Accounting Journal - What is it? Definition. Meaning.

Bookkeeping Method for Posting Accounting Double Entry into Ledger Accounts /  Total Journal Debits = Total Journal Credits

> Accounting Dictionary   > What is an Accounting Journal


No, an Accounting Journal is NOT the handwritten notes and meticulous observations of an Accountant on an exciting voyage of exploration and discovery.

The word 'Journal' harks back to ye olden days when accounting scribes slaved in silence among leather-bound books.

Come to think of it, not much has changed! 

Read on.


1. What is an Accounting Journal?

An Accounting Journal is the bookkeeping method for posting double entry accounting - debits and credits - into Ledger Accounts.

A Journal can have multiple lines (100's even 1,000's) but it should balance - ie. Total Debits should equal Total Credits.

(In fact most modern accounting systems will not allow a Journal to be created if Debits do not equal Credits.)

• An accounting journal should contain sufficient detail and narrative to enable a 3rd person to understand the rationale for the accounting entries and values posted.

This is called maintaining the Audit Trail (which is sort of like a journey - see the similarities with the opening paragraph??).

All Accounting Journals should be approved and authorised for processing to the Ledger by a person other than the preparer (Segregation of Duties).

• Auditors will often sample test large or unusual Journals as part of their audit work - especially if they've been posted around Financial Year End (dodgy!)


2. Sources and Origins of Accounting Journals

There are typically 2 Sources or Origins of Journals:

1. System Journals - these are Journals automatically created within an automated financial system, posting accumulated entries in a sub-ledger or other interfaced system to the General Ledger. A typical example would be an interface from the Sales Ledger - posting a 'bulk' journal of customer Sales Invoices, Credit Notes and Receipts.

Though automated, the process should still include a procedure to authorise release of the journals to the Ledger.

2. Manual Journals - these are Journals where a User manually completes a template of some sort, attaches appropriate documentation and passes them to an Authoriser for consideration and approval.

Examples include regular items like Accruals, Prepayments, Depreciation, Bank Charges - and adhoc entries such as corrections.

Typically, manual Journal details are entered into a spreadsheet template and uploaded directly in to the Ledger, undergoing an auto-validation check on the way (checking account codes exist, are in the right format and that the Journal balances!).

Also typically, a Register of pre-numbered Manual Journals is held centrally with Journal 'booking' journal numbers for entry into their journal template - again, maintaining that audit trail!


3. Types  of Accounting Journals

There are typically 2 Types of Journals:

1. Standard Journals - these are the majority of journals. The double entry accounting entries are posted to the ledger accounts and are 'fixed'.

The underlying transaction behind the Journal is not expected to change - no further action is required.

2. Reversing Journals - these are 'holding' or 'temporary' Journals - usually associated with estimated or provisional figures prior to receiving proper documentation or confirmation.

Examples include Accruals - where a cost is correctly accounted for in the period it is incurred but the physical supplier invoice is not received until a later period.

A reversing journal will automatically reverse back out in the next accounting period. When the actual invoice is received it will be posted to the Purchase ledger in place of that accrual in the General ledger.

The auto-reversal avoids the possibility of double counting both the accrual estimate and the actual cost.

But be careful -it can be easy to forget to keep posting reversing journals in anticipation of the invoice - thereby understating costs!


4. Example of an Accounting Journal

accounting-journal-template-example

In the example above, the Journal Header headings mean:

GL Period:  accounting period that the journal will be posted to ie.May

GL date:  the date of the actual transactions

Type: standard - ie. 'fixed' rather than reversing

Reference:  this is a link back to the Journal Control spreadsheet - period/user/number

And then in the body of the Journal:

GL Code:  this is also called the GL string - the numerical segments within the string enable 'slicing and dicing' of data for reporting and analysis purposes

Description:  this is key - this narrative will appear alongside the entry. The better the information entered here the more time saved in the future should explanations or understanding be required


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