Books of original entry

Books of original entry is a term which implies to a specified sequence of events in the process of preparing hand-written accounting books. Daniel W. Kimuda defines this term as 'the books of record in which transactions are recorded as they occur on a daily basis and in chronological order, before they are posted to the relevant accounts in the ledger'.

Transactions are recorded primarily in the books of the original entry before they are posted to the accounts in the ledger, therefore they are also known as books of prime entry. These books provide aid to the ledger in reference to particular transactions which cannot be posted straight to the ledger. They are secondary to the general ledger which stay the main book of account. Information recorded in the books with the original entry is more detailed, while those published in the book are laconic and their form resembles a summary.

Types of books of original entry

Books of original entry are known as either journals or day books. The following are commonly types of books of original entry:

• Sales journal (or Sales day book) - for credit sales
• Purchases journal (or Purchases day book) - for credit purchases
• Returns inwards journal (or Returns inwards day book ) - for returns inwards
• Returns outwards journal (or Returns outwards day book) - for returns outwards
• Cash book - for payments and receipts of cash and cheques
• General journal (or Journal) - for other items.

Principles of original entry

(a) The original entry is originated from a document. Each transaction begins with a document. When the document is written down in the book of original entry adequate to it, there is a permanent record of the document on the books of the firm. From then on, the document itself is no longer useful, although it is usually postponed. If necessary, documents can be used as evidence in the event of a dispute, and sometimes they are requisite to be presented in court.

(b) Entries are created in chronological order. This gives the opportunity to return to the starting point of a certain event. Because the original entry always contains a "narrative" - a continuous written report of the event - it is easier to follow what occurred.

(c) The original entry is then posted to the Ledger. When publishing in the Ledger you can achieve some savings in double entries.

Examples of Books of original entry

• Journal - This is the most common book of original entry. The journal is a chronological record of all financial transactions. It is an accounting record which is used to record all financial transactions in the order in which they occurred. Entries are made in the journal as they occur and are then later posted to the appropriate ledger accounts.
• Cash Book - The cash book is a record of all cash receipts and cash payments. It includes details such as the date, amount received or paid, description of the transaction, and the source or recipient of the money.
• Sales Book - The sales book is a record of all sales transactions. It includes details such as the date of sale, description of the goods or services sold, quantity, price and total amount.
• Purchase Book - The purchase book is a record of all purchases transactions. It includes details such as the date of purchase, description of the goods or services purchased, quantity, price and total amount.
• General Ledger - The general ledger is the main book of accounts in an accounting system. It is a record of all financial transactions, including assets, liabilities, equity, income and expenses. Entries in the general ledger are usually taken directly from the journal.
• Petty Cash Book - The petty cash book is a record of all small cash payments. It includes details such as the date, amount paid, description of the transaction and who received the money.
• Bank Book - The bank book is a record of all bank deposits and withdrawals. It includes details such as the date, amount deposited or withdrawn, description of the transaction, and the source or recipient of the money.

Advantages of Books of original entry

Books of original entry are the first step in the accounting process and offer several advantages for businesses. These include:

• Increased Accuracy: By recording transactions in the books of original entry, businesses are able to ensure that all financial information is accurately captured and documented. This helps to ensure that financial statements remain accurate and reliable.
• Easier to Monitor: Books of original entry can help businesses to monitor the financial status of their company more easily. All transactions are recorded in chronological order, which can help businesses to easily trace their financial history and quickly detect any potential issues.
• Improved Efficiency: Books of original entry can help businesses to save time and resources by reducing the need for manual data entry. By automating certain tasks, businesses can streamline their processes and reduce the risk of errors.
• Increased Security: Books of original entry provide an additional layer of security for businesses. By recording transactions in a secure system, businesses can better protect themselves from fraud and other financial crimes.

Limitations of Books of original entry

Books of original entry, which are hand-written accounting books, have several limitations. These include:

• Limited accuracy: handwriting can be difficult to read and interpret, which can lead to errors in understanding the entries. This can lead to incorrect calculations and inaccurate financial statements.
• Time-consuming: Preparing hand-written accounting books takes significantly more time than using accounting software. This can lead to missed deadlines, especially when dealing with large volumes of data.
• Vulnerable to fraud: Manual books are not secure, making them more vulnerable to fraud and manipulation.
• Difficult to audit: Manual books are difficult to audit, which can lead to additional costs. Audit results may also be unreliable due to the possibility of omissions or errors.
• Unable to adapt to new technologies: Manual books cannot easily adapt to new technologies, such as cloud storage or online banking. This can lead to increased costs and decreased efficiency.

Footnotes

Books of original entry — recommended articles

Reversing entry — Closing entries — Book of original entry — Compound journal entry — Open item — Compound entry — Purchase ledger — Closing the accounts — Deposits in transit

References

• Gambling T, (2011), A One-Year Accounting Course, in two parts, part two, University of Birmingham, Pergamon Press
• Hoyle K, Whitehead G, (2014) Business Statistics and Accounting: Made Simple, The Chaucer Press
• Kimuda D, (2008), Foundations of Accounting, East African Educational Publishers
• Woods F, Sangster A, (2018), Frank Wood's Business Accounting, Fourteenth edition, Pearson

Author: Karolina Stankiewicz