Accounting Journals: Journal is the primary recording or record book of business transactions, where each transaction is first recorded. This is an important step in book keeping and every transaction is recorded in this journal before the ledger is prepared. Transactions from the journal are later transferred to the ledger account. The Role of Journals in Financial Accounting.
Fundamental characteristics of accounting journals are as follows:
Features of Journal:
- Book of Prime Entry: A journal is the primary record of transactions, where each transaction is first recorded. This is done on the basis of “debit-credit” principle.
Example 01: A transaction of purchase of goods for $500 will first be recorded in the journal.
- Chronological Order: Transactions are recorded in the journal in order of occurrence (by date). Daily transactions are recorded by date.
Example 02: A machine was purchased on 1st July and raw materials were purchased on 2nd July. In that case the transaction of 1st July will be recorded first and the transaction of 2nd July will be recorded later.
- Debit-Credit System (Double-entry System): Every transaction in the journal is recorded on a “debit and credit” basis. That is, every transaction has two sides—a debit and a credit, which must be equal in amount.
Example 03: If goods worth $10,000 are sold, “Cash Account” will be debited and “Sales Account” will be credited.
- Narration: Each transaction is briefly explained or described below, so that it is clear why or what led to the transaction. This is called narration.
Example 04: A description such as “Cash payment for purchase of machinery” will be given below the journal.
- Preservation of Transaction Evidence (Supporting Documents): Each journal entry requires a supporting document. It can be a receipt, invoice, check etc., which confirms the authenticity of the transaction.
Example 05: An invoice or receipt for the purchase of the product will be attached.
- Basis for Trial Balance: Ledger accounts are prepared from the journal, which later helps in preparing the trial balance. A trial balance is prepared based on properly journalized transactions.
- Easy Reference: Documenting each transaction in a journal allows for easy verification before it is transferred to the ledger. It allows for corrections if any mistakes or irregularities are detected.
Accounting Journals for Effective Record Keeping as follows
Example 06: On 1st July, 20XX, a machine was purchased for $50,000 and paid in cash.
Journal Entries: Date Particulars Debit ($) Credit ($)
——————————————————————-——————————————————————-
01/07/20XX Machinery A/C Dr. $50,000
To Cash A/C Cr. $50,000
(Narration: Purchased machinery for cash)
Example 07: On 5th July, 20XX, products were sold for $20,000, for which payments will be made later (credit sale).
Journal Entries: Date Particulars Debit ($) Credit ($)
——————————————————————-——————————————————————-
05/07/20XX Accounts Receivable A/C Dr. $20,000
To Sales A/C Cr. $20,000
(Narration: Goods sold on credit)
Example 08: On 8th July, 20XX, an electricity bill of $300 was paid in cash.
Journal Entries: Date Particulars Debit ($) Credit ($)
——————————————————————-——————————————————————-
08/07/20XX Electricity Expense A/C Dr. $300
To Cash A/C Cr. $300
(Narration: Paid electricity bill by cash)
These examples show how each transaction is recorded as a debit and credit in the journal and describe each transaction.
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