A journal entry is the dated record of one business transaction or accounting adjustment, written in the journal before it reaches the ledger. It names the account or accounts debited, the account or accounts credited, the amount on each side, a short description of what happened, and the document or schedule it came from. The journal is the book of original entry, because in a double-entry system transactions are first entered in a journal and then posted to ledger accounts (IRS Publication 583, Rev. December 2024).
What a Journal Entry Contains
A journal entry carries the date, the accounts and the side each one sits on, the amounts, a description, and the reference back to the document behind it. The last two are the ones that get skipped.
The date places the transaction in the period it belongs to. The accounts and the sides say what moved and in which direction, and the amounts say by how much. The general journal illustrated in the IRS recordkeeping guidance carries four columns, headed Date, Description of Entry, Debit and Credit, with the accounts written inside the description column and the side shown by which money column the amount lands in (IRS Publication 583, Rev. December 2024).
The description carries the link back to the evidence. A journal is a book where each business transaction shown on the supporting documents is recorded, so the entry is the point at which a document becomes a number in the books (IRS Publication 583, Rev. December 2024). Where the records are kept on a computer, they still have to provide enough detail to identify the underlying source documents (IRS Publication 583, Rev. December 2024). An entry described only as “adjustment” satisfies the software and nothing else.
The Journal and the Ledger Account It Posts To
The two books answer different questions. A journal is chronological and holds one transaction at a time. A ledger contains the totals from all of the journals, organized into different accounts (IRS Publication 583, Rev. December 2024). One transaction produces one journal entry and reaches at least two ledger accounts, so the same amounts show up twice, arranged two different ways.
Posting is the move between them, and it is the point at which the entry changes the books. Drawing the account on the T-shaped form changes nothing, because that form is an analysis device rather than the record (t-account). The rule that total debits have to equal total credits is set out in double-entry bookkeeping, and which side increases a given account is in debit vs credit. Journalizing and posting are two steps of the accounting cycle, which sets the order the rest of the period runs in.
Simple Entries and Compound Entries
A simple entry debits one account and credits one account. A compound entry does the same job across more than two accounts, because a single event can move three or four balances at once. Payroll is the everyday case. Both forms are one entry, and both are governed by the same equality between the two sides.
Two Worked Entries
Say a firm collects an invoice it had already billed, and later runs a semimonthly payroll with federal income tax and Social Security and Medicare tax withheld from gross pay.
Client pays an invoice already billed Debit Credit
Cash 8,500
Accounts receivable 8,500
Semimonthly payroll, employee withholding only Debit Credit
Salaries expense 40,000
Federal income tax withheld payable 5,600
Social Security and Medicare payable 3,060
Cash 31,340The first is simple. Two accounts move, one on each side, and the firm’s total assets do not change, because one asset has replaced another.
The second is compound. One debit stands against three credits, and the three credits add back to the debit, which is what makes it a single balanced entry rather than three loose ones. The employer’s own share of Social Security and Medicare, and unemployment tax, are a separate cost to the firm and do not appear in this entry.
The Kinds of Entry a Firm Posts
Ordinary transaction entries record what actually moved during the period: the sale, the payment, the payroll, the deposit.
Adjusting entries are posted at the period end to move revenue and expense into the period each one was earned or incurred in, and they never touch cash.
Closing entries end the period, reversing entries open the next one, and correcting entries can land at any point. The boundaries between those three and an adjusting entry are drawn line by line in adjusting entries.
Who Writes the Entry and Who Approves It
An entry has a preparer and a reviewer, and they are different people on purpose. Segregation of duties assigns different people the responsibilities of authorizing transactions, recording transactions, and maintaining custody of assets, and it is intended to reduce the opportunities for any person to be in a position to both perpetrate and conceal errors or fraud in the normal course of that person’s duties (AICPA, AU-C 315, appendix C, paragraph 21). That is why the person who handles cash receipts or releases payments is not the person who posts the entries describing them.
Small clients are where the principle gets hard, and the standard says so instead of pretending otherwise. Segregation is sometimes not practical, cost effective or feasible, and smaller and less complex entities may lack sufficient resources to achieve ideal segregation, in which case management may institute alternative controls, such as having personnel unrelated to the function periodically review what was done (AICPA, AU-C 315, appendix C, paragraph 21). In a bookkeeping engagement that usually means the review sits outside the transaction: whoever did not prepare the entry approves it, and the approval leaves a record.
Why Journal Entries Are a Standing Audit Focus
Journal entries are the route a set of books gets overridden. Management is in a unique position to perpetrate fraud because of its ability to manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively, and although the level of that risk varies from entity to entity, it is present in all entities and is treated as a significant risk (AICPA, AU-C 240, .31).
The testing that follows is not triggered by suspicion. Even where no specific fraud risk has been identified, the auditor should address the risk of management override apart from any conclusions about more specifically identifiable risks, by testing the appropriateness of journal entries recorded in the general ledger and other adjustments made in the preparation of the financial statements, including entries posted directly to financial statement drafts (AICPA, AU-C 240, .32a). Entries made at the end of the reporting period are always selected, and the same paragraph has the auditor consider whether entries made throughout the period need testing too.
What Auditors Look For in an Entry
What gets selected is worth knowing before the entry is written. Inappropriate entries often carry identifying characteristics: entries made to unrelated, unusual or seldom-used accounts, entries made by individuals who typically do not make journal entries, entries recorded at the end of the period or as postclosing entries that have little or no explanation or description, entries made before or during the preparation of the financial statements that do not have account numbers, and entries containing round numbers or consistent ending numbers (AICPA, AU-C 240, .A49). An entry with a real description, an account number and a reference to its support is the one that answers the question quickly, which is the practical case for filling in the fields nobody reads until someone asks. What that reference has to reach is the audit trail.
Common Questions
The plainest one is a collection. A client pays an invoice the firm had already billed, so the entry debits cash and credits accounts receivable for the same amount, dated the day the money arrived, with the invoice number in the description and the remittance advice as its support.
No standard fixes a count, which is why published lists disagree with each other. A common five is ordinary transaction entries, adjusting entries, closing entries, reversing entries and correcting entries. Longer lists usually get there by adding opening entries and transfer entries.
Start from the source document rather than from the software. Read what the document says happened, decide which accounts it moves and in which direction, work out the amount on each side, then write the date, the accounts, the amounts, a description a stranger could follow, and the reference back to the document. Post it, and if the two sides do not agree, the entry is not finished.
That question is usually asking about the classical rules taught with personal, real and nominal accounts: debit the receiver and credit the giver, debit what comes in and credit what goes out, debit expenses and losses and credit income and gains. It is the standard phrasing in several non-US teaching traditions. US practice states the mechanics differently, with accounts classed as assets, liabilities, equity, income and expenses, and with the side that increases an account following from the accounting equation and that account’s normal balance (debit vs credit). The finished entries match; the reasoning used to get there does not.
Accountably places trained offshore accountants inside US CPA and EA firms to prepare entries under the firm’s own review, and a firm can test that on its own work through a trial task before anything reaches a live ledger.
