Subdivision of Journal

Before learning about the subdivisions of a journal, it is important to know what a journal is. The definition of a journal considers it as a book that contains all the prime entries. If any company makes any transaction, it first records it in the journal before copying them into any ledger accounts. The companies prefer to list all the transactions in chronological order. The company or the organization has two options of maintaining journals- they can either maintain a single journal for all transactions or maintain separate journals for each transaction type. Let us learn about these types of journals in detail.


Subdivisions of Journal

Based on the type of journals, we can divide them into general journals and special journals. Let us look at each of them.

 

General Journal

In this subdivision of journals in accounting, people record all their transactions in chronological sequences. These people record all those transactions that do not occur regularly or do not find a place in special journals. 

 

It is important to learn two terminologies associated with general journal- journalizing and journal entry. Journalizing is the act of recording the transactions. Journal entry is the record of transactions that the companies maintain in the journal.

 

General journals mainly include the opening and closing entries, any adjustment entries, rectification entries, as well as the due income and expense entries. 

 

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Special Journals

People call special journals by the name of subsidiary books. They also maintain their transactions in the special journal in chronological sequences. However, the transactions recorded in these journals are mainly encountered frequently. The transactions belong to similar types. People record these similar transactions in these special journals.

 

Most organizations maintain eight kinds of subsidiary books. The inclusions in this subdivision of journals are cash book, sales book, purchases book, return inwards book or sales return, return outwards book or purchase return, bills payable book, bills receivable book, and journal proper. You can consider the cash book to be both a ledger as well as a subsidiary book. Looking at the type of book, you will understand how to answer which subdivision of the journal is known as which book.

 

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What is the Need for Such Subdivisions of Journals?

Any business issues several transactions. As the business grows larger, the number of transactions increases. Therefore, it becomes increasingly tough to maintain all the transactions by following a single means of the journal entry.  Such difficulties arise due to the following limitations of a journal.

  • Every time a transaction takes place, it is important to note the name of the account. The person maintaining the record has to write the same name every time it conducts a transaction. Moreover, all the credit and debit transactions also need to be accounted for. This entire process can prove to be cumbersome for the person maintaining such records.

  • The journal needs to write down every narration. Writing down such ideas also adds to the task.

  •  If there is a need to take prompt action, such as taking information from such journals, the system might not be able to do so. 

  • Since a single person handles every journal, they cannot install systems that can perform internal checks on the records.

  • The journal’s size keeps on increasing due to the high volume of transactions flowing in every day. 

 

To cope up with such limitations of the general journal, many organizations consider using subsidiary books. In these books, they can maintain separate journals for every kind of transaction, allowing them easy accessibility, proper division of labour, and faster maintenance of records.

 

Compound Journal

In any simple journal, the companies use only one account for any credit or debit transaction. All such transactions are conducted from that single account. However, in a compound journal, a single transaction involves more than one account for debiting and crediting purposes. Each of these processes is associated with more than one account.

 

Solved Examples

Generate the compound journal entry for the following:

  • Started business with stock ₹10000, business ₹50000, and cash ₹40000.

  • Bought goods from Vipin ₹5000 and for cash ₹10000.

  • Paid Vipin₹4700 in full settlement.

 

Ans.

In the books of ABC Journal entries

Serial No.

Particulars


Amount (Dr.)

Amount (Cr.)

1.

Stock A/c

Dr.

10000



Building A/c

Dr.

50000



Cash A/c

Dr.

40000



To Capital A/c



100000


(Starting a business with stock, building, and cash as Capital)




2.

Purchases A/c

Dr.

15000



To Vipin’s A/c



5000


To Cash A/c



10000


(purchase of goods on credit and in cash)




3.

Vipin’s A/c

Dr.

5000



To Cash A/c



4700


To Discount received A/c



300


(payment to Vipin in full settlement)






Advantages of Journal 

Following are the advantages of subdividing the journal:

  • Date wise record can be maintained as the transactions are entered date wise in chronicle order 

  • Human and local errors can be avoided and if found there can be easily located 

  • All the necessary information regarding the transaction happening in the business are is are easily obtained from the journal 

  • Saves time in finding any transaction 

  • Helps to increase the efficiency of work management at business 

  • Journal helps for internal checking required during audit time 

  • Service ready reference for getting information about credit or debit sales and purchase whenever required 

  • Reduces the workload of manually maintaining the journal and reports


How to Prepare a Journal in Accounting 

The operation of the journal in any business should first start with selecting the journal type required. The first step is to understand the transactions happening in the business clearly and segregate the transaction based upon nature. That is whether the transaction has been debited or credited into the business account. Once these transactions are being classified then entry can be done in journals. After the journal entry is done, a summary or description should be written for both debit and credit transactions. Below given is an example of how a journal can be maintained:


Date / S. No

Particulars

L.F

Amount

Amount

18-Jun-19

Cash A/c                                     Dr.

To Sales A/c

(Being Product sold for Cash)


1,500



1,500



Here above we can see that an amount of 1500 is being debited, since the account has an increase in cash. Here the sales of a product are posted to the sales account hence it represents an increase in sales of business


Some Tips to Make Journal Entries for a Business: 

  • Understand the transactions happening and then perform the necessary actions

  • Always start the transaction first and then enter it into the journal 

  • Define and use some standard accounting rules which will help to determine the nature of the transaction happening 

  • Enter the correct data that is the correct date, amount and description 

  • Always mention the account number, name and the transaction date 

  • Enter the debit or credited amount 

  • Decide the type of journal business will be requiring

FAQs (Frequently Asked Questions)

1. How many journals should businesses have and why?

In business, there are various transactions that need to be recorded and some transactions happen repeatedly or maybe less like once or twice a year. And it would not be efficient to provide a separate journal for each of the transactional sides. Hence the business can adopt mainly a special journal and general journal. These journals will help the businesses to classify and maintain different groups of transactions and even a separate book can be maintained for each of the groups. Maintaining a journal will not only help organization for record purposes but will also make the work easier and errorless

2. What is the difference between a ledger and a journal? 

The journal is a book that maintains transactions happening in the business whereas the ledger is a book that lasts five years with the transaction recorded in the journal. Journal is an original book whereas, on the other hand, the ledger is called the second book. Journal is more important than a ledger as if any wrong transaction is recorded in a journal the ledger cannot be corrected, and the ledger is dependent upon the correctness of the journal.  There is no need for balancing in a journal but in the ledger, it is a mandatory step.

3. What are the different journal types? 

Any business can maintain different types of journals as per the requirement. There are various types of journals such as :

  1. Cash receipt journal 

  2. sales journal 

  3. purchase journal 

  4. special journal 

  5. general journal 

  6. cash disbursement journal 


However, the selection of journals depends upon the nature of business and the requirement of record maintenance. 

4. What are the Problems Faced in Maintaining a General Journal?

Due to the simple nature of a general journal, the process comes with several limitations. Some of them are:

  • Since the companies maintain the information for all the transactions in a single file, the entire process is very hectic. 

  • Generally, the company employs a single person to maintain a general journal. Since all the work is bestowed on a singular entity, it will spell too much work on that entity. Moreover, the person might create more errors while maintaining such information.

  • Although the concerned person maintains all the information in chronological order, the process of taking out certain information from the list is quite cumbersome due to the volume of information present in the journal. Therefore, the concerned personnel takes a lot of time to find such information by searching with only one parameter- the date of entry.

  • The person might also find difficulty in installing systems for internal checks of the records.

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