Topic 3: Recording of Business Transactions – Book Keeping Notes Form One New Syllabus

Meaning of  Books of Prime Entry

Books of prime entry:

Are the books in which transactions are recorded before being posted to their respective ledgers.

Books of prime entry:

Are the books of account that are used to record any transaction for the first time.

When a particular transaction has occurred for the first time in a business should be entered into the primary books known as books of prime entry/books of original entry/ subsidiary books/daily books/ journals before being posted to their respective ledger accounts.

The word Journal is adopted from a French word which means “daily recording”

THE TYPES OF  BOOKS OF PRIME ENTRY:

There six (06) types of books prime entry which are;

• Purchases day book (purchases journal)
• Sales day book (sales journal)
• Purchases returns day book (Returns outwards journal)
• Sales returns day book (Returns inwards journal)
• Cash book
• Journal proper (General journal)

USE OF BOOKS OF PRIME ENTRY:

The following are brief descriptions and purpose of each of the book of prime entry:

• Purchases day book (purchases journal): this journal is used to record details of goods bought by the business with the promise that payment will be made in the future.
• Purchase returns daybook (purchase returns journal): the purchase returns daybook is used to record transactions related to purchase returns, or returns of goods to suppliers who supplied goods on credit (creditors).
• Sales day book (sales journal): is the journal used to record details of goods sold on credit with the promise that payment will be received in the future.
• Sales returns daybook (sales returns journal): this book is used to record details of transactions related to sales returns, or returns of goods from customers to whom goods were sold on credit (debtors).
• Cash book: is the book used to record transactions related to receipt and payment of cash as well money placed into the bank (bank deposits) and those taken from the bank (bank withdrawals).

Cash book is divided into different categories which are

• Single columns cash book.
• Two columns’ cash book.
• Three columns’ cash book.
• Petty cash book

General journal (journal proper)

this book of prime entry is used to record transactions related to other items, which according to their nature are not recorded in any other books of prime entry.

SOURCE DOCUMENTS/ACCOUNTING INFORMATION

These are documents from which transactions to be recorded in the books of prime entry are extracted. They are documents used in the books of prime entry.

These documents are used in the books of prime entry. Source documents can be summarized as follows

INVOICE

This is a document issued when goods are sold or bought on credit.

Sales invoice is issued when goods are sold on credit whereas purchases invoice is issued when credit purchases are made.

Invoices are used in preparation of sales day book and purchases day book.

DEBIT NOTE

is the document prepared and sent by the seller to the buyer to adjust undercharges on the invoice.

This document is used by the buyer in preparation of Purchases returns day book/ Returns outwards journal

CREDIT NOTE

is the document sent by the seller to the buyer to correct an overcharge on an invoice.

This document is used in preparation of sales returns day book/ returns inwards journal.

CHEQUE:

This is a written order by a customer to his/her bank to pay a specified sum of money to the named person at a specific period of time.

Is the document used by the drawer to withdraw cash from his or her account.

This document is used in preparation of a cash book.

PAY-IN-SLIP:

This is a bank deposit form filled in by depositor and stamped by a teller as evidence of accepting the deposit.

WITHDRAW SLIP:

This is a document filled by a person withdrawing money from the bank upon being accepted by the bank teller.

CASH RECEIPT/ CASH RECEIPT VOUCHER:

is the document that acts as proof that cash has been received. Money could be received from customer for cash sale of goods or goods, or cash received when a credit customer settles his or her debt with the business.

PAYMENT VOUCHER:

is the document that presents evidence that money has been paid.

Money might be paid to the supplier for cash purchase of goods or service or settlement of account payable for goods previously bought on credit.

PETTY CASH VOUCHER:

is the document used by a petty cashier as evidence for making small payment from petty cash fund. This document is used in preparation of Petty Cash  Book.

STATEMENT OF ACCOUNT:

is the document sent by the seller to the buyer at the end of every period (usually each month) acting as a reminder to the buyer to pay the outstanding balance.

JOURNAL VOUCHER:

is the document that provide evidence of authorization for all transaction other than those which are evidenced by the previously mentioned source documents. This document is used in the preparation of General journal or Journal proper.

PREPARATION OF  BOOKS OF PRIME ENTRY:

As per the accounting cycle or process introduced in chapter one, once transactions are identified they are entered in the  books of prime entry, followed by posting the entries to relevant ledgers account. In section, you are going to learn the six special journal and how information from source documents is entered followed by the general journal.

CASH BOOK:

This is a book where receipts or payments are recorded. This book is both a ledger and a book of prime entry. Receipts and payments entered in on debit side and credit side respectively.

Receipt/cheque:

are documents which are used to obtain information to prepare Cash book.

Moreover, an account has four columns in both Dr and Cr sides of account namely: The format of a Cash account is illustrated below;

DR    CASH BOOK    CR

Date	Particulars	Folio	Amount	Date	Particulars	Folio	Amount

Date column:

Is the column used to record the date at which the given transaction took place.

Particulars/narration/details:

Is the column used to record a short description of the transactions that took place.

Folio column:

is the column used to record the reference page in books of account.

Amount column:

is the column used to record the amount of money that used in purchasing or selling the goods.

Example 1: Kafuku commenced business on 1^st January 2022 with Capital in cash TZS 200,000. Her transactions during the month were as follows:

January 2. Purchased goods for cash	40,000
3. Sold goods for cash	10,000
3. Paid rent for cash	60,000
4. Cash purchases	16,000

6. Paid postage charger	1,000
13. Commission received for cash	50,000
17. Paid salaries for cash	9,600
19. Paid adverting expenses for cash	7,000
24. Bought furniture for cash	10,000
28. Paid wages for cash	16,000

Required:

Draw up a cash book, balance it and bring down the balance to the following months

DR.    CASH BOOK    CR.

Date	Particulars	Folio	Amount	Date	Particulars	Folio	Amount
2022				2022
Jan. 1	Capital	2	200,000	Jan. 2	Purchases	3	40,000
3	Sales	4	10,000	3	Rent	5	60,000
13	Commission	7	50,000	4	Purchases	3	16,000
	Received			6	Postage	6	1,000
					Charges
				17	Salaries	8	9,600
				19	Advertising	9	7,000
					Expenses
				24	Furniture	10	10,000
				28	Wages	11	16,000
				31	Balance	c/d	100,400
			260,000				260,000
Feb. 1	Balance	b/d	100,400

Example 2: Moshi & his Son Islam started business with a capital of Tsh 60000, on 1st September 2022. During the month the following transaction took place: –

Sept 2, Purchased of goods for cash Tsh 3000 Sept 4, Paid carriage charge Cash Tsh 2000 Sept 6, Paid Transport charge Cash Tsh 4000

Sept 8, Bought Motor Vehicle for cash Tsh55000 Sept 10, Cash Sales Tsh 44000

Sept 12, Paid Rent for Cash Tsh1500

Sept 15, Paid commission charge Tsh 1000

Required: Records the above transaction into Cash book account and bring down the balance as on 30th September 2022.

DR    CASH ACCOUNT    CR

SALES DAY BOOK

Sales day book is in which sales made on credit are recorded. It is a book of original entry that contains the list of credit sales made in a business. It is also known as sales journal

Sales invoice:
is a document prepared and issued by a seller to the buyer containing information about goods sold on credit. This information includes name, quantity and prices of the products sold.

Format of the sales day  book:

The sales day book has six columns which are:

• Date:

this column is used to write the date, month, and the year of the transaction. Generally, it shows when the transaction took place.

• Particulars:
  this column gives a short description of the entry for the transaction recorded.
• Folio:

this column records page of reference in  books of accounts.it indicates in what ledger and on what page the transaction has been posted.

• Invoice number:

this column records the details of the invoice number which identify the invoice received when a particular transaction was made.

• Invoice details:

this column records the details of the invoice involved in the transaction.

• Invoice total:

this column records the total amount of money being transacted.

SALES DAY BOOK

Date	Particulars	Folio	Invoice Details	Invoice Total

Example 1.

Co-operative shop made the following purchases during the month of August, 2021.

August 1. Credit sales to Mwangomo

100 bags of Rice @ 550/= 50 bags of sugar @ 750/=

August 5. Sold to Dons and Sons Ltd.

10 boxes of cooking fat @ 320/= 12 pairs of sandals @ 150/=

August 10. Credit sales to Shilabela Traders.

20 pairs of bed sheets @ 170 50 shirts @ 350/=

August 15. Sold to Michael and Sons Ltd

2 cartons of Malaika soap @ 500/=

Required:
Draw up the Sales journal for the months.

SALES DAY BOOK/SALES JOURNAL

Example 2. On 1^stDecember 2022 Mr. Kasoma started the business and the Transaction during the year was as follows:

Dec 1^stSold the following goods to Kimatah Gilagiza companies 5 Crown colour each Tshs 7,000

11 Cement each Tshs 22,000

4 Cartons of Nyati cola each Tshs 11,000

10^th Dec 2022. Said Mrisho Kanyegeli supplier of Mwamgongo village received the following item sold to him.

6 Boxes of cigarette @ 5000

9 Carton of shoes shs 4500 per carton

10 Boxes of Tanga milk shs 9000 @

16^th Dec 2022, Sold the following items to Mwimbe General Supplier 15 Boxes of shoes @ Shs 12,000

60 Crates of Coca-Cola @ 23,00

10 Breads @ 850 and 6 cakes @ 2,500.

Required: Enter the above transactions in the Sales Journal

Answer    Mr. KASOMA

SALES JOURNAL

PURCHASES DAY BOOK/ PURCHASES JOURNALS

This is a book of original entry where credit purchases are recorded before being posted to the ledger. It contains amount of goods are bought on credit.

Purchases invoice: is the document that used in preparation of purchases day book.

Note:
Cash Purchases are not entered in the purchases journal.

Format of the purchases journal:

The sales day book has six columns which are:

• Date:

this column is used to write the date, month, and the year of the transaction. Generally, it shows when the transaction took place.

• Particulars:

this column gives a short description of the entry for the transaction recorded.

• Folio:

this column records page of reference in books of accounts.it indicates in what ledger and on what page the transaction has been posted.

• Invoice number:

this column records the details of the invoice number which identify the invoice received when a particular transaction was made.

• Invoice details:

this column records the details of the invoice involved in the transaction.

• Invoice total:

this column records the total amount of money being transacted.

PURCHASES DAY BOOK