journal entries

Introduction

A journal is a book in which transactions are recorded on a daily basis before they are posted to the ledgers.  Journals are prepared from source documents such as invoices, bank paying slips, vouchers etc. the process of writing transactions in a journal is called journalizing a transaction. Transactions are in recorded in journals in a chronological order. This implies that journals are books of original entry. They include journal proper (general journal), sales journal (day book), purchase journal (day book), returns journal (day book)

 Posting transactions from the daybook

The term posting means transferring the debit and credit items from the journal to their respective accounts in the ledger. It is the process of recording the transaction from journal to ledger.

The following rules should be observed while posting transactions in the ledger from the journal:

1. Separate account should be opened in the ledger for posting transactions relating to different accounts recorded in the journal
2. The concerned account, which has been debited in the journal should also be debited in the ledger
3. The concerned account, which has been credited in the journal should also be credited in the ledger

 Sale journal / day book

Entities sell goods either on credit or by cash. Where the goods are paid for immediately, the transactions are recorded in the cash book and sales account. In the case of credit sales, the selling firm will send a sales invoice (source document) to the buyer. The information on the sales invoice will be recorded in the sales journal and posted to the customer’s (debtors’) account and sales account, in the seller’s books of account.

Sales journal. This is a book of original entry used for taking records of only credit sales. It is a specialized journal for only credit sales

All credit sales are recorded in the sales journal (day book) and posted to the sales ledger and general (nominal) ledger as follows,

• The credit sales are posted one by one, to the debit side of each customer’s account in the sales ledger.
• At the end of each period, the total of the credit sales in the sales journal is posted to the credit sales of the sales account in the general ledger.

Solution

Sales journal

Example two

Mathew Rubunel operates a retail shop in Kotido Street. During the month of January, 2016 he had the following credit sales transactions.

Date            customer’s Name             Invoice No                       shs

Jan

1^st                L. Siibo                           1001                              350,000

4^th               P. Wabusana                   1002                              450,000

6^th               Odeke and Sons              1003                              650,000

7^th               Waako Jnr                       1004                              250,000

10^th              J. Efata                           1005                              754,000

15^th              Rose Adong                     1006                              350,000

17^th              Joyce Kipropu                  1007                              455,000

18^th              Z. Kitara                          1008                              843,000

24^th              S. Matte                          1009                              250,000

25^th              Ben Ochola                      1010                              644,000

29^th              Mary Akola                      1011                              880,000

Solution

Sales journal

Returns

Sometimes the firm may return goods to the suppliers while the customers may also return goods to the firm this bringing about returns outwards (purchases returns) and returns inwards (sales returns) journal respectively

Goods will be returned because of wrong delivery, damage in transit or failure to return package containers. For this a credit note will be issued to correct the overcharge as a result of the returns.

The note number simply relates to the credit note which is a document issued by the business to the customer when it is agreed to accept the returns made by the customer.

The  term  credit  note  is useful  as it indicates that  we  are  to credit  the  personal account of the customer (i.e.  Reduce the amount owing to us).

Each entry in the returns inwards day book will require an entry to be made in the personal account of the customer in the sales ledger.

 The  returns  inward  book  (sales  returns  book)

Goods  previously  sold  on credit may be  returned  in business, this  may be  due  to  defectiveness,  being  the ones  not  ordered  for,  goods not  being  of the  correct  size,  quality and  ordered.

So a  book  where  details of goods  that  were  previously  sold  to  customers  and  later returned in the business is termed as the  returns in  wards  book  or  sales  returns  book or  returns  inwards  journal.

Information  concerning  such  details  is  obtained  from  copies of  credit  notes  sent  to customers  who  returned  the goods.

Example 1

Record the following  transactions in Gorret’s sales day book and returns inwards  journal transfer the total  to their respective  accounts  in the  general  ledger  and then  open up individual debtors accounts in the sales ledger

GORRET’S SALES DAY BOOK FOR THE MONTH OF FEBRUARY 2005

SALES RETURNS BOOK / RETURNS INWARDS IN WARDS JOURNAL     

Purchases journal

Purchases may also be in cash or by credit. Purchase in cash or by cheque are debited in the purchases account and credited to the cashbook. Credit purchases are recorded in the purchases journal (day book) and posted to the purchases account in the general ledger and supplier’s accounts in the purchases ledger as follow.

• The credit purchases are posted one by one, to the credit side of each supplier’s account in the purchases ledger
• At the end of each period, the total of the credit purchases in the purchases journal is posted to the debit side of the purchases account in the general ledger

 Returns outwards book / journal

This  is a  subsidiary   book  which  records  details and  amounts  of  goods  returned   to the  creditors  or suppliers. This journal is written up from incoming credit notes.

Its format is shown below.

In  the  general  ledger, we  record  the  total  of  all  creditors from  the purchases  journal.  We also record the total of all returns to creditors

Goods returned to the original supplier may often be accompanied by a debit note. This note will give details of the goods and the reason for returning them. The entries in the returns outwards day book will be posted in the purchases ledger to the accounts of the business’s suppliers.

As with  the  purchases day  book,  it is only  the  entries in  the  personal accounts which are entered individually. The entry in the general ledger (i.e. The entry in the purchases account) is only entered as a monthly total.  The entries in this example would appear as follows:

General ledger account – only enter the monthly total

Personal ledger account – enter details of each transaction individual

Example

(a) You are to enter up the purchases journal and the returns outwards journal from the following details of Musajja Waza Constructors. Afterwards post the items to the relevant accounts in the purchases ledger and the general ledger.

2005

July 1          :        Credit purchases from Benjamin Kinene Shs. 150,000.

July 2          :        Credit purchases from: Kiyingi Shs. 30,000, Aligaweesa Shs. 35,000 CD and Co. Shs. 15,000

July 8          :        Credit purchases from: Benjamin Kinene Shs. 50,000, Aligaweesa Shs. 32,000

July 12        :        Good returned to: Kiyingi Shs. 5,000, CD and Co. Shs. 3,500

July 15        :        Credit purchases from: Kiyingi Shs. 38,000, Aligaweesa Shs. 25,000

July 20        :        Good returned to: Benjamin Kinene Shs. 3,000, Aligaweesa Shs. 2,500

July 25        :        Credit purchases from C. Kiyingi Shs. 29,000

Musajja Waza constructors’

Purchases journal

For the month of July 2005  

Musajja Waza constructors

Returns outwards journal

For the month of July 2005

 Purchases  ledgers

Dr                         Benjamin kinene’s account                                              Cr

Dr                         C. Kiyingi’s account                                                         Cr

Dr                                   Aligaweesa’s account                                             Cr

Dr                                   CD and CO.’s                                                         Cr

General ledger

Dr                                   purchase’s account                                                Cr

Dr                         returns outwards account                                                Cr

Example

1. a) Give two reasons why goods may be returned to the supplier.
2. The following information was obtained from JOKA Enterprises for the month of October 2013.

Invoices received:

Credit purchases were also made from the following:

Oct 24^th Ivan shs.750, 000, Kato shs.450, 000 and James shs 170,000

Oct 25^thPeteroshs.1, 000,000 less 10% trade discount

• Credit notes received;

Oct 9^th    James shs.50, 000 and Petero shs 23,000

Oct 22^nd Kato shs 75,000

1. Prepare Purchases day book
2. Prepare Returns outwards book

• Post the items in b(i) and (ii) above in the ledger.

Why may goods be returned

• When goods are expired/defected
• When goods are damaged in transit
• When goods ordered for don’t compile with the specimen
• When goods are of poor quality, colour and wrong size

purchases day book

The use of folio columns

Each double-entry account will contain the name of the other account in which the other half of the transaction is contained. Except  in very  small  firms,  this  does  not necessarily make it any easier  to locate  the other  account – there  may be hundreds of separate accounts.

A method of speeding up the finding of an account is the use of folio columns. These are found both in accounts and in day books.  An extra column, usually quite small, is placed beside the details of each transaction. In this folio column is placed an abbreviated reference to which ledger or day book the transaction can be located in, and on what page of the relevant book.

For example, if a credit sale was recorded in the sales day book with the folio reference SL 54, then this would tell us that the customer’s account could be found on page fifty-four of the sales ledger. If we actually looked at this relevant account then we would see that it also had a folio reference sending us back to the sales day book itself.

Common abbreviations are as follows:

SL    Sales ledger

PL    Purchases ledger

GL   General Ledger

CB   Cashbook

If the entry ‘C’ appears in the folio column then this refers to a contra entry. This means that both halves of the transaction are contained in the same account. An example of this is dealt with in the section on cash books

The journal proper or general journal

A journal proper or general journal is also referred to as the journal.

Uses of journal proper

• It records opening entries
• It records closing entries
• It records purchases and sale of non- current assets on credit
• Correction of errors
• Records end of year adjustments like bad debts and depreciation

The journal proper is a form of diary to record the above transactions before they are posted to the respective ledger accounts. It does not form part of the double entry system but it guides a user on the location of the transaction in the ledger accounts ie where the double entry is completed. The journal proper contains the following.

• Date column. Records the date of the transaction
• Details (particulars) column. Records the name of the accounts to be debited and credited. It also includes an explanation or description of the transaction called a narrative.
• Folio column. Shows a reference to the ledger books where the double entry is completed.
• Amount column. There are titled “Debit” and “credit”. They record the value of each transaction.

Note: whenever you prepare a journal proper, the transaction must have narratives. Sometimes, examinations questions do not require narratives and this is normally stated, for example, “ignore narrations or narratives” in case the question is silent about the narrative then they must be included.

Format of the journal proper

Example

Record   the following transactions in the Journal / journalize the following transactions

3^rd  Jan  2008  A Purchase  of  land  from  Musoke  on Credit  worth shs. 2,000,000

10^th Jan 2008 A sale of furniture on credit worth Shs.  2,200,000 from Mucomo

Solution

Journal  entries

Example

Record the following transactions in the general journal

(i)      A purchase   of land on credit from Musoke for shs. 4,000,000

(ii)     A purchase of furniture on credit from Kagodo worth shs.  1,000,000

(iii)    A sale of an old vehicle   on credit worth shs 4,200,000 to Mucomo.

Functions  of  the  journal  proper

1. It Acts as  a dairy  in which  events ( business  transactions )  are  recorded  as  they  occur.
2. It  acts  as  a book  of  explanations  since after  each  entry is recorded, a  brief   explanatory  note  called  “ a narration” follows.
3. It acts  a  book  of  instructions  since  it  states  which account  in the  ledger  is to   be  debited and  which  one to be credited.

 Uses  / importance  of the  journal proper

1. 1. It is  used  to record  purchase  of  fixed  assets  on credit
   2. It  IS  used  to record  credit  sales  of  fixed assets
   3. It is  used  to correct  or  rectify  errors made  in books
   4. It is  used  to  record opening  entries
   5. It is  to record  closing entries
   6. It is  used  to record  adjustments made  in the  ledgers  to be transferred  to  trading, profit and loss  accounts.

FORMAT  OF A  JOURNAL  PROPER

N.B: All  credit  transactions  are  first  recorded  in the  journals  before passed  on to  the ledgers, that’s  why cash  transactions  are  recorded  in the  cash  book  before  posted  in  to the ledgers  i.e  a cash  book is also  a subsidiary  book.

Example

Record   the  following  transactions  in the  Journal / journalise  the  following  transactions

3^rd  Jan  2008  A Purchase  of  land  from  Musoke  on Credit  worth shs. 2,000,000

10^thJan  2008  A sale  of  furniture  on  credit  worth  Shs.  2,200,000  from  Mucomo

Solution

Journal  entries