What are Books of Original Entry?
Books of original entries, also called as the first entry book, is where the entire journal entries are recorded and kept with all the supporting documents & details of the transactions, which provides the existence & accuracy of the financial transaction posted before the same is being recoded or transferred in the individual ledgers.
Original records mean the initial journal entry of the transaction kept together with the supporting documents & details regarding the transaction. It keeps records of all types of transactions like expense vouchers, invoices, cash transactions, bank transactions, etc. When all the details of the transactions are recorded in the books of original entry only then the same transaction could be further posted in the individual ledgers governing the type of transactions.
Example of Books of Original Entry
As the different types, there could be multiple examples for the same. Some of the examples could be:
- Cash Journals: The books of original entry where all types of payments & receipts done through the medium of cash are recorded and maintained. For the period of entry of a record, every transaction that involves the movement in or out of the cash from the organization is booked in the cash journals with all the supporting or evidence.
- Bank Journals: Same as cash journals, bank journals are also maintained for the period, which holds all the transactions involving the movement of amounts from the bank accounts of the organization.
- Sales Journals: Sales journals are the books where original entries of every transaction directly related to the sales revenue of the organization.
- Purchase Journals: Purchase Journals are the books where original entries for the transaction related to purchases.
Types of Books of Original Entry
In general, it is of two types, shown as follows:
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#1 – Special Journals
Special Journals are the special books of original entry where separate journals are prepared for different nature of transactions. After all the transactions are posted in the separate books, then these transactions or say balances are transferred to their individual and separate ledgers. Examples of such Journals are –
- Sales Journal: Used to record the transaction for the sales invoices when the goods have been sold on credit.
- Purchase Journal: Used to record the transactions of purchases for the organization when the goods have been purchased from the suppliers on a credit basis.
- Cash Journal or Cashbook: Used to record the payment or receipt done in cash.
- Sales Return & Purchase Return Journal: Used to record the data of sales return and purchase being returned. Etc.
#2 – General Journal
General Journals are the journals that are used to record the transactions that are not recorded in any special journal or easier terms; it could be said as the books of entry for the transactions that are not qualified for any special or specific books of entry.
As the books of original entry stores the transactions, as well as the details of the transactions, some specified components, are mandatory to be mentioned for posting a transaction in the books. These components are as follows:
- Date of Transaction: Before recording a transaction in the journal, it is mandatory to mention the date on which the same transaction occurs or are being recorded in the books of accounts. In case the journal is being kept date wise, it is recommended the transaction is entered in the right date feature.
- Relevant Party & Transaction Details: In case the transactions are being recorded in the special journal, the transaction should mention the party with whom the credit transaction has been placed, i.e., the supplier in case of purchase transaction but in case the transaction is booked in the general journal the transaction should mention the relevant parties details.
- Narration: The narration with the transaction provides the details of the transaction as well as explains the reason for the transaction or nature of the transaction is a short form.
- Provide the Reference to the Original Document: It should provide the reference to the original document based on which the transaction has been booked, i.e., invoice number in case of purchase, etc.
- Monetary Details: The entry should mention the monetary amount involved in the transaction.
- Provide the Ledger Account: It should mention the relevant ledger account in which the same transaction would be posted after the successful complete recording in the original books.
- With the recordkeeping in the books of original entry, daily transactions are being recorded in the books, and it reduces the chances of omission of any transaction.
- Since the books maintain all the details of the transaction, as well as a summary of the transaction in the narrations, any error in the transaction, could be easily identified during the postage in the individual ledgers account.
- The transactions are recorded in chronological order, so it’s become relatively easier to categorize them and transfer them into relevant ledgers.
- The journals are bulky and have lots of volumes which make handling the data very difficult.
- It’s not easy to find a particular transaction unless the person knows the date of the transaction.
- The post-booking of all the transactions into the individual ledger takes a lot of time.
Books of Original Entry helps the organization to record the transactions daily with all the supporting and details. It helps to maintain the transactions in preform order & the arrangement of the same in chronological order makes it helpful to maintain the data, and the error or omission of the transaction gets reduced. It always helps in tracking the flow of the data from the financial statements to the prime journal books of accounts.
This has been a guide to what is Books of Original Entry. Here we discuss examples, types, and components along with advantages and disadvantages. You may learn more about financing from the following articles –