A journal is a record of transactions that shows the accounts and amounts of both the debit side and credit side of the entry. A General Journal is the primary journal or place to record transactions that do not fit into any other journal.

The General Journal (GJ) serves a major purpose. In many RTO small business situations, the Cash Disbursements (CD) Journal may be the only journal used in conjunction with the GJ. The CD journal you may recall is essentially your checkbook register. That being the case, one side of the transactions always results in a credit (decrease) to Cash. Your computer system automatically decreases cash and you decide which GL accounts to debit the checks. This is pretty straightforward. If you can’t remember how debits and credits work, follow this link to review the "accounting Model": www.reallifeaccounting.com/accounting_model.asp

But, how do you enter information into your computer that is not related to the checks you wrote? Consider for instance, items such as: bank charges; correction of mistakes; deposits to the bank; sales; sales tax; non-sufficient funds (NSF) from customer checks that bounce; depreciation expense; gain or losses from the sale or trade of fixed assets, including your RTO rental merchandise; notes payable; inventory adjustments; accounts receivable and accounts payable entries; payroll; and, any other unusual transactions that might occur.

Use of the General Journal sets apart the person who knows how accounting works from those who don’t. Why? Because one must understand how debits and credits work in order to write the adjusting journal entries. This simple knowledge is what gives power to the user. This ability allows a person to solve problems, straighten out messes, bring order to disorder, and not be fooled or intimidated by anyone. I remember one day I was in a client’s office and was getting ready to leave for another client appointment. I mentioned I was working on organizing a corporation’s books that were in chaos, and the principals had no idea what they were doing. I was a little surprised when the client I was with said, “Wow, I would love to have that kind of power”. I had never thought about it that way before, but she was right. There is power with knowledge and it feels good.

As a RTO business owner who "knows they know” how accounting works, you can explain or communicate information confidently to those that need to know, such as the boss, board of directors, partners, CPA or your accounting staff. The General Journal is one of the most versatile tools found in the accountant’s toolbox.

My next article will discuss the basic concept of how to figure the gain or loss on the sale or discard of your fixed assets.