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4: Sources, records and books of prime entry Part C The use of double entry and accounting systems
The analysis gives the managers of the business useful information which helps them to decide how best
to run the business.
3.2 The purchase day book
A business also keeps a record in the purchase day book of all the invoices it receives.
The
purchase day book is the book of prime entry for credit purchases.
An extract from a purchase day book might look like this.
PURCHASE DAY BOOK
Total
amount
Date
Supplier Invoiced
Purchases
Electricity
etc
20X8
$
$
$
Mar 15
Cook & Co
315.00
315.00
W Butler
29.40
29.40
EEB
116.80
116.80
Show
Fair Co
100.00
100.00
561.20
444.40
116.80
There is no 'invoice number' column, because the purchase day book records
other people's
invoices, which have all sorts of different numbers.
Like the sales day book, the purchase day book analyses the invoices which have been sent in. In
this example, three of the invoices related to goods which the business intends to re-sell (called
simply 'purchases') and the other invoice was an electricity bill.
3.3 The sales returns day book
When customers return goods for some reason, a credit note is raised. All credit notes are recorded in the
sales returns day book. An extract from the sales returns day book follows.
SALES RETURNS DAY BOOK
Date
Credit note
Customer and goods
Amount
20X8
$
30 April
CR008
Owen Plenty
3 pairs 'Texas' boots
135.00
The
sales returns day book is the book of prime entry for credit notes raised.
Not all sales returns day books analyse what goods were returned, but it makes sense to keep as complete
a record as possible. Where a business has very few sales returns, it may record a credit note as a
negative entry in the sales day book.
3.4 The purchase returns day book
Not surprisingly, the purchase returns day book records credit notes received in respect of goods which
the business sends back to its suppliers.
An extract from the purchase returns day book follows.
PURCHASE RETURNS DAY BOOK
Date Supplier
and goods
Amount
20X8
$
29 April
Boxes Co
300
cardboard boxes
46.60
Key term
Key term
Part C The use of double
entry and accounting systems
4: Sources, records and books of prime entry
63
The
purchase returns day book is the book of prime entry for credit notes received from suppliers.
Once again, a business with very few purchase returns may record a credit note received as a negative
entry in the purchase day book.
4 Cash book
The
cash book may be a manual record or a computer file. It records all transaction that go through the
bank account.
4.1 The cash book
The cash book is also a day book, used to keep a record of money received and money paid out by the
business. The cash book deals with money paid into and out of the business
bank account. This could be
money received on the business premises in notes, coins and cheques, subsequently paid into the bank.
There are also receipts and payments made by bank transfer, standing order, direct debit and bank interest
and charges, directly by the bank.
Some cash, in notes and coins, is usually kept on the business premises in order to make occasional
payments for odd items of expense. This cash is usually accounted for separately in a
petty cash book
(which we will look at shortly).
One side (the left) of the cash book is used to record receipts of cash, and the other side (the right) is
used to record payments. The best way to see how the cash book works is to follow through an example.
For convenience, we are showing the cash receipts and cash payments sides separately, but they are part
of the same book.
The
cash book is the book of prime entry for cash receipts and payments.
4.2 Example: Cash book
At the beginning of 1 September, Robin Plenty had $900 in the bank.
During 1 September 20X7, Robin Plenty had the following receipts and payments.
(a)
Cash sale: receipt of $80
(b)
Payment from credit customer Hay $400 less discount allowed $20
(c)
Payment from credit customer Been $720
(d)
Payment from credit customer Seed $150 less discount allowed $10
(e)
Cheque received for cash to provide a short-term loan from Len Dinger $1,800
(f)
Second cash sale: receipt of $150
(g)
Cash received for sale of machine $200
(h)
Payment to supplier Kew $120
(i)
Payment to supplier Hare $310
(j)
Payment of telephone bill $400
(k)
Payment of gas bill $280
(l)
$100 in cash withdrawn from bank for petty cash
(m) Payment of $1,500 to Hess for new plant and machinery
If you look through these transactions, you will see that seven of them are receipts and six of them
are payments.
The receipts part of the cash book for 1 September would look like this.
Key term
Key term
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