Wed. Aug 10th, 2022

    Accounting Journals

    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 journal

    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.

    datedetailsfolio #invoice #amount
    date sale was madewho did you sell it tosequential – #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.

    datedetailsreceipt #discount allowedsalesdebtorsOtherBANK
    date sale was madewho you received payment frompeople who are also in sales journalother types of income descriptionamount into bank

    Expense journals

    Purchases journal

    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.

    datedetailsfolio #33invoice #amount
    date sale was madename of suppliernot 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.

    datedetailscheque #discount receivedpurchasescreditorsOtherBANK
    date payment was madewho you paidpeople who are also in purchases journalother types of expenses descriptionamount out of bank