Top 5 differences between Journal and Ledger

What is a Journal?

A journal is a subsidiary book of account that records monetary transactions according to accounting standards. These transactions get recorded in chronological order, and it gives details about the accounts that are affected by each transaction. It is known as the first step of the accounting process.

What are its features?

The features of a journal are as follows:

  • Chronology: The journal entries get recorded in a date-wise order, and it helps in checking the transactions much more quickly.
  • Double Entry System: Journal entries follow a system where every transaction is entered both on the debit and credit sides. It is an example of a dual entry system. One account gets debited and the other gets credited with the same value.
  • Daybook: A journal records transactions on a day-to-day basis for consistency and ease.
  • Compound Entry: A single entry can have two or more accounts on the same day, and a journal can also have more than one related transaction.
  • Explanation: Each transaction includes a short description known as the narration (within brackets). It helps to explain the nature and purpose of the transaction.

What is a Ledger?

A Ledger is a principal book of account, and its primary purpose is to transfer transactions from a journal and then classify it into separate accounts. Ledger is also known as the book of final entry as it helps businesses prepare accounting statements like the Trial Balance.

What are its features?

The features of a ledger are as follows:

  • Two Sides: Every Ledger has two sides – Debit and Credit. The debit entries come on the left side of a ledger, while the credit entries come on the right side.
  • Transaction: Every transaction impacts two or more ledger accounts, and it is because the transaction is related to a particular person, asset, expense or income.
  • Balancing the ledger: The total debit and credit sides of a ledger must always be the same. But that is not always the case since the debit side could be more than the credit side and vice versa. To balance the ledger, we have to record the difference between the two on the deficient side. When the debit side is more than the credit side, the balance gets recorded on the credit side, known as debit balance. Similarly, when the credit side exceeds the debit side, the balance is recorded on the credit side, known as a credit balance.

What are the differences between Journal and Ledger?

The main differences between Journal and Ledger are as given below:

Journal

Ledger

Definition

Journal is a subsidiary book of account that records transactions.

Ledger is a principal book of account that classifies transactions recorded in a journal.

Order

The journal transactions get recorded in chronological order on the day of their occurrence.

The ledger classifies the transactions from the journal under the respective accounts to which they are related.

Explanation

Each journal entry has a detailed narration of the transaction.

The ledger accounts do not have a detailed narration of each transaction.

Result

The journal does not reveal the total results of a transaction.

The Ledger accounts help reveal the result of transactions for a particular account.

Trial Balance

The journal cannot help prepare the Trial Balance directly.

The ledger helps to prepare the Trial Balance.

Financial Statements

The journal does not have a direct role in the preparation of financial statements like Profit and Loss Account or Balance Sheet.

The balances from different ledger accounts help to prepare financial statements like Profit and Loss Account or Balance Sheet.

Opening Balance

A journal does not have an opening balance, and it is only concerned with the current transactions that occur on a day-to-day basis.

Some ledger accounts have an opening balance, which is the closing balance from the previous year.

Conclusion

Although there are significant differences between Journal and Ledger, both have a critical role in accounting. They have a vital role to play when preparing financial statements like Profit and Loss Account or Balance Sheet.

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