Accounting

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Accounting Financial Analysis 1Lecture
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• Specialised journals
• General journal

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Journals

• All information relating to the transactions of a
  company are processed through journals into the
  general ledger.
• There are two types of journals
• Specialist journals (Subsidiary books, day books)
• General journal

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What is a specialist journal?

• Limited function nowadays, due to modern computer
  accounting systems
• A chronological summary of similar transactions
  that occur regularly, recorded in a day book with
  the column totals summarised and posted to the
  general ledger at the end of a specified period
  usually 1 month.

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7 Specialist Journals

• There are seven specialist journal books
• Sales journal (Day book which records all the
  credit sales)
• Sales returns journal (Day book which records
  credit sale returns)
• Purchases journal (Day book which records credit
  purchases of stock)
• Purchase returns journal (Day book which records
  the returns of stock purchased on credit)
• Cash receipts journal (Day book which records all
  cash receipts)
• Cash payments journal (Day book which records all
  cash payments)
• Petty cash journal (Day book which records all
  petty cash payments and the receipt of
  replenishment)

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General Journal

• The general journal is the subsidiary book in
  which we record the details of any transaction
  that cannot be recorded in any other subsidiary
  book. (Specialist journals)

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General Journal - 2

• It has the following characteristics
• Provides a record of details in date order
• Indicates the general ledger accounts to be
  debited or credited.
• Indicates the amount to be processed to each
  general ledger account.
• Gives the reason for the transaction being
  processed.

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General Journal - 3

• The general journal is generally used to process
  transactions/activities that are not recorded in
  any of the specialised journals.

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General Journal - 4

• These transactions generally relate to the
  following activities
• Start-up business entries
• Correction of posting errors
• End of month entries depreciation charge, bank
  interest charges, provision for bad debts, bad
  debts write-off etc.
• Accrual of expenses
• Adjustments for prepayments
• Purchase of fixed assets on credit
• Adjustment entries on sale of assets
• Contra entries, inter-account transfers

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JOURNALS ARE BOOKS

• Each journal is a separate ledger book with
  analysis columns (up to 25 columns, each column
  for a separate account with the last column for
  any uncommonly used accounts). The first column
  is for the total value of the transaction.

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JOURNAL EXAMPLES

• Sales (Credit Sales/Trade Debtors)
• Sales returns (Credit Sales returns)
• Purchases (Credit Purchases/Trade Creditors
• Purchases returns (Credit Purchase returns)
• Cash receipts
• Cash payments
• Petty cash
• General journal.

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Credit terms

• Credit terms is the agreement made with the
  customers which specifies the time in which the
  account has to be paid, and sometimes
• the discount allowed if the account is paid
  earlier.
• Every business tries to collect the money owing
  as quickly as possible as this will help the
  business cash flow.
• In order to get the trade debtors (accounts
  receivable) to pay their account quicker a
  discount may be offered for quick settlement.
• The discount could be 3 if paid within 10 days,
  if not, the full amount within 30 days.
• The discount will be documented as follows Terms
  3/10, net 30.

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Credit terms - 2

• For accounting purposes
• Discount allowed Debit entry
• Discount received Credit entry

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The sales returns journal see attachment 1

• The sales returns journal is the subsidiary day
  book which records all the RETURNED CREDIT SALES
  (of trading stock) that have taken place during
  the month.
• At the end of the month the columns are totalled
  (added up) and ONLY the total of each column is
  posted to the General Ledger.

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Example Sales returns journal
Date Description Credit.Note Value GST Total
5/7/07 Goods sold on credit returned by Tuan 15 40 4 44
12/7/07 Goods sold on credit returned by Barath 16 30 3 33

TOTAL 70 7 77
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Purchase journal see attachment 1

• The purchase journal is the subsidiary day book
  which records all the CREDIT PURCHASES (of
  trading stock) that have taken place each day
  during the month.
• At the end of the month the columns are totalled
  (added up) and ONLY the total of each column is
  posted to the General Ledger.
• Purchases of other items such as office computer
  is not recorded in the purchases journal only
  trading stock (for resale) purchased on credit is
  recorded in the purchases journal.

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Example Purchases journal
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The purchases returns journal see attachment 1

• The purchases returns journal is the subsidiary
  day book which records all the RETURNED CREDIT
  PURCHASES (of trading stock) that have taken
  place during the month.
• At the end of the month the columns are totalled
  (added up) and ONLY the total of each column is
  posted to the General Ledger.

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Example Purchases returns journal
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The Cash Payments and receipts journals see
attachment 2

• The cash journals (payments and receipts) are the
  journals into which we record all the cash
  transactions that take place during the month.
• All cash receipts are recorded in the CASH
  RECEIPTS JOURNAL and
• All cash payments are recorded in the CASH
  PAYMENTS JOURNAL.

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The cash payments journal

• A business will have various cash payments to
  record during the month, some of which will be
  the payment of wages, rent, telephone,
  electricity, purchase of goods for cash, payments
  to trade creditors, GST payments etc. etc.
• Each one of these payments will be recorded in
  the cash payments journal and
• at the end of each month the columns will be
  totalled (added up) and ONLY the total of each
  expense account will be posted to the General
  Ledger.
• The sundry column will be used to record all the
  payments for which there is no specific column.

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Example Cash Payments Journal
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Use of Cash Payments Journal

• Therefore if we want to confirm that an expense
  has been paid by the business we would have to
  refer to the Cash Payments Journal for detail of
  all payments.

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The cash receipts journal

• A business will have various cash receipts to
  record during the month, most of which will be
  receipts from
• trade debtors (accounts receivable), and
• cash sales,
• GST payments etc.
• Each one of these receipts will be recorded in
  the cash receipts journal and at the end of each
  month the columns will be totalled and ONLY the
  total of each receipt will be transferred to the
  General Ledger. The sundry column will be used to
  record all the receipts for which there is no
  specific column.

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The cash receipts journal

• Each one of these receipts will be recorded in
  the cash receipts journal and at the end of each
  month the columns will be totalled and ONLY the
  total of each receipt will be transferred to the
  General Ledger.
• The sundry column will be used to record all the
  receipts for which there is no specific column.

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Example Cash Receipts Journal
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Cash Receipts Journal -2

• Therefore if we want to confirm receipt of
  income we would have to refer to the Cash
  Receipts Journal for detail of all receipts.
• Example If a debtor (credit sales) claims to
  have paid an account we would have to check the
  Cash Receipts Journal to see if the payment is
  recorded.

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Have a go!

• CLASS EXERCISE 2
• At the back of your handouts