General journal, often referred to as the book of original entries, is a primary accounting record that provides a comprehensive source for recording and tracking all financial transactions.
It serves as a chronological logbook wherein all transactions are initially recorded before being classified and summarized in the general ledger.
It is used to record debits and credits along with descriptions of each transaction.
By using a general journal, organizations can ensure that all financial activities are accurately documented, thereby facilitating the preparation of financial statements and helping in the decision-making process.
How Is General Journal Used and Why It’s Important
A general journal is used to record a wide range of financial transactions, including sales, purchases, expenses, and revenues.
Each transaction is recorded in the general journal with an entry that details the date of the transaction, the accounts involved, and the amount of each transaction.
These entries are then posted to the general ledger where they are organized by account.
The general journal is important because it provides a permanent record of all financial transactions that have taken place.
This information can be used to prepare financial statements, calculate taxes, and other crucial business activities.
The Format of the General Journal
To easily analyze and summarize financial data, the format of a general journal typically includes these five columns:
1) Date: The date of the transaction.
2) Description: A brief explanation of the transaction.
3) Account Title and Number: The specific account affected by the transaction, along with its account number.
4) Debit: The amount to be debited from the account.
5) Credit: The amount to be credited to the account.
The general journal has a specific format, which includes the date of the transaction, the accounts involved, and the amounts debited and credited.
The accounts are listed in the order in which they are affected by the transaction, with the account to be debited listed first.
The general journal also has a space for a description of the transaction.
This description should provide enough detail so that anyone looking at the journal entry can understand what the transaction was for.
Examples of General Journal Entries
1) Sales Transaction:
- Date: May 15, 2023
- Description: Sold 100 units of Product X to Customer A at $50 per unit.
- Accounts Affected: Accounts Receivable (debit) and Sales Revenue (credit).
2) Purchase Transaction:
- Date: May 20, 2023
- Description: Purchased office supplies from Vendor B for $500.
- Accounts Affected: Office Supplies (debit) and Accounts Payable (credit).
3) Adjustment Transaction:
- Date: May 31, 2023
- Description: Accrued interest expense of $100 for the month of May.
- Accounts Affected: Interest Expense (debit) and Accrued Expenses (credit).
General Journal vs. General Ledger
While the general journal is used to record all financial transactions, the general ledger is a record of each account and its balance. The general journal provides a detailed record of individual transactions, while the general ledger summarizes these transactions by account.
For example, if a company purchases supplies on credit, the transaction is recorded in the general journal. The entry would include the date of the transaction, the accounts affected, and the amounts debited and credited.
Once this entry is made, the information is posted to the appropriate accounts in the general ledger. The general ledger would then show the balance of the supplies account after this transaction is posted.