What is Journal entry?

What a journal entry contains

• The date of the transaction.
• The account or accounts debited, with amounts.
• The account or accounts credited, with amounts.
• A short narration, such as “goods sold on credit, invoice 1042”.
• A reference to the source document: the invoice, supplier bill, receipt or bank voucher.

Within each entry, total debits must equal total credits. An entry that does not balance is not finished.

A worked example

Illustrative figures. A mobile shop registered for PAN only sells a phone on credit to a trade customer for Rs 32,000.

When the customer later pays Rs 32,000 into the shop’s bank account, a second entry debits the bank and credits the customer account, bringing that customer back to nil.

For a VAT-registered seller the sale entry has a third line. The customer is debited the full invoice total, sales are credited with the taxable value, and output VAT payable is credited with the tax, because that part belongs to the IRD.

Where entries go next

Journal entries are posted to the ledger, where each account collects its entries and shows a running balance. After the fiscal year closes, the accountant prepares the annual accounts, including the profit and loss statement, from those ledger balances.

A mistake in a posted entry is corrected with a new entry that reverses or adjusts it, not by rubbing out the old one. The same principle governs issued invoices, where a credit note does the correcting and the original stays on record.

Kuver Books has no journal voucher screen. The invoices, bills, payments and notes it records are the source documents your accountant writes journal entries from, as the guide to billing software versus accounting software explains.