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What is a Journal Entry?

Updated: Jul 7, 2022

You may have heard this term thrown around by your accountant or your bookkeeper from time to time, but what is a Journal Entry and why do I need one?





A Journal Entry is an adjustment made to your financial records, usually in QuickBooks or other finance software. It allows for money to be moved from one category to another category without creating a transaction that would need to be cleared on the bank account reconciliation.


For example, when a check is written, that check will clear the bank and appear on the bank statement. The bank statement is then reconciled in QuickBooks. With a Journal Entry it is fully internal (within the company’s records) and the bank has no notice or knowledge of it, nor do they need to.


Let’s say a $500.00 check is written in 2020 to John Doe and the category used is Contracted Labor. A few months later the taxes get filed for 2020. Then in August of 2021 it becomes apparent that John Doe is not a contractor, but rather a consultant and so that check should have been categorized as Professional Services.


As the taxes for that year have been filed, the records are considered closed. Categories cannot be changed for a year which taxes have been filed, otherwise the company’s records will no longer match the tax returns. What do we do?


This a great use of a Journal Entry. As the $500 was previously debited from the Contracted Labor category on the check, that $500 will now be credited back to Contracted Labor on the Journal Entry on the first line. Then on the next line, the proper account (Professional Services) can be debited for $500.


Now the money was debited from the proper account (ultimately), and the incorrect account has been re-credited.


Just make sure the Journal Entry is dated for the current year, otherwise, the change is still being made to the previous year and that would defeat the purpose of the Journal Entry.


Of course, there are many different reasons for journal entries. Journal entries can get quite complex, so consult your bookkeeper or accountant for further advice.


I hope this article has been helpful to you in making the right decisions for your business.


If you have any questions about bookkeeping or are considering hiring a bookkeeper for your business, please feel free to contact us at info@peggysbookkeeping.com.


About the Author I have been doing bookkeeping for about 20 years and concurrently held a position as the head of HR for a small management firm for 14 of those years.


Currently, I am an owner of Peggy’s Bookkeeping Service with my partner and mother, Peggy. Peggy’s Bookkeeping is a small, family-owned bookkeeping service based in Clearwater, FL. You can visit our website at www.peggysbookkeeping.com.


Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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