What is Journal Entry?
The chronological record of a financial transaction in double-entry bookkeeping, showing the accounts affected and the debit/credit amounts.
Definition
A journal entry is the foundational record of a financial transaction in the double-entry bookkeeping system. It documents the date of a transaction, the accounts affected, whether each account is debited or credited, and the dollar amounts involved. Journal entries are recorded in chronological order in a journal (also called the "book of original entry") before being posted to the individual accounts in the general ledger. Every journal entry must balance — the total dollar amount of debits must equal the total dollar amount of credits.
Anatomy of a Journal Entry
Every journal entry contains: Date — the calendar date when the transaction occurred; Account Names and Numbers — listing each account to be debited and credited; Debit Amount — the sum of all amounts debited (left side); Credit Amount — the sum of all amounts credited (right side, equal to debits); Description/Memo — a brief explanation of what the transaction is and why; and Source Document Reference — the invoice number, check number, or other document that supports the entry. A properly formatted journal entry ensures a complete audit trail from the original document to the financial statements.
Types of Journal Entries
Simple Journal Entry — a transaction affecting only two accounts (one debit, one credit), such as recording a cash sale. Compound Journal Entry — a transaction affecting three or more accounts, such as recording an invoice that includes revenue, sales tax payable, and accounts receivable. Adjusting Journal Entry — made at the end of an accounting period to update account balances before financial statements are prepared, such as recording accrued expenses, prepaid expenses, or depreciation. Reversing Journal Entry — an optional entry made at the beginning of the next period to cancel out an adjusting entry, simplifying the recording of recurring transactions. Correcting Journal Entry — made to fix an error in a prior entry without deleting the original.
Examples of Common Journal Entries
Recording Revenue: Debit Accounts Receivable $1,000, Credit Revenue $1,000. Paying a Vendor: Debit Office Supplies Expense $200, Credit Cash $200. Receiving a Client Payment: Debit Cash $1,000, Credit Accounts Receivable $1,000. Recording a Monthly Rent Expense: Debit Rent Expense $1,500, Credit Prepaid Rent $1,500 (if prepaid) or Accounts Payable $1,500 (if paying later). Recording Depreciation: Debit Depreciation Expense $300, Credit Accumulated Depreciation $300. Recording Sales Tax Collected: Debit Cash $100, Credit Sales Tax Payable $100.
Best Practices for Journal Entries
Record journal entries as close to the transaction date as possible to maintain accurate financial records. Always include a clear, descriptive memo that explains the business purpose of the transaction. Reference supporting documents (invoice number, check number) so you can always trace back to the source. Never delete or alter a journal entry — if you made an error, make a correcting entry. For adjusting and closing entries, follow generally accepted accounting principles (GAAP). Use accounting software to automate the journal entry process where possible, which reduces human error and maintains a consistent audit trail.