Why is Journal Sub-divided?
The journal is the book of original entry where business transactions are first recorded. When a business grows, the number of transactions increases, and it becomes difficult to record every transaction in a single journal. To simplify and speed up the process, the journal is divided into smaller books based on the nature of the transaction. This division is called sub-division of journal.
Reasons for Sub-dividing the Journal
- Efficiency: It saves time by allowing different types of transactions to be recorded in separate books.
- Specialization: Different clerks can handle different journals, improving accuracy and reducing errors.
- Easy Reference: Transactions of similar types are grouped together, making future reference easier.
- Control and Supervision: Easier to supervise the work of recording transactions when the work is divided.
- Reduces Clutter: Helps in organizing records better and prevents overcrowding in a single journal.
Special Journals and Their Types of Transactions
Special journals are sub-divisions of the main journal. Each special journal is used to record specific types of transactions. Here are the main types of special journals:
1. Cash Book
Transactions recorded: All cash and bank transactions.
Examples: Cash received from customers, cash paid to suppliers, withdrawals, bank deposits.
Types: Single column (cash only), double column (cash and bank), triple column (cash, bank, and discount).
2. Purchase Book
Transactions recorded: All credit purchases of goods meant for resale.
Examples: Purchase of stock on credit from suppliers.
Note: Cash purchases and purchases of assets like machinery are not recorded here.
3. Sales Book
Transactions recorded: All credit sales of goods meant for resale.
Examples: Credit sale of stock to customers.
Note: Cash sales or sales of fixed assets are not recorded in this book.
4. Purchase Returns Book (Returns Outward Book)
Transactions recorded: Goods returned to suppliers which were bought on credit.
Examples: Returning damaged or defective stock items to the supplier.
5. Sales Returns Book (Returns Inward Book)
Transactions recorded: Goods returned by customers that were sold on credit.
Examples: Customer returns faulty goods previously bought on credit.
6. Journal Proper (General Journal)
Transactions recorded: Transactions that cannot be recorded in the above special journals.
Examples:
- Opening entries
- Closing entries
- Adjustment entries (like depreciation, outstanding expenses)
- Rectification of errors
- Transfers between accounts
Conclusion
Sub-dividing the journal into special journals helps businesses manage their accounting work more efficiently and accurately. It saves time, ensures proper distribution of work, and makes records easily accessible. Each special journal plays a specific role and records only a particular type of transaction, making the overall accounting system more organized and streamlined.