Lesson 3: Books of Prime Entry | O Level Accounting

Lesson 3 of 16

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1. What Are Books of Prime Entry? 7707

Books of Prime Entry (also called books of original entry or day books) are the first books in which transactions are recorded — before they are posted to the ledger accounts. They group similar transactions together, making the double entry process organised and efficient.

In a busy business, hundreds of transactions happen every day. Rather than posting each one directly to the ledger immediately, similar transactions are first collected in specialised books — then posted to the ledger in totals or batches. This reduces the number of entries in the ledger and makes it easier to check for errors.

Book of Prime Entry	Transactions Recorded	Source Document
Cash Book	All receipts and payments of cash and cheques	Receipts, cheque counterfoils, paying-in slips, bank statements
Petty Cash Book	Small cash payments (postage, cleaning, stationery)	Petty cash vouchers
Sales Journal	Credit sales only — goods sold on credit	Sales invoices issued
Purchases Journal	Credit purchases only — goods bought on credit	Purchase invoices received
Sales Returns Journal	Goods returned by credit customers	Credit notes issued
Purchases Returns Journal	Goods returned to credit suppliers	Credit notes received / debit notes issued
General Journal	All other transactions not covered above	Various — narration required

Critical Point — Cash vs Credit: The Sales Journal records only credit sales. Cash sales go directly into the Cash Book. Similarly the Purchases Journal records only credit purchases — cash purchases go into the Cash Book. Never mix cash and credit transactions in the journals.

2. The Cash Book 7707

Cash Book: Records all cash and bank transactions — it is both a book of prime entry AND a ledger account. The Cash Book serves as the Cash Account and Bank Account in the general ledger. All money received is entered on the debit (left) side; all money paid is entered on the credit (right) side.

Two-Column Cash Book

The most common form has two money columns on each side — one for cash transactions and one for bank (cheque) transactions.

Two-Column Cash Book
Dr Date	Details	Cash PKR	Bank PKR	Date	Details	Cash PKR	Bank PKR Cr

Three-Column Cash Book (with Discount Columns)

The most important format in Cambridge examinations. A third column on each side records cash discounts — but these discount columns are not part of the double entry in the cash book itself.

Cash Discounts:
Discount Allowed — a reduction given to a customer for paying promptly. It is an expense to the business. Recorded on the debit side discount column.
Discount Received — a reduction received from a supplier for paying promptly. It is income to the business. Recorded on the credit side discount column.

📐 Worked Example 1 — Three-Column Cash Book

Write up the three-column cash book for Zara Trading for October 2026 and balance it at month end.

1 Oct: Opening balances — Cash PKR 8,000, Bank PKR 45,000
3 Oct: Received cheque from Raza & Co PKR 19,600 in full settlement of PKR 20,000 debt (discount allowed PKR 400)
7 Oct: Paid wages PKR 12,000 cash
10 Oct: Cash sales PKR 6,500
14 Oct: Paid Ahmed Supplies by cheque PKR 14,700 in full settlement of PKR 15,000 (discount received PKR 300)
20 Oct: Withdrew PKR 5,000 from bank for office cash (contra entry)
25 Oct: Paid rent by cheque PKR 8,000
28 Oct: Cash sales PKR 4,200

Note the contra entry on 20 Oct: Withdrawing cash from bank affects both columns simultaneously — Cash Dr, Bank Cr. Marked with "C" (contra) in the details column. This is the only self-contained double entry within the cash book itself.

Three-Column Cash Book:

Dr Date	Details	Disc. Allowed	Cash PKR	Bank PKR	Date	Details	Disc. Received	Cash PKR	Bank PKR Cr
1 Oct	Balances b/d	—	8,000	45,000	7 Oct	Wages	—	12,000	—
3 Oct	Raza & Co	400	—	19,600	14 Oct	Ahmed Supplies	300	—	14,700
10 Oct	Sales	—	6,500	—	20 Oct	Cash (C)	—	—	5,000
20 Oct	Bank (C)	—	5,000	—	25 Oct	Rent	—	—	8,000
28 Oct	Sales	—	4,200	—	31 Oct	Balances c/d	—	11,700	36,900
		400	23,700	64,600			300	23,700	64,600
1 Nov	Balances b/d	—	11,700	36,900

Posting the discount columns to the ledger:
Discount Allowed total PKR 400 → Dr Discount Allowed Account (expense) in General Ledger
Discount Received total PKR 300 → Cr Discount Received Account (income) in General Ledger
The individual entries in Raza & Co's and Ahmed Supplies' accounts complete the double entry for the discounts.

⚠ The Discount Columns Are NOT Double Entry: The cash and bank columns of the cash book ARE the ledger accounts (double entry). The discount columns are memoranda only — they collect totals which are then posted separately to the Discount Allowed and Discount Received accounts in the General Ledger. Always total the discount columns and post them — never leave them unposted.

3. The Petty Cash Book — Imprest System 7707

Petty Cash Book: Records small cash payments too minor to go through the main cash book — postage, tea and coffee, small cleaning materials, bus fares. Maintained by a petty cashier under the imprest system.

The Imprest System

Opening Float = Payments Made + Closing Balance

Amount to Restore = Total Payments Made in the Period

At the end of each period, the main cashier reimburses exactly the amount spent, restoring the float to its original level. This is the key control feature of the imprest system.

📐 Worked Example 2 — Petty Cash Book (Imprest System)

The petty cash float is PKR 5,000. Record the following transactions for the week ending 7 October 2026 and show the amount needed to restore the imprest.

1 Oct: Postage stamps PKR 350
2 Oct: Cleaning materials PKR 580
3 Oct: Bus fares (travel expense) PKR 220
5 Oct: Office tea and coffee PKR 190
7 Oct: Stationery PKR 460

Receipts PKR	Date	Details	Total PKR	Postage	Cleaning	Travel	Other
5,000	1 Oct	Balance b/d (Float)	—	—	—	—	—
	1 Oct	Postage	350	350	—	—	—
	2 Oct	Cleaning	580	—	580	—	—
	3 Oct	Travel	220	—	—	220	—
	5 Oct	Tea & coffee	190	—	—	—	190
	7 Oct	Stationery	460	—	—	—	460
	7 Oct	Balance c/d	3,200
5,000			5,000	350	580	220	650
3,200	8 Oct	Balance b/d
1,800	8 Oct	Cash — Imprest restored	Amount to restore = total payments = PKR 1,800

4. Sales Journal and Purchases Journal 7707

The Sales Journal records all credit sales. The Purchases Journal records all credit purchases. Neither records cash transactions — those go in the cash book. These journals collect daily transactions so that the ledger is updated in total, not entry by entry.

Format and Posting — Sales Journal

📐 Worked Example 3 — Sales Journal and Posting

Record the following credit sales in the Sales Journal and post to the ledger accounts.

5 Nov: Sold goods to Khan Brothers PKR 28,000 (Invoice 101)
11 Nov: Sold goods to Malik Stores PKR 15,500 (Invoice 102)
18 Nov: Sold goods to Khan Brothers PKR 12,000 (Invoice 103)
25 Nov: Sold goods to Farooq & Co PKR 19,000 (Invoice 104)

Sales Journal:

Date	Customer	Invoice No.	Amount PKR
5 Nov	Khan Brothers	101	28,000
11 Nov	Malik Stores	102	15,500
18 Nov	Khan Brothers	103	12,000
25 Nov	Farooq & Co	104	19,000
Total posted to Sales Account (Cr)			74,500

Double entry posting:
Individual amounts → Dr each customer's account in the Sales Ledger
Total PKR 74,500 → Cr Sales Account in the General Ledger

This is the efficiency of journals — instead of crediting Sales Account four times, we credit it once with the total.

Posting Rule for All Journals:
Sales Journal: Dr individual customer accounts (Sales Ledger) / Cr Sales Account total (General Ledger)
Purchases Journal: Dr Purchases Account total (General Ledger) / Cr individual supplier accounts (Purchases Ledger)
Sales Returns Journal: Dr Sales Returns Account total / Cr individual customer accounts
Purchases Returns Journal: Dr individual supplier accounts / Cr Purchases Returns Account total

5. Sales Returns and Purchases Returns Journals 7707

Sales Returns Journal (Returns Inwards): Records goods returned by credit customers. Source document: credit note issued by the business to the customer.

Purchases Returns Journal (Returns Outwards): Records goods returned by the business to suppliers. Source document: credit note received from the supplier (or debit note sent to the supplier).

📐 Worked Example 4 — Returns Journals

Record these returns transactions for November 2026.

8 Nov: Khan Brothers returns faulty goods PKR 4,000 (Credit Note CN01)
20 Nov: Business returns damaged stock to Apex Suppliers PKR 6,500 (Credit Note received)

Sales Returns Journal (Returns Inwards):

Date	Customer	Credit Note No.	Amount PKR
8 Nov	Khan Brothers	CN01	4,000
Dr Sales Returns Account (General Ledger)			4,000

Posting: Dr Sales Returns Account PKR 4,000 / Cr Khan Brothers account (Sales Ledger) PKR 4,000

Purchases Returns Journal (Returns Outwards):

Date	Supplier	Reference	Amount PKR
20 Nov	Apex Suppliers	CN received	6,500
Cr Purchases Returns Account (General Ledger)			6,500

Posting: Dr Apex Suppliers account (Purchases Ledger) PKR 6,500 / Cr Purchases Returns Account PKR 6,500

6. The General Journal 7707

The General Journal records all transactions that do not fit into any other book of prime entry. It always shows the full double entry with a narration (explanation). Every entry must include: date, account debited, account credited, amounts, and a narration.

When is the General Journal Used?

Opening entries

Recording the opening balances when a business first begins or when a new accounting period starts.

Purchase/sale of non-current assets on credit

Buying machinery, vehicles, or equipment on credit — not stock, which goes in the Purchases Journal.

Correction of errors

Reversing and correcting errors found in the books (covered fully in Lesson 4).

Irrecoverable debts (bad debts written off)

Writing off a debt that will never be recovered from a customer.

Depreciation entries

Recording the annual depreciation charge on non-current assets (covered in Lesson 8).

Transfers between accounts

Moving balances from one account to another — e.g. transferring profit to capital at year end.

📐 Worked Example 5 — General Journal Entries

Record the following in the General Journal of Samir Trading.

1 Dec: Business starts with: Cash PKR 120,000; Bank PKR 350,000; Equipment PKR 80,000; Loan PKR 100,000; Capital PKR 450,000.
15 Dec: Bought delivery van on credit from Pak Motors PKR 220,000.
22 Dec: Wrote off bad debt — Usman & Co owes PKR 8,500 which will never be recovered.

Date	Account	Dr PKR	Cr PKR
1 Dec	Cash Account (Dr)	120,000
	Bank Account (Dr)	350,000
	Equipment Account (Dr)	80,000
	Loan Account (Cr)		100,000
	Capital Account (Cr)		450,000
Narration: Opening entries — assets, liabilities, and capital as at 1 December 2026.
15 Dec	Motor Vehicles Account (Dr)	220,000
	Pak Motors (Trade Payables) (Cr)		220,000
Narration: Purchased delivery van on credit from Pak Motors.
22 Dec	Irrecoverable Debts (Bad Debts) Account (Dr)	8,500
	Usman & Co (Trade Receivables) (Cr)		8,500
Narration: Irrecoverable debt written off — Usman & Co balance unrecoverable.

⚠ Always Include the Narration: A general journal entry without a narration is incomplete. Cambridge mark schemes always award a separate mark for the narration. Write a brief, clear description of the transaction in your own words — do not copy the question wording verbatim.

📝 Exam Practice Questions

Q1 [2 marks] — State which book of prime entry would be used to record each of the following:

(a) A credit sale of goods to Hamid Enterprises (b) Payment of wages in cash (c) Goods returned to a supplier (d) Purchase of office furniture on credit (e) A customer returns goods previously sold on credit

(a) Credit sale → Sales Journal
(b) Cash wages → Cash Book
(c) Returns to supplier → Purchases Returns Journal
(d) Office furniture on credit → General Journal (non-current asset, not stock)
(e) Customer returns → Sales Returns Journal

Exam Tip: Office furniture bought on credit goes in the General Journal — not the Purchases Journal. The Purchases Journal is only for goods bought for resale. This distinction is heavily tested in Cambridge Paper 1.

Q2 [5 marks] — The following transactions occurred in December 2026. Write up the three-column cash book and balance it at 31 December. Then state how the discount columns would be posted to the ledger.

1 Dec: Opening balances — Cash PKR 3,500, Bank PKR 28,000. 5 Dec: Received cheque from Noor & Co PKR 9,800 in full settlement of PKR 10,000 (disc. allowed PKR 200). 10 Dec: Paid rent by cheque PKR 6,000. 15 Dec: Cash sales PKR 4,800. 20 Dec: Paid Sunrise Traders by cheque PKR 11,600 in full settlement of PKR 12,000 (disc. received PKR 400). 28 Dec: Deposited PKR 2,000 cash into bank (contra).

Cash column: Dr: 3,500 + 4,800 = 8,300. Cr: 2,000 (contra). Balance c/d = PKR 6,300
Bank column: Dr: 28,000 + 9,800 + 2,000 = 39,800. Cr: 6,000 + 11,600 = 17,600. Balance c/d = PKR 22,200
Discount columns: Discount Allowed PKR 200 → Dr Discount Allowed Account (expense, General Ledger). Discount Received PKR 400 → Cr Discount Received Account (income, General Ledger).

Q3 [4 marks] — A business has a petty cash imprest of PKR 3,000. During the week: postage PKR 280, stationery PKR 450, travel PKR 170, cleaning PKR 360. (a) What is the closing balance of petty cash? (b) How much must be restored to bring it back to the imprest level? (c) What is the double entry to record the restoration?

Total payments = 280 + 450 + 170 + 360 = PKR 1,260
(a) Closing balance = 3,000 − 1,260 = PKR 1,740
(b) Amount to restore = PKR 1,260 (exactly equal to total payments)
(c) Dr Petty Cash Book PKR 1,260 / Cr Cash Book (Bank) PKR 1,260

Q4 [4 marks] — Record the following transactions in the General Journal of Rahman Traders, including narrations.

3 Jan: Purchased display shelving on credit from Steel Craft PKR 45,000. 17 Jan: Wrote off bad debt — Ghani & Sons owed PKR 6,200 which is irrecoverable.

3 Jan: Dr Furniture/Fixtures Account PKR 45,000 / Cr Steel Craft (Trade Payables) PKR 45,000
Narration: Display shelving purchased on credit from Steel Craft.

17 Jan: Dr Irrecoverable Debts Account PKR 6,200 / Cr Ghani & Sons (Trade Receivables) PKR 6,200
Narration: Debt owed by Ghani & Sons written off as irrecoverable.

Q5 [3 marks] — Explain the difference between the Sales Journal and the Sales Account. State in which section of the ledger each is found.

The Sales Journal is a book of prime entry — it lists individual credit sales transactions day by day, with customer name, invoice number, and amount. It is not part of the double entry system itself. It is found in the books of prime entry (day books).

The Sales Account is a ledger account in the General Ledger — it records the total revenue from all sales (both cash and credit). Credit sales are posted to it as a total from the Sales Journal. Cash sales are posted individually from the Cash Book. It has a credit balance and feeds into the Income Statement.

The Sales Journal is the source; the Sales Account is the destination.

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