Slide 1

Frank Wood’s
Business Accounting 1

Chapter 8
Books of original entry
and ledgers

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 2

Learning objectives
After finishing this chapter, you will be able to:
 Justify the need for books of original entry;
 Explain what each book of original entry is
used for;
 Describe the process of recording
transactions in a book of original entry and
then recording a summary of the
transactions involving similar items in a
ledger;

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 3

Learning objectives (Continued)

 Distinguish between personal and
impersonal accounts;
 List the ledgers most commonly used and
distinguish between those that are used
for personal accounts and those that are
used for impersonal accounts;
 Explain the broader role of an accountant,
the communicator role that lies beyond the
recording and processing of data about
transactions;
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 4

Types of books of original entry

There are six books of original entry:
1. Sales day book – for credit sales
2. Purchases day book – for credit purchases
3. Returns inwards day book – for returns inwards
4. Returns outwards day book – for returns outwards
5. Cash book – for receipts and payments of cash
and cheques
6. Journal – for all other items

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 5

Procedure
 Entries are made in the books of original
entry.
 These entries are then summarised and
the summary information is entered into
the various ledgers using double entry
bookkeeping.
 Often, each ledger is operated by a
separate bookkeeper, to make the work
easier and to allow checking to take place.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 6

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 7

The journal
• The journal records transactions not recorded
in any other book of original entry.
• In particular the journal keeps a record of
unusual movements between ledger
accounts.
• A narrative explanation should accompany
each journal entry.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 8

The journal
Jan. 1 Commenced
business with a
capital 20,000
3 Amount deposited in
S.B.I 5,000
6 Goods purchased for
cash 7,000
10 Furniture purchased
from Chinmoy 5,000
11 Goods sold to Anil
Majumdar for cash
8,000
13 Goods sold to Ashim
Das 2,000
25 Cash drew for private
uses 500
31 Salaries paid 800

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 9

Types of ledger
There are three types of ledgers:
 Sales ledger – for customers’ personal
accounts.
 Purchases ledger – for suppliers’ personal
accounts.
 General ledger – for the remaining double
entry accounts such as expenses, non-
current assets and capital.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 10

The receivables and payables ledgers

• Individual ledger accounts for each credit
customer (personal accounts) are
maintained in the receivables ledger.
• A total receivables account is held in the
nominal ledger, called the receivables control
account.
• Individual ledger accounts for each credit
supplier (personal accounts) are maintained
in the payables ledger.
• A total payables account is held in the
nominal ledger, called the payables control
account.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 11

The receivables ledgers

 It is a statements of credit customers at the

end of each month.
 It shows credit position of individual
customers, and to ensure that no customer is
exceeding credit limit.
 Need to match payments received against
debts owed.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 12

The payables ledgers

• The payables ledger, like the receivables

ledger, consists of a number of personal
accounts.
• These are separate accounts for each
individual supplier, and they enable a business
to keep a continuous record of how much it
owes each supplier at any time.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 13

Control accounts for the receivables and

payables ledgers

• Details of transactions are posted from the

book of original entry using double entry
principles to the memorandum receivables
and payables ledgers.
• Only totals are posted from books of original
entry to nominal ledger control accounts as
part of the double entry system.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018
Slide 14

Sales Day Book

SALES DAY BOOK
   Invoice/credit          
 Date  note no.  Customer  Total  VAT  Boots  Shoes
       £  £  £  £
10.1.X0            
 
   I 247  Jones & Co  107.04  17.84  50.00  39.20
   I 248  Smith Co  88.32  14.72  73.60 –
   CN 004  Alex & Co  (32.16)  (5.36) –  (26.80)
   I 249  Enor College  1,291.68  215.28  800.30  276.10
       1,454.88  242.48  923.90  288.50
The business would open up a 'sale of shoes' account and a
'sale of boots' account as well as a VAT account and the trade
receivables account. Then the sales day book totals would be
posted to the nominal ledger accounts as follows.
    £ £
DEBIT Trade receivables 1,454.88  
CREDIT Sale of shoes account   288.50
CREDIT Sale of boots account   923.90
CREDIT VAT account   242.48

That is why the analysis of sales is kept. Exactly the same

reasoning lies behind the analyses kept in the other books of
original entry.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 14th Edition, © Pearson Education Limited 2018