CHAPTER 3: THE ACCOUNTING DOCUMENTATION IN BUSINESS

3.1. Sources of documents

3.2. Books of prime entry

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CHAPTER 3: THE ACCOUNTING DOCUMENTATION IN BUSINESS

OBJECTIVE: After studying this chapter, you should be able to:

ü Identify types of sources of documentation

ü Understand the contents of book of prime entry

ü Preparation documentations for common transactions in business

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3.1. Sources of documents

3.1.1.The purpose of Sources of documents

3.1.2.Types of Sources of documents

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 3.1. SOURCES OF DOCUMENTS

Source documents: are the documents which are produced by or input into a business's
accounting system as the starting point to recording the transactions of a business for accounting
purposes

The documents may be hard copy or electronic

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3.1.1.THE PURPOSE OF SOURCES OF DOCUMENTS
The purpose of source document
Recording financial transactions
TRANSACTIONS RECORDED BY
OCCUR SOURCE DOCUMENT

To support
EVIDENCE

Source documents are the source of all information recorded by a business

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3.1.2.TYPES OF SOURCES OF DOCUMENTS

Sale system: customer order, dispatch

goods, invoice, receive payment

Purchase system: Purchase order, Receive

goods, invoice, payment

Bank transaction: receipt, remittance

advice, ….

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SALE SYSTEM

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 3.1.2.TYPES OF SOURCES OF DOCUMENTS

Sales order. A document of the company that details an order placed by a customer for goods or
services. The customer may have sent a purchase order to the company from which the company
will then generate a sales order. Sales orders are usually sequentially numbered so that the
company can keep track of orders placed by customers

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 3.1.2.TYPES OF SOURCES OF DOCUMENTS
Invoice

An invoice may relate to a sales

or purchase order.
Invoices are source documents
for credit transactions.

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Credit note

Credit note: A document issued to a

customer relating to returned goods,
or refunds when a customer has been
overcharged for whatever reason.
It can be regarded as a negative
invoice.

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 Go o d s d e s p atc h e d
note.

A document of the company that

lists the goods that the company
has sent out to a customer.

The company will keep a record of

goods despatched notes in case of
any queries by customers about the
goods sent.

The customer will compare the

goods despatched note to what
they receive to make sure all the
items listed have been delivered
and are the right specification

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PURCHASE SYSTEM

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Invoice

An invoice may relate to a sales

or purchase order.
Invoices are source documents
for credit transactions.

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Debit notes

A debit note might be issued to a

supplier as a means of formally
requesting a credit note from that
supplier.
A debit note is not a source document.

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Goods received note

A document of the company that lists the

goods that a business has received from a
supplier.

A goods received note is usually prepared

by the business's own
warehouse or goods receiving area

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 3.1.2.TYPES OF SOURCES OF DOCUMENTS
SOURCES DOCUMENTS FOR BANK TRANSACTION:

Ø Bank statement. This contains a number of adjustments to a company's book balance of cash on hand
that the company should reference to bring its records into alignment with those of the bank.
Ø Cash register tape. This can be used as evidence of cash sales, which supports the recordation of a
sale transaction.
Ø Remittance advice. A document sent to a supplier with a payment, detailing which invoices are being
paid and which credit notes offset. A remittance advice allows the supplier to update the customer's
records to show which invoices have been paid and which are still outstanding. It also confirms the
amount being paid, so that any discrepancies can be easily identified and investigated.
Ø Receipt. A document confirming confirmation that a payment has been received. This is usually in
respect of cash sales, eg a till receipt from a cash register

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3.2. Books of prime entry

3.2.1. The purpose of books of prime entry

3.2.2. Types of books of prime entry

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 3.2.1. THE PURPOSE OF BOOKS OF PRIME ENTRY

ü Books of prime entry (books of original entry) records of source

documents – of transactions – so that it knows what is going on.
ü Books of prime entry are books in which we first record transactions.
ü The details on these source documents need to be summarised, as
otherwise the business might forget to ask for some money, or forget to
pay some, or even accidentally pay something twice.
The books of prime entry serve to ‘capture’ transactions as soon as
possible so that they are not subsequently lost or forgotten about

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3.2.2. TYPES OF BOOKS OF PRIME ENTRY

The main books of original entry are:

Sales day book Petty cash book

Purchases day book The payroll

Cash book The journal

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3.2.2. TYPES OF BOOKS OF PRIME ENTRY
Sales day book

Sales day book: The book of original entry in respect of credit sales, including both
invoices and credit notes

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3.2.2. TYPES OF BOOKS OF PRIME ENTRY
Purchases day book

Purchases day book: The book of original entry in respect of credit purchases,
including both invoices and credit notes.

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3.2.2. TYPES OF BOOKS OF PRIME ENTRY
Cash book

Cash book: The book of original entry for receipts and payments in the business's bank
account

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3.2.2. TYPES OF BOOKS OF PRIME ENTRY
Cash book

• The cash book is used to record money received and paid out by the business
through the business bank account.
• Some cash, in notes and coins, is usually kept on the business premises in order to
make occasional payments for odd items of expense.
• Accounted for separately in a petty cash book.

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3.2.2. TYPES OF BOOKS OF PRIME ENTRY
Petty cash book: The book of original entry for small payments and receipts of cash.

Most common, petty cash use the imprest system  reimburse/ refund the total
amount paid out in a period (i.e. if on 1 Dec petty cash paid out $100  under imprest
system, on 2 Dec accountant will draw $100 to top-up the amount paid in yesterday).
Under what is called the imprest system, the amount of money in petty cash is kept at
an agreed sum or 'float' , so that each toping is equal to the amount paid out in the
period.
Although the amounts are small, petty cash transactions still need to be recorded to
prevent fraudulent or misuse of funds (i.e. IOU).
There are usually more payments than receipts in petty cash

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3.2.2. TYPES OF BOOKS OF PRIME ENTRY

Petty cash book

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3.2.2. TYPES OF BOOKS OF PRIME ENTRY
Journal

The final book of original entry is the journal. This is the record of transactions which
do not appear in any of the other books of original entry. Non-current asset purchases
are usually recorded via the journal.
Journal is also ONE of the books of original entry.
Journal keeps a record of unusual movement between accounts
Record any double entry made but  do not arise from other books of original entry
(i.e. Journal entries are made when corrected errors or adjustment like prepayment…)

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3.2.2. TYPES OF BOOKS OF PRIME ENTRY
Computerised books of prime entry

Books of prime entry still exist within the workings of a

computerised system.

• Most companies now use a computerised system to manage

their accounting transactions and to prepare their financial
statements, rather than manual books.
• Most systems still use the concepts of the books of prime
entry for recording sales and purchases, cash receipts and
payments
• Entries are usually made by entering a sale or a purchase
which is then recorded in a book of prime entry within the
working of the accounting system.
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3.2.2. TYPES OF BOOKS OF PRIME ENTRY

Computerised books of prime entry

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 3.2.2. TYPES OF BOOKS OF PRIME ENTRY
Computerised books of prime entry: example
Input: Orders are input over the internet

Processing: Prices are accessed on a product file and the order value worked out.
The customers’ account in the receivables ledger (now held on a computer file) is debited.
Inventory records (now on a computer file) are updated.

Output: An invoice is printed for the customer.

Despatch information is displayed on a screen in the warehouse to show the goods that
have to be sent.

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 3.2.2. TYPES OF BOOKS OF PRIME ENTRY
Computerised books of prime entry: example
File: A group of similar records.
So, a receivables ledger file contains records for each customer.

Record: Each record refers to a single entity.

So, a customer record will hold all the information about a customer; a product record will hold all the information about
a product. Records are collected together into files.

Field: (Also known as an attribute.) Each field holds a separate piece of data relating to a record. Thus a customer record
would have fields for: name, address, telephone number, credit limit, invoices outstanding, etc.

Key field: The field that uniquely identifies a record.

For example, a part code or an employee number.

Character: Characters make up fields and are typically a – z, 0 – 9.

Often a character holds no meaning on its own, but occasionally a character will be the whole field. For example M or F
for male or female

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 3.2.2. TYPES OF BOOKS OF PRIME ENTRY
Computerised books of prime entry: Function & Benefit
Most accounting information is numerical and, of course, computers excel at dealing with
that type of data. Computerised accounting systems should offer the following advantages
over manual systems:

ü faster provision of information

ü provision of information that would not be easily available without a computerised
accounting system
ü once the system is set up, cheaper information
ü more accurate information because arithmetic and certain other errors will be
eliminated.

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3.1.2.TYPES OF SOURCES OF DOCUMENTS

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3.1.2.TYPES OF SOURCES OF DOCUMENTS

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