Journal is like a register where accountant records all the financial transactions in a debit and credit side. Transactions are recorded in the journal in order by date. Often, it is called book of original entry. Whenever, accountant passes a financial transaction with little description into the journal, it is called journal entry.
Types of Journal
There are two types of journal:
General Journal
This type of journal is used to record any type of accounting transaction. Whether it is an expense, income, asset, liability or equity transaction, accountant can pass the entry in the general ledger. Entity, whether it is small or bigger, can record the financial transactions in the general journal.
Specialized Journal
As the name suggest, specialized journal is used to record certain types of transactions such as sales and purchases. As we know, in large entities, if all types of transactions are entered in the general journal, then on a daily basis hundred of general journals would be prepared. So, in order to avoid complexities, entities make following types of journals:
Sales Journal
This is used to record only sales transactions.
Purchase Journal
This is used to record only purchase transactions.
Cash Journal
This is used to record transactions which are handeld in cash or bank.
By separating the sales and purchases financial transactions into their respective journal, we minimize the complexities and keep the amount of journal to low. It helps a lot in later record searching and file allocation in the library.