Special Journals Definition, Types, & Advantages

Choose credit sales journal if this stock is then on-sold to customers who will pay later. Collectively, all these accounts that are to be paid to us by our customers are known as assets. If possible, different individuals should record transactions in each of the special journals. 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.

The Sales Journal

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. A purchase journal is a record that makes it easier for accountants to record all types of purchases, such as purchases of goods or non-goods on credit. In this case, the types of purchase transactions include the trade goods purchase, equipment purchase, and other assets on credit.

Cash receipts journal

A general ledger is a summary of the chart of accounts of the general journal. These account balances are brought forward to the general ledger after validating them through the T-accounts. The second step is to start recording relevant special account entries into the journal.

How to Choose Between General and Specialized Journals

Therefore, a special journal becomes the primary or source document for the special purpose ledger. A cash receipt journal and a disbursement journal can be created together to form the cash book of the business. The foremost purpose of creating a special journal is to reduce the paperwork of general journal. A special journal would record transactions details that are otherwise omitted from the general ledger. A journal is a documented record that keeps a record of accounting transactions. These transactions are then transferred to create a combined book of records such as a general ledger.

Purchases Return and Allowances Journal

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. The cash receipts journal is an important special journal used in accounting to record all cash payments received by a business. It provides a systematic and organized way to document incoming cash transactions, allowing for efficient tracking, analysis, and reconciliation of cash receipts. Overall, the purchases journal contributes to effective expense management and financial control. It provides businesses with a structured method for recording and analyzing purchase transactions, resulting in improved decision-making, better cost management, and accurate financial reporting. By using the purchases journal in conjunction with other accounting processes, businesses can enhance their financial management practices and drive their success.

1. Good internal control dictates the best rule is that all cash received by a business should be deposited, and all cash paid out for monies owed by the business should be made by check.
2. They are designed to record specific types of transactions in a systematic and efficient manner, providing a streamlined approach to recording and analyzing financial information.
3. Let us discuss what is a special journal, its different types, and how it is created.
4. 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.

Describe and Explain the Purpose of Special Journals and Their Importance to Stakeholders

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. The use of a reference code in any of the special journals is very important. Remember, after a sale is recorded in the sales journal, it is posted to the accounts receivable subsidiary ledger, and the use of a reference code helps link the transactions between the journals and ledgers.

Sales journal

They contribute to the overall effectiveness and reliability of financial management and reporting. Each special journal focuses on a particular type of transaction, such as sales, purchases, cash receipts, cash payments, or a combination of these. By having separate journals for these common transactions, businesses can ensure a more organized and systematic approach to their accounting processes. Special journals (in the field of accounting) are specialized lists of financial transaction records which accountants call journal entries. In contrast to a general journal, each special journal records transactions of a specific type, such as sales or purchases.

The cash receipts journal is used to record all receipts of cash for any reason. Anytime money comes into the company, the cash receipts journal should be used. At the end of the period, the TOTALS only would be recorded in posted directly into the accounts listed with no journal entry necessary. Similarly, special purpose ledgers show the summary of special journal accounts.

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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. 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.

Using a purchases journal also assists in maintaining orderly records for tax purposes. By accurately recording all purchases, businesses can easily retrieve supporting documentation and ensure compliance with tax regulations. This can save time and effort during tax audits and help prevent potential issues with tax authorities. Paying bills is recorded in the cash disbursements journal(Figure7.11) and is always a debit to Accounts Payable (or anotherpayable or expense) and a credit to Cash.

Recall that the accounts receivable subsidiary ledger is a record of each customer’s account. There are three types of special journals – the sales journal, the purchases journal and the cash receipts journal. The sales journal usually contains credit transactions while it is debited for credit https://accounting-services.net/ purchases. The purchases journal usually contains debit transactions while it is credited for debit purchases. The sales journal is used to record sales on account (meaning sales on credit or credit sale). Selling on credit always requires a debit to Accounts Receivable and a credit to Sales.

It is often created when businesses require special information on specific accounts. What other questions can be answered through the analysis of information gathered by the accounting information system? Is there nonfinancial information to extract from the accounting system? An accounting information system should provide the information needed for a business to meet its goals. Gearhead will want to know its financial position, results of operations, and cash flows.

In this way, the financial transactions are being recorded in the proper ledgers to avoid the mismatch while finalizing the books of accounts. It helps in organizing and categorizing cash payments, ensures accurate record-keeping, aids in cash flow management, supports effective expense control, and assists in financial reporting and compliance. By employing a cash payments journal, businesses can enhance their financial management practices, make strategic spending decisions, and maintain a strong financial position. The cash payments journal is a specialized accounting journal used to record all cash payments made by a business. It provides a structured and organized approach to documenting outgoing cash transactions, ensuring accurate record-keeping and effective analysis of expenses. It helps in organizing and categorizing cash receipts, ensures accurate record-keeping, assists in cash flow management, aids in bank reconciliation, and supports effective customer account management.

Dividing accounting entries into several sub-journals or special journals offers several benefits to a business. The total of all of the cash disbursements for the month would be recorded in the general ledger Cash account (Figure 7.27) as follows. Note that the information for both the cash receipts journal and the cash disbursements investment banking modeling course journal are recorded in the general ledger Cash account. While the specialized journals focus on routine and recurring transactions, the general journal provides flexibility for recording one-time or non-typical entries. It complements the specialized journals by capturing transactions that may not fit into any specific category.

This journal can be created to separately record purchases returned and allowances received from suppliers. Any accounts used in the Other Accounts column must be entered separately in the general ledger to the appropriate account. Figure 7.25 shows how the refund would be posted to the utilities expense account in the general ledger. In addition to adjusting entries, the general journal is also used to record non-routine transactions such as depreciation, amortization, bad debts, and disposals of assets. It serves as a centralized location to record unique or extraordinary transactions that may not occur regularly in the business operations. 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 similar authority.

Overall, using special journals improves efficiency, organization, accuracy, financial analysis, and reporting in the accounting process. By utilizing specialized journals alongside the general journal, businesses can adopt a systematic and streamlined approach to recording and managing financial transactions, resulting in improved financial management and decision-making. The general journal contains columns for the date of the transaction, a description of the entry, the accounts debited and credited, and the corresponding amounts. 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. The data recorded in the cash receipts journal is periodically summarized, and the totals are transferred to the general ledger or financial statement templates.

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 larger the business, the greater the likelihood that that business will have a large volume of transactions that need to be recorded in and processed by the company’s accounting information system.