What is a Journal Entry in Accounting? Guide with Examples

As a business owner or people working in the field of finance, understanding what is a journal entry in accounting is crucial for successful operations. In this article by Viindoo Enterprise Management Software, we will explore what journal entries are, and their importance, and provide examples of accounting journal entry practice.

What is a journal entry in accounting?

In general, what is a journal entry in accounting? A journal entry is a record of financial transactions that are written down in an accounting journal. It includes information such as the accounts involved, the amounts of money affected, and whether each account was debited or credited. Journal entries are a critical accounting component because they provide a chronological and detailed record of all financial transactions.

What is a journal entry in accounting

Journal entry in accounting definition

More specifically, a journal entry typically includes the following:

  • Date: The date on which the transaction took place.
  • Account Title: The name of the account(s) affected by the transaction.
  • Debit/Credit: Whether the account(s) were debited or credited.
  • Amount: The dollar amount involved in the transaction.
  • Description: A brief description of the transaction.

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Importance of Journal Entries in Accounting

Journal entries play a crucial role in accounting as they serve several important purposes. By accurately recording financial transactions, they provide a comprehensive record of a business's financial activities, which is essential for financial reporting, auditing, and decision-making purposes. Let's explore these reasons in more detail.

  • Accurate Financial Reporting: Journal entries ensure that all financial transactions are recorded accurately in the financial statements, enabling companies to report accurate financial results.
  • Audit Trail: Auditors use journal entries to trace the flow of funds during the audit process. Journal entries provide an audit trail, which helps auditors to verify financial transactions and identify any fraudulent or irregular activities.
  • Internal Control: Journal entries help establish internal controls in organizations. Internal controls refer to procedures put in place by the management of a company to safeguard its assets and ensure the accuracy of its financial reporting.
  • Tax Purposes: Journal entries help calculate taxes owed by a company, whether it’s income tax, sales tax, or any other type of tax. 
What is a journal entry in accounting

Importance of Journal Entries in Accounting

Journal Entry Accounting Practice

To properly record a transaction using a journal entry, an accountant must follow certain steps. Here is an example of an accounting journal entry practice for recording a sale on credit:

  • Step 1: Identify the accounts involved in the transaction. In this case, it is Accounts Receivable and Sales Revenue.
  • Step 2: Determine if the accounts will be debited or credited. In this case, Accounts Receivable will be debited, and Sales Revenue will be credited.
  • Step 3: Assign dollar amounts to each account. For example, if the sale was for $10,000, then Accounts Receivable will be debited for $10,000, and Sales Revenue will be credited for $10,000.
  • Step 4: Write the journal entry. The journal entry would look like this:

    Accounts Receivable Debit: $10,000

    Sales Revenue Credit: $10,000
What is a journal entry in accounting

Journal Entry Accounting Practice

Accounting Journal Entry Example

To better understand journal entries in accounting, let's consider these examples. 

Example 1: Suppose a business purchases office equipment for $5,000 using cash. The journal entry for this transaction would be:

DateParticularDebitCredit
25 MarchOffice Equipment

                         Cash

(Office Equip. Purchased in cash)
$5000

                          $5000

The office equipment account is debited in this accounting journal entry example, while the cash account is credited. This entry shows that the business has acquired office equipment, which is recorded as an asset, while cash has been used to pay for the equipment, decreasing the cash balance.

Example 2: Another accounting journal entry practice is the recording of a sale on credit. Suppose a business sells merchandise for $10,000 on credit to a customer. The journal entry for this transaction would be:

Date
Particular
Debit
Credit
03 FebAccounts Receivable
 
                          Sales
$10,000


                      $10,000

In this example, the accounts receivable account is debited, indicating that the business is owed $10,000 from the customer. The sales account is credited, indicating that the business has made a sale for $10,000.

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​FAQ

To create a journal entry, you typically start by identifying the accounts affected by the transaction. Determine whether each account should be debited or credited based on the transaction type and accounting principles. Then, record the amounts and write a brief description of the transaction.

There are various types of journal entries, including revenue entries, expense entries, asset entries, liability entries, equity entries, and adjusting entries. Each type of entry reflects a specific type of transaction or accounting adjustment.

Yes, accounting software simplifies the process of recording journal entries. It often provides automated journal entry templates and allows for easy customization and entry validation, reducing the risk of errors and saving time in the accounting process.

In the above article, we answered "What is a journal entry in accounting?" and provided some examples and practice about accounting journal entries. Let's follow the Viindoo blog for more valuable information!

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What is a Journal Entry in Accounting? Guide with Examples
Viindoo Technology Joint Stock Company, Trinh Thi Ngoc Anh April 8, 2023

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