Journal entries in QuickBooks are an essential tool for small business accounting in QuickBooks Desktop. They allow manual adjustment and correction of the books beyond just income and expense transactions. In this comprehensive guide, we’ll explore journal entries in depth - from what they are to step-by-step instructions on using them properly. Whether you need to record depreciation, accrue liabilities, fix errors, or customize QuickBooks, journal entries unlock the flexibility you need.
Overview: How Journal Entries Work
Journal entries in QuickBooks are manual accounting entries made directly into the general ledger. This bypasses normal transaction recording through forms like invoices or bills. Key attributes include:
Allows creating adjusting entries for accrual-based accounting needs not handled through regular transactions.
Entries directly debit and credit balance sheet, income statement, or equity accounts.
Ability to easily reverse journal entries if needed.
Requires an offsetting debit/credit component to keep books in balance.
Dated effective the correct accounting period even if entered later.
Audit trail shows the user, date, and adjustments made by every journal entry.
Understanding journal entries is vital for accurate accrual accounting in QuickBooks.
Step-by-Step Instructions on Making Journal Entries
Follow these steps to manually create journal entries in QuickBooks Desktop:
Go to Company > Make General Journal Entries. Select the adjustment date.
In the first account row, select the account you need to debit via the drop-down.
Enter the debit amount for that account. Select the correct debit memo.
In the next row, choose the account you need to credit and enter the amount along with a memo.
The credit amount must equal the total debit amounts. QuickBooks will warn if unbalanced.
Click Save & Close to record the journal entry. The adjustment will post to your accounts.
Print or save the Journal Entry Report for your accounting records.
Be sure accounts and amounts are accurate - journal entries directly modify the general ledger.
Common Journal Entry Accounting Uses
Some examples where businesses commonly use journal entries:
Recording depreciation - A debit to depreciation expense and credit to the fixed asset account.
Accruing expenses due but not yet paid - Debit accrued liabilities and credit expense accounts.
Accruing revenue earned but not yet billed - Debit accounts receivable and credit revenue.
Recording owner’s contributions, withdrawals or profits - Debit/credit equity accounts.
Correcting accounting errors - Debit and credit affected accounts to fix the balances.
Customizing QuickBooks to your needs - Create entries to track data your way.
Recording non-cash transactions - such as stock issuance, asset swaps, mergers, etc.
Mastering journal entries is vital for capturing all financial transactions under the accrual method.
Accrual Accounting Overview
Journal entries help facilitate proper accrual basis accounting. Here are some key concepts:
Revenue gets recorded when earned, not just when cash is collected.
Expenses are recorded when incurred, not only when paid.
Assets and liabilities are tracked as they occur even if cash hasn’t exchanged hands yet.
Adjusting journal entries record non-cash events to ensure accurate financial statements.
Entries help match revenue and expenses to their proper accounting period.
Provides a more transparent financial snapshot than just cash basis.
Journal entries give you the control to account for all financial events in the appropriate reporting period - a cornerstone of the accrual method.
Reversing Journal Entries
Reversing entries are a special type of journal entry:
Used to reverse the prior period’s accrual entries after the period closes.
Helps prevent double-counting accrual amounts when made again.
Typically dated on the first day of the new fiscal period.
Common examples are reversing accrued revenue and accrued expenses.
To use reversing entries in QuickBooks, simply create a journal entry dated the first day of the new fiscal year to negate the previous closing accrual entry.
Putting Journal Entries into Practice
Now that you understand their purpose, follow these tips to leverage journal entries:
Don’t overcomplicate. Use journal entries sparingly only where truly needed.
Audit and analyze adjusting entries for any questionable or incorrect amounts.
Build journal entry templates for those you create regularly each period.
Carefully review Accounts Payable and Accounts Receivable for unrecorded accruals.
Mark entries as “recurring” if they are made on an ongoing basis.
Print and file Adjusting Journal Entry reports with your tax documents.
Attach memos and supporting documents to explain complex journal entries.
By mastering journal Entry in QuickBooks, you can unlock new levels of control over your finances and ensure accrual methods are followed. The power lies in your hands to adjust the books as needed outside of regular transactions. Contact us to learn more about maximizing QuickBooks for accrual accounting.
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