Difference Between Journal And Ledger

Difference Between Journal And Ledger


One of the biggest problems I see with
people trying to figure out accounting is understanding the difference between
a journal and a…um…ledger. Okay? What’s the difference between a journal and a
ledger? Okay. A journal is day-to-day activities. Think of it as like your cash
register tape. It shows you all the things that happen on a particular day. Okay? So maybe you have like 25 or 30 customers. Say you’re running a bar. Okay? You’re running a bar and grill. You have about 30 customers that come in. And they all buy alcohol. It shows on the journal receipt tape who bought alcohol, what
they buy that day, and…um…how much of it they bought that day. Well that’s all
fine and dandy if you want to know what happened during the course of a
particular day. But then you run into a problem. Let’s say you have a customer
that comes into your place regularly and he always tells you to put his…what he
owes you…on a particular day on his tab. Okay. And some bars still do this. You
know. Hey I’m gonna get X and Y drinks just put it on my tab. So this guy
day after day starts running up a tab. Now if at the end of the week he comes
by and he says, “I’m gonna pay for my tab.” There you go. No problem. Now what if this guy starts doing this for like a month or more? Then you got a problem. Now, you say, “Well okay.
How could we possibly tell how much of a tab this guy’s run up, if we have to go
through these big old receipt tapes?” You couldn’t. That’s why you transfer all
this information from the receipt tapes to a ledger. Then what you do is you make up this account. You say, “Well this is Bob’s account.” And in that ledger you say, “On the first he bought $20 worth of drinks.” On the third he bought another
thirty dollars worth of drinks. And on the fifth he bought another twenty dollars worth of drinks. And so on and so forth.
And you have this whole month showing what he’s
done throughout the whole month. It’s not showing what all the other customers did. It just shows what he did. You…you see a picture of what Bob’s doing. And at the
end of the month he’s running up a tab of like two three thousand dollars and
didn’t come by to pay it up, then you have the right and the responsibility to
say, “Hey look. I’m not serving you another drink until you pay up your tab.”
So that’s what’s going on. You have the journal to show your day-to-day
activities, and then you transfer the information from your journal to your
ledger. So you can show the activities for the month of a particular person. That way you can discern what Bob drank on a particular day from what everybody
else drank on a particular day. See what I mean? That’s the key. So the day to day
activities are listed in the journal, and then that information is then
transferred to the ledger. And that’s how that works. Okay? So hopefully you’ll now understand the difference between a journal in accounting and a ledger. That
should crack open the code to working with accounting. Alright. I’ll tell you
more in a future video, so stay tuned.

4 thoughts on “Difference Between Journal And Ledger

  1. Im learning accounting to start an online bookkeeping business. What other concepts in accounting should I learn to provide the best service for clients?

    Thanks

Leave a Reply

Your email address will not be published. Required fields are marked *