Bookkeeping of a Sole Trader: Journals (Grade 10 NSC Matric Accounting): Revision Notes
General journal
What is the general journal?
The general journal is a special book of first entry used in accounting. While most regular business transactions are recorded in specialised journals (like the Cash Receipts Journal or Sales Journal), the general journal handles all the unusual or non-standard transactions that don't fit anywhere else.
Think of the general journal as the "miscellaneous" journal - it catches everything that the other journals cannot record. This includes corrections, adjustments, and special transactions that happen less frequently in a business.
When do we use the general journal?
You would use the general journal to record various special transactions in a sole trader's business:
- Correcting errors made in other journals or ledger accounts
- Recording bad debts when a debtor cannot pay their account
- Cancelling discount allowed on dishonoured cheques (cheques that bounce)
- Charging interest on overdue debtor accounts
- Paying interest on overdue creditor accounts
- Recording owner's drawings of trading stock or consumables for personal use
- Recording donations of trading stock to charity or other organisations
- Capitalising interest on loans or fixed deposits
These are non-routine transactions that require special attention and careful recording to maintain accurate financial records.
Format and structure of the general journal
The general journal follows a specific format with multiple columns. Each column has an important role in recording and tracking transactions properly. Understanding this structure is essential for accurate bookkeeping.
The column layout
| Day | Details | Fol | Debit | Credit | Debtors' control | Creditors' control |
|---|---|---|---|---|---|---|
| Debit / Credit | Debit / Credit |
This format allows you to record all necessary information about each transaction in an organised way.
Understanding each column in detail
Column 1 - Day
This records when the transaction happened. You only need to write the day of the month (for example: 4, 15, or 28). The month and year are written as a heading at the top of the journal page.
Column 2 - Details
This column contains two important pieces of information:
- The names of the accounts being debited and credited in both the General Ledger and subsidiary ledgers
- A reference to the supporting document (voucher) for the transaction
The account being debited is written first, followed by the account being credited (usually slightly indented). For control accounts, individual debtor or creditor names appear here while the total goes in the control columns.
Column 3 - Fol (Folio)
This shows the page reference where each account can be found in the General Ledger or subsidiary ledgers. This makes it easy to trace entries and find specific accounts when needed.
Column 4 - Debit
This records the total amount that will be debited in the General Ledger. The amount written here represents the debit side of the double-entry.
Column 5 - Credit
This records the total amount that will be credited in the General Ledger. The amount here represents the credit side of the double-entry.
Columns 6 - Debtors' control (Debit and Credit)
These columns show amounts affecting the Debtors' control account in the General Ledger. Individual debtor names (called sundry accounts) are written in the Details column, but the total affecting the control account goes in these columns.
Journal debits to individual debtors are recorded in the debit sub-column, while journal credits to individual debtors go in the credit sub-column.
Columns 7 - Creditors' control (Debit and Credit)
These columns show amounts affecting the Creditors' control account in the General Ledger. Individual creditor names (sundry accounts) are written in the Details column, while the total affecting the control account appears here.
Journal debits to individual creditors go in the debit sub-column, while journal credits to creditors go in the credit sub-column.
Common general journal entries
Different types of transactions require specific account combinations. Here's a comprehensive guide to help you understand which accounts to use for common general journal entries.
Discount-related transactions
Cancellation of discount on dishonoured cheque
When a debtor's cheque bounces (is dishonoured by the bank), any discount previously given to that debtor must be cancelled. The discount needs to be added back to what the debtor owes.
- Debit: Debtor's name and Debtors' control account
- Credit: Discount allowed account
This reverses the discount benefit that was given when the cheque was originally received.
Interest on overdue accounts
Interest charged on overdue debtors
When debtors take too long to pay their accounts, the business may charge them interest on the overdue amount. This compensates the business for the delay in receiving payment.
- Debit: Debtor's name and Debtors' control account
- Credit: Interest on overdue debtors account
The interest charge increases the amount the debtor owes to the business.
Interest paid on overdue creditors
If your business is late in paying its creditors, you may need to pay interest charges to them. This is an expense for taking too long to settle the account.
- Debit: Interest on overdue creditors account
- Credit: Creditor's name and Creditors' control account
This increases the amount owed to the creditor and records an interest expense.
Bad debts
Writing off a debtor's account as irrecoverable
Sometimes you become certain that a debtor will never pay their account - perhaps they've been declared insolvent (bankrupt) or have disappeared. When this happens, you need to write off the debt as a bad debt expense.
- Debit: Bad debts account
- Credit: Debtor's name and Debtors' control account
This removes the debtor's balance from your records and records it as an expense (bad debt) in the business.
Drawings and donations
Donation of stock at cost price
When the owner donates trading stock to charity or another organisation, this must be recorded in the books. Donations of stock are always recorded at cost price (what the business paid for the stock), not selling price.
- Debit: Donations account
- Credit: Trading stock account
This reduces the stock on hand and records the donation as an expense.
Drawings of trading stock at cost price
When the owner takes trading stock for personal use, this is called drawings. Like donations, drawings are recorded at cost price, not the selling price of the goods.
- Debit: Drawings account
- Credit: Trading stock account
This reduces stock and reduces the owner's equity in the business.
Drawings of consumables at cost price
When the owner takes consumable items (like stationery, cleaning supplies, or other non-stock items) for personal use, this is also recorded as drawings.
- Debit: Drawings account
- Credit: The specific consumable account (e.g., Stationery, Cleaning materials)
This is different from trading stock drawings because it affects a consumable asset account rather than stock.
Capitalisation of interest
Capitalisation of interest on loan
When interest on a business loan is added to the loan balance rather than being paid, this is called capitalisation of interest. The interest owing increases the total loan amount.
- Debit: Interest on loan account
- Credit: Loan account (for example, Loan: MB Bank)
The interest becomes part of the loan balance and will be paid when the loan is settled.
Capitalisation of interest on fixed deposit
When a business has a fixed deposit at a bank, the interest earned is added to the deposit balance. This increases the amount invested.
- Debit: Fixed deposit account (for example, Fixed deposit: XY Bank)
- Credit: Interest on fixed deposit account
The interest increases the deposit balance and represents income earned.
Correction of errors
Mistakes are a normal part of bookkeeping, but knowing how to fix them properly is crucial. In accounting, you cannot simply draw a line through an incorrect entry and write the correct one. You must follow proper procedures to correct errors while maintaining accurate records.
Why proper error correction matters
When errors occur in journals or ledgers, they affect the accuracy of your financial statements. Errors might involve:
- Recording transactions in the wrong journal
- Posting amounts to the wrong accounts
- Recording incorrect amounts
- Posting to the wrong side of an account (debit instead of credit, or vice versa)
Many errors aren't noticed immediately because they may still balance or appear on the correct side of an account. They're usually only discovered when the books are checked during reconciliation or when preparing financial statements.
How to correct errors properly
In accounting, corrections must create a proper audit trail. You cannot erase or cross out errors. Instead, you make a correcting entry that reverses the error and records the correct information. Most error corrections are made in the general journal.
Errors in subsidiary journals
When an error has been made in a subsidiary journal (such as the Cash Payments Journal, Sales Journal, or Purchases Journal), here's what you should do:
Transaction completely omitted
If you forgot to record a transaction entirely, the solution is straightforward: make the recording now in the relevant journal. Enter the transaction with the current date and process it normally.
Amount recorded is too small
If you recorded an amount that's smaller than it should be, you need to record the difference between the correct amount and what you actually recorded. Put this difference through the subsidiary journal to "top up" the entry to the correct total.
Example: Correcting an understated amount
If you should have recorded R500 but only recorded R300, you would now record an additional R200 in the journal to bring the total to the correct amount.
Amount recorded is too big
If you recorded an amount that's larger than it should be, you need to record the difference in the subsidiary journal to reduce the entry. This adjustment brings the total down to the correct amount.
Example: Correcting an overstated amount
If you recorded R800 but the correct amount was R600, you would record a reduction of R200 in the journal to bring the total down to the correct amount.
Posting errors from journals to ledgers
Posting errors happen when you transfer information from journals to ledger accounts. These require correction through the general journal. Here are the common types:
Wrong amount posted to the correct account
This error occurs when you posted to the right account but with the wrong amount. The correction is relatively simple - you make a single journal entry for the difference.
If the amount posted was too small, you debit or credit the account (depending on which side it should be on) with the difference to increase it. If the amount was too large, you do the opposite entry to decrease it.
Correct amount posted to the wrong side
This error means you posted the right amount but on the wrong side of the account - for example, you debited when you should have credited, or vice versa.
To correct this, you make a single journal entry that moves the amount from the incorrect side to the correct side of the account.
Posted to the completely wrong account
This is when you posted a transaction to an entirely different account than intended. For example, you posted a purchase to Stationery instead of Trading Stock, or to Creditor A instead of Creditor B.
To correct this error in the general journal:
- Take the amount out of the incorrect account (reverse the original entry)
- Put the amount into the correct account (make the proper entry)
This requires two parts to the journal entry - one to cancel the wrong entry and one to create the right entry.
Helpful tip for error correction
When you need to correct an error, it's very helpful to draw a T-account for the affected accounts. Follow these steps:
- Draw the T-account and write in the error as it currently appears
- Below or beside it, write what the entry should actually be
- Determine what journal entry will change the error into the correct entry
- Record this correcting entry in the general journal
This visual approach helps you see clearly what needs to be done and prevents making new errors while correcting old ones.
Worked example: recording general journal entries
Let's work through several realistic transactions that would be recorded in the general journal for Davido Traders during May 2011. This will help you understand how to apply the principles in practice.
Worked Example: Transaction 1 - Interest charged on overdue debtor (4 May)
Situation: G. Patella is a debtor with an overdue account balance of R8,200. The business charges 6% interest per annum for the three months the account has been overdue.
Calculation: To find the interest for three months:
General journal entry required:
- Debit: G. Patella (Debtors' control) R123
- Credit: Interest on overdue debtors R123
This entry increases what G. Patella owes and records interest income for the business.
Worked Example: Transaction 2 - Bad debt write-off (6 May)
Situation: A. Mosterd owes the business R1,200 but has been declared insolvent (bankrupt). The business receives a first and final dividend payment of 30 cents in the rand from the insolvency proceedings.
Calculation:
- Dividend received: (this was already recorded when received)
- Amount to write off:
General journal entry required:
- Debit: Bad debts R840
- Credit: A. Mosterd (Debtors' control) R840
This writes off the unrecoverable portion of the debt as a bad debt expense.
Worked Example: Transaction 3 - Cancellation of discount on dishonoured cheque (9 May)
Situation: R. Ndlovu's cheque for R980 has been returned by the bank with a debit note (the cheque bounced). When R. Ndlovu originally paid, the business gave him a R20 discount. Since the cheque was dishonoured, this discount must be cancelled.
General journal entry required:
- Debit: R. Ndlovu (Debtors' control) R20
- Credit: Discount allowed R20
This reverses the discount that was given, adding R20 back to what R. Ndlovu owes.
Worked Example: Transaction 4 - Owner's drawings of stock (14 May)
Situation: The owner, G. Nel, takes merchandise for personal use. The goods have a selling price of R500 but a cost price of R300.
Important note: Drawings are always recorded at cost price, not selling price!
General journal entry required:
- Debit: Drawings R300
- Credit: Trading stock R300
This reduces the trading stock and records the owner's withdrawal of business assets.
Worked Example: Transaction 5 - Correction of creditor posting error (16 May)
Situation: Merchandise bought on credit from Storm Traders for R3,400 was correctly recorded in the Purchases Journal, but when posting to the Creditors Ledger, it was mistakenly posted to Stork Traders' account instead of Storm Traders' account.
General journal entry required:
- Debit: Stork Traders (Creditors' control) R3,400 - to remove the incorrect credit
- Credit: Storm Traders (Creditors' control) R3,400 - to add the correct credit
Why this works: The credit was wrongly given to Stork Traders, so we debit Stork Traders to remove it. The credit should have been given to Storm Traders, so we credit Storm Traders to add it.
Worked Example: Transaction 6 - Correction of account posting error (24 May)
Situation: Trading stock worth R1,600 was bought from Schaik Traders, but it was posted to the Stationery account in the General Ledger instead of the Trading Stock account.
General journal entry required:
- Debit: Trading stock R1,600
- Credit: Stationery R1,600
This removes the incorrect debit from Stationery and places it correctly in Trading Stock.
Worked Example: Transaction 7 - Donation of stock (28 May)
Situation: The business donates trading stock worth R4,000 (at cost price) to a local old age home.
General journal entry required:
- Debit: Donations R4,000
- Credit: Trading stock R4,000
This reduces trading stock and records the charitable donation as an expense.
Important points to remember for exams
Understanding the general journal is essential for exam success. Here are key points to keep in mind:
Recording at cost price: Always record drawings and donations of stock at cost price, never at selling price. This is a common exam error - students sometimes use selling price by mistake.
Dishonoured cheques: When a cheque bounces, remember that any discount given must be cancelled by adding it back to the debtor's account.
Interest calculations: When calculating interest, pay careful attention to the time period:
- Convert months to a fraction of a year (3 months = 3/12 or 0.25 years)
- Always show your workings clearly
- Formula:
Error corrections: Think through each error carefully:
- Which account was affected incorrectly?
- What should the correct entry have been?
- What journal entry will fix the error?
Control accounts: Remember that Debtors' control and Creditors' control accounts are summary accounts in the General Ledger. The individual debtor or creditor names are written in the Details column, while the totals go in the control account columns.
No narrations: The general journal format shown does not include separate narrative descriptions for each transaction. However, you should still understand what each transaction represents and why it's recorded.
Show all calculations: In exams, always show your calculations for interest, bad debts, or any other computed amounts. You can earn partial marks even if your final answer is incorrect.
Remember!
Key Points to Remember:
- The general journal records non-routine transactions that don't belong in specialised journals, including error corrections, bad debts, interest charges, drawings, and donations
- The journal has a specific format with columns for Day, Details, Folio, Debit, Credit, and separate control columns for Debtors and Creditors
- Common entries include bad debt write-offs, discount cancellations, interest on overdue accounts, owner's drawings of stock, donations, and capitalisation of interest
- Errors must never be corrected by crossing out - always use proper correcting entries in the general journal
- Drawings and donations of trading stock are always recorded at cost price, not selling price
- When correcting posting errors, identify whether it's a wrong amount, wrong side, or wrong account, then create the appropriate general journal entry to fix it