sales and Purchases Ledger

Dr Returns Outwards Account Cr

Dr Returns Inwards Account Cr

1/1/X0 Bal. b/d 200

1/1/X0 Bal. b/d 200

Form of control accounts

1- Sales Ledger Control Account

Dr Sales Ledger Control Account Cr

2- Purchases Ledger Control Account

Dr Purchases Ledger Control Account Cr

Information for control accounts

Purchases Ledger Control Source

Bank Reconciliation Statements

Unpresented Cheques, Bank Lodgements and Dishonoured Cheques

A Bank Reconciliation Statement

Obviously when an accountant pays or receives a cheque he/she will immediately

The credit and debit entries on a bank statement

Practical example of a Bank Reconciliation Statement

The Crystal Bank - Anytown Branch

Dr Cash Book (Bank Columns) Cr

Bank Reconciliation Statement as at the 30th September 1998

the expense is correctly recorded in the accounting system.

Petty cash voucher

 A unique voucher number

 Date the money is withdrawn

 Details of the transaction, include as much information as possible.

 Total amount that is withdrawn

 Make sure the voucher is authorised by the correct person

the change and receipt are returned.

Petty cash procedures

Three-column Cash Books and Discounts

 Discounts allowed  cash discounts allowed by a firm to its customers when

Dr B King Account (Debtor) Cr

Dr P Spiro Account (Creditor) Cr

Dr Discounts Allowed Account Cr

Dr Discounts Received Account Cr

Three-column Cash Book

1 June Bal.b/d 53 3095

Return Inwards (Sales Returns) Day Book

Enter in Enter in Enter in Enter in Purchases Enter in Enter in Enter in

1 Sales 2 General Ledger 3Purchases

3) General Ledger: To record everything all other non-personal accounts.

A - Debit Note  Sent by the customer to the seller.

Buyer:Villa Market Ltd,

Supplier: GLT Fruits Ltd,

Sales Returns Day Book

:Dr $ D Poole a/c Cr

Returns Outwards (Purchases Returns) Day Book

Enter in Enter in Enter in Enter in Purchases Enter in Enter in Enter in

1 Sales 2 General Ledger 3Purchases

3) General Ledger: To record everything all other non-personal accounts.

Purchases Returns (Returns Outwards) Day Book  A book of original

A - Debit Note  Sent by our firm to the supplier.

Buyer: GLT Fruits Ltd,

www.igcseaccounts.com 16 June 2XX5

Supplier: Apple Orchards,

Purchases Day Book

Enter in Enter in Enter in Enter in Purchases Enter in Enter in Enter in

1 Sales 2 General Ledger 3Purchases

3) General Ledger: To record everything all other non-personal accounts.