The difference between a journal and a ledger

Journals and ledgers are where business transactions are recorded in an accounting system. In essence, detail-level information for individual transactions is stored in one of several possible journals, while the information in the journals is then summarized and transferred (or posted) to a ledger. The posting process may take place quite frequently, or could be as infrequent as the end of each reporting period. The information in the ledger is the highest level of information aggregation, from which trial balances and financial statements are produced.

Typically, a user of financial information will review the summary-level information stored in a ledger, perhaps using ratio or trend analysis, to locate anomalies that require further investigation. They then refer to the underlying journal information to access the details of what makes up the information in the ledger (which may result in an even more detailed investigation of supporting documents). Thus, information can be rolled up from journals to ledgers to produce financial statements, and rolled back down to investigate individual transactions.

There may be several journals, each one usually dealing with high-volume areas, such as purchase transactions, cash receipts, or sales transactions. Less frequent transactions, such as depreciation entries, are generally clustered into the general journal.

Information is recorded in journals in chronological order by individual transaction, which makes it easier to sort through information and find the specific items that users need. Information is recorded in a ledger in a number of accounts, which are typically sorted in the following order:

  • Asset accounts
  • Liability accounts
  • Equity accounts
  • Revenue accounts
  • Expense accounts

In a computerized accounting system, the concepts of journals and ledgers may not even be used. In a smaller organization, users may believe that all of their business transactions are being recorded in the general ledger, with no storage of information in a journal. Companies with massive transaction volume may still use systems that require the segregation of information into journals. Thus, the concepts are somewhat muddied in a computerized environment, but still hold true in a manual bookkeeping environment.