Michigan Residential Builders License Practice Test

What are journals in accounting?

1. Lists of employee duties

2. Books of original entry recording transactions

3. Financial statements

4. Annual reports

The correct answer is: Books of original entry recording transactions

In accounting, journals serve as books of original entry where financial transactions are first formally recorded. Each time a transaction occurs, it is documented in a journal, noting the date, the accounts involved, amounts, and a brief description of the transaction. This process ensures that every financial activity is captured in a systematic way, which aids in maintaining accurate financial records. Journals are critical because they provide a chronological record of all transactions that occur within a business. This initial documentation is essential for subsequent steps in the accounting cycle, such as posting entries to ledgers. Proper journal entries allow for easier tracking of financial data and reduce the risk of errors when the information is transferred to other accounting records. Other options mentioned do not accurately represent the function of journals in accounting. Lists of employee duties, financial statements, and annual reports pertain to different aspects of business operations and financial reporting, but they do not cover the foundational function of recording transactions that journals provide.