Journal Entry

What is a journal entry?

A journal entry is a record of a financial transaction in your company’s accounting system. It includes the date, accounts affected, amounts, and a brief description. Journal entries make sure every financial event is documented and categorized. Without them, you would have no way of tracking income, expenses, assets, and liabilities. Not to mention, you could not put together any important financial statements like a balance sheet or an income statement without journal entries. These reports rely on accurate entries.

Key points

• Journal entries record financial transactions and document income, expenses, assets, and liabilities.
• Journal entries follow a double-entry system (debits and credits) so businesses can keep financial records organized and accurate.

How to write a journal entry

Writing a journal entry isn’t hard once you know the format. Every entry follows a simple structure:

1. Date the transaction – Always start with the date of the transaction. This way, records are chronological.
2. Identify accounts involved – Every transaction affects at least two accounts. Following the double-entry system, one account is debited, and the other is credited.
3. Determine debit and credit amounts – Debits and credits must always balance. For example, if a business buys office supplies for $500 cash, the “Office Supplies” account increases (debit), and the “Cash” account decreases (credit).
4. Write a description – A short note explaining the transaction helps keep records clear. This can be helpful when reviewing transactions later.

Nowadays, many businesses use accounting software to automate journal entries and reduce the manual hours spent logging business operations by hand (or by Excel). Understanding the manual process is still key to mastering financial reporting and being able to problem-solve if financial situations arise.

Journal entry example

A business owner buys new equipment for $3,000 and pays cash. The journal entry would look like this:

Date: March 10, 2025

• Debit: Equipment Account $3,000
• Credit: Cash Account $3,000
• Description: Office equipment for business use.

Now, if the owner had borrowed instead of paying cash, the entry would look like this:

Date: March 10, 2025

• Debit: Equipment Account $3,000
• Credit: Loan Payable Account $3,000
• Description: Equipment financed through a business loan.

These examples show how journal entries record financial activity so you can track transactions and keep records accurate. Whether you’re a business owner or learning accounting, getting comfortable with journal entries is key to keeping financials in order.

Think of it as keeping a personal budget—if you don’t record what you spend and earn, you might end up over-drafting your account or forgetting where your money went. Businesses face the same challenge but on a much larger scale. That’s why journal entries are important for keeping financial records organized and accurate.