Did your teacher ever require you to write a journal in elementary school? If so, then the aim was to involve you in social interaction without the need to speak. With a journal, a student can express ideas without feeling comfortable about external responses. It also means having a record of important events and reminders. That makes it beneficial not just for school, but for business as well. Like a student who wants good grades, business folks keep journals to help generate profit. Is this something that piques your interest? Then let us take you on an in-depth look at how companies can use journals to help keep their business records.
What Is a Journal Entry?
Journal entries are an essential part of manual accounting or bookkeeping systems. Without journal entries, these systems cannot track the financial condition of a company because it has no recorded details of every financial transaction. Before posting anything on the general ledger, all business transactions–both economic and non-economic–are recorded in a business journal. This will include official receipts, sales invoices, checks, and cash disbursements, among others. Never forget to include the date of transactions, the name and amount of debited and credited accounts, and even short descriptions or notes.
What are Year-End Journal Entries?
As the year comes to an end, a business person wanted a complete report of accounting journal entries for year-end activities. The accountant or bookkeeper of the company needs to provide specific information for posting tax, adjustments to the general ledgers, a record of depreciation expense, or amount of revenue and expenses. All these, together with explanations for the importance of the entries, are necessary for year-end journal entries.
How Accounting Backs Up Businesses
According to Statista, the accounting, tax preparation, and employee payroll services industry generated a total of 156 billion US dollars in 2018 in the United States alone. Globally, the main revenue contributors in the economy are the “Big Four” accounting and auditing companies worldwide—Deloitte, PricewaterhouseCoopers, EY, and KPMG. If each firm’s revenue adds up, it totals to 148.24 billion US dollars. These firms are not just niche players in the global economy; they provide job opportunities as well. Based on another report by Statista, together, these firms employed more than one million people worldwide.
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How to Record Journal Entries
Entering incorrect accounting transactions into an accounting system is possible. In that case, you can still make changes in transactions as long as you record them correctly. Also, preparing journal entries will allow you to adjust or correct transactions and document entries like profit or loss. However, you cannot make multiples entries at a time. If you want to do this, you will have to create separate journal entries. Making journal entries is quite simple, as the following tips reveal:
1. Make the Objectives Clear
A task without a goal is like a car with no destination. Your goals lead to where you want the business to be. With that said, just like any other task, setting goals should come beforehand if you are to record journal entries. The easiest way to set your goals is to ask yourself the following questions: What is the expected outcome of recording journal entries? Why is there a need to push through a journal entry? How do journal entries affect the business? With these, you can write down substantial goals that will be your guidepost in making the journal entries. Without these goals, making journal entries becomes difficult. Having goals in mind will encourage you to document your business transactions.
2. Identify the Accounts
An adequately recorded journal entry helps to balance a general ledger. If your accounts are balanced, this means your finances are doing well. That is why knowing your business accounts is essential for your financial health. As a business owner, you want to see where all of your money went. If you cannot track your cash flow, you should start to worry. Unmonitored expenses will cause losses in your business. Moreover, if you remain neglectful of your accounts, pushing through journal entries will become difficult since you have no data to start working with.
3. Trace Every Transaction
A journal contains correct records of every business transaction. That said, it should trace back how the business made the transactions and its nature (economic or non-economic) The main purpose of having journal entries is to monitor the financial status of your business by not omitting a single transaction. When tracing these transactions, recording them chronologically will help organize the journal entry. Since you have recorded the transactions on the journal entry, you do not need to put them in the ledger. If these entries are not unorganized, the errors will reflect on the ledger. Avoiding errors will make the ledger look neat and easy-to-understand.
4. Learn the Basics
Accounting can be an intimidating job. But it is not as hard as you think. If you are to work on a journal entry, you only have to know a few things. Accounting basics may sound overwhelming, but the truth is it is not. The basics include revenue, expenses, assets, liabilities, financial statements, balance sheets, and statements of cash flow. The easiest way to learn these terms is to refer to actual business data. Learning these personally gives you the experience first hand. If you have a good grasp of the basics of accounting, you can record journal entries easily.
What are debit and credit?
Debit and credit are basic accounting terms that are important parts of an accounting entry. An accounting entry that either increases an asset or account expense and decreases a liability or equity account is called a debit. On the other hand, when an entry either increases a liability or equity account or decreases an asset or expense account is a credit.
What is a contra entry?
If a transaction involves cash and bank, it is a contra entry. In this transaction, the debit and credit will reflect on a cash book.
Where is a contra entry used?
This kind of transaction is used when there are cash and bank involved. That said, the transaction only includes a deposit of cash or withdrawal of cash from a bank.
Like a student who wants to do well in school, a business that aims for success will be diligent too. The fact that every business in the industry wants to step up just to gain great business returns make the stakes higher. If getting ahead of your business won’t work, then you have to do it one step at a time. Thus, recording all your business transactions with journal entries means gathering details for the general ledger. It also means doing the first step in taking care of the finances. From there, you can track your income seamlessly.
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