Finance is
the most crucial area of all for every business company. So it is implicit that
accountants should keep the finance organized. They do so by keeping the
general journal - the obligatory official document of all firms.
The General
Journal is a book where each business transaction is recorded in chronological
order (Journal). An entry in the general journal that represents a single
transaction is known as a Journal Entry. To organise the money info of the
company accountants developed a system that helps to go into the transactions
into the general journal correctly (Avercamp). It sorts the transactions into
the categories called accounts, which are really recorded into the general
journal. Each company uses an individual chart of accounts (Avercamp). The
chart of accounts is a listing of the accounts with their numbers or codes that
are most likely to be affected by the transactions sometimes manufactured by a
selected sort of business (Avercamp). It is composed before the company's start
and referred to whenever the journal entries into the general journal are made
(Avercamp).
A general
journal entry looks like this:
- Date -
Account - Debit - Credit
Date is the
column in the journal that shows when the transactions were made in
chronological order.
Account is
a column that demonstrates the names of the accounts influenced by each
transaction. It may also show the number or code of those accounts from the
chart of accounts or short description of the transaction (General). This helps
to prevent confusion between similar accounts (General).
The other
two columns are used to show what impact the transaction had on the
organisation. They are to be filled with buck amounts. Debit or the left-hand
side of the account shows increase in asset and expense accounts and decrease
in liability, equity, and income accounts (Journal). Credit or the right side
of the account shows increase in culpability, equity, and money accounts and
crease in asset and cost accounts (Journal).
Each
transaction made by the company influences at least 2 different accounts, so it
must be both debited and credited but as a different account (White). To
paraphrase to record any transaction one constantly uses both debit and credit
(White). This is the concept of the double-entry system (White). As an example
many transactions involve cash, so it is important to understand that whenever
money is received it has got to be debited and credited if paid out (White). It
is also important to remember that some other account needs to be credited in
the 1st case and debited in the second one.
To make a
correct Journal entry the accountant should do the following:
1.
Recognise the transaction or other event (Accounting).
2. Analyze
and classify the transaction. Identify the accounts that are influenced and
whether or not they are to be debited or credited (Accounting).
3. Record
the transaction by making entries in the proper column of the general journal
(Accounting).
There are
some beneficial rules to be followed as one does the prior. Those helpful rules
are:
Try and
make the journal entry contemporaneously with the transaction it is recording
or soon after the event while all the facts and details are fresh (White).
Keep the
back-up documentation for each journal entry.
Don't
forget to check whether your Debit equals Credit which is mandatory for the
balance.
The General
Journal is an official part of keeping track in financial side of every
business as it shows the event, the accounts influenced, whether those accounts
are increased or decreased, and by what amount (General). That's the reason why
it's vital to understand how to make the journal entries and do so correctly.
