Journal Entry in Accounting

Journal Entry in Accounting XeroJournal Entry in Accounting or adjusting ledgers is required when you need to transfer an amount from one account to another. The Profit and Loss and Balance sheet are made up of lots of different accounts, and there may be lots of reasons why you need to make an adjustment.

The image shows the entry form in Xero, most accounting packages will look similar to this.

Double Entry Bookkeeping

Accounting software will create double entry bookkeeping, an example of this is you pay from your bank account for insurance of £150. The double entry would be to debit the bank account in the balance sheet and credit insurance in the profit and loss account.

Every transaction that is created will have two entries to the accounts.

If an adjustment is needed to the accounts, then a journal will need to be produced. There are lots of reasons why changes are required, which includes bad debts, prepayments, accruals, items posted to the wrong code and overpayments. Below are some examples of the transactions needed.

Journal Entry Format

The details required are the journal number, date of the transaction, account codes, description, debit amount and credit amount. The information is entered in a form so a record of the transaction is kept and the posting is completed using the form.

The debit and credit amounts must be equal as you are moving an amount from one account code to another.


General Journal Entry Examples

Prepayments

During the year insurance for 12 months is purchased for £150 but only six months relate to the current year. A prepayment of 6 months will need to be journaled to correct the figures for the year.

Here is what the original insurance entry to the accounts would have been:

DebitCredit
Bank£150
Insurance£150

The journal entry in accounting  form would look like this.
General Journal Entry from for prepayment

Prepayment Journal entry example

Accruals

Accruals are adjustments made for either sales that no sales invoice has been issued or expenses that an invoice has not been received from the supplier. These adjustments need to be made to ensure that the final accounts are accurate figures for the whole year.

Examples of accruals journals are

a) Sales were mad during the month but a sales invoice of £1000has not been issued, a journal is required to correct the accounts.

DebitCredit
Sales£1000
Accruals£1000

b) Goods to the value of £60 have been received and sold to a customer (cost of sale), at the period end the purchase invoice has not been received.

DebitCredit
Accruals£60
Cost of Sales£60

Reversing Journals

In the examples for both prepayment and accruals when the invoice is received and posted to the ledgers there will be duplicate figures in the accounts. You will, therefore, need to reverse the journal; most software packages allow you to enter a date to reverse a journal.

General Journal Entry Form

We have designed a general journal entry form that you can download as either a word document or PDF.

Journal Word  Journal PDF

 

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