Source Documents and books of prime entry

Source documents
Source documents meaning refer to internal documents containing crucial details
regarding business transactions. They prove that the recorded financial transactions occurred and
are thus essential for the accounting methods. Moreover, these documents are crucial for auditing
procedures. Since the paper trail of all transactions is easily available to auditors, it enhances the
audit's validity and objectivity.

A source document usually includes the following details:

 The total value of a transaction
 Date of the transaction
 The deal's explanation

Moreover, such documents include one or multiple authorizing signatures.

One must note that producing the original documents is not always mandatory. For example, per
The Internal Revenue Service or IRS, photocopies of the documents are legally acceptable.
However, the photocopies must be an accurate representation of the real documents. Moreover,
they must be legible and complete.

Most accountants, bookkeeping service providers, and lawyers recommend keeping these
documents for 5 to 7 years. Whereas, per IRS, small organizations must preserve all documents
substantiating income, credits, and deductions until that specific year's statute of limitations runs
out. Depending on the business's tax status, this may take 3 to 7 years.
Businesses can take the following measures to file and monitor source documents in accounting
while ensuring that they are accessible:
 Assign a prefix number to every document. This will help one find any misplaced
documents.
 Arrange all documents by category or alphabetically to retrieve them easily.
 Check whether the recorded account balances were reconciled with the relevant
documents.
 Utilize an automated file system to simplify reconciling and tracking.
These are documents containing the information that makes basis of making entries in the books
of accounts. They act as evidence that the transaction actually took place. They includes

Cash sale receipt: – a document that shows that cash as been received or paid out of the
business either in form of cash or cheque. It is a source document that is mainly used in making
records in the cash journals cash book, cash accounts or bank accounts. If the receipt is received,
it means payments has been made and therefore will be credited in the above accounts, or taken
to cash disbursement/payment journals, while when issued, it means cash/cheque has been
received and therefore will be debited in the above accounts or taken to cash receipt journals

Invoice: – a document issued when the transaction was done on credit to demand for their
payment. If the invoice is an incoming invoice/invoice received, then it implies that the
purchases were made on credit, and if it is an outgoing/invoice issued then it implies that sales
were made on credit.
The incoming invoice will be used to record the information in the purchases journals/diary,
while an outgoing invoice will be used to record information in sales journals/diaries

Credit note: – a document issued when goods are returned to the business by the customer or the
business return goods to the supplier and to correct any overcharge that may have taken place. If
it is received, then it means part of the purchases has been returned and therefore the information
will be used to record information in the purchases return journals, while if issued then it means
the part of sales has been returned by the customers and therefore used to record the information
in the sales return journals/diaries

Debit note: – a document used to correct an undercharge that may have taken place to inform the
debtor to pay more. It therefore acts as an additional invoice

Payment voucher: – a document used where it is not possible to get a receipt for the
cash/cheque that has been received or issued. The person being paid must sign on it to make it
authentic. It is therefore used to record information just as receipts
Uses

Some uses of source documents.

 Businesses use them to prepare books of accounts.
 They help in auditing procedures by increasing transparency.
 One can use them to acquire authorization for any amount paid.
 They are tangible evidence of a business transaction.
 Businesses can utilize these documents to reconcile accounts.
 Such a document can prove that a business owns a certain property.
 Organizations can use them to rectify an undercharge or overcharge made in a customer's
account.

Books of prime entry

The Book of Prime Entry is a fundamental concept in accounting, serving as the initial place
where business transactions are recorded. This guide will explain what the book of prime entry
is, its importance, the types of books of prime entry, and provide an example for better
understanding.

A Book of Prime Entry, also known as a journal or day book, is the initial place where
business transactions are recorded before they are posted to the ledger. It serves as the first
formal record of a financial transaction, capturing key details such as the date, description, and
amounts involved. Each book of prime entry is specialized based on the nature of transactions it
records.

The Book of Prime Entry is the first book where all financial transactions are recorded before
they are posted to the ledger accounts. These records are usually organized in a chronological
order and provide a detailed description of each transaction. The primary purpose of these books
is to capture transaction details accurately and in a timely manner.

Key Features of the Book of Prime Entry

Chronological Recording: Transactions are recorded in the order they occur.

Detailed Entries: Each entry includes the date, accounts involved, amounts, and descriptions.

Foundation for Ledgers: Provides the necessary details for posting transactions to ledger
accounts.
Importance of the Book of Prime Entry

Accuracy in Recording

Books of prime entry ensure accurate recording of transactions, which is essential for
maintaining the integrity of financial information.

Facilitating Financial Reporting

They provide a structured and organized way to capture financial data, which is crucial for
preparing accurate financial reports.
Streamlining the Accounting Process

By recording transactions in the book of prime entry, businesses can streamline the accounting
process and reduce the risk of errors when posting to ledger accounts.

Legal Compliance

Maintaining proper books of prime entry helps businesses comply with legal and regulatory
requirements, as these records can be used for audits and tax reporting.

Books of original entries/Journals/Diaries/day’s books/Subsidiary books

These are books where the transactions are listed when they first occur, with their entries being
made on a daily basis before they are posted to their respective ledger accounts. The information
in the source documents are used to make entries in these books. The books of original entries
include:

Sales journals
This is used to record credit sales of goods before they can be recorded in their various ledgers.
The information obtained in the outgoing invoice/invoice issued is used to record the information
in this journal as the source document
The overall total in the sales journal is therefore posted in the sales account in the general ledger
on credit side and debtors account in the sales ledger as a debit entry
Sales journal
Date Particulars/details Invoice no Ledger folio amount

Example:
The following information relates to Tirop traders for the month of June 2010
June 1: Sold goods to wafula on credit of ksh 200, invoice no 0114
2: Sold to the following debtors on credit; Wanjiru ksh 400, Musyoka ksh 300, Wafula ksh 300
5: sold goods on credit to Wanjiru of ksh 300
10: Sold goods to the following on credit Kanini ksh 100, Wafula ksh 500, Wanjiru ksh 600
12: Sold goods on credit to musyoka of ksh 350
Required:
Prepare the relevant day book for the above transactions; hence post the various amounts to their
respective individual accounts
Sales journal
Date Particulars/details Invoice no Ledger folio amount
June 2010:
1 Wafula 0114 SL 200
2 Wanjiru SL 400
2 Musyoka SL 300
2 Wafula SL 300
5 Wanjiru SL 300
 10 Wanjiru SL 600
10 Wafula SL 500
10 Kanini SL 100
12 Musyoka SL 350
15 Totals posted to the sales
account (Cr) GL 3050

(Post the rest to their individual debtors account)

Sales Return Journals/Return inwards journals

This is for recording the goods that the customers/debtors have returned to the business. It uses
the information in the credit note issued as a source document to prepare it. The information is
therefore recorded to the return inwards account in the general ledger, while the individual’s
entries are reflected (credited) also in their respective debtors account for double entry to be
completed. It takes the following format
Sales return journal
Date Particulars/details Credit note no Ledger folio amount

For example;
Record the following transaction for the 2007 in their relevant diaries, hence post them to their
respective ledger accounts;
May 1: goods that had been sold to M Okondo of shs 2600 on credit was returned to the business
“ 2: G. Otuya returned good worth shs 1320 that was sold to him on credit to the business
“ 8: the following returned goods that had been sent to them on credit to the business H Wati
shs 3500, Muya shs 4700 M Okondo shs 2900
“ 12: G Otuya returned goods worth shs 5400 that were sold on credit to the business
“ 30: Goods worth sh 8900 that had been sold on credit to G Otuya were returned to the business
Sales Return journal
Date Particulars/details Credit note Ledger folio amount
no
 May 2007:
1 M Okondo S.L 2600
2 G Otuya S.L 1320
8 H Wati S.L 3500
8 Muya S.L 4700
8 M Okondo S.L 2900
12 G Otuya S.L 5400
30 G Otuya S.L 8900
Totals posted to Return
Inwards a/c (Dr) GL 29320

(Post the entries to the individual ledger a/c’s (Cr))

Purchases Journal
This is used to record the credit purchase of goods. The totals are then debited in the purchases
account in the general ledger, while the individual’s creditors accounts are credited. It used the
invoices received/incoming invoices as it source document. It takes the following format;

Purchases journal
Date Particulars/details Invoice no Ledger folio amount

For example
The following information relates to Mikwa Traders for the month of April 2011. Record them in
their relevant day’s book, hence post the entries to their relevant ledger accounts.
April 2011;
“ 2. Bought goods worth shs 25 000 on credit from Juma, Invoice no 3502
Bought goods worth shs 16 500 from kamau on credit, invoice no 2607
Bought goods worth shs 12 700 from Juma on credit, invoice no 3509
Purchased goods of shs 25 200 from juma, invoice no 3605; shs 17 500 from Kamau, invoice no
3700; shs 45 000 from Wamae wholesalers, invoice no 3750
Purchased goods of shs 9 200 from Wamae wholesalers on credit, invoice no 3762
Bought goods of shs 17 000 from Kamau on credit, invoice no 3802
Purchased goods of shs 36 000 from Juma suppliers on credit, Invoice no 3812

Purchases Day book

Date Particulars/details Invoice no Ledger folio amount
April 2011:
2 Juma 3502 PL 25 000
3 Kamau 2607 PL 16 500
6 Juma 3509 PL 12 700
8 Juma 3605 PL 25 200
8 Kamau 3700 PL 17 500
8 Wamae 3750 PL 45 000
15 Wamae 3762 PL 9 200
18 Kamau 3802 PL 17 000
24 Juma 3812 PL 36 000
Totals posted to the
Purchase account (Dr) GL 204100
(Post the individual entries to their relevant accounts in the ledger (crediting))

Purchases Return Journals/Return outwards Journals

This is used to record goods that have been returned to the creditors by the business, reducing the
value of the goods that had been purchased. It uses the credit note received as the source
documents, with the totals being in the purchases return account while the individual creditor’s
accounts are debited in their respective ledger accounts. It takes the following format
Purchases return journal
Date Particulars/details Credit note no Ledger folio amount
For example;
Record the following transaction in the purchases return day book for Njiru’s traders for the
month of June 2010, hence post the information into their relevant ledger accounts.
June 2010;
“ 3. Returned goods worth shs 400 that had been bought from Nairobi stores, credit note no 56
“ 8. Return goods of shs 1 200 to Matayos store, Credit no 148
“19. Had some of their purchases returned to the following; Njoka enterprises shs 700, credit
note no 205, Nairobi Stores shs 600, credit note no 58, Matayos store shs 1 000 credit note no
191
“26. Returned goods worth shs 1 800 to Njoka enterprise credit note no 210
“30. Return goods worth shs 1 020 to Matayos store, credit note no 200

Cash receipt Diaries

This is used to record all the cash and cheques that have been received in the business. They may
be many that posting directly in the cash book may be tedious and are therefore first recorded
here. It totals are posted to the cash and bank accounts in the general ledger (Dr), while the
individual accounts are credited in their respective accounts in the ledger. It uses the cash receipt
issued and bank slips received as the source documents. It takes the following format;

Cash receipt journal

Date Particulars/details Receipt no Ledger folio Disc cash bank
allowed

Cash payment Journals

This is used to record cash and cheques that have been issued to the creditors/out of the business.
Its totals are credited (Cr) in the cash and bank account and the individual accounts are debited
(Dr) in their respective accounts It uses the cash receipt received and bank slips issued as the
source documents. It takes the following format;
Cash Payment journal
Date Particulars/details Receipt no Ledger folio Disc cash bank
received

For example:
Record the following transactions into their relevant day books of Onyango traders, hence post
the entries to their respective ledger accounts and balance them off;
May 2011:
“1. Cash sales amounting to ksh 3 000, receipt no 0112
“2. Paid the following creditors by cheque after having deducted a cash discount of 10% in each
case; H. Mwangi ksh 1 500, J. Mwaniki ksh 1 600, N. Mugo ksh 1 200
“3. Receive the following Chaques from debtors in settlement of their debts after having
deducted 5% cash discount in each case; Lucy kshs 22 800 cheque no 0115, Otieno kshs 8 550
cheque no 0011, Martha ksh 1 330 cheque no 0016
“5. Paid for repairs in cash kshs 16 000, receipt no 0251
“10. Paid Juma in cash kshs 9 500, receipt no 0295
“14. Cash sales kshs 17 000, receipt no 02714
“15. Banked kshs 6 000 from the cash till
“15. Received cash from Mary of kshs 13 500, receipt no 0258
“16. Cash sales of kshs 26 400 was directly banked, bank slip no 40152
“20. Cash purchases of kshs 8 920, receipt no 117
“22. Cash purchases of kshs 15 200 was paid for by a cheque, cheque no 512

Cash receipt journal

Date Particulars/details Document no Ledger Disc cash bank
folio allowed
May
2011 Sales 0112 GL 3 000
1 Lucy 0115 SL 1200 22 800
3 Otieno 0011 SL 450 8 550
 3 Martha 0016 SL 700 1 330
3 Sales 02714 GL 17 000
14 Cash “c” 6 000
15 Mary 0258 SL 13 500
15 Sales 40152 GL 26 400
16
Totals to be posted to
the cash and bank a/c
(Dr) 2 350 33 500 65 080

(Post the totals and the entries to their respective accounts)

Cash Payment journal
Date Particulars/details Document Ledger Disc cash bank
no folio Received
May
2011 H. Mwangi PL 166.70 1 500
2 J. Mwaniki PL 177.70 1 600
2 N. Mugo PL 133.30 1 200
2 Repairs 0251 GL 16 000
5 Juma 0295 PL 9 500
10 Bank “c” 6 000
15 Purchases 117 GL 8 920
20 Purchases 512 GL 15 200
22
Totals to be posted to
the cash and bank a/c
(Cr) 477.30 40 420 19 500

(Post the totals and the entries to their respective accounts)

The petty Cash book

This is used to record money that has been set aside to make payments that does not require large
amounts, such as cleaning, staff tea, posting letters, etc. it is always kept by the petty cashier,
under the supervision of the main cashier. The amount received by the petty cashier is always
debited, while the payments made from the same is credited. The credit side also contains the
analytical columns for various items of expenditure. The amount credited is also extended to the
analysis column for the specific item. At the end of the stated period, the petty cash book is
balanced, and the totals are posted to their individual accounts. The individual’s accounts are
debited with the totals of the analytical columns, while the cash account is credited by the main
cashier for the total that was spent in the petty cash book.

Petty cash book can also be operated on an imprest system, where the petty cashier receives a
given amount of money at an intervals (imprest) to spend, and report back to the main cashier at
the end of the period on how the money has been spent and the balance still remaining for re-
stocking (reimbursed), and only the amount spent can be reimbursed so that at the beginning of
the period the petty cashier will always have the full amount (cash float).

For example:
A petty cashier of sina chuki traders operate a petty cash book on an imprest of kshs 2 500 on a
monthly basis. On 1st February 2010, she had cash in hand of shs 150 and was reimbursed the
difference by the main cashier to restore her cash float. The following payments were made
during the month of February 2010
Feb; 1. Travelling expenses kshs110
Correcting fluid kshs 200
Sugar for staff tea ksh 180
Stamps kshs 255
Telephone kshs 255
Entertainment kshs 130
Postage stamps kshs 100
Bread for staff tea kshs 148
Fare kshs 200
Duplicating ink kshs 250
Entertainment kshs 400
Telephone kshs 100
Atieno a creditor was paid ksh 150
Required;
Prepare a petty cash book from the above information and post the totals to the relevant ledger
accounts.
Sina Chuki Traders
Petty Cash Book
For month of Feb. 2010
Recei L. Dat Details Vou Tot Trav Offi Sta posta Teleph En Ledg
pt sh F e ch al el ce ff ge one t. er
no sh exp exp tea a/c
20
150 10 Bal b/d
2 350 C. Fe Reimburse
B b1 ment 110 110
1 Travelling 200 200
1 exp 180 18
2 Correcting 255 0 255
3 fluid 255 255
4 Sugar 130 13
10 Stamps 100 100 0
15 Telephone 148
18 Entertainm 200 200 14
20 ent 250 250 8
25 Stamps 400
26 Bread 100 100 40
27 Fare 150 0 150
28 Duplicatin 247 310 450 355 355 150
28 g ink 8
2500 Entertainm 22 32 53
 22 ent 250 8 0
Telephone 0
Atieno
Totals
Bal c/d

Bal b/d

The totals in the analytical columns are Debited in the individual accounts, with the petty cash
book totals being credited in the cash account.

The general Journal/Journal proper

This one is used to record purchases or sales of fixed assets of the business on credit. These
assets do not form part of the stock since the business does not deal in them, however the
business may decide to buy or sell them for one reason or the other.
In this journal, the account to be debited begins at the margin, while the account to be credited is
indented from the margin, with a narration below them put in brackets. The narration simply
explains the nature of the transaction that has taken place. The individual entries are then posted
to their respective accounts by either debiting or crediting depending on the transactions. It takes
the following format;

General journal
Date Particulars/details Ledger folio Dr shs Cr shs

For example;
Journalise then following transactions which took place in the business of J Opuche during the
month of March 2005
March 5; Purchased office furniture on credit for shs 25 000 from miugiza Furniture Limited
10; Sold old duplicating machine for shs 15 000 to samba academy on credit
15; Bought a new motor vehicle for shs 800 000 from explo motors Ltd, paying shs 300 000 in
cash and balance was to be settled at a later date
18; Sold old vehicle to Mara Secondary school for shs 500 000 on credit
25;The owner converted personal electronic calculator valued at shs 9 000 into business asset
27; Sold old computers valued at shs 20 000 for shs 15 000 on credit to Mara secondary school
30; Sold old dining chairs worth shs 10 000 to Maendeleo for shs 15 000 on credit

General journal
Date Particulars/details Ledger Dr shs Cr shs
folio
March
2005
5 Office Furniture a/c 25 000
Miugiza a/c 25 000
(Being a credit purchase of office
furniture from Miugiza)
10 Samba Accademy a/c 15 000
Duplicating Machine a/c 15 000
(Being credit sales of duplicating
machine to Samba academy)
Motor vehicle a/c
15 Cash a/c 800 000
Explo Motors a/c 300 000
(Being purchase of motor vehicle 500 000
from explo. motors, paying part in
cash and part on credit)
18 Mara Sec sch a/c 500 000
Motor vehicle a/c 500 000
(being the credit sale of old motor
vehicle to mara sec sch)
25 Calculators a/c 9 000
 Capital a/c 9 000
(being conversion of private
calculator to business asset)
27 Mara Sec. Sch. a/c 15 000
Loss on disposal a/c 5 000
Computer a/c 20 000
(being credit sale of old computers
to Mara school at a loss of 5 000)
30 Maendeleo a/c 15 000
Furniture a/c 10 000
Gain on disposal a/c 5 000
(being the credit sale of dining chairs
to maendeleo at a gain of 5 000)

1 384 000 1 384 000

The entries are then transferred to their respective accounts in the ledger, with the ones debited in
the journals being debited and the ones credited being credited.
The Journal proper can also be used to show the opening entries and the closing entries. That is;

Opening entries
The opening entries are the entries of the assets and liabilities at the beginning of the trading
periods to facilitate the opening of different accounts for them. They are the balance b/d for the
assets and liabilities of the business.
The assets to be debited are recorded first, followed by the liabilities and capital to be credited.
Incase the capital is not given, it can be calculated using the book keeping equation, that is A = C
+ L. the narration then follows the entries.
The opening entries are necessary when;
A business that did not keep complete accounting records would like to start keeping
Opening up new sets of accounting books, after closing the old ones
Starting accounting records for a business which has been bought, though was in full operation

For example;
The following balances were extracted from Martine’s store that did not keep complete records,
and would like to start keeping on 1st January 2011. Prepare for them their relevant subsidiary
book to show the balances.
Shs
Motor vehicles 230 000
Machinery 40 000
Creditors 10 000
Debtors 5 000
Cash in hand 20 000
Stock 10 000
Insurance prepaid 5 000
Bank 25 000
Premises 335 000
Capital 660 000
Martine’s Store
General journal
On 1st January 2011
Date Particulars/details Ledger folio Dr shs Cr shs
2011 Premises 335 000
January 1 Motor vehicle 230 000
Machinery 40 000
Debtors 5 000
Cash 20 000
Insurance prepaid 5 000
Bank 25 000
Stock 10 000
Capital 660 000
 Creditors 10 000
(being the records of assets,
liability and capital at the
beginning of new period)

670 000 670 000

Closing entries
At the end of the trading period the business asses how it carried out its trade and the amount of
profit it made by preparing the Trading profit and loss account and the balance sheet to show its
financial position. These are prepared by the information obtained from the ledgers. That is, all
the nominal accounts (sale, purchase, expenses and revenue accounts), both opening and closing
stocks are transferred to the trading profit and loss account through the trial balance and general
journals, while the rest are taken to the balance sheet.
Reference

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