Meaning of Journal

The primary book of account in which financial transactions are first recorded in chronological order, i.e., in the order in which they are entered, is called the journal. The accounting voucher, which is created on the basis of source documents such as cash memos, invoices, purchase bills, and so on, is used to record transactions in the Journal book.

Terms or Expressions Related with Journal

• Book of Original Entry-Journal is called a Book of Original Entry (also called Book of Prime Entry) as a transaction is first recorded or written in this book and thereafter transferred, i.e., posted into the Ledger Account.
• Journal Entry – An entry recorded in the Journal Proper is called a Journal Entry.
• Journalising- Journalising is the procedure of recording transactions in a journal.
• Posting- Posting is the process of transferring a Journal entry to a Ledger Account.

Nature of Journal

A journal is a book in which transactions are initially documented chronologically, that is, in the order in which they occur. As a result, it’s known as the Book of Prime Entry. The following are the roles of Journal:

• To maintain records of transactions in the sequence in which they occur.
• To classify and record transactions as debit or credit.
• Accurately record both the debit and credit sides of transactions.
• To make it easier to post transactions to ledger accounts.

Steps in Journal or Rules of Journalising

The following are the steps involved in journalising:

Step 1: Identify which accounts are affected by a transaction.

Step 2: Determine the type of the affected accounts, like whether they are Personal, Real, or Nominal (as per the Traditional Approach); Asset, Capital, Liability, Expense, or Revenue Accounts; Asset, Capital, Liability, Expense, or Revenue Accounts (as per Modern Approach).

Step 3: Using the debit and credit rules, determine which accounts should be debited and which should be credited.

Step 4: Calculate the amount that will be debited and credited to the accounts.

Step 5: In the ‘Date’ column, write the month and date of the transaction, as well as the year.

Step 6 – Write the name of the account to be debited in the ‘Particulars’ section. Along with the account name, the abbreviation ‘Dr.’ should also be entered on the same line beside the account name. In the ‘Debit Amount’ column, enter the amount to be debited.

Step 7: Write the name of the account to be credited in the Particulars section. In the following line, write the name of the account to be credited, followed by the word “To.” After a few spaces, the word ‘To’ is written towards the right. In the ‘Credit Amount’ field, write the amount to be credited.

Step 8- Begin recording a brief summary of the transaction in the ‘Particulars’ column on the next line.  This brief description of the transaction is called narration

Step 9: To distinguish one Journal entry from the other, draw a line across the ‘Particulars’ column.

The Journal in Investing and Trading

In the investment finance industry, a journal is also employed. A journal is a thorough and detailed record of trades that occur in an individual investor’s or professional manager’s own accounts, which is used for tax, assessment, and auditing purposes. Traders maintain journals to retain a measurable record of their trading performance over time so that they may learn from their previous successes and mistakes. Although previous success is no guarantee of future results, a trader may utilize a journal to learn as much as possible from their trading history, including the emotional factors that may have led to a trader diverting from their intended plan. Profitable transactions, unsuccessful trades, watch lists, pre- and post-market records, notes on why an investment was acquired or sold, and so on are usually kept in the journal.

Conclusion

A journal is therefore the primary, that is, the first book where every transaction happening within an organisation is recorded. It is the most basic and most important accounting process since all other accounting activities depend upon the correctness of the journal entries made. All journal entries are made in chronological order and are either debited or credited to the books of accounts. This also helps greatly with easy posting of ledger transactions.