Main Books of Account

Part A

The main books of account are essential records used in accounting to systematically document financial transactions. These books form the foundation for preparing financial statements and help ensure accuracy, transparency, and accountability in financial reporting.

Here are the main books of account, their purposes, and the types of entries they contain:

1. Journal (Book of Original Entry)

Purpose: To record all financial transactions in chronological order as and when they occur.
Contains:
- Date of transaction
- Accounts involved (debit and credit)
- Amounts of each debit and credit
- A brief description/narration of the transaction

This is the first book where transactions are recorded using double-entry bookkeeping principles.

Types of Journals:

General Journal: For non-routine or adjusting entries (e.g., depreciation, accruals).
Special Journals: Used for frequent, repetitive transactions:
- Sales Journal: Credit sales
- Purchases Journal: Credit purchases
- Cash Receipts Journal: All cash received
- Cash Payments/Disbursements Journal: All cash paid

2. Ledger (Book of Final Entry)

Purpose: To classify and summarize all journal entries under individual accounts.
Contains:
- Individual accounts (e.g., Cash, Accounts Receivable, Sales, etc.)
- Each account shows all debits and credits affecting it
- Running balances for each account

The ledger organizes transactions into categories (assets, liabilities, equity, revenue, expenses), making it easier to prepare financial statements.

3. Cash Book

Purpose: To record all cash receipts and payments (including bank transactions).
Contains:
- Date of transaction
- Particulars (description of transaction)
- Amounts received (debit side) or paid (credit side)
- Balance carried forward

The Cash Book serves both as a journal and a ledger account (usually part of the ledger). It can be:

Simple Cash Book (single column)
Two-column Cash Book (cash and bank)
Three-column Cash Book (cash, bank, and discount)

4. Purchases Book (Purchases Journal)

Purpose: To record all credit purchases of goods made by the business.
Contains:
- Date of purchase
- Name of supplier
- Invoice number
- Amount
- Account credited (usually Accounts Payable)

Cash purchases are not recorded here; they go into the Cash Book.

5. Sales Book (Sales Journal)

Purpose: To record all credit sales of goods made by the business.
Contains:
- Date of sale
- Customer name
- Invoice number
- Amount
- Account debited (usually Accounts Receivable)

Cash sales are recorded in the Cash Book, not in the Sales Book.

6. Returns Inwards Book (Sales Returns Book)

Purpose: To record goods returned to the business by customers (i.e., returns from credit sales).
Contains:
- Date of return
- Customer name
- Details of goods returned
- Amount
- Account debited (usually Sales Returns or Contra Revenue)

Reduces sales previously recorded in the Sales Book.

7. Returns Outwards Book (Purchases Returns Book)

Purpose: To record goods returned by the business to suppliers (i.e., returns on credit purchases).
Contains:
- Date of return
- Supplier name
- Details of goods returned
- Amount
- Account credited (usually Purchase Returns or Contra Expense)

Reduces purchases previously recorded in the Purchases Book.

8. Bill Receivable Book

Purpose: To record bills of exchange received from debtors (customers).
Contains:
- Date of bill receipt
- Debtor’s name
- Due date of bill
- Amount
- Maturity date

Useful for tracking receivables that are formalized through bills.

9. Bill Payable Book

Purpose: To record bills of exchange accepted by the business in favor of creditors (suppliers).
Contains:
- Date of bill acceptance
- Creditor’s name
- Due date of bill
- Amount
- Liability details

Tracks obligations backed by bills of exchange.

Summary Table:

Book of Account	Purpose	Type of Entries Recorded
Journal	Record transactions chronologically	All transactions initially recorded here
Ledger	Classify journal entries by account	Debits and credits per account
Cash Book	Record cash receipts & payments	Cash/Bank receipts and disbursements
Purchases Book	Record credit purchases	Goods bought on credit
Sales Book	Record credit sales	Goods sold on credit
Returns Inwards Book	Record goods returned by customers	Sales returns (from credit sales)
Returns Outwards Book	Record goods returned to suppliers	Purchase returns (on credit purchases)
Bills Receivable Book	Track bills received from debtors	Formal receivables via bills of exchange
Bills Payable Book	Track bills accepted to creditors	Formal payables via bills of exchange

graph TD
    A[Identify Financial Transactions] --> B[Analyze Transactions]
    B --> C[Journalize Transactions]
    C --> D[Post to Ledger]
    D --> E[Trial Balance]
    E --> F{Balanced?}
    F -- Yes --> G[Adjusting Entries]
    G --> H[Adjusted Trial Balance]
    H --> I[Financial Statements]
    I --> J[Income Statement]
    I --> K[Balance Sheet]
    I --> L[Cash Flow Statement]
    L --> M[Closing Entries]
    M --> N[Post-Closing Trial Balance]
    N --> O[Interpret Financial Info]

    F -- No --> P[Locate & Correct Errors]
    P --> C

    style A fill:#a6cfd5,stroke:#333
    style O fill:#a6cfd5,stroke:#333
    style I fill:#c1e1c1,stroke:#333

These books together ensure that an organization maintains a clear, organized, and auditable trail of all financial activities. Depending on the size and complexity of the business, some companies may consolidate or automate these processes using accounting software (like QuickBooks, Xero, Tally, etc.), but the underlying structure remains the same.

Long-Term Sources of Finance for Organizations Market Viability