Accounting: "Accounting Journal Entries"

Accounting Journal Entries Definition

An accounting journal entry is the method used to enter an accounting transaction into the
accounting records of a business. The accounting records are aggregated into the general ledger, or
the journal entries may be recorded in a variety of sub-ledgers, which are later rolled up into the
general ledger. This information is then used to construct financial statements as of the end of a
reporting period.

There must be a minimum of two line items in a journal entry, though there is no upper limit to the
number of line items that can be included. A two-line journal entry is known as a simple journal
entry, while one containing more line items is called a compound journal entry. A company may use
a great many journal entries in just a single reporting period, so it is better to use a larger number of
simple journal entries than a smaller number of compound journal entries, in order to clarify why the
entries are being made. This is useful when journal entries are being researched at a later date, and
especially when they are being reviewed by auditors.

Whenever you create an accounting transaction, at least two accounts are always impacted, with a
debit entry being recorded against one account and a credit entry against the other account.

The totals of the debits and credits for any transaction must always equal each other, so that an
accounting transaction is always said to be "in balance." If a transaction were not in balance, then it
would not be possible to create financial statements. Thus, the use of debits and credits in a two-
column transaction recording format is the most essential of all controls over accounting accuracy.

Format of the Journal Entry

At a minimum, an accounting journal entry should include the following:

 The accounts into which the debits and credits are to be recorded
 The date of the entry
 The accounting period in which the journal entry should be recorded
 The name of the person recording the entry
 Any managerial authorization(s)
 A unique number to identify the journal entry
 Whether the entry is a one-time entry, a recurring entry, or a reversing entry.
 It may be necessary to attach extensive documentation to the journal entry, to prove why it
is being recorded; at a minimum, provide a brief description of the journal entry.

Accounting Journal Entry Examples

Arnold Corporation sells a product to a customer for $1,000 in cash. This results in revenue of
$1,000 and cash of $1,000. Arnold must record an increase of the cash (asset) account with a debit,
and an increase of the revenue account with a credit. The entry is:

Cash Dr. 1,000

To Revenue Cr. 1,000

Arnold Corporation also buys a machine for $15,000 on credit. This results in an addition to the
Machinery fixed assets account with a debit, and an increase in the accounts payable (liability)
account with a credit. The entry is:

Machinery - Fixed Assets Dr. 15,000

To Accounts Payable Cr. 15,000