Double-Entry Bookkeeping and Books of Prime Entry
Double-entry bookkeeping records each transaction twice, using debits and credits, and the books of prime entry are the first place transactions are recorded before posting to the ledger.
Rules and books
- Debit the receiver, credit the giver. Debits increase assets and expenses; credits increase liabilities, income and capital.
- Books of prime entry: sales day book (credit sales), purchases day book (credit purchases), sales returns day book, purchases returns day book, cash book (cash and bank), and the general journal (other adjustments).
- Postings from day books are usually totals; the cash book is both a book of prime entry and a ledger account.
Worked example
A business makes a credit sale of €1,200 and later accepts a credit note for €300.
- Credit sale: Dr Receivables €1,200; Cr Sales €1,200. Enter in the sales day book, then post the total to the ledger.
- Sales return: Dr Sales Returns €300; Cr Receivables €300. Enter in the sales returns day book.
- The customer pays €900 by bank: Dr Bank €900; Cr Receivables €900 in the cash book. The receivables account now shows a zero balance for this customer.
Traps
Putting credit notes in the sales day book; posting individual invoices when the question expects day-book totals; confusing the general journal with the sales journal; and recording a cash sale in the sales day book (cash sales belong in the cash book). Also watch contra entries between receivables and payables.