Journal

In accounting, a journal is the record in which business transactions are first written down, in the order they occur, before they are transferred to the accounts in the ledger. For this reason it is called the book of original entry. Each record in a journal is a journal entry, which shows the date, the accounts affected, the amounts to be debited and credited, and a brief explanation. Today journals are usually kept in accounting software, but the concept is the same as in a handwritten book.

The journal and the ledger work together. The journal gives a complete, chronological picture of each transaction in one place, while the general ledger sorts the same information by account so that the balance of each account, such as cash or sales, can be seen at a glance. Moving amounts from the journal to the ledger is called posting.

Journals are as old as double-entry accounting itself. Merchants in Renaissance Italy kept a memorandum book of rough notes, a journal and a ledger, and the Franciscan friar Luca Pacioli described this system in his 1494 mathematics textbook, often called the first published account of double-entry bookkeeping. The word comes from the French and Latin for "daily," reflecting the practice of recording transactions day by day.

Small businesses may use a single general journal for every transaction. Businesses with many similar transactions often use special journals as well, each designed for one type of transaction, to save time and allow work to be divided among staff:

• The sales journal records sales of goods on credit.
• The purchases journal records purchases on credit.
• The cash receipts journal records all cash coming in, including cash sales and collections from customers.
• The cash disbursements, or cash payments, journal records all cash paid out.
• The payroll journal records wages and related withholdings.

Transactions that do not fit a special journal, such as adjusting entries, closing entries, corrections and unusual items, go in the general journal. Special journal totals are typically posted to the ledger in summary at the end of each period, while individual lines are posted to customer and supplier subledgers.

A standard journal format has columns for the date, the account titles and explanation, a posting reference, the debit amount and the credit amount. Debit accounts are listed first; credit accounts are indented beneath. Total debits must equal total credits in every entry.

For example, on 5 June a business buys $2,400 of supplies, paying $400 in cash and owing the rest to the supplier. The journal shows a debit to supplies of $2,400, a credit to cash of $400 and a credit to accounts payable of $2,000, with the explanation "Purchased supplies, part on account." Because it involves more than two accounts, this is a compound journal entry. Once posted, the ledger account numbers are written in the posting reference column, creating an audit trail between the two records.

Recording transactions in the journal is the first formal step in the accounting cycle, after transactions are identified from source documents such as invoices, receipts and contracts. Journal entries are then posted, a trial balance is prepared, adjustments are made and financial statements are produced. Because journals contain every transaction, they are central to auditing. Auditors test journal entries, especially manual ones made at period end, to look for errors or management override of controls, a process sometimes called a journal audit. Good practice requires each manual entry to be supported by documentation and approved by someone other than the person who prepared it, using only accounts that appear in the approved chart of accounts.