Journal Entries is one the most import skill to master for any accountant. Without proper journal entries, he cannot create an accurate and proper financial statement for any company.
A simple way to understand what journal entries are: Whenever a transaction occurs within a company, there must be at least two accounts affected in opposite ways.
Finally, just like how the size of the forces on the first object must equal that of the second object, the debits and credits of every journal entry must be equal.
How to Approach Journal Entries
An official book of company in which all transactions are recorded in chronological order is known as journal entries. In now a day many company are using accounting software like Sage Quickbooks and etc to book journal entries, journals were the predominant method of booking entries in the past.
Note: If you are a QuickBooks Online user and want to import journal entries then read the how to import Journal Entries in QuickBooks.
In every journal entry that is recorded, the debits and credits must be equal to ensure that the accounting equation (Assets = Liabilities + Shareholders’ Equity) remains in balance. When doing journal entries, we must always consider four factors:
Which accounts are affected by the transaction?
- For each account, determine if it is increased or decreased
- For each account, determine how much it is changed
- Make sure that the accounting equation stays in balance
The best way to master journal entries is through practice. Here are numerous examples that illustrate some common journal entries. The first example is a complete walkthrough of the process.
How to Track Journal Entries
The main component of accounting process involves financial reporting. A financial reporting is the process of presenting a company’s financial statements to management, investors, the government, and other users to help them make better financial decisions.
To determine the final monetary value of accounts listed on the financial statements on the company’s year-end, multiple journal entries recorded and tracked all the account called a T-account, which is a visual representation of a general ledger account.
The appropriate debits and credits are listed under the appropriate columns under the T-Accounts to determine the final value to be reported.
Why Do Journal Entries Matter to Me and My Career in Accounting?
Although recording journal entries can be a very tedious task, recording accurate entries at the right time is very important for companies to show their correct financial status to not only people within the firm but also for the external users.
With incorrect entries, companies may be perceived to be possessing more debt or less debt or as more profitable or less profitable than they are. As a result, this could lead companies and investors to make decisions based on false, misleading information, leading to negative ramifications.
Having the skills to record and understand journal entries is essential in any career in accounting, whether you are involved in public practice and are working on a client’s audit file, or you are working in an industry and helping to prepare a company’s financial statements.
