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Journal, Daybook, Book of Original Entry
Definitions, Meaning Explained, Usage, Example Transactions

 

Transactions of all kinds enter the accounting system as entries in a journal, where they are listed in the order they occur.

Should anyone ask which transactions occurred on a given day, the journal provides the answer.

What Is a Bookkeeping Journal? What Is a Daybook?

In bookkeeping and accounting, a journal is a record of financial transactions, entered as they occur. Entering transactions into a journal is usually the first step in the accounting cycle, as Exhibit 1 below shows. The exceptions are situations where entries are first captured in a daybook (or book of original entry) before they transfer to the journal.

The Journal

Historically, journals were always bound notebooks in which a bookkeeper hand wrote entries shortly after the firm closed a sale, incurred an expense, earned revenues, or otherwise impacted the firm's accounts.

Today, of course, journals usually exist as part of an accounting system software application. Users therefore enter journal transactions either manually, through onscreen forms, or automatically, as with a point-of-sale system. Also, most accounting systems provide user guidance and error-checking to help ensure that entries register correctly as debits or credits in the appropriate accounts. And, software also automates the second stage of the accounting cycle, posting journal entries to a ledger.

The name "journal," from Old French and Latin origins, suggests daily activity (jour is French for day). Personal diaries and newspapers are sometimes called journals for the same reason. While other accounting records may update less frequently, journals update either continuously or at least daily. As a result, the journal builds a running list of account transactions as they occur. Consequently, should anyone ask which transactions occurred on a given day, the journal provides the answer.

Daybooks

Firms sometimes use one or more daybooks (or books of original entry) instead of the journal as the first data entry point for transactions. Entries in daybooks build in chronological order, just as they do in journals. Entries in the firm's various daybooks are transferred frequently to the firm's journal, and then ultimately to the ledger. With daybooks, in other words, the journal becomes the second step in the accounting cycle, while the ledger becomes third.

Journal Explained in Context

Sections below further define, explain, and illustrate example journal transactions. Note especially that journal appears in context with related terms and concepts from the fields of accounting and bookkeeping.


 

Contents

Related Topics

  • For more on the general ledger and ledger posting, see the article General Ledger.
  • For more on the role of journal and ledger in the accounting cycle, see the article Accounting Cycle.
  • See the article Double Entry Accounting for an explanation of Debit, Credit, and Double Entry Systems.
  • The article Account explains account categories and the chart of accounts.

 

What is the Journal's Role In the Accounting Cycle?

Most business firms record and report financial activity with a double entry accounting system. Exhibit 1 below shows the major steps in the accounting cycle for these firms. Note especially that the journal is the initial data entry point for transaction records. And, these records build ultimately into the firm's financial accounting reports at the end of the accounting cycle. 

 

Exhibit 1. The accounting cycle. Transactions enter the journal as the first step in the cycle. The journal builds into a chronological list, adding entries one after another in the order they occur. Journal entries transfer (post) to the ledger as the second step.

At various times, accountants copy (post) journal entries to a ledger—another record book. While the journal lists entries chronologically, the ledger organizes entries by account, as Exhibit 9, below, shows.

Near the end of each accounting period, accountants create a trial balance from the system's accounts, as part of an end-of-period check for accuracy. As a result, the trial balance should show that total debits equal total credits across all accounts. If the two totals do not agree, they make adjusting entries and corrections. Account names and balances then appear in the firm's financial accounting reports for the period. 

Why do Firms Use Daybooks?

Some firms add daybooks to the start of the accounting cycle when there is:

  • A desire to put record capturing into the hands of people directly engaging in transaction activity. These may include salespeople, warehouse receivers, maintenance personnel, or customer refund agents, for instance.
  • A need to capture additional information beyond the basic transaction details for the journal. Daybook entries may also include additional data on customers, vendors, or the transaction event.
  • A desire to keep together entries of one or another kind, for example:
    • A sales daybook for all sales transactions.
    • A different sales daybook for each sales region.
    • A cash daybook for keeping cash transactions together.

Exhibit 2. below shows how the accounting cycle expands, slightly, when daybooks are present.

 

Exhibit 2. The first accounting cycle steps when daybooks are present. Some transactions enter the accounting system through daybooks, while others enter the journal directly.

Daybooks Are to Journals As Sub Ledgers Are to the General Ledger

Daybooks—when present—stand in relation to the journal in the same way that sub ledgers stand in relation to the general ledger.

  • Firstly, the daybook (or sub ledger) has the same structure as its parent, the journal (or general ledger).
  • Secondly, transactions appear first in the daybook and then transfer, later, to the journal.
  • Thirdly, transactions post from the journal to sub ledgers and then transfer, later, to the general ledger.

Basic transaction data move frequently from daybooks to the journal. As a result, daybook transaction data such as account name and number, transaction amount, date, and type (debit or credit), move to the journal.

  • Daybook entries may also include additional transaction data that do not transfer to the parent journal, such as customer details, sales person, or sales location. Capturing and preserving such data is the daybook's basic reason for being.

In any case, daybook entries move to the journal in chronological order. And, in the journal, they appear as debits or credits to individual accounts from the firm's Chart of accounts.

Define Your Terms!
Journal Entry, Debit, Credit, Chart of Accounts

The basic building block of a double entry accounting system is the account.  An account is a record of the value and changes in value for one specific purpose. When transactions enter the journal, those making entries are responsible for knowing which accounts to impact and whether the impacts should register as debits or credits.  

The firm's complete list of accounts for journal entries is called its chart of accounts. Every financial event impacts at least two accounts from this list. And, the kind of impact (debit or credit) depends on which of five chart of accounts categories the accounts belong to.

Firstly, There Are the "Balance Sheet" Account Categories:

  1. Asset Accounts.
    Resources of value business owns and uses for earning revenues. 
         Example: Cash on hand.
         Example: Accounts receivable.
  2. Liability Accounts.
    Debts and other financial obligations owed by the business.
         Example: Accounts payable.
         Example: Salaries payable.
  3. Equity Accounts.
    The owner's claim to business assets. Equity is what owners own outright.
         Example: Owner capital
         Example: Retained earnings

Secondly, There Are the "Income Statement" Account Categories:

  1. Revenue Accounts.
     Money earned.
         Example: Product sales revenues
         Example: Interest earned revenues
  2. Expense Accounts,
    Expenses incurred in the course of business.
         Example: Direct labor costs
         Example: Advertising expenses

In practice, even a small firm may list a hundred or more such accounts as the basis for its accounting system, while a very large and complex organizations may use thousands. Nevertheless, for accounting purposes, all accounts fall into one of the five categories above.

Every Financial Event Brings At Least Two Journal Entries

Every financial event brings at least two equal and offsetting account changes. The change in one account is a debit (DR) and the change to another account is the opposite, a credit (CR). Whether a debit or a credit increases or decreases the account balance depends on the kind of account involved, as Exhibit 3 shows.

    Debit (DR) Entry   Credit (CR) Entry
    Asset acct  Increases account balance Decreases account balance
Liability acct  Decreases account balance Increases account balance
Equity acct  Decreases account balance Increases account balance
Revenue acct  Decreases account balance Increases account balance
Expense acct  Increases account balance Decreases account balance
Exhibit 3. Debit and credit impacts on account balance depend on which category the account belongs to.

Suppose, for example, a firm purchases an asset for $100,000. Two journal entries must follow.

  • Firstly, a journal entry for the acquisition shows an asset account increasing by $100,000. This could be an asset account such as "Factory equipment." Because this is an asset account, the balance increase is a debit

Secondly, however, the Balance Sheet is now temporarily out of balance until the firm makes an offsetting credit of $100,000 to another account somewhere in the system. This offsetting credit could be either of the following:

  •  A credit of $100,000 to another asset account, decreasing its balance by $100,000. This could be the asset account "Cash on hand."
  • If, instead, the asset purchase is financed with a bank loan, the offsetting credit entry in the journal could be a credit to a liability account such as "Bank loans payable." As a result, the credit transaction increases the account balance by $100,000. 

Double Entry Rules Maintain Balance Sheet Balance.

Notice especially in the above example that the first transaction disturbs the Balance sheet balance, while the second transaction always restores the balance. Therefore, when both journal entries are complete, the basic accounting equation holds:

Assets = Liabilities + Equities

And, for the account journal entries that follow from a single transaction:

Debits = Credits

The Role of Contra Accounts

The bookkeeper or accountant dealing with journal entries faces one complication, however. Note especially that not all accounts work additively with each other on the financial accounting reports—especially on the Income statement and Balance sheet.

In some cases, one account offsets the impact of another account of the same kind. These are the contra accounts that "work against" other accounts in their own categories. In some cases, the contra accounts reverse the debit and credit rules in Exhibit 3 above.

For example, "Allowance for doubtful accounts" and "Accounts receivable" are both asset accounts. Allowance for doubtful accounts, however, is also a contra asset account that ultimately reduces the impact (balance) of "Accounts receivable." When these journal entries make their way into the financial reports, the Balance sheet result is a "Net accounts receivable" that is less than the "Accounts receivable" value.

In any case, those working with journal entries must be familiar with the firm's chart of accounts and have a solid command of double entry rules. And, they should be using accounting software that provides clear guidance and reliable error checking.

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Example Journal and Ledger Entries

Following sections illustrate journal entries and their contributions to the ledger, for a small subset of one firm's chart of accounts. Exhibit 4 shows eight of the firm's accounts, which appear in this example.

 Grande Corporation Chart of Accounts
Account No.Account NameAccount Category
101 Cash on hand Asset
110 Accounts receivable Asset
125 Supplies inventory Asset
139 Merchandise inventory Asset
200 Accounts payable Liability
410 Product sales revenue Revenue
525 Cost of goods sold Expense
610 Supplies expense Expense
Exhibit 4. Eight accounts from one company's chart of accounts, to illustrate journal and ledger entries in the examples below.

In reality, of course, the full chart of accounts, journal, and ledger will include many more accounts in addition to those shown here. However, for a week's activity in just the accounts above, journal and ledger entries might appear as follows.

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Journal Entry Examples

1-2 September journal transactions

On 1 September, Grande Corporation has two customers place product orders, on credit. Customer 1 orders $4,200 in products, Customer 2 orders $5,800 in products. As a result, the company ships the products later the same day. Exhibit 5 below shows the journal entries due to these events.

Grande Corporation
Journal for Fiscal Year 20YY
DateAccountDebit
Credit
01-Sep-20YY


01-Sep-20YY


02-Sep-20YY

110  Accounts receivable
410      Product sales revenue

110   Accounts receivable
410      Product sales revenue

520   Cost of goods sold
130      Merchandise inventory

4,200


5,800


10,000

4,200


5,800


10,000
Exhibit 5. Journal entries due to two product purchases and product shipment on 1 September.

3 September Journal Transactions

On 3 September, the company places a $1,180 order for office supplies. Exhibit 6 below shows the journal entries due to this order.

DateAccountDebit
Credit
03-Sep-20YY

125   Supplies inventory
200      Accounts payable

1,180


1,800
Exhibit 6. Journal entries due to two an order for office supplies on 3 September.

5 September Journal Transactions

On 5 September, a written check from Customer 1 arrives ($4,200) and the company sends its own check to the office supplies vendor ($1,180) for the supplies order of 2 September. Exhibit 7 below shows journal entries due to these events.

DateAccountDebit
Credit
05-Sep-20YY


05-Sep-20YY


101   Cash on hand
110      Accounts receivable

200   Accounts payable
101     Cash on hand

4,200


1,180

4,200


1,800
Exhibit 7. Journal entries due to revenue receipt and cash payment on 5 September.

6 and 7 September Journal Transactions

On 6 September, Customer 2 makes a credit card payment for the order of 1 September ($5,800). Also on 6 September, Customer 3 purchases products, pays in cash ($1,250), and takes delivery immediately.

On 7 September, the firm notes that  $820 worth of supplies have been used from the supplies inventory since it was last checked. Also on 7 September, Customer 4 orders products on credit ($1,850) which do not ship by the end of the day.

Journal entries due to 6 and 7 September events appear in Exhibit 8, below.

DateAccountDebit
Credit
06-Sep-20YY


06-Sep-20YY


07-Sep-20YY


07-Sep-20YY

101  Cash on hand
110      Accounts receivable

101   Cash on hand
410      Product sales revenue

610   Supplies expenses
130      Supplies inventory

200   Accounts receivable
101     Product sales revenue

5,800


1,250


820


1,850

5,800


1,250


820


1,850
Exhibit 8. Journal entries due to cash payment receipts, depletion of supplies inventory, and one new customer order on 6 and 7 September.

Journal Entries Help Verify That Debits = Credits

With the journal entries above, it should be no surprise that one part of the accounting equation holds:

Total debits = Total credits

It is easy to see on the journal page that every debit entry is paired with an equal credit entry. Notice, by the way, that the journal above follow the universal convention of listing debit figures to the left of their companion credit figures.

From the journal page alone, however, it is not easy to judge whether the company is making money or losing money. That information is not completely visible until the end of the accounting period when account balances from the ledger are brought together for the trial balance. That information is partially visible, however, as soon as journal entries post to the ledger. As a result of posting, account summaries show up-to-date account balances (e.g., balances for sales revenue accounts and expense accounts).

Ledger Entry Examples

As the second step in the accounting cycle, journal entries sometimes move first to various sub ledgers (if the firm uses sub ledgers), and then always to the firm's general ledger. The general ledger is the top level ledger, having an account record for every active account in the chart of accounts.

Historically, when journals and ledgers were bound notebooks, and entries were hand written, journal data were posted into ledgers only periodically. This meant that account balances were known only through the most recent posting. Today, however, accounting system software can update ledger accounts more or less continuously. As a result, account balances in the ledger are always current.  

Account summaries in the ledger usually appear in the form of T-accounts, as Exhibit 9, below, shows. The exhibit presents T-account excerpts for each of the eight accounts in Exhibits 4 - 8. They are "T-accounts because of the T-shaped lines that separate the account's debit entries from its credit entries. Again, debits always appear on the left, and credits appear on the right. 

 

Exhibit 9. T-accounts in the general ledger after journal entries have been posted.


 
 
 
 
 
 
 
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