However, this can add stress to the management due to increasing complexity. For that reason, we continuously develop products that can streamline business processes in all industrial sectors, no matter how big. This book uses the Creative Commons Attribution-NonCommercial-ShareAlike License and you must attribute OpenStax.
Purchases Journal
Since the purchases journal isonly for purchases of inventory on account, it means the companyowes money. To keep track of whom the company owes money to andwhen payment is due, the entries are posted daily to the accountspayable subsidiary ledger. Accounts Payable in the general ledgerbecomes a control account just like Accounts Receivable.
Types of Special Journal
Payroll and other disbursements will require their ownjournals to accurately track transactions. In the cash receipts journal, the credit can be to AccountsReceivable when a customer pays on an account, or Sales, in thecase of a cash sale, or to some other account when cash is receivedfor other reasons. For example, if we overpaid our electric bill,we could get a refund check in the mail. We would use the cashreceipts journal because we are receiving cash, but the creditwould be to our Utility Expense account.
Cash Receipts Journal
This type of document has the same function as a purchase journal, which makes it easier to record high-volume transactions on the ledger. At the end of the month, the amount column in the journal is totaled, and this amount is posted as a debit in the general ledger purchases account. It is also posted as a credit in the general ledger accounts payable account. The special journals help journalize and make the process of recording transactions easier in an accounting system. In the daily course of a large business organization, a great number of transactions occur in a single day, and it becomes difficult to record every single transaction in the related T-account and sub-ledger. Special journals are therefore used to record these transactions from the source documents on a daily basis as they occur, and then these transactions are transferred to the general ledger as if it were a single transaction in a day.
This special journal is used to record purchases made on credit with vendors. By only recording credit purchases in this journal, accountants and bookkeepers can use this as a record of all the credit purchases during a period. The ethicalaccountant must be vigilant to ensure that the ledgers remainbalanced and that proper internal controls are in place to ensurethe soundness of the accounting system. Special journals handle specific transactions such as cash receipts or sales. The use of special journals significantly reduces the time required to record transactions and post them to the ledgers. Entries from the sales journal are posted to the Accounts Receivable subsidiary ledger and General Ledger.
- For example, when a company purchases merchandise from a vendor, and then in turn sells the merchandise to a customer, the purchase is recorded in one journal and the sale is recorded in another.
- Sales Journal records all the transactions related to the sales of goods by the company to its customer on credit.
- When a purchase is entered into the system, the correct journal is updated and can be accessible for review.
- Thecash receipts journal is used to record all receipts of cash(recorded by a debit to Cash).
- Special journals are maintained to record those business transactions that are frequent or repetitive in nature.
Special journals definition
It also is not necessary to write an explanation of the transaction because only credit sales are recorded.Finally, the amount of time needed to post entries is reduced. Although each transaction must be posted to the subsidiary Accounts Receivable ledger, only the totals for the month have to be posted to the General Ledger accounts. Forexample, a $100 sale with $10 additional sales tax collected wouldbe recorded as a debit to Accounts Receivable for $110, a credit toSales for $100 and a credit to Sales Tax Payable for $10. For example, a $100 sale with $10 additional sales tax collected would be recorded as a debit to Accounts Receivable for $110, a credit to Sales for $100 and a credit to Sales Tax Payable for $10.
Therefore, one or more individuals must record the transactions by hand in the appropriate journals. These transactions must then be posted by hand to the appropriate 5 ways to reduce your taxes for next year general and subsidiary ledgers. All the sales on account for June are shown in this journal; cash sales are recorded in the cash receipts journal.
There is also asingle column for the debit to Cost of Goods Sold and the credit toMerchandise Inventory, though again, we need to post to both ofthose. In the purchasesjournal, using the perpetual method will require we debit Inventoryinstead of Purchases. Another difference is that the perpetualmethod will include freight charges in the Inventory account, whilethe periodic method will have a special Freight-in account thatwill be added when Cost of Goods Sold will be computed. For arefresher on perpetual versus periodic and related accounts such asfreight-in, please refer to Merchandising Transactions. The transactions would be posted in chronological order in the sales journal. As you can see, the first transaction is posted to Baker Co., the second one to Alpha Co., then Tau Inc., and then another to Baker Co.
Instead of having just one general journal, companies grouptransactions of the same kind together and record them inspecial journals rather than in the generaljournal. This makes it easier and more efficient to find a specifictype of transaction and speeds up the process of posting thesetransactions. In each special journal, all transactions are totaledat the end of the month, and these totals are posted to the generalledger. In addition, instead of one person entering all of thetransactions in all of the journals, companies often assign a givenspecial journal’s entries to one person. The relationship betweenthe special journals, the general journal, and the general ledgercan be seen in Figure 7.8.