Peace of Mind Accounting: Why Journal Entries Are Your New Best Friend

A journal entry records a business transaction in an organization's accounting system. Journal entries form the basis of the double-entry accounting system, which has been used for centuries to keep financial records. Their goal is to make it possible to monitor how companies use and acquire resources.

Every transaction must be documented in at least two accounts according to the double-entry accounting method. When a company purchases supplies with cash, for instance, the transaction appears in both the cash and supply accounts.

What is a Journal Entry Used For?

It's simple to overlook the importance of the journal entry in the era of automated accounting software. Before all of this automation, journals were kept by hand with entries made into what were once real, physical books of paper (just like a journal!). These journals could have been Excel sheets.

Financial transactions are recorded in the accounting system through accounting journal entries, which are then posted to the general ledger after being transferred from the journals. Even though the majority of this process occurs automatically in contemporary accounting software, it's still important to understand what's happening because occasionally manual entries are required to correct or modify account balances after an accounting period.

What to Include in a Journal Entry?

The requirement that journal entries include sufficient details to accurately depict the transaction at hand is a crucial component. In this manner, we can review past journal entries to determine what actually occurred and whether anything was recorded inaccurately, rather than relying solely on account balances.

The following elements are present in a journal entry:

• The transaction date

• The numbers and names of each affected account

• The total amount of credit and debit

• A reference number that acts as the transaction's special identification

• An explanation of the transaction.

In a journal entry, the debits and credits must be equal according to the double-entry bookkeeping method. The balance sheet is described by the general accounting equation, which must also be followed by journal entries:

Assets = Liabilities + Owner’s Equity

Debits are recorded on the left and credits are recorded on the right using this equation. Accordingly, increasing an asset account on the left side of the equation through debiting it results in an increase in that account. The amount in a liability or equity account on the right side of the equation will drop when that account is debited.

An amount credited has the opposite result. When a liability or equity account is credited, the balance rises, whereas when an asset account is credited, it falls. Credits are applied to revenue accounts and debits are made to expense accounts on the income statement.

The various account categories will typically have either a debit balance or a credit balance due to the accounting equation and the actions of debiting or crediting an account. That's shown in this table:

Account Type	Normal balance
Asset	Debit
Liability	Credit
Equity	Credit
Revenue	Credit
Expense	Debit

Also Read: Work Smarter, Not Harder: Invoice Automation with Suvit

How Do You Create a Journal Entry?

Let's use a few examples to guide you through the process of writing journal entries:

Scenario 1: Purchasing Office Supplies

On January 11, 2021, Saloni ordered office supplies worth ₹2,388.70 from O'Mart. Upon delivery, she receives invoice number 4444. Payment for this invoice is due in 14 days.

Journal Entry:

• Reference Number: 2396
• Date: 1/11/2021
• Debit: Office Supplies (Account 1010) - ₹2,388.70 (This account number may vary depending on your chart of accounts)
• Credit: Accounts Payable (Account 1100) - ₹2,388.70
• Description: To record payable for invoice 4444 from O'Mart

Scenario 2: Paying the Invoice

Two weeks later, Saloni pays the invoice.

Journal Entry:

• Reference Number: 2577
• Date: 1/25/2021
• Debit: Accounts Payable (Account 1100) - ₹2,388.70
• Credit: Cash (Account 1010) - ₹2,388.70
• Description: To record payment on invoice 4444 from O'Mart

Scenario 3: Completing a Consulting Project

On January 13, Saloni finished a consulting project for ABC Design, Inc. and sent invoice number 21000 for ₹2,560.00.

Journal Entry:

• Reference Number: 2401
• Date: 1/13/2021
• Debit: Accounts Receivable (Account 1120) - ₹2,560.00
• Credit: Revenue (Account 4101) - ₹2,560.00
• Description: To record invoice 21000 for ABC Design, Inc.

Scenario 4: Receiving Payment for the Project

Two days later, Saloni received payment on that invoice.

Journal Entry:

• Reference Number: 2489
• Date: 1/15/2021
• Debit: Cash (Account 1010) - ₹2,560.00
• Credit: Accounts Receivable (Account 1120) - ₹2,560.00
• Description: To record payment on invoice 21095 from ABC Design, Inc.

Adding Data to the General Ledger

Bookkeeping was done by hand with paper and pen for centuries. Transactions about business were documented in specific journals or ledgers. For instance, a sales journal and a payroll journal would be used to record sales and payroll, respectively.

As part of the accounting cycle, a summary of those transactions was routinely posted to the appropriate general ledger account. Data entry into financial records could only be done through journal entry accounting.

However, when bills are paid, invoices are created, and customer payments are processed, accounting software ensures that these kinds of transactions are automatically recorded in the appropriate accounts. This indicates that there aren't many journal entries made by accountants these days. Additionally, small business owners can handle their own bookkeeping with accounting software.

The majority of the few journal entries that are still required are for accruals after a period or to switch to accounting based on GAAP. Journal entries may also be necessary for non-cash transactions like amortization and depreciation.

The past specialized journals are included as software modules in modern accounting software. Payroll modules, for instance, enable the payment of employees and streamline the process of creating payroll tax reports. Users won't be able to see these distinct modules, though, as all transactions will seem to have been entered into the general ledger.

Also Read: Cloud-Based Data Transfer in Accounting with Suvit

Journal Entries and Automation with Suvit

Although these examples seem easy, consider how simple it would be to make mistakes if data entry into the general ledger had to be done by hand using journal entry accounting. Errors in addition and subtraction occur, numbers are transposed, and it is almost hard to identify these mistakes.

By using bank feeds and imports from different apps, accountants and bookkeepers can fully utilize the automation found in today's accounting systems, which improves accuracy and saves time. As a result, the accounting cycle is accelerated and small business owners can receive complete and accurate financial statements nearly instantly.

Suvit makes it simplest to do journal entries.

All you have to do is upload the journal data in Excel and then Suvit will send it to the Tally.

The important thing here is the Excel of journal entries. Let's see how to prepare Journal data in an Excel sheet.

Sales and purchases can be debited and credit recorded using a journal through SUVIT.

You can create your Excel sheet for journal data by following the procedures and steps we've provided.

1. The first sheet should contain the data that you wish to upload.
2. Headers should be in the first row at the top.
3. Please make sure the uploaded Excel file is free of the dollar ($) and dot(.) symbols in the column header, and that nothing is added above the title other than the sales/purchase field.
4. The journal number needs to be entered.
5. The same invoice number should be there.
6. Don't enter any incorrect information in the sheet either. Don't write NA, not applicable, or anything else, for instance.
7. The date format should be DD/MM/YYYY.
8. If the sheet has a label as 'grand total', remove it.
9. There should be no more than 5000 transaction numbers on each sheet.
10. The total amount on the credit and debit cards should match.
11. All text should be in either General or Text format, and all numbers should be in Number format.
12. An additional amount may be added horizontally to the same reference number or invoice.
13. Save the file as an Excel workbook.

To see how you can automate this journal creation, start Suvit's 7-day free trial version.

Also, you can watch this video to learn more about the journal module of Suvit.