Journal Entry

Quick Definition

A record of a single financial transaction with corresponding debit and credit entries.

What is a Journal Entry?

A Journal Entry records a single financial transaction by specifying which accounts are debited and credited. Every transaction in your accounting system is represented as one or more journal entries.

Why Journal Entries Matter

Journal entries are the atomic unit of accounting. Understanding them helps you troubleshoot issues, make adjustments, and communicate with accountants. When something looks wrong in your financials, tracing back to the journal entries reveals what happened.

For founders, you rarely create journal entries manually. Your accounting software generates them from transactions you enter. But knowing the concept helps you understand what is happening behind the scenes.

Adjusting Journal Entries

At month-end, accountants often create adjusting journal entries to correct errors, recognize revenue, or accrue expenses. These are manual entries to align the books with economic reality.

Formula

Structure of a Journal Entry:
Date | Account | Debit | Credit | Description

Debits must equal Credits for each entry.

Example

Recording a $5,000 Facebook ad campaign paid by credit card:

• Date: January 15
• Debit: Marketing Expense - Paid Ads: $5,000
• Credit: Credit Card Payable: $5,000
• Description: Facebook Q1 campaign payment

The expense is recorded immediately. The liability (credit card payable) will be cleared when you pay the card.

Related Terms

General Ledger
The master record containing all financial transactions organized by account.
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Chart of Accounts
A categorized list of all accounts used to record financial transactions in the general ledger.
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Trial Balance
A report listing all account balances to verify that total debits equal total credits.
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