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

A book of original entry is the book in which a business first records its transactions, before they are posted to the ledgers.

• Other names: journal, book of first entry, book of preliminary entry.
• What is written: the details and description of each transaction, taken from invoices, receipts, vouchers and other bills.
• Next step: the entries are later posted to the ledger accounts.

Behavioural objectives

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

1. define a book of original entry;
2. explain how books of original entry are used;
3. list the types of books of original entry;
4. state the components of an original entry;
5. show a simple journal entry in the correct format;
6. give the advantages and disadvantages of books of original entry.

How are books of original entry used?

Books of original entry are used to record each transaction in order of date, before it is posted to a ledger account.

• Source documents: vouchers, invoices, receipts and bills give the evidence for each entry.
• Form of the book: the record may be kept in a journal, book, list, notebook, diary or leaflet.
• Entry: the act of writing the evidence and details of a business transaction in the appropriate book.
• Ledger: a book containing many accounts, with each transaction recorded in the correct ledger account.

The flow of a transaction

What is the difference between a journal entry and a ledger entry?

A journal entry is the recording of a commercial transaction in a journal.

A ledger entry is a transaction posted or transferred from a journal to a ledger account.

What are the types of books of original entry?

There are six types of books of original entry: the general journal, sales journal, cashbook, returns outwards journal, purchases journal and returns inwards journal.

• General journal: records transactions that are not recorded in the other journals.
• Sales journal: records sales invoices issued by the business when it sells goods on credit.
• Cashbook: records cash and bank receipts and payments.
• Returns outwards journal: records goods bought that are returned to suppliers.
• Purchases journal: records purchase invoices received from vendors when goods are bought on credit.
• Returns inwards journal: records goods sold that are returned by customers.

Summary table of the six books

What are the components of an original entry?

An original entry has six components: the date, business and transaction details, narration, monetary information, source document and ledger account details.

1. Transaction date

• Show the date on which the deal took place or was added to the account.
• Record each transaction under its correct date, in chronological order.
• Use the same date format for all transactions to keep the records uniform.

2. Business and transaction details

• Show the business involved in the credit transaction, such as the vendor or seller in a purchase.
• Include the essential business information in the general journal.
• Wrong or irrelevant details can cause problems in the ledger accounts.

3. Narration

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

4. Monetary information

• State the amount of money involved in the transaction.
• Show the debit and credit information of the transaction.

5. Source document

• Refer to the original document, such as a bill number in the case of a purchase.
• This makes the record more reliable.
• It helps the business find the document when it is needed.

6. Ledger account details

• Name the ledger account to which the transaction will be posted.
• Posting is done after the journal recording is complete.

What does a simple journal entry look like?

A journal entry is written in columns for date, particulars, folio, debit and credit, followed by a narration.

Example: On 5 March, a business bought furniture on credit from Bola Ltd for ₦80,000.

• Folio: the page number of the ledger account where the entry is posted.
• Debit: furniture is an asset that has increased.
• Credit: the business now owes Bola Ltd.

What are the advantages of books of original entry?

• Fewer omissions: daily transactions are written in the books of initial entry, so any transaction is less likely to be left out.
• Fewer posting errors: debit and credit accounts are shown in the journal, so errors in posting to a ledger are reduced.
• Easy sorting: transactions are in chronological order, so sorting and transferring them into the relevant ledgers is fairly simple.
• Errors can be traced: narrations and summaries are kept in the journal, so problems and inaccuracies can be found while posting to the ledgers.

What are the disadvantages of books of original entry?

• Bulky records: the books are large and come in many volumes, which makes the data hard to manage.
• Slow posting: posting all transactions to the individual ledgers takes a long time.
• Difficult searching: a transaction can be found only if the date is known, so searching the journals is 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

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