Every accounting error starts in the same place: the moment a transaction is first recorded
You could understand financial statements perfectly, know every ratio by heart, and still lose marks consistently if your double entry postings are wrong. That's because the recording stage is where accuracy is built or broken. Get it right here, and everything downstream follows logically. Get it wrong, and errors compound through every ledger, every trial balance, every final account.
This guide works through the three pillars of Cambridge IGCSE Accounting's "Sources and recording of data" topic: the double entry system, business documents, and books of prime entry. Each section follows the same structure: the underlying logic, a worked example, and the specific mistakes that cost marks in exams.
The double entry system of book-keeping
The core rule
Every transaction affects at least two accounts. One account is debited, another is credited, and the total debits must always equal the total credits. This is the fundamental equation that holds the entire accounting system together.
Step-by-step: posting a transaction
Consider this transaction: on 5 March, a business buys office furniture for $2,000, paying by cheque.
- Identify the two accounts affected. Office furniture (an asset) and bank (also an asset).
- Determine which increases and which decreases. Office furniture increases (the business now owns more furniture). Bank decreases (cash has left the account).
- Apply the debit-credit rule. An increase in an asset is a debit. A decrease in an asset is a credit.
- Post to the ledger. Debit office furniture $2,000. Credit bank $2,000.
Worked example: a full transaction cycle
A sole trader completes three transactions during the first week of April:
- 1 April: Owner invests $10,000 cash into the business
- 3 April: Purchases goods on credit from Supplier A for $3,000
- 5 April: Sells goods for $1,500 cash
| Date | Transaction | Debit account | Amount ($) | Credit account | Amount ($) |
|---|---|---|---|---|---|
| 1 Apr | Owner invests cash | Cash | 10,000 | Capital | 10,000 |
| 3 Apr | Credit purchase | Purchases | 3,000 | Supplier A (trade payable) | 3,000 |
| 5 Apr | Cash sale | Cash | 1,500 | Sales | 1,500 |
After posting, the cash account shows a debit balance of $11,500 ($10,000 + $1,500). The capital account shows a credit balance of $10,000. Purchases has a debit balance of $3,000, sales a credit balance of $1,500, and Supplier A a credit balance of $3,000.
Calculating balances and transferring to financial statements
At the end of the period, each ledger account is balanced. The process is mechanical:
- Total the debit side and the credit side separately.
- Find the difference. This is the balance carried down (c/d).
- Enter the balance on the smaller side so both sides equal the same total.
- Bring the balance down (b/d) on the opposite side to start the next period.
Asset and expense balances (debit) transfer to the statement of financial position or the statement of profit or loss. Liability, capital, and income balances (credit) do the same. The double entry system ensures these statements always balance.
Correct vs incorrect posting
| Transaction | Correct posting | Incorrect posting | Why it's wrong |
|---|---|---|---|
| Bought goods on credit from X | Dr Purchases, Cr X | Dr X, Cr Purchases | Reversal of entries. X's balance will show as a debtor instead of a creditor. |
| Received cash from customer Y | Dr Cash, Cr Y | Dr Cash, Cr Sales | Error of principle. Y's account is not cleared; it still shows the debt as outstanding. |
| Paid rent by cheque | Dr Rent, Cr Bank | Dr Bank, Cr Rent | Reversal. Rent appears as income and bank increases instead of decreasing. |
Business documents
Before any transaction reaches a ledger, it exists as a physical or digital document. IGCSE Accounting requires you to identify each document, understand its purpose, and know the flow from source document to book of prime entry.
| Document | Issued by | Purpose | Key details it contains |
|---|---|---|---|
| Purchase order | Buyer | Requests goods or services from a supplier | Item description, quantity, agreed price |
| Invoice | Seller | Requests payment for goods or services supplied | Date, item details, quantity, unit price, total, trade discount, VAT |
| Credit note | Seller | Reduces the amount owed by the buyer (for returns or errors) | Original invoice reference, items returned, amount credited |
| Debit note | Buyer | Formally requests a credit note from the supplier | Reason for return, amount claimed |
| Receipt | Seller | Confirms payment has been received | Date, amount paid, payment method |
| Statement of account | Seller | Summarises all transactions and outstanding balance over a period | Opening balance, invoices, credit notes, payments, closing balance |
| Cheque | Buyer | Instructs the bank to pay a specified amount | Payee name, amount, date, signature |
| Remittance advice | Buyer | Accompanies payment to identify which invoices are being settled | Invoice numbers, amounts, payment total |
Books of prime entry
In the IGCSE Accounting syllabus, books of prime entry (also called books of original entry or day books) are the first place transactions are recorded in chronological order, before they are posted to the ledger. They are not part of the double entry system themselves. They are preparatory records.
The seven books of prime entry
| Book of prime entry | Records | Source document |
|---|---|---|
| Sales journal (sales day book) | Credit sales only | Copy of sales invoice |
| Purchases journal (purchases day book) | Credit purchases only | Supplier's invoice |
| Sales returns journal | Goods returned by credit customers | Credit note issued |
| Purchases returns journal | Goods returned to suppliers | Credit note received |
| Cash book | All cash and bank transactions (receipts and payments) | Receipts, cheque counterfoils, bank statements |
| Petty cash book | Small cash payments | Petty cash vouchers |
| General journal (the journal) | Non-routine entries: opening entries, corrections, year-end adjustments | Journal voucher or internal memo |
Worked example: from document to ledger via the sales journal
On 12 June, the business sells $800 of goods on credit to Customer B. Here is the complete recording chain:
- Source document: A sales invoice is issued to Customer B for $800.
- Book of prime entry: The transaction is entered in the sales journal: Date: 12 Jun, Customer: B, Invoice no.: 047, Amount: $800.
- Ledger posting: Once the period closes, the sales journal totals are posted. Debit Customer B's account $800 (individual posting). Credit Sales account $800 (periodic total posting).
The sales journal itself has no debit or credit columns. It simply lists credit sales in date order. The double entry happens only when the totals are posted to the ledger.
The cash book as both a book of prime entry and a ledger account
The cash book is unique. It functions as a book of prime entry (recording transactions chronologically as they happen) and simultaneously as the cash and bank ledger accounts in the double entry system. A two-column cash book has a cash column and a bank column on both the debit (receipts) and credit (payments) sides.
A three-column cash book adds a discount column on each side. The discount columns are memorandum columns only. They are totalled and posted to the discount allowed and discount received accounts in the ledger, but they are not part of the cash book's own balancing.
Common exam mistakes
- Posting cash sales through the sales journal. The sales journal records credit sales only. Cash sales are recorded directly in the cash book. This distinction is tested frequently.
- Confusing debit notes and credit notes. A debit note is sent by the buyer to request a reduction. A credit note is sent by the seller to confirm it. Examiners may present both and ask which affects which book of prime entry.
- Forgetting that the journal is for non-routine entries only. Opening entries, correction of errors, purchase and sale of non-current assets on credit, and write-offs of irrecoverable debts are recorded in the general journal. Regular trading transactions never go here.
- Omitting the narrative in journal entries. Every general journal entry must include a brief narrative explaining the entry. Examiners deduct marks for missing narratives even when the debits and credits are correct.
- Treating discount columns in the cash book as part of the double entry. The discount columns are memorandum totals. They are posted to separate ledger accounts. They do not affect the cash book balance.
Self-check questions for IGCSE revision
- A business buys a delivery van for $15,000 on credit from Motor Supplies Ltd. State the two accounts to be debited and credited, and identify which book of prime entry this transaction is recorded in.
- Name three pieces of information that must appear on a sales invoice.
- Explain why a credit sale of $500 to Customer C would not be entered in the cash book.
- A three-column cash book shows total discount allowed of $240 for the month. Describe the ledger posting required for this amount.
- A student enters a cash purchase of goods in the purchases journal. Identify the error and explain the correct treatment.
A systematic guide to the double entry system, business documents, and books of prime entry for IGCSE Accounting. Covers the debit-credit rule, ledger posting, source documents, all seven books of prime entry, and the most common exam mistakes students make when recording transactions.
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