Ledger and journal are the two most essential books of accounts. Accountants will use the journal to record the financial transaction by following the order in which they occurred, whereas Ledger is utilised to categorise economic activities based on their nature (Also see The Importance of Managerial Accounting). In this article, we will focus more on the journal that will later be incorporated into financial statements.
Categories of Journals
Large companies would use specialised journals, where it isn’t very easy to journalize all transactions in a single journal. Thus, the journal is split into distinct journals, and the accountants will call them as the subsidiary books. They separate the journal in which for every category of transactions, they will use a different book. There are some important books of accounts in the business world nowadays, which are the General Journal, Return Inward Book, Return Outward Book, Purchases Day Book and the Sales Day Book.
Some people would call it a journal proper or a miscellaneous journal. It is a book of original entry in which various credit deals that are unsuitable in every other book. Some examples include closing entries, adjusting entries, correcting entries, credit purchase of assets, and so on (Also see Steps to Prepare Trial Balance).
Return Inward Book
It is sometimes called a sales returns book. A company will use it to record products sent back to it by its clients. The company will send a credit note to the clients who send the products back to it, and the credit note presents the amount credited to the account.
Return Outward Book
Also known as purchase returns book or purchases returns day book, it is a book that records the products returned to the vendors. Some products may be returned since they are not the type needed by the company, they are not the same as the sample, they are damaged, or due to any other reasons. When a company return the products to the vendors, they will send a debit note to the suppliers. These debit notes play a role as vouchers for the entries. In short, a debit note is a statement that an entrepreneur would send to its vendor, presenting the sum debited to the account.
Purchases Day Book
It is also known as purchases book, and this is a book of original entry kept to document credit purchases. Keep in mind that you will not enter cash purchases into purchase day book as you have to enter those entries for cash purchases using petty cash (Also see Importance of a Petty Cash Book) into the Cash Book. You have to sum up the purchase book each month-end. The amount indicates the sum of items bought on credit. You are required to fill up the purchase book every day from the invoices you receive. You have to number those invoices one after another. Then, you have to record the invoice represented by each number in the purchase book.
Sales Day Book
Some people also call it as a sales book, and it records the particulars of credit sales a business owner has made. The sum of a sales day book illustrates the amount of credit sales of products throughout a particular period. Typically, you have to total up the sales book monthly. You have to fill it up every day based on the copies of invoices you have sent out.
It is not something easy if you are managing the books of account on your own (Also see The Characteristics of Different Cost Accounting). Engage an accounting firm in Johor Bahru if you need any assistance.