An accounting journal entry is the method used to enter an accounting transaction into the accounting records of a business. The accounting records are aggregated into the general ledger, or the journal entries may be recorded in a variety of sub-ledgers, which are later rolled up into the general ledger
These are the first formal books in which information regarding transaction is recorded . For the same reason they are also named as books of prime entry or books of original entry or day books. While making a record certain format is followed that only summarizes the information but also keep the value of information intact.
On daily basis different transactions take place in large volumes therefore recording all the transactions at one place is not a good idea as it will be a total mix up. In order to make the recording process efficient and the information collected meaningful and easily accessible multiple books or journals are maintained. Decision regarding where should individual transaction be recorded depends on the nature of transaction itself and after assessing the transaction it is recorded in appropriate journal. This is the first phase of classification itself.
A certain methodology is followed while making accounting records. The process of recording is termed as bookkeeping. As the term suggests its about “keeping books” or in other words “keeping the books of accounts updated with records of transactions”. However, bookkeeping is a broader term and includes recording at different phases in accounting cycle. Making a record in journal is referred as journal entry or simply entry. Many accounting related jobs are about recording journals or making entries. Due to the same reason such jobs are referred as data entry jobs.
While making a journal entry for a transaction following set of information is recorded:
•Date at which transaction took place
•The account to be debited and the monetary value to be debited in the same
•The account to be credited and the monetary value to be credited in the same
•A reference to the source document that initiated such entry for example invoice or credit note
•A reference of the ledger in which entry is posted. Usually a separate coloumn is maintained with the name “folio”
•A short description of transaction that hints what transaction was about also called as narration or narrative or note.
The journals are maintained in chronological order that is date-wise entries are made one after the other as days pass. Keeping the record in this order helps in finding the transaction as well and makes records more easily accessible.
As said earlier to keep the accounting process efficient and effective multiple journals are maintained for different types of transactions. Following are different types of journals that are maintained:
•sales journal records only credit sales transactions
•sales return journal or return inwards journal records the goods returned by customer
•Purchases journal records only credit purchases from suppliers
•Purchases return journal or return outwards journal records goods returned to suppliers
•Cash book / Cash journal records cash and bank transactions. only book of accounting that acts both as journal and ledger. Sometimes cash related transactions are recorded in two separate journals i.e. a cash receipt journal that records only receipts of cash and cash disbursement journal that records cash payments or cash outflows.
•General journal all of the remaining entries that cannot be recorded in above journals are recorded in general journal. As the name suggests as well. The entries include purchase or sale of assets, adjustments to accounts for any errors, withdrawals from business, additional capital invested, payment of expenses, incomes earned and others