Journals and ledgers are both used in accounting, but serve different purposes. Journals record transactions in chronological order, while ledgers group similar transactions into specific accounts for analysis. Keeping both can help identify errors, but some argue that only a ledger is necessary for tracking financial transactions.
A journal and a ledger are two types of books commonly used in the accounting process. Considered key to what is known as double-entry bookkeeping, each of these books serves specific purposes within the overall process of keeping accurate financial records. While many of the transactions published in these two books are the same, there are key differences in the purpose and function of each of these ledgers.
One of the most basic differences between the journal and the general ledger is when they are used in the accounting process. The journal serves as the ledger in which a transaction is first entered into the accounting system, with the transaction often referred to as the original entry. Later in the process, that same transaction will be posted as an entry to the general ledger, where that entry will be placed relative to other entries for evaluation and analysis purposes.
Another important difference between the journal and the general ledger is the order of the entries within the records. Journals are always arranged in chronological order, making it very easy to identify which transactions are associated with a business day, week, or other billing period. By contrast, the arrangement of entries within a general ledger has more to do with grouping similar transactions into specific accounts for the purpose of evaluating the data for internal financial and accounting purposes.
The different purposes of the journal and the ledger also mean that each book is structured differently. A journal will often include a brief description of the transaction, including a date and the location of the transaction amount in a debit or credit column. No attempt is made to balance transactions recorded in a journal. Rather, entries to accounts in the general ledger must be in balance at all times.
There is some difference of opinion regarding the use of both the journal and the ledger. One school of thought holds that keeping both ledgers improves the opportunity to identify posting errors, a factor that can be very useful when and as the accounts in the general ledger do not balance. Additionally, the journal is often more easily accepted as evidence in a court of law, due to the simple process used to record transactions in chronological order. A different approach holds that keeping a journal is optional, while keeping a ledger is crucial to the task of tracking the company’s financial transactions, including in terms of organizing accounts so that taxes can be accurately calculated and paid.
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