Book of original entry

Book of original entry is a chronological record of accounting transactions showing the amounts of credits and debits, names of the accounts that are credited or debited and other useful information about the transactions. It is called a book of original entry because every business transaction is first recorded in this book. This book is prepared on the basis of source documents. Entries in this book are recorded in the first stage in contrast to secondary books where recording of entries is in the second stage (B.K. Banerjee 2010).

Journal

More known term of book of original entry is journal which has been divided from the French word Jour which means day. That is why journal means a day record. Journal is a day book because transactions in this book are recorded day to day basis as and when they take place. It gives a complete view of each transaction, that is why journal is a subsidiary book which is subordinate to the ledger book (book of secondary entry). Every transaction in the journal is followed with narration witch describes the context and nature of the transaction. Information in journal is recorded permanently and is foundation for all accounts and final accounts (P. Mohana Rao 2012).

Source documents for preparing journal:

• coutner-foil of pay-in-slip
• cheque and cash memo
• cash receipt

The components of journal include particulars, date, ledger folio, narration, debit and credit amount.

Advantages of maintaining journal book (P. Mohana Rao 2012):

• chances of omitting a transaction are reduced since all transactions are recorded chronologically
• understanding of real meaning of a transaction is easier because every journal is followed by a narration
• detection of errors is easy since double entry system is followed in maintaining the journal book
• opening, compound, closing, rectification, transfer and adjustment entry are done more precisely

Types of Journals

General journal contains transactions which take place only occasionally and are not included in special journals. Such transactions are recorded in book known as journal proper which include such transactions as (B.K. Banerjee 2010):

• opening entries
• closing entries
• transfer entries
• credit purchase and sale off fixed assets
• rectification of errors
• adjustment of errors

While special journal can be subdivided into (B.K. Banerjee 2010):

• cash book
• purchase day book
• sales day book
• purchase return book
• sales return book
• bills receivable book
• bills payable book

Difference between books of original and final entry

Books of original entry and books of secondary entry can be distinguished as follows (P.C. Tulsian, B. Tulsian 2016):

• books of original entry are prepared on the basis of source documents while books of secondary entry are based on the books of original entry
• balancing in the books of original entry (except Cash Book) is not done while in books of secondary entry all the accounts (except nominal accounts) are balanced
• process of recording entries in books of original entry is called journalising while the same process in books of secondary entry is called posting

Examples of Book of original entry

• Sales Journal: A sales journal is a book of original entry used to record all credit sales made by a business. It records the date of sale, customer’s name, amount of sale, terms of sale, type of product or service sold, and other important information.
• Purchases Journal: A purchase journal is a book of original entry used to record all credit purchases made by a business. It records the date of purchase, supplier’s name, amount of purchase, terms of purchase, type of product or service purchased, and other important information.
• Cash Receipts Journal: A cash receipts journal is a book of original entry used to record all cash receipts received by a business. It records the date of receipt, payer’s name, amount received, type of payment received (cash, check, etc.), and other important information.
• Cash Disbursements Journal: A cash disbursements journal is a book of original entry used to record all cash payments made by a business. It records the date of payment, payee’s name, amount paid, type of payment made (cash, check, etc.), and other important information.
• General Journal: A general journal is a book of original entry used to record all transactions that are not recorded in other books of original entry. It records the date of transaction, name of account affected, amount of transaction, type of transaction (debit or credit), and other important information.

Advantages of Book of original entry

Book of original entry has many advantages:

• It helps in the accurate and systematic recording of transactions as entries are recorded in chronological order.
• It ensures that all transactions and activities are recorded in the books of accounts.
• It serves as a source document for the preparation of other books of accounts such as ledger, trial balance and other financial statements.
• It makes it easier to track the financial activities of a company.
• It helps in detecting errors and preventing frauds since all transactions are recorded in one place.
• It helps in the preparation of financial statements which provide accurate information about the financial position of the company.

Limitations of Book of original entry

Book of original entry has various limitations which include:

• It cannot provide a comprehensive view of the financial position of the business as it only records the initial entries and does not take into account the subsequent adjustments.
• It is an inefficient and time consuming process as each transaction has to be manually recorded, resulting in errors and omissions.
• There is a lack of accuracy in the entries as the details of the transaction are not provided and hence it is difficult to identify errors or fraud.
• It does not provide any analytical information or insights into the financial performance of the business.
• The entries in the book of original entry are not updated in real time, resulting in delayed availability of information.

Other approaches related to Book of original entry

A Book of original entry is just one way to record business transactions. Other approaches include:

• Journal Entries - Journal entries are a record of the transactions that have occurred in the accounting period. They are used to record the debits and credits of each transaction and to show the effects of the transaction on the company's financial statements.
• Ledger Accounts - Ledger accounts record the effects of journal entries on the company's books. It is a summary of the individual accounts and the changes made to them throughout the year.
• Subsidiary Ledgers - Subsidiary ledgers are separate records for certain accounts, such as accounts receivable and accounts payable. They are used to help reconcile the accounts with the general ledger.
• Trial Balance - A trial balance is a summary of all ledger accounts used at the end of an accounting period. It shows the total amount of debits and credits for each account and the net balance.

In summary, there are various approaches to recording business transactions, such as journal entries, ledger accounts, subsidiary ledgers, and trial balance. A Book of original entry is just one way to record transactions.

Book of original entry — recommended articles

Closing entries — Compound journal entry — Post closing trial balance — T account — Closing the accounts — Reversing entry — Books of original entry — Purchases ledger — Opening entries

References

• Banerjee B.K. (2010). Accountantancy For Class XI, PHI Learning, New Delhi
• Mohana Rao P. (2012). Fundamentals Of Accounting For CPT, PHI Learning, New Delhi
• Tulsian P.C., Tulsian B. (2016). Tulsian's Financial Accounting for B.Com., S. Chand Publishing, New Delhi

Author: Sebastian Kopta