Question

First question for discussion. Why use special journals? What are some reasons we may use special journals instead of the one general journal that we learned before ch 7?

Lets hear some different students' understanding of this?

Next Question. What are subsidiary ledgers and why do we use them? What is their relationship to the General Ledger? Why would we use an accounts receivable subsidiary ledger? What is the need for this ledger?

Answer 1

Part A) We shall understand what special journals are and why we use them . Moreover we shall analyse their edge over general journals.

Special Journals help expedite the process of accounting for similar type of transactions. We record frequently occurring transactions under the same journal like the Sales Journal, Cash Receipts Journal etc. If a transaction cannot be recorded in any of the special Journals, then it is recorded in the General Journal.The totals of these journals are periodically transferred to the general ledger.

Following is Table Showing Types of Special Journals that a business might have depending on the frequency of transactions.

Sales Journal	Cash Receipts Journal	Purchases Journal	Cash Payments Journal	General Journal
For Credit Sales	All cash Receipts	For Credit Purchases	All cash Payments	Residual Journal for entry that cannot be entered in other journals; Also for adjustment & correcting entries.

Benefits Over General journal:

1. Increase in efficiency: A more organized journal means less time wasted in locating requisite transactions and easy reconciliations of balances across all sorts of books.
2. Division of work among employees: Since each employees is involved in a specialized area of the book-keeping process, he gains expertise in that area and as result produces less errors.
3. Less Chances of Fraud : Since every employees has his own specialized area, accountability is better ascribed.
4. Cost Saving: A de-centralized recording system enables the business to save costs on book-keeping and labor.

Part B)We shall understand what Subsidiary Ledgers are and why we use them . Moreover we shall analyze their edge over general journals.

Similar to Special Journals, in subsidiary ledgers we group similar entries, at the classification level.

A business with thousands of customers cannot maintain a single ledger for all , instead they maintain a single “Accounts receivable” ledger in General Ledger[acting as a control account] and maintains detailed classification of entries per customer in Subsidiary Ledger. The same process if followed for Accounts payable as well.

Advantages are:

1. Concise and organized Information: A Sub-Ledger is a precise and trimmed version of its parent general ledger. It helps in avoiding large no. of accounts in trial balance, instead consolidates balance to one single account.
2. Up to date Information: A transaction affecting an individual debtor gets updated in his account enabling fast database query and output.