There are several journals that are used for recording the financial transactions of a business. The purchases and sales journal are generally used to record a vast majority of transactions where cash is not involved. This article looks at these two journals and how they are used in daily business transactions along with examples of more common entries.
Before learning the basic premise of the purchases and sales journals, the reader should have a basic knowledge of debits and credits. In today’s computerized world, many companies use an automated system that automatically records transactions to these two journals without the use of a manual system. In order to get a better understanding of how these two journals work, we’ll look at these journals from a viewpoint of a manual type system.
Bookkeeping and the Purchases Journal
When purchases are made on open account, the transactions are normally posted to the purchases journal. When purchases are made for cash, the cash payments journal is used, not the purchase journal. Since this journal is only used for purchases on open account, the main general ledger (GL) account that’s almost always affected is the accounts payable account.
Like most journals, there is a series of columns for the transaction date, vendor's name, invoice number and other columns for various general ledger accounts. Since accounts payable is generally affected with each transaction, it’s usually the first GL column. The other GL account columns can vary depending on the business. The most common accounts for the other columns are usually either inventory or expense related.
In the example below, note that accounts payable column is listed as a credit, while the other columns are listed as debits. If goods were returned to the vendor than the opposite credit/debit would occur. For the example we’ll look at a company that’s in the business of selling retail products
Purchases Journal Entry Example
- 12-05 ABC Company, invoice 453 - $400 accounts payable credit, $400 inventory debit
- 12-05 BK Supply, invoice 234 - $100 accounts payable credit, $100 supply expense debit
- 12-05 OK Corp., invoice 959 - $800 accounts payable credit, $800 inventory debit
The next step is to transfer each transaction to the accounts payable subsidiary ledger for each vendor. The columns in the purchases journal are then totaled and then transferred to the appropriate general ledger accounts.
Accounting for the Sales Journal
According to Business Dictionary, a sales journal is a "book of first entry of sales invoices issued to customers for goods supplied or services rendered". The sales journal is used to record sales made to customers on credit. Cash sales are recorded in the cash receipts journal, not the sales journal. Since this journal is only used for sales on credit, the main GL account that’s almost always affected is the accounts receivable account.
The sales journal usually has a column for the date, customer name and invoice number. The other GL columns can vary depending on the business but accounts receivable and sales columns are always present. Other considerations may also include
- cost of sales
- inventory
- sales tax
- freight.
If accounts receivable and sales are the only GL accounts used, it’s generally just a single column where accounts receivable is recorded as a debit and sales as a credit. As an example
- 12-05 John’s Auto Parts, invoice 12634, $200
- 12-05 XYZ Garage, invoice 12635, $500
- 12-05 Mayville Company, invoice 12636, $100
The next step is to transfer each transaction to the accounts receivable subsidiary ledger for each customer. The single column in the above example is then totaled and the total amount of $800 is recorded in the accounts receivable GL as a debit and the sales GL as a credit.
James Clausen - Clausen received a Bachelors Degree in Business Administration in Automotive Management and Marketing at Northwood University, graduating ...
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