In the world of accounting, neat and systematic recording is the foundation of accurate financial reports. One important tool used to record financial transactions chronologically is a general journal.
For business owners, especially MSMEs, understanding how a general journal works is not only a matter of following bookkeeping rules, but also the first step to establishing sound financial control. Come on, learn more here!
Understanding General Journal
From the Investopedia page, it is explained that a general journal is the first book or record where all business financial transactions are recorded chronologically according to the sequence of events.
This is where transactions are recorded before finally being transferred to the general ledger. Because it is the starting point for recording, the general journal is also often referred to as the book of original entries.
In practice, each entry in the general journal includes important information such as the date of the transaction, the account debited and credited, the nominal amount, and a brief explanation of the transaction.
This recording process follows a double-entry accounting system, meaning that each transaction will affect a minimum of two accounts—one in the debit account and the other in the credit account.
General journals are used to record transactions that are not included in special journals, such as purchases journals or sales journals. For example, asset depreciation transactions, sales of fixed assets, bookkeeping corrections, or recording unusual accounts payable and receivables.
By recording all this systematically, a general journal can help in the process of reconciling accounts and preparing financial reports such as balance sheets, profit and loss reports, and cash flow.
Benefits of a General Journal
The general journal has an important role in the accounting process because it is the first place to record unique or non-routine financial transactions. Here are some of the main benefits of a general journal for business:
1. Provide complete and chronological initial records
All transactions entered into the general journal are recorded sequentially based on the date of occurrence. This helps in tracking financial transactions more systematically, and makes it easier when it is necessary to re-trace certain transactions.
2. Assist in the Financial Reconciliation and Reporting Process
Data from the general journal will be transferred to the general ledger to be compiled into financial reports. By recording transactions in detail in a general journal, the account reconciliation process becomes easier and financial reports can be prepared accurately.
3. Increase accuracy and compliance with accounting standards
The general journal records transaction information in accordance with generally accepted accounting principles (GAAP). This helps businesses maintain accurate financial data and makes it easier for audits to be carried out by internal and external parties.
4. Facilitates monitoring and preventing fraud
Because every transaction is recorded directly as it occurs, the possibility of manipulation or recording errors can be minimized. Apart from that, a general journal can also record who made the entries, so it can be used as a tool for monitoring and tracking financial activities.
5. Supports Financial Analysis and Decision Making
With complete and structured information, general journals allow management to analyze assets, liabilities, costs and income in depth. This is certainly very helpful in planning and making better business decisions.
Components and Examples of General Journal Recording
To ensure accurate and consistent recording, the general journal has a standard format with several main components, namely:
- Transaction date. Shows when the transaction occurred.
- Account name. Record the accounts affected by the transaction, with debit accounts recorded first, followed by credit accounts.
- Reference number (if any). Used to link journal entries to source documents or other records.
- Total debits and credits. Shows debited and credited monetary values—must always be balanced in accordance with paired accounting principles.
- Transaction description. A brief explanation of the transaction that occurred.
The following is an example of recording transactions in a general journal taken from the Highradius page.
In the example above, you can see that the recording of transactions follows the principle of paired accounting, where each transaction affects at least two accounts with equal amounts of debit and credit.
Tips for Making a General Journal
Recording in a general journal may sound simple, but to maintain accuracy and compliance with accounting standards, there are several important principles that must be followed. The following are some tips for keeping a general journal:
1. Understand the Double-Entry Principle
The basic principle in accounting is double-entry accounting, which requires every transaction to be recorded on two sides: debit and credit. For example, if you buy office supplies with cash, the supplies account increases (debit) and cash decreases (credit). The main objective of this principle is to maintain balance and accuracy of financial reports.
2. Record transactions completely and chronologically
Make sure every transaction is recorded completely, starting from the date, account name, amount and transaction description. Arranging journals chronologically is very important to ensure that financial flows can be easily traced during audits or internal checks. This also helps minimize the risk of errors and omissions.
3. Comply with Accounting Standards
Use accounting standards such as GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards) so that journal entries comply with general practice and are legally valid. Compliance with this standard will also make it easier when preparing official financial reports or facing the audit process.
4. Conduct Periodic Reviews and Reconciliations
Even though you have used a good system, it is still important to carry out regular checks on the general journal. This review aims to find errors or discrepancies before the data is transferred to the general ledger.
5. Take advantage of technology
In the digital era, manual financial recording has begun to be abandoned because it is error-prone and time-consuming. Fortunately, now you can use the Labamu application which makes it easy to record transactions automatically, faster and of course accurately.
That way, you can focus more on building strategy and business growth. Come on, download the application now via Google Play or the App Store to feel the benefits!
