Books of Original Entry

BOOKS OF ORIGINAL ENTRIES
To simplify the bookkeeping process the accounting system is divided into different types
of accounts. Accounts are grouped into
1. Personal
2. Impersonal accounts
• Real accounts
• Nominal accounts.
Personal Accounts
Personal accounts always represent an individual or an organization. Examples of personal

accounts are trade receivables and trade payables.
Trade receivables relate to individual or organization to which the business sold goods on
credit. They are the credit customers of the business.
Trade payables relate to a person or business from which the business bought goods on
credit. They are the credit suppliers of goods of the business.
Impersonal Accounts
Impersonal accounts are divided into real and nominal accounts.
Real Accounts
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.
Nominal Accounts
Nominal accounts include all income and expenditure accounts in an income statement.
Nominal accounts are always temporary accounts as they only last for an accounting
period. At the end of the financial year, the balances of nominal accounts are transferred
to the income statement.
Types of ledger
A ledger is a book where accounts are maintained in a summarized way for users to
understand. A ledger forms part of the recording of all business transactions. There are 3
different types of ledgers
• Sales ledger
• Purchase ledger
• General ledger.
Sales Ledger
It is a grouping of all accounts related to customers to whom goods have been sold on
credit by the business. It is used to record the accounts of credit customers (Trade
Receivables) only.
Purchases Ledger
It is a grouping of all accounts related to suppliers from which goods have been purchased
on credit by the business. It is used to record the accounts of credit suppliers (Trade
Payables) only.
General Ledger
A general ledger is a centralized compilation for all the ledger accounts of a business. It is
used to record real and nominal accounts. It contains all types of accounts which can be
found in an organization such as assets, liabilities, capital, revenue and expenses.
Advantages of dividing the ledger into 3 sections
1. Work can be shared between several people.

2. Easier for reference as same type of accounts are kept together.
3. It is easier to locate errors
Books of original entry
The ledger accounts of a business are the main source of information used to prepare the
financial statements. However, if a business were to update their ledgers each time a
transaction occurred, the ledger accounts would quickly become cluttered and errors might
be made. This would also be a very time consuming process. To avoid this complication, all
transactions are initially recorded in a book of prime entry and then posted to ledger. Books
of prime entry are also known as subsidiary books or books of original entries. The main
books of prime entry are:
Book of original entry Transaction type
Cash book Record cash and bank transactions
Sales day book / Sales Journal Record credit sales
Purchases day book / Purchases Journal Record credit purchases
Sales returns day book / Sales return Journal Record returns of goods sold on credit
Purchases returns day book / Purchases return

Record returns of goods bought on credit
Journal
The journal All transactions not recorded elsewhere
Source Documents
A source document is an original record which contains the detail that supports or substantiates a
transaction that will be (or has been) entered in an accounting system. A source document is evidence
that a transaction or event took place in the business. The main source documents are:
Sales Invoice
A sales invoice is a source document issued to credit customers showing full details of goods sold to
them. It may include: Name and address of customer, description of goods, no of units, unit price and
any trade discount.
Purchases invoice
A purchase invoice is a document received from suppliers showing full details of goods purchased
from them. It is an evidence of goods purchased from supplier. It may include: Details of supplier,
description and price of goods purchased and discount received from supplier.
Credit note issued
A customer may return goods to the trader if it is found to be damaged or of wrong order. A credit
note is a document issued to customers showing full details of goods returned by them. It is an
evidence of sales return by customers.
Credit note received
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.
Debit note
A debit note is a document sent to by the customer to a supplier asking for allowance for unsatisfactory
good (reduction of the amount due). It may also be sent to the business to inform of any misstatements/
errors or shortages/overcharges made in his/her account.
Cheque counterfoil
Where cheques are used by a business to make payments, cheque counterfoils serve as the source
documents to make entries in cash book. A cheque counterfoil is the part of the cheque kept by the
drawer as a record of the transaction. It is evidence or a record that the cheque was written and the
payment was made
Statement of Account
At the end of each month the trader will send a statement of account to its customers showing them
the amount due. It is simply a summary of the customer’s transactions clearly showing sales, returns,
receipts and balance due at end.
Receipt
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.
Payslip
This is a legal document sent by the business to its employees showing them their Gross pay,
deductions / Tax and net pay during a particular period. It is a proof that wages and salaries have been
paid to employees.
Bank Statement
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.

Books of Original Entry

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BOOKS OF ORIGINAL ENTRIES

Personal accounts always represent an individual or an organization. Examples of personal

Impersonal accounts are divided into real and nominal accounts.

Advantages of dividing the ledger into 3 sections

1. Work can be shared between several people.

Book of original entry Transaction type

Cash book Record cash and bank transactions

Sales day book / Sales Journal Record credit sales

Purchases day book / Purchases Journal Record credit purchases

Purchases returns day book / Purchases return

The journal All transactions not recorded elsewhere

Credit note received

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