Over your business lifetime you are going to hear a lot of general journals and general ledgers – but what are they?
If you are like most of my clients, you don’t have the time to learn all accounting terms and what they do in detail, but there will be times when you may be curious for why or what we (accountants & bookkeepers) are talking about.
So here is a very simple breakdown of what a General Journal is and what a General Ledger is.
A General Journal, much like normal journals record a transaction except the difference is that while journals record transactions like cash or sales, General Journals record other or unusual transactions, or movement within the business. These include asset sales, depreciation, interest income and expense, shares, entering year end adjustments or fixing incorrect accounts or GST codes.
A General Journal occurs within the double entry accounting system meaning that the transaction must have a balance of debits and credits and the total debit amount and total credit amount must match.
As these journals are typically more complex or unusual business activities, it is recommended that you have your accountant or bookkeeping team to enter this or for it to be done in consultation with your accountant or bookkeeper. This is to avoid mistakes or incorrect recordings, so that your businesses’ books accurately represent your financial position.
Adjusting General Journal:
One of the most common types of general journals are year end adjusting journals. This is a transaction that is typically made at the end of a financial year to allocate income and expenses to the actual accounting period they occurred, in addition to making allowance for tax, depreciation and other costs.
The general ledger is a summary of all your businesses accounts and their balances. Modern accounting software now collates every transaction occurred in a certain account in a financial period and displays an overall amount for that account for that period in a list so that you can determine the overall position of all your accounts in one report/ledger. The general ledger is the starting point for financial statements, the information is transferred to a “trial balance” which is then used by your accountants to determine if adjustments should be made, and from there, financial statements can be accurately prepared.
Need help with your general journals? Contact us today to see how McGregor Accounts can help you!