why we prepare journal
explain briefly
Answers
A Journal Entry is simply a summary of the debits and credits of the transaction entry to the Journal. Journal entries are important because they allow us to sort our transactions into manageable data. ... Every time a transaction occurs, it's recorded using a journal entry.
What Is a Journal?
A journal is a detailed account that records all the financial transactions of a business, to be used for the future reconciling of accounts and the transfer of information to other official accounting records, such as the general ledger. A journal states the date of a transaction, which accounts were affected, and the amounts, usually in a double-entry bookkeeping method.
KEY TAKEAWAYS
A journal is a detailed record of all the transactions done by a business.
Reconciling accounts and transferring information to other accounting records is done using the information recorded in a journal.
When a transaction is recorded in a company's journal, it's usually recorded using a double-entry method, but can also be recorded using a single-entry method of bookkeeping.
The double-entry method reflects changes in two accounts after a transaction has occurred; an increase in one and a decrease in the corresponding account.
Single-entry bookkeeping is rarely used and only notes changes in one account.
A journal is also used in the financial world to refer to a trading journal that details the trades made by an investor and why.
Understanding a Journal
For accounting purposes, a journal is a physical record or digital document kept as a book, spreadsheet, or data within accounting software. When a business transaction is made, a bookkeeper enters the financial transaction as a journal entry. If the expense or income affects one or more business accounts, the journal entry will detail that as well.
Journaling is an essential part of objective record-keeping and allows for concise reviews and records-transfer later in the accounting process. Journals are often reviewed as part of a trade or audit process, along with the general ledger.
Typical information that is recorded in a journal includes sales, expenses, movements of cash, inventory, and debt. It is advised to record this information as it happens as opposed to later so that the information is recorded accurately without any guesswork at a later date.