What Is an Accounting Journal?
An accounting journal, also known as a book of original entry, is a critical part of small business accounting. Business owners use them to record business transactions. Understanding how this type of journal works and how to effectively use them is critical for anyone who owns a small business or plans to own a business in the future. It will help you manage your accounting processes better and keep your books organized throughout the year.
As you begin to learn about the accounting required as a small business owner, you'll want to have resources at your fingertips that allow you to manage your accounting responsibilities. Skynova offers accounting software that can make it easier to keep track of your business's accounts.
To help you better understand the processes involved in accounting for your small business, this article will explain what you need to know about accounting journals and their role in small business bookkeeping.
What Is a Journal in Accounting?
An accounting journal provides a thorough record of a business's financial transactions. The events are listed in order by date, making it easy to see how the business performs periodically. The journal entries are used later in the accounting process for business owners needing to reconcile their accounts.
The accounting journal gets its name from the fact that, at one time, business owners used to keep physical journals for their bookkeeping needs. The journal entries would then be transferred into a general ledger, which is referred to as the book of second entry. Today, most business owners rely on the features of accounting systems and accounting software like Skynova to record their journal entries.
Business owners often maintain a few types of accounting journals. For example, there might be one to record purchases and sales, while another one records cash disbursements. We'll discuss this in more detail below.
How Many Journals Are There in Accounting?
Many businesses find it helpful to use various "specialty" journals. These journals are particularly useful in helping businesses maintain recordings of financial happenings. You should make sure that you understand the value of these different journals so you can put relevant ones to use for your business.
A purchase journal is dedicated to recording transactions related to credit purchases submitted using accounts payable. Business owners will use their purchase invoices to track the entries that need to be included in this particular journal.
The entries will typically include information like:
- The date of the invoice
- The invoice number and reference number
- The name of the vendor
- The amount of the invoice
Purchase Return Journals
Purchase return journals record any purchase returns, particularly inventory, that the business makes to suppliers or vendors. For example, if a business realized it purchased too many jewelry boxes to sell and returned some, this journal would record the amount that the cash or accounts payable will be debited. The information recorded in these entries will mirror the purchase journal.
The sales journal is used to record sales that the business makes. The information recorded in these entries will note the necessary details about the transaction. When creating these entries, the business will want to record information, such as:
- The invoice number
- The goods or services sold
- The invoice amount
- The customer's name
- The date of the sale
Sales Return Journals
A sales return journal allows businesses to record any returns they receive for the goods they have sold. Most businesses will allow customers to return items within a reasonable time frame of purchase if the item didn't fit their needs in some way. This journal will record these transactions and then reverse the revenue that was recorded from the original sale of the product.
Cash Payment Journals
A cash payment journal, or a cash disbursement journal, records the payments made by the company from the cash account. For example, if the business pays for insurance or gas in cash as part of the business, rather than credit, the cash payment journal will record this information.
The information recorded with this type of entry will include:
- The name of the creditor
- The total cash paid
- Any check numbers
- Any tax paid
Cash Receipts Journals
The cash receipts journal will record all the cash that customers have paid toward the business. For example, if you own a store and have customers pay for some items in cash, that information will be included in this journal.
The entries for the cash receipts journals will include information like:
- The date
- The account credited
- The amount of cash paid
- If the customer received any discount for paying cash
- The cost of the goods or inventory
The general journal will include entries that don't fit into the specialty journal entries. For example, if the business earns money through interest in an investment, that information will go into the general journal. Similarly, if there is depreciation on assets, that will also go into the general journal.
The information contained in these entries will include:
- The amount of the credit or debit
- The accounts being credited or debited
- The date
- A description of what occurred to warrant the entry
What Is an Example of a Journal of Accounting?
Adjusting entries related to the debits and credits of a particular transaction requires understanding how the different accounts relate to each other. For any bookkeeper, keeping track of the different accounting journals digitally can make the entire process simpler and more straightforward.
For example, consider an electrician who needs to purchase some tools for their business. They spend $2,000 on the new tools and equipment. Businesses that use double-entry bookkeeping will actually need to enter this transaction twice.
First, since our electrician increased the value of his technical assets by $2,000, he needs to credit this account. He also spent $2,000, which means that a $2,000 debit will need to go into his purchase journal.
However, not all businesses like to use the double-entry accounting system. Small businesses can often use a single-entry accounting system. This system uses the journal to record financial transactions in chronological order.
For example, if a small retailer makes a sale of $500 in cash, they will enter this information in their cash receipts book and note the account being credited.
Let Skynova Help You Manage Your Small Business Bookkeeping
For small business owners who don't have a background as a certified public accountant (CPA), corporate accounting can sound confusing at times. However, keeping track of financial statements and cash flow is critical to keeping the business moving forward. It allows the business's accounts to easily go through auditing, ensures you stay on top of your business taxes, and helps you confidently see the performance of your business.
Those who don't have training in accounting will find the accounting software available from Skynova extremely helpful. Business owners can also take advantage of a variety of templates and software products. The better you understand the finances involved in running your business, the easier you'll find it to keep your business moving forward.
Notice to the Reader
The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always consult with a professional accountant for specific advice regarding bookkeeping best practices.