What is used to document journal entries that are made in the general journal?

A sales journal is a type of journal that is used to keep track of a company's credit sale transactions and to maintain and manage the account receivable and inventory account.read more, Cash journal, etc.

Whenever an event or transaction occurs, it is recorded in a journal. Journal can be of two types – a specialty journal and a general journal.

A specialty journal records special events or transactions related to the particular journal. There are mainly four kinds of specialty journals – Sales journal, Cash receipts journal, Purchases journalPurchases JournalPurchase Journals, also known as Purchase Book or Purchase Daybook, are special journals which a Company uses to keep track of all the credit purchases. While Purchase Journal records credit transactions, a General Journal records cash purchases. read more, and Cash disbursements journal. The company can have more specialty journals depending on its needs and type of transactions, but the above four journals contain the bulk of accounting activities.

All other transactions not entered in a specialty journal account for in a General Journal. It can have the following types of transactions:

• Accounts receivablesAccounts ReceivablesAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year. read more
• Accounts payableAccounts PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.read more
• Equipment
• Accumulated depreciationAccumulated DepreciationThe accumulated depreciation of an asset is the amount of cumulative depreciation charged on the asset from its purchase date until the reporting date. It is a contra-account, the difference between the asset's purchase price and its carrying value on the balance sheet.read more
• Expenses
• Interest incomeInterest IncomeInterest Income is the amount of revenue generated by interest-yielding investments like certificates of deposit, savings accounts, or other investments & it is reported in the Company’s income statement. read more and expenses, etc.

Table of contents

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Source: General Journal (wallstreetmojo.com)

General Journal Accounting

Double entry bookkeepingDouble Entry BookkeepingDouble Entry Accounting System is an accounting approach which states that each & every business transaction is recorded in at least 2 accounts, i.e., a Debit & a Credit. Furthermore, the number of transactions entered as the debits must be equivalent to that of the credits. read more is the most common method of general journal accounting. An exchange between two accounts does every business transactionBusiness TransactionA 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. There are two equal and opposite accounts for all the transactions: credit and debits. Hence, a transaction recorded in a journal debits one account and credits the other.

For example, A company purchases $5000 of inventory using cash. An entry in the journal would be made whereby the cash account is decreased by $ 5000, and the inventory account is increased by $ 5000.

General Journal Format

It provides the chronological order of all non-specialized activities. It consists of 4 or 5 columns:

• Date of transaction
• Short description/memo
• Debit amount
• Credit amount
• A reference number (referencing to journal ledger as an easy indicator)

General Journal Examples

DateAccount Title and DescriptionDebitCreditReference31/7/2018Depreciation Expense20000A2018-614Accumulated Depreciation for July 2018To record depreciation for July 2018200001/8/2018Inventory5000A2018-544CashTo record inventory purchase50002/8/2018Utilities1000A2018-125CashTo record August 2018 utilities purchase10003/8/2018Cash15000A2018-687SalesCollected the cash for sales to be recorded in sales account150004/8/2018Cash7500A2018-619CapitalOwner contributed capital to the business7500

In the above table of general journal examples, we can see each transaction as two lines- one debit and one credit account.

Flow Process

Let us look at the flow process of entries before and after it is recorded in the general journal. Before entry is made, the maker has to decide:

• the accounts which will be affected by the transaction
• which account to debit and which account to credit

After making entries in the general journal in accounting, all the transactions are summarized and posted in the ledger.

A ledger is an account of final entry, a master account that summarizes the transactions in the Company. It has individual accounts that record assets, liabilities, equity, revenue, expenses, gains, and losses.

Some examples of accounts in the ledger:

• Accounts receivable (an asset account)
• Accounts payable (a liability account)
• retained earningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company.read more (an equity account)
• product sales (a revenue account)
• cost of goods soldCost Of Goods SoldThe Cost of Goods Sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company. read more (an expense account)

To summarise: every accounting transactionAccounting TransactionAccounting Transactions are business activities which have a direct monetary effect on the finances of a Company. For example, Apple representing nearly $200 billion in cash & cash equivalents in its balance sheet is an accounting transaction. read more is stored in a journal that acts as an intermediary repository of information, which is then recorded in a general journal ledger. The ledgerThe LedgerLedger in accounting records and processes a firm’s financial data, taken from journal entries. This becomes an important financial record for future reference. It is used for creating financial statements. It is also known as the second book of entry.read more, in turn, is used to aggregate this information into the financial statements of a business, which are called an initial trial balance.

Uses

We discussed the use of journals in recording the Company’s transactions and its use in general journal accounting. A journal can also be used in investing. An individual trader or a professional fund manager can form a journal where he records the details of the trades made during the day. These records can be used for taxation, audit, and evaluation purposes.

These records can help traders evaluate their trading and investing performance over time and provide information about their failures and successes. The traders can learn from the past and improve in future trades.

Such a journal generally consists of profitable and unprofitable trades, watchlists, pre, and post-market conditions, and analysis and notes on each trade being bought or sold.

Technological Advances

While these have been in practice since record-keeping was done, with advances in technology, nearly all companies, and even small businesses are using general journal accounting software. This software’s simple data entry logs these transactions in the journal and ledger accounts. Many of these software provides simple drop downs to record the transactions, thus making complex and tedious tasks very easy.

Conclusion

A general journal is an initial record-keeping that records all the transactions except those recorded in a specialty journal like a cash journal, purchase journal, etc. It states the transaction date, description, credit, and debitDebitDebit represents either an increase in a company’s expenses or a decline in its revenue. read more information in a double bookkeeping system. These journal entries are then used to form a general ledger, and the information is transferred into respective accounts of the general ledger. The ledgers are then used to make trial balances and, finally, the 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. However, these journals were more visible in the manual record-keeping days. With the advent of technology, record keepingRecord KeepingRecordkeeping is a basic accounting stage that teaches us how to keep track of monetary business transactions with the goal of keeping a permanent record of all transactions, knowing the correct picture of assets-liabilities, profits and losses, etc., keeping control of expenses with the goal of minimizing expenses, and having important information for legal and tax purposes.read more has been easy, with all the information being stored in a single repository with no specialty journals in use. However, these journals were more visible in the manual record-keeping days.

General Journal Video

 

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