Chapter 5
BOOKS OF
ORIGINAL ENTRY
Cash vs Credit Transactions
There are two ways to sell or purchase
goods:
1. by Cash - the customer pays right away by cash or
cheque;
2. on Credit - the customer pays later.
Example
Maggie Jones went to buy a calculator from
Corts. The calculator costs $200 and she can
afford to pay for this right away.
Cash Transaction
• In Maggie’s books the transaction is a cash purchase.
• In Cort’s books the transaction is a cash sale.
Customer pays
right away
Cash
Transaction
Step 1
• Record the sale using the relevant paper. One copy goes to
the customer.
• The other will be used to make the entry in step 2 then kept
on file. We call this the "SOURCE DOCUMENT" stage.
• The SOURCE DOCUMENT is the piece of paper on which the
transaction is noted. In this case the specific name given to
the source document is a "RECEIPT" (also called a "Cash
Bill").
Step 2
• The information on the receipt would be entered in a book
that only records cash coming in and cash going out.
• We call this the "JOURNALISING" stage. The JOURNAL is a
book (or location in a computer) that collects all the details
of many similar transactions.
• In this case the specific name given to the journal is a "CASH
BOOK" (also called a "Cash Journal")
A Typical Cash Book
Cash Book
Date
Details
Discounts
Cash
Bank
Date
Details
Allowed
$
Discount
s
Cash
Bank
Received
$
$
$
Cash
Cash
sale
purchase
$
$
Example
Maggie Jones went to buy a flat screen
television from Corts. The TV costs $20 000 and
she cannot afford to pay for this right away.
Credit Transaction

In Maggie’s books the transaction is a credit
purchase.

In Cort’s books the transaction is a credit sale.
Customer pays
later
Credit
Transaction
Step 1
• Record the transaction using the relevant paper. One copy
goes to the customer.
• The other will be used to make the entry in step 2 then kept
on file. We call this the "SOURCE DOCUMENT" stage.
• The SOURCE DOCUMENT is the piece of paper on which the
transaction is noted. In this case the specific name given to
the source document is a "INVOICE" (also called a "Credit
Bill").
Step 2
• The information on the receipt would be entered in a book
that only records credit transactions.
• In the case of the seller the specific name given to the
journal is a Sales Journal or Sales Day Book.
• In the case of the buyer the specific name given to the
journal is a Purchases Journal or Purchases Day Book.
A Typical Day Book
(Sales, Purchases, Returns)
Sales, Purchases, or Returns Journal
Date
Details
Invoice/Credit Note #
Amount
$
Transaction Type Source Document
Journal
Cash purchases &
sales
Credit purchases
Receipt
Cash Book
Invoice
Purchases Journal
Credit sales
Invoice
Sales Journal
Return of goods by Credit Note
us to suppliers
(Purchases Returns)
Returns Outwards
Journal (Purchases
Returns Journal)
Return of goods to
us by customers
(Sales Returns)
Returns Inwards
Journal (Sales
Returns Journal)
Credit Note