Describe and Explain the Purpose of Special Journals and Their Importance to Stakeholders v2 Principles of Accounting Financial Accounting

A cash receipts journal is a special journal used to record cash received by a business from any source. For example, the cash sale on June 1 is recorded in the cash receipts journal by first entering June 1 in the date column. The amount of $506 is then placed in both the cash debit column and the sales credit column. The presence of this journal can make it easier for accountants to record all transactions related to the cash receipt. Furthermore, cash receipt journals have a function to record transactions that occur on a cash basis.

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 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.

Advantages of Special Journals

One benefit of using special journals is that one person can work with this journal while someone else works with a different special journal. A purchases journal is a special journal used to record any merchandise purchased on account. The entries in this journal are made based on the invoice received from the supplier on the purchase date. A https://turbo-tax.org/overnight-camp-tax-deducation/ similar special journal is a cash disbursement journal that records all cash payments of a business. Creating special journals for specific categories helps a business in duty segregation as well. For a high-volume business, it would be impossible to record all accounting transactions accurately in a single general journal with such details.

• Before diving into the nits and grits of double-entry bookkeeping and writing journal entries, you should understand why journal entries are so important for a business.
• My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers.
• While this is correct accounting methodology, it also can create a cumbersome general journal with which to work and may make finding specific pieces of information very challenging.
• This journal will record inventory and other purchases of a business.
• Each line in a multi‐column journal must contain equal debits and credits.
• As you can see, the account name, debit amount, credit amount, and description will all appear.

When you make an expense, the journal entry is automatically created, and it is mapped to the correct ledger account. Here, you’ll be able to view, create, and manage all your journal entries. The main attributes displayed for every entry here are the journal entry number, the journal entry date, the journal entry type, and the related document number.

What is the Purpose of a Special Journal?

The presence of that has a function to simplify recording and facilitate the bookkeeping of high-volume transactions into the ledger. 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. 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. This special journal would record all cash payments of the business.

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. 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. Instead of having just one general journal, companies group transactions of the same kind together and record them in special journals rather than in the general journal. This makes it easier and more efficient to find a specific type of transaction and speeds up the process of posting these transactions. In each special journal, all transactions are totaled at the end of the month, and these totals are posted to the general ledger. In addition, instead of one person entering all of the transactions in all of the journals, companies often assign a given special journal’s entries to one person.

Examples of Special Journal

Examples of use cases include companies receiving payments from customers or selling assets. Every time there is a cash receipt, information about the receipt must be recorded in a special cash receipts journal. Sales journals record transactions that involve sales purely on credit.[1] Source documents here would probably be invoices.

Journal entries help transform business transactions into useful data. Find the balance in each account in the accounts payable subsidiary ledger that follows. Note that each vendor account has a unique account number or AP No.

Purchases Journal

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. At the end of the month, the amount column in the journal is totaled, and this amount is posted as a debit in the general ledger purchases account. It is also posted as a credit in the general ledger accounts payable account. The cash receipts journal is used to record all transactions that result in the receipt of cash.

You may also want to consider using a software program or online tool to help you track your purchases. This can help eliminate the possibility of mistakes being made in the journal. The purchase journal has five columns, as shown in the format below.

Sales Journal

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. Then, instead of separately posting individual entries, each column’s total is posted at the end of the accounting period. Entries in the Other column are posted individually to the general ledger accounts affected, and the account numbers are placed in the cash disbursements journal’s reference column.

• Let us discuss what is a special journal, its different types, and how it is created.
• If it is a credit sale (also

  known as a sale on account), it is recorded in the sales journal.

• Recording all such transaction directly in general journal would be extremely time consuming and error prone.
• We learned that debits increase assets, so cash will be debited for $10,000.

In the general journal, a simple transaction requires three lines—two to list the accounts and one to describe the transaction. The transaction must then be posted to each general ledger account. 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.