Books of Original Entry - Day Books / Prime Books

There are several books of original entries known as day books or prime books.  Some of them are:
  1. Sales Day Book / Sales Journal - goods sold on credit
  2. Purchases Day Book / Purchases Journal - goods bought on credit
  3. Sales Returns Journal - goods returned in
  4. Purchases Returns Journal - good returned out
  5. The Cash Book - cash or cheque transactions
  6. Petty Cash Book - small cash payments
  7. The General Journal - all other transactions
Examples:
  • Paid electricity by cheque - Cash Book
  • Cash sales - Cash Book
  • Bought goods on credit - Purchases Journal
  • Customer return goods to the business - Sales Returns Journal
  • Bought a motor vehicle on credit - The General Journal
  • Paid for postage expenses - Petty Cash Book
  • Returned goods to the supplier - Purchase Returns Journal


Sales Day Book (Sales Journal)
This journal will list down all the daily transactions involving goods sold on credit.

NOTE: The source document would be Sales Invoice issued.

Any trade discount applicable should be deducted from the list price and the actual amount should be recorded as sales.  Subtract discount before entering it, but writing it like (sales - discount) next to the name.


Purchases Day Book (Purchases Journal)
This journal list down all the goods bought on credit on a daily basis.

NOTE: The source document would be Purchases Invoice received.

Any trade discount applicable should be deducted from the list price and the actual purchase should be recorded as purchases. Subtract discount before entering it, but writing it like (purchases- discount) next to the name.


Sales Returns Journal
This journal will record goods returned in by the credit customers on a daily basis.  Any trade discount applicable should be deducted from the list price.  Sales Returns are reduction in sales and are thus debited.

NOTE: The source document would be Credit Notes issued to customers.


Purchases Returns Journal
This journal will record goods returned out to suppliers on a daily basis.  Any trade discount applicable should be deducted from the list price.  Purchase Returns are reduction in purchases and are thus credited.

NOTE: The source document would be Credit Notes received from suppliers.


Trade Discounts
Sometimes, when customers buy goods in quantities or on a regular basis, the supplier will offer them a trade discount.  Therefore, customer is able to purchase goods a cheaper price.  This is done to encourage customers loyalty and also as an incentive to buy more.

However, if a trade discount is applicable, it will be deduced from the list price and the actual will be recorded.

NOTE: Trade Discounts are not shown in the ledger accounts.


The Cash Book
The Cash Book is used to record any cash or cheque transactions.  Unlike other day books, the Cash Book is prepared following the ledger format.
  • Cash or cheques received will be shown on the debit side.
  • Cash or cheques paid will be shown on the credit side.

NOTE:
  • The source document for Cash transactions would be Receipts.
  • The source document for Cheque Payments would be Cheque Counterfoil.
  • The source document for Cheque Receipts would be Cheque Paying Slip.

Three-Column Cash Book
Cash Discounts are given to credit customers to encourage them to pay their debts early, within a specified time period (eg. within 7 days).

Cash Discounts given to customers or received from suppliers are first recorded in the three-column Cash Book before the ledger accounts.


Cash Discount
  • Discount Allowed: this is which the business gives to Customers (Debtors), who pay on time or early.  It's an Expense (Debit).
  • Discount Received: this is which the business receives from Suppliers (Creditors), when paid on time or early.  It's an Income (Credit).

Petty Cash Book
The Petty Cash Book is used to maintain small cash payments.  Such payments are kept separate.  Therefore, not mixing it up with the more important receipts and payments normally recorded in the Cash Book.

A Petty Cash operates on an Imprest System, where the main cashier will give a certain limit of money for the petty cashier to manage with for the entire month.  This amount of money is called the Imprest or the Float.  At the end of the month, the Petty Cashier will need to ask the Main Cashier to reimburse with the amount spent during the month.

Example:
If the Float is £100, and the Petty Cashier has spent £85 during the month, the Main Cashier will reimburse the £85 spent to make it Float £100 again.

NOTE: The source document that has to be issued by the Petty Cashier for any cash requested would be Petty Cash Voucher.