Journal

What is a Journal?

A journal is a running, chronological record of financial transactions. In accounting, it documents each transaction’s date, the accounts affected, debit and credit amounts, and a brief description. Journals are the first step in the accounting cycle; entries are later posted to the general ledger and used for reconciliation, financial reporting, tax preparation, and audits.

Key takeaways:
* A journal records transactions in detail and supports accurate financial reporting.
* Most businesses use double‑entry bookkeeping; single‑entry is rare and simpler.
* Traders and investors also keep journals to record trades and the reasoning behind decisions.

Why journals matter

Accurate journals:
* Ensure transactions are traceable and verifiable.
* Support budgeting, forecasting, and management decision‑making.
* Provide documentation for tax filings and external audits.
* Help identify errors and patterns (e.g., recurring mistakes or unexpected costs).

Types of journal entries

Common journal entry types include:
* Opening entry: Carries forward closing balances from the previous period to become the new period’s opening balances.
* Adjusting entry: Recorded at period end to reflect accrued income/expenses, depreciation, or correct prior omissions.
* Reversing entry: Made at the start of the next period to simplify the handling of certain accruals.
* Compound entry: Records multiple debits and/or credits in a single line item when a transaction affects several accounts.
* Closing entry: Transfers temporary account balances (revenues, expenses) to retained earnings or equivalent at period end.

Double‑entry bookkeeping

Double‑entry bookkeeping records each transaction as at least two entries: a debit in one account and a credit in another. The total debits must equal total credits for each entry.

Example:
A business buys $1,000 of inventory with cash.
* Debit: Inventory $1,000 (asset increasing)
* Credit: Cash $1,000 (asset decreasing)

Important rule: Debits and credits are accounting classifications, not universal “increase” or “decrease” labels—whether a debit increases or decreases an account depends on the account type (asset, liability, equity, revenue, expense).

Single‑entry bookkeeping

Single‑entry bookkeeping resembles a checkbook ledger and records one line per transaction, typically tracking cash inflows and outflows. It is simpler but provides limited error detection and no automatic double‑entry balancing. Small sole proprietors or very simple businesses sometimes use it, but it is generally unsuitable for businesses that require reliable financial statements or audits.

What to record in a business journal

Every journal entry should include:
* Transaction date
* Accounts affected
* Debit and credit amounts (equal in double‑entry)
* A concise description or memo explaining the transaction
* Any relevant references (invoice number, tax treatment, subsidiary implications)

Recording transactions promptly improves accuracy and makes later reconciliation and analysis easier.

Journals in investing and trading

Investors and traders maintain journals to record:
* Trades executed (date, security, size, price)
* Rationale for each trade (strategy trigger, setup, thesis)
* Outcomes and post‑trade analysis (what went right/wrong)
* Watchlists, pre‑ and post‑market notes, and tax records

A trading journal helps identify behavioral patterns, strategy drift, and repeatable strengths or weaknesses—useful for improving performance and risk management.

Other meanings of “journal”

The word journal can also refer to:
* Personal journal: A private record for reflecting on life events and thoughts.
* Published journal: Periodicals that report news, research, or trade information (e.g., scientific or industry journals).
* Business journal: A ledger or record that tracks business transactions.

Journal vs. diary

The terms overlap but differ in emphasis:
* Diary: Typically a daily, personal account of events and feelings.
* Journal: Can be personal but also denotes structured records (financial journals, research journals) intended for analysis or official use.

Conclusion

A well‑maintained journal is fundamental to reliable accounting and effective financial management. For businesses, journals form the audit trail that supports ledgers, financial statements, and tax filings. For investors and traders, journals are a tool for reflection, learning, and improving decision‑making. Accurate, timely, and complete journal entries reduce errors, improve transparency, and support better business outcomes.