Accountancy/Books of Prime Entry

An alternative introduction is under the journal entry. A journal is known as primary book. Books of Prime Entry are a more efficient variation on double-entry accounting. In basic double entry, a double entry is made in the general journal, which is posted in the general ledger accounts. Originally, the Venetian method also suggested a preceding diary step, which makes sense as no thinking is required in double entry, so it may have been faster. In a manual system, books of prime entry act as the speed entry step: instead of trying to remember which accounts to debit and which to credit, and writing the names down for each entry for each transaction in the general journal, the general journal is reserved for infrequent accrual entries; the more frequent cash entries, and the most frequent accrual entries are divided into specialized journals of cash receipts and cash payments; credit sales journal and credit purchases journal (credit means 'on credit' here); and for medium frequency accrual entries, sales returns and purchase returns journal. Apart from not having to write account names each time, the column layout in these specialized journal help systemize the double entry rules; most of them can be totaled at the end of each month to provide monthly entries into control account ledgers, as well as reconciliation with summary monthly totals when a schedule of subsidiary ledger accounts is created. Cash reconciliation also is a monthly task, which is made easier by tracking with numbered transactions such as numbered cheque books where cheque numbers can be entered in the cash payments journal; for tracking cash receipts, it is recommended banking occurs daily so that end of month bank reconciliation is easier. Bank reconciliation involves looking at outstanding items from the last reconciliation then seeing which of these occurred in this period's bank statement; then a search is made for unpresented cheques, and unrecorded receipts, and then payments and receipts that occurred through the bank and not through the business. This makes the cash receipts and cash payments journal essential for reconciliation.

Books of prime entry OR books of original entry are books where transactions are first recorded. These may or may not be part of the double entry system.

The main books of prime entry are:


 * Sales day book
 * Purchase day book
 * Sales returns day book
 * Purchases returns day book
 * Bank Book
 * Cash Receipts Book
 * Cash Payments Book
 * Petty Cash Receipts Book
 * Petty Cash Payments Book
 * Journal

Sales Day Book
This is the book of prime entry for credit sales, where all credit sales of the day are listed and totaled. The total is then used as a single posting entry to the sales ledger and also posted to a sales control account in a single total to tally with the underlying sales ledger. However, individual debits are posted separately in the respective sales ledger (or debtors or receivables ledger accounts). An excerpt might look like this:

SALES LEDGER         TOTAL AMOUNT       (ADDITIONAL COLUMNS OF ANALYSIS DATE     INVOICE    CUSTOMER                        FOLIO                 INVOICED           INTO DEPARTMENTS ETC) 2006 April 2 002345     Alexander & Co                  0016                  $  4,257.50 002346    Benjamin Consulting             0168                  $  5,200.00 002347    ABS Company                     0027                  $  6,800.00 002348    Butler W Company                0278                  $  1,680.40 August 4 002349     Dubula v company                0486                  $  80,000.00

Books for prime entry are synonymous with manual accounting system of special journals and subsidiary ledgers
Another description for books of prime entry, are a manual accounting system of special journals and subsidiary ledgers.

In a basic accounting system, or one that follows the original Venetian method, is to write an English statement of a transaction at time of occurrence in a diary. Then, a this entry , which has at least a detail of a date, an amount, a sentence describing what happened , is then transferred to the general journal as an entry as soon as possible, the entry will be a first step in accounting classification, naming accounts to debit and amounts to debit, and accounts to credit and amounts to credit, where sum of debits equals sum of credits, and the entry is dated. There may be a further description written in brackets under the debits and credits, which may describe more information, such as quantities sold, and to whom, or quantities bought, and from whom, and receipt numbers ).

The general journal entry is then latter entered in the appropriate general ledger accounts, with a date and possibly a back reference to the journal page, and forward references in the journal entry to the ledger account ID numbers to indicate posting from the general journal to the general ledger of accounts.

In a special journal / subsidiary ledger system, or books of prime entry system, several constraints are added:

Instead of making an entry for every transaction in the general journal, there are several journals as named above.

The posting rules are:


 * credit sales are entered in the day sales journals. Likewise, sales returns are entered in the day sales returns journals.
 * purchases on credit are entered in the day purchases journal. Likewise, purchase returns are entered in the purchase returns journal.
 * cash payments i.e. payments by cheque, or by eftpos, or via direct bank transactions such as bank fees and interest paid, are made to the cash payments journal.
 * cash receipts i.e. payments by cheque, direct deposits, visa receipts with reference numbers ,are made in the cash receipts journal.
 * At the end of each day, any entries into credit sales, sales returns, credit purchases, purchase returns, cash receipts, and cash payments, are posted to the relevant subsidiary ledger accounts. There will be subsidiary accounts receivables for each regular customer, and subsidiary accounts payable for each regular supplier.
 * In general, credit sales are posted as debits to the relevant subsidiary account receivables, and cash receipts from that customer are posted as credits that account. Credit purchases are credits in the subsidiary accounts payables, and cash payments to the same supplier are debits to that same subsidiary accounts payable.
 * At the end of each month, each column of the credit sales journal, credit purchases journal, cash receipts journal, and cash payments journal, as well as the sales returns and purchase returns journal, is totaled at the bottom of each column, and then posted to the relevant control ledger account. For instance, a more elaborate credit sales journal for GST collections ,  will have a debit column for accounts receivables, whose end of month total is posted to accounts receivables control, as well as a credit column for sales ledger account, which  is not posted daily but totaled for monthly posting, and a credit column for GST collections, which is also posted as a monthly credit to the GST collections account (liability).  Likewise,credit purchase journal will have a debit column for purchases , a debit column for GST paid, and a credit column for accounts payable. The credits for accounts payable are posted daily to subsidiary accounts payable(creditors) , and the monthly total of accounts payable as a credit to accounts payable control. The GST paid debit column is posted as a monthly total to GST paid (a contra-liability account). The purchases are totaled monthly , and posted to the purchases account , which in the periodic inventory system , is , at period's end, added to the beginning inventory in the income statement to give cost of goods available for sale, and the stocktake determined ending inventory subtracted to find the cost of goods sold, which can be subtracted from gross revenue, to get gross profit.
 * the reason for the daily posting to subsidiary ledger accounts, and the monthly posting to the control ledger accounts, is that a monthly cross check can be made by doing a monthly  schedule of accounts receivables, and a schedule of accounts payable : the sum of the ending balances of one type of subsidiary ledger accounts should equal the balance of the control account after the monthly control posting e.g. subsidiary accounts receivable balance sum equals accounts receivable control balance.
 * the cash receipts journal and the cash payments journal have the expected main case of debit and credit columns, but have additional columns for special cases:
 * cash receipts journal has a debit column for cash in bank, and a credit column for accounts receivable ( because of cash payments from customers honoring credit terms ) . However, there will be other debit and credit columns for other uses of cash receipts :-
 * cash sales will need a credit column for sales, and a credit column for GST collections.
 * Discounts allowed for credit sales early repayment will need a debit column for discount allowed (financial) expense account, and a debit column for gst collections, in order to reverse previously accrued GST collection equal to 10% of the discount allowed.
 * A sundry credit column may be needed for cash receipts such as loans (a credit to a liability account ), or sale of non-current/ non-inventory assets.
 * cash payment journal, for the main function of paying suppliers/creditors, has a debit column for accounts payable, a debit column for GST outlays (refundable asset),  and a credit column for cash in bank. Cash in bank is the source account for cash, and each credit to this asset account reduces its balance.
 * For the extended supplier case of early payment within discounted credit terms, there will be a discount received credit column (other income credit), and a credit for GST outlays ( a reduction in refund  for 10% of the discount allowed).
 * For the secondary cases of payment of bills, insurances, rents, rates and for cash payments for supplies and equipment, a debit column for other or sundry cash payments ( debits for assets purchased, or debits for expense accounts).
 * The general journal is for other entries that are not related to cash or credit, such as period-opening, reversing entries; period-ending, adjusting entries, ; and closing entries transferring income and expense account balances to the summary profit and loss temporary account.
 * Closing of temporary income and expense accounts can be to a temporary profit and loss summary account, made initially in the general journal, and then posted to the income accounts, expense accounts, and profit and loss summary account.
 * petty cash payments may operate with the interest system, where there is a fixed interest amount for which a petty cash fund is reimbursed to, and on reimbursement, an entry is made in the cash payments journal, with debits for the previously petty cash expenses recorded in the petty cash voucher book, and a credit to cash in bank for the cheque that is used to reimburse the petty cash. (If there are also receipts of petty cash, then reimbursement might consist of the sum of unaccounted petty cash payments vouchers, less the sum of unaccounted petty cash receipt vouchers, with possibly separate voucher books for payments and receipts).

Example daily posting of example Sales entries, to subsidiary accounts receivable accounts
referring to the example above of credit sales journal entry, at the end of the day, the journal entries are posted to the subsidiary receivable account ledgers.

SALES LEDGER         TOTAL AMOUNT DATE    INVOICE    CUSTOMER                        FOLIO                 INVOICED 2006 April 2 002345     Alexander & Co                  0016                  $  4,257.50

Post as

Accounts Receivable Ledger AR-0016 CUSTOMER - Alexander & Co DATE    INVOICE    POST-REF DEBIT       CREDIT        BALANCE ..                                                    4,520.00 DR 2 Apr 06  002345    SJ       4,257.50                  8,777.50 DR  --- 002346    Benjamin Consulting             0168                            $  5,200.00

Post as

Accounts Receivable Ledger AR-0168 CUSTOMER - Benjamin Consulting DATE    INVOICE    POST-REF DEBIT       CREDIT        BALANCE ..                                                    2,345.00 DR 2 Apr 06  002346    SJ       5,200.00                  7,545.50 DR  --- 002347    ABS Company                     0027                  $  6,800.00 Post as

Accounts Receivable Ledger AR-0027 CUSTOMER - ABS Company DATE    INVOICE    POST-REF DEBIT       CREDIT        BALANCE ..                                                        0.00 DR 2 Apr 06  002347    SJ       6,800.00                  6,800.00 DR -

002348    Butler W Company                0278                  $  1,680.40 Post as

Accounts Receivable Ledger AR-0028 CUSTOMER - Butler W Company DATE    INVOICE    POST-REF DEBIT       CREDIT        BALANCE, ..                                                      500.00 DR 2 Apr 06  002348    SJ       1,680.40                  2,180.40 DR


 * Any sales returns journal entries, are also recorded as credits daily in the relevant subsidiary account receivables ledgers.
 * Any cash receipts journal entries related to trade debtor settlements are recorded as credits daily in the relevant subsidiary accounts receivables ledgers.
 * At the end of the month, a schedule of subsidiary accounts receivable balances is made, and the sum of the balances noted.
 * At the end of the month, the total of entries in the sales journal, less the total in the sales returns journal, less the total in the accounts receivable credit column of the cash receipts journal, should equal the total of the schedule of subsidiary accounts receivable.
 * credit purchase journal entries are similarly posted in the subsidiary accounts payable daily, as well as cash payment journal entries related to settlement of trade creditor accounts ; similarly monthly total of trade creditor account ending balances should equal totals of credit purchase journal, less credit purchase return journal, less cash payment journal purchase column total.
 * any credit purchase or sale of non-current assets such as office furniture and equipment should not be entered in the credit purchases or credit sales journal, which are reserved for recording sale of trade inventory. Since they are non-frequent, they are entered in the general journal instead, and when paid for, are entered in the sundry debit column of the cash payments journal, or the sundry credit column of the cash receipts journal.