If we ordered inventory from Jones Mfg. (account number 789) using purchase order #123 and received the bill for $250, this would be recorded in the purchases journal as shown in Figure 7.28. 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. 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. The accounts payable subsidiary ledger holds the details about all of the amounts a company owes to people and/or companies. In the accounts payable subsidiary ledger, each vendor (the person or company from whom you purchased inventory or other items) has an account that shows the details of all transactions.

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A cash payment journal has a function to record all transactions related to cash expenditure. In this case, it will record all transactions that occur on a cash basis in detail. The transactions included in the cash payment journal are purchases on a cash basis, debt repayment, sales returns, and expense payments. One of the business cash outflow examples is a cash payment for purchase on a cash basis. Using a purchases journal also assists in maintaining orderly records for tax purposes.

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If a company had many transactions, that meant many journal entries to be recorded in the general journal. We would enter these four types of transactions into their own journals, respectively, rather than in the general journal. Thus, in addition to the general journal, we also have the sales journal, cash receipts journal, purchases journal, and cash disbursements journals. Most companies have four special journals, but there can be more depending on the business needs.

Cash Receipts Journal

At the end of the month, the bookkeeper, or computer program, would total the A/R Dr and Sales Cr column and post the amount to the Accounts Receivable control account in the general ledger and the Sales account in the general ledger. The Accounts Receivable control account in the general ledger is the total of all of the amounts customers owed the company. Also at the end of the month, the total debit in the cost of goods sold column and the total credit to the merchandise inventory column would be posted to their respective general ledger accounts. If the transaction does not involve cash, it will be recorded in one of the other special journals. If it is a credit sale (also known as a sale on account), it is recorded in the sales journal.

Purpose and nature of transactions recorded

Money paid out is recorded in the cash disbursements journal, which is generally kept in numerical order by check number and includes all of the checks recorded in the checkbook register. If we paid this month’s phone bill of $135 with check #4011, we would enter it as shown in Figure 7.26 in the cash disbursements journal. Special journals and general journal are both books of prime entry which are used to record the transactions of a business. In special journals all the transactions related to credit sales, credit sales return, credit purchases and credit purchases return are recorded. In general journal all other transactions are recorded which include adjustments to accounts like sale and purchase of non-current assets, accruals and prepayments, bad debts and correction of errors etc. In special journals all the transactions are recorded in the form of single line entry whereas in general journal all the transactions are recorded in the form of two or more line entries.

1. In special journal all the transactions are accumulated and then the total is periodically posted to the ledgers whereas in general journal the transactions are not accumulated and are posted individually to the ledgers.
2. We would use the cash receipts journal because we are receiving cash, but the credit would be to our Utility Expense account.
3. Unlike the specialized journals, which are designed to record specific types of transactions, the general journal provides flexibility in recording various types of transactions that do not fit into a predetermined template.
4. It provides a systematic and organized approach to documenting purchase transactions, ensuring accurate record-keeping and efficient analysis of expenses.
5. The special journals that we will illustrate are examples of those found in many manually kept books, but they are not the only types used.
6. 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.

Purchases Journal

It serves as a centralized location to record unique or extraordinary transactions that may not occur regularly in the business operations. General journal is used to record such transactions that are not repetitive in nature and for which no special journal is maintained. This journal should record non-routine transactions, and many of these transactions should be approved by the head of the accounting department or by someone with dda debit similar authority. Only one posting for the total amount is made to the relevant ledger account at the end of the month or another appropriate period. Each special journal is handled by a particular person, who will become familiar with the work assigned to them. In large businesses, where transactions of various categories occur hundreds or thousands of times each month, it is inconvenient to record them in the general journal.

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. Furthermore, the cash payments journal facilitates the preparation of financial statements. The data recorded in the cash payments journal is periodically summarized, and the totals are transferred to the general ledger or financial statement templates. This simplifies the process of compiling financial information for reporting purposes, such as generating income statements, cash flow statements, or expense analysis reports. Overall, the purpose of a special journal in accounting is to streamline the recording process, improve efficiency, and enhance the accuracy of financial data. By separating and categorizing transactions based on their nature, special journals provide a systematic approach to recording and analyzing financial information, ultimately contributing to the effective management of a business’s finances.

At the end of each reporting period, records on the purchase journal will be summarized and posted into the ledger. To manage purchase requests across multiple branches, you can use HashMicro’s purchasing software. One of the primary purposes of the general journal is to record adjusting entries. Adjusting entries are made at the end of an accounting period to rectify errors, allocate revenues and expenses correctly, or account for accruals and deferrals.

However, in this chapter we use the purchases journal for purchases of inventory on account, only. It will always have a debit to Merchandise Inventory if you are using the perpetual inventory method and a credit to Accounts Payable, or a debit to Purchases and a credit to Accounts Payable if using the periodic inventory method. It is similar to the sales journal because it has a corresponding subsidiary https://accounting-services.net/ ledger, the accounts payable subsidiary ledger. Since the purchases journal is only for purchases of inventory on account, it means the company owes money. To keep track of whom the company owes money to and when payment is due, the entries are posted daily to the accounts payable subsidiary ledger. Accounts Payable in the general ledger becomes a control account just like Accounts Receivable.

The source documents for the Sales journal are copies of all invoices given to the debtors. 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. A special journal is a set of journals used to record same type of transactions. For example, if the company experiences 10,000 sales transactions, it may create one or more than one sales journal to post such entries accordingly.