St.

Nicolas College BS IN HOSPITALITY MANAGEMENT

of Business and
Technology
ACCTG1-BASIC ACCOUNTING

JOURNALIZING PROCESS

Journalizing transactions is the process of recording and tracking any transaction that your business performs.

This recording is the building block for the business’ financial statements, which are created at the end of the
fiscal year.

What Are Journalizing Transactions?

The business accounting cycle is a multi-step process that records and analyses your financial information.
This cycle starts with journalizing transactions.

The process of journalizing transactions refers to the initial recording of all the financial transactions of a
business. This recording is done by listing journal entries into the journal.

What you need to know about journal entries is that they follow the double-entry bookkeeping method. In
double-entry, every recorded transaction causes a change in at least two accounts, where one gets debited
and the other credited.

Once the journal entries are done, they go into the journal, which is the chronological, day-by-day accounting
book that summarizes business transactions.

What Is Double-Entry Bookkeeping?

As we previously stated, double-entry bookkeeping affects at least two accounts (hence the word double) with
the appropriate debit and credit entries.

But what exactly are debits and credits?

A debit is an entry that:

Increases an asset or expense account

Decreases liability, equity, or revenue account

Debits come first and go into the left side of the journal entry.

Whereas a credit does the opposite, meaning it:

Increases a liability, equity, or revenue account

Decreases an asset or expense account

Credits are recorded after debits, on the right side of the entry.
 St. Nicolas College BS IN HOSPITALITY MANAGEMENT
of Business and
Technology
ACCTG1-BASIC ACCOUNTING

Here is an example of what debit and credit entries look like as a journal entry:

And here’s a cheat sheet for debit and credit rules, so you can easily remember them:

Why Is Journalizing Important?

The first and most important purpose of journalizing transactions is to keep your business’ finances accurate
and well-organized. The journal records this data chronologically, through debits and credits, which makes the
information clear to overview and accounting errors easy to spot.

Secondly, these records are necessary for businesses to eventually create their financial statements, which is
the essential goal of the accounting cycle. With these financial statements, auditors can analyze how
transactions impact a business.

And lastly, journalizing is also important for stakeholders and other interested third parties.

Creditors, investors, shareholders, tax authorities, all require full financial transparency to decide whether or
not your business is worth investing in and/or following accounting principles.
 St. Nicolas College BS IN HOSPITALITY MANAGEMENT
of Business and
Technology
ACCTG1-BASIC ACCOUNTING

What Are the Different Types of Journals?

No transaction can get into the accounting records without first being recorded in the journal.

Also known as the “book of original entry”, the journal has every day-to-day financial transaction that takes
place within a business.

Now, since businesses are diverse in size and service, there are several types of journals a firm can keep. We
divide them into two main categories: general and special.

The general journal is the most common type of journal, and it keeps a record of any and all transactions that
take place within a business. The general journal is more common for smaller firms that don’t run many
business transactions.

However, this type of recordkeeping isn’t convenient for larger trading or manufacturing companies. As such,
they need separate special journals to record specific routine transactions quickly.

There aren’t any rules for the design or content of special journals. They are tailored based on the business
needs, activities, and resources.

With that being said, some of the most common types of special journals include:

 Purchase Journal
 Sales Journal
 Cash Payment Journal
 Owner’s Equity Journal
 Accounts Receivable Journal
 Accounts Payable Journal, etc.

But remember: a business might still need a general journal for every transaction that doesn’t fit into any of its
special journals. These transactions might include adjusting entries, closing entries, or other unexpected
events such as lawsuit fees.

How to Journalize Transactions: Step-by-Step

To perfectly journalize your transactions, there are three simple steps you have to follow.

1. Figure Out the Accounts Affected

The very first thing you have to do when journalizing is an analysis of the transaction to figure out what
accounts change and by how much.

For example, let’s say a company receives $500 in service revenue for their repair services on January 29th.
Cash and revenue both increase by $500 since cash is coming into the business.

2. Translate the Changes Into Debits and Credits

This is the most complicated part of journalizing transactions.

 St. Nicolas College BS IN HOSPITALITY MANAGEMENT
of Business and
Technology
ACCTG1-BASIC ACCOUNTING

In our previous example, we said that both the service revenue and cash account experience an increase.

Cash is an asset account since it’s a resource the business owns. While service revenue is clearly a revenue
account and represents income from repair services.

If we look at the debit and credit cheat sheet, we’ll see that debits increase assets, and credits increase
revenue. That’s why:

Cash Account will be debited for $500

Service Revenue Account will be credited for $500.

The journal entry so far would look like this:

3. Write the Date, Reference Number, and Description

After you’re done with debits and credits, add the date of the transaction, reference number, and a brief
description.

The date of the transaction for our example is January 29th, as mentioned.

The reference number is company-assigned and can be any number (as long as it’s unique for every entry).

The description needs to be short and to the point, for instance: “Received cash for repair services).

The finished journalized transaction of our example would look like this in the Journal: