Journal Entry
A journal entry is the recording of a financial transaction in an accounting journal, such as the general journal. It provides a detailed account of each financial transaction of a business and ensures accuracy in the book-keeping process. A journal entry includes equal debit and credit amounts, maintaining the fundamental principle of double-entry bookkeeping, where every debit has a corresponding credit.
Components of a Journal Entry
- Date: The date when the transaction occurs.
- Accounts Affected: The names of the accounts that are affected by the transaction.
- Debit Amount: The amount entering the debit side of the journal entry.
- Credit Amount: The amount entering the credit side of the journal entry.
- Description: A short explanation of the transaction.
Example
Suppose a company purchases office supplies for $500 cash. The journal entry would be:
1Date: [Date of Transaction]
2Account: Office Supplies
3Debit: $500
4Credit: Cash $500
5Description: Purchased office supplies for $500.
In this example, ‘Office Supplies’ is debited because supplies are an asset account that increases. ‘Cash’ is credited because cash is an asset account that decreases when money is spent.
Frequently Asked Questions
Q: What is the main purpose of a journal entry?
- A: The main purpose of a journal entry is to ensure all financial transactions are recorded accurately and systematically in the company’s accounting records.
Q: Can a journal entry affect more than two accounts?
- A: Yes, a journal entry can affect more than two accounts. Such entries are called compound journal entries.
Q: What is double-entry bookkeeping?
- A: Double-entry bookkeeping is an accounting system where every transaction affects at least two accounts, with debits equalling credits, maintaining the accounting equation.
Q: What is a general journal?
- A: The general journal is the primary journal used to record all the business transactions in chronological order.
Q: Why are journal entries important in accounting?
- A: Journal entries are important because they accurately detail financial transactions, ensuring the integrity of financial reporting and compliance with accounting standards.
Related Terms
General Journal: The primary journal used to record all financial transactions in a company, in chronological order.
Double-Entry Bookkeeping: An accounting system where each transaction is recorded in at least two accounts, with debits equalling credits.
Debit: An entry on the left side of an account, which increases asset or expense accounts, and decreases liability, revenue, or equity accounts.
Credit: An entry on the right side of an account, which decreases asset or expense accounts, and increases liability, revenue, or equity accounts.
Online References
Suggested Books for Further Studies
- “Financial Accounting” by Michael J. Jones
- “Accounting Simplified” by Veronica Douglas
- “Fundamental Accounting Principles” by John J. Wild, Ken W. Shaw, and Barbara Chiappetta
Fundamentals of Journal Entries: Accounting Basics Quiz
Thank you for learning about journal entries and testing your knowledge with our quiz. Keep developing your accounting skills to ensure accuracy and integrity in financial reporting!
