Intermediate-Books of original entry and their importance in book keeping

The main part of this
will be retained by the bank and the counterfoil duly stamped and signed by the
banker is returned to the customer. The individual receivable and payable accounts must also be updated to reflect this. The following are the books of original entry that are mainly used by businesses. The situation may arise where a customer is also a supplier.Instead of both owing each other money, it may be agreed that thebalances are contra’d, i.e. cancelled.

Jones prepares monthly Receivables and Payables ledger controlaccounts. At 1 November 2005 the following balances existed in thecompany’s records. In a typical business there will be a great number of transactions to be recorded. If we were to record each transaction individually, straight into the accounts, they would get cluttered.

  1. The following are the books of original entry that are mainly used by businesses.
  2. Again, as with the SDB, the more the suppliers the business has and the more credit purchases there will be further columns included for coding to help identification of the transaction and supplier.
  3. They can also be opened using other word processing software such as Google Docs, Open Office, Libra Office though the formatting of the files may be affected.
  4. While, if a business is required to update their ledgers then each time a transaction occurs, the ledger accounts would quickly become clustered and chances of errors might be made.

Referring to the example above of credit sales journal entry, at the end of the day, the journal entries are posted to the
subsidiary receivable account ledgers. A note of cash discounts given and received is also recorded in the cash book. This is to facilitate the recording of discounts in both the general and accounts payable/receivable ledgers. If a business is registered for sales tax, the sales and purchases day books must include entries to record the tax.

Understanding debits and credits is essential for bookkeeping and analysis of balance sheets. Whenever an accounting transaction happens, a minimum of two accounts is always impacted, with a debit entry being recorded against one account and a credit entry being recorded against another account. There is no upper limit to the number of accounts involved in a transaction but the minimum cannot be less than two accounts.

Chapter: 11th Accountancy : Chapter 3 : Books of Prime Entry

Real accounts include accounts in the statement of financial position such as assets, liabilities and equity. These are considered permanent accounts because they are not closed at the end of each accounting period. An example of a real account is non-current assets such as equipment account. Books of prime entry OR books of original entry are books where transactions are first recorded. Once the source records have been collated, there needs to be a way to summarise the information contained in them so that essential information is noted down and ready for the next step in the accounting process. Entries must also be made to Mr A, Mr B and Mr C’s individualaccounts in the accounts payable ledger in order to reflect the paymentsmade and discounts received.

This is issued by the bank to the trader each month showing cheques deposited and withdrawn during the month. The bank statement is used to reconcile any difference in the cash book of the business. A receipt is a source document to record cash received by a business. It indicates the date the payment was received, the name of the person or business from whom the payment was received, and the amount of the payment. Examples of personal accounts are trade receivables and trade payables.

(iii) Debit note

It is a
document that shows the date, amount and details of cash purchases and cash
sales or other cash transactions. Business persons receive cash receipt for
cash purchases and issue cash receipt for cash sales. The total purchases for the day of $8,615 will be entered into the accounting ledgers in double entry format.

6 Petty Cash Book

For really large businesses a person or team may be assigned to one book in particular. For example the purchase day book may be updated by a purchase ledger team whose job it is to record every invoices that is issued to the business. Individual returns posted as debits to individual suppliers accounts in accounts payable ledger. Both the SDB and the PDB are lists, the totals of which are used to perform the accounting entry – which is part of the double entry bookkeeping process, which we will cover next week.

Debits increase asset or expense accounts and decrease liability or equity.There is no upper limit to the number of accounts involved in a transaction – but the minimum is no less than two accounts. Thus, the use of debits and credits in a two-column books of prime entry and their source documents transaction recording format is the most essential of all controls over accounting accuracy. If you fail to make a journal entry or record a financial transaction in an incorrect account, it will not show up as an error in the trial balance.

Similarly goods may be returned to suppliers by the trader if it is damage. A credit note will be received by suppliers to show details of goods returned to them. A credit note received is an evidence of purchases return to suppliers.

(vi) Cheque

They can also be opened using other word processing software such as Google Docs, Open Office, Libra Office though the formatting of the files may be affected. Trade payables relate to a person or business from which the business bought goods on credit. To avoid any problems, the transactions are initially documented in a prime entry book. NB Igor must also remember to update V Shady’s individual account in the accounts receivable ledger. In order to simplify the process (and exercise greater control) we divide the recording of the transactions into parts. (4) On the last day of the year Igorbought two new sofas for cash for the bar area of the restaurant.

In level two tutorial series, we further consider a case where by the buyer has bought goods from several suppliers hence he/she has received invoices (incoming) from each seller. Therefore, the following is a demonstration of the link between the respective source document and the book of original entry that is prepared after a certain period of time. For each open ledger account, total your debits and credits for the accounting period for which you are running the trial balance. If the debits and credits do not equal, then there is an error in the general ledger accounts.

If a business buys raw material by paying cash, it will lead to an increase in the inventory (asset) while reducing cash capital (another asset). In this case, we will assume that the goods were bought from different suppliers (ie U limited is sundry creditors). That is, the transactions between Our Co. ltd and U ltd where made up of four creditors, namely; U-1, U-2, U-3 and U-4 and the details of the goods bought from each creditor is shown in the respective source document.

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