Chapter 4 - Special Journals

 Having understand the various elements of financial statements as well as double entry , lets go on to the next topic : - Special Journals 

There are 4 types of Special Journals namely: -

1. Purchase Journal;  

2. Purchase Return Journal; 

3. Sales Journal ; & 

4. Sales Return Journal 

Purchase Journal & Purchase Return Journal

An example of a Purchase Journal, contains all the individual Credit purchases: - 

Example of Purchase Journal 

Example of Purchase return Journal 

At the end a periodic period, which may be 5 days or 10 days, the account staff will post the amounts in the purchase journal and purchase return journal to the ledger : - namely the Inventory and Trade Payable ledger as per following: - 

Ps: recall where inventory and trade payable belongs to which part of financial statement, is it debit or credit in nature?

Inventory A/c (Extract) 

Trade Payable A/c (Extract)

What happen if we dont have special journal- purchase journal ?

Inventory a/c without special journal totals 

• Does it look more cluttered and messy? If your finance manager wants to know nett puchases from Supplier A, is the inventory acc (w/o Special journal) or the Purchase journal + Purchase return journal easier to retrieve? 

Ans: The Purchase journal + Purchase return journal

Lets move on to the other type of special journal:- namely the Sales Journal and Sales Return journal.

Sales Journal & Sales Return Journal

The Sales and Sales return journal are used to record sales to customer on credit and Sales returns. It is a compilations of all credit sales & credit sales returns.

Transactions are recorded using source document ---> Sales invoice or Credit Notes

  

Example of Sales Journal 

Example of Sales Returns Journal - let say both Strawberry & Blueberry returns $100 worth of goods: -

Similar to purchase journal, the posting to the Sales Revenue and Trade Debtor ledger which are part of the General ledger will be done periodically , 5 or 10 days once: -

Ps: recall where Sales revenue and trade debtor belongs to which part of financial statement, is it debit or credit in nature?

Sales Revenue acc (Extract) 

Trade debtor Acc (Extract)

What happen if we dont have special journal- Sales journal ?

This is how our Sales revenue acc will looks like: - 

• Does it look more cluttered and messy? If your finance manager wants to know nett Sales revenue from Strawberry, is the Sale revenue acc above (w/o Special journal) or the Sales journal + Sales return journal easier to retrieve? 

Ans: The Sales journal + Sales  return journal

There are a few reasons why we need to have these special journals: -

1. Ease of retrieve of information- for E.g. when we want to know the current outstanding amount owed to Supplier A, we just need to refer to the purchase journal and find Supplier A amount;

2. The periodical posting to Ledger instead of every single purchase/sales/returns to ledger will avoid overcrowding of the General ledger, this makes the preparation of financial statement easier;

3. Segregation of duties - instead of 1 staff to handle the ledger such as sales revenue/purchases/return, having the special journal allows allocation of staff to handle the Sales revenue + Trade debtor ledger and another staff to handle the Stock/inventory + Trade Payable ledger. This will increase productivity and avoid confusion. 

** Remenber to exclude any trade discount when posting to ledger from special journals!

Test your understanding - Question

 Squid Ltd purchases goods on credit from 001 Pte Ltd, A trade discount of 10% is given by 001 Pte Ltd to Squid Ltd out of goodwill the following transactions occured in the month of Jun 2021: -

2021

June 1 Purchase Goods at list price of $1,000. An invoice for carriage inward amounting to $100 was               separately received

        12 Returned damage goods purchased on 1st June with a list price of $500

        31 Made a partial payment of $150 by cheque

Required

(I) Prepare the account of 001 Pte Ltd in Squid Ltd's ledger for the month of Jun 2021, showing the balance on 1 July 2021. The outstanding amount owed to 001 Pte Ltd on 31 May 2021 was $1500.

(II) Why does a business needs to maintain a separate Sales & Purchase ledger when it has already have a general ledger?

    

Answer for 1(II)

1. When a business has numerous credit suppliers & credit customers, their individual trade payable and receivables account are kept separately in the sales and purchases ledger. 

2. This is to prevent flooding of the general ledger and thereafter ease of preparation for financial statements/retrieve of information regarding particular trade debtor or creditor.  

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