In: Accounting
A friend, who is just starting her own business, sees
no use in having a journal. She
tells you that she plans on recording her business transactions
directly into the
general ledger as they occur. She tells you that the transactions
are going to end up
in the ledger anyway. She explains that she is simply eliminating
the extra step of
creating a journal and then having to transfer the information to
the ledger. Explain
to her why what she is suggesting is not an acceptable
practice.
Explain to her why what she is suggesting is not an acceptable practice.
Answer:-
The journal offers several advantages that make it a necessary part of the accounting system. One of the most important advantages of using a journal is that in the journal, we can see the entire transaction. If we were to take a simple transaction, such as paying the rent, and record it as she suggests, the debit portion of the transaction would go directly into the Rent Expense account and the credit portion directly into the Cash account. There would be no record of the transaction in its entirety. It would be difficult to make sense of the amounts entered in the ledger.
The journal also allows us to view all transactions in chronological order. There is an area for writing an explanation as well, should we feel the need to explain a transaction. Also, it is easy to verify that our debits equal our credits in the journal before we post to the ledger.