Recording transactions in the general journal is an essential step of the accounting cycle. it comes after the analysis transaction. In simple words, recording is the second step of the accounting cycle, where all financial transactions are recorded in systematic and chronological order. The purpose of recording transactions in the general journal is to keep business finance accurate and well organized.
So, this article covers the basic procedures involved in recording transactions in the journal. Upon completing this article, you will understand journalizing and recording various business transactions.
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Journalizing is the process of recording transactions in an accounting general. The general is the book where the entity records all the financial transactions, and these transactions are recorded in chronological order. This activity applies to the double-entry book system.
A double-entry book is a transaction method in which an entry is recorded in at least two accounts, debit and credit accounts. The amounts recorded as debit must equal the amount recorded as a credit.
Other names used for journalization are “ General journal,” “journal book,” and “book of original entry.
The journalizing transaction is divided into two main categories: general and special. The general journal is the most common type of journalizing and keeps a record of all business transactions. However, this type of record isn’t for large companies, and they need separate special journals to record specific transactions daily.
Some of the common types of special journals are as follow:
To journalize your transaction, you have to follow four simple steps:
The first step states that there will be two types of accounts involved in each transaction, the debit and credit accounts.
The different accounts involved in journal entry include assets, liabilities, expenses, revenue, and capital. Therefore, it is essential to identify the correct account types when using double-entry bookkeeping.
In this step, your financial transaction must always be balanced, with the sum of credit always equal to the sum of debit. So don’t forget to ensure that you credit the corresponding accounts every time you debit one account.
To complete the journalizing process, add the date of transaction, brief description, and reference number of the financial events you are recording.
Some of the most common types of journalizing with examples are as follow
When you purchase goods of $2000 from vendors on credit inventory increases and gets debited and the account payable also increases and is credited.
When a client pays $2500 for a sale invoice. Cash is debited and accounts receivable is credited.
In journalizing of account payment, cash will be credited and account payable Will be debited to show a decrease in liability and cash.
In the journal entry for sales return you directly debit sale return and credit account receivable or the cash if the client paid for the sale.
A double-entry system is a method of recording business transactions. According to this system the amount must be recorded minimum in two accounts, the amount entered as credit must be equal to the amount entered as a debit.
So, this system works on the basic accounting equation and keeps the accounting equation in balance.
Accounting equation (assets=liabilities+owner equity)
I hope this article will help you in understanding the journalizing transaction process and why it is important in financial transactions.
Thus, I have covered some important points and hope they will help you in recording transactions in a journal and keeping your business finance accurate and well organized.