Special Journals Accounting)

SPECIAL JOURNAL “Special Journal records one particular type of transaction that occurs frequently.”

Advantages of using Special Journals: 1. 2. 3. 4. 5.

It saves time in journalizing. It saves time in posting. It eliminates the detail from the general ledger. It promotes division of labor. 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 Cash Receipts Journal

Merchandise sold on account. Cash receipts from all sources. Merchandise and other items purchased on account Cash payments for various purposes. Any transaction that is not included in the special journals.

S CR

Purchase Journal Cash Disbursements Journal General Journal

P CD 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 20x2 Jan. 3 8

Inv. No.

Account Debited

Post Ref

Acct. Rec. - Dr. Sales - Cr.

815

Sanchez Corporation



2,550.00

816

Vera & Sons



4,550.00

817

Jugo & Company



7,380.00

818 819

Ramos Company Vera & Sons

 

3,198.00 4.080.00 21,708.00 (112) (411)

1 0 2 3 25

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 20x2 Jan. 1

Balance 1

0

Post Ref.

Debit



S1

Credit

Balance 4,800

7,380

12,180

Ramos Company Date Items 20x2 Jan. 1

Balance 2

3

Sanchez Corporation Date Items 20x2 Jan. 1

Balance

3 Vera & Sons Date 20x2 Jan. 1

Items

Balance 2

5

Post Ref.

Debit

Credit



Balance 2,550

S1

3,198

Post Ref.

Debit

5,748

Credit



Balance 2,070

S1

2,550

4,620

Post Ref.

Debit

S1

4,500

4,500

S1

4,080

8,580

Credit

Balance

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.

Date 20x 2 Jan

Items 1 31

Balance

Accounts Receivable 112 Post Ref. Debit

 S1

21,708

Acct. No. Balance Credit

Debit 9,420 31, 128

Credit

Sales

Acct. No. 411

Date

Items

20x2 Jan

Post Ref.

Balance Debit

Credit

Debit

Credit

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 Date 20X 2

Jan .

Page 1

Description

Post Ref.

Sales Returns and Allowances

412

Debi t

Credi t

1 4

Accounts Receivable – Jugo & Company Issued Credit Memorandum No.1.

112/√

330 330

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 10 14 25

CR1 S1 G1 CR1

4,800 330 7,050

7,380 7,050 -

Credit

Balance

7,380

Ramos Company Date

Items

Post Ref.

Debit

20X2

Jan.

1 Balance

2,550



9 10

CR1 S1

3,198

Post Ref.

Debit

2,550

3,198

Credit

Balance

Sanchez Corporation Date

Items

20X2

Jan.

1 Balance

2,070



3 12

S1 CR1

2,550 2,070

4,620 2,550

Credit

Balance

Vera & Sons Date

Items

Post Ref.

Debit

20X2

Jan.

8 25

S1 S1

4,500 4,080

4,500 8,580

General Ledger

Date 20X 2 1 Balance Jan. 3 1 3 1 1 4

Accounts Receivable Post Items Ref.

.Debit

Acct. No. 112 Balance Credit Debit Credit 9,420

 S1

21,708

CR1

16,470

G1

330

31,12 8 14,65 8 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 Sanchez Corporation Vera & Sons Total

THE PURCHASES JOURNAL

P 3,198 2,550 8,580 . 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 20x2 Jan.

Items

Post Ref. P1

2

Debit

Credit 6,720

Balance 6,720

The equality of the debits and the credit Debit Totals Purchases Store Supplies Office Supplies Sundry Accounts Total

P 16, 080 165 96 12, 150 P 28, 491

Credit Totals Accounts Payable

P 28, 491 _________ P 28, 491

Total

Purchases Journal Date 20x2 Jan.

Accounts Credited

Post Ref.

Accounts Payable Credit

Purchases Debit 6,720

Bong Bongcac



6,720

3

Evalle Supply Co.



4,950

17

Mallari & Company



6,480

22

Evalle Supply Co.



210

2

Store Supplies Debit

Office Supplies Debit

Sundry Accounts – Debit Post Account Titles Amount Ref.

Equipment 6,480 114

96

121

4,950

24 29

Mongalo Manufacturing Punsalan Furniture Store



2,931



2,880

51

16,080 (511)

165 (115)

7,200 28,491 (211)

Furniture

122

96 (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 Sundry accounts P11, 214 Accounts Payable 27,480 P38, 694

CREDIT TOTALS Purchase discounts P315 Cash 38, 379 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.

7,200 12,150 ( √)

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

Jan. 5

Accounts Payable- Bong Bongcac Purchased returns and Allowances Received credit memorandum for Merchandised returned.

Post Ref. 211/ 512

Debi t 270

Credit 270

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 Jan.

2 5 15

Evalle Supply Co. Date Items

Post Ref. P1 G1 CD1

Debit

Post

Debit

Credit

Balance

6,720

6,720 6,450

270 6,450 Credit

Balance

Ref. P1 P1 CD1

Jan. 3 22 26

Mallari & Company Date Items Jan. 1 10 17 Mongalo Manufacturing Co. Date Items Jan. 1 5 25

4,950 5,160 210

Credit

Balance

4,950

Debit

2,430 CD1 P1

2,430

Post Ref.

Debit

6,480

6,480

Credit

Balance 9,300

Punsalan Furniture store Date Items Jan. 1 11 29

Post Ref.

4,950 210

CD1 P1

9,300

Post Ref.

Debit

CD1 P1

4,450

2,931

2,931

Credit

Balance

Balance

4,350 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.

ADJUSTING THE ACCOUNTS RECEIVABLE

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 Account Receivable-O. Bueno

900 900

The entries to reinstate that account and to record the collection are as follows: Account Receivable- O. Bueno Uncollectable Account Expense To reinstate account written off earlier in the year. CASH To record the collection from O. Bueno.

900 900 900 900

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 Accounts Receivable To write-off uncollectible account.

XXX XXX

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 writeoff entry. Accounts Receivable Allowance for Doubtful Accounts To reinstate account written off earlier in the year.

XXX XXX

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. Aging of Receivables – December 31, Year1

Not Yet Due

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

Customer

Amount

Alzona Besinga Castro De Leon ===== Yuzon

1,350 1,350 900 300 600 3,750 3,750 600 600 ===== ===== ===== ===== ===== ===== ===== 1,800 1,200 600 142,650 120,000 9,000 3,600 3,450 2,400 4,200

Estimated Amount of Uncollectible Accounts- December 31, Year1 Uncollectible Estimated Classification Balances Accounts Accounts Percentages 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 Allowance for Doubtful Accounts

5, 000 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 Nov. 1 – Issuance of note Receivable 10, 000

Maker Accounts Payable 10, 000 Notes Payable

Payee Notes Receivable 10, 000

10, 000 Accounts

Dec. 31 – Adjusting entry

Interest Expense

200 Interest Payable

Income

Interest Payable

200 Interest Expense

Notes Payable

10, 000 Interest Expense

Interest Income 200

200 Interest

Cash 300

10, 300 Notes

10, 000 Cash

Income

Interest

200

Jan. 30 – Payment of note Receivable

200

200

200

Jan. 1 – Reversing entry Receivable

Interest Receivable

300

10, 300

Interest