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Overview of Journal Entry
Definition of
Journal Entry
What is a Journal Entry? A Journal Entry is the initial, chronological record of a single financial transaction in a company's accounting system, specifically within an accounting journal (the "book of original entry"). It is a fundamental component of the double-entry bookkeeping system. Each journal entry specifies the date of the transaction, the names of the accounts affected (from the Chart of Accounts), the amounts by which these accounts are debited and credited, and usually includes a brief narrative or explanation of the transaction. For every journal entry, the total debits must equal the total credits.
Activities Related to
Journal Entry
Here is a list of Journal Entry related activities:Â
Analyzing source documents (like invoices, receipts, bank statements) to identify a transaction, Determining which accounts are affected by the transaction, Applying the rules of debits and credits to those accounts, Recording the transaction details (date, accounts, amounts, description) in the journal, Ensuring the entry is balanced (total debits = total credits), and Subsequently posting the journal entry to the appropriate accounts in the General Ledger.
This is the first step in the accounting cycle for formally recording transactions.
The Importance of
Journal Entry
For small business owners, accurate and timely Journal Entries are the building blocks of their entire financial record-keeping system. They ensure that every transaction is captured and classified correctly, which is essential for maintaining the integrity of the accounting equation. Well-documented journal entries provide a clear audit trail, making it easier to track financial activities, prepare financial statements (like the Income Statement and Balance Sheet), identify errors, and comply with tax regulations. Proper journal entries are fundamental to sound bookkeeping.
Key Aspects of
Journal Entry
Transaction Record
It's the first formal recording of a single business transaction in the accounting system.
Double-Entry System
Must adhere to the double-entry bookkeeping principle, meaning at least two accounts are affected, and total debits equal total credits.
Chronological Order
Entries are typically made in the journal in the order that transactions occur, providing a historical log.
Concepts Related to
Journal Entry
A Journal Entry is the fundamental unit of recording in a Journal (Accounting). It is a critical step in the Accounting Cycle and applies the principles of Double Entry Bookkeeping, utilizing Debits and Credits. Each entry impacts accounts listed in the Chart of Accounts. After being recorded in the journal, these entries are then posted to the General Ledger.
Journal Entry
in Action:
The Adventures of Coco and Cami
Follow Coco and Cami as they make their first sale and then need to record it in their accounting books, figuring out which accounts are affected.
Watch as Professor A explains how to make a Journal Entry, showing Coco and Cami how to use debits and credits to properly record their business transactions.