CHAPTER 3: THE DAY BOOKS, THE JOURNAL AND CONTROL ACCOUNTS

Introduction
This chapter shows how the day books and journal are used to feed information into the double-entry
system and into the receivables and payables ledgers.

Day Books/Books of Prime Entry/Books of Original Entry

Books of prime entry are books in which we first record transactions.
The main books of prime entry are as follows:
1. The cash book: this records amounts paid into and out of the bank account
2. The petty cash book: this records small amounts of cash paid for day to day expenses, such as
buying postage stamps and teas or coffee for the office.
3. The sales day book: records sales invoices issued to credit customers
4. The purchases day book: records purchase invoices received from suppliers
5. The journal: where adjustments, such as correcting errors, are first recorded.

The Sales Day Book (SDB):

The sales day book is the book of prime entry for credit sales.
The sales day book is used to keep a list of all invoices sent out to customers each day.
The SDB is simply a list. A simple SDB would be as follows:

The posting that would be made to account for these sales transactions are:
In the general ledger:

Illustration 1
The total columns in a sales day book are as follows:

To where are these figures posted in the ledgers?

A Credit Sales 7,200
B Credit Sales 6,000
C Credit Sales 6,000
D Credit Sales 6,000
Solution: C,
Debit Customers 7,200
Debit Sales tax 1,200 Debit Customers 7,200
Credit Sales tax 1,200 Debit Customers 7,200
Debit Sales tax 1,200 Credit Customers 7,200

The Purchase Day Book (PDB):

A business also keeps a record in the purchase day book of all the invoices it receives.
The purchase day book is the book of prime entry for credit purchases.
The PDB is just a list. A simple PDB would be as follows:

The postings that would be made to account for these purchases transactions are:
In the general ledger:

Illustration 2
The total columns in a purchases day book are as follows:

To where are these figures posted in the ledgers?

A Debit Purchases 4,800
B Debit Purchases 4,000
C Credit Purchases 4,000
D Debit Purchases 4,000
Solution: D,
Credit Suppliers 4,800
Credit Sales tax 800 Credit suppliers 4,800
Credit Sales tax 800 Debit suppliers 4,800
Debit Sales tax 800 Credit suppliers 4,800

The Sales Returns Day Book:

The sales returns day book is the book of prime entry for credit notes raised.
When customers return goods for some reason, a credit note is raised. All credit notes are recorded in
the sales returns day book. An extract from the sales returns day book is as follows:

Double entry for sales returns:

 Total: Dr Sales or sales returns Cr Receivables control account
 Individual lines: Cr individual customers’ accounts
The Purchase Returns Day Book:
The purchase returns day book records credit notes received in respect of goods which the business
sends back to its suppliers. An extract from the purchase returns day book is as follows:

Double entry for purchase returns:

 Total: Cr Purchases or purchase returns Dr Payables control account
Individual lines: Dr Individual suppliers’ accounts

Control Account Reconciliations

The receivables and payables control accounts should always agree with the sum of the balances on the
receivables and payables ledgers respectively. If they don’t, then an error must have been made and
needs to be corrected.

Formats of the Control Accounts:

Dr. Receivables Control a/c Cr.
B/b/d (normal or Dr. balance) xx B/b/d (abnormal or Cr. balance) xx
Credit sales xx Receipts/cash from receivables xx
Irrecoverable debt expense (or bad debt) xx
Dishonored cheques xx Discounts allowed xx
Returns inwards (or sales returns) xx

B/c/d (abnormal or Cr. balance) xx B/c/d (normal or Dr. balance) xx

xxx xxx
B/b/d (normal or Dr.) xx B/b/d (abnormal or Cr.) xx

Dr. Payables Control a/c Cr.

B/b/d(abnormal or Dr. Bal.) xx B/b/d(normal or Cr. Bal.) xx
Payment to suppliers/payables xx Credit purchases xx
Discounts received from suppliers xx
Returns outwards or purchases returns xx

B/c/d(normal or Cr. Bal.) xx B/c/d(abnormal or Dr. Bal.) xx

xxx xxx
B/b/d(abnormal or Dr. Bal.) xx B/b/d(normal or Cr. Bal.) xx

N/B:
It is vital to understand which entries come from where.
Individual lines in the day book affect postings to the receivables (or payables) ledger
Totals in the day book affect postings to the receivables (or payables) control account.

Illustration 3
A receivables control account balance is $3,825.
The three receivable account balances in the receivables ledger are as follows:
Customer name Amount owing
A Ltd 1,800
B Ltd 1,500
C Ltd 652
Total 3,952
Something must have gone wrong because the control account balance does not agree with the total of
the individual balances.
Investigation of the entries shows the following errors:
1. An invoice for $425 in the day book was posted to C Ltd’s account as $452.
2. An invoice for $500 in the day book was posted as $200 to B’s account
3. The sales day book was undercast by $400
Required: Reconcile the control account with the total of the individual balances.
Solution

Illustration 4
A debit balance of $100 on an individual’s ledger account in the payables ledger has been listed as a
credit balance when adding up the list of balances.
To correct the reconciliation of the control account with the list of balances:
Control account List of balances
A Cr 200 Increase by 100
B Cr 100 Increase by 200
C No effect Decrease by 200
D No effect Decrease by 100
Solution: C, The control account is not affected by errors in extracting and adding up the list of balances
from the payables ledger. Had the $100 been treated correctly it would have been like a negative figure;
it was treated as positive so the error is $200.

Illustration 6
For the last week of the accounting period, purchases net of sales tax totalled $70,000.
The sales tax amounted to $15,000. $85,000 has been credited to the suppliers’ control account as:
$83,000.
To correct the reconciliation of the control account with the list of balances:
Control account List of balances
A Cr 2,000 No effect
B Cr 2,000 Increase by $2,000
C Dr 13,000 No effect
D Dr 15,000 No effect
Solution: A, Totals are posted to control accounts and an extra $2,000 has to be posted to correct it.
The list of balances does not depend on total postings from the day book

Illustration 7
The sales day book has been overcast by $1,000.
The effect of this error is to:
A. Overstate sales, overstate the control account, overstate the total of the accounts in the receivables
ledger
B. Overstate sales, understate the control account, no effect on the total of the accounts in the
receivables ledger.
C. Overstate sales, overstate the control account, no effect on the total of the accounts in the
receivables ledger.
D. Understate sales, overstate the control account, no effect on the total of the accounts in the
receivables ledger.
Solution: C, Totals in the sales day book are posted to the receivables control account and the sales
account, not to the individual accounts in the receivables ledger.

Illustration 8
An invoice to AGS Ltd of value $4,300 was listed in the sales day book as $3,400.
To correct this error, which corrections are needed?

Solution: A, The error is in the initial recording of the invoice so everything flowing from that will be
wrong.

EXERCISE