The books of prime entry are?
A. A listing of all account balances from the ledgers
B. A diary to record the purchases and sales of non-current assets
C. Books in which transactions are first recorded from source documents
D. An accounting record which summarizes the financial affairs of a business
The correct answer and explanation is:
The correct answer is C. Books in which transactions are first recorded from source documents.
Books of prime entry, also known as books of original entry or journals, are the initial accounting records where transactions are first entered before being posted to the appropriate accounts in the general ledger. These books serve as a detailed, chronological record of all business transactions, ensuring that each one is properly documented before being classified and summarized in the ledger. The source documents, such as invoices, receipts, and bank statements, provide the evidence needed to record the transactions accurately.
There are several types of books of prime entry, each used for a specific type of transaction. Common examples include:
- Sales Journal: Used to record all credit sales transactions.
- Purchases Journal: Used for recording all credit purchases.
- Cash Book: Used to record all cash transactions, including both receipts and payments.
- General Journal: Used for transactions that do not fall into the specific categories of the other journals, like adjustments or corrections.
The main purpose of books of prime entry is to provide a systematic and organized approach to recording transactions. By doing this, businesses can ensure that they have an accurate, traceable record of their financial activities. Once transactions are recorded in these books, they are subsequently posted to the ledger accounts, where they are grouped by account type, allowing for the preparation of financial statements.
In summary, books of prime entry are essential for maintaining a reliable accounting system. They provide the foundation for recording transactions accurately and help ensure the completeness and accuracy of the financial records of a business.