General Journal – Meaning, Types, Format & Examples

Introduction

The accounting process comprises several key steps that ultimately help businesses report their financial health to the stakeholders. The initial step in this process is recording entries in the general journal. The journal records all the raw financial information about the company’s business transactions, making it easy to review data and use it for future accounting processes.

In this blog, we are going to talk about general journals, how entries are recorded in them, their benefits, and how process automation can ensure that the journal entry process is efficient and error-free.

What is a General Journal?

A general journal is the initial phase of recording all the financial transactions of a business in a chronological order. It records information such as the date, specifications, and the debit and credit amount of each transaction. The entries made in the general journal follow the double entry accounting system, which means that each entry will at least have a debit and a credit account.

Since it is the first place where transactions are recorded, the general journal is also referred to as the ‘book of original entry’. Maintaining an accurate general journal eventually helps companies to create financial statements such as balance sheets, income statements, and cash flow statements. The key purposes of the general journal include:

1. Record keeping to maintain the general ledger
2. Account reconciliations
3. Tracking costs and expenses so they can be allocated properly
4. Tracking assets and liabilities

In accounting, all the transactions are recorded in one type of the journal or another. Historically, there have been two types of journals – general journals and specialty journals. Specialty journals are again of four major types, including cash disbursements journals, sales journals, purchase journals and cash receipts journals. As the names suggest, a specialty journal documents special transactions. Different companies may have other specialty journals depending on their needs.

Any transactions apart from the special transactions are documented in the general journal, or atleast the practice used to be much more common before the use of technologically advanced solutions.

With autonomous and automated solutions, record keeping has now become easier. All the data regarding any sort of transaction can be found in a single repository now, so the use of specialty journals is no longer as prevalent as it used to be before.

How Do You Write a General Journal Entry?

Now that we’ve discussed what a general journal is, let’s talk about how to write a general journal entry. As we already know, the transactions in the general journal are recorded according to the double-entry bookkeeping system. In that context, the following are the major steps to record a general journal entry:

1. Identify the transaction and determine its nature. 
2. Identify the accounts that the transaction affects. There should be at least two accounts – one will be debited and the other will be credited. 
3. Identify the account type; they could be assets, liability, accounts payable, or receivable accounts.
4. Apply the principles of the double-entry bookkeeping system and make sure that for every debit entry an equivalent credit entry is made. 
5. Ensure to record the transaction date. 
6. Write the journal entry with all the information you have and ensure to include a small description of the transaction in the entry. 

Format of General Journal

The components of a general journal are important to ensure that all transactions are recorded accurately, which eventually helps the business maintain financial integrity. Here’s what the format of a general journal looks like:

1. Date of the transaction
2. Accounts involved and their description
3. A short memo explaining the nature of the transaction
4. Debit and credit amounts

Examples of General Journal Entries

Let’s consider a few examples to understand general journal entries better.

1. On 1st January, 2024, XYZ organization paid rent for their office space. 
2. On 15th January, 2024, the organization received utility bills. 
3. On 20th January, 2024, the company provided services to their customers on account. 
4. On 30th January, 2024, the company paid half of their utility bills received on 15th January. 
5. On 15th February, 2024, the company received 50% of the amount due to them for the services they provided on 20th January. 

Here’s how the general journal entries for all these transactions would look according to the double-entry bookkeeping system:

As you can see in the table, all the business transactions are recorded in a chronological order. Each entry has two accounts, one debit and one credit, and each entry has a description stating the nature of the transaction.

Benefits of General Journal

A general journal is an important part of the accounting process and helps businesses maintain a detailed record of their financial transactions.

Here are some of the key benefits of a general journal:

1. Accuracy and compliance: General journals record every transaction in detail as soon as it occurs, creating an audit trail and ensuring audit readiness. Journal entries in the general journal also adhere to standards like the Generally Accepted Accounting Principles (GAAP). This ensures the accuracy of financial data. 
2. Financial reporting: General journals are the first place where all financial transactions are recorded, making them an indispensable part of the financial reporting process. Information in these journals makes the data transfer to the general ledger easy and aids in processes like account reconciliation. 
3. Fraud prevention and risk management: As transactions are recorded in the general journal as soon as they occur, the chances of adding wrong information are minimal. Furthermore, management can easily track who made which entry in the journal; therefore, the chances of employees engaging in fraud are reduced as well. 

Difference Between General Journal and General Ledger

Both general journal and general ledger serve different but equally important purposes for businesses. Let’s see how general journal and general ledgers are different than each other:

Things to remember when using General Journal

To gain the benefits of a general journal, you need to abide by a few things. Here’s a closer look at things to remember when using a general journal for recordkeeping:

1. Ensure detailed entry of transactions: Companies need to make sure that they are using the correct format of a general journal and including all the details they need for recording the financial transactions properly. For instance, ensure that employees are recording descriptions of transactions to maintain the accuracy of financial information for future use. 
2. Adhere to accounting standards: Businesses need to adhere to accounting standards such as GAAP and International Financial Reporting Standards (IFRS) when they record transactions in the general journal. Doing so will help them have accurate historical data and be audit-ready. 
3. Establish internal controls: In order to ensure that financial data is being recorded accurately in the general journal, organizations should implement internal controls adhering to SOX. For example, segregating duties for documenting different types of transactions can divide responsibilities among employees and reduce the instances of erroneous accounting. 
4. Review and reconcile: Another best practice is to regularly review the entries in general journals, as it will ensure that transactions are being recorded accurately. Performing regular account reconciliations further helps in eliminating any discrepancies and errors in journal entries. 
5. Implement technology: These days it’s incredibly easy to automate bookkeeping processes. The use of AI-based accounting software can help businesses automate the journal entry process, reduce errors, and easily detect any anomalies. Such software is further capable of automating the account reconciliation process, ensuring the accuracy of financial information. 

How Highradius Can Help Automate Journal Entries

The HighRadius Record to Report (R2R) solution improves bookkeeping by introducing automation to the forefront, dramatically increasing efficiency and accuracy. HighRadius’ no-code platform with an Excel-like interface, LiveCube automates data extraction with customizable templates and is capable of handling millions of records. It enables enterprises to achieve 50% reduction in manual operations by automating processes such as data retrieval from multiple sources and grouping certain transactions to simplify journal entry posting.

LiveCube further allows users to do a one time set up automation for journal entry postings. HighRadius’ Journal Entry Management facilitates auto posting of entries of different formats to any ERP system or any other system of records, all the while ensuring compliance with industry standards. Journal Entries can also be customized based on individual system records. Integrating this with LiveCube can enable manual preparation of Journal Entries using templates where all company data is auto-populated.

Journal Entry Management impacts the financial close process, allowing firms to achieve 30% reduction in days to close. This function provides automated posting alternatives, which considerably speeds up the total closing process while maintaining accuracy. Close checklists provide a clear view of all changes made to a task to maintain integrity of the close process, ensuring audit and compliance readiness.The Maker Checker Workflow adds to the efficiency of the financial close process by segregation responsibilities and enabling the monitoring of priority tasks.

HighRadius offers innovative solutions that can significantly streamline the process of creating and managing journal entries. With advanced automation, real-time data synchronization, and user-friendly interfaces, HighRadius helps businesses maintain accurate and efficient financial records. By leveraging HighRadius’ technology, businesses can enhance their financial processes, ensuring accurate and timely journal entries that support overall financial health.

FAQs

Q1. Are general journals the same as general ledgers?

No, general journals are not the same as general ledgers. A general journal records the raw entry of financial transactions in a chronological order. A general ledger, on the other hand, is much more formalized and keeps track of specific accounts such as assets, liabilities, accounts receivable, accounts payable, equity, etc.

Q2. What is recorded in the general journal?

A general journal documents the raw business transactions as soon as they occur. This helps the organization maintain a chronological record of all the business transactions, which in turn helps them create accurate financial statements at the end of the financial year.

Q3. What is the format of a general journal?

The format of a general journal comprises a few key components including, the transaction date, accounts affected by the transaction (one will be debited and the other will be credited according to the double entry bookkeeping system), a small description of the transaction, and the debit and credit amounts.

Q4. What is the main advantage of using a general journal?

There are a lot of advantages of using a general journal, for example, fraud and risk prevention, ensuring accuracy and compliance, and simplifying the account reconciliation process. However, all of these benefits ultimately help in creating accurate financial statements and helping companies ensure financial integrity.

Q5. What are debit and credit accounts in a general journal?

Companies following the double-entry record-keeping system ensure that each entry has a debit and a credit account. This helps companies maintain the accounting equation, i.e., assets = liabilities + equity. Debit is the entry made on the left side of the account,and credit is the entry made on the right side of the account.