Journal is derived from the French word Jour, which means daily records. All the business transactions are first recorded in
the Journal, therefore, it is also known as the “Book of Original Entry or Book of Prime Entry”. In this book, we record the business transactions in chronological order which means in the order (or date) of their occurrence. In the Journal, business transactions are recorded in the form of an entry (having effects on two sides). This entry is popularly referred to as Journal Entry.
In this book, transactions are recorded in the order of their occurrence, i.e., in chronological order from the source document. It is also termed as the book of original entry and each transaction is termed as Journal entry.
Terminology for Journal
1) Book of Original Entry: It is the first book where the transactions are recorded directly from the source documents of a transaction like vouchers, etc. for the very first time. Hence, the name book of original entry.
2) Entry: It is a record of the financial transaction in the Journal hence the name Journal entry.
3) Journalising: The process of recording the transactions in it is called Journalising.
4) Posting: The entries from the Journal are recorded in a book called ledger which classifies the items of a transaction into their respective accounts. This process of transferring from the Journal to the ledger accounts is called Posting.
Features of Journal
1) It is the book of original entry as transactions are recorded first in Journal as and when they take place.
2) This is also referred to as the book of prime entry as the transactions recorded in the Journal are subsequently transferred to Ledger accounts.
3) The transactions are recorded in chronological order i.e. in date-wise order.
4) Recording of transactions is done on the basis of the Double Entry System of Book-Keeping i.e. it records both the debit and credit aspects of a transaction.
5) Journal shows complete details of a transaction in one entry with a brief explanation called ‘Narration’.
6) The recording of transactions is done in the form of Journal entries and this method is called ‘Journalising’.
Steps of Journalising
Following are the steps involved in recording a business transaction.
- Identify the accounts involved in the transaction.
- Analyse the nature of accounts identified in Step 1.
- Identify which rule of accounting is applicable.
- With the help of the above rule, identify which account is to be debited and which to be credited.
- Ascertain the amount by which the accounts are to be debited or credited.
- Under the date column of Journal, record the date of transaction.
- In the Particulars Column, on the extreme left-hand corner write the ‘Name of Account’ that is to be debited. In the same line, write the abbreviation Dr. (debit) on the extreme right-hand corner under the same head. In the debit amount column, we write the amount to be debited against the Name of the Account.
- Again in the Particulars Column, in the next line little indented towards right we write the ‘Name of Account’ to be credited, preceded by the word “To”. In the credit amount column, we write the amount to be credited against the ‘Name of Account’.
- In the next line, under “Particulars Column” we write narration in brackets. Narration is simply the summary of business transactions recorded.
Advantages of Journal
- In Journal, transactions are recorded in chronological order i.e. transactions are recorded in the order of their occurrence.
- Every Journal entry is supported by a narration that acts as a small explanation of the transaction.
- It records both the aspects or dual aspects of a transaction i.e. debit and credit. As the amount is recorded in both the debit column and credit column, therefore, the possibility of any mistake or errors is minimum. Moreover, if there is any error then it will be easily detected.
Limitations of Journal
- Recording all transactions in it is a time-consuming process and it also involves cost in terms of money.
- As the recording of transactions takes time, therefore, this system causes delays in providing information.
- As a journal is prepared by a single person, so there is no one to check his work. This shows a lack of an internal check system.
- Due to the recording of a large number of transactions, Journal becomes a very bulky or voluminous book.
Meaning of Debit and Credit – Under the Double Entry System of accounting, each business transaction is recorded with dual aspects that mean debit and credit aspects.