What is a Journal Entry?
Journal Entry is a record of business transactions in the accounting book of a company. Non-cash transactions such as depreciation and amortization may also require journal entries in accounting.
Accounting software helps small business owners to do their own bookkeeping.
Journal entry consists of:
- the right data
- amounts to be debited and credited
- the details of the transactions
- a reference number
A first step in the accounting cycle is a journal entry. A journal shows the details of a business’s financial transactions and prepares notes of the affected accounts.
A double-entry accounting system is common among businesses. All the financial transactions affect at least two accounts:
- Debit account
- Credit account
It means that a journal entry has equivalent debit and credit amounts.
This article covers:
- What Is the Purpose of a Journal Entry?
- What to Included in a Journal Entry?
- How Do You Write a Journal Entry?
What Is the Purpose of a Journal Entry?
A journal keeps a record of transactions that shows the accounts under the influence of transactions.
The double-entry accounting system requires both credit and debit to complete each entry.
Buying goods increases both the inventory and accounts payable.
All the other financial reports depend on a journal entry. It gives the complete information of the financial data and tells how the transactions impact business. Posting common journal entries on the general ledger is the final step.
What to Included in a Journal Entry?
The following elements are important for a journal entry:
- A header that includes the entry date
- A journal entry number or a reference number to recover the journal when needed
- The account number and name ( first column )
- The debit number ( second column )
- The credit number ( third column )
- The descriptive details of the journal entry in the footer
How Do You Write a Journal Entry?
The general format of writing a journal entry is as follows:
There are two columns, one is Debit column and the other is Credit column:
|Account Name and Number
|Account Name and Number
The total amount of credit and debit amounts should be equal.
Different types of journal entries include:
Adjusting Journal Entry:
To bring the financial statements consistent with GAAP, adjusting entries toward the end of the accounting period.
These entries are commonly to record:
- accrued income
- accrued expenses
- unearned revenue
- prepaid expenses
Compound Journal Entry
Multiple lines of journal entries are known as Compound Entry. It is to record transactions immediately or enter complex transactions in detail, such as payroll, including various deductions and tax liabilities.
Reversing Journal Entry
Reversing entry is usually made towards the start of the accounting period. It changes the entries made in the preceding period—for example, replacing wage accrual with actual payroll expenditure.
In a Nutshell:
Doing journal entries manually and verifying them is a long and exhaustive process. It is also not authentic and may have errors in it. There are many accounting software that allows you to create, audit, and approve journals, along with supporting documentation.
If you are looking for more helpful resources and guidance, then check out our resource hub.
- WHAT IS ACCOUNT PAYABLE?
- What is Liability in Accounting?
- Cash vs. Accrual Accounting: What’s the Difference?
- What Is an Accounting Journal? Definition of Journal in Accounting
- What Is Management Accounting?
- What Is A Ledger In Accounting?
- What Are the Generally Accepted Accounting Principles?
- What is Financial Accounting?
- What is Fair Value Accounting?
- Why Is Accounting Important?
- What is Equity in Accounting?
- Specific Identification Accounting 101