Bookkeeping basics
Books of prime entry and the journal
Document → book of prime entry → general ledger.
Draft: not yet reviewed by a teacher
Why it exists
Posting every invoice straight to the general ledger would be slow and error-prone. Books of prime entry collect similar transactions, and only their totals go to the ledger. The journal handles everything else: corrections, adjustments and unusual transactions.
Key rules
- The sales day book lists invoices to customers; the purchases day book lists suppliers' invoices; the returns day books list credit notes.
- The cash book records receipts into and payments out of the bank; often it is also the bank account in the general ledger.
- Petty cash records small cash spending; under the imprest system the float is topped up by exactly the amount spent.
- The journal is for what no other book takes: error corrections, accruals, depreciation, closing entries.
- A journal entry shows the date, the accounts and amounts (debits first), equal totals and a narrative.
Examples
A tea wholesaler's sales day book for one week: 2,400 + 5,150 + 1,850 = 9,400.
- Dr Receivables 9,400
- Cr Sales 9,400
The three amounts also go to the three customers' accounts in the receivables ledger.
A petty cash imprest of 300. Vouchers for the month total 214, and 86 is left in the tin.
- Top-up: 300 − 86 = 214
- Dr the expense accounts 214, Cr Bank 214
After the top-up the float is 300 again.
How it works
The sales day book total for the period is posted in one entry: Dr Receivables (the control account), Cr Sales. Each invoice is also posted to the customer's own account in the receivables ledger, which is a memorandum record, not part of the double entry.
A book of prime entry is not itself double entry; the double entry happens when its totals are posted to the general ledger.
Traps
Taught in the course
- Debit, credit and why there are twoFA 1 · Double entry and the accounting equation
- June in the accountsFA 1 · Double entry and the accounting equation
- Day books, ledgers and the petty cash tinFA 2 · Documents, systems, sales tax and discounts
- The sales tax accountFA 2 · Documents, systems, sales tax and discounts
- Clearing suspense to nilFA 10 · The trial balance, errors and the suspense account