What is General Journal?
The general journal is the journal of the company in which initial record keeping of all the transaction is done which are not recorded in any of the specialty journal maintained by the company like purchase journal, sales journal, Cash journal, etc.
Whenever an event occurs, or a transaction happens, it records 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 journalPurchases JournalPurchase Journals, also known as Purchase Book or Purchase Daybook, are special journals which a Company uses to keep track of all the credit purchases. While Purchase Journal records credit transactions, a General Journal records cash purchases. , and 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 not entered in a specialty journal account for in a General Journal. It can have the following types of transactions:
- Accounts receivablesAccounts ReceivablesAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet.
- Accounts payableAccounts 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.
- Accumulated depreciationAccumulated DepreciationThe accumulated depreciation of an asset is the amount of cumulative depreciation charged on the asset from its purchase date until the reporting date. It is a contra-account, the difference between the asset's purchase price and its carrying value on the balance sheet.
- Interest incomeInterest IncomeInterest Income is the amount of revenue generated by interest-yielding investments like certificates of deposit, savings accounts, or other investments & it is reported in the Company’s income statement. and expenses etc.
General Journal Accounting
Double entry bookkeepingDouble Entry BookkeepingDouble Entry Accounting System is an accounting approach which states that each & every business transaction is recorded in at least 2 accounts, i.e., a Debit & a Credit. Furthermore, the number of transactions entered as the debits must be equivalent to that of the credits. is the most common method of general journal accounting. Every business transactionBusiness TransactionA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements. 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 records in a journal, it debits one account and credits the other.
For example, A company purchases $5000 of inventory using the 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.
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
|Date||Account Title and Description||Debit||Credit||Reference|
|Accumulated Depreciation for July 2018|
|To record depreciation for July 2018||20000|
|To record inventory purchase||5000|
|To record August 2018 utilities purchase||1000|
|Collected the cash for sales to be recorded in sales account||15000|
|Owner contributed capital to the business||7500|
In the above table general journal examples, we can see each transaction records as two lines- one debit and one credit account.
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 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 earningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company. (an equity account)
- product sales (a revenue account)
- cost of goods soldCost Of Goods SoldThe cost of goods sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company. (an expense account)
To summarise: every accounting transactionAccounting TransactionAccounting Transactions are business activities which have a direct monetary effect on the finances of a Company. For example, Apple representing nearly $200 billion in cash & cash equivalents in its balance sheet is an 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 ledgerThe LedgerLedger in Accounting, also called the Second Book of Entry, is a book that summarizes all the journal entries in the form of debits & credits to use for future reference & create financial statements. , in turn, is used to aggregate this information into the financial statements of a business, which are called an initial trial balance.
We discussed the use of journals 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 some 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.
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. 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.
General journal is an initial record-keeping that 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 debitDebitDebit is an entry in the books of accounts, which either increases the assets or decreases the liabilities. According to the double-entry system, the total debits should always be equal to the total credits. information in a double bookkeeping system. 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 statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.. 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 Video
This article has been a guide to what is General Journal in Accounting? Here we discuss general journal examples, format, entries along with its uses. You may learn more about Accounting from the following articles –