Departmental Analysis of Purchases.—When it is desirable to separate various classes of purchases so as to determine the profit from each class, particularly in a business which is departmentized, a purchase journal similar to the one shown in [Form 9], which has an additional money column for each class of purchases, may be used. If there are three classes or departments, at least four money columns are required. The entry in the first column is for the total amount of the purchases; and the entries in the other three columns, which are headed each with the name of a class or department, are for the total purchases of the respective departments. It is evident that the totals of these three columns, added together, must at all times be equal to the total of the first column. This affords a check on the accuracy of the distribution. At posting time a separate account is opened in the ledger corresponding to each of these classes of purchases. The summary entry in a purchase journal of this kind appears as follows:
Form 9. Departmental Purchase Journal
Purchases are classified under separate titles, usually because it is desirable to make a corresponding classification of sales and so secure departmental results of operation.
The Sales Journal—Analysis of the Sales Transaction and Method of Record.—For recording sales of stock-in-trade, a record called the “Sales Journal” is used, which is limited to sales of merchandise. A sales journal practically identical in form with the purchase journal serves this purpose. Its columns are ruled and current entries are made in it just as in the purchase journal.
The analysis of a sales transaction shows a credit to Sales and a debit either to Customer, Cash, or Notes Receivable, according as the sale is “on time,” for cash, or against a note given by the customer. In handling cash sales and sales against the customer’s note, the same procedure is followed as with purchases, i.e., accounts with customers are opened for all sales, and are immediately closed off if cash or a note is received at the time of the sale.
The current entry in the sales journal shows only the debit item, i.e., the charge to the customer’s account, the credit to Sales account being omitted. At the end of the month, however, the total of all sales is indicated by the summary entry and is posted to the credit side of the Sales account in the ledger. In order to keep the customers’ accounts up to date, the current entries in the sales book, giving the names of the customers and the amounts, are transferred to the customers’ accounts in the ledger at the close of each day.
Summarization of the Sales Journal.—At the end of the month or other posting time, the sales journal is totaled and the summary entry is made and posted, thus bringing the ledger into equilibrium by one credit to Sales account for the sum of all the debits to customers accounts made day by day. The closing rulings are then made. The treatment is exactly similar to the work in the purchase journal, the only difference being in the summary entry, where “Sales, Cr.” takes the place of “Purchases, Dr.” If it is desired to keep the sales record by departments or classes of commodities, analysis columns will effect the distribution. In this type of sales record the closing summary indicates the various departmental or other sales accounts to which postings are to be made, instead of the one general account, Sales, precisely as the departmental purchase journal ([Form 9]) indicates the departmental or other purchases accounts to which purchase entries are to be posted.
Goods Sold to the Owner.—The treatment of goods sold to the owner of the business requires brief consideration. The proprietor usually withdraws goods at cost price. There is thus no element of profit in the transaction as there is in other sales. A strict analysis of the transaction shows that it brings about only a decrease of the asset unmixed with any element of income. Theoretically, then, such transactions should not be recorded with the regular sales, but should be shown as a credit to Purchases account. In practice, however, entering them in the sales journal is the easiest method of recording them, and since they are not usually large in volume, this method does not vitiate the total sales figure as a basis for estimating percentages of profit. This matter is discussed in detail on [page 273].