The process of bookkeeping begins by the issue or the receipt of source documents,
such as invoices, purchase orders or sales orders. Once invoices are issued or
received, the details of that particular invoice are recorded in the appropriate book of
The books of prime entry are summarized above with the inclusion of the journal, which
is shown separately for illustrative reasons only. Well, whenever a sale is made, the
details of the sales are recorded in the sales day book, and similarly for purchases.
Sales returns or purchase returns are similarly recorded in their own books of prime
entry. Any cash related payments or receipts are recorded in the cash day book, which
includes bank related transactions as well.
A separate book is kept for petty cash since most businesses keep a small amount of
cash on the premises to make occasional small payments in cash, e.g. postages, taxi
fares, etc. the petty cash account can also be the resting place of occasional small
receipts, such as cash paid by a visitor to make a phone call, etc. As one may imagine,
although the amounts involved are small, petty cash transactions still need to be
recorded, otherwise the cash float could be abused for personal expenses!
Furthermore, under what is called the imp rest system, the amount of money in petty
cash is kept at an agreed sum or ‘float’. The imp rest system is a system where a refund
is made of total cash paid out in a period. E.g. if the float is agreed to be at $250, then
at the end of the period, whatever is spent, would be refunded back from the cash
Sales or purchases on credit are not only recorded in books of prime entry, such as the
sales or purchase day books, but they are also recorded in what is known as
memorandum accounts or personal accounts. As such, these accounts contain the
balances outstanding for each personal debtor or creditor. These books aren’t a part of