Source Documents and Books of Original Entry
The flow of information
Every transaction begins with a source document that provides evidence: invoices, credit notes, receipts, cheque stubs, petty cash vouchers, bank statements and debit/credit notes. From these, entries are made in the books of original entry (journals), then posted to the ledger.
The books of original entry
Know each book and its source document:
- Sales journal (day book): credit sales, from sales invoices.
- Purchases journal: credit purchases, from purchase invoices.
- Sales returns journal: goods returned by customers, from credit notes issued.
- Purchases returns journal: goods returned to suppliers, from credit notes received.
- Cash book: cash and bank receipts and payments.
- General journal: everything else - opening entries, corrections, purchase/sale of non-current assets on credit, bad debts written off.
Traps to watch
A common error is recording cash sales in the sales journal; only credit transactions belong there. Another is confusing the sales returns journal (goods returned by customers) with the purchases returns journal (goods returned to suppliers). Remember that the cash book is both a book of original entry and a ledger account. Also, the general journal is used for adjustments and corrections, not routine credit sales. Watch whether a source document is an invoice or a credit note.
Rule of thumb
Ask two questions: "Was it on credit?" and "Did goods come back?" If credit and no return, use the sales or purchases journal. If goods returned, use the appropriate returns journal. Anything else goes to the general journal.
Worked example
A customer returns goods bought on credit. The document is a credit note issued, and the entry goes in the sales returns journal, then debited to the customer's account.