What Are Accounts Journals? (With Importance And Types)

By Indeed Editorial Team

Published June 10, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Many businesses, irrespective of size and location, keep a record of their financial transactions to monitor their financial status and ensure they meet the bottom line. Accounts journals are the most comprehensive bookkeeping documents that these business organizations use to keep track of their finances. As an accounting or finance professional, learning how to use an accounting journal can help you monitor a company's finances and prepare it to meet statutory financial obligations. In this article, we discuss what accounts journals are, examine their importance, explain their types, and outline how you can make accounting journal entries.

What are accounts journals?

In accounting and bookkeeping, professionals use accounts journals to record all the details of all the financial transactions of a business. These journals, also known as books of original entry, are logs that contain all of a business' financial transactions, often in a chronological manner. Traditionally, these journals were physical records, but they are now available in digital form with various accounting software.

An accounting journal is usually the first point of recording any transaction conducted in a business' name. It typically contains information about sales, expenses, cash movements, inventory, and debt information. It often indicates the date of a transaction, accounts affected, and amounts involved. Accounting professionals use it for future reconciliation of accounts, and they transfer information from it to other official accounting records, including the general ledger. Each transaction that appears in the journal is a journal entry.

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How to make accounting journal entries

You can use the following steps to make an accounting journal entry:

1. Collate relevant documents

The first step to making a journal entry is collecting all documents containing details of financial transactions. These papers may include invoices, purchase orders, receipts, and cash registers. Keeping such records in one place can make it easier for you to make your journal entries, as doing so can put relevant data within easy reach.

2. Review information on documents

The next step is an analysis of the transactions that the documents you collected contain. This analysis involves examining how each transaction impacts your records. Some of them may increase your credits, while others may increase your debts. Determine which one applies to each transaction.

3. Arrange transactions chronologically

Beginning from the oldest, sort the transactions in the order they took place. This chronological order can make it easy to follow the transactions as they occur daily and for reference purposes. Doing this may be especially helpful if you're working with multiple entries simultaneously.

4. Format properly for accessibility

The final step is to arrange the information on your page for easy reading for other financial analysts or accounting professionals within and outside the business. You can consider using debits and credits to indicate the changes in the general journal. You can also assign a reference number to each transaction and include a title, date, and description.

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Is it necessary to balance journal entries?

When using the double-entry bookkeeping method, ensure that your journal entries balance between debits and credits. You can do this by including a corresponding credit to every debit. This balancing is vital because journal entries depend on the concept of credits and debits as they indicate whether the business is acquiring or selling. There is usually no balancing requirement if you're using the single-entry method, which requires one entry per transaction, either a debit or credit.

Related: What Are Accounting Transactions? (Definition and Examples)

Differences between journals and ledgers

Journals and ledgers may differ in the following aspects:

  • Scope: Journals contain a record of all of a business's financial transactions, while ledgers hold the financial information a business requires to make its financial statements.

  • Nomenclature: Journals are the books of original entry, while ledgers are books of secondary entry.

  • Arrangement: Transactions in a journal typically follow a chronological order. In ledgers, transactions often follow an analytical order

  • Format: While debits and credits are columns in journals, they are opposite sides in ledgers.

  • Details: Journals require detailed information on each transaction, but ledgers don't.

  • Balance: While accounts balancing is optional for journals, it's usually compulsory for ledgers.

Importance of accounts journals

An accounting journal is critical to every business for the following reasons:

  • Reduced errors: Because it is a comprehensive record of a business' transactions, accounting journals reduce incidences of errors of facts and omission or incomplete transaction records. Bookkeepers can always turn to their journals to clarify the details of a transaction.

  • Mathematical accuracy: Journals can help you maintain mathematical accuracy in your accounting process. It does this by providing a breakdown of every transaction in line with its credit or debit implications.

  • Reference: Journals can be reference materials that allow you to double-check for errors or inconsistencies in other financial documents. Their comprehensive nature can help you capture every detail.

  • Conciseness in other accounting documents: Since journals include comprehensive information about all transactions, you can be concise in your entries in other documents.

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Types of special accounting journals

As a finance or accounting professional, it's essential to understand the following types of special accounting journals that companies may use for specific items:

Purchase journal

Organizations use purchase journals to keep a record of their merchandise purchase. Many companies typically include only the merchandise they purchase on credit for the sale. Although, some companies may include all-cash purchase transactions. You can get information for your purchase journal from the invoice you received from the seller. Purchase journals typically contain seven columns, including date, supplier, invoice date, payment terms, reference, accounts payable, and items.

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Sales journal

This type of journal, also known as sales books or sales daybooks, keeps a log of all of a company's sales on credit. You can only enter sales of inventory and not sales of used or outdated assets into this journal. These journals typically contain six columns, including date, account or customer name, invoice numbers, posting check box, accounts receivable and sales, and cost of goods sold and inventory.

Cash receipts journal

This journal is where a company keeps records of all its cash receipts. Cash receipts can be from cash sales, credit customers or receivables, and other sources. The journal helps a company keep tabs on the amount of cash it collects over a certain period. Cash receipts journals typically contain ten columns, including date, account credited, post reference, explanations, cash, sales discount, accounts receivable, sales, other accounts, and cost of goods sold inventory.

Cash payment journal

Bookkeepers use this type of journal to record all transactions relating to cash payments. These transactions may include check disbursements or cash purchases, cash payments for previous credit purchases, cash purchases of tangible and intangible assets, and cash refunds for returned goods. A typical cash payment journal contains nine columns, including date, check number, payee, account debited, posting reference, cash, inventory, other accounts, and accounts payable.

Purchase return journal

This journal contains a record of the transactions involving the return of purchased merchandise to the supplier. Returns often happen because of a defect in the merchandise or other reasons. You can get information for making an entry into this journal from a debit memorandum, a document a buyer prepares and sends to notify a seller that he, the buyer, has debited the seller's account for the value of returned goods. A typical purchase entry journal contains seven columns, including date, debit memo, supplier's account debited, posting reference, accounts payable, inventory, and purchase returns and allowances.

Sales return journal

This journal is a log of purchased goods that clients or customers return to a company. The return may result from delay, defects, damages, or low quality, and the buyer may request a full refund or credit. You can get information for making an entry into this journal from a credit memorandum, which indicates the type, quality, quantity, price, and invoice number of the goods the buyer returned. A typical sales return journal contains eight columns, including date, credit memo number, customer's account credited, posting reference, accounts receivable, sales tax, sales returns, and cost of goods sold.

General journal

A general journal or journal book is an all-purpose type of accounting journal. Professionals typically use this type of journal to record other transactions that don't fit into any of the other types of journals. These transactions may include asset sales, depreciation, interest income and interest expense, and stock sales. Some companies may use this journal to record all their transactions. These journals typically use the double-entry accounting system.

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