What is the type of transaction which recorded in special journals?

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Special Journals are all accounting journals in an organization except the general journal. All the transactions of similar transactions are recorded in an organized form that helps the company’s accountants and bookkeepers keep track of all different business activities properly.

There are different types, where some of the commonly used in accounting include the following:

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Source: Special Journal (wallstreetmojo.com)

#1 – Purchases Journal

Purchase JournalPurchase Journals, also known as Purchase Book or Purchase Daybook, are special journals which a Company uses to keep track of all the credit purchases. While Purchase Journal records credit transactions, a General Journal records cash purchases. read more records all the transactions related to the purchase of the goods on credit from the suppliers.

#2 – Purchases Returns & Allowances Journal

It records all the transactions related to the return of goods to the supplier, purchased on credit, or allowances received from the supplier.

#3 – Sales Journal

Sales JournalA sales journal is a type of journal that is used to keep track of a company's credit sale transactions and to maintain and manage the account receivable and inventory account.read more records all the transactions related to the sales of goods by the company to its customer on credit.

#4 – Sales Returns & Allowances Journal

It records all the transactions related to the return of goods back by the customers sold on credit and allowances given to the customers.

#5 – Cash Receipt Journal

Cash Receipt JournalThe cash receipts journal is that type of accounting journal which is only used to record all receipts of cash during an accounting period and works on the golden rule of accounting – debit what comes in and credits what goes out.read more records all the transactions in which the company receives cash, like transactions involving the sale of goods for cash, sale of the company’s assets for cash, and capital investment by the owner of the company in the form of cash, etc.

#6 – Cash Payment Journal

It records all the transactions involving the outflow of the cash from the company and includes the transactions such as cash paid to suppliers, cash paid for the expenses, etc.

Examples

There is a company A ltd which has a large scale business. It maintains the record in the special journals to keep the records organized and in better form. One of them is the sales journal, which the company uses to record all the transactions related to the sales of goods on a credit basis.

When the company sells the goods to its customer on a credit basis, there will be a debit to the account receivable account and a credit to the sales account. So, this transaction will be recorded in the sales journal by debiting the accounts receivable accountAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year. read more. When the company receives the payment against accounts receivable, the same will be recorded in the cash receipt journal. If there is any return from the customer, then the same will be recorded in the sales returns and the allowances journal.

Advantages

Some of the advantages are as follows:

All the accounting transactionsAccounting Transactions are business activities which have a direct monetary effect on the finances of a Company. For example, Apple representing nearly $200 billion in cash & cash equivalents in its balance sheet is an accounting transaction. read more of a similar nature will be recorded in that particular special journal. As they record all the related transactions in an organized form, this will help the accountants and the bookkeepers keep track of all the different business activities properly.
Generally, in large companies, each of the special journals is handled by separate persons, which makes the person specialized in that area, thereby increasing its efficiency of working and reducing the chances of errors in the bookkeeping.
Companies, where such journals are maintained internal controlInternal control in accounting refers to the process by which a company implements various rules, policies, or procedures to ensure the accuracy of accounting and finance information, safeguard the various assets of the business, promote accountability in the business, and prevent the occurrence of frauds in the company.read more, are better. With such division of the work, the employee’s conflict concerning their responsibilities decreases, and the quality of work increases.

Disadvantages

Some of the disadvantages are as follows:

Important Points

The different vital points are as follows:

Conclusion

They record the specific transaction of the company by categorizing them into different types or groups. This system helps the company maintain the accuracy of the transactions in an organized form. It can also be reviewed by the company later. In case the company does not use this journal. All the transactions would be recorded in the General journal only, and at the later stage, it would become difficult to look at the specific types and nature of transactions.

Recommended Articles

This article has been a guide to what is a special journal and its definition. Here we discuss the top 6 types of special journals in accounting, examples, advantages, & disadvantages. You can learn more about accounting & bookkeeping from the following articles –

The larger the business, the greater the likelihood that that business will have a large volume of transactions that need to be recorded in and processed by the company’s accounting information system. You’ve learned that each transaction is recorded in the general journal, which is a chronological listing of transactions. In other words, transactions are recorded into the general journal as they occur. 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. For example, assume customer John Smith charged an item for $100 on June 1. In the general journal, the company would record the following.

This journal entry would be followed by a journal entry for every other transaction the company had for the remainder of the period. Suppose, on June 27, Mr. Smith asked, “How much do I owe?” To answer this question, the company would need to review all of the pages of the general journal for nearly an entire month to find all of the sales transactions relating to Mr. Smith. And if Mr. Smith said, “I thought I paid part of that two weeks ago,” the company would have to go through the general journal to find all payment entries for Mr. Smith. Imagine if there were 1,000 similar credit sales transactions for the month, each one would be written in the general journal in a similar fashion, and all other transactions, such as the paying of bills, or the buying of inventory, would also be recorded, in chronological order, in the general journal. Thus, recording all transactions to the general journal makes it difficult to find the particular tidbits of information that are needed for one of our customers, Mr. Smith. The use of special journal and subsidiary ledgers can make the accounting information system more effective and allow for certain types of information to be obtained more easily.

Here is the information from the accounts payable subsidiary ledger:

What should the total be in the Accounts Payable Control Total?

Here is the information from the accounts receivable subsidiary ledger.

What should the total be in the Accounts Receivable Control Total?

Solution

Accounts Payable Control Total is: 1,362 + 4,468 + 8,167 = 13,997

Accounts Receivable Control Total is: 2,250 + 0 + 1,500 + 8,160 = 11,910

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. The relationship between the special journals, the general journal, and the general ledger can be seen in Figure 7.8.

Figure 7.8 Special and General. Transaction summaries form the special journals, and all transactions in the general journal are posted to the general ledger. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Most companies have four special journals, but there can be more depending on the business needs. The four main special journals are the sales journal, purchases journal, cash disbursements journal, and cash receipts journal. These special journals were designed because some journal entries occur repeatedly. For example, selling goods for cash is always a debit to Cash and a credit to Sales recorded in the cash receipts journal. Likewise, we would record a sale of goods on credit in the sales journal, as a debit to accounts receivable and a credit to sales. Companies using a perpetual inventory system also record a second entry for a sale with a debit to cost of goods sold and a credit to inventory. You can see sample entries in Figure 7.9.

Figure 7.9 Sales Journal. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Note there is a column to enter the date the transaction took place; a column to indicate the customer to whom the transaction pertains; an invoice number that should match the number on the invoice given (in paper or electronically) to the customer; a reference box that indicates the transaction has been posted to the customer’s account and can include something as simple as a check mark or a code that links the transaction to other journals and ledgers; and the last two columns that indicate the accounts and amounts debited and credited.

Purchases of inventory on credit would be recorded in the purchases journal (Figure 7.10) with a debit to Merchandise Inventory and a credit to Accounts Payable.

Figure 7.10 Purchases Journal. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Paying bills is recorded in the cash disbursements journal (Figure 7.11) and is always a debit to Accounts Payable (or another payable or expense) and a credit to Cash.

Figure 7.11 Cash Disbursements Journal. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

The receipt of cash from the sale of goods, as payment on accounts receivable or from other transactions, is recorded in a cash receipts journal (Figure 7.12) with a debit to cash and a credit to the source of the cash, whether that is from sales revenue, payment on an account receivable, or some other account.

Figure 7.12 Cash Receipts Journal. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Table 7.1 summarizes the typical transactions in the special journals previously illustrated.

Types and Purposes of Special Journals

Journal Name	Journal Purpose	Account(s) Debited	Account(s) Credited
Sales Journal	Sales on credit	Accounts Receivable, Cost of Goods Sold	Sales, Inventory
Purchases Journal	Purchases on credit	Inventory	Accounts Payable
Cash Disbursements Journal	Paying cash	Could be: Accounts Payable, or other accounts	Cash
Cash Receipts Journal	Receiving cash	Cash	Could be: Sales, Accounts Receivable, or other accounts
General Journal	Any transaction not covered previously; adjusting and closing entries	Could be: Depreciation Expense	Could be: Accumulated Depreciation

Table 7.1

How will you remember all of this? Remember, “Cash Is King,” so we consider cash transactions first. If you receive cash, regardless of the source of the transaction, and even if it is only a part of the transaction, it goes in the cash receipts journal. For example, if the company made a sale for $1,000 and the customer gave $300 in cash and promised to pay the remaining balance in the future, the entire transaction would go into the cash receipts journal, because some cash was received, even if it was only part of a transaction. You could not split this journal entry between two journals, because each transaction’s debits must equal the credits or else your journal totals will not balance at the end of the month. You might consider splitting this transaction into two separate transactions and considering it a cash sale for $300 and a sale on account for $700, but that would also be inappropriate. Although the balances in the general ledger accounts would technically be correct if you did that, this is not the right approach. Good internal control dictates that this is a single transaction, associated with one invoice number on a given date, and should be recorded in its entirety in a single journal, which in this case is the cash receipts journal. If any cash is received, even if it is only a part of the transaction, the entire transaction is entered in the cash receipts journal. For this example, the transaction entered in the cash receipts journal would have a debit to cash for $300, a debit to Accounts Receivable for $700, and a credit to Sales for $1,000.

If you pay cash (usually by writing a check), for any reason, even if it is only a part of the transaction, the entire transaction is recorded in the cash disbursements journal. For example, if the company purchased a building for $500,000 and gave a check for $100,000 as a down payment, the entire transaction would be recorded in the cash disbursements journal as a credit to cash for $100,000, a credit to mortgage payable for $400,000, and a debit to buildings for $500,000.

If the transaction does not involve cash, it will be recorded in one of the other special journals. If it is a credit sale (also known as a sale on account), it is recorded in the sales journal. If it is a credit purchase (also known as a purchase on account), it is recorded in the purchases journal. If it is none of the above, it is recorded in the general journal.

Let’s consider what Gearhead Outfitters’ accounting information system might look like. What information will company management find important? Likewise, what information might external users of Gearhead’s financial reports need? Do regulatory requirements dictate what Gearhead needs to track in its accounting system?

Gearhead will want to know its financial position, results of operations, and cash flows. Such data will help management make decisions about the company. Likewise, external users want this data (balance sheet, income statement, and statement of cash flows) to make decisions such as whether or not to extend credit to Gearhead.

To keep accurate records, company operations must be considered. For example, inventory is purchased, sales are made, customers are billed, cash is collected, employees work and need to be paid, and other expenses are incurred. All of these operations involve different recording processes. Inventory will require a purchases journal. Sales will require a sales journal, cash receipts journal, and accounts receivable subsidiary ledger (discussed later) journal. Payroll and other disbursements will require their own journals to accurately track transactions.

Such journals allow a company to record accounting information and generate financial statements. The data also provides management with the information needed to make sound business decisions. For example, subsidiary ledgers, such as the accounts receivable ledger, provide data about the aging and collectability of receivables. Thus, the proper design, implementation, and maintenance of the accounting information system are vital to a company’s sustainability.

What other questions can be answered through the analysis of information gathered by the accounting information system? Think in terms of the timing of inventory orders and cash flow needs. Is there nonfinancial information to extract from the accounting system? An accounting information system should provide the information needed for a business to meet its goals.

In addition to the four special journals, there are two special ledgers, the accounts receivable subsidiary ledger and the accounts payable subsidiary ledger. The accounts receivable subsidiary ledger gives details about each person who owes the company money, as shown in Figure 7.13. Each colored block represents an individual’s account and shows only the amount that person owes the company. Notice that the subsidiary ledger provides the date of the transaction and a reference column to link the transaction to the same information posted in one of the special journals (or general journal if special journals are not used)—this reference is usually a code that references the special journal such as SJ for the sales special journal, as well as the amounts owed in the debit column and the payments made in the credit column. The amounts owed by all of the individuals, as indicated in the subsidiary ledger, are added together to form the accounts receivable control total, and this should equal the Accounts Receivable balance reported in the general ledger as shown in Figure 7.14. Key points about the accounts receivable subsidiary ledger are:

Accounts Receivable in the general ledger is the total of all of the individual account totals that are listed in the accounts receivable subsidiary ledger.
All of the amounts owed to the company in the accounts receivable subsidiary ledger must equal the amounts in the accounts receivable general ledger account.

Figure 7.14 Accounts Receivable. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license)

Subsidiary ledgers have to balance and agree with the general ledger. Accountants using QuickBooks and other accounting systems may not have to perform this step, because in these systems the subsidiary ledger updates the general ledger automatically. However, a dishonest person might manipulate accounting records by recording a smaller amount of cash receipts in the control account than is recorded on the subsidiary ledger cards. The ethical accountant must be vigilant to ensure that the ledgers remain balanced and that proper internal controls are in place to ensure the soundness of the accounting system.

The accounts payable subsidiary ledger holds the details about all of the amounts a company owes to people and/or companies. In the accounts payable subsidiary ledger, each vendor (the person or company from whom you purchased inventory or other items) has an account that shows the details of all transactions. Similar to the accounts receivable subsidiary ledger, the purchases subsidiary journal indicates the date on which a transaction took place; a reference column used in the same manner as previously described for accounts receivable subsidiary ledgers; and finally, the subsidiary ledger shows the amount charged or the amount paid. Following are the transactions for ABC Inc. and XYZ Inc. The final balance indicated on each subsidiary purchases journal shows the amount the company owes ABC and XYZ.

If the two amounts are added together, the company owes $305 in total to the two companies. The $305 is the amount that will show in the Accounts Payable general ledger account.

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.

Solution