In business, there are daily numerous financial transactions. So, there is a separate books of prime entry to keep the track of the receipts and payments of this transaction.
The ledger accounts in a business are the main source of information that is used to prepare financial statements. While, if a business is required to update their ledgers then each time a transaction occurred, the ledger accounts would quickly become clustered and chances of errors might be made. This would also be a very lengthy process.
These books of prime entry are separated into:
The Sales Journal
This is used when a business has a lot of separate sale transactions. In this books of prime entry, the total is then entered into the ledger accounts. The Common use of this journal is to record credit sales from invoices issued
Purchase Journal
This journal lists the transactions for credit purchases from the invoices that are received. At the end of the day, week or month the total is transferred to purchase account
Returns Journal
Sales Returns, or Returns inwards, Journal
- For goods previously sold on credit and are being returned to the business by customers Purchase Returns or Returns Outwards Journal
- For goods purchased on credit by the business and is now being returned to the suppliers.
Books of Prime Entry in Accounting
In business, there are daily numerous financial transactions. So, there is a separate books of prime entry to keep the track of the receipts and payments of this transaction.
The ledger accounts in a business are the main source of information that is used to prepare. While, if a business is required to update their ledgers then each time a transaction occurred, the ledger accounts would quickly become clustered and chances of errors might be made. This would also be a very lengthy process.
To avoid all such complications, the transactions are first recorded in a book of prime entry. The main books of prime entry are:
- Sales daybook
- Purchase daybook
- Sales return daybook
- Purchases return daybook
- Bank Book
- Cash Receipts Book
- Cash Payments Book
- Petty Cash Receipts Book
- Petty Cash Payments Book
- Journal
Importance of Books of Prime Entry
Now we are quite sure that the Books of Prime Entry are very much prevalent in the business, for their advantageous characteristics. The following are the advantages of a journal:
- Provides a Chronological Record: books of prime entry Journal transactions in the occurrence of their date. Hence, it is possible to get day-to-day information.
- The Book of Prime Entry Minimizes the possibility of errors: The nature of the transaction affects the financial position of the business this is ascertained by recording and analyzing the transaction.
- Helps to finalize the accounts: With the book of prime entry, it provides a basis for ledger posting and the ultimate draft of the Trial Balance.
- Future references: References can be given to the financial transactions that become easy as these transactions are similar and are recorded in one journal.
- Few mistakes and can be detected easily: With the help of Prime Entry, the mistakes in the ledger accounts can be easily detected.
- Lessens the chance of business fraud, negligence, and mistakes: The Chronological recording of the financial transactions reduces the chance of business frauds, negligence, and mistakes.
- Journals are shown in clarity: Journals show all these transactions in great detail so the business is not mandated to rewrite them in detail in the ledger section, thus it keeps the ledger accounts brief and uncluttered.
- Perfect back-up of each other: If records are by chance lost then along with the ledger and the books of original entry the organization will get through. They act as a perfect backup for each other.
- Bases the control on one ground: Handling of each type of journal entry by a different member of the staff causes variation, this prevents a single person from having exclusive control on the accounting system. This leads to fraud and is difficult to make. Hence, it is more likely that errors would be identified by this system.
- Ensuring that the documents are not skipped: To ensure that the documents do not go unrecorded, the source of documents are normally copied twice with consecutive numbers and are noted in day books while recording the transactions.
The Significance of Prime Entry Books and Ledgers in both Integrated and Interlocking Accounting Systems
The term ‘ledger’ refers to a book. There are commonly three ledgers in accounting systems:
- Wages, sales, purchases, electricity, travel, advertising, rent, insurance, repairs, receivables, payables, and non-current assets are all recorded in the General or nominal ledger. Although cash and bank accounts are legally part of this ledger, they are frequently kept in a separate book due to the volume of cash and bank transactions.
- The Payables ledger (sometimes known as the creditors’ ledger or the purchase ledger) is a record of all payments made to creditors. Although the overall amount owing to suppliers is noted in the general ledger, the specifics of what is owed to whom are documented here as well. Each supplier has his or her account. The payables balance in the general ledger should match the total of the amounts owed in this ledger.
- The Receivables ledger (also known as the debtors’ ledger or the sales ledger) is a book that keeps track of money owed to you. The overall amount owed by customers is recorded in the general ledger, but the specifics of what is owed from whom are also noted here. Each credit consumer has his or her account. The total of the sums owing in this ledger should match the main ledger’s receivables balance.
You can also See the Video of Books of Prime Entry
These were the meaning and importance of The Book of Prime Entry.