Journals

• Journals are another book of prime entry used to record accounting transactions.

• It records transactions that do not have any official form of documentation (invoice, credit note or receipt)

• A journal is used to record the sale of fixed assets, writing off bad debts, correction of errors and entering opening balances to a business.

What does a journal look like? • The journal entry is a written instruction to process a form of

transaction • Illustration of journal version 1

Date Details DR CR

23 April Bad Debts/ Irrecoverable debtsVAT Kleans Ltd / SLCA

104.67 20.93

125.60

Debt written off as instructed by memo 22/4/ 226GH

30 April Motor Expenses Motor Vehicles

84.7084.70

Invoice 3755 posted to motor vehicles account in error

Debit entry must be entered first Then the credit entry slightly indented A narrative explaining the purpose of the journal

Journal Version 2 Journal no 2655

Date 23 April

Authorised by A Mount Account Reference DR

£CR£

Irrecoverable debts GL800 104.67

VAT GL202 20.93

Sales Ledger Control Account GL110 125.60

Total 125.60 125.60

Kleans Ltd 125.60

Narrative: being the write off of the trade receivables debt

Ensure each journal has: Number, date, accounting system code and authorisation

Types of accounting errors corrected using a journal.

• Error of commission • Error of principle • Error of omission • Error of original entry • Compensating error • Complete reversal of entry

Explanations Error of commission

• A transaction has been posted to the wrong personal account

• The double entry postings has been posted correctly just the wrong named account

Example • A sales invoices to H Smith has been posted to G

Smith in error • Take out of G Smith and post to H Smith

Explanation Error of principle

• A transaction has been posted to the wrong type of account

• The double entry postings have been posted correctly but to the wrong nominal account

• Example • Purchase of motor vehicle has been posted to

purchases • Sale of business ‘s fixed asset has been posted to

sales

Explanation Error of omission

• Where a transaction has been completely omitted from the books

• No postings have taken place• Usually caused by mislaying a document• DD or SO go through the bank but not through

the cash book• Drawings – owner takes cash and good for

own personal use

Explanation Error of original entry

• Miscalculation of transaction (undercast ing / overcasting totals) or

• Copying the information incorrectly on both parts of the double entry

• Example • Overcasting a column of figures in the day book• Entering a transaction for £368 as £386

Explanation Compensating error

• Here the errors may not be related but they equal the same value on both the debit and credit side of the trial balance

• These errors can cancel each other out

Explanation Complete reversal of entries

• A transaction has been posted on the wrong side of the account

• A debit entry has been posted on the credit side of the account and the credit side of the transaction has been posted to the debit side

• Example• Supplier payment has been posted on the debit side

of the cash book and credit side of the suppliers account

Journal posting not effecting the trial balance

• If both sides of the transaction have been posted it should not effect the trial balance but may take a while before the errors are discovered.

• On discovery, a journal is generated and from that the double entry posting can be processed.

Suspense account

• Where the trial balance does not agree and differences cannot be found immediately the difference between the debit values and credit values are posted to a suspense account.

Bank 10276

Capital 36200

95,000 94,800

Suspense 200

95,000 95,000

• The difference is posted to the lesser side (DR/CR) to achieve equal values on the TB

• After investigation any errors found will be corrected using journals, taking error values from the suspense account and posting to the correct nominal account

• Where error can not be found the suspense value is shown in the balance sheet as

• Credit balance value in Suspense account- shown as current liabilities

• Debit balance value in Suspense account – shown as current asset