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The purpose of the books of prime entry

This video will walk through the purpose of prime entry and where it fits into the overall accounting process.

In a typical business there will be a great number of transactions to be recorded. If we were to record each transaction individually, straight into the accounts, they would get cluttered.

In order to simplify the process (and exercise greater control) we divide the recording of the transactions into parts.

  1. The first part is entering the transaction into the appropriate book of prime entry (day book). We will focus on this in this activity.
  2. The second part is recording the totals from these day books into the general ledger which contains many different ledger accounts. We will look at this in detail in Week 3.
  3. The third part is to ensure transactions are recorded in the subsidiary ledger which may also be referred to as a memorandum ledger. Recording transactions within subsidiary ledgers is also coming up in Week 3.

Don’t worry about all these new terms for now – as we progress we will talk through them in detail.

Remember, you can get a feel for what they mean in the glossary we saw in week 1, you can find it again in the Downloads section below.

Watch the video above to see how this process works. The overview diagram the Kaplan tutor talks you through, for now is to just to show you the bigger picture – again as we progress we will visit each of the areas she mentions.

A summary of the books of prime entry

A book of prime entry is the place where the transaction (which is detailed on a business document) is first recorded in the books of the business.

There are several day books. Let’s have a look at them in turn:

The sales day book (SDB)

In a typical business there will be numerous sales transactions to be recorded. Credit sales are recorded in the sales day book. We will review how cash sales are recorded when we study the cash book later in this activity.

The sales day book is basically a list of the sales invoices that are to be processed for a given period (e.g. a week).

In its simplest form, the SDB will comprise just the names of the customers and the amount of the invoices issued in a particular week, however the more the customers the business has and the more credit sales there will be further columns included for coding to help identification of the transaction and customer.

The purchases day book (PDB)

As seen earlier in the chapter, credit sales are recorded in the ‘sales day book’. In the case of credit purchases, we have the ‘purchases day book’.

The purchases day book is basically a list of the purchases invoices that are to be processed for a given period (e.g. a week).

In its simplest form, the purchases day book will comprise just the names of the suppliers and the amount of the invoices received in the week. Again, as with the SDB, the more the suppliers the business has and the more credit purchases there will be further columns included for coding to help identification of the transaction and supplier.

Both the SDB and the PDB are lists, the totals of which are used to perform the accounting entry – which is part of the double entry bookkeeping process, which we will cover next week.

The cash book (CB)

A cash book is a record of cash receipts and payments that can form part of the double entry bookkeeping system as well as being a book of prime entry.

There are various forms of cash book, a ‘two-column’ and a ‘three-column’ cash book.

The difference between a two-column cash book and a three-column cash book is that a three-column cash book incorporates discount columns (we will cover discounts in Course 2 of this ExpertTrack – Accounting transactions: further considerations).

We will focus on a two-column cash book here.

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Introduction to Accounting and the Accounting System

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