Books of prime entry
This chapter introduces the books of prime entry. These are the first accounting records where transactions are entered from source documents. We use them to record sales, purchases, returns, cash transactions, and adjustments.
Because these books are the starting point of the accounting system, mistakes made here can carry through to the ledgers and, eventually, the financial statements.
Learning objective
By the end of this lesson, you should be able to name the main books of prime entry and identify which one records a given transaction, including credit sales and purchases, returns, cash and bank receipts and payments, petty cash, and non-routine items.
Here’s what a sales journal might look like in practice:
The following table shows a sample sales day book with two invoice entries and a total line.
| Date | Customer | Invoice no. | Amount $ |
|---|---|---|---|
| 3 Mar | GHI Limited | 1001 | 12,000 |
| 5 Mar | MNO Traders | 1002 | 4,500 |
| Total | 16,500 |
That total is posted to the ledger, which is covered in the next chapter, The general ledger and double-entry bookkeeping.
Examples of entries in the general journal:
- Opening entries (to bring in balances at the start of the year).
- Closing entries (to transfer balances to final accounts).
- Adjustment entries (e.g., accruals, prepayments).
- Non-cash items (e.g., depreciation, irrecoverable debts written off).
- Error corrections.
- Transfers between accounts.
Because the general journal is used for transactions that don’t fit into the specialised journals, each entry typically includes a short narrative explanation. This narrative matters because it explains the reason for the entry and supports review work (for example, at period end) and audit checks.
Cash book
The cash book is the prime book of entry for all cash and bank (cheque) receipts and payments. It shows:
- money received
- money paid out
- the running balance
This makes it a key tool for day-to-day cash management.
The cash book also serves as both a book of prime entry and a ledger. The ledger aspect is covered later in this course.
A cash book typically has two sides:
- the debit side records money received (receipts)
- the credit side records money paid out (payments)
At any point, the balance on the cash book shows how much cash and bank funds the business has available.
Petty cash book
The petty cash book records small, routine business expenses paid from a petty cash fund. It usually operates using an imprest system, where a fixed amount of petty cash is maintained by reimbursing the exact amount spent.
Common petty cash expenses include stationery, refreshments, postage, and local transport.
Under the imprest system:
- the petty cashier starts the period with a fixed float
- each small payment is supported by a receipt or voucher
- at the end of the period, the main cashier reimburses the total spent
- the float is restored to its original fixed amount
This approach makes petty cash easier to control and reconcile.
Illustration question: identification of business transactions
ABC Trading Company had the following transactions during the first week of March 2024. Required: For each of the transactions below, identify the appropriate book of prime entry in which it should be recorded and state the corresponding amount.
Example 1: started business with cash $20,000 and inventory $15,000
Identify the book of prime entry and the journal entry required.
Book of prime entry: general journal (this is a non-routine opening entry that introduces several assets and capital at once, so it needs a single entry with a narrative).
Journal entry: Dr cash $20,000, Dr inventory $15,000, Cr capital $35,000.
Narrative: “Being capital introduced at start of business.”
Example 2: purchased goods on credit from DEF Suppliers for $8,000, less 20% trade discount
Identify the book of prime entry and the amount to record.
Book of prime entry: purchases journal.
Amount: $6,400 (i.e., $8,000 - 20% trade discount).
This is a credit purchase of goods, recorded at the net amount after the trade discount. A trade discount is never recorded in the accounts - only the net amount is entered. A settlement discount works differently. When a business offers one to its credit customers, IFRS 15 has it recognise revenue net of the discount if the customer is expected to take it, and in full if not. The discount is not recorded as an expense. This is covered in Sales and receivables.
Example 3: purchased office equipment for $3,500 on credit from JKL Company
Identify the book of prime entry and the amount to record.
Book of prime entry: general journal.
Amount: $3,500.
This is a credit purchase of a non-current asset, not inventory for resale, so it doesn’t belong in the purchases journal. It’s recorded in the general journal at its cost of $3,500.