What is Journal?
The process of recording transactions in a journal is called journalising and the entries are called journal entries. As all the transactions are first entered in the journals, which are then posted into ledger. Journal is the beginning of the process of accounting.
Table of Content
For accounting convenience, journal is divided into different subsidiary books like purchase book, sales book, purchase return book, sales return book, bills receivable book, bills payable book, cashbook and journal proper.
Characteristics of Journal
Journal is said to be the first step of the double entry system. A transaction is first of all recorded in the journal. Characteristics of Journal.Therefore, the journal is the book of original entry.
- A transaction is recorded on the same day it takes place. Therefore, journal is called ‘Day Book’.
- All the monetary transactions relating to business are recorded chronologically hence the journal is called chronological book.
- For each and every transaction the names of the two concerned accounts indicating which is debited and which is credited, are clearly written in two consecutive lines. This makes ledger posting easy. That is why journal is called Assistant to Ledgere or subsidiary booke.
- Narration is written below each entry. The amount is written in the last two columns – debit amount in debit column and credit amount in credit column.
- There are five columns in journal entry- (1) Date (2) Particulars (3) L.F. no. (4) Debit amount (5) Credit amount.
Advantages of Using a Journal
The advantages of a journal can be studied through the following points:
- Every transaction is recorded as it takes place. Therefore, there is almost no possibility of omission of any transaction from the books of account.
- As the transactions are recorded in the journal chronologically with narration the reason behind why a transaction has taken place can ascertained easily.
- For each and every transaction the two concerned accounts that will be debited and credited are clearly written in the journal. Therefore, there is least possibility of committing any mistake in writing the ledger.
- As all the debits of transaction are recorded in journal so there is no need to repeat them in ledger. So the ledger is always kept tidy and brief.
- The Journal shows the complete story of every transaction in one entry.
- Any mistake in ledger can be easily detected through the journal.
Types of Journal Entries
There are two types of entries, which are recorded in the journal:
- Simple Entry : A simple entry involves two accounts only, one affecting the debit side and other affecting the credit side with an equal amount.
- Compound Entry : Sometimes a journal entry may have more than one debit or more than one credit entry. This type of journal entry is called compound journal entry. Regardless of how many debits or credits are contained in a compound journal entry, all the debits are entered before any credits are entered.
Format of a Journal
A journal is generally kept on a columnar basis. There are five columns in the journal, which are as under:
| Date | Particulars | Ledger Folio | Amount (Dr) | Amount(Cr) |
| 1 | 2 | 3 | 4 | 5 |
Date
Recording Date and Year of transaction.
Particulars
This is meant for recording the titles, description of transaction and passing entries. Here the name of the Account to be debited is written along with „Dr on the first line and the name of the Account to be credited is written along with a prefix „To on the second line.
Finally, a short explanation of the transaction known as narration begins on the line immediately below the account credited. The narration always appears within parentheses and is begun with the word, Beinge – which means, what it is.
Ledger Folio (L.F No)
Recording ledger folio number, which helps in identifying where the transaction is recorded in ledger.
Debit Amount
Recoding amount debited
Credit Amount
Recording amount credited
Ledger
The Ledger is also called the king of all books of accounts because all entries from the books of original entry are posted to the various accounts in the ledger. It should always be kept in mind that journal contains a chronological record while a ledger contains a classified record of all transactions.
Features of a ledger
Once the transactions have been entered in the journal the next step is to classify or categories them according to the accounts affected. All similar transactions are brought together through the ledger.
The features of a ledger can be studied through the following points:
- Two identical sides – The left hand side is called debit side and right hand side is called credit side.
- The debit aspects of every transactions is recorded on the debit side, while credit aspect on credit side according to date.
- The difference of the two sides represents the balance. The excess of debit side over credit side indicates debit balance, while excess of credit side over debit side indicates credit balance. If the two sides are equal there will be no balance.
- Normally balance is drawn at the year-end and recorded on the deficit side to make the two sides equal. This balance is known as closing balance.
The closing balance of the current year will become the opening balance of the next year.
Sub-Division of Ledger
When the size of organisation is very large and number of accounts is abundant, it is necessary to maintain a separate ledger for different accounts. Generally, the following three kinds of ledger are maintained by organisations:
- Debtor’s Ledger
- Creditor’s Ledger
- General Ledger
Debtor’s Ledger
Debtors are the clients (customers) of the business to whom goods are sold on credit. Debtores ledger contains all the details of transactions with debtors. Entries in this ledger are made mostly from sales daybooks, sales returns book and cashbook. Therefore, it is also called as Sales ledger.
Creditor’s Ledger
Creditors are suppliers of the material to business from whom goods are purchased on credit. Purchase daybooks, purchase return book are one of the main sources of entries for this ledger. Therefore, it is also known as Purchase Ledger.
General Ledger
This ledger contains all residual accounts – mainly real and nominal accounts. This ledger is also called nominal ledger.
Ledger Format
Ledger accounts are represented in “T” format. This consists of two sides, the left side represents the debit side and the right side represents credit side. Each side divided into four columns of varying sizes for the following:
- Date – used for date of transaction
- Particulars – Recording the name of the accounts debited or credited
- Journal Folio (J.F) – used to mark the page number of the journal for which the transaction is being recorded.
- Amount – Recording the amount debited or credited It may be kept in (i) Bound ledger or (ii) Loose leaf form.
DR CR
| Date | Particulars | J.F | Amount | Date | Particulars | J.F | Amount |
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
Ledger Posting
Ledger Posting can be understood as the system of transferring of the debits and credits from the journal to the ledger accounts. It should be kept in the mind that the exact names of accounts used in the Journal should be carried to the Ledger.
As we know under double entry system, each transaction is transferred in two different ledger accounts, affecting the debit side of one and credit side of the other one. The following procedure is followed for posting:
- Open separate ledger account for posting transactions relating to different accounts.
- Consider each transaction separately for posting purposes.
- Locate the transaction in Journals, to be posted in the ledger.
- Locate in the ledger the first account named in the journal.
- Enter the date of the transaction in the date column as per the dates of journal entry.
- In the particular column of the ledger bookse debit side, enter the name of the account credited in the journal entry with a prefix „Toe.
- In the Folio column of ledger book, enter the journal page number of which the posting is being made.
- Locate in the ledger the second account named in the journal.
- Repeat step 5.
- Enter in the credit side of the ledger in particular column, the name of the account debited with a prefix ,Bye.
- Repeat step 7.
Difference between Journal and Ledger
The Difference between Journal and Ledger can be studied through the following table:
| Journal | Ledger |
| 1. Journal is book of primary entry | 1. Ledger is book of final entry |
| 2. As soon as a transaction originates it is recorded into the journal. | 2. Transactions come into the ledger from the journal. |
| 3. All the transactions are recorded in chronological order. | 3. The transactions are categorised into the accounts. |
| 4. In journal narration is required and written in each and every entry | 4. No narration |
| 5. Here the ledger folio number is written | 5. The Folio number of the journal or sub-journal is written. |
| 6. The Relevant information cannot be ascertained readily | 6. As the transactions of particular nature are grouped at one place therefore the relevant information can be ascertained easily. |
| 7. The ledgers are prepared from the journal and final accounts cannot be prepared directly from a journal. | 7. Through Ledger trial balance is prepared which is the basis of preparing the final accounts. |
| 8. The accuracy of the accounts books can?t be tested through journal. | 8. The accuracy of the books is tested by Trail balance which is prepared after closing of ledgers. |
| 9. Debit and credit amounts are recorded in adjacent columns. | 9. The Debit and credit are recorded in two different sides of different accounts. |
| 10. In case of journal no balancing is done. | 10. In ledger is balancing is done periodically. |