General Journal Accounting Definition, Entries & Examples

Sat, 01/24/2015 - 10:03 -- Umar Farooq

Definition

The process of recording of transaction in the journal is called passing or journalizing the entry

Meaning

A general journal is the first accounting record. It is just like a basket in which all accounting transactions are recorded in order of their occurrence. It is called the original book of entry. Journalizing the entries is the first step in the accounting cycle. The following is a general ledger format.

Date

Description

Post Ref.

Dr.

Cr.

 

 

 

 

 

 

 

 

 

 

 

Let us understand each column of the format of general journal. A brief description is as follows:

Date

The date of the transaction is recorded in this column. The date includes the day, the month and the year. The recording date is determined according to recognition criterion. The month and the year need not to be repeated for each entry until a new page or month starts.

Description

This column records the name of asset, liability, capital, revenue or expense, which has been affected by the particular business transaction. The names used should be the same as appearing in the ledger accounts.

Post Reference

The recording of transaction in the journal is the first step. The second step is to sort it out i.e. to classify and transfer these items to relevant ledger accounts the proper place for each item. This column records the reference to that ledger account in the shape of the account's number or a code number identifying, that account. In many organization this column remains blank.

Debit and Credit

The amount by which different accounts have been affected is recorded in these two columns according to the rules explained below. It must be clearly understood at this stage that debit and credit are just the names of the columns and do not have any specific meaning. Their abbreviations Dr. and Cr. have been taken from Latin words debere and credere respectively. These two columns are used to record the changes in the components of the accounting equa­tion.

Characteristics

It is the first recording step. It records transactions in chronological order. Every transaction is to be recorded in journal. It is important to know, however, that in practical accounting systems the journal is divided into parts known as special journals or subsidiary journals. Even in day-to-day shopping, different baskets are used for different types of items. Similar items can be put in one shopping bag. The general journal is the most effective tool to un­derstand the recording concepts.

Rules of Debit and Credit in Accounting

 

When Increases

When Decreases

Assets

Liabilities

Capital / Owner Equity

Revenue

Expense

Debit

Credit

Credit

Credit

Debit

Credit

Debit

Debit

Debit

Credit

Rules for Journalizing Entries

The item to be debited is written first at the extreme left hand side of the description column and the amount is mentioned on the same line in the debit column. The item to be credit is written on the next line further to the right in the description column and the amount is mentioned on the same line in the credit column. After writing debit and credit the transaction is described. It is called narration.

An entry having more than one debit and/or credit is called a compound entry.

General Journal Entries Examples

Jan 1.     The owner invested $40,000.

Jan 2.     Office supplies purchased for $300.

Jan 3.     Provided Services to customer for $500.

Date

Description

Post Ref.

Dr.

Cr.

Jan 1

 

 

 

 

Jan 2

 

 

 

Jan 3

 

 

Cash / Bank

                Capital

Invested in business by owner

 

 

Supplies

                Cash

Office supplies for daily use

 

Cash

                Services

Earned from services provided

 

 

 

 

 

 

 

40,000

 

 

 

 

300

 

 

500

 

40,000

 

 

 

 

300

 

 

500

For each debit there is an equal credit. Each entry has equal debit and credit. This is known as double entry system.

The double entry system is based on the principle of duality, which means that all events of economic importance have two aspects, efforts and rewards, sacrifice and benefits, sources and uses that offset or balance each other. All accounting systems, no matter how sophisticated, are based on this principle.