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How to Create an Accounting Journal

From purchasing supplies to sending out invoices, every time your business carries out a financial transaction it should be recorded for accounting purposes. You may have heard of a journal of business finance and accounting before, but what is ‘journal’ in accounting terminology and what does it mean? Learn how to create your own with our guide below.

What is a journal in accounting?

A journal of accountancy is where you record each financial transaction. Unlike official documents such as the balance sheet and income statement, an accounting journal serves as a working document. You might also see it called the ‘book of original entry’, and in either case it’s used as the place to jot down transactions as they occur. These accounting journal entries are then used to create a general ledger, which goes on to form the basis for official financial statements.

Here’s what’s usually included in each accounting journal entry:

  • Date

  • Reference number

  • Account name and number

  • Amount debited and credited

  • Other relevant details about the transaction

While you can certainly record your entries meticulously by hand, it’s more common nowadays to use accounting software for this purpose. As transactions enter the system, they’re automatically converted into accounting journal entries and compiled into relevant reports. Still, it’s a good idea to learn how the process works.

How to create a journal of accountancy

Creating your own record of financial transactions is simple. To get started, you should set up a system for pulling together your data.

  • Step 1: Find all supporting documents for each journal entry. This might include invoices, receipts, purchase orders, or online POS reports.

  • Step 2: Analyse each transaction in terms of cash flow, date, and other relevant details.

  • Step 3: Document the transactional information in a spreadsheet, with each journal entry recorded in chronological order.

  • Step 4: If you use the double-entry accounting method, you’ll need to record each transaction in two columns; one for debit, and one for credit.

Accounting journal entry example

To illustrate what a journal entry looks like using the double-entry method, imagine that you’ve just purchased office supplies using cash. You would need to record this twice. In one column, you would decrease your cash account with a credit. In the debit column, you would show your purchase.

Date Account Debit Credit 27.04.21 Supplies 2,000 Cash 2,000

If you’re not sure whether the account should be debited or credited, here’s a handy chart to keep it straight:

 

Account Type

Increase

Decrease

Assets

Debit

Credit

Expenses

Debit

Credit

Liabilities

Credit

Debit

Revenue

Credit

Debit

Shareholders Equity

Credit

Debit

Let’s go back to the accounting journal entry example above. When you purchase supplies, you’re increasing an asset, which is a debit. At the same time, you have decreased your cash supply which would fall into the credit column.

It’s less common, but very small businesses might choose to write up their journal of accountancy research using the single-entry accounting method. If you choose to go this route, you only need to show a list of cash inflows and outflows, just as you would when creating the cash flow statement.

Additional types of accounting journal entries

The guide above shows you how to create a general accounting journal. At times, you might need to write more complex journal entries like the following:

  • Compound journal entry: Used when a single transaction involves more than two accounts

  • Adjusting journal entry: Used to balance the books at the end of the accounting period

  • Reversing journal entry: Used at the beginning of an accounting period to cancel previous entries

  • Closing journal entry: Used to clear the slate before the start of a new accounting period

Balancing your journal of accountancy

If you’re using the double-entry system, all you need to ensure is that each transaction shows both the debit and credit to the accounts in question. However, there’s no additional need to balance your journal. You’ll balance your accounts when you transfer your accounting journal entries from the book of original entry (accounting journal) to the book of secondary entry, or general ledger.

The general ledger uses the journal of accounting research as its source material. The accounting journal entries you’ve already created are analysed, summarised, and recorded. You’ll use the general ledger to calculate a trial balance and draw up final accounts. While your accounting journal shows each transaction in chronological order, this is rearranged in the ledger to separate transactions by account. Each account is then balanced for the full accounting period – and you’re finished.

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