General Journal

The general journal is the basic book of original entry in a double-entry accounting system. It is where transactions are first recorded, in date order, before their amounts are transferred, or posted, to individual accounts in the general ledger. Each record in the general journal is a journal entry showing the date, the accounts affected, the amount of each debit and credit, and a short explanation.

In a small business with few transactions, the general journal may be the only journal used. Larger businesses with many repetitive transactions use specialized, or special, journals for high-volume items such as sales, purchases, cash receipts and cash payments. The general journal is then used for everything else, which typically includes adjusting entries, closing entries, corrections and unusual one-off transactions. In modern accounting software the "journal" is often a database view, but the same principles apply.

A traditional general journal page has columns for the date, the account titles and explanation, a posting reference, the debit amount and the credit amount. By convention, debits are listed first and credit account titles are indented. Each entry must have equal total debits and credits, which is the basis of double-entry accounting. The posting reference column is filled in with the ledger account number once the amount has been posted, which lets anyone trace the entry from journal to ledger and back.

For example, on 3 April a consulting firm buys office furniture for $4,500, paying $1,500 in cash and signing a 90-day note for the rest. Its general journal entry is:

• A debit to office furniture for $4,500.
• A credit to cash for $1,500.
• A credit to notes payable for $3,000.
• The explanation reads "Purchased office furniture, part cash and part 90-day note."

Because it affects three accounts, this is a compound journal entry. Once posted, the furniture account shows a $4,500 debit, cash a $1,500 credit and notes payable a $3,000 credit.

When special journals are in use, the general journal typically handles:

• Adjusting entries at period end, such as accrued expenses, prepaid expenses used up, depreciation and unearned revenue earned.
• Closing entries that transfer the balances of revenue, expense and dividend accounts to retained earnings.
• Correcting entries that fix errors found in earlier records.
• Non-routine transactions such as asset exchanges, sales returns on credit, write-offs of uncollectible accounts and the issue of shares for non-cash assets.
• Opening entries when a new set of books is started.

Recording in the journal is an early step in the accounting cycle. Transactions are captured from source documents, such as invoices and receipts, entered in the journal and posted to the ledger. At period end, a trial balance checks that total debits equal total credits, adjusting entries are journalized and posted, and the financial statements are prepared. The journal's main advantages are that it shows each complete transaction in one place, in chronological order, and that it reduces errors, since an entry whose debits and credits do not balance can be spotted immediately.

The general journal is also central to internal control and audit. Manual journal entries, especially those posted at period end, near the close of the books, or by senior staff, are a known channel for errors and fraud, so auditing standards require auditors to test them. This review, sometimes called a journal audit, looks for entries with round numbers, unusual account combinations, missing explanations or postings outside normal business hours. Well-run businesses require every general journal entry to be supported by documentation and approved by someone other than the person who prepared it, and they tie the entries to the chart of accounts so that nothing is posted to an unauthorized account.