What Is A Journal?
A journal entry can be defined as a system of recording the financial transactions of s business or a company. It is a part of the accounting of a company that involves recording, organizing, and maintaining the transactions of a company. Journal entries are recorded in the general ledger from where they are used to make the financial report of the company. Journal entry includes the details of every transaction such as the date, name of accounts involved in the transaction, the amount that is being credited or debited, and a brief description of the transaction. It also includes a unique identification number for every single transaction that occurs in the general ledger.
A journal entry can be recorded in two types of accounting systems – Single Entry Bookkeeping and Double Entry Bookkeeping.
Single Entry Bookkeeping
It is a type of bookkeeping in the system of accounting that records a single entry for every transaction that takes place. It records either an expense or an income, depending upon whether money is being received or paid. In a single entry system of accounts, the transactions are recorded in a cash book which includes the date of the transaction, a brief description, and whether it is an expense or an income. Cash books of single entry journals are mostly recorded and maintained by small businesses to keep track of the amount of money being credited and debited. A single entry system cannot be used by large-scale businesses and companies because they have more complicated accounts than small businesses and require a double-entry system to maintain their financial records.
Double Entry Bookkeeping
The double entry system of accounting records two entries for every transaction that takes place. It records a debit entry from the payee account and a credit to the receiver’s account for every transaction. The debit entry of one transaction offsets the credit entry of another transaction making the sum of all debit entries and all credit entries be the same. The double entries make it easier to detect any mistakes and make account keeping more accurate and updated for businesses. The single entry system of accounting only records the revenues and expenses whereas double-entry bookkeeping maintains the record of assets, liabilities, and equity as well. Therefore, double-entry accounting is much more accurate, efficient, and reliable for businesses and companies to maintain their financial records and statements.
Uses of Journals in Business
Journal entry is the most basic and most important part of accounting in the bookkeeping of a business. It is the first record of every transaction that takes place before it is recorded in the general ledger. The details of every transaction are recorded in the journal entry for the very first time such as the date, type, and amount being credited and debited. Therefore, in case of any errors, journal entries can help in detecting and correcting those before finalizing those entries as financial statements.
There are two types of journals – Purchase Journal and Sales Journal. Purchase Journals have all the entries related to purchasing any commodities on a credit basis. Sales Journals record all the entries regarding the sale of commodities on a credit basis. The entries that are recorded in the purchase journal help in identifying important transactions such as the return of commodities to the creditor, discounts, and allowances received from suppliers, and original credit notes received from the suppliers. The sales journal entries help in identifying the return of commodities from debtors or buyers, discounts offered to the buyers, and credit notes received from the company’s debtors.
Journal Entries are helpful for businesses as they provide ease in the maintenance of financial transactions, correction of errors in financial records, and assessment of the financial reports of the company at any given period.
Journal entries are the first records of every financial transaction taking place in a business or a company. They can be recorded in either a single entry accounting system or a double-entry accounting system. Single-entry bookkeeping only records the revenues and incomes of a business while double-entry bookkeeping maintains the records of equity, assets, and liabilities too. Journal entries help business to record their financial transactions in an updated manner and also allow correction of errors and mistakes easily.
A single-entry system of bookkeeping is only helpful if you wish to record the revenue and expenses of your business. It only records single entries of transactions making it difficult to spot errors and keep track of credits and debits. Double-entry system on the other hand records every credit and debit entry of each transaction. It keeps track of the account from which the money is being debited to the account it is being credited. This eases the recording of transactions and also makes it easier to spot any errors.
Journal entries are the first record of every transaction taking place. It can be recorded in a table with a column of the date of the transaction, the debit column stating the payee account, the credit column stating the receiver’s account, the amount of money being transacted, and a column with a brief description of the transaction. After the journal entries have been recorded and updated, they can be posted into a general ledger book.