Learning Outcomes

  • Identify a journal

Bookkeepers most likely emerged while society was still using the barter-and-trade system (pre-2000 B.C.) rather than a case-and-commerce economy, and their main record-keeping system would have been a common journal. Journals from these times would have been giant leather-bound books with dates and descriptions of trades made or terms for services rendered, as you would expect in a ship’s log or a personal diary. In essence, a log or diary is what a journal is.

Below are two examples of what pre-Pacioli entries may have looked like:

  • 12 May 1395: In exchange for a small pig, which I provided today, William Hayworth promised a satchel of seed when the harvest is completed in the fall.
  • 14 May 1395: Garland Renquist agreed to make one goose-down bed in exchange for a year’s worth of chickens; one chicken to be delivered weekly once the bed is finished and delivered.

If a dispute arose, these journal entries provided proof in court. Although tiresome, this system of detailing every agreement was ideal because long periods of time could pass before transactions were completed.

Close up photograph of handwritten financial records.As currencies became available and tradesmen and merchants began to build material wealth, bookkeepers added monetary measurements to the journal entries, but still had to read the description of each entry to decide whether to deduct or add it when calculating something as simple as monthly profit or loss.

Then, philosophers like Cotrugli and Pacioli came up with the unique self-balancing, double-entry system of tracking that we still use today.

The idea was to list the business resources (assets) separately from any claims upon those resources by others (liabilities and equity), using debits and credits. And so, the journal evolved. Today, it is still a chronological list of economic events (transactions), but now it is strictly a shorthand version. It indicates the date, amounts, accounts involved, and whether each entry is debited or credited, and often includes a short description that would help an auditor or other accountant find the source documents.

The journal is not sufficient, by itself, to prepare financial statements. That objective is fulfilled by subsequent steps in the accounting cycle—from posting to the ledgers through the adjusted trial balance. But maintaining the journal is the beginning point toward that end objective, and so, let’s look at a more modern example of an accounting journal.

Modern Journal Example

Before the use of computers became widespread, these journal entries were written by hand in a book, and there were pages and pages of them.

Here’s an example of an entire page of journal entries for a small business that just issued payroll checks to employees:

JournalPage 421
Date Description Post. Ref. Debit Credit
Oct. 23 Administrative Salaries 5100 2,307.69
Oct. 23 Office Salaries 5200 4,651.08
Oct. 23 Sales Salaries 5300 3,600.00
Oct. 23 Plant Wages 5400 5,219.60
Oct. 23 FICA Taxes Payable – OASDI 2010 978.26
Oct. 23 FICA Taxes Payable – HI 2020 228.80
Oct. 23 Employees FIT Payable 2400 891.00
Oct. 23 Employees SIT Payable 2500 484.42
Oct. 23 Employees SUTA Payable 2510 9.45
Oct. 23 Employees CIT Payable 2600 612.35
Oct. 23 Employees CIT Payable 2600 612.35
Oct. 23 Group Insurance Premiums Collected 2700 181.20
Oct. 23 Union Dues Payable 2800 16.00
Oct. 23 Payroll Account 1200 12,376.89
        23 Payroll Taxes 5600 1,387.46
Oct 23 FICA Taxes Payable – OASDI 2010 978.26
Oct 23 FICA Taxes Payable – HI 2020 228.79
Oct 23 FUTA Taxes Payable 2100 4.51
Oct 23 SUTA Taxes Payable 2200 176.26
Nov. 4 Employees SIT Payable 2500 484.42
Nov. 4 Checking 1100 484.42
         6 Union Dues Payable 2800 32.00
Nov. 6 Checking 1100 32.00

This may look impossibly complicated right now, but soon you’ll get the knack of debits and credits and how they all work together. First, however, we have to learn how to take all these journal entries, which represent the raw data from which financial statements are compiled, and re-sort them so they are sorted by account rather than by date.

That is the job of the ledger. When you get to the ledger in the next section, look for the highlighted entries to cash.

Practice Question