August 08, 2017

The Difference between Daybooks, Journals, Ledgers, and Other Record-Keeping Documents

Bookkeeping-101

The Difference between Daybooks, Journals, Ledgers, and Other Record-Keeping Documents

Should you record the sale you just made in accounts receivable, your daybook, or a general ledger? All? None? You can document financial transactions in a number of different records. Read on to clear up the confusion on which is which.

If you follow a single-entry bookkeeping system, you will use a cash book, which records transactions just like a checking account register but also assigns them to the appropriate accounts. Apart from your cash book, you will keep track separately of accounts receivable (AR), accounts payable (AP), and petty cash, which will have its own petty cash book.

The petty cash book is usually supplied with a predetermined amount of money ahead of time and reimbursed as needed to keep up with the minor expenses handled by petty cash. This is called the imprest system. (Remember that term and your friends will be imprest.)

You may keep several daybooks, which act as daily logs of transactions in chronological order. Separate daybooks are kept for different categories of financial activity; you may have daybooks for purchase debits, sales credits, cash, and so on. A transaction starts its journey in your records by being noted in a daybook.

Journals are the next stop for your transactions. Journals are also maintained in chronological order and record credits and debits in balanced pairs: every credit journal entry is matched by a debit journal entry in an equal amount to maintain the accounting equation. This record helps to catch potential errors early on before they end up wreaking havoc in your ledgers. You may keep a single general journal or many journals for different types of transactions, as with daybooks.

Once a transaction has been formally recorded in a journal, it can be posted to a ledger. Ledgers are the permanent and official documentation of your transactions. They do this by taking entries from the journals and posting them to the correct bank account. Ledgers show the starting and ending account balance before and after each transaction, while journals just show the transaction amount. Thus ledgers can be used to generate balance sheets and income statements. The main types include the sales ledger, the purchase ledger, the distributed or shared ledger, and the general ledger.

Good bookkeepers are sticklers for detail and accuracy. A keen understanding of the names for these different records and of each one’s function within your larger bookkeeping system will help the gears mesh smoothly and the whole system run well.

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