UNIT 6:RECORGING TRANSACTIONS IN JOURNALS
Introductory activity
ISHAMI Ltd is a small sole trade business of purchasing cereals for resale. It
is located in Rwamagana, District in Eastern Province (Tel +250788594143;
P.O Box 1103 Rwamagana).
Assume the company, decides to hire you knowing that you are skilled in
computerized accounting and expecting that you will help the Shop in the
process of recording financial information, producing financial statements
on time. Given the past information below:
On 1st January, 2023 Starting business with 50,000,000 FRW(from the
business owner)
2nd January, 2023 Receiving a loan from Bank of RWF 10,000,000 FRW
8th January 2023 Buying premises for RWF 3,000,000 FRW and paying rent
for 200,000 FRW (both by cheque)
10th January, 2023 Purchasing goods on credit from John for RWF 4,000,000
FRW
11th January, 2023 Selling goods on credit to Mugabe for 5,000,000 FRW
(cost of goods sold RWF 2,800,000 FRW)
12th January, 2023 Receiving cash from Mugabe (full payment of his debt)
25th January, withdrew 80,000 FRW for home expenses
5th February, bought goods of 380,000 FRW from Silas on credit
10th February, bought stationeries for 180, 000 FRW and paid a quarter by
cheque, the remaining balance being on credit.
20th February, paid three quarters of the debt owed to Silas by cash
25th February, paid insurance for 120,000 FRW and communication of 50,000
FRW both by cash.
Basing on the transactions provided above, you are required to:
i) Create your own chart of accounts and S/P Chart
ii) Create the journal codes you need for recording
iii) Indicate in which subsidiary journal should each transaction berecorded
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6.1. Process credit Purchases
Learning Activity 6.1
1. What types of transactions are recorded in purchase journal?
2. What do you understand by creditors?
3. You have bought goods on credit, which account is to be debited and
which account is to be debited
4. We purchased a business delivery van from BAVUGIRIJE has bought
goods on credit, what account to be debited and what account should
be credited?
5. Record the following transactions in purchase journal
– 4th January bought goods of 80,000FRW from Suzan on credit
– 10th January, made credit purchase for 40,000FRW from HABIMANA
– 15th January, Bought goods of 50,000 FRW from GAHUNGU on
credit– 20th January, Credit purchase from AYINKA for 70,000Frw
6.1.1. Getting into credit purchase entry journal
The purchase journal records credit purchase transactions made by the
business in the given period of time.
Any transaction entered into the purchases journal involves a credit to the
accounts payable account and a debit to the expense or asset account to
which a purchase relates. For example, the debit relating to a purchase of
office supplies would be to the supplies expense account. The journal also
includes the recordation date, the name of the supplier being paid, a source
document reference, and the invoice number. Optional additions to this basic
set of information are the payment due date and authorizing purchase order
number.
The following steps are followed when making journal entries in purchases
journal:
1. Click on Process menu
2. Double click on Entry journalYou can also click on Enter journals tab on vertical bar
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Figure 6. 1: Getting to journal entry
The window that contains all the books created appears as follow:
Figure 6. 2 List of journals created in journal code
Each book will appear once per month in every twelve months of operating
period. If we click on period tab and select code, the journals will be arranged
by “code” in ascending order i.e from the smallest journal code to the largestone
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If the user wants to record a given transaction in its respective journal, double
click on that journal depending on the date the transaction occurred and you
get the journal format.
6.1.2 Journal entries in purchase journal
To start making entries in purchase journal, double click on purchase journal
of particular month, depending on the date of credit purchases made by
the business. If we select the purchase journal for the month of January, thepurchase journal format table will be displayed as follow:
Figure 6. 3: Journal entries window
Since we have selected “code” instead of period, the purchase journal having
(01) as code comes first and appears from January to December chronologically,
followed by Sales journal having (02) as code, returns inwards having (03) as
code, returns outwards having (04) as code and lastly, general journal having
(06) as code.
To record the entries in purchase journal, double click on purchase journal of
the month during which the transaction took place. For example, if the business
transactions have occurred in January, double click (or press Enter button on
keyboard) on purchase journal of January, then the following purchase journaltable is displayed:
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igure 6. 4: Purchase journal window display
By default, the purchase journal and all of other journals have 10 columns:
• The first column is the day column which records the date on which the
transaction took place (Note that the month is in the title of the document
on top of screen: Purchase journal/Jan23)
• The second column contains the voucher number where we record the
number of source document used to refer to that transaction
• Column 3 comprises voucher reference which is a unique, sequential
number assigned to each invoice or any other source document
• Column 4 heading is general account number where we find accounts
created in chart of account
• Column 5 heading is S/P account number, where we find individual third
parties accounts as created in S/P chart.
• In column 6 named comments, we write short narration about transactions
recorded,
• In column 7, there is maturity date for customers if we have set maximum
customer term in preferences
• Column 8 is named journal position and shows the status of journal
transactions. If no transaction is not yet recorded in the journal, the
position column is empty• Column 9 is named debit and we record debited amount in this column
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• The last column is named credit and in it we put amount credit to a given
account
To record a transaction, the user follows these steps:
• First record the date of the transaction upper in day column (there is 1st
of the month by default)
• In the voucher number column, record the invoice number, receipt
number or any other source document number (if any)
• In reference number, record the invoice reference number, receipt
reference number or any other source document reference number
• In the general account number, type the account root number or the firstletter starting account number then press tab button
Figure 6. 5: Tab button location on keyboard
• Select the type of account for which you want to record a transaction
as created in chart of account then click ok. The account number of the
selected account is going to be displayed in the general account column.
The user can also type the full account number in that field in case he
remembers it.
• In S/P account number column, the user selects the third party name and
his account is displayed in that field. Note that only suppliers(creditors)
re found in purchase journal.
• In comment column, type short narration explaining the entry that was
made.
• In debit column, enter the amount to be debited and press enter.
• When you press Enter, the date, voucher number, voucher reference are
going to be reproduced and you are only required to find account to be
credited and press Enter on keyboard.
It is also optional to click on balance tab, and search for the account to be
credited, the balance amount will be automatically posted to the credit sidethen press Enter button.
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Referring to the transactions found in activity 6.1, question 5, our purchase
journal will be as follow:
Figure 6. 6:Sample example of purchase journal entries
Application activity 6.1
The following are credit purchases transactions extracted from UBUZIMA
trading company
2nd February, bought office supplies for 120,000 FRW from Louis on credit
6th February, Inventory worth 40,000FRW was purchased from Anna on
credit
15th February, credit purchases for 260,000 FRW from KAGABA on credit
16th February, bought goods worth 76,000 FRW from Anna on credit
Required:
1. Create S/P chart for suppliers identified in the above transactions
2. In journal code, create purchase journal3. Record the above transactions in the purchase journal
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6.2. Process credit sales transactions
Learning Activity 6.2
1. What do you understand bay sales journal?
2. Which main information recorded in sales journal
3. From the following transactions, select the ones that should be
recorded in sales journal
a. Sold goods valued at 320,000 FRW to Manzi on credit
b. Issued share capital for cash
c. Purchased equipment on credit
d. Deposited money at bank
e. Collected cash for repairs completed
f. Paid an invoice from the utilities company for electricity for 60,000
FRW by cheque
Learning Activity 6.2
6.2.1 Meaning of credit sales
The term “credit sales” refers to a transfer of ownership of goods and services to
a customer in which the amount owed will be paid at a later date. In other words,
credit sales are those purchases made by the customers who do not render paymentin full at the time of purchase.
6.2.2 Sales journal entries
Recording transactions in sales journal is the same as the steps of recording
transactions in purchase journal. The only difference is that sales journal deals
with the credit sales transactions made with debtors or customers. Before start
recording, the user must have created customers general account in chart of
account and the customers (debtors) individual accounts in S/P chart.
In the day column, the user records the date as it has been done in purchase
journal, in the voucher number and voucher reference too. In the general
account column, select the sales account to be credited, and in S/P chart select
the individual account of the debtor to be debited, by typing the root number of
the account or the first letter of the account number to be debited and type TABbutton, then click on the debtor’s account and click ok.
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In the comment column, write short narration on the transaction done. In
the debit column, write the amount of money to be debited and press ENTER
button on keyboard.
Before starting recording transactions in sales journal, sales journal code must
be created and the debtors’ individual accounts must have been created in S/P
chart.
Example: Record the following credit sales in sales journal of March
2nd March, sold goods worth 90,000 FRW to MAHORO on credit
5th March, credit sales of goods valued at 300,000 FRW to JIMMY
12th March, the customer TOM purchased goods of 380,000 FRW and paid a half
by cash20th Sold goods to FATUMA for 250,000 FRW on credit.
Figure 6. 7: Sales journal window display
The above figure shows the first debit entry recorded to the debtor Mahoro and
it was done following the steps below:
• In the day column (1), we have written 2nd of March (The month and year
appears on document title on top of screen: Journal: SALES JOURNAL/
March23)
• In S/P account number (2), we have selected Mahoro by writing the first
letter of her name M then press tab button, select Mahoro and click OK, and
her account appeared in the head column. The general account number
of customers(debtors)created in chart of account appears in the general
ac no column since we have connected the customers to that account byusing controlling account tab in S/P chart.
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• In entry comment column (3), we have written “credit sales to Mahoro” as
short narration of the transaction made.
• The maturity date (4) appears since we have set maximum customer terms
in Parameters configuration (see concerning your company-parameters)
• In debit column (5) we have debited 90,000FRW as given in the
transactions we have I practical example, then lastly pressed ENTER
button on key board.
It is also possible to press on balance icon before pressing enter
Figure 5. 8: Location of balance icon
To record first credit of sales account, follow the same procedure, but the date,
voucher number and entry comment are duplicated. The user only search for
sales account in general account number and type the same figures as what was
debited to the debtor (90,000FRW in our case), then press enter.
The same process is going to be followed for other debtors in our transactions.
We will therefore have the following results:
Figure 6. 9: Sample sales journal window display
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Application activity 6.2
Record the following transactions in sales journal
1. Credit sales to SHAMI for 1,200,000 FRW, cost of goods sold
900,000FRW, invoice no 123
2. Sold finished products to MPORE for 600,000 on credit, invoice no
124
3. Sold 700,000 FRW to MUTESI and paid 380, 000 by cash, the
remaining balance to be paid at later date. Invoice no 1254. Credit sales of 200,000FRW to MULISA. Invoice no 126
6.3 Process cash payments and cash receipts
Learning Activity 6.3
1. What is meant by cash journal?
2. Explain the difference between cash payment and cash receipts?3. What are the types of cash book you know?
6.3.1 Meaning of cash journal, cash payments and cash receipts
a. Cash journal
A cash journal is a simple hard copy or electronic document that is used to make
immediate accounting entries of both receipts and expenditures. Transactions
that are entered into this journal are usually recorded daily or at least in
chronological order.
Cash journal is also referred to as cashbook. The cash book is divided into three
categories namely single column cashbook, double column cashbook and three
or triple column cashbook.
A single column cash book records only those transactions that involve exchange
of actual cash in hand while double column cash book records all transactions,
that takes place either through exchange of actual cash or through the bank.
The triple column cash book (also referred to as three column cash book)is the most exhaustive form of cash book which has three money columns on
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both receipt (Dr) and payment (Cr) sides to record transactions involving cash,
bank and discounts. A triple column cash book is usually maintained by large
firms which make and receive payments in cash as well as by bank and which
frequently receive and allow cash discounts.
b. Cash payments
Cash payment refers to any transfer of funds through a transaction originated
by cash, check, or similar paper instrument. This includes electronic payments
to a financial institution or clearing house that subsequently issues cash, check,
or similar paper instrument to the designated payee.
c. Cash receipts
A cash receipt is an accounting entry that documents the collection of cash
from a customer. Cash receipts typically increase (debits) the company’s cash
balance on its balance sheet. Simultaneously, they decrease (credits) either
accounts receivable or another asset account.
Cash receipts appear on a financial summary as an increase to the cash account
or another asset account. This depends upon the nature of the sale. If a business
sells services and those payments were collected in cash, then those payments
would be put toward accounts receivable.
If you sell goods that you have produced through your manufacturing division,
then this would affect inventory. This is opposed to accounts receivable. You
have sold goods that already existed. In this case, a business may record the
collection of cash as an increase to cash or to another asset account.
6.3.2 Cash journal entries
Cash journal entries are done in the same process as the journals previously
done. In this journal, cash payments and cash receipts transactions are recorded.
Example:
Near the end of her secondary studies, Mrs INGABIRE is faced with the decision
of whether to create a saloon business, hardware start a summer dress making
business. INGABIRE has had some experience designing and sewing and
believes it might be the most lucrative of self-employment alternatives. She
starts “Sewing workshop”.
During May, the first month of business, the following occur:
1stMay, INGABIRE deposits 5000,000 FRW of her own money into sewingworkshop checking account.
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3rdMay, The business purchases equipment for 1000,000 FRW by cheque.
5th May,Withdrew 2000,000 FRW
6th May,bought land of 1,500,000 FRW by cheque
10th May,bought sewing supplies and material for 300,000 FRW in cash.
16th May, paid rent of 100,000 FRW and utilities for 150,000 FRW by cash
17th May,Sells twenty dresses during the month. Each dress has a price of 50,000
FRW. Cash is received for twelve of the dresses, with customers owing for the
remaining eight.
25th May, taxes amounting to 150,000 FRW paid in cashRequired: Record the above transactions in cash journal
Figure 6. 10:Sample cash journal entries
Application activity 6.3
Record the following transactions in sales journal
1. 1st February, Cash received from the debtor for 2,500,000 FRW
2. 3rd February, Paid rent for 200,000 FRW, Sold goods by cheque
3. 7th February received interest on saving account for 38,000 FRW
4. Banked 300,000 FRW5. Purchased building for 60,000FRW
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6.4 Processing returns inwards and returns outwards
journal
Learning Activity 6.4
Record the following sales returns and purchase returns in their respective
journals
1. The customer Peter returned goods of 25000 FRW to business
2. Returned goods valued at 40000 FRW, to supplier John
3. Goods bought for 30,000 FRW on credit were returned to supplier
Kamali
4. Purchased goods worth 500,000 FRW, but a half the goods were
returned to supplier5. The customer KAMANA returned goods of 60,000 FRW
6.4.1 Meaning of returns inwards and returns outwards
Return outwards are goods returned by a businesses to the suppliers.
They are goods that were once purchased from external parties, however,
because of being unsatisfactory they were returned back to them, they are
also called Purchase returns. Outward returns reduce the total accounts
payable for a business.. The transaction in both cases is reversed and the related
sale or purchase is nullified. Purchase returns reduce the total purchases/
accounts payable of a company and the deduction is shown in the trading
account. A subsidiary book called Purchase returns book is prepared to record
all such entries.
6.4.2 Returns inwards and returns outwards journal entries
As we have seen previously for other types of journal, the process of recoding
transactions in returns inwards and returns outwards journal is the same. For
returns inwards, the returns inwards account is debited, the debtor’s account is
credited. For the returns outwards, the creditor’s account is debited to reduce
the account payables and returns outwards account is credited.
Briefly, when customers return merchandise sold for cash, the sales returns and
allowances account is debited and the accounts payable account is credited.
This entry is made when a customer notifies the business that they will return
the merchandise. Afterward, another journal entry may be required in which
ICT in Accounting | Student Book | Senior Fivethe accounts payable account is debited and the cash account is credited. This
journal entry is made when a cash refund is given to the customer for the goods
they returned.
The journal entry for returns outwards is as follow:
1. Returns inwards transaction
On 1stJanuary 2023, the Modern Trading Company sold merchandise for
2,400,000FRW. KIMENYI received the delivery on the same day and found the
merchandise costing 400,000 FRW did not meet the order specification. These
merchandises were returned to the Modern Trading Company on the same day.
Record the above transaction in Modern trading company returns inwardsjournal.
Figure 6. 11: Sample Returns inwards journal
As shown by the above journal table, the returns inwards account was debited
for 400,000 FRW to reduce income, and the debtor KIMENYI was credited, to
reduce accounts payable amount for 400,000 FRW.
2. Returns outwards transaction
On 2nd February 2023, John Enterprise sold merchandise for 1,500,000 FRW
to Sam Enterprise on credit. On the same date, merchandise amounting to300,000 FRW was returned to John Enterprise because they failed to meet the
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required quality standards.
Record the above return outwards transaction in Sam Enterprise books of
account.
Figure 6. 12: Sample returns outwards journal
As shown by the above journal table, John Enterprise account was debited
for 300,000 FRW to accounts payable, and returns outwards was credited toreduce expenses for 300,000 FRW.
Application activity 6.4
1. Contrast returns inwards and returns outwards
2. Under which circumstances may goods be returned?
3. Record the following transactions in returns outwards or returns
outwards journal depending on the type of journal in which they
are supposed to be recorded
a. 1st March, sold goods to MUSONI for 4000,000 FRW but the same
dated MUSONI returned the goods valued at 250,000 FRW because
they were not of ordered quality
b. Bought goods from MUTIMA for 1000,000 FRW but returned
goods worth 150,000 FRW the following day because they weredefected.
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6.5 Recording transactions in general journal
Learning Activity 6.5
1. What is general journal?
2. Give three examples of transactions that may not be recorded in
special journals but in general journal only3. What are the columns of general journal?
6.5.1 Description of general journal
A general journal is a daybook or subsidiary journal in which transactions
relating to adjustment entries, opening stock, depreciation, accounting errors
etc. are recorded. The transactions recorded in a general journal are those that
do not qualify for entry in any special journal used by the organisation, such as
non-routine or adjusting entries (Wikipedia).
The general journal is the company’s journal in which initial record keeping
of all the transactions is done which are not recorded in any of the specialty
journals maintained by the company like purchase journal, sales journal, Cash
journal, etc. Whenever an event or transaction occurs, it is recorded in a journal.
Journal can be of two types a specialty journal and a general journal.
A special journal records special events or transactions related to the
particular journal. There are mainly four kinds of special journals namely sales
journal, cash receipts journal, purchases journal, and cash disbursements
journal. The company can have more specialty journals depending on its
needs and type of transactions, but the above four journals contain the bulk of
accounting activities.
All other transactions not entered in a special journal account for in a General
Journal. It can have the following types of transactions: accounts receivables,
accounts payable, equipment, credit sale of fixed assets, accumulated
depreciation, expenses, Interest income and expenses, etc
Examples of transactions recorded in general journal only include:
• Sale and purchase of fixed assets
These are assets a firm purchases and retains to help carry on the business. It
is not intended to sell fixed assets in the ordinary course of business and it is
expected that the bulk of their value will be used up as the result of contributingto trading activities. Examples of fixed assets are premises, plant, machinery,
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furniture and motor vehicles. A characteristic of fixed assets is that they usually
remain in the business for long periods of time and will only be sold or scrapped
when they are of no further use.
• Entries for Sale or purchase of fixed asset on credit
In business, the company may need to purchase the fixed asset on credit to
use in day-to-day operations. Likewise, the company needs to make the journal
entry for the purchase of the fixed asset on credit in order to account for the
new capitalization of the cost of the fixed asset as well as to account for the
liability that exists at the time of the purchase.
Usually, the assets may be sold in current value, or more/less than at a current
value. When the assets are sold for then its written down value, the profits
arising from it will be treated as profits for the company. These profits can
be allocated as Revenue Profit and Capital profits for tax purposes. When the
assets are sold less than their written down value, it will incur the loss of the
company. Both loss and profit on the sale of fixed assets are to be shown on the
Income Statement.
Additionally, as the cost of the fixed asset will be depreciation from the day
that it is ready to use, the company will also need to make the depreciation
journal entry for the purchased fixed asset at end of the accounting period. This
depreciation of the fixed asset is necessary to spread the cost of the purchased
asset over the accounting periods that such asset provides benefits to the
business.
The company can make the journal entry for the purchase of fixed asset on
credit by debiting the fixed asset account with the capitalization cost of thepurchased fixed asset and crediting the accounts payable.
This journal entry will increase the total non-current assets as a result of the
capitalization of the new fixed asset on the balance sheet. At the same time,
it will also increase the total liabilities on the balance sheet as a result of the
purchase of fixed asset on the credit.
Later, when the company makes the cash payment for the credit purchase of
the fixed asset that it has made previously, it can make the journal entry for the
payment of the fixed asset purchase on credit by debiting the accounts payableand crediting the cash account
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Accumulated depreciation is the total depreciation for a fixed asset that is
assigned as an expense since the asset was obtained and made available for use.
Accumulated depreciation accounts are asset accounts with a credit balance
(known as a contra asset account). It appears on the balance sheet as a reduction
from the gross amount of fixed assets reported.
For example, on January 1, the company ABC purchases new office equipment
that costs $50,000 on credit from one of its vendors. The company ABC receives
the office equipment and it is ready to use on the same day of the purchase.
On February 1, the company ABC makes this $50,000 payment to its vendor
to settle the credit purchase of the fixed asset that it made on January 1. This
$50,000 office equipment is expected to have a useful life of 10 years. And the
company ABC uses the straight-line depreciation method for all of its equipment
type of fixed asset.
In this case, the company ABC can make the journal entry for the credit
purchase of the $50,000 office equipment by debiting this $50,000 amount to
the equipment account and crediting the same amount to the accounts payableas below
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This journal entry for the credit purchase of the fixed asset, which is the $50,000
office equipment, will increase both total assets and total liabilities on the balance
sheet by $50,000 as of January 1.
Later, on February 1, when the company ABC makes the cash payment of
$50,000 to its vendor for the credit purchase of this $50,000 office equipment,it can make the journal entry to settle the payable as below:
This journal entry of the $5,000 depreciation of the fixed asset will increase the
total expenses on the income statement by $5,000 while decreasing the total
assets on the balance sheet by the same amount at the end of the year.
6.5.2 General journal entries
The procedure of recording general journal entries in Sage line 100 is the same
as other types of journals.
Click on process-entry journals-double click on general journal of the month in
which the transaction occurred then start recording transactions
Example: 2nd April bought equipment for 1800,000 FRW on credit,The entry in general journal would be:
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Figure 6. 13:Journal entries for credit sale of a fixed asset
Equipment account was debited to record the new capitalization of the cost of
equipment assets accounts payable accounts payable was recorded to record
an increase in accounts payable amount.
If the equipment is expected to have useful life of 20 years, after one year,
the depreciation expense will be recorded. Using straight-line method, the
depreciation of the equipment purchased is 180000/2=90,000 FRW
We will therefore debit depreciation expense for 90,000 FRW, and credit
accumulated depreciation for equipment for the same amount (90,000 FRW).
Before entering the above transactions in general journal, the affected accounts
need to be created in chart of account. We will therefore have the followingjournal entries:
Figure 6. 14:Journal entries for depreciation of a fixed asset
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Application activity 6.5
1. Define the term general journal
2. What are the types of transactions recorded in general journal?
3. Give the journal entries for:
a) When depreciation of equipment of 5000 FRW is to be recordedb) Credit sales of machinery for 2000,000 FRW
End unit assessment
1. What are the types of journals you know in accounting?
2. Clearly, explain the meaning of double entry system
3. The following information was extracted from the books of John
enterprises on the month of January, 2023 in Frw
i) April 1st: Started business: cash at hand 4,800,000Frw, Cash at bank
6,500,000
ii) iBought goods on credit from: Alice 2,600,000Frw; Eric: 4,400,000Frw
iii) 1st sold goods on credit to: Rachelle 2,800,000Frw; Ineza
1,200,000Frw
iv)April 2: Ineza cleared his account by cheque
v) April 8: Withdrew cash for business use worth 1,400,000
vi)April 14: Received cash from Rachelle in full settlement of her account
vii) April 20: Paid cash for wages worth 1,300,000Frw
viii)April 28: Deposited cash into bank worth 1,000,000 Frw
ix)April 30: Paid Eric by cashx) Required: Show the journal entries
