SPECIAL JOURNALS

SPECIAL JOURNALS

We have used the general journal to record all types of business transactions. However, as
the transactions of a company increase, there is a need to change to a more efficient and timesaving
manner. Accountants have developed an accounting system for an orderly and effective processing
of data. They have developed special journals. Each special journal records one particular type of
transaction that occurs frequently, such as sales on account, cash receipts, purchases on account, or
cash disbursements.

The following are the advantages of using special journals:

1. It saves time in journalizing. Only one line is used for each transaction; usually a full
description is not necessary. The amount of writing is reduced because it is not necessary to
repeat the account titles printed at the top of the special column or columns.
2. It saves time in posting. Many amounts are posted as column totals rather than
individually.
3. It eliminates the detail from the general ledger. The column totals are posted to the
general ledger and the details are left in the special journal.
4. It promotes division of labor. Several positions can work simultaneously on the accounting
records. This specialization and division of labor pinpoint responsibility and allow for more
location of errors.
5. It aids management analysis. The journals themselves can be useful to management in
analyzing classes of transactions, such as credit sales, because all similar transactions are in
one place.

The special journals are designed to systematize the original recording of major recurring
types of transactions. The number and format of the special journals actually used in a company
depend primarily on the nature of the company’s business transactions. The special journals
illustrated on this chapter are the sales, cash receipts, purchases, cash disbursements journals.

 The Sales Journal is used to record all sales of merchandise on account (on credit).
 The Cash Receipts Journal is used to record all inflows or receipts of cash into the
business.
 The Purchases Journal is used to record all purchases of merchandise and other items
on account (on credit).
 The Cash Disbursements Journal is used to record all payments (or outflows) of cash
by the business.

Although we use all these four special journals, the General Journal is still needed. The
General Journal is used to record all transactions that cannot be recorded in any one of the special
journals. All five of these journals are books of original entry. If a transaction is recorded in the
journal, it is posted to the ledger and made part of the accounting records. Therefore, if a transaction
is recorded in a special journal, it should not be recorded in the general journal because this would
record the transaction twice.

Since the journal entries are posted to the ledger accounts, the posting reference column in
the ledger should indicate the source of the posting. The following abbreviations are used for the
five journals:

Journal Transactions Abbreviation

Sales Journal Merchandise sold on account S
Cash Receipts Journal Cash receipts from all sources CR
Purchases Journal Merchandise and other items purchased P
on account
Cash Disbursements Journal Cash payments for various purposes CD
General Journal Any transaction that is not included in G
the special journals.

CONTROL ACCOUNTS AND SUBSIDIARY LEDGERS

A control account is an account in the general ledger that shows the total balance of all the
subsidiary accounts related to it. An example of a control account is the general ledger Accounts
Receivable account, which summarizes all of the amounts owed to the company.

The subsidiary ledger accounts show the details supporting the related general ledger
control account balance. The company may use subsidiary accounts for receivables to send out
customer statements. They may use the subsidiary accounts for payables to determine the amount
payable to each supplier. These accounts are normally arranged alphabetically by the name of the
customer or supplier. The sum of the subsidiary accounts in a subsidiary ledger should agree with
the balance in the related general ledger control account when the company prepares the financial
statements.

A subsidiary ledger, then, is a group of related accounts showing the details of the balance
of a general ledger control account. The subsidiary ledger is separated from the general ledger in
order to relieve the general ledger of a mass of details and thereby shorten the general ledger trial
balance. Also, having separate ledger promotes a division of labor.

The relationship between a control account and the subsidiary accounts are shown as
follows:
 Note that the sum of all balances in the subsidiary accounts (P200 + P800 + P400 + P600)
on May 31 is equal to the balance on the same date in the control account (P2,000).

Whenever a transaction occurs affecting a control account, some accounts in the subsidiary
ledger will also be affected. Since a transaction is recorded into the journal before it is entered in the
ledger account, the journal entry needs to indicate the subsidiary ledger accounts affected. The
posting is made both to the control account and the subsidiary ledger account. For example, of the
company made a P600 sale on July 17 to Gina Tan on account, the journal entry would be:

July 17 Accounts Receivable – Gina Tan 112/ 600

Sales 411 600
To record sales of merchandise on account

The amount of the sale is posted as a debit to both the Accounts Receivable control account
(112) in the general ledger and Gina Tan’s account in the subsidiary ledger (  ) and as a credit to
the Sales account (411) in the general ledger.

The general ledger has backup subsidiary ledgers for other accounts in addition to the
Accounts Receivable account. Some examples of accounts that frequently have backup subsidiary
ledgers are:

1. Accounts Receivable Accounts receivable subsidiary ledger (account for each

customer)
2. Accounts Payable Accounts payable subsidiary ledger (account for each creditor)
3. Office Equipment Equipment subsidiary ledger
Delivery Equipment (account for each item of equipment)
Store Equipment, etc.

SALES JOURNAL

Sales are normally made either for cash or on credit. The Sales Journal is used only for
sales on credit; cash sales are recorded in the Cash Receipts Journal. The simplest form of a Sales
Journal has only one column labeled Accounts Receivable – Debit and Sales – Credit. Because
every sale on account is journalized by this same debit and credit. The headings in this form of
Sales Journal might appear as follows:

Sales Journal Page 1

Invoice Post Accts. Rec. – Dr.
Date No. Account Debited Ref. Sales – Cr.

Variations in the Sales Journal can be made depending on the information needs of the
business. For example, there could be separate Sales – Cr. Column for each department in a
company. In this case, a separate column of Accounts Receivable regardless of which department
sold the goods. The headings for a sales journal with separate columns for each department might
appear as follows:

Sales Journal Page 1

Accounts Sales - Credit
Rec. – Dr. Inv Dept Dept Dept Dept
Date Account Debited
. . . . .
Amt. P/R
No. A B C D

In either format, the customer’s name is necessary in order to know the subsidiary ledger
account affected by the sales transaction. The invoice number simply provides documentation that a
sale actually occurred. In the posting reference column, a check mark is placed to indicate that the
amount of sale has been posted to the customer’s subsidiary ledger account.

POSTING THE SALES JOURNAL

The individual amounts are posted daily to each individual’s customer account in the
subsidiary ledger. The posting is done daily to show the amount currently due from the customer.
As each individual amount is posted, a check mark (  ) is placed in the Posting Reference column
to show that the item has been posted. At the end of the month, the total of the money column is
posted in the general ledger as a debit to Accounts Receivable control account and as a credit to the
Sales account. In the Posting Reference column of the general ledger account, S1 (Sales Journal,
page 1) is entered. Account numbers 112 for Accounts Receivable and 411 for Sales are written in
the Sales Journal under the total of the money column to show that the total has been posted to
those accounts.

The Sales Journal of the Friendly Variety Store for January is as follows:

Sales Journal Page 1

Inv
Post Acc. Rec. – Dr.
Date No
Ref. Sales – Cr.
2006 . Account Debited
Jan. 1 3 81 Sanchez Corporation  2,550.00
5
8 81 Vera & Sons  4,500.00
6
1 81 Jugo & Company  7,380.00
0 7
2 81 Ramos Company  3,198.00
3 8
2 81 Vera & Sons  4,080.00
5 9
21,708.00
(112) (411)
 The Accounts Receivable subsidiary ledger is presented below. It is customary to use three-
column journal to display the current balance of the account at all times.

Jugo & Company

Date Post
2006 Items Ref. Debit Credit Balance
Jan. 1 Balance  4,800
1 S1 7,380 12,180
0

Ramos Company
Date Post
2006 Items Ref. Debit Credit Balance
Jan. 1 Balance  2,550
2 S1 3,198 5,748
3

Sanchez Company
Date Post
2006 Items Ref. Debit Credit Balance
Jan. 1 Balance  2,070
3 S1 2,550 4,620

Vera & Sons

Date Post
2006 Items Ref. Debit Credit Balance
Jan. 8 Balance  4,500 4,500
2 S1 4,080 8,580
5

The Accounts Receivable account and the Sales Account are shown in the general ledger
below. The illustration shows the four-column type of account. In contrast to the two-sided T-
account format shown earlier, the four-column format has columns for debit, credit, debit balance,
and credit balance. One advantage of this form is that the balance of the account is shown after
posting each item.

Accounts Receivable
Date Post Balance
2006 Items Ref. Debit Credit Debit Credit
Jan. 1 Balance  9,420
3 S1 21,708 31,128
1
 Sales
Date Post Balance
2006 Items Ref. Debit Credit Debit Credit
Jan. 3 Balance S1 21,708 21,708
1

After completing the posting of the accounts receivable, the Accounts Receivable control
account is equal to the sum of the balances in the Accounts Receivable subsidiary ledger accounts.
The subsidiary ledger accounts are not numbered, since their composition is constantly changing,
but are kept alphabetical order.
Some companies do not use a formal sales journal for sales on account. Instead, they enter
the amount of each sales invoice directly in the subsidiary ledger account of the customer. They
arrange the sales invoices for a month in numerical order and fasten them together. At the end of the
month, they total all of the sales invoices for the month and make an entry debiting the Accounts
Receivable control account and crediting Sales for the total amount. This procedure eliminates the
need for separate recording of each credit sales in the sales journal.

CASH RECEIPTS JOURNAL

The cash receipts journal is used for all transactions involving the receipt of cash by the
business. The most frequent types of cash receipt transactions are cash sales and collections on
account receivable. Therefore, separate credit columns appear for those items in the cash receipts
journal shown below:

CASH RECEIPTS JOURNAL

Pos
Sundry
Date t Accounts Sales
Account Credited Accounts
2006 Ref Sales Rec. Disct. Cash
Credit
. Credit Credit Debit Debit
Jan 5 Jugo & Company  4,800 4,704
. 96
9 Ramos Company  2,550 51 2,499
1 Sanchez Corp.  2,070 2,070
2
1 Sales  14,985 14,985
5
1 Purchase Returns
8
& Allowances 512 72 72
2 Jugo & Company  7,050 6,909
5 141
2 Notes Payable 212 10,000 10,000
7
3 Sales  13,476 13,476
 0
10,072 28,461 16,470 288 54,715
( ) (411) (112) (413) (111)

Many other types of transactions may result in the receipt of cash by the business, but these
transactions involve various accounts as the credits. Since this sundry accounts (miscellaneous
accounts) do not occur with enough frequency to warrant special columns, they appear in the
Sundry Accounts Credit column of the Cash Receipts Journal. However, if after several months or
periods, a certain transaction appears regularly in the Sundry Account Credit column, the format of
the Cash Receipts Journal is revised to provide a special column for that type of transaction. For
example, a company that has several rental properties may wish to provide a column for Rent
Revenue Credit in the Cash Receipts Journal.

POSTING THE CASH RECEIPTS JOURNAL

The individual amounts in the Accounts Receivable Credit column are posted immediately
after journalizing to the subsidiary ledger in order to keep the customer account balances current. At
the end of the month, all the amount columns are added and ruled as shown in the illustration
above. The equality of the debits and credits is taken by adding all the debit columns and all the
credit columns as follows:

Debit Totals Credit Totals

Sales discount P 288 Sundry accounts P 10,072
Cash 54,715 Sales 28,461
Accounts Receivable 16,470
P 55,003 P 55,003

The totals of the Cash Debit, Sales Discount Debit, Accounts Receivable Credit, and Sales
Credit columns are posted at the end of the month to their respective general ledger accounts. Their
account numbers are also inserted below the totals to indicate that the posting has been completed.

Since the amounts appearing in the Sundry Account Credit column will normally pertain to
different accounts, the column total is not posted and a check mark in parentheses (  ) is placed
immediately below the column total. Each item under the Sundry Account Credit column is posted
individually and the account number is written in the Posting Reference column of the Cash
Receipts Journal.

RECORDING SALES RETURNS AND ALLOWANCES

A sales return or allowance is a reduction in sales revenue and a reduction in accounts

receivable. If the sales account is debited, the balance of the account at the end of the period will
represent net sales, and will not disclose the volume of returns and allowances. Because of the loss
in revenue resulting from allowances, the various expenses (transportation, unpacking, repairing,
etc.) related to returns, it is advisable to inform the management of the magnitude of such
transactions. It is therefore preferable to debit an account entitles Sales Returns and Allowances.
The remainder of the transaction is credited to Accounts Receivable account in the general ledger
and the customer’s account in the Accounts Receivable subsidiary ledger.

Assume that the Friendly Variety Store issued a credit memorandum to Jugo & Company.
The entry in the general journal is as follows:

General Journal Page 1

Date Post
2006 Description Ref. Debit Credit
Jan 14 Sales Returns and Allowances 412 330
Accounts Receivable – Jugo & Company 112/  330
Issued Credit Memorandum No. 1

In each transaction involving sales returns, both the controlling account and the customer’s
account are posted to the General Ledger and to the Subsidiary Ledger. Hence, a diagonal line is
placed in the posting reference column at the time the entry is recorded in the General Journal.
When the credit is posted to the customer’s account, a check mark is placed to the right of the
diagonal line. The number of the accounts receivable account is entered at the left after posting to
that account in the general ledger.
The subsidiary ledger accounts and the accounts receivable control account show the
postings from the sales, the cash receipts journal, and the general journal of the Friendly Variety
Store in the illustration that follows.

Accounts Receivable Subsidiary Ledger

Jugo & Company

Date Post
2006 Items Ref. Debit Credit Balance
Jan 1 Balance  4,800
5 CR1 4,800 -
10 S1 7,380 7,380
14 G1 330 7,050
25 CR1 7,050 -

Ramos Company
Date Post
2006 Items Ref. Debit Credit Balance
Jan 1 Balance  2,550
9 CR1 2,550 -
10 S1 3,198 3,198

Sanchez Company
Date Post
2006 Items Ref. Debit Credit Balance
Jan 1 Balance  2,070
3 S1 2,550 4,620
12 CR1 2,070 2,550

Vera & Sons

Date Post
2006 Items Ref. Debit Credit Balance
Jan 8 Balance S1 4,500 4,500
25 S1 4,080 8,580

General Ledger
Accounts Receivable Acct. No. 112
Date Post Balance
2006 Items Ref. Debit Credit Debit Credit
Jan 1 Balance  9,420
3 S1 21,708 31,128
1
3 CR1 16,470 14,658
1
1 G1 330 14,328
4

SCHEDULE OF ACCOUNTS RECEIVABLE

A schedule of accounts receivable is prepared at the end of the month ti ensure that the
total of the balances in the subsidiary ledger account agrees with the control account. This schedule
is merely a listing of open account balances. An example of this schedule for the Friendly Variety
Store follows:

FRIENDLY VARIETY STORE

Schedule of Accounts Receivable
January 31, 2006

Ramos Company P 3,198

Sanchez Corporation 2,550
Vera & Sons 8,580
Total P 14,328

THE PURCHASES JOURNAL

A merchandising business may purchase a wide variety of assets. The property, frequently
purchased on account by a trading concern, includes merchandise for resale to customers, supplies
used in conducting the business, and plant assets. The Purchases Journal; is designed to
accommodate the recording of everything purchased on account. The number and the purpose of
the special columns provided in the journal depend upon the nature of the business and the
frequency of purchases of the various assets.

For each transaction recorded in the Purchases Journal, the credit is entered in the Accounts
Payable Credit column. The Purchase Debit column is for merchandise bought for resale. The
purpose of Store Supplies Debit and Office Supplies Debit columns is readily apparent. The Sundry
Account Debit column is used to record purchases on accounts of items not provided for in the
special debit columns. The title of the particular account is entered in the Account Title Column and
the amount of the debit is recorded in the Amount column. The number of the account is written in
the Posting Reference column at the time of posting.

The Purchases Journal Friendly Variety Store is illustrated on the following page.

POSTING THE PURCHASES JOURNAL

At frequent intervals, usually daily, the amount in the Accounts Payable Credit column is
posted. After each posting, a check mark is placed in the Posting Reference column of the
Purchases Journal. The posting to Bong Bongcac account in the Accounts Payable Ledger is
illustrated as follows:

Bong Bongcac
Date Post
2006 Items Ref. Debit Credit Balance
Ja 2 P1 6,720 6,720
n

As each item is posted to the creditor’s account, the source of the entry is recorded in the
posting reference column of the account by writing the letter “P” and the page number of the
Purchases Journal

At the end of each month, the Purchases Journal is totaled and ruled in the manner
illustrated. The equality of the debits and the credits is determined similar to the following:

Debit Totals Credit Totals

Purchases P 16,080 Accounts Payable P 28,491
Store Supplies 165
Office Supplies 96
Sundry Accounts 12,150
Total P 28,491 P 28,491

The total of the Accounts Payable Credit column is posted to the Accounts Payable account
in the General Ledger and posting reference is indicated below the column total. The totals of the
Purchases Debit, Store Supplies Debit, and Office Supplies Debit columns are posted similarly.
Each individual accounts in the Sundry Debit section is posted to the appropriate account in the
General Ledger and the account number is written on the Posting Reference column at the left of
the amount. The total of this column is not posted; hence, a check mark is placed below the total to
indicate that there is no action required.

CASH DISBURSEMENTS JOURNAL

All transactions involving payments of cash for various purposes are recorded in the Cash
Disbursements or Cash Payments Journal. Such transactions include purchases of merchandise and
other items for cash, payment of expenses, payment to creditors on account, cash withdrawal by the
owner, etc. all these transactions are credited to Cash; hence it is necessary to have a Cash Credit
column. Payments to creditors on account are sufficiently frequent to require columns for Accounts
Payable Debit and Purchase Discounts Credit. If payment for one or more specific operating
expenses were sufficiently numerous, other special columns are added to the journal.

To have an acceptable level of control over cash disbursements, most companies pay all
bills by check. Therefore, the Cash Disbursements Journal contains a column in which to record the
number of the check written for each disbursement.

CASH DISBURSEMENTS JOURNAL Page 1

Sundry Purchase
Date Chec Pos Account Accounts Discount
Accounts Debited
2006 k t s Payable s Cash
No. Ref. Debit Debit Credit Credit
Ja 1 5931 Rent Expense 712 1,350 1,350
n
5 5932 Misc. Selling Expense 619 390 390
5 5933 Mongalo Mfg. Co.  9,300 186 9,114
1 5934 Mallari & Co.  2,430 2,430
0
1 5935 Punsalan Furn. Store  4,350 4,350
1
1 5936 Bong Bongcac  6,450 129 6,321
5
1 5937 Purchases 511 1,785 1,785
5
1 5938 Misc. General Expense 719 549 549
8
2 5939 Advertising Expense 612 990 990
2
2 5940 Evalle Supply Co.  4,950 4,950
6
 2 5941 E. Estrada, Drawing 312 2,175 2,175
9
3 5942 Sales Salaries 611 2,700
0
Office Salaries 711 900 3,600
3 5943 Transportation -in 514 279
1
Equipment 121 96 375
11,214 27,480 315 38,379
( ) (211) (512) (111)

POSTING THE CASH DISBURSEMENTS JOURNAL

At frequent intervals during the month, the amounts entered in the Accounts Payable Debit
column are posted to the creditors account in the Accounts Payable Subsidiary Ledger. The source
of the entries is indicated by inserting “CD” and the appropriate journal page number in the posting
reference column of the accounts. A check mark is placed in the posting reference column of the
Cash Payments Journal to indicate that the amounts have been posted. The items in the Sundry
Accounts Debit column are also posted to the appropriate accounts in the General Ledger at
frequent intervals. Posting is indicated by writing the account numbers ion the posting reference
column of the Cash Disbursements Journal.

At the end of the month, the Cash Disbursements Journal is ruled, and the totals of cash
money column are taken. The equality of the debits and the credits are determined as follows:

Debit Totals Credit Totals

Sundry Accounts P 11,214 Purchase Discounts P 315
Accounts Payable 27,480 Cash 38,379
P 38,694 P 38,694

A check mark is placed below the total of the Sundry Accounts Debit column to indicate
that it is not posted. Each of the totals of the other three columns is posted to a General ledger
account, and the appropriate posting reference is written below the column totals.

RECORDING PURCHASES RETURNS AND ALLOWANCES

When the buyer returns merchandise and other commodities purchased on account or
request a price adjustment, he usually communicates with the seller in writing. The debtor may state
the details in a letter or he may use his own debit memorandum. Remember, when the seller issues
the memorandum, he calls it a credit memorandum, since the seller will credit the customer’s
account (Accounts Receivable). When it is the buyer who issues the memorandum, he calls it a
debit memorandum, since the buyer will debit the creditor’s account (Accounts Payable).
 In recording Purchase returns, both the creditor’s account and the controlling account must
be debited, and the account of the commodity originally purchased must be credited. Thus, if the
return relates to Office Equipment, the amount of the reduction is credited to Office Equipment. If
the reduction is in the cost of merchandise purchased for resale, Purchases is credited. If
management wishes to know both the total amount of merchandise purchased and the total amount
of the merchandise returned, a separate account entitled Purchase Returns and Allowances is
credited.

On January 5, the Friendly Variety Store received a credit memorandum from Bong
Bongcac for merchandise returned. The entry is recorded in a two column journal as follows:

General Journal Page 1

Date Post
2006 Description Ref. Debit Credit
Jan 5 Accounts Payable – Bong Bongcac 211/  270
Purchase Returns and Allowances 512 270
Received credit memorandum for
merchandise retuned

Note that the debit to the Accounts Payable account is posted in the general ledger and also
to the creditor’s account in the subsidiary ledger. The necessity for posting this item to two different
accounts is indicated by placing the diagonal line in the posting reference column when the
transaction is recorded. The account number (211) and the check mark are written after the
respective accounts are posted.

The Accounts Payable Ledger and the Accounts Payable control account appear as follows
after posting the purchases, cash disbursements, and the general journals.

Accounts Payable Subsidiary Ledger

Bong Bongcac
Date Post
2006 Items Ref. Debit Credit Balance
Ja 2 P1 6,720 6,720
n
5 G1 270 6,450
15 CD1 6,450 -

Evalle Supply Co.

Date Post
2006 Items Ref. Debit Credit Balance
Ja 3 P1 4,950 4,950
n
 22 P1 210 5,160
26 CD1 4,950 210

Mallari & Company

Date Post
2006 Items Ref. Debit Credit Balance
Ja 1 Balance  2,430
n
10 CD1 2,430 -
17 P1 6,480 6,480

Mongalo Manufacturing Co.

Date Post
2006 Items Ref. Debit Credit Balance
Ja 1 Balance  9,300
n
5 CD1 9,300 -
24 P1 2,931 2,931

Punsalan Furniture Store

Date Post
2006 Items Ref. Debit Credit Balance
Ja 2 P1 6,720 6,720
n
5 G1 270 6,450
15 CD1 6,450 -