Most companies have four special journals, but there can be more depending on the business needs. The four main special journals are the sales journal, purchases journal, cash disbursements journal, and cash receipts journal. These special journals were designed because some journal entries occur repeatedly.
- Customer account numbers (or check marks if customer accounts are simply kept in alphabetical order) are placed in the sales journal’s reference column to indicate that the entries have been posted.
- Under the periodic inventory method, the July 6 shipping costs would go to a Transportation In account and the July 25 discount would go to Purchases Discounts.
- In contrast to a general journal, each special journal records transactions of a specific type, such as sales or purchases.
- Purchases of inventory on credit would be recorded in the purchases journal (Figure 7.10) with a debit to Merchandise Inventory and a credit to Accounts Payable.
- Subsidiary ledgers have to balance and agree with the general ledger.
This journal entry would be followed by a journal entry for every other transaction the company had for the remainder of the period. ” To answer this question, the company would need to review all of the pages of the general journal for nearly an entire month to find all of the sales transactions relating to Mr. Smith. And if Mr. Smith said, “I thought I paid part of that two weeks ago,” the company would have to go through the general journal to find all payment entries for Mr. Smith. Thus, recording all transactions to the general journal makes it difficult to find the particular tidbits of information that are needed for one of our customers, Mr. Smith. The use of special journal and subsidiary ledgers can make the accounting information system more effective and allow for certain types of information to be obtained more easily.
Entries in the sales journal typically include the date, invoice number, customer name, and amount. In its most basic form, a sales journal has only one column for recording transaction amounts. Each entry increases (debits) accounts receivable and increases (credits) sales. Transactions that decrease cash are recorded in the cash disbursements journal. The cash disbursements journal to the right has one debit column for accounts payable and another debit column for all other types of cash payment transactions.
Reduction in Detailed Recording
Examples of each special journal are as follows.The sales journal contains entries for credit purchases, whereas the credit purchases journal is debited with these transactions. The cash receipts journal contains credit transactions while it is debited with debit transactions. The accounts receivable ledger account is credited with these amounts. The general journal is used for adjusting entries, closing entries, correcting entries, and all transactions that do not belong in one of the special journals. If a general journal entry involves an account in a subsidiary ledger, the transaction must be posted to both the general ledger control account and the subsidiary ledger account. Both account numbers are placed in the general journal’s reference column to indicate that the entry has been posted correctly.
In this way, the financial transactions are being recorded in the proper ledgers to avoid the mismatch while finalizing the books of accounts. This is also a very good process of recording the entries since it follows a double-entry system. Special journals are all accounting journals except for the general journal.
Some companies include columns to identify the invoice date and credit terms, thereby making the purchases journal a tool that helps the companies take advantage of discounts just before they expire. The purchases journal to the right has only one column for recording transaction amounts. Each entry increases (debits) purchases and increases (credits) accounts payable. General journals record all transactions, whether routine or non-routine. Each general journal is made up of daily entries which are summarized at the end of the month to post them in special journals. The ledger accounts where these postings are recorded differ for various types of special journals.
Find the balance in each account in the accounts payable subsidiary ledger that follows. If possible, different individuals should record transactions in each of the special journals. 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 general and subsidiary ledgers. However, for many firms, most transactions can be recorded in special journals. For illustrative purposes, the following discussion is based on a manual accounting system.
This entry would then be posted to the accounts payable and merchandise inventory accounts both for $2,500. Under the periodic inventory method, the credit would be to Purchase Returns and Allowances. The number of the ledger account to which the journal entry was posted is recorded in the folio number column of the journal. Cash Payments Journals record transactions that involve expenditures paid with cash and involves the cash[3] Source documents are likely receipts and cheque butts. If the owner of a business withdraws cash from the business an entry is made in the CPJ. Discount received is the cash discount received by a purchaser, it is an income item for the purchaser.
Financial Accounting
To overcome this problem, the journal is split into sub-journals called special journals, which are designed to record transactions of a specific nature. You can see how these journal entries (using the perpetual inventory method) would be recorded in the general ledger as by clicking fooz ball town to save space. If the transaction is of a credit nature, you will assume that the cash will be exchanged after the exchange of the good or service. At this stage, these will only be concerned with your firm acquiring stock and the selling of that stock to customers who will pay later.
Thus, the proper design, implementation, and maintenance of the accounting information system are vital to a company’s sustainability. The relationship between the special journals, the general journal, and the general ledger can be seen in Figure 7.8. 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. The special journal is the specialized entries of such transactions that are required to be recorded in the books in the form of journals.
What is a special journal?
For example, companies sometimes choose to include separate debit columns for regularly used accounts such as salaries expense, sales commissions expense, or other specific accounts affected by cash disbursements. The benefits of using a special journal instead of the general journal for the repetitive transactions have been eliminated with today’s inexpensive yet powerful accounting software. For example, when a sales invoice is prepared by using accounting software, both the general ledger and subsidiary accounts will be updated instantly and accurately. A special journal (also known as a specialized journal) is useful in a manual accounting or bookkeeping system to reduce the tedious task of recording both the debit and credit general ledger account names and amounts in a general journal.
The name and page of the journal from which the ledger entry came is recorded in the folio number column. (Figure)Sandren & Co. purchased inventory on credit from Acto Supply Co. for $4,000. Purchases of inventory on credit would be recorded in the purchases journal ((Figure)) with a debit to Merchandise Inventory and a credit to Accounts Payable. If the two amounts are added together, the company owes $305 in total to the two companies. The $305 is the amount that will show in the Accounts Payable general ledger account. Purchases of inventory on credit would be recorded in the purchases journal (Figure 7.10) with a debit to Merchandise Inventory and a credit to Accounts Payable.
Table of Contents
A capital X is placed below the Other column to indicate that the column total cannot be posted to a general ledger account. Entering transactions in the general journal and posting them to the correct general ledger accounts is time consuming. In the general journal, a simple transaction requires three lines—two to list the accounts and one to describe the transaction. If the transaction affects a control account, the posting must be done twice—once to the subsidiary ledger account and once to the controlling general ledger account. To speed up this process, companies use special journals to record repetitive transactions that affect the same set of accounts and have a consistent description. Such transactions can be documented on one line in a special journal.
If the transaction is of a cash nature, you must be convinced that money/cheque/credit card was also exchanged at the time that the good or service was exchanged. (Figure) summarizes the typical transactions in the special journals previously illustrated. Table 7.1 summarizes the typical transactions in the special journals previously illustrated. At the end of the period, the TOTALS only would be recorded in posted directly into the accounts listed with no journal entry necessary. Paying bills is recorded in the cash disbursements journal ((Figure)) and is always a debit to Accounts Payable (or another payable or expense) and a credit to Cash.
How many types of special journals are there?
For example, selling goods for cash is always a debit to Cash and a credit to Sales recorded in the cash receipts journal. Likewise, we would record a sale of goods on credit in the sales journal, as a debit to accounts receivable and a credit to sales. Companies using a perpetual inventory system also record a second entry for a sale with a debit to cost of goods sold and a credit to inventory. Companies that frequently make credit purchases of items other than merchandise use a multi‐column purchases journal. For example, the purchases journal below includes columns for supplies and equipment. Of course, every purchase in the journal below must credit accounts payable; equipment purchased with a note payable or supplies purchased with cash would not be recorded in this journal.
At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
