JOURNAL ENTRY

JOURNAL ENTRY- are how you record financial transactions.

 Every journal entry in the general ledger will include the date of the transaction,
amount, affected accounts with account number, and description.
 The journal entry may also include a reference number, such as a check number,
along with a brief description of the transaction.
What documents are used to record entries?
Cash Register in single-entry bookkeeping, the income and expenses for the
transactions are recorded in a cash register.
Double-entry system starts with a journal, followed by a ledger, a trial balance, and
finally financial statements.
Journal: This is an accounting book where the transactions are recorded sequentially,
in chronological order. It need not be balanced.
Ledger: This is a book of final entries where the transactions are divided and recorded
in separate accounts. It must be balanced.
Trial balance: This is a bookkeeping worksheet that reflects the credit and debit
balance of all ledger accounts. One of the important features of the trial balance is that it
maintains the arithmetic accuracy of transactions.
Financial statements: These are a collection of summary-level reports that reflect the
organization’s financial results, position, and cash flow.
What are journal entries for?
 Once business transactions are entered into your accounting journals, they’re
posted to your general ledger.
General ledger is the backbone of your financial reporting.
 It’s used to prepare financial statements like your income statement, balance
sheet, and (depending on what type of accounting you use) cash flow statement.
Financial statements are the key to tracking your business performance and
accurately filing your taxes.
There are two methods of bookkeeping (and, therefore, two methods of making
journal entries): single and double-entry.
Double-entry bookkeeping method of recording transactions where for every business
transaction, an entry is recorded in at least two accounts as a debit or credit.
 In a double-entry system, the amounts recorded as debits must be equal to the
amounts recorded as credits.
  The double-entry bookkeeping system works on the basic accounting equation,
which is as follows:

Single-entry bookkeeping a simple and straightforward method of bookkeeping in

which each transaction is recorded as a single-entry in a journal.
 This is a cash-based bookkeeping method that tracks incoming and outgoing
cash in a journal.
For example:
If you spend money on office supplies, note it down. If you make a sale, note it
down. You don’t need to include the account that funded the purchase or where the sale
was deposited.
How is double-entry bookkeeping better than single-entry?
The double-entry system has several advantages over the single-entry system:
1. Recording method: Single-entry bookkeeping gives a one-sided picture of
transactions recorded in the cash register. In double entry, changes due to one
transaction are reflected in at least two accounts. The double-entry system is
preferred by investors, banks and buyers because it gives them a more complete
financial picture of an organization.
2. Error detection: In double entry, debits and credits must always be the same. If
that is not the case, then there is an error. This makes it easy to spot errors and
ensure that they are not carried forward to other journals and financial
statements. In single entry, there is no method for error correction or detection.
3. Company size: The single-entry system is only appropriate for small enterprises,
whereas the double-entry system can be used by all sizes of businesses,
including large ones.
4. Preparation of financial statements: The information recorded in a single-entry
system isn’t adequate for financial reporting or preparing profit and loss
statements. Bigger organizations rely on these reports to track their performance,
so they need the extra information captured by double-entry accounting.
Common journal examples
The general journal contains entries that don’t fit into any of your special journals—
such as income or expenses from interest.
 It can also be the place you record adjusting entries.
The special journals, also referred to as accounts, are used to record the common,
day-to-day transactions in your accounting system.
  All of your special journals are listed in your chart of accounts.
 Common examples of account names include:
o Sales: income you record from sales
o Accounts receivable: money you’re owed
o Cash receipts: money you’ve received
o Sales returns: sales you’ve refunded
o Purchases: payments you’ve made
o Accounts payable: money you owe
o Equity: retained earnings and owners’ investment

Journal entry examples

1. You get paid by a customer for an invoice
When you’re visiting with your client, they pay the $600 invoice you sent them.
Cash Journal
Date Description Debit Credit
Nov. 3/21 Invoice #123 $600
Date lets you know when the entry was recorded.
Description includes relevant notes—so you know where the money is coming from or
going to. In this case, it’s the invoice number.
Debit notes that $600 is being added to your cash account.
Credit notes money leaving cash. In this case, there’s no money being paid out.
At the same time you make this entry, you’d make another in the accounts
receivable (aka money clients owe you) ledger account:
Accounts Receivable Journal
Date Description Debit Credit
Nov. 3, 2021 Invoice #123 ($600)
The money is being removed from accounts receivable—your client doesn’t owe
you $600 anymore—so it’s listed as a credit (written in parentheses). Here, the credit
amount and debit amount are the exact same.
2. You picked up some office supplies
On the way back from meeting with your client, you stopped to pick up $100 worth of
office supplies.
Cash journal
 When the invoice was paid, money entered the cash account, so we recorded it
as a debit. But now money is leaving the account, so we credit the account for the
amount leaving.
Date Description Debit Credit
Nov. 3, 2021 Office Supplies ($100)
Expense journal
Just as every action has an equal and opposite reaction, every credit has an
equal and opposite debit. Since we credited the cash account, we must debit the
expense account.
Date Description Debit Credit
Nov. 3, 2021 Office Supplies $100
3. You make a payment on your bank loan
Finally, you stop at the bank to make your loan payment. When you make a
payment on a loan, a portion goes towards the balance of the loan while the rest pays
the interest expense. This is called loan principal and interest.
This is an example of a compound entry. This happens when the debit or credit amount
is made up of multiple lines.
Let’s look at a payment of $1,000 with $800 going towards the loan balance and $200
being interest expense.
Cash journal
For the cash side, we record the $1,000 leaving the account (a credit).
Date Description Debit Credit
Nov. 3, 2021 Loan Payment ($1,000)
Expense journal
In the expense journal, we record a debit for the amount that went towards
interest separately from the amount that reduces the balance.
Date Description Debit Credit
Nov. 3, 2021 Loan payment - Interest $200
Loan journal
Finally, we record a debit for the amount that went towards the principal.
Date Description Debit Credit
Nov. 3, 2021 Loan payment - Principal $800
Here, the debit was broken up into multiple lines: the interest amount and
principal amount.
Closing accounting entries
At the end of the financial year, you close your income and expense journals—also
referred to as “closing the books”—by wiping them clean.
Here’s a simplified example of how that might look.
First, credit all the money out of your asset accounts. In this example, that
consists only of cash:
Sales Revenue Journal
Date Description Debit Credit
Dec. 31, 2021 Year Total $12,000
Close Income Accounts to Income Summary
Then, credit all of your expenses out of your expense accounts. For the sake of
this example, that consists only of accounts payable.
Expense Journal
Date Description Debit Credit
Dec. 31, 2021 Year Total ($3,000)
Close Expense Accounts to Income Summary
After we do that, the income summary journal looks like this:
Income Summary Journal
Date Description Debit Credit
Dec. 31, 2021 Income Total $12,000
Expense Total ($3,000)
Total Income $9,000
Adjusting journal entries
If you use accrual accounting, you’ll need to make adjusting entries to your
journals every month.
Adjusting entries ensure that expenses and revenue for each accounting period match
up—so you get an accurate balance sheet and income statement.
  accounting journal entries made at the end of the accounting period after a trial
balance has been prepared.
Accounts that require basic accounting adjusting entries
1. Accrued revenues
Accrued revenues are services performed in one month but billed in another.
You’ll need to make an adjusting entry showing the revenue in the month that the
service was completed. This is referred to as an accrued revenue adjusting entry.
2. Accrued expenses
Also known as accrued liabilities, accrued expenses are expenses that your
business has incurred but hasn’t yet been billed for. Wages paid to your employees at
the end of the accounting period is an excellent example of an accrued expense. You’ll
need to make an accrued expense adjusting entry to debit the expense account and
credit the corresponding payable account.
3. Unearned revenues
Unearned revenues are payments for goods/services that are yet to be delivered.
For example, if you place an order in January, but it doesn’t arrive (and you don’t make
the payment) until January, the company that you ordered from would record the cost
as unearned revenue. Then, in the month you make the purchase, an adjusting entry
would debit unearned revenue and credit revenue.
4. Prepaid expenses
Prepaid expenses are assets that you pay for and use gradually throughout the
accounting period. Office supplies are a good example, as they’re depleted throughout
the month, becoming an expense. Essentially, in the month that the expense is used, an
adjusting entry needs to be made to debit the expense account and credit the prepaid
account.
5. Depreciation
Depreciation adjusting entries are slightly different, as you’ll need to consider
accumulated depreciation (i.e., the accumulated depreciation of assets over the
company’s lifetime). This is referred to as a contra-asset account. Essentially, from the
point at which the asset is purchased, it depreciates by the same amount each month.
For that month, a depreciation adjusting entry is made, debiting depreciation expense
and crediting accumulated depreciation.
REFERENCES
https://bench.co/blog/bookkeeping/journal-entries/
https://www.zoho.com/books/guides/single-entry-and-double-entry-bookkeeping.html
https://gocardless.com/guides/posts/adjusting-entries/