Meaning and Nature of the Journal

The previous chapter established the two aspects (debit and credit) that every transaction has under the Double Entry System. This chapter answers the very next practical question: once a transaction happens, WHERE is it recorded first? The answer, for the Maharashtra HSC (MSBSHSE) Class 11 Book-Keeping and Accountancy syllabus exactly as for every double-entry system, is the Journal.

The word "journal" comes from the French jour, meaning "day" — a fitting origin, since the Journal is essentially a day-to-day diary of a business's financial transactions. Every transaction, however small, first passes through the Journal before it is posted to the Ledger; nothing is posted directly to a ledger account without first being journalised.

Why a Journal is needed — it is not an optional extra step

• Chronological, permanent record. The Journal preserves the exact date-wise order in which transactions actually occurred, which the Ledger (organised account-wise, not date-wise) cannot show on its own.
• Shows both aspects together, at one place. For any single transaction, the Journal is the only place where the full double-entry — which account is debited, which is credited, and why — is recorded together in one line item, before the two aspects are separated out into different ledger accounts.
• Reduces the chance of error or omission. Because every transaction must be analysed into a debit and a credit before it can be journalised, the discipline of journalising itself catches many errors before they ever reach the ledger.
• Provides a documentary trail. Each journal entry, backed by a narration and (once the Ledger is written up) a folio reference, gives a business a complete, checkable trail from the original transaction all the way to the final accounts.
• Legal and audit value. A properly maintained journal is important evidence of how and when a transaction was recorded, and is frequently examined by auditors and, where necessary, by tax authorities.

Journalising is the technical name for the process of analysing a transaction and recording it in the Journal in the proper debit-credit form. The step-by-step process is always the same, whatever the transaction:

1. Identify the two (or more) accounts involved in the transaction.
2. Classify each account — under the traditional approach used in this chapter, as a Personal, Real or Nominal account (§3 below).
3. Apply the relevant rule of debit and credit to decide which account is debited and which is credited.
4. Record the entry in the Journal, with the amount shown against both the debit and the credit side, and a brief narration explaining the transaction.

Because the Journal records transactions for the very first time, it is also called the Book of Original Entry or Book of Prime Entry — a term that recurs often in HSC Std XI examination questions, so it is worth learning precisely.