Journal Entry
The initial recording of financial transactions in the accounting system, documenting debits and credits with date, account references, and descriptions.
Journal Entry
The initial recording of financial transactions in the accounting system, documenting the accounts affected with their respective debits and credits, along with the date, reference information, and a description explaining the transaction’s nature and purpose.
For instance, when a company purchases $10,000 of inventory on credit, the journal entry would include:
- Date: March 15, 2023
- Accounts: Inventory (debit $10,000), Accounts Payable (credit $10,000)
- Description: “Purchased inventory on credit from ABC Supplier, Invoice #12345”
Journal entries represent the first step in the accounting cycle, capturing the economic impact of business events in chronological order before posting to ledger accounts. Each entry must maintain the fundamental accounting equation by ensuring debits equal credits. Simple entries affect just two accounts, while complex entries may involve multiple accounts. Beyond routine transactions, specialized entries include adjusting entries (aligning accounts with accrual accounting principles), closing entries (resetting temporary accounts), and correcting entries (rectifying errors). While traditional manual systems used physical journals, modern accounting software maintains electronic journals that automatically update ledger balances while preserving the audit trail of original transaction records.