To keep accounts, it is necessary to set up accounting journals, with necessarily a general journal which constitutes the legal support of the accounts.
Most companies use for practical reasons several accounting journals (called auxiliary journals) which are then centralized in the general journal (called centralizing journal): purchases journal, sales journal, bank journal, cash journal…
Composition of accounting journals
Accounting journals must include the following information:
- date of the transaction recorded,
- accounts moved by the accounting entry,
- description of the accounting entry,
- amounts of the transaction recorded.
Accounting journals: debit and credit
The columns provided for the entry of amounts are two in number:
the flow rate column,
and the credits column.
Two separate articles discuss these concepts:
Debit in accounting
Credit in accounting
The transactions recorded in the accounting journals must be balanced: DEBIT = CREDIT
The main accounting journals
Typically, a business uses the following accounting journals: purchasing journal, sales journal, cash journal, and miscellaneous transaction journal.
1. The purchasing journal
The purchasing journal contains all the entries for the purchase of goods or raw materials and the company’s general expenses (rent, advertising, maintenance, leasing, fees, telephone, etc.).
Sometimes overheads are even posted to a specific journal (e.g. overhead journal).
The accounting entry in a purchasing journal usually looks like this:
- the supplier account (PCG class 401 accounts) where the amount of the debt including tax to the credit is entered,
- a charge account (PCG class 60, 61 and 62 accounts) where the amount excluding tax of the purchase made or overheads debited is entered,
- and a deductible VAT account (PCG class 4456 accounts) in which the amount of VAT debit is entered.
2. The sales journal
All sales invoices issued by the company are entered in this journal.
The accounts used in these logs are mainly:
- the customer account (PCG class 411 accounts) where the amount of the receivable including tax is entered,
- a product account (PCG class 70 accounts) in which the amount excluding tax of the sale or provision of credit service is entered,
- and a VAT collected account (PCG class 4457 accounts) where the amount of VAT collected is credited.
3. Cash journals
Cash journals are used to record all transactions related to the bank (s) and possibly to the cash (s) owned by the company.
The accounts used in these journals are essentially balance sheet accounts: payment of debts and collection of receivables, with the cash account in return:
- these are class 512 accounts for banks,
- and class 53 accounts for the caisses.
4. The various operations log
The various operations journal, called the OD journal for short, is used to record all the transactions that do not fit into the 3 previous types of journals (purchases, sales and cash). Thus, in particular:
payroll, VAT, amortization of fixed assets, provisions, balance sheet entries…
It is also possible to divide the various transactions into several journals: VAT journal, payroll journal, depreciation expense journal, etc.
Examples Accounting Journals
Example 1 – Borrowing money journal entry
ABC Company borrowed $300,000 from the bank
- The accounts affected are cash (asset) and bank loan payable (liability)
- Cash is increasing because the company is gaining cash from the bank, and bank loan payable is increasing because the company is increasing its liability to pay back the bank at a later date.
- The amount in question is $300,000
- A = L + SE, A is increased by 300,000, and L is also increased by 300,000, keeping the accounting equation intact.
Therefore, the journal entry would look like this:
DR Cash 300,000
CR Bank Loan Payable 300,000
Example 2 – Purchasing equipment journal entry
Purchased equipment for $650,000 in cash.
DR Equipment 650,000
CR Cash 650,000
Example 3 – Purchasing inventory journal entry
Purchased inventory costing $90,000 for $10,000 in cash and the remaining $80,000 on the account.
DR Inventory 90,000
CR Cash 10,000
CR Accounts Payable 80,000
Example 4 – Acquiring land journal entry
Purchased land costing $50,000 and buildings costing $400,000. Paid $100,000 in cash and signed a note payable for the balance.
DR Land 50,000
DR Buildings 400,000
CR Cash 100,000
CR Note payable 350,000
Types of special journals
The types of Special Journals that a business uses are determined by the nature of the business. Special journals are designed as a simple way to record the most frequently occurring transactions. There are four types of Special Journals that are frequently used by merchandising businesses: Sales journals, Cash receipts journals, Purchases journals, and Cash payments journals.
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. 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.
Sales journals record transactions that involve sales purely on credit. Source documents here would probably be invoices. Provides a chronological record of all credit sales made in the life of a business. Credit sales are transactions where the goods are sold and payment is received at a later date. The source documents for the Sales journal are copies of all invoices given to the debtors.
Double entry Accounting is achieved by:
- Debit – debtors account with value of sales (increasing a current asset)
- Credit – sales account with total amount (increasing income)
Choose credit sales journal if this stock is then on-sold to customers who will pay later. The people/organizations here are known as debtors. Collectively, all these accounts that are to be paid to us by our customers are known as assets.
|date||details||folio #||invoice #||amount|
|date sale was made||who did you sell it to||sequential – #order|
Cash receipts journal
A cash receipts journal (CRJ) records transactions that involve payments received with cash. Source documents would probably be receipts and cheque butts. The CRJ records the cash inflow of a business. Discount allowed is an expense as the discount allowed is the cost to the seller of obtaining an inflow of cash from a debtor weeks earlier than would be the case.
|date||details||receipt #||discount allowed||sales||debtors||Other||BANK|
|date sale was made||who you received payment from||people who are also in sales journal||other types of income description||amount into bank|
Purchases Journals record transactions that involve purchases purely on credit. Source documents are invoices. For instance, the purchase of inventory on credit is recorded in the purchases journal.
|date||details||folio #33||invoice #||amount|
|date sale was made||name of supplier||not sequential|
Cash payments journal
Cash Payments Journals record transactions that involve expenditures paid with cash and involves the cash Source documents are likely receipts and cheque butts. The CPJ records the cash outflow of a business. If the owner of a business withdraws cash from the business an entry is made in the CPJ. Discount received is the cash discount received by a purchaser, it is an income item for the purchaser.
|date||details||cheque #||discount received||purchases||creditors||Other||BANK|
|date payment was made||who you paid||people who are also in purchases journal||other types of expenses description||amount out of bank|