What is a journal entry in accounting? A how-to guide with examples

In accounting, a journal entry is a way to track a business’s transactions. Think of it as a snapshot of the transaction, documenting who the transaction was with, the money and products/services exchanged, and any other relevant information. It’s essential for businesses and helps streamline the accounting process throughout the year. 

If you’re new to accounting or are just starting to manage financial records for an organization, learning how to create basic journal entries within your general accounting ledger is a key skill. Let’s take a look at how journal entries work and how you can use them in your business.

How a journal entry works in accounting

How to write a journal entry

Different types of journal entries

Best practices for accurate journal entries

Streamline your accounting and save time

Journal entry FAQ

How a journal entry works in accounting

Accounting journal entries are key components of double-entry bookkeeping that work to ensure businesses and their accounting team know which transactions were made, when they were made, and how much money was exchanged. The exact information entered in each journal entry will depend on the business and the transaction involved. 

A typical journal entry will include:

• The date: Document the exact date of the transaction for each journal entry.
• The key account information: Include the account name and account number (if applicable) for every account involved in the transaction. 
• The reference number: Every journal entry and transaction should have a reference number in place. This makes it easier to look up transactions in your system.
• The debit or credit amounts: Document how much your business was paid for the transaction or how much they paid for goods and services. 
• A detailed description: Include a clear description of the transaction, touching on the types of products or services sold, the number of products involved in the transaction, and a description of those products/services.

Typically, the more information you can provide, the better. With more detailed records, you’ll be better able to track discrepancies and reduce the risk of potential errors in the future.

How to write a journal entry

Creating a journal entry may be one of the most important parts of your accounting process, but that doesn’t mean it has to be difficult. While we’ll go over some journal entry examples later on, it’s important that you first understand the process of writing basic journal entries. Here are the main steps you’ll want to follow as you start developing your accounting journal entries.

1. Identify the transaction 

Start by identifying the transaction you’re featuring in your journal entry. If you’re trying to record multiple transactions, you’ll want to create separate entries for each one. 

2. Pinpoint the affected accounts

Once you’ve identified the transaction you want to feature in the journal entry, you’ll want to identify which accounts were involved. There may be more than one, but most entries will involve your business and the person or entity you’re doing business with. If the transaction involves more than those two accounts, make a note and mention each account associated with the transaction.

3. Determine the debit and credit

In accounting, debits and credits refer to different things than they do in the regular course of your business, and deciding between logging a transaction under account debit vs. credit can be tough. Debits refer to an increase in assets and expenses, and credits refer to an increase in liabilities and equity. Identify which type of transaction you’re dealing with so you can record it accurately in your entry.

4. Record the transaction as a journal entry

After gathering all of your information, you can record your journal entry for the transaction. Remember, you’ll need to include the date of the transaction, the reference or transaction number, the accounts impacted, the amount credited or debited, and a description of the transaction. Be as detailed as you need to be, and remember that more information could make it easier to understand your transaction history when reviewing your journal entries.

5. Post the information to the general ledger

When you’re satisfied with your journal entry, you can post it to the general ledger. The general ledger is the record of all transactions across all of your accounts. When you post the journal entry to the ledger, the entry will be displayed when you run the report.

Different types of journal entries

Though the process for creating journal entries is largely the same across the board, there are multiple types of journal entries that you can use to streamline your accounting efforts. 

Here are some common journal entry types: 

• General journal entry: General entries, often known as standard journal entries, are those used for routine business transactions. Typically, you’ll use this entry to record sales, purchases, routine expenses, and other similar transactions.

• Opening journal entry: Opening entries are simply the first transaction logged in the journal for a specific time or accounting period.

• Closing journal entry: Closing entries are the last transaction logged in your journal for that accounting period. 

• Adjusting journal entry: These entries record any unrecognized or uncategorized expenses or income earned by the end of the accounting period. They’re particularly useful for businesses whose customers pay in installments and may not pay in full by the end of the accounting period and those who need to create an allowance for doubtful accounts.

• Transfer journal entry: Transfer entries let you record transactions that involve transferring money to a different account within your business. It typically only refers to transactions made within your business and does not involve outside accounts or parties.

• Compound journal entry: Compound entries are ones involving more than two accounts. They record the debits or credits for all accounts involved. The purpose is to simplify the accounting process since compound entries let you log multiple debits and credits under a single entry rather than recording a unique entry for each one.

• Reversing journal entry: Reversing entries let you cancel out entries made during a prior accounting period. Often, these entries are used to adjust and accurately reflect the expenses and accrued revenue during the end of the prior accounting period.

You may find that you use all of these types of entries or just a handful. It depends on the type of business you’re running, the types of transactions you’re dealing with, and the possible concerns that come up during each accounting period. 

3 journal entry examples

The process of creating journal entries in accounting can seem complicated if you’re not sure what they’re supposed to look like. Here are a few journal entry examples to give you a general idea of what to expect, whether you’re using a cash basis accounting method or an accrual accounting method.

1. Sales journal entry

Say you own a custom sticker business and sell $1,000 worth of custom stickers to a customer who pays with cash. Your customer, CoolKidz Inc., pays you the full $1,000, and you deliver the stickers to them. 

The $1,000 is reflected in both the debit and credit columns. This is because accounts receivable is considered an asset and the value increases after the sale, so it’s debited on your journal entry. And since your sales revenue also increases, it’s credited in your journal entry by the amount of the sale. 

2. Purchase journal entry 

Say your business buys $500 worth of office products with cash. Purchasing office supplies means you’re purchasing goods which are a type of business asset. Since the value of your total assets increased, the amount you paid is debited. And since you paid cash which is also an asset, the value of your assets decreases, so it’s credited in the journal entry as part of your accounts payable.

3. Purchase journal entry with a note payable

Say your business purchases equipment worth $10,000 by signing a note payable with a 5% interest rate. The note is due in one year, meaning you have one year to pay the balance off in full plus any interest accrued. 

Again, since your equipment is classified as a business asset, your total asset value increases, so it’s highlighted in the debit column. And since notes payable are liabilities, and your total liability increases, the amount is credited to the journal entry.

Since your purchase journal entry won’t account for the interest you pay on the one-year note, you’ll need to add a separate entry to account for that interest. 

Best practices for accurate journal entries 

Your business journal helps keep your general ledger accurate and makes it easier to track your spending and monitor your company’s performance throughout the year. That’s why making sure your entries are accurate is key. Here are a few tips to keep in mind as you start your journal:

• Record journal entries promptly: The sooner you record your entries, the easier it will be to recall the necessary details. Try to record all entries within a month of the transaction taking place or at least once each quarter.
• Double-check all entries for accuracy: Errors in your entries can cause errors in your accounting and records review. Check each entry for accuracy and fix any errors as soon as you find them, whether you’re reviewing your ledger in QuickBooks or an exported Excel accounting statement.
• Provide clear and concise descriptions: Descriptions should give you clear insight into the transaction details each journal entry references. Focus on the key details, like the transaction type and products involved.
• Use consistent formatting and procedures: By keeping your formatting consistent throughout your general ledger, you’ll make it easy for everyone involved in accounting to interpret the information.
• Review and reconcile journal entries regularly: Get in the habit of reviewing your general ledger (and all of your journal transactions) regularly, checking for errors as you go. If you identify any errors in your credits or debits, make sure to adjust them so your information is accurate.

As long as you keep these best practices in mind, you’ll be well on your way toward creating journal transactions that simplify the rest of your accounting efforts. If you’re not sure where to start, you can access professional guidance and advice through QuickBooks Live. Experts will guide you through the process and give you real-time advice.

Streamline your accounting and save time

Creating journal entries can make your accounting efforts easier and reduce the risk of inaccuracies impacting your bottom line and financial projections. However, each journal entry needs to be accurate. 

If you’re worried about making mistakes or aren’t sure where to start when crafting your first entry, accounting software like QuickBooks can help you manage it.