The general journal is part of the accounting record keeping system. When an event occurs that must be recorded, it is called a transaction, and may be recorded in a specialty journal or in the general journal. The general journal is sometimes called the book of original entry. This means that source documents are reviewed and interpreted as to the accounts involved. Then, they are documented in the journal via their debit/credit format. As such the general journal becomes a log book of the recordable transactions and events. The journal is not sufficient, by itself, to prepare financial statements. That objective is fulfilled by subsequent steps. But, maintaining the journal is the point of beginning toward that end objective.
Examples of transactions recorded in the general journal are:
Once entered, the general journal provides a chronological record of all non-specialized entries that would otherwise have been recorded in one of the specialty journals.
Transactions are recorded in all of the various journals in a debit and credit format, and are recorded in order by date, with the earliest entries being recorded first. These entries are called journal entries.
Each journal entry includes:
- Asset sales
- Depreciation
- Interest income and expense
- Stock sales
Once entered, the general journal provides a chronological record of all non-specialized entries that would otherwise have been recorded in one of the specialty journals.
Transactions are recorded in all of the various journals in a debit and credit format, and are recorded in order by date, with the earliest entries being recorded first. These entries are called journal entries.
Each journal entry includes:
- Date
- The amount of the Debit and Credit
- The title of accounts to be debited or credited
- Description of the transaction
The following illustration draws upon the facts for the Xao Corporation. Specifically it shows the journalizing process for Xao’s transactions. Review it carefully, specifically noting that it is in chronological order with each transaction of the business being reduced to the short-hand description of its debit/credit effects. For instance, the first transaction increases both cash and equity. Cash, an asset account, is increased via a debit. Capital Stock, an equity account, is increased via a credit. The next transaction increases Advertising Expense "with a debit" and decreases Cash "with a credit."
Note that each transaction is followed by a brief narrative description; this is a good practice to provide further documentation. For each transaction, it is customary to list "debits" first (flush left), then the credits (indented right). Finally, notice that a transaction may involve more than two accounts (as in the January 28 transaction); the corresponding journal entry for these complex transactions is called a "compound" entry.
In reviewing the general journal for Xao, note that it is only two pages long. An actual journal for a business might consume hundreds and thousands of pages to document its many transactions. As a result, some businesses may maintain the journal in electronic form only.
Note that each transaction is followed by a brief narrative description; this is a good practice to provide further documentation. For each transaction, it is customary to list "debits" first (flush left), then the credits (indented right). Finally, notice that a transaction may involve more than two accounts (as in the January 28 transaction); the corresponding journal entry for these complex transactions is called a "compound" entry.
In reviewing the general journal for Xao, note that it is only two pages long. An actual journal for a business might consume hundreds and thousands of pages to document its many transactions. As a result, some businesses may maintain the journal in electronic form only.
The illustrated journal was referred to as a "general" journal. Most businesses will maintain a general journal. All transactions can be recorded in the general journal. However, a business may sometimes find it beneficial to employ optional "special journals." Special journals are deployed for highly redundant transactions.
For example, a business may have huge volumes of redundant transactions that involve cash receipts. Thus, the company might have a special cash receipts journal. Any transaction entailing a cash receipt would be recorded therein. Indeed, the summary total of all transactions in this journal could correspond to the debits to the Cash account, further simplifying the accounting process. Other special journals might be used for cash payments, sales, purchases, payroll, and so forth.
The special journals do not replace the general journal. Instead, they just strip out recurring type transactions and place them in their own separate journal. The transaction descriptions associated with each transaction found in the general journal are not normally needed in a special journal, given that each transaction is redundant in nature. Without special journals, a general journal can become quite voluminous.
For example, a business may have huge volumes of redundant transactions that involve cash receipts. Thus, the company might have a special cash receipts journal. Any transaction entailing a cash receipt would be recorded therein. Indeed, the summary total of all transactions in this journal could correspond to the debits to the Cash account, further simplifying the accounting process. Other special journals might be used for cash payments, sales, purchases, payroll, and so forth.
The special journals do not replace the general journal. Instead, they just strip out recurring type transactions and place them in their own separate journal. The transaction descriptions associated with each transaction found in the general journal are not normally needed in a special journal, given that each transaction is redundant in nature. Without special journals, a general journal can become quite voluminous.