What are Journal Entries? Definition, Format and Examples of Journal Entry

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In accounting system, Journal entry consists of transactions which are either a credit or debit transactions. Total of debit and credit journal entry transactions are unbalanced.  Journal entry can record unique or recurring transactions. Therefore, Journal entry transactions directly affect the balances of general ledger accounts. “Journal entry is a method of posting transactions into accounting records”. These records are then combined into general ledger. This information is further used to prepare financial statements at the end of the accounting year.

Under journal entry posting, minimum of two accounts are always affected for a single transaction. In-case first account is affected by debit entry then second account will be affected with credit entry.  This type of two-line journal entry posting system is also known as simple journal entry. Whereas journal entry affecting more than two accounts for a transaction is known as compound journal entry. Journal entry is said be in-balance when total of debit and credit entries for a transactions are equal.

Journal Entry Format must include following fields:

  • Accounts where debit and credit entries will be posted or recorded.
  • Transaction Date.
  • Accounting Period.
  • Entries recorded or posted by person.
  • Type of entry: single entry, reverse entry, recurring entry, etc.
  • Brief supporting description with attached documentation of recorded journal entries.

Wiki Finance pedia - e-learning course on Accounting Wikipedia Chapter - Learn about Journal Entries

Example of Accounting Journal Entries are listed below:

Accounting journal entry example scenario-1:

Reliance Industries sell a product worth Rs.10,000/- to the customer. In other words, it means that Cash A/c and Revenue A/c are increased with specified amount.

Journal Entry for the current accounting year

DateParticularsDebit (Rs.)Credit (Rs.)
04-AprCash A/c10,000
To Revenue A/c10,000

Note: This is the format of journal entries followed across accounting software and systems.

Accounting journal entry example scenario-2:

Raymond Textile Pvt Ltd purchased machinery of Rs.5,00,000/- on credit line. This result in an increase of companies liabilities.

Journal Entry for the current accounting year

DateParticularsDebit (Rs.)Credit (Rs.)
17-AugMachinery A/c (Fixed Asset A/c)5,00,000
To Account Payable A/c5,00,000

Errors in Journal Entries:

Let us take an above example and understand what happens when a person enters incorrect debit or credit amount in-case of manual entry.

Journal Entry for the current accounting year

DateParticularsDebit (Rs.)Credit (Rs.)
17-AugMachinery A/c3,00,000
To Account Payable A/c5,00,000

Assuming that mistakenly amount enter for accounts are not similar. Such errors will be highlighted in trail balance because due to unbalance accounts trail balance will fail to get tally. This will lead to re-investigate and find the errors and omissions in the records to match the trail balances. These kinds of errors are normally omitted under computerized system where software automatically performs data checks and validations for errors.

Frauds performed in Journal Entries:

It is common to conduct fraud entries and posting into journal entry transactions. Accounting software’s and systems has limitations due to which it is easy to perform frauds in journal entries. These types of records are especially hard to spot. Eventually this becomes difficult to track disobedience of accounting laws under audits as well.

- Tutorial Course - Basics of Accounting for Beginners -

» e-Learning Chapter 1: What is Accounting and objectives of Accounting?

» e-Learning Chapter 2: What is Assets and Current Assets?

» e-Learning Chapter 3: What is Liability and Current Liabilities?

» e-Learning Chapter 4: What is Revenue and Expenses?

» e-Learning Chapter 5: What are the Types of Accounts?

» e-Learning Chapter 6: What is a Single Entry System?

» e-Learning Chapter 7: What is Double Entry Accounting System?

» e-Learning Chapter 8: What are the steps involved in Accounting Process Cycle.

» Currently Reading: What are Journal Entries? Format and Examples.

» e-Learning Chapter 10: What Is a General Ledger? Format with Example.

» e-Learning Chapter 11: What is a Trial Balance? Examples and Limitations.

» e-Learning Chapter 12: What is a profit and loss statement or Income Statement?

» e-Learning Chapter 13: What is a Balance Sheet? Definition, Format and Examples.

» e-Learning Chapter 14: What are the Different Types of Accounting Methods in Bookkeeping.

» e-Learning Chapter 15: Accounting Quiz – Basics of Accounting for Beginners Module.

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