General Journal

Books of original entries

Books of original entries are books in which we first record the transactions. We record entries in them according to the nature of transactions and entries are made to them on daily basis

Need for Books of original entries

In the course of business, source documents (For example invoices, credit notes and debit notes etc..) are created. The details of these source documents need to be summarized, as otherwise the business may forget to make payment or ask for payment of cash or even accidentally pay twice. In other words business needs the record of source documents of transactions to track what's going on. These kinds of records are made in books of original entries

What are the kinds of Books of original entries?

There are many books of original entries used to record financial activities of a business and transactions are recorded in them according to the nature of transactions

1. General journal or Day book - For recording general double entries
2. Sales Journal or Sales day book - For recording credit sales
3. Purchase journal or purchase day book - For recording purchases on credit
4. Sales return journal or sale return day book - For recording sales return
5. Purchase return journal or purchase return day book - For recording purchases return
6. Cash receipts journal - For recording all kind of cash receipts
7. Cash payments journal - For recording all kind of cash payments
8. Cash book - For recording cash receipts and payments

The term Journal is also known as day book.

Now we are in position to discuss our first book of original entries The General journal.

General Journal

General journal is also referred to as Day book or Book of original entries. General journal is the place where a business first records the transactions. General journal is most commonly used to record general economic events or transactions of an enterprise

Journalizing

The process of recoding business transaction in a journal

The Standard format of a General Journal is given below:

DATE	DESCRIPTION	FOLIO	DEBIT	CREDIT

Date column:
Date column is used to record the date on which a transaction occurs
Description column:
The name of accounts and concise explanation of a transaction is entered in Description column.
Post reference or Folio:
This column is completed when posting are made into ledger accounts
Debit and Credit:
The amounts to be debited or credited is entered in these columns


How to debit and credit

There are five types of accounts: Assets, Expenses/Loses, Liabilities, Incomes/Gains and Capital

We debit an Account when there is:

1. Increase in Assets for example increasing in debtors, goods, notes receivable, Building, machinery etc
2. Increase in Expenses for example increase in rent, salaries, depreciation expenses etc
3. Decrease in Liabilities for example decrease in Creditor, bills payable, bank loan, bonds payable etc
4. Decrease in Incomes for example decrease in sales, commission, dividend, discount received etc
5. Decrease in Capital for example decrease in owner equity, share capital etc

We Credit an Account when there is:

1. Increase in Assets for example increasing in debtors, goods, notes receivable, Building, machinery etc
2. Increase in Expenses for example increase in rent, salaries, depreciation expenses etc
3. Decrease in Liabilities for example decrease in Creditor, bills payable, bank loan, bonds payable etc
4. Decrease in Incomes for example decrease in sales, commission, dividend, discount received etc
5. Decrease in Capital for example decrease in owner equity, share capital etc

If you are still wondering how to debit and credit, check out our topic Debit and Credit


EXAMPLE No.1 Simple Double entries

December 3.	Paid rent for factory building $50,0000
December 5.	Paid cash to Mr.Z and Co. $200 for goods purchased on credit
December 7.	Paid cash $500 for telephone bills
December 20.	Commission $1000 received for selling goods of G man

DATE	DESCRIPTION	FOLIO	DEBIT	CREDIT
Dec. 3	Rent expenses                     Cash		$50,000	$50,000
Dec. 5	Creditor (Mr. Z an Co.)                     Cash		$200	$200
Dec. 7	Telephone expenses                     Cash		$500	$500
Dec. 20	Cash                     Commisssion income		$1000	$1000

Explanation              (It is not the part of Journal or double entries)

Paid rent for factory building $50,0000

Since Business has incurred Rent expense or we can say that there is an increase in expenses and for that business is now paying cash or there is a decrease in business's cash and therefore we debited rent expense and credited cash

Paid cash to Mr.Z and Co. $200 for goods purchased on credit
Firm had purchased goods on credit or increased its liabilities and it's business responsibility to repay the creditor which the firm did on the 5th December. As a result there is a decrease in cash (Asset) and decrease in creditor (liability). Therefore, creditor is debited and cash is credited.

Paid cash $500 for telephone bills
Because the firm is paying its telephone bills and as we know telephone bills is  a expense. Therefore, there is an increase in expenses and a decrease in cash as a result bills expenses are debited and cash is credited.

Commission $1000 received for selling goods of G man
The firm is getting or recognizing commission  (Income) or there is an increase in income which is always credited and firm is getting commission in the form cash. So, there is an increase in cash which is debited