Journal entries are the initial step in the accounting cycles. They are records of business transactions in the accounting system. As transactions and other related events occur during the accounting period, you should record the journal entries in the general journal to reveal how each transaction or event affected the accounting equation. This information will be very useful when you are creating the business financial statements (typically, the profit and loss and balance sheet) at the end of the accounting period.
Whenever a transaction takes place, at least two accounts are affected. This implies that you will debit one account and credit the other. Keep in mind that the total debited amount and the total credited amount must always be equal (balance) and this is the double entry system. If the account doesn’t balance, then, it will be difficult to prepare the financial statements. Therefore, using the two-column format of recording transactions is advisable because you can track the transactions easily.
Format of a journal entry
Every journal entry must contain the following:
- The accounts in which you have recorded the credit and debit amounts
- The date you made the entry
- The accounting period in which the entry was made
- A unique number to identify the entry
Special types of journal entries
There are two special accounting journal entries that you should know.
Reversing entry: these journal entries you make at the start of the accounting period. They are meant to cancel out a particular adjusting entry that you made at the end of previous accounting period.
Recurring journal entries: These journal entries that you record in every accounting period. For example, your company might be recording depreciation of machinery by debiting the depreciation expense account for $200 and crediting accumulated depreciation account for $200 monthly. This is a recurring journal entry as it occurs every month.
Unbalanced journal entries
If a journal entry is made, but the debited amount and the credited amount aren’t equal, then that’s an unbalanced journal entry. This will result in an unbalanced trial balance and unbalanced balance sheet.
It is common that some accountants commit fraud using journal entries rather than the use of other methods such as overcharging the supplier invoices. Therefore, as a business owner, you must know how to check the journal entries and ensure that they are correctly recorded. Otherwise, your business might suffer losses especially in your accountant isn’t honest. The other option is to leverage on an accounting services in Singapore and let a third party professional manage this task for you.