What is a Journal?
A journal is a subsidiary book of account that records monetary transactions according to accounting standards. These transactions get recorded in chronological order, and it gives details about the accounts that are affected by each transaction. It is known as the first step of the accounting process.
What are its features?
The features of a journal are as follows:
- Chronology: The journal entries get recorded in a date-wise order, and it helps in checking the transactions much more quickly.
- Double Entry System: Journal entries follow a system where every transaction is entered both on the debit and credit sides. It is an example of a dual entry system. One account gets debited and the other gets credited with the same value.
- Daybook: A journal records transactions on a day-to-day basis for consistency and ease.
- Compound Entry: A single entry can have two or more accounts on the same day, and a journal can also have more than one related transaction.
- Explanation: Each transaction includes a short description known as the narration (within brackets). It helps to explain the nature and purpose of the transaction.
What is a Ledger?
A Ledger is a principal book of account, and its primary purpose is to transfer transactions from a journal and then classify it into separate accounts. Ledger is also known as the book of final entry as it helps businesses prepare accounting statements like the Trial Balance.
What are its features?
The features of a ledger are as follows:
- Two Sides: Every Ledger has two sides – Debit and Credit. The debit entries come on the left side of a ledger, while the credit entries come on the right side.
- Transaction: Every transaction impacts two or more ledger accounts, and it is because the transaction is related to a particular person, asset, expense or income.
- Balancing the ledger: The total debit and credit sides of a ledger must always be the same. But that is not always the case since the debit side could be more than the credit side and vice versa. To balance the ledger, we have to record the difference between the two on the deficient side. When the debit side is more than the credit side, the balance gets recorded on the credit side, known as debit balance. Similarly, when the credit side exceeds the debit side, the balance is recorded on the credit side, known as a credit balance.
What are the differences between Journal and Ledger?
The main differences between Journal and Ledger are as given below:
Journal | Ledger |
Definition |
Journal is a subsidiary book of account that records transactions. | Ledger is a principal book of account that classifies transactions recorded in a journal. |
Order |
The journal transactions get recorded in chronological order on the day of their occurrence. | The ledger classifies the transactions from the journal under the respective accounts to which they are related. |
Explanation |
Each journal entry has a detailed narration of the transaction. | The ledger accounts do not have a detailed narration of each transaction. |
Result |
The journal does not reveal the total results of a transaction. | The Ledger accounts help reveal the result of transactions for a particular account. |
Trial Balance |
The journal cannot help prepare the Trial Balance directly. | The ledger helps to prepare the Trial Balance. |
Financial Statements |
The journal does not have a direct role in the preparation of financial statements like Profit and Loss Account or Balance Sheet. | The balances from different ledger accounts help to prepare financial statements like Profit and Loss Account or Balance Sheet. |
Opening Balance |
A journal does not have an opening balance, and it is only concerned with the current transactions that occur on a day-to-day basis. | Some ledger accounts have an opening balance, which is the closing balance from the previous year. |
Conclusion
Although there are significant differences between Journal and Ledger, both have a critical role in accounting. They have a vital role to play when preparing financial statements like Profit and Loss Account or Balance Sheet.
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FAQs
The journal consists of raw accounting entries that record business transactions, in sequential order by date. The general ledger is more formalized and tracks five key accounting items: assets, liabilities, owner's capital, revenues, and expenses.
What is the meaning and features of ledger? ›
A ledger in accounting refers to a book that contains different accounts where records of transactions pertaining to a specific account is stored. It is also known as the book of final entry or principal book of accounts. It is a book where all transactions either debited or credited are stored.
What are the features of journal? ›
The characteristics of a journal are. (i) It contains day-to-day transactions in a chronological order. (ii) It shows complete details of a transaction in one entry. (iii) It records both the debit and credit aspect of a transaction according to the double entry system of book - keeping.
What do you mean by journal answer? ›
A journal is the book of original entry which records transactions as they take place, such an entry into the journal must contain a source document. Maintaining a journal ensures all transactions are recorded and in one place and debit and credit for each transaction is linked properly.
What is the definition of a ledger? ›
A ledger is a book or collection of accounts in which accounting transactions are recorded. Each account has: an opening or brought-forward balance; a list of transactions, each recorded as either a debit or credit in separate columns (usually with a counter-entry on another page)
Why is journal and ledger important? ›
The importance of journals and ledgers
Financial statements like the cash flow statement, balance sheet, and income statement provide vital information about your business trends, and they can only be generated by using information from journals and ledgers.
What are the two features of ledger? ›
Features of Ledger Accounts
- Detailed Record Keeping: Ledger accounts are like a financial diary for a business. ...
- Classification of Transactions: Transactions are organized into different accounts within the ledger. ...
- Double-Entry System: Ledger accounts follow the double-entry accounting system.
A personal journal is to record and reflect on events in a person's life over time. A published journal is devoted to reporting news and events. Some are specialized publications devoted to scientific, medical, professional, or trade interests. A business journal is used to record business transactions as they occur.
What is a journal in accounting? ›
A journal is a concise record of all transactions a business conducts; journal entries detail how transactions affect accounts and balances. All financial reporting is based on the data contained in journal entries, and there are various types to meet business needs.
What makes a journal different? ›
A "journal," or "scholarly journal," is a scholarly periodical aimed at specialists and researchers. Articles are generally written by experts in the subject, using more technical language. They contain original research, conclusions based on data, footnotes or endnotes, and often an abstract or bibliography.
A general ledger is used to record every financial transaction made by an organization and serves as the basis for various types of financial reports. It provides details about finances such as cash flows, assets, liabilities, inventory, purchases, sales, gains, losses, and equity.
What is journal and example? ›
Some journal can be very specific on what the writer is using the journal for. An example of this would be, if the writer wants to write about all the places they visited, they would start a travel journal. If someone likes to write about the type of food they cook or eat, they would start a food journal.
What is journal in one sentence? ›
A journal is a book in which transactions are recorded before they are entered into a ledger. The journal shows all purchases, sales, receipts, and deliveries of securities, and all other debits and credits. Transactions are periodically posted from the journal to ledger accounts.
Which comes first ledger or journal? ›
The journal is the first step of the accounting cycle because all transactions are analyzed and recorded as journal entries. The ledger is an extension of the journal where journal entries are marked by the company and its general ledger account based on which of the financial statements the company has prepared.
What is the difference between a ledger and a journal and a cash book? ›
A cash book o both a journal as well as a ledger. The cash book is a journal because it records the cash transactions from the source document for the first time and then these are posted in the respective ledger accounts. The cash book is a ledger in the sense that it serves the purpose of a cash account also.
What is the difference between a journal and a ledger in Quickbooks? ›
A general journal records every business transaction in chronological order—it is the first point of entry into the company's accounts. The general ledger is the second entry point to record a transaction after it enters the accounting system through the general journal.
What is the difference between journal ledger and trial balance? ›
A Ledger is an account-wise summary of business transactions recorded in the Journal. A Trial Balance is a statement prepared at the end of a financial year to depict the debit or credit balances of all ledger accounts. The Ledger is also known as the principal book of accounts.
