Primary Books of Accounts

7/31/2019 Primary Books of Accounts

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RECORDING IN THE PRIMARY BOOKS

Prof. A.S.Suresh



Identify a transaction

Record in Primary

Books

Record in Secondary

Books

Prepare Trial

Balance

Prepare Financial

Statements

AccountingTrail

Recording

Reporting

Financial Accounting: An introduction



Recording of Transactions: The

Double Entry Principle

• Each transaction has two aspects (or side): Debit

and Credit .

• Every debit has an equal and opposite credit.

• Each transaction should be recorded in such a way

that it affects two sides- debit and credit- equally.

• Thus, the first and foremost step in recording a

transaction is to identify the debit and creditelements.

Financial Accounting: An introduction



Ground Rules for Recordingin Primary Books Recollect the accounting equation:

A(Asset)= L(Liabilities)+ E(Equity)

Ground Rules:

Increase in assets and decrease in liabilities and equity:Debit.

Decrease in assets and increase in liabilities and equity:

Credit.

Expenses and losses: Debit Income and gains: Credit

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Recording in the Primary Books



Application of Ground Rules

Example 1: ABC Ltd bought an equipment for Rs. 500,000 incash. Is it a transaction? There are two elements: Equipment (Asset) and Cash

(Asset). One asset (Equipment) increases and the other asset

(Cash) decreases.

Applying ground rules: Equipment Debit Rs.500,000 Cash Credit Rs. 500,000

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Application of Ground Rules Example 2:

ABC Ltd. purchased raw materials for immediate

consumption worth Rs. 200,000 paying 50% in

cash and balance payable after one month. Three elements: Purchase of raw materials (Expenses),

Cash (Asset), Payables to suppliers (Liability)

Expenses are incurred, cash (Asset) depletes, and

Suppliers’ Credit (Liabilities) increases.

Applying ground rules:

Purchases Debit Rs. 200,000

Cash Credit Rs. 100,000

Creditors Credit Rs. 100,000

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Example 3:

Cash sales of Rs. 100,000

Two elements- Cash (Asset) and Sales (Income)

Cash (Asset) increases and Sales (Income) increases.


Cash Debit Rs. 100,000

SalesCredit

Rs. 100,000

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Example 4: Repayment of Loan of Rs. 150,000

The two elements are: Loan (Liability) and Cash (Asset)

Loan (Liability) has decreased and Cash (Asset) hasalso decreased.


Loan Debit Rs. 150,000

Cash Credit Rs. 150,000

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Example 5: Sold goods worth Rs. 10,00,000 on credit. The two elements are sales (income) and receivables

from customer (Asset).

Income (sales) increases and Asset (Debtors) alsoincreases.


Debtors Debit Rs. 10,00,000

Sales Credit Rs. 10,00,000

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Application of Ground Rules Example 6:

Continuing with Example 5,the customer haspaid Rs. 9,90,000 in full and final settlement of her dues. The elements are receivables from customer (Asset),

cash (Asset), discount allowed (expense) One asset (receivables from customer) decreases,

another asset (cash) increases and an expense(discount allowed) has been incurred.

Applying ground rules: Cash Debit Rs. 9,90,000 Discount Allowed Debit Rs. 10,000 Debtors Credit Rs. 10,00,000

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Types of Journal

There are many primary books (i.e., Journal

Books). The transactions are categorized as per

their nature and, for each type of transaction, aseparate journal is used for recording the

transaction.

Since transactions are recorded in journalchronologically as these occur, journal books are

generally called day books.

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Types of Journal

There are eight types of journal books: Purchases Day Book

It records credit purchase of raw materials, and

traded goods

Sales Day Book It records credit sale of goods.

Return Outward (also called Purchases Return) Book

It records goods returned to the supplier (s) of raw

materials and traded goods. Return Inward (also called Sales Return) Book

It records goods returned by customers.

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Examples of Journal Proper

• II. Journal Proper

• This journal is meant for recording all such transactions for which no special

• journal has been maintained in the business. Therefore, in this journal, all• such transactions are recorded which do not occur frequently and for these

• transactions no special journal is required. For example, if Machinery is

• purchased on credit, it will be recorded in the journal proper, because in

• the Cash Book, we will record only cash purchases of machinery. Similarly,

• many other transactions, which do not find their place in the special journals

• will be recorded in the General Journal such as

• (i) Outstanding expenses – Salaries outstanding, Rent outstanding, etc.

• (ii) Prepaid expenses – Prepaid Rent, Salaries paid in advance

• Income received in advance – Rent received in advance, interest

• received in advance, etc.

• (iv) Accrued Incomes – Commission yet to be received, interest yet to be

• received.

• (v) Interest on Capital

• (vi) Depreciation

• (vii) Credit Purchase and Credit Sale of fixed Assets – Machinery,

• Furniture.

• (viii) Bad debts.

• (ix) Goods taken by the proprietor for personal use.



Journal Book Identification

Identify the appropriate journal for the followingtransactions:1. Credit purchase of machinery.

2. Cash sales

3. Loan raised

4. Credit sale of goods.

5. Cash purchase

6. Credit purchase of goods

7. Cash deposited to Bank

8. Goods returned by customers.9. Goods returned to suppliers.

10. Depreciation on assets

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Cash Book

It is the most important day book. Prepare a cash book with the following

transactions: Opening cash balance Rs. 50,000

Opening bank balance Rs. 100,000 Cash purchases Rs. 125,000

Cash Sales Rs. 175,000

Salary paid Rs. 20,000

Cash deposited to bank Rs. 20,000

Cash withdrawn from bank Rs. 10,000

Find the closing cash and bank balances.

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Primary Books of Accounts

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