Difference Between Journal and Ledger

Difference Between Journal and Ledger

7 mins read4.8K Views Comment
Jaya
Jaya Sharma
Assistant Manager - Content
Updated on May 9, 2024 19:10 IST

Journal and ledger are different books of accounts through which different purposes of accounting are served. While the record method of a journal is chronological in nature, ledger follows analytical recording method.

2022_10_difference-between-journal-and-ledger.jpg

In this article, we will be discussing the difference between journal and ledger. We will also discuss these two books of accounts in detail.

Table of Contents

Difference between Journal and Ledger

Following are the difference between journal and ledger in terms of different parameters:

Parameter Journal Ledger
Type Subsidiary book Principal book
Purpose Correctly preparing ledger accounts Know expenditure and income of different heads
Format Five columns Eight columns
Record Method Chronological Analytical
Another name Book of original entry Book of second entry
Preparation of Trial Balance Not Possible Possible
Process Journalizing Posting
Record of Transactions Sequential Account-wise
Debit and Credit Columns Sides
Explanation of Entries Required Optional
Narration Mandatory Optional
Balancing Mandatory Optional

Detailed Difference Between Journal and Ledger

Following are the differences between a journal and a ledger:

  • Journal initially records financial transactions with details like accounts involved, amounts and dates. A ledger takes journal entries and then posts them to respective accounts in a summarized form.
  • A book of original entries is a journal that records all financial transactions chronologically whereas a ledger summarizes them in a categorized manner.
  • Ledger records a transaction only one time keeping debit and credit entries segregated in separate columns. On the other hand, a single transaction may be entered multiple times within a journal that represents both debit and credit.

What is Journal?

Journal is a subsidiary book that records detailed data related to business-related transactions is recorded. These records are used for the purpose of future reconciling of the accounts and the transfer of information to other official accounting records. This book of account mentions the transaction dates, affected accounts and amounts in the double-entry bookkeeping method. 

Through journals, reconciling accounts and transferring the information to other accounting records is also performed. It is a physical record that is kept as a book, data and spreadsheet within the accounting software. It uses a double entry system for summarizing transaction records. Whenever a business transaction is made, it is entered as a financial transaction in the journal entry. 
Explore accounting courses

Types of Journals

In the double-entry bookkeeping types, there are seven different accounting journals for organizing transactions into suitable journals. Through this, accountants can analyse the impact of transactions properly. 

  1. General journal: This is the first journal in which the data is recorded. It records all the transactions that are not recorded in any of the other journals. In general journal accounting, double-entry bookkeeping is the most common method opted. 
  2. Purchase Journal: This type of journal is used for recording every credit purchase of merchandise and inventory. It does not record the purchase of inventory or merchandise through cash. Any purchase of assets on credit is also not recorded in the purchase journal.
  3. Purchase Returns Journal: This journal is passed by the company for recording return transactions of merchandise purchased from suppliers. Whenever a company purchases goods from suppliers, the purchases are debited in the books of account. In the case of credit purchases, the accounts payable account is debited. During cash purchases, the cash account is debited. 
  4. Cash Receipts Journal: All cash receipts, including payments from customers during an accounting period, are recorded in this type of journal. These are further divided into receipt of cash from credit customers, cash sales and other sources. 
  5. Cash Disbursements Journal: All cash payments to creditors are recorded in this type of journal. It records the entire cash flow of the business. Shipping costs, vendor payments, merchandise inventory, equipment cost and other cash equivalents are also recorded in this journal. 
  6. Sales Journal: This journal records a company’s credit sale transactions to maintain and track the inventory account and accounts receivable. It is a prime entry book that is used in the accounting system for tracking the sales of items purchased by customers. 
  7. Sales Return Journal: Sales returns are reported and recorded in this journal. All credit returns of inventory and merchandise are recorded in this type of journal. A report is created on the income statement as the deduction from ‘Gross Sales’.

Features of a Journal

The following points highlight the features of a journal:

  • Chronological Record: Entries in a journal are recorded in the order in which transactions occur.
  • Initial Entry: It is the first place where transactions are recorded using the double-entry accounting method.
  • Detailed Information: Journals include comprehensive details of transactions, such as date, accounts affected, amounts, and a description/narration.
  • Basis for Posting: Journal entries are used to post transactions to the ledger accounts.
  • Debit and Credit Format: Each transaction is entered with both debit and credit components.
Difference Between Financial Accounting and Management Accounting
Difference Between Financial Accounting and Management Accounting
Accounting has three main types including cost accounting, financial accounting and management accounting. All three types serve different purposes and functions. In this article, we will discuss the difference between...read more
Difference Between Cost Accounting and Financial Accounting
Difference Between Cost Accounting and Financial Accounting
Cost accounting and financial accounting are two of the main accounting methods that are widely used by accountants the world. While cost accounting calculates the total cost, financial accounting involves...read more
Learning The Important Functions of Financial Management
Learning The Important Functions of Financial Management
Financial management refers to the application of management principles to financial resources to better manage them. It is a management skill to plan, organize, direct and control the financial activities...read more

What is Ledger?

Ledger is a book into which account transactions are recorded. It contains detailed information of transactions over a period of accounting. Also known as the second book of entry, this book of account contains information required for preparing financial statements. Companies maintain ledger accounts in every type of balance sheet and the income statement account. Ledger serves as the main document for every financial transaction. It reports the revenue and expenses in real-time. 

Types of Ledger

There are three main types of ledgers including general, debit, and credit ledgers.

  1. General Ledger: This type of ledger represents the record-keeping system for a company’s financial data. The credit and debit accounts are validated via trial balance. It provides the record of every financial transaction that takes place during the operating life of a company. The general ledger also consists of the information required for preparing financial statements of the company. 
  2. Sales ledger: Also known as debtor’s ledger, it contains the detailed itemization of sales made in a sequence of dates. The information available on these ledgers include details on date, customer name, items sold, sales amount, VAT, freight charges, etc. 
  3. Purchase ledger: Also known as the creditor’s ledger, it holds the records of the purchases. It indicates the purchases that have been paid for and those purchases that are yet remaining. Any transaction that is entered in the purchase ledger records an account payable with a future date followed by a payment transaction that eliminates the account payable. At any time, there will be an outstanding account payable balance in the ledger. 

Check out computerized accounting system

Features of a Ledger

The following points highlight the features of a ledger:

  • Organization by Account: The ledger organizes financial information by account, grouping all transactions related to a specific account in one place.
  • Permanent Record: The ledger serves as the permanent record of all financial transactions of an entity.
  • Balancing Accounts: The ledger is used to calculate the balance of each account, which is necessary for preparing financial statements.
  • Double-entry Confirmation: It allows for the double-entry system to be checked for accuracy, as the sum of debit balances should equal the sum of credit balances.
  • Financial Statement Preparation: Trial balances are prepared using ledger balances, which are then used to compile balance sheet, income statement and other financial reports.

Conclusion 

Through this article on the difference between journal and ledger, you have been able to understand these book of accounts. These are important accounting processes that help in recording and managing the financial accounts of a company. Both should be properly maintained in order to retrieve accurate financial information.

FAQs

How do journals and ledgers work together?

Transactions are first recorded in a journal and then summarized and transferred (or posted) to the appropriate accounts in a ledger.

Is a journal entry always necessary before a ledger entry?

Yes, in traditional double-entry bookkeeping, transactions are first recorded in a journal and then posted to the ledger.

What details are typically included in a journal entry?

A journal entry usually includes the date of the transaction, the accounts affected, the amounts that is to be debited or credited, and a brief description.

What is the purpose of a trial balance?

Trial balance is prepared using ledger accounts to verify if total debits are equal to the total credits, ensuring the books are balanced.

What are subsidiary ledgers?

Subsidiary ledgers provide detailed information about specific accounts, like accounts receivable or accounts payable, which have many individual sub-accounts.

How does a Journal work?

In a journal, transactions are recorded in a chronological order, detailing the accounts affected, the amounts, and any additional information related to the transaction. Each entry in a journal typically includes the date, account names, amounts, and a description of the transaction.

How does a Ledger work?

In a ledger, transactions from the journal are posted to individual accounts, summarizing the total debits and credits to each account. The ledger shows the balance of each account, providing detailed information about the financial transactions affecting each account.

About the Author
author-image
Jaya Sharma
Assistant Manager - Content

Jaya is a writer with an experience of over 5 years in content creation and marketing. Her writing style is versatile since she likes to write as per the requirement of the domain. She has worked on Technology, Fina... Read Full Bio