CHAPTER 5

BOOK OF ACCOUNTS( THE JOURNAL )

LEARNING OBJECTIVES

To explain the accounting cycleTo explain various types & functions of each journal & ledgerTo determine the need for an analytical petty cash bookTo explain an analytical petty cash imprest system

INTRODUCTIONSystematic bookkeeping procedures must be followed to record transactions in the books of accounts.The recording system consists of the whole accounting cycle starting with the identification of source documents & the recording of the information contained in the source documents.Source documents of each transaction are different depend on the type of the transaction.i.e. invoices (sales), receipts ( cash/bank) , cash bills (expenses), credit note / debit note (return inwards / return outwards) & etc.The source documents will be classified accordingly & then recorded in the appropriate journals & later posted to various accounts in the ledger.

JOURNALS/BOOKS OF PRIME ENTRY

Once the source documents are analyzed, the information are transferred first to journals that also known as books of prime entry.The journal is just like a diary whereby information such as the date, details & amounts regarding transactions are recorded.The books of prime entry consists of a petty cash & 7 types of journals which are as follows:

General journalPurchases journalSales journalReturn inwards journalReturn outwards journalCash receipts journalCash payments journal

GENERAL JOURNAL

General journal is use to record:1. Sales/purchases of fixed assets on

credit2. Correction of errors3. Opening entries4. Transfers5. Withdrawals of goods for owner’s

personal use6. adjustments

GENERAL JOURNAL (cont’d)

Example 1Jan 1 Purchase office equipment on credit from

Streamyx Sdn. Bhd. RM5,000.General Journal

Date Details Folio

Debit(RM)

Credit(RM)

Jan 1 Office furniture GL 5,000

Creditor – Streamyx Sdn. Bhd.

5,000

GENERAL JOURNAL (cont’d)

Example 2Jan 5 sold unused computer to Ahmad RM1,000 on credit.

General JournalDate Details Folio Debit(RM)

Credit(RM)

Jan 5 Debtor - Ahmad 1,000

Computer GL 1,000

GENERAL JOURNAL (cont’d)Example 3Jan 1 En. Jamal has the following assets & liabilities at

the beginning of the accounting period:RM

Assets: Office Equipment 8,000 Office Furniture 3,500 Cash 900 Stock 5,300

Liabilities: Loan from BBMB 6,000 Creditors 2,000

GENERAL JOURNAL (cont’d)

Date Details Folio Debit(RM)

Credit(RM)

Jan 1 Office Equipment GL 8,000

Office Furniture GL 3,500

Cash GL 900

Stock GL 5,300

Loan from BBMB 6,000

Creditors 2,000

Capital GL 9,700

General Journal

GENERAL JOURNAL (cont’d)Example 4Jan 7 Mr. Wong owes the business RM9,000. He failed to

settle his account & wishes to pay his debt by giving his own car worth RM9,000.

General Journal

Date Details Folio Debit(RM)

Credit(RM)

Jan 7 Car GL 9,000

Mr. Wong 9,000

GENERAL JOURNAL (cont’d)Example 5Jan 10 Adit is a watch & took a watch worth RM1,000 as

present to his wife.

General Journal

Date Details Folio Debit(RM)

Credit(RM)

Jan 10 Drawings GL 1,000

Purchases 1,000

PURCHASES JOURNALIt is used to record purchase of goods on credit. Source document involved is invoice received from the supplier.

ExampleMac.10: Bought goods on credit from Ali RM500, invoice no.213Mac.20:Bought goods on credit from Kasim RM400, invoice no.223Mac.28:Bought goods on credit from Baba RM700, invoice no.233

Purchases Journal

Date Particular Invoice no. Folio Amount(RM)

Mac 10

Ali 213 PL1 500

20 Kasim 223 PL2 400

28 Baba 233 PL3 700

Transferred to Purchases a/c

GL5 1,600

SALES JOURNALIt is used to record credit sales. Source document involved is invoice sent to debtor. Invoices are serially numbered.

ExampleMac.11: Sold goods on credit to Tom RM900, invoice no.345Mac.21:Sold goods on credit to Tam RM800, invoice no.360Mac.29:Sold goods on credit to Tim RM500, invoice no.380

Sales JournalDate Particular Invoice no. Folio Amount(RM)

Mac 11

Tom 345 SL1 900

21 Tam 360 SL2 800

29 Tim 380 SL3 500

Transferred to Sales a/c

GL6 2,200

RETURN OUTWARDS JOURNALIt is used to record transaction involving goods returned to supplier. Source document involved is the credit note sent by the supplier (not serially numbered) @ the business sent a debit note to the suppliers (therefore the notes are serially numbered)

ExampleMac.19: Goods returned to Ali RM10, credit note no. 007Mac.24:Goods returned to Kasim RM18, credit note no. 010

Return Outwards JournalDate Particular Credit

note no.Folio Amount

(RM)

Mac 19

Ali 007 PL1 10

24 Kasim 010 PL2 18

Transferred to Returns Outwards a/c

GL7 28

RETURN INWARDS JOURNALIt is used to record transaction involving goods returned by customer. A Credit note will be issued to customer (the notes sent out are serially numbered), or the business received debit notes from customer.

ExampleMac.14: Goods returned by Tom RM15, debit note no. 211Mac.23:Goods returned by Tam RM20, debit note no. 213

Return Inwards JournalDate Particular Credit note no.

Folio Amount(RM)

Mac 14

Tom 211 SL1 15

23 Tam 213 SL2 20

Transferred to Returns Inwards a/c

GL8 35

CASH RECEIPTS JOURNALIt is used to record all cash received from any sources. The most common is the receipt & the cash register summary. ExampleMac.23: Received RM500 from TomMac.25: Received RM400 from TamMac.27: Received RM250 from Tim

Cash Receipts Journal

Date Receipts No.

Details Folio Sales Service Fees

Other receipts

Debtor Bank

Mac 23

001 Tom SL1 500 500

25 002 Tam SL2 400 400

30 003 Tim 250 250

GL9 1,150

CASH PAYMENTS JOURNALIt is used to record all outflow of cash from the business for any purpose. The documents involved include payment vouchers & cheque butt, if payments are made by cheque ExampleMac.22: Paid RM 490 to Ali, cheque no.132444Mac.28: Paid RM 240 to Kasim, cheque no.132445Mac.29: Paid RM 300 to Baba, cheque no.132446

Cash Payments Journal

Date Cheque No.

Details

Folio Purchases

Supplies

Other Payment

s

Creditor

Bank

Mac 22

132444 Ali PL1 490 490

28 132445 Kasim PL2 240 240

29 132446 Baba PL3 300 300

GL10 1,030

Ledgers A ledger is a book, set of a loose cards or file that contains accounts. i.e. purchases ledger, sales ledger & general ledger.

Purchases or Creditors’ ledgerThis is a ledger to record suppliers’ personal accounts.Total credit purchase from the purchases journal are debited to purchases account in the general ledger & credited to various creditor’s account in the purchases ledger.Total return outwards from the return outwards journal are credited to return outwards account in the general ledger & debited to various creditors account in the purchases ledger.Total payments made to various creditors in the cash payment journal will be credited to the bank account in the general ledger & debited to various creditors account in the purchases ledger.

Purchases Ledger Ali

PL119 Mac R/Outwards ROJ1 10 10 Mac. Purchases PJ1 500

22 Mac Bank CPJ1 490 500 500

Kasim PL2

24 Mac. R/Outwards ROJ2 18 20 Mac. Purchases PJ2 400

28 Mac. Bank CPJ2 24030 Mac Bal c/d 142 400 400

Baba PL329 Mac Bank 300 28 Mac Purchases PJ3 700

30 Mac Bal c/d 400 700 700

Purchases or Creditors’ ledger

Ledgers (cont’d)Sales or Debtors’ ledger

This is a ledger to record debtors’ personal accounts.Posting for credit sales are from the various debtors’ accounts in the sales journal, & the total sales are credited to sales account in the general ledger.Postings for return inwards are from the various debtors’ accounts in the return inwards journal, & the total returns are debited to return inwards account in the general ledger.Postings for payments received are from the various debtors’ accounts in the cash receipts journal, & the total amount received is debited to the bank account in the general ledger

Sales Ledger Tom

SL111 Mac Sales SJ1 900 14 Mac. R/Inwards RIJ1 15

23 Mac. Bank CRJ1 500 31 Mac. Bal c/d

385 900 900

Tam SL221 Mac. Sales SJ2 800 23 Mac. R/Inwards RIJ2 20

25 Mac. Bank CRJ2 400 31 Mac Bal c/d 380 800 800

Tim SL329 Mac Sales SJ3 500 30 Mac Bank CRJ3 250

31 Mac Bal c/d 250 500 500

Sales or Debtors’ ledger

Ledgers (cont’d)General ledger

This is a ledger to record all other accounts.Total credit purchase from the purchases journal are debited to purchases account in the general ledgerTotal return outwards from the return outwards journal are credited to return outwards account in the general ledgerTotal payments made to various creditors in the cash payment journal will be credited to the bank account in the general ledgerTotal sales are credited to sales account in the general ledger.Total returns are debited to return inwards account in the general ledger.Total amount received is debited to the bank account in the general ledger

General Ledger Purchases GL5

31 Mac. Total Credit PJ1 1600 Purchases

Sales GL6 31 Mac. Total Credit SJ1 2,200 Sales

Return Outwards GL7 31 Mac. Total return ROJ1 28 outwards Return Inwards GL831 Mac. Total return RIJ1 35 inwards Bank GL931 Mac. Total CRJ1 1,150 31 Mac. Total CPJ1

1,030 Receipts Payments

Ledgers (cont’d)

PETTY CASHIt involved payments of amounts that are relatively smallA fund called “petty cash” is normally set up to facilitate the payments.The recording of the items paid through the petty cash fund & the initial amount of ‘float’ depends on the organization’s purchasing or payment or payment policy.The use of the petty cash book relieves the senior accounting staff in the handling of cash payments since the work can be delegated to a junior staff.

Petty Cash Imprest System – this system is created to enable the proper control of petty cash fund.There are 3 distinct steps within the system:i. Establishment of a petty cash fund or float

• A petty cashier is given a certain amount of money to start the fund. The amount would depends on the company’s policy as to the type of expenditures that can be paid through the use of the fund or sometimes on the frequency of the fund being reimbursed.

ii. Recording of expenditures paid through the petty cash fund

• Any proof of payments made through the petty cash, i.e. bills, tickets as well as the petty cash voucher must be available first before the expenditures can be recorded in petty cash book.

iii.Getting the reimbursements for expenditures made• At the end of the period or at any time when the petty cash

fund runs low the petty cashier has to send the record on the spending together with the compilation of all bills, tickets & vouchers before the reimbursements can be obtained.

PETTY CASH (cont’d)

Analytical Petty Cash Book• Various types of expenditures can be paid through the

use of petty cash fund.• At the end of the month these expenditures are

grouped according to the major expense accounts related to the expenditures.

• The major groupings can be Postage,Stationery,Traveling, Motor Expenses,etc.

• The totals of major expense groups are then posted to the ledger accounts.

• Thus the petty cash book saves the ledger accounts from containing a lot of trivial details.

PETTY CASH (cont’d)

Example2005 Particular RM1 Oct Receives a cheque from the cashier 300

Cash paid for the following expenditures:2 Oct Taxi fares 404 Oct Stationery 2010 Oct Postage 2014 Oct Stationery 1025 Oct Stamps 60

30 Oct Receive a cheque for reimbursement 150

PETTY CASH (cont’d)

PETTY CASH (cont’d)

Receipts

Folio

Date

Details

Voucher

No.

Total

Postage

Stationery

Traveling

RM Oct RM RM RM RM

300 1

2 001 40 40

4 002 20 20

10 003 20 20

14 004 10 10

25 005 60 60

150 80 30 40

150 CB 30 Cash 300

450 450 GL GL GL

Petty Cash

PETTY CASH (cont’d)

General Ledger Postage GL10

30 Oct. Petty Cash PC 80

Stationery GL11

30 Oct. Petty Cash PC 30

Traveling GL12

30 Oct. Petty Cash PC 40 Bank

GL9 30 Oct. Petty Cash 150