What is a journal entry?

Definition

A journal entry is a dated record of equal debits and credits posted to the general ledger. Every event that hits the books is written this way, even when the software hides the form behind an invoice screen.

This is the posting itself, not the source document that supports it. The cafe bill explains why the entry exists, and the entry is what changes the accounts.

Where it shows up

Balance sheet: Related to the accounts the entry hits.

P&L: Related to any income or expense account the entry hits.

Cash flow: Related to cash only if a cash account is in the entry.

See also: Debit · Credit · General Ledger

When you look at a Balance Sheet, you do not see the entries. You see the balances those entries left behind.

The Income Statement is the same. Sales and rent totals are the sum of entries posted to those accounts during the period.

A large cash balance means more debit entries hit cash than credit entries did. It does not tell you which cafe paid.

You will see the entries themselves on a ledger printout or in an entry screen. Each one has a date, at least one debit, at least one credit, and amounts that match.

If an invoice to the cafe is recorded, the software still writes an entry. You may never open a journal screen, and the books still move.

Cash appears on the Statement of Cash Flows only when a cash account is one of the lines. An entry that only moves receivables and revenue does not change cash.

How it works

Someone chooses the date, the accounts, and the amounts. Debits go on the left, credits on the right, and the two sides must equal.

A simple entry has two lines. Collecting $400 from the cafe debits cash and credits accounts receivable.

• Choose the date, the accounts, and the amounts.
• Put debits on the left and credits on the right so both sides equal.
• Post the entry to the general ledger accounts.
• Keep a short memo so the next reader knows what happened.

A compound entry has more than two lines. Paying a vendor bill that includes tax might credit cash once and debit two expense or payable accounts.

The entry is then posted to the accounts. After posting, cash is higher and receivables are lower by the same $400.

If the sides do not equal, the books will not balance. Software usually blocks that save.

Each entry keeps a date so later readers know which period it belongs to. A March collection should not carry an April date unless it truly happened in April.

The entry does not replace the cafe invoice. The invoice is the bill to the customer, and the entry is the books' record of that event.

A short memo on the entry helps the next reader. "Cafe collection" is enough, and a novel is not required.

Reversing an error is another entry, not an erase. The original lines stay, and a second dated entry puts the accounts back.

Example

A florist billed a neighborhood cafe $400 last week. Today the cafe pays in cash.

Debit: Cash $400

Credit: Accounts receivable $400

Cash rises $400 on the Balance Sheet. Accounts receivable falls $400, so total assets do not change.

The Income Statement does not move. The sale was already recorded when the invoice was issued.

If the florist typed $400 on cash and $40 on receivables, the entry would be out of balance. It should not post.

The same shape works in the other direction. Issuing the original invoice would debit accounts receivable and credit revenue for $400.

Common mix-ups

A journal entry is not the invoice. The invoice bills the customer, and the entry is how that bill, or its collection, hits the accounts.

A journal entry is not a bank transaction by itself. Cash moves at the bank when the customer pays, and the entry is how the books catch up.

People also treat every on-screen click as something other than an entry. Saving an invoice or a bill still writes debits and credits, even when the form never says journal.

Related terms

• Debit: The left side of an entry, which increases assets and expenses.
• Credit: The right side of an entry, which increases liabilities, equity, and revenue.
• General Ledger: The master record of every account and every posted transaction.
• Posting: Recording a journal entry into the general ledger accounts.
• Adjusting Journal Entry: An entry made at period end to record accruals, deferrals, and corrections.
• Double-Entry Bookkeeping: The method in which every transaction hits at least two accounts and stays in balance.
• Source Document: The original receipt, bill, or statement that supports an entry.
• Audit Trail: The traceable chain from a reported number back to its source document.