Table Of Contents
Differences Between General Journal and Ledger
In finance, accountancy is one stickler field in which all the norms and laws require to be followed both in spirit and text. The main financial statements include an income statement, balance sheet, and cash flow statement. To compile the financial statements of a business entity, there are numerous stages of measuring, recording, and presenting the reconciled form of every business transaction. Now, the starting point of this process is to record the business transactions in the general journal.
The key difference between General Journal and General Ledger is that the general journal is the journal of the company in which initial record keeping of all the transaction is done, which are not recorded in any of the specialty journal maintained by the company like purchase journal, sales journal, cash journal, etc., whereas, general ledger prepared by the company is the set of the different master accounts in which the transactions of the business are recorded from the related subsidiary ledgers.
General Journal Vs General Ledger Explained
Both a general journal and a general ledger have been an integral part of the accounting process of business across the world due to the clarity and completeness in documenting business transactions.
The General ledger is more of a summary at the account level of every business transaction, which comes from various journals containing chronological accounting entries. The general journal is a catch-all book of accounts where the initial entry of the business transaction is recorded for the first time in chronological order, making the general journal an excellent place to review accounting transactions. This information entered into the journal and summarized into the ledger is then aggregated further into a trial balance, which is used to generate the financial statements of the business entity.
The use of journals has been on a steep decline with the increasing use of automated accounting systems. Most accounting systems allow the user to enter information directly into the general ledger, skipping the need to make journal entries. So, the need for the journal may have been becoming increasingly obsolete in the computerized environment, but it still holds great importance in bookkeeping.
What is a General Journal?
The general journal is one of the books of accounts that records every business transaction relating to all the accounting items like sales, inventory, accounts receivables, accounts payables, adjustment entries, etc., in chronological order. It is the entry point for any business transaction to make its way into the books of accounts of the company before it flows to the next level of classification of transactions in accountancy.
It must be noted that there is a concept of duality in accounts that results in a double-entry accounting system. Hence, every business transaction is recorded in such a way that it affects two accounts in terms of credit and debit entry.
What is General Ledger?
Once a transaction is posted in a general journal, the next step is to classify the transactions based on the accounts they affect. Therefore, a general ledger is one more book of accounts that records the transaction after being posted into a general journal, based on the type of account affected by the transaction in terms of credit and debit.
Infographics
Now that we understand the basics of both a general ledger and a general journal, let us refer the infographics below to understand their differences better through the visual representation.
Key Differences
The main difference is that the general journal serves as the original book of entry. Both books of accounts provide a way to record business transactions through the double-entry accounting system via debits and credits. Let us discuss other such differences between these two key accounting concepts through the points below.
- First, the business transaction is recorded in the general journal, and then the entry is posted in respective accounts in the general ledger. After the balances for accounts are calculated, the entries are transferred from the trial balance.
- A general journal usually contains columns for serial numbers, dates, accounts, and debit or credit records in addition to describing every transaction. Companies also include account-specific journals, such as the sale or purchase journals, which records only specific types of transactions, whereas general journals record all remaining transactions.
- A general ledger contains all relevant details regarding all the accounts for which entries are already present in the general or specific journals. A ledger takes into consideration five accounting items:
- Expenses
- Assets
- Revenues
- Liabilities
- Shareholder’s Equity
- Unlike a journal format, a ledger has a two-column, T-shaped table for every accounting item with an account title at the top and a record of debit and credit entries. As per the convention, the left side of the T-shaped table usually contains the debit entries, and the right of the table contains the credit entries. Many companies also mentioned journal-specific information in a general ledger like serial numbers, dates, and transaction descriptions.
Comparative Table
Let us put both a general journal and a general ledger head-to-head and have a deeper understanding of their differences and their significance in terms of accounting through the comparative table below.
| Basis | General Journal | General Ledger |
|---|---|---|
| Definition | It refers to the book of accounts that records every business transaction chronologically. | It refers to the book of accounts which contains the entries, classified based on affected account types, after being first posted into a general journal and finally making its way into a general ledger. |
| Entry Point | It is the first entry point of any business transaction to make it to the company's book of accounts. | It is the second entry point in accountancy for recording a transaction after it enters the accounting system through a general journal. |
| Entry Basis | Every entry is recorded based on chronological order. | Every entry is recorded based on affected account types. |
| Accountancy System | It follows the concept of duality, i.e., every transaction recorded under the double-entry accounting system. | It also follows the concept of duality, i.e., every transaction recorded under the double-entry accounting system. |
| Example | Date: December 31, 2018 Debit to Depreciation Expense for $1,000 Credit to Accumulated Depreciation for $1,000 | Depreciation Expense: Debited as of December 31, 2018, for $1,000 Accumulated Depreciation: Credited as of December 31, 2018, for $1,000 |
Applications
After having an in-depth understanding of both concepts individually and their differences let us understand their applicability in the world of business and accounting through the points below.
- With the abundance of technological advancements in the field of software, there are numerous accounting solutions provided by many technology giants like Oracle Suite, Tally, etc. Most such software products offer a centralized repository to log entries into journals and ledgers.
- Due to such accountancy software products, recording transactions have become far easier. There is no need to maintain all the books separately and reconcile manually as this software helps in automating such redundant manual tasks.
- Also, the user interface is designed so that the user entering the humongous volume of business transactions does not have to care about the central repository and the background processing to reconcile the entries that finally make it to the financial statements.
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