Accounting and Finance Foundations

Unit 6

Accounting and Finance Foundations Unit 6: Journalizing 461

Journalizing

Chapter 6

Student Guide

Step Two: Journalizing Entries into the General Journal

The general journal is the day-to-day record of business transactions, listed in the order in which the

transactions occurred. Because the general journal is where business transactions are initially recorded,

it is also sometimes referred to as the book of original entry.

The general journal should include a listing of every business transaction. When recording a transaction

in the general journal, you should include the date of the transaction, the chart of account affected by the

transaction, a brief description of the transaction, and the debit or credit amount. Entering business trans-

actions in the general journal is called journalizing. Journalizing each transaction is the second step of the

accounting cycle and comes just prior to posting the transactions to the general ledger.

Step Three: Posting the General Journal to the General Ledger

The general ledger is the complete record of financial transactions over the life of the business. Because

it contains so much data, the general ledger is truly the most essential aspect of the business financial

structure. The general ledger includes subsidiary ledgers, which are used to simplify the primary ledger

and keep track of specific types of business transactions. Examples of subsidiary ledgers include accounts

receivable, accounts payable, revenues, and expenses. The general ledger is often referred to as the

book of final entry because it is the source of data for company financial statements.

Step Four: Preparing Adjusting Entries, Vouchers,

and the Trial Balance

After posting the general journal to the general ledger, you should prepare the trial balance. The trial balance

lists all the debit and credit balances for a specific accounting period. To ensure that the debit and credit

business transactions are in balance, the trial balance should include every general ledger account. Re-

member, all debits should equal all credits. So, by preparing the trial balance, you can find errors in the

double-entry accounting and/or transactions that were posted to the general ledger erroneously.

When preparing the trial balance, keep in mind that there are some business transactions, such as depre-

ciation, accruals, and/or other adjustments, which are not entered into the general journal until the end of

the accounting period, yet they still should be included in the trial balance process. Accountants call these

transactions adjusting entries. Adjusting entries are recorded at the end of an accounting period to adjust

general ledger accounts. Adjusting entries are used primarily to match revenues and expenses as a require-

ment of the matching principle of US GAAP. Most adjusting entries, such as depreciation, are entries that

should be recorded over an extended period of time.

Chapter 16

Lesson 16.1 The Accounting Cycle: Steps Two through Four (cont’d)