SPECIAL JOURNAL
“Special Journal records one particular type of transaction that occurs frequently.” Advantages of using Special Journals:
1. It saves time in journalizing. 2. It saves time in posting.
3. It eliminates the detail from the general ledger. 4. It promotes division of labor.
5. It aids in management analysis.
“The special journals are designed to systematize the original recording of major recurring types of transactions.”
The special journals illustrated: • Sales Journal
• Cash Receipts Journal • Purchases Journal
• Cash Disbursement Journal
The following abbreviations are used for the five journals:
JOURNAL TRANSACTION ABBREVIATION
Sales Journal Merchandise sold on account. S
Cash Receipts Journal Cash receipts from all sources. CR
Purchase Journal Merchandise and other items purchased
on account P
Cash Disbursements Journal Cash payments for various purposes. CD
General Journal Any transaction that is not included in the special journals. G
CONTROL ACCOUNT AND SUBSIDIARY LEDGER
Control Account-an account in the general ledger that shows the total balance of all the subsidiary accounts related to it.
Subsidiary Ledger Account
-show the details supporting the related general ledger control account balance. These accounts are normally arranged alphabetically by the name of customers or
suppliers. The sum of the subsidiary accounts in a subsidiary ledger should agree with the balance in the related general ledger control account when the company prepares the financial statement.
Subsidiary Ledger
-group of related account showing the details of the balance of a general ledger control account. It is separated from the general ledger in order to relieve the general ledger of a mass of details and thereby shorten the general ledger trial balance. Also, having separate ledgers promotes a division of labor.
POSTING THE SALES JOURNAL
The individual amounts are posted daily to each individual customer’s account in the subsidiary ledger. The posting is done daily to show the amount currently due to the customer. As each individual amount is posted, a check mark is placed in the Posting Reference column to show that the item has been posted. At the end of the month, the total of the money column is posted in the general ledger as a debit to Accounts Receivable control account and as a credit to Sales Account.
Sales Journal Date
Inv.
No. Account Debited
Post Ref Acct. Rec. - Dr. Sales - Cr. 20x2 Jan. 3 815 Sanchez Corporation 2,550.00
8 816 Vera & Sons 4,550.00
1
0 817 Jugo & Company 7,380.00
2
3 818 Ramos Company 3,198.00
25 819 Vera & Sons 4.080.00 21,708.00 (112) (411)
The Accounts Receivable subsidiary ledger is presented below. It is customary to use three-column journal to display the current balance of the accounts at all times. Jugo & Company
Date Items Post
Ref.
Debit Credit Balance
20x2 Jan. 1 Balance 4,800 1 0 S1 7,380 12,180
Ramos Company
Date Items Post
Ref. Debit Credit Balance
20x2 Jan. 1 Balance 2,550 2 3 S1 3,198 5,748 Sanchez Corporation
Date Items Post
Ref.
Debit Credit Balance
20x2 Jan. 1 Balance 2,070 3 S1 2,550 4,620
Vera & Sons
Date Items Post
Ref.
Debit Credit Balance
20x2 Jan. 1 Balance S1 4,500 4,500 2 5 S1 4,080 8,580
The Accounts Receivable account and Sales Account are shown in the general ledger below. The illustration shows the four-column type of account. The four-column format has columns for debit, credit, debit balance, and credit balance. One advantage of this format is that the balance of account is shown after posting each item.
Accounts Receivable Acct. No. 112
Date Items Post
Ref. Debit Credit Debit CreditBalance 20x
2 Jan
1 Balance 9,420
Sales Acct. No. 411
Date Items Post
Ref. Debit Credit
Balance Debit Credit 20x2 Jan 31 S1 21, 708 21,708
After completing the posting of the account receivable, the Accounts Receivable control account is equal to the sum of the balances in the Accounts Receivable subsidiary ledger accounts. The subsidiary ledger accounts are not numbered, since their
composition is constantly changing, but are kept alphabetical order.
Some companies do not use formal sales journal for sales on account. Instead, they enter the amount of each sales invoice directly in the subsidiary ledger account of the customer. They arrange the sales invoices for a month in numerical order and fasten them together. At the end of the month, they total all of the sales invoices for the month and make an entry debiting the Accounts Receivable control account and Crediting Sales for the total amount. This procedure eliminates the need for separate recording of each credit sales in the sales journal.
RECORDING SALES RETURNS AND ALLOWANCES
A sales return or allowance is a reduction in sales revenue and a reduction in accounts receivable. If the sales account is debited, the balance of the account at the end of the period will represent net sales, and will not disclose the volume of returns and allowances.
Assume that the Friendly Variety Store issued a credit memorandum to Jugo & Company the entry in the general journal is as follows:
General Journal Page 1
Date Description Post Ref. Debi t Credi t 20X 2 Jan . 1
4 Sales Returns and Allowances 412 330
Accounts Receivable – Jugo & Company 112/√ 330 Issued Credit Memorandum No.1.
In each transaction involving sales returns, both the controlling account and the customer’s account are posted to the General Ledger and to the Subsidiary Ledger.
Accounts Receivable Subsidiary Ledger Jugo & Company
Date Items
Post
Ref. Debit Credit Balance 20X2 Jan. 1 Balance 4,800 5 CR1 4,800 -10 S1 7,380 7,380 14 G1 330 7,050 25 CR1 7,050 -Ramos Company Date Items Post
Ref. Debit Credit Balance 20X2 Jan. 1 Balance 2,550 9 CR1 2,550 -10 S1 3,198 3,198 Sanchez Corporation Date Items Post
Ref. Debit Credit Balance 20X2
Jan. 1 Balance 2,070
3 S1 2,550 4,620
12 CR1 2,070 2,550
Vera & Sons
Date Items PostRef. Debit Credit Balance
20X2
Jan. 8 S1 4,500 4,500
General Ledger
Accounts Receivable Acct. No. 112
Date Items PostRef. .Debit Credit DebitBalanceCredit
20X 2 Jan. 1 Balance 9,420 3 1 S1 21,708 31,12 8 3 1 CR1 16,470 14,65 8 1 4 G1 330 14,32 8
SCHEDULE OF ACCOUNTS RECEIVABLE
A schedule of accounts receivable is prepared at the end of the month to ensure that the total of the balances in the subsidiary ledger account agrees with the control account.
FRIENDLY VARIETY STORE Schedule of Accounts Receivable
January 31, 20X2
Ramos Company P 3,198 Sanchez Corporation 2,550
Vera & Sons 8,580 .
Total P 14,328
A merchandising business may purchase a wide variety of assets. The property, frequently purchased on account by a trading concern, includes merchandise for resale to customers, supplies used in conducting the business, and plant assets. The Purchases Journal is designed to accommodate the recording of everything purchased on account. The number and the purpose of the special columns provided in the journal depend upon the nature of the business and the frequency of purchases of the various assets.
Posting the Purchases Journal
Bong Bongcac
Date Items Post Ref. Debit Credit Balance
20x2
Jan. 2 P1 6,720 6,720
The equality of the debits and the credit
Debit Totals Purchases P 16, 080 Store Supplies 165 Office Supplies 96 Sundry Accounts 12, 150 Total P 28, 491 Cr edit Totals Accounts Payable P 28, 491 _________ Total P 28, 491 Purchases Journal
Date Accounts Credited PostRef. Payable CreditAccounts Purchases Debit
Store Supplies Debit Office Supplies Debit
Sundry Accounts – Debit Account Titles PostRef. Amount 20x2
Jan. 2 Bong Bongcac 6,720 6,720
3 Evalle Supply Co. 4,950 Equipment 121 4,950 17 Mallari & Company 6,480 6,480
24 ManufacturingMongalo 2,931 2,880 51
29 Punsalan Furniture Store 7,200 Furniture 122 7,200
28,491 16,080 165 96 12,150
(211) (511) (115) (116) ( √)
CASH DISBURSEMENTS JOURNAL
All transactions involving payments of cash for various purposes are recorded in the Cash Disbursements or Cash Payment Journal. Such transactions include purchases of merchandise and other items for cash, payment of expenses, payment to creditors on account, cash withdrawal by the owner, etc. All these transactions are credited to Cash; hence, it is necessary to have a Cash Credit column. Payments to creditors on account are sufficiently frequent to require columns for Accounts Payable Debit and Purchase Discount Credit. If payment for one or more specific operating expenses were sufficiently numerous, other special columns are added to the journal.
POSTING THE CASH DISBURSEMENTS JOURNAL
At frequent intervals during the month, the amounts enter in the accounts payable debit column are to the creditors account in the Accounts Payable Subsidiary Ledger. The source of the entries is indicated by inserting “CD” and the appropriate journal page number in the posting reference column of the accounts. A check mark placed in the posting reference column of the Cash Payments Journal to indicate that the amounts have been posted. The items in their Sundry Accounts Debit column are also posted to the appropriate accounts in the General Ledger at frequent intervals. Posting is indicated by writing the account numbers in the posting reference column of the Disbursements Journal.
At the end of the month, the Cash Disbursements Journal is ruled, and their totals of each money column are taken. The equality of the debits and the credits are determined as follows:
DEBIT TOTALS CREDIT TOTALS Sundry accounts P11, 214 Purchase discounts P315 Accounts Payable 27,480 Cash 38, 379 P38, 694 P38, 694 A check mark is place below the total of the Sundry Accounts Debit column to indicate that is not posted, Each of the totals of the other three columns is to a General Ledger account and the appropriate posting reference is written below the column totals.
Recording Purchase Returns and Allowances
In recording Purchase returns, both creditor’s account and the controlling account must be debited, and the account of commodity originally purchased must credited. Thus, if the returns to the Office Equipment, the amount of reduction is credited to the Office Equipment. If the reduction is in the cost of the merchandise purchased for resale, Purchases is credited. If management wishes to know both the total amount of the merchandise returned, a separate account entitled Purchase returns and Allowances is credited.
On January 5, the friendly variety store received a credit memorandum from Bong Bongcac for merchandised returned. The entry is recorded in a two column journal a follows:
General Journal
Date Description Post
Ref.
Debi t
Credit Jan. 5 Accounts Payable- Bong Bongcac 211/ 270
Purchased returns and Allowances 512 270 Received credit memorandum for
Merchandised returned.
Note that the debit to the Account Payable account is posted in the General Ledger and also to the creditors account in the subsidiary ledger. The necessity for posting this item to two different accounts is indicated by placing the diagonal line in the posting reference column when the transaction is recorded.
The account number (211) and the check mark are written after the respective accounts are posted.
The Accounts Payable Ledger and the Accounts payable control account appear as follows after posting the purchases, cash disbursement, and the general journals.
Accounts Payable Subsidiary Ledger Bong Bongcac
Date Items Post Ref.
Debit Credit Balance
Jan. 2 P1 6,720 6,720
5 G1 270 6,450
15 CD1 6,450
Evalle Supply Co.
Ref.
Jan. 3 P1 4,950 4,950
22 P1 210 5,160
26 CD1 4,950 210
Mallari & Company
Date Items Post
Ref. Debit Credit Balance
Jan. 1 2,430
10 CD1 2,430
17 P1 6,480 6,480
Mongalo Manufacturing Co.
Date Items Post
Ref. Debit Credit Balance
Jan. 1 9,300
5 CD1 9,300
25 P1 2,931 2,931
Punsalan Furniture store
Date Items Post
Ref.
Debit Credit Balance
Jan. 1 Balance 4,350
11 CD1 4,450
29 P1 7,200
THE GENERAL JOURNAL
The General Journal is used for each transaction that does not belong in a special journal. For example, the General Journal could be used to record Sales Returns and Allowances if the original sale was made on account, Purchase Returns and Allowances if the original purchase was made on account, the receipt of a note from a customer in settlement of an accounts receivable, the purchase of equipment or some other asset by giving a note, and the payment of Accounts Payable by giving a note. All Adjusting and Closing entries are also recorded in the general journal.
When a company sells merchandise and services on account, a portion of the claims against customers ordinarily proves to be uncollectible. This is usually the case regardless of care used in granting credit and the efficiency of the collection procedures employed. Uncollectible Accounts Expense, Doubtful Accounts Expense, or Bad Debts Expense is an operating expense incurred because of failure to collect receivables.
There are several reasons why an account or a note becomes uncollectible, like bankruptcy of the debtor, discontinuance of the debtor’s business, disappearance of the debtor, failure of repeated attempts to collect and the barring collection by the statute of worthlessness of the receivables.
There are two generally accepted methods of accounting for receivable though to uncollectible:
1. The direct write-off method 2. Allowance or reserve method
Both conform to acceptable accounting practice when used in appropriate circumstances. However, for income tax purposes, only the Direct write-off method is permissible.
DIRECT WRITE OFF UNCOLLECTIBLE ACCOUNTS
The direct write off method is used by the small businesses who sell most of its merchandise or services on cash basis. The amount of its receivable is small in relation to its total current assets, the credit period is short, and the credit and collection procedure are adequate.
The entry to write off an account believed to be uncollectable is as follows:
Uncollectable Accounts Expense 900
Account Receivable-O. Bueno 900
The entries to reinstate that account and to record the collection are as follows:
Account Receivable- O. Bueno 900
Uncollectable Account Expense 900 To reinstate account written off earlier in the year.
CASH 900
WRITING – OFF UNCOLLECTABLE ACCOUNT UNDER THE
ALLOWANCE METHOD
When positive evidence is available concerning the partial or complete worthlessness of an account, the account is written off as follows:
Allowance for Doubtful Accounts XXX
Accounts Receivable XXX
To write-off uncollectible account.
When an account that has been charged to the allowance account is subsequently colleted, the account should be reinstated by an entry that is just the reverse of the write-off entry.
Accounts Receivable XXX
Allowance for Doubtful Accounts XXX
To reinstate account written off earlier in the year.
ESTIMATING UNCOLLECTABLE ACCOUNTS BASED ON TRADE
RECEIVABLES
Instead of using sales data, many businesses base their estimate on an analysis of trade receivable accounts at the end of the period. The process of analyzing the accoumts is called aging the receivables.
Customer Amount Yet DueNot Not more Than 30 days Past Due 31-60 Days Past Due 61-180 Days Past Due 181-365 Days Past Due More Than One Year Past Due Alzona Besinga Castro De Leon = = = = = Yuzon 1,350 900 3,750 600 = = = = = 1,800 3,750 = = = = = 600 = = = = = 1,350 = = = = = 1,200 300 = = = = = 600 600 = = = = = = = = = = 142,650 120,000 9,000 3,600 3,450 2,400 4,200
Estimated Amount of Uncollectible Accounts- December 31, Year1 Classification Balances Uncollectible Accounts
Percentages
Estimated Accounts Percentages
Not yet due P 120,000 2% P 2,400
Not more than 30 days past due 9,000 5% 450
31-60 days past due 3,600 10% 360
61-180 days past due 3,450 20% 690
181- 365 days past due 2,400 30% 720
More than one year past due 4,200 50% 2,100
P 142,650 P 6,720
ESTIMATING UNCOLLECTIBLE ACCOUNTS BASED ON SALES
The estimated uncollectible account may be based on sales for the period or the amount of receivables outstanding at the end of the period. When the company uses the sales basis, the amount of the uncollectible account’s in the past year are compared to the total sales to get the percentage of the estimated uncollectible. Since doubtful accounts occur only with sales on account, it would be logical to develop a percentage of doubtful accounts to credit sales only. However, since it would require extra work to separate cash sales from credit sales, or to analyze sales data, the percentage is developed in terms of total sales. In other cases, the percentage is adapted to net sales only.To illustrate, assume that the total sales for the period is P500, 000, and the estimated uncollectible account is 1% of sales, the charge for the doubtful accounts would be P5, 000 (1% of P500, 000). The adjusting entry to record doubtful accounts would be:
Doubtful Accounts Expense 5, 000
Allowance for Doubtful Accounts 5, 000
Note that the existing balance in the Allowance for Doubtful Accounts resulting from charges to doubtful accounts in the part is not considered in computing the current adjustment.
The sales percentage method for estimating doubtful account is widely used in practice because of its simplicity.
ACCRUING INTEREST
Interest accrues, or accumulates, on an interest-bearing note on a day-to-day basis, but is usually accrued only at the maturity date. If, however, the note is outstanding at the end of the accounting period, the time period of the interest overlaps at the end of the accounting period and an adjusting entry is needed. Both parties, the maker and the payee, must make the adjusting entry to record the accrued interest so that the proper assets and revenue for the payee, and the proper liabilities and expenses for the maker are reported. Failure to record accrued interest would understate the maker’s expenses and liabilities by the interest expense incurred bout not yet paid.
To illustrate how to record accrued interest on the payee’s books and the maker’s books, assume that on November 1, Miguel Company issued a 90-day, 12% note, for P10,000 to Pablo Company on account. Both companies are using the calendar year as their accounting period.
Transactions Maker Payee
Nov. 1 – Issuance of note Accounts Payable 10, 000 Notes Receivable 10, 000 Notes Payable 10, 000 Accounts Receivable 10, 000
Dec. 31 – Adjusting entry Interest Expense 200 Interest Receivable 200 Interest Payable 200 Interest
Income 200
Jan. 1 – Reversing entry Interest Payable 200 Interest Income 200 Interest Expense 200 Interest Receivable 200
Jan. 30 – Payment of note Notes Payable 10, 000 Cash 10, 300 Interest Expense 300 Notes Receivable 10, 000
Cash 10, 300 Interest
