The general journal is part of the accounting bookkeeping system. When an event occurs we need to record it. We call this event a transaction and record it in a speciality journal or in the general journal. There are four journals specifically, which record transactions of a similar nature. Their name suggests the kind of transactions that we record in them. These journals are Sales journal, Cash receipts journal, Purchases journal and Cash disbursements journal.
There could be more specific journals, but the four accounting areas that these represent contain the bulk of all accounting entries, so there is usually no need for additional journals.
Therefore, by default, we record all remaining transactions in the general journal. Let us now study the basic journal entries in General Journal.
Also called Journal Proper. It is thus the book of entry for originally recording such types of transactions for which the organization has no special journal.
The general journal will give a chronological record of all non-specialized entries that are otherwise recorded in one of the specific journals.
Entries in a General journal are:
(i) Opening Entries: Opening entries are passed at the beginning of the accounting year to open the accounts by recording the assets, liabilities, and capital appearing in the balance sheet of the previous year.
(ii) Closing Entries: Closing entries are passed at the end of the financial year for the closing of accounts relating to expenses and revenues. These accounts are closed by transferring their closing balances to the Trading and Profit & Loss Account.
(iii) Adjustment Entries: At the end of the financial year, we need to pass adjustments entries for outstanding/prepaid expenses, and also accrued income/income received in advance etc. We thus pass these entries in the journal proper.
(iv) Transfer Entries: Transfer entries are passed in the general journal to transfer an item entered in one account to another account.
(v) Rectification Entries: Rectification entries are passed for correcting errors which might have committed in the books of account.
(vi) Purchase of Fixed Assets: When fixed assets are purchased on credit, the entries for these purchases are thus passed in the general journal.
(vii) Sale of Worn-out or Obsolete Assets: When obsolete assets are sold on credit, Same are originally recorded in the general journal.
Journal Process Flow:
After recording the transactions in general journals, we post a summary of all the transactions in each journal to the general ledger, which contains all of a company’s records. An account is a record of a specific asset, liability, equity, revenue, or expense item. Also, examples of accounts are:
- Accounts Receivable (an asset account)
- Accounts Payable (a liability account)
- Retained Earnings (an equity account)
- Product Sales (a revenue account)
- Cost of Goods Sold (an expense account)
In summary, we record a transaction into a journal and then post the information in the journal to the respective accounts which are in the general ledger.
The general journal is the repository for transactions that a firm cannot specifically record in a particular journal. Thus, the general journal is an intermediate repository of information for some types of transaction, on the way to its final recordation in the general ledger.
Solved Example on General Journal
On 31st March 2017 following balances are available in the ledger for the year 2016-17.
Stock of Goods Account 700000
Sircar (debit balance) 140000
Mitra (debit balance) 75000
Cash (debit balance) 24000
Basu (credit balance) 139000
Capital Account 1000000
Pass the opening entry for 1st April 2017.
|Stock of Goods
|To B. Basu
|To Capital Account
|(For opening balances of various assets, liabilities, and capital as on 1st April 2017)