Chapter 01.2 - Prime entry books Flashcards
What are books of prime entry?
When a source document is received, the important financial details are first entered in a book of prim entry. n this book transactions are recorded in their chronological order. The process of recording transaction in a journal is called as “Journalisation”. The entry made in this book is called a “journal entry”
What are the other terms used to refer to books of prime entry.
Subsidiary books
Books of original entry
Day books
What are the 07 books of prime entry?
Sales Journal Purchases Journal Sales returns Journal Purchases returns Journal General Journal Cash Book Petty Cash Book
What are the functions of a journal ?
Analytical function -Each transaction is analysed into the debit aspect and the credit aspect. This helps to find out how each transaction will financially affect the business.
Recording Function: Accountancy is a business language which helps to record the transactions based on the principles. Each such recording entry is supported by a narration, which explain, the transaction in simple language.
Historical Function: It contains a chronological record of the transactions for future references.
What are the advantages of entering Journal entries ?
Historical Function: It contains a chronological record of the transactions for future references.
Minimizing the possibility of errors: The nature of transaction and its effect on the financial position of the business is determined by recording and analyzing into debit and credit aspect.
Narration: Entries recorded in the journal are supported by a note termed as narration, which is a precise explanation of the transaction for the proper understanding of the entry. One can verify the accuracy of the entry through these narrations.
Helps to finalize the accounts: Journal is the basis of ledger posting and the ultimate Trial Balance.
What is a sales journal ?
The sales journal is a list of all credit sale transactions. Depending on the volume of transactions, the sales journal will be totalled daily, weekly or monthly.
What is a purchases journal ?
It is a list of all supplier invoices received in respect of credit transactions.
What is the process of preparing and posting a returns outwards journal?
Credit notes received from suppliers are listed in date order in the returns outwards journal.
The personal accounts in the purchases ledger are updated immediately.
At the end of the month, the journal is totalled and the total of returns outwards is posted to the general ledger account.
Whats the purpose of a three column cash book?
Source documents recording money transactions are recorded in a cash book. The cash book has a double role, as it also shows the ledger accounts for cash and bank. Many businesses make use of three column cash book which makes it possible to record cash and bank transactions as part of the double entry process, but also to make a note of cash discounts.
Whats the general journal?
The general journal is a book of prime entry. The general journal is used to record non routine transactions, or entries when no other book f prime entry is suitable.
What are the limitations of using books of prime entry?
It is not possible to use books of prime entry to find some of the key facts that are of interest to the owners and managers, for example, it is important to know just how much is owing to each trade payable and how much is owed by each trade receivable.
What’s a petty cash book ?
In some businesses the decision is sometimes made to operate a second cash book, which is exclusively used to record relatively small transactions otherwise known as petty cash book.
What is the maximum amount of petty cash referred to as ?
It is called a float or imprest.
What are the functions of prime entry books?
Provides a Chronological Record: Journal book records transactions in the occurrence of their date. Hence, it is possible to get day-to-day information.
Helps to finalize the accounts: With the book of prime entry, it provides a basis for ledger posting and the ultimate draft of the Trial Balance.
Future references: References can be given to the financial transactions that become easy as these transactions are similar and are recorded in one journal.
Few mistakes and can be detected easily: With the help of Prime Entry, the mistakes in the ledger accounts can be easily detected.
Journals are shown in clarity: Journals show all these transactions in great detail so the business is not mandated to rewrite them in detail in the ledger section, thus it keeps the ledger accounts brief and uncluttered.
back-up of each other: If records are by chance lost then along with the ledger and the books of original entry the organization will get through. They act as a perfect backup for each other.
What are the limitations of Prime entry ?
As the number of transactions that occur in a business are large, the books can get bulky and voluminous.
Journal do not record information on prompt basis
As the journal can only be handled by one person, it does not facilitate an internal check system
It is time consuming unlike computerising financial information
