The Journal (Accounting) – Defined
An account that details all the financial transactions of a business is referred to as a “journal”. It can be used to reconcile and transfer information to a record like a general ledger. It mentions a transaction date when there was any change in the account and the amount that was changed. It is an important aspect of record-keeping that needs to be carried out objectively.
The journal allows for concise reviews and transfer of records in the accounting process. Along with general ledgers, journals are also reviewed during audit processes and as a part of trade process.
A Little More on Accounting Journals
A journal exists in the form of a physical record or a digital document. It can be created as a book, spreadsheet or as QuickBooks data entry. A journal entry is made by the bookkeeper every time a business transaction takes place that involves a financial transaction. The entry details whichever way the business accounts are affected, either as an expense or income. Whenever an entry is input into the journal, it is generally recorded using a double-entry method — though bookkeepers can also record it using a single-entry method.
Double-Entry Accounting Method or Bookkeeping
It is the most common form that is used in accounting. It influences how the journals are kept and the way of recording journal entries. As every transaction is an exchange between two accounts, each journal entry is recorded in two columns.
For example, if a business owner spends $500 to purchase inventory with cash, the bookkeeper will record the transaction in two entries. There is a decrease in the cash account by $500, and there is an increase by $500 in the inventory account (current asset).
Single-Entry Method of Accounting or Bookkeeping
This method is rarely used in business and accounting. This basic form of journal entry is set up like a checkbook. For each journal entry, there is a single account used. It simply reflects the total of cash inflows and cash outflows.
Taking the same example from double-entry bookkeeping, the single-entry system will record a $500 reduction in cash. The total ending balance will be reflected below it. Income and expenses can be separated into two columns which can make it easier to track the total income and total expense. This will help in giving more information than just the ending balance.
Journal in Investing
A journal is useful in the investment and finance sector. An investor or a professional manager can use it as a compiled record of trades occurring in the account of the investor, and it can be used for tax, audits and evaluation purposes.
Journals are also used by traders to keep a quantifiable record of their trading over time, so that they can learn from their past successes and failures. A trader can use to learn from his trading history even if past is not a future predictor. A journal records profitable trades, unprofitable trades, watch lists, pre- and post-market records, and any other notes about why a particular investment was traded.