Books of Original Entry

The books of original entry consist of five Journals or Day Books and the Cash Book.

1. Sales Journal (Day Book) is used to record the credit sales of goods normally traded by the business. The information from the sales invoices is transferred to the sales day book. It is a list of all of your Accounts Receivables (Debtors).

2. Purchase Journal (Day Book) is used to record the credit purchases of goods normally traded by the business. The information from the purchases invoice is transferred to the purchases journal or day book. It is a list of the Accounts Payable (creditors).

3. Purchases Return Journal (Day Book) records all of the purchased returned to your suppliers. These may be returned for various reasons (wrong size, colour, damaged etc.). To indicated that goods were returned to the suppliers a debit note is used the information from the debit note is then transferred to the Purchased Return Day Book.

4. Sales Return Day Book records all your sales that have been returned to you by your customers. Your customer is issued a credit note to indicate what was returned and the allowance given for the return. This information is then transferred to the sales return day book.

5. The General Journal has several uses these include entries for the following

• opening entry - this is a list of assets, liabilities, and capital used to open a new set of accounting books
• the purchase and sale of fixed assets for cash and on credit
• writing-off bad debts
• the correction of errors
• the creation of provision for bad and doubtful debits
• the creation of provision for depreciation
• adjusting entries for accruals and prepayments
• closing entries
• unusual one-of-a-kind transactions

6. Cash Book records all the cash transactions of your business. This includes transactions paid for by cash or by cheque. It also records an allowance given or received as a cash discount.

The journals generally contain the following columns:
1. Date - day, month, year
2. Details/Particulars - account titles
3. Folio - this is a reference code showing the ledger page to which the entry will be posted. 
4. Amount - the net monetary amount shown invoice or other source on the document.

Table 2.1 (Holdip and Lamorell 2010)

Table 2.1 above shows the link between the books of original entry and the source documents. You can now have a further look at the links between the source documents and the books of original entry.

Purchase Order And Purchase Invoice

A purchase invoice is a document that is issued from a seller to a buyer. It is sent to the customer who has purchased a product or service. This can also be called a bill or a billing statement and it is generally a document that details the services that have been or will be provided (or the items purchased), quantity, price, and other details. By accepting an invoice, a buyer is basically making a contractual agreement to make the purchase.

A purchase order is a document that is issued from a buyer to a seller. A buyer who is interested in making a purchase of products or services sends the document to the seller. A purchase order will also detail the services or the items to be ordered or purchased, including the quantity, price and other details. A purchase order also serves as a contractual agreement. The buyer is agreeing to make the purchase, and the seller, upon accepting the purchase order, is agreeing to provide the goods or services according to the specifics in the purchase order.

After placing an order with the selected supplier, the supplier sends the purchasing firm a copy of the purchase invoice. This is then used to record the transaction in the Purchases Journal. The purchase invoice is then filed for future reference. The suppliers listed in the Purchases Journal are called creditors, because the business owes them money.

Sales Order and Sales Invoice

Sales orders indicate that the seller of the goods or services needs to take action (i.e., to complete the order). Usually this involves finding the product, packaging it, etc., or setting up a meeting so that services can be rendered.

Sales Invoices indicate that buyer needs to take action. This typically means that the buyer needs to compensate the business monetarily for the products or services received.

General Journal

The General Journal is one of the first books in which a transaction is recorded. In some cases, all transactions are first recorded in the General Journal. In larger firms, where other books or original entry are used, the General Journal is restricted to only recording specific kinds of transactions. The General Journal is used to record transactions which cannot be recorded in any other book of original entry, or unusual one -time transactions. The process of entering transaction in the General Journal is called journalising.

A Narrative is a brief description of an entry in the journal.
The journals generally contain the following columns:
1. Date - day, month, year
2. Details/Particulars - account titles
3. Folio - this is a reference code showing the ledger page to which the entry will be posted.
4. Debit – the monetary amount to be debited is shown,
5. Credit - the monetary amount to be credited is shown.

Cash Book

There are often several cash accounts because they serve different purposes. The Cash in Bank account represents the checking account that processes deposits, checks and memorandum items. The Cash Short and Over account is used to record any variance by sales clerks. The Cash on Hand Fund is used to provide change to conduct business with customers. The Petty Cash Fund is used to pay for small items with cash. Each of these cash accounts needs to be strictly controlled to prevent mishandling. The cash book replaces the need to have a separate cash account and cash at bank account since they both merged to form the cash book.

Worked Example

Topic Summary

In this topic, you studied source documents and the information contained and also the books of original entry their content and uses. You learned to identify different source documents and transfer the information from these source documents to the relevant books of original entry. 
Assignment