Getting involved in business truly requires not just capital but also knowledge about so many things, like economics, stock market, accountancy, politics, and more. These factors, which affect the business in general, can make or break a business. A lot of business operations happen in a day. But do you ever wonder how companies keep in touch with all of it? The processes with an impact to a business should be religiously recorded. That is why many institutions use accounting journals to document transactions they consider part of their business accounts. If you want to know more about accounting journals and how it benefits your business, continue reading below.
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What Is an Accounting Journal?
If you see a compilation of a detailed account related to financial transactions, then you must be seeing an accounting journal. Accountants also call it as the book of original entry, since it records transaction before it lands on another ledger. All the entries in the accounting journal, economic or non-economic, are aggregated into the general ledger to come up with the business’s financial statements.
Accountants and bookkeepers used to enter manually into a journal and later onto the ledger before accounting software existed. Aside from the general journal, businesses keep various journals like cash disbursement journal, cash receipts journal, and purchases and sales journal. Now that accounting software is accessible, accountants only use general ledgers if they need to adjust entries and enter a unique financial transaction.
Top Recommended Tax and Accounting Companies in the United States
Businesses should have a good relationship with their tax gurus, especially amidst tax seasons. That said, your partner firm should understand tax laws and the implementation of these laws. Assessing a tax firm partner can be based on their company’s performance on maintaining an excellent employment rate. According to Statista, there are four big niche players in the accounting and taxing industry in the US, namely, Deloitte, Ernst & Young, PwC, and KPMG. These firms lead the employment of professionals into the industry. The firms employed more than 60,000 professionals at the end of their fiscal year in 2019.
Meanwhile, the famous business magazine, Forbes, listed the top-performing accounting and taxing companies in the US, too. The list included RSM US, Grant Thornton, BDO USA, CliftonLarsonAllen, Crowe Horwath, Baker Tilly Virchow Krause, CBIZ/Mayer Hoffman McCann, Plante Moran, Moss Adams, CohnReznick, and BDK.
How to Do Accounting Journal Entries
Creating accounting ledgers is about gathering invoices, purchase orders, receipts, cash register tapes, and other sources of data. All you have to do is record these pieces of information so that you can analyze and document them in chronological order. Know that every data that you put in the journal is a journal entry. After that, you can compile these records in the general ledger. More on this below:
1. Identify Business Transactions
Understand that a business transacts more than once in a day. Thus, you need to double-time in monitoring these transactions. If you fail to do so, it could be a great loss to the business. Take this as the chance to build a more transparent financial report so that you can make decisions based on measurable reality. Furthermore, with an accounting journal, you can foresee your business’s assets, liabilities, and equity. This is an integral part of ensuring that the business is in good shape financially. Though there is no scope of balancing in the journal, it makes you see the affected accounts of the transactions.
2. Record Every Transaction
Spending more time on your journal will be worth it. Start collecting the data personally so that you would not miss out on any business transaction. Then, identify the source of the transaction by looking at the receipts. You need this information to separate the revenue from the taxable or nontaxable income. Remember that it is important to systematize the deductible expenses. Having a good accounting journal that records business data is beneficial in preparing the tax return. If you lose a receipt, you would forget the amount of the expenses for the tax return. This information will support the assets, expenses, and credits, which are technically the same records to need for your business’s financial statement.
3. Organize the Entries
There is no other excellent accounting journal than professional-looking and neat entries. So, make sure that the journal entry is not all over the place. You can provide title, date, and description as you list every journal entry. Remember that you are not the only one who has access to the journal. Other accountants or bookkeepers also need the details in an accounting journal for business-related processes. And it will be helpful if you keep the journal neat and easy to look at.
4. Calculate the Journal Entries
Though a journal does not have a balancing scope, you have to understand that there are two accounts affected every time a transaction occurs. So, in making journal entries, make sure that debits and credits are in balance with each other. Debits and credits are essential in journals because it entails whether the company is acquiring or giving away something. If the debits and credits of an accounting journal are not equal, preparing for the general ledger and income statement would go downhill.
Why do you use a journal ledger in your business?
Most, if not all, businesses keep both an accounting journal and a ledger. The reason why these businesses create a ledger is to monitor broad trends and shifts in the financial. On the other hand, a general journal keeps a record of specific accounting events.
What are debit and credit?
A debit is an entry that increases assets while decreasing liabilities, while a credit decreases assets as it increases the liabilities of a business.
Is cash book a journal or a ledger?
A cashbook has dual roles. That means it is both a journal and a ledger. It is considered a journal because it keeps records of all business transactions. Then, when it posted various accounts on the general ledger, it works as one of the subsidiary books.
One of the reasons why many businesses are successful is that they keep records of all the transactions that affect their accounts. Without an accounting journal, the business with the largest amount of assets would not know how much money they have. That only means two things: overspending or underspending. Most of the time, a company has to balance its account to maintain a stable financial condition. With that, accounting journal entries will help balance out your ledger with all the details it contains.
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