What Are Journal Entries and When Do You Need Them?
Most of your business transactions are straightforward: you invoice a client, you record a bill, cash hits your bank account. Standard stuff, handled by standard processes.
But there's always something that doesn't fit the template. An asset to depreciate. An invoice that's arrived two months late. A withdrawal you took last quarter but forgot to log. That's where journal entries come in.
A journal entry is a manual adjustment to your accounts. It's how you record transactions and corrections that the normal workflow can't handle. And yes, they're a bit intimidating if you've never written one—but they're not magic. They follow one simple rule: every debit needs an equal and opposite credit. That's it.
Here's when you need them, how to write them, and why getting it right keeps your books honest.
What is a journal entry?
A journal entry is a record you write directly into your general ledger. It has at least two lines—a debit and a credit—and they must balance. Total debits always equal total credits.
This is just double-entry bookkeeping in action. The principle is simple: for every debit there's an equal and opposite credit, which keeps the accounting equation in balance (Assets = Liabilities + Equity). Your software usually enforces this—you can't save an unbalanced entry if you wanted to.
The parts of a journal entry
Every journal entry includes:
- Date — When the transaction actually happened
- Reference number — So you can find it again (JE-001, JE-002, etc.)
- Description — Why you're making this entry (the "why" matters more than the "what")
- Debit line(s) — Which account(s) are being debited and for how much
- Credit line(s) — Which account(s) are being credited and for how much
- Supporting docs — The receipt, email, calculation, or approval that proves this entry is legit
Example: At the end of the year, your office equipment has lost value. You record depreciation.
| Date | Account | Debit | Credit | Description |
|---|---|---|---|---|
| 31 Mar | Depreciation Expense | 500 | Annual depreciation on office equipment | |
| 31 Mar | Accumulated Depreciation | 500 | Reduces the asset's book value |
Debits and credits both equal 500. The entry moves the cost from your balance sheet (asset) to your P&L (expense), which is what depreciation does.
When do you need journal entries?
You'll use journal entries far less often than regular invoices or bills—which is fine, that's kind of the point. Here's when they're actually necessary.
Year-end adjustments
These are the most common. They're corrections or accruals that don't fit through normal transaction processing.
Depreciation — Assets like equipment or vehicles lose value over time. You record that loss with a journal entry, usually monthly or at year-end, following FRS 102 Section 17 rules for tangible fixed assets.
Accruals — You received a service in March, but the invoice won't arrive until May. Under accruals accounting, you still record the expense in March. Journal entry: debit the expense, credit a liability called "accrued expense."
Prepayments — You paid 12 months of insurance upfront. A journal entry allocates the right slice to each month, so "insurance expense" matches reality instead of exploding in month one.
Provisions — You're setting aside money for a known future problem (bad debts, warranty claims, redundancy). Journal entry: debit an expense, credit a liability.
Corrections
If an invoice got coded to the wrong account or you recorded something in the wrong period, a journal entry fixes it without deleting the original. This keeps the audit trail intact—important when your accountant or an auditor reviews the books.
Example: An expense landed in "Office Supplies" but belonged in "Marketing." Journal entry: debit Marketing, credit Office Supplies.
Non-cash transactions
Some things need to be recorded even though no cash changed hands:
- Owner contributions or drawings — You put a personal laptop into the business, or take stock home for personal use
- Barter — You trade services for goods
- Bad debt write-offs — The money's not coming, so you remove it from receivables
Transfers and reclassifications
Moving money between accounts in your accounting system (not between bank accounts, but accounting adjustments):
- Reclassifying an expense to a different category
- Moving retained earnings
- Allocating shared costs across departments or projects
Opening balances
When you set up new accounting software or migrate from another system, you enter your opening balances via journal entries. This is your starting point in the new system, and getting it right prevents months of confusion later.
Reversals
If an accrual from last month gets replaced by an actual invoice this month, you reverse the old accrual (mirror image of the original—debits become credits) and replace it with the real transaction.
How to create a journal entry
Step 1: Identify the accounts
Figure out which accounts go on the debit side and which go on the credit side. Quick refresher on double-entry bookkeeping:
- Debits increase assets and expenses; credits decrease them
- Credits increase liabilities, equity, and revenue; debits decrease them
If you're not sure, think about what the transaction is doing. Does an asset go up? Debit it. Does a liability go down? Debit it. Check against the trial balance to confirm the balancing rule.
Step 2: Get the amounts right
Calculate the correct amounts for each line. Debits must equal credits. No exceptions.
Step 3: Write a description that actually explains things
"Adjustment" tells the next person nothing. A good description tells them why you're making this entry.
Good: "Accrual for December electricity—invoice not yet received, estimated at £450 based on November's bill"
Bad: "Adjustment"
Step 4: Get your paperwork
Attach or reference whatever backs up this entry. A spreadsheet. An email confirming a payment arrangement. Your depreciation schedule. An invoice from a previous period that you're accruing for. Documentation matters, especially if your accountant reviews your books later.
Step 5: Enter it in your accounting software
Most modern accounting software won't let you save an unbalanced entry. If debits don't equal credits, the software refuses. This is a feature, not a limitation. Use it.
Step 6: Get approval if needed
In any business where more than one person touches money, journal entries should be reviewed and approved by someone other than the person who created them. This is basic internal control—journal entries are powerful, and without oversight they can be misused.
Common journal entry mistakes
Unbalanced entries — Debits must equal credits. Full stop. Modern software prevents this, but spreadsheets don't. Always check.
Vague descriptions — "Adjustment" doesn't cut it. Six months from now, you won't remember why you made it, and your accountant certainly won't know.
Wrong period — A March accrual should be dated March, not April when you finally get around to entering it. The date should reflect when the transaction happened, not when you logged it.
Forgetting to reverse — If you create an accrual in March, it usually needs to be reversed in April (once the invoice arrives). Forget to reverse and you'll double-count the expense.
Over-using journal entries — If you're making dozens of journal entries every month to record routine transactions, something's wrong with your processes, not your journal entry skills. Routine stuff should flow through invoices, bills, and bank transactions. Journal entries are the exception.
No approval process — A person with access can move any amount from any account to any other account. Even in small teams, someone should review them.
Frequently Asked Questions
Do I have to use journal entries if I'm self-employed? Not every transaction. If you're a sole trader, most of your day-to-day stuff flows through invoices and bank transactions. You'll use journal entries for depreciation (at least once a year), corrections, and opening balances when you set up the software. That's usually enough.
What if my journal entry is wrong after I've posted it? Don't delete it. Create a reversing entry (debit what you credited before, credit what you debited) and then create a new, corrected entry. This keeps your audit trail intact and makes it clear what happened and why.
Can my accountant or bookkeeper handle journal entries instead of me? Yes, and in many small businesses they do. If you have someone doing your books, they'll likely handle year-end accruals, depreciation, and corrections. Just make sure you have a system for approving them—a quick email from you to them, or a monthly sign-off. It's both good practice and required by most accounting standards.
Is it bad if I use journal entries a lot? If you're using them dozens of times a month for routine stuff, yes. That's a sign your invoicing, billing, or bank transaction processes need work. But a handful of journal entries each month for accruals, corrections, and depreciation is completely normal.
What's the difference between a journal entry and a general ledger entry? A journal entry is what you create. The general ledger is where it ends up—the organized collection of all journal entries, grouped by account. Most accounting software handles this automatically behind the scenes.
Can I organize journal entries by type? Absolutely. Use sequential numbering (JE-001, JE-002), note the accounting period, and categorize by type (depreciation, accruals, corrections). This makes audits and future reviews much easier. Some small businesses keep a simple spreadsheet log of all journal entries alongside their accounting software, just so they know what adjustments have been made and why.
Do journal entries need approval before or after posting? Ideally before, but either works. The important thing is that someone other than the person who created the entry reviews it. In many small businesses, this happens monthly—you post entries as you go, then at month-end you and your bookkeeper review them together. Better to catch errors then than after the accounts are closed.
When should I use a journal entry versus an invoice or bill? Use journal entries for adjustments, corrections, non-cash transactions, and period-end accruals. Use invoices and bills for routine business transactions with clients and suppliers. The rule: if cash or an invoice is involved, it's probably not a journal entry.