Business organization do lot of transactions on daily basis, both cash basis and non cash basis. It is very important to record all cash and cash related transactions are accounted for, so that the stakeholders will be able to understand, where the company is heading to. The first place where the transactions are recorded is the book of prime entry of journal.
Every transaction your business makes requires journal entries. They take transactions and translate them into the information you, your bookkeeper, or accountant use to create financial reports and file taxes and the provide to the people who have invested their money with the company.
Journal entry
Journal entries are how you record financial transactions. To make a journal entry, you enter details of a transaction into your company’s books. In the second step of the accounting cycle, your journal entries get put into the general ledger.
Every journal entry in the general ledger will include the date of the transaction, amount, affected accounts with account number, and description. The journal entry may also include a reference number, such as a check number, along with a brief description of the transaction.
Purpose of journal entry.
Once business transactions are entered into your accounting journals, they’re posted to your general ledger. Think of “posting” as “summarizing”—the general ledger is simply a summary of all your journal entries.
Your general ledger is the backbone of your financial reporting. It’s used to prepare financial statements like your income statement, balance sheet, and (depending on what type of accounting you use) cash flow statement.
Financial statements are the key to tracking your business performance and accurately filing your taxes. They let you see, at a glance, how your business is performing.