An accounting journal is a part of a company’s bookkeeping and accounting system. It is a log book that contains all records of a company’s transactions in chronological order. Its main purpose is to collect all information on transactions in one place so that later it can be managed, reviewed and transferred to other accounting records such as general ledger or subsidiary ledger. Sometimes it is also called “the book of original entry” because it is the first place where all transactions are recorded.
Information recorded in an accounting journal is extracted from invoices, receipts, purchase orders, remittance advice, bank and card statements, cheques, and other source documents.
Accounting journals can be actual paper books, digital spreadsheets or computer software depending on what format is more convenient for a company.
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How is an accounting journal different from a general ledger?
We made a table to help you understand the differences between these two books:
|Accounting journal||General ledger|
|Keeps track of a company’s business activity|
|Lists transactions in chronological order||Lists transactions account-wise|
|Always provides details of every operation (i.e. how much money was spent/received and when, what was sold/purchased etc.)||Does not necessarily provide transaction details|
|Does not start with an opening balance, only contains the list of transactions||Starts with an opening balance for a certain period|
|Is used to gather information that is later transferred to general ledger or other books||Is used to prepare a company’s financial statements|
How do I make an accounting journal entry?
Every record listed in an accounting journal is called a journal entry. Entries are made chronologically, usually using the double entry method of bookkeeping (some companies use the single entry method, but it is much less common).
To make an entry with the double entry method, you need to follow a simple procedure:
- Identify the most recent transaction. Get information from receipts, invoices, and other source documents;
- Think of the effect of this transaction. Every transaction has two sides: debit and credit which in accounting terms mean that something was increased or decreased. What did the transaction change in the financial balance of your company? Did your expenses increase or decrease? Did your bank account grow or shrink? By how much? Depending on the answers, you’ll need to fill out different tables of your journal.
- Write down the date, amount and details of the transaction in the corresponding tables of your journal.
- Repeat the process for transactions that follow.
Example of an accounting journal entry
Tom owns a small construction business. On September 1st, he bought 10 packs of concrete for his new site and paid 50 USD in cash for them. He needs to put this information in the accounting journal to keep track of where company money goes.
In other words, the transaction of 50 USD took place on September 1st, 2020. Tom’s expenses increased by 50 USD. In accounting, when your expense increases, it means that you debit it so 50 USD goes to the “Debit” column.
At the same time, the company’s bank account was reduced by 50 USD. In accounting, you credit something to show it’s decreasing, so 50 USD of cash that Tom paid goes to the “Credit” column. So here’s how the entry would look like:
|Sept 1st, 2020||10 packs of concrete for the new site||50 USD|
And that’s it!
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