SUBJECT:
ACCOUNTING
GRADE
10
CHAPTER:
SUBSIDIARY JOURNALS
LESSON: JOURNALS
LESSON OVERVIEW (KNOWLEDGE AREAS)
1. Introduction- General journal
2. Transactions that are entered in the general journal
LESSON
GENERAL JOURNAL
There are transactions, which do not occur so frequently to justify a special journal for them. A
General Journal (GJ) caters for such transactions. The entry made in the GJ shows the account
debited, the account credited and a narration, which is a brief description of the transaction.
The journal is adapted to cater for transactions with debtors and creditors – a separate column
is allocated for debtors and creditors. Posting from the GJ is done on a daily basis. Totals are
posted to the Debtors and Creditors control accounts at month-end. The following is an
example of a GJ:
FIRST DEALERS
GENERAL JOURNAL – January 2010
No. D
Details
Fol
Debit
Credit
Debtors control
Debit
Credit
GJ1
Creditors control
Debit
Credit
Transactions that are entered in the GJ:
The following are examples of transactions which are entered in the GJ: bad debts;
withdrawals of merchandise/other items by the owner;
interest on overdue debtors;
cancellation of discounts on r/d cheques; correction of errors; adjustment journal entries (to be
discussed later).
Bad debts
The major risk in granting credit is the possibility that the debtor may not pay his debt. A dealer
will make every attempt to collect the debt, e.g. sending regular statements/reminders, paying a
personal visit to the debtor, telephoning him, or employing a debt collecting agency or attorney.
It is pointless to keep the debtor in the books if all attempts to recover the debt fail. The debtor
may have moved or cannot be traced. If he keeps the debtor in the books, assets of the
business will be overstated, i.e. they will reflect a higher value than what they really are
(Prudence concept). This irrecoverable debt must therefore be written off as a bad debt. This is
done by means of a journal entry. The owner has to authorise this by completing a
journal/authorisation voucher. This voucher is the source document for the journal entry.
A debtor may be declared insolvent and only a portion of the debt is recovered. In this case the
amount received is recorded in the normal way in the CRJ and the balance is written off by
means of a journal entry. The following is an example to illustrate:
K. Jack who owes R1 000 has been declared insolvent. His estate paid a dividend of 25 cents
in the Rand. The balance of his account must be written off as bad.
R250 will be recorded in the CRJ – this is the amount received from the estate (25c x 1 000).
R750 will be recorded in the GJ – this is the amount not received and is written off as a bad debt
(1 000 – 250 = R750 OR 75c x 1 000 = R750)
A bad debt is an expense to the trader – a loss is being incurred, therefore the account is
debited. The Debtor’s account (asset) is credited (decrease). Since the Debtor’s account is
credited the Debtors control account will also be decreased (triple entry principle).
GENERAL JOURNAL – January 2010
No. D
Details
Fol
Debit
Credit
Debtors control
Debit
Credit
GJ1
Creditors control
Debit
Credit
Bad debts
D.Debtor/Debtors control
Withdrawals of merchandise/other items by the owner
The owner may use a business cheque for his personal use – Drawings account is debited
(increase) and the Bank account is credited (decrease). He can also take cash from the petty
cash box for his own use – Drawings account is debited (increase) and the Petty cash account
is credited (decrease).
The owner is not restricted to the withdrawal of cash only for his own use. As the proprietor he
is entitled to take any other item for his private use, e.g., stock, consumables, stationery,
equipment, vehicles, etc. In these cases a journal entry is made to record the withdrawal.
The owner takes goods at cost price – he does not make a profit out of himself. GENERAL JOURNAL – January 2010
No. D
Details
Drawings
Trading Stock
Fol
Debit
Credit
Debtors control
Debit
Credit
GJ1
Creditors control
Debit
Credit
Interest on overdue debtors
Interest may be charged on the accounts of overdue debtors. The dealer should make the
debtor aware of this. An account is overdue or is in arrears when the debtor fails to comply with
the credit terms. The interest is calculated as a percentage of the amount owing. A journal
entry is required to record the charging of interest. The Debtor’s account/Debtors control
account is debited – asset increases because he now owes more. Interest on overdue debtors
account is credited – income increases as the dealer would be receiving more than the original
debt.
GENERAL JOURNAL – January 2010
No. D
Details
Fol
Debit
Credit
Debtors control
Debit
Credit
GJ1
Creditors control
Debit
Credit
A.Debtor/Debtors Control
Interest
on
overdue
account
Cancellation of discounts on r/d cheques
When a cheque received from a debtor has been dishonoured the cheque is cancelled by
means of a reversal entry in the CPJ. Had a discount been allowed on this cheque, such
discount must be cancelled by means of a journal entry. The reason for this is quite clear:
when he paid his debt he was given a discount because he settled his account promptly. The
dishonouring of the cheque implies that his account is now in arrear; therefore, he is no longer
eligible for the discount. The procedure can be summarised as follows:
•
The debtor (I. Pay) pays his account by cheque. A discount is allowed. (A favourable
bank balance is assumed).
Journal
Source
document
Account debit
Account credit
Effect
CRJ
Receipt
Bank
I.Pay/
Debtors control
CRJ
Receipt
Discount
allowed
I.Pay/
Debtors control
Bank (asset) increases;
Debtors control (asset) decreases
Discount allowed (expense)
increases;
Debtors control (asset) decreases
•
E. Waller’s cheque is returned by the bank due to insufficient funds.
Journal
Source
document
Account debit
Account credit
CPJ
B/S
I.Pay/
Debtors control
Bank
GJ
Journal
Voucher
I.Pay/
Debtors control
Discount allowed
Effect
Debtors control (asset) increases;
Bank (asset) decreases
Debtors control (asset) increases;
Discount allowed (expense)
decreases
Correction of errors
The GJ is also used to correct errors made by the bookkeeper. He may have entered a wrong
amount,
e.g. R500 instead of R50 or he may have posted incorrectly in the ledgers. When an error is
discovered the following procedure should be followed:
− Establish which two accounts are affected by the error.
− Determine which account was incorrectly debited or credited.
− Determine which accounts should have been debited or credited.
− Make the correction entry in the GJ.
The following are some examples of errors:
•
The correct amount has been posted to the correct side of the wrong account in the
General Ledger. (The entry in the appropriate Journal was correct).
Example:
Information
2009May 28 Stationery, which was bought on credit from Ream Stationers for R140 was
posted from the CJ to the Consumable stores account. The error must be corrected.
Required
Make the correction entry in the GJ and post to the ledger.
Solution
Bev’s Stores
GENERAL JOURNAL – May 2009
GJ1
No. D
Fol
Debit
N13
N14
140
5
Details
28 Stationery
Consumable stores
Correction of error
posting
Credit
Debtors control
Debit
Credit
Creditors control
Debit
Credit
140
in
-
-
-
-
Note on the GJ:
Identify the two accounts affected by the error: Stationery and Consumable stores.
The error resulted in the Consumable stores account being overstated by R140.
To rectify this, the amount of R140 must be taken out of Consumable stores and charged to
Stationery.
Both accounts (Consumable stores and Stationery) are expense accounts: Expenses
increase on the debit side and decrease on the credit side.
GENERAL LEDGER OF BEV’S STORES
NOMINAL ACCOUNTS SECTION
STATIONERY
Dr
2009
May 01 Total
28 Consumable stores
b/f
GJ1
2009
May 01 Total
28 Creditors control
CONSUMABLE STORES
2009
b/f
XXX May 28 Stationery
CJ
140
N13
Cr
XXX
140
N14
GJ1
140
Note on the General Ledger:
R140 on the debit side of the Consumable stores account is the incorrect entry.
The credit on the credit side of the Consumable stores account cancels the incorrect entry
on the debit side.
•
The correct amount has been posted to the correct side of the wrong account in the
Subsidiary Ledger. (The entry in the appropriate Journal was correct).
Example:
Information
2009
May 29 Goods sold on credit to G. Gaff for R440 (Inv. W235) was incorrectly posted to the
account of G. Gaffe in the Debtors Ledger. The error must be corrected.
Required
Make the correction entry in the GJ and post to the ledger.
Solution
Bev’s Stores
GENERAL JOURNAL – May 2009
No. D
6
Details
Fol
Debit
29 G. Gaff
G. Gaffe
DL9
DL1
0
440
Correction
posting
of
error
Credit
440
Debtors control
Debit
Credit
440
440
GJ1
Creditors control
Debit
Credit
in
440
B8
440
B8
-
-
Note on the GJ:
Identify the two accounts affected by the error: G. Gaff and G. Gaffe.
Both persons are debtors.
The account of G. Gaffe is overstated by R440.
To correct this: the account of G. Gaffe must be decreased by R440 G. Gaff’s account
must increase by R440. Debtors increase on the debit side and decrease on the credit
side.
GENERAL LEDGER OF BEV’S STORES
BALANCE SHEET ACCOUNTS SECTION
Dr
DEBTORS CONTROL
2009
2009
May 29 Sundry accounts
GJ1
440 May 29 Sundry accounts
BEV’S STORES
DEBTORS LEDGER – MAY 20.9
G. Gaff
Date
Details
2009
May
29 Inv. W235
G. Gaffe
2009
May
29
Fol
Debit
GJ1
440
Credit
B8
Cr
GJ1
440
DL9
Balance
440
DL10
Inv. W235
Error
corrected/Journal
DJ
GJ1
440
440
440
-
Note on the Debtors Ledger:
The first entry in G. Gaffe’s account is the incorrect one.
The second entry in G. Gaffe’s account is the correction entry – G. Gaffe’s account
decreases and G. Gaff’s account increases.
•
The incorrect amount has been debited and credited to the correct sides of the correct
accounts in the General Ledger. (The entry in the appropriate Journal was incorrect).
Example:
Information
2009
May 30 Equipment costing R650 (Inv. N009) purchased from Koolit Services was erroneously
entered in the Creditors Journal as R560 and posted as such. The error must be
corrected.
Required
Make the correction entry in the GJ and post to the ledger.
Solution
Bev’s Stores
GENERAL JOURNAL – May 2009
No. D
7
Details
30 Equipment
Koolit Services
Correction of error
posting
Fol
Debit
B7
CL7
90
Credit
Debtors control
Debit
Credit
GJ1
Creditors control
Debit
Credit
90
90
in
-
-
-
90
B9
Note on the GJ:
Identify the two accounts affected by the error: Equipment and Koolit Services/Creditors
control.
Equipment account has been understated by R90 (R650 – 560).
Koolit Services/Creditors control accounts have also been understated by R90.
To correct the error:
Equipment has to increase by R90 (debit) and Koolit
Services/Creditors control must increase by R90 (credit). Remember that Creditors control
account is a liability that increases on the credit side.
GENERAL LEDGER OF BEV’S STORES
BALANCE SHEET ACCOUNTS SECTION
Dr
2009
May 01 Balance
30 Creditors control[1]
Sundry accounts[3]
2009
May 30
b/d
CJ
GJ1
EQUIPMENT
2009
XXX May 30
560
90
CREDITORS CONTROL
2009
May 01 Balance
30 Sundry accounts[2]
Sundry accounts[3]
B7
Cr
B9
b/d
CJ
GJ1
XXX
2 170
90
Note on the General Ledger:
[1]
R560 is the understated amount which was posted from the CJ.
[2]
R2 170 is the total of the Creditors control column in the CJ. This amount includes the
R560.
[3]
This is the correction entry – Equipment increases by R90; Creditors control increases by
R90.
BEV’S STORES
CREDITORS LEDGER – MAY 2009
Koolit Services
CL7
Date
Details
2009
May
30 Inv. N009
Error corrected/Journal
Fol
CJ
GJ1
Debit
Credit
560
90
Balance
560
650
Note on the Creditors Ledger:
R90 is credited; the amount owing to Koolit Services increases by R90 to R650.
INTEREST ON LOANS
In practice a lending institution (bank, etc.) charges interest on loan directly to the loan account:
the Interest on loan account is debited and the Loan account is credited. At financial year-end a
request for a loan statement from the institution is made. This statement will show the capital
portion of the loan, loan repayments and the total interest payable to date. The interest on loan
is a financing cost which is an expense to the business. The bookkeeper will have to make a
journal entry to record this. The procedure is summarised below:
 An application is made for a loan.
 The lending institution processes the application.
 If approved the proceeds of the loan is paid to the business:
An entry is made in the CRJ for this. Bank account is debited (assets increase); Loan
account is credited (liabilities increase).
 The amount of the loan repayments is agreed upon – the installment will include capital
repayments and the agreed interest which is calculated proportionately. When loan
payments are made an entry is made in the CPJ. Bank account is credited (assets
decrease); Loan account is debited (liabilities decrease).
 At financial year-end the trader will need to know what the loan cost (interest and any other
charges) him. He will get this information from the loan statement which is sent to him
periodically by the lending institution.
 A journal entry is made to record the interest: Interest on loan is debited (expenses
increase); Loan account is credited (liabilities increase).
Example:
2008
Mar 01 BT Traders applied for a loan of R30 000 from Firstplus Bank. The applicable interest
rate is 15% p.a. The application was successful and the proceeds of the loan were
paid in to the banking account of BT Traders. The loan installment amounts to R830
per month and is payable on the 27th of each month starting in March 20.8.
2009
Feb 28 The loan statement reflected an amount of R4 500 being interest payable for the year.
Solution:
BT TRADERS
CASH RECEIPTS JOURNAL – MARCH 2008
Analysis
Doc.
D Details
Fol
Bank
of
no.
receipts
B/S
01 Firstplus Bank
30 000
CASH PAYMENTS JOURNAL
Doc.
D
Details
no.
20.8
Firstplus
12
Mar 27
Bank
Firstplus
Bank
38
Apr 27
Firstplus
54
May 27
Bank
Firstplus
67
June 27
Bank
Firstplus
Bank
78
July 27
Firstplus
91
Aug 27
Bank
Firstplus
Bank
101 Sep 27
Firstplus
132 Oct 27
Bank
Firstplus
140 Nov 27
Bank
Firstplus
154 Dec 27 20.9 Bank
Firstplus
165 Jan 27
Bank
Firstplus
Bank
190 Feb 27
CRJ
Sundry accounts
Amount Fol Details
30 000
Loan: Firstplus Bank
CPJ
Fol
Sundry accounts
Amount Fol Details
Bank
830
830
Loan: Firstplus Bank
830
830
Loan: Firstplus Bank
830
830
Loan: Firstplus Bank
830
830
Loan: Firstplus Bank
830
830
Loan: Firstplus Bank
830
830
Loan: Firstplus Bank
830
830
Loan: Firstplus Bank
830
830
Loan: Firstplus Bank
830
830
Loan: Firstplus Bank
830
830
Loan: Firstplus Bank
830
830
Loan: Firstplus Bank
830
830
Loan: Firstplus Bank
GENERAL JOURNAL– FEBRUARY 2009
No
D
Details
Fol
Debit
01
28
Interest on loan
N
4 500
Credit
Debtors control
Debit
Credit
GJ
Creditors control
Debit
Credit
Loan: Firstplus
Bank
Interest on loan
brought into account
B
4 500
GENERAL JOURNAL– FEBRUARY 2009
No
D
Details
Fol
Debit
01
28
Interest on loan
Loan: Firstplus
Bank
Interest on loan
brought into account
N
B
4 500
2008
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
2009
Jan
Feb
27
27
27
27
27
27
27
27
27
27
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
27 Bank
27 Bank
Balance
Credit
4 500
GENERAL LEDGER OF BT TRADERS
BALANCE SHEET SECTION
LOAN: FIRSTPLUS BANK
2008
CPJ
830 Mar 01 Bank
CPJ
830 2009
CPJ
830 Feb 28 Interest on loan
CPJ
830
CPJ
830
CPJ
830
CPJ
830
CPJ
830
CPJ
830
CPJ
830
CPJ
CPJ
c/d
CRJ
GJ
30 000
4 500
34 500
01 Balance
NOMINAL SECTION
INTEREST ON LOAN
GJ
B
830
830
24 540
34 500
Mar
2009
Feb 28 Loan: Firstplus
Bank
Debtors control
Debit
Credit
GJ
Creditors control
Debit
Credit
b/d
24 540
N
4 500
INTEREST ON FIXED DEPOSIT
Interest earned on a fixed deposit or any other type of investment may be paid in cash monthly
or at any specified time. Some investors may prefer not to withdraw the interest but rather to reinvest (capitalise) the interest earned.
Example: Interest earned is paid directly to the investor.
2008
Mar 01 BT Traders invested R50 000 in a one-year fixed deposit with Firstplus Bank at 10%
p.a. interest. A cheque for this amount was issued. The terms of the agreement
stipulate that interest be paid directly into the banking account of BT Traders every
quarter.
May 31 Electronic transfer – interest on fixed deposit with Firstplus Bank R1 250.
Aug 31 Electronic transfer – interest on fixed deposit with Firstplus Bank R1 250.
Nov 30 Electronic transfer – interest on fixed deposit with Firstplus Bank R1 250.
2009
Feb 28 Electronic transfer – interest on fixed deposit with Firstplus Bank R1 250.
The fixed deposit matured; the proceeds were deposited electronically in the account of
BT Traders.
Solution:
BT TRADERS
CASH RECEIPTS JOURNAL
Doc.
no.
B/S
B/S
B/S
B/S
B/S
D
20.8
May 31
Aug 31
Nov 30
20.9
Feb 28
Details
CRJ
Fol
Analysi
s of
receipts
Sundry accounts
Amount Fol Details
Firstplus Bank
Firstplus Bank
Firstplus Bank
1 250
1 250
1 250
1 250
1 250
1 250
N
N
N
Interest on fixed deposit
Interest on fixed deposit
Interest on fixed deposit
Firstplus Bank
Firstplus Bank
1 250
50 000
1 250
50 000
N
B
Interest on fixed deposit
Fixed deposit: Firstplus
Bank
CASH PAYMENTS JOURNAL - MARCH 2008
Doc.
D
Details
Fol Bank
no.
20.8
120 Mar 01 Firstplus Bank
50 000
2008
Mar 01 Bank
Bank
CPJ
Sundry accounts
Amount Fol Details
50 000
GENERAL LEDGER OF BT TRADERS
BALANCE SHEET SECTION
FIXED DEPOSIT: FIRSTPLUS BANK
2009
CPJ
50 000 Feb 28 Bank
B
Fixed deposit: Firstplus
Bank
B
CRJ
50 000
NOMINAL SECTION
INTEREST ON FIXED DEPOSIT
2008
May 31 Bank
Aug 31 Bank
Nov 31 Bank
2009
Feb 28 Bank
N
CRJ
CRJ
CRJ
1 250
1 250
1 250
CRJ
1 250
5 000
Example: Interest earned is capitalised.
2008
Mar 01 BT Traders invested R50 000 in a one-year fixed deposit with Firstplus Bank at 10.5%
p.a. interest. A cheque for this amount was issued. The terms of the agreement
stipulate that interest earned be capitalised.
2009
Feb 28 The fixed deposit matured; the proceeds were deposited electronically in the account
of BT Traders. The fixed deposit statement indicated an amount of R5 250 being the
interest earned for the year.
BT TRADERS
CASH RECEIPTS JOURNAL
Doc.
no.
D
B/S
Details
CRJ
Analysi
Fol
s of
receipts
Firstplus Bank
Bank
55 250
CASH PAYMENTS JOURNAL - MARCH 2008
Doc.
D
Details
Fol Bank
no.
20.8
120 Mar 01 Firstplus Bank
50 000
Sundry accounts
Amount Fol Details
55 250
B
Fixed deposit: Firstplus
Bank
CPJ
Sundry accounts
Amount Fol Details
50 000
B
Fixed deposit: Firstplus
Bank
GENERAL JOURNAL– FEBRUARY 2009
No
D
Details
Fol
28 Fixed deposit: Firstplus B
Bank
Interest on fixed
N
deposit
Interest earned on fixed
deposit as per statement
Debit
Credit
5 250
5 250
Debtors control
Debit
Credit
GJ
Creditors control
Debit
Credit
2008
Mar 01 Bank
2009
Feb 28 Interest on fixed
deposit
GENERAL LEDGER OF BT TRADERS
BALANCE SHEET SECTION
FIXED DEPOSIT: FIRSTPLUS BANK
2009
CPJ
50 000 Feb 28 Bank
GJ
B
CRJ
55 250
5 520
55 250
NOMINAL SECTION
INTEREST ON FIXED DEPOSIT
2009
Feb 28 Fixed deposit:
Firstplus Bank
55 250
N
GJ
5 250
Exercise 1
The transactions given below were extracted from the records of Riaz Stores. Record the
relevant entries in the General Journal.
Transactions
2009
May 02 The proprietor, R.Riaz, took food at cost from the supermarket, R269, for his
personal use.
06 Charge N.Nadia R9 interest on his overdue account of R318.
08 S.Habid, a debtor owing R360 was declared insolvent. His estate paid only 40c in
the rand. Write off the balance of his account.
11 Received a debit note from the bank together with the cheque drawn by H.Heat for
R247. The cheque was marked “R/D: insufficient funds” and was originally received
from H.Heat in settlement of a debt of R260.
13 R.Rajah balance of R380 in the Debtors Ledger was overdue for
3 months. Charge him interest at 18% p.a.
19 Merchandise (cost price R60 and selling price R80) was taken from stock for
personal use by the owner.
24 R.Riaz’s attorney informed him that all efforts to trace debtor I.Gone had failed. He
owed R150 and the account must be written off.
28 The overdue account of A. Ally, R450, was charged R25 interest, but the entry was
by mistake posted to the account of B. Ally in the Debtors Ledger. The error must
be corrected.
30 A cheque, R480, issued for two tyres for the delivery van, was posted from the CPJ
to the vehicles account. The error must be corrected.
GENERAL JOURNAL OF R.Riaz – MAY 2009
No
D
Details
Fol
Debit
Credit
GJ1
Debtors control
Debit
Credit
Creditors control
Debit
Credit