Quick answer
A journal entry is a dated record of a recognized transaction, adjustment, or other accounting event. It identifies the affected accounts, places debit amounts first and credit amounts beneath them, and keeps total debits equal to total credits.
The general journal organizes entries chronologically. Before an entry is written, the underlying event must be understood and the relevant recognition and measurement decisions must be made. A receipt or invoice is evidence; it is not the accounting analysis by itself.
In the accounting cycle, each entry captures an event before the ledger gathers its effects by account.
Anatomy of a journal entry
- Date
- The date the recognized transaction or adjustment belongs in the records—not necessarily the date someone enters it into software.
- Accounts
- Specific account names that describe the measurable effects. Debited accounts are presented first; credited accounts are indented.
- Debit and credit amounts
- Amounts placed in separate columns. Each line has an amount on only one side, and the column totals must be equal.
- Description or source reference
- A concise explanation or reference that lets a reviewer understand what was recorded and trace it to supporting evidence.
Source evidence and documentation
An invoice, contract, payroll record, or other source supports the date, amount, and nature of the event. Retain a reference that connects the entry to that evidence. Apply the transaction analysis in Debits and Credits before documenting the result in the journal.
Simple, compound, and period-end entries
A simple entry affects two accounts; a compound entry affects more than two. Both record one event or a clearly identified group of related effects. Keep separate dates distinguishable in a general journal.
Regular entries record events during the period. Adjusting entries update period-end amounts for accruals, deferrals, and estimates. Closing entries transfer temporary revenue, expense, and distribution balances to the appropriate equity account. These categories describe purpose, not the number of debit and credit lines.
Build Maple Tech’s March journal
These five transactions form Maple Tech’s unadjusted March records. Their amounts carry through to the ledger and financial statements, making each stage traceable.
Transaction dates and supporting facts
- March 1: The founder pays $50,000 for common shares; the share agreement and deposit support the contribution.
- March 3: Maple buys $12,000 of equipment for cash; the supplier invoice and payment record support the acquisition.
- March 8: Maple receives $2,400 of supplies on credit; the supplier invoice establishes the amount payable.
- March 20: Maple completes $6,000 of services and collects payment; the completed-service record supports earned revenue.
- March 31: Maple pays $1,500 for March rent; the lease and payment record identify the expense period.
Scroll horizontally to see all columns.
| Date | Account | Debit | Credit |
|---|---|---|---|
| JE-01 · Founder purchases common shares for cash | |||
| Mar 1 | Cash | 50,000 | |
| Common Shares | 50,000 | ||
| JE-02 · Purchase equipment for cash | |||
| Mar 3 | Equipment | 12,000 | |
| Cash | 12,000 | ||
| JE-03 · Purchase supplies on account | |||
| Mar 8 | Supplies | 2,400 | |
| Accounts Payable | 2,400 | ||
| JE-04 · Complete services for cash | |||
| Mar 20 | Cash | 6,000 | |
| Service Revenue | 6,000 | ||
| JE-05 · Pay one month’s rent | |||
| Mar 31 | Rent Expense | 1,500 | |
| Cash | 1,500 | ||
The references JE-01 through JE-05 let each journal line be traced to its ledger account. These entries precede the March period-end adjustments. Taxes and other unstated items are outside the example.
Statement effects of March revenue and rent
Scroll horizontally to see all columns.
| Statement | Account | Effect | Timing |
|---|---|---|---|
| Income statement | Service Revenue | Revenue increases by $6,000 | March |
| Income statement | Rent Expense | Expense increases by $1,500 | March |
| Income statement | Recorded profit before adjustments | Recorded revenue exceeds recorded expenses by $4,500 | After JE-05 and before period-end adjustments |
| Balance sheet | Equity | Equity increases by $4,500 from recorded revenue less recorded expense | Before period-end adjustments and closing |
- Income statement
- AccountService Revenue
- EffectRevenue increases by $6,000
- TimingMarch
- Income statement
- AccountRent Expense
- EffectExpense increases by $1,500
- TimingMarch
- Income statement
- AccountRecorded profit before adjustments
- EffectRecorded revenue exceeds recorded expenses by $4,500
- TimingAfter JE-05 and before period-end adjustments
- Balance sheet
- AccountEquity
- EffectEquity increases by $4,500 from recorded revenue less recorded expense
- TimingBefore period-end adjustments and closing
Journal versus ledger
The journal keeps each balanced entry together with the event and date it records. The general ledger reorganizes those lines by account so a running balance can be calculated. This transfer, called posting, is illustrated in General Ledger and T-Accounts.
Entry review checklist
- Does the entry describe a recognized event or adjustment?
- Are the account names specific and appropriate?
- Does each increase or decrease use the correct debit or credit side?
- Do total debits equal total credits?
- Is the date in the correct reporting period?
- Is cash included only if cash actually changed?
- Does the description make the purpose and evidence traceable?
Common errors
- Treating the journal line as an account balance. A line records one change; the ledger accumulates all changes to find the balance.
- Assuming every entry includes Cash. Credit purchases, accrued expenses, and many adjustments do not involve current cash.
- Accepting arithmetic balance as proof. Equal amounts can still be posted to the wrong accounts or period.
- Recording revenue twice. Collecting a receivable changes Cash and Accounts Receivable; the revenue was recorded when it was earned.