Definition
A journal entry is a record of a single financial transaction in a business's books, listing the date, the accounts affected, the debit and credit amounts, and a short description. In double-entry bookkeeping, total debits must equal total credits. Journal entries are then posted to the general ledger.
Also called: Journal entries, JE, Adjusting entry
Journal entry in practice
Most journal entries are created automatically by software when you issue invoices, record payments, or pay bills. Manual journal entries are used for adjustments that do not come from a document, such as depreciation, accruals, corrections, and writing off bad debt.
A good journal entry has a clear description and, where possible, a reference to the source document, such as the invoice number. That trail makes it easy to answer questions from an accountant or tax auditor later.
Adjusting entries at month end move revenue or expenses into the correct period, for example recognizing revenue for work done but not yet invoiced.
Example
Writing off a $300 unpaid invoice as bad debt: debit Bad debt expense $300, credit Accounts receivable $300, description "Write-off INV-0198, client closed business".
Frequently Asked Questions
Do I need to make journal entries myself?
Rarely, if you use invoicing and accounting software. Your accountant usually handles adjusting entries. You mainly need to make sure invoices and payments are recorded accurately.
What are debits and credits?
They are the two sides of every entry. Debits increase asset and expense accounts; credits increase liability, equity, and revenue accounts. Each entry's debits and credits must be equal.
Related terms
- General ledger A general ledger is the master record of every financial transaction a business makes, organized into accounts such as cash, accounts receivable, revenue, and expenses.
- Double-entry bookkeeping Double-entry bookkeeping is the accounting system in which every transaction is recorded in at least two accounts, with equal debits and credits, so the books always balance.
- Write-off A write-off is the accounting action of removing an uncollectible or forgiven invoice balance from accounts receivable and recording it as an expense.
- Audit trail An audit trail is a chronological record showing who created, changed, sent, or deleted each financial document or transaction, and when.
This page is for general information only and is not legal, tax, or financial advice. Rules change and vary by location, so consult a qualified lawyer or accountant about your situation.