What is Journal Entry?

A journal entry is the basic unit of double-entry bookkeeping. Each entry records a date, the accounts affected, the debit and credit amounts, which must be equal, and a memo explaining the entry.

Everyday entries are created automatically

Most transactions in modern software, such as invoices, bills and bank transactions, generate journal entries behind the scenes. Manual journal entries are used for items that do not come through those workflows.

Common manual entries

• Depreciation and amortization
• Adjusting entries for accruals and prepaid expenses
• Payroll summaries from an outside payroll provider
• Reclassifications to correct a transaction posted to the wrong account
• Year-end entries from your tax preparer

Example

Monthly depreciation of $500 on equipment is recorded as a debit to depreciation expense of $500 and a credit to accumulated depreciation of $500.

Good practice

• Always include a clear memo and attach the supporting calculation
• Avoid manual entries to bank or receivable accounts, which break reconciliations and customer balances
• Have someone review significant manual entries
• Use recurring entries for regular items such as depreciation

Why it matters

Unexplained journal entries are one of the first things reviewers question. Clear entries are part of a reliable audit trail. See debits and credits for how each side works and our month-end close checklist for where entries fit in the routine.

Related terms

• Adjusting Entries: Adjusting entries are journal entries made at the end of a period so the books reflect revenue and expenses in the correct period.
• Amortization: Amortization spreads the cost of an intangible asset, or the repayment of a loan, over time.
• Double-Entry Bookkeeping: Double-entry bookkeeping records every transaction in at least two accounts, with total debits equal to total credits.
• Debits and Credits: Debits and credits are the two sides of every bookkeeping entry; each account type increases on one side and decreases on the other.

Browse more definitions in the small business glossary.