post the ledger entries from the books of prime entry

Topic 2.3 – Books of Prime Entry

Learning objective

To be able to record transactions in the books of prime entry and to post them correctly to the ledger.

1. Why use books of prime entry?

• Provide a chronological record of every transaction.
• Separate cash transactions from credit transactions, reducing the chance of omission.
• Using a set of specialised books groups transactions by type, speeds posting, and makes it easier to spot omissions or duplications.
• Allow errors to be detected early (each transaction is entered twice – once in the prime‑entry book and again in the ledger).
• Facilitate the preparation of a trial balance and, ultimately, the financial statements.

2. Business documents as sources

Each source document is first recorded in a specific book of prime entry.

3. Main books of prime entry

4. Petty‑cash book – imprest example

Assume a petty‑cash fund of $200 (the imprest). During the month the following expenses are paid from the fund:

• Office stationery – $30
• Courier – $20
• Postage – $15

When the balance falls to $135, the fund is replenished to $200 by a single entry:

5. Example transactions (source documents)

1. 30 Jan – Bought goods on credit from ABC Ltd for $2 500.
2. 31 Jan – Sold goods on credit to XYZ Co for $3 200.
3. 2 Feb – Paid cash $1 200 to ABC Ltd for part of the purchase.
4. 3 Feb – Received cash $1 800 from XYZ Co for part of the sale.
5. 5 Feb – Returned defective goods worth $300 to ABC Ltd.
6. 6 Feb – Received a credit note from XYZ Co for returned goods worth $150.

6. Recording the transactions in the books of prime entry

6.1 General journal (non‑cash transactions)

6.2 Cash book (dual journal‑ledger)

6.3 Purchases book (credit purchases)

6.4 Sales book (credit sales)

6.5 Purchase returns book

6.6 Sales returns book

7. Posting to the ledger (T‑accounts)

7.1 General rules for posting

• Debit side of the prime‑entry book → debit side of the ledger account; credit side → credit side.
• Post the same amount to the two accounts involved in each transaction.
• Maintain chronological order so that running balances are correct.

7.2 Sample ledger (T‑accounts)

Each transaction appears in two ledger accounts, ensuring that the accounting equation Assets = Liabilities + Owner’s Equity remains balanced.

8. Step‑by‑step procedure for posting

1. Locate the transaction in the appropriate book of prime entry.
2. Identify the debit and credit accounts and the amount.
3. Open (or find) the corresponding ledger accounts.
4. Enter the date, a brief description (usually the name of the other party), and the amount on the correct side of each T‑account.
5. Calculate and write the new running balance.
6. Repeat for every entry in the journal, cash book, purchases book, sales book, and returns books.

9. Common errors to avoid

• Posting a debit as a credit (or vice‑versa).
• Omitting the date or description, which makes tracing difficult.
• Failing to post the same amount to both accounts involved.
• Not updating the running balance, leading to an incorrect trial balance.
• Confusing the cash‑book entry with the ledger cash account – remember the cash book is itself a ledger for cash.

10. Practice exercise

Using the six transactions listed in section 5, complete the following tasks:

1. Record each transaction in the appropriate book of prime entry (journal, cash book, purchases book, sales book, purchase‑returns book, sales‑returns book).
2. Post every entry to the ledger accounts shown in the sample T‑account table.
3. Prepare a trial balance to verify that total debits equal total credits.

11. Summary

• Books of prime entry are the first systematic record of business transactions.
• They group transactions by type, speed up posting, and help detect errors early.
• The cash book uniquely serves as both a prime‑entry book and a ledger account for cash/bank balances.
• Petty‑cash books use an imprest system to control small cash expenditures.
• Trade discounts are recorded in the purchases or sales books; cash discounts are recorded later when the cash payment or receipt is made.
• Accurate posting from the prime‑entry books to the ledger ensures that the trial balance and the final financial statements are reliable.