What Are Journal Entries in Bookkeeping?

Let’s start simple. A journal entry is the very first step in tracking any financial transaction in your books. Every dollar your business earns or spends gets its own entry, and each one is recorded in chronological order.

In any well-run bookkeeping service, these entries serve as raw data. They form the foundation for your general ledger, which then feeds your financial reports. Without journal entries, your business has no paper trail—no proof of income, no record of expenses, and no way to file accurate taxes.

So if you’re using bookkeeping services for small business, whether through software or a provider, journal entries are already happening under the hood. But knowing what they are (and how they work) gives you better control of your finances.

Why Journal Entries Matter for Your Business

Here’s the thing—no matter how complex your business gets, every financial report ultimately begins with a journal entry. Profit and loss statements, balance sheets, cash flow reports—they all pull data from journalized transactions.

When your business bookkeeping services are set up right, your journal entries:

• Keep your books balanced
• Provide a clear audit trail
• Help with tax compliance
• Make it easier to secure loans or investments

More importantly, they ensure your accounting passes the sniff test. If you’re ever audited, journal entries are the receipts behind the receipts.

Anatomy of a Journal Entry

A complete journal entry typically includes:

• Date of the transaction
• Accounts affected
• Debits and credits
• Amounts
• Reference number (invoice, receipt, etc.)
• Short description or memo

Let’s look at an example:

Date: July 10, 2025
Accounts:

• Debit: Office Supplies $300
• Credit: Cash $300

Description: Purchased printer ink and paper at Staples
Ref: Receipt #2405

This tells the bookkeeper (or software) to increase the Office Supplies expense account and reduce the Cash account by the same amount.

Double-Entry vs. Single-Entry: What’s the Difference?

This part matters more than most people think.

Single-Entry Bookkeeping

This method is straightforward: every transaction gets one entry. It’s like keeping a checkbook—you just list the amount spent or earned.

• Pros: Simple to use
• Cons: No built-in error checking, doesn’t track assets or liabilities well

Most startups outgrow single-entry fast.

Double-Entry Bookkeeping

Every transaction affects at least two accounts—one debit and one credit. This is the method all modern accounting and bookkeeping services for startups and larger businesses use.

• Pros: Self-balancing, allows full financial statements
• Cons: More complex, but usually handled by software or pros

For example:
Customer pays $500 on an invoice

• Debit: Cash $500
• Credit: Accounts Receivable $500

Your cash increases, and your outstanding invoices decrease.

If you’re outsourcing to an accounting company, this is the standard they’re following.

The General Ledger Connection

Every journal entry flows into the general ledger, which is your master record of every account. If journal entries are like diary entries, the general ledger is the published novel.

Categories in the ledger include:

• Assets
• Liabilities
• Equity
• Income
• Expenses

Once transactions are posted from the journal to the ledger, your financial reports come to life.

Types of Journal Entries Used in Bookkeeping Services

Let’s break down the most common types:

1. Standard Entries

Daily business transactions—purchases, sales, payments.

Example:

• Debit: Inventory
• Credit: Accounts Payable

Used when you buy goods on credit.

2. Adjusting Entries

Done at month- or year-end to align books with accrual accounting.

Example:

• Debit: Prepaid Insurance
• Credit: Insurance Expense

Spreads prepaid costs across periods.

3. Closing Entries

Reset income and expense accounts at the end of a fiscal year.

Example:

• Debit: Revenue
• Credit: Income Summary

It’s how temporary accounts are closed to equity.

4. Compound Entries

Involve more than two accounts.

Example:
Loan repayment:

• Debit: Loan Payable $800
• Debit: Interest Expense $200
• Credit: Bank $1,000

Helps capture multiple impacts of a single transaction.

Common Journal Entry Examples Small Businesses Use

If you’re using bookkeeping services for small business, here’s what your daily entries probably look like:

A. Customer Payment

• Debit: Cash
• Credit: Accounts Receivable

You got paid on an open invoice.

B. Paying for Supplies

• Debit: Office Supplies
• Credit: Cash or Accounts Payable

Covers anything from printer ink to paper towels.

C. Payroll

• Debit: Wages Expense
• Debit: Payroll Taxes
• Credit: Cash

This shows both employee pay and tax obligations.

D. Owner Draw

• Debit: Owner’s Equity
• Credit: Cash

When you take money out of the business.

Journal Entries in Accrual vs. Cash Accounting

Cash Accounting

You record income when it’s received and expenses when they’re paid. Journal entries are simpler.

But it’s limited. It doesn’t show what you owe—or what’s owed to you.

Accrual Accounting

You record income when earned, expenses when incurred. This provides a clearer picture and is required for most larger businesses.

This is where accounting bookkeeping services shine. You’ll need more adjusting entries (for things like accrued revenue or prepaid expenses), but it creates more reliable financials.

Best Practices for Recording Journal Entries

To make sure your journal entries support clean books and accurate reporting:

• Use accounting software to avoid manual errors
• Follow a consistent format for all entries
• Always balance your debits and credits
• Include detailed memos for context
• Review entries before month-end close

This is especially important when using business bookkeeping services—your provider should follow GAAP or IFRS standards, depending on your region.

How Modern Bookkeeping Services Handle Journal Entries

If you’re using software like Bench, Xero, or QuickBooks, most journal entries are created automatically based on invoices, bills, and bank feeds.

But behind every automated process is still a double-entry framework. Software just masks the complexity so you don’t have to mess with it daily.

That said, complex businesses—or those scaling fast—often need a dedicated accounting and bookkeeping service for startups to handle:

• Deferred revenue
• Payroll journal entries
• Multi-entity accounting
• Consolidated reporting

Why Bookkeeping Services Should Include Journal Entry Management

Whether you’re a startup or scaling brand, you need journal entries done right. Here’s why:

• Audit-readiness: Clean entries = easier audits
• Funding-proof: Investors want to see detailed financials
• Better decision-making: Reliable entries mean accurate data
• Time savings: You focus on growth, not general ledgers
  

Want to delegate this properly? Work with an Accounting company that specializes in your business model.

Common Mistakes to Avoid in Journal Entries

Even with software, it’s easy to mess up. Watch out for:

• Swapping debit and credit accounts
• Forgetting to include a memo
• Skipping compound entries
• Not reconciling entries with your bank
• Recording transactions in the wrong period

These mistakes snowball and can ruin your books. That’s why smart businesses rely on accounting bookkeeping services instead of DIY spreadsheets.

How to Know If You Need Help With Your Journal Entries

If any of these sound familiar, it’s probably time to call in the pros:

• You’re behind on reconciliations
• Your reports don’t match your bank balances
• Tax time is a nightmare
• You can’t explain your income or expenses
• You’re guessing at which account to use

Start by reviewing our Accounting company page to see how we can help.

Final Thoughts: Journal Entries Are Small But Mighty

When you zoom out, journal entries seem basic—but they’re anything but. They’re the foundation of every financial decision you make. When recorded correctly, they tell the true story of your business’s performance and future potential.

Whether you’re using software or outsourcing to bookkeeping services for small business, make sure the journal entries are tight, accurate, and timely. Because when they are, everything else—profit, growth, taxes, and peace of mind—follows.

Need help setting up or cleaning up your journal entries? Contact us today. Or learn about us to see why businesses trust our team to get it right.