Journal Entry

Definition

A journal entry is a record of a financial transaction in an accounting system. It is the first step in the accounting cycle and is used to record business transactions in the accounting system. The journal entry includes the date, description, and amount of the transaction, as well as the accounts affected by the transaction.

Example

For example, if a company purchases office supplies for $500,000, the journal entry would include the date of the purchase, the description of the purchase (office supplies), the amount of the purchase ($500,000), and the accounts affected by the purchase (debit to the office supplies account and credit to the cash account).

Why it Matters

Journal entries are important because they provide a record of all financial transactions in an accounting system. This record is used to generate financial statements, such as the balance sheet and income statement, which provide an overview of the company's financial health. Additionally, journal entries are used to track the flow of funds in and out of the company, which is important for tax purposes.