General Journals vs. General Ledgers: An Overview

When it comes to tracking the finances of a business, a double-entry accounting system that uses both a general ledger and a general journal is arguably the best method for tracking a company's overall financial data and keeping operations running smoothly and profitably.

In order to truly understand how such a system of accounting record works, one must first appreciate the different functions associated with these two key components: general ledgers and general journals.

Key Takeaways

  • The journal consists of raw accounting entries that record business transactions, in sequential order by date.
  • The general ledger is more formalized and tracks five key accounting items: assets, liabilities, owner’s capital, revenues, and expenses.
  • Advances in software technology have streamline the accounting process and made it easy and efficient to combine both bookkeeping tasks.

General Journals

Simply defined, the general journal refers to a book of original entries, in which accountants and bookkeepers record raw business transactions, in order according to the date events occur. A general journal is the first place where data is recorded, and every page in the item features dividing columns for dates, serial numbers, as well as debit or credit records.

Some organizations keep specialized journals, such as purchase journals or sales journals, that only record specific types of transactions.

Once a transaction is recorded in a general journal, the amounts are then posted to the appropriate accounts, such as accounts receivable, equipment, and cash transactions.

Despite advances in software technology, there will always be a need to record non-routine transactions in general journals, such as sales of assets, bad debt, and depreciation.

General Ledgers

A general ledger is a book or file that bookkeepers use to record all relevant accounts. The general ledger tracks five prominent accounting items: assets, liabilities, owner’s capital, revenues, and expenses.

Transactions that first appear in the journals are subsequently posted in general ledger accounts. Then, account balances are calculated and transferred from the general ledger to a trial balance before appearing on a company's official financial statements.

Each accounting item is displayed as a two-columned T-shaped table. The bookkeeper typically places the account title at the top of the "T" and records debit entries on the left side and credit entries on the right. The general ledger sometimes displays additional columns for particulars such as transaction description, date, and serial number.

Special Considerations

Today, most organizations use accounting software to record transactions in general ledgers and to journals, which has dramatically streamlined these basic record keeping activities. In fact, most accounting software now maintains a central repository where companies can log both ledger and journal entries simultaneously. These advances in technology make it easier and less tedious to record transactions, and you don't need to maintain each book of accounts separately. The person entering data in any module of your company's accounting or bookkeeping software may not even be aware of these repositories. In many of these software applications, the data entry person need only click a drop-down menu to enter a transaction in a ledger or journal.