In accounting cycles, journal entries are the first thing you need to do (Also see How do Accountants Record Transactions?). These entries are the records of the transactions your company has made in an accounting system. When there are transactions and other relevant activities in the accounting period, you need to record those journal entries in your business’s general journal so that you can see the way every event or transaction brings an impact to the accounting equation (Also see Vital Bookkeeping Tips for New Businesses). When the accounting period has ended, this information can be beneficial for you, particularly when you are generating the financial statements of your company, usually the balance sheet and income statement.
When a transaction occurs, it will affect at least two accounts, which means that you need to credit one of the accounts and debit another. Note that the sum of the credited amount and the sum of debited amount needs to be the same, that is to be equal. This is what we would call the double-entry system. If the account does not balance, you will find the preparation of financial statements difficult. Thus, when you are documenting the transactions, you should use the two-column format because if you do so, it eases the process of tracking those transactions.
The Format of Journal Entries
Each journal entry needs to consist of:
– The accounts that you have documented the debit and credit amounts
– When you made that entry
– Which accounting period did you make that entry
– A unique number which helps in determining the entry
Special Journal Entries
Note that the two special journal entries in accounting mentioned below are what you should know
Recurring journal entries: You need to record these journal entries during each accounting period. As an instance, there might be a depreciation of machinery in your business. In each month, you will debit RM300 in the depreciation expense account and credit RM300 in the accumulated depreciation account. As this happens monthly, it is categorised as a recurring journal entry.
Reversing entries: You will make these journal entries when an accounting period starts. The purpose of creating them is to cancel out certain adjusting entries you had made when the last accounting period ended.
Unbalanced Journal Entries
If you have made a journal entry, but the amount you have debited and credited are not the same, then this journal entry is unbalanced. As a result, the trial balance and balance sheet will be unbalanced too.
Some accountants may commit fraud when they deal with the journal entries instead of making other mistakes; for example, they may overcharge the vendor invoices. Hence, you, as the business owner, should know the correct way of checking the journal entries so that you can ensure that your accountant has recorded them correctly. If not, your company may experience a severe loss due to the mistakes, particularly if your accountant is not honest. Also, the other choice you have is to engage accounting services in Johor Bahru and let the independent professionals handle the accounting-related chores for you.