Journal entry

A journal entry is used to record a business transaction in the accounting records

of a business. A journal entry is usually recorded in the general ledger;
alternatively, it may be recorded in a subsidiary ledger that is then summarized
and rolled forward into the general ledger. The general ledger is then used to
create financial statements for the business.
The logic behind a journal entry is to record every business transaction in at
least two places (known as double entry accounting). For example, when you
generate a sale for cash, this increases both the revenue account and the cash
account. Or, if you buy goods on account, this increases both the accounts
payable account and the inventory account. Types of Journal Entries

There are several types of journal entries, including the following:

Adjusting entry. An adjusting entry is used at month-end to alter the financial
statements to bring them into compliance with the relevant accounting
framework, such as Generally Accepted Accounting Principles or International
Financial Reporting Standards. For example, you could accrue unpaid wages at
month-end if the company is on the accrual basis of accounting.
Compound entry. A compound journal entry is one that includes more than two
lines of entries. It is frequently used to record complex transactions, or several
transactions at once. For example, the journal entry to record payroll usually
contains many lines, since it involves the recordation of numerous tax liabilities
and payroll deductions.
Reversing entry. This is typically an adjusting entry that is reversed as of the
beginning of the following period, usually because an expense was to be accrued
in the preceding period, and is no longer needed. Thus, a wage accrual in the
preceding period is reversed in the next period, to be replaced by an actual
payroll expenditure.
In general, do not use journal entries to record common transactions, such as
customer billings or supplier invoices. These transactions are handled through
specialized software modules that present a standard on-line form to be filled
out. Once you have filled out the form, the software automatically creates the
accounting record. Thus, journal entries are not used to record high-volume
activities.
Journal entries and attached documentation should be retained for a number of
years, at least until there is no longer a need to have the financial statements of
a business audited. The minimum duration period for journal entries should be
included in the corporate archiving policy.