What is a Journal Entry?
Definition:
A journal entry is the method used to record all individual financial transactions made by a company into its journal. To put it more simply, it is the daily accounting input written in the journal for each business event.
What Does Journal Entry Mean?
What is the definition of journal entry? Journal entries are foundation of all accounting and financial data. This is where it all starts because this is where real world events are recorded into a system. This is the first step in the accounting cycle and takes place each time a financial transaction occurs.
The accountant takes the evidence of a transaction and writes a journal entry for it. The entries must have a minimum of two lines according to double entry accounting rules. Each column must have the same value after the transaction is recorded in order to keep the books balanced. Here’s what the format looks like.
Some years ago, this was a manual procedure, but right now there are computer programs that will summarize all daily or even monthly journal entries and issue a general report of all the transactions that took place in a given period of time, the system assures the user that the books are balanced and up to date.
Example
All-in-one Market is a company that sells groceries and home appliances. Today, the company’s accounting department has received all the transaction receipts from yesterday operations. As part of his day-to-day duties, the bookkeeper must record each one of these transactions into the company’s accounting system using journal entries.
In most modern accounting systems like Quickbooks, bookkeepers rarely make individual entries. They use a software interface to enter in data. The computer then automatically generates the entries in the system. These entries are accumulated in journals and transferred to ledgers that are used to generate reports.
Summary Definition
Define Journal Entries: Journal entry means a record of a business event in an accounting system.
A journal entry has these components:
• The date of the transaction
• The names of the accounts impacted plus the account number, where relevant
• The amounts to be credited and debited
• A reference number that serves as a unique identifier for the transaction
• A description of the transaction
Accounts Receivable Journal
Accounts receivables are the money owed to the company by the customers and accrual accounting system allows such type of credit sales transactions by opening a new account called accounts receivable journal entry
Accounts receivables can be considered as an investment made by the business that includes both risks and returns. Returns in the form of easily acquiring new customers and risk in the form of non-payments called bad debts.
• Accounts Receivables are asset accounts in the books of the seller because the customer owes him an amount of money to pay against the goods and services already delivered by the seller. Conversely, it creates a liability account in the books of customers called Accounts Payables.
• The Balance Sheet categorizes Account Receivables as a current asset because sales made on credit are expected to get paid soon as per the credit terms mentioned in the invoice issued by the seller.
• Generally, financial statements are prepared using the accrual accounting method that has been made mandatory by both GAAP & IFRS. Accrual accounting requires recording the revenues as for and when they are earned whether payments in cash is received or not
At the time of recording a credit sale and billing the customer
Accounts Receivable A/C Debit
To Sales (on credit) A/C Credit
At the time of money received from the customer
Cash A/C or Bank A/C Debit
To Accounts Receivable A/C Credit