In many countries, companies are required by law to keep expense books so that the government can prevent and detect illegal activities such as money laundering or embezzlement of corporate funds.
A journal and a ledger are two types of ledgers that are commonly used in the accounting process. Regarded as the key to what is known as double-entry bookkeeping, each of these books has specific purposes within the overall process of keeping accurate financial records. While many of the transactions recorded in these books are the same, there are important differences in the purpose and function of each of these books.
Accounting entries in a general ledger must be balanced at all times.
One of the most basic differences between the journal and the general ledger is when they are used in the accounting process. The journal functions as the ledger in which a transaction is first entered into the accounting system, and the transaction is generally referred to as the original journal entry. Later in the process, this same transaction will be recorded as an entry in the general ledger, where that entry will be placed against other entries for evaluation and analysis purposes.
A journal works like a ledger where a transaction is first entered into a company’s accounting system.
Another important difference between the journal and the general ledger is the order of the entries in the registers. Journals are always arranged in chronological order, making it easy to identify which transactions are associated with a particular business day, week, or other billing period. On the other hand, the organization of journal entries in a general ledger has more to do with grouping similar transactions into specific accounts in order to evaluate the data for internal accounting and financial purposes.
The different purposes of the journal and the ledger also mean that each ledger is structured differently. A journal typically includes a brief description of the transaction, including a date and the location of the transaction amount in a debit or credit column. There is no attempt to balance transactions recorded in a journal. On the other hand, the entries in the ledger accounts must be balanced at all times.
There is some difference of opinion regarding the use of journal and ledger. One school of thought holds that by keeping both ledgers, you increase the opportunity to identify posting errors, a factor that can be very helpful when and how general ledger accounts are out of balance. Additionally, the journal is generally more easily accepted as evidence in a court of law due to the simple process used to record transactions in chronological order. A different approach holds that keeping a journal is optional, while keeping a ledger is crucial to the task of tracking the company’s financial transactions, including in terms of organizing accounts so that taxes can be calculated and paid accurately.