What Are Accounting Journals?

A business can have many different types of journals. The most common ones are tailored to handle cash, accrual, or special transactions.

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Use journals to record cash transactions

Cash receipts journal

When accountants use the word cash, it doesn’t just mean paper money and coinage; it includes checks and credit card transactions. In accounting, cash is a generic term for any payment method that is assumed to be automatic.

When you sign a check and give it to the clerk behind the store counter, part of your implicit understanding is that the funds are immediately available to clear the check. Ditto paying with a credit card, which represents an immediate satisfaction of your debit with the vendor. (Never mind the fact that a three-day lag usually occurs between the time the charge is processed and when the money hits the vendor’s checking account.)

• Customer sales made for paper money and coinage: Many types of businesses still have booming cash sales involving the exchange of paper money and coins. Some examples are convenience stores, retail shops, and some service providers such as hair salons. I am still amazed by the amount of cash my retail clients take in from customers every
• Customers making payments on their accounts: Any payment a customer makes for goods or services previously billed goes in the cash receipts journal.
• Interest or dividend income: When a bank or investment account pays a business for the use of its money in the form of interest or dividends, the payment is considered a cash receipt.

As a technical matter, many businesses record interest income reflecting on their monthly bank statement in the general journal.

Interest and dividend income is also known as portfolio income. Many times it’s also considered to be passive income because the recipient doesn’t have to work to receive the portfolio income (like you do for your paycheck). One caveat, though: For tax purposes the Internal Revenue Service does not consider interest and dividend income to be passive.

• Asset sales: Selling a business asset like a car or office furniture can also result in a cash transaction. You may see an example in your textbook where a company is outfitting its executive office space with deluxe new leather chairs so it’s selling all the old leather chairs to a furniture liquidator and there is an exchange of some mode of cash between the parties to the sale.

Various types of cash receipts receive different treatment on a company’s income statements. For example, cash sales are treated one way, and interest income and dividends are treated another way.

• Debit columns: Because all transactions in the cash receipts journal involve the receipt of cash, one of the debit columns is always for cash. The other is for sales discounts, which reflects any discount the business gives to a good vendor who pays early. For example, a customer’s invoice is due within 30 days, but if the customer pays early, it gets a 2 percent discount.
• Credit columns: To balance the debits, a cash receipts journal contains four credit columns:
  • Sales
  • Accounts receivable
  • Sales tax payable, which is the amount of sales tax the business collects on the transaction (and doesn’t apply to every transaction)
  • Miscellaneous, which is a catch-all column where you record all other cash receipts like interest and dividends

Not all sales are subject to sales tax. Your state department of revenue determines what sales transactions are taxable. For example, in many states, fees for accounting or legal services are not subject to sales tax.

• The date the transaction occurs
• The name of the account affected by the transaction

This figure shows an example of a portion of a cash receipts journal.

A partial cash receipts journal

Cash disbursements journal

• Merchandise purchases: When a merchandiser, a company selling goods to the public, pays cash for the goods it buys for resale, the transaction goes in the cash disbursement journal.
• Payments the company is making on outstanding accounts: This includes all cash disbursements a company makes to pay for goods or services it obtained from another business and didn’t pay for when the original transaction took place.
• Payments for operating expenses: These transactions include checks or bank transfers a business uses to pay utility or telephone invoices.

• Credit columns: Because all transactions in the cash disbursements journal involve the payment of cash, one of your credit columns is for cash. The other is for purchase discounts, which are reductions in the amount a company has to pay the vendor for any purchases on account. For example, a business offers customers a certain discount amount if they pay their bills within a certain number of days.
• Debit columns: To balance these credits, the debit columns in a cash disbursements journal are accounts payable and miscellaneous (a catch-all column where you record all other cash payments for transactions, such as the payment of operating expenses).

• The date the transaction occurs
• The name of the account affected by the transaction
• The pay-to entity (which means who the payment is made to)

A partial cash disbursements journal

Record accrual transactions

In my experience teaching financial accounting, students have a big problem with figuring out accruals, understanding how accrual transactions interact with cash transactions, and knowing when it’s appropriate to record an accrual transaction.

Following, is information about your two accrual workhorse journals, the sales journal and purchases journal.

Sales journal

This figure presents an example of a sales journal.

A partial sales journal

When you record credit sales in your sales journal, you follow up by posting the transactions to each customer’s listing in the accounts receivable ledger.

Use the sales journal only for recording sales on account. Sales returns, which reflect all products the customers return to the company after the sales are done, do not record in the sales journal. Instead, you record them in the general journal.

Purchases journal

• Accounts payable: Because the company is purchasing on account, the current liability account called “accounts/trade payable” is always affected.
• Terms: This column shows any discount terms the company may have with the vendor. For example, 2/10, n/30 means the company gets a 2 percent discount if it pays within 10 days; otherwise, the full amount is due in 30 days. (The n in this shorthand stands for “net.”)
• Name: The company records the name of the vendor from whom the purchase is made.
• Account: This column shows to which financial statement account(s) the purchase is taken. In the example shown here, there are two accounts, accounts payable (A/P) and purchases. Because no other accounts (such as sales tax) are affected, A/P and purchases are for the same dollar amount. If the company collects sales tax too, a column would be added to report this amount as well.

A partial purchases journal