Meaning & Format of Accounting Journal
Journal is required as a way of recording process or used as a book entering data. Journal is usually used by business organization or accountants.
Journal is referred as the way of recording process of accounting transactions or used as a book for entering accounting data by applying the debit and credit rules of accounting. A Journal book is generally used by business organization or individual who keeps accounting data.
Any business organization or company record any economic information or accounting data in chronological manner. Journal is the only process which can record data in chronological order. Journal includes the original entry of any transactional data of any company. Each and every transaction has specific accounts based on debits and credit effects. There are various types of journal such as sales journal, payroll journal, purchase journal etc. Companies can use all types of journals, but every company has the most basic form of journal, which is named as a general journal. Every Company or business entity uses most basic form of journal for having specific debit and credit effects in a chronological order.
Generally, a general journal has some required spaces for dates, account titles and explanations, references, and two amount columns. Journal not only records the transactions in chronological manner Journal also makes further contributions in the recording process. Such as: As debit and Credit amounts are equal so error can be easily identified, moreover it discloses the complete effect of economic transaction in one place.
Entering process of accounting data in the journal book is called Journalizing. And the entries that are recorded in the journal are called as the journal entry. The journalizing process is referred from journal.
Journalizing process consists of four recording activity:
- The source of transactions is specified from respective documents such as check, stubs, sales invoice or bank deposit slips etc.
- Classification of the transactions and specification of accounts according to debit and credit effect.
- Based on debit and credit rules the increases or decreases effects of the accounts are recorded in debit and credit side.
- Entering the data in the journal with explanation in its respective place.
Now how the journalizing process of any company is actually being processed is shown with example:
For example the economic transactions of ABC Company in the month of May are given below by journalizing with three example of economic transaction:
May 2: ABC Company paid $5,000 for the purchase of office supplies.
It is recorded in the journal book as a $5,000 increase (debit) to Office supplies account and a $5,000 decrease (credit) to Cash account. This transaction increases one asset account and decreases another
May 5: ABC Company received cash of $3,000 from clients for services provided.
It is recorded in the journal book as a $3,000 increase (debit) to Cash account and a $3,000 increase (credit) to Fees earned account. This transaction increases an asset account and increases a revenue account.
May 13: ABC Company incurred the following expenses: salaries $2,000; advertizing 1,500; utilities $500; and miscellaneous $300.
It is recorded in the journal book as an increase (debit) to Salaries Expense account $2,000; Advertizing Expense account $1,500; Utilities Expense account $500; Miscellaneous Expense $300; and a decrease (credit) to Cash account $4,300.
This transaction increases various expense accounts and decreases an asset (Cash) account.
The above all economic transaction is record in the journal by using the following steps:
- Step 1: The date of the transaction is entered in the Date column.
- Step 2: The title of the debit account is recorded at the left-hand margin under the column headed “Account Titles and Explanation,”, and the debit amount is entered in the Debit column.
- Step 3: The title of the credit account is recorded at the right-hand margin under the column headed “Account Titles and Explanation,”, and the credit amount is entered in the credit column.
- Step 4: A brief narrative description is entered below the credited account.
- Step 5: The Post. Ref. (Posting Reference) column is generally left blank when the journal entry is initially recorded.