general and special accounting journals 7

Understanding the General Journal vs Specialized Journals in Double-Entry Bookkeeping Canada

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. After Baker Co.’s payment, the cash receipts journal would appear as in Figure 7.21. To keep accurate records, company operations must be considered.For example, inventory is purchased, sales are made, customers arebilled, cash is collected, employees work and need to be paid, andother expenses are incurred.

Subsidiary Ledgers

This system ensures total debits always equal total credits, providing an inherent balance check. By capturing complete transaction details, journals ensure all relevant information is recorded before account balances are updated. This documentation also creates an audit trail, enabling verification of financial data and compliance with accounting standards. A cash receipts journal (CRJ) records transactions that involve payments received with cash.1 Source documents would probably be receipts and cheque butts.

How and when are special journals posted?

For example, the sales journal tracks sales on account, debiting accounts receivable and crediting sales. The general ledger shows controlled accounts while the subsidiary ledger general and special accounting journals provides individual account details for companies. 1) Special journals record specific transaction types that occur frequently to save time and eliminate detail from the general ledger.

• This entry would then be posted to the accounts payable and merchandise inventory accounts both for $2,500.July 25 Paid for the July 15 purchase from Gus Grass of $10,000 less the 2% discount and $2,500 return.
• In the accounts payable subsidiary ledger, eachvendor (the person or company from whom you purchased inventory orother items) has an account that shows the details of alltransactions.
• In an ERP or Automated Accounting System, the basic concept of the Journal remains the same and the same steps are used to capture relevant information in the system.
• For instance, Pyle and Larson have shown credit purchase of assets and supplies, etc. in a purchase journal under a separate column – debiting asset or office supplies and crediting accounts payable.
• In many of these software applications, the data entry person need only click a drop-down menu to enter a transaction in a ledger or journal.

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7 types of journal books are maintained in accounting for the convenient keeping of accounts and recording transactions of similar nature. Transactions are primarily recorded in the journal and thereafter posted to the ledger. These journals record specific transactions with extended details that cannot be recorded in the general journal. Although these are four broad categories, a business can create any number of specialty journals.

General Journal Format

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. We would look up the account number for Utility Expense and credit the account for the amount of the check. If we received a refund from the electric company on January 28 in the amount of $100, we would find the account number for utility expense (say it is 615) and record it. In special journals, all the recorded transactions are of similar nature.

The $305 is the amount that will showin the Accounts Payable general ledger account. In large type of business, a need for special journal arises, because there are a large number of transactions which are related to these types of journals. It may be mentioned that where the sales return transactions are large in number this sales return journal is maintained. Eventually, all types of journals provide input bookkeeping data for the preparation of financial statements. Thus, both these journals complement each other rather than offering contrasting data.

Importance of special journals:

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. Some organizations keep specialized journals, such as purchase journals or sales journals, that only record specific types of transactions. Most journals are formatted the same way with columns for the transaction dates, account names, debit and credit amounts, as well as a brief description of the transaction. Accountants using QuickBooks and other accounting systems may not have to perform this step, because in these systems the subsidiary ledger updates the general ledger automatically. However, a dishonest person might manipulate accounting records by recording a smaller amount of cash receipts in the control account than is recorded on the subsidiary ledger cards. The ethical accountant must be vigilant to ensure that the ledgers remain balanced and that proper internal controls are in place to ensure the soundness of the accounting system.

The second step for the general journal is to record the transaction and identify at least two accounts that would be affected. It means for every transaction the total of the debit and credit sides will be equal in the general journal accounts. General and special journals are primary bookkeeping documents of a business.

• Credit note is a document issued by a seller that acknowledges that a customer is entitled to receive a reduction in the amount owing on goods purchased on credit.
• Sales return journal which is also called sales return day book is used to record the credit sales returned from debtors.
• The transactions themselves end up on transaction files rather than in paper journals, but companies still print or make available on the screen something that closely resembles the journals.
• In contrast to a general journal, each special journal records transactions of a specific type, such as sales or purchases.

Step 2: Analyze the Accounting Impact of the Transaction:

Using the reference information, if anyone had a question about this entry, he or she would go to the sales journal, page 26, transactions #45321 and #45324. This helps to create an audit trail, or a way to go back and find the original documents supporting a transaction. Throughout the accounting period, a business enters into transactions with customers, vendors, suppliers, the government, and other entities.

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. Baker Co.’s account in the subsidiary ledger would show that they owe $1,450; Alpha Co. owes $625; and Tau Inc. owes $700 (Figure 7.18). 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. The Accounts Receivable control account in the general ledger is the total of all of the amounts customers owed the company.

Sales will require a sales journal, cash receipts journal,and accounts receivable subsidiary ledger (discussed later)journal. Payroll and other disbursements will require their ownjournals to accurately track transactions. These journals are mostly used to accumulate data relating to transactions that are repetitive in nature. A specialty journal will only record the business transactions that are related to that particular journal itself.

Generally in the cash receipts journal to debit columns for cash receipts and cash discount and three credit columns for accounts receivable, sales and other accounts are there. Cash received from various sources other than cash sales and account receivables are recorded in other accounts column. Journal entries for accounting require that there be a debit and a credit in equal amounts. Such journals allow a company to record accounting information and generate financial statements.

All other transactions that cannot be accounted for in the specialty journal can be entered in the general journal instead. These can include business transactions that may alter accounts such as accounts receivables, accounts payable, expenses, accumulated depreciation etc. 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. Such journals allow a company to record accounting informationand generate financial statements. The data also providesmanagement with the information needed to make sound businessdecisions.