Principle of Accounting Chapter 5 Special Journals – Cash transactions BA. in International Business Foreign Trade University
Outline The need for special journals The role of special journals Cash receipts journal Cash payments journal Cash discounts for debtors and creditors
The need for special journals The need for a permanent record of references to source documents. The need to summarise transactions. Journals are used to record the daily details of transactions.
The role of special journals Group transactions of a similar nature to ease the posting entries to ledger accounts. Post summarised data to ledger accounts.
Special journals Cash receipts journal: records all types of cash receipts by a business. Receipts include cash sales, amounts collected from debtors, cash contributed by owner, interest on investments. Source documents: receipts Cash payments journal: records all payments of cash Payments include expenses paid, assets bought for cash, cash purchases of goods, payments of amt owing to creditors, withdrawal of cash by the owner. Source documents: cheque butt
Special journal (Cont’d) Credit sales journal: is used when the business provides goods on credit. Source documents: invoices Credit purchases journal: is used when the business buys its stock on credit. Source documents: invoices General journal: records all transactions that are not included in the special journals (unusual type of events) Eg: Purchase of fixed assets
Cash receipts journal (simple version)Date Account credited Rec Post Cost of Amt Amt no ref sales received bankedJan 2 Cash sales 651 101 30 60 60 5 Debtor – D. Barr 652 402 80 80 6 Capital 653 801 5,000 5,000 12 Cash sales 654 101 30 60 60 14 Cash sales 655 101 70 120 120 17 Debtor- R. Ashworth 656 403 200 200 20 Cash sales 657 101 80 140 140 21 Interest on investments - 103 140 140 28 Debtor – D. Barr 658 402 100 100 31 Total receipts (401) 210 5,900
Cash discounts for debtors and creditors Credit customers are offered a cash discount because: Reduce the likelihood of bad debts Early cash received can be used for other payments Reduce time taken to settle debts by debtors, thus improve liquidity Eg: Credit terms: “2/7: n/30” The customer will receive 2% discount if he pays his debt within 7 days. If he does not make early payment within 7 days, the amount owed will be due within 30 days.