Financial Glossary
Journal Entry
A journal entry is the formal record of a financial transaction in a company's accounting system, capturing at minimum the date, the accounts affected, the amounts debited and credited, and a brief description. Journal entries are the raw input to the general ledger, from which all financial statements are derived. They can be routine -- recording a vendor invoice or a customer payment -- or adjusting entries made at period-end to recognize accruals, prepaid expenses, or depreciation that are not captured by cash transactions alone.
Problem & Application
Period-end adjusting entries are the most commonly skipped step in small-business bookkeeping and the one that causes the largest distortions. A business that pays six months of insurance upfront and books the full amount as an expense in month one will show a loss that month and inflated profit in months two through six. Accrual-basis adjusting entries spread that cost correctly. For growing businesses and those seeking financing, investors and lenders expect accrual-basis financials with proper entries -- cash-basis records that skip adjustments routinely fail due diligence.
In Short
Every financial statement traces back to individual journal entries. Sloppy or incomplete entries at the source make every downstream report untrustworthy. Getting entries right is the job that makes everything else work.