What is Journal?

What is Journal?

Journal, also known as the subsidiary book, is the book that initially records the business transactions with the help of the vouchers that are prepared using various source documents in chronological order. Journal records each account separately and shows which account is debited and which one is credited based on the concept of double-entry system of accounting.

Explanation

After all the transactions that are needed to be recorded are identified, are firstly recorded in the basic book of original entry known as journal. In other words, a Journal is the detailed records of accounting of business in which all financial transactions related to the business are recorded. It is used as a base for accounting records based on which other books of accounts like a ledger, trial balance, balance sheet, etc. are prepared. It may be in physical form or in a digital document which consists of a spreadsheet, entries in accounting software, etc.

Features of Journal

  • Firstly all the transactions are required to be reported in the Journal in chronological order (date-wise). Therefore the journal book is also known as a book of prime entry/original entry.
  • The journal shows which account is debited and which one is credited while recording the business transaction.
  • After passing the journey entry a brief description of the transaction is also given, known as narration, so that the entry can be understood easily.
  • If there is a transaction where there are 2 or more debits/credits then a single entry can be passed to record such debit and credit i.e. there is no need to pass two or more entries for a single transaction.

 What is Journal Entry?

Journal entry is the act of keeping or making the records for any financial transaction related to business. Journal entry consists of several recordings, each of which is debit or credit.

Following are the Rules of Accounting for Journal Entries

Golden Rules of Accounting:

Modern Approach of Accounting

Examples

  1. Mr. A made sales for cash amounting to $ 1000.

Journal entry will be:

Cash A/c                               Dr.$ 1000 
         To Sales/Stock A/c $ 1000
(Being Sales made in cash)  

Rule Applies is: Debit what comes in (Cash) and Credit what goes out (Stock)

  • Mr. B made the payment of $ 5000 in respect of the amount due to him.
Cash A/c                                             Dr.$ 5000 
          To Mr. B A/c $ 5000
(Being Amount Due received from Mr. B)  

Rule Applies is: Debit what comes in (Cash) and Credit the giver (Mr. B)

  • Business expenses in form of repairs are incurred amounting to $ 4000.
Repairs A/c                                         Dr.$ 4000 
             To Cash A/c $ 4000
(Being Business expenses incurred)  

Rule Applies is: Debit all expenses (Repairs) and Credit the what goes out (Cash)

  • Plant and Machinery amounting to $ 9000 purchased from Mr. N on credit
Plant and Machinery A/c                  Dr.$ 9000 
                            To Mr. N A/c $ 9000
(Being Plant and Machinery Purchased from Mr. N)  

Rule Applies is: Debit all Assets (Plant and Machinery) and Credit all liabilities (Mr. N – Creditor)

  • Capital introduced in business amounting to $ 50000
Cash A/c                                      Dr.$ 50000 
         To Capital A/c $ 50000
(Being Capital introduced in the business)  

Rule Applies is: Debit what comes in (Cash) and Credit all liabilities (Capital) as its responsibility of business to pay back capital to the owner on winding up.

  • Loan Taken from Bank amounting to $ 7000.
Bank A/c                                      Dr.$ 7000 
       To Bank Loan A/c $ 7000
(Being Loan taken from Bank Amounting to $ 7000.)  

Rule Applies is: Debit what comes in (Cash in Bank in form of loan) and Credit all liabilities (Bank Loan).

Advantages of Journal

  • Journal is the basic record of all the financial transactions entered into business.
  • It can be used for future reference also.
  • it can be made in digital form in form.
  • It provides details of all transaction details in one place.
  • The Authenticity of the transaction can be easily checked.
  • The date wise records of all the transactions are available in the journal.
  • It facilitates ledger posting.
  • Reduces the possibility of errors as the debit and credit of transaction is recorded simultaneously.

Disadvantages of Journal

  • Recording and checking transactions from the journal can be time-consuming.
  • Journal may not include information related to each minute or current event information.
  • It is like a magazine as it contains too many records.
  • Journal is not suitable when the number of transaction is huge. In such a case journal is required to be further divided into various subsidiary books such as sales book, purchase book, cash book etc. and transactions are recorded in such books.

Final Thought

Journal is the book in which all the financial transactions related to the business are recorded. It is very useful as past information for future reference can be accessed from the journal easily. There are rules of making entries in journal based on which journal entries can be made. With the help of the Journal, all the transactions are accessed in one place. But as the journal keeps all records it is like a magazine and hence it takes time to find the records.

Related Articles

  1. Traditional Approach of Accounting
  2. Modern Approach of Accounting
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