Double-Entry Bookkeeping and Books of Prime Entry
Double-Entry Bookkeeping and Books of Prime Entry
This domain tests the mechanics that underpin every ledger and financial statement. Each transaction has two effects, and prime-entry records capture transactions before ledger posting.
Core rules
- Debit is the left side; credit is the right side.
- Increase an asset or expense by debiting; decrease it by crediting.
- Increase a liability, capital or income by crediting; decrease it by debiting.
- Books of prime entry include the sales day book for credit sales, purchases day book for credit purchases, sales returns day book, purchase returns day book, cash book, petty cash book and journal.
- Source documents include invoices, credit notes, receipts and petty cash vouchers.
Worked example
A credit sale of ₦250,000 is recorded as Dr Trade receivables ₦250,000 and Cr Sales ₦250,000. The customer later returns goods worth ₦40,000: Dr Sales returns ₦40,000 and Cr Trade receivables ₦40,000. The net receivable is ₦210,000. No cash has moved, so the cash book is not involved. The sale increases income and a receivable; the return reduces both.
Traps that cost marks
- Forgetting that the cash book is both a book of prime entry and part of the ledger.
- Debiting discount received instead of crediting it as income.
- Crediting sales returns instead of debiting the returns account.
- Treating day books as ledger accounts rather than lists of transactions.
- Recording the same transaction twice because both sides are posted.