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What are Accounting Journal Entries?An accounting journal entry is the method used to enter an accounting transaction into the accounting records of a business. The accounting records are aggregated into the general ledger, or the journal entries may be recorded in a variety of sub-ledgers, which are later rolled up into the general ledger. This information is then used to construct financial statements as of the end of a reporting period. Whenever you create an accounting transaction, at least two accounts are always impacted, with a debit entry being recorded against one account and a credit entry against the other account. Journal Entry RulesThere must be a minimum of two line items in a journal entry, though there is no upper limit to the number of line items that can be included. A two-line journal entry is known as a simple journal entry, while one containing more line items is called a compound journal entry. The totals of the debits and credits for any transaction must always equal each other, so that an accounting transaction is always said to be "in balance." If a transaction were not in balance, then it would not be possible to create financial statements. Thus, the use of debits and credits in a two-column transaction recording format is the most essential of all controls over accounting accuracy. Journal Entry Best PracticesA company may use a great many journal entries in just a single reporting period, so it is better to use a larger number of simple journal entries than a smaller number of compound journal entries, in order to clarify why the entries are being made. This is useful when journal entries are being researched at a later date, and especially when they are being reviewed by auditors. Who Creates Journal Entries?In a smaller accounting environment, the bookkeeper may record journal entries. In a larger company, a general ledger accountant is typically responsible for recording journal entries, thereby providing some control over the manner in which journal entries are recorded. Format of the Journal EntryAt a minimum, an accounting journal entry should contain the following components:
Special Types of Accounting Journal EntriesThere are two special types of accounting journal entries, which are the reversing entry and the recurring entry. Reversing Journal EntryA reversing journal entry is one that is either reversed manually in the following reporting period, or which is automatically reversed by the accounting software in the following reporting period. Recurring Journal EntryA recurring journal entry is one that repeats in every successive reporting period, until a termination date is reached. This can be done manually, or can be set up to run automatically in an accounting software system. Example of an Accounting Journal EntryArnold Corporation sells a product to a customer for $1,000 in cash. This results in revenue of $1,000 and cash of $1,000. Arnold must record an increase of the cash (asset) account with a debit, and an increase of the revenue account with a credit. The entry is: The Unbalanced Journal EntryIf a journal entry is created where the debit and credit totals are not the same, this is called an unbalanced journal entry. If you attempt to enter an unbalanced journal entry into a computer accounting system, the error-checking controls in the software will likely reject the entry. However, if you create an unbalanced journal entry in a manual accounting system, the result will be an unbalanced trial balance, which in turn means that the balance sheet will not balance. The following journal entry is unbalanced; note that the debit total is less than the credit total. In such cases, you must correct the underlying unbalanced journal entry before you can issue financial statements. Journal Entry FraudIt is much more common for accountants to commit fraud through the use of journal entries than through the use of such common transactions as recording supplier invoices and creating customer invoices. The reason is that these more common transactions have a system of controls built up around them that is designed to detect a variety of issues. Conversely, there are fewer controls over journal entries, which makes it easier for someone to create a fraudulent transaction. These transactions are particularly difficult to spot if the amount recorded is considered immaterial, in which case auditors are unlikely to spot the transgressions. What is the advantage of having special amount columns in a journal?What is the advantage of having special amount columns in a journal? Time is saved because using special amount columns eliminates writing an account title in the Account Title column.
What is a journal with two amount columns in which all kinds of entries can be recorded?A journal with two amount columns in which all kinds of entries can be recorded is called a general journal.
What is recorded in the general amount columns of the cash payments journal?The columns include the date of each cash payment, the details of the other ledger account impacted, the check number issued by the business, the total amount of the cash paid, the credit-control account, which shows the amount deducted from the creditor's account, taxes paid, and special columns that identify the type ...
How are special amount columns used in a journal quizlet?The use of special amount columns eliminates the need to post individual amounts to general ledger accounts. An account number in parentheses under a column total in a special journal indicates that the total has been posted to the general ledger account whose number is shown.
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