Special Journals: Definition
Special journals handle specific transactions such as cash receipts
or sales. The use of special journals significantly reduces the time
required to record transactions and post them to the ledgers.
Special Journals: Explanation
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:
Overview of Special Journal Types
In small businesses, where transactions occur infrequently, each
transaction is recorded in a general journal and then posted to the
related accounts in the general ledger.
A single journal is satisfactory for small business enterprises
where the transaction volume is usually small.
In large businesses, where transactions of various categories
occur hundreds or thousands of times each month, it is
inconvenient to record them in the general journal.
Furthermore, it can prove impossible for one
bookkeeper/accountant to journalize all the transactions of a large
business in one journal.
To overcome this problem, the journal is split into sub-journals
called special journals, which are designed to record transactions
of a specific nature.
Special journals are only required for frequent or repetitive
transactions. 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 record cash receipts, and another will
record cash payments.
If a particular transaction does not fit into one of the above groups,
it is recorded in the general journal. This journal is the type 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.
Therefore, 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 books, but they are not the only types
used. Many firms design their specialized journals to meet their
particular needs.
Types 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 repetitive are recorded in the general journal.
Examples of such entries are adjusting entries, closing entries,
transferring entries, and correcting entries.
Advantages of Special Journals
Maintaining special journals for repetitive transactions offers many
advantages to business organizations, such as:
Increase in Efficiency
Adopting special journals means recording business transactions
can be entrusted to several employees, similar to the division of
labor that increases the efficiency of bookkeepers or accountants.
Reduction in Errors
Each special journal is handled by a particular person, who will
become familiar with the work assigned to them. Such an approach
potentially reduces bookkeeping errors.
Reduction in Detailed Recording
In special journals, each transaction is recorded in a single line
designed to provide all the necessary information.
For example, a merchandise purchase is recorded on a single line
that registers credit to the supplier’s account, the supplier’s name,
the date and the amount, and any other desired information.
Reduction in Detailed Posting
Special journals eliminate individual posting. 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
Special journals record transactions chronologically, which
reduces the chances of fraudulent alteration in an account.
Moreover, a particular person is responsible for its correctness.
Better Internal Control
Special journals afford better control because these journals divide
work so that no employee has conflicting responsibilities.
Time Savings
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 Bookkeeping Expenses
Special journals allow the recoding of numerous repetitive
transactions in one journal in one line. Such an approach may save
book-keeping expenses and labor.
Future References
One journal records similar transactions, which simplifies future
references to any of them.
Internal Control and Special Journals
Separation of duties is an integral aspect of internal control. If
possible, different individuals should record transactions in each of
the special 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.
This journal should record non-routine transactions, 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.