L3 - Books of Prime Entry & Trial Balance

The Principle of Accounting
L3 | Source Documents & Books of Prime / Original Entry

PRINCIPLES OF ACCOUNTING
Books of Prime Entry

• Books of prime entry are the first books in which the business transactions are
recorded throughout the accounting process.
• They are also known as books of original entry.
• Each transaction recorded must be supported by documentary evidence such as
invoices, receipts, cash register slips, cheques, etc.
Bank Rakyat School of Business & Entrepreneurship |

Journals
• The General Journal is used to record all transactions other than those in the special
journals (e.g. fixed assets)
• A Special Journal is used to record transactions of a similar nature such as credit
purchases of goods or credit sales. Special journals are created to reduce the number
(frequency) of entries in the General Journal.

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Journals
• The following special journals are usually used by a trading enterprise:
• Purchases journal
• Purchases returns journal
• Sales journal
• Sales returns journal
• Cash book
Note: These are heavily transacted items in a trading environment

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Invoices :
examples

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Purchases Journal – key points

• The Purchases Journal is used for recording credit purchases of merchandise.
• It excludes cash purchase (via cash book) and purchase of fixed assets (via general
journal).
• It is a one-line entry without any debit or credit i.e. “one sided” entry can be seen on
screen.
• It supplies information on transactions in chronological order of date.
• It facilitates cross-reference, e.g. tracing back the transaction and source document.
• It reduces detailed recordings in the Ledger.

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Credit Notes
• Credit notes are prepared by the seller (i.e. your creditor) to be sent to the buyers
(you) informing them that their accounts in the books of the seller have been credited
(debt has been reduced).
• It is used for goods returned or for amount overcharged (e.g. due to wrong unit price,
error in quantity billed).
• Goods bought on credit are returned for the following reasons:
• They are defective or damaged.
• They are not in accordance to specification, quality, size, type or brand name.
• They are empty bottles, cases or containers which are returnable.

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Credit Notes :
example

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Purchases Returns Journal – key points

• The Purchases Returns Journal is used to record returns of goods bought for resale.
• It also records overcharges (as a result of wrong unit price or wrong quantity billed by
the suppliers).
• It is a one-line entry without any debit or credit, i.e. visually seen as “one side” entry.
• It gives the date order for each transaction.
• It cuts down detailed recordings in the Ledger.
• It enables quick reference to the source of transactions.

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Example 1

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Example 1

Sales Journal
• The Sales Journal is used for recording credit sales of merchandise.
• It excludes cash sales and sales of fixed assets.
• It is a one-line entry without any debit or credit.
• It supplies information on credit sales in chronological order of date.
• It facilitates cross-reference.
• It reduces detailed recordings in the Ledger.

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Sales Journal: example

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Sales Returns Journal

• The Sales Returns Journal is used to record returns of goods by the customers.
• It is also used when the customers are overcharged.
• It is a one-line entry without any debit or credit.
• It gives the date order for each transaction.
• It reduces the volume of entries in the Ledger.
• It enables easy reference to the source of transactions.

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Sales Returns
Journal:
example

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Example 2

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Example 2

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Example 2

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Recording Transactions in the General Journal and Posting to the Ledger
• The General Journal is usually used to record the following transactions:

• Purchase and sale of fixed assets on account.
• Other transactions such as drawings, additional capital by the owner and services charged.
• Opening entry.
• Closing entry.
• Adjustments on balance day.
• Correction of errors.
• Any other transactions that cannot be recorded in the special journal

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Recording Transactions in the General Journal and Posting to the Ledger
Characteristics of GJ:
• -You have columns for date, particulars debit and credit for a
transaction.
• - A row for brief explanation of the transaction called narration.
• - It also acts as a book of “giving directives”. Accounts in ledger are
debited or credited according to the entries in GJ.
• -Unlike special journal, the source documents are varied, may be
from outside the business such as invoices or from within the business
such as inter-office memos.

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Purchase of Fixed Assets

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Owner Withdrew Goods for Personal Use (Drawings)

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Example 3

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Example 3

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• A Trial Balance is actually a list of debit and credit balances extracted from the
accounts in the Ledger.
• It is not an account and does not form part of the double-entry system.

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Purpose of Preparing a Trial Balance

• The main purpose is to check the arithmetic accuracy of the entries made in the
accounts and whether they adhere to the double-entry system.
• It also facilitates the preparation of the final accounts and Balance Sheet for the
business.

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Steps in Preparation of a Trial Balance

1. Add up the total on the two sides of the ledger accounts.
2. Determine the amount and type of balance in the ledger account (can be debit or
credit).
3. List all debit balances on one side (column) and all credit balances on another side
(column).
4. Add up the debits and the credits – the sum of the two sides should be equal.

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• Example

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• When drawing up a Trial Balance, special attention should be given to the following:
• The business name is written at the top.
• The date has to be stated after the heading “Trial Balance as at …”.
• Accounts without any balance need not be shown in the Trial Balance.

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Prepares a Trial Balance from the following: $ PRINCIPLES OF ACCOUNTING
Purchases 53,400
Practice 1 Sales 68,500
Drawings 3,000
Purchases returns / Returns outward 400
Sales returns / Returns inwards 300
Discount received 600
Discount allowed 750
Commission received 1,370
Rental expenses 4,800
Wages 10,800
General expenses 2,900
Duty on purchases 1,350
Stationery 800
Debtors 11,300
Creditors 13,000
Motor vehicles 20,000
Office equipment 10,500
Carriage inwards 2,600
Carriage outwards 1,650
Bank 4,550
Capital 56,000
Opening stock 11,170

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L3 - Books of Prime Entry & Trial Balance

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The Principle of Accounting

L3 | Source Documents & Books of Prime / Original Entry

Books of Prime Entry

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Note: These are heavily transacted items in a trading environment

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Purchases Journal – key points

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Purchases Returns Journal – key points

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Sales Journal: example

Bank Rakyat School of Business & Entrepreneurship |

Sales Returns Journal

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Recording Transactions in the General Journal and Posting to the Ledger

• The General Journal is usually used to record the following transactions:

Bank Rakyat School of Business & Entrepreneurship |

Recording Transactions in the General Journal and Posting to the Ledger

Bank Rakyat School of Business & Entrepreneurship |

Purchase of Fixed Assets

Bank Rakyat School of Business & Entrepreneurship |

Owner Withdrew Goods for Personal Use (Drawings)

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

Purpose of Preparing a Trial Balance

Bank Rakyat School of Business & Entrepreneurship |

Steps in Preparation of a Trial Balance

Bank Rakyat School of Business & Entrepreneurship |

Steps in Preparation of a Trial Balance

Bank Rakyat School of Business & Entrepreneurship |

Steps in Preparation of a Trial Balance

Bank Rakyat School of Business & Entrepreneurship |

Steps in Preparation of a Trial Balance

Bank Rakyat School of Business & Entrepreneurship |

Steps in Preparation of a Trial Balance

Bank Rakyat School of Business & Entrepreneurship |

Steps in Preparation of a Trial Balance

Bank Rakyat School of Business & Entrepreneurship |

Steps in Preparation of a Trial Balance

Bank Rakyat School of Business & Entrepreneurship |

Steps in Preparation of a Trial Balance

Bank Rakyat School of Business & Entrepreneurship |

Steps in Preparation of a Trial Balance

Bank Rakyat School of Business & Entrepreneurship |

Bank Rakyat School of Business & Entrepreneurship |

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