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

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.

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
Date	Particulars	Debit (Rs.)	Credit (Rs.)
04-Apr	Cash A/c	10,000
	To Revenue A/c		10,000

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
Date	Particulars	Debit (Rs.)	Credit (Rs.)
17-Aug	Machinery A/c (Fixed Asset A/c)	5,00,000
	To Account Payable A/c		5,00,000

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
Date	Particulars	Debit (Rs.)	Credit (Rs.)
17-Aug	Machinery A/c	3,00,000
	To Account Payable A/c		5,00,000

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.

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