General Journal

Updated on April 4, 2024

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Reviewed byDheeraj Vaidya, CFA, FRM

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financial domains.

What Is General Journal?

1
The general journal is the company’s journal in which initial record keeping of all the
transactions is done which are not recorded in any of the specialty journals maintained by the
company like purchase journal, sales journal, Cash journal, etc.

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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 statements. However, these journals were more visible in the manual
record-keeping days.

Table of contents
 What Is General Journal?
o Accounting
o Format
o Examples
o Flow Process
o Uses

2
 o Technological Advances
o General Journal Video
o Recommended Articles

General Journal Explained

General journal accounting is called the book of original entry, where accountants record
financial transactions of the business as per their date of occurrence. The pages are divided into
columns where items like dates, serial numbers, debits and credits are recorded in the double
entry book keeping system or format.

It is different from the specialized journals like sales, purchase etc, where only items related to
them are recorded. It mainly keeps the details of five major accounting heads which are assets,
liabilities, revenue, expense and capital.

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
journal, 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 transactions related to Accounts receivables, Accounts payable, Equipment,
Accumulated depreciation, Expenses, Interest income and expenses, etc.

With the advent of technology, record keeping has been easy, with all the information being
stored in a single repository with no specialty journals in use. However, these general
journal accounting were more visible in the manual record-keeping days.
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Accounting

The accounting method of general journal entries are given below:

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Double entry bookkeeping is the most common method of general journal accounting. An
exchange between two accounts does every business transaction. 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.

Format

Given below are the format for general journal entries.

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)

Examples

Let us understand the concept with the help of some general journal sample.

Date Account Title and Description Debit Credit Reference

31/7/2018 Depreciation Expense 20000 A2018-614
Accumulated Depreciation for July 2018
To record depreciation for July 2018 20000
1/8/2018 Inventory 5000 A2018-544
Cash
To record inventory purchase 5000
2/8/2018 Utilities 1000 A2018-125
Cash
To record August 2018 utilities purchase 1000
3/8/2018 Cash 15000 A2018-687
Sales
Collected the cash for sales to be recorded in sales account 15000
4/8/2018 Cash 7500 A2018-619
Capital
Owner contributed capital to the business 7500

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

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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 format 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 earnings (an equity account)
 product sales (a revenue account)
 cost of goods sold (an expense account)

To summarise: every accounting transaction is stored in a journal that acts as an intermediary

repository of information, which is then recorded in a general journal ledger. The ledger, 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 format software.

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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.

Advantages

Some of the advantages of general journal sample are as given below:

 It gives all details about any kind of financial transactions of the business.
 It explains the details of the transaction.
 Since it is recorded in a chronological order, it is very easy to locate a business
transaction using the date.
 Since recording is done immediately, there is less chance of transactions not getting
recorded.
 There is less chance or error since recording is done in journal form with double entry.
 Ledger entries become easy due to details given in the general journal.

Disadvantages

 It has to be done every day for every transaction, which becomes tedious and
monotonous.
 If it is not kept in a secured place, it may result in information leak.
 Explanation requires writing skills that will explain the transaction clearly.

General Journal Vs General Ledger

Let us look at the basic differences between the above two topics.

 The former records the transactions in the form of journal with double entry format
whereas the latter records the transaction in ledger format for items related to income,
expense, assets, liabilities and capital.
 Any tansaction is first recorded in the journal, then in the general ledger.
 Transactions get transferred from journal to the ledger and next from general ledger to the
trial balance.

What is a general journal in accounting?

A general journal in accounting, when applied to business, is a master book of all financial
transactions that a business has made. Most general journals cover the scope of one fiscal year,
with a new general journal being created at the beginning of a new fiscal year. The purpose of a
general journal is to help accountants and bookkeepers with the reconciliation of accounts and
the creation of detailed financial statements.

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Which transactions are recorded in the general journal?

Most often, all transactions that a business has made within a set timeframe are recorded in a
general journal. Accountants may choose to only include certain transactions in a general journal
on some occasions, but it is more likely that a general journal exists alongside a specialty journal
that tracks certain types of spending. A general journal entry always notes the date that a
transaction occurred, the accounts involved, a posting reference number, credit and debit
information, and a description of the transaction.

General Journal
The general journal is part of the accounting bookkeeping system. When an event occurs we
need to record it. We call this event a transaction and record it in a speciality journal or in the
general journal. There are four journals specifically, which record transactions of a similar
nature. Their name suggests the kind of transactions that we record in them. These journals are
Sales journal, Cash receipts journal, Purchases journal and Cash disbursements journal.

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Meaning of Journal book

Combined Journal Entry

Journal Entry for different Transactions

General Journal
There could be more specific journals, but the four accounting areas that these represent contain
the bulk of all accounting entries, so there is usually no need for additional journals.

Therefore, by default, we record all remaining transactions in the general journal. Let us now
study the basic journal entries in General Journal.

Also called Journal Proper. It is thus the book of entry for originally recording such types of
transactions for which the organization has no special journal.

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The general journal will give a chronological record of all non-specialized entries that are
otherwise recorded in one of the specific journals.

Entries in a General journal are:

(i) Opening Entries: Opening entries are passed at the beginning of the accounting year to open
the accounts by recording the assets, liabilities, and capital appearing in the balance sheet of the
previous year.

(ii) Closing Entries: Closing entries are passed at the end of the financial year for the closing of
accounts relating to expenses and revenues. These accounts are closed by transferring their
closing balances to the Trading and Profit & Loss Account.

(iii) Adjustment Entries: At the end of the financial year, we need to pass adjustments entries
for outstanding/prepaid expenses, and also accrued income/income received in advance etc. We
thus pass these entries in the journal proper.

(iv) Transfer Entries: Transfer entries are passed in the general journal to transfer an item
entered in one account to another account.

(v) Rectification Entries: Rectification entries are passed for correcting errors which might have
committed in the books of account.

(vi) Purchase of Fixed Assets: When fixed assets are purchased on credit, the entries for these
purchases are thus passed in the general journal.

(vii) Sale of Worn-out or Obsolete Assets: When obsolete assets are sold on credit, Same are
originally recorded in the general journal.

Journal Process Flow:

After recording the transactions in general journals, we post a summary of all the transactions in
each journal to the general ledger, which contains all of a company’s records. An account is a

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record of a specific asset, liability, equity, revenue, or expense item. Also, examples of accounts
are:

 Accounts Receivable (an asset account)

 Accounts Payable (a liability account)
 Retained Earnings (an equity account)
 Product Sales (a revenue account)
 Cost of Goods Sold (an expense account)

In summary, we record a transaction into a journal and then post the information in the journal to
the respective accounts which are in the general ledger.

The general journal is the repository for transactions that a firm cannot specifically record in a
particular journal. Thus, the general journal is an intermediate repository of information for some
types of transaction, on the way to its final recordation in the general ledger.

Solved Example on General Journal

On 31st March 2017 following balances are available in the ledger for the year 2016-17.

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Furniture 200000

Stock of Goods Account 700000

Sircar (debit balance) 140000

Mitra (debit balance) 75000

Cash (debit balance) 24000

Basu (credit balance) 139000

Capital Account 1000000

Pass the opening entry for 1st April 2017.

Ans.

Date Particulars Amount(Dr.) Amount(Cr.)

2017
April 1 Furniture A/c Dr. 200000
Stock of Goods Dr. 700000
S.Sircar Dr. 140000
M. Mitra Dr. 75000
Cash A/c Dr. 24000
To B. Basu Cr. 139000
To Capital Account Cr. 1000000
(For opening balances of various assets,
liabilities, and capital as on 1st April 2017)

Purchases (Journal) and Purchase Return

Book
When a business makes a purchase of goods that it trades in, the entry for the same is passed
through a purchases book. The corresponding entries for the same are passed in the purchase
return book, in case such goods are later returned. Let us study in detail about these two books of
accounts.

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10
Levels of Management

Purchase Journal
Also known as the Purchase journal, Invoice book or Purchase day book, a purchase book is a
special purpose subsidiary book. It is prepared by a business to record all the credit purchases
made by the firm. Purchases are recorded only for goods or items that are related to the core
business operations of a company, that is, goods which are procured for resale.

Browse more Topics under Recording Transactions

 Business Transaction and Source Document

 Using Debit and Credit
 Books of Original Entry
 Posting from Journal and Cash Book
 Journal Proper and Balancing the Accounts
 Sales (Journal) Book and Sales Return Book

So it can be summarized as cash purchases are recorded in the cash book and credit purchases
are recorded in the purchase book. Let us take, for example, the following purchases in the books
of Unreal Pvt Ltd.:

Jan 7 – Purchased 10 Keyboards from M/s A & Co. for 300 each

Jan 24 – Purchased 5 headphones from M/s X & Co. for 200 each

These entries will be posted in the purchases account. on the Dr side, as follows:

Date Particulars L.F. Total amount

7 Jan M/s A & co. 3000
24 Jan M/s X & co. 1000
4000

The journal entry that will be passed for the same is as follows:

Date Particulars Debit Credit

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31st March Purchas A/c Dr 4000
To M/s A & Co. 3000
To M/s A & Co. 1000

Purchase Return

At times it might be necessary to return a few goods back to a supplier when an order is received.
This situation may arise due to the poor quality of products, inaccurate quantity, untimely
delivery or other such reasons.

Purchase returns are also called returns outward and an appropriate purchase returns or returns
outward book is maintained for recording entries related to such books. All returns are primarily
recorded in the purchase returns book unless the returns are not that frequent, in which case they
are recorded in the journal. The journal entry to be passed in the case of purchase returns is

Creditor A/c – Dr. XX

To Purchase return A/c XX

There are a number of reasons for purchase returns, such as:

 The buyer initially acquired an excessive quantity and wants to return the remainder
 The buyer acquired the wrong goods
 The seller sent the wrong goods
 The goods have proven to be inadequate in some way

Solved Question for You

Question: Show how the following events will appear in the ledger accounts.

Total purchase returns made at the end of a month are for 50,000, including returns made to A
for 30,000 and returns made to B for 20,000.

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Answer –

Purchase Returns A/c

Date Particulars Amount Date Particulars Amount

By Sundry
50000
Creditors

Sundry Creditors A/c

Date Particulars Amount Date Particulars Amount

To Purchase
50000
returns

A’s Account

Date particulars Amount Date Particulars amount

To purchase
30000
returns

B’s Account

Date Particulars Amount Date Particulars Amount

To purchase returns 20000

Sales (Journal) Book and Sales Return Book

Every now and then, a business makes various sales in order to gain some form of revenue.
These sales validate the purpose of a business. They provide a lifeline to a business and give
them a reason to exist. Without sales, a business would find its existence redundant. Let us study
in detail about the preparation of a sales book and a sales return book.

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Levels of Management

13
Sales Book
A Sales book is a record of all credit sales made by a business. It is one of the secondary book of
accounts and unlike cash sales which are recorded in cash book, sales book is only to record
credit sales. The amount entered in the sales book is on behalf of invoices supplied to purchasers.
A Sales book is also called Sales Journal or Sales Day Book.

For example, the following entries of sales appear in the books of ABC Ltd.

Jan 7 – Sold 10 Keyboards to A & Co. for 300 each.

Jan 24 – Sold 5 headphones to X & Co. for 200 each.

Sales book of ABC ltd will appear as follows:

Sales Book

Date Particulars LF Amount

7 Jan A & co. 3000
24 Jan X & co. 1000
4000

A credit sales will be recorded by passing the following journal entry:

Debtors A/c – Dr.

To sales A/c

Browse more Topics under Recording Transactions

 Business Transaction and Source Document

 Using Debit and Credit
 Books of Original Entry
 Posting from Journal and Cash Book
 Journal Proper and Balancing the Accounts
 Purchases (Journal) and Purchase Return Book

14
Sales Return Book

When a business sends back the ordered goods to a vendor, it is recorded in the sales return
book. At times the buyer may return goods due to the poor quality of the product, an inaccurate
quantity of the product, untimely delivery or other such reasons.

It is also called returns inward and an appropriate sales return or a returns inward book is
maintained for recording entries related to the same. All returns are primarily recorded in the
sales return book unless the returns are not that frequent, in which case they are recorded in the
journal.

Entries for sales returns are recorded by passing the following journal entry:

Sales return A/c – Dr.

To Debtors A/c

After the sales return book is properly updated and all transactions are entered into the book, the
total of the items is transferred to the ledger in an account called the Sales returns account. At the
end of the day, each entry is posted to the credit side of the appropriate individual’s account in
the Debtors’ ledger as this helps the account to remain up to date.

Solved Question for You

Q: Show how the following events will appear in the ledger accounts.

Total sales returns made at the end of a month are for 50,000, including returns made by A for
30,000 and returns made by B for 20,000.

Answer –

Sales Returns A/c

Date Particulars Amount Date Particulars Amount

To sundry
50000
debtors

Sundry Debtors A/c

15
Date Particulars Amount Date Particulars Amount
By sales return 50000

A’s Account

Date particulars Amount Date Particulars amount

By sales return 30000

B’s Account

Date Particulars Amount Date Particulars Amount

By sales
20000
return

What Is a Journal Entry in Accounting? A

Guide
Scott Beaver | Senior Product Marketing Manager
September 9, 2022

The raison d'etre of accounting is to present a concise, timely, accurate narrative of an

organization’s fiscal standing. Business leaders look to their finance teams for reality checks:
Can we afford to hire a new engineer? How much runway do we have? Are we spending too
much on operating expenses?

Journal entries are the fundamental building blocks that provide the answers to those and other
questions. Journal entries list vital data, such as how much was credited and debited, when and
from which accounts. Each journal entry corresponds to one discrete business transaction and is
eventually posted to the general ledger.

The validity of all financial reports is affected by the accuracy — or inaccuracy — of the
information entered at this level.

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What Is a Journal Entry in Accounting?
Each journal entry contains the data significant to a single business transaction, including the
date, the amount to be credited and debited, a brief description of the transaction and the
accounts affected. Depending on the company, it may list affected subsidiaries, tax details and
other information.

It’s crucial to accurately enter complete journal data so that the general ledger and financial
reports based on this information are also accurate and complete. With modern accounting
software, recurring journal entries may be templatized and automatically executed, minimizing
the potential for error.

Journal entries are made in chronological order and follow the double-entry accounting system,
meaning each will have both a credit and a debit column. Even when debits and credits are
linked to multiple accounts, the amounts in both columns must be equal. For example, say a
company spends $277.50 catering lunch for employees. The expenses account increases by that
amount, while the cash account, which is an asset, decreases by $277.50 because that money is
now spent.

Key Takeaways

 A journal is a concise record of all transactions a business conducts; journal entries detail
how transactions affect accounts and balances.
 All financial reporting is based on the data contained in journal entries, and there are
various types to meet business needs.
 Adjusting journal entries, for example, are used to accrue or defer revenue and expenses,
change or correct previous entries or estimate non-cash transactions, like allowances for
debt that has been written off.

What Are Debits and Credits?

Debits add to expense and asset accounts and subtract from liability, revenue and equity
balances, while credits subtract from expense and asset balances and add to liability, revenue
and equity accounts.

In accounting, the basic principle is the same: An adjusting journal entry to account for the
accruing interest on a bank loan will debit the Interest Expense account and credit the Accrued
Interest Payable account.

What Is the Purpose of a Journal Entry?

The purpose of a journal entry is to physically or digitally record every business transaction
properly and accurately. If a transaction affects multiple accounts, the journal entry will detail
that information as well.

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For example, say our catering purchase incurs both state and local taxes. That compound journal
entry might look like this:

Catering for XYZ Corp. Debit Credit

Cash $ 277.50
Sale $ 250.00
State tax $ 10.00
Local meals tax $ 17.50

Thus, the journal enables the caterer to accurately account for taxes owed to multiple
jurisdictions.

Journal entries are the foundation of effective record-keeping. They are sorted into various charts
of accounts and, once verified for accuracy, posted to the general ledger, which then feeds
information to the financial reports that business decision-makers depend on.

Accurate and complete journals are also essential in the auditing process, as journal entries
provide detailed accounts of every transaction. Auditors, both internal and external, will look for
entries or adjustments that lack the proper documentation, explanations or approvals or that are
outside the norm for the business.

What Is Included in a Journal Entry?

Journal entries may contain multiple data points but generally include:

 A header, which is a descriptor of the entry type, and the date entered in the journal;
 A unique numerical identifier or reference number;
 One or more accounts and amounts that will be debited by the transaction and the date(s)
these debits are made;
 One or more accounts and amounts the transaction will credit and the date(s) these
credits are made; and
 A brief description of the transaction.

Journal entries may also include data specific to the business, such as the subsidiary or
subsidiaries involved in the transaction and the currency or currencies used.

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How to Record a Journal Entry

18
MyToys Manufacturing Co. buys $100,000 worth of raw materials. It pays $10,000 in cash and
uses credit for the balance. The company would record a debit, or increase, of $100,000 in raw
materials. The Cash account would show a credit, or decrease, of $10,000 because that was the
amount paid in this transaction. The Accounts Payable Account would show an increase, or
credit, of $90,000 as it now owes that amount to a vendor on a future date or dates.

As MyToys makes payments over time on this purchase, the Cash Account will show a
corresponding credit (less cash is available) and the Accounts Payable a corresponding debit as
less money is owed by the company.

Further, as the raw materials are used to produce finished products — toys, in this case — a
credit is applied to the Raw Materials account to reflect a decline in value as raw materials are
consumed, and the Finished Goods account is debited to reflect an increase in the amount of
inventory on hand.

6 Types of Journal Entries

There are six types of journal entries, or seven if you count the archaic, vague and seldom-used
single entry. The single journal entry is not used in standard accounting, which is double-entry
based. It is more suited to checkbook balancing than to business accounting, which involves
many accounts.

Each of the primary six entry types has a specific function in accounting. Together they present a
balanced, accurate and objective statement of the company’s financial standing.

They are:

1. Opening entries

These entries carry over the ending balance from the previous accounting period as the
beginning balance for the current accounting period. For example: The ending balance of
the Cash account on the balance sheet from the previous accounting period was $11,000
after all liabilities were paid for the period. That balance of $11,000 is now the opening
entry for the current accounting period.

2. Transfer entries

Transfer entries move, or allocate, an expense or income from one account to another.
For example, MyToys Manufacturing transfers cash from its main account to a
subsidiary. A transfer journal entry accounts for the transfer of the money from one
account to another. No third party is involved in these entries, and transfers must always
net zero.

3. Closing entries

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 These entries mark the end of an accounting period at a balance that can then be
transferred from a temporary account to a permanent one, or from one accounting period
to the next. In the case of temporary accounts, the closing entry zeros out the account,
and any balance above that is transferred to another, more permanent account. The
temporary account is then closed.

Examples of temporary accounts include expense and loss accounts; revenue, income and
gain accounts; income summary accounts; and dividend or withdrawal accounts. In the
case of accounting periods, the closing entry reflects the ending balance for that account
at the end of that accounting period. That value is then transferred as the opening entry
for the next accounting period. In that case, it is the accounting period for that account,
which is closed.

4. Adjusting entries

Adjusting entries are entries that record changes to accounts that are not otherwise
accounted for in the journal, in compliance with the accrual method of accounting. These
entries are entered in the general ledger at the end of an accounting period as per
matching and revenue recognition principles. Common examples are accruals, deferrals
and estimates.

An expense accrual refers to an expense reported in an accounting period before it is

actually paid. An example is electricity used by a plant in the month before the utility
issues a bill for the company to pay.

A revenue accrual relates to work that has been performed or products that have been
delivered but for which the customer has not been invoiced.

An expense deferral occurs when a payment is made in an accounting period prior to

when the expense is actually incurred. An example is a payment made now for insurance
that covers the following six-month period. Deferred revenue applies when a company
receives payments in advance for services or products that are to be delivered in the
future.

5. Compound entries

These entries record more than one account to be debited or more than one account to be
credited. The rule of journal entry requires the total of debits and credits to be equal, but
the number of credits and debits do not have to be equal. For example, there may be one
debit but two or more credits, or one credit and two or more debits, or even two or more
credits and debits. For example, Payroll may entail a large number of journal entries,
which can be simplified into compounded form as a summary.

6. Reversing entries

20
 Reversing entries are made at the beginning of a new accounting period and serve to
reverse, or undo, an adjusting entry made at the end of the previous accounting period.
This option provides a significant reduction in accounting errors due to double-counting
expenses or income and increases efficiency in processing actual invoices in the new
accounting period. In other words, they are used to simplify bookkeeping. For example,
an accrued expense reported in the previous accounting period can be reversed so the
expense can be accounted for in the accounting period in which it was paid, without
worrying about reporting the expense twice.

How to Prepare Journal Entries for Your Business

It’s important to prepare journal entries properly to ensure transactions are accurately recorded.
Begin by deciding what transaction must be entered where. If you use accounting software,
you’ll need to make fewer journal entries because automation embedded in the software will
flow relevant data to other accounts and reports as needed.

If you are doing bookkeeping manually, to record a transaction properly, you’ll need to figure
out everything the transaction affects on the company books.

Identify the accounts that will be affected:

The first step is in identifying the accounts that the transaction affects. That can be a bit
confusing if you’re unfamiliar with accounting terms and principles. But in general, you’re
looking for areas of impact from the transaction: Which accounts will gain something, and which
will lose something in this transaction?

Sort transactions first:

Sorting transactions by type — expenses, bank deposits, quarterly taxes — will put you on the
right path to recording these transactions correctly.

Follow the money:

Now that the transaction is sorted, think about how it affects the values, in terms of debits and
credits, in related accounts. Ask yourself, Where did the money come from, and where did it go?
What did the transaction add to the business, and what did it take away? The physics adage that
“for every action, there is an equal and opposite reaction” holds true in accounting, too. Make
sure you identify all actions and reactions caused by the transaction.

Determine your account type:

Some transactions are easy to map in terms of credits and debits in various affected accounts.
Others may be a bit trickier. Here are some tips to help you figure them out,

21
  Get familiar with the basic account types: All journal entries fall into one of the basic
account types: Assets, Liabilities, Expenses, Revenue and Equity. Once you recognize
each of these types, it will be easier to understand what each entails, how they relate to
other accounts and how different types of transactions affect them.
 Use standard accounting rules to direct where to apply credits and debits:
Accounting rules exist for very good reasons, one of which happens to be standardizing
what goes where in financial reports and journal entries. Look to the accounting rules for
the defining word on where to apply debits and credits for any given journal entry.

Prepare your journal entry:

Now that you’ve identified the transaction type and the accounts it affects, you’re ready to make
your journal entry.

 Enter the correct date: Every journal entry must be dated to ensure the data it contains is
applied to the correct accounting period.
 Assign the account name and code: Note the account name and the unique identifying
general ledger code. Transactions are coded to specific accounts for reporting purposes.
Account balances feed the various line items on financial statements.
 Enter the debit and credit amounts: If you’re using accounting software, odds are that
some of the crediting and debiting in a journal entry will be at least partially automated.
If you’re keeping the company books by hand, you’ll need to double check to ensure you
have entered all credits and debits accurately.

Examples of Common Journals in Accounting

The accepted, standard practice is to use a double-entry accounting system, which generally
entails the use of both a general ledger and a general journal. It can also include the use of
special journals for frequent transactions within a specific category.

General journal

A general journal is a book of raw business transactions recorded in chronological order by date.
It is the first place a transaction is recorded. The amounts are then posted to the appropriate
accounts such as accounts receivables, cash accounts or asset accounts.

Special journal

Special, or specialized, journals contain frequent transactions within a given category and are
normally used in manual bookkeeping, to make it easier for businesses to find instances of
particular types of transactions. Examples include sales and purchase journals that group sales to
various customers or purchases from suppliers in one place. Modern accounting software negates
the need for special journals by making it easy to sort transactions and search for granular
details.

22
How to Track Journal Entries
Tracking your business’ journal entries can be the differentiating factor when it comes to
maintaining financial integrity. Just like balancing your personal checkbook, journal entry
tracking ensures that all financial activity is accurately reflected in your company’s books. To
track your entries, implement a standardized process and best practices like these:

1. Establish a standardized procedure for recording journal entries.

2. Invest in modern accounting software.
3. Log entries in chronological order.
4. Make sure entries include all necessary data points.
5. Reconcile your books regularly.
6. Maintain a record of who made each entry and when.
7. Implement strict data security to prevent unauthorized access to journal entries.

Examples of Journal Entries

T-accounts are a visual representation of the general ledger account. Here are some examples, as
well as additional journal entry types.

Two T-accounts: Cash and notes payable

Cash (Asset Account)

DEBIT CREDIT
Increases an asset / money received Decreases an asset / money paid
Date Account name Debit Credit
1-Oct-20 CASH 10,000
Payable 10,000
Notes Payable (Liability Account)
DEBIT CREDIT
Decreases a liability / Loan paid Increases an asset / Borrowed additional funds
Notes Payable (Liability Account)
CREDIT
DEBIT
Increases an asset / Borrowed additional funds
Decreases a liability / Loan paid
9 Oct 20 ENTRY 20,000
10 Oct 20 ENTRY 10,000
1 Oct 20 ENTRY 10,000

Interest receivable journal entry

Date Details Debit Credit

1-Nov-20 Northern Bank 12,000
To: Interest Receivable 12,000

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*Interest income accrued in previous month, received in current month

Date Details Debit Credit

31-Oct-20 Interest Receivable NB 11,000
To: Interest Income NB 11,000

*Interest income accrued but not received

General Journal

Interest receivable journal entry

Date Details Debit Credit Ref

1-Oct-20 Depreciation 10000 NS2020--400
Accumulated depreciation
*Depreciation Oct 2020 10000
1-Sep-20 Raw materials 2500 NS2020--300
Cash
*Purchase toy making supplies 2500
1-Aug-20 Utilities 500 NS2020--200
Cash
*Mfg facility electricity 500
1-Sep-20 Cash 20000 NS2020--100
Capital
*VC investment for new toy 20000

Using Accounting Software for Tracking Journal Entries

As accounting grows in complexity and journal entries grow in number, tracking becomes more
difficult, especially in manual entry systems. Accounting software is a better solution for most
companies because much of the effort around journal entry tracking, pulling and allocating to
accounts can be automated.

Automation delivers increased efficiency and reduced error rates. Further, modern accounting
software will greatly ease the audit process.

Journal entries are the backbone of all financial reporting. As such, transactions must be verified
and the corresponding journal entries cross-checked for accuracy. Whether the books are
completed manually or digitally, credits and debits on affected accounts must be allocated
according to standard accounting rules.

From these simplified but exacting measures, a company can know where it stands financially
and how far it can go with future plans.

24
A journal is a book in which financial transactions are recorded. Because it is where transactions
of a business are first recorded, it is otherwise known as the “book of original entry.”

Journals can be used to track business records, monitor investments, create budgets, manage
daily finances such as receipts and expenses (including profit and loss information), or any other
kind of record-keeping that is done regularly.

How Is a Journal Used?

Some companies employ a computerized accounting system while others may still be using
manual accounting. Either way, journals are still important in order to keep a record of all sorts
of transactions.

When a financial transaction happens, the bookkeeper records the transaction into the journal and
a journal entry is then made.

The entry will detail the date when the transaction was made, the accounts affected by the
financial transaction, the corresponding amounts involved for each account affected, and a brief
explanation to support the transaction.

Regularly maintained journals are also essential for accounting purposes because they provide
information about money coming into and going out of your company’s bank account.

Types of Journals
In double-entry bookkeeping, companies usually keep 7 different types of accounting journals.
This is done in order to further organize the kind of transactions into the specific journal type
where it fits.

This way, it will be easier to analyze the effects of the transactions than if they were recorded in
one journal.

The seven types of accounting journals are:

Purchase Journal

The purchase journal is where all credit purchases of merchandise or inventory are recorded.
Thus, this kind of journal must not contain transactions such as the purchase of assets on credit
because this should only be exclusively for merchandise or inventory.

Also, merchandise or inventory purchases paid by cash should not be recorded in this journal as
it is exclusively for credit purchases.

Purchase Returns Journal

25
This type of journal houses all returns of inventory that were originally purchased on credit. Take
note that inventory returns that were originally purchased in cash cannot be entered into this
journal.

Cash Receipts Journal

The cash receipts journal is where all cash receipts, which could be payments from customers for
the service or product that you sell, are recorded.

Sources of cash could also include, but are not limited to, debtors, income, or loans received.
This is where one would record items such as customer payments and bank deposits.

Cash Disbursements Journal

The cash disbursements journal is where all payments to creditors using cash are noted down.
This includes payments for a variety of expenses such as payroll, suppliers’ bills, interest paid on
a loan, or mortgage payment.

The cash disbursements journal is also otherwise known as the “cash payments journal.” Note
that some companies may have specific journals for each type of expense category they have in
order to track costs more effectively.

Sales Journal

This journal records all sales of goods on credit. Sales to customers who pay in cash should not
be recorded here, but instead entered in the Cash Receipts Journal.

Sales Returns Journal

This journal is where all credit returns of merchandise or inventory are recorded. Also, if the
items were originally purchased in cash and returned in credit, they should not be entered here
but instead entered in the Purchase Returns Journal.

General Journal

The general journal is where one will record all the journal entries that do not fit into any of the
six types mentioned above. An example of a financial transaction that could be recorded here is
the purchase of an asset on credit.

This is also where we list information about credits and debits so as to form a complete
accounting system for recording transactions in double-entry bookkeeping.

A simple journal entry in a general journal will look like this:

26
Journal vs Ledger
Both journals and ledgers are useful tools in bookkeeping but each of these serves different
purposes and uses. As has been already mentioned, a journal is where a financial transaction is
first recorded.

A ledger, on the other hand, is where the results of the transactions are kept permanently. During
preparation, all financial transactions will have to be recorded first in the journal before they are
translated into the ledger.

Here are some points to remember to differentiate a journal from a ledger:

27
Final Thoughts
The journal is a very important tool in accounting. Although it may seem quite simple, this
record-keeping tool can be a powerful asset for your business.

Journals are the books used by companies and businesses in order to maintain records of
financial transactions. They are important sources of data that can be analyzed to gain valuable
financial insights on business operations, performance, and cash flow status.

Just keep in mind these things and always remember to use journals properly so you don’t have
to face any problems while doing your books.

Sub Division of Journal

What is Journal?
28
A journal is a book of prime entry. Any transaction is first recorded in a journal and then posted
from there to the ledger accounts. We record transactions here in the chronological order. An
organization has an option to either maintain a single Journal Book or to maintain separate
Journals for each kind of transactions. Let us study in detail what is journal?

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Sub Division of Journal

We can divide the journal into the following two types:

1. General Journal
2. Special Journal

Browse more Topics under Books Of Prime Entry

 Journal – Functions and Advantages

 What are Subsidiary Books
 Cash Book
 Purchase Day Book
 Sales Day Book
 Ledger Accounts
 Sub Division of Ledger

General Journal

In this book, we record transactions in the chronological order. We record those transactions in
this book which do not occur frequently and also which we cannot record in the special journals.

The recording of transactions is known as journalizing. Also, the record of the transaction is
known as a journal entry.

Usually, we pass the opening entries, closing entries, rectification entries, adjustment entries and
entries relating to incomes and expenses which are due.

29
 Learn more about Sub Division of the Ledger here in detail.

Special Journal

It is popularly known as the subsidiary books. In these books also, we record transactions in the
chronological order.

However, we record transactions in these books which occur frequently and on a regular basis.
All the transactions of similar type are recorded in a separate book.

There are eight subsidiary books that an organization maintains, viz., Cash Book, Purchases
Book, Sales Book, Purchase Return or Return Outwards Book, Sales Return or Return Inwards
Book, Bills Receivable Book, Bills Payable Book and Journal proper. A Cash Book is a
subsidiary book as well as a ledger.

Importance of Sub-Division of Journal

In a case where the number of transactions is large, it is difficult to record all the transaction by
way of a journal entry. This is so due to the following limitations of the Journal:

30
 1. When we record transactions by way of a journal entry, we need to write the name of the
account involved as many times as the transaction occurs. Also, each time we need to
post the entry on the debit and credit side of the accounts. Thus, it is a cumbersome
method.
2. Also, every time a narration has to be written which unnecessary increases labor.
3. This system is unable to provide information on a prompt basis.
4. As only one person handles the journal, it cannot facilitate the installation of a system of
internal check also.
5. The journal owing to the voluminous transactions becomes huge.

In order to overcome these limitations, organizations prefer using subsidiary books.

Source: freepik.com

Compound Journal

Simple journal entry refers to a situation where for a single transaction we need to debit one
account and credit one account only.

However, Compound Journal entry refers to a situation where for a single transaction we need to
debit more than one account or credit more than one account.

Solved Example For You

Pass the compound journal entry in the following cases:

1. Commenced business with Building ₹50000, Stock ₹10000, Cash ₹40000.

2. Purchased goods for cash ₹10000 and from Anil ₹5000.
3. Paid Anil ₹4800 in full settlement.

Ans.

In the books of XYZ

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Journal entries

Date Particulars Amount (Dr.) Amount (Cr.)

1. Building A/c Dr. 50000
Stock A/c Dr. 10000
Cash A/c Dr. 40000
To Capital A/c 100000
(Being commenced business with a
building, stock, and cash as capital)
2. Purchases A/c Dr. 15000
To Cash A/c 10000
To Anil’s A/c 5000
(Being purchase of goods in cash and on
credit)
3. Anil’s A/c Dr. 5000
To Cash A/c 4800
To Discount received A/c 200
(Being payment to Anil in full
settlement)

What are Subsidiary Books

What are Subsidiary Books? Subsidiary Books are books of Original Entry. They are also known
as Day Book or special journals. We record transactions of similar nature are in Subsidiary
Books. They are helpful in overcoming the limitations of journal book or journal entries. In this
article, we will see different types of Subsidiary Books.

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32
Different Types of Subsidiary Books
We can divide the subsidiary books into the following types:

1. Cash book
2. Purchases book
3. Sales book
4. Purchases return or return outwards book
5. Sales return or return inwards book
6. Bills receivable book
7. Bills payable book
8. Journal proper

Click here to know the meaning of Subsidiary Books in detail

Cash Book

It records all the cash and bank receipts and payments. It is a book of original entry as we record
transactions in it for the first time from the source documents such as vouchers, invoices, etc.

A cash book has a debit and a credit side both. Thus, it is similar to a ledger account. Hence, it
acts as a subsidiary book as well as a ledger account.

33
An organization can maintain a single column, double column or triple column cash book as per
its requirements. A single column cash book consists of only cash column.

A double column cash book consists of cash and bank column. While the triple column cash
book consists of cash, bank, and discount column. Usually, the firms use triple column cash
book.

Some organizations also maintain a petty cash book which records the petty or small cash
expenses of the firm.

Format of Cash Book

Discount Discount
Date Particulars L.F. Cash Bank Date Particulars L.F. Cash Bank
Allowed Received

Browse more Topics under Books Of Prime Entry

 Journal – Functions and Advantages

 Sub Division of Journal
 Cash Book

34
  Purchase Day Book
 Sales Day Book
 Ledger Accounts
 Sub Division of Ledger

Purchases book

A firm records all its credit purchases of goods in Purchase Book or Purchase Day Book. While
it records all the cash purchases of goods in the Cash Book.

We do not record Purchases of assets in Purchase Book. Thus, they are recorded in the Journal
Proper.

Purchase Book Format

Name of the Supplier and details of Invoice

Date L.F. Amount (₹) Remarks
purchases ref.

Sales Book

A firm records all credit sales of goods in the Sales Book or Sales Day Book. It records cash
sales of goods in the Cash Book. We do not record the sale of assets in the Sales Book.

Thus, we shall record them in the Journal Proper. In this case, also we record entries from the
source documents. Also, we record entries with the net amount of the invoice.

Sales Book Format

Invoice
Date Particulars L.F. Amount (₹) Remarks
ref.

Purchase Return or Return Outward Book

We record the return of goods purchased in the Purchase Return Book. A Debit Note is prepared
for every return of goods in duplicate.

It contains the name of the supplier, details of goods returned and reason thereof. It needs to be
dated and serially numbered.

Purchase Return Book

Debit Note
Date Particulars L.F. Details Totals Remarks
No.

35
Sales Return or Return Inwards Book

We record the return of goods sold in the Sales Return Book. A Credit Note is prepared for every
return of goods in duplicate.

The Credit Note contains the name of the customer, details of goods returned and reason thereof.
It also needs to be dated and serially numbered.

Sales Return Book

Outward
Date Particulars L.F. Details Totals Remarks
invoice

Source: freepik.com

Bills Receivable Book

We record all the acceptance of the bills in our favor in the Bills receivable book. We need to
post the total of bills receivable book to the Bills receivable A/c. Also, we need to post the
individual accounts of the customers.

Bills Receivable Book Format

Name of Name of How

No. of Daye of From Name of Date of Due Amount
the the L.F. disposed
bills receipt whom acceptor bill date of bill
receiver drawer off

Bills Payable Book

We record all the acceptance of the bills that we issue in favor of others in the Bills payable
book. We need to post the total of bills payable book to the Bills payable A/c. Also, we need to
post the individual accounts of the suppliers.

36
Bills payable Book Format

Amount of
Name
No. of Daye of To Name of Where Date of Due bill how
of the Term L.F.
bills acceptance whom drawer payable bill date disposed
payee
of

Journal Proper

It includes transactions relating to credit purchase and sale of assets, depreciation, outstanding
and pre-paid expenses, accrued and unearned income, opening and closing entries, adjustment
entries and rectification entries.

Solved Example on Types of Subsidiary Books

State the appropriate subsidiary book to record the following transactions:

1. Purchase of goods from Ram

2. Purchase of furniture in cash
3. Depreciation on plant and machinery
4. Sale of goods for cash
5. Bad debts from Dolly

Ans.

1. Purchases Book
2. Cash Book
3. Journal proper
4. Cash book
5. Journal proper

Journal – Functions and Advantages

https://www.toppr.com/guides/accounting-and-auditing/recording-transactions-cs/

In journal day book we record transactions in their chronological order. The process of recording
transaction in a journal is known as ‘Journalisation’. The entry recorded in this book is a ‘journal
entry’. Journal is the book of primary entry in which we record all transactions before posting
them into the ledger. We need to keep a journal in a columnar form. There are some function and
advantages of journal day book. Now we are going to discuss the Journal – Functions and
Advantages.

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37
Objectives of Business

Levels of Management

Functions and Advantages of Journal

Functions of Journal

(i) Analytical Function: While recording a transaction in the journal each transaction is
analyzed into the debit aspect and the credit aspect. This helps to find out how each transaction
will financially affect the enterprise.

(ii) Recording Function: Accountancy is a business language which helps to keeps the record of
the transactions based on the principles. Each such recording entry is supported by a brief
narration, which explains, every transaction in simple language. Narration means to narrate – i.e.
to explain. It starts with a word – Being …

(iii) Historical Function: Journal book contains a chronological record of the transactions for
future references.

Browse more Topics under Books Of Prime Entry

 Sub Division of Journal

 What are Subsidiary Books
 Cash Book
 Purchase Day Book
 Sales Day Book
 Ledger Accounts
 Sub Division of Ledger

Learn more about Journal Entry here in detail.

Advantages of the Journal

The following are the advantages of a journal:

(i) Chronological Record: Journal book records transactions as and when it happens. Therefore
it is possible to get day-to-day information.

38
(ii) Minimizing the possibility of errors: The nature of the transaction and its effect on the
financial position of the business is ascertained by recording and analyzing into debit and credit
aspect.

(iii) Narration: It means the explanation of every recorded transaction.

(iv) Helps to finalize the accounts: It is the basis of ledger posting and the ultimate Trial
Balance.

39
 Source: freepik.com

Some other advantages of Journal

1. Journal records all business transactions in one place on the time and date basis.
2. All transactions which are recorded, are supported with a receipt or bill, so we can check
the authenticity of each journal entries with their bills.
3. There is a minimum chance to avoid any particular transaction because in a journal we
record every transaction on a date basis.
4. Accountant writes each journal entry’s narration below that journal entry, so another
auditor can know what is the reason of that journal entry.
5. In a journal, we record each transaction after deep analysis of two accounts on the basis
of double entry system, so there is a minimum chance of mistake in the journal.
6. Journal is the basis of posting transactions in ledger accounts. Without making of the
journal, an accountant can not make ledger accounts.
7. If there is a mistake in ledger accounts, we can easily rectify it with the help of journal or
rectify journal entry in the journal.
8. All opening journal entries, closing journal entries and all other transactions which we
cannot record in any other subsidiary books, we record them in the journal proper.
9. We also need Journal in every accounting software. This accounting software can make
an auto system of posting journal entries to the ledger by their automatic processing, but
the accountant must feed journal entries in the journal and other specific vouchers of the
journal.
10. There is one column of ledger folio. It is very helpful for checking reference of each
account’s posting with its original journal entry.

Solved Example on Advantages of Journal

What are the books of prime entry other than a journal?

Ans: Books of prime entry is a book or record in which we record certain types of transactions
before they become a part of the double-entry book-keeping system. The common books of
prime entry are:

1. Purchase day book

2. Sales day book
3. Purchase return day book
4. Sales return day book
5. Cash book
6. Petty cash book

40