Functions of accounting journal is very crucial for accounting process. It is the first stage of any accounting exercise. It is otherwise referred to as the daybook. A daybook is one of the most used in a accounting context; sequential written record of the day-to-day transactions of a business. Function of accounting journal: chronological list of accounts, indicating the date of the transaction, the details of the transaction, and the corresponding debit and credit amounts, is made in a journal in a timeline sequence. The main functions of accounting journal are as follows:
1. Accurate Recording of Transactions: Daily financial transactions are recorded in the journal. The date, details, and monetary amount of each transaction are accurately noted during transaction recording. This results in complete and accurate records of all company transactions.
2. Correct Determination of Debit and Credit: Determining the debit and credit side of every transaction is very important. Debit and credit entries are correctly given for each transaction in the accounting journal. Debits and credits must be recorded according to the rules known as double entry system.
3. Basis for Financial Statements: Data is transferred from accounting journals to ledger accounts, which are then used to prepare financial statements. Financial statements can be prepared correctly if journals are properly maintained.
4. Error Detection and Correction: The accounting journal is an effective means of detecting and correcting errors. If any mistake is recorded, it can be corrected by journal entry or correcting entry.
Journal entries with examples:
Below is an example of a typical journal entry:
Example 1: Cash purchase Office Equipment
Let’s say some office equipment is bought in cash for $10,000. In this case, Cash is decreasing and Office Equipment is increasing. Entries will be:
Debit: Office Equipment A/C: $10,000
Credit: Cash A/C: $10,000
Example 2: Sale of goods on credit
Let’s say, goods worth $20,000 were sold on credit. In this case, the sale of the product will increase our sales revenue and create Accounts Receivable from the customer:
Debit: Accounts Receivable A/C: $20,000
Credit: Sales A/C: $20,000
Example 3: Purchase of goods
Purchased goods for $500 in cash
Debit: Goods (Inventory) – $500
Credit: Cash – $500
Example 4: Salary paid
$2,000 salary paid
Debit: Salary Expenses – $2,000
Credit: Cash – $2,000
Example 5: Borrowing/Loan
A loan of $10,000 was taken from the bank
Debit: Cash – $10,000
Credit: Loan Payable – $10,000
Example 6: Sales Return
Buyer returns $200 worth of goods
Debit: Sales Returns – $200
Credit: Cash – $200
More Resources
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