Books of Prime Entry

1.1 Introduction

In a typical business there will be a great number of transactions to be recorded. If we were to record each transaction individually, the accounts would get cluttered.

In order to simplify the process (and exercise greater control) we divide the recording of the transactions into parts.

(a)     The first part is entering the transaction into the appropriate book of prime entry (day book).

(b)     The second part is recording the totals from the day books into the general ledger which contains many different ledger accounts.

(c)     The third part is to ensure transactions are recorded in the subsidiary ledger which may also be referred to as a memorandum ledger.

A book of prime entry is the place where the transaction (which is detailed on a business document) is first recorded in the books of the business. Whilst reviewing the day books take note of the use of codes throughout. There are several day books which will be reviewed in this chapter:

The Sales Daybook

2.1 – The sales daybook (SDB)

In a typical business there will be numerous sales transactions to be recorded. Credit sales are recorded in the sales daybook. We will review how cash sales are recorded when we study the cash book.

Definitions

Sales Daybook
The sales daybook is a list of the sales invoices that are to be processed for a given period (e.g. a week).

In its simplest form, the SDB will comprise just the names of the customers and the amount of the invoices issued in a particular week.

The SDB is a list, the totals of which are used to perform the accounting entry. Double entry bookkeeping is introduced in chapters 3 & 4.

An example of a SDB is shown below:

Week 1
Customer
Total
£
VAT
£
Net
£
X
1,200
200
1,000
Y
2,400
400
2,000
Z
3,600
600
3,000
Total
7,200
1,200
6,000
2.2 – The analysed sales day book

The sales daybook usually includes analysis columns showing how the total value of each customer’s invoice is made up.

Sales Daybook
Date Customer Reference Invoice Number Total

£

VAT

£

Product 1

£

Product 2

£

Product 3

£

Product

4

Totals
  1. The date column contains the date of the transaction
  2. The customer column contains the name of the customer
  3. The reference column may contain the code number of the customer’s account
  4. The invoice number is the number of the invoice issued for this sale.
  5. The total column is the total value including VAT of the goods sold as shown on the invoice (after deducting any trade or bulk discounts that may have been given).
  6. The VAT column – this column is the value of the VAT on the invoice – in this case (example 1) £16.00.
  7. Product 1, 2, etc. columns – these are columns that analyse the net sales value (i.e. the VAT exclusive amounts) into groupings that are of interest or use to the business. The columns may be categorised by product codes.In this introductory section we shall not complicate things by considering more than one type of product so that there will only be one column for sales.In this case (example 1) the entry in the sales column would be £80, the net amount after the deduction of the trade discount.
  8. The total boxes – at the end of a period (say a week or a month) the sales day book is totalled and the total values of each column are included in the total boxes. It is these totals which are used for the accounting entry.

The sales daybook would look as follows for example:

2.3 – Casting and cross casting

Casting is the way we refer to adding a vertical column of figures and cross-casting is the way we refer to adding a horizontal row of figures.

It is worth very briefly doing a simple example of this just to show how a valuable check of the accuracy of your additions is provided by these two operations.

The Sales Returns Daybook

3.1 – The sales returns day book (SRDB)

Sales returns are in practice entered in a ‘sales returns day book’. This is similar to the sales day book, and the columns are used in the same way.

The only difference is that instead of having a column for the invoice number, there is a column for the ‘credit note number’. This is because when the goods are returned to the business it will issue a credit note to the customer.

Definitions

Sales Return Daybook
The sales returns day book is a list of the credit notes that are to be processed for a given period (e.g. a week).

3.2 – Sales returns in sales daybook

In some businesses the level of sales returns are fairly low and therefore it does not justify keeping a separate sales returns daybook. In these cases any credit notes that are issued for sales returns are recorded as negative amounts in the sales day book.

          Test your understanding 1
You work in the accounts department of D F Engineering and one of your tasks is to write up the day books. In your organisation there is no separate sales returns daybook and therefore any credit notes are entered as negative amounts in the sales daybook.
Given below are the details of the sales invoices and credit notes that have been issued this week. D F Engineering does not offer any discounts. The business is registered for VAT and all sales are for standard rated goods (at 20%).
Invoices sent out:
Code
£
Invoice number
20X1
1 May
Fraser & Co
SL14
128.68 plus VAT
03466
Letterhead Ltd
SL03
257.90 plus VAT
03467
2 May
Jeliteen Traders
SL15
96.58 plus VAT
03468
3 May
Harper Bros
SL22
268.15 plus VAT
03469
Juniper Ltd
SL17
105.38 plus VAT
03470
4 May
H G Frank
SL30
294.67 plus VAT
03471
5 May
Keller Assocs
SL07
110.58 plus VAT
03472
Credit notes sent out:
Code
£
Credit note number
20X1
2 May
Garner & Co
SL12
68.70 plus VAT
0746
4 May
Hill Traders
SL26
117.68 plus VAT
0747
Required:
Write up the sales daybook given for the week ending 5 May 20X1 and total all of the columns.
Your teacher will provide you with a template.  Alternatively you can create your own, which will help you to memorise the layout.  Copy the template above and the headings below.  You can check your answer is correct by entering some of your figures in Test Your Understanding 2 located in the quiz at the end of this lesson.
Your teacher will have a copy of the complete answer.
Date
Invoice no
Customer name
Code
Total            £
VAT               £
Net        £

Purchase Daybook

4.1 – The purchases daybook (PDB)

As seen earlier in the chapter, credit sales are recorded in the ‘sales daybook’. In the case of credit purchases, we have the ‘purchases daybook’.

Definitions

Purchase Daybook
The purchases daybook is a list of the purchases invoices that are to be processed for a given period (e.g. a week).

In its simplest form, the purchases daybook will comprise just the names of the suppliers and the amount of the invoices received in the week.

The PDB is a list, the totals of which are used to perform the accounting entry. Double entry bookkeeping is studied later in this text.

A purchases daybook will look something like this:

Week 1
Supplier
Total
£
VAT
£
Net
£
A
3,600
600
3,000
B
2,400
400
2,000
C
1,200
200
1,000
Total
7,200
1,200
6,000
4.2 – The analysed purchases day book

The purchases daybook usually includes ‘analysis columns’ showing how the total value of each supplier’s invoice is made up.

  1. The date column contains the date of the transaction.
  2. The supplier column contains the name of the supplier.
  3. The reference column may contain the code number of the supplier’s account.
  4. The invoice number is the number of the invoice from the supplier.
  5. The total column is the value of the goods purchased including VAT (after deducting any trade/bulk discount that may have been given).
  6. The VAT column – this column is the value of the VAT on the invoice.
  7. Product 1, 2, etc. columns – these are columns that analyse the net purchases value (i.e. the VAT exclusive amounts) into groupings that are of interest or use to the business. The columns may be categorised by product codes.
  8. The total boxes – at the end of a period (say a week or a month) the purchases daybook is totalled and the total values of each column are included in the total boxes. It is these totals which are used for the accounting entry.

Purchase Returns Daybook

5.1 – The purchases returns daybook (PRDB)

Purchases returns are in practice entered in a ‘purchases returns daybook’. This is similar to the purchases daybook, and the columns are used in the same way.

The only difference is that instead of having a column for the invoice number, there is a column for the ‘credit note number’.

Definitions

Purchase Returns Daybook
The purchases returns daybook is a list of the credit notes that have been received from suppliers for a given period (e.g. a week).

5.2 – Purchases returns in purchases day book

In some businesses the level of purchases returns are fairly low and therefore it does not justify keeping a separate purchases returns daybook. In these cases any credit notes that are received for purchases returns are recorded as negative amounts in the purchases daybook.

If this is the case then you will be told that this is the policy of the business. Care should be taken, however, when adding up the columns in the purchases daybook as any credit notes must be deducted rather than added.

          Test your understanding 2
Stevens Ltd operates an analysed purchases daybook, analysing purchases by the geographical area from which the purchases are made. The areas concerned are:
Zone 1                London region
Zone 2                Scotland region
Zone 3                Other UK
The company is registered for VAT.
Today’s date is 14 September 20X2. The company has received the following invoices from suppliers in the post today:
Supplier
Region
Amount net of VAT £
VAT
£
Bradley Ltd
London
210.00
42.00
Hannah Ltd
Wales
470.20
94.04
Spearritt Ltd
London
402.00
80.40
Lee Ltd
Scotland
1,076.00
215.20
O’Meara Ltd
Northern Ireland
317.60
63.52
Cattermole Ltd
Scotland
62.44
12.48
Barrett Ltd
London
107.80
21.56
Required:
Write up the purchase daybook given for the week ending 5 May 20X1 and total all of the columns.
Your teacher will provide you with a template.  Alternatively you can create your own, which will help you to memorise the layout.  Copy the template above and the headings below.  You can check your answer is correct by entering some of your figures in Test Your Understanding 2 located in the quiz at the end of this lesson.
Your teacher will have a copy of the complete answer.
Date
Supplier
Total
£
VAT
£
Zone 1
£
Zone 2
£
Zone 3
£

The Cash Book

6.1 – The cash book (CB)

There are various forms of cash book, a ‘two-column’ and a ‘three-column’ cash book. Bookkeeping Transactions requires you to be able to post transactions into a two-column analysed cash book. You may hear about a three-column cash book – this is not within the Bookkeeping Transactions assessment criteria.

The difference between a two-column cash book and a three-column cash book is that a three-column cash book incorporates discount columns. As part of Bookkeeping Transactions you deal with discounts in their own day books – the discounts allowed and discounts received day books, which are introduced later.

Definitions

The Cash Book
A cash book is a record of cash receipts and payments that can form part of the double entry bookkeeping system as well as being a book of prime entry.

6.2 – Two column cash book

A proforma two column cash book is shown below.

Notes:

(a)     The left hand side of the cash book records money received.

(b)     The right hand side of the cash book records money paid out.

(c)     The date column contains the date of the transaction.

(d)     The narrative column describes the transactions – typically the name of the customer who is paying or supplier who is receiving money. It would also contain the sales ledger or purchase ledger code of the credit customer (receivable) or credit supplier (payable).

(e)     The cash column on the left hand side (debit side) represents cash received, whereas the cash column on the right hand side (credit side) represents cash paid.

(f)      The bank column on the left hand side (debit side) represents money received (by cheque or other bank payment) whereas the bank column on the right hand side (credit side) represents money paid (by cheque or other bank payment).

A business may operate a bank current account as a means to settle business transactions. Receipts may be made automatically, in the form of a cheque or cash may be deposited into the current account. Payments may be made by drawing a cheque against the current account or by an automated payment.

To be able to record these bank specific transactions, a separate column must be introduced to the cash book to account for them. This is what leads to the use of a two-column cash book; a column for cash transactions and a column for transactions made through the bank current account. Each column represents a separate account, cash account and bank account, each with its own double entry as will be shown later in the text.

The cash book may be split into two separate books – the cash receipts book and the cash payments book. In addition to being aware of the use of separate cash receipts and cash payments books, you should also be aware that a cash book may have additional columns for the purpose of analysing the receipts and payments.

6.3 – The analysed cash receipts book

Definitions

Analysed Cash Book
An analysed cash book is a cash book with additional columns for analysing principal sources and payments for cash into types of income and expense.

Notes:

  1. The date column contains the date of the transaction.
  2. The narrative column describes the transactions – typically the name of the customer who is paying.
  3. The reference column contains any other information that may be helpful e.g. ‘cash’, ‘cheque’, ‘BACS’ or perhaps the customer’s reference code.
  4. The cash receipts book may have a ‘total’ column which contains the total cash received (including VAT) – whether it is received through the bank, cheque or cash or it may have separate ‘cash’ and ‘bank’ columns to show the method of money received. A cash receipt would be recorded in the cash column whereas a cheque or other form of bank receipt would be recorded in the bank column.
  5. The VAT column contains the VAT on the transaction but not if the VAT has already been entered in the sales daybook. When recording a receipt from a receivable, VAT was already considered in the sales daybook. There is no requirement to analyse out the VAT from the receivable receipt – it has already been dealt with.
  6. The receivables column contains any cash received that has been received from a receivable (credit customer) in payment of an amount owed by the receivable.
  7. The cash sales will be the VAT exclusive amount otherwise known as the ‘net’ amount. A VAT registered business only recognises the net amount of the sale as income. The VAT collected is owed to HMRC.

Note:
You may be told the total receipt of cash sales made – you should ensure you analyse this out to calculate the net and VAT amounts in order to enter these amounts into the correct columns.

A proforma analysed cash receipts book is shown below:
(Click to enlarge)

          Test your understanding 3
You work in the accounts department of Solid Ltd. Given below is the cheque listing for the company showing all the cheques received from receivables in the week ended 14 February 20X8. You have also been told that there were cash sales totalling £480 including VAT, which is charged at 20% on all sales.
Cheques received:
Customer name
Customer code
Cheque amount
£
 
D Asher
ASH01
74.62
L Maffiah
MAF03
193.75
G Mann
A Burrell
MAN04
BUR07
107.64
422.91
M Morgan
MOR09
60.36
D Skatt
SKA02
150.00
Required:
Write up the cash receipts book given for the week ending 5 May 20X1 and total all of the columns.  Your teacher will provide you with a template.  Alternatively you can create your own, which will help you to memorise the layout.  Copy the template above and the headings below.  You can check your answer is correct by entering some of your figures in Test Your Understanding 2 located in the quiz at the end of this lesson.  Your teacher will have a copy of the complete answer.
Date
Customer name
Code
Total
£
VAT
£
Receivables
£
Cash sales
£
TOTALS
 
 
 
 
6.4 – The analysed cash payments book

A proforma analysed cash payments book is shown below

Notes:

  1. The date column contains the date of the transaction.
  2. The narrative column describes the transactions. The reference column may include a reference to the source of the information or the code of a supplier being paid.
  3. The cash payments book may have a ‘total’ column which contains the total cash paid – whether it is paid through the bank, cheque or cash, or it may have separate ‘cash’ and ‘bank’ columns to show the method of money paid. A cash payment would be recorded in the cash column whereas a payment made by cheque or another form of payment via the bank would be recorded in the bank column.
  4. The VAT column contains the VAT on the transaction but not if the VAT has already been entered in the purchases day book.
  5. The payables column contains any cash paid that has been paid to a payable (credit supplier) in payment of an amount owed to the payable.
  6. The cash purchases column contains cash paid for purchases that are not bought on credit. This would be the VAT exclusive amount (net). The VAT element would be accounted for in the VAT column.
  7. We saw with the analysed cash receipts book that nearly all receipts come from receivables or cash sales. In the case of payments, there is a broader range of suppliers who are paid through the cash book – rent and rates, telephone, electricity, marketing, etc. The business will have a separate column for the categories of expense that it wishes to analyse.
Test your understanding 4
You are the accounts assistant at Brown Ltd, a small company which is not registered for VAT. Listed below are payments to credit suppliers on 31 May 20X2.
Supplier
Payment
£
Supplier code
B Able
723.78
ABL02
Mann Ltd
556.98
MAN01
Sykes & Sons
689.00
SYK04
Dickens Ltd
879.95
DIC01
Barber & Co
364.84
BAR01
Ward & Ward
287.66
WAR02
Required:
Write up the cash payments book given for the week ending 5 May 20X1 and total all of the columns.  Your teacher will provide you with a template.  Alternatively you can create your own, which will help you to memorise the layout.  Copy the template above and the headings below.  You can check your answer is correct by entering some of your figures in Test Your Understanding 2 located in the quiz at the end of this lesson.  Your teacher will have a copy of the complete answer.
Date Supplier Supplier code Total
£
VAT
£
Payables
£
Other
£
TOTALS      

 

Discount Allowed Daybook

7.1 – The discounts allowed daybook

The purpose of the discounts allowed daybook is to record the credit notes that must be issued due to the customer taking advantage of a prompt payment discount that has been offered. The credit note deals with the reduction to the original goods value (net amount) and also the reduction in the VAT. The total (gross amount) is then deducted from the receivable’s (credit customer’s) balance.

The discounts allowed day book is a list, the totals of which are used to perform the accounting entry. Double entry bookkeeping is studied later in this text.

Definitions

Discount Allowed Daybook
The discounts allowed daybook is used to record the discounts that have not been deducted at the point of the invoice being recorded in the sales daybook but instead were offered on a conditional basis i.e. prompt payment discounts allowed to credit customers.

Notes:

  1. The date column contains the date of the transaction.
  2. The narrative column provides details of the customer’s name. The reference column may include a reference to the source of the information (the credit note) or the customer code the transaction relates to.
  3. The total column contains the total discount that has been allowed to the credit customer (including any VAT).
  4. The VAT column contains the VAT element of the transaction.
  5. The net column contains the amount of the discount excluding the VAT element.

The discounts allowed daybook and associated accounting entries are studied later.

Discount Received Daybook

8.1 – The discounts received day book

The purpose of the discounts received daybook is to record the credit notes that have been received due to the business taking advantage of a prompt payment discount that was offered. The credit note deals with the reduction to the original goods value (net amount) and also the reduction in the VAT. The total (gross amount) is then deducted from the payable’s (credit supplier’s) balance.

The discounts received daybook is a list, the totals of which are used to perform the accounting entry. Double entry bookkeeping is studied later in this text.

Definitions

Discount Received Daybook
The discounts received daybook is used to record the discounts that have not been deducted at the point of the invoice being recorded in the purchases daybook but instead were offered on a conditional basis i.e. prompt payment discounts received from credit suppliers.

Notes:

  1. The date column contains the date of the transaction.
  2. The narrative column provides details of the supplier’s name. The reference column may include a reference to the source of the information (the credit note) or the code of the supplier the transaction relates to.
  3. The total column contains the total discount that has been received from the supplier (including any VAT).
  4. The VAT column contains the VAT element of the transaction.
  5. The net column contains the amount of the discount excluding the VAT element.

The discounts received daybook and associated accounting entries are later.

Petty Cash Book

9.1 – Petty Cash

A petty cash book is one in which all petty or small payments made through the petty cash fund are recorded systematically.

Definitions

Petty Cash
Petty cash is the small amount of cash that most businesses hold in order to make small cash payments.

9.2 – Layout of the petty cash book

A typical petty cash book is set out below. This is a typical petty cash book that is in the format of a ledger. A petty cash book that also forms part of the double entry bookkeeping system is studied in chapter 8.

Receipts Payments
Date Narrative Total Date Narrative Voucher
no
Total Postage Cleaning Tea &
Coffee
Sundry VAT
£ £ £ £ £ £ £
1 Nov Bal b/f 35.50
1 Nov Cheque 394 114.50 1 Nov ASDA 58 23.50 23.50
2 Nov Post

Office Ltd

59 29.50 29.50
2 Nov Cleaning

materials

60 15.07 12.56 2.51
3 Nov Postage 61 16.19 16.19
3 Nov ASDA 62 10.57 8.81 1.76
4 Nov Newspapers 63 18.90 18.90
5 Nov ASDA 64 12.10 10.09 2.01
9.3 – Receipts side of the petty cash book

The receipts side (left hand side) of the petty cash book, only requires one column, as the only receipt into the petty cash box is the regular receipt into the petty cash box of cash withdrawn from the bank account.

Referring to the example of a typical petty cash book (above), we can see that the balance brought forward (representing the opening balance) was £35.50. The petty cash float has then been restored up to £150 by paying in an additional £114.50.

9.4 – Payments side of the petty cash book

Payments out of the petty cash float will be for a variety of different types of expense and an analysis column is required for each type of expense in the same way as the cash payments book is analysed. The example above has analysed the expenses into postage, cleaning, tea & coffee and sundry expenses.

Note – that a column is also required for VAT, as if a petty cash expense includes VAT this must also be separately analysed. In addition, it is important to remember that any VAT included in a petty cash expense must be shown separately on the petty cash voucher.

Any VAT shown on the petty cash voucher must be analysed into the VAT column and the net amount shown in the appropriate expense analysis column.

Daybooks Summary

This lesson has introduced the different books of original entry (daybooks) that invoices, credit notes, discounts, receipts and payments are recorded in.

It is from these daybooks that we then go on to post the transactions into the general and subsidiary ledgers.

Daybooks are not part of your assessments, but it is important for you to fully understand the place of the daybook in the overall accounting system.

Memory Prompt – Books of Prime Entry

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