Double-Entry Bookkeeping and Books of Prime Entry
What the domain tests
This domain tests whether you can record transactions from source documents into the books of prime entry, post them to the ledger, and explain the dual aspect. Exam tasks include journal entries, trade and cash discount calculations, and correcting postings.
Rules and records
Every transaction has two effects: debits increase assets and expenses, credits increase liabilities, income and capital. The reverse reduces them.
The books of prime entry are:
- Sales day book: credit sales invoices.
- Purchases day book: credit purchase invoices.
- Sales returns day book: credit notes issued to customers.
- Purchases returns day book: credit notes received from suppliers.
- Cash book: cash and bank receipts and payments, often with discount columns.
- Petty cash book: small payments, usually under the imprest system.
- Journal proper: opening entries, corrections, depreciation, disposals and other non-routine items.
Source documents include invoices, credit notes, debit notes, receipts, petty cash vouchers and bank statements. Trade discount is deducted on the invoice and is not recorded separately; cash discount is recorded when payment occurs, as discount allowed (expense) or discount received (income).
Worked example
Goods with a list price of 500,000 FCFA are sold on credit at a 10% trade discount. The customer later returns goods with a list price of 50,000 FCFA.
- Sale: net invoice value is 450,000. Dr Receivables 450,000; Cr Sales 450,000. The sales day book records 450,000.
- Return: trade discount still applies, so the credit note is 45,000. Dr Sales returns 45,000; Cr Receivables 45,000. The customer now owes 405,000. The trade discount never appears in a ledger account.
Traps
Do not post an item to the day book and then post it twice to the ledger: the day book is a list, not a second ledger. A credit note from a supplier goes in purchases returns, not sales returns. Contra entries between the cash book and a ledger account must be posted to both accounts. The discount columns in the cash book are memorandum columns and are not part of the double entry until posted.