Special Journals in Accounting: Purchases, Sales and Returns

When a business handles many transactions every day, recording all of them in a single general journal becomes slow and messy. That is why the KSSM Prinsip Perakaunan syllabus (code 3756) covers special journals: books of original entry set aside for types of transaction that repeat often. Grouping transactions of the same kind makes the accounting work tidier, faster and easier to check.

The four main special journals for SPM are the Purchases Journal, the Sales Journal, the Returns Outwards (Purchases Returns) Journal and the Returns Inwards (Sales Returns) Journal. Below we explain what each one is for, its source documents, and when to use it instead of the Cash Book or the General Journal.

What are special journals?

Special journals are books of original entry set aside for one recurring type of transaction. Their purpose is to gather similar transactions in one place so they are easier to summarise and post to the ledger.

Most importantly, the purchases, sales and returns journals record only credit transactions involving goods (trading stock meant for resale). Cash transactions go in the Cash Book instead. Any other transaction that does not fit a special journal is recorded in the General Journal.

The Purchases Journal

The Purchases Journal is used to record credit purchases of goods only. In other words, the business buys stock for resale but has not paid yet; payment is made later to the supplier (a creditor).

The source document for the Purchases Journal is the invoice received from the supplier. Note that buying an asset such as a vehicle or furniture on credit is not recorded here, because it is not trading stock; such a transaction goes into the General Journal instead. The total of the Purchases Journal is debited to the Purchases Account, while each supplier is credited in their own account.

The Sales Journal

The Sales Journal is used to record credit sales of goods only. The business sells stock to a customer (a debtor) who will pay at a future date.

The source document for the Sales Journal is a copy of the invoice issued to the customer. As with purchases, selling off an old asset on credit is not entered here, because it is not a sale of trading goods. The total of the Sales Journal is credited to the Sales Account, while each debtor is debited in their own account.

The Returns Outwards Journal

The Returns Outwards Journal (also called the Purchases Returns Journal) records goods that were bought on credit but returned to the supplier, for example because they were damaged, the wrong type, or did not match the order.

The source document for this journal is the credit note received from the supplier. The credit note confirms that the supplier has reduced the amount the business owes. The total of this journal is credited to the Returns Outwards Account, and the relevant supplier is debited.

The Returns Inwards Journal

The Returns Inwards Journal (Sales Returns) records goods that were sold on credit but returned by the customer. This happens when a customer sends back goods that are faulty or unsuitable.

The source document is a copy of the credit note issued by the business to the customer. The total is credited to the debtor (reducing what they owe) while the Returns Inwards Account is debited. To tell the two kinds of returns apart, ask who is returning goods to whom.

Source documents: invoices, credit notes and debit notes

Every entry in a special journal must be based on a valid source document. Invoices are used for credit purchases and credit sales. Credit notes are used for returns of goods. Debit notes are often issued to notify a charging error or an additional claim.

Understanding source documents helps greatly in the exam, because questions often give you a set of documents and ask you to sort them into the correct journal. If you can identify the type of document and the direction the goods are flowing, you can decide on the right journal with confidence.

When to use a special journal, the cash book or the general journal

A quick guide: use a special journal only for credit transactions in trading goods. Credit purchases go to the Purchases Journal, credit sales to the Sales Journal, and credit returns of goods to the relevant returns journal.

Transactions involving cash or the bank (cash purchases, cash sales, receipts and payments) go into the Cash Book, not a special journal. Other transactions that fit none of the above (such as correcting entries, opening entries, buying an asset on credit or the owner taking goods for personal use) go into the General Journal.

Common mistakes to avoid

One frequent student mistake is putting cash purchases or cash sales into a special journal, when they should go into the Cash Book. Another is recording the purchase of an asset (such as a computer for office use) in the Purchases Journal.

Students also often mix up Returns Outwards and Returns Inwards. Remember: if we return goods to a supplier, that is Returns Outwards; if a customer returns goods to us, that is Returns Inwards. Repeated practice with sets of source documents is the best way to make this stick.

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FAQ

Do special journals record cash transactions? No. The purchases, sales and returns special journals record only credit transactions in trading goods. Cash transactions go into the Cash Book.

What is the difference between a credit note and an invoice? An invoice is issued when a credit sale or purchase takes place, while a credit note is issued when goods are returned or a charge is reduced. Can I start with just one lesson? Yes, you can start with a paid one-hour trial lesson. Contact us on WhatsApp for details.