CHAPTER 2

ACCOUNTING
BOOKS

ACCOUNTING CYCLE
An

accounting cycle is the process of

recording business transactions. This cycle
involves several stage over a particular
period of time.
An accounting cycle shows the steps to
collect and record business information
systematically so that the financial reports
or statements can be presented to the
management and analysed

JOURNAL
1. Journal is a sheet in which all business

transaction entries are recorded in

chronological order.
2. Journal can be categorised as:
General journal basic journal used to

record all business transactions that

cannot be recorded in cash book or
special journal.
Special journals used to record a
specific type of transaction only.
Examples:

JOURNAL
Purchase journal
Sales journal
Purchase returns journal (returns

outwards journal)
Sales returns journal (returns inwards
journal)
3. Journal entries must be posted to the

ledger of related account based on the

double-entry system.
4. Journal is a sheet in which all business
transaction entries are recorded in

LEDGER
A ledger is the principal book for recording and

totalling economic transactions measured in terms of

a monetary unit of account by account type, with
debits and credits in separate columns and a
beginning monetary balance and ending monetary
balance for each account.
All ledgers account must be balanced before a trial

balance is prepared.
All ledgers account is balanced by comparing the

total debit amount with the total credit amount, and

determining which amount is larger.

LEDGER
Types of Ledger
Subsidiary account

Account receivable (debtors)

Account payable (creditors)

Non-subsidiary account
Real accounts

Liabilities &Owners equity

Assets:

a) Current assets. E.g.: cash, bank, and account receivable

b) Non-current assets. : Eg: Building, land, motor vehicle

Nominal account

Expenses. E.g.: Discount allowed, rent, salaries

Revenue. E.g.: Commission received, discount received, rent

received.

FIRST BOOK
Types Books of Prime Entry
Each type of day book or book original
entry is used to record a specific types of
transaction.
Types of book prime entry:
General journal basic journal used to

record all business transactions that cannot

be recorded in cash book or special journal.

FIRST BOOK
Special Journal:
Sales journal to record credit sales
Purchase to record credit purchases
Sales return journal to record sales
return from debtors
Purchase return journal to record
purchase return from creditors

FIRST BOOK
Cash Book used to record receipts

and payments by cash or cheque

Cash book two-column exclude
discount allowed & discount receive
column
Cash book three-column- include
discount allowed & discount receive
column

Source Documents, Transactions

and Book of Prime Entry
Source
Document

Invoice
received
Invoiced
issued (sent)
Cash
bill
received
Cash
bill
issued
Receipt
received
Receipt

Transaction

Book of Prime
Entry

Credit
purchase
Credit sales

Purchase
journal
Sales journal

Cash
purchase
Cash sales

Cash
(cr)
Cash
(dr)
Cash
(cr)
Cash

Cash
payment
Cash

book
book
book
book

Source Documents, Transactions

and Book of Prime Entry
Source
Document

Credit note
received

Credit note
issued

Transaction

Purchase
returns
(Returns
outwards)
Overstated
purchase
price

Book of Prime
Entry

Puchase
returns
journal
(Returns
outwards
journal)
General
journal
Sales returns Sales returns
(Returns
journal
inwards)
(Returns

Source Documents, Transactions

and Book of Prime Entry
Transaction
Book of
Source
Prime Entry
Document
Debit note
received
Debit
note
issued
Cash voucher

Payment
voucher

Understated
purchase price
Understated
sales price
Payment
made by cash
but no receipt
issued
Payment
made
by
cheque but no

General
journal
General
journal
Cash book (cr

cashs
column)
Cash book (cr

banks
column)

Source Documents, Transactions

and Book of Prime Entry
Transaction
Book of
Source
Prime Entry
Document
Cheque butts

Payment
cheque

Memos

Additional
capital
Drawings
assets
Drawings
goods

by Cash book (cr

banks
column)
General
journal
of General
journal
of General
journal

Source Documents, Transactions

and Book of Prime Entry
Narration of Journal
The sentences that appears below the
line containing the account heads that
are debited and credited.
The narration is a brief explanation for
the entry. It include certain details in
relation to the transactions.
The purpose of the narration is to enable
anyone who reads it to get a preliminary
idea of why the entry is being recorded.

Source Documents, Transactions and

Book of Prime Entry
Subsidiaries ledgers
Subsidiaries account are accounts related
to account receivable of goods sold
(debtors) and account payable of goods
purchased (creditors)
Non-subsidiary accounts are all accounts
other than account receivable and account
payable accounts.
Example of subsidiary ledger