JOURNAL AND LEDGER | NTA UGC NET Paper 2
The total sequence of accounting procedures, which are required to be followed in same order during each accounting period, is known as accounting cycle. It includes:
- Recording: In the first step, all the transactions should be recorded in the journal or books of original entry known as subsidiary books as and when they take place.
- Classifying: Thereafter, in the next step all entries in the journal of books of original entry are posted to the appropriate ledger accounts to find out the total effect of all such transactions in a particular account.
- Summarising: This is the last stage, here efforts are made to prepare the trial balance and final accounts with a view to find out the profit or loss made during a trading period and to know the financial position of the business of a particular date.
The Journal
The word “journal” has been taken from a French word “jour” which means a day. Thus journal means daily as the daily transactions are recorded in journal and hence it has been named so. It is a book of original entry to record chronologically (i.e. in order of date), as here transactions are recorded daily that is why it is also known as „day book‟. It is also called as book of prime entry. The process of recording transactions in a journal is called journalising and the entries are called journal entries. As all the transactions are first entered in the journals, which are then posted into ledger. Journal is the beginning of the process of accounting. For accounting convenience, journal is divided into different subsidiary books like purchase book, sales book, purchase return book, sales return book, bills receivable book, bills payable book, cashbook and journal proper.
Characteristics of Journal:
Journal is said to be the first successful step of the double entry system. A transaction is first of all recorded in the journal. Therefore, the journal is the book of original entry.
1. A transaction is recorded on the same day it takes place. Therefore, journal is called „Day Book‟.
2. All the monetary transactions relating to business are recorded chronologically hence the journal is called chronological book.
3. For each and every transaction the names of the two concerned accounts indicating which is debited and which is credited, are clearly written in two consecutive lines. This makes ledger posting easy. That is why journal is called „Assistant to Ledger‟ or „subsidiary book‟.
4. Narration is written below each entry. The amount is written in the last two columns – debit amount in debit column and credit amount in credit column.
Advantages of Using a Journal
The advantages of a journal can be studied through the following points:
- Every transaction is recorded as it takes place. Therefore, there is almost no possibility of omission of any transaction from the books of account.
- As the transactions are recorded in the journal chronologically with narration the reason behind why a transaction has taken place can ascertained easily.
- For each and every transaction the two concerned accounts that will be debited and credited are clearly written in the journal. Therefore, there is least possibility of committing any mistake in writing the ledger.
- As all the debits of transaction are recorded in journal so there is no need to repeat them in ledger. So the ledger is always kept tidy and brief.
- The Journal shows the complete story of every transaction in one entry.
- Any mistake in ledger can be easily detected through the journal.
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