Journal Voucher

Journal Voucher Meaning

Journal voucher is a document of every financial transaction, having the necessary information such as the identification number of the voucher, date, description of the business transaction, amount of transaction, applicable taxes, a reference to other evidence, the signature of the maker and signature of the authorized person, used recording the transaction in the books of the organization.

Explanation

• Every transaction requires some sort of physical backup, which forms a base for it. The physical backup is nothing but the documentary evidence known as a journal voucher.
• It contains the information with the actual invoice as evidence. The third-party gives the actual invoice. Voucher is taken as the base for recording the financial transaction into the books of accounts of the organization.
• AuditorsAuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country's local operating laws.read more generally scrutinize the voucher as a part of their audit procedures.
• Journal vouchers (also known as JVs) are used for transactions that do not relate to any transaction of material, cash, bank, and other days to day business transactions. It means JVs are used for a transaction such as depreciation, transfer entries, adjusting entries, provisions, accrual entries, purchase & sale of fixed assetsFixed AssetsFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more on credit, write off balances no more required, etc.
• These vouchers are easily traceable in any accounting systemAccounting SystemAccounting systems are used by organizations to record financial information such as income, expenses, and other accounting activities. They serve as a key tool for monitoring and tracking the company's performance and ensuring the smooth operation of the firm.read more. Since these transactions are out of routine transactions, auditors vouch over these at priority.

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Types

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• Depreciation Voucher –  For recording the depreciation expense for the year.
• Prepaid Voucher – For recording prepaid expenses;
• FA Voucher – For recording the purchase of fixed assets;
• Adjusting Voucher – For recording the closing entriesClosing EntriesClosing Entries in Accounting are the journal entries made at the end of an accounting period to nullify the balances of temporary accounts by transferring the amount to the permanent accounts. read more.
• Transfer Voucher – For shifting of balances of one account to another.
• Rectification Voucher – For rectification of an error.
• Provision Voucher – For providing for an expense on an estimation basis.
• Accrual Voucher – For recording accrual incomeAccrual IncomeAccrued Income is that part of the income which is earned but hasn't been received yet. This income is shown in the balance sheet as accounts receivables.read more;

Purpose

• The primary purpose is to correct any business transaction, which is wrongly recorded. Also, the dual purpose is to record non-cash-oriented transactions in the books of accounts.
• Every transaction does not necessarily involve an outflow. Hence, transactions such as the depreciation of tangible assets, amortization of intangibles, write offWrite OffWrite off is the reduction in the value of the assets that were present in the books of accounts of the company on a particular period of time and are recorded as the accounting expense against the payment not received or the losses on the assets.read more account balances, adjusting journal entries, etc. require the use of journal vouchers.

Features

1. 1. The journals are standardized
2. Every journal voucher requires information on the following:
   • Identification number
   • Name of the counterparty
   • Transaction amount
   • Date of the transaction
   • Debit & credit accounts with GL (General LedgerGeneral LedgerA general ledger is a book of accounts that records the everyday business transactions in separate ledger accounts. The entries made in a ledger can be verified by getting a NIL balance on summing up all the ledger account amounts in the trial balance.read more) Codes
   • Documentary evidence
   • Brief description of the nature of the transaction effected.
3. Every journal voucher requires the approval of an authorized person.

Example Format of Journal Voucher

#1 – Purchase of Machinery

Explanation

The company purchased plant & machinery on credit. Plant & Machinery is a real accountReal AccountReal accounts do not close their balances at the end of the financial year but retain and carry forward their closing balance from one accounting year to another. In other words, the closing balance of these accounts in one accounting year becomes the opening balance of the succeeding accounting year.read more in nature (i.e., an asset for the organization). It is not usual for a business of the organization to purchase the plant & machinery daily. Hence, a company cannot issue a purchase voucher. To prepare a document in the records, the company can use a Journal voucher containing all the above details. The invoice from the vendor is used as evidence for the said Journal voucher.

#2 – Provision for Outstanding Expenses

Explanation

At the end of every accounting year, the organization is required to make estimates for the expenses which will be relevant for the end part of the accounting periodAccounting PeriodAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance.read more. Hence, provisions are needed to be made. However, the actual bill from the relevant parties (if any) is received in the next accounting period. The documentary evidence is not available. Thus, journal vouchers help serves the purpose. As evidence, a working is prepared wherein the basis of amounts are provided. The assumption is generally based on the management’s experience. Since actual payment is not made & the relevant vendor is also not easily identifiable, the outstanding expenses (liability) account is credited in the books of account

Documents Required for Preparation of Journal Voucher

• Debit Notes & Credit notes for any purchase return or sale return
• In case of any services supplied or procured, debit notes or credit notes
• Bill of the expense in case of prepaid or outstanding expenses.
• Documents for substantiating the correction of any error
• Trail mails can also be used as a basis for journal vouchers.
• Base working for the provisions.

Use & Importance

• It is used for recording the non-cash & non-trading types of transactions.
• It helps the auditors understand the impact of financial transactions in a business.
• It acts as evidence for future reference.
• It forms the basis of rectification entries.

Journal Voucher vs. Journal Entry

1. The words “Journal voucher” and “Journal Entry” are used interchangeably. However, there is a difference between the two. The former is the inception of any financial transaction & the later is the effect given in the books of accounts.
2. Journal entry is recorded in the journal, i.e., the primary books of accounts, while vouchers are the record documents kept as evidence for the journal entry.
3. Journal entries can be simple (i.e., one debit and one credit) or compound (i.e., one or more debits and/or one or more credits). However, there is no such difference in journal vouchers. Any number of journal entries can be drawn from one journal voucher.
4. The next step after the journal entry is posting the entries to appropriate ledgers. On the other hand, the next step of the journal voucher is recording the transaction into the system.

Advantages

• All business transactionsBusiness TransactionsA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements.read more are kept in the chronological order of their occurrence.
• It helps in the rectification of errors.
• It helps track the non-cash expensesNon-cash ExpensesNon-cash expenses are those expenses recorded in the firm's income statement for the period under consideration; such costs are not paid or dealt with in cash by the firm. It involves expenses such as depreciation.read more easily.
• It helps in closing the books of accounts at the end of the year.
• It provides smooth back up for a [wsm-tooltip header="Reversal Of Entries" description="Reversing entries refer to those journal entries passed in the current accounting period to offset the entries for outstanding expenses and accrued income recorded in the immediately preceding accounting period." url="https://www.wallstreetmojo.com/reversing-entries/"]reversal of entriesReversal Of EntriesReversing entries refer to those journal entries passed in the current accounting period to offset the entries for outstanding expenses and accrued income recorded in the immediately preceding accounting period.read more[/wsm-tooltip].
• It helps in compliance with significant financial reporting standards prescribed by the relevant authority.

Disadvantages

• The most significant disadvantage is that it is incapable of giving all the information in case of large transactions.
• The voucher itself does not help to keep track of all the financial transactions. There is a chance that few transactions are missed out to be recorded. Here is where the role of the auditor comes into play.
• There is no actual cash flowCash FlowCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more involved in the transaction. Hence, if proper disclosures are not provided in the books of accounts, the reader of financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more may not understand the impact of all such recordings.

Conclusion

Journal vouchers are the inception of the recording of any non-cash transaction. These have a material impact on the profits or losses of an organization. However, these entries serve the purpose of accrual basis of accountingAccrual Basis Of AccountingAccrual Accounting is an accounting method that instantly records revenues & expenditures after a transaction occurs, irrespective of when the payment is received or made. read more of the organization. Also, these transactions are ignored at the time of preparation of the cash flow statementCash Flow StatementStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities.read more.

Recommended Articles

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