Understanding Account Journals: Essential Features and Characteristics

What do you mean by account journal?

The first stage of the accounting process is journaled and journalizing. Journal is the primary book of keeping accounts. The book wherein the transactions are recorded in a chronological order of dates after determining the debit account and credit account of transactions with explanation is called journal.

• The word ‘Jour’ means day and journal has been derived from the word Jour. The word journal means a day book or daily book of accounting.

Journal is called the subsidiary book because if transactions are recorded in the journal, according to debit and credit separately in the journal, the accounting permanent book – ledger can be prepared easily and correctly.

• Journal is a book containing a record of each day’s transactions. The journal is a primary book where transactions are recorded in chronological order.
• The first step of the accounting process is to maintain a journal or journalizing of transactions.

A journal is the primary book of accounts in which transactions are originally recorded in the chronological manner. It is the book of original entry. Records are thereafter transferred to ledger.

• A journal is chronological record of financial transactions of a business (M.J. Keeler).
• An entry made in journal is termed as a Journal Entry and the process is called journalizing. 
• The transfer of Journal entry is called Posting.

Journal Records each and every record by way of Journal Entry but to find out a transaction effecting s person, expenses account or asset one has to turn over all pages of journal. Hence transactions are posted from journal to particular pages of ledger, hence journal contain a column L.F.

Important point of Journals: 

1. The business transactions are recorded in the books of accounts viz. Journal and Ledger.
2. Ledgers is also called principal books of accounts. All accounting information can be secured from the Ledger.
3. Posting of entries in Ledger is made from the Journal, which is known as Subsidiary Book of accounts.
4. Entries are made chronologically on the basis of the source documents.
5. A voucher indicating accounts to be debited or credited is prepared and recorded systematically in the Journal

Features of the journal

1. Book of primary entry: Transactions are first recorded in the journal that is why the journal is called the basic book of accounts.
2. Daily record book: After identification of transactions these are recorded in the journal in a chronological order of dates are recorded on the day co-occurrence in the journal, it is called a daily record book.
3. Chronological order: Day to day transactions is recorded in a journal in a chronological order of dates that’s why the journal is also known as chronological book of accounts.
4. Use of dual aspects of transactions: According to principles of double entry system every transaction is recorded in a journal in dual aspects, i.e., debiting one account and crediting the other account.
5. Use of explanation: Journal entry of every transaction is followed by narration (explanation of the transaction) because explanations of entries serve the purpose of future reference.
6. Different columns: Every page of the journal is divided into five columns: Date, account titles and explanation, ledger folio, debit money column, and credit money column.
7. An equal amount of money: For the journal entry of each transaction the same amount of money is written in debit money and credit money columns.
8. Subsidiary book: Journalizing of transaction helps preparation of ledger conveniently. That is why the journal is called a subsidiary book to the ledger.

Characteristics of a Journal

1. It contains transactions in a chronological order.
2. It is the book of original entry in which transactions are analysed before posting in the Ledger.
3. Using double entry system of Book keeping, it records both the debit and credit aspects of a transaction.
4. It is a record that depicts the complete detail of a transaction in one entry.

Steps in Journalizing

1. Determine what accounts are affected by a transaction.
2. Ascertain what is the nature of the account affected.
3. Applying the rules of debit and credit, ascertain which account is to be debited and which account is to be credited.
4. Ascertain the amount by which the accounts are to be debited and credited.
5. Write date, month and year in the ‘Date’ column.
6. In the ‘Particulars’ column, record the name of the account to be debited with abbreviation ‘Dr.’ in the same line. The amount to be debited is recorded in the ‘Debit Amount Column’.
7. Again, record the name of the account to be credited in the particulars column in the next line preceded by the word ‘To’ in the right. Amount to be credited should be written in the ‘Credit Amount’ column.
8. A brief description of the transaction (called narration) is written underneath in the next line in the ‘Particular’s column.”
9. Draw a line across ‘Particulars’ column to separate one Journal entry from the other. 

Why is it important to understand the purpose of journal entries?

1. Detail descriptions of transactions are available in the journal.
2. It is the primary and basic book for recording transactions.
3. It is the daily book of transactions.
4. From various subsidiary journals, necessary information can be known easily.
5. Increases efficiency in accounting tasks.
6. It helps the distribution of recounting tasks among the employees according to their efficiency.
7. Helps to minimize errors.
8. As various subsidiary journals are maintained, they become smaller in size and can be handled easily.
9. The possibility of omission of transactions – recording is removed.
10. It is used as future reference.
11. Ledger can be kept brief and in a neat and clean manner.
12. It helps rectification ‘of errors.

Efficient Method of Journalizing Entries

It has already been said that as per the principle of accounting accounts are divided into 5 groups.

1. Income accounts 

2. Expenditure account 

3. Asset account 

4. Liability account 

5. Capital account.

For determining debit and credit transactions are to be classified under these five groups. After classification, accounts are to be debited and credited and transactions are journalized as per some fixed rules.

Understanding journal entries is a fundamental skill in accounting, and it's essential for both interviews and the workplace.

Understand the Basics of Accounting

• Accounting Equation: Assets = Liabilities + Equity
• Double-Entry System: Every transaction affects at least two accounts (one debit and one credit).

Know the Common Accounts

1. Assets: Resources owned (e.g., cash, inventory, equipment)
2. Liabilities: Obligations owed (e.g., loans, accounts payable)
3. Equity: Owner's interest (e.g., common stock, retained earnings)
4. Revenue: Income earned (e.g., sales revenue)
5. Expenses: Costs incurred (e.g., rent, utilities)

Identify the Transaction Type Ask yourself

• What accounts are affected?
• How is each account affected (increased or decreased)?

Apply the Debit and Credit Rules

1. Assets: Increase with debit, decrease with credit
2. Liabilities: Decrease with debit, increase with credit
3. Equity: Decrease with debit, increase with credit
4. Revenue: Decrease with debit, increase with credit
5. Expenses: Increase with debit, decrease with credit

Types of Accounts

There are three types of accounts

1. Personal Accounts - The accounts of all those persons organizations / entities from whom the company has either to receive money or has to pay money, are called personal accounts.
2. Real Accounts - The firm also owns property like land, building, plant and machinery, stock, cash etc. The accounts of various assets or property acquired by the firm, are classified as Real account.
3. Nominal Accounts - The accounts of various items which represent either income and gain or expenses and loss of the firm are nominal accounts. For example, accounts of rent, wages, salary, telephone bills are classified as nominal accounts. Similarly, dividend received a/c. interest earned a/c, commission a/c are also nominal accounts.

Rules of Debit and Credit

Rules of Debit and Credit

Journal columns can be understood by observing the following hypothetical entry:

• 60 refers to the page in the ledger where cash account is recorded and 24 shows the page where Ramesh’s account has been maintained.

Recording in Journal

Transactions are recorded in Journal on the basis of source documents in accordance with the rules of debit and credit.

Example 1: Ramesh started business and invested Rs 5, oo, ooo on 1^st May 2019 in cash as capital. The transaction will be recorded in the Journal as:

Date	particulars	L.F.	Dr. (Rs.)	Cr. (Rs)
2019 may 01	Cash A/c                     .... Dr.       To Ramesh’s capita A/c (Being the amount invested in business)	51 15	5,00,000	5,00,000

Reason:

• Cash Account is debited because it is received by the firm. It being a real account, is debited as per the rule debit what ‘comes in’ and credit what goes out.
• Ramesh’s capital account is credited because the firm has assumed a liability toward him. It being a personal account, the rule ‘Debit the receiver and Credit the giver’ is applied.

Example 2: Purchased a machine from Sonu & Sons for Rs. 50,000 on 01.05.2019 and made a cash payment.  The transaction will be journalized as:

Date	particulars	L.F.	Dr. (Rs.)	Cr. (Rs)
2019 may 01	Machine A/c               .... Dr.       To Cash A/c (Being machine purchased against cash)	48 51	50,000	50,000

Reason:

• Machine Account is debited because  the firm has purchased i.e. Received it. It being a real account, is debited as per the rule debit what ‘comes in’
• Cash account is credited because the firm has paid cash for the purchase of machine. It being a real account , the rule ‘Debit what comes in and credit what goes out’ is applied.

Example 3: Purchased goods for Rs 60,000 for cash on June 15, 2019. The transaction will be recorded by passing the following Journal entry:

Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
2019 June 15	Purchase A/c              ...Dr.        To Cash A/c (Being the goods purchased for cash)	30 51	60,000	60,000

 

 

Reason:

• Purchase account is debited because  the firm has purchased goods for the sale. It being a nominal account, is debited as per the rule ‘debit all expenses and losses and credit all incomes and gains.’
• Cash account is credited because the firm has paid cash for the purchase of goods. It being a real account , the rule ‘Debit what goes out ’ is applied.

Example 4: Paid rent Rs 5000 in cash on June 01, 2019. The transaction will be recorded by passing the following Journal entry:

Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
2019 June 01	Rent A/c                                 ...Dr      To Cash A/c (Being the rent paid in cash)	27 51	5000	5000

Reason:

• Rent account is debited because  it is an expense. It being a nominal account, is debited as per the rule ‘debit all expenses and losses and credit all incomes and gains.’
• Cash account is credited because the firm has paid cash towards this expense. It being a real account , the rule ‘Debit what goes out ’ is applied.

Example 5: Paid a creditor Rs 5000 on June 01, 2019. The transaction will be recorded by passing the following Journal entry:

Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
2019 June 01	Creditor  A/c                           ...Dr      To Cash A/c (Being the amount paid to creditor)	28 51	5000	5000

Reason:

• Creditor account is debited because  the firm has paid liability towards a creditor. It being a personal account, is debited as per the rule ‘debit the receiver and Credit the giver’
• Cash account is credited because the firm has paid cash. It being a real account , the rule ‘Debit what goes out ’ is applied.

Example 6: Interest received Rs 2500 in cash on June 01, 2019. The transaction will be recorded by passing the following Journal entry:

Date	Particulars	L.F.	Dr. (Rs.)	Cr. (Rs.)
2019 June 01	Cash  A/c                                ...Dr      To Interest Received A/c (Being the amount paid to creditor)	51 32	2,500	2,500

Reason:

• Cash account is debited because  the firm has received cash. It being a real account, is debited as per the rule ‘debit what comes in and credit what goes out.
• Interest paid account is credited because the firm has received income. It being a nominal account, the rule ‘Debit all expenses and credit all income’ is applied.

Opening Entry

1. At the end of a financial year business firms close their book of accounts. 
2. The first entry in Journal depicts the closing balances of individual assets and liabilities of the previous year.
3. The same balances become the opening balance of the new financial year which is called an ‘Opening Entry.’
4. The balance sheet prepared at the end of the year shows the closing balance of each asset and liability.
5. While passing an opening entry all assets are debited and liabilities are credited.

Example of Passing and Opening Entry

Balance Sheet as at March 31, 2019

Liabilities	Rs.	Assets	Rs.
Mohan & sons Capital	18,000 70,000	Cash in Hand Cash at Bank Debtors Closing Stock Machinery and Equipment	2,500 35,500 5,000 20,000 25,000
	88,000		88,000

Based on the above Balance Sheet, the opening entry will be:

Particulars	J.F.	Dr. (Rs.)	Cr. (Rs.)
Cash A/c                                             ...Dr. Bank A/c                                             ...Dr. Sundry Debtors                                  ...Dr. Stock A/c                                            ...Dr. Machinery and Equipment A/c         ...Dr.    To Mohan & Sons    To Capital A/c (Being the balance brought forward)		2,500 35,500 5,000 20,000 25,000	18,000 70,000

What Are the Different Types of Journals in Accounting?

Let’s discuss these types of journals in accounting briefly:

1. Purchase Journal - The special journal used for recording the credit purchase of merchandise is called a purchase journal. In purchase journal transactions of merchandise purchased on credit for sale are recorded. An asset purchased on the account is not recorded in the purchase journal.
2. Sales Journal - Sales journal is used for recording the credit sale of merchandise only. Cash sale of merchandise is recorded in the cash receipt journal. A credit sale of an asset is recorded in general journal.
3. Cash Receipts Journal - The special journal used for recording all types of cash receipts is called the cash receipts journal. All kinds, of cash receipts, are recorded in this journal. The main sources of cash receipts are two; Cash from cash sale and cash from accounts receivable. There might have other sources of cash receipts. For example, taking a loan from a bank, interest receipts, the cash sale of assets, etc. Since the cash book does not contain a separate required column for recording cash receipts, it fails to provide information regarding various cash receipts and cash flow. To overcome these entire limitations multi-column cash receipts journal is required.
4. Cash Payment Journal - The; special journal used for recording various transactions relating to cash payment is called a cash payment journal. Payment by cheque is treated as a cash payment.
5. Purchase Return Journal - The special journal, where purchase returns of credit purchase are recorded, is called a purchase return journal. In the case of isolation of purchase agreement or in the case of defective goods the purchaser returns the- goods to the seller. While returning goods to the seller a slip containing reasons for the return of goods is sent along with goods this is called a debit note.  The seller also sends a note to the purchaser as a reply which is called a credit note. It may be mentioned that goods purchased on cash if returned are not recorded in the purchase return journal.
6. Sales Return Journal - The special journal, where the credit sale returns are recorded, is called a sales return journal. The sales return journal is prepared from debit notes sent by the buyer with returned goods. In reply, the seller sends a credit note. The format of sales return is similar to that of sales journal excepting challan/invoice column where credit note is written. It may be mentioned that where the sales return transactions are large in number this sales return journal is maintained but where such return transactions are very few in number, these are recorded in the general journal.
7. Journal Proper - The transactions other than the transactions recorded in cash receipts journal, cash payment special, purchase journal, sales journal, etc. are recorded in journal proper or general journal. Purchase of assets on credit, the stock of goods at the year-end, rectification of errors, adjustment of accounts, etc. are recorded in journal proper therefore, the journal, wherein the transactions which cannot be directly recorded in a particular journal are recorded, is called journal proper.

Cash Book 

Cash book keeps records of all cash transaction i.e., cash receipts and cash payments. All receipts are recorded on right side and all payments on left side. 

DR.

CR

DATE

PARTICULARS

VR. NO

L.F

CASH    Rs.

BANK    Rs.

DISCOUNT

DATE

PARTICULARS

VR.NO.

LF

CASH  Rs.

BANK  Rs.

DISCOUNT

Advantages of Journal

1. Journal minimizes the possibility of Error - Amount to be debited and credited are written side by side and both can be compared. They should be equal.
2. Journal gives explanation of the transactions - Due to complete explanation in the entry, it is easy to understand the entry later.
3. Journal provides the chronological record of all transactions - The order in which they occur, enters the record permanently.

Differences between Journal and Ledger

No	Journal	Ledger
1.	Journal is a subsidiary book of account. It is the storehouse for recording transactions.	Ledger is the permanent and final book of accounts. It is termed as the means of classified transactions.
2.	Transactions are recorded in the journal in chronological order of dates just after their occurrences.	Transactions are posted in the ledger in classified form from the journal.
3.	Transactions are recorded in a journal without considering their nature of classification.	Transactions are recorded in the ledger in the classified form under respective heads of accounts.
4.	In journal explanation of entries of the transaction are shown.	In ledger explanations of entries of transactions are not needed.
5.	The format of the journal contains five columns.	Generally, the ledger account of the ‘T’ form contains eight columns – four in left and four in the right. But in statement format of ledger account contains six columns.
6.	Journal helps in preparing ledger accounts correctly.	The object of the ledger is to know the income and expenditures of different heads.
7.	Transactions are recorded in the journal in chronological order of dates.	Ledger is prepared according to the nature of accounts.
8.	The total results of transactions cannot be known from the journal.	The results of the particular head of accounts can be known from the ledger.
9.	In journal ledger, folio (L.F.) is written.	In ledger journal folio (J.F.) is written.
10.	Preparation of trial balance is not possible from the journal.	The trial balance is prepared from the ledger.
11.	It is not possible to prepare an income statement at the end of a period from journal to no profit or loss.	The income statement is prepared with the ledger balances at the end of a period to know the net profit or loss.
12.	The balance sheet cannot be prepared directly from the journal.	The balance sheet is prepared with the help of ledger balances.
13.	Transactions are recorded in the journal in the light of the voucher.	Journal is the source of preparation of ledger.
14.	There is no debit side or credit side in money columns in it for writing debit.	Each account in ledger has two sides. The left side is called debit, and the right side is called credit under the “T” format. But in statement form, there are three money columns for writing debit and credit amount and also for balance.
15.	Recording of the transaction in the journal is called journalizing.	Recording of transactions in the ledger is called posting.
16.	There is no scope of balancing in the journal.	Balances are drawn in ledger accounts.
17.	Journals are generally classified into eight groups according to practice.	Ledgers are generally classified into two groups.
18.	Journal does not start with opening balance. It is prepared from current transactions that occurred.	Some ledger accounts start with opening balance, which is the closing balance of the previous year.