Bookkeeping Documents and Systems
Journals
Financial transactions enter your bookkeeping system through your Journals, so it's critical that your entries be accurate. Mistakes here will translate into misinformation down the road.
General Journal — If your transactions are not too frequent, your bookkeeper may list all of your financial transactions in your General Journal. For each transaction, your General Journal will record the date, the accounts involved, the amount of money involved and an explanation of the transaction.
Special Journals — If your transactions are more frequent, your bookkeeper may use Special Journals in addition to your General Journal. Special Journals allow you to group regularly occurring transactions into categories. For example, your “credit sales” could be listed together in your Sales Journal, and your “cash sales” could be listed together in your Cash Receipts Journal.
The six principal Special Journals are as follows:
Cash Receipts Journal — Records the inflow of cash into your business. This will be predominantly from sales, but other examples include bank loans, investments, and the sale of company assets. Primary Source Document: Bank deposit
Sales Credit Journal (Accounts Receivable) — Records your non-cash sales. This occurs anytime you make a sale on credit. Primary Source Documents: Sales invoices
Cash Disbursements Journal — Records the outflow of cash from your business. Examples include cash purchases, operating expenses and accounts payable payments. Primary Source Documents: Cheques and Cheque requests
Purchase Journal (Accounts Payable) — Records your non-cash payments. This occurs any time you make a purchase on credit. Primary Source Documents: Purchase invoices and purchase orders
Inventory Journal — Records the inflow and outflow of your inventory. Primary Source Documents: Purchase invoices, purchase orders, sales invoices and inventory control sheets
Payroll Journal — Records your payroll expenses. Primary Source Documents: Employee time sheets
Ledgers
Once all of the financial information from your source documents has been entered into your Journals, the information can be organized on your Ledgers, according to your Chart of Account accounts. This process is called “posting” to your ledgers. If your bookkeeping is computerized, it will happen instantaneously, but it is still important for you to understand what is going on.
General Ledger
This is what accountants refer to as your company's “books.” Essentially, your General Ledger is the place where your Journals and your Chart of Accounts come together to make a database of all your financial transactions. It is the “master account” that combines the results of all your individual accounts.
Subsidiary Ledgers
For many businesses, it's useful to monitor individual accounts separately. Regular customers, for example, can be set up on their own subsidiary ledgers. These can then be totalled monthly with the results posted on the General Ledger. A computerized accounting program will automatically tie your Subsidiary Ledgers to your General Ledger.
Bookkeeping System
Again, it's not necessary for you to become your own bookkeeper, but it's necessary for you understand and have confidence in the process. In this regard, you should design a system that will ensure that the right information reaches your bookkeeper at the right time, that it's entered into your books in a timely fashion, and that it's double-checked for accuracy.
The following questions will help you to design your Bookkeeping System.
- How do your Financial Source Documents end up in the hands of your bookkeeper or accountant? Hopefully your Financial Control Systems are set up to make this as straightforward a process as possible. Your bookkeeper shouldn't have to go searching for information.
- How are the numbers entered into your Bookkeeping System? Presumably this is your bookkeeper or accountant's responsibility, but in a smaller business it may be up to an administrator. In either case, there should be a systemized approach to the job to ensure it is done right every time.
For example, all source documents could first be organized chronologically. Next, as the information is entered into your bookkeeping system, the source documents could be initialed and dated so they are not accidentally entered twice.
- When does your bookkeeping occur? There should be a schedule to ensure that your books are kept up-to-date. For example, you may have your books updated every Monday.