Books of Original Entry – SS1 Book Keeping Lesson Note (Second Term)

A book of original entry, also called a journal, is the first place where a business records its transactions. Invoices, cash transactions, vouchers and other bills are written here, with their details and descriptions, before they are posted to the ledgers. It is also known as the book of first entry or preliminary entry.

Behavioural objectives

By the end of the lesson, students should be able to:

• define a book of original entry;
• explain how books of original entry are used;
• list the types of books of original entry;
• state the components of an original entry;
• give the advantages and disadvantages of books of original entry.

How are books of original entry used?

The accounts linked to a commercial transaction are first shown in the book of original entry. Entries include vouchers, invoices, currency and other accounts written in a book, list, notebook, diary or leaflet. An entry is the act of writing the evidence and details of a business transaction in the appropriate book, which could be a diary or a journal.

There are two categories of entries:

1. Journal entry: the recording of commercial transactions in a journal.
2. Ledger entry: a business transaction that is posted or transferred from a journal to a ledger.

A ledger contains many accounts, and each business transaction is recorded in the appropriate ledger account.

What are the types of books of original entry?

1. General journal: records transactions that are not recorded in the other journals.
2. Sales journal: keeps track of sales invoices issued by the business when it sells goods on credit.
3. Cashbook: records receipts and payments.
4. Returns outwards journal: records goods bought that are returned to suppliers.
5. Purchases journal: records purchase invoices received from vendors when goods are bought on credit.
6. Returns inwards journal: records goods sold that are returned by customers.

What are the components of an original entry?

1. Transaction date

Before a transaction is written in the books of original entry, the journal should show the date on which the deal took place or was added to the account. If the journal is kept in chronological order, the transaction should be recorded under the correct date. The date format should be the same for all transactions to keep the records uniform.

2. Business and transaction details

The entry must show the business involved in the credit transaction, that is, the vendor or seller in the case of a purchase. If a transaction is added to the general journal, it should include the essential business information. Wrong or irrelevant details can cause problems in the ledger accounts.

3. Narration

The narration is a short summary of the transaction. It gives the transaction data and briefly states the reason for the transaction. It also gives the particulars of the goods or services involved.

4. Monetary information

The amount of money involved in the transaction should be stated in the entry. The entry also shows the debit and credit information of the transaction.

5. Source document

The entry should refer to the original document used to record the transaction, such as a bill number in the case of a purchase. Referring to the original document makes the transaction more reliable and helps the business find the document when it is needed.

6. Ledger account details

The entry should name the ledger account to which the transaction will be posted after the journal recording is complete.

What are the advantages of books of original entry?

1. Daily transactions are written in the books of initial entry, which reduces the chance of leaving out any transaction.
2. When debit and credit accounts are included in a journal, the chance of error when posting to a ledger is reduced.
3. Because transactions are recorded in chronological order, sorting them and transferring them into the relevant ledgers is fairly simple.
4. Problems and inaccuracies in a transaction record can be found while the data is transferred to the individual ledgers, because all the details, including narrations and summaries, are kept in the journal.

What are the disadvantages of books of original entry?

1. Books of original entry are large and come in many volumes, which makes the data hard to manage.
2. Posting all transactions to the individual ledgers takes a long time.
3. A transaction can be found only if the date is known, so searching the journals is difficult and slow.

Evaluation

1. What is a book of original entry?
2. List the six types of books of original entry.
3. State four components of an original entry.
4. Give two advantages and two disadvantages of books of original entry.

Assignment

1. Explain the difference between a journal entry and a ledger entry.
2. State what is recorded in each of the following: sales journal, purchases journal, returns inwards journal and returns outwards journal.