topic 5 book of prime entry + source documents

• Books of prime entry - records a list of each invoice issued or received and they only show basic information such as the date, name of supplier/customer, invoice number and amount
• Sales day book (SDB) - records all the invoices issued to customers for goods sold on credit, this is a source document which will be sent to customer and business will keep a copy to make SDB
• Sales returns day book (SRDB) - when a customer returns goods to the business, the business will issue a credit note to the customer and a copy will be kept to make SRDB
• Purchases day book (PDB) - to record all credit invoices for goods bought for resale
• Purchases returns day book (PRDB) - if we return goods to a supplier
• Businesses have different invoice/credit note numbers so the entry (invoice) will look different for every business
• Till receipts, cheque, counterfoils, paying in slips and bank statements (receipts and payments) are entered in the cash book
• Miscellaneous (other items) are entered in the journal
• Cash book is used for transactions which do not take place on credit and are paid for at the time, the entry is made straight in the cash book
• The cash book is both a book of prime entry and a a ledger
• The journal is used to record anything which does not go in the other books of original entry and it shows the Dr and Cr entries
• A summary:

  • one purpose of accounting is the sorting and classifying of transactions
  • source documents provide evidence of different types of financial transactions
  • info from source documents is first entered in one of the six books of original entry
  • totals from the books of original entry are posted to the relevant accounts in the general ledger
  • info relating to individual customers is posted to their personal accounts in the sales ledger
  • info relating to individual suppliers is posted to their personal accounts in the purchases ledger
• Explain the process of recording a sale made on credit - Individual customer invoices are entered in the SDB over a certain period which is then totalled. That total is then entered in the sales account of the general ledger as a single entry but for the customers accounts entries will be entered with each invoice amount
• Explain the process of recording a purchase made on credit - Individual purchase invoices are entered in the PDB over a certain period which is then totalled. This total is then entered in the purchase account in the general ledger as a single entry. For the suppliers accounts each invoice will be recorded individually with each invoice amount
• Explain the similarities and differences between a cash book and a journal:

  Similarities:

  • both books are of original entry
  • each has a debit and credit column

  Differences:

  • cash book is also a ledger account but a journal is not
  • cash book deals with cash transactions but journal deals with credit transactions