General Journal in Accounting (Examples, Entries, Format, Top Uses)

Accounting Tutorials

What is General Journal in Accounting?

The general journal is an initial record keeping which records all the transactions except for the ones which are recorded in a specialty journal like cash journal, purchase journal etc.

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

A specialty journal records special events or transactions that are related to the particular journal itself. There are mainly four kinds of specialty journals:

Sales journal
Cash receipts journal
Purchases journal
Cash disbursements journal

The company can have more specialty journals depending on its needs and type of transactions but the above four mentioned journals contain the bulk of accounting activities.

All other transactions which are not entered in a specialty journal are accounted in a General Journal. This can have the following types of transactions:

Accounts receivables
Accounts payable
Equipment
Accumulated depreciation
Expenses
Interest income and expenses etc.

General Journal Accounting

Double entry bookkeeping is the most common method of general journal accounting. Every business transaction is done by an exchange between two accounts. There are two equal and opposite accounts for all the transactions namely credit and debits. Hence, when a transaction is recorded in a journal it debits one account and credits the other.

For examples: if a company purchases $5000 of inventory using the cash. An entry in the journal would be made whereby 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

Let us look at a few general journal examples of how a journal looks like:

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

Flow Process of the General Journal Entries

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

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

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

A ledger is an account of final entry which is 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 which 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 of the General Journal in other Fields of Finance

We discussed the use of journal in recording the Company’s transactions and it’s used 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 to evaluate their trading and investing performance over a period of time and provide them 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 the time record keeping is done, however, with advances in technology and nearly all companies and even small businesses are using in general journal accounting software. A simple data entry of these transactions in these software logs them in the journal and ledger accounts. Many of these softwares provide simple drop downs to record the transactions thus making complex and tedious tasks very easy.

Conclusion

General journal is an initial record keeping which records all the transactions except for the ones which are recorded in a specialty journal like cash journal, purchase journal etc. It states the date of the transaction, description, credit and debit information in a double bookkeeping system. General 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. With the advent of technology, the task of record keeping has been made easy with all the information being stored in a single repository with no specialty journals in use.

General Journal