What are the books of prime entry?

Books of prime entry are where transactions are first recorded from source documents, before being posted to the ledger. They are the sales journal, the purchases journal, the returns inwards journal, the returns outwards journal, the cash book, the petty cash book, and the general journal. They group similar transactions together so the ledger is not cluttered with every individual entry.

Why is the cash book both a book of prime entry and a ledger account?

The cash book is a book of prime entry because cash and bank transactions are first recorded in it. It is also a ledger account because it serves as the cash account and bank account themselves, so its balances appear directly in the trial balance. This dual role is why the cash book is not posted to a separate cash or bank account in the ledger.

What is the imprest system for petty cash?

Under the imprest system the petty cashier starts each period with a fixed float, the imprest amount. Small payments are recorded in the petty cash book with analysis columns. At the end of the period the cashier is reimbursed exactly the total spent, restoring the float to the original imprest amount. This makes the cash easy to control and to check.

What is the difference between a cash discount and a trade discount?

A cash discount is a reduction for prompt payment, recorded in the discount columns of the cash book (discount allowed to customers, discount received from suppliers). A trade discount is a reduction off the list price given to encourage bulk buying or to trade customers; it is deducted before the invoice is recorded and never appears in the ledger as a separate amount.

How is the ledger divided?

The ledger is divided for control and convenience into the sales ledger (the personal accounts of credit customers, the trade receivables), the purchases ledger (the personal accounts of credit suppliers, the trade payables), and the general (nominal) ledger (all other accounts, such as sales, purchases, expenses, assets and capital). The cash book and petty cash book are usually kept separately.

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Books of prime entry and ledgers: O-Level Principles of Accounts (SEAB/Cambridge 7087), covering source documents, the sales, purchases and returns journals, the two-column and three-column cash book, the petty cash book and the imprest system, the general journal, and the division of the ledger

An O-Level Principles of Accounts (SEAB 7087) overview of books of prime entry and ledgers: source documents, the sales, purchases and returns journals, the two-column and three-column cash book, the petty cash book and imprest system, the general journal, and how the ledger is divided.

Generated by Claude Opus 4.87 min readSEAB-7087Updated 2026-06-13

Reviewed by: AI editorial process; not yet individually human-reviewed

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Where transactions enter the system
Source documents and the journals
The cash book and petty cash book
Check your knowledge

Where transactions enter the system

Before a transaction reaches a ledger account it is first written into a book of prime entry, and the trail starts from a source document. This module of O-Level Principles of Accounts (SEAB/Cambridge 7087) follows that flow: source document, to book of prime entry, to ledger. Getting the flow right is what lets you handle the volume of transactions a real business produces without losing accuracy, and the 7087 papers test the cash book and journals closely.

This guide links the five dot points of the module. The subject hub is at /sg-o-level/accounting and the syllabus index at /sg-o-level/accounting/syllabus.

Source documents and the journals

The source documents dot point identifies the document behind each transaction (the invoice, credit note, receipt, cheque counterfoil and so on) and explains why every entry must begin with one. The sales and purchases journals dot point shows how the sales, purchases and returns journals group credit transactions and how their totals are posted to the ledger. The general journal and ledgers dot point covers non-routine entries (such as opening entries, the purchase of a non-current asset on credit, and the correction of errors) and the division of the ledger into the sales, purchases and general ledgers.

The cash book and petty cash book

The cash book dot point covers the two-column and three-column cash book, including cash discounts and contra entries (where money moves between cash and bank). The petty cash book dot point covers the imprest system, analysis columns and posting the totals. Remember that the discount columns in the cash book are memorandum totals: the discount allowed total is posted to the debit of discount allowed, and the discount received total to the credit of discount received.

Posting a three-column cash book entry with a cash discount

step 1: read the transaction

A customer who owes $\text{S\textdollar}1{,}000$ pays by cheque and is allowed a $2\%$ cash discount for prompt payment.

step 2: calculate the amounts

Cash discount $= 2\% \times \text{S\textdollar}1{,}000 = \text{S\textdollar}20$ . Amount received by cheque $= \text{S\textdollar}1{,}000 - \text{S\textdollar}20 = \text{S\textdollar}980$ .

step 3: enter in the cash book

On the debit (receipts) side of the cash book: enter $\text{S\textdollar}980$ in the bank column and $\text{S\textdollar}20$ in the discount allowed column, against the customer's name.

step 4: post to the ledger

Credit the customer's account with the full $\text{S\textdollar}1{,}000$ (clearing the debt: $\text{S\textdollar}980$ from the bank column posting plus $\text{S\textdollar}20$ from the discount). Post the period's discount allowed total to the debit of the discount allowed account in the general ledger.

Check your knowledge

A mix of recall and recording questions across the module. Work each fully, then check against the solutions.

Name the source document a business issues when goods are returned to it by a credit customer. (1 mark)
State the book of prime entry in which a credit purchase of goods is first recorded. (1 mark)
Explain why the cash book is described as both a book of prime entry and a ledger account. (2 marks)
A supplier offers a $5\%$ cash discount on an invoice of $\text{S\textdollar}2{,}400$ paid promptly. Calculate the discount received and the amount paid. (3 marks)
State what restores the petty cash float to its imprest amount at the end of a period. (2 marks)
Distinguish between a trade discount and a cash discount in how each is recorded. (2 marks)

Solutions

Q1: A credit note (issued to the customer when goods are returned, reducing what they owe).
Q2: The purchases journal (purchases day book).
Q3: It is a book of prime entry because cash and bank transactions are first recorded in it. It is also a ledger account because it is the cash and bank account itself, whose balances go straight into the trial balance, so no separate cash or bank account is kept.
Q4: Discount received $= 5\% \times \text{S\textdollar}2{,}400 = \text{S\textdollar}120$ . Amount paid $= \text{S\textdollar}2{,}400 - \text{S\textdollar}120 = \text{S\textdollar}2{,}280$ .
Q5: Reimbursing the petty cashier with exactly the total spent during the period restores the float to the original imprest amount.
Q6: A trade discount is deducted from the list price before the transaction is recorded and never appears in the books. A cash discount, for prompt payment, is recorded in the discount columns of the cash book and posted to the discount allowed or discount received account.

Sources & how we know this

Principles of Accounts (Syllabus 7087) — Singapore Examinations and Assessment Board (2026)
Singapore-Cambridge GCE Ordinary Level (joint SEAB and Cambridge examination) — Singapore Examinations and Assessment Board / Cambridge Assessment International Education (2026)