Financial AccountingGeneral Journal

General Journal

General Journal

The General Journal is a book of prime entry, used to record those transactions which do not fall/ fit into the other Journals/daybooks.

So far we have learned about the following 5 out of 6 basic books of original entries;

  1. Sales Journal/ Day Book
  2. Purchase Journal/ Day Book
  3. Sales Return Journal/ Day Book
  4. Purchase Return Journal/ Day Book
  5. Cash Journal/ Day Book

Most of the transactions are recorded into books of accounts through the above-stated Journals/day books. However, there are a few transactions that do not fall under the domain of these books e.g. Purchase of Fixed Assets on credit e.t.c.

The following types of transactions are to be recorded in General Journal:

  1. Opening Entries: Opening balances of Assets, Liabilities, and Capital from the previous periods are transferred/ entered into the book of accounts by first entering into General Journal.
  2. Closing Entries: Similarly when books are closed at the period end, all balances in accounts related to income and expenses are transferred into the Trading and Profit & Loss account. All these balances are transferred by making entries into General Journal.
  3. Transfer Entries: Similar to Closing entries, sometimes we need to transfer balances from one account to another (e.g. one department to another in Management Costing).
  4. Adjustment Entries: Certain unrecorded items e.g. value of the closing stock, depreciation are recorded into a book of accounts through General Journal. Such entries are passed with the intention to adjust the balances of the various accounts. 
  5. Rectifying Entries: As apparent by its name, these entries are passed in order to rectify the effects caused by any error.
  6. Miscellaneous Entries: The following are the examples of the other miscellaneous entries passed in General Journal;
    1. If capital is contributed by the owners through consideration other than the cash. For example, if an owner contributed his own car for the sole purpose of business. This transaction can only be recorded through General Journal.
    2. Sale/ Purchase of the asset (not Goods) on credit.
    3. Return of Assets (other than Goods) if traded on credit. Only Goods if returned are entered in return day books.
    4. Writing off Bad Debts
    5. Any Loss of Assets due to theft or Abnormal losses e.t.c

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General Journal

While recording the transactions into General Journal, the first line is always of Debit entry, where the other line is credit Entry With the indentation to the right. This is done to make credit entry obvious from the Debit entry. 

The above-explained format of recording transactions into General Journal looks similar to the Journal Entry. However, it is important that there is a difference between both. 

Journal Entry is a representation of how the information shall be recorded in the book of Account. This is a way to show which accounts shall be Debited and which shall be Credited.

On the other hand, General Journal is an accounting register like the other Five books of original entry in which accounting information is first recorded and at the period end posted to the ledgers.  

Every transaction in a business must be recorded into the accounting system through one of the above-stated books. Therefore these books can be said to be doors of the Accounting system and books of accounts.

However, it is still possible that someone directly makes any transaction into ledgers, skipping any entry into the books of the original entry. This practice shall be discouraged as this will make it very difficult to trace back the transaction thus increasing the chance of error and fraud.

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Journal Entry

Entering in the journals/ daybooks means recording business transactions in the journal. Prior to recording, the transaction is analyzed as for each transaction, the exact accounts must be debited and credited. Hence, at least two accounts must be identified in order to approve the entry into the journal. Then, each transaction is entered by means of a separate entry by entering relevant accounts debiting and crediting columns.

Sometimes, journal entries can have more than one debit or credit. Such journal entries are called compound journal entries. Regardless of how many debits or credits are there in a compound journal entry, the total amount of debt should be equal to the total amount of credit and all debts shall be entered before any credit.

It is very common that journal entries for a single period are entered into several pages. Therefore, at the end of each page, totals of the debit and credit columns are calculated and the words “C/F” (short form of Carried Forward) are written. Similarly, these totals are again written on the next page, along with the words “B/F” (indicating brought forward). This process is repeated on each page and at the end of the period, “Grand Total” is calculated.

Note: The total of all debits and all credits shall be equal for each accounting entry. The modern computerized accounting system, don’t allow the posting of accounting entries if debit and credit of Journal entries are not equal 

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Which accounting entries are recorded in General Journal

Accounting Transactions that do not fall under the ambit of any other book of prime entry, are recorded General Journal. Examples of such entries are opening/ closing entries and accounting entries required to make book adjustments like depreciation, amortization, accruals, etc.

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