Books of Original Entry and Source Documents
The second domain covers the source documents that trigger a transaction and the books of original entry where transactions are first recorded, plus the posting of day book totals and individual entries to the ledgers. The exam tests the paper trail: which document supports which entry, which book records it, which column it belongs in, and what is posted where afterwards.
Source documents
- Sales invoice: issued by the seller for a credit sale; supports the sales day book.
- Purchases invoice: received from a supplier; supports the purchases day book.
- Credit note: issued by the seller to reduce an invoice, for goods returned or an overcharge; supports the sales returns day book in the seller's books.
- Debit note: raised by the buyer to record a return outwards or to request a reduction; supports the purchases returns day book.
- Receipt, cheque counterfoil, paying-in slip, petty cash voucher, bank statement, payroll and stock count sheet provide evidence for cash and other entries.
The books of original entry
Sales day book (credit sales), purchases day book (credit purchases), sales returns day book, purchases returns day book, cash book (cash and bank columns), petty cash book on the imprest system, and the journal for everything else: opening entries, corrections of errors, purchase or sale of non-current assets on credit, and goods taken by the owner.
Rules: trade discount is deducted before entry; cash discount is not recorded until the payment or receipt occurs. Individual amounts are posted daily to the personal ledgers; the book total is posted monthly to the general ledger.
Worked example
Invoices issued in May: (i) 60,000 less 10% trade discount; (ii) 45,000; (iii) 30,000 less 5% trade discount. Net figures: 54,000 + 45,000 + 28,500 = 127,500. The sales day book total is 127,500. The month-end double entry is Dr sales ledger control (or the individual debtors) 127,500 and Cr sales account 127,500. Trade discount never appears in a ledger account; only the net amount does.
Traps
- Recording trade discount as discount allowed.
- Entering cash sales in the sales day book instead of the cash book.
- Using the sales day book for the credit sale of an old motor vehicle; that goes through the journal.
- Posting the day book total to the individual debtors instead of to the general ledger.
- Confusing a credit note with a debit note, which reverses the entries.