What is a journal entry?
In [double-entry bookkeeping](/glossary/double-entry-bookkeeping), every transaction starts as a journal entry. Each entry has equal [debits and credits](/glossary/debit-and-credit), so the books always balance.
Parts of a journal entry
- Date
- Accounts affected
- Debit and credit amounts
- Narrative or description
- Reference (invoice number, receipt or document)
Example
Paying $1,500 of office rent from the bank:
- Debit Rent expense $1,500
- Credit Bank $1,500
- Narrative: "March office rent"
Types of journal entries
- Simple: one debit and one credit.
- Compound: several debits or credits, such as a payroll entry.
- Adjusting entries: recorded at period end for accruals, prepayments and depreciation.
- Reversing entries: undo an accrual at the start of the next period.
- Correcting entries: fix earlier mistakes.
- Closing entries: move income and expense balances to [retained earnings](/glossary/retained-earnings) at [year-end](/glossary/year-end-close).
Manual vs automatic
Accounting software creates most journal entries automatically from invoices, bills and bank transactions. Manual journals are mainly used for adjustments, so they should be reviewed and approved.