RECORDING IN THE PRIMARY BOOKS

Prof. Seema Chakrabarti

Primary Books

Books of accounts consist of two broad sets of

books: Primary Books and Secondary Books.

A primary Book (also called Journal) is a book of

prime (first) entry of transactions.

Any transaction which is not recorded in primary

book does not get reflected in books of accounts.

Recording in the Primary Books

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Ground Rules for Recording in 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 in cash. 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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Recording in the Primary Books

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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Recording in the Primary Books

Application of Ground Rules

Example 3: Cash sales of Rs. 100,000 Two elements- Cash (Asset) and Sales (Income) Cash (Asset) increases and Sales (Income) increases. Applying ground rules:

Cash Debit Rs. 100,000 Sales Credit Rs. 100,000

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Recording in the Primary Books

Application of Ground Rules 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) has

also decreased.

Applying ground rules:

Loan Debit Rs. 150,000

Cash Credit Rs. 150,000

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Recording in the Primary Books

Application of Ground Rules 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) also

increases. Applying ground rules:

Debtors Debit Rs. 10,00,000 Sales Credit Rs. 10,00,000

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Recording in the Primary Books

Application of Ground Rules Example 6:

Continuing with Example 5,the customer has paid 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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Recording in the Primary Books

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, a

separate journal is used for recording the

transaction.

Since transactions are recorded in journal

chronologically as these occur, journal books are

generally called day books.

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Recording in the Primary Books

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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Recording in the Primary Books

Types of Journal

Bills Receivable Book

It records bills (of exchange) accepted by customers. Bills Payable Book

It records bills (of exchange) raised by suppliers. Cash Book

It records all cash (and bank) transactions: receipts and payments.

Journal Proper

It records all residual transactions i.e., transactions which do not find place in any of the other journal books.

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Recording in the Primary Books

Journal Book Identification

Identify the appropriate journal for the following transactions:1. Credit purchase of machinery.2. Cash sales3. Loan raised4. Credit sale of goods.5. Cash purchase6. Credit purchase of goods7. Cash deposited to Bank8. Goods returned by customers.9. Goods returned to suppliers.10. Depreciation on assets

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Recording in the Primary Books

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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Recording in the Primary Books