Special Journals – Definition
Special journals are those that are designed to handle certain transactions such as cash receipts or sales. As we will see, the use of special journals significantly reduces the amount of time necessary to record transactions and post them to the ledgers.
Most of the firm’s transactions can be classified into four groups. These groups, as well as the special journal used to record the appropriate transactions, are shown below:
In small business concerns where transactions occur very few, each transaction is recorded in a general journal and then posted to the related accounts in the general ledger. The use of a single journal is satisfactory for small business enterprises where the transaction volume is usually small.
In large business concerns where transactions of various categories occur by the hundreds or thousands or more monthly, it is found inconvenient to record them by means of entries in the general journal and sometimes it becomes impossible for one bookkeeper/accountant to journalize all the transactions of a business concern in one journal. To overcome this problem, the journal is divided into sub-journals called “special journals“. Each special journal is designed to record the transactions of a specific nature.
Special journals are required only for the types of transactions that occur frequently or of repetitive nature. For example, a business concern has many transactions in which cash is received and many in which cash is paid out. One special journal will be used for recording cash receipts and another for recording cash payments.
If a particular transaction does not fit into one of the above groups, it is recorded in the general journal. This is the type of journal we have been using up to this point. However, for many firms, most transactions can be recorded in special journals. For illustrative purposes, the following discussion is based on a manual accounting system.
This means that one or more individuals must record the transactions by hand in the appropriate journals. These transactions must then be posted by hand to the appropriate general and subsidiary ledgers. The widespread use of microcomputers has enabled even small firms to automate their accounting systems.
The special journals that we will illustrate are examples of those found in many manually kept sets of books, but they are not the only types used. Many firms design their own specialized journals to meet their particular needs.
Types/Kinds of special journals
The number of special journals used by a business concern depends upon the size and needs of a particular enterprise. We shall discuss six commonly used special journals. These are:
- Purchases journal
- Purchases returns and allowances journal
- Sales journal
- Sales returns and allowances journal
- Cash receipt journal
- Cash payment journal
Entries that are not of repetitive nature are recorded in the general journal. Examples of such entries are adjusting entries, closing entries, transferring entries and correcting entries, etc.
Advantages of Special Journals
Maintaining special journals for repetitive transactions offer many advantages to business organizations. Some common advantages are listed below:
Increase in efficiency
By the adoption of special journals, the work of recording business transactions can be entrusted to several employees who will become more familiar with their work. It is like the division of labor that increases the efficiency of book-keepers or accountants.
Reduction in errors
Each special journal is handled by a particular person, who will become familiar with the work assigned to him. This may result in a reduction of book-keeping errors.
Reduction in detailed recording
In special journals, each transaction is recorded in a single line which is designed to provide all the necessary information. For example, the purchase of merchandise is recorded on a single line including a credit to the supplier’s account and giving the supplier’s name, the date and the amount and any other desired information.
Reduction in detailed posting
In special journals, the individual posting is eliminated. Only one posting for the total amount is made to the relevant ledger account at the end of the month or another appropriate period. For example, if a firm has 2,000 purchases on account during the month, the purchases account will be debited once, not 2,000 times.
Reduces the chances of fraud
The chances of fraudulent alteration in an account is reduced because special journal transactions are chronologically recorded and a particular person is responsible for its correctness.
Better internal control
Better control is maintained by the adoption of special journals because these journals allow the work to be divided in such a way that no employee has conflicting responsibilities.
In special journals, journalizing can be done by a number of employees simultaneously rather than one employee, thus the business transactions can be written up much more quickly.
Savings in book-keeping expenses
By the adoption of special journals, a large number of transactions of repetitive nature are recorded in one journal in one line. It may result in saving in book-keeping expenses and labor.
Transactions of similar nature are recorded in one journal. Future references to any of them become easy.
Internal Control and Special Journals
As we noted, separation of duties is an important aspect of internal control. In regard to special journals, if possible, different individuals should record transactions in each of the journals. Depending on the size and the complexity of the accounting department, a total separation of duties may not be possible, However, not all accounting personnel should have access to the general journal.
Nonroutine transactions are recorded in this journal, and many of these transactions should be approved by the head of the accounting department or by someone with similar authority. On the other hand, routine transactions are recorded in special journals and do not require authorization.