What is Journal Entry?

Definition of Journal Entry.

A journal entry is a type of accounting entry that is used to record a business transaction in a company's accounting records. A journal entry is normally recorded in the general ledger, but it can also be recorded in a subsidiary ledger and then rolled forward into the general ledger. The financial statements for the company are then created using the general ledger.

Every business transaction should be recorded in at least two places, according to the logic of a journal entry (known as double entry accounting).When you make a cash sale, for example, you boost the revenue account as well as the cash account. Alternatively, purchasing things on credit raises both the accounts payable and inventory accounts.

What is the Best Way to Write a Journal Entry?

A journal entry has the following structure:

• A journal entry number and date may appear on a header line.
• The account number and account name for which the entry is made are listed in the first column. If it's for a credited account, this field is indented.
• The debit amount to be entered is in the second column.
• The credit amount to be entered is in the third column.
• A footer line can also offer a brief explanation of why the entry was made.

Thus, the basic journal entry format is:

The structural rules of a journal entry are that it must have at least two line items and that the total amount recorded in the debit column must equal the total amount put in the credit column. A journal entry is normally printed and filed in a binder of accounting transactions, together with any supporting documentation. External auditors may have access to this data as part of their year-end review of a company's financial statements and related systems.

Various Types of Journal Entries

There are various different forms of journal entries, including:

• Making changes to the entry. At month's end, an adjusting entry is used to make changes to the financial statements in order to bring them into compliance with the applicable accounting framework, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). If your organization uses the accrual method of accounting, you may, for example, accrue unpaid salaries at month's end.
• It's a compound entry. A compound journal entry is one with more than two lines of information. It's typically used to keep track of multiple transactions or complex transactions. Because it entails the recording of multiple tax liabilities and payroll deductions, the journal entry to record payroll, for example, frequently has many lines.
• Reversing the entry process. This is frequently an adjustment entry that is reversed as of the start of the next period, usually because an expense that was supposed to be accumulated in the previous period was no longer needed. As a result, a wage accrual from the previous period is reversed in the following period, with an actual payroll expenditure replacing it.

Journal Entry Best Practices

In general, journal entries should not be used to record routine transactions like customer billings or supplier invoices. These transactions are handled by specialized software modules that display a standard on-line form that must be completed. The software creates the accounting record for you once you've completed the form. As a result, high-volume actions are not recorded via journal entries.

Journal entries and accompanying documentation should be kept for at least a few years, or until the financial accounts of a business are no longer required to be audited. The business archiving policy should include a minimum duration time for journal entries.

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