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Journal in Accounting Definition How to Make Journal Entries?

definition of journal in accounting

The first step in the accounting process is to analyze each transaction and identify what effect it has on the accounts. After making this determination, an accountant enters the transactions in chronological order into a journal, a process sales journal called journalizing the transactions. Although many companies use specialized journals for certain transactions, all businesses use a general journal. In this book, the terms general journal and journal are used interchangeably.

  • An accounting journal helps create a company’s general ledger and is a reference guide when a business files taxes.
  • The word journal means a day book or daily book of accounting.
  • Use two separate lines for writing the names of the two accounts concerned in each transaction.
  • In journal transactions are recorded with proper explanation, in the near future if any issue arises from the transaction, its explanation can be obtained from the 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. Although you don’t want too many individuals to have access to your accounting journal, it’s also a bad idea to let just one person have oversight of it.

What Is an Accounting Journal? Definition of Journal in Accounting

Special journals are used to meet various business needs and track specific categories of transactions. You can’t just erase all that money, though—it has to go somewhere.

definition of journal in accounting

So, whenever a transaction occurs within a company, there must be at least two accounts affected in opposite ways. The description column is used to enter the names of the accounts involved in the transaction. The debit part of the entry is written first and the credit part is written below the debit part.

Top 10 Accounting Professional Bodies In The World In 2022

Keeping an accounting journal can prevent your business from overspending in some areas or underspending in others. It can also prevent you from overdrawing funds, and it can help you spot any irregularities before they get out of hand. Companies often use the purchases journal to record all inventory and equipment purchases as well. Businesses can use almost an infinite number of different journals, but most companies tend to use only a few.

Debit notes that $600 is being added to your cash account. 3/21Invoice #123$600Date lets you know when the entry was recorded. You’re going to meet up with a client, pick up some office supplies, and stop by the bank to make a loan payment. Here’s everything you need to know about this essential building block of bookkeeping, including what they are, why they’re important, and how to make them.


For determining debit and credit transactions are to be classified under these five groups. After classification, accounts are to be debited and credited and transactions are journalized as per some fixed rules. Once you’ve analyzed the transactions, the information is documented in a chronological order in the journal.

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.

Income Summary Journal

It will show you where the money is coming from and where it’s going to. At the same time, due to more cash injection into the business, the capital, which is a liability, also increases. In the above table of general journal examples, we can see each transaction as two lines- one debit and one credit account. Accounts 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. Accounts 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.

Nevertheless, the aggregate amount of debit and credit in an entry must tally. Sometimes, the general journal is called the book of original entries. This is because all of this book initially records all of the business’s financial transactions before moving into other books. Accounting journals are the foundation of effective record-keeping and are used to track and analyze the financial status of an organization. Learning how and when to use a journal can help ensure your company is ready for billing cycles, tax season and audits. In this article, we discuss what journal entries are, types of specialized journals, how to create a journal entry and the difference between journals and ledgers.

Examples include a sales or purchase return, a compound entry involving several accounts, and most adjusting entries. These entries are most easily made in the general journal. The process of recording transactions in the journal is referred to as journalizing.

What are the 5 types of journal entries?

  • Opening entries. These entries carry over the ending balance from the previous accounting period as the beginning balance for the current accounting period.
  • Transfer entries.
  • Closing entries.
  • Adjusting entries.
  • Compound entries.
  • Reversing entries.

The cash receipts journal is also used for other cash sales. All accounting systems, no matter how sophisticated, are based on this principle.

What is a Journal in Accounting?

The assets, liabilities and capital of the business must be recorded. The general journal contains entries that don’t fit into any of your special journals—such as income or expenses from interest.

definition of journal in accounting