BOOKS OF ORIGINAL ENTRY & LEDGERS

Before the entrepreneur of any business or the accountant can enter accounting
transactions into the companys books, they must first journalise these transactions to
record them for future use. This is in keeping with the accounting cycle.
BASIC ACCOUNTING CYCLE see page 152 Frank Wood
Why are books of original entry used?
This is done for two main reasons; to have a record for any future queries, and to have a
paper trial from which to formulate the ledger accounts. This is important to ensure
continuity of accounting even if personnel change, or unforeseen circumstances occur
which prevent the normal daily functioning of a business to occur (e.g. hurricane). The
books of original entry are also used to organise the companys accounts by splitting up
the accounts into categories. The books of original entry are drawn up from source
documents.
Source Documents
These are documents used in business to conduct transactions. Two examples of these
are the purchase order and sales invoice. The purchase order gives details of what items
are being bought, while the sales invoice give details of what items were in fact
purchased. A business usually receives a purchase order for items needed. The business
will then ship out the items requested and send the buyer a sales invoice along with the
goods. A typical sales invoice should include the following (see page 103 Frank Wood):

Date of transaction
Purchase order number
Address of the seller (company address)
Address of the buyer
Invoice number
Itemised listing of the items purchased giving a description, unit cost, any
discounts received and the total cost.

Listing of books of original entry

Return outwards journal

Details

Invoice No.

Folio

Amount

After each journal is completed, it is then used as the source document to draw up the
ledgers. For example the sales journal is used to draw up the sales ledger. This follows
the accounting cycle. As discussed earlier the books of original entry serve to organise
the accounts of a business. All cash transactions are recorded in the cashbook and petty
cashbook, while all credit sales are recorded in the sales journal then to the sales ledger.
Similarly all credit purchases are recorded in the purchases journal then to the purchases
ledger; all return outwards are recorded in the return outwards journal then to the various
creditor accounts in the purchases ledger; and all return inwards are recorded in the return
inwards journal and then to the various debtor accounts in the sales ledger. (see diagram
page 95 0f Frank Wood). Note, the totals of each journal, is then transferred to their
respective accounts in the general ledger. For example the total of the sales journal is
transferred to the sales account in the general ledger, the total of the purchases journal to
the purchases account in the general ledger and so on.
Balancing off accounts in ledgers
The various debtor and creditor accounts when balanced off in the ledger will have a
balanced brought down for the next accounting period if all payments were not received
or paid. However it is also possible to transfer these balances to total accounts in the
general ledger. For example, the total of all the debtor balances would be transferred to
the Total Debtor account in the general ledger.

Date
01 Mar
12 Mar

Date
31Mar

Details
Sales
Sales

Details
Total Credit

Folio
SJ26
SJ26

Folio

Sales Ledger
G. Blake Account
Amount Date
Details
350
31Mar Transfer to
120
Total Debtors
470
General Ledger
Total Debtors Account
Amount Date
Details
470

Folio

Amount

GL

470
470

Folio

Amount

Sales
Returns Journals
These journals are also part of the books of original entry. They deal with instances
where customers for whatever reason return goods purchased to the retailer. The more
common reasons for returning goods are :1. Wrong type eg. Fine point for medium pen
2. Wrong colour eg. Wrong shade of ribbon or thread in sewing
3. Faulty goods eg. Blender does not work
When goods are returned the customer is given a document called a credit note showing
the amount their account would be reduced by or credited hence the credit note. (See
pg112 of Frank Wood for eg). The credit note has a number and shows addresses of
both customer and retailer; along with the items returned and allowance amount.
At the end of the month all the credit notes are entered in a return inwards journal and
the total transferred to the return inwards a/c in the general ledger (see pg112 Frank
Wood). From the journal, entries can be made to adjust the various debtor a/cs in the
sales ledger. (entered on the credit side of these a/cs.
Goods are also returned to suppliers by businesses for similar reasons. When this is done
a debit note is given to the supplier along with the goods and reason for return. If the
supplier agrees a credit note will be sent to the business. (see pg114 Frank Wood).
Similarly at the end of the period all debit notes are entered in a Return Outwards
Journal and the total transferred to a return outwards A/c in the General Ledger. The
various creditors a/cs are then adjusted in the purchases ledger. (on the debit side) to
show the reduction the to the amount owing.