Journal or General Journal
General Journal is the first phase of accounting where all the transactions are recorded originally in chronological order. That’s why it is also called the original book of entries or chronological book or day book. In the journal both the aspects of all the transactions are recorded by following the “Double Entry System”. Before recording transactions in journal, it is better to understand “Double Entry Bookkeeping” and the difference between double entry and single entry.
After analysis of a business transaction, it is recorded in a book known as journal (or general journal). General Journal is sometimes called the book of original entry because all transactions are recorded in it in chronological order as they occur. When transaction is entered in the journal, it becomes a journal entry. The process of entering transactions in the journal is referred to as journalizing.
To enter or record a transaction in the books of accounts or register is called to make an entry. When a transaction is recorded in journal it is known as “Journal Entry”
Sequentially, journalizing is the second step of accounting cycle. The first step being the analysis of transaction that provides the necessary information required to journalize a transaction. The process of recording in the journal is called “Journalizing“.
The first book in which transactions are recorded is called general journal. In this book transactions are recorded in a chronological order which means in order of their occurrence. It is a diary of business equities. It is also known as “Book of original entry”. It has various names such as Book of Original Entry, Day Book, Primary Book, Book or Primary Entry and Book of First Entry.
there are some transactions that do not involve sales, purchases, cash receipts, or cash payments or are too complex to fit conveniently into these journals. Examples are a sales or purchase return, a compound entry that involves several accounts, and most adjusting entries. These entries are most easily made in the general journal.
To illustrate, assume that the Fortune Retail Store entered into the following three transactions:
- June 5: Purchased $500 worth of wine from the Neuman Wine Company that arrived damaged. It was returned, and Fortune’s account was reduced.
- June 17: A. Waller returned some merchandise because it did not meet her needs. She received a $200 credit on her account.
- June 30: Depreciation expense for the month is $1,200.
These entries are recorded in the general journal shown below.
You should note that the Receivables and Payables accounts must be posted twice. That is, the entry must be posted to both the appropriate subsidiary account and the controlling account. This posting is shown by noting both the particular controlling account number in the post reference column and the subsidiary ledger account number.
Advantages of General Journal
- The General Journal shows all information about a transaction as it takes place and also provides an explanation of the transaction.
- It helps in locating errors.
- It provides a chronological record of all transactions which is helpful to locate a transaction relating to a particular date.
- There is no possibility of omitting a transaction as each transaction is recorded immediately.
- As dual aspects of a transaction are recorded in the Journal so there is no chance of committing any mistake in writing to the ledger.
- While preparing Journal each transaction gives detailed information so it is helpful in posting entries into ledger.
Format of general journal
The proper format of the general journal is given below:
A journal has the five columns. Their use is briefly described below:
1. Date column
In the date column the year, month and date of transaction is entered. The year is entered immediately below the “date” heading. It is written once per page and do not have to be repeated for all entries on the page.
2. Description column
The description column is used to enter the names of the accounts involved in transaction. The debit part of the entry is written first and credit part is written below the debit part. It is common to leave some space from left before writing the credit part of the journal entry. A brief description known as narration is also written in this column below the credit part of the entry.
3. Posting reference
All journal entries are periodically posted to the ledger accounts. In posting reference column, the page number of the ledger account to which the entry belongs is written. For example, if the cash account is on page number 101 in the ledger, the number 101 would be written in posting reference column where the cash account appears in general journal.
4. Debit column
The amounts of the accounts being debited are written in this column.
5. Credit column
The amounts of the accounts being credited are written in this column.
Now let us take an example to implement Journal practically:
The following transactions are related to the business of Mr. John.