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:
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 on Subdivision of Journal: Meaning and Types
1. What does 'subdivision of a journal' mean in accounting?
Subdivision of a journal means that instead of recording all business transactions in a single General Journal, the journal is divided into several specialized books. These are known as subsidiary books or special journals. Each special journal is designed to record a specific type of frequent transaction, such as all credit sales or all cash payments, making the process more efficient.
2. What are the main types of special journals used in a business?
The most common types of special journals, also called subsidiary books, include:
- Cash Book: For all transactions involving cash and bank.
- Purchases Book: To record all credit purchases of goods meant for resale.
- Sales Book: To record all credit sales of goods.
- Purchases Return Book: For goods returned to suppliers.
- Sales Return Book: For goods returned by customers.
- Journal Proper: For transactions that do not fit into any other special journal.
3. What is the main difference between a journal and a ledger?
The main difference lies in their function. A journal is the book of first entry where transactions are recorded chronologically as they happen. It shows the complete detail of each transaction. A ledger, on the other hand, is the principal book where transactions are posted from the journal into their respective accounts to find the final balance of each account.
4. Why is it necessary for a business to subdivide its journal?
Subdividing the journal is crucial for efficiency, especially as a business grows. Using only one General Journal would be very slow and prone to errors. By creating special journals, work can be divided among several people, specific information (like total credit sales) can be found quickly, and it allows for better internal control and makes auditing easier.
5. How does using a Cash Book simplify the accounting process?
A Cash Book simplifies accounting significantly because it serves a dual role. It acts as both a journal (for recording cash transactions) and a ledger (as the cash and bank accounts). This means a separate cash account or bank account is not required in the general ledger, which reduces posting work and saves a lot of time.
6. Can you give a real-world example of how a Purchases Book is used?
Imagine a supermarket that buys groceries like flour, sugar, and oil from its suppliers on credit. Instead of creating a separate journal entry for every credit purchase, the accountant records all these transactions in the Purchases Book. At the end of the month, they can get the total credit purchases with a single calculation, which is much faster and more organised.
7. What is the Journal Proper, and what kind of entries are recorded in it?
The Journal Proper is a general journal used to record transactions that cannot be entered in any other subsidiary book. It is used for less frequent or irregular transactions. Common examples include:
- Opening entries: To record opening balances of assets and liabilities.
- Closing entries: To close nominal accounts at the end of the year.
- Adjustment entries: For items like depreciation or outstanding expenses.
- Rectification of errors: To correct mistakes made in recording.
- Credit purchase or sale of assets: When a fixed asset like furniture is bought on credit.
