Acca f3 Financial Accounting (int) Study Text

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3: Accounting conventions   Part B  The qualitative characteristics of financial information and the fundamental bases of accounting 

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The use of double entry and 

accounting systems

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Sources, records and 

books of prime entry 

Introduction

From your studies of the first three chapters you should have grasped some 

important points about the nature and purpose of accounting.

 

Most organisations provide products and services in the hope of 

making a profit for their owners, by receiving payment in money for 

those goods and services. 

 

The role of the accounting system is to record these monetary effects 

and create information about them. 

You should also, by now, understand the basic principles underlying the 

statement of financial position and income statement and have an idea of what 

they look like. 

We now turn our attention to the process by which a business transaction 

works its way through to the financial statements. 

It is usual to record a business transaction on a 

document. Such documents 

include invoices, orders, credit notes and goods received notes, all of which 

will be discussed in Section 1 of this chapter. In terms of the accounting 

system these are known as 

source documents. The information on them is 

processed by the system by, for example, aggregating (adding together) or 

classifying.

Records of source documents are kept in 'books of prime entry', which, as the 

name suggests, are the first stage at which a business transaction enters into 

the accounting system. The various types of books of prime entry are 

discussed in Sections 2 to 4. We will also look at the treatment of petty cash in 

Section 5. 

In the next chapter we consider what happens to transactions after the books of 

prime entry stage. 

Topic list 

Syllabus reference 

1 The role of source documents 

C1(a)–(b), (f) 

2 The need for books of prime entry

C2(a)

3 Sales and purchase day books 

D1(a)–(b)

4 Cash book 

D2(a)

5 Petty cash 

D2(b)–(e)

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4: Sources, records and books of prime entry   Part C  The use of double entry and accounting systems 

Study guide 

Intellectual level

C1 

Double-entry bookkeeping principles including the maintenance of 

accounting records and sources of information 

(a) 

Identify and explain the function of the main data sources in an accounting 

system

1

(b) 

Outline the contents and purpose of different types of business 

documentation, including: quotation, sales order, purchase order, goods 

received note, goods dispatched note, invoice, statement, credit note, debit 

note, remittance advice, receipt. 

1

(f) 

Identify the main types of business transactions, eg sales, purchases, 

payments, receipts. 

1

C2

Ledger accounts, books of prime entry and journals

(a) 

Identify the main types of ledger accounts and books of prime entry, and 

understand their nature and function. 

1

D1

Sales and purchases

(a)

Record sale and purchase transactions in ledger accounts and in day books.

1

(b) 

Understand and record sales and purchase returns. 

1

D2

Cash

(a)

Record cash transactions in ledger accounts.

1

(b) 

Understand the need for a record of petty cash transactions. 

1

(c) 

Describe the features and operations of a petty cash imprest system. 

1

(d) 

Account for petty cash using imprest and non-imprest methods. 

1

(e) 

Understand the importance of, and identify controls and security over the 

petty cash system. 

1

Exam guide 

These topics are likely to be examined by means of asking which books of prime entry you could use to 

record a set of transactions. 

1 The role of source documents

Business transactions are recorded on 

source documents. Examples include sales and purchase orders, 

invoices and credit notes. 

1.1 Types of source documents 

Whenever a business transaction takes place, involving sales or purchases, receiving or paying money, or 

owing or being owed money, it is usual for the transaction to be recorded on a document. These 

documents are the source of all the information recorded by a business. 

Documents used to record the business transactions in the 'books of account' of the business include

the following. 

Quotation. A business makes a written offer to a customer to produce or deliver goods or services 

for a certain amount of money. 

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Part C  The use of double entry and accounting systems

  4:  Sources, records and books of prime entry

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Sales order. A customer writes out or signs an order for goods or services he requires. 

Purchase order. A business orders from another business goods or services, such as material 

supplies.

Goods received note. A list of goods that a business has received from a supplier. This is usually 

prepared by the business’s own warehouse or goods receiving area. 

Goods despatched note. A list of goods that a business has sent out to a customer. 

Invoice. This is discussed further below. 

Statement. A document sent out by a supplier to a customer listing all invoices, credit notes and 

payments received from the customer. 

Credit note. A document sent by a supplier to a customer in respect of goods returned or 

overpayments made by the customer. It is a ‘negative’ invoice. 

Debit note. A document sent by a customer to a supplier in respect of goods returned or an 

overpayment made. It is a formal request for the supplier to issue a credit note. 

Remittance advice. A document sent with a payment, detailing which invoices are being paid and 

which credit notes offset. 

Receipt. A written confirmation that money has been paid. This is usually in respect of cash sales, 

eg a till receipt from a cash register. 

1.2 Invoices 

An

invoice relates to a sales order or a purchase order. 

 

When a business sells goods or services on credit to a customer, it sends out an invoice. The 

details on the invoice should match the details on the sales order. The invoice is a request for the 

customer to pay what he owes. 

 

When a business buys goods or services on credit it receives an invoice from the supplier. The 

details on the invoice should match the details on the purchase order. 

The invoice is primarily a demand for payment, but it is used for other purposes as well, as we shall see. 

Since it has several uses, an invoice is often produced on multi-part stationery, or photocopied, or 

carbon-copied. The top copy will go to the customer and other copies will be used by various people 

within the business.

1.2.1 What does an invoice show? 

Most invoices are numbered, so that the business can keep track of all the invoices it sends out. 

Information usually shown on an invoice includes the following. 

(a) 

Name and address of the seller and the purchaser 

(b) 

Date of the sale 

(c) 

Description of what is being sold 

(d) 

Quantity and unit price of what has been sold (eg 20 pairs of shoes at $25 a pair) 

(e) 

Details of trade discount, if any (eg 10% reduction in cost if buying over 100 pairs of shoes) 

(f) 

Total amount of the invoice including (usually) details any of sales tax 

(g) 

Sometimes, the date by which payment is due, and other terms of sale 

1.2.2 Uses of multi-part invoices 

As stated above invoices may be used for different purposes. 

 

Top copy to customer as a request for payment 

 

Second copy to accounts department to match to eventual payment 

 

Third copy to ware house to generate a despatch of goods, as evidenced by a goods despatched 

note.

 

Fourth copy stapled to sales order and kept in sales department as a record of sales. 

Key term 

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