What is the difference between a journal and a ledger?

In many countries, companies are required by law to keep expense books so that the government can prevent and detect illegal activities such as money laundering or corporate embezzlement.

A journal and a ledger are two types of ledgers routinely used in the accounting process. Considered the key to what is known as double-entry accounting, each of these books serves specific purposes within the overall process of keeping accurate financial records. While many of the transactions recorded in these books are the same, there are important differences in the purpose and function of each of these books.

Account entries in a ledger must be balanced at all times.

One of the most basic differences between the journal and the ledger is when they are used in the accounting process. The journal functions as the ledger in which a transaction is first entered into the accounting system, with the transaction usually referred to as the original journal entry. Later in the process, this same transaction will be posted as a ledger entry, where that entry will be positioned against other entries for evaluation and analysis purposes.

A journal works like an accounting book where a transaction is first entered into a company’s accounting system.

Another important difference between the journal and the ledger is the order of entries in the records. Journals are always arranged in chronological order, making it very easy to identify which transactions are associated with a particular business day, week, or other billing period. On the other hand, the organization of journal entries in a 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.

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The different purposes of the journal and ledger also mean that each book is structured differently. A journal usually includes a brief description of the transaction, including a date and the placement of the transaction amount in a debit or credit column. There is no attempt to balance transactions recorded in a journal. On the other hand, entries in ledger accounts must be balanced at all times.

There is some difference of opinion regarding the use of the diary and the ledger. One school of thought holds that by maintaining both ledgers, the opportunity to identify posting errors is increased, a factor that can be very helpful when and how the ledger accounts are not balanced. In addition, the diary is generally more readily accepted as evidence in a court of law because of 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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