The main idea of bookkeeping and accounting for any company or business is to have a clear picture of books and know where your finances stand. Journal entries are the most efficient way to keep track of the books.
Businesses can take a quick look at their concise and accurate books to make a better budgeting and forecasting plan and also further their future investments. But the world of back office accounting has many different types of journal entries that you need to stay updated about.
Journal entries list vital financial data and keep track of the company’s cash flow and accounts. Without these reports and entries, you will never know where your finances stand and how your cash flow looks.
Why is that important? US Bank survey reports have found that more than 82% of businesses fail due to cash flow issues. To not get lost in the multi-step process and still stay in control of your cash flow, learn more about the various types of journal entries. Read this blog to find out more about it.
Why are journal entries so important?
Journal entries help companies keep track of the date, time, and other such transaction details of the business. From the cash in pipelines, credits, debits and outgoing payments, journal entries can help provide concise reports. If your accounts affect multiple business processes, your entries can also give you a picture of that.
Accurate journal entries also help make better financial decisions and also help in sudden auditing needs. Auditors will always look for entries and want fast responses. So it is better to have all your entries in place, no matter what month or time, to ensure faster work.
What is included in a journal entry?
Before we learn the types of journal entries, let us figure out what are the common things that every journal entry should have,
An entry type, date, time, recipient/sender name
A reference or unique identification number
Which are the accounts that will be affected by the debit/credit amount, and a mention of those accounts
A short description of the transaction - you might refer back to this in the future, so make it concise yet informative at the same time.
Top 8 journal entries you must know about
Here is a list of the top 8 types of journal entries that every business should know about to perfect their back office accounting work. Check them out.
Simple entries
Simple entries are one of the easiest; only two accounts are affected in this transaction, one debit account and one credit account. There are no other extra details in this one.
Compound entries
Compound entries are the ones which have at least two or more debit and credit items/transactions. These transactions are generally entered in one single day, and similar transactions are clubbed together to uncomplicate the process. Wall Street Mojo reports say that this process improves productivity and simplifies work for the back office accounting team.
Opening entries
Opening record the balance of assets and liabilities of any company. They carry forward the ending balance from the previous month/week/quarter/year to the next accounting period. The ending balance in the last period becomes the opening entry of the next accounting period. These types of entries work as a KPI to help track the in-hand cash of any company and paints a clear picture of the financial health.
Closing entries
Closing entries are one of the most vital, marking the end of a financial period. The company’s balance amount can then be transferred from a temporary accounting to a permanent accounting marking the profit, loss or the overall financial condition of the company. This helps the balance of the temporary account be reset to zero to mark the beginning of a new financial period.
Transfer entries
Transfer entries are the ones when a certain amount of funds is moved from one accounting to the other, like the main account to a subsidiary. The credit and the debit amount is always the same in these entries. No third parties are mentioned in these transactions, and the net value must be zero at the end of the process. Keeping these records will help you catch and keep track of internal frauds, and even small internal transactions will be accounted for.
Adjustment entries
Adjustment entries are special entries that are not otherwise accounted for in journals. These record any special changes in accounts within a certain accounting period. These entries help companies to avoid any discrepancies and missed entries. These entries are generally entered in the general ledger at the end of a specific time period.
This type of accounting entry converts a particular entity’s accounting record into the accrual basis of accounting to keep up with all compliances.
Rectifying entries
Rectifying journal entries are exactly what they sound like; they are amendment entries. They are passed on to make corrections in the original books or a particular account in the ledger. This also helps restore the effect of the original credit and debit amount, clearing any mismatched entries along the way.
Reversing entries
These journal entries help reduce the number of errors in entry and keep room for corrections. They help to reverse or correct the adjusting entries made at the end of the previous accounting period. Reversing entries are generally made at the beginning of an accounting period.
When there is a lot of work on the back office accounting team's plate, there can be double counting, missed records and more due to simple human errors.
Backoffice Accounting with Assetsoft
The number of errors in back office accounting work increase even more when small companies do not hire a professional accountant but use other staff to do their accounting work. Such a DIY process can land you and your company in a lot of soup with auditors. But some small companies genuinely lack the budget to hire a full-time accountant.
Why? Indeed.com's study says that an American accountant's average salary is around $59,542. If this is beyond your budget, get outsourced accounting services from Assetsoft and get budget-friendly accounting work done at lower costs.
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