Two questions sort every transaction. First, did cash or a cheque move, or is it on credit? Second, is the item goods for resale, or something else?
This lesson belongs to books of prime entry. When you can choose the right book, the amounts are covered in recording sales, purchases and returns.
What are the six books?
Each book has one job.
| Book | What it records |
|---|---|
| Sales journal | Goods sold on credit |
| Purchases journal | Goods bought on credit for resale |
| Sales returns journal | Goods returned by customers |
| Purchases returns journal | Goods returned to suppliers |
| Cash book | All money in and out, by cash or bank |
| General journal | Everything else: assets on credit, write-offs, opening entries, corrections |
Worked example: sorting eight transactions
Kedai Sinar records these transactions in March. Apply the two questions to each one.
- Sold goods on credit to Ali, RM540: sales journal.
- Bought goods on credit from Bakar Trading, RM800: purchases journal.
- Ali returned faulty goods worth RM54: sales returns journal.
- Returned goods worth RM100 to Bakar Trading: purchases returns journal.
- Received a cheque of RM400 from Ali: cash book.
- Paid RM300 cash for wages: cash book.
- Bought a computer on credit, RM2 500: general journal.
- Wrote off RM120 owed by Devi as a bad debt: general journal.
The traps are items 7 and 8. Both look like ordinary credit dealings, but neither involves goods for resale.
The mistake that costs marks
The common slip is to put any credit purchase in the purchases journal. The word “bought” pulls the answer there before the second question is asked.
| Step | Wrong | Right |
|---|---|---|
| Item 7 book | Purchases journal | General journal |
| Effect on purchases | Purchases overstated by RM2 500 | Purchases unchanged |
| Item 7 account | Debit Purchases | Debit Computer (asset) |
The fix is to ask whether the business will resell the item. A computer is used in the shop, not sold from it.
What if a transaction involves both cash and credit?
Split it. A sale of RM1 000 where the customer pays RM400 now and owes RM600 is a cash book entry of RM400 and a sales journal entry of RM600.
Each part goes to the book that fits its own nature.
Check yourself
Name the book for each: (a) goods sold on credit to Lim, RM300; (b) goods returned by Lim, RM60; (c) delivery van bought on credit, RM18 000; (d) rent paid by cheque, RM500.
Answer
(a) Sales journal. (b) Sales returns journal, because goods came back from a customer. (c) General journal, since a van is an asset and not goods for resale. (d) Cash book, since a cheque is a bank movement.
What to study next
Move on to recording sales, purchases and returns. Test yourself with the books of prime entry practice set.
If you want a teacher to hear your reasoning, see online one-to-one Accounting tuition.