Accounting Books - Journal and Ledger

Journal
The journal is a chronological record (day-by-day) of business transactions. It is called the book of original entry
because it is the accounting record in which financial transactions are first recorded.

General Ledger
The ledger refers to the accounting book in which the accounts and their related amounts as recorded in the journal
are posted to periodically. The ledger is also called the “book of final entry” because all the balances in the ledger
are used in the preparation of financial statements. This is also referred to as the T-Account because the basic form
of a ledger is like the letter “T”.

The General Journal and Special Journal

Many businesses maintain several types of journals. The nature of the business operations and the volume of
transactions determine the type and number of journals needed. The simplest type of journal is called the general
journal. The process of recording a transaction is called journalizing the transactions. This type of journal is
unique among journals because it may be used to record any type of business transactions. Recording all
transactions in the general journal is not cost effective and time consuming. To speed up and simplify the recording
process, most businesses make use of special journals. Each special journal is designed to record a particular
type of transaction efficiently and quickly. Examples of special journals and their use are the following:

a. Cash Receipts Journal – is used to record all cash that had been received.
b. Cash Disbursements Journal – is used to record all transactions involving cash payments.
c. Sales Journal (Sales on Account Journal) – is used to record all sales on credit (on account)
d. Purchase Journal (Purchase on Account Journal) – is used to record all purchases of inventory on credit
(or on account)

The importance of using a journal

• The journal shows all information concerning a particular transaction.
• The journal provides a chronological record of all the financial events in the business over time. If we want to know
about a certain transactions of years or months back, we can trace the said transactions as long as we have the date
of the said transaction. The entries in the journal are arranged by date that makes it necessary to locate a particular
event.

The Use of General Ledger

A ledger is a means of accumulating in one place all the information about changes in an asset, liability,
equity, income, and expense accounts. A sample of the general ledger is shown below:

A general ledger is often called a T-Account because of its resemblance to the letter T. A T-Account is a simplified
form of general ledger. A sample of a T-account is shown below:

Recall the sample chart of accounts shown in ABM1 Chapter 8 (Types of Major Accounts). A T-Account for each of
the account titles listed on the said chart is prepared to determine the balance at the end of the period of each
account.
Determining the Balance of a T-Account
Shown below is the Chart of Accounts discussed in ABM1 Chapter 8 (Types of Major Accounts):
In order to determine the ending balance of each account using the “T-account”, the beginning balance is plot in the
appropriate debit or credit side, then total debits and credits are then determined. If the account has a beginning
balance on the debit side, all the debits during the period is added to the beginning then all the credits are deducted.
There is a debit balance of the account if the sum of the beginning balance and the total debits exceeds the total
credits.

The normal balances of these accounts are listed below:

a. Asset Accounts – Debit Balance; however the normal balance of a contra asset account is credit.
In the above chart, the contra asset accounts are:
Allowance for Bad Debts,
Accumulated Depreciation (Accum. Deprn.) – Store Equipment
Accum. Deprn. – Off Eqpt
Accum. Deprn – Trans Eqpt
Accum. Deprn – Building
b. Liability Accounts – Credit Balance
c. Equity Accounts – Owner’s, Capital account has a normal balance on the credit side while the Owner’s,
Withdrawal account has a normal balance on the debit side.
d. Income – Credit Balance
e. Expense – Debit Balance
A summary of the normal balance of the account is shown below:

When an account that normally has a credit balance actually has a debit balance, it may mean that an error have
occurred or that an unusual situation may exist. For example the accounts receivable account normally have a debit
balance, if at the end of the period the actual balance is on the credit side, it may mean that there was overpayment
of the customer or an error in the recording processed has occurred.