Books of Prime Entry Interview Questions & Answers

Q: What is a trade discount and how is it treated in the day books?

A trade discount is a reduction in the list price given to certain customers (e.g., for bulk or trade status). It is deducted before the invoice is raised, so only the net-of-trade-discount amount is recorded in the day book—no separate entry is made for the trade discount itself. It differs from a cash (settlement) discount.

Q: How does a settlement (cash) discount get recorded compared with a trade discount?

A settlement (cash/prompt-payment) discount is offered for early payment and, unlike a trade discount, is recorded when taken. Modern practice: if the customer is expected to take it, revenue/receivable may be recorded net; when taken, discount allowed is an expense (Dr Discounts Allowed) and discount received is income (Cr Discounts Received), recorded via the cash book/discount columns.

Q: What is an invoice and what key details does it contain?

An invoice is a source document issued by a seller requesting payment for goods/services supplied on credit. Key details: unique invoice number, date, seller and buyer names/addresses, tax registration numbers, description and quantity of goods, unit price, net amount, VAT rate and amount, total payable, and payment terms.

Q: What is a credit note and when is it issued?

A credit note is a source document reducing the amount a customer owes—issued for returns, overcharges, damaged goods, or allowances. To the issuer (seller) it's a sales return; to the receiver (buyer) it's a purchases return. It's often printed in red and recorded in the relevant returns day book.

Q: How do you post the purchases returns day book?

Total the purchases returns day book for the period. Post the total to the debit of the purchases ledger control account, the net to the credit of purchases returns (returns outwards), and the VAT to the credit of the VAT account. Individually, debit each supplier's personal account with the gross credit note amount.

Q: How do the books of prime entry contribute to the double-entry system?

Books of prime entry summarize transactions so that only periodic totals are posted to the nominal ledger, reducing the number of ledger entries and errors. They ensure each transaction ultimately produces equal debits and credits: e.g., the sales day book total debits the control account and credits sales and VAT. Individual personal-account postings are memorandum records reconciled via control accounts.

Q: What is a remittance advice and how does it relate to the books of prime entry?

A remittance advice accompanies a payment and lists the invoices being settled. It's a source document that helps the bookkeeper record cash received in the cash book and allocate it correctly to customer accounts in the sales ledger, reducing unallocated cash and posting errors.

Q: What is the difference between returns inwards and returns outwards?

Returns inwards (sales returns) are goods returned to the business by its customers, reducing sales and receivables. Returns outwards (purchases returns) are goods the business returns to its suppliers, reducing purchases and payables. Each has its own day book and opposite effect on the ledgers.

Q: How would you record the purchase of a non-current asset on credit in the books?

A credit purchase of a non-current asset doesn't belong in the purchases day book (which is for goods for resale). It's recorded via the journal: debit the relevant asset account and any input VAT, and credit the supplier/other payables account. Depreciation is then handled by separate journal entries over the asset's life.

Q: What controls help ensure completeness and accuracy in the books of prime entry?

Controls include: pre-numbered source documents and sequence checks (no gaps), matching invoices to orders/receipts, casting (adding up) and cross-casting day book columns, authorizing entries, regular reconciliation via control accounts, and segregation of duties between recording and handling assets. These catch omissions, duplications, and arithmetic errors early.

What is a trade discount and how is it treated in the day books?

Intermediate

A trade discount is a reduction in the list price given to certain customers (e.g., for bulk or trade status). It is deducted before the invoice is raised, so only the net-of-trade-discount amount is recorded in the day book—no separate entry is made for the trade discount itself. It differs from a cash (settlement) discount.

List price 1,000, trade discount 10% = 100
  Invoice/day book records net 900 (+VAT on 900).
No ledger entry for the 100 trade discount.

Real-world example A wholesaler bills a retailer at list price less a 10% trade discount, and only the reduced amount enters the sales day book.

Common follow-ups: Is trade discount recorded separately? | How does it differ from a settlement discount?

Sales & Purchase Ledgers Cash Book & Petty Cash Books of Prime Entry

How does a settlement (cash) discount get recorded compared with a trade discount?

Advanced

A settlement (cash/prompt-payment) discount is offered for early payment and, unlike a trade discount, is recorded when taken. Modern practice: if the customer is expected to take it, revenue/receivable may be recorded net; when taken, discount allowed is an expense (Dr Discounts Allowed) and discount received is income (Cr Discounts Received), recorded via the cash book/discount columns.

Customer pays early, takes 50 settlement discount:
  Dr Bank 950
  Dr Discounts Allowed 50
      Cr Debtors 1,000

Real-world example A supplier's 2/10 terms lead the buyer to pay early and record discount received when settling within 10 days.

Common follow-ups: When is a settlement discount recorded? | Where are discounts allowed/received posted?

Cash Book & Petty Cash Sales & Purchase Ledgers Books of Prime Entry

What is an invoice and what key details does it contain?

Beginner

An invoice is a source document issued by a seller requesting payment for goods/services supplied on credit. Key details: unique invoice number, date, seller and buyer names/addresses, tax registration numbers, description and quantity of goods, unit price, net amount, VAT rate and amount, total payable, and payment terms.

Real-world example The seller's invoice number and VAT breakdown let the bookkeeper record the sale accurately in the day book.

Common follow-ups: Why must invoices be uniquely numbered? | What determines which day book it enters?

Sales & Purchase Ledgers Control Accounts Books of Prime Entry

What is a credit note and when is it issued?

Beginner

A credit note is a source document reducing the amount a customer owes—issued for returns, overcharges, damaged goods, or allowances. To the issuer (seller) it's a sales return; to the receiver (buyer) it's a purchases return. It's often printed in red and recorded in the relevant returns day book.

Real-world example When goods are returned, the seller issues a credit note that the bookkeeper enters in the sales returns day book.

Common follow-ups: Who issues a credit note? | Which day book records it?

Sales & Purchase Ledgers Correcting Errors Books of Prime Entry

How do you post the purchases returns day book?

Intermediate

Total the purchases returns day book for the period. Post the total to the debit of the purchases ledger control account, the net to the credit of purchases returns (returns outwards), and the VAT to the credit of the VAT account. Individually, debit each supplier's personal account with the gross credit note amount.

Period totals: Net 800, VAT 160, Gross 960
  Dr Purchases Ledger Control 960
      Cr Purchases Returns 800
      Cr VAT 160

Real-world example Returning defective stock to suppliers reduces creditors via the purchases returns day book totals.

Common follow-ups: Which control account is debited? | What happens to input VAT on a return?

Control Accounts Sales & Purchase Ledgers Books of Prime Entry

How do the books of prime entry contribute to the double-entry system?

Advanced

Books of prime entry summarize transactions so that only periodic totals are posted to the nominal ledger, reducing the number of ledger entries and errors. They ensure each transaction ultimately produces equal debits and credits: e.g., the sales day book total debits the control account and credits sales and VAT. Individual personal-account postings are memorandum records reconciled via control accounts.

Real-world example Posting monthly day book totals rather than every invoice keeps the nominal ledger concise while control accounts verify accuracy.

Common follow-ups: Why post totals rather than each transaction? | How do control accounts verify the memorandum ledgers?

Control Accounts Trial Balance Books of Prime Entry

What is a remittance advice and how does it relate to the books of prime entry?

Intermediate

A remittance advice accompanies a payment and lists the invoices being settled. It's a source document that helps the bookkeeper record cash received in the cash book and allocate it correctly to customer accounts in the sales ledger, reducing unallocated cash and posting errors.

Real-world example A customer's remittance advice lets the bookkeeper match a lump-sum receipt to the specific invoices it clears.

Common follow-ups: How does it aid cash allocation? | Which book of prime entry uses it?

Cash Book & Petty Cash Sales & Purchase Ledgers Books of Prime Entry

What is the difference between returns inwards and returns outwards?

Beginner

Returns inwards (sales returns) are goods returned to the business by its customers, reducing sales and receivables. Returns outwards (purchases returns) are goods the business returns to its suppliers, reducing purchases and payables. Each has its own day book and opposite effect on the ledgers.

Real-world example A customer sending back goods is returns inwards; the business sending stock back to a supplier is returns outwards.

Common follow-ups: Which reduces receivables? | Which day book records each?

Sales & Purchase Ledgers Control Accounts Books of Prime Entry

How would you record the purchase of a non-current asset on credit in the books?

Advanced

A credit purchase of a non-current asset doesn't belong in the purchases day book (which is for goods for resale). It's recorded via the journal: debit the relevant asset account and any input VAT, and credit the supplier/other payables account. Depreciation is then handled by separate journal entries over the asset's life.

Journal: buy machine on credit 10,000 + VAT 2,000
  Dr Machinery 10,000
  Dr VAT 2,000
      Cr Payables (supplier) 12,000

Real-world example Buying a delivery van on credit is journalized to the motor vehicles account, not entered in the purchases day book.

Common follow-ups: Why not use the purchases day book? | How is subsequent depreciation recorded?

Correcting Errors Control Accounts Books of Prime Entry

What controls help ensure completeness and accuracy in the books of prime entry?

Intermediate

Controls include: pre-numbered source documents and sequence checks (no gaps), matching invoices to orders/receipts, casting (adding up) and cross-casting day book columns, authorizing entries, regular reconciliation via control accounts, and segregation of duties between recording and handling assets. These catch omissions, duplications, and arithmetic errors early.

Real-world example Sequence-checking invoice numbers ensures no sales invoice is omitted from the sales day book.

Common follow-ups: How does sequence checking help? | What is casting and cross-casting?

Control Accounts Correcting Errors Books of Prime Entry