Books Of Original Entry

Books of original entries, also called the first entry book, are 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 recorded or transferred in the individual ledgers.

Books of Original Entry helps the organization record the daily transactions with all the supporting 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. Moreover, it always helps track the data flow from the Financial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly).

The books of original entry include the documents and records where the business transactions are recorded for before transferring them to the general ledger. They are extremely important in the process of accounting in order to maintain clear and transparent financial records.

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 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. These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels. financial statements to the prime journal books of accounts.

With technological advancement and developments there are various new softwares in the market that are widely used for accounting purpose in the books of original entry and source documents and these transactions are handled in electronic form. Such procedures successfully automate most of the recording and reporting part involved in accounting. However, the above concept still remains in place because it is the foundation of financial reporting and analysis of any organization.

In general, the original entry books and source documents are of two types, shown as follows:

#1 - Special Journals

Special Journals are the special books of original entries where separate journals are prepared for different transactions. After all the transactions are posted in the separate books, these transactions, 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 sales returns and purchases being returned. Etc.

#2 - General Journal

General Journals are the journals 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 for the different types, there could be multiple examples for the same. For example, some of the name the various books of original entry could be:

1. 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 evidence.
2. Bank Journals: Like cash journals, bank journals are also maintained for the period that holds all the transactions involving the movement of amounts from the organization's bank accounts.
3. Sales Journals: Sales journals are the books where original entries of every transaction are directly related to the organization's sales revenue.
4. Purchase Journals: Purchase Journals are the books where original entries for the transaction related to purchases.

The books of original entry is the foundation of a system where the accounting and financial recording process is well organized, transparent, accurate. It ensures that each and every financial transaction is properly recorded, classified and summarized so that the financial reports created are reliable enough and useful for stakeholders to take informed investment decisions.

After learning about the various name the various books of original entry, it is important to know about their components. As the books of original entry store the transactions and 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:

1. Date of Transaction: Before recording a transaction in the journal, it is mandatory to mention the date on which the same transaction occurs or is recorded in the books of accounts. If the journal is being kept date-wise, it is recommended that the transaction be entered in the right date feature.
2. 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.
3. Narration: The narration of the transaction provides the details of the transaction and explains the reason for the transaction or the nature of the transaction in a short form.
4. Provide the Reference to the Original Document: It should reference the original document based on which the transaction has been booked, i.e., invoice number in case of purchase, etc.
5. Monetary Details: The entry should mention the monetary amount involved in the transaction.
6. 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.

These books are very important for the business because they contribute to clear and methodical financial record keeping. Some important uses are as follows;

• The main purpose is that they provide a proper place to record the transactions as and when they occur. This ensures that no transactions are missing and they are properly documented.
• The entries are recorded in a chronological order This is very useful because they track the sequence of events and helps in keeping a clear historical record.
• They help to reduce error and confusion. This is because each transaction is recorded in their respective books like cash transaction goes to the cash book, sales records go to the sales journal, etc. Such categorisation makes it easy for usersto locate any details as and when they are required. This separation also reduced the chance of the transactions getting mixed up.
• It helps in improving the accountability of the entire process because the process is streamlined in such a way so that the accountants or the softwares can enter the details within a very short span of time, which simplifies the process. The financial activities are easily traceable.
• Since it is the base for preparing the financial statements, they have a very special importance for the business. The financial statements are the documents which give clear and accurate information about the business to the outside world, that is prepared based on the books of original entry.
• It records have a special use during audits and data analysis. The auditors use these books to pick out samples for auditing in order to ensure proper entry and recording of transaction. They use it to verify the accuracy and completeness of the transactions. The information entered in the books are very useful for management and the stakeholders because they help in analysing the trends, pattern, and growth in areas like sales, revenue, cost, etc.
• The books also help in meeting legal formalities and complying with various legal requirements like tax reporting and regulatory filing.

Thus, we see that these documents are a very important and valuable source of reference in order to take informed business decisions.

The concept is the basis of financial recording and reporting in any business, but it comes with its own advantages and disadvantages. Let us have a look at the advantages first.

• With the recordkeeping in the books of original entry, daily transactions are being recorded in the books, reducing the chances of omission of any transaction.
• Since the books maintain all the details of the transaction and a summary of the transaction in the narrations, any error in the transaction could be easily identified during the postage in the individual ledger's account.
• The transactions are recorded in chronological order, so it’s become relatively easier to categorize them and transfer them into relevant ledgers.

The following are the disadvantages of the process.

• The journals are bulky and have lots of volumes, making 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 time.

Both the above are books of accounts that are maintained in the business so that the financial transactions are properly recorded. However, there are some important differences between them as follows.

• In case of the former, the transactions are recorded as and when they occur but the latter is the where the transactions are grouped, classified and posted to different accounts separately.
• The main purpose of the former is to keep the financial transaction records in a chronological and systematic manner so that before they are transferred to the ledger. So the recording in ledger is done after the books of original entry.
• The former serve as the primary source of financial data for the business, whereas the latter comes later and provides a detailed record of activity that have individual account category.

Both of them together form the accounting backbone which ensure an organised tracking and preparation of financial statements.

This has been a guide to what are Books Of Original Entry. We explain them with examples, types, differences with ledger, advantages, uses & disadvantages. You may learn more about financing from the following articles –

• Rules for Journal Entries
• Journal Voucher
• Journal Entry Format
• Expense Journal Entries