How to record in the Special Journals

Books of Prime Entry

What you need

• Source documents for credit transactions: invoices received and issued, debit notes and credit notes.
• An understanding that special journals record only credit transactions in goods, not cash transactions or purchases of non-current assets.
• The four special journals: Purchases Journal, Sales Journal, Purchases Returns Journal and Sales Returns Journal.
• A ledger containing the personal accounts of creditors and debtors plus the nominal accounts (Purchases, Sales, Purchases Returns, Sales Returns).

Step by step

1. 1

   Identify the type of transaction

   Read each transaction and decide whether it is a credit purchase, credit sale, purchases return or sales return of goods. Example: on 2 May, Perniagaan Setia buys goods worth RM1,200 on credit from Pembekal Harmoni (Invoice 305). This belongs in the Purchases Journal. Remember: cash transactions and purchases of non-current assets do not go into special journals.

2. 2

   Collect and check the source documents

   Every entry must be supported by a document. A credit purchase is supported by the invoice received, a credit sale by the copy of the invoice issued, goods sent back by a Debit Note, and goods received back by a Credit Note. For this example: Invoice 305 (purchase), Invoices 118 and 119 (sales), Debit Note 22 (purchases return) and Credit Note 47 (sales return).

3. 3

   Record in the Purchases Journal

   Enter the date, the creditor's name, the invoice number and the amount in the Purchases Journal. 2 May Pembekal Harmoni Invoice 305 RM1,200; then 10 May Pembekal Jaya Invoice 417 RM800. At this stage the journal is only a list of credit purchases; there are no debit or credit entries until it is posted to the ledger.

4. 4

   Record in the Sales Journal

   Record each credit sale of goods. 5 May Kedai Mawar Invoice 118 RM900; 15 May Kedai Melati Invoice 119 RM600. Make sure only sales of goods (not the sale of an old asset) are entered here.

5. 5

   Record in the Purchases Returns Journal

   When goods bought on credit are returned to the supplier, record them in the Purchases Returns Journal. 8 May Perniagaan Setia returns damaged goods to Pembekal Harmoni RM200, supported by Debit Note 22.

6. 6

   Record in the Sales Returns Journal

   When a customer returns goods that were sold on credit, record them in the Sales Returns Journal. 12 May Kedai Mawar returns goods worth RM150, supported by Credit Note 47.

7. 7

   Total each journal at the end of the period

   At the end of the month, total each journal. Purchases Journal = RM2,000 (RM1,200 + RM800); Sales Journal = RM1,500 (RM900 + RM600); Purchases Returns Journal = RM200; Sales Returns Journal = RM150. These totals are what will be posted to the nominal accounts.

8. 8

   Post to the ledger

   Post the individual amounts to the personal accounts and the totals to the nominal accounts. Purchases Journal: Debit Purchases Account RM2,000; Credit Pembekal Harmoni Account RM1,200 and Pembekal Jaya Account RM800. Sales Journal: Credit Sales Account RM1,500; Debit Kedai Mawar Account RM900 and Kedai Melati Account RM600. Purchases Returns Journal: Credit Purchases Returns Account RM200; Debit Pembekal Harmoni Account RM200. Sales Returns Journal: Debit Sales Returns Account RM150; Credit Kedai Mawar Account RM150.

Second example

Now take Kedai Harmoni. On 3 June it sells goods with a list price of RM1,000 to Perniagaan Jaya at a trade discount of 10% (Invoice 210). Trade discount is not recorded as a separate account; enter only the net amount of RM900 in the Sales Journal. When posted: Debit Perniagaan Jaya Account RM900, and that RM900 forms part of the total credited to the Sales Account at the end of the month.

By contrast, if on 4 June Kedai Harmoni buys goods for RM500 in cash, this transaction is NOT entered in the Purchases Journal; it is recorded in the Cash Book, namely Credit Cash RM500 and Debit Purchases Account RM500. This shows that special journals are only for credit transactions in goods, and that trade discount is recorded at the net amount only.

Common mistakes

Related chapter: Books of Prime Entry →

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