Instead, the entry of Jackson’s name in the notes receivable journal is in itself evidence of a debit to Notes Receivable account. Thus only the credit side of the entry need be shown, with appropriate explanation and detail, the formal debit being suppressed. When, however, the books are closed at the end of each regular period, the total of all these entries in the notes receivable journal is formally labeled “Notes Receivable, Dr.” and posted to the debit of the Notes Receivable account. This procedure brings on the ledger one debit entry for the transactions of the entire month. The corresponding credits have been posted in detail day by day from their journal record.
So also, when it is the practice of the business to issue many of its own notes either in payment of purchases or for discount purposes, a “Notes Payable Journal” may be used. The method of handling this book is similar to that of handling the notes receivable journal as described above. A similar procedure is followed in the case of sales, purchase, and cash transactions referred to above. The method of handling these four groups of transactions will be explained in detail in the chapters which follow.
Basis of Subdivisions.—The basis for dividing the one general journal into special journals is the relative frequency with which transactions of a similar nature occur. It would evidently be of no utility to create a special journal if the number of transactions to be recorded in it was small, as the saving in the labor of making the entries would be more than offset by the trouble of using an extra book.
Customary Subdivisions.—The special journals most frequently met with are those for purchases, sales, and cash. The Purchase Journal contains the original entry of purchases, the Sales Journal the original entry of sales, and the Cash Journals the original entry of cash transactions. All other original entries are made in the general journal. For the sake of brevity, the general journal is usually designated by the single term “Journal.”
It should be thoroughly understood that no matter how many special divisions of the journal may be in use, such books combined with the general journal comprise the journal record of transactions. None of them is merely a memorandum record to be summarized and to be formally recorded later. The record made in each is formal, although abbreviated, and each must be posted completely, both debit and credit, in order to secure in the ledger a full record of all business transactions.
A brief explanation will be given in following chapters of the more simple forms of special journals.
CHAPTER XVIII
THE PURCHASE AND THE SALES
JOURNALS
Types of Purchase Journal.—For recording purchases of stock-in-trade, a separate special journal called “Purchase Journal” is used. Sometimes this special journal takes the form of what is called an “Invoice Book,” explanation of which is given in a later chapter. The purchase journal is sometimes used to record all sorts of purchases, as for example, purchases of store and office supplies, of advertising and printing, and even of services such as labor, and of uses, such as the use of a building. Such use of the journal is more commonly made by manufacturing concerns than by mercantile houses and the journal is then known as a “Voucher” or “Accounts Payable Register,” which is explained in Volume II. The present discussion is limited to the purchase journal as a record of purchases of stock-in-trade by a mercantile firm.
Analysis of the Purchase Transaction.—The debit and credit analysis of a transaction covering a purchase of stock-in-trade may result in either one of two groups of entries: (1) if the transaction is on credit, a debit to Purchases and a credit to either a personal account payable or to Notes Payable account; or (2) if the transaction is for cash, a debit to Purchases and a credit to Cash. Whether the purchase is on open account, on a note, or for cash, it is often desirable to keep the accounts in such a way as not only to indicate the vendor in each instance, but also to show the volume of business done with each creditor. This is accomplished when the purchase is for cash or for a note, by opening an account with the creditor in much the same way as when it is on open account.
Thus every purchase transaction is first recorded as follows: