THE BOOKS OF ORIGINAL ENTRY AND SOURCE DOCUMENTS

THE BOOKS OF ORIGINAL ENTRY AND SOURCE DOCUMENTS

The books of original entry constitute one of the two books of accounting. The other is the principal books which is the ledger.

The books of original entry could be defined as the books into which transactions are recorded on daily basis from the source documents and from which transfers are made at suitable intervals to the relevant accounts in the ledger.

They are also referred to as subsidiary books or books of prime entry. The subsidiary books include:

Sales Day Book / sales journal: for recording credit sales

Purchases Day book / Purchases Journal: for recording credit purchases.

Returns Inwards Day Book / Returns Inward journal / sales returns day book / Journal: for recording returns from customers.

Returns Outward Day Book / returns inward journal / sales returns Day book / journal; for recording returns to suppliers.

Cash Book: for recording receipts and payment of money.

Journal Proper / Principal Journal / General Journal: For recording other transactions.

SOURCE DOCUMENTS

These are documents used to capture transactions at the point of occurrence and from which the subsidiary books are recorded. They are documentary evidence for the transactions. They include invoice, credit note, debit note, petty cash voucher, statements of accounts, receipts. They provide detail information about the transactions

Credit Note: This is sent to a customer to show reduction in the amount owned by him for any reasons. It must be printed on red to avoid confusion with invoices.

Invoices: Invoices specify the full details of goods supplied to a buyer, e,g, quantity, price, discount, terms of payment.

Debit Note: This is issued to customers to correct an undercharge. When goods are returned by customers, they may also use it to claim the allowance due to them.

Petty Cash Voucher: This shows payments made from petty cash.

Statement of Accounts: This is a document sent by the seller to the buyer at regular intervals showing the credit and debits to the customer’s account and balance due.

Other source documents include: pay-in-slip of banks and cheque counterfoil as well as any other correspondence containing other financial information.

SUBSIDIARY BOOKS	SOURCE DOCUMENTS
Purchases Day Book	Incoming invoices, Debit notes  received.
Sales Day Book	Outgoing invoices, debit note issued.
Returns Outward Book	Debit notes sent out, Credit notes received
Returns Inward Book	Credit notes sent out, Debit notes received from customers.
Cash Book	Till slips, incoming cheques Receipts, cheque counterfoils
Petty Cash Book	Petty cash voucher

The sales journal, purchases journal, sales returns journal, purchases returns journal as well as General journal are ruled so that there is a column for date, details, folio, and amount. The folio shows the ledger in which the entry is contained. There may also be a column for invoice number.

Posting to Ledger

The totals of purchases Day Book is posted to the debit side of the purchases account at regular and convenient intervals. The totals of sales Day Book is posted to the credit side of the sales account.

Similarly, the totals of returns inward journal and returns outward journal are posted to their respective accounts in the general ledger. In this way, the subsidiary books help to reduce the number of entries made in the concerned ledger accounts. It is assumed that credit sales and credit purchases are much larger in volume than cash sales and cash purchases. If the reverse is the case, the objective of taking unnecessary details out of the ledger can be achieved by using these day book for cash sales and cash purchases.

Example: F. Babangida of Lawal Street Plateau is selling the following items at the recommended retail prices as shown: Tape at N10 per roll, green felt at N4 per meter, blue cotton at N6 per sheet, black silk at N20 per dress length. He make the following sales:

2013 May 1          To F. Gambo, 3 Kigbu road Plateau:

3 rolls of rolls of tape, 5 sheets of blue cotton, I dress length black silk., 30 metres green felt,  Less 25% trade discount

4                 To A. Gambo, 1 Sharaton road Abuja: 6 rolls tape, 30 metres green felt, less 33¹/₃ percent trade discount.

8.                To E. Hanatu, 1 Hausa Street Aba: 1 dress length black silk. No trade discount.

20               To M. Allen. I Kadiri street shomolu: 10 rolls tape, 6 sheet blue cotton, 3 dress length black silk, 11 metres green felt, less 25% trade discount.

31               To B. Chibu, 1 Trans Amadi lane Port Harcourt: 12 rolls tape, 14 sheets blue cotton, 9 metre green felt. Less 33¹/₃ percent trade discount.

a.     Draw-up the sales invoice for each of the sales

b.     Record the sales day book

c.      Post to personal accounts

d.     Transfer to sales account

F. Babangida

Lawal Street,

Plateau.

1/5/2013

F. Gambo,

3. Kigbu Road,

Plateau.

SALES INVOICE NO 001
	Unit price (N)	Total (N)
3 rolls of table	10	30
30 metres of green felt	4	120
5 sheet of blue cotton	6	30
1 dress length black silk	20	20
Less 25% trade discount		200 (50) 150

F. Babangida

Lawal Street,

Plateau.

4th May 2013

A Gambo,

1, Sharanton road

Abuja.

INVOICE NO 002
	Unit price (N)	Total (N)
6 rolls of table	10	60
30 metres of green felt	4	120
Less 331/3% trade discount		180 (60) 120

F. Babangida

Lawal Street,

Plateau.

8th May 2013

E. Hanatu

1, Hausa Street, Aba.

INVOICE NO 003
	Unit price (N)	Total (N)
1 Dress length black silk	20	20

F. Babangida

Lawal Street,

Plateau.

20/5/2013

M. Allen

1, Kadiri Street

Shomolu - Lagos

INVOICE NO 004
	Unit price (N)	Total (N)
10 rolls tape	10	100
6 sheet blue cotton	6	36
3 dress length black silk	20	60
11 metres green felt	4	44
Less 25% discount		240 ( 60) 180

F. Babangida

Lawal Street,

Plateau.

31/5/2013

B. Chibu

1, trans Amadi Lane

Port Harcourt

INVOICE NO 005
		Unit price (N)				Total (N)
12 rolls of table		10				120
14 silk blue cotton		6				84
9 metres green felt		4				36
Less 331/3% trade discount						240 ( 80) 160
Sales Day Book
Date	Particulars		Invoice Ni	Folio	Amount (N)
1/5/2013	F. Gambo		001	S.L	150
4/5/2013	A. Gambo		002	S.L	120
8/5/2013	E. Hanatu		003	S.L	20
20/5/2013	M. Allen		004	S.L	180
31/5/2013	B. Chibu		005	S.L	160
	Transfer to sales A/C			G.L	630

F. Gambo A/C
	N	N
1/5/13	Sales          150

A. Gambo A/C
	N	N
4/5/13	Sales          120

E. Hanatu A/C
	N	N
8/5/13	Sales           20

M. Allen A/C
	N	N
20/5/13	Sales          180

B. Chibu A/C
	N	N
31/5/13	Sales          160

Sales A/C
	N	N
		31/5/13 Credit Sales for the month         630

The purchases day book is based on the same principles as sales day book except that its total would be transferred to the purchase account in the general ledger (debited). And the personal accounts appearing in the purchases journal would be credited with the amounts of goods bought from them. Their accounts are found in the purchases ledger.

Returns Inwards Day Book

When goods are returned into the firm by a customer, the customer is issued a credit note as an acknowledgement of receipts of the goods and a reduction of his indebtedness to the firm. Then the following steps are followed.

i.                   From the credit note, record the transaction in the returns inwards journal.

ii.                 Credit the personal account of the customer with the amount of goods returned or allowance allowed.

iii.              At the end of the month or other convenient interval, sum-up the sales returns day book and debit the sales account in the general ledger with the total.

Returns Outwards Day Book

When goods are returned to the supplier by the firm, a debit note is sent by the firm (customer) to the supplier. The credit note received from the supplier will simply be an evidence of the suppliers agreement and the amounts involved. The same steps used in Returns Inwards Day Book are used here except that the personal accounts of the suppliers in the purchases ledger are debited while the Return Outwards account in the General Ledger is credited with the total of the returns outward journal.

Example:

You are to enter the following items in the appropriate books, post to personal accounts and show the transfers to the General Ledger.

2014

July 1,         Credit purchase from K. Hanatu N380, M. Nairobi N500, N. Sopuru N106.

3,         Credit sales to E. Rowland N510, E. Philips N246, F. Thompson N356.

5,         Credit purchases from R. Madu N200, J. Chima N180, D. Edwards N410, C. Dantaini N66.

8,         Credit sales to A. Green N307; H. George N250; J. Fata N185.

12,       Returns Outwards to: M. Nairobi N30; N. Sopuru N16.

14,       Returns Inwards from: E. Philips N18; F. Thompson N22.

20,       Credit sales to E. Philips N188; F. Pedro N310. E. Laraba N420.

24,       Credit purchases from: C Fata N550; K. Eni N900.

31,       Returns Inward from: E. Philips N27; E. Rowland N30.

31,       Returns Outwards to: J. Chima N13; C. Dantaini N11.

Purchases Journal

Date	Particulars	Folio	N
1/7/14	K. Hanatu M. Nairobi N. Sopuru	P/L P/L P/L	380 500 106
5/7/14	R. Madu J. Chima D. Edward C. Dantaini	P/L P/L P/L P/L	200 180 410 66
24/7/14	C. Fata K. Eni	P/L P/L	550 900_
31/7/14	Transfer to Purchase account	G.L	3,292

Sales Day Book

Date	Particulars	Folio	N
3/7/14	E. Rowland E. Philips F. Thompson	S.L S.L S.L	510 246 356
8/7/14	A. Green H. George J. Fata	S.L S.L S.L	307 250 185
20/7/14	E. Philips F. Pedro E. Laraba	S.L S.L S.L	188 310 420__
31/7/14	Transfer to sales A/C	G.L	2,772

Returns Inwards Day Book

Date	Particulars	Folio	N
14/7/14	E. Philips F. Thompson	S.L S.L	18 22
31/7/14	E. Philips E. Rowland	S.L S.L	27 30
31/7/14	Transfer to R.I A/C	G.L	97

Returns Outwards Day Book

Date	Particulars	Folio	N
12/7/14	M. Nairobi N. Sopuru	P.L P.L	30 16
31/7/14	J. Chima C. Dantaini	P.L P.L	13 11
31/7/14	Transfer to R.O A/C	G.L	70

·        The personal accounts in the purchases journal will be credited while the purchases account would be debited with the total of the journal.

·        The personal accounts in the sales journal would be debited while the sales account would be credited with the total of the journal.

·        The personal accounts in the returns outwards journal would be debited while the returns outwards account would be credited with the total of the journal.

·        The personal accounts in the Returns Inwards journal would be credited while the Returns Inwards account would be debited with the total of the journal.

THE CASH BOOK

The cash book is the book for recording detailed particulars of all money received and paid. It is a subsidiary book and it is really part of the ledger. It therefore combines the function of subsidiary books and principal books.

The cash book consists of the cash account and bank account extracted from the ledger and combined in one book. There are 2 – column cashbook and 3 – column cashbook.

2 – Column Cash Book

This cashbook has two columns on both sides for cash transactions and bank transactions. These are in addition to the other regular columns of a standard ledger, that is; Date, Particulars and Folio. The folio is used to indicate the other book and page number in which the double entry for the given transaction is completed. Cash received and money deposited into the bank are debuted to the cash and bank columns respectively.

Contra Entry: Contra entry is an entry such that a given transaction is recorded on both sides of a given ledger. In the cash book contra entry is made when cash is deposited into the bank out of cash in hand or when cash is withdrawn from the bank account for office use. In such as a “C” is written in the folio column.

Overdraft: This is a situation where more money is withdrawn from a bank account than has been deposited into it. This means that the bank account would be a credit balance.

Example:

On 1^st April 2013, Nnamdi, a trader had N24,375 as cash in hand and a balance of N468,900 in his bank account. The following are his transactions for the month.

April 3        Received the sum of N79.875 from A. Bola in cash

          6,       Received the sum of N15,000 in cash from O Kunle

6        Settled the account of Ponle and Co N54,000 by cheque after deducting 5% of cash discount

7        Deposited N37,500 into the bank.

8        Paid wages of N56,200 by cash.

13      Paid BB Brothers account of N16,500 less 2½% by cash.

15      Laraba settled her account of N56,250 less 5%

April 19      Received a cheque of N64,125 from Biodu after allowing a discount of N3,375. The cheque was deposited into the ban immediately.

20              Paid tax office the sum of N5,065 by cash

21              Received cash of N49,500 less 2½% discount from Julius Chizea; paid wages of N56,250 in cash.

26      Chukwu’s account of N41,250 was settled by cheque after deducting 5% discount.

27      Received from Olu Samoda the sum of N106,875 after allowing a cash discount of N5,625.

28      Paid wages by cheque N56,250 and withdrew N3,750 by cheque for private use.

Discount Received A/C
N 30/4/13 Bal c/d 14,174	N 6/4/13 Ponle & Co      2700
	13/4/13 BB. Brothers    412
	26/4/13 Chukwu           2062
	19/4/13 Biodun            3,375
	27/4/13 O. Samanda    5,625
14,174	14,174

Date	Particulars	Folio	N Cash	N Bank	Date	Particulars	Folio	N Cash	N Bank
1/4/13	Bal b/d		24,375	468,900	3/4/13	Pole & Co			51,300
3/4/13	A. Bola		79,875	-	7/4/13	Bank	C	37,500	-
6/4/13	O. Kunle		15,000
7/4/13	Cash	C	-	37,500	8/4/13	Wages	-	56,200	-
15/4/13	Laraba		53,438	-	13/4/13	B.B Brothers		16,088	-
19/4/13	Biodun		-	64,125	20/4/13	Tax		5,065	-
21/4/13	J.Chisea		49,500	-	21/4/13	Wages		56,250
27/4/13	Olu Samanda		106,875	-	26/4/13	Chukwu		-	39,188
					28/4/13	Wages		-	56,250
					``	Drawings		-	3,750
			______	______	30/4/13	Bal c/d		157,960	420,037
			329063	570,525				329063	570,525
1/5/13	Bal b/d		157,960	420,057

You are required to prepare a 2-column cash book for Nnamdi for the month of April 2003. And show the discount received and allowed accounts.

Discount Allowed A/C
15/4/13 Laraba         2,812	30/4/13            Bal c/d
19/4/13 Biodun        3,375
21/4/13 J. Chisea      1,296
27/4/13 O. Samanda 5,625                                                         13,108	30/4/13       Bal c/d     13,108                        13,108

3 – COLUMN CASH BOOK

In addition to the columns already in the 2 – column cash book, this cash book has a third column which is used for recording discounts allowed, or received. It has to be emphasized that the discount column is a memorandum column just like sales journals, purchases journal, and journal proper. A memorandum record is one which is not a part of double entry record. The cash discounts allowed is recorded in the discounts column on the debit side while the cash discount received are recorded in the one on the credit side. At the end of the month or some other convenient interval, the totals of the discount allowed column is debited to the discount account while the total of the discount received is credited to the discount received account both in the general ledger.

A cash discount is the amount allowed off debts to encourage settlement of debts within a specific period of time.

Example: Using the information given in the immediate past example; prepare a three column cash book and show the discount received and allowed accounts.

Date	Particulars	Folio	Disc	N Cash	N Bank	Date	Particulars	Folio	Disc	N Cash	N Bank
1/4/13	Bal b/d		-	24,375	468,900	3/4/13	Pole & Co		2,700		51,300
3/4/13	A. Bola		-	79,875	-	7/4/13	Bank	C	-	37,500	-
6/4/13	O. Kunle		-	15,000
7/4/13	Cash	C	-	-	37,500	8/4/13	Wages	-	-	56,200	-
15/4/13	Laraba		2,812	53,438	-	13/4/13	B.B Brothers		412	16,088	-
19/4/13	Biodun		3,375	-	64,125	20/4/13	Tax		-	5,065	-
21/4/13	J.Chisea		1,296	49,500	-	21/4/13	Wages		-	56,250
27/4/13	Olu Samanda		5,625	106,875	-	26/4/13	Chukwu		2062	-	39,188
						28/4/13	Wages		-	-	56,250
						``	Drawings		-	-	3,750
				______	______	30/4/13	Bal c/d		-	157,960	420,037
			13,108	329063	570,525				5,174	329063	570,525
1/5/13	Bal b/d			157,960	420,057

Discount Received A/C
N	N 30/4/13 Sundries        5,174

Discount Allowed A/C
N 30/4/13 Sundries        13,108	N

It can be seen from this example that the entries in the ledger accounts of discount allowed and received have been reduced to one piece. It is important to note that the discount that reflects on the 3 – column cash book is cash discount but not trade discount of which there is no double entry required but only acknowledgement in the sales invoice or purchase invoice.

THE ANALYTICAL PETTY CASHBOOK AND THE IMPREST SYSTEM

The analytical petty cash book is a cash book created for recording small frequent cash payments in the operations of a business. In this cash book an analysis column is maintained for each expense heading. The total of each column is transferred to the debit of the appropriate ledger account at the end of the period or some other desirable interval. The following are its advantages:

(1)   The handling and recording of small cash payments could be delegated to a junior staff known as petty cashier to save the main cashier from routine work.

(2)   It would save the cash book and the ledgers from small frequent entries by reducing the number of entries, per period, to be made in them.

The Imprest System: This is a system in which the cashier gives enough cash to the petty cashier to meet the petty cash needs for the following period. At the end of the period or when the petty cash is almost exhausted, the petty cashier shall apply for reimbursement of an amount equal to the total amount disbursed. That regular amount maintained as petty cash is known as petty cash float.

Example:

The following is a summary of petty cash transactions of a business organization for the month of June 2014. The business maintains a petty cash float of N50,000.

                                                                                                N

June 1         Petty cash float given to the petty cashier                     -

          3        Postages                                                               2000

          5        Transport fare                                                      4,500

          8        Cleaning materials                                                3,500

          9        Stationery                                                            1,700

          14      Petrol for delivery van                                          8,800

          16      Taxi fare                                                               3,900

          20      Postage                                                                 1,800

          21      Disinfectant for cleaning toilet                                       2,800

          23      Petrol for general manager’s car                          6,600

          24      Service of delivery van                                         4,000

          28      Writing materials                                                 3,100

          30      Transport fare                                                      1,200

You are required to rule up a petty cash book with columns for postages, transport and traveling, cleaning, stationery and motor expenses and enter the months transactions, the cashier being reimbursed on 30^th June 2014 .

Receipts N	Folio	Date	Details	Total N	Postages N	Transport & Traveling N	Cleaning N	Stationary N	Motor expenses N
50,000	CB	1/6/14	Cash	-
		3/6/14	Postage	2000	2000
		5/6/14	Trans. Fare	4,500	-	4,500
		8/6/14	Cleaning	3,500	-	-	3,500
		9/6/14	Stationery	1,700	-	-	-	1,700
		14/6/14	Petrol for Del. Van	8,800	-	-	-	-	8,800
		16/6/14	Taxi fare	3,900	-	3,900	-
		20/6/14	Postages	1800	1,800	-	-
		21/6/14	Disinfectant	2,800	-	-	2,800
		23/6/14	Petrol for G.M car	6,600	-	-	-		6,600
		24/6/14	Service. For Del. Van	4,000	-	-	-		4000
		28/6/14	Writing materials	3,100	-	-	-	3,100	-
		30/6/14	Trans. Fare	1,200	-	1,200	-		-
			Total	43,900	3,800	9,600	6,300	4,800	19,400
43,900 93,900 50,000	CB	30/6/14	Cash  Bal c/d Bal b/d	50,000 93,900

·        When a non-petty cash expense item is paid from petty cash, a column for that expense ledger account is created in the petty cash book for recording such expense.

THE JOURNAL

The journal could be defined as a book of original entry in which transactions of special nature, which can not be recorded in the other books of prime entry, are recorded in chronological order.

It is also known as Journal Proper, general journal, principal journal or just journal. The advantages of using journal include the following:

i.                   It provides a convenient record of transactions in chronological order. This helps to make fraud by books keepers more difficult.

ii.                 It helps reduces the risk of omission of transaction since it instructs which accounts to be debited or credited.

iii.              It provides explanations for complicated entries in the ledger.

Some of the main uses of the journal include but not limited to the following:

i.                   Opening entries

ii.                 Closing entries

iii.              The purchase and sale of fixed asset on credit

iv.              The correction of errors in the ledger accounts

v.                 Adjustment to any of the entries in the ledger.

The layout of the Journal:

-         The date

-         The name of the accounts to be debited and the amounts

-         The name of the accounts to be credit and the amounts

-         A description and explanation of the transaction.  This is called narrative.

-         A folio reference to the source documents giving proof of the transaction.

The general journal is therefore ruled to provide columns for:

Date: This shows the date the transaction

Details / Particulars: This shows the name of accounts to be debited and credited as well as the narrative which is a small explanation of the transaction and the source document reference.

Folio: this shows the ledgers containing the accounts with their page numbers.

Debit column: This shows the amount debited

Credit column: This shows the amounts credited

Opening Entries:

These are entries needed to open a new set of books.

Example:

J. Babangida after being in business for some years without keeping proper records, now he decides to keep a double entry set of books on July 1 2013, he establishes that his assets and liabilities are as follows:

Assets: Van N3,700; Fixtures N1,800; Inventory N4,200, Debtors: B. Yohanna N95, D. Buchi N45; Bank N860; Cash N65.

Liabilities: Creditors – M Queen N129, C. Wadada N410.

You are required to show the journal entries needed to open the new set of accounts.

Journal

Date	Particulars	Folio	Dr	Cr
1/7/13	Van Fixtures Debtors: B. Yohanna                D. Buchi Inventory Bank Cash Creditors: M. Queen                 C. Wadada Capital Being Asset and liabilities at this data entered to glor the books	G.L G.L S.L S.L C.L C.L P.L P.L G.L	N 3,700 1,800     98     45 4,200    860      65 10,765	N 129 410 10,226 10,765

2. Closing Entries: These are entries required to close down accounts. For example writing of a bad debt.

Example: A debt of N780 owing to us by Hmmadu is written of on August 31, 2014. Show the journal entries required to close the debtors account.

Date	Particulars	Folio	Dr	Cr
31/7/13	Bad debts   H Mmadu Being debt written off as bad debt		N 780	N 780

Bad Debts A/C
N 31/8/14 H.mmadu    780	N

The ledger accounts will appear as follows

H. MMadu A/C
N Bal.         780	N 31/8/14 Bal Debts    780

3. The purchase and sale of fixed assets on credit.

Example:

A drilling machine is bought on credit from John Holt Nigeria Ltd for 100,550 on July 1, 2014 show the journal entry required and the ledger accounts.

Date	Particulars	Folio	Dr N	Cr N
1/7/13	Machinery                         John Holt Nig Ltd Being purchase of drilling machine on credit purchase invoice No xx71	G.L G.L	100,550	100,550

4. Adjustments to any of the entries in the ledger: This includes all necessary changes that are needed to be made in the ledger accounts. e.g. transfers between accounts, cash discount / allowances on fixed assets e.t.c.

Example: K. Yahaya, a debtor owned N200,000 on 1 July 2014. He was unable to pay his account in cash but offers a four year old car in full settlement of the debt. This was accepted on July 10, 2014 show the journal entries.

Journal

Date	Particulars	Folio	Dr N	Cr N
10/7/13	Car      K. Yahaya Being accept in full settlement of debt		200,000	200,000

Example:

We have only paid 50% of the cost a computer we bought from Zinox Nig Ltd for N40,000 when we discovered it was faulty on July 5, 2014, the computer was returned to the supplier who offered an allowance of N10,000 off his balance. Show the journal entry required to effect the charges that have occurred.

Correction of Errors:  These are mistakes identified in the ledger accounts before and after the final accounts. This will be treated in details later.

Note: From the examples, it can be seen that

(i)                The accounts to be debited are written first, followed by the accounts to be credited written indented to the right (through this practice is out of vogue).

(ii)             The narrative follows after the accounts must have been written.

(iii)           The totals of debit entries must be equal to the credit entries.

(iv)           The journal is not part of the ledger but only a form of diary that instructs how the ledger is to be completed and explains the reasons for such entries.