Books of Prime Entry: Cash Book and Journals

What you'll learn

Books of Prime Entry form the foundation of double-entry bookkeeping in CIE IGCSE Accounting. This topic covers how transactions are first recorded in subsidiary books before being posted to ledger accounts. You'll master the cash book (including petty cash), sales journal, purchases journal, sales returns journal, purchases returns journal, and general journal—all frequently tested in Paper 1 and Paper 2.

Key terms and definitions

Books of Prime Entry — subsidiary books where transactions are first recorded before transfer to the ledger; also called books of original entry or subsidiary journals.

Cash Book — a book of prime entry that records all cash and bank transactions; it acts as both a book of prime entry and part of the double-entry system (as the cash and bank accounts in the ledger).

Petty Cash Book — a subsidiary book recording small payments using the imprest system; maintained separately from the main cash book.

Imprest System — a method of controlling petty cash where a fixed float is maintained and reimbursed periodically to restore the original amount.

Trade Discount — a reduction in list price given to trade customers; never recorded in the books of account.

Cash Discount — a reduction given for prompt payment; recorded in the discount columns of the cash book and posted to the discount allowed/received accounts.

Contra Entry — a transaction that appears on both sides of the cash book, typically a transfer between cash and bank.

Folio Reference — a cross-referencing system showing where entries have been posted in the ledger (e.g., SL for Sales Ledger, PL for Purchases Ledger).

Core concepts

The Cash Book: Three-Column Format

The three-column cash book is the most commonly examined format in CIE IGCSE Accounting. It contains columns for discount, cash, and bank on both the debit (receipts) and credit (payments) sides.

Structure of the three-column cash book:

Debit side (receipts):

• Date column
• Details column
• Folio column
• Discount allowed column
• Cash column
• Bank column

Credit side (payments):

• Date column
• Details column
• Folio column
• Discount received column
• Cash column
• Bank column

Key recording principles:

• Cash received from customers appears on the debit side in the cash/bank column
• Cash paid to suppliers or for expenses appears on the credit side
• Discount allowed (to customers) appears in the debit side discount column
• Discount received (from suppliers) appears in the credit side discount column
• The discount columns are memorandum columns only—they are totalled and posted to the ledger but do not form part of the cash/bank balance calculation

Balancing the cash book:

1. Total the cash and bank columns on both sides
2. Insert the larger total on both sides
3. Calculate the balance by subtracting the smaller from the larger
4. Enter balance c/d (carried down) on the side with the smaller total
5. Enter balance b/d (brought down) on the opposite side below the totals
6. A debit balance represents cash/money in hand or at bank
7. A credit bank balance represents an overdraft (shown in brackets)

Contra Entries in the Cash Book

A contra entry occurs when money is transferred between cash and bank within the same business. These transactions appear on both sides of the cash book.

Example: Cash of $500 banked appears as:

• Credit side (cash column): "Bank" — $500
• Debit side (bank column): "Cash" — $500
• Marked with "C" in the folio column to indicate contra

Contra entries do not require posting to any other ledger account because the double entry is completed entirely within the cash book itself.

The Petty Cash Book and Imprest System

The petty cash book records small, routine payments (stationery, cleaning, postage, etc.) to avoid cluttering the main cash book. Most businesses use the imprest system to control petty cash.

How the imprest system works:

1. A fixed petty cash float is established (e.g., $200)
2. Petty cash payments are made and recorded throughout the period
3. At the end of the period, the amount spent is calculated
4. The main cashier reimburses exactly the amount spent
5. The petty cash float returns to its original amount

Structure of the analytical petty cash book:

• Receipts column (debit side): money received from the main cash book
• Date, details, voucher number, and total payment columns
• Analysis columns (credit side): categorise payments by expense type (VAT, postage, cleaning, stationery, travel, sundry expenses)
• Each payment is entered once in the total column and once in the appropriate analysis column

Posting from the petty cash book:

• Totals of each analysis column are debited to the respective expense accounts
• The receipts column total is credited to the bank/cash account in the main cash book
• Individual transactions are NOT posted—only the period totals

Sales and Purchases Journals

The sales journal (or sales day book) records all credit sales of goods. Cash sales are NOT recorded here—they go directly into the cash book.

Sales journal format:

Date | Details | Invoice No. | Folio | Amount ($)

Posting procedure:

1. Each individual sale is debited to the customer's account in the sales ledger
2. The total for the period is credited to the sales account in the general ledger

Important: Trade discount is deducted before entering the amount in the sales journal. Only the net amount (after trade discount) is recorded.

The purchases journal (or purchases day book) records all credit purchases of goods intended for resale.

Purchases journal format:

Date | Details | Invoice No. | Folio | Amount ($)

Posting procedure:

1. Each individual purchase is credited to the supplier's account in the purchases ledger
2. The total for the period is debited to the purchases account in the general ledger

Sales Returns and Purchases Returns Journals

The sales returns journal (returns inwards journal) records goods returned by customers.

Posting procedure:

1. Credit each customer's account in the sales ledger
2. Debit the sales returns account with the period total

The purchases returns journal (returns outwards journal) records goods returned to suppliers.

Posting procedure:

1. Debit each supplier's account in the purchases ledger
2. Credit the purchases returns account with the period total

Credit note recording: When a business issues or receives a credit note, it is recorded in the appropriate returns journal using the credit note number as the reference.

The General Journal

The general journal records transactions that do not fit into any other book of prime entry. In CIE IGCSE Accounting, the general journal is used for:

• Opening entries (recording opening balances when books are first opened)
• Closing entries (transferring balances at year-end)
• Correction of errors
• Purchase and sale of non-current assets on credit
• Writing off bad debts
• Adjustments (provisions, accruals, prepayments)

General journal format:

Date | Details | Folio | Debit ($) | Credit ($)

Narration — a brief explanation must appear below each journal entry explaining the transaction.

Example format:

Date: 1 Jan 2024
Details:
    Motor vehicles (Debit)          15,000
        ABC Motors (Credit)                   15,000
Being purchase of delivery van on credit

Worked examples

Example 1: Three-Column Cash Book

On 1 March 2024, J. Kumar had cash $450 and a bank balance of $3,240. The following transactions occurred during March:

• 3 Mar: Received cash from S. Lee $590 after allowing discount $10
• 5 Mar: Paid rent by cheque $800
• 8 Mar: Cash sales $1,200
• 10 Mar: Banked $1,000 of cash held
• 12 Mar: Received cheque from T. Wong $1,940 after allowing discount $60
• 15 Mar: Paid wages in cash $450
• 18 Mar: Paid M. Shah by cheque $880 having received discount $20

Required: Prepare the three-column cash book for March 2024 and balance it at 31 March.

Solution:

Cash Book

Date	Details	Folio	Discount Allowed	Cash	Bank		Date	Details	Folio	Discount Received	Cash	Bank
Mar 1	Balances b/d			450	3,240		Mar 5	Rent				800
Mar 3	S. Lee	SL	10	590			Mar 10	Bank	C		1,000
Mar 8	Sales			1,200			Mar 15	Wages			450
Mar 10	Cash	C			1,000		Mar 18	M. Shah	PL	20		880
Mar 12	T. Wong	SL	60		1,940		Mar 31	Balances c/d			790	4,500
			70	2,240	6,180					20	2,240	6,180
Apr 1	Balances b/d			790	4,500

Mark allocation (typical):

• Correct opening balances: 1 mark
• All transactions correctly recorded: 6 marks (1 per transaction)
• Contra entry correctly shown: 1 mark
• Discount columns correctly totalled: 1 mark
• Cash and bank correctly balanced: 2 marks

Example 2: Petty Cash Book (Imprest System)

A business maintains a petty cash float of $300 on the imprest system. On 1 June the petty cash balance was $45. The following payments were made during June:

• 3 June: Postage stamps $12
• 7 June: Cleaning materials $18
• 10 June: Stationery $25
• 15 June: Travel expenses $32
• 20 June: Window cleaning $15
• 25 June: Envelopes $8

Required: (a) Prepare the petty cash book for June. (b) State the amount to be reimbursed at 30 June.

Solution:

(a) Petty Cash Book

Date	Details	Voucher	Total	Postage	Cleaning	Stationery	Travel
Jun 1	Balance b/d		45
Jun 1	Cash from cashier		255
Jun 3	Stamps	101	12	12
Jun 7	Cleaning materials	102	18		18
Jun 10	Stationery	103	25			25
Jun 15	Travel	104	32				32
Jun 20	Window cleaning	105	15		15
Jun 25	Envelopes	106	8			8
Jun 30	Balance c/d		190
			300	12	33	33	32
Jul 1	Balance b/d		190

(b) Amount to be reimbursed = $300 - $190 = $110

(Under the imprest system, the business reimburses $110 to restore the float to $300)

Example 3: Journal Entry for Correction of Error

On 30 June 2024, a business discovered that $350 paid for repairs to machinery had been debited to the machinery account instead of the repairs account.

Required: Prepare the journal entry to correct this error.

Solution:

General Journal

Date	Details	Folio	Debit ($)	Credit ($)
Jun 30	Repairs account	GL	350
	Machinery account	GL		350
	Being correction of error: repairs incorrectly debited to machinery account

Explanation: The original incorrect entry added $350 to the machinery account (an asset). To correct this, machinery must be reduced (credited) and the correct expense account (repairs) must be debited.

Common mistakes and how to avoid them

• Recording trade discount in books of account — Trade discount is deducted before any recording takes place. Only the net amount after trade discount is entered in the sales or purchases journal. Cash discount, however, is recorded in the discount columns of the cash book.

• Posting discount column totals incorrectly — Discount allowed (on the debit side) is an expense and is debited to the discount allowed account. Discount received (on the credit side) is income and is credited to the discount received account. Students often reverse these postings.

• Failing to mark contra entries — When cash is banked or withdrawn from the bank, both entries must be marked with "C" in the folio column. Without this marking, examiners may assume you have not recognised the contra nature of the transaction.

• Including cash sales in the sales journal — The sales journal records credit sales only. Cash sales must be entered directly in the debit side of the cash book. Similarly, cash purchases go in the cash book, not the purchases journal.

• Calculating petty cash reimbursement incorrectly — Under the imprest system, reimbursement = amount spent, NOT the closing balance. If the float is $200 and $150 was spent (leaving $50), the reimbursement is $150 to restore the float to $200.

• Omitting narration from journal entries — Every general journal entry must include a brief narration (explanation) starting with "Being..." This explains the reason for the entry and typically earns 1 mark in examinations.

Exam technique for Books of Prime Entry: Cash Book and Journals

• Balancing the cash book — Questions typically award 1 mark for correctly carrying down the balance and 1 mark for bringing it down on the correct side. Always show "Balance c/d" and "Balance b/d" clearly. Remember that a credit bank balance (overdraft) should be shown in brackets.

• Command words for this topic — "Prepare" or "Write up" means produce the complete book of prime entry with all columns correctly headed and all entries in the right place. "Calculate the balance" specifically asks for the closing balance figure only. "State the amount to be reimbursed" in petty cash questions requires the imprest calculation.

• Folio column marks — In cash book questions, examiners often allocate 1 mark for correct use of folio references (SL, PL, GL, C). Write "C" for contra entries, "SL" when money is received from or paid to individual customers, and "PL" for transactions with suppliers.

• Journal entry format — Questions asking for journal entries typically award: 1 mark for each correct debit, 1 mark for each correct credit, 1 mark for correct amounts, and 1 mark for the narration. Always use the standard format with debits listed first, credits indented, and narration below in italics or with an asterisk.

Quick revision summary

Books of Prime Entry record transactions before posting to ledger accounts. The three-column cash book records all cash and bank receipts (debit side) and payments (credit side), with discount columns for cash discount. Contra entries appear on both sides when cash is banked. The petty cash book uses the imprest system, with analysis columns for different expense types. Sales and purchases journals record credit sales and purchases respectively; returns journals record returned goods. The general journal records opening/closing entries, error corrections, and non-current asset purchases. Trade discount is never recorded; cash discount appears in the cash book discount columns. Always balance cash books by inserting totals and calculating the difference, marking balances c/d and b/d clearly.