What is a Day Book?
A day book is like a diary where you write down all the transactions that happen in your business every day. For example, if you sell some goods to a customer on credit, you write it down in your day book. If you buy some supplies from a vendor on credit, you write it down in your day book. And so on.
A day book is also called a book of original entry, because it is the first place where you record your transactions. Later, you transfer the information from your day book to another book called a ledger, where you organize your transactions by categories, such as sales, purchases, cash, etc. From the ledger, you can prepare your financial statements, such as income statement, balance sheet, etc.
A day book helps you keep track of your daily activities, monitor your cash flow, and avoid errors or frauds in your accounting records.
Types of Day Books
There are different types of day books, depending on the nature of the transactions. Some of the common ones are:
- Sales day book: This is where you record all your sales on credit. You do not record your cash sales here, because they go to the cash book. You also do not record your sales of assets or investments here, because they go to the journal proper. The sales day book shows you how much money your customers owe you, and how much revenue you have earned from your sales.
- Purchase day book: This is where you record all your purchases on credit. You do not record your cash purchases here, because they go to the cash book. You also do not record your purchases of assets or investments here, because they go to the journal proper. The purchase day book shows you how much money you owe your vendors, and how much expense you have incurred from your purchases.
- Cash book: This is where you record all your cash transactions, such as cash sales, cash purchases, cash receipts, cash payments, etc. The cash book shows you how much cash you have on hand, and how much cash you have generated or used in your business.
- Journal proper: This is where you record all the transactions that do not fit into any of the other day books, such as sales or purchases of assets or investments, adjustments, corrections, etc. The journal proper shows you the miscellaneous transactions that affect your business.
Format of Day Books
Each day book has a similar format, with five columns. The first column is for the date of the transaction. The second column is for the name and details of the other party involved in the transaction, such as the customer, vendor, bank, etc. The third column is for the invoice number or reference number of the transaction. The fourth column is for the ledger folio number, which indicates the page number of the ledger where the transaction is posted. The fifth column is for the amount of the transaction.
At the end of each day, week, month, or period, you total the amounts in each day book, and post them to the ledger accounts. You also post the individual transactions to the respective ledger accounts of the other parties, such as customers, vendors, etc.
Examples of Day Books
Here are some examples of day books for a hypothetical business:
Sales Day Book
| Date | Customer Name and Details | Invoice No. | LF | Amount |
|---|---|---|---|---|
| 01/01/2024 | ABC Ltd. (10 units @ $50 each) | 001 | 10 | $500 |
| 02/01/2024 | XYZ Ltd. (20 units @ $40 each) | 002 | 11 | $800 |
| 03/01/2024 | PQR Ltd. (15 units @ $45 each) | 003 | 12 | $675 |
| Total | $1,975 |
Purchase Day Book
| Date | Vendor Name and Details | Invoice No. | LF | Amount |
|---|---|---|---|---|
| 01/01/2024 | MNO Ltd. (50 units @ $20 each) | 101 | 20 | $1,000 |
| 02/01/2024 | RST Ltd. (40 units @ $25 each) | 102 | 21 | $1,000 |
| 03/01/2024 | UVW Ltd. (30 units @ $30 each) | 103 | 22 | $900 |
| Total | $2,900 |
Cash Book
| Date | Particulars | Ref. No. | LF | Cash In | Cash Out | Balance |
|---|---|---|---|---|---|---|
| 01/01/2024 | Balance b/d | $500 | ||||
| 01/01/2024 | Cash sales (5 units @ $50 each) | 004 | 10 | $250 | $750 | |
| 01/01/2024 | Cash purchase (10 units @ $20 each) | 104 | 20 | $200 | $550 | |
| 02/01/2024 | Cash receipt from ABC Ltd. | 005 | 10 | $500 | $1,050 | |
| 02/01/2024 | Cash payment to MNO Ltd. | 105 | 20 | $1,000 | $50 | |
| 03/01/2024 | Cash sales (10 units @ $40 each) | 006 | 11 | $400 | $450 | |
| 03/01/2024 | Cash purchase (20 units @ $25 each) | 106 | 21 | $500 | -$50 | |
| Total | $1,150 | $1,700 | -$50 |
Journal Proper
| Date | Particulars | Ref. No. | LF | Debit | Credit |
|---|---|---|---|---|---|
| 01/01/2024 | Sold old machine to DEF Ltd. for $300 on credit | 007 | 13 | DEF Ltd. A/c | $300 |
| Machine A/c | |||||
| 02/01/2024 | Bought new machine from GHI Ltd. for $500 on credit | 107 | 23 | Machine A/c | $500 |
| GHI Ltd. A/c | |||||
| 03/01/2024 | Depreciation on machine | 108 | 24 | Depreciation A/c | $50 |
| Machine A/c |
Accounting Treatment of Day Books
The accounting treatment of day books depends on the type of transaction, the method of payment, and the accounting standards followed. Generally, the following rules apply:
- For sales on credit, the sales day book is debited, and the customer’s account is credited
- For purchases on credit, the purchase day book is credited, and the vendor’s account is debited
- For cash transactions, the cash book is debited or credited, depending on whether it is a cash inflow or outflow, and the other account is credited or debited accordingly
- For miscellaneous transactions, the journal proper is debited or credited, following the double-entry system of accounting
Summary of Day Book
Here is a list of bullet points that summarize the main points of the term day book:
- A day book is a book of original entry where you record your transactions by date, as they occur
- A day book helps you keep track of your daily activities, monitor your cash flow, and avoid errors or frauds in your accounting records
- There are different types of day books, such as sales day book, purchase day book, cash book, and journal proper, depending on the nature of the transactions
- Each day book has a similar format, with five columns: date, name and details, invoice number, ledger folio number, and amount
- At the end of each period, you total the amounts in each day book, and post them to the ledger accounts
- The accounting treatment of day books depends on the type of transaction, the method of payment, and the accounting standards followed
