What it means
Double-entry bookkeeping works in two stages. First, each transaction is captured as it happens, with its date, the parties, the amount and a reference to the supporting document such as an invoice number.
That capture is the book of original entry. Second, the entries are posted, individually or in periodic totals, to the general ledger accounts, where they accumulate into balances that feed the financial statements.
The separation matters because the ledger holds only summarised totals; the detail needed to answer "which invoices make up this month's sales?" or "when did we pay that supplier?" lives in the journals. Each traditional book specialises.
The sales day book lists every credit sale invoice; at month end its total is posted as a debit to the receivables control account and a credit to sales, and each invoice is posted to the individual customer's account in the sales ledger. The purchases day book does the same for supplier invoices.
The cash book records every receipt and payment through the bank and is itself part of the ledger in many systems. The general journal, or just "the journal", records transactions that fit nowhere else: opening balances, corrections, depreciation, accruals, prepayments, disposals of assets and closing entries, each with a narrative explaining why.
The books of original entry are the audit trail. Auditors trace a sample of ledger balances back through the journals to source documents, and from source documents forward to the ledger, to confirm that recorded transactions happened and that transactions that happened were recorded.
Tax authorities require the records to be kept for a set number of years. And when something goes wrong, from a supplier dispute to suspected fraud, the journal is where the investigation begins.
Accounting software has absorbed the day books into transaction lists that are created automatically when an invoice or payment is entered, and the posting to the ledger happens instantly. What survives in explicit form is the general journal, now the "manual journal" or "journal entry" screen, and because it is the one route into the ledger that does not start from an invoice or a bank transaction, it is the most closely controlled: who can post, what approval is needed and how the entries are reviewed.
In practice
Real-world examples.
Example
A small shop keeps a cash book recording every day's takings and every payment, and its accountant posts the monthly totals to the ledger accounts.
Example
A company's accounting system automatically creates a purchases day book entry every time an approved supplier invoice is entered, posting it to the supplier's account and the payables control account at the same time.
Example
An auditor selects thirty entries from the general journal, all posted in the last week of the year, and asks for the calculation and approval behind each.
Think of it
“A book of original entry is where transactions are first written down-the initial record.
Formula
Calculation
There is no formula, but the posting from a day book to the ledger follows a fixed pattern.
Worked example. A stationery wholesaler's sales day book for one week:
- 1 March, invoice 2041, Greenway Offices, $1,200
- 2 March, invoice 2042, Harbour Consulting, $850
- 3 March, invoice 2043, Greenway Offices, $400
- 4 March, invoice 2044, Northside School, $2,300
- 5 March, invoice 2045, Harbour Consulting, $650
- Weekly total: $5,400
Posting to the sales ledger (individual customer accounts): Greenway Offices debited $1,600 (two invoices); Harbour Consulting debited $1,500; Northside School debited $2,300.
Posting to the general ledger at the end of the week: debit accounts receivable control $5,400; credit sales revenue $5,400.
Control check: the sum of the customer accounts posted ($1,600 + $1,500 + $2,300 = $5,400) must equal the control account posting ($5,400). If a customer's invoice were omitted from the sales ledger but included in the total, the sales ledger would fall short of the control account by that amount, and the monthly reconciliation would flag it.
General journal example, for a transaction with no day book: on 31 March the wholesaler records depreciation for the month. Journal entry: debit depreciation expense $1,250; credit accumulated depreciation, delivery van $1,250; narrative "March depreciation, van, $45,000 cost over 36 months". The narrative and the calculation are what make the entry auditable.Case study
Seen in the real world.
A distributor's finance manager left suddenly, and his replacement found that ledger balances could not be explained. Sales revenue for the year was $200,000 higher than the total of the sales day book; the difference had been posted through the general journal in four round-sum entries described only as "adjustment". Receivables had been increased by the same amounts.
The auditors traced each journal: none had a supporting document, all had been posted by the departed manager on the last day of a quarter, and all had been reversed and re-posted in the following quarter. The pattern was consistent with inflating revenue to meet quarterly bonus targets.
The entries were reversed, the year's profit restated, and the company changed its controls so that every manual journal requires a narrative, a supporting document and approval by someone other than the preparer, with a monthly report of all journals to the audit committee. The day books had been accurate throughout; the problem lay in the one book that bypassed them.
Watch out
Common mistakes.
- Posting to the ledger without a matching entry in a book of original entry, which breaks the audit trail.
- Recording journal entries without a narrative or supporting calculation. An entry that cannot be explained cannot be audited.
- Allowing anyone to post manual journals. They are the entries most easily used to hide errors and fraud.
Questions
People also ask.
What is the difference between a journal and a ledger?
The journal records transactions in date order as they occur, with full detail. The ledger collects the effects of those transactions by account.
Do books of original entry still exist in accounting software?
Yes, as transaction lists and subledgers created automatically, and as the manual journal screen. The software posts them to the ledger in real time.
How long must the books be kept?
Most tax authorities require accounting records to be retained for five to seven years; some regulated industries require longer.
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