Skip to content
Nika

What is a Journal Entry?

A journal entry is the fundamental record of a business transaction in double-entry bookkeeping. Each entry has at least one debit and one credit, the total debits must equal the total credits, and it includes a date, description, and reference number.

Every financial event in a business — a sale, a purchase, a salary payment, a depreciation charge — eventually becomes a journal entry. The entry specifies which accounts are affected and by how much. For example, when you pay rent, you debit Rent Expense and credit Cash. The entry is dated, given a reference number, and stored in the general journal before being posted to the general ledger.

Journal entries follow one inviolable rule: total debits must equal total credits. If they do not, the books are out of balance and the trial balance will not foot. Modern accounting software builds this rule in — you cannot save an unbalanced entry. But understanding the logic matters because it determines whether each account increases or decreases, and getting that wrong corrupts the financial statements.

Example

A bakery pays €800 for a new oven. The journal entry debits Equipment (an asset that increases) €800 and credits Cash (an asset that decreases) €800. The entry is dated, labelled "Purchase of commercial oven", and referenced to the supplier invoice.

Questions

What is the difference between a journal entry and a ledger entry?

A journal entry records a transaction in chronological order — it is the first place the transaction is recorded. A ledger entry is the same transaction posted to a specific account in the general ledger, grouped with all other transactions for that account. The journal is the diary; the ledger is the summary.

Do I need to make journal entries if I use accounting software?

Most day-to-day transactions (invoicing, billing, bank feeds) create journal entries automatically behind the scenes. Manual journal entries are still needed for adjustments: depreciation, accruals, prepayments, corrections, and owner transactions.

See how Nika handles this

Related terms