A General Journal is a journal in which transactions that do not affect supplier or customer balances are recorded. Thus, all transactions that affect any account other than the Accounts Payable Control and Accounts Receivable Control account are recorded in a general journal.
There are mainly two types of General Journal creation: 1) Manual General Journal and 2) System General Journal.
System general journals are created in the following instances:
- When accounting for stock transfers - The journal is created with the description 'Stock Transfer'.
- When accounting for cost adjustments - The journal is created with the description ‘Cost Adjustment'.
- When accounting for quantity adjustments – The journal is created with the description ‘Quantity Adjustment'.
- When accounting for price protection – The journal is created with the description ‘Price Protection'.
- When accounting for the value of products imported - The journal is created with the description 'Inventory Import Journal'.
- When accounting for depreciation entries on fixed assets - The journal is created with the description 'Depreciation'.
- When accounting for adjusting entries made during a reconciliation - The journal is created with the description 'Bank Reconciliation Adjustments'.
- When opening balances of chart of accounts, inventory, accounts receivable and payable are entered in the Company Creation Wizard - The journal is created with the description 'Opening balances'.
- When closing entries are made during the year end process - Three journals entries are created with the following descriptions:
Instances for Manually created general journals:
Manual use of general journal comes in some of the following purposes, for example if any service expense is incurred, the same need to be accounted manually by creating an entry in purchase journal and in case, if a wrong entry is posted for this, subsequent reports will show wrong account balances.
Scenario: An expense of Rs. 1000/- has been incurred by the company and instead of debiting Sundry expense account, bad-debts account has been debited against accounts payable in purchase journal, and the entry is posted. (Posting of entry will disable the feature of further editing)
Wrong entry posted in purchase journal:
Bad debt expense dr 1000
To Accounts payable 1000
Impact on account balances
Bad debt expense account will show an excess balance of 1000 which actually was a wrong posting and need to be debited in sundry expenses.
Rectification entry made in General journal:
Sundry Expenses dr 1000
To Bad debt expense 1000
Impact on account balances
wrongly posted amount to Bad debt expense account is nullified by this reversal entry passed in general journal, which ultimately deducts 1000 from Bad debt expense account and add the same in sundry Expenses.