What is a Journal in Accounting?

A journal is an account in which a business records its financial transactions. Businesses use the journal to transfer information or reconcile records of income and expenditure with the entries in a general ledger. Records in a journal include dates of transactions and the amounts spent or earned. The account plays a vital role in the record-keeping functions of an entity and requires objectivity. The journal provides a summary of transactions and facilitates the transfer of records for accounting applications. During audits and trade processes, the journal is an important account auditors will review.

How is an Accounting Journal Used?

A journal can be a physical or digital financial document. It can exist in a book or as data entry in digital files such as spreadsheets or QuickBooks. Whenever a business carries out a financial transaction, the bookkeeper makes an entry into the journal. Each journal entry states whether the transaction was an income or expenditure. While bookkeepers may use the single-entry method, the double-entry method is the most common form of recording transactions in a journal. 

Double-Entry Accounting Method of Bookkeeping 

In accounting, the double-entry method is the preferred method of recording inputs in journals. It is the most common because each transaction happens between two accounts, thus the bookkeeper needs to enter the details in two columns. If a business spent $1000 cash to buy inventory, the bookkeeper enters the transaction under cash account as a deduction and inventory account as an addition. 

Single-Entry Accounting Method of Bookkeeping 

This method is a basic form of a journal entry and is not common in bookkeeping. The setup is like a checkbook in which the bookkeeper records the total cash inflows and cash outflows in a single account. From the example above, the single-entry system enters the $1,000 reduction in cash and shows the new balance at the end of the entry. To avoid confusion, the bookkeeper may separate income and expenses into two columns. 

Journal in Investing 

In the investment and finance sector, a journal is a valuable record. It provides investors and professional managers a comprehensive history of a company's financial transactions. During tax filings, audits, and evaluation exercises, the journal gives a verifiable account of a business finances. Traders also use journals to track their trading history. It summarizes wins and losses, watch lists, and other details that help fine-tune investment strategies for better results.

Related Topics

• What is an Account? – Financial Accounting
• What is a T-Account? – Financial Accounting
• T-Account Rules – Financial Accounting
• What is Double-Entry Accounting – Financial Accounting
• Accounting Journal
• What are Journal Entries – Financial Accounting
• What is a Trial Balance? – Financial Accounting