What Is a Journal Entry?
A journal entry is the record of a financial transaction in a company's accounting system, capturing the accounts affected along with equal debits and credits. It's the first step in recording any transaction before it posts to the general ledger.
What a journal entry is and why it matters
Every transaction a business makes starts as a journal entry: the date, the accounts debited and credited, the amounts, and a description of what happened. Because it follows double-entry rules, each entry's debits must equal its credits. Journal entries come in types — standard entries for routine transactions, adjusting entries at close (accruals, deferrals, depreciation), and reversing entries. Accurate journal entries are the foundation of trustworthy books; a miscoded or unbalanced entry propagates errors all the way to the financial statements.
A worked example
A company pays $3,600 for a one-year insurance policy on January 1. The journal entry: debit *Prepaid Insurance* (an asset) $3,600, credit *Cash* $3,600. Each month, an adjusting journal entry recognizes the expense: debit *Insurance Expense* $300, credit *Prepaid Insurance* $300. By December, prepaid insurance is zero and $3,600 of expense has been recognized — all driven by a series of balanced journal entries.
How firms handle it today
Bookkeepers create standard entries as transactions occur and post adjusting entries at close. Recurring entries (rent, depreciation, accruals) are often templated but still reviewed each period.
How OCTA Flow relates to journal entries
OCTA Flow can propose and post recurring and adjusting journal entries as part of a procedure — accruals, deferrals, depreciation — with each entry logged to the audit trail for your team to review and approve.
Related terms
- Debit
- General ledger
- Double-entry bookkeeping
- Adjusting entry
- Trial balance
FAQ
What are the parts of a journal entry?
The date, the accounts debited and credited, the amounts (with debits equalling credits), and a description of the transaction.
What's the difference between a journal entry and the general ledger?
A journal entry records a transaction first; it then posts to the general ledger, which organizes all entries by account.
What is an adjusting journal entry?
An entry made at period-end to record accruals, deferrals, depreciation, or corrections so each period's financials are accurate.
See how firms automate recurring journal entries → start an OCTA Flow trial.