- With our knowledge of the different types of accounts,
assets, liabilities, and owner's equity,
and the use of the terms debits and credits,
debit means left, credit means right,
we are now ready to actually
record the effective transactions.
The second step in the accounting cycle
is to record the results of transactions in a journal.
Journals provide a chronological record
of all transactions of a business.
They show the dates of a transaction, the amounts involved,
and the particular accounts affected by the transactions.
Sometimes,
even a detailed description of the transaction is included.
This chronological recording of transactions in a journal
provides a company with a complete record of its activities.
If amounts were recorded directly in the accounts,
it would be difficult, if not impossible,
for a company to trace a transaction that occurred,
say, six months previously.
Small companies, such as a locally-owned pizza restaurant,
may use only one journal called a general journal
to record all transactions.
Larger companies having thousands of transactions each year
may use special journals.
An example of a special journal is a cash receipts journal
in addition to using a general journal.
A specific format is used to record transactions
in a journal entry.
The debit entry, always listed first.
The credit entry, always listed second,
and the credit entry is indented to the right.
Normally, the date
and a brief explanation of the transaction
are considered essential parts of the journal entry,
and dollar signs, usually omitted.