Journal (Accounting) - Definition
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Journal (Accounting) Definition
A journal refers to a book of original entry in which all business transactions are recorded. A journal is important to every business for accounting or bookkeeping purposes. All business transactions, credits, debits, invoices, accounts and other business reports are recorded in a journal. All the financial transactions of a business are recorded in a journal. This recording is done chronologically by date of the transaction. The date of a transaction, type of transaction, account type are all recorded in the journal. These details are used for financial reporting purposes. Here are some things to note about a journal;
- All daily business transactions are recorded in a journal.
- A bookkeeper records the details of a business transaction in the journal.
- Either the single-entry method or double-entry method can be used when recording a company's journal.
- A journal is important for accounting purposes and to reconcile business transactions in the future.
- Auditors review journals alongside a companys general ledger during audit process.
A Little More on What is an Accounting Journal
A journal can either be a physical record in form of a book or an electronic (digital) document kept on a computer. If it is a physical record, the account book is divided into segments, where the date, account type (debit or credit) type of transaction and amount can be recorded. If it is a digital document, an accounting software is needed, this contains the spreadsheet or excel sheet where the daily details of a business can be recorded. An individual that enters the details of a business transaction in a journal is a bookkeeper. The record must be inputted in the journal everyday so that records of the journal can be reconciled in future time and for accounting purposes.
Using Double-Entry Bookkeeping in Journals
In accounting, double-entry bookkeeping entails entering the details of a business transaction to reflected the opposites entries of the transaction. All business transaction witness two forms of exchanges, this is the debit and credit. Double-entry bookkeeping means that the journal entry includes the two corresponding sides or accounts, the debt and the credit. For instance, if a business owner orders for inventory, the credit account of the company decreases while the debit increases. The double-entry bookkeeping is the most commonly used for recording in journals.
Using the Single-Entry Method in Journals
Unlike the double-entry bookkeeping method, the single-entry bookkeeping hs to do with recording the details of a business transaction as a single entry. All information regarding a business transaction are recorded in one side of the accounting book. The single-entry bookkeeping is seldom used by businesses, it is not as popular as the double-entry bookkeeping.
The Journal in Investing and Trading
A journal is not only used by businesses or companies, investors and investment managers also use the journal. In the investment industry, a journal is an accounting book where an investor or an investment manager keeps trade and investment records which is later used for tax filing purposes. Through the journal, investors also gauge the performance of their investment or portfolios which enable them make important decisions. Since the journal contains the details of past trades and investments, the expected return of a particular investment can be easily predicted using the journal. For investors, a journal contains the list of investments, profitable, average and unprofitable ones, past performance and general trade history.