Accounting: What is a Journal entry?

Accounting: What is a Journal entry? This article describes what a journal entry is, shows you examples of journals posted by Enterpryze in the Accounting Package.

What is a Journal entry?

A Journal entry is the first step in the Accounting process. It is a record of the financial transactions that takes place within a business. As the saying goes there is two sides to every story, well this applies to journals as they always contain postings to Debit and Credit columns. In simple terms, Debit is the receiver (what money comes in) and Credit is the giver (what money goes out). In Accounting terms, this is the double-entry system, as the total debits and credits must always equal on a journal.

Why do we do Journal entries?

Journal entries are important in a business as they allow us to sort our transactions into manageable data and build the picture of how our business is doing.

What does a Journal entry look like?

All financial transactions added to Enterpryze will automatically create the journal for you. The transactions include Invoices, Credit Notes, Deliveries, Returns, Receipts, Payments, Stock postings (Goods In, Goods out, Stock Transfer) and manual journal entries.

Tip:

  • Assets, Expenses (P&L) usually a Debit on these accounts.

  • Liabilities, Revenue, Capital usually a Credit on these accounts.

Take a look at a journal that is created when a Sales Service Invoice is added.

The rule for recording income/revenue is you credit all income and gains.

  • The first row shows you the Customer that the Invoice relates to which is a Debit to Assets Debtors account.

  • the second row shows you the Vat amount applied to that invoice which is a Credit to the Vat account in Liabilities,

  • and the third row shows you the GL account selected to post the Sales amount/Revenue to which is a Credit to the Turnover account for this sale.

  • You can see that the total of the Debit and Credit columns are equal.

Take a look at what happens on the journal when you add a Payment for this Invoice.

  • The first row reflects the Bank account to be debited, this is the Bank GL account that is linked to the Payment type that you choose on the Payment screen.

  • The second row is a Credit to the Debtors account to reduce the balance owed.

Tip: There is a link from every transaction in Enterpryze to the Journal Entry for that transaction. Simply click on the Journal No. link provided on the Document, below is from an invoice.

What's next: See how to add a manual journal entry here

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