In the Bookkeeping Part 1 course, we looked at the Books of Prime Entry listed below:
|Books of Prime Entry||Type of transaction recorded|
|Sales Day Book||Sales on credit terms|
|Sales Returns Day Book||Sales returns|
|Purchases Day Book||Purchases on credit terms|
|Purchases Returns Day Book||Purchases returns|
|Discounts Allowed Day Book||Prompt payment discounts taken by credit customers|
|Discounts Received Day Book||Prompt payment discounts taken from credit suppliers|
|Cash Book||Receipts and payments of money|
|Petty Cash Book||Receipts and payments of petty cash|
Whilst the above books can be used to record the vast majority of financial transactions, they cannot record them all. For example, let’s say the owner of a grocery store has taken some of the business’ stock for his own use. No cash was received by the business for these goods and no invoice was issued to the owner. The transaction will not therefore be recorded in either the Sales Day Book or Cash Book but it still had a financial effect on the business which must still be recorded.
When a financial transaction cannot be recorded in any of the other books of prime entry it will be recorded in the Journal. The separate transactions made in the Journal are (unfortunately!) called journals. Each journal will include the following elements:
- The date the journal was written
- The names of the ledger accounts in which the entries will be made in the ledgers
- The monetary amounts to be recorded in these ledger accounts and whether these amounts will be recorded in the debit or credit side of the accounts
- An explanation of why the journal has been recorded
The entries in the journal will then be posted to the General Ledger accounts and then to the Sales Ledger or to the Purchases Ledger if the transaction affects the amounts owed by customers or owed to to suppliers.
The postings from the above example would be recorded in the General Ledger Accounts as shown below:
As this journal includes an entry in the Purchases Ledger Control Account it will also be recorded in the appropriate supplier account in the Purchases Ledger as shown below.
In the rest of this section we will look at how journals are prepared to record certain types of transactions.