Journal is an accounting diary that is used to record credit transactions as they occur. It can serve as a substitute for other books of prime entry other than the cash book. Or it can be used separately to clarify transactions that cannot be posted to other subsidiary books.
1. What's the Journal Proper
The Journal Proper is a book of original entry mainly used to enter transactions that cannot be posted to other subsidiary books such as the sales and purchases day book, cash book and returns journals. Therefore, it records primarily credit transactions other than sales and purchases of goods and services. For example, the acquisition of a company by another can only be posted to the journal as its first entry point.
Other names for journals proper is the general journal or simply called the journal. As the name implies, it records transactions chronologically or as they occur. The book of account is used for recording business transactions including credit sales and purchases of assets, loans from banks, acquisition or disposal of a business, correcting errors, adjusting end of year entries, among other things.
The journal usually has a debit and credit column as well as date, details and narration. The narration of a traditional journal is usually at the footer of the entry. However, with spreadsheets a separate column can be set aside for narration. Journal proper allows the use of double entry principle. Just as every other subsidiary books, the transactions recorded in it are transferred to their respective ledger accounts.
2. Uses of the General Journal
The general ledger has primarily five uses as stated and explained below.
2.1 Sales and purchases of non current assets on credit
The journal is used for credit transactions relating to sales and/or purchases of non current assets such as property, plants and equipment. Acquisition of investments such as shares of companies, treasury bills, and so on.
2.2 Correction of errors
When errors are located in the books of account, the journal proper is what accountants used to pass entries for their corrections. Errors may affect a trial balance or may not affect it. In any case, the journal is used in correcting accounting mistakes.
2.3 Periodic adjustments of entries
At the end of the month or year, the accountants may need to make some adjustments to certain accounts to reflect the appropriate accounting concept. This can't be done with other subsidiary books except the general journal.
2.4 Opening and closing entries
When a business wants to start recording transactions in the books of accounts or when it plans to shut down, the journal is used for opening the books or closing them respectively.
2.5 Acquisition and disposal of business
Another way a journal is useful is when a business acquires another one or it is disposed of. To effect merger and acquisition transactions in the books of accounts, a journal entry must be passed.
3. Conclusion
In final words, journals are books that record business transactions in chronological order. The book has a special use case. And in many cases, it might be all a business needs as a subsidiary book to post entry to their respective ledger accounts. In a future article, we explain with questions and solutions how this subsidiary book is used.
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