A book or record where certain types of transaction are recorded before recording it in the double-entry book-keeping system, and hence the prime entry. The common books of prime entry include the day book, the cash book, and the journal. Here the information of the business transactions is recorded here.
In our discussion today, we will uphold the topic of Books of Prime Entry in case of Accounting and its importance in the sector. This is the base of studying accountancy which the students must be enthusiastic about.
In business, there are daily numerous financial transactions. So, there is a separate book to keep the track of the receipts and payments of this transaction.
The ledger accounts in a business are the main source of information that is used to prepare the financial statements. While, if a business is required to update their ledgers then each time a transaction occurred, the ledger accounts would quickly become clustered and chances of errors might be made. This would also be a very lengthy process.
To avoid all such complications, the transactions are first recorded in a book of prime entry. The main books of prime entry are:
Sales day book
Purchase day book
Sales returns day book
Purchases returns day book
Cash Receipts Book
Cash Payments Book
Petty Cash Receipts Book
Petty Cash Payments Book
Now we are quite sure that the Books of Prime Entry are very much prevalent in the business, for their advantageous characteristics. The following are the advantages of a journal:
Provides a Chronological Record: Journal book records transactions in occurrence of their date. Hence, it is possible to get day-to-day information.
The Book of Prime Entry Minimizes the possibility of errors: The nature of the transaction affects the financial position of the business this is ascertained by recording and analysing the transaction.
Helps to finalize the accounts: With the book of prime entry, it provides a basis of ledger posting and the ultimately draft the Trial Balance.
Future references: References can be given to the financial transactions become easy as these transactions are of similar nature and are recorded in one journal.
Less mistakes and can be detected easily: With the help of Prime Entry, the mistakes in the ledger accounts can be easily detected.
Lessens the chance of business fraud, negligence and mistakes: The Chronological recording of the financial transactions reduces the chance of business frauds, negligence, and mistakes.
Journals are shown in clarity: Journals show all these transactions in great detail so the business is not mandated to rewrite them in detail in the ledger section, thus it keeps the ledger accounts brief and uncluttered.
Perfect back-up of each other: If records are by chance lost then along with the ledger and the books of original entry the organization will get through. They act as a perfect back-up for each other.
Bases the control in one ground: Handling of each type of the journal entry by a different member of the staff causes variation, this prevents a single person from having an exclusive control on the accounting system. This leads to frauds, and is difficult to make. Hence, it is more likely that errors would be identified by this system.
Ensuring that the documents are not skipped: To ensure that the documents do not go unrecorded, the source of documents are normally copied twice with consecutive numbers and are noted in day books while recording the transactions.
These were the meaning and importance of The Book of Prime Entry.
1. What is a Cash Book?
Ans. A cash book is actually the set-up of a subsidiary to the general ledger in which all these cash transactions are made during a definite accounting period. This is recorded in chronological order. Large organizations usually divide the cash book into two sections: the cash disbursement journal that records all the cash payments, another is the cash receipts journal, which records all cash received into the business.
2. What is a Sales Day Book?
Ans. The sales journal is actually known as the sales day-book, this is a special journal that is used to record the credit sales. The sales journal is simply a chronological list of all the sales invoices, this is used to save time, to avoid cluttering the general ledger with too much minute detail, and to allow for the separation of duties the Sales Day Book was introduced.
3. What is the Use of a Purchase Day Book?
Ans. The purchases day book is used in keeping a record of all the purchase invoices of the business’s goods and services, that is supplied on credit to the firm. In modern business a definite proportion of the purchases is to be made on a credit basis (the goods are then received immediately, but the payment is made at a future date.
4. What is Trial Balance?
Ans. A trial balance is the book-keeping worksheet where the balance of all the ledgers are compiled and drafted into debit and credit account column totals that are equal and tallied.