Journalizing and Posting of Transactions

By Kohei Hayashi
on

The Journal

We have explained about debiting and crediting transactions in the previous post.  In reality, rather than directly entering transactions into accounts, we enter transactions into a book called the journal in a chronological order.  The journal shows the effect of debit and credit amounts on specific accounts.  The act of entering transactions into the journal is called journalizing.

Date Accounts & Explanation Debit Credit
2021/4/13 Cash
  Sales
(Sale of goods)
10,000
10,000
2021/4/14 Utilities
  Cash
(Gas payment)
5,000
5,000

For each transaction, we enter the date, debit account name and amount, credit account name and amount, as well as a brief explanation.

Compound Entry

In the example above, we only used a total of 2 accounts, one for debit and one for credit.  But some transactions need more than 2 accounts in an entry.  Such an entry is called a compound entry.  For example, if we have a sale of 10,000, receive a partial payment of 7,000 in cash, and put the remaining 3,000 in accounts receivable, the compound entry looks like the following.

Date Account name and explanation Debit Credit
2021/4/13 Cash
Accounts receivable
 Sales
(Sale of goods)
7,000
3,000


10,000

Whether a transaction is a simple entry or compound entry, the debit and credit sides must balance.

Posting from the Journal to Accounts

After entering transactions to the journal, we need to transfer each debit and credit amount of the entries in the journal to ledger accounts.  This act is called posting.  The collection of all the account ledgers is called the general ledger, and posting is done from the journal to the general ledger.

For example, here are the steps to post the previous compound entry.

  1. Post the date and debit amount of 7,000 in the cash account.
  2. Post the date and debit amount of 3,000 in the accounts receivable account.
  3. Post the date and credit amount of 10,000 in the sales account.


Cash

Date Debit Credit Balance
2021/4/13 7,000 7,000

Accounts receivable

Date Debit Credit Balance
2021/4/13 3,000 3,000

Sales

Date

Debit

Credit

Balance

2021/4/13

10,000

10,000