Journal Entry
A record of a business transaction with debits and credits to affected accounts.
Definition
A journal entry records a financial transaction using double-entry bookkeeping: every transaction affects at least two accounts, with equal debits and credits. For example, receiving cash from a customer debits Cash and credits Accounts Receivable.
Journal entries include: date, accounts affected, debit and credit amounts, and a brief description. They're the building blocks of accounting—all transactions start as journal entries before posting to the general ledger.
Why It Matters
Accurate journal entries are essential for correct financial statements. Errors in journal entries flow through to the general ledger, trial balance, and financial statements, compounding problems.
Understanding basic journal entries helps business owners communicate with bookkeepers and accountants. You don't need to make entries yourself, but knowing how transactions are recorded improves financial literacy.
Examples
- 1
Customer pays $5,000 invoice: Debit Cash $5,000, Credit Accounts Receivable $5,000.
- 2
Purchase equipment for $10,000: Debit Equipment $10,000, Credit Cash $10,000.
- 3
Adjusting entry for prepaid insurance: Debit Insurance Expense $1,000, Credit Prepaid Insurance $1,000.
Related Terms
Quick Navigation
Ready to put this into practice?
InvoiceLaunch automates invoicing with built-in payment terms, late fees, and more.
Get Started