Chapter 5

BOOKS OF
ORIGINAL ENTRY
 Cash vs Credit Transactions
There are two ways to sell or purchase
goods:

1. by Cash - the customer pays right away by cash or

cheque;

2. on Credit - the customer pays later.

 Example

Maggie Jones went to buy a calculator from

Corts. The calculator costs $200 and she can
afford to pay for this right away.
 Cash Transaction

• In Maggie’s books the transaction is a cash purchase.

• In Cort’s books the transaction is a cash sale.

Customer pays Cash

right away Transaction
 Step 1

• Record the sale using the relevant paper. One copy goes to
the customer.

• The other will be used to make the entry in step 2 then kept
on file. We call this the "SOURCE DOCUMENT" stage.

• The SOURCE DOCUMENT is the piece of paper on which the

transaction is noted. In this case the specific name given to
the source document is a "RECEIPT" (also called a "Cash
Bill").
 Step 2

• The information on the receipt would be entered in a book

that only records cash coming in and cash going out.

• We call this the "JOURNALISING" stage. The JOURNAL is a

book (or location in a computer) that collects all the details
of many similar transactions.

• In this case the specific name given to the journal is a "CASH

BOOK" (also called a "Cash Journal")
 A Typical Cash Book
Cash Book
Discount
Discounts
Date Details Cash Bank Date Details s Cash Bank
      Allowed           Received    
      $ $ $       $ $ $

                     

Cash Cash

sale   purchase  
                       

                       

                       
 Example

Maggie Jones went to buy a flat screen

television from Corts. The TV costs $20 000 and
she cannot afford to pay for this right away.
 Credit Transaction

 In Maggie’s books the transaction is a credit

purchase.

 In Cort’s books the transaction is a credit sale.

Customer pays Credit

later Transaction
 Step 1

• Record the transaction using the relevant paper. One copy

goes to the customer.

• The other will be used to make the entry in step 2 then kept
on file. We call this the "SOURCE DOCUMENT" stage.

• The SOURCE DOCUMENT is the piece of paper on which the

transaction is noted. In this case the specific name given to
the source document is a "INVOICE" (also called a "Credit
Bill").
 Step 2
• The information on the receipt would be entered in a book
that only records credit transactions.

• In the case of the seller the specific name given to the

journal is a Sales Journal or Sales Day Book.

• In the case of the buyer the specific name given to the

journal is a Purchases Journal or Purchases Day Book.
 A Typical Day Book
(Sales, Purchases, Returns)
Sales, Purchases, or Returns Journal
Date Details Invoice/Credit Note #   Amount

    $

   

 
           
Transaction Type Source Document Journal

Cash purchases & Receipt Cash Book

sales
Credit purchases Invoice Purchases Journal

Credit sales Invoice Sales Journal

Return of goods by Credit Note Returns Outwards

us to suppliers Journal (Purchases
(Purchases Returns) Returns Journal)

Return of goods to Credit Note Returns Inwards

us by customers Journal (Sales
(Sales Returns) Returns Journal)