Journal Voucher Meaning
A 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.
Table of contents
- A journal voucher is a document used to record financial transactions in the general ledger.
- It includes information such as the date of the transaction, a description of the transaction, the accounts affected, and the amounts debited or credited.
- Journal vouchers are used to make adjustments to accounts or to correct errors in accounting records.
- Journal vouchers provide a permanent record of financial transactions and are often used in conjunction with the journal to prepare financial statements.
- 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. A 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. generally scrutinize the voucher as a part of their audit proceduresAudit ProceduresAudit Procedures are steps performed by auditors to get evidence regarding the quality of the financial information provided by the management of a company. It enables them to form an opinion on financial statements and ensure whether they reflect the true and fair view or not. .
- Journal vouchers (also known as JVs) are used for transactions that do not relate to the material, cash, bank, and other day-to-day business transactions. It means JVs are used for a transaction such as depreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. , 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. 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.. Since these transactions are out of routine transactions, auditors vouch over these at priority.
- Depreciation Voucher – For recording the depreciation expense for the year.
- Prepaid Voucher – For recording prepaid expensesPrepaid ExpensesPrepaid expenses refer to advance payments made by a firm whose benefits are acquired in the future. Payment for the goods is made in the current accounting period, but the delivery is received in the upcoming accounting period.;
- 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. .
- 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.;
- 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. account balances, adjusting journal entries, etc., require the use of journal vouchers.
- The journals are standardized
- 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 an accounting record that compiles every financial transaction of a firm to provide accurate entries for financial statements. The double-entry bookkeeping requires the balance sheet to ensure that the sum of its debit side is equal to the credit side total. A general ledger helps to achieve this goal by compiling journal entries and allowing accounting calculations. ) Codes
- Documentary evidence
- Brief description of the nature of the transaction effected.
- Every journal voucher requires the approval of an authorized person.
Example Format of Journal Voucher
#1 – Purchase of Machinery
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. in nature (i.e., an asset for the organization). It is not usual for the organization’s business 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
At the end of every accounting year, the organization must make estimates for the expenses that 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.. Hence, provisions need 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 serve the purpose. As evidence, a working is prepared wherein the basis of amounts is provided. The assumption is generally based on the management’s experience. Since actual payment is not made & the relevant vendor is 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 notesCredit NotesA credit note is a financial document that sellers provide to buyers as a token of confirmation against registered returns. It acknowledges the cancellation and lets the sellers make a credit entry to the buyers’ account for the required amount. for any purchase return or sale return
- In case of any services supplied or procured, debit notesDebit NotesA debit note is a confirmation document sent by a buyer for returning purchased goods or services to a seller. 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
- The words “Journal voucher” and “Journal Entry” are interchangeable. However, there is a difference between the two. The former is the inception of any financial transaction & the latter is the effect given in the books of accounts.
- 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.
- Journal entries can be simple (i.e., one debit and one credit) or compound (i.e., one or more debits and/or more credits). However, there is no such difference in journal vouchers. Any number of journal entries can be drawn from one journal voucher.
- 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 in the system.
- 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. 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. easily.
- It helps close the books of accounts at the end of the year.
- It provides smooth backup for a 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..
- It helps comply with significant financial reporting standards prescribed by the relevant authority.
- 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 keep track of all the financial transactions. There is a chance that a few transactions are missed out on being 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. 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. may not understand the impact of all such recordings.
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 the 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. of the organization. Also, these transactions are ignored at the time of preparation of the cash flow statementCash Flow StatementA Statement of Cash Flow is an accounting document that tracks the incoming and outgoing cash and cash equivalents from a business..
Frequently Asked Questions (FAQs)
An accountant or bookkeeper typically prepares it. The accountant or bookkeeper ensures that all financial transactions are accurately recorded in the accounting system. After the voucher is ready, it must be approved by a supervisor or manager before the transaction can be posted to the accounting system.
Journal vouchers and journal entries are used to record financial transactions, but some key differences exist. For example, journal vouchers are typically utilized for adjustments or corrections to accounts, while journal entries are used to record regular business transactions.
A journal voucher is not generally a source document but a supporting document. It is prepared based on source documents and provides additional information and details about a transaction. In other words, this voucher supports a journal entry, a financial transaction record posted directly to the accounting system.
This article has been a guide to Journal Voucher and its meaning. Here we discuss the purpose, features, and examples of journal vouchers and their use, advantages, disadvantages, and differences from journal entries. You may learn more about financing from the following articles –