Journal (or General Journal)
The journal, also known as the general journal, is involved in the first phase of accounting because all transactions are recorded in it, originally in chronological order.
This is why the general ledger is also called the original book of entries, chronological book, or daybook. In the journal, two aspects of every transaction are recorded, following the double-entry system of accounting.
Before recording transactions in the journal, it is important to understand double-entry bookkeeping, as well as the differences between the two main types of bookkeeping: namely, double-entry and single-entry bookkeeping.
After analyzing a business transaction, it is recorded in a book known as the journal (or general journal). When a transaction is logged in the journal, it becomes a journal entry.
The process of recording transactions in the journal is referred to as journalizing.
Journal Entry: Definition
Recording a transaction in the books of accounts is known as making an entry. When a transaction is recorded in the journal, it is known as a journal entry.
Journalizing is the second step in the accounting cycle. The first step is transaction analysis, which provides the information needed to journalize a transaction. The process of recording in the journal is called journalizing.
General Journal: Explanation
The first book in which transactions are recorded is called the general journal. Transactions are recorded in chronological order (i.e., the order of their occurrence).
The general journal is a diary of business equities.
Throughout time, the general journal has been referred to in many ways. For example, it is also known as the book of original entry, the primary book, the book of primary entry, and the book of first entry.
Fortune Retail Store entered into the following three transactions:
- 5 June: Purchased $500 worth of wine from the Neuman Wine Company that arrived damaged. It was returned, and Fortune's account was reduced.
- 17 June: A. Wallar returned merchandise because it did not meet her needs. She received a $200 credit on her account.
- 30 June: Depreciation expense for the month is $1,200.
These entries are recorded in the general journal shown below. It is worth noting that the receivables and payables accounts must be posted twice.
Advantages of General Journal
- The general journal shows all information about a transaction as it takes place and also provides an explanation of the transaction.
- It helps to locate errors.
- It provides a chronological record of all transactions, which helps to locate transactions relating to a particular date.
- It is not possible to omit a transaction because every transaction is recorded immediately.
- As two aspects of a transaction are recorded in the journal, there is no chance of committing a mistake when writing to the ledger.
- When preparing the journal, each transaction gives detailed information, which means it is helpful when posting entries into the ledger.
Format of General Journal
A standard format for a general journal is shown below.
As shown above, a journal typically has five columns. The function of these columns is described briefly below.
The year, month, and date of the transaction are written in the date column. The year is entered immediately below the heading. It is written once per page (i.e., it does not have to be repeated for every entry on the page).
It is common to leave some space at the left-hand margin before writing the credit part of the journal entry.
A brief description known as narration is also written in this column below the credit part of the entry.
3. Posting Reference (PR)
All journal entries are periodically posted to the ledger accounts. In the posting reference column, the page number of the ledger account to which the entry belongs is written.
This column is used to record the amounts of the accounts being debited.
This column is used to record the amounts of the accounts being credited.
The following transactions are related to Mr. John’s business.
Do you want to test your knowledge about General Journal? We have prepared quizzes for you.
Journal (or General Journal) FAQs
The main difference between General Journal and cash book is that while General Journal includes all transactions that are recorded by a company, cashbook records only cash receipts of the business/organization.
General Journal has two column headings above date column. The two headings are, a) account headings column b) date of entries column.
One of the main advantages of using General Journal is that it provides an exact details about all transactions. It provides a place to take any kind of transaction, even Trial Balance.
Debit accounts are those account which increases when there are transactions. It is also known as var or als account which means always debit account, because it always increases when there are transactions relating to that accounts.
Credit accounts are those account which decreases when there are transactions. It is also known as var or als account which means always credit account because it always reduces when there are transactions relating to that accounts.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.