Books of prime entry (or original entry) serve as the initial record for business transactions before they are processed within the double-entry system.
Definition and Nature
A book of prime entry is a book used to list all transactions of a similar nature before they are posted to the ledger. They are sometimes referred to as books of first entry or books of original entry.
Key Relationship to Double-Entry Bookkeeping:
It is crucial to understand that, generally, books of prime entry are outside the double-entry model and are explicitly stated as not part of double-entry bookkeeping.
The notable exception to this rule is the cash book, which is the only book of prime entry that is also part of the double-entry model. The cash book has both a debit and a credit side, unlike the other journals where transactions are simply listed and totalled. However, the discount columns within the cash book are considered memorandum columns only and are specifically noted as not part of the double-entry model.
Types of Books of Prime Entry and Their Uses
The sources identify the following main books of prime entry and their respective uses:
|
Book of Prime Entry |
Use |
|
Sales journal (or sales day book) |
To record all sales made on credit. Entries are made from copies of invoices sent to customers. |
|
Sales returns journal (or returns inwards journal) |
To record all goods returned from credit customers, prepared from copies of credit notes sent to customers. |
|
Purchases journal (or purchases day book) |
To record all purchases made on credit of goods bought for resale, entered from suppliers’ invoices. |
|
Purchases return journal (or returns outwards journal) |
To record all goods returned to suppliers, prepared from credit notes received from suppliers. |
|
Cash book |
To record all cash and bank transactions, including money received or paid out in cash or by cheque. It is also the book of prime entry for cash discounts. |
|
Journal (or general journal) |
To record all transactions for which there is no other book of prime entry; these are often of a special nature. |
The General Journal is considered a "book of instructions," telling the bookkeeper which account in the ledger to debit and which to credit, and includes a narrative (explanation) for the entry.
Posting from Books of Prime Entry to Ledger Accounts
The process of posting transactions from the books of prime entry to the general ledger is systematic and provides efficiency:
- Individual Posting: Each item in the sales, sales returns, purchases, or purchases returns journals is posted individually to the relevant supplier's or customer's account in the ledger.
- Total Posting: You should not post the individual items to the main Purchases, Sales, or Returns accounts. Instead, the periodic total of each respective journal (sales journal total, purchases journal total, etc.) is posted to the appropriate central account in the ledger.
This approach significantly reduces the number of entries needed in the central accounts (Sales, Purchases, etc.).
Important Rules for Entering Transactions:
- Trade Discounts: Invoices and credit notes are always entered into the books of prime entry net of trade discount.
- Cash/Settlement Discounts: Cash or settlement discounts are never recorded in the sales journal (or purchases journal). They are recorded in the specific columns provided within the cash book.
- General Journal Rule: Postings from the General Journal should always be to named accounts in the ledgers, never to other books of prime entry.
Advantages of Using Books of Prime Entry
The use of books of prime entry offers several benefits to the accounting system:
- Reduced Entries: They substantially cut down on the number of entries required in ledger accounts by allowing the posting of periodic totals for common transactions (like sales and purchases).
- Error Tracking: Since transactions of a similar type are grouped, if an error occurs in posting to the ledger, it is easier to track it back to the appropriate book of prime entry.
- Division of Work/Internal Control: Using a cash book (which replaces the cash and bank accounts in the ledger) allows the work to be divided among several employees, potentially assigning one person specifically to write up the cash book. This separation of duties is a form of internal control which helps in preventing fraud and locating errors more easily.
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