Journals & Opening Balances

A journal entry moves a single sum between two nominal accounts (e.g. reduce the “Assets, Cars” control by £1,500 and correspondingly increase the “Depreciation” control). Some examples that you might use journal entries for are…

· Opening bank balances (e.g. for £6,000 opening balance in long standing bank a/c you’d credit the “Profit & Loss (B/F)” control and debit the bank account by £6,000)

· Opening nominal account balances (e.g. not a recommended procedure, but for £3,000 opening balance in a sales nominal you’d credit the nominal in question and debit the “Profit & Loss (B/F)” control by £3,000)

· Share capital and Loans (e.g. for £5,000 loan from director you’d credit the “Loans” control and debit a bank account by £5,000)

· Transferring sums between banks (e.g. to move £12,000 from “Bank A” to “Bank B” you’d credit “Bank A” and debit “Bank B” by £12,000)

· Depreciation (e.g. to depreciate your new car by £1,500 at the end of year you might credit the “Assets, Cars” control and debit the “Depreciation” control by £1,500)

· VAT payments (e.g. to settle your VAT quarterly payment of £7,000 you’d credit a bank and debit the “VAT” control by £7,000)

· Transferable commission – bank (e.g. to move £4,000 of transferable commission from your client bank you’d credit the client bank a/c and debit the other bank a/c by £4,000)

· Period ends (e.g. at the end of each year you should reset all your nominal accounts to zero and move their balances into the “Profit & Loss (B/F)” control

Credits & Debits

Debtors are people and institutions who owe you money (i.e. have debts to you), so for example, the total amount of money owed to you should appear as a debit in the “Debtors” control. Creditors are the exact opposite.

If you have money in the bank (i.e. not an overdraft) then that value should be entered as a debit in your bank account, because the bank owes that money to you and is effectively one of your debtors. This is the opposite to what most people expect, because they are used to receiving statements from their banks which are actually printed from the bank’s point of view, in which case a “debit” means you owe the bank. Anyway, when working from your own point of view a debit at the bank is a healthy balance while a credit is an overdraft.

The Scrolling View

The illustration below shows a number of journal entries, including for an opening bank balance, opening VAT, and most of the period end account clear-downs at the end of 1999 (i.e. all done on the first day of 2000).

Deleting, Searching & Sorting

Similarly to all the other parts of Durell, you can delete incorrect transactions with the yellow “Bin” button (providing you have user access rights to do so), and search and sort the scrolling list via the green “Binoculars” button, which allows you to re-order the list by date, transaction number, description, debit, credit and sum, as shown below…

Editing Existing Journals

To edit an existing journal simply double-click it and make the required changes.

Creating New Journals

To create a journal entry, starting from the “Accounts Menu”…

· Click the “Journals” button

· Click the “Starburst” or new record button, where upon you should see a dialogue like that shown below

· Enter the date of the journal (e.g. the date of the bank’s opening balance)

· Enter a description for the journal (n.b. this is for your benefit only, to identify what the journal is about)

· Enter the amount involved

· Select the type of account to debit (i.e. bank, control, sale or purchase)

· If the movement involves a bank you may choose to create a matching Cashbook entry via the “Make cashbook entry” tick-box

· Select the actual account to debit (e.g. the “Office Bank A/C”)

· Select the type of account to credit (i.e. bank, control, sale or purchase)

· If the movement involves a bank you may choose to create a matching Cashbook entry via the “Make cashbook entry” tick-box

· Select the actual account to credit (e.g. the “Profit & Loss (B/F)” control)

· Click “OK”

In the example above the “Make cashbook entry” tick-box is clear, so the opening bank balance will just appear in the bank. If, for example, this £5,000 opening balance was caused by a cheque being deposited in the bank for £5,000 then it would have been clearer to also make a cashbook entry to clearly identify that receipt. However making such a Cashbook entry makes no difference to the actual system, it is simply done in order to make the transaction more obvious.

Opening bank balances

The illustration above shows one way to enter an opening bank balance. This would be suitable where you’re starting a new set of accounts for a long standing business, in which case the opening bank balance is just the balance selected at a given point in time (typically the last balance before your opening financial year). This sum will be in your bank at that point because of all the sales and purchases you’ve made over the preceding years, hence the balancing account will be the “Profit or Loss (Brought Forward)” control.

Transferring sums between banks

See “Journals & Bank Transfers”

Share capital, Dividends and Loans

When nothing is actually bought or sold, but you need to get money into or out of a bank account you again use a journal. In the example illustrated below the director is taking £10,000 out of the “Office” bank. The sum is debited to the “Director’s Loan Account” control because the director owes that sum to the company, and must repay it at some point. A dividend payment would be similar (i.e. credit bank and debit “Dividends” control) though the recipient would not subsequently re-pay the sum. Share capital is the exact opposite, with the sum being debited to the bank and credited to the “Share Capital” control.

Opening Nominal Account Balances

As far as possible you are advised not to enter nominal account opening balances via journal entries. Instead you should enter all sales and purchase invoices that were outstanding at your financial year start, which will result in their opening balances appearing automatically. More importantly these invoices will allow you to reconcile the sums received and paid after the year start. However if you are determined to enter opening balances for journals, then these should be balanced against the “Profit or Loss (Brought Forward)” control.

Depreciation

When you buy a new photocopier for example, because it is an “asset” you should allocate its invoice to a control account, such as “Equipment, Accumulative Purchases” (see “Accounts, Set-up Control Accounts” regarding the section on “Making Control Account Available To Invoices”). Then each year you should create a journal to move some of your asset value into a depreciation account, as shown below.

Shortcut - Use Default Journal Templates

Once you’ve worked-out exactly what ought to be done with a journal, to save it as a template for future re-use simply…

· Highlight it (e.g. the “Transfer into Euros” one, below)

· Click the “Signpost” button

· Select “Use as template”

· Give it a name (e.g. “Transfer into Euros”, “VAT Return”, etc)

· Click the “OK” button

Then the next time you’re starting a new journal to do the same thing just click the “Load default” button and pick the one you want, as shown below.

If you subsequently find the description isn’t quite right (e.g. you wish you’d saved “VAT Return” as “VAT Return for quarter” then just edit the text and click “Save Description”, as shown below, in which case the default template will be renamed AND its title passed to the Description field (see above) of all future journals based on it.

Regular Payment Journals

As an aid to remembering all the depreciation and similar journals that you have to make each year, you can choose to enter them all as regular payments (see “Accounts, Regular Payments”), though each year you will need to edit the actual values for each sum before posting them. The illustrated regular payment below would automatically create a journal like that shown above.

VAT Payments

An example VAT payment is shown below. As you can see the money is taken out of, or credited from, one of your bank accounts, while you “VAT” control account is reduced by the amount owed for the VAT quarter in question. VAT is discussed fully in the section on Accounts, Reports, VAT.

Transferable Commission

If you are involved with General Insurance then please refer to “Accounts, Period End, Transferable”, otherwise this will not apply to you.

Period Ends

At each period end, typically each financial year end, the balances in all of your sales and purchase nominal accounts should be re-set to zero (i.e. so you can start the new year with no sales so far) while their overall balance, which represents the overall profit or loss made during the last year, should be moved into the “Profit or Loss (Brought Forward)” control. You can see examples of this in the first example screen, in the “Scrolling View” section above. There is no need to make all of these journals manually, as the whole process may be done automatically via the “Period End” routine (see “Accounts, Period End”).