Journal Proper

Journal Proper

A business maintains several special journals — the Cash Book, Purchases Book, Sales Book, Purchases Return Book, and Sales Return Book — to record the bulk of its routine transactions. But not every transaction fits neatly into one of these books. Transactions that do not find a place in any special journal are recorded in a book called the Journal Proper (also called the Journal Residual). It is the general journal that catches everything left over.

The following five categories of entries are recorded in the Journal Proper.

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1. Opening Entry

At the start of a new accounting year, a business opens a new set of books. The opening balances of all assets, liabilities, and capital from the previous year must be brought forward. This is done through a single journal entry called the Opening Entry.

The rule is simple: debit all assets, credit all liabilities, and credit the capital (the difference, which is assets minus liabilities). The entry is dated on the first day of the new accounting period.

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2. Adjustment Entries

At the end of the accounting period, certain items need to be updated to reflect the accrual basis of accounting. These are not recorded during the year because the actual cash receipt or payment has not yet occurred, or because the benefit/expense spans more than one period. The entries made to bring the accounts to their correct balances on the last day of the year are called Adjustment Entries.

Common examples include:

• Rent outstanding (expense incurred but not yet paid)
• Prepaid insurance (expense paid in advance for future periods)
• Depreciation (allocation of the cost of a fixed asset over its useful life)
• Commission received in advance (income received but not yet earned)

Each adjustment entry debits the relevant expense or income account and credits the corresponding liability or asset account (e.g., Debit Rent Account, Credit Outstanding Rent Account).

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3. Rectification Entries

Mistakes happen. When an error is discovered in the original recording of a transaction (in a journal or a special book) or in its posting to the ledger, it must be corrected. The entries used to fix these errors are called Rectification Entries, and they are recorded in the Journal Proper.

The correction depends on the nature of the error — whether it is a one-sided error, a two-sided error, or an error of principle. The correct account is debited or credited to cancel the wrong effect and replace it with the correct one.

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4. Transfer Entries (Closing Entries)

At the end of the accounting year, several accounts need to be closed and their balances transferred to other accounts. These are called Transfer Entries. The most important ones are:

• Drawing Account to Capital Account: The owner's drawings during the year are accumulated in the Drawings Account. At year-end, this balance is transferred to the Capital Account (Debit Capital Account, Credit Drawings Account).

• Closing of Revenue and Expense Accounts: All accounts relating to the operation of the business — Sales, Purchases, Opening Stock, all incomes, gains, and expenses — are not left open. Their totals or balances are transferred to the Trading Account and the Profit and Loss Account. These transfer entries are also called Closing Entries.

For example:

• Debit Sales Account, Credit Trading Account (to close Sales)
• Debit Trading Account, Credit Purchases Account (to close Purchases)
• Debit Profit and Loss Account, Credit Salaries Account (to close Salaries)

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5. Other Entries

In addition to the four categories above, the Journal Proper is used to record a variety of specific transactions that do not fit into any special journal. These include:

1. Dishonour of a cheque: When a cheque previously received and discounted or deposited is dishonoured, the discount allowed or received earlier on that cheque must be cancelled. The entry for this cancellation is recorded in the Journal Proper.
2. Credit purchase/sale of items other than goods: For example, purchasing furniture on credit or selling an old machine on credit. These are not routine goods transactions, so they are not recorded in the Purchases or Sales Book.
3. Goods withdrawn by the owner for personal use: This is treated as a drawing. The entry is: Debit Drawings Account, Credit Purchases Account (or Goods Account).
4. Goods distributed as samples for sales promotion: This is an advertising expense. The entry is: Debit Advertisement/Sales Promotion Expense Account, Credit Purchases Account (or Goods Account). …