Failure to account for anything even if the business is profitable could equate to failure. Accounting is the systematic recording of the financial transactions of businesses from income from sales to paying suppliers or servicing a loan. This system is an essential process that allows companies to have accurate data on their income and expenses, giving them a good picture of their financial position. Learn more about this concept below.
What is a Journal Entry?
Journal entries are part of the accounting process. Businesses must keep track of entries either by themselves or by hiring accounting services in the Philippines. These entries are indispensable because they create raw records of detailed transactions ordered chronologically by date. Details are recorded in the general or subsidiary ledger.
The components of the journal entry are the following:
- Account Name – this is the label of your journal entry that states who you still have balances with
- Amount – this is the figure you are entitled to debit a party
- Debit – this is the record entry of your payment and is positioned on the left side of your journal entry
- Credit – this accounting entry is referring to any of your transactions that increase your company’s equity or liability accounts or decrease your company’s assets, and you need to ensure that it is placed on the opposite of the debit section.
What are the common journal entries?
According to tax services in Manila, there are two common journal entries that most companies use. These are the sales journal entry and the allowance for doubtful accounts entry. Let’s discuss the nuances of each:
- Sales Journal Entry
This is a type of journal entry that contains information about the revenue your company earns and generates through the sale of goods and/or services. It records the sales, inventory reduction from customer sales and sales tax liability. There will be some minor details that might be different which depends on the mode of payment that your customer uses.
- Allowance for Doubtful Accounts Entry
The allowance for doubtful accounts entry is called a contra-asset by experts. It is a type of journal entry that reduces your credit value, settlement, and other related financial risks. This is important in making your estimation of losses that will come to your business from not being able to collect all accounts receivable.
Why are journal entries important in your accounting process?
Journal entries are important as they allow you to accurately record tangible or digital financial data. Tax and audit services in the Philippines emphasize that when your financial figures are precise and correct, your business can avoid problems. For example, this can include something as significant as tax compliance because tax dues are computed based on the details in your records.
Keep in mind that journal entries provide more than just evidence or documents to look at. When you have accurate details, you can make forecasts like sales projections. Having access to information will give the decision-makers in your company useful insights to make sound decisions even if you have multiple transactions and accounts.
How to make an accurate journal entry?
Creating a journal entry isn’t as tedious or nerve-wracking as you think. You don’t even have to be an expert in math. Simple numerical operations like addition, subtraction, multiplication, and division will suffice. And of course, let’s not forget the meticulous documentation of all transactions.
Determine affected accounts: Start by determining the accounts that the transactions have affected. You need to know which accounts you will gain and lose in every transaction you make.
Sort transactions: Sort each of your financial transactions to make things more manageable, quicker, and accurate. You can organize and classify them based on these categories:
- Borrowings
- Expenses
- Credits
- Purchases
- Taxes
- Bank Deposits
Track the money: It is important to track your money, especially in business. Assess each financial transaction and check how it affects debit and credit because you need them balanced.
Determine the account type: If you ever find it difficult to identify the account type, check the transactions in that account and remember these:
- Assets
- Equity
- Liabilities
- Revenue
This will help you identify the right account type and maintain accurate records.
Journal entries play a vital role in maintaining accurate financial records for businesses. These entries provide a detailed account of every transaction, ensuring precision and reliability in your financial data. Having this will enlighten you about where your money is going and how to make things work. With precise figures, you can also make better use of your resources. You can also avoid financial problems and make more informed decisions that positively impact your business.
However, we understand that accounting can be complex and time-consuming. That’s where our expert accounting services in Pasig come in. Our team is equipped with the knowledge and experience to handle all your accounting needs, including journal entries and beyond. Take the stress out of your financial management and let us provide you with top-notch accounting solutions.
