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.
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.
Reason before formatting
The journal is where the analysis is documented, not where the analysis begins. For each transaction:
- Describe the event from the business’s perspective.
- Identify the affected accounts and classify each one.
- Decide whether each account increases or decreases.
- Apply the account’s normal balance to choose debit or credit.
- Confirm that debits equal credits and the entry tells the right story.
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.
| 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.
How the March operating entries flow to the statements
| 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 | Result 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 |
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. Continue to General Ledger and T-Accounts for posting and account-level balances. The Accounting Cycle shows where that step fits in the full process.
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 mistakes
- 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.