What Are Journal Entries and How Do You Make Them in Accounting?
Accounting uses a series or journals and ledgers to maintain financial information. Entering information into journals and ledgers often requires journal entries. These entries allow accountants to record transactions into specific accounts. The double-entry accounting system has specific requirements for journal entries to ensure all financial information follows the same accounting standards.
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Basics
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Double-entry accounting requires both a debit and credit in journal entries. This follows the accounting equation that states assets equal liabilities plus owner's equity. Debits increase asset, dividend and expense accounts while decreasing revenue, liability and equity accounts. Credits are the opposite. They increase revenue, liability and equity accounts while lowering balances in asset, dividend and expense accounts.
Types
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Common types of journal entries include standard, adjusting, reversing and closing. Standard entries are those that allow an accountant to record information into journals and ledgers. Adjusting entries correct errors in financial accounts. Reversing entries remove accruals made into a company's general ledger. Accruals represent entering financial information to balance accounts for an accounting period. Closing entries transfer temporary account information to permanent accounts.
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Recording Entries
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When posting journal entries, accountants will list debits first and credits second. Information included in each entry includes date, account name, dollar amount and brief journal entry description. A common example comes when a company sells goods for cash. The journal entry will debit the cash account for money received and credit a revenue account to represent sales made to consumers.
Process
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Accountants can record journal entries throughout an accounting period. This allows them to maintain the general ledger on a daily and weekly basis. The end result of journal entries is financial statements. Companies prepare these statements to determine how well they did financially in an accounting period. Closing entries are only for the month-end closing process once management approves the financial statements. This completes the accounting cycle.
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