Definition of Journal Entry

A journal entry is the initial and immediate recording of any financial transaction in the general journal, made according to the double-entry principle where each transaction affects at least two accounts - one debit and one credit with the same amount to ensure the balance of the accounting equation.

Basic Elements

Each journal entry consists of specific elements that must be present to ensure accuracy and compliance with accounting standards. These basic elements are:

• Date: The exact date of the financial transaction occurrence, not the recording date if different
• Affected Accounts: Names of debit and credit accounts clearly and accurately according to the approved chart of accounts
• Amounts: Debit and credit values in Saudi Riyal (must be equal to ensure balance)
• Description: A brief and clear description of the transaction that helps understand the nature of the operation later

Basic Types

Journal entries vary according to the nature of the transaction and its purpose, with each type having specific characteristics and requirements. The main types include:

• Simple Entries: Affect only two accounts and are used in direct transactions such as cash sales
• Compound Entries: Affect more than two accounts and are used in complex transactions such as partial cash and credit purchases
• Adjusting Entries: Prepared at the end of the accounting period to apply the accrual and matching principles
• Closing Entries: Used to close temporary accounts and transfer their balances to permanent accounts
• Correcting Entries: Address accounting errors discovered in previous recordings

Practical Example

Purchase of office equipment for cash worth SAR 15,000:

Date: 10/6/2025

• Dr. Equipment and Furniture: SAR 15,000 (debit)
• Cr. Cash: SAR 15,000 (credit)
• Description: Purchase of office equipment for cash

Accounting Importance

Journal entries represent the backbone of the accounting system and achieve several vital benefits to ensure the integrity and accuracy of financial information. The most important of these benefits include:

• Foundation of Double-Entry System: Apply the double-entry accounting principle that ensures balance of the accounting equation
• Ensuring Financial Statement Accuracy: Provide basic data for preparing income statement and balance sheet
• Providing Clear Audit Trail: Create a traceable historical record of all financial transactions
• Compliance with Saudi Accounting Standards: Ensure compliance with the requirements of the Saudi Organization for Chartered and Professional Accountants

Basic Rules

There are fundamental principles that must be adhered to when preparing journal entries to ensure correct accounting application and avoid common errors. These basic rules are:

• Total Debits = Total Credits: The most important rule in the double-entry system to ensure accounting balance
• Immediate Transaction Recording: Avoid recording delays to prevent loss of details or forgetting transactions
• Supporting Documents: Each entry must be supported by original or certified documents
• Clarity in Description and Details: Use clear and understandable language to facilitate review and understanding

Common Uses

Journal entries cover all aspects of business activity and are used to record various types of financial transactions. The most prominent of these uses include:

• Recording Sales and Purchases: Basic operations of business activity whether cash or credit
• Recording Expenses and Revenues: All costs and returns related to the activity
• Recording Cash and Bank Movements: Cash and bank receipts and payments
• Recording Assets and Liabilities: Purchase of fixed assets and financial obligations
• Account Adjustments at Period End: Depreciation, provisions, and adjustment entries

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For More Detail: Read our comprehensive article "What is a Journal Entry: A Comprehensive Guide to Understanding Financial Accounting Fundamentals" for complete understanding of all types of journal entries, how to prepare them, common errors and how to avoid them, with practical examples from the Saudi business environment.

Related Terms: Journal Book | General Ledger | Financial Statements | Accounting Standards