UNIT 7

BOOKS
OF
ORIGINAL ENTRY
 BOOKS OF ORIGINAL ENTRY

1. Business documentation
2. Division of the ledger
2.1 Sales day book & Sales ledgers
2.2 Sales Returns Day book.
2.3 Purchases returns day book
4. Cash Book
5. Petty cash & Imprest system
6. Bank Reconciliation statement
 LEDGERS
 It is common practice to have three distinct ledgers: a sales ledger, a
purchases ledger and a general (or nominal) ledger.
NAME OF ACCOUNTS CONTAINING
LEDGER WITHIN THE LEDGER

SALES LEDGER Contains all the personal Accts of

credit customers (Debtors)

PURCHASE LEDGER Contains all the personal accounts

of credit suppliers (Creditors)

GENERAL LEDGER Contains all other accounts not

contained in the sales or
 DAY BOOKS
Day books (also known as journals or books of original entry) are
where transactions are first recorded. These day books are not accounts.

The cash book is the only day book which serves jointly as both a day
book and an account.

They are simply books that record details of transactions as and when
they happen – almost like diaries of transactions.

There are several day books, each of which will be used for a particular
type of transaction. The day books which are used are as follows:
 Types of Day Books
NAME OF DAY BOOK TYPE OF TRANSACTIONS RECORDED

Sales day book All credit sales of goods

Purchases day book All credit purchases of goods with the intention of resale

Return inwards day book Returns inwards of goods previously sold

Returns outwards day book Returns outwards of goods previously purchased

Cash book (and petty cash book) All cash (and bank) transactions

The journal Any transaction not covered by the other day books
 Cash Books
 The cash book acts as a combination of the cash and bank accounts
of the business. It therefore records all bank and cash transactions
made by the business.
CASH BOOK
Example:
1st Jan Opening Bal. 7,500 1st Jan Purchases 7,000
5th Jan Mwape J 5,000 20th Jan Stationery 1,500
10th Jan Sondo T 3,500 20th Jan Rent 2,500
12th Jan Loan 10,000 21st Jan Mwanza T 3,000
18th Jan Banda K 2,500 23rd Jan Advertising 2,000
22nd Jan Tembo L 3,000 24th Jan Taxes 4,000
24th Jan Sales 10,000 31st Jan Salaries 7,000
27th Jan Sales 5,000 31st Jan Kabwe Z 5,000

31st Jan Closing bal. 14,500

46,500 46,500

1st Feb Opening Bal. 14,500

 Exercise 7A
From the following, construct the cash book for the month of May 2015.
Balances as at 1 May 2015 were as follows:
 Cashbook opening balance as at 1st May, 2015- K750
 May 2 Paid rent by cheque K240
 May 4 Sold goods for cash K90
 May 7 Paid Mwape Harold – a creditor – by cheque K110
 May 9 Paid cheque for K330 from own private account into business
account
 May 12 Paid wages by cheque K150
 May 13 Received K370 commission in cash
 May 18 Purchased goods for K160 paid immediately by cheque
 May 22 Paid electricity by cash K20
 Answer to Exercise 7A
CASH BOOK
1st May Opening Bal 750 2nd May Rent 240
4th May Cash sale 90 7-May H Mwape 110
9th May Capital 330 12-May Wages 150
13th May Commission 370 18th May Goods bought 160
22-May Electricity 20
31st May Closing Bal 860

1,540 1,540
 Cash & trade discounts
Trade discounts are discounts which are offered to other
businesses with no particular conditions attached.

Cash discounts are given by businesses to another business

with the intent of encouraging prompt settlement of any
outstanding invoice. These discounts will show up in the
ledger accounts as follows:
 Cash & trade discounts
Discounts allowed: Discounts that the business gives to customers
settling amounts owing to the business.

Discounts received: Discounts given by other business when the

business settles the amounts it owes to its suppliers.

When recording these discounts there are two different approaches:

Frstly, entries can be made in the ledger accounts for each individual
transaction; alternatively, monthly totals for each type of cash
discount can be posted to the ledger accounts.
 Example 7A
 On 10th January we sold K2,000 of goods on credit to Shopalot. We
offer a 5% discount for full settlement within 14 days. On 18th
January Shopalot settles their account in full by sending a cheque
totalling K1,900 (i.e. K2,000 less 5%).
Shopalot Acct
10th Jan Sales 2,000 18th Jan Bank 19,000
18th Jan Dis All. 100

Discount Acct
18th Jan Shopalot 100
 Example 7B
On 11th February, we bought K4,000 of goods on credit from Z-
mart. A 4.5% discount is offered if we settle within Fifteen days. On
20th February we send cash of K3,820 to Z-mart in full settlement.
Z-mart Acct
18th Feb Bank 3,820 11th Feb Purchases 4,000
18th Feb DR Acct 180

Discount Received Acct

18th Feb Z-mart 180
 Petty cash book
 The petty cash book is used for dealing with small items of money. It may be the
case that the firm has lots of transactions which involve relatively small amounts of
money (e.g. petrol costs, postage costs and so on).

 If these were all entered in the main cash book then it would quickly become cluttered
up with entries for small amounts of money.

 To prevent this, a petty cash book deals with these items. At the end of each month the
monthly totals are transferred to the main cash book.

 Some very large firms may actually use the petty cash book for dealing with all cash
items of expenditure. The main cash book would then only be used for bank
transactions.
 Imprest system

 The most common system used to maintain the petty cash book is
known as the imprest system.
This involves co-ordination between the cashier responsible for the
cash book and the cashier responsible for the petty cash book.

The cashier will give the petty book cashier just enough money to
cover the petty cash transactions of a period of time – usually one
month.

At the end of the month, the amount actually spent will be totalled up
and the amount will be refunded from the main cashbook as.
 Imprest system

 In this way, the balance on the petty cash book will always be the same at the
start of each period.

 This opening balance is known as the float or imprest.

 The float can be changed if it is observed that the petty cash is being spent too
quickly, or is not being spent at all.

 The idea is that the float should cover the period’s expenses.

 The petty cash book still follows the rules of any double-entry account.
 Example
The following are details of petty cash transactions for the month of
March 2021. The business transactions that occur are as follows:
Date Expe ns e Kwacha

1st Mar Float amount 2,500

2nd Mar Folders 150

4th Mar Stationery 200
9th Mar Milk & Tea 100
12th Mar Coffee for office 100
15th Mar Petrol 200
18th Mar Electricity 150
21st Mar Paper for printers 300
23rd Mar Newspaper 100
25th Mar Bus fares 50
 Sales Day Book
 The sales day book records all transactions resulting from credit and
cash sales.

This must only include sales relating to goods bought with the
specific intention of resale.

For example, a firm that sells computers would not include the credit
sale of office furniture in the sales day book and would only include
the credit sales of computers (and other equipment that related to the
business’s main trading area, e.g. printers or scanners).
 Sales Day Book
 For each sale made, the business will issue an invoice.

 This is a written document which contains details of the sale, such as the goods to
be ordered, the value of the sale and any relevant trade or cash discounts.

 The sales invoice would be issued to a customer when the sale is made.

 From the invoice, the details of each sale would be collated and written up into
the sales day book.

A sample page of a sales journal would appear as follows:

 Sample Sales Day Book
SALES DAY BOOK

Date Invoice No. De tails Amount

2nd April 875 BWALYA T 4,500

5th April 876 MWANSA K 1,990
7th April 877 TEMBO Y 650
12th April 878 ZULU S 750
15th April 879 MWENGO R 1,500
27th April 880 SAMPA K 3,600

Total 12,990
 Purchases Day Book
 The purchases day book consists of all credit and cash purchases of goods
for resale. For example, a business selling office furniture would not include
the purchase of a delivery van as purchases as this is an asset to be used
within the business.

The sales invoice sent by the business to the customer can also be thought of
as the purchase invoice by the business which is buying the goods. When the
business which is purchasing goods receives the invoice this would be used
to construct the purchases invoice.

For the purchases day book, the information relevant for the accounts is
recorded.
 Sample Purchases Day Book
PURCHASES DAY BOOK

Date Invoice No. Details Amount

2nd April 221 AUTOWORLD 2,500

5th April 222 EXIDE 450
7th April 223 CARWORLD 1,200
12th April 224 ZULU S 2,280
15th April 225 PICK A PAY 1,500
27th April 226 ZMART 1,050

Total 8,980
 Class exercises

1. For each of the following, state in which day book the transaction would be recorded.
(a) Sales made on credit.
(b) Goods previously purchased by the business sent back to the original supplier.
(c) Stock taken out of business for private use.
(d) Cheque paid out to settle account relating to the purchase of goods for resale.
(e) Fixed asset sold with payment received by cheque.
(f ) Furniture bought on credit specifically for resale.

2. For each of the following, state in which day book the transaction would be recorded.
(a) Purchases made for immediate payment.
(b) Motor vehicle sold on credit.
(c) Goods returned to us by credit customers.
(d) Money transferred from bank to the cash till.
(e) Laptop accepted as part payment from debtor.
(f ) Cheque received in respect of rent received.
 Answers to Class exercises
1. For each of the following, state in which day book the transaction would be recorded.
(a) Sales made on credit. – SALES DAY BOOK
(b) Goods previously purchased by the business sent back to the original supplier – RETURNS OUTWARDS
(c) Stock taken out of business for private use. - DRAWINGS
(d) Cheque paid out to settle account relating to the purchase of goods for resale – BANK ACCOUNT
(e) Fixed asset sold with payment received by cheque. - BANK
(f ) Furniture bought on credit specifically for resale. – PURCHASES DAY BOOK

2. For each of the following, state in which day book the transaction would be recorded.
(a) Purchases made for immediate payment. - PURCHASE DAY BOOK
(b) Motor vehicle sold on credit. – SALES DAY BOOK
(c) Goods returned to us by credit customers. – RETURNS INWARDS
(d) Money transferred from bank to the cash till. – CASH BOOK
(e) Laptop accepted as part payment from debtor. – TRADE RECEIVABLE ACCOUNT
(f ) Cheque received in respect of rent received. – BANK ACCOUNT
 Bank reconciliation
 The cash book shows us the cash and bank transactions undertaken by the
business.

From the business’s bank, a bank statement will also be received on a fairly
regular basis.

This bank statement details all transactions into and out of the bank account.

In effect, the bank statement should replicate the bank column of the cash
book as they show exactly the same information.
 Bank reconciliation
 Though the bank column of the cash book and the bank statement balance should
always be the same it is likely that the balances – even if taken on exactly the
same date – will not be the same. This discrepancy could be because of any of
the following:

1. Items appearing on the bank statement but not in the cash book;
2. Items appearing in the cash book but not on the bank statement;
3. Errors made by the business or by the bank.

So as to ascertain the cause of the discrepancy – and in particular to detect if errors

have occurred – a business will draw up a bank reconciliation statement which
will highlight the cause of any discrepancy between the two balances.