An accounting journal is any document used by an accountant to track the transactions of a business. An accounting journal includes all debits and credits that business experiences along with details about the entity on the other side of those transactions.
Learn how to use an accounting journal to improve your business.
What Is an Accounting Journal?
An accounting journal is just what it sounds like—it's a place to record the details of all the financial transactions of your business, including the parties to the transaction and which of your accounts these transactions affect. This record can be kept in the form of a book, spreadsheet, or accounting software. It contains all the recorded financial transaction information about a business.
- Alternate name: Book of first entry
An accounting journal is the place where you collect all of the important information about business sales, debts, expenses, and other transactions.
How Does an Accounting Journal Work?
New business owners and aspiring entrepreneurs won't get far in business without understanding what an accounting journal is and why it's so fundamentally important to success. You'll need an accounting journal for day-to-day operations, for budgeting, and—perhaps most importantly—for tax purposes.
This tracking needs to begin as soon as you open your doors to clients or customers—if not earlier. Otherwise, you risk forgetting to document important information.
Keeping an accounting journal can prevent your business from overspending in some areas or underspending in others. It can also prevent you (and your executives) from overdrawing funds, and it can help you spot any irregularities before they get out of hand. In short, although it's just a simple book or a spreadsheet saved to your computer, an accounting journal can prevent a potential crisis from spreading, and it may even help prevent these crises from starting in the first place.
Before computers, an accounting journal was a physical log book with multiple columns to record financial transactions for a company. Today, most businesses use some type of financial accounting software to record and manage their business transactions.
An accounting journal is created by entering information from receipts, sales tickets, cash register tapes, invoices, and other data sources that show financial transactions that have occurred. These transactions don't only include sales and inventory purchases, they should also include returned, damaged, or stolen inventory. Business transactions should be presented in the journal in chronological order.
As they're recorded, transactions are assigned to a specific ledger class using a "chart of accounts" number. This makes it easier to find and account for the information needed to prepare profit and loss statements, financial statements, and other important financial reports. Some businesses find it helpful to have multiple journals. That way they can separate out these transactions by their ledger class.
However, if you do decide to separate ledger classes by journals, it's still a good idea to have one centralized journal that tracks at least the most basic data about all types of transactions. This allows you to pull specialized information from the corresponding ledger, while still being able to gauge your overall financial situation at a glance in the general ledger.
Double-Entry or Single-Entry?
It's important to establish early on what style of entry your business will have. Entries can be recorded using either the double-entry method or the single-entry method of bookkeeping. The differences are pretty self-explanatory: single-entry bookkeeping records just one entry per transaction, while double-entry bookkeeping records each transaction twice—noting both the debit and credit sides of the transaction.
Ultimately, it's less important which method you choose than ensuring that everyone who records in the journal adheres to the same agreed-upon guidelines to prevent confusion. Each listed transaction is referred to as a journal entry. Information from the journal is then recorded in the business ledgers.
Who Has Access?
If you haven't already started your business, think about which individuals in your company you want to have access to your accounting journal. Obviously, it should only be people you trust. These people should also have designated financial or management roles within your organization. This is definitely a situation in which less is more. That might mean only granting access to your chief financial officer or treasurer, or—in a simpler organization—your bookkeeper.
Although you don't want too many individuals to have access to your accounting journal, it's also a bad idea to let just one person have oversight of it. At least a few people should know the contents of the journal to prevent any inappropriate spending, budget shortfalls, or other financial oversights that could wreak havoc on your company's finances.
- An accounting journal is a document, spreadsheet, software, or any other place where your business's transactions are recorded.
- Accounting journals help ensure transparency, accurate tax compliance, and strong financial health.
- There's a lot of flexibility with how to record transactions in accounting journals, and no one strategy is necessarily better than another, so long as everyone in the business is using the same system.