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Chapter 3:
The day books and the journal
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What you will learn?
The accounting system
The purchases daybook (PDB)
The sales daybook (SDB)
Control account reconciliations
Returns day books
The journal
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The accounting system
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The purchases daybook (PDB)
What is the PDB?
Be a part of the books of prime entry
Be not part of the double entry system
The purchases
daybook
Records of all the invoices received by
a business from its credit suppliers
Just a list details of each supplier
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The purchases daybook (PDB)
Examples
The simple purchases daybook is as follow:
Supplier’s
Net Sales tax Gross
Date Details account
amount amount amount
number
4/2/2019 ABC Ltd 123 1,000 100 1,100
8/2/2019 CDE Ltd 234 400 40 440
8/2/2019 FGH Ltd 332 1,200 120 1,320
9/2/2019 IJK Ltd 346 150 15 165
TOTALS 2,750 275 3,025
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The purchases daybook (PDB)
The features of PDB
The features of the purchases daybook are:
Despite its name, the purchases daybook does not have
to be totaled every day
Includes invoices which should be approved for
payment
The total of the net amount, sales tax amount and gross
amount columns should add across (cross-casting)
The total of the gross amount column is how much extra
we owe suppliers because of these invoices
The total of the net amount column is the cost of how
much extra has been purchased
The total of the sales tax amount column is the total of
the sales tax relating to these invoices can be recovered
from the government
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The purchases daybook (PDB)
Dr Purchases account 2,750
The amount which
owes to suppliers Dr Sales tax account 275
and the sales tax Cr Payables control 3,025
account (total payables)
The General
Ledger
Supplier’s
Gross
Post to account Details
PDB amount
number
The Payables 123 ABC Ltd 1,100
Ledger
234 CDE Ltd 440
The sum of the detailed
accounts in the Payables ledger 332 FGH Ltd 1,320
equal to the Payables control
account in the General ledger 346 IJK Ltd 165
Shows the gross amount of each 3,025
credited supplier
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The purchases daybook (PDB)
The functions of the system ‘PDB – Payable ledger – General ledger’
The control account provides what is owed to suppliers in total
The detailed accounts in the Payables Ledger give information
about exactly what is owed to whom
The control account equal to the sum of the ledger balances will
reduce the chance of errors in the postings
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The sales daybook (SDB)
What is the SDB?
Be a part of the books of prime entry
Be not part of the double entry system
The sales
daybook
Records of all the invoices issued by a
business to its credit customers before
they are sent out to customers
Just a list details of each customer
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The sales daybook (SDB)
Examples
The simple sales daybook is as follow:
Customer’s
Net Sales tax Gross
Date Details account
amount amount amount
number
4/2/2019 LMN Ltd 378 400 40 440
8/2/2019 OPQ Ltd 388 300 30 330
8/2/2019 RST Ltd 587 200 20 220
9/2/2019 XYZ Ltd 775 120 12 132
TOTALS 1,020 102 1,122
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The sales daybook (SDB)
The features of SDB
The features of the sales daybook are:
Despite its name, the sales daybook does not have to be
totaled every day
The total of the net amount, sales tax amount and gross
amount columns should add across (cross-casting)
The total of the gross amount column is how much extra
we are owed by customers because of these invoices
The total of the net amount column is the pre-tax sales
value of the extra sales
The total of the sales tax amount column is the total of
the sales tax relating to these invoices will be paid to
the government (after off-setting any input sales tax)
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The sales daybook (SDB)
Dr Sales control account
1,122
The amount owed (total receivables)
by customers and
Cr Sales account 1,020
the sales tax
Cr Sales tax account 102
The General
Ledger
Customer’s
Gross
Post to account Details
SDB number
amount
The Receivables 378 LMN Ltd 440
Ledger
388 OPQ Ltd 330
The sum of the detailed
accounts in the Receivables 587 RST Ltd 220
ledger equals to the
Receivables control account in 775 XYZ Ltd 132
the General ledger
Shows the gross amount of each 1,122
credited customer
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The sales daybook (SDB)
The functions of system ‘SDB – Receivables ledger – General ledger’
The control account provides what is owed by customers in total
The detailed accounts in the Receivables Ledger give information
about exactly who owes what
The control account equal to the sum of the ledger balances will
reduce the chance of errors in the postings
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Control account reconciliations
The receivables control account agrees with the sum
of the balances on the receivables ledger
The payables control account agrees with the sum
of the balances on payables ledger
If they don’t comply the above principle, errors can
occur. To correct them, we should understand:
Which entries come from where
Individual lines in the daybook affect
postings to the receivables (or payables)
ledger
Totals in the daybook affect postings to
the receivables (or payables) control
account
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Control account reconciliations
Example
Example
A receivables control account balance is $3,825.
The three receivable account balances in the receivables ledger
are as follows:
Customer name Amount owing
A Ltd 1,800
B Ltd 1,500
C Ltd 652
Total 3,952
Something must have gone wrong because the control account
balance does not agree with the total of the individual balances.
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Control account reconciliations
Example
Investigation of the entries shows the following errors:
1. An invoice for $425 in the daybook was posted to C Ltd’s account as
$452.
2. An invoice for $500 in the daybook was posted as $200 to B’s
account
3. The sales daybook was undercast (added up by too little) by $400
List of balances 3,952
1 $452 – $425 = $27 too much debited to C Ltd (27)
2 $500 - $200 = $300 too little posted to B Ltd 300
Corrected list 4,225
Control account balance 3,825
3 Undercasting error 400
4,225
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Returns day books
Sales returns daybook and purchases returns daybook is
also a part of book of prime entry but not part of double
entry system
Listing credit notes issued to customers or received from
suppliers
They acts as ‘negative’ daybook
Total
Sales Dr Sales
returns Cr Receivables control account
daybook Individual lines
Posting Cr Individual customers’
from accounts
daybook
Total
to ledger
Purchases Dr Payables control account
returns Cr Purchases
daybook Individual lines
Dr Individual suppliers’
accounts
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The journal
The journal is used as the book of prime entry for
transactions or adjustments that are not initiated
anywhere else
Correction of errors
Off-set of amounts owed and owing
Dealing irrecoverable debts
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The journal
Example
Example
A business is owed from ABC Ltd $1,400 in the receivables ledger
A business owed to ABC Ltd $1,600 which in the payables ledger
(ABC Ltd is both a customer and a supplier)
The traditional way of setting out a journal is:
Journal number 1411 Dr Cr
Dr ABC Ltd in the payables ledger 1,400
Cr ABC Ltd in the receivables ledger 1,400
Being the offset of amounts payable and receivable 1,400 1,400
The two amounts can be offset and only $200 needs to be paid
to ABC Ltd.
