First Step Towards Accounting : Journal

THE JOURNAL KEEPING IT SIMPLE:  Most everyone is intimidated by new concepts and terminology (like debits, credits, journals, etc.).  But, learning can be made quite simple by relating new concepts to preexisting notions that are already well understood.  So, think:  what do you know about a journal (not an accounting journal, just any journal)?   It's just a log book, right?  A place where you can record a history of transactions and events -- usually in date (chronological) order.  But, you knew that. Likewise, an accounting journal is just a log book that contains a chronological listing of a company's transactions and events.  However, rather than including a detailed narrative description of a company's transactions and events, the journal lists the items by a "form of shorthand notation."  Specifically, the notation indicates the accounts involved, and whether each is debited or credited.  Remember what was said at the beginning of the chapter:  "The system must be sufficient to fuel the preparation of the financial statements, and be capable of maintaining retrievable documentation for each and every transaction.  In other words, some transaction logging process must be in place."  The journal satisfies the need for this logging process! The general journal is sometimes called the book of original entry.  This means that source documents are reviewed and interpreted as to the accounts involved.  Then, they are documented in the journal via their debit/credit format.  As such the general journal becomes a log book of the record able transactions and events.  The journal is not sufficient, by itself, to prepare financial statements.  That objective is fulfilled by subsequent steps.  But, maintaining the journal is the point of beginning toward that end objective. The following table summarizes how debits and credits affect the different elements of the accounts. ▲ = increase, ▼ = decrease Debit/credit Account Debit Credit Assets ▲ ▼ Expenses ▲ ▼ Liabilities ▼ ▲ Equity ▼ ▲ Revenue ▼ ▲