Revision Notes
Revision Notes: Books of Prime Entry
These concise notes cover the meaning, types and uses of Books of Prime Entry, plus the formats of the General Journal, Special Journals, Cash Book and Petty Cash Book for SPM revision.
Book a Trial Class
One-hour paid trial · Same-day reply · from RM50/hr
Meaning, Types and Uses of Books of Prime Entry
- Books of Prime Entry are the first books where transactions are recorded chronologically from source documents, before being posted to the ledger.
- Types: General Journal, Special Journals (six kinds), Cash Book and Petty Cash Book.
- Uses: to group and classify similar transactions, reduce the number of entries in the ledger, serve as reference and evidence, and make error detection easier.
- Every entry must be supported by a source document such as an invoice, credit note, receipt, voucher or cheque counterfoil.
- Books of Prime Entry keep records in date order so transactions are easy to trace and audit.
General Journal
- Purpose: to record transactions that are not suitable, or cannot be recorded, in the Special Journals or Cash Book.
- Format: Date, Particulars (debit account written first, credit account indented), Folio, Debit (RM) and Credit (RM) columns, followed by a short narration.
- The folio column records the ledger account reference number to show the transaction has been posted.
- Transactions recorded: opening entries; credit purchase and sale of non-current assets; drawings of goods and assets; additional capital other than cash and bank.
- It also records closing entries, adjusting entries, correction of errors and realisation.
- A narration must be written under each entry to explain the purpose of the transaction.
Special Journals and Their Functions
- Purpose: to record frequently recurring transactions of the same type so the General Journal is less burdened and posting is more efficient.
- The Purchases Journal records credit purchases of goods; the Sales Journal records credit sales of goods.
- The Purchases Returns Journal records goods returned to suppliers; the Sales Returns Journal records goods returned by customers.
- The Cash Receipts Journal records all cash received; the Cash Payments Journal records all cash paid.
- Special Journals also have a folio column and are closed by transferring their totals to the related ledger accounts.
Three-Column Cash Book
- Purpose: to record all cash and bank receipts and payments; it acts as both a journal and a ledger (the Cash and Bank accounts) in one book.
- Format: the debit side for receipts and the credit side for payments, each with Discount, Cash and Bank columns plus a folio column.
- The discount columns are memorandum columns only: discount allowed on the debit side, discount received on the credit side; neither is balanced.
- A contra entry occurs when money is transferred between cash and bank (e.g. banking cash) and is marked with the symbol 'C'.
- After balancing, the cash balance is always a debit balance (asset), while a bank balance on the credit side indicates a bank overdraft.
- The discount allowed total is posted to the debit of the Discount Allowed Account and discount received to the credit of the Discount Received Account.
Petty Cash Book and the Imprest System
- Purpose: to record small and frequent petty expenses so the main Cash Book is not cluttered with small transactions.
- Imprest system: the petty cashier is given a fixed amount (the imprest/float); at period end the amount spent is reimbursed (recoupment) so the balance returns to the original imprest amount.
- Formula: Recoupment = Original imprest − Cash in hand (i.e. the total expenses for the period).
- Format: Receipts, Date, Particulars, Voucher, Total, several Analysis columns by type of expense, and a folio column.
- Each analysis column total is posted to its related expense account in the ledger; the Petty Cash Book is then balanced and the recoupment recorded.
- Advantages of the imprest system: it eases control of small expenses, reduces the main cashier's workload and makes checking vouchers easier.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Cash | 5,000 | |
| Bank | 10,000 | |
| Motor vehicle | 20,000 | |
| Inventory | 3,000 | |
| Creditor | 4,000 | |
| Capital | 34,000 | |
| (Opening entry for assets, liabilities and capital) | ||
| Total | 38,000 | 38,000 |
Debit accounts are written first; credit accounts are indented. Debits must equal credits.
| Special Journal | Function | Source Document |
|---|---|---|
| Purchases Journal | Credit purchases of goods | Invoice (received) |
| Purchases Returns Journal | Goods returned to suppliers | Credit note (received) |
| Sales Journal | Credit sales of goods | Invoice (issued) |
| Sales Returns Journal | Goods returned by customers | Credit note (issued) |
| Cash Receipts Journal | All cash received | Receipt |
| Cash Payments Journal | All cash paid | Voucher / cheque counterfoil |
What is the difference between discount allowed and discount received in the Cash Book?
Discount allowed is a reduction given to debtors, recorded in the discount column on the debit side; discount received is a reduction obtained from creditors, recorded in the discount column on the credit side. Both are memorandum columns and are not balanced.
How is the recoupment amount calculated under the imprest system?
Recoupment = original imprest minus cash in hand at period end, which equals the total petty expenses for the period. This restores the balance to the original imprest amount.
Why is the opening entry recorded in the General Journal rather than another journal?
The opening entry brings in the beginning balances of assets, liabilities and capital, which are not recurring transactions, so they are unsuitable for the Special Journals or Cash Book; hence they are recorded in the General Journal with a full narration.
Other resources for this chapter
Need help with Books of Prime Entry?
One-hour paid trial · Same-day reply · from RM50/hr
Book a Trial Class