Credit portal




What is Journal and how many types of journals are in accounting?

Profile photo of Hasaan Fazal

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.

Ledgers other than general journal are sometimes referred as special journals. Special journals are maintained for such transactions that are large in number and thus transactions of similar nature are kept at one place in a dedicated journal. For example sale transactions are usually in great number as compared to other transactions therefore a separate book is maintained for sale transaction. Same is the case with purchases and cash transactions.

Another reason why special journals are different from general journal is the format or the way entry is made. In special journals especially sales and purchase journals narratives are abandoned to speed up the process also there is no need of narrations in this case as we know what transaction is about. Another reason is that in special journals recording is not made in debit/credit fashion where as a single line record is made with the date, name and amount involved i.e. half entry is recorded. The reason is that other half is understood so no reason to write it. For example recording purchases in purchase day book only the debit effect will be recorded as credit effect is understood that is crediting supplier’s account.

Now a days softwares are used to account for transaction and they have reduced the hassle of bookkeeping and whenever source document is entered like order is placed or goods received or invoice accepted the recording will be made directly in ledgers bypassing the journals altogether.

For example when order is received on credit inventory receipt will be recorded and software collect the information like from whom goods have been received of what amount expected payment date etc and at the back end each field is connected with relevant ledger and transaction will be posted directly in ledgers without getting first into journals making entries and then making ledgers from journals.

Basically making the whole bookkeeping process short as compared to what it used to be in the days when manual accounts were maintained.

Category: Bank

Similar articles: