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Accounting Basics for Beginners

Books of original entry record transactions first, including sales, purchases, returns, and petty cash. This information is then posted to ledgers through double entry, including receivables, payables, and nominal ledgers. Accounts are either personal for people/businesses or impersonal divided into real assets and nominal expenses/income. Purchase invoices received from suppliers are entered in the purchases day book and payables ledger, debiting purchases and crediting suppliers. Cash sales require no entry, while credit revenue uses invoices posted to sales and receivables.

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141 views3 pages

Accounting Basics for Beginners

Books of original entry record transactions first, including sales, purchases, returns, and petty cash. This information is then posted to ledgers through double entry, including receivables, payables, and nominal ledgers. Accounts are either personal for people/businesses or impersonal divided into real assets and nominal expenses/income. Purchase invoices received from suppliers are entered in the purchases day book and payables ledger, debiting purchases and crediting suppliers. Cash sales require no entry, while credit revenue uses invoices posted to sales and receivables.

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Alisha shenaz
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Books of original entry: it is the place where a transaction is first recorded.

There are separate books for each kind of transaction. These are:
 Sales Day Book – used for credit revenue.
 Purchase Day Book – used for purchases.
 Sales Returns Day Book – used for sales returns from customers.
 Purchase Returns Day Book – used for goods returned to suppliers.
 Petty Cash Book – Used for recording small items of expenditure.
 Journals – Used for other items.

Ledgers:
The information in the books of original entry are then recorded into the ledgers
through a double entry system. This procedure is often known as posting.
The different types of ledgers are shown below:
Types of ledgers
Receivables ledger Payables ledger Nominal Ledger
(Trade receivables ledger) (Trade payables ledger) (General Ledger)
Shows records of customer’s Shoes records of supplier’s Contains the remaining
personal accounts. personal accounts double entry accounts such
as assets, equity,
expenses, income
Classification of accounts:
Accounts are divided into:
1. Personal accounts
2. Impersonal accounts
Personal accounts: these are accounts for people or businesses. i.e: the trade
receivables and the trade payables.
Impersonal accounts: includes all other accounts. They are divided into:
a) Real accounts: these deal with the possessions of the business. For example:
buildings, machinery, computer equipment, fixtures and fittings, inventory etc.
b) Nominal accounts: expenses and income are recorded here. For example:
revenue, purchases, wages, electricity, commissions received etc.

Purchase invoices:
When a business purchases goods or services from a supplier on credit, they
are sent a purchase invoice. The following information is recorded in the
purchase invoice:
- Date of the invoice
- Name of the supplier from whom the goods were purchased
- Goods (net cost)
- Total amount due
The supplier and the customer are both required an invoice. It is recorded as
an invoice in the supplier’s account and a purchase invoice in the customer’s
account.
Invoices are first entered into the purchases day book. Next, each invoice is
posted to the individual supplier’s account in the payables ledger. At the end f
each month, the totals in the purchases book are posted to the “purchases
account” in the nominal ledger. The double entry requirements are then to:

 Credit: each supplier’s account in the payables ledger with the total of each
individual invoice.
 Debit: the purchases account with the total of the “net purchases”.
Cash and credit revenue
 Cash revenue: when a customer purchases goods and pays for them
immediately by cash, there is no need to enter the sale of these goods into
the sales day book or receivables ledger.
 Credit revenue: for each credit sale, the supplier sends a document to
the buyer showing the details and prices of the goods sold. This document
is known as a revenue invoice to the supplier and a purchase invoice to the
buyer. All invoices are numbered and include the names and addresses of
both the supplier and the customer.

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