Key Terms
Key Terms: Books of Prime Entry
This chapter is full of technical terms that are easy to confuse. Learn the key terms below so you know which transaction goes into which book, and how each is tested in the exam.
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Books of Prime Entry (Books of Original Entry)
- Meaning: the book where a transaction is recorded for the first time from a source document, before it is posted to the ledger. This is why it is also called the book of original entry.
- Types: the General Journal, six Special Journals, the Cash Book and the Petty Cash Book. Memorise this list because objective questions often ask you to match a transaction to the correct book.
- Uses: to classify transactions by type, reduce errors, ease reference and save time when transferring to the ledger. Memory hook: the "first doorway" before the ledger.
- Tested: structured questions often ask for the meaning, the list of types, and two or three uses. Answer in full sentences, not single words.
General Journal & Opening/Closing Entries
- Purpose: to record transactions that do not fit into any special journal or the cash book. It is the "catch-all" journal for unusual transactions.
- Its main transactions: opening entries, credit purchase and sale of non-current assets, drawings of goods and assets, additional capital other than cash and bank, closing entries, adjusting entries, correction of errors and realisation.
- Format: columns for Date, Particulars (the debited account first, the credited account indented below), Folio, Debit and Credit, followed by a short narration in brackets. The folio column shows the cross-reference to the ledger.
- Tested: preparing journal entries with a narration, and identifying which transactions must pass through the General Journal. Memory hook: if it is not cash/bank and not goods on credit, it usually goes to the General Journal.
Special Journals (Six Types)
- Purpose: to group frequent, similar transactions so they are easier and faster to post to the ledger. Each special journal records only one category of transaction.
- Functions: Purchases Journal (credit purchases of goods), Purchases Returns Journal (goods returned to suppliers), Sales Journal (credit sales of goods), Sales Returns Journal (goods returned by customers).
- Functions (continued): the Cash Receipts Journal records all cash and bank receipts, while the Cash Payments Journal records all payments. Remember: the purchases/sales journals are for goods on CREDIT only.
- Tested: stating each journal's function, recording transactions from source documents, and closing a special journal by totalling before posting to the ledger. Memory hook: goods in/out on credit = the purchases/sales special journals.
Three-Column Cash Book & Discounts
- Dual role: the Cash Book is both a book of prime entry AND part of the ledger (the Cash and Bank accounts combined). Its three money columns are Discount, Cash and Bank on each side.
- Discount Allowed is entered on the debit side (to customers who pay promptly); Discount Received on the credit side (from suppliers). The discount columns are memorandum: they are totalled, not balanced.
- Contra entry (marked 'C'): a transfer of money between cash and bank, e.g. banking cash. The cash balance is always a debit (asset); the bank balance may be a credit if the bank is overdrawn.
- Tested: preparing a three-column Cash Book, balancing it, stating the position of the cash and bank balances, and totalling both discount columns. Memory hook: "Allowed on the left (debit), Received on the right (credit)".
Petty Cash Book & the Imprest System
- Purpose: to record small, frequent petty expenses (e.g. stamps, drinks, fares) so the main Cash Book is not cluttered and the petty cashier's task is separated.
- Imprest system: the petty cashier is given a fixed float (the imprest) at the start of a period. Memory hook: "the float is restored in full". At period end, a reimbursement equal to the amount spent tops it back up to the original float.
- Format: columns for receipts, date, particulars, the total payment, and several analysis columns by type of expense. The analysis lets expenses be posted as one total to each ledger account.
- Tested: recording petty expenses, totalling the analysis columns, balancing the Petty Cash Book and recording the reimbursement, and classifying source documents by type of expense.
Folio Column & Source Documents
- Folio column: the space for writing the cross-reference between a book of prime entry and a ledger account. It proves an entry has been posted and makes checking easier.
- Source document: the written evidence of a transaction, e.g. invoices, credit notes, receipts, cheque counterfoils and vouchers. Every entry in a book of prime entry must be supported by a source document.
- Match document to book: purchase invoice to the Purchases Journal, credit note received to the Purchases Returns Journal, sales invoice to the Sales Journal, receipts/cheque counterfoils to the Cash Book. Memory hook: "no document, no entry".
- Tested: identifying the correct source document for a transaction and choosing the correct book of prime entry, a basic skill needed before you can record accurately.
| Date | Particulars | Folio | Debit (RM) | Credit (RM) |
|---|---|---|---|---|
| 1 Jan | Motor vehicle | GL 5 | 50,000 | |
| Trade payable account | GL 12 | 50,000 | ||
| (Credit purchase of a motor vehicle) |
The debited account is written first, the credited account is indented below, followed by a narration in brackets. The folio column shows the cross-reference to the general ledger (GL).
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