What is Journal in Accounting?
Journal in accounting is named as the book of original entry. It’s called book of original entry because if any financial transaction occurs, the accountant of a company would first record the transaction in the journal. That’s why journal in accounting is very important for anyone to understand. No matter who you are, a would-be accountant, a finance enthusiast, or an investor who would like to understand the inherent transactions of a company, you need to understand how to pass a journal entry before anything else.
Double entry system
Double entry system is the system that is used to record entry in the journal. Let’s understand what double entry system is. Double entry system is a system that has two parts – debit and credit. If you know what a debit and what a credit are, you would be able to understand the entire financial accounting quite effectively.
Let’s understand the rules of debit and credit briefly and then we will see the examples of journal entries –
- Debit the account when assets and expenses increase.
- Debit the account when liabilities and revenues decrease.
- Credit the account when assets and expenses decrease.
- Credit the account when liabilities and revenues increase.
The following examples will help us understand how to debit and credit the accounts in transactions.
How to Make Journal Entries in Accounting?
Mr M buys goods in cash. What would be the journal accounting entry?
As we know the rules of debit and credit, we can see that Mr M is expending cash; that means cash is going out and in lieu of cash, he is receiving goods. That means “cash”, a current asset is decreasing and “purchase”, an expense is increasing.
As per the rule, we will credit the account when the asset decreases and we will debit the account when the expense increases.
So, the journal entry in accounting book would be –
To Cash A/C…..Credit
G Co. sells goods in cash. Which account will be debited and which account will be credited?
G Co. sells goods in cash meaning cash is coming in and goods are going out. “Cash” is an asset which is increasing and “sales” is a revenue account which is increasing.
As per the rules of debit and credit, when “asset” increases, it is debited; and when “revenue” increases, it is credited.
So, here the journal entry in accounting book would be –
To Sales A/C…..Credit
Mr U pays off his long term debt in cash. What would be the journal entry?
Here we can see that Mr U is paying cash; that means “cash” is going out. And as a result, his long-term debt is also getting checked off. That means “long-term debt” which is a liability is getting decreased.
As per the rules of debit and credit, when an asset gets reduced, it is credited and when liability gets reduced, it is debited.
So the journal entry in accounting book would be –
Long term debt A/C……Debit
To Cash A/C……..Credit
More capital is being invested into the company in the form of cash.
In this example, there are two accounts. One is “capital” and another is “cash”.
Here, cash is invested in the business. As we know that cash is an asset, investing in a business means, the asset is increasing.
At the same time, due to the injection of more cash into the business, the capital which is a liability is also increasing. When liability increases, we credit the account.
So as per the rules of debit and credit, the journal entry in accounting would be –
To Capital A/C……Credit
Journal in Accounting Video
This has been a guide to what is Journal in Accounting and its definition? Here we discuss how to make journal entries in accounting along with detailed explanations. You may also read through our other articles on basic accounting –