Keeping up with the competitive business industry means creating profits more than what other businesses generate. But achieving this is not as simple as it seems. To acquire a promising amount of income would demand so much effort and time. Not just that. It would also require the investment of other resources—capital, raw materials, workforce, and more. That said, an active business’s response to the yearning of great revenue involves innovation and implementation of effective methods to assist its way to the top. If the implementation positively affects the business and its operations, journal entry of every business transaction with economic and non-economic involvement should take place right after. Allowing the business income’s transparency through journal entries will tear down the barriers to its success. So, let’s dig deeper to know more about a journal entry and its vital roles in making a business successful.
What Is a Journal Entry?
A journal entry is best for business accountants. As being part of the daily accounting journal, a journal entry shows a list of the business’s debit and credit balances. Since it entails financial transactions, it includes notes of affected accounts. Also, it provides a record of the status of the monetary resources, such as depreciation (reduction in the value of an asset over time) and bond amortization (regular payment of principal value). With this, accountants can easily identify whether an accounting sheet is balanced or not. More so, a proper journal entry contains correct dates, description of each transaction, and varied reference number.
Journal Entry Content
Here are the things you should know to record a journal entry:
To accomplish a journal entry, one needs access to an accounting book of business. Since a journal entry is the foundation of other business financial reports, it should provide basic and important details that will help auditors analyze the impact of the financial transactions on a business.
1. A journal entry includes the date of the entry. This will help trace every transaction in the entry.
2. If using accounting software, a journal entry should include a reference number or a journal entry number that can retrieve the journal when needed. No need to include this if you are to work on manual entry.
3. The account number and name must be visible on the entry. It can be placed in a single column along with every transaction record.
4. The entry should contain separate columns for the debit and the credit. It will organize the worksheet and provide breathing space in the paper.
Golden Rules of Accounting
Given that the monetary amount of a business comes from every transaction made, it has to find a way around the financial accounting journal. So, to maintain a balanced account, debit should come in, while credit goes out of the transaction. Additionally, all the expenses and losses should be accounted to debit, and the incomes and gains should be credited. In other words, consider what the business receives as debit, and what it gives as credit.
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How to Make a Journal Entry
Making a journal entry could take a lot of work, mainly that it includes the understanding of specific accounting references. However, no matter how hard it may seem, no one should turn their back in writing a report that will help increase their income. So, huddle everything useful for accounting because this task will be a lot easier with the right methods and familiarity. Here are steps in creating a journal entry for a general ledger. These steps are simple and easy-to-follow, so let us get started.
1. Identify the Accounts
A journal entry is important for a business. And you would appreciate its importance more if you know how to make one. When it comes to numbers, everyone can easily get intimidated. That is understandable, especially if it includes money, which is a contentious matter. However, the only limit to working on a journal entry should be the absence of business accounts. As long as these accounts exist, you can kick-off a journal entry easily.
2. Make the Objectives Clear
Like any other task, goals should be set if you are to make a journal entry. Whether you are an accountant who audits business accounts, or an authorized professional who mastered in overseeing business transactions, you should know the purpose of your job. That said, it will be easier to understand the process of accounting these transactions. Additionally, if there is a need to push through a journal entry, it encourages a business to monitor every economic and non-economic transaction.
3. Outline the Entry
No matter how accurate the data on a journal entry, it will remain difficult to comprehend if it is not orderly. So, to come up with a readable one, make a temporary outline. The outline will help oversee the content and organize the accounts smoothly. More so, you can make changes in the outline without compromising the final output. And tweak it if adjustments are applicable.
4. Provide the Needed Data
The flesh of the journal entry is the data it contains. Consider working on a journal without business transactions. That would result in nothing. Knowing that, make sure to track all the transactions made by a business. This way, a business accountant can input accounts in the journal entry. Providing accurate transactions, no matter how small, can make a big difference in the business. Making a journal entry will reveal the impact of every transaction to a business.
What are the five basic accounting principles?
The five basic accounting are revenue recognition, historical cost, matching principle, full disclosure, and objectivity. All these principles are foundations that rule and govern the field of accounting. Also, it guides the accounting process in recording, analyzing, verifying, and reporting the financial status of a business.
Is a loan a debit or credit?
If you owe something because of a loan, then it is a credit. However, a similar loan is an asset to a lender like a bank, because you owe them the money. Thus, looking at the lender’s perspective, a loan is a debit.
What would make purchases an asset?
A purchased item will become an asset if the purchaser (company, business, individual, etc.) will consider using it in the future.
Regardless of a business’s objectives, every transaction it makes creates an impact on its finances. For example, if a company purchased materials, whether they decide to use them in the future or after the purchase, it will create changes to the company’s accounts. Since the company uses the money to purchase these materials, this means the company decreased its income to acquire an asset. All the business accounts are related to each other. If a company aims to generate more revenue, it has to document each transaction through a journal entry. Whether a transaction is an asset or a liability, it still affects the business finances in one way or another.
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