What Is an Accounting Journal? Definition of Journal in Accounting

An accounting journal is a detailed account of all the financial transactions of a business. It’s also known as the book of original entry as it’s the first place where transactions are recorded. The entries in an accounting journal are used to create the general ledger which is then used to create the financial statements of a business.

Before computerized bookkeeping and accounting, the transactions were entered manually into a journal and then posted to the general ledger. Apart from the general journal, accountants maintained various other journals including purchases and sales journal, cash receipts journal and cash disbursements journal. With accounting software, today you’re likely to find only a general journal in which adjusting entries and unique financial transactions are entered.

What this article covers:

How to Do Accounting Journal Entries?

Do Journal Entries Have to Balance?

What Is the Difference Between a Journal and a Ledger?

How to Do Accounting Journal Entries?

To create an accounting journal, record the information about your financial transactions. The details of financial transactions can be derived from invoices, purchase orders, receipts, cash register tapes and other data sources.

Once you’ve analyzed the transactions, the information is documented in a chronological order in the journal. Each transaction that is listed in the journal is known as a journal entry. This information is then recorded in the ledgers.

The journal entries are usually recorded using the double entry method of bookkeeping. Each transaction is recorded in two columns, debit and credit.

For example, if you purchase a piece of equipment with cash, the two transactions are recorded in a journal entry. You will have to decrease the cash account and the increase the asset account.

Date	Account Title and Description	Debit	Credit
4-12-18	Office Equipment	8,000
	Cash		8,000

Following are the three steps for completing journal entries of a business:

1. Identify the financial transactions that affect your business
2. Analyze how the transaction changed the accounting equation, whether it has increased or decreased and by how much
3. Use debits and credits to record the changes in the general journal. Ideally, the debited accounts are listed before credited accounts and every journal entry is accompanied by the transaction title, date and description.

While it’s rarely used, the single-entry bookkeeping method can also be used for journal entries. In this method, there is only a single account used for each journal entry which is a running total of cash inflows and cash outflows.

Do Journal Entries Have to Balance?

There is no scope of balancing in a journal. However, in the double-entry bookkeeping method, whenever a transaction occurs, there are at least two accounts affected. While making the journal entries, we must ensure that the debits and credits are in balance.

Debits and credits are the basis of a journal entry as they tell us that we are acquiring or selling something. Depending on the type of account, it will increase or decrease when it is debited or credited.

Each journal entry must contain equal debits and credits. A one-line journal entry is never made as the entries would not balance.

What Is the Difference Between a Journal and a Ledger?

Journals and ledgers are where the financial transactions are recorded. The journal, also known as the book of first entry, records transactions in chronological order. It’s prepared from the current transactions and does not start with an opening balance. The detailed information of the individual transactions is entered in the journal.

On the other hand, the ledger, also known as the principal book, is a set of accounts in which the financial information in the journals is summarized and posted.

Here are the differences between a journal and ledger:

Basis for Comparison	Journal	Ledger
Meaning	The book in which all financial transactions of a business are recorded	The ledger holds financial information needed to make the financial statements
Known as	Book of original entry	Book of secondary entry
Purpose	Used in preparation of ledger	It is used for making the trial balance and final accounts
Transactions recorded	Journal entries are made in chronological order	Posted account-wise
Debit and credit	Columns	A ledger has two sides. The left side is called debit and the right side is known as credit in the “T” format
Narration	Required	Not necessary
Balancing	Balancing is not done	All accounts are balanced

The journal is the primary and basic book for recording daily transactions. Recording accurate entries into the journal show the correct financial status of the business to not only people internally but also to external users.

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