Source: Instrumental “Drops of H2O ( The Filtered Water Treatment )" by J.Lang (feat. Airtone),” Creative Commons, http://ccmixter.org/files/djlang59/37792
[MUSIC PLAYING] Hey everyone, and welcome to our video today on the general journal and general ledger. So what are we covering today? We're going to discuss the general journal, journal entries, and the general ledger and then we're going to look at the relationship between all three. So how they all relate to each other and are interconnected.
So let's start with our general journal, that's the initial documentation of a financial transaction as it originates. You can think of that as your original book of entry. It contains our transaction detail and the accounting events in a chronological order.
So now let's talk about journal entries, what are they? Well their name is derived from their use within the general journal, so they're entries within our general journal and they detail the specific changes to accounts, our debits and credits, and in the accounting cycle if you think about it we start with analyze. So if analysis determines that there is an accounting event you move onto journalizing the transaction. So there are no journal entries until accounting events have taken place.
So now let's look at an example of what a general journal looks like. So here we have our general journal, we're going to have these categories we're going to have account title, date, reference number, debit, and credit, and here's what the form's going to look like.
So where does account title go? Well first we have our general journal title and then you see that identifier there J101. So each journal entry is going to have a unique identifier so we're going to stick our account title in there our date, our reference number, our debit, and our credit. So we're going to have our date, we're going to have the different accounts that these relate to, and now that reference number.
Let's talk about that for a second. That's the unique identifier that we get from our chart of accounts. So that's how we can identify that specific account within our accounting system. OK so then we're going to have a debit and then we're going to indicate which account, again reference number, has a credit. So this is where we're going to see all of those accounting events in a chronological order within our general journal. OK so what we're looking at right there, that's our journal entries. So the journal entries are within the general journal.
So let's talk about the general ledger, what is the general ledger? It aggregates all accounting records within an organization in preparation for financial statements. So you can think of the general ledger as our accounting system. It's where our entries get posted and it contains its entries from the general journal. So the general ledger has a source document which is the general journal and all the journal entries within that general journal. Now what does the general ledger provide? It provides summary detail, provides data for all of our accounts, rolling totals, information for our financial statements. So let's look at an example of what a general ledger looks like.
General ledger, so again we're going to have these different categories similar to our general journal, only we also have description now and then we have balance which we'll see here in just a second. So here's what the ledgers going to look like. Each individual account is going to have its own ledger as you can see here we're looking at the cash ledger and again you see that identifier there that one zero zero one, that's our number from our chart of accounts. So we're going to stick our description, our date, our reference number, which in this case is going to refer back to our general journal then we're going to have our debits on the left, credits on the right and then in the ledger we're also going to show this balance.
So what is the balance in that account? So again we're going to insert the date and like I said that reference number that comes from our journal so that's going to reference the specific journal and journal entry where these data points are coming from. OK so we have our debit to our cash account and again as you can see we now have a balance in that cash. So when you're looking at the general ledger you can see that there are going to be balances within our ledger which is different than what we saw in the general journal.
OK so general journal and general ledger, how do they relate? What's their relationship? Well the general journal like we've talked about is an organizational tool and it's used to track detailed accounting events and it does that through the use of journal entries and it serves as the source for our general ledger. So the general ledger gets its information from the general journal and those entries from the general journal are posted periodically whether it's daily, weekly, monthly, or annually. Now the general ledger is also an organizational tool to summarize accounting information. So the general journal is a tool for tracking the detailed accounting events and a general ledger is a tool for summarizing that accounting information and it serves as the source for our financial statements.
So now let's summarize. Take a step back, in a nutshell what did we talk about today? Well we looked at the general journal first so let's look at that structure. We have our general journal here and again we're going to have the date, the account titles, and remember that reference column that's pulling from our chart of accounts and then we're going to have the debit and the credit and those are our journal entries. A chronological order all the accounting events that we want to capture and once we've detailed those in the general journal we can then move them or post them to the general ledger. Now the general ledger is the tool that we use to create our financial statements. So we still have a lot of the same information except for there's going to be a general ledger for each individual account. OK and again that reference column that's coming from our general journal.
I hope everybody enjoyed this video and I hope to see you next time.
Initial documentation of a financial transaction as it originates.
Aggregates all accounting records within an organization in preparation for financial statements.