It’s been an incredibly busy month here on Accounting for Everyone, with many wonderful new comments on the various weeks’ course material.
It took me many years to really understand double-entry. I did it by reading all the books I could get my hands on, and talking to thousands of business owners, oh, and the odd accountant here and there (and 3 decades later I took my bookkeeping exams!)
There are so many idiosyncrasies in the jargon of double-entry bookkeeping, and of course different countries are bound to use slightly different terms for the same thing. Let’s take a look at a couple of those.
Understanding Double-Entry Bookkeeping
Double-entry bookkeeping is the foundation of modern accounting. In simple terms, every financial transaction has two sides: a debit and a credit. This system ensures that the accounting equation (Assets = Liabilities + Equity) always stays balanced.
- Debits increase asset or expense accounts, and decrease liability or equity accounts
- Credits increase liability or equity accounts, and decrease asset or expense accounts
For example, when a business purchases office supplies for cash, it increases the office supplies account (debit) and decreases the cash account (credit).
The Journal: Recording Transactions
This is a great one. Journal = book = diary = log. In other words, a place to write something down. However, in accounting, the term “journal” is most commonly used to describe a specific type of transaction record. That’s where confusion often starts.
What is a Journal?
A journal is simply a chronological record of transactions. Each transaction is first entered, or “journalized,” in the journal before it is posted to the ledger.
- Every transaction is recorded as a “journal entry”
- Each journal entry includes the date, accounts affected, amounts, and a brief description
- There are no “special” transactions—everything gets journalized
Common Phrases and Misconceptions
If an accountant or trained bookkeeper needs to make a correction, they might say “just journal it.” This can make the journal sound more important or mysterious than it really is. In reality, every financial event is journalized, whether it’s a simple sale or a complex adjustment.
Example: Journal Entry
| Date | Account | Debit | Credit | Description |
|---|---|---|---|---|
| 2024-06-10 | Office Supplies | $200 | Purchased office supplies | |
| 2024-06-10 | Cash | $200 | Paid with cash |
This simple example shows how each transaction affects two accounts, keeping the books balanced.
The Nominal (General) Ledger: Organizing Your Accounts
Another great one. In the UK, we call it the “nominal” ledger. Elsewhere—like in the US—it’s known as the “general” ledger. But what does this mean in practice? Not much changes, except the name.
What is a Ledger?
A ledger is where you store your accounts. Every account—like cash, sales, or office supplies—has its own “page” in the ledger, showing all the changes over time and the current balance.
- The general (nominal) ledger contains all your business’s accounts
- Special ledgers, like the Sales Ledger or Accounts Receivable Ledger, focus on specific areas
- No matter what you call it, the ledger’s role stays the same: to organize and balance your accounts
Global Terminology: A Quick Comparison
| Term (UK) | Term (US/Other) | Description |
|---|---|---|
| Nominal Ledger | General Ledger | Main record of all accounts |
| Sales Ledger | Accounts Receivable Ledger | Records amounts owed by customers |
| Purchase Ledger | Accounts Payable Ledger | Tracks amounts owed to suppliers |
Example: Using Ledgers in Practice
Suppose your business sells a product and receives payment. The transaction is first entered in the journal, then posted to the appropriate accounts in the general ledger (like “Sales” and “Cash”). If you want to see how much a particular customer owes, you would check the sales ledger (or accounts receivable ledger).
Key Takeaways
- Understanding the basic terms—like journal and ledger—removes much of the mystery from bookkeeping
- Different countries might use different names, but the concepts remain the same
- Every transaction is recorded in the journal, then organized in the ledger
- Confidence in bookkeeping comes from understanding these core ideas, which is exactly what my bookkeeping course aims to provide
No matter where you are in the world, learning these fundamentals will help you keep accurate financial records and make better business decisions. If you’re interested in mastering these concepts, be sure to check out the comments and feedback from others taking the course—they’ve found these explanations especially helpful as they build their bookkeeping skills.