Understanding the Definition of an Accounting Journal

The Journal Every Business Owner Should Keep

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If you're a business owner or aspiring entrepreneur, it's important that you understand what the definition of an accounting journal is. After all, you'll need an accounting journal for day-to-day operations, budgeting and, of course, when tax season arrives.

With this brief overview, get the facts on accounting journals, including their benefits and purpose.

A Quick Definition of an Accounting Journal

An accounting journal is just what it sounds like -- a place to record the details of all the financial transactions of a business and which accounts these transactions affect.

This can prevent a business from overspending in some areas while underspending in others. It can also prevent executives from overdrawing certain accounts and help them to spot any irregularities before they get out of hand. In short, while an accounting journal is a simple book, it can thwart a potential crisis from starting or spreading.

In an accounting journal, all business transactions are initially recorded in a journal using the double-entry method or single-entry method of bookkeeping. Typically, journal entries are entered in chronological order and debits are entered before credits. While you don't have to stick to this format, everyone who records in the journal should adhere to a set of agreed upon guidelines to prevent confusion.

How an Accounting Journal Is Created

In accounting, a "journal" refers to a financial record kept in the form of a book, spreadsheet, or accounting software that contains all the recorded financial transaction information about a business.

It is also known as a book of first entry.

An accounting journal is created by entering information from receipts, sales tickets, cash register tapes, invoices, and other data sources that show financial transactions. Business transactions should be recorded so that they can be presented in the journal in chronological order.

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. These transactions are then assigned to a specific ledger class using a Chart of Accounts number to prepare profit and loss statements, financial statements, and other important financial reports.

Each listed transaction is referred to as a journal entry. Information from the journal is then recorded in ledgers.

Wrapping Up

If you haven't yet started your business, you'll need to think about which individuals in your company should have access to the accounting journal. Obviously, it should only be people you trust and individuals with designated financial or management roles in your organization, such as the chief financial officer or treasurer. While you don't want everyone to have access to the accounting journal, it's a bad idea to let just one person have oversight over it. A select few, including you, should know the contents of the journal to prevent any inappropriate spending or budget shortfalls from wreaking havoc on the company's finances.