A special journal is a journal that can be made or classified by the accountant according to the transaction type. Special journals have various types in the recording process, ranging from purchase, sales, cash receipts, and cash payment journals. A special journal can also provide various benefits for a company, one of them is to prevent fraud. At the end of the month, we total the Cash column in the cash receipts journal and debit the Cash account in the general ledger for the total. In this case there were two entries in the cash receipts journal, the cash received from Baker and the refund check for an overpayment on utilities for a total cash received and recorded in the cash receipts journal of $1,550, as shown in Figure 7.24. If the transaction does not involve cash, it will be recorded inone of the other special journals.
Internal Control and Special Journals
The purchase from Gus Grass would be recorded in the accounts payable subsidiary ledger and the total would be recorded at the end on the period by posting directly to merchandise inventory and 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. Transactions recorded in special journals are subject to pre-transaction authorization. The total of all accounts payable subsidiary ledgers would beposted at the end of the month to the general ledger AccountsPayable control account.
3: Analyze and Journalize Transactions Using Special Journals
He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. For example, a merchandise purchase is recorded on a single line that registers credit to the supplier’s account, the supplier’s name, the date and the amount, and any other desired information. Special journal books include all the transactions related to the return of goods to the supplier, purchased on credit, or allowances received from the supplier.
3 Analyze and Journalize Transactions Using Special Journals
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. On the date each transaction is posted in the sales journal, the appropriate information would be posted in the subsidiary ledger for each of the customers. As an example, on January 3, amounts related to invoices and are posted to Baker’s and Alpha’s accounts, respectively, in the appropriate subsidiary ledger. At the end of the month, the total of $2,775 would be posted to the Accounts Receivable control account in the general ledger.
Subsidiary Ledgers
It should be noted that sales of goods are recorded in the sales journal. However, sales of assets such as land, building, and furniture are not recorded in the sales journal because they are sold infrequently. Any accounts used in the Other Accounts column must be enteredseparately in the general ledger to the appropriate account.Figure 7.25 shows how the refund would be posted to theutilities expense account in the general ledger.
What is the format of a purchases journal?
- 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.
- Accounting becomes one of the important factors in running the company’s operational activities.
- What other questions can be answered through the analysis ofinformation gathered by the accounting information system?
- However, accounting software programs are expensive, and most of the smaller and medium-sized organizations may not be able to buy and maintain them.
- Transactions recorded in special journals are subject to pre-transaction authorization.
Many companies enter only purchases of inventory on account in the purchases journal. Some companies also use it to record purchases of other supplies on account. However, in this chapter we use the purchases journal for purchases of inventory on account, only.
If we received a refund fromthe electric company on June 10 in the amount of $100, we wouldfind the account number for utility expense (say it is 615) andrecord it. In the cash receipts journal, the credit can be to Accounts Receivable when a customer pays on an account, or Sales, in the case of a cash sale, or to some other account when cash is received for other reasons. For example, if we overpaid our electric bill, we could get a refund check in the mail. We would use the cash receipts journal because we are receiving cash, but the credit would be to our Utility Expense account. If you look at the example in Figure 7.23, you see that there is no column for Utility Expense, so how would it be recorded? We would use some generic column title such as “other” to represent those cash transactions in the subsidiary ledger though the specific accounts would actually be identified by account number in the special journal.
The special journals are used to allow segregation of duties and to avoid posting every detailed transaction to the general ledger. The total of all accounts payable subsidiary ledgers would be posted at the end of the month to the general ledger Accounts Payable control account. The sum of all the subsidiary ledgers must equal the amount reported in the general ledger.
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. When the customer pays the amount owed, (generally using a check), bookkeepers how to set up direct deposit for employees use another shortcut to record its receipt. The cash receipts journal is used to record all receipts of cash (recorded by a debit to Cash). In the preceding example, if Baker Co. paid the $1,450 owed, there would be a debit to Cash for $1,450 and a credit to Accounts Receivable. A notation would be made in the reference column to indicate the payment had been posted to Baker Co.’s accounts receivable subsidiary ledger.
As an example, onJanuary 3, amounts related to invoices and are postedto Baker’s and Alpha’s accounts, respectively, in the appropriatesubsidiary ledger. At the end of the month, the total of $2,775would be posted to the Accounts Receivable control account in thegeneral ledger. Baker Co.’s account in the subsidiary ledger wouldshow that they owe $1,450; Alpha Co. owes $625; and Tau Inc. owes$700 (Figure7.18). The sales journal is used to record sales on account (meaningsales on credit or credit sale). Selling on credit always requiresa debit to Accounts Receivable and a credit to Sales. Because everycredit sales transaction is recorded in the same way, recording allof those transactions in one place simplifies the accountingprocess.
If the amount of all the individual accounts receivable accounts did not add up to the total in the Accounts Receivable general ledger/control account, it would indicate that we made a mistake. When a purchase is entered into the system, the correct journal is updated and can be accessible for review. Likewise, at the end of the accounting cycle, the journal transactions are posted to the individual ledger accounts to close the accounting period. 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.