How to write a journal entry

A manual journal changes ledger balances directly. It is usually used for adjustments; everyday customer invoices, supplier bills and bank transactions are better entered through their own workflows so the related records stay connected.

• Date: the day the change takes effect, which decides the period it falls in.
• Reference: a number in sequence, so journals can be listed and none goes missing.
• Lines: on each, one account and one amount, as a debit or a credit.
• Totals: the debits and the credits, which must be equal.
• Description: what the journal does and why, in words someone else will understand later.
• Support: the document or working the figures came from, kept with the journal.
• Sign-off: who prepared it and, where someone else checks journals, who checked it.

business.gov.au's glossary explains double entry as giving every transaction a debit side and a credit side, in two different accounts. A journal follows the same rule, but nothing stops it having several lines on either side.

1. Write one plain sentence saying what should change, such as moving the repair bills out of office expenses.
2. List the accounts involved, using the names your chart of accounts gives them.
3. Work out whether each balance should rise or fall.
4. Turn each change into a debit or a credit for that type of account.
5. Total both sides and check they agree.
6. Write the description, saying what was wrong or missing, how the journal fixes it, and where the figures came from.
7. Attach the support, post the journal and look at the accounts it touched.

During March, a bill for servicing the work van and a locksmith's bill for a door repair were both coded to office expenses. One journal moves both.

The journal doesn't touch the bank or accounts payable, because the amounts billed and paid were right; only the expense accounts change. Where your books let you change the account on the bill itself, that keeps the fix with the document, and a journal is the fallback.

• Open each account the journal touched and confirm the balance moved the way you meant.
• Read the affected accounts as a whole: office expenses should now hold only office costs.
• Make sure the journal landed in the right period, especially near a month end.
• If the journal touches a bank, card, customer or supplier account, check the related reconciliation still makes sense.

Manual journals are where mistakes and unexplained changes most easily slip into a set of books, so a little routine helps:

• Number journals in sequence and list each month's journals at month end.
• Have someone other than the person who prepared them look over the list.
• Treat a journal that only closes a gap on a reconciliation as a warning sign. It hides the cause instead of finding it.
• Review any recurring journal before it posts each time, in case the amount or the accounts have changed.

The ATO says records need enough information for the essential features or purpose of each transaction to be understood, which is what a good description provides. For a company, the Corporations Act sets a keeping period of 7 years for its financial records, counted from completion of the transactions they cover. business.gov.au gives 5 years as the keeping period for most other business records.