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Books of Prime Entry Introduction The purpose of this page is to outline the underlying
system of double entry bookkeeping. The page simply takes an overview
of a general system and defines and describes each element of that system.
The page closes with a few examples of how the system works. This page
assumes that you have some knowledge of the double entry bookkeeping
system already so there is no detailed explanation of it. Please note that even though many organisations
have fully automated and computerised bookkeeping systems now, the contents
of this page are still appropriate there, even if the names and descriptions
might appear unfamiliar in those settings. The Books of Prime Entry All organisations have what are called books
of prime entry or books of original entry: this is a fancy name for
the basic records of any bookkeeping system. The books of prime entry
include the
some people would include the cash book or the
cash account as a book of prime entry, too The purpose of the books of prime entry is to
make a record of all accounting transactions as they arise. So, when
an invoice comes in from a supplier of raw materials, it will be recorded
in the purchase journal, once it has been certified as a valid invoice. Similarly, when our organisation generates an
invoice for one of our own customers, it too will be entered in a book
of prime entry, the sales journal. Question: give an example when each of the returns
journals might be used. A journal is simply a form of diary and it lists
transactions in chronological order: as they happen, when they happen.
A journal entry will normally consist of
Note Jx means Journal page number x Example of a Journal Entry Here is a transaction that we have entered into
the Journal, or that we have journalised: we bought a dining table for the canteen on
credit for £500 from the A Table Co on
Question: enter the following transaction in
the Journal we bought a motor vehicle for use in the business
on You need to know that the motor vehicle account
in the ledger is page 3 and A Shady’s account
is page 4 in the ledger; and you can write your answer into the journal
page above if you like, just print it out to do that.
The Ledgers Following on from the books of prime entry we
have the ledgers of an organisation. The ledgers put the accounting
transactions into action: the ledgers record all of the values as debits
and credits in the appropriate places in the bookkeeping system. Ledgers comprise accounts in which we record
the detail of all accounting transactions. An organisation can have
just a few accounts, such as with a small business, or it can have millions
of accounts, such as with a mutli national
enterprise. Each account records the date, value and references
for a transaction or group of transactions and these accounts are divided
into two:
Note: Lx means Ledger account page number
x Question: fill in the ledger account entries
for the transactions we worked on in the Journals section for the purchases
of the dining table and the motor vehicle. Here are the transactions
again, to remind you:
The ledger etc details for the table were given
in the Journal section and you need to know that the motor vehicle account
in the ledger is page 3 and A Shady’s account
is page 4 in the ledger; and you can write your answer into the journal
page above if you like.
The Cash Book The cash book is a ledger account and it has
a debit and a credit side, just like any other ledger account.
Let’s imagine a cash transaction now to show
that the cash book works in just the same way as any other ledger account,
we will show the corresponding ledger account entry too. Let’s imagine that on
Question: show the cash book and corresponding
ledger account entry if you are told that on
Again, it would be good for you to complete
the Journal entries too, but they are not shown here: we have assumed
we have been using Journal page 1 throughout, however. Overview of the Bookkeeping System Now that we have talked about the various aspects
of the bookkeeping system, let’s see how they all work with each other.
Question: why do you think that the cash book
is the central part of a bookkeeping system: exp At the bottom of the bookkeeping system diagram
there is what we have called the trial balance. We haven’t mentioned
the trial balance yet but it’s a vital aspect of the work of a bookkeeper
so let’s look at that now. The Trial Balance When we have completed a day or a week or a
month of accounting transactions, we should check that the work we have
done has been done properly and accurately. That is, we should take
a look at all of our workings and check them to try to make sure we
haven’t made any mistakes. One step we need to take in order to check
our work is to prepare a trial balance. A trial balance (TB) is a summary list of every
account to be found in a ledger. What the TB does is to list the closing
balance on each account and whether it is a debit or a credit balance.
If everything has been recorded accurately the total of all the debits
MUST equal the total of all of the credits. You can check that with
the work we have done so far on this page to prove this … and here is
that proof. Here we have the trial balance based on the work we have
done so far: take a careful look at it and make sure you understand
where all of the balances come from, check that you agree with the values
and make sure you can see why the total debits does, and MUST, equal
the total credits.
Beyond the Trial Balance What we have seen so far is really just the
tip of the iceberg. We have discussed the books of prime entry and taken
a brief look at some aspects of them. We have even discussed the trial
balance, which is the end of accounting period check on the work of
the bookkeeper. However, for accountants, the trial balance is just
the beginning, yet for the bookkeeper it’s the end! The bookkeeper enters all of the details of
all accounting transactions in a period: as we have seen. At the end
of the period the bookkeeper draws up a trial balance and makes any
corrections that are necessary. The accountant, now, takes the trial balance
and from there will take account of any accruals and prepayments, provisions
for depreciation and bad debts and so on and draft a set of final accounts,
that will include the trading and profit and loss account and the balance
sheet. The bookkeeper is a vital link in the accounting
chain and this page has skimmed the surface of some of the things that
the bookkeeper needs to do and to know to do the work that the accountant
relies upon. This page was requested by ©
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