JOURNAL ENTRIES: WHAT THEY ARE FOR, ELEMENTS AND EXAMPLES - DUDAS - 2025

The journal entries are the transaction logs that are part of the daily accounting. Therefore, they are used to record business transactions in the accounting records of a company.

They can be recorded in the general ledger, but also sometimes in a subledger, which will then be summarized and moved to the general ledger. The general ledger is used to create the financial statements of the business. As a result, the journal entries will directly change the account balances in the general ledger.

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In manual or automated accounting systems, business transactions are first recorded in a journal. That's where the term journal entries comes from.

They are an important part of accounting. They can consist of several records, each of which will be a debit or a credit. The total of the debits must equal the total of the credits, otherwise the journal entry will be said to be "unbalanced".

Journal entries can record one-time items or recurring items, such as depreciation or bond amortization.

What are they for?

Journal entries are the first step in the accounting cycle and are used to record all business transactions in the accounting system.

As business events occur throughout the accounting period, journal entries are posted to the general journal to show how the event changed the accounting equation.

For example, when the company spends cash to purchase a new vehicle, the cash account is reduced or credited, and the vehicle account is increased or debited.

The logic behind a journal entry is to record every business transaction in at least two places, known as double-entry bookkeeping.

For example, when a cash sale is generated, this increases both the sales account and the cash account. If products are purchased on credit, this will increase both the accounts payable account and the inventory account.

Journal entries, and their accompanying documentation, should be archived for several years, at least until the company's financial statements no longer need to be audited.

The minimum retention period for journal entries should be included in the corporate filing policy.

Computerized accounting systems

Computerized accounting systems automatically record most business transactions in general ledger accounts.

They do this immediately after they have prepared sales invoices, write checks to creditors, process customer receipts, etc.

Therefore, you will not see journal entries for most business transactions, such as customer or vendor invoices. Journal entries are not used to record high volume activities.

In accounting software, journal entries are generally entered using separate modules, such as accounts payable, which has its own subledger, indirectly affecting the general ledger.

However, some journal entries will need to be processed to record transfers between bank accounts or accounting adjustment records.

For example, you probably have to make a journal entry at the end of each month to record depreciation. This entry will contain a debit in depreciation expenses and a credit in accumulated depreciation.

Also, there is likely to be a journal entry to accrue interest on a bank loan. This entry will contain a debit in interest expense and a credit in interest payable.

Elements

A manual journal entry that is posted in the general journal of a company will consist of the following items:

- The corresponding date.

- The amounts and accounts that will be debited.

- The amounts and accounts that will be credited.

- A short description or note.

- A reference, such as a check number.

These posted amounts, which will appear in the journal ordered by date, will be posted to the general ledger accounts.

Journal entries are generally printed and stored in an accounting transaction folder, with accompanying supporting materials supporting the entries.

Thus, external auditors can access this information as part of their year-end audit of the company's financial statements and related systems.

How to write a journal entry

The detailed structure for writing a journal entry in accounting is indicated as the following:

- A header line, which can include a journal entry number and a journal entry date.

- The first column contains the account number and the name of the account in which the entry is registered. This field will have an indentation if it is for the account that is being credited.

- The second column contains the amount of the debit to be entered.

- The third column contains the amount of the credit to be entered.

- A footer line can also contain a short description of the reason for the entry.

In this way, the basic entry format for the journal entry record is presented as follows:

The structural rules of a journal entry are that there must be a minimum of two items on two different lines in the journal entry, and that the total amount entered in the debit column must equal the total amount entered in the credit column..

Examples

Adjustment seat

An adjusting journal entry is used at the end of the month to be able to modify the financial statements and thus comply with the relevant accounting framework, such as Generally Accepted Accounting Principles or International Financial Reporting Standards.

For example, unpaid wages could accrue at the end of the month if the company is using an accrual basis of accounting.

Composite seat

A composite journal entry is one that includes more than two lines of entries. It is often used to record complex transactions, or multiple transactions at the same time.

For example, the journal entry for recording a payroll generally contains many lines, as it involves the recording of numerous tax liabilities and payroll deductions.

Reverse seat

Typically this is an adjusting entry that is reversed at the beginning of the next period. It generally happens because an expense should have accrued in the previous period, but is no longer necessary.

Therefore, the accumulation of wages in the previous period is reversed in the following period, to be replaced by a real payroll expense.

References

1. Wikipedia, the free encyclopedia (2018). Journal entry. Taken from: en.wikipedia.org.
2. Harold Averkamp (2018). What is a journal entry? Accounting Coach. Taken from: accountingcoach.com.
3. Steven Bragg (2018). Journal entry definition. Accounting Tools. Taken from: accountingtools.com.
4. My Accounting Course (2018). Journal Entries. Taken from: myaccountingcourse.com.
5. Jan Irfanullah (2013). Journal Entries. Accounting Explained. Taken from: accountingexplained.com.