So, you want to learn
Bookkeeping!
Special Journals
by Bean Counter's Dave Marshall
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Introduction Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6
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Hello it's Dave again. For those of you that took my free So you want to learn Bookkeeping! Introductory Tutorial or any of my other bookkeeping tutorials we've already met. For those who haven't, I'm a graduate of the University of Tennessee (Go Vols) and a Bean Counter (accountant) with over 30 years of experience.
This tutorial assumes that you have a basic understanding of some accounting terminology , debits and credits, transaction analysis, and the general ledger and general journal. If not, please brush up and take my free So you want to learn Bookkeeping! Introductory Tutorial.

If not sure, take my quiz from my Introductory Course to see if you need to brush up before attempting this tutorial. No it's not bad, just 20 true and false questions. Go ahead and see how you do.
Bean Counter Quiz

This tutorial is geared to business owners, managers, and individuals who have not had any formal bookkeeping training or on the job experience and need or want to learn the basics of bookkeeping. In other words, this tutorial is for beginners (newbies) and is only an introduction into the world of accounting. They say a little knowledge is a dangerous thing. Well my goal is to make you dangerous.

Tutorial Navigation
A menu of all the lessons is presented at the top and bottom of all the lessons. A back and next arrow also allow you to go back to the prior lesson or on to the next lesson.

Assumptions
All lessons and examples in this tutorial are all based on the accrual method of accounting, the double entry method of bookkeeping, and the sole proprietor type of business organization.

What's Covered ?

This Introduction

  • Describes the different types of Special Journals and their Purpose
  • Reviews Transactions and Analysis
  • Presents a Detailed Transaction Analysis Example/Exercise

Lesson 1 General Ledger, Control Accounts, Subsidiary Ledgers & Special Journals reviews the General Ledger and explains and discusses Control Accounts, Special Journals, and Subsidiary Ledgers.

Lesson 2 General Journal discusses the purpose of the General Journal, what information is recorded, and provides examples and illustrations of the types of entries that are normally recorded in this journal. Closing Entries are also discussed and how and why closing entries are prepared and posted.

Lesson 3 Cash Disbursements (Payments) & Purchases Journals discusses the purpose of these journals, what information is recorded, and provides examples and illustrations of the types of entries that are normally recorded in these journals.

Lesson 4 Cash Receipts & Sales Journals discusses the purpose of these journals, what information is recorded, and provides examples and illustrations of the types of entries that are normally recorded in these journals.

Lesson 5 Sales & Purchase Return Journals discusses the purpose of these journals, what information is recorded, and provides examples and illustrations of the types of entries that are normally recorded in these journals.

Lesson 6 Review Of Major Concepts provides an overview and review of bookkeeping and some useful charts, tables, sample worksheets, and reminders to use in your day to day bookkeeping tasks.

Introduction

Definition and Descriptions of
Specialized Journals

Journal Definition
A Journal is an accounting record that is used to record the different types of transactions using various source documents. Source Documents are the original sources of information that provide documentation (proof) that a transaction has occurred such as sales invoices (tickets), invoices from suppliers, contracts, checks written and checks received , promissory notes, and various other types of business documents. These documents provide us with the information needed to record our financial transactions in our bookkeeping records. If you recall a transaction is any event or condition that must be recorded in the books of a business because of its effect on the financial condition of the business, such as buying and selling. A business deal or agreement.

Journals are often called or referred to as the books of original entry. The reason is that this is the first place that business transactions are formally recorded. Specialized Journals are journals used to initially record special types of transactions such as sales, cash disbursements, and cash receipts in their own journal. All these journals are designed to record special types of business transactions and post the totals accumulated in these journals to the General Ledger periodically (usually once a month).

You can think of a Journal as a Financial Diary.

The General Journal is used to record unusual or infrequent types of transactions. Type of entries normally made in the general journal are depreciation entries, correcting entries, and adjusting and closing entries.

The Cash Payments Journal is a special journal that is used to record all cash that is paid out by a business except for payroll. Columns are set up for types of transactions that occur frequently enough to warrant a separate column. Some examples are Accounts Payable (Payments on Purchases and Services Charged) and Cash Purchases.

The Cash Receipts Journal is a special journal that is used to record all receipts of cash. Columns are set up that indicate the sources of the cash. Two of the major sources of cash for a business are Cash Sales and Collections of Customer Charge Sales. These and other categories that have a lot of activity (transactions) have their own column.

The Sales Journal is a special journal where sales of services and merchandise made on account (business's customer is allowed to charge purchases) are recorded.

The Purchases Journal is a special journal that is used to record all purchases and various expenses and other charges from suppliers that a business has an open account with (supplier allows the business to charge purchases).

The Payroll Journal is a special journal that is used to record and summarize salaries and wages paid to employees and the deductions for taxes and other authorized employee withholding amounts. This introductory tutorial does not cover the payroll accounting process and records.

The Sales Return & Allowances Journal is a special journal that is used to record the returns and allowances of merchandise sold on account.

The Purchase Returns & Allowances Journal is a special journal that is used to record the returns and allowances of merchandise purchased on account.

Hybrid Journals
Basic Journals are provided as guides. Remember it's your business and you can design and customize your bookkeeping records any way you want to speed up the recording of your transactions and summarize your business financial activity . Even the IRS, with a few exceptions, allows you to maintain your "books" any way you want as long as they accurately reflect your income.

    Why Use Special Journals
  • Groups and records transactions of a like nature. A familiar example is recording all cash received by a business in one place.
  • Saves time with summary and less frequent postings to the General Ledger.
  • Allows a business to have different individuals responsible for different journals thereby increasing internal controls and allocating the record keeping workload.

Transaction Analysis
Before you can record any transaction you need to analyze the transaction and first determine if it affects the financial activities of the business. If it does, you then must determine what accounts are affected and then what Journal needs to be used to record the transaction. An example of a couple of business activities that many businesses track that are not initially recorded in the Journals are Purchase Orders and Sales Orders. They are formally entered in the Journals when the actual sale takes place or the business receives and is invoiced for the products that were ordered.

Transaction analysis is really a simple task that with experience a bookkeeper performs without even thinking about it. Let's break it down into Bean Counter's seven simple steps:

  1. Recognize that a transaction (event) has occurred and what source documents such as sales invoices (tickets), invoices from suppliers, contracts, checks written or checks received , provide documentation (proof) that a transaction has occurred.
  2. Understand how the transaction (event) affects the business and whether it needs to be recorded in the formal bookkeeping records.
  3. Determine what accounts are affected and whether the transaction increases or decreases the account balance.
  4. Use the business's Chart of Accounts to determine the account numbers that represent these accounts.
  5. Use the debit and credit rules to determine if the accounts are debited or credited.
  6. Determine what Journal should be used to record the transaction.
  7. Do It-Record the transaction.

Since Transaction Analysis actually begins the bookkeeping process, we're going to analyze some transactions and prepare journal entries before we begin our in depth study of the Special Journals. For this exercise we'll assume that all our transactions are recorded in the General Journal. In the next lesson you'll see why this is not the case in the real business world. In this excerpt, we'll also assume that you are Headnocker Bookkeeper for XYZ Cleaning , a sole proprietor janitorial service on the accrual basis of accounting, and that you have the responsibility of accurately recording the transactions that affect this business. The transactions are for the months of January and February xxxx.

Your First Step To Maintaining A Useful Set Of Books
   Creating Your Chart Of Accounts

You can create an account for anything you want to track or keep up with. By creating a good chart of accounts you can see where your money's going and coming from. If you lumped all your expenses into a miscellaneous account your books would balance but tell you very little about your business's financial activities. If you're like me, I want to know what I'm spending my money for. Take the time to prepare or have an accountant help you prepare a chart of account that fits the needs of your business.

Your Simplified Chart of Accounts for XYZ Cleaning and this exercise follows:

Asset Accounts-100-199

Cash In Bank-100
Accounts Receivable-125
Cleaning Equipment-150
Trucks & Vehicles-155
Office Equipment-175

Liability Accounts-200-299

Accounts Payable-200
Loans from Bank-250

Equity Accounts-300-399

Owner's Capital-300
Owner's Draws-350

Expense Accounts-500-599

Contract Labor-500
Cleaning Supplies-501
Advertising-502
Telephone-503
Professional Services (Me)-504
Office Supplies-505
Utilities-506
Entertainment-507
Insurance expense-508
Property tax expense-509
Rent-510
Maintenance & Repairs-511
Vehicles Operation-512

Revenue/Sale Accounts-400-499

Janitorial Service Revenue-400

 

Headknocker let's Analyze and Record some transactions.
Your mission Headknocker, should you choose to accept, is to properly analyze and record these transactions (events). This tape will self destruct in 10-9-8-............

In my Introductory Tutorial So you want to learn Bookkeeping, I held your hand while we were analyzing and recording transactions. Sorry Headknocker, this time I'm leaving you in the "office" by yourself.

Read through all of the transactions and give them some thought. If you feel ambitious get out a pencil and piece of paper and try recording the transactions.

If you decide on giving it a try use this format for your entries.

Account Name Account Number Debit Amount Credit Amount
Cleaning Equipment 150 2500  
Accounts Payable 200   2500

See there, I'm a nice guy. I did the first transaction for you. Remember each transaction will have a debit and credit amount. That ole double entry accounting rule.

At the end of the list of the following transactions click on the link In The Office By Myself to see what you know.

January xxxx Events

1.January 2, xxxx we receive invoice # 805 dated January 1, xxxx from Super Buffer Company in the amount of $2,500 for the purchase of 5 new buffer machines. We have an open account with Super Buffers that allows us to take up to 30 days to pay.

2. January 3, xxxx wrote our check # 2500 for $1000.00 to Slum Landlord Enterprises for January rent (we're just a little guy and can't afford a fancy complex).

3.January 5, xxxx we received a notice that our loan that we requested for $2,500 in order to have the funds available to pay for the buffers purchased from Super Buffer Company was approved. We also received our signed Note dated January 3, xxxx along with a copy of our deposit slip dated January 3, xxxx where the bank had deposited the funds to our checking account.

4.January 5, xxxx we billed our customer XXX Movie Theater $500.00 on our Invoice # 1050 dated January 5, xxxx for cleaning services we provided. We like the owners (they give us free tickets) so we have an open account set up for them that allows them 30 days to pay us.

5.January 6, xxxx we visited JJ's Office Supply and bought copy paper, pens & pencils, and ink cartridges. JJ gave us his bill, invoice # A765 dated January 6, xxxx for $125.00 and we wrote him our check, number 2501, for the total amount of the purchase.

6.January 7, xxxx we received an invoice from our smart accountant Bean Counter's Dave Marshall dated January 2, xxxx in the amount of $25.00 for 8 hours of consulting (cheap aren't I). His bills are due upon receipt. We think he's great so we immediately wrote him check # 2502 dated January 7, xxxx.
Note:I'm not really that cheap, but I am reasonable.

7.January 7, xxxx wrote check # 2503 for $200.00 to Jack Ofalltrades who occasionally helps us clean our customer's businesses.

8.January 8, xxxx received invoice # 89 from Cleaning Supplies Inc. dated January 7, xxxx in the amount of $300.00 for supplies we purchased. We have an open account with Cleaning Supplies that allows us 30 days to pay.

9.January 10, xxxx we billed Mel's Diner on our invoice # 1051 dated January 10, xxxx $200.00 for cleaning services we provided. Mel's food is not that great so his payment terms are due upon receipt. Mel has not yet sent us a check.

10.January 15, xxxx we received our telephone bill from Cheap Calls dated January 10, xxxx in the amount of $125.00 due in 10 days.

11.January 17, xxxx we received our monthly utility bill (electricity) from Shock Us dated January 12, xxxx in the amount of $250.00 due in 10 days.

12.January 20,xxxx visited our local newspaper Community Gossip and placed an ad to try to drum up some new customers. Wrote our check # 2504 in the amount of $50.00 dated January 20, xxxx and received receipt number # 1-20-505 from their representative.

13.January 25,xxxx Big Boss (our boss and owner) hands us a paid bill from our local fancy restaurant Yummy For The Tummy where he and hopefully his wife (maybe girl friend) enjoyed a wonderful dinner and drinks. On the bill he noted that he paid this bill with company check number #2505 for the amount of $500.00 dated January 24, xxxx. Based on the amount I hope they had a nice time !

14.January 28, xxxx we received a signed contract in the mail from Big Office Complex for us to provide monthly cleaning services to them at the rate of $2,0000 a month beginning in February, xxxx.

15.January 31, xxxx received our monthly statement dated January 28, xxxx from Got Gas in the amount of $700.00 for gasoline we purchased for our company vehicles during January. Payment terms are due in 10 days.

Now that you've had a chance to think about and review the above transactions, let's see how you did.

Click In The Office By Myself to find out.

How did you do being left in the office by yourself ? Hopefully, not too badly. If you did pretty well, congratulations.

It's best if you understand the reasoning and logic behind the debit and credit rules. If you are still having some problems there's nothing wrong with having a "cheat sheet" with the rules by your side while you're analyzing and recording business transactions. For a review of the reasoning and logic for the debit and credit rules see Lesson 3 Debits and Credits in my So, you want to learn Bookkeeping! - Introductory Tutorial.

In my So, you want to learn Bookkeeping! Introductory Tutorial I attempted to provide you with a solid foundation in the basic bookkeeping principles and rules so that you have a solid foundation that we can build on. Hopefully, if did my job, we're now ready to expand our knowledge of bookkeeping and learn about some other "tools" (Special Journals and Subsidiary Ledgers) that expedite and are necessary for recording business transactions.

I know you probably deserve a break, but before you go on break you've got one more simple task to do. Quick Quiz should show that a lot of bookkeeping is just using your God given common sense. Quick Quiz is just five multiple choice questions designed to show you how common sense combined with a little logic applies to bookkeeping.
Quick Quiz

I'm not a slave driver and we've covered quite a bit. Go ahead and take a break and relax a little before we continue with Lesson 1.

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Introduction Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6
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