Journal Entry overview
A Journal Entry is a record made in the general ledger that affects financial accounts. It is a fundamental part of accounting, ensuring that every financial transaction is properly recorded.
What is a Journal Entry?
A Journal Entry is a transaction where we select accounts to be debited and credited. It is a key accounting tool used for various purposes, such as:
✅ Recording expenses
✅ Adjusting balances
✅ Bank transactions
✅ Opening balances
✅ Advance payments
It follows the double-entry accounting system, where the total debit amount must always equal the total credit amount.
Important: Sales and purchase transactions are not recorded through Journal Entries. They have separate transaction records.
How to Create a Journal Entry (Step-by-Step Guide)
To create a Journal Entry, follow these steps:
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Go to Journal Entry List:
Navigate to Home > Accounting > General Ledger > Journal Entry in your ERP system. -
Click on ‘New’ to start a fresh Journal Entry.
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Choose Entry Type:
By default, it will be set as ‘Journal Entry’, which is a general-purpose entry. -
Set the Date:
Choose the Posting Date when the transaction occurs. -
Select Accounts:
- Choose the account where the amount will be debited (e.g., expense, asset, etc.).
- Choose the account where the amount will be credited (e.g., cash, bank, etc.).
- You can use a Journal Entry Template for pre-defined details.
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Add Party Details (if applicable):
If the entry involves a customer (debtor) or supplier (creditor), select their details. -
Ensure Total Debit = Total Credit:
The sum of all debit amounts must match the sum of all credit amounts. -
Save and Submit:
Once everything is correctly entered, click Save and then Submit to finalize the entry.
Features of Journal Entries
1. Quick Entry (Faster Input)
A Quick Entry option allows you to input details quickly by selecting accounts and entering the amount. The system automatically fills the rest.
2. Accounting Entries (Additional Details)
- Cost Tracking: You can link the entry to a Project or Cost Center.
- Bank Account Info: If a bank account is involved, the system fetches its details.
- Reference Transactions: If the Journal Entry relates to an existing document (e.g., Sales Invoice, Purchase Invoice, Loan, Payroll, etc.), you can link it.
3. Reverse Journal Entry (Undo an Entry)
If you need to undo a Journal Entry, use the Reverse Journal Entry option. It will create a new entry that swaps the debit and credit amounts, effectively canceling the original entry.
4. Difference Entry (Automatic Adjustment)
- The total debit and credit amounts must be equal.
- If there is a difference, click ‘Make Difference Entry’, and the system will add a balancing row.
5. Multi-Currency Support
If you are dealing with foreign currencies, enable the ‘Multi Currency’ option. The system will fetch the exchange rate automatically.
6. Print Settings
- Print the Journal Entry with a Cheque Format for payments.
- Print on a Letterhead for official records.
- Customize the Print Heading as per your needs.
Common Types of Journal Entries
Journal Entries can be used for many different financial transactions. Here are some common types:
1. General Journal Entry
Used for general expenses like rent, utilities, or office supplies.
📌 Example: Paying an internet bill
- Debit: Internet Expense Account
- Credit: Bank Account
2. Inter-Company Journal Entry
Used for transactions between parent and subsidiary companies or sister companies.
📌 Example: Transferring funds from one company to another.
3. Bank Entry
Used for payments or receipts through a Bank Account.
📌 Example: Paying electricity bills via bank transfer
- Debit: Electricity Expense Account
- Credit: Bank Account
4. Cash Entry
Similar to Bank Entry, but for cash payments.
📌 Example: Paying for office supplies in cash
- Debit: Office Supplies Expense
- Credit: Cash
5. Credit Card Entry
Used for transactions made using a Credit Card.
📌 Example: Paying for a business trip using a credit card.
6. Debit Note (Purchase Return)
When a company returns goods to a supplier, a Debit Note is issued.
📌 Example: Returning defective products to a supplier
- Debit: Supplier Account
- Credit: Purchase Return Account
7. Credit Note (Sales Return)
When a customer returns goods, a Credit Note is issued.
📌 Example: Customer returns damaged goods
- Debit: Sales Return Account
- Credit: Customer Account
8. Contra Entry (Money Transfer within Company)
Used when transferring money between cash and bank accounts.
📌 Example: Withdrawing cash from the bank
- Debit: Cash
- Credit: Bank
9. Excise Entry (Tax Payments)
For companies that pay excise duty on goods.
📌 Example: Paying tax on purchased goods
- Debit: Excise Duty Account
- Credit: Government Account
10. Write-Offs (Bad Debts)
If a customer fails to pay their dues, a write-off is done.
📌 Example: Writing off an unpaid customer invoice
- Debit: Bad Debts Expense
- Credit: Customer Account
11. Opening Entry (Starting Balance)
When migrating to a new accounting system, opening balances of assets, liabilities, and equities are entered.
📌 Example: Recording initial balances when setting up a company in ERP.
12. Depreciation (Asset Value Reduction)
Assets lose value over time, so depreciation is recorded.
📌 Example: Annual depreciation of office computers
- Debit: Depreciation Expense
- Credit: Computer Asset Account
13. Exchange Rate Revaluation
If accounts have multiple currencies, a Journal Entry is used to adjust for currency fluctuations.
📌 Example: Adjusting for exchange rate changes on a foreign bank balance.
Conclusion
A Journal Entry is a powerful accounting tool used to record financial transactions accurately. Whether you're recording expenses, adjusting balances, or handling foreign currency, Journal Entries help maintain clear and organized financial records.
By following this guide, even beginners can create and understand Journal Entries with ease.