So, you want to learn
Bookkeeping!
Special Journals
by Bean Counter's Dave Marshall

Lesson 1
General Ledger, Control Accounts,
Subsidiary Ledgers & Special Journals


Introduction Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6
Bean Counter
Hopefully by now you know, the General Ledger is a special record where each account that we want to track and keep up with has a separate page or pages. This book (record) is organized into major sections just like the Accounting Equation that we studied in my Introductory Course. Do you have any idea what these sections might be ? Come on this question is not that hard. The general ledger's major sections are Assets, Liabilities, Owner's Equity, Revenues, Expenses, and Draws. Simply stated a General Ledger is just a book containing the summarized financial transactions and balances of the accounts for all of a business's assets, liabilities, equity, revenue, and expense accounts.

Navigation in this lesson. All underlined text or text highlighted in yellow provide a link to additional information or demonstrate how posting actually works. A return link to your original place is an underlined or a yellow highlighted link at your new destination.

Our Special Journals

Special Journals were briefly discussed in the Introduction to this tutorial. In this Lesson, we're going learn more about what they are and how they're used.

Special journals are nothing more than journals designed and used for recording a single type of transaction such as receiving cash or writing checks. What makes them special ? Simply that they only record certain types of transactions.

How do I know which special journal to use ? It's easy. The definition of the special journal tells you exactly what type of transaction should be recorded in what journal.

Let's use an easy illustration that we are all familiar with, a kitchen drawer, to make my point clear. In the drawer is one of those fancy plastic dividers that is used to store your eating utensils. Your rules and definitions for storing your eating utensils are:

  • Bin 1 Knives
  • Bin 2 Forks
  • Bin 3 Spoons

After washing and drying your eating utensils you pick up a spoon. Based on your rules and definitions what bin are you going to put it in ? I know I'm insulting your intelligence. Of course it goes in Bin 3.

It's not any different than how you determine what Special Journal to use when you record a transaction. The definition and rules of the special journal tell you in what journal the transaction should be recorded in.

Remember my steps for analyzing and recording a transaction ?

Bean Counter's seven simple steps (RUDUUDD) to analyze and record our transactions:

  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-the type of transaction 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 when necessary 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.

Let's look at Step 6
Determine what Journal should be used to record the transaction.

How do we do this ? All we have to do, based on our definitions, is determine what bin (Special Journal) to put our forks, knives, and spoons (type of transaction) in.

First let's review the Definitions for the Special Journals.

The General Journal is the record 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.

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.

Let's make a simple chart for five of the major Special Journals that tells us what type of transactions are recorded in these special journals.

  • Sales/Revenue Journal
    • Type of Transaction Recorded:
    • Product Sales/Fees billed to customers who we have granted credit (charge sales)
  • Cash Receipts Journal
    • Types of Transactions Recorded:
    • Cash product sales / fees
    • Cash collected on customer accounts
    • Any other receipt (source) of cash
  • Purchases Journal
    • Type of Transactions Recorded:
    • Purchase of any expense on account
    • Purchase of supplies on account
    • Purchase of equipment on account
    • Purchase of any other asset on account
  • Cash Payments Journal
    • Types of Transactions Recorded:
    • Cash paid for expenses
    • Cash payments to our suppliers on account or cash purchases
    • Cash purchase of supplies
    • Any other cash payment
  • Payroll Journal
    • Type of Transaction Recorded:
    • Cash payments to employees for salary & wages

See, it's really quite easy to determine what journal to use to record business transactions. A little common sense goes a long way.

Remember it's your business and you could if you had a special need design your own special journal. If you wanted to know how much cash you received from customers in different states without doing a special analysis you could set up special cash receipts journals for all 50 states. But in this day and age a computer with good bookkeeping software would provide you with this and many more types of customer analyses.

What Journal Do I Use ?

Want to make determining what journal to use even easier ? I knew you'd say yes and make me work harder. The following table is set up to guide you to the proper journal by answering some simple questions.

1.Did you receive cash ?
YES Record transaction in Cash Receipts Journal
  NO Answer question 2
2.Did you write a check ?
YES-a check was written Answer Question 2.(a)
    2.(a) Did you pay an employee for salary or wages earned ?  
    YES Record transaction in Payroll Journal
      NO Record transaction in Cash Disbursements Journal
  NO-a check was not written Answer Question 3.
3.Did you bill a product or service to a customer and grant credit (on account) ?
YES Record transaction in Sales Journal
  NO Answer question 4
4.Did you incur an expense or purchase supplies, inventory, or an asset and the supplier granted you credit (on account) ?
YES Record transaction in Purchases Journal
  NO Looks Like the you need to record the entry in the General Journal

All the Special Journals summarize the daily business transactions and feed their summarized information to the appropriate accounts in the General Ledger.

All repetitive types of transactions are normally grouped together and recorded in their appropriate Special Journal, namely Cash Receipts, Cash Disbursements, Payroll, Purchases, Sales, etc. We used the General Journal in prior lessons as a learning tool to demonstrate what a journal is and what purpose it serves. From now on we'll be using the appropriate Special Journal for initially recording all our business transactions. This lesson is just an overview of Special Journals, but don't fret, all the details regarding each Special Journal will be thoroughly discussed in later lessons.

We've also been posting each individual entry in the General Journal to the General Ledger. In the "real" business world mostly summarized total amounts are actually posted to the General Ledger.

Special General Ledger Accounts-Control Accounts

A Control Account is a general ledger account that provides a summarized balance of the detailed balances of the individual records maintained in a subsidiary ledger. Subsidiary Ledgers provide the detail information about what makes up the balance in the control account. Two of the most common Control Accounts are Accounts Receivable and Accounts Payable. After posting all transactions the balance of the Control Account and the sum of the detailed records in the Subsidiary Ledger should always be the same. In other words, a control account deals with summarized information while a subsidiary ledger deals with detailed information.

Sample of a General Ledger Control Account- Accounts Receivable Control

Account Name:Accounts Receivable Control Account Number:150
Date Description Post Ref. Debit Credit Balance
Jan 1 Beg Bal.       45000
Jan 31   SJ-1 15000   60000
Jan 31   CR-1   10000 50000
Feb 28   SJ-2 17000   67000
Feb 28   CR-2   19000 48000
Mar 31   SJ-3 20000   68000
Mar 31   CR-3   25000 43000

Take a good look at our sample General Ledger Account Accounts Receivable Control. Only two entries one a debit and the other a credit have been recorded for the months of January, February, and March. One entry recorded the increase and had a SJ posting reference and the other recorded the decrease in the account and had a CR posting reference. What do you think the abbreviations-SJ and CR- stand for ? Of course, SJ stands for Sales Journal and CR stands for Cash Receipts Journal. The amounts posted were calculated by summing the amounts of all the entries made in the Sales Journal and Cash Receipts Journal for each month and posting one total amount.

Let's take a look at our two yellow highlighted Posting References. What do they tell us ? Where we got the information from. The SJ-1 means the information came from the Sales Journal and the number 1 means the months Summary Totals. The 1 stands for January. If we were posting February the reference number would be SJ-2. Click on the yellow highlighted SJ-1 above to see where the entry came from ? To return click on the yellow highlighted SJ-1 again.

What about the yellow highlighted CR-1 ? The same logic applies. The CR means the Cash Receipts Journal and the 1 stands for the months Summary Totals. In this case, January. Click on the yellow highlighted CR-1 above to see where the entry came from ? To return click on the yellow highlighted CR-1 again.

We also need to introduce some new tools to aid us in maintaining the type of information we need to properly run our business. Besides the General Ledger there are some other records that we use to provide additional information about some of our "Special Accounts" that are normally called Control Accounts in the General Ledger. These special records are called Subsidiary Ledgers. The Subsidiary Ledger's purpose is to provide detail information about transactions that are summarized in a General Ledger Control Account. As you can easily see from our sample Accounts Receivable Control account the only information it provides us is the total amount that is owed to us.

  • Without Subsidiary Ledgers it would be difficult without doing a time consuming analysis to provide answers to some of the following types of questions:
  • How much does ABC Company owe us and are any invoices past due ?
  • Every customer that owes us money and how much ?
  • What type of specific equipment and vehicles do we own and how much have we depreciated them ?
  • How much do we owe XYZ Supplier and are we late with any payments ?
  • Every supplier we owe and how much ?
  • What loans do we have, how much do we still owe on them, and with whom do we have them ?
  • If we maintain an Inventory of products in our business, how many of XXX product do we have on hand and what is its cost and selling price ?
  • How much have we paid Joe Blow this year ?

Can your business easily provide the answers to the above questions ?

What are some of the Subsidiary Ledgers a business uses ?

Two of the main subsidiary ledgers that have quite a few transactions are the Accounts Receivable and Accounts Payable Subsidiary Ledgers. These Subsidiary Ledgers keep up with the details on the amounts that customers owe the business and amounts the business owes to suppliers. Do you have any idea what makes up this detail information ? Let's bring our common sense into play. What type of documents would we use to determine what amounts our customers owe us ? No you don't need to be a rocket scientist to give me the correct answer. How about how much we billed our customers (invoices) and how much they've paid us (customer checks/payments).

That wasn't that tough was it ? Let's see if you were paying attention. What type of documents would we use to determine what amounts we owe to our suppliers ? Simple, how much we were billed (invoices) by our suppliers and how much we have paid them (our checks/payments).

In a nutshell, those are the documents that we use to maintain our Accounts receivable and Accounts Payable Subsidiary Ledgers.

What other detailed information do we need to keep up with that would require a Special Control Account and Subsidiary Ledger ?

Other Control Accounts & Subsidiary Ledgers

Control Account(s) Subsidiary Ledger
Plant Equipment,Vehicles, Office Equipment Detailed "Equipment" Records for each piece of "equipment"
Inventory Detailed Item/Product Record for each item/product
Notes & Loans Owed To Others Detailed Loan Record for each loan we owe
Notes & Loans Owed To Us Detailed Loan Record for each loan owed to us

No big deal. All they do is keep up with the detailed information about a Control Account. In other words, what makes up the balance of the Control Account.

Since we introduced some new tools (records), we'll modify our flow of information chart to include our special journals and subsidiary ledgers.

Modified Flow of Information with Emphasis on Special Journals and Subsidiary Ledgers Shown

Source Documents

provides the initial data about business transactions. Checks, Invoices to Customers, and Invoices from Suppliers are some common examples of source documents.

Special Journals
Cash Receipts, Cash Disbursements, Sales
Purchases, Payroll, General Journal, etc.

use the information from the source documents to create a chronological listing of all business transactions and detailed information about each transaction.

General Ledger

uses the summarized information transferred from the journal(s) to summarize the data into individual accounts.

Subsidiary Ledgers

uses the detailed information transferred from the journal(s) to provide detailed information about special accounts called Control Accounts.

Trial Balance

uses the information from the General Ledger to summarize the data to use for preparing the Financial Statements.

Financial Statements

uses the summarized data contained in the Trial Balance to prepare the business's financial reports .

It's one thing to discuss and talk about these special journals and control accounts but it really helps to actually see them in action. Below I have provided simple examples of the sales and cash receipts special journals and have illustrated how to use them for recording and summarizing business transactions in the control account Accounts Receivable. The detailed sales and cash receipts (collections) for XYZ Cleaning are shown for the month of January, xxxx.

Our Sales Invoice/Ticket

XYZ Cleaning
Some Street
Some City, Some State, Some Zip
Invoice Number:5050
Date:January 4, xxxx
Sold To:
Big Bob's Office Supply
501 Anywhere St
Anywhere City, Anywhere State
Sold By:Head Knocker Terms:Net 30
Qty Description Price Amount
4 Monthly Cleaning Fee 250 1000
       
  POSTED    
       
       
  Total   1000

Where do you think we record this document that represents a Sales Transaction ? You probably have a pretty good idea of one place, the Sales Journal. Click on the yellow highlighted Invoice Number to see if you're right. Click on the yellow highlighted 5050 (invoice number) to return. Are we done with this document ? No, we need to also record the invoice in our Accounts Receivable (Customer) Subsidiary Ledger. Click on the yellow highlighted POSTED to see the posting to our Customers Account in our Accounts Receivable Subsidiary Ledger. Click on the yellow highlighted 5050 (invoice number) to return. Don't get excited, I'll explain more about this Special Record-Subsidiary Ledger later in this lesson.

Special Journal Sales/Accounts Receivable

This journal is used to initially record all our billings (invoices) to customers that have an open account with us. In other words, all our customers that we don't require to pay us up front or at the time of the sale.

The Sales Journal has these basic features:

  • Header with the Name of the Journal and Page
  • Entry Number used as a reference to a specific transaction on the journal's page
  • Date Column to record the date of the transaction
  • Description Column to record the Customer's name or account and any other explanation or additional information about the transaction
  • Reference Column to record our sales invoice numbers
  • Posting Reference to provide information when a Subsidiary Ledger also needs to be updated. This tells us whether the Subsidiary Accounts Receivable Ledger has also been posted (updated).
  • Debit and Credit Column to record the amount of the transaction
    Why is there only one debit/credit amount column ? The reason is that every sales invoice represents a debit to Accounts Receivable-150 for the amount of the invoice and a credit to Sales-400 for the same amount. Since the amount is always the same we only need the one amount column. Could you use two ? Remember the design of your journals is not set in concrete. If two columns makes it easier for you to understand use two.

Sales Journal Page 1
Entry No. Date Customer Account
Name/Description
Invoice Number Post Ref. Debit-Accounts Receivable-150
Credit-Sales-400
1 Jan 4, xxxx Big Bob's Office Supply 5050 X 1000
2 Jan 10,xxxx Honest Bob's Used Cars 5051 X 4000
3 Jan 18, xxxx Super Flic Movies 5052 X 5000
4 Jan 25, xxxx Shaggy Dog Vet 5053 X 3000
5 Jan 30, xxxx Greasy Spoon 5054 X 2000
           
SJ-1 Jan 31, xxxx Totals for Month   150/400 15000
        (X)/(X)  

Clicking on the yellow highlighted invoice number 5050 will take you to the source document for this transaction (entry). To return click on the yellow highlighted invoice number 5050. Is there any other place we need to post this invoice ? There sure is, that X in the Posting Reference Column tells us that we also posted Invoice # 5050 to the Accounts Receivable Subsidiary Ledger for Big Bob's Office Supply.

Clicking on the yellow highlighted X illustrates that invoice number 5051 was posted in the Sales Journal and also posted to the Accounts Receivable Subsidiary Ledger for Honest Bob's Used Cars. To return click on the yellow highlighted SJ-1-2.

Clicking on the yellow highlighted SJ-1 illustrates that the monthly total for January was posted to the General Ledger Accounts Receivable Control Account-150. To return click on the yellow highlighted SJ-1.

Can you tell me what other General Ledger Account needs to be posted for the month of January that we didn't illustrate in our example ? How about that 400 Account in the Posting Reference Column ? That's right the General Ledger Sales Account also needs the January total from the Sales Journal to be posted.

It should be obvious, but I'll state it anyway. All customer invoices are recorded (posted) in the Sales Journal and the Customer's Account Receivable Subsidiary Ledger. At the end of a period (month), the totals from the Sales Journal are also recorded (posted) in the General Ledger Accounts.

Sales Journal (with Two Amount Columns) Page 1
Entry No. Date Customer Account
Name/Description
Invoice Number Post Ref. Debit
Accounts Receivable-150
Credit
Sales-400
1 Jan 4, xxxx Big Bob's Office Supply 5050 X 1000 1000
2 Jan 10,xxxx Honest Bob's Used Cars 5051 X 4000 4000
3 Jan 18, xxxx Super Flic Movies 5052 X 5000 5000
4 Jan 25, xxxx Shaggy Dog Vet 5053 X 3000 3000
5 Jan 30, xxxx Greasy Spoon 5054 X 2000 2000
             
SJ-1 Jan 31, xxxx Totals for Month     15000 15000
          (X) (X)

Just for fun let's organize the information from the special journal in a format that you're more familiar with and see if it rings any bells.

DESCRIPTION DEBIT CREDIT
Accounts Receivable-150 15,000  
    Sales-400   15,000
Record and post credit sales for Jan, xxxx to the General Ledger

Customer's Check

Honest Bob's Used Cars
502 Anywhere St
Anywhere City, Anywhere State xxxxx
Check Number:605
(Posted)
   
  Date:Jan 25, xxxxx
   
  Pay To The
Order Of XYZ Cleaning        $4000.00
  Four Thousand and no/100 ---------Dollars
SWNB
Some Where National Bank
 
   
   
   
  Honest Bob Signature
   
Special Routing Codes  

Our lucky day. Just as we were running a little low on cash we received this check from our customer Honest Bob. Of course we're going to make a deposit slip and deposit the check in our bank, but what records do we use to record this transaction ?

You probably have a pretty good idea of one place, the Cash Receipts Journal. Click on the yellow highlighted Check Number 605 to see if you're right. Click on the yellow highlighted Check Number 605 to return. Are we done with this document ? No, we need to also record the check in our Accounts Receivable (Customer) Subsidiary Ledger. Click on the yellow highlighted Posted to see the posting to our Customers Account in our Accounts Receivable Subsidiary Ledger. Click on the yellow highlighted Check Number 605 to return.

Special Journal Cash Receipts Journal

This journal is used to record all the cash that we receive. The biggest sources of cash for businesses result from cash sales and collections from customer's who we have set up on open account (allowed them credit).

Our Cash Receipts Journal has these basic features:

  • Header with the Name of the Journal and Page
  • Entry Number used as a reference to a specific transaction on the journal's page
  • Date Column to record the date of the transaction
  • Description Column to record the customer's name or account and any other explanation or additional information about the transaction
  • Posting Reference to provide information when a Subsidiary Ledger also needs to be updated. This tells us whether the Subsidiary Accounts Receivable Ledger has also been posted (updated).
  • Debit Column for our Cash and Credit Columns for our Accounts Receivable Control Account and Cash Sales.
  • Special Other Credits Column with its related Posting Reference and Amount Columns.
    We use these three columns to record any other transactions resulting from receiving cash. Some examples are collection of a Note Receivable or borrowing money from a bank (Note Payable). In other words, we use these columns for any transactions that don't have their own special credit column.

Cash Receipts Journal Page 1
Entry No. Date Customer Account/Name/Description Post Ref. A/R
Credit
Acct-150
Sales
Credit
Acct-400
Other Credits GL
Account
Post Ref. Amount
Credit
Cash Debit
Acct-100
1 Jan 15, xxxx All Other Customers X 6000         6000
2 Jan 25, xxxx Honest Bob's Used Cars-Check Number 605 X 4000         4000
                   
CR-1 Jan 31, xxxx Totals For Month   10000         10000
        (X)         (X)

Clicking on the yellow highlighted Check November 605 will take you to the source document for this transaction (entry). To return click on the yellow highlighted Check Number 605. Is there any other place we need to post this invoice ? There sure is, that X in the Posting Reference Column tells us that we also posted Check Number 605 to the Accounts Receivable Subsidiary Ledger for Honest Bob's Used Cars.

Clicking on the yellow highlighted X illustrates that check number 605 was posted in the Cash Receipts Journal and also posted to the Accounts Receivable Subsidiary Ledger for Honest Bob's Used Cars. To return click on the yellow highlighted CR-1-2.

Clicking on the yellow highlighted CR-1 illustrates that the monthly total for January was posted to the General Ledger Accounts Receivable Control Account-150. To return click on the yellow highlighted CR-1.

Can you tell me what other General Ledger Account needs to be posted for the month of January that we didn't illustrate in our example ? How about that 100 Account in the Posting Reference Column ? That's right the General Ledger Cash Account also needs the January total from the Cash Receipts Journal to be posted.

It should be obvious, but I'll state it anyway. All customer checks are recorded (posted) in the Cash Receipts Journal and the Customer's Account Receivable Subsidiary Ledger. At the end of a period (month), the totals from the Cash Receipts Journal are also recorded (posted) in the General Ledger Accounts.

Can you think of another column that would provide some additional useful information about the transaction ? How about a column that provided a reference number for our customer's check number or our receipt number. Earlier I told you that the journals can be customized to suit the needs of your business. All the journals that I illustrate are not set in concrete, use them as guides. Feel free to modify them and add any information to them that aids your business.

Modified Cash Receipts Journal (Added Column for Reference)

Entry No. Date Customer Account/Name/Description Post Ref. A/R
Credit
150
Sales
Credit
400
Other Credits Post Ref. Amount Cash Debit
100
Reference Number
2 Jan 25, xxxx Honest Bob's Used Cars X 4000         4000 605

Instead of the individual column for Reference Number you could use your description column as I did earlier to list the check and/or receipt number and even your invoices that were paid. Remember they're your journals and you can design them the way that you want.

Let's do what we did with the sales journal and see what the Journal Entry would look like.

DESCRIPTION DEBIT CREDIT
Cash-100 10,000  
    Accounts Receivable-150   10,000
Record and post cash collected for Jan, xxxx to the General Ledger

Subsidiary Accounts Receivable Ledger

Here's that "special book" that we use in order to keep up with how much each of our individual customer's owes us.

This "book" contains a detailed record for each of your customers. What information do you think you might want to keep up with about each of your customers ? Let's make a list of some information that you would include.

  • General Information
    • Customer's Name and/or Account Number
    • Phone Number
    • Billing Address
    • Shipping Address
    • Contact Person
    • Credit Limit
    • Credit Terms
  • Customer Financial Information
    • Each Invoice Billed to The Customer
    • Each Payment Received From The Customer
    • Total Balance Owed By Customer
    • Posting Reference-what journal the information was posted from
      Normally all the information posted will come from the Sales and Cash Receipts Journals. The abbreviations SJ stands for Sales Journal and CR stands for Cash Receipts Journal.

Our Accounts Receivable Subsidiary Ledger

Name:Big Bob's Office Supply
Address:501 Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 4, xxxx Invoice # 5050 SJ-1-1 1000   1000
Name:Honest Bob's Used Cars
Address:502 Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 10, xxxx Invoice # 5051 SJ-1-2 4000   4000
Jan 25, xxxx Check # 605 CR-1-2   4000 0
Name:Super Flic Movies
Address:503 Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 18, xxxx Invoice # 5052 SJ-1-3 5000   5000
Name:Shaggy Dog Vet
Address:504 Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 25, xxxx Invoice # 5053 SJ-1-4 3000   3000
Name:Greasy Spoon
Address:505 Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 30, xxxx Invoice # 5054 SJ-1-5 2000   2000
Name:All Our Other Customers
Address:xxx Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 1, xxxx Beginning Balances       45000
Jan 31, xxxx Customer's Check Numbers CR-Various   6000 39000

Clicking on the yellow highlighted Invoice # 5050 takes you to the source document for this transaction. Click On the yellow highlighted POSTED to return.

Clicking on the yellow highlighted SJ-1-2 takes you to the Sales Journal and illustrates that the transaction has also been recorded there. Click on the yellow highlighted X to return.

Clicking on the yellow highlighted Check Number 605 takes you to the source document for this transaction. Click on the yellow highlighted Posted to return.

Clicking on the yellow highlighted CR-1-2 takes you to the Cash Receipts Journal and illustrates that the transaction has also been recorded in the Cash Receipts Journal. Click on the yellow highlighted X to return.

  • What Wisdom should you pick up from the previous illustrations ?
  • How like and frequent transactions are grouped together and recorded in their own Special Journal.
  • How Control Accounts are used to record summarized amounts and how Subsidiary Ledgers are used with them to provide detailed information about the Control Account.
  • How source documents such as invoices are "stamped" or noted as posted in order to determine if a transaction has been recorded in all the proper records and aid in preventing posting or recording the transaction twice.
  • How after posting your summarized transactions to the Control Accounts at the end of period that if you add up the balances owed in all your customer accounts as of the end of the period in the Accounts Receivable Subsidiary Ledger, the balance showed as due from customers in the Accounts Receivable Control Account should equal the total that you calculated by adding up all the customer account balances in the Subsidiary Ledger.

    I know you need proof.

    Listing Of Customer Balances from Accounts Receivable
    Subsidiary Ledger as of Jan 31, xxxx

    Big Bob's Office Supply 1000
    Honest Bob's Used Cars 0
    Super Flic Movies 5000
    Shaggy Dog Vet 3000
    Greasy Spoon 2000
    All Our Other Customers 39000
    Total Due From Customers 50000
       
    Accounts Receivable Control Account
    as of Jan 31, xxxx
    50000
  • How sometimes a source document is initially recorded (posted) in more than one bookkeeping record. Our sales invoices were recorded in the Sales Journal and our Customer's Account in the Accounts Receivable Subsidiary Ledger. The checks we received from our customers were recorded in our Cash Receipts Journal and our Customer's Account in the Accounts Receivable Subsidiary Ledger.
  • How accountants use the terminology account to not only refer to the asset, liability, equity, revenue, and expense accounts set up in our chart of accounts and general ledger, but also to refer to the individual records (customer account) maintained for customers in the Accounts Receivable Subsidiary Ledger.
  • How reference numbers are used in the General Ledger, Subsidiary Ledger and Special Journals to track the source of an entry.

Let's take a look at another Control Account-Accounts Payable, another Subsidiary Ledger-Accounts Payable Subsidiary Ledger, and the Purchases and Cash Disbursements Special Journals. The detailed purchases and cash disbursements (payments) for XYZ Cleaning are shown for the month of January, xxxx.

Sample of the General Ledger Control Account- Accounts Payable Control

Account Name:Accounts Payable Control Account Number:200
Date Description Post Ref. Debit Credit Balance
Jan 1 Beg Bal.       30000
Jan 31   CD-1 10000   20000
Jan 31   PJ-1   25000 45000
Feb 28   CD-2 15000   30000
Feb 28   PJ-2   18000 48000
Mar 31   CD-3 20000   28000
Mar 31   PJ-3   15000 43000

Take a good look at our sample General Ledger Account Accounts Payable Control. Only two entries one a debit and the other a credit have been recorded for the months of January, February, and March. One entry recorded the increase and had a PJ posting reference and the other recorded the decrease in the account and had a CD posting reference. What do you think the abbreviations-PJ and CD- stand for ? Of course, PJ stands for Purchase Journal and CD stands for Cash Disbursements Journal. The amounts posted were calculated by summing the amounts of all the entries made in the Purchase Journal and Cash Disbursements Journal for each month and posting one total amount.

Let's take a look at our two yellow highlighted Posting References. What do they tell us ? Where we got the information from. The CD-1 means the information came from the Cash Disbursements Journal and the number 1 means the months Summary Totals. The 1 stands for January. If we were posting February the reference number would be CD-2. Click on the yellow highlighted CD-1 above to see where the entry came from ? To return click on the yellow highlighted CD-1 again.

What about the yellow highlighted PJ-1 ? The same logic applies. The PJ means the Purchases Journal and the 1 stands for the months Summary Totals. In this case, January. Click on the yellow highlighted PJ-1 above to see where the entry came from ? To return click on the yellow highlighted PJ-1 again.

Supplier's Invoice

Shabby Computer Systems
501 Anywhere St
Anywhere City, Anywhere State
Invoice Number:10050
Date:January 11, xxxx
Sold To:
XYZ Cleaning
Some Street
Some City, Some State, Some Zip
Sold By:Clumsy Clerk Terms:Net 30
Qty Description Price Amount
1 Computer & Monitor 1000 1000
       
  POSTED    
       
  Paid Check Number:7050    
       
  Total   1000

Where do you think we record this document that represents a Purchase Transaction ? You probably have a pretty good idea of one place, the Purchases Journal. Click on the yellow highlighted Invoice Number to see if you're right. Click on the yellow highlighted 10050 (invoice number) to return. Are we done with this document ? No, we need to also record the invoice in our Accounts Payable (Supplier) Subsidiary Ledger. Click on the yellow highlighted POSTED to see the posting to our Supplier's Account in our Accounts Payable Subsidiary Ledger. Click on the yellow highlighted 10050 (invoice number) to return.

Special Journal Purchases/Accounts Payable

This journal is used to initially record all our invoices from suppliers that have an open account with us. In other words, all our suppliers that we don't require us to pay up front or at the time of the purchase.

The Purchase Journal has these basic features:

  • Header with the Name of the Journal and Page
  • Entry Number used as a reference to a specific transaction on the journal's page
  • Date Column to record the date of the transaction
  • Description Column to record the name of the payee/supplier (who written to), and any other explanation or additional information about the transaction
  • Invoice Number Reference Column to record our supplier's invoice number
  • Posting Reference to provide information when a Subsidiary Ledger also needs to be updated. This tells us whether the Subsidiary Accounts Payable Ledger has also been posted (updated).
  • Debit Columns for all regularly occurring types of expenses or expenditures and a Credit Column for our Accounts Payable Control Account
  • Special Other Debits Column with its related Posting Reference Column
    We use these three columns to record debits for any transactions that don't have their own debit account special column.
Purchase Journal Page 1
Entry No. Date Supplier Account
Name
Invoice Number Post Ref. Accounts Payable
Credit
Acct-200

Cleaning Supp
Debit
Acct-501
Adv
Debit
Acct-502
Utilities
Debit
Acct-506
Other-GL
Accounts
Debit
Post Ref Amount
1 Jan 11, xxxx Shabby Computer Systems 10050 X 1000       Office Equip 175 (X) 1000
2 Jan 13,xxxx Spic & Span Supplies A-1435 X 15000 15000          
3 Jan 18, xxxx Keep The Lights On 9876-1 X 5000     5000      
4 Jan 25, xxxx Make You Known 1006 X 3000   3000        
5 Jan 30, xxxx Sputter Fuel 15095 X 1000       Vehicle Exp 512 (X) 1000
                       
PJ-1 Jan 31, xxxx Totals for Month     25000 15000 3000 5000     2000
          (X) (X) (X) (X)      

Clicking on the yellow highlighted invoice number 10050 will take you to the source document for this transaction (entry). To return click on the yellow highlighted invoice number 10050. Is there any other place we need to post this invoice ? There sure is, that X in the Posting Reference Column tells us that we also posted Invoice # 10050 to the Accounts Payable Subsidiary Ledger for Shabby Computer Systems.

Clicking on the yellow highlighted X illustrates that supplier invoice number 10050 was posted in the Purchase Journal and also posted to the Accounts Payable Subsidiary Ledger for Shabby Computer System. To return click on the yellow highlighted PJ-1-1.

Clicking on the yellow highlighted PJ-1 illustrates that the monthly total for January was posted to the General Ledger Accounts Payable Control Account-200. To return click on the yellow highlighted PJ-1.

Can you tell me what other General Ledger Accounts needs to be posted for the month of January that we didn't illustrate in our example ?

  • How about the following expenses:
  • Cleaning Supplies-501
  • Advertising-502
  • Utilities-506
  • Vehicle Operation Expense-512
What about Office Equipment ? Yes it also needs to be posted to the General Ledger but not as an expense. It is posted to the asset account Office Equipment-175.

How do I know that they've been posted to the General Ledger ? That (X) denotes that the entry has been posted.

It should be obvious, but I'll state it anyway. All supplier invoices are recorded (posted) in the Purchase Journal and the Supplier's Account Payable Subsidiary Ledger. At the end of a period (month), the totals from the Purchase Journal are also recorded (posted) in the General Ledger Accounts.

I guess you might have a pretty good idea of what we're going to do now. Yep, your right. We're going to see what a journal entry would look like.

DESCRIPTION DEBIT CREDIT
Cleaning Supplies-501 15,000  
Advertising-502 3,000  
Utilities-506 5,000  
Office equipment-175 1,000  
Vehicle Expense-512 15,000  
    Accounts Payable-200   25,000
Record and post credit purchases, expenditures, and expenses for Jan, xxxx to the General Ledger

Our (XYZ Cleaning) Check

XYZ Cleaning
Some Street
Some City, Some State, Some Zip
Check Number:7050
(Posted)
  Date:Jan 25, xxxxx 

Pay To The
Order Of Shabby Computer Systems        $1000.00

  One Thousand and no/100 ---------Dollars
SWNB
Some Where National Bank
 
   
   
   
  Head Knocker Signature
   
Special Routing Codes  

Where do we record this supplier's check ? You probably have a pretty good idea of one place, the Cash Disbursements Journal. Click on the yellow highlighted Check Number 7050 to see if you're right. Click on the yellow highlighted Check Number 7050 to return. Are we done with this document ? No, we need to also record the check in our Accounts Payable (Supplier) Subsidiary Ledger. Click on the yellow highlighted Posted to see the posting to our Suppliers Account in our Accounts Payable Subsidiary Ledger. Click on the yellow highlighted Check Number 7050 to return.

Special Journal Cash Disbursements Journal

This journal is used to record all the cash that we spend. All our checks. Normally most of the checks are written to suppliers paying them for invoices that we have already recorded in our Purchase Journal. In other words, our supplier let us make the purchase and allowed us some time before we had to pay for our purchase.

The Cash Disbursements Journal has these basic features:

  • Header with the Name of the Journal and Page
  • Entry Number used as a reference to a specific transaction on the journal's page
  • Date Column to record the date of the transaction
  • Description Column to record the name of the payee/supplier (who written to), and any other explanation or additional information about the transaction
  • Posting Reference to provide information when a Subsidiary Ledger also needs to be updated. This tells us whether the Subsidiary Accounts Payable Ledger has also been posted (updated).
  • Debit Columns for all regularly occurring types of expenses or expenditures and for our Accounts Payable Control Account and a Credit Column for Cash.
  • Special Other Debits Column with its related Posting Reference and Amount Columns.

Cash Disbursements Journal Page 1
Entry No. Date Supplier Account
Name/Description
Post Ref. A/P
Debit
Acct-200
Cleaning Supp
Debit
Acct-501
Adv
Debit
Acct-502
Other GL
Accounts
Debit
Post Ref. Amount
Debit
Cash
Credit
Acct-100
Check
Number
1 Jan 15, xxxx All Other Suppliers X 9000           9000 Various
2 Jan 25, xxxx Shabby Computer Systems X 1000           1000 7050
                       
CD-1 Jan 31, xxxx Totals For Month   10000           10000  
        (X)           (X)  

Clicking on the yellow highlighted Check November 7050 will take you to the source document for this transaction (entry). To return click on the yellow highlighted Check Number 7050. Is there any other place we need to post this invoice ? There sure is, that X in the Posting Reference Column tells us that we also posted Check Number 7050 to the Accounts Payable Subsidiary Ledger for Shabby Computer Systems.

Clicking on the yellow highlighted X illustrates that check number 7050 was posted in the Cash Disbursements Journal and also posted to the Accounts Payable Subsidiary Ledger for Shabby Computer Systems. To return click on the yellow highlighted CD-1-2.

Clicking on the yellow highlighted CD-1 illustrates that the monthly total for January was posted to the General Ledger Accounts Payable Control Account-200. To return click on the yellow highlighted CD-1.

Can you tell me what other General Ledger Account needs to be posted for the month of January that we didn't illustrate in our example ? How about that 100 Account in the Posting Reference Column ? That's right the General Ledger Cash Account also needs the January total from the Cash Disbursements Journal to be posted.

It should be obvious, but I'll state it anyway. All our checks written to suppliers are recorded (posted) in the Cash Disbursements Journal and the Supplier's Account Payable Subsidiary Ledger. At the end of a period (month), the totals from the Cash Disbursements Journal are also recorded (posted) in the General Ledger Accounts.

One more time let's organize the information from the special journal in a format that you're more familiar with.

DESCRIPTION DEBIT CREDIT
Accounts Payable-200 10,000  
    Cash-100   10,000
Record and post cash disbursements for Jan, xxxx to the General Ledger

Subsidiary Accounts Payable Ledger

Here's another "special book" that we use in order to keep up with how much we owe to each of our individual suppliers.

This "book" contains a detailed record for each of your suppliers. What information do you think you might want to keep up with about each of your suppliers ? Let's make a list of some information that you would include.

  • General Information
    • Supplier's Name and/or Account Number
    • Phone Number
    • Address
    • Contact Person
    • Credit Limit
    • Credit Terms
  • Supplier Financial Information
    • Each Invoice Billed By The Supplier
    • Each Payment (Check) Sent To The Supplier
    • Total Balance Owed To Supplier
    • Posting Reference-what journal the information was posted from
      Normally all the information posted will come from the Purchases and Cash Disbursements Journals. The abbreviations PJ stands for Purchase Journal and CD stands for Cash Disbursements Journal.
Let's look at the Posting Reference for Shabby Computer Systems and explain exactly what PJ-1-1 means. Of course you now know the PJ stands for the Purchase Journal but what about those numbers. Do they mean something too ? You bet ya ! The first number 1 references the Page Number of the Purchase Journal and the second number 1 references the Entry Number (line number) on the page of the Purchase Journal for the entry.

What do you think the CD-1-2 stands for ? Of course the CD stands for the Cash Disbursements Journal, the first number 1 stands for the Page Number and the second number 2 stands for the Entry Number (line number).

It's really simple, all the Posting Reference does is tells us where we got our information from.

Click on the PJ-1-1 highlighted in yellow for Shabby Computer Systems to see where the first entry came from. Click on the X highlighted in yellow to return here.

Click on the CD-1-2 highlighted in yellow for Shabby Computer Systems to see where the second entry came from. Click on the X highlighted in yellow to return here.

Our Accounts Payable Subsidiary Ledger

Name:Shabby Computer Systems
Address:1501 Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 11, xxxx Invoice # 10050 PJ-1-1   1000 1000
Jan 25, xxxx Check # 7050 CD-1-2 1000   0
Name:Spic & Span Supplies
Address:1502 Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 13, xxxx Invoice # A-1435 PJ-1-2   15000 15000
Name:Keep The Lights On
Address:1503 Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 18, xxxx Invoice # 9876-1 PJ-1-3   5000 5000
Name:Make You Known
Address:1504 Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 25, xxxx Invoice # 1006 PJ-1-4   3000 3000
Name:Sputter Fuel
Address:1505 Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 30, xxxx Invoice # 15095 PJ-1-5   1000 1000
Name:All Our Other Suppliers
Address:xxx Anywhere St, Anywhere City, Anywhere State
Date Item Post Ref. Debit Credit Balance
Jan 1, xxxx Beginning Balances       30000
Jan 31, xxxx Our XYZ Cleaning Various Check Numbers CD-Various 9000   21000

Clicking on the yellow highlighted Invoice # 10050 takes you to the source document for this transaction. Click On the yellow highlighted POSTED to return.

Clicking on the yellow highlighted PJ-1-1 takes you to the Purchase Journal and illustrates that the transaction has also been recorded there. Click on the yellow highlighted X to return.

Clicking on the yellow highlighted Check Number # 7050 takes you to the source document for this transaction. Click On the yellow highlighted Posted to return.

Clicking on the yellow highlighted CD-1-2 takes you to the Cash Disbursements Journal and illustrates that the transaction has also been recorded in the Cash Disbursements Journal. Click on the yellow highlighted X to return.

  • What Wisdom should you pick up from the the previous illustrations ? Basically the same knowledge that we discussed and learned in an earlier example. Let's list the points again.
  • How like and frequent transactions are grouped together and recorded in their own Special Journal.
  • How Control Accounts are used to record summarized amounts and how Subsidiary Ledgers are used with them to provide detailed information about the Control Account.
  • How source documents such as invoices are "stamped" or noted as posted or paid in order to determine if a transaction has been recorded in all the proper records and aid in preventing posting or recording or paying the transaction twice.
  • How after posting your summarized transactions to the Control Accounts at the end of period that if you add up the balances owed in all your supplier accounts as of the end of the period in the Accounts Payable Subsidiary Ledger, the balance showed as owed to suppliers in the Accounts Payable Control Account should equal the total that you calculated by adding up all the supplier account balances in the Subsidiary Ledger.

    I know you need proof.

    Listing Of Supplier Balances from Accounts Payable
    Subsidiary Ledger as of Jan 31, xxxx

    Shabby Computer Systems 0
    Spic & Span Supplies 15000
    Keep The Lights On 5000
    Make You Known 3000
    Sputter Fuel 1000
    All Our Other Suppliers 21000
    Total Owed To Suppliers 45000
       
    Accounts Payable Control Account
    as of Jan 31, xxxx
    45000
  • How sometimes a source document is initially recorded (posted) in more than one bookkeeping record. Our supplier invoices were recorded in the Purchases Journal and our Supplier's Account in the Accounts Payable Subsidiary Ledger. The checks we wrote to pay our suppliers were recorded in our Cash Disbursements Journal and our Supplier's Account in the Accounts Payable Subsidiary Ledger.
  • How accountants use the terminology account to not only refer to the asset, liability, equity, revenue, and expense accounts set up in our chart of accounts and general ledger, but also to refer to the individual records (customer account) maintained for customers in the Accounts Receivable Subsidiary Ledger.
  • How reference numbers are used in the General Ledger, Subsidiary Ledger and Special Journals to track the source of an entry.

I don't know if you realize it or not, but we discussed and used four of the Special Journals in this lesson.

  • Cash Receipts Journal
  • Cash Disbursements Journal
  • Sales Journal
  • Purchase Journal
We also discussed and used two Subsidiary Ledgers.
  • Accounts Receivable Subsidiary Ledger used in conjunction with the the General Ledger Accounts Receivable Control Account.
  • Accounts Payable Subsidiary Ledger used in conjunction with the the General Ledger Accounts Payable Control Account.

OK, I know you're going to sum it up. Well that's what accountants do isn't it ? If I did my job, what should you have learned ?

  • In the "real world", the General Journal is not used to initially record all our financial transactions.
  • The purpose of Special Journals, what they are, and how they're used.
  • How to determine what Special Journal to use to record the different types of business transactions.
  • What Control Accounts and Subsidiary Ledgers are and how they're used.
    The general ledger account Accounts Receivable Control includes only total or summary amounts. Since additional detail information about this account is needed, a subsidiary ledger is created that provides this detailed information. Detailed information maintained in this Subsidiary Journal includes:
    • Customer Name and Address
    • Current Balance Owed
    • Amounts Billed-Invoice Numbers and Amounts
    • Amounts Paid-Check Numbers/Credit Card/etc.

    Also note that every transaction that affects the General Ledger Accounts Receivable Control Account, must be posted both to the Accounts Receivable account in the general ledger and to the individual customer's account in the Accounts Receivable Subsidiary Ledger.

    Likewise, since the General Ledger Accounts Payable Control Account only contains summary information an Accounts Payable Subsidiary Ledger is used to record and maintain detail information about suppliers. Detailed information maintained in this Subsidiary Journal includes:

    • Supplier Name and Address
    • Current Balance Owed
    • Amounts Billed-Invoice Numbers and Amounts
    • Amounts Paid-Check Numbers/Credit Card/etc.

    Every transaction that affects the General Ledger Accounts Payable Control Account, must be posted both to the Accounts Payable account in the general ledger and to the individual supplier's account in the Accounts Payable Subsidiary Ledger.

  • The flow of information through a bookkeeping system from source documents such as checks and invoices, to the Special Journals, Subsidiary Ledgers, and finally ending up summarized in our General Ledger.
I sure hope my lessons aren't driving you to drink. Shoot, I did all the work for you with those "yellow links". If they are, please drink in moderation. You need to save all the brain cells you can for our future lessons.

Hopefully, this lesson has provided a broad overview of Special Journals, the General Ledger, Control Accounts, and Subsidiary Ledgers. Don't get excited if all the pieces haven't come together yet. Later lessons are going to provide you with additional detailed discussions and illustrations. See ya in the next lesson , hopefully, without a hangover.

What no quiz ? Nope, I just want you to digest some of the information presented in this lesson. I also thought you deserved a break.

<--BACK        NEXT-->
Introduction Lesson 1 Lesson 2 Lesson 3 Lesson 4 Lesson 5 Lesson 6
Bean Counter