4 Special Journal UD

Chapter 4
Special Journals
Merchandising transactions
A merchandising or trading firm is a business that buys goods for re-sale. The term merchandise
is used to denote goods held for sale in the normal course of business. Trading activities may be
conducted at either wholesale or retail level. The same accounting procedures apply to
transactions of a retailer and a wholesaler.
Merchandise may be bought or sold for cash or on credit. Whenever merchandise is bought, the
'Purchases Account' is debited with the cost of the goods. When the merchandise is sold, a
revenue account, 'Sales account' is credited with the sales value of the goods.
Example
On 2nd May, 10 pairs of Khanga were bought for shs. 1,500 a pair from Mwatex Co. on credit.
Then on 5th May, these 10 pairs of Khanga were sold to various customers for cash at shs. 1,800
a pair.
These transactions may be recorded in the general journal as follows:
General Journal page 00

Date Description Folio Debit Credit
200X
May 2 Purchases 15,000
Mwatex Co. 15,000
Bought 10 pairs of khanga at shs.
15,000 each on credit.
5 Cash 18,000
Sales 18,000
Sold 10 pairs of khanga at shs.
1,800 each.
From these two transactions that the trader has made a profit of shs. 3,000, the excess of sales
value of shs. 18,000 over the cost of shs. 15,000. It is important to note that a trading profit
results because purchase of merchandise is always recorded at cost whereas sale of merchandise
is always recorded at selling price, that is, the cost plus a mark-up or profit.
A two column general journal may be satisfactory for a small business, which has few
transactions and requires probably the services of only one bookkeeper. However, for a firm with
voluminous transactions and having many customers and suppliers, the use of only a general
journal may not be adequate. A large firm will need to employ two or more bookkeepers and
therefore will need to expand its accounting records. The use of special journals and the division
of the ledger accomplish this. Special journals are also sometimes referred to as Daybooks.
Special Journals 35
Types of special journals
Certain kinds of transactions occur frequently in business operations. The most common of these
repetitive transactions are:
• selling on credit
• purchasing on credit
• receipt of cash
• payment of cash
• returns of goods to suppliers and
• returns of goods by customers.
Special journals were devised to record these types of transactions. They are alternatively known
as daybooks and normally include the following:
(a) Sales Journal or Sales Daybook - to record all sales of merchandise on credit.
(b) Purchases Journal or Purchases Daybook - to record all purchases of merchandise on

credit.
(c) Cash Receipts Journal - to record all cash received by the firm from various sources.
(d) Cash Payments Journal - to record all cash paid out by the business.
When contents of a Cash Receipt Journal are combined with those of a Cash Payment
Journal to form one record, the combined record is known as an Analysis Cash Book.
(e) Sales Returns Journal or Returns Inward Daybook - to record the return by customers of
merchandise sold.
(f) Purchase Returns Journal or Returns Outward Daybook - to record the return to suppliers
of merchandise bought.
Depending on the nature of its business activities and cost justification, a firm may use several of
these special journals or daybooks. Firms however, will rarely need to use Sales and Purchases
Return Journals in the modern business environment where there is a tendency towards zero
tolerance of defects. As firms focus on quality improvements at all levels, returns are not
expected to be a routine and repetitive occurrence.
When a firm uses special journals, the general journal is used only to record transactions of a
general nature which do not fall in any of the foregoing categories. However, in small
organizations, a general journal may serve all the purposes of recording accounting transactions.
The basic characteristics of special journals are similar to those of the general journal. However,
additional detail will be found in a special journal. All special journals do not need a narration,
because transactions in them are common, repetitive and well known.
Recording in special journals

All accounting transactions are recorded initially in special journals. For this reason, special
journals are books of prime or original entry. Source documents are the basis for recording in
special journals. These are of particular importance in accounting as they evidence existence of
any transaction. It is important therefore, to be familiar with the common source documents. In
36 Introductory Financial Accounting
most cases these documents have become standardized and there is little variation from one firm
to another.
The basic source documents are as follows:
Invoice:
This is a record containing details of goods supplied. The seller sends a sales invoice to the buyer
while a purchase invoice is received by the buyer from the seller. In principle a sales invoice and
a purchase invoice contain identical data, an invoice is to a seller a sales invoice while to the
buyer it is a purchase invoice. Usually invoices are sent after goods have been dispatched.
Normally, the invoice also indicates the credit terms. This may include (a) the credit period or the
period given for settlement of the amount due; (b) the discount period or the period when a cash
discount is offered if the amount due is paid during this time, and (c) the percentage of cash
discount which may be deducted from the amount owing. A sample invoice is shown as Figure
4.1.
Receipt:
A large number of transactions in business eventually involve receipt of cash. A receipt is a

record acknowledging the receipt of money. It contains the name of the paying party, the date, the
amount paid and a narration providing the reason for the payment. A sample receipt is shown as
Figure 4.2.
Credit note:
Customers sometimes return goods because they are damaged, of poor quality or in excess of the
quantity ordered. When this happens the firm will make a credit entry in the customer’s account
to reduce the amount outstanding by the value of goods returned. In order to notify the customer
of this entry the firm sends a credit note, which describes the items being returned and their value.
A sample credit note is shown as Figure 4.3.
The Returns Inward or Sales Return Account is used to record the return of goods by a seller.
This account is debited whenever goods sold are returned. If goods being returned were paid for,
the customer is entitled to a cash refund for the value of the merchandise returned, in which case
if effected directly, the cash account will be credited. If the goods being returned were not paid
for or a cash refund is not made instantly, the customer will be issued a credit note. This amount
will be recorded as a credit to the customer's account and will reduce the total debt outstanding.
Debit note:
This document is relevant when the firm returns goods to its suppliers for the same reasons as
those given when customers return goods. It is known as a debit note because it conveys
information to a supplier that his account has been debited with the value of goods returned by
the firm. A sample debit note is shown as Figure 4.4.
The Returns Outward or Purchase Returns Account is used to record the return of goods to
suppliers. This account is credited with the value of returned goods. If goods being returned
were paid for, the firm may receive from the supplier an instant cash refund for the value of the
goods returned. In this case, the cash account will be debited.
Special Journals 37
If the goods being returned were not paid for or if an instant refund is not received, the firm will
issue a debit note to the supplier. The debit note amount will be recorded as a debit to the
supplier's account and will reduce the total amount owing.
Division of the ledger

The double entry system covered up to now maintained all the accounts in one book, known as a
ledger. In larger firms keeping all accounts in one ledger can create a number of problems. One
is, only one individual can have access to the ledger at a time. If a firm has three accounting
personnel, then they have to wait turns to work on the ledger. The other problem is that of control,
because any of the three accountants can have access to all accounts of the firm, room is created
for fraudulent entries to be made. It may be preferable to restrict access to certain accounts to
only certain individuals. Division of the ledger was designed to attend to these matters. In
integrated computerized accounting systems, the issues of multiple access and control are not of
major concern. However, even in such systems the division of the ledger is maintained.
Division of the ledger is accomplished by separating the accounts with the largest number of
similar transactions. Apart from the usual accounts of sales, fixed assets, expenses, revenues,
stocks, etc. the largest number of accounts for trading firms will normally be those of individual
suppliers and customers. These two groups of accounts are therefore separated from the main
ledger and form two separate independent ledgers. The result is three ledgers; the sales ledger, the
purchases ledger and the general ledger.
Sales ledger
This ledger contains the accounts of all credit customers of the firm. The details of invoices and
how these are settled are entered in a customer account in this ledger and then passed on to
another person who records the sales account. The sales ledger is also known as the debtors’
subsidiary ledger.
Purchases ledger
This ledger contains the accounts of all credit suppliers to the firm. Details of all purchase
invoices and how they have been paid are recorded in this ledger. The purchase ledger is also
known as the creditors subsidiary ledger.
General ledger
The original ledger remaining after separating the customers and suppliers accounts is now
known as the general ledger. Sometimes it is also referred to as the nominal ledger. ‘Nominal’ is
in contrast to ‘Personal’ accounts; while the subsidiary ledgers contain names of persons [or
businesses] one does not normally see such accounts in the General Ledger. The division of the
ledger is shown graphically as Figure 4.5.
Discounts
When buying and selling goods it is normal for certain deductions to be made from the list price
or the invoice price. These deductions are known as discounts. The two most common types of
discounts are trade discounts and cash discounts.
Trade Discounts
A trade discount is also known as bulk discount or quantity discount. This is a deduction from
the list price of merchandise sold to large volume buyers or a certain category of customers. For
example, a pharmaceutical company may offer a trade discount to hospitals. The percentage of
trade discounts offered to different customers may vary. For example, a manufacturing firm may
offer a 30 percent trade discount to a wholesaler and a 20 percent trade discount to a retailer. In
both cases, the amount of the discount will be deducted from the total invoice price of the
merchandise.
Trade discounts are not entered in accounting records. Only the net invoice amount is used in
recording merchandise purchased or sold.
Example
On 10th May, 200X HOSCO sold 10 cartons of toilet paper to Ubungo Traders at a list price of
shs. 6,000 per carton less 20 percent trade discount. The appropriate invoice will show the
following amounts:
Qty Particulars Amount

10 Cartons @ shs. 6,000 60,000
less: 20 % trade discount 12,000
Net invoice 48,000
The net amount of shs. 48,000 will be used by HOSCO to record its sales, and by Ubungo
Traders to record its purchase of 10 cartons of toilet paper. The trade discount of shs. 12,000 will
not be shown in the records of either HOSCO or Ubungo Traders.
Cash Discounts
Credit terms on the invoice may provide a cash discount if payment was made within a prescribed
time period. For example, the credit terms may be expressed as "net 30 days", which means the net
amount should be paid within 30 days from the invoice date. This may be abbreviated in the
invoice as "n/30". If a cash discount of 2 percent is offered when the amount owing is paid within
10 days, then the invoice will show the credit terms as " 2/10, n/30". This means 2 percent cash
discount is deductible if payment is made within 10 days or the net amount is payable within 30
days. Some invoices demand settlement by the end of the month of sale. This will be abbreviated
as “n/EOM” which means the amount due is payable by the end of the month.
Cash discounts are recorded in a separate account in the accounting books of the seller and the
buyer. If HOSCO offered a 2 percent cash discount if the amount owing was paid within 10 days
and that Ubungo Traders took advantage of the discount, the amounts of cash discount and cash
payable are calculated as follows:
Particulars Amount
Net invoice value 48,000
Less: cash discount 20% of shs. 48,000 960
Cash due 47,040
Note that the cash discount was calculated on the net invoice price (after trade discount was
deducted).
Special Journals 39
Recording Cash Discounts
(a) Sales Discount or Discount Allowed
From the seller’s perspective, the cash discount which HOSCO will grant Ubungo
Traders is termed Sales Discount or Discount Allowed. It will be recorded in the Cash
Receipts Journal where a special column will be designated for this account. Since the
seller receives less than what he would have received had he waited the full credit period,
discount allowed is treated as an expense item.
(b) Purchase Discount or Discount Received
From the buyer’s perspective, the cash discount, which Ubungo Traders will receive
from HOSCO, is termed Purchase Discount or Discount Received. It will be recorded in
the Cash Payments Journal where a special column will be designated for this account.
Since in this case the customer is paying less than what he would have paid had he
waited the full credit period, discount received is treated as a revenue item.
Posting from Special Journals

Many firms find that transactions can be processed quickly and efficiently by using special
journals. The advantage of using special journals is that rather than record and post each source
document separately, details on the invoices are accumulated on a special journal. Eventually
only the figure of total sales, total purchases, total sales returns or total purchase returns is
recorded for the week, month or any desired time period. In the end it becomes unnecessary to fill
up the sales, purchases, sales returns and purchase returns accounts with the details of every
single transaction. The details are retained in special journals and can be accessed, if necessary.
The Sales Journal

This journal records all sales of merchandize on credit. Its design does not deviate much from the
general journal. Following is an illustration of a Sales Journal:
Sales Journal page. 06

Date Details Invoice Folio Amount
200X
June 2 A. John 345 8,000
10 B. Asha 346 5,000
18 Pwani Butchery 347 12,000
29 Mwenge Grocers 348 9,000
Total 34,000
The only extra detail found in a Sales Journal as contrasted with the general journal is the invoice
reference. This reference allows the link to be established between a recorded transaction and the
source document. Also instead of two separate columns for debit and credit, there exists only a
single amount column. In a Sales Journal, if two separate columns were used, exact amounts
would have been recorded in both columns. One column is omitted to eliminate data redundancy.
Posting from the Sales journal
If the four invoices in Sales Journal page 6 were posted separately, there would be four debit
entries in customers’ accounts and four credit entries in the sales account, making a total of eight
entries. When a sales daybook is used, the four individual invoice amounts would still be debited
to customer accounts separately but there would be no need to record the four invoices separately
in the sales account. One entry recording total sales of shs. 34,000 for this month will be made in
the sales account. This makes a total of only five entries as contrasted to eight entries made when
the journal was not in use.
Posting of the Sales Journal to the Sales ledger and the General ledger would be as follows:

200X
June 2 A. John 345 SL01 8,000
10 B. Asha 346 SL02 5,000
18 Pwani Butchery 347 SL03 12,000
29 Mwenge Grocers 348 SL04 9,000
Total GL12 34,000

GL41
Posting to the sales ledger
B. Asha Account no. 01

Date Details Fol. Debit Date Details Fol. Credit
200X
Jun10 Credit sales SJ6 5,000
A. John Account no. 02

200X
Jun 2 Credit sales SJ6 8,000
Mwenge Grocers Account no. 03

200X
Pwani Butchery Account no. 04

200X
Special Journals 41
Note that the folio column of each account has been filled up with "SJ 6" which refers to Sales
Journal page 6. In a similar way the folio column of the Sales Journal will be filled up with the
account number of each customer.
After the individual entries have been posted to the Sales Ledger, it is necessary that the total
amount - shs. 34,000 is also posted to the General Ledger as a credit to Sales account.
Posting to the general ledger
Sales Account no. 41

200X
If it was necessary at this stage to generate a figure of total debtors, we need to balance the four
accounts in the sales ledger and extract a list of customer accounts with their appropriate
balances.
Customer account Balance

B.Asha 5,000
A.John 8,000
Mwenge Grocers 9,000
Pwani Butchery 12,000
Total 34,000
This list is known as a debtors’ schedule. However, if the firm had many customers, it would be
much more demanding to generate a figure of total debtors as it would entail balancing and listing
many customer accounts. Much as the firm needs details of individual customer accounts, it also
needs to be able to generate fairly easily the figure of total debtors. Control accounts were devised
to offer a means of generating such total figures. Control accounts are also used to generate total
creditors figures.
A Debtors Control account records the total of all entries made in individual customer’s accounts.
In the above example, the sales daybook total of shs. 34,000.00 would be recorded to the debit of
a Debtors Control Account. This account will be among the general ledger accounts.
Debtors’ Control Account no. 12

200X
In summary the sales journal will be posted as follows:
Debit: Customer accounts in the sales ledger with individual invoices.
Debit: Debtors control account with the TOTAL monthly credit sales
Credit: Sales account with the TOTAL monthly credit sales.

As a result of the above posting, there are now two debits and one credit and this is not in line
with the principle of double entry. One of the two debits cannot and will not be part of double
entry. It can only be a memorandum entry. Normally, the control account forms part of double
entry and the sales ledger accounts are memorandum records. It is however, possible to find
situations where the control account is not part of double entry while the subsidiary ledger is.
However, at any one time, the balance of the control account must always tally with the list of
balances extracted from the sales ledger. It is for this reason that the sales ledger is also referred
to as a debtors' subsidiary ledger. It thus provides details regarding the balance in the control
account.
The Cash Receipts Journal

The Cash Receipts Journal records all cash receipts from all sources. The main cash sources of a
merchandising firm are normally:
 receipts from cash sales

 receipts from debtors settling accounts
 receipts from other miscellaneous sources
The structure of a cash receipts journal has the standard columns for date of transaction, details,
receipt reference number and folio. In addition to those, it has separate columns for each of the
main cash sources. Each of these columns has a title and a “dr” or “cr” extension to indicate its
posting effect. Following is an illustration of a Cash Receipts Journal.
Cash Receipts Journal page. 08

Date Details Rec.no Folio Debtors Sales Others Sales Cash
disc.
200X cr cr cr dr dr
Jun5 Cash sales 10,000 10,000
12 A.John 8,000 160 7,840
16 Cash sales 6,000 6,000
22 Cash sales 9,000 9,000
28 Pwani Butchery 12,000 240 11,760
Total 20,000 25,000 400 44,600
Any cash received must be recorded in the cash column and the amount analyzed and recorded in
the other respective column being affected. In this way a recording must produce a dual effect
because two columns will be affected, one of which must be the cash column. When totals of
each numerical column are generated, the sum of columns with “dr” extension should equal those
with a “cr” extension. This is true for all special journals and the reason why special journal are
expressed as being self balancing.
Special Journals 43
Posting from the Cash Receipts Journal
Posting of “Cash Receipts Journal – page 8” to the general and sales ledgers will proceed as
follows:

Date Details Rec.no Folio Debtors Sales Others Sales Cash
. disc.
200X cr cr cr dr dr
Jun 5 Cash sales 10,000 10,000
12 A.John SL02 8,000 160 7,840
16 Cash sales 6,000 6,000
22 Cash sales 9,000 9,000
28 Pwani Butchery SL04 12,000 240 11,760
Total 20,000 25,000 400 44,600

GL12 GL41 GL42 GL04
(affected accounts in italic titles)
B. Asha Account no. 01

200X
A. John Account no. 02

200X 200X
Jun 2 Credit sales SJ6 8,000 Jun12 Cash CRJ8 7,840
12 Sales discount CRJ8 160
8,000 8,000
Mwenge Grocers Account no. 03

200X
Pwani Butchery Account no. 04

200X 200X
Jun18 Credit sales SJ6 12,000 Jun28 Cash CRJ8 11,760
28 Sales discount CRJ8 240
12,000 12,000
Note that the folio column of the Cash Receipts Journal has been filled with the sales ledger
account number of each debtor. In the same way the folio columns of the debtors accounts show
the Cash Receipts Journal reference "CRJ 8".
Cash Account no. 04

200X
Jun30 Total receipts CRJ8 44,600

200X 200X
Jun30 Credit sales SJ6 34,000 Jun30 Cash receipts CRJ8 20,000
30 Balance 14,000
34,000 34,000

200X
30 Cash sales CRJ8 25,000
Sales discount Account no. 42

200X
Jun30 Total discounts CRJ8 400
Note that only the total of the sales column, sales discount column and cash column of the Cash
Receipts Journal are posted to the respective accounts in the general ledger. The account
reference numbers have been written below the totals to indicate posting has been completed.
Special Journals 45
The advantage of using the special journals can be observed immediately because only totals are
posted to the general ledger, instead of individual transactions at the different dates. The number
of entries made in the general ledger has been reduced and this saves time and stationery.
The Purchases Journal
Single column purchases journal
The purchase journal records all purchases on credit. When purchases are defined as and
restricted to only merchandise bought for re-sale, the structure of the purchase journal becomes
similar to that of the sales journal. Following is an illustration of such a purchase journal:
Purchases Journal page. 00

200X
June 1 J.Alibhai 018 12,000
7 F.Shebughe 234 8,000
14 P. Mandege 516 6,000
Total 26,000
Multi column purchases journal
Often, the purchases journal will record all items bought on credit, and will include not only
merchandise but also purchase of office stationery, stores and supplies, minor fixed assets,
utilities and services, etc. In such circumstances, a single numerical column for the recording of
transactions is insufficient. A structure with more than a single column is called for. Such a
purchase journal is commonly known as a multi column purchase journal. Following is its
illustration:

Date Details Invce Folio Creditors Purchases Office General
Supplies
200X Amount
cr dr dr Details Folio
(dr)
Jun1 J.Alibhai 018 12,000 12,000
7 F.Shebughe 234 8,000 8,000
9 Office Depot 190 60,000 Equipment 60,000
10 Masumin 379 8,000 8,000
14 L.Mandege 516 6,000 6,000
26 Neon Signs 033 5,000 Fittings 5,000
Total 99,000 26,000 8,000 65,000
Posting of the multi-column purchases journal

Date Details Invce Folio Creditors Purchases Office General
Supplies
200X Amount
cr dr dr Details Folio
dr
Jun1 J.Alibhai 018 PL01 12,000 12,000
7 F.Shebughe 234 PL02 8,000 8,000
9 Office Depot 190 PL03 60,000 Equipment GL06 60,000
10 Masumin 379 PL04 8,000 8,000
14 L.Mandege 516 PL05 6,000 6,000
26 Neon Signs 033 PL06 5,000 Fittings GL07 5,000
Total 99,000 26,000 8,000 65,000
GL22 GL31 GL38

(affected accounts only)
Equipment Account no. 06

200X
Jun30 Credit purchases PJ 3 60,000
Fittings Account no. 07

200X
Creditors’ Control Account no. 22

200X
Purchases Account no. 31

200X
Special Journals 47
Office Supplies Account no. 38

200X
Posting to the purchases ledger
J. Alibhai Account no. 01

200X
F. Shebughe Account no. 02

200X
Office Depot Account no. 03

200X
Masumin Account no. 04

200X
L. Mandege Account no. 05

200X
Neon Signs Account no. 06

200X
The Cash Payment Journal

A cash payment journal records all cash payments. The major cash expenditure items for a
merchandising firm are:
 cash payments for direct purchase of merchandise for re-sale

 cash payments to creditors when accounts due are settled
 cash payments for direct purchase of office supplies and stationery
 cash payments for direct purchase of fixed assets
 cash payments for services rendered on a cash basis
 cash payments for other miscellaneous items.
The structure of a cash payment journal has the standard columns for date of transaction, details,
cheque reference number and folio. It also has separate columns for each of the main cash
expenditure items. Each of these columns has a title and a “dr” or “cr” extension to indicate its
posting effect. Following is an illustration of a Cash Payments Journal.
Cash Payment Journal page. 04

Date Details Chq. Folio Creditors Purchases Office Others Purchs. Cash
no. Supplies disc.
200X dr dr dr dr cr cr
Jun6 Paper bags 011 2,000 2,000
15 Frutty &Co. 012 6,000 6,000
22 J.Alibhai 013 12,000 1,000 11,000
26 F.Shebughe 014 8,000 8,000
30 Masumin 015 8,000 8,000
30 Bob Bargain 016 3,000 3,000
Total 28,000 6,000 3,000 2,000 1,000 38,000
Each of the cash payments is recorded in the cash column then it is analysed and recorded in the
other respective column being affected. In a manner similar to what was observed in the cash
receipts journal, each cash payment recorded produces a dual effect as two columns are affected,
one of which must be the cash column. When totals of each numerical column are generated, the
sum of columns with “dr” extension should equal those with a “cr” extension. This is
consistent with the self balancing nature of special journals.
Special Journals 49
Posting from the cash payment journal

Date Details Chq. Folio Creditors Purchases Office Others Purchs. Cash
no. Supplies disc.
200X dr dr dr dr cr cr
Jun6 Paper bags 011 GL39 2,000 2,000
15 Frutty &Co. 012 6,000 6,000
22 J.Alibhai 013 PL01 12,000 1,000 11,000
26 F.Shebughe 014 PL02 8,000 8,000
30 Masumin 015 PL04 8,000 8,000
30 Bob Bargain 016 3,000 3,000
Total 28,000 6,000 3,000 2,000 1,000 38,000
GL22 GL31 GL38 GL32 GL04
(affected and new accounts in italics)
Cash Account no. 04

200X 200X
Jun30 Total receipts CRJ8 44,600 Jun30 Total payments CPJ04 38,000
Balance 6,600
44,600 44,600
Equipment Account no. 06

200X
Fittings Account no. 07

200X

200X 200X
Jun30 Credit sales SJ6 34,000 Jun30 Cash receipts CRJ8 20,000
Balance 14,000
34,000 34,000
Creditors’ Control Account no. 22

200X 200X
Jun30 Total payments CPJ04 28,000 Jun30 Credit purchases PJ 3 99,000
Balance 71,000
99,000 99,000

200X
30 Cash purchases CPJ04 6,000
Purchase discount Account no. 32

200X
Jun30 Total discounts CPJ04 1,000

200X
Packaging material Account no. 39

200X
Jun30 Cash purchases CPJ04 2,000
Special Journals 51

200X
Sales discount Account no. 42

200X
Jun30 Total discounts CRJ8 400
(affected and new accounts in italics)
J. Alibhai Account no. 01

200X 200X
Jun22 Cash payments CPJ04 11,000 Jun1 Credit purchases PJ 3 12,000
22 Purchase discount CPJ04 1,000
F. Shebughe Account no. 02

200X 200X
Office Depot Account no. 03

200X
Masumin Account no. 04

200X 200X
L. Mandege Account no. 05

200X
Neon Signs Account no. 06

200X
On completion of posting to all ledgers, the debtors and creditors schedules can be extracted by
balancing and listing all the accounts in the sales and purchases ledgers. The following are the
respective schedules:
The Debtors' schedule

B.Asha 5,000
A.John 0
Mwenge Grocers 9,000
Pwani Butchery 0
Total 14,000
The Creditors' schedule

J.Alibhai 0
F.Shebughe 0
Office Depot 60,000
Masumin 0
L.Mandege 6,000
Neon Signs 5,00 0
Total 71,000
The debtors and creditors control accounts have balances of shs. 14,000 and shs. 71,000
respectively. Subsidiary ledger balances are in perfect agreement with control accounts
balances.
Appendix I is a fully worked out illustration in posting from special journals. This illustrative
appendix is used in the subsequent two chapters to illustrate the remaining steps of the accounting
cycle.
Special Journals 53
Appendix I: A Comprehensive Illustration of Journalizing and Posting
On 1st July of the current year, B. Asha started in business of buying and selling groceries at
Namanga with investment of shs. 1,500,000 in cash and shs. 500,000 in merchandise. During the
month the following transactions took place:
July 2 Bought groceries from various suppliers costing shs. 200,000 all paid in cash.
2 Bought display shelves for shs. 65,000 and shop supplies for shs. 18,000 all paid
in cash.
3 She paid shs. 30,000 for 3 months rent of the shop premises.
5 Sold groceries for cash, shs. 20,000.
6 Sold groceries on credit to Noisy Inn for shs. 85,000.
8 Sold groceries on credit to Mwenge Motel for shs. 110,000.
10 Bought merchandise on credit from Apex Wholesalers for shs. 200,000 and paid
shs. 5,000 cash for carriage of merchandise.
15 Mwenge Motel returned some defective canned goods worth shs. 8,000. A
credit note was issued.
17 Bought merchandise on credit for shs. 100,000 from Ubungo Traders.
18 B. Asha took shs. 10,000 cash for her personal use.
20 Received the total amount owing from Noisy Inn.
21 Returned to Ubungo Traders some goods damaged in transit, costing shs. 6,000
and issued a debit note for the amount.
24 Sold groceries on credit to Makongo Duka for shs. 90,000.
26 Paid Apex Wholesalers shs. 100,000 of the amount owing to them.
28 Paid the shop assistant wages for the month amounting to shs. 6,000.
Following is B. Asha Grocer’s Chart of Accounts:
Account title Account number

Assets:
Fixed Assets
Shop Furniture 08
Current Assets
Cash 01
Trade Debtors 02
Stocks 03
Shop Supplies 04
Liabilities:
Trade Creditors 11
Capital 31
B. Asha, Capital 21
Sewing Supplies 51
Revenues:
Sales 31
Sales Returns 32
Discount Received 33
Expenses:
Purchases 41
Purchase Returns 42
Carriage Inwards 43
Rent Expenses 44
Wages Expenses 45
Requirements:
(i) Recording of the transactions in appropriate special journals and afterwards,
(ii) Posting to the respective accounts in the sales ledger, purchases ledger and general
ledger.
General Journal page 01

Date Description Folio Debit Credit
200X
July 1 Stocks GL03 500,000
B.Asha, Capital 500,000
Owner's investment in stocks
15 Sales Returns GL32 8,000
Debtors-Mwenge Motel GL02 8,000
Defective canned goods returned
21 Creditors-Ubungo Traders GL11 6,000
Purchase Returns GL42 6,000
Goods damaged in transit returned
Special Journals 55
Note that each debit and credit amount has been posted to the various ledger accounts as indicated
in the folio column.

200X
Jul 10 Apex Wholesalers PL01 200,000
17 Ubungo Traders PL02 100,000
Total GL11 300,000

GL41
Note that the individual amounts have been posted to the purchases ledger while the total has
been posted to the general ledger as a debit to purchases account (GL41) and a credit to creditors
control account (GL11).

200X
Jul 6 Noisy Inn SL01 85,000
8 Mwenge Motel SL02 110,000
24 Makongo Duka SL03 90,000
Total GL02 285,000

GL31
Again, note that the individual amounts have been posted to the sales ledger while the total has
been posted to the general ledger as a debit to debtors control account (GL02) and as a credit to
sales account (GL31).

Date Details Chq. Folio Creditors Purchases Others Cash
no.
200X dr dr dr cr
Jul2 Various suppliers 200,000 200,000
2 Shop Furniture GL08 65,000 65,000
2 Shop Supplies GL04 18,000 18,000
3 Rent expenses GL44 30,000 30,000
10 Carriage Inwards GL43 5,000 5,000
18 B.Asha, Drawings GL22 10,000 10,000
26 Apex Wholesalers 100,000 100,000
30 Wages GL45 6,000 6,000
Total 100,000 200,000 134,000 434,000
GL11 GL41 GL01
Note that each amount in the general ‘others’ column has been posted as indicated in the folio
column. In the same way, the individual amount for each creditor has been posted to the
purchase ledger, in this example only one creditor; Apex Wholesalers.

Date Details Rec.no Folio Debtors Sales Others Cash
200X cr cr cr dr
Jul 1 B.Asha, Capital GL21 1,500,000 1,500,000
5 Sales 20,000 20,000
12 Sales 40,000 40,000
20 Noisy Inn SL01 85,000 85,000
28 Sales 25,000 25,000
Total 85,000 85,000 1,500,000 1,670,000

GL02 GL31 GL01
Again, note that each amount in the general and debtors columns have been posted individually as
indicated in the folio column. The totals for sales, cash and debtors have also been posted.
Cash Account no. 01

200X
Jul30 Total receipts CRJ1 1,670,000 Jul30 Total payments CPJ01 434,000
Balance 1,236,000
1,670,000 1,670,000
Trade Debtors’ Control Account no. 02

200X
Jul30 Credit sales SJ1 285,000 Jul30 Returns GJ01 8,000
Cash receipts CRJ1 85,000
Balance 192,000
285,000 285,000
Stocks Account no. 03

200X
Jul30 Capital GJ 1 500,000
Special Journals 57

200X
Jul30 Cash payments CPJ 1 18,000
Shop Furniture Account no. 08

200X
Jul30 Cash payments CPJ 1 65,000
Trade Creditors’ Control Account no. 11

200X
Jul30 Returns GJ01 28,000 Jul30 Credit purchases PJ 1 300,000
Total payments CPJ01 100,000
Balance 194,000
300,000 300,000
B. Asha, Capital Account no. 21

200X
Jul30 Stocks GJ01 500,000
30 Cash CRJ1 1,500,000
B. Asha, Drawings Account no. 22

200X
Jul30 Cash payments CPJ01 10,000

200X
Jul30 Credit sales SJ1 285,000

Sales Returns Account no. 32

200X
Jul30 Mwenge Motel GJ01 8,000

200X
Jul30 Credit purchases PJ 1 300,000
Purchase Returns Account no. 42

200X
Jul30 Ubungo Traders GJ1 6,000
Carriage Inward Account no. 43

200X
Rent expense Account no. 44

200X
Wages expense Account no. 45

200X
Noisy Inn Account no. 01

200X
Jul30 Credit sales SJ01 85,000 Jul30 Cash CPJ01 85,000
Mwenge Motel Account no. 02
Special Journals 59
200X
Jul 30 Credit sales SJ01 110,000 Jul30 Returns GJ01 8,000
30 Balance 102,000
110,,000 110,000
Makongo Duka Account no. 03

200X
Jul30 Credit sales SJ01 90,000
Apex Wholesalers Account no. 01

200X
Jul30 Cash payments CPJ01 100,000 Jul30 Credit purchases PJ 01 200,000
30 Balance 100,000
200,000 200,000
Ubungo Traders Account no. 02

200X
Jul30 Returns Outward GJ01 6,000 Jul30 Credit purchases PJ 01 100,000
30 Balance 94,000
100,000 100,000
Schedule of Trade Debtors
The individual balances of the debtors in the Sales Ledger may be summarized in a schedule like
the one shown below:
B. Asha Grocers
Schedule of Trade Debtors
as at 31 July, 200X
Noisy Inn 0
Mwenge Motel 102,000
Makongo Duka 90,000
Total 192,000
The total of shs. 192,000 is in agreement with the balance of the Debtors Control Account (GL
02). This is the amount which will be shown in the Trial Balance for Trade Debtors.
Schedule of Trade Creditors
Likewise, the individual balances of the creditors in the Purchases Ledger may be summarised in a
schedule as follows:
B. Asha Grocers
Schedule of Trade Creditors
as at 31 July, 200X
Apex Wholesalers 100,000
Ubungo Traders 94,000
Total 194,000
Again, the total of shs. 194,000 is in agreement with the balance of the Creditors Control Account
(GL 11), and this total will appear in the Trial Balance for Trade Creditors.
Special Journals 61
Review questions
1. The most repetitive transactions in trading organizations can be divided into four
categories. What are they?
2. Why don't organisations utilize the general journal to record all transactions instead of
using four separate journals?
3. When posting transactions from a special journal to the general ledger, would you need to
prepare a general journal entry? Explain.
4. In which journal would you record a cash payment for purchase of goods for re-sale?
5. How can an invoice be both a purchase invoice and a sales invoice?
6. What do you call the following:
(a) A ledger made up of individual creditors accounts?

(b) A ledger made up of individual debtors accounts?
7. During September sales on credit made by Babujinga actually amount to shs. 420,000, but
an error of shs. 20,000 was made in totaling the amount column of the sales journal.
When and how will the error be discovered?
8. If a businesswoman makes about shs. 400,000 sales on credit daily to twenty customers on
average, and she has no idea what special journals are, what could be the extent of work
saved if she were to use a Sales Journal?
9. How is it possible to tell from which journal a particular amount in a ledger account was
transferred?
10. Explain the meaning of the following credit terms:
(a) n/30
(b) n/EOM
(c) 2/10, n/30
11. Differentiate between a purchases discount and a sales discount.
12. What are trade discounts? How are trade discounts shown in the accounting records?
13. What is the term applied to discounts for early payment by:
(a) the purchaser?
(b) the seller?
Exercises
1. An electrical appliances shop bought the items described below. Indicate the title of the
account to which each purchase will be debited.
(a) One display shelf

(b) Two cartons of bulbs
(c) One trash basket
(d) One cash register
(e) Fifty units reading lamps
(f) Two hundred meters electrical wire
(g) One paperback novel for the owner
(h) One ream office stationery.
2. In each of the following cases indicate the journal that will be utilized in its recording:
(a) Injection of additional capital in cash by the owner.

(b) Sale of goods on credit.
(c) Receipt of cash from the bank as a loan.
(d) Issuance of a credit note to a customer.
(e) The taking out of cash from the business by the owner.
(f) Sale of goods for cash.
3. Dodo Enterprises, a trading firm uses a cash receipts journal, a cash payments journal, a
sales journal, a purchases journal and a general journal.
(a) In which of the five journals would you normally expect to find the smallest
number of transactions recorded?
(b) At the end of a month, for example, the total of the sales journal should be posted
to what accounts? As a debit or credit?
(c) At the end of a month, the total of the purchases journal should be posted to what
accounts? As a debit or credit?
(d) Name two subsidiary ledgers which would probably be used in conjunction with
the journals listed above. From which journals would posting be regularly made
to each of the two subsidiary ledgers?
4. A credit sale of shs. 500,000 was made on the following terms, 2 percent discount will be
allowed if settlement was made within 30 days. The settlement was made within the 30
days. After 3 days a defect was detected with the entire shipment and the seller agreed to
the return of the whole shipment.
(a) Record the sale and the settlement.

(b) What is the amount of the refund owed to the customer?
(c) What accounts should be debited and credited to record the return and the refund?
5. A retailer is considering the purchase of 10 cartons of Mapapai curl activator from either
of two suppliers. Their offers are as follows:
Supplier A: Price shs. 20,000 a carton, terms 2 percent discount if paid within 30 days, no
charge for transportation.
Supplier B: shs. 18,000 a carton, terms 2 percent discount if settled within 30 days, plus
transportation costs of shs. 2,000.
Which of the two offers would you recommend?
6. Motomoto & Co. purchases goods from Riwaya & Co. on credit shs. 200,000. Terms
being 2/10, n/30 which means 2 percent discount is offered if payment was made within
10 days. Riwaya & Co. adds transportation charges of shs. 3,000 to the invoice.
Motomoto returns some of the goods receiving a credit note for shs. 10,000 and then pays
Special Journals 63
the amount due within the discount period. Present Motomoto's entries in general journal
form to record:
(a) the purchase,

(b) the return of goods,
(c) the payment.
7. Record the following transactions in the form of general journal entries.
Sept. 2 Sold goods to a customer for shs. 200,000 terms 1/10, n/30.
2 Paid transportation charges of shs. 5,000 debiting the customer in the
above sale.
6 Issued a credit note for shs. 10,000 to the customer for merchandise
returned.
12 Received a cheque for the amount due from the sale.
Problems
1. A & J Enterprises, which sells office equipment and supplies, completed the following
transactions during August, 200X.
Aug 2 Sold goods to Mwereka Traders in the amount of shs. 850,000 on

account, invoice No. 331.
3 Sold goods to Pata Potea in the amount of shs. 145,000 for cash.
9 Sold goods on credit to Akika in the amount of shs. 4,350,000 invoice no.
332.
12 Collected amount due from Mwereka Traders.
15 Sold goods to Dalali Kombo on account for shs. 1,500,000 invoice no.
333.
18 Miscellaneous cash sales for the day amounted to shs. 333,000.
22 Collected amount due from Akika.
25 Collected the amount due from Dalali Kombo.
27 Sold goods on credit to Chekanao Enterprises in the amount of shs.
4,000,000 invoice No. 334.
28 Sold goods on account to Tatunane Motors amounting to shs. 750,000
invoice no. 335.
Required:
Using a Sales Journal and a Cash Receipts Journal as illustrated in the chapter record the
preceding transactions for the month of August 200X; and post to the respective ledgers.
2. A & J Enterprises, in addition to the transactions in the previous problem, also completed
the following transactions during August 200X.
Aug 1 Purchased merchandise on credit from Tegemea Desks amounting to shs.

2,250,000.
5 Purchased goods from Wasiwasi Traders and paid shs. 925,000 cheque
no. 1437.
10 Purchased merchandise on account from Handicraft Furniture amounting
to shs. 1,495,000.
11 Paid amount due to Tegemea Desks, cheque No. 1438.
16 Paid salary expenses of shs. 650,000 cheque No. 1439.

19 Purchased office supplies on credit from Recycled Paper Traders in the
amount of shs. 80,000.
20 Purchased office supplies for cash from Mwambao Supplies amounting
to shs. 135,000 cheque No. 1440.
20 Purchased merchandise on account from Tegemea Desks, amounting to
shs. 4,400,000.
26 Purchased office equipment on credit from Vifaa Maridadi Suppliers in
the amount of shs. 5,000,000.
30 Paid amount due to Tegemea Desks, cheque no. 1441.
Required:
Using a multi-column Purchases Journal and a Cash Payment Journal as illustrated in the
chapter, record the entries for the preceding transactions for the month of August, 200X
and post to the respective ledgers.
3. As at December 31st, 200X the general ledger of Kajei Hoppers had the following
balances:
Account Balance
Cash 207,500
Debtors 106,500
Stocks 120,000
Office stationery stocks 6,000
Office Equipment 80,000
Trade Creditors 93,000
Other Creditors 3,500
Owners’ Equity 423,500
Transactions completed during January, 200X include:
Jan. 2 Paid the amount owing to Other Creditors.

4 Purchased goods on credit shs. 26,000.
5 Cash Sales shs. 40,000.
8 Borrowed cash from the bank in order to buy additional office
equipment. The Loan being shs. 150,000.
9 Bought office equipment, paying cash shs. 150,000.
10 Collected shs. 50,000 from credit customers.
12 Sold goods to customers on credit shs. 75,000.
14 Received cash from a credit customer who owed shs. 20,000.
15 Cash Sales shs. 25,500.
20 Paid Salaries to employees shs. 20,000.
23 Paid creditors shs. 90,000.
25 Purchased goods for cash shs. 5,000.
27 Paid miscellaneous expenses shs. 1,300.
29 Collected from credit customers shs. 40,000.
31 Paid Insurance for office equipment shs. 2,500.
Special Journals 65
Required:
Using a general journal, journalize the transactions of Kajei Hoppers during the month of
January, 200X.
4. Kijeba, as a bookkeeper for Kajei Hoppers, heard that it is quicker to use a sales journal, a
cash receipts journal, a purchases journal and a cash payments journal in addition to the
general journal.
Required:
(a) Prove to Kijeba that what he heard is true. Using a general journal and four
special journals journalize the transactions of Kajei Hoppers for the month of
January.
(c) Extract a Trial Balance at the end of the month.
5. Mlimani Book Store opened its doors for business on September 1. During September the
following transactions occurred:
Sept. 1 Ayiman, the owner, began business by depositing shs. 1,700,000 in the
new business bank account.
2 Issued cheque No. 001 to Mzee wa Kamba for one month's rent, shs.
40,000.
3 Received shipment of books from Penguin Books, shs. 784,000 invoice
date September 2, terms 5/10, n/30.
4 Received an invoice for freight from Speedy Truckers for previous day's
shipment, shs. 39,500, terms n/30.
6 Issued cheque no. C002 to Reliable Enterprises for Equipment, shs.
520,000.
8 Issued cheque no. C003 to Abuu Freighters, for transportation charges on
previous day's shipment, shs. 28,700.
9 Sold books to Freshers & Co., shs. 78,200 terms 5/10, n/30, invoice no.
1001.
11 Issued cheque no. C004 to City Radio 104 for radio commercial
broadcasts shs. 23,500.
12 Issued cheque no. C005 to Penguin Books, for balance of amount owed
less discount.
13 Cash sales for the first two weeks, shs. 181,400.
15 Issued cheque no. C006 to Wahiwahi Publishers, shs. 300,000.
17 Sold books to Pat Lazzeri, shs. 13,000 terms n/30, invoice no. 1002.
19 Received payment in full, less discount from Freshers & Co.
20 Sold books to Dhahabu, shs. 9,700 terms n/30, invoice no. 1003.
22 Received a consignment from Fred Hampton Memorial Publishers shs.
230,000 invoice dated September 21, terms 5/10, n/30.
23 Returned additional books purchased on September 3 to Penguin Books
shs. 71,800.
24 Sold books to Freshers & Co., shs. 81,700 terms 5/10, n/30, invoice no.
1004.
25 Received shipment from Penguin Books, shs. 118,700, invoice dated
September 22, terms 5/10, n/30.
26 Issued cheque no. C007 to Speedy Truckers for balance owed on account
plus shipping charges of shs. 9,700 on previous day's shipment.
27 Cash sales for the second two weeks, shs. 374,400.
29 Issued cheque no. C008 to NBC Bank for sales salaries for the month,
shs. 70,000.
30 Cash sales for the last two days of the month, shs. 27,700.
Required:
1. Prepare a Sales Journal, a multi column purchases journal, a cash receipts journal,
a cash payments journal and a general journal.
2. Open the following general ledger accounts: Cash; Debtors; Equipment;

Creditors; Ayiman, Capital; Sales; Sales Discounts; Sales Returns; Purchases;
Purchases Discount; Purchases Returns; Transport Expenses; Sales Salaries
Expenses; Advertising Expenses; and Rent Expenses.
3. Open Sales Ledger Accounts.
4. Open Purchases ledger Accounts.

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Chapter 4

These transactions may be recorded in the general journal as follows:

General Journal page 00

Types of special journals

(b) Purchases Journal or Purchases Daybook - to record all purchases of merchandise on

Recording in special journals

A large number of transactions in business eventually involve receipt of cash. A receipt is a

Division of the ledger

Qty Particulars Amount

Recording Cash Discounts

(a) Sales Discount or Discount Allowed

(b) Purchase Discount or Discount Received

Posting from Special Journals

The Sales Journal

Sales Journal page. 06

Posting from the Sales journal

Sales Journal page. 06

Total GL12 34,000

Posting to the sales ledger

B. Asha Account no. 01

A. John Account no. 02

Mwenge Grocers Account no. 03

Pwani Butchery Account no. 04

Posting to the general ledger

Sales Account no. 41

Customer account Balance

Debtors’ Control Account no. 12

In summary the sales journal will be posted as follows:

Debit: Customer accounts in the sales ledger with individual invoices.

Credit: Sales account with the TOTAL monthly credit sales.

The Cash Receipts Journal

 receipts from cash sales

Cash Receipts Journal page. 08

Total 20,000 25,000 400 44,600

Posting from the Cash Receipts Journal

Cash Receipts Journal page. 08

Total 20,000 25,000 400 44,600

Posting to the sales ledger

(affected accounts in italic titles)

B. Asha Account no. 01

A. John Account no. 02

12 Sales discount CRJ8 160

Mwenge Grocers Account no. 03

Pwani Butchery Account no. 04

28 Sales discount CRJ8 240

Posting to the general ledger

Cash Account no. 04

Debtors’ Control Account no. 12

Sales Account no. 41

30 Cash sales CRJ8 25,000

Sales discount Account no. 42

The Purchases Journal

Single column purchases journal

Purchases Journal page. 00

Multi column purchases journal

Purchases Journal page. 03

Posting of the multi-column purchases journal

Purchases Journal page. 03

Posting to the general ledger

Equipment Account no. 06

Fittings Account no. 07

Creditors’ Control Account no. 22

Purchases Account no. 31